-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AbYwzCUSqkCTtN3WLCjCjjs5avgr9cE2JDVKRMES4MCXXKs9pSWybbTm+fH6mud0 ysLa5+9snb4om7oOkQsnAQ== 0000950123-01-501956.txt : 20010509 0000950123-01-501956.hdr.sgml : 20010509 ACCESSION NUMBER: 0000950123-01-501956 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20010221 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20010507 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NTL COMMUNICATIONS CORP CENTRAL INDEX KEY: 0000906347 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 521822078 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-22616 FILM NUMBER: 1624661 BUSINESS ADDRESS: STREET 1: 110 E 59TH ST STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2129068440 MAIL ADDRESS: STREET 1: 110 EAST 59TH STREET STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: NTL INC /DE/ DATE OF NAME CHANGE: 19970326 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL CABLETEL INC DATE OF NAME CHANGE: 19930601 8-K/A 1 y48736e8-ka.txt NTL COMMUNICATIONS CORP 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 8-K/A ------------------------ CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) FEBRUARY 21, 2001 NTL COMMUNICATIONS CORP. (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) DELAWARE 0-22616 52-1822078 (STATE OR OTHER (COMMISSION (IRS EMPLOYER JURISDICTION OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
110 EAST 59TH STREET, NEW YORK, NEW YORK 10022 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 906-8440 (FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. The registrant hereby amends its Current Report on Form 8-K, dated March 7, 2001, by filing financial certain financial statements and financial information. On April 1, 1999, NTL Incorporated completed a corporate restructuring to create a holding company structure. The holding company restructuring was accomplished through a merger so that all the stockholders of NTL Incorporated at the effective time of the merger became stockholders of the new holding company, and NTL Incorporated became a subsidiary of the new holding company. The new holding company took the name NTL Incorporated and the holding company's subsidiary simultaneously changed its name to NTL Communications Corp. On May 18, 2000, NTL Incorporated completed a corporate restructuring to create a holding company structure. The formation of the holding company was part of NTL Incorporated's acquisition of certain assets of Cable & Wireless Communications plc ("CWC") (the operations acquired from CWC are called "ConsumerCo"). The holding company restructuring was accomplished through a merger so that all the stockholders of NTL Incorporated at the effective time of the merger became stockholders of the new holding company, and NTL Incorporated became a subsidiary of the new holding company. The new holding company has taken the name NTL Incorporated and the holding company's subsidiary simultaneously changed its name to NTL (Delaware), Inc. The "Company" refers to NTL Incorporated and subsidiaries up to and including May 17, 2000 and to NTL (Delaware), Inc. and subsidiaries beginning May 18, 2000. On February 21, 2001, as required by its bank credit agreements, NTL Communications Corp. ("NTL Communications"), a wholly-owned subsidiary of the Company, completed a transaction whereby it acquired the entire issued share capital of ntl (CWC Holdings) Limited (the entity that owns ConsumerCo) from NTL Incorporated and the entire issued share capital of NTL Business Limited from NTL Delaware in exchange for shares of its common stock. As a result of this transaction, ConsumerCo became an indirect wholly-owned subsidiary of the Company. NTL Communications accounted for these transactions in a manner consistent with a transfer of entities under common control, which is similar to that used in a "pooling of interests." Accordingly, the net assets and results of operations of ConsumerCo have been included in the NTL Communications consolidated financial statements from May 30, 2000, the date of NTL Incorporated's acquisition of ConsumerCo and the net assets and results of operations of NTL Business have been included in the NTL Communications financial statements from September 20, 1999, the date of NTL Delaware's acquisition of NTL Business. 1 3 ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) Financial Statements ntl (CWC Holdings) audited financial statements as of and for the seven months ended December 31, 2000. CWC ConsumerCo, a division of NTL (CWC) Limited (formerly Cable & Wireless Communications Limited) audited financial statements as of March 31, 1999 and 2000 and for the three years ended March 31, 2000. NTL Communications Corp. and Subsidiaries audited consolidated financial statements as of December 31, 2000 and 1999 and for the three years in the period ended December 31, 2000. (b) Pro Forma Financial Information Pro Forma Financial Information of the Registrant. (c) Exhibits 23.1 Consent of Ernst & Young LLP 23.2 Consent of Ernst & Young 23.3 Consent of Arthur Andersen NTL COMMUNICATIONS CORP. AND SUBSIDIARIES 99.1 Audited consolidated financial statements as of December 31, 2000 and 1999 and for the three years in the period ended December 31, 2000 99.2 Selected Financial Data 99.3 Management's Discussion and Analysis of Financial Condition and Results of Operations 99.4 Quantitative and Qualitative Disclosures About Market Risk 99.5 Quarterly Results of Operations 99.6 Pro Forma Financial Information CONSUMERCO 99.7 ntl (CWC Holdings) audited financial statements as of and for the seven months ended December 31, 2000 99.8 CWC ConsumerCo audited financial statements as of March 31, 1999 and 2000 and for the three years ended March 31, 2000 NTL BUSINESS LIMITED 99.9 Selected Financial Data
2 4 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 Communications Corp. (Registrant) By: /s/ GREGG N. GORELICK ------------------------------------ Name: Gregg N. Gorelick Title: Vice President -- Controller Dated: May 4, 2001 3 EX-23.1 2 y48736ex23-1.txt CONSENT OF ERNST AND YOUNG LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement on Form S-3 No. 333-42792-02 of NTL Communications Corp. (the "Company") and in the related Prospectus of our report dated March 2, 2001, with respect to the Company's consolidated financial statements as of December 31, 2000 and 1999 and for each of the three years in the period ended December 31, 2000, included in this Current Report (Form 8-K/A). /s/ Ernst & Young LLP New York, New York May 3, 2001 4 EX-23.2 3 y48736ex23-2.txt CONSENT OF ERNST AND YOUNG LLP 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement on Form S-3 No. 333-42792-02 of NTL Communications Corp. (the "Company") and in the related Prospectus of our report dated May 3, 2001, with respect to the consolidated financial statements of ntl (CWC Holdings) as of December 31, 2000 and for the seven months then ended, included in this Current Report (Form 8-K/A). /s/ Ernst & Young London, England May 3, 2001 5 EX-23.3 4 y48736ex23-3.txt CONSENT OF ARTHUR ANDERSEN 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT AUDITORS As independent auditors, we hereby consent to the incorporation in this filing on Form 8K/A of our report dated October 6, 2000 on our audit of the combined financial statements of CWC ConsumerCo as of March 31, 1999 and 2000 and for the three years ended March 31, 2000. /s/ Arthur Andersen London, England May 4, 2001 6 EX-99.1 5 y48736ex99-1.txt AUDITED CONSOLIDATED FINANCIAL STATEMENTS 1 EXHIBIT 99.1 NTL COMMUNICATIONS CORP. AND SUBSIDIARIES AUDITED CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Auditors.............................. F-2 Consolidated Balance Sheets -- December 31, 2000 and 1999... F-3 Consolidated Statements of Operations -- Years ended December 31, 2000, 1999 and 1998.......................... F-4 Consolidated Statement of Shareholder's Equity -- Years ended December 31, 2000, 1999 and 1998.................... F-5 Consolidated Statements of Cash Flows -- Years ended December 31, 2000, 1999 and 1998.......................... F-6 Notes to Consolidated Financial Statements.................. F-7
The following consolidated financial statement schedules of NTL Communications Corp. and Subsidiaries are included herein: Schedule I -- Condensed Financial Information of Registrant................................................ F-28 Schedule II -- Valuation and Qualifying Accounts............ F-35
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore have been omitted. F-1 2 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholder NTL Communications Corp. We have audited the consolidated balance sheets of NTL Communications Corp. and Subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, shareholder's equity and cash flows for each of the three years in the period ended December 31, 2000. Our audits also included the financial statement schedules listed in the Index at Exhibit 99.1. These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of NTL Communications Corp. and Subsidiaries at December 31, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP New York, New York March 2, 2001 F-2 3 NTL COMMUNICATIONS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN MILLIONS)
DECEMBER 31, ---------------------- 2000 1999 --------- --------- ASSETS Current assets: Cash and cash equivalents................................. $ 423.5 $ 1,074.2 Marketable securities..................................... -- 5.0 Accounts receivable -- trade, less allowance for doubtful accounts of $135.2 (2000) and $84.9 (1999)............. 527.4 286.9 Other..................................................... 389.2 73.7 --------- --------- Total current assets........................................ 1,340.1 1,439.8 Fixed assets, net........................................... 10,916.8 5,348.4 Intangible assets, net...................................... 10,566.1 2,648.7 Other assets, net of accumulated amortization of $81.8 (2000) and $49.1 (1999)................................... 318.6 296.1 Deferred income taxes....................................... 4.9 -- --------- --------- Total assets................................................ $23,146.5 $ 9,733.0 ========= ========= LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIENCY) Current liabilities: Accounts payable.......................................... $ 451.1 $ 212.7 Accrued expenses and other................................ 1,105.6 400.6 Accrued construction costs................................ 172.9 79.3 Due to affiliates......................................... 117.9 17.6 Interest payable.......................................... 127.6 69.1 Deferred revenue.......................................... 291.5 154.0 Current portion of long-term debt......................... 10.7 82.6 --------- --------- Total current liabilities................................... 2,277.3 1,015.9 Long-term debt.............................................. 11,843.4 7,598.0 Other....................................................... 13.6 -- Commitments and contingent liabilities Deferred income taxes....................................... -- 53.1 Shareholder's equity: Common stock -- $.01 par value; authorized 100 shares; issued and outstanding 12 (2000) and 100 (1999) shares................................................. -- -- Additional paid-in capital................................ 13,746.7 3,031.3 Accumulated other comprehensive (loss) income............. (379.3) 1.8 (Deficit)................................................. (4,355.2) (1,967.1) --------- --------- 9,012.2 1,066.0 --------- --------- Total liabilities and shareholder's equity (deficiency)..... $23,146.5 $ 9,733.0 ========= =========
See accompanying notes. F-3 4 NTL COMMUNICATIONS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN MILLIONS)
YEAR ENDED DECEMBER 31, -------------------------------- 2000 1999 1998 --------- -------- ------- REVENUES Consumer telecommunications and television.................. $ 1,518.2 $ 827.3 $ 355.6 Business telecommunications................................. 702.2 452.5 157.7 Broadcast transmission and other............................ 263.8 257.3 231.3 Other telecommunications.................................... -- -- 2.4 --------- -------- ------- 2,484.2 1,537.1 747.0 COSTS AND EXPENSES Operating expenses.......................................... 1,223.2 761.5 400.9 Selling, general and administrative expenses................ 969.1 562.9 270.7 Franchise fees.............................................. -- 16.5 25.0 Other charges............................................... 92.7 16.2 (4.2) Corporate expenses.......................................... 23.7 25.3 17.1 Depreciation and amortization............................... 1,700.7 765.7 266.1 --------- -------- ------- 4,009.4 2,148.1 975.6 --------- -------- ------- Operating (loss)............................................ (1,525.2) (611.0) (228.6) OTHER INCOME (EXPENSE) Interest income and other, net.............................. 1.6 29.9 46.0 Interest expense............................................ (886.3) (678.2) (328.8) Other gains................................................. -- 493.1 -- Foreign currency transaction (losses) gains................. (58.1) 22.8 4.2 --------- -------- ------- (Loss) before income taxes and extraordinary item........... (2,468.0) (743.4) (507.2) Income tax benefit.......................................... 79.9 29.9 3.3 --------- -------- ------- (Loss) before extraordinary item............................ (2,388.1) (713.5) (503.9) Loss from early extinguishment of debt...................... -- (3.0) (30.7) --------- -------- ------- Net (loss).................................................. $(2,388.1) $ (716.5) $(534.6) ========= ======== =======
See accompanying notes. F-4 5 NTL COMMUNICATIONS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY (DOLLARS IN MILLIONS)
SERIES PREFERRED STOCK COMMON STOCK ACCUMULATED $.01 PAR VALUE $.01 PAR VALUE ADDITIONAL OTHER ---------------- ------------------- PAID-IN COMPREHENSIVE COMPREHENSIVE SHARES PAR SHARES PAR CAPITAL LOSS INCOME (LOSS) (DEFICIT) --------- ---- ----------- ----- ---------- ------------- ------------- --------- BALANCE, DECEMBER 31, 1997...... 780 $-- 32,210,000 $ 0.3 $ 538.1 $ 117.0 $ (717.1) Exercise of stock options....... 298,000 -- 6.3 Exercise of warrants............ 70,000 -- 0.5 Accreted dividends on preferred stock......................... (18.8) Accretion of discount on preferred stock............... (0.3) Conversion of 7 1/4% Convertible Subordinated Notes............ 6,958,000 0.1 186.9 Conversion of Series Preferred Stock......................... (780) -- 1,950,000 -- -- Preferred stock issued for an acquisition................... 177,000 -- 178.5 Common stock issued for an acquisition................... 18,763,000 0.2 600.3 Warrants issued in connection with consent solicitations.... 10.1 Comprehensive income: Net loss for the year ended December 31, 1998........... $ (534.6) (534.6) Currency translation adjustment.................. (12.3) (12.3) --------- Total....................... $ (546.9) -------- -- ----------- ----- --------- --------- ------- --------- BALANCE, DECEMBER 31, 1998...... 177,000 -- 60,249,000 0.6 1,501.6 104.7 (1,251.7) Exercise of stock options....... 432,000 -- 12.1 Exercise of warrants............ 15,000 -- -- Preferred stock issued for cash.......................... 500,000 -- 483.8 Warrants issued for cash........ 16.2 Accreted dividends on preferred stock......................... 4,000 (8.6) Accretion of discount on preferred stock............... -- Conversion of 7% Convertible Subordinated Notes............ 1,000 -- -- Common stock issued for an acquisition................... 12,705,000 0.1 971.3 Stock options issued in connection with an acquisition................... 6.6 Corporate restructuring......... (681,000) -- (73,401,900) (0.7) 405.6 Distribution to NTL Incorporated.................. (500.0) Contributions from NTL Incorporated.................. 173.2 Distribution of subsidiary to NTL Incorporated.............. (30.5) 1.1 Comprehensive income: Net loss for the year ended December 31, 1999........... $ (716.5) (716.5) Currency translation adjustment.................. (102.9) (102.9) --------- Total....................... $ (819.4) -------- -- ----------- ----- --------- --------- ------- --------- BALANCE, DECEMBER 31, 1999...... -- -- 100 -- 3,031.3 1.8 (1,967.1) Contributions from NTL (Delaware), Inc. ............. 10,715.4 Corporate restructuring......... (88) Comprehensive loss: Net loss for the year ended December 31, 2000........... $(2,388.1) (2,388.1) Currency translation adjustment.................. (381.1) (381.1) --------- Total....................... $(2,769.2) -------- -- ----------- ----- --------- --------- ------- --------- BALANCE, DECEMBER 31, 2000...... -- $-- 12 $ -- $13,746.7 $(379.3) $(4,355.2) ======== == =========== ===== ========= ========= ======= =========
See accompanying notes. F-5 6 NTL COMMUNICATIONS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN MILLIONS)
YEAR ENDED DECEMBER 31, ----------------------------------- 2000 1999 1998 --------- --------- --------- OPERATING ACTIVITIES Net loss.................................................... $(2,388.1) $ (716.5) $ (534.6) Adjustment to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization............................. 1,700.7 765.7 266.1 Loss from early extinguishment of debt.................... -- 3.0 30.7 Gain on sale of investment in Cable London PLC............ -- (493.1) -- Amortization of non competition agreements................ -- -- 1.4 Provision for losses on accounts receivable............... 98.5 45.7 27.3 Deferred income taxes..................................... (80.8) (30.9) (3.3) Amortization of original issue discount................... 473.1 451.4 232.7 Other..................................................... (75.1) (8.0) (30.9) Changes in operating assets and liabilities, net of effect from business acquisitions: Accounts receivable..................................... (247.9) (134.6) (70.4) Other current assets.................................... (41.8) (34.6) 22.6 Other assets............................................ 42.4 (25.2) -- Accounts payable........................................ (102.2) 32.0 (2.6) Accrued expenses and other.............................. 330.3 150.4 15.3 Deferred revenue........................................ 120.6 68.4 26.8 --------- --------- --------- Net cash (used in) provided by operating activities......... (170.3) 73.7 (18.9) INVESTING ACTIVITIES Acquisitions, net of cash acquired.......................... (7,514.9) (637.6) (746.8) Purchase of fixed assets.................................... (1,961.8) (1,198.3) (772.2) Increase in other assets.................................... (33.7) (30.1) (35.6) Proceeds from sales of assets............................... -- 692.5 1.3 Purchase of marketable securities........................... (3.3) (354.5) (540.6) Proceeds from sales of marketable securities................ 8.3 618.6 291.3 --------- --------- --------- Net cash (used in) investing activities..................... (9,505.4) (909.4) (1,802.6) FINANCING ACTIVITIES Distribution to NTL (Delaware), Inc......................... -- (500.0) -- Contributions from NTL (Delaware), Inc...................... 5,227.2 167.6 -- Proceeds from borrowings, net of financing costs............ 5,009.8 1,846.0 3,525.6 Proceeds from issuance of preferred stock and warrants...... -- 500.0 -- Principal payments.......................................... (1,263.9) (758.2) (845.0) Cash released from (placed in) escrow for debt repayment.... 77.5 (87.0) (217.6) Consent solicitation payments............................... -- -- (11.3) Proceeds from exercise of stock options and warrants........ -- 12.1 6.8 --------- --------- --------- Net cash provided by financing activities................... 9,050.6 1,180.5 2,458.5 Effect of exchange rate changes on cash..................... (25.6) (6.9) 0.4 --------- --------- --------- (Decrease) increase in cash and cash equivalents............ (650.7) 337.9 637.4 Cash and cash equivalents at beginning of year.............. 1,074.2 736.3 98.9 --------- --------- --------- Cash and cash equivalents at end of year.................... $ 423.5 $ 1,074.2 $ 736.3 ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for interest exclusive of amounts capitalized............................................... $ 363.9 $ 180.3 $ 90.5 Income taxes paid........................................... 1.5 2.4 0.3 SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES Contributions from NTL (Delaware), Inc...................... $ 5,488.2 $ 5.6 $ -- Accretion of dividends and discount on preferred stock...... -- 8.6 19.1 Conversion of Convertible Notes, net of unamortized Deferred financing costs........................................... -- 269.3 187.0 Preferred stock issued for an acquisition................... -- -- 178.5 Common stock and stock options issued for an acquisition.... -- 978.0 600.5 Warrants issued in connection with consent solicitations.... -- -- 10.1
See accompanying notes. F-6 7 NTL COMMUNICATIONS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS 1. CORPORATE RESTRUCTURING AND BUSINESS On April 1, 1999, NTL Incorporated completed a corporate restructuring to create a holding company structure. The holding company restructuring was accomplished through a merger so that all the stockholders of NTL Incorporated at the effective time of the merger became stockholders of the new holding company, and NTL Incorporated became a subsidiary of the new holding company. The new holding company took the name NTL Incorporated and the holding company's subsidiary simultaneously changed its name to NTL Communications Corp. The "Company" refers to NTL Incorporated and subsidiaries up to and including March 31, 1999, and to NTL Communications Corp. and subsidiaries beginning April 1, 1999. In addition, in April 1999, the Company distributed $500 million to NTL Incorporated, principally to finance the acquisition of the Australian National Transmission Network. On May 18, 2000, NTL Incorporated completed a second corporate restructuring to create a holding company structure in connection with the acquisition of certain assets of Cable & Wireless Communications plc ("CWC"). The holding company restructuring was accomplished through a merger so that all the stockholders of NTL Incorporated at the effective time of the merger became stockholders of the new holding company, and NTL Incorporated became a subsidiary of the new holding company. The new holding company has taken the name NTL Incorporated and the holding company's subsidiary simultaneously changed its name to NTL (Delaware), Inc. ("NTL Delaware"). The Company is a wholly-owned subsidiary of NTL Delaware. On February 21, 2001, the Company completed a transaction whereby it acquired the entire issued share capital of NTL (CWC Holdings) Limited (the entity that owns ConsumerCo) from NTL Incorporated and the entire issued share capital of NTL Business Limited (formerly Workplace Technologies plc) from NTL (Delaware), Inc. in exchange for shares of its common stock. As a result of this transaction, ConsumerCo and NTL Business Limited became wholly-owned subsidiaries of the Company. The Company accounted for the transaction in a manner consistent with a transfer of entities under common control, which is similar to a "pooling of interests." Accordingly, the net assets and results of operations of ConsumerCo and NTL Business Limited have been included in the Company's consolidated financial statements from their original dates of acquisition, May 30, 2000 and September 20, 1999, respectively. Revenues and net loss for the individual companies reported prior to the acquisition were as follows:
YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2000 1999 ------------ ------------ (IN MILLIONS) Revenues: NTL Communications............................... $ 1,765.4 $1,477.9 NTL Business..................................... 124.6 59.2 NTL (CWC Holdings)............................... 594.2 -- --------- -------- Combined......................................... $ 2,484.2 $1,537.1 ========= ======== Net Loss NTL Communications............................... $(1,524.1) $ (715.0) NTL Business..................................... (41.1) (1.5) NTL (CWC Holdings)............................... (822.9) -- --------- -------- Combined......................................... $(2,388.1) $ (716.5) ========= ========
The Company, through its subsidiaries, owns and operates broadband communications networks for telephone, cable television and Internet services in the United Kingdom and Ireland, and transmission networks for television and radio broadcasting in the United Kingdom. Based on revenues and identifiable F-7 8 NTL COMMUNICATIONS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED) assets, the Company's predominant lines of business are consumer services, business services and broadcast transmission and related services in the United Kingdom. Consumer services include telephony, cable television, Internet access and interactive services. Business services include telephony, national and international wholesale carrier telecommunications, and radio communications services for the emergency services community. Broadcast transmission and related services include digital and analog television and radio broadcasting, rental of antenna space on the Company's owned and leased towers and sites and associated services, and satellite and media services. 2. SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Principles of Consolidation The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and entities where the Company's interest is greater than 50%. Significant intercompany accounts and transactions have been eliminated in consolidation. Reclassification Certain prior year amounts have been reclassified to conform to the current year presentation. Foreign Currency Translation The financial statements of the Company's foreign subsidiaries have been translated into U.S. dollars in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation." All balance sheet accounts have been translated using the current exchange rates at the respective balance sheet dates. Statement of operations amounts have been translated using the average exchange rates for the respective years. The translation gains or losses resulting from the change in exchange rates have been reported as a component of accumulated other comprehensive income (loss). Foreign currency transaction gains and losses are included in the results of operations as incurred. Cash Equivalents Cash equivalents are short-term highly liquid investments purchased with a maturity of three months or less. Cash equivalents were $211.3 million and $605.3 million at December 31, 2000 and 1999, respectively, which consisted primarily of U.S. Treasury bills (2000 only), bank time deposits and corporate commercial paper. At December 31, 2000 and 1999, $57.2 million and $574.8 million, respectively, of the cash equivalents were denominated in foreign currencies. Marketable Securities Marketable securities were classified as available-for-sale, which are carried at fair value. Unrealized holding gains and losses on securities, net of tax, are carried as a component of accumulated other comprehensive income (loss). The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Realized gains and losses and declines in value judged to be other than temporary will be included in interest income. The cost of securities sold or matured is based on the specific identification method. Interest on securities is included in interest income. F-8 9 NTL COMMUNICATIONS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED) Marketable securities at December 31, 1999 consisted of corporate commercial paper. During the years ended December 31, 2000, 1999 and 1998, there were no realized gains or losses on sales of securities. All of the marketable securities as of December 31, 1999 had a contractual maturity of less than one year. Fixed Assets Fixed assets are stated at cost, which includes amounts capitalized for labor and overhead expended in connection with the design and installation of operating equipment. Depreciation is computed by the straight-line method over the estimated useful lives of the assets. Estimated useful lives are as follows: operating equipment -- 5 to 40 years and other equipment -- 3 to 40 years. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and the carrying value of the asset. Intangible Assets Intangible assets include goodwill, license acquisition costs and customer lists. Goodwill is the excess of the purchase price over the fair value of net assets acquired in business combinations accounted for as purchases. Goodwill is amortized on a straight-line basis over the periods benefited of 10, 15 or 30 years. License acquisition costs represent the portion of purchase price allocated to the cable television and telecommunications licenses acquired in business combinations. License acquisition costs are amortized on a straight-line basis over the remaining lives of the licenses at acquisition, which vary from approximately two years to 23 years. Customer lists represent the portion of the purchase price allocated to the value of the customer base. Customer lists are amortized on a straight-line basis over 5 years. The Company continually reviews the recoverability of the carrying value of these assets using the same methodology that it uses for the evaluation of its other long-lived assets. Equity Method Investments All investments in which the Company has the ability to exercise significant influence over the investee, but less than a controlling voting interest, are accounted for using the equity method. The investment in Cable London PLC was accounted for under the equity method. Equity method investments are recorded at original cost and adjusted periodically to recognize the Company's proportionate share of the investees' net income or losses after the date of investment, additional contributions made and dividends received. The difference between the Company's recorded investment and its proportionate interest in the book value of the investees' net assets are being amortized on a straight-line basis over 10 years. Deferred Financing Costs Deferred financing costs are incurred in connection with the issuance of debt and are amortized over the term of the related debt. Capitalized Interest Interest is capitalized as a component of the cost of fixed assets constructed. In 2000, 1999 and 1998, interest of $95.1 million, $41.8 million and $27.8 million, respectively, was capitalized. Revenue Recognition Revenues are recognized at the time the service is rendered to the customer or the performance of the service has been completed. Charges for services that are billed in advance are deferred and recognized when F-9 10 NTL COMMUNICATIONS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED) earned. Rental revenues are recognized when earned on a monthly basis. Installation and maintenance service revenues are recognized when the performance of the service has been completed. Cable Television System Costs, Expenses and Revenues The Company accounts for costs, expenses and revenues applicable to the construction and operation of its broadband communications networks in accordance with SFAS No. 51, "Financial Reporting by Cable Television Companies." Advertising Expense The Company charges the cost of advertising to expense as incurred. Advertising costs were $94.0 million, $35.8 million and $34.0 million in 2000, 1999 and 1998, respectively. Stock-Based Compensation The Company adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." The Company applied APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for the stock option plans in which it participates. Derivative Financial Instruments The Company uses financial instruments to hedge a portion, but not all, of its exposure from movements in the British pound/U.S. dollar exchange rate. Gains and losses on these instruments are deferred and recognized in the statement of operations when the related hedged transactions are recognized. To date, premiums paid for these contracts have not been material. The Company does not use derivative financial instruments for trading or speculative purposes 3. RECENT ACCOUNTING PRONOUNCEMENTS In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 provides guidance on the recognition, presentation and disclosure of revenue in financial statements. SAB 101 was required to be adopted retroactive to January 1, 2000. The adoption of SAB 101 had no significant effect on revenues or results of operations. Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS Nos. 137 and 138. The new accounting standard requires that all derivative instruments be recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded each period in the results of operations or in other comprehensive income (loss), depending on whether a derivative is designated as a fair value or cash flow hedge. The ineffective portion of all hedges will be recognized in the results of operations. On January 1, 2001, the Company recorded all of its outstanding derivative instruments at their fair value. The outstanding derivative instruments were comprised of cross currency swaps to hedge exposure to movements in the British pound/U.S. dollar exchange rate. The aggregate fair value on January 1, 2001 as a liability of $9.0 million, of which $6.8 million was recorded as an expense and $2.2 million was recorded as other comprehensive loss. F-10 11 NTL COMMUNICATIONS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED) 4. CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES Need for Additional Financing The Company will require additional financing in the future. There can be no assurance that the required financing will be obtainable on acceptable terms. Concentrations The Company's broadcast transmission and related services business is substantially dependent upon contracts with a small group of companies for the right to broadcast their programming, and upon a site sharing agreement for a large number of its transmission sites. The loss of any one of these contracts or the site sharing agreement could have a material adverse effect on the business of the Company. Currency Risk To the extent that the Company obtains financing in U.S. dollars and incurs construction and operating costs in various other currencies, it will encounter currency exchange rate risks. In addition, the Company's revenues are generated in foreign currencies while its interest and principal obligations with respect to most of the Company's existing indebtedness are payable in U.S. dollars. 5. FIXED ASSETS Fixed assets consist of:
DECEMBER 31, --------------------- 2000 1999 --------- -------- (IN MILLIONS) Operating equipment.................................... $10,004.9 $4,859.0 Other equipment........................................ 1,079.8 704.3 Construction-in-progress............................... 1,509.7 668.7 --------- -------- 12,594.4 6,232.0 Accumulated depreciation............................... (1,677.6) (883.6) --------- -------- $10,916.8 $5,348.4 ========= ========
Depreciation expense for the years ended December 31, 2000, 1999 and 1998 was $874.4 million, $475.5 million and $207.5 million, respectively. F-11 12 NTL COMMUNICATIONS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED) 6. INTANGIBLE ASSETS Intangible assets consist of:
DECEMBER 31, --------------------- 2000 1999 --------- -------- (IN MILLIONS) Goodwill, net of accumulated amortization of $837.3 (2000) and $185.9 (1999)............................. $10,236.4 $2,264.4 License acquisition costs, net of accumulated amortization of $215.8 (2000) and $141.7 (1999)...... 139.2 225.0 Customer lists, net of accumulated amortization of $70.4 (2000) and $30.9 (1999)........................ 158.6 159.3 Other intangibles, net of accumulated amortization of $5.5 (2000).......................................... 31.9 -- --------- -------- $10,566.1 $2,648.7 ========= ========
The Company made the following acquisitions in 1999: In March 1999, the Company acquired Diamond Cable Communications plc ("Diamond"). The Company issued an aggregate of 19.9 million shares of common stock in exchange for each ordinary share and deferred share of Diamond. The Company's common stock was valued at $971.4 million, the fair value at the time of the announcement. In addition, the Company issued options to purchase 191,000 shares of the Company's common stock to holders of Diamond options, which were valued at $6.6 million. The Company assumed Diamond's debt including five different notes with an aggregate principal amount at maturity of $1,564.6 million. Diamond is a provider of telephone, cable television and Internet services in England. In July 1999, the Company acquired Cablelink Limited ("Cablelink") for IRL535.2 million ($692.5 million), of which IRL455.2 million ($589.0 million) was paid in cash and IRL80.0 million ($103.5 million) was paid through the issuance of Variable Rate Redeemable Guaranteed Loan Notes due 2002. Cablelink provides multi-channel television and information services in Dublin, Galway and Waterford, Ireland. In September 1999, NTL Delaware acquired the shares of Workplace Technologies plc, one of the United Kingdom's leading data network service integrators, in exchange for L105.2 million ($172.5 million), of which L100.7 million ($165.1 million) was paid in cash and L4.5 million ($7.4 million) was paid through the issuance of demand notes. On February 21, 2001, the Company completed a transaction whereby it acquired the entire issued share capital of NTL Business Limited (formerly Workplace Technologies plc) from NTL (Delaware), Inc. in exchange for shares of its common stock. As a result of this transaction, NTL Business Limited became a wholly-owned subsidiary of the Company. The Company accounted for the transaction in a manner consistent with a transfer of entities under common control, which is similar to a "pooling of interests." Accordingly, the net assets and results of operations of NTL Business Limited have been included in the Company's consolidated financial statements from the date of acquisition by NTL Delaware. These acquisitions were accounted for as purchases, and accordingly, the net assets and results of operations of the acquired businesses have been included in the consolidated financial statements from the dates of acquisition. The aggregate purchase price of $1,860.1 million, including costs incurred of $17.1 million, plus the fair value of liabilities assumed net of tangible assets acquired aggregated $2,169.5 million, which has been allocated as follows: $143.5 million to license acquisition costs, $130.9 million to customer lists and $1,895.1 million to goodwill. On May 30, 2000, NTL Incorporated acquired the consumer cable telephone, Internet and television operations of CWC in the United Kingdom ("ConsumerCo"). NTL Incorporated paid cash of L2,917.0 F-12 13 NTL COMMUNICATIONS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED) million ($4,364.7 million) and issued an aggregate of 84.9 million shares of its common stock in exchange for all of the shares of CWC. In addition, NTL Incorporated paid L2,155.3 million ($3,225.0 million) to repay a portion of ConsumerCo's debt. NTL Incorporated's common stock was valued at $5,488.3 million, the fair value at the time of the announcement. This acquisition was funded by a new bank facility under which L2,376.0 million ($3,555.2 million) was borrowed and by an additional investment by France Telecom in NTL Incorporated. On February 21, 2001, the Company completed a transaction whereby it acquired the entire issued share capital of NTL (CWC Holdings) Limited (the entity that owns ConsumerCo) from NTL Incorporated in exchange for shares of its common stock. As a result of this transaction, ConsumerCo became a wholly-owned subsidiary of the Company. The Company accounted for the transaction in a manner consistent with a transfer of entities under common control, which is similar to a "pooling of interests." Accordingly, the net assets and results of operations of ConsumerCo have been included in the Company's consolidated financial statements from the date of acquisition by NTL Incorporated. The aggregate purchase price of $13,111.0 million, including costs incurred of $33.1 million, exceeded the fair value of net tangible assets acquired by $8,879.0 million, which has been allocated as follows: $53.0 million to customer lists, $37.4 million to other intangibles and $8,788.6 million to goodwill. The pro forma unaudited consolidated results of operations for the years ended December 31, 2000 and 1999 assuming consummation of the above mentioned transactions as of January 1, 1999 is as follows. A significant component of the pro forma results is associated with the acquisition of ConsumerCo. The historical results of ConsumerCo reflect certain intercompany costs and expenses as they were prior to the separation of ConsumerCo which was completed in the second quarter of 2000. These costs and expenses do not necessarily reflect the costs and expenses that would have been incurred had ConsumerCo reported as a separate entity for these periods. Therefore the historical results of ConsumerCo which are included in the pro forma results below are not reflective of results on a going forward basis.
YEAR ENDED DECEMBER 31, ------------------------ 2000 1999 ---------- ---------- (IN MILLIONS) Total revenue........................................... $2,953.4 $2,844.5 (Loss) before extraordinary item........................ (2,973.5) (2,326.0) Net (loss).............................................. (2,973.5) (2,329.0)
Amortization of intangibles and other assets charged to expense for the years ended December 31, 2000, 1999 and 1998 was $826.3 million, $290.2 million and $58.6 million respectively. 7. INVESTMENT IN CABLE LONDON PLC NTL (Triangle) LLC ("NTL Triangle") (formerly known as NTL (Bermuda) Limited), a wholly-owned subsidiary of the Company, owned a 50% interest in Cable London plc ("Cable London"). Pursuant to an agreement with Telewest Communications plc ("Telewest") relating to NTL Triangle's and Telewest's respective 50% ownership interests in Cable London, in November 1999 Telewest purchased all of NTL Triangle's shares of Cable London for L428.0 million ($692.5 million) in cash. The Company recorded a gain of $493.1 million on the sale. The sale of the Cable London interest was an "Asset Sale" for purposes of the Company's Indentures for certain of its notes. The Company used an amount equal to the proceeds from the sale to invest in "Replacement Assets" by November 2000. F-13 14 NTL COMMUNICATIONS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED) 8. LONG-TERM DEBT Long-term debt consists of:
DECEMBER 31, --------------------- 2000 1999 --------- -------- (IN MILLIONS) NTL Communications: 12 3/4% Senior Deferred Coupon Notes...................... (a) $ 277.8 $ 268.1 11 1/2% Senior Deferred Coupon Notes...................... (b) 1,040.5 930.4 10% Senior Notes.......................................... (c) 400.0 400.0 9 1/2% Senior Sterling Notes, less unamortized discount... (d) 186.5 201.4 10 3/4% Senior Deferred Coupon Sterling Notes............. (e) 353.6 343.7 9 3/4% Senior Deferred Coupon Notes....................... (f) 1,048.5 952.8 9 3/4% Senior Deferred Coupon Sterling Notes.............. (g) 360.8 354.4 11 1/2% Senior Notes...................................... (h) 625.0 625.0 12 3/8% Senior Deferred Coupon Notes...................... (i) 323.6 287.0 7% Convertible Subordinated Notes......................... (j) 599.3 599.3 Variable Rate Redeemable Guaranteed Loan Notes............ (k) -- 76.8 9 1/4% Senior Euro Notes.................................. (l) 234.7 252.3 9 7/8% Senior Euro Notes.................................. (m) 328.6 353.2 11 1/2% Senior Deferred Coupon Euro Notes................. (n) 127.9 123.1 11 7/8% Senior Notes, less unamortized discount........... (o) 489.6 -- NTL Communications Limited: Credit Agreement.......................................... (v) 375.3 -- NTL Business: Credit Agreement.......................................... (v) 3,030.3 -- ConsumerCo: Term Loan Facility and Other.............................. 21.7 -- NTL Triangle: 11.2% Senior Discount Debentures.......................... (p) 517.3 467.3 Other..................................................... 5.2 8.0 Diamond: 13 1/4% Senior Discount Notes............................. (q) 285.1 285.1 11 3/4% Senior Discount Notes............................. (r) 531.0 476.2 10 3/4% Senior Discount Notes............................. (s) 373.9 336.9 10% Senior Sterling Notes................................. (t) 201.9 218.1 9 1/8% Senior Notes....................................... (u) 110.0 110.0 Other..................................................... 6.0 11.5 --------- -------- 11,854.1 7,680.6 Less current portion........................................ 10.7 82.6 --------- -------- $11,843.4 $7,598.0 ========= ========
- --------------- (a) 12 3/4% Notes due April 15, 2005, principal amount at maturity of $277.8 million, interest payable semiannually from October 15, 2000, redeemable at the Company's option on or after April 15, 2000; F-14 15 NTL COMMUNICATIONS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED) (b) 11 1/2% Notes due February 1, 2006, principal amount at maturity of $1,050.0 million, interest payable semiannually beginning on August 1, 2001, redeemable at the Company's option on or after February 1, 2001; (c) 10% Notes due February 15, 2007, principal amount at maturity of $400.0 million, interest payable semiannually from August 15, 1997, redeemable at the Company's option on or after February 15, 2002; (d) 9 1/2% Sterling Notes due April 1, 2008, principal amount at maturity of L125.0 million ($186.9 million), interest payable semiannually from October 1, 1998, redeemable at the Company's option on or after April 1, 2003; (e) 10 3/4% Sterling Notes due April 1, 2008, principal amount at maturity of L300.0 million ($448.7 million), interest payable semiannually beginning on October 1, 2003, redeemable at the Company's option on or after April 1, 2003; (f) 9 3/4% Notes due April 1, 2008, principal amount at maturity of $1,300.0 million, interest payable semiannually beginning on October 1, 2003, redeemable at the Company's option on or after April 1, 2003; (g) 9 3/4% Sterling Notes due April 15, 2009, principal amount at maturity of L330.0 million ($493.5 million), interest payable semiannually beginning on October 15, 2004, redeemable at the Company's option on or after April 15, 2004; (h) 11 1/2% Notes due October 1, 2008, principal amount at maturity of $625.0 million, interest payable semiannually from April 1, 1999, redeemable at the Company's option on or after October 1, 2003; (i) 12 3/8% Notes due October 1, 2008, principal amount at maturity of $450.0 million, interest payable semiannually beginning on April 1, 2004, redeemable at the Company's option on or after October 1, 2003; (j) 7% Convertible Notes due December 15, 2008, principal amount at maturity of $599.3 million, interest payable semiannually from June 15, 1999, convertible into shares of NTL Incorporated common stock at a conversion price of $39.20 per share, redeemable at the Company's option on or after December 15, 2001 (there are approximately 15.3 million shares of NTL Incorporated common stock reserved for issuance upon conversion); (k) Variable Rate Redeemable Guaranteed Notes due January 5, 2002, principal amount at maturity of IRL60.0 million after redemption of IRL20.0 million ($25.7 million) in 1999 using cash held in escrow, remainder redeemed in March 2000 ($73.7 million) using cash held in escrow; (l) 9 1/4% Euro Notes due November 15, 2006, principal amount at maturity of E250.0 million, ($234.7 million), interest payable semiannually from May 15, 2000; (m) 9 7/8% Euro Notes due November 15, 2009, principal amount at maturity of E350.0 million, ($328.6 million), interest payable semiannually from on May 15, 2000 redeemable at the Company's option on or after November 15, 2004; (n) 11 1/2% Deferred Euro Notes due November 15, 2009, principal amount at maturity of E210.0 million ($197.1 million), interest payable semiannually beginning on May 15, 2005, redeemable at the Company's option on or after November 15, 2004; (o) 11 7/8% Notes due October 1, 2010, issued in October 2000, principal amount at maturity of $500.0 million, interest payable semiannually beginning on April 1, 2001, redeemable at the Company's option on or after October 1, 2005; F-15 16 NTL COMMUNICATIONS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED) (p) 11.2% Debentures due November 15, 2007, principal amount at maturity of $517.3 million, interest payable semiannually beginning on May 15, 2001, redeemable at NTL Triangle's option after November 15, 2000; (q) 13 1/4% Notes due September 30, 2004, principal amount at maturity of $285.1 million, interest payable semiannually from March 31, 2000, redeemable at Diamond's option on or after September 30, 1999; (r) 11 3/4% Notes due December 15, 2005, principal amount at maturity of $531.0 million, interest payable semiannually beginning on June 15, 2001, redeemable at Diamond's option on or after December 15, 2000; (s) 10 3/4% Notes due February 15, 2007, principal amount at maturity of $420.5 million, interest payable semiannually beginning on August 15, 2002, redeemable at Diamond's option on or after December 15, 2002; (t) 10% Sterling Notes due February 1, 2008, issued by Diamond Holdings plc, principal amount at maturity of L135.0 million ($201.9 million), interest payable semiannually from August 1, 1998, redeemable at Diamond's option on or after February 1, 2003; and (u) 9 1/8% Notes due February 1, 2008, issued by Diamond Holdings plc, principal amount of $110.0 million, interest payable semiannually from August 1, 1998, redeemable at Diamond's option on or after February 1, 2003. The indentures governing the notes contain restrictions relating to, among other things: (i) incurrence of additional indebtedness and issuance of preferred stock, (ii) dividend and other payment restrictions and (iii) mergers, consolidations and sales of assets. During 2000, 1999 and 1998, the Company recognized $473.1 million, $451.4 million and $232.7 million, respectively, of original issue discount as interest expense. In addition to the notes described above, a subsidiary of the Company has the following bank credit agreements outstanding: (v) In May 2000, NTL Communications Limited ("NTLCL") and NTL Business Limited ("NTL Business"), wholly-owned indirect subsidiaries of the Company, entered into a L2,500.0 million ($3,738.8 million) credit agreement in connection with the ConsumerCo acquisition. As of December 31, 2000, NTLCL had L250.9 million ($375.3 million) and NTL Business had L2,026.3 million ($3,030.3 million) outstanding under the credit agreement. Interest is payable at least every six months at LIBOR plus a margin rate of 2.25% per annum, which is subject to adjustment based on the ratio of EBITDA to finance charges of the UK Group. The effective rate of interest at December 31, 2000 was 8.283%. The unused portion of the commitment is available for refinancing ConsumerCo indebtedness and for working capital requirements of the UK Group. For purposes of this credit agreement, Diamond and subsidiaries and NTL Triangle and subsidiaries and certain other entities are excluded from the UK Group. The unused portion of the commitment is subject to a commitment fee of 0.75% payable quarterly, which is reduced to 0.50% when over 50% of the commitment is utilized. Principal is due in six quarterly installments beginning on June 30, 2004. The credit agreement contains various financial and other covenants with respect to the UK Group, and restrictions on dividends and distributions by the UK Group. NTLCL entered into a L1,300.0 million ($1,944.2 million) credit agreement with a group of banks dated May 30, 2000. Pursuant to the credit agreement, in connection with the issuance in October 2000 of $500.0 million aggregate principal amount of the Company's 11 7/8% notes, the issuance in January 2001 of E200.0 million aggregate principal amount of the Company's 12 3/8% Euro notes and the issuance in February 2001 of E100.0 million aggregate principal amount of the Company's 12 3/8% Euro notes, the commitment was reduced by L255.1 million ($381.4 million). As of December 31, 2000, there were no F-16 17 NTL COMMUNICATIONS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED) amounts borrowed under this agreement. NTLCL and other members of the UK Group (as defined above) may utilize the proceeds under this credit agreement to finance the working capital requirements of the UK Group, provided that in no event shall the proceeds be used for a purpose other than to finance the construction, capital expenditure and working capital needs of a cable television or telephone or telecommunications business, or a related business, in the United Kingdom or Ireland. Interest is payable at least every six months at LIBOR plus a margin rate of 4.5% per annum. The margin rate shall increase by 0.5% on the three month anniversary of the initial advance and by an additional 0.5% on each subsequent three month anniversary, up to a maximum total interest rate of 16% per annum. The unused portion of the commitment is subject to a commitment fee of 0.75% payable quarterly. Principal is due in full on March 31, 2006. The credit agreement contains various financial and other covenants with respect to the UK Group, and restrictions on dividends and distributions by the UK Group. In September 1999, NTL Triangle repaid at maturity the $21.5 million due under its notes payable to Comcast U.K. Holdings, Inc. In connection with the Cablelink acquisition, the Company issued $704.6 million principal amount Senior Increasing Rate Notes due 2000. In November 1999, the Company received net proceeds of $720.7 from the issuance of the 9 1/4% Euro Notes, the 9 7/8% Euro Notes and the 11 1/2% Deferred Euro Notes, of which $716.5 million was used to repay the Senior Increasing Rate Notes plus accrued interest. The Company recorded an extraordinary loss from the early extinguishment of the notes of $3.0 million in 1999. In connection with an acquisition, the Company borrowed an aggregate of L475.0 million under a bank credit facility. In November 1998, the Company received net proceeds of $849.0 million from the issuance of the 11 1/2% Notes and the 12 3/8% Notes, a substantial portion of which was used to repay the $799.0 million outstanding under the bank loan. The Company recorded an extraordinary loss from the early extinguishment of the bank loan of $18.6 million in 1998. In October 1998, the Company redeemed its 10 7/8% Senior Deferred Coupon Notes with an accreted value of $211.0 million for cash of $218.0 million. The Company recorded an extraordinary loss from the early extinguishment of the 10 7/8% Notes of $12.1 million in 1998, which included approximately $4.8 million of unamortized deferred financing costs. In 1998, the Company required consents from the holders of some of its notes to modify certain indenture provisions in order to proceed with an acquisition. In October 1998, the Company paid $11.3 million in consent payments and issued warrants to purchase 1.2 million shares of common stock in lieu of additional consent payments of $10.1 million. The NTLCL bank credit facilities, as well as the NTL Triangle and Diamond notes, restrict the payment of cash dividends and loans to the Company. At December 31, 2000, restricted net assets were approximately $12,674.0 million. Long-term debt repayments are due as follows (in millions): Year ending December 31: 2001............................................ $ 10.7 2002............................................ 8.7 2003............................................ 8.3 2004............................................ 420.7 2005............................................ 4,080.7 Thereafter...................................... 8,066.8 --------- $12,595.9 =========
F-17 18 NTL COMMUNICATIONS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED) In January and February 2001, the Company issued E300.0 million ($281.6 million) aggregate principal amount of 12 3/8% Senior Euro Notes due February 1, 2008. The Company received proceeds of approximately $275.3 million after underwriters' discount and commissions and other fees. Interest is payable semiannually in cash at a rate of 12 3/8% per annum beginning on August 1, 2001. These notes may not be redeemed by the Company except in limited circumstances. 9. OTHER CHARGES INCLUDING RESTRUCTURING CHARGES Other charges of $92.7 million in 2000 include restructuring costs of $65.9 million and information technology integration costs of $26.8 million. Restructuring costs relate to the NTL Incorporated's announcement in November 2000 of its completion of a consolidation review. Based on a comprehensive review of the combined company following the acquisition of ConsumerCo and the integration of several other acquired businesses, NTL Incorporated identified significant efficiency improvements and cost savings. The restructuring provision includes employee severance and related costs of $47.9 million for approximately 2,300 employees to be terminated and lease exit costs of $18.0 million. As of December 31, 2000, approximately 360 of the employees had been terminated. None of the provision had been utilized through December 31, 2000. The information technology integration costs of $26.8 million were incurred for the integration of acquired companies' information technology. Other charges of $16.2 million in 1999 were incurred for the cancellation of certain contracts. Other charges of $4.2 million reversed in 1998 were the result of changes to a restructuring reserve that was recorded in 1997. 10. INCOME TAXES The benefit for income taxes consists of the following:
YEAR ENDED DECEMBER 31, ------------------------- 2000 1999 1998 ------ ------ ----- (IN MILLIONS) Current: Federal......................................... $ -- $ 1.0 $ -- Foreign......................................... 0.9 -- -- ------ ------ ----- Total current..................................... 0.9 1.0 -- ------ ------ ----- Deferred: Federal......................................... -- -- -- Foreign......................................... (80.8) (30.9) (3.3) ------ ------ ----- Total deferred.................................... (80.8) (30.9) (3.3) ------ ------ ----- $(79.9) $(29.9) $(3.3) ====== ====== =====
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the deferred tax liabilities and assets are as follows: F-18 19 NTL COMMUNICATIONS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
DECEMBER 31, -------------------- 2000 1999 --------- ------- (IN MILLIONS) Deferred tax liabilities: Fixed assets......................................... $ 591.9 $ 66.5 Intangibles.......................................... 58.0 76.4 --------- ------- Total deferred tax liabilities......................... 649.9 142.9 Deferred tax assets: Net operating losses................................. 1,491.9 396.0 Net deferred interest expense........................ 198.6 150.1 Depreciation and amortization........................ 378.0 269.9 Inventory............................................ 18.5 -- Purchase accounting liabilities...................... 158.5 -- Other................................................ 32.4 12.4 --------- ------- Total deferred tax assets.............................. 2,277.9 828.4 Valuation allowance for deferred tax assets............ (1,623.1) (738.6) --------- ------- Net deferred tax assets................................ 654.8 89.8 --------- ------- Net deferred tax (assets) liabilities.................. $ (4.9) $ 53.1 ========= =======
At December 31, 2000, the Company had a valuation allowance against its deferred tax assets to the extent it was not more likely than not that such assets would be realized in the future. At December 31, 2000, the Company had net operating loss carryforwards of approximately $550.0 million for U.S. federal income tax purposes that expire in varying amounts commencing in 2009. This excludes net operating loss carryforwards of companies that are resident in both the U.S. and the United Kingdom. The Company also has United Kingdom net operating loss carryforwards of approximately $4,000.0 million that have no expiration date. Pursuant to United Kingdom law, these losses are only available to offset income of the separate entity that generated the loss. A portion of the United Kingdom net operating loss carryforward relates to dual resident companies, of which the U.S. net operating loss carryforward amount is approximately $1,000.0 million. In 2000, the Internal Revenue Service completed its federal income tax audit of the Company for the years 1993, 1994 and 1995. The audit resulted in a reduction in U.S. net operating loss carryforwards that had no material impact on the Company. The Company is currently undergoing a U. S. federal income tax audit for the years 1996 and 1997. The Company does not expect that the audit adjustments will have a material adverse effect on its financial position, results of operations or cash flows. The reconciliation of income taxes computed at U.S. federal statutory rates to income tax expense is as follows:
YEAR ENDED DECEMBER 31, ----------------------------- 2000 1999 1998 ------- ------- ------- (IN MILLIONS) (Benefit) at federal statutory rate (35%)..... $(863.8) $(261.0) $(188.3) Add: Foreign losses with no benefit.............. 568.6 106.9 87.9 U.S. losses with no benefit................. 215.3 124.2 97.1 ------- ------- ------- $ (79.9) $ (29.9) $ (3.3) ======= ======= =======
F-19 20 NTL COMMUNICATIONS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED) 11. FAIR VALUES OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and cash equivalents: The carrying amounts reported in the consolidated balance sheets approximate fair value. Long-term debt: The carrying amounts of the bank credit facility and Variable Rate Notes approximate their fair values. The fair values of the Company's other debt are based on the quoted market prices. The carrying amounts and fair values of the Company's financial instruments are as follows:
DECEMBER 31, 2000 DECEMBER 31, 1999 ---------------------- ---------------------- CARRYING CARRYING AMOUNT FAIR VALUE AMOUNT FAIR VALUE -------- ---------- -------- ---------- (IN MILLIONS) Cash and cash equivalents................ $ 423.5 $ 423.5 $1,074.2 $1,074.2 Long-term debt: 12 3/4% Notes.......................... 277.8 255.6 268.1 278.5 11 1/2% Notes.......................... 1,040.5 913.5 930.4 950.3 10% Notes.............................. 400.0 348.0 400.0 414.0 9 1/2% Sterling Senior Notes........... 186.5 154.2 201.4 196.9 10 3/4% Sterling Notes................. 353.6 242.3 343.7 327.2 9 3/4% Notes........................... 1,048.5 715.0 952.8 913.3 9 3/4% Sterling Notes.................. 360.8 214.7 354.4 313.3 11 1/2% Notes.......................... 625.0 556.3 625.0 682.8 12 3/8% Notes.......................... 323.6 252.0 287.0 319.5 7% Convertible Notes................... 599.3 470.5 599.3 1,582.2 Variable Rate Notes.................... -- -- 76.8 76.8 9 1/4% Euro Notes...................... 234.7 207.7 252.3 254.8 9 7/8% Euro Notes...................... 328.6 269.4 353.2 356.8 11 1/2% Euro Deferred Notes............ 127.9 99.6 123.1 125.0 11 7/8% Senior Notes................... 489.6 445.0 -- -- Credit Agreement....................... 3,405.6 3,405.6 -- -- 11.2% Debentures....................... 517.3 439.7 467.3 486.3 13 1/4% Notes.......................... 285.1 270.8 285.1 305.4 11 3/4% Notes.......................... 531.0 467.3 476.2 499.1 10 3/4% Notes.......................... 373.9 281.7 336.9 340.6 10% Sterling Notes..................... 201.9 161.5 218.1 218.1 9 1/8% Notes........................... 110.0 89.7 110.0 108.9
The Company has derivative financial instruments for purposes other than trading as follows. In 2000, the Company entered into cross currency swaps to hedge exposure to movements in the British pound/U.S. dollar exchange rate. The notional amount of the cross currency swaps was L135.0 million at December 31, 2000. These swaps have payment dates in 2001 that match interest payment dates for a portion of the Company's notes. The fair value of the swaps at December 31, 2000 was $(2.2) million based on quoted market prices for comparable instruments. F-20 21 NTL COMMUNICATIONS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED) 12. RELATED PARTY TRANSACTIONS The Company provided management, financial, legal and technical services to Cellular Communications International, Inc. ("CCII") and Cellular Communications of Puerto Rico, Inc. ("CCPR"). Certain officers and directors of the Company were officers and directors of CCII and CCPR. In 1998, the Company charged CCPR, CCII and CoreComm Limited ("CoreComm") (which was formed in 1998 and has certain common officers and directors with the Company) $1.1 million, $1.0 million and $0.3 million, respectively, for direct costs where identifiable and a fixed percentage of its corporate overhead. In the fourth quarter of 1999, CoreComm began charging the Company a percentage of CoreComm's office rent and supplies expense. In 1999, the Company charged CCPR, CCII and CoreComm $0.1 million, $0.4 million and $1.3 million, respectively, for direct costs where identifiable and a fixed percentage of its corporate overhead, net of CoreComm's charges to the Company. Charges to CCPR and to CCII ceased in 1999 due to each of them being acquired and a resulting termination of services. In 2000, the Company charged CoreComm $0.9 million for direct costs where identifiable and a fixed percentage of its corporate overhead, net of CoreComm's charges to the Company. These charges reduced corporate expenses in 2000, 1999 and 1998. 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 methods are reasonable. The Company obtains billing and software development services from CoreComm. CoreComm billed the Company $5.9 million, $4.6 million and $2.9 million in 2000, 1999 and 1998, respectively, for these services. In addition, CoreComm billed the Company $6.7 million in October 2000 for services to be rendered from January to September 2001. In March 2000, the Company and CoreComm announced that they had entered into an agreement to link their networks in order to create an international Internet backbone. In November 2000, CoreComm billed the Company $9.1 million primarily for usage of the network in 2001. At December 31, 2000 and 1999, the Company had a payable to CoreComm of $17.1 million and a receivable from CoreComm of $0.5 million, respectively. 13. SHAREHOLDER'S EQUITY Sales of Preferred Stock and Warrants In January 1999, the Company received $500.0 million in cash from Microsoft Corp. ("Microsoft") in exchange for 500,000 shares of the Company's 5.25% Convertible Preferred Stock and warrants to purchase 1.9 million shares of the Company's common stock at an exercise price of $53.76 per share (as adjusted for stock splits in 1999 and 2000). Series Preferred Stock In February 1997, the Company issued 100,000 shares of its 13% Senior Redeemable Exchangeable Preferred Stock. In September 1998, the Company issued 125,000 shares of 9.9% Non-voting Mandatorily Redeemable Preferred Stock, Series A (the "Series A Preferred Stock") in connection with an acquisition. Each share of Series A Preferred Stock had a stated value of $1,000. Cumulative dividends accrued at 9.9% of the stated value per share. Dividends were payable when and if declared by the Board of Directors. In December 1998, the Company issued 52,000 shares of 9.9% Non-voting Mandatorily Redeemable Preferred Stock, Series B (the "Series B Preferred Stock") in connection with an acquisition. Each share of Series B Preferred Stock had a stated value of $1,000. Cumulative dividends accrued at 9.9% of the stated value per share. Dividends were payable when and if declared by the Board of Directors. F-21 22 NTL COMMUNICATIONS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED) The changes in the number of shares of Series Preferred Stock were as follows:
9.9% 9.9% 13% SERIES A SERIES B 5.25% -------- -------- -------- -------- Balance, December 31, 1997............... 110,000 -- -- -- Issued for acquisitions.................. -- 125,000 52,000 -- Issued for dividends..................... 15,000 -- -- -- -------- -------- ------- -------- Balance, December 31, 1998............... 125,000 125,000 52,000 -- Issued for cash.......................... -- -- -- 500,000 Issued for dividends..................... 3,000 -- -- 4,000 Corporate restructuring.................. (128,000) (125,000) (52,000) (504,000) -------- -------- ------- -------- Balance, December 31, 1999............... -- -- -- -- ======== ======== ======= ========
Stock Options The Company's employees participate in the following NTL Incorporated stock option plans. There are 3,381,000 shares and 10,396,000 shares of common stock reserved for issuance under the 1991 Stock Option Plan and the 1993 Stock Option Plan, respectively. These plans provide that incentive stock options ("ISOs") be granted at the fair market value of NTL Incorporated's common stock on the date of grant, and nonqualified stock options ("NQSOs") be granted at not less than 85% of the fair market value of NTL Incorporated's common stock on the date of grant. Options are exercisable as to 20% of the shares subject thereto on the date of grant and become exercisable as to an additional 20% of the shares subject thereto on each January 1 thereafter, while the optionee remains an employee of the Company. Options will expire ten years after the date of the grant. No additional options will be granted under these plans. There are 156,000 shares and 500,000 shares of common stock reserved for issuance under 1991 and 1993 Non-Employee Director Stock Option Plans, respectively. Under the terms of these plans, options will be granted to members of the Board of Directors who are not employees of the Company or any of its affiliates. These plans provide that all options be granted at the fair market value of NTL Incorporated's common stock on the date of grant, and options will expire ten years after the date of the grant. Options are exercisable as to 20% of the shares subject thereto on the date of grant and become exercisable as to an additional 20% of the shares subject thereto on each subsequent anniversary of the grant date while the optionee remains a director of the Company. Options will expire ten years after the date of the grant. No additional options will be granted under these plans. There are 83,438,000 shares of common stock reserved for issuance under the 1998 Non-Qualified Stock Option Plan, and there are 31,478,000 shares available for issuance at December 31, 2000. The exercise price of a NQSO shall be determined by the Compensation and Option Committee. Options are generally exercisable ratably over five to ten years while the optionee remains an employee of the Company. Options will expire ten years after the date of the grant. In September 2000, the Board of Directors approved modifications to certain stock options granted to employees in November 1999 through May 2000. Options to purchase an aggregate of approximately 16.5 million shares of NTL Incorporated's common stock with a weighted average exercise price of $64.39 per share were modified such that the exercise price was reduced to $44.50 per share and the vesting schedule was delayed and/or lengthened. This change did not affect the exercise price of options granted to the Chairman of the Board, the Chief Executive Officer and the Company's Directors. In accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations, NTL Incorporated is accounting for these options as a variable plan beginning in September 2000. The Company will recognize F-22 23 NTL COMMUNICATIONS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED) non-cash compensation expense for the difference between the quoted market price of NTL Incorporated's common stock and the exercise price of the vested options while the options remain outstanding. There were 34.8 million, 6.4 million and 13.9 million options granted under these plans for the years ended December 31, 2000, 1999, and 1998, respectively. Pro forma information regarding net loss and net loss per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for 2000, 1999 and 1998: risk-free interest rates of 5.30%, 6.81% and 5.02%, respectively, dividend yield of 0%, volatility factor of the expected market price of NTL Incorporated's common stock of .385, .336, and .331, respectively, and a weighted-average expected life of the option of 10 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because NTL Incorporated's stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. Pro forma net loss would have been approximately $1,780.7 million, $802.0 million and $580.7 million for the years ended December 31, 2000, 1999 and 1998, respectively. 14. EMPLOYEE BENEFIT PLANS Certain subsidiaries of the Company operate defined benefit pension plans in the United Kingdom. The assets of the Plans are held separately from those of the Company and are invested in specialized portfolios under the management of an investment group. The pension cost is calculated using the attained age method. The Company's policy is to fund amounts to the defined benefit plans necessary to comply with the funding requirements as prescribed by the laws and regulations in the United Kingdom.
YEAR ENDED DECEMBER 31, -------------------- 2000 1999 ------ ------ (IN MILLIONS) CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year................ $197.1 $213.4 Acquisition............................................ -- 10.7 Service cost........................................... 10.7 12.0 Interest cost.......................................... 11.3 12.0 Actuarial gains........................................ 0.2 (40.9) Benefits paid.......................................... (5.7) (5.2) Foreign currency exchange rate changes................. (11.8) (4.9) ------ ------ Benefit obligation at end of year...................... $201.8 $197.1 ====== ======
F-23 24 NTL COMMUNICATIONS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
YEAR ENDED DECEMBER 31, -------------------- 2000 1999 ------ ------ (IN MILLIONS) CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year......... $278.4 $225.3 Acquisition............................................ -- 10.1 Actual return on plan assets........................... 2.0 43.1 Company contributions.................................. 8.6 7.6 Plan participants' contributions....................... 3.4 2.9 Benefits paid.......................................... (5.7) (5.3) Foreign currency exchange rate changes................. (17.6) (5.3) ------ ------ Fair value of plan assets at end of year............... $269.1 $278.4 ====== ====== Funded status of the plan.............................. $ 67.3 $ 81.3 Unrecognized net actuarial gains....................... (62.0) (89.3) Unrecognized transition obligation..................... 6.8 8.1 ------ ------ Prepaid benefit cost................................... $ 12.1 $ 0.1 ====== ======
YEAR ENDED DECEMBER 31, ---------------------- 2000 1999 ------------- ----- Actuarial assumptions: Weighted average discount rate..................... 6.00% 6.25% Weighted average rate of compensation increase..... 3.50% - 4.25% 4.50% Expected long-term rate of return on plan assets... 7.50% - 7.75% 8.00%
The components of net pension costs are as follows:
YEAR ENDED DECEMBER 31, -------------------------- 2000 1999 1998 ------ ------ ------ (IN MILLIONS) Service cost..................................... $ 10.7 $ 12.0 $ 13.4 Interest cost.................................... 11.3 12.0 14.7 Actual return on plan assets..................... (2.0) (43.1) (24.2) Net amortization and deferral.................... (20.6) 26.8 8.3 ------ ------ ------ $ (0.6) $ 7.7 $ 12.2 ====== ====== ======
15. LEASES Leases for buildings, office space and equipment extend through 2031. Total rental expense for the years ended December 31, 2000, 1999 and 1998 under operating leases was $46.2 million, $27.5 million and $29.4 million, respectively. F-24 25 NTL COMMUNICATIONS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED) Future minimum lease payments under noncancellable operating leases as of December 31, 2000 are as follows (in millions): Year ending December 31: 2001.............................................. $ 51.5 2002.............................................. 47.8 2003.............................................. 46.1 2004.............................................. 41.5 2005.............................................. 36.8 Thereafter........................................ 205.8 ------ $429.5 ======
16. COMMITMENTS AND CONTINGENT LIABILITIES At December 31, 2000, the Company was committed to pay approximately $1,112.0 million for equipment and services which includes approximately $860.0 million for certain operations and maintenance contracts through 2008. The Company had certain exclusive local delivery operator licenses for Northern Ireland and other franchise areas in the United Kingdom. Pursuant to these licenses, various subsidiaries of the Company were required to make monthly cash payments to the Independent Television Commission ("ITC") during the 15-year license terms. Upon a request by the Company in 1999, the ITC converted all of the Company's fee bearing exclusive licenses to non-exclusive licenses by the end of 1999. In 1999 and 1998, the Company paid $30.1 million and $25.0 million, respectively, in connection with these licenses. Since the Company's liability for the license payments ceased upon the conversion, in 1999 the Company reversed an accrual for franchise fees of $13.6 million. The Company is involved in certain disputes and litigation arising in the ordinary course of its business. None of these matters are expected to have a material adverse effect on the Company's financial position, results of operations or cash flows. 17. INDUSTRY SEGMENTS The Company has four reportable segments: Broadcast Services, Consumer Services, Business Services, and Shared Services. The Broadcast Services segment operates in the United Kingdom and includes digital and analog television and radio broadcasting, rental of antenna space on the Company's owned and leased towers and sites and associated services, and satellite and media services. Consumer Services include telephony, cable television, Internet access and interactive services in regional franchise areas in the United Kingdom and Ireland. The Business Services segment operates primarily in the United Kingdom and includes telephony, national and international wholesale carrier telecommunications, and radio communications services to the emergency services community. Shared Services principally include network and information technology management, finance, human resources and facilities management. Shared Services also includes assets and related depreciation and amortization that are not allocated to another segment. In 1998, Shared Services included OCOM Corporation, a subsidiary that operated long distance and microwave transmission businesses in the United States until June 1998. In 2000, components of the National Telecoms segment became part of the Broadcast Services segment, and the remainder of National Telecoms was renamed Business Services. The rental of antenna space on the Company's owned and leased towers and sites and associated services, and satellite and media services became components of Broadcast Services. The 1999 and 1998 segment information has been reclassified to conform F-25 26 NTL COMMUNICATIONS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED) to the 2000 segments. Also, certain goodwill and related amortization was reclassified to Broadcast Services from Shared Services in all of the periods presented. The accounting policies of the segments are the same as those described in the Significant Accounting Policies note. The Company's management evaluates segment performance based on various financial and non-financial measurements. The results of operations data utilized in financial measurements are revenues and EBITDA, which is earnings before interest, taxes, depreciation and amortization, corporate expenses, franchise fees, other charges, other gains, foreign currency transactions gains (losses) and extraordinary items. The Company's primary measure of profit or loss is EBITDA. Certain selling, general and administrative expenses are allocated to segments based on revenues. Management does not allocate costs of shared services departments and jointly used assets for purposes of measuring segment performance. The reportable segments are strategic business units that are managed separately and offer different services.
BROADCAST CONSUMER BUSINESS SHARED TOTAL --------- --------- -------- -------- --------- (IN MILLIONS) Year ended December 31, 2000 Revenues............................. $263.8 $ 1,518.2 $ 702.2 $ -- $ 2,484.2 Depreciation and amortization........ 46.3 1,076.4 153.0 425.0 1,700.7 EBITDA(1)............................ 136.5 410.8 226.2 (481.6) 291.9 Expenditures for long-lived assets... 70.0 1,067.5 637.8 383.9 2,159.2 Total assets(2)...................... 647.3 17,888.3 1,525.5 3,085.4 23,146.5 Year ended December 31, 1999 Revenues............................. $257.3 $ 827.3 $ 452.5 $ -- $ 1,537.1 Depreciation and amortization........ 45.7 527.1 58.8 134.1 765.7 EBITDA(1)............................ 140.4 245.0 106.6 (279.3) 212.7 Expenditures for long-lived assets... 69.6 590.5 356.7 124.5 1,141.3 Total assets(3)...................... 658.3 5,978.5 805.9 2,290.3 9,733.0 Year ended December 31, 1998 Revenues............................. $231.3 $ 355.6 $ 157.7 $ 2.4 $ 747.0 Depreciation and amortization........ 41.7 143.5 17.8 63.1 266.1 EBITDA(1)............................ 115.2 67.6 12.3 (119.7) 75.4 Expenditures for long-lived assets... 165.9 413.9 220.4 67.1 867.3 Total assets......................... 645.8 3,100.5 406.1 2,041.7 6,194.1
- --------------- (1) Represents earnings before interest, taxes, depreciation and amortization, franchise fees, other charges, corporate expenses, other gains, foreign currency transaction (losses) gains and extraordinary items. (2) At December 31, 2000, shared assets included $355.0 million of cash, cash equivalents and marketable securities, $1,794.1 million of goodwill and $936.3 million of other assets. (3) At December 31, 1999, shared assets included $828.6 million of cash, cash equivalents and marketable securities, $916.4 million of goodwill and $545.3 million in other assets. F-26 27 NTL COMMUNICATIONS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED) The reconciliation of segment combined EBITDA to loss before income taxes and extraordinary item is as follows:
YEAR ENDED DECEMBER 31, ------------------------------- 2000 1999 1998 --------- ------- ------- (IN MILLIONS) Segment Combined EBITDA.............................. $ 291.9 $ 212.7 $ 75.4 (Add) Deduct: Franchise fees..................................... -- 16.5 25.0 Other charges...................................... 92.7 16.2 (4.2) Corporate expenses................................. 23.7 25.3 17.1 Depreciation and amortization...................... 1,700.7 765.7 266.1 Interest income and other, net..................... (1.6) (29.9) (46.0) Interest expense................................... 886.3 678.2 328.8 Other gains........................................ -- (493.1) -- Foreign currency transaction losses (gains)........ 58.1 (22.8) (4.2) --------- ------- ------- 2,759.9 956.1 582.6 --------- ------- ------- Loss before income taxes and extraordinary item...... $(2,468.0) $(743.4) $(507.2) ========= ======= =======
18. GEOGRAPHIC INFORMATION
UNITED STATES UNITED KINGDOM IRELAND TOTAL ------------- -------------- ------- --------- (IN MILLIONS) 2000 Revenues........................... $ -- $ 2,423.0 $ 61.2 $ 2,484.2 Long-lived assets.................. 1.6 21,621.9 182.9 21,806.4 1999 Revenues........................... $ -- $ 1,505.9 $ 31.2 $ 1,537.1 Long-lived assets.................. 1.6 8,143.6 148.0 8,293.2 1998 Revenues........................... $2.4 $ 744.6 $ -- $ 747.0 Long-lived assets.................. 1.2 4,988.4 -- 4,989.6
F-27 28 NTL COMMUNICATIONS CORP. SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED BALANCE SHEETS (IN MILLIONS)
DECEMBER 31, ---------------------- 2000 1999 --------- --------- ASSETS Current assets: Cash and cash equivalents................................. $ 168.2 $ 703.4 Marketable securities..................................... -- 5.0 Other..................................................... 10.5 3.2 --------- --------- Total current assets........................................ 178.7 711.6 Office improvements and equipment, net of accumulated depreciation of $1.2 (2000) and $1.3 (1999)............... 1.6 1.6 Investments in and loans to subsidiaries.................... 15,188.5 5,947.6 Deferred financing costs, net of accumulated amortization of $51.4 (2000) and $32.2 (1999)............................. 136.6 142.8 Other assets................................................ -- 87.4 --------- --------- Total assets................................................ $15,505.4 $ 6,891.0 ========= ========= LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities......................................... $ 96.8 $ 134.3 Long-term debt.............................................. 6,396.4 5,690.7 Shareholder's equity: Common stock.............................................. -- -- Additional paid-in capital................................ 13,746.7 3,031.3 Accumulated other comprehensive income (loss)............. (379.3) 1.8 (Deficit)................................................. (4,355.2) (1,967.1) --------- --------- 9,012.2 1,066.0 --------- --------- Total liabilities and shareholder's equity.................. $15,505.4 $ 6,891.0 ========= =========
See accompanying notes. F-28 29 NTL COMMUNICATIONS CORP. SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF OPERATIONS (IN MILLIONS)
YEAR ENDED DECEMBER 31, ------------------------------- 2000 1999 1998 --------- ------- ------- COSTS AND EXPENSES Corporate expenses.......................................... $ 23.6 $ 22.7 $ 14.7 General and administrative expenses......................... 5.9 -- -- Depreciation and amortization............................... 19.7 18.3 10.6 --------- ------- ------- Operating (loss)............................................ (49.2) (41.0) (25.3) OTHER INCOME (EXPENSE) Interest income and other, net.............................. 14.4 121.6 128.5 Interest expense............................................ (599.4) (529.5) (317.7) Foreign currency transaction gains.......................... 67.8 21.9 3.7 --------- ------- ------- (Loss) before income taxes, extraordinary item and equity in net (loss) of subsidiaries................................ (566.4) (427.0) (210.8) Income tax provision........................................ -- (1.0) -- --------- ------- ------- (Loss) before extraordinary item and equity in net (loss) of subsidiaries.............................................. (566.4) (428.0) (210.8) Loss from early extinguishment of debt...................... -- (3.0) (12.1) --------- ------- ------- (Loss) before equity in net (loss) of subsidiaries.......... (566.4) (431.0) (222.9) Equity in net (loss) of subsidiaries........................ (1,821.7) (285.5) (311.7) --------- ------- ------- Net (loss).................................................. $(2,388.1) $(716.5) $(534.6) ========= ======= =======
See accompanying notes. F-29 30 NTL COMMUNICATIONS CORP. SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF CASH FLOWS (IN MILLIONS)
YEAR ENDED DECEMBER 31, ----------------------------------- 2000 1999 1998 --------- --------- --------- Net cash (used in) operating activities................... $ (293.8) $ (118.3) $ (291.4) INVESTING ACTIVITIES Purchase of office improvements and equipment............. (0.5) (0.9) (0.1) Purchase of marketable securities......................... -- (354.5) (540.6) Proceeds from sales of marketable securities.............. 5.0 618.6 291.3 Increase in investments in and loans to subsidiaries...... (5,953.2) (1,164.8) (1,466.4) --------- --------- --------- Net cash (used in) investing activities................... (5,948.7) (901.6) (1,715.8) FINANCING ACTIVITIES Distribution to NTL (Delaware), Inc....................... -- (500.0) -- Contributions from NTL (Delaware), Inc.................... 5,227.2 167.6 -- Proceeds from borrowings, net of financing costs.......... 476.3 1,846.0 2,697.8 Proceeds from issuance of preferred stock and warrants.... -- 500.0 -- Principal payments........................................ (73.7) (730.3) -- Proceeds from exercise of stock options and warrants...... -- 12.1 6.8 Consent solicitation payments............................. -- -- (11.3) Cash released from (placed in) escrow for debt repayment............................................... 77.5 (87.0) (217.6) --------- --------- --------- Net cash provided by financing activities................. 5,707.3 1,208.4 2,475.7 --------- --------- --------- (Decrease) increase in cash and cash equivalents.......... (535.2) 188.5 468.5 Cash and cash equivalents at beginning of year............ 703.4 514.9 46.4 --------- --------- --------- Cash and cash equivalents at end of year.................. $ 168.2 $ 703.4 $ 514.9 ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest.................................... $ 240.2 $ 209.1 $ 77.3 Income taxes paid......................................... 0.4 -- -- SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES Accretion of dividends and discount on preferred stock.... -- $ 8.6 $ 19.1 Conversion of Convertible Notes, net of unamortized deferred financing costs................................ -- 269.3 187.0 Warrants issued in connection with consent solicitations........................................... -- -- 10.1 Preferred stock issued for an acquisition................. -- -- 178.5 Common stock and stock options issued for an acquisition............................................. -- 978.0 600.5
See accompanying notes. F-30 31 NTL COMMUNICATIONS CORP. AND SUBSIDIARIES SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT NOTES TO CONDENSED FINANCIAL STATEMENTS 1. CORPORATE RESTRUCTURING On April 1, 1999, NTL Incorporated completed a corporate restructuring to create a holding company structure. The holding company restructuring was accomplished through a merger so that all the stockholders of NTL Incorporated at the effective time of the merger became stockholders of the new holding company, and NTL Incorporated became a subsidiary of the new holding company. The new holding company took the name NTL Incorporated and the holding company's subsidiary simultaneously changed its name to NTL Communications Corp. On May 18, 2000, NTL Incorporated completed a second corporate restructuring to create a holding company structure in connection with the acquisition of ConsumerCo. The holding company restructuring was accomplished through a merger so that all the stockholders of NTL Incorporated at the effective time of the merger became stockholders of the new holding company, and NTL Incorporated became a subsidiary of the new holding company. The new holding company has taken the name NTL Incorporated and the holding company's subsidiary simultaneously changed its name to NTL (Delaware), Inc. NTL Communications Corp. (the "Company") is a wholly-owned subsidiary of NTL (Delaware), Inc. On February 21, 2001, the Company completed a transaction whereby it acquired the entire issued share capital of NTL (CWC Holdings) Limited (the entity that owns ConsumerCo) from NTL Incorporated and the entire issued share capital of NTL Business Limited (formerly Workplace Technologies plc) from NTL (Delaware), Inc. in exchange for shares of its common stock. As a result of this transaction, ConsumerCo and NTL Business Limited became wholly-owned subsidiaries of the Company. The Company accounted for the transaction in a manner consistent with a transfer of entities under common control, which is similar to a "pooling of interests." Accordingly, the net assets and results of operations of ConsumerCo and NTL Business Limited have been included in the Company's consolidated financial statements from their original dates of acquisition, May 30, 2000 and September 20, 1999, respectively. 2. BASIS OF PRESENTATION In the Company's condensed financial statements, the Company's investment in subsidiaries is stated at cost plus equity in the undistributed earnings of the subsidiaries. The Company's share of net loss of its subsidiaries is included in net loss using the equity method of accounting. The condensed financial statements should be read in conjunction with the Company's consolidated financial statements. 3. LONG-TERM DEBT Long-term debt consists of:
DECEMBER 31, -------------------- 2000 1999 -------- -------- (IN MILLIONS) 12 3/4% Senior Deferred Coupon Notes.................... (a) $ 277.8 $ 268.1 11 1/2% Senior Deferred Coupon Notes.................... (b) 1,040.5 930.4 10% Senior Notes........................................ (c) 400.0 400.0 9 1/2% Senior Sterling Notes, less unamortized discount.............................................. (d) 186.5 201.4 10 3/4% Senior Deferred Coupon Sterling Notes........... (e) 353.6 343.7 9 3/4% Senior Deferred Coupon Notes..................... (f) 1,048.5 952.8 9 3/4% Senior Deferred Coupon Sterling Notes............ (g) 360.8 354.4 11 1/2% Senior Notes.................................... (h) 625.0 625.0 12 3/8% Senior Deferred Coupon Notes.................... (i) 323.6 287.0
F-31 32 NTL COMMUNICATIONS CORP. AND SUBSIDIARIES SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, -------------------- 2000 1999 -------- -------- (IN MILLIONS) 7% Convertible Subordinated Notes....................... (j) 599.3 599.3 Variable Rate Redeemable Guaranteed Loan Notes.......... (k) -- 76.8 9 1/4% Senior Euro Notes................................ (l) 234.7 252.3 9 7/8% Senior Euro Notes................................ (m) 328.6 353.2 11 1/2% Senior Deferred Coupon Euro Notes............... (n) 127.9 123.1 11 7/8% Senior Notes, less unamortized discount......... (o) 489.6 -- -------- -------- 6,396.4 5,767.5 Less current portion.................................... -- 76.8 -------- -------- $6,396.4 $5,690.7 ======== ========
- --------------- (a) 12 3/4% Notes due April 15, 2005, principal amount at maturity of $277.8 million, interest payable semiannually from on October 15, 2000, redeemable at the Company's option on or after April 15, 2000; (b) 11 1/2% Notes due February 1, 2006, principal amount at maturity of $1,050.0 million, interest payable semiannually beginning on August 1, 2001, redeemable at the Company's option on or after February 1, 2001; (c) 10% Notes due February 15, 2007, principal amount at maturity of $400.0 million, interest payable semiannually from August 15, 1997, redeemable at the Company's option on or after February 15, 2002; (d) 9 1/2% Sterling Notes due April 1, 2008, principal amount at maturity of L125.0 million ($186.9 million), interest payable semiannually from October 1, 1998, redeemable at the Company's option on or after April 1, 2003; (e) 10 3/4% Sterling Notes due April 1, 2008, principal amount at maturity of L300.0 million ($448.7 million), interest payable semiannually beginning on October 1, 2003, redeemable at the Company's option on or after April 1, 2003; (f) 9 3/4% Notes due April 1, 2008, principal amount at maturity of $1,300.0 million, interest payable semiannually beginning on October 1, 2003, redeemable at the Company's option on or after April 1, 2003; (g) 9 3/4% Sterling Notes due April 15, 2009, principal amount at maturity of L330.0 million ($493.5 million), interest payable semiannually beginning on October 15, 2004, redeemable at the Company's option on or after April 15, 2004; (h) 11 1/2% Notes due October 1, 2008, principal amount at maturity of $625.0 million, interest payable semiannually from April 1, 1999, redeemable at the Company's option on or after October 1, 2003; (i) 12 3/8% Notes due October 1, 2008, principal amount at maturity of $450.0 million, interest payable semiannually beginning on April 1, 2004, redeemable at the Company's option on or after October 1, 2003; (j) 7% Convertible Notes due December 15, 2008, principal amount at maturity of $599.3 million, interest payable semiannually from June 15, 1999, convertible into shares of NTL Incorporated common stock at a conversion price of $39.20 per share, redeemable at the Company's option on or after December 15, 2001 (there are approximately 15.3 million shares of NTL Incorporated common stock reserved for issuance upon conversion); F-32 33 NTL COMMUNICATIONS CORP. AND SUBSIDIARIES SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) (k) Variable Rate Redeemable Guaranteed Notes due January 5, 2002, principal amount at maturity of IRL 60.0 million after redemption of IRL20.0 million ($25.7 million) in 1999 using cash held in escrow, remainder redeemed in March 2000 ($73.7 million) using cash held in escrow; (l) 9 1/4% Euro Notes due November 15, 2006, principal amount at maturity of E250.0 million ($234.7 million), interest payable semiannually from May 15, 2000; (m) 9 7/8% Euro Notes due November 15, 2009, principal amount at maturity of E350.0 million ($328.6 million), interest payable semiannually from beginning May 15, 2000, redeemable at the Company's option on or after November 15, 2004; (n) 11 1/2% Deferred Euro Notes due November 15, 2009, principal amount at maturity of E210.0 million ($197.1 million), interest payable semiannually beginning on May 15, 2005, redeemable at the Company's option on or after November 15, 2004 and; (o) 11 7/8% Notes due October 1, 2010, issued in October 2000, principal amount at maturity of $500.0 million, interest payable semiannually beginning on April 1, 2001, redeemable at the Company's option on or after October 1, 2005; The indentures governing the notes contain restrictions relating to, among other things: (i) incurrence of additional indebtedness and issuance of preferred stock, (ii) dividend and other payment restrictions and (iii) mergers, consolidations and sales of assets. During 2000, 1999 and 1998, the Company recognized $334.3 million, $308.1 million and $232.7 million, respectively, of original issue discount as interest expense. In connection with the Cablelink acquisition, the Company issued $704.6 million principal amount Senior Increasing Rate Notes due 2000. In November 1999, the Company received net proceeds of $720.7 million from the issuance of the 9 1/4% Euro Notes, the 9 7/8% Euro Notes and the 11 1/2% Deferred Euro Notes, of which $716.5 million was used to repay the Senior Increasing Rate Notes plus accrued interest. The Company recorded an extraordinary loss from the early extinguishment of the notes of $3.0 million in 1999. In October 1998, the Company redeemed its 10 7/8% Senior Deferred Coupon Notes with an accreted value of $211.0 million for cash of $218.0 million. The Company recorded an extraordinary loss from the early extinguishment of the 10 7/8% Notes of $12.1 million in 1998, which included approximately $4.8 million of unamortized deferred financing costs. In 1998, the Company required consents from the holders of some of its notes to modify certain indenture provisions in order to proceed with an acquisition. In October 1998, the Company paid $11.3 million in consent payments and issued warrants to purchase 1.2 million shares of common stock in lieu of additional consent payments of $10.1 million. Long-term debt repayments are due as follows (in millions): Year ending December 31: 2001............................................. $ -- 2002............................................. -- 2003............................................. -- 2004............................................. -- 2005............................................. 277.8 Thereafter....................................... 6,813.8 -------- $7,091.6 ========
F-33 34 NTL COMMUNICATIONS CORP. AND SUBSIDIARIES SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) In January and February 2001, the Company issued E300.0 million ($281.6 million) aggregate principal amount of 12 3/8% Senior Euro Notes due February 1, 2008. The Company received proceeds of approximately $275.3 million after underwriters' discount and commissions and other fees. Interest is payable semiannually in cash at a rate of 12 3/8% per annum beginning on August 1, 2001. These notes may not be redeemed by the Company except in limited circumstances. 4. LEASES Leases for office space end in 2004. Total rental expense for the years ended December 31, 2000, 1999 and 1998 under operating leases was $2.0 million, $1.2 million and $0.6 million, respectively. Future minimum lease payments under noncancellable operating leases as of December 31, 2000 are (in millions): $1.0 (2001), $1.1 (2002), $1.1 (2003) and $0.7 (2004). 5. OTHER No cash dividends were paid to the registrant by subsidiaries for the years ended December 31, 2000, 1999 and 1998. F-34 35 NTL COMMUNICATIONS CORP. AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
COL. A COL. B COL. C COL. D COL. E - --------------------------------------- ------------ ------------------------ ------------- --------- ADDITIONS ------------------------ (2) (1) CHARGED TO BALANCE AT CHARGED TO OTHER (DEDUCTIONS)/ BALANCE BEGINNING OF COSTS AND ACCOUNTS -- ADDITIONS AT END DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD - ----------- ------------ ---------- ----------- ------------- --------- Year ended December 31, 2000 Allowance for doubtful accounts...... $84.9 $98.5 $-- $(48.2)(a) $135.2 ===== ===== == ====== ====== Year ended December 31, 1999 Allowance for doubtful accounts...... $38.5 $45.7 $-- $ 0.7(b) $ 84.9 ===== ===== == ====== ====== Year ended December 31, 1998 Allowance for doubtful accounts...... $ 8.1 $27.3 $-- $ 3.1(c) $ 38.5 ===== ===== == ====== ======
- --------------- (a) Uncollectible accounts written-off, net of recoveries of $91.6 million and $5.7 million foreign exchange currency translation adjustments, offset by $49.1 million allowance for doubtful accounts as of acquisition dates of purchased subsidiaries. (b) Uncollectible accounts written-off, net of recoveries of $15.1 million and $1.1 million foreign currency exchange translation adjustments, offset by $16.9 million allowance for doubtful accounts as of acquisition dates of purchased subsidiaries. (c) Uncollectible accounts written-off, net of recoveries of $9.2 million, offset by $12.2 million allowance for doubtful accounts as of acquisition dates of purchased subsidiaries and $0.1 million foreign currency translation adjustments. F-35 EX-99.2 6 y48736ex99-2.txt SELECTED FINANCIAL DATA 1 EXHIBIT 99.2 SELECTED FINANCIAL DATA. The following table sets forth certain financial data for the years ended December 31, 2000, 1999, 1998, 1997 and 1996. This information should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Form 8-K/A.
YEAR ENDED DECEMBER 31, ------------------------------------------------------ 2000 1999 1998 1997 1996 --------- -------- ------- ------- ------- (1) (2) (3) (4) (IN MILLIONS) Income statement data: Operating revenues..................... $ 2,484.2 $1,537.1 $ 747.0 $ 491.8 $ 228.3 (Loss) before extraordinary item....... (2,388.1) (713.5) (503.9) (328.6) (254.5) Net (loss)............................. (2,388.1) (716.5) (534.6) (333.1) (254.5)
AS OF DECEMBER 31, 2000 --------------------------------------------------------- 2000 1999 1998 1997 1996 --------- -------- -------- -------- -------- (1) (2) (3) (4) Working capital (deficiency).......... $ (937.2) $ 423.9 $ 600.5 $ (52.3) $ 242.1 Fixed assets, net..................... 10,916.8 5,348.4 3,854.4 1,757.0 1,459.5 Total assets.......................... 23,146.5 9,733.0 6,194.1 2,421.6 2,454.6 Long-term debt........................ 11,843.4 7,598.0 5,043.8 2,015.1 1,732.2 Redeemable preferred stock............ -- -- 124.1 108.5 -- Shareholder's equity (deficiency)..... 9,012.2 1,066.0 355.2 (61.7) 328.1
- --------------- (1) In May 2000, NTL Incorporated purchased ConsumerCo for an aggregate purchase price of $13,111.0 million, including intangibles of $8,879.0 million. ConsumerCo was subsequently acquired by the Company from NTL Incorporated. The net assets and results of operations of ConsumerCo are included in the consolidated financial statements from May 2000, the date of the acquisition. (2) In March 1999, the Company purchased Diamond Cable Communications plc ("Diamond") for an aggregate purchase price of $984.6 million, including intangibles aggregating $1,323.0 million. In July 1999, the Company acquired Cablelink Limited ("Cablelink") for an aggregate purchase price of $700.5 million, including intangibles of $669.6 million. In September 1999, NTL Delaware acquired the shares of Workplace Technologies plc, for an aggregate purchase price of $175.0 million, including intangibles of $176.9 million. Workplace Technologies was subsequently acquired by the Company from NTL Delaware. The net assets and results of operations of Diamond, Cablelink and Workplace Technologies are included in the consolidated financial statements from March 1999, July 1999 and September 1999, their respective dates of acquisition. (3) In June and September 1998, the Company purchased ComTel Limited and Telecential Communications (collectively "Comtel") for an aggregate purchase price of $969 million, including intangibles aggregating $224 million. In October 1998, the Company purchased Comcast U.K. Cable Partners Limited ("Comcast U.K.") for an aggregate purchase price of $600 million, including intangibles of $130 million. In December 1998, the Company purchased Eastern Group Telecoms ("EGT") for an aggregate purchase price of $151 million, including intangibles of $45 million. The net assets and results of operations of ComTel, Comcast U.K. and EGT are included in the consolidated financial statements from their respective dates of acquisition. (4) In May 1996, the Company purchased NTL Group Limited for an aggregate purchase price of $439 million, including goodwill of approximately $263 million. The net assets and results of operations of NTL Group Limited are included in the consolidated financial statements from the date of the acquisition. 1 EX-99.3 7 y48736ex99-3.txt MD&A 1 EXHIBIT 99.3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS Years ended December 31, 2000 and 1999 As a result of the completion of the acquisitions of Diamond in March 1999, Cablelink in July 1999, Workplace Technologies in September 1999 and ConsumerCo in May 2000, the Company consolidated the results of operations of these businesses from the dates of acquisition. For the year ended December 31, 1999, certain revenues have been reclassified from business telecommunications to broadcast transmission and other and certain costs have been reclassified from operating expenses to selling, general and administrative expenses to conform to the 2000 classifications. Consumer telecommunications and television revenues increased to $1,518.2 million from $827.3 million as a result of acquisitions and from customer growth that increased the Company's current revenue stream. The 2000 and 1999 revenue includes $773.6 million and $162.4 million, respectively, from acquired companies. The Company's immediate goal is to drive the majority of revenue growth from ARPU increases rather than adding new customers; this allows the Company to maintain revenue targets, has a lower capital requirement, due to fewer installations, and drives higher EBITDA as the Company reduces front-loaded costs such as customer acquisition costs and higher initial maintenance costs. Business telecommunications revenues increased to $702.2 million from $452.5 million as a result of acquisitions, customer growth and increases in carrier services revenues. The 2000 and 1999 revenue includes $234.3 million and $92.8 million, respectively, from acquired companies. The Company continues to focus specific sales and marketing effort on winning business customers in its franchise areas and promoting broadband for small businesses. Carrier services revenues increased due to growth in services provided by the Company's wholesale operation to other telephone companies. Revenue growth in carrier services is primarily dependent upon the Company's ability to continue to attract new customers and expand services to existing customers. Broadcast transmission and other revenues increased to $263.8 million from $257.3 million due to increases in broadcast television and FM radio customers and accounts, which exceeded price cap reductions in the Company's regulated services, and increases in satellite and media services used by broadcast and media customers. The Company expects growth in broadcast services to be driven primarily by contracts related to the increased demand for tower infrastructure by wireless services operators expanding and upgrading their networks for wireless broadband, the privatization of national broadcast networks, the digitalization of analog television and radio signals and the further development of programming for the European markets requiring satellite and terrestrial distribution services. Operating expenses (including network expense) increased to $1,223.2 million from $761.5 million as a result of increases in interconnection costs and programming costs due to customer growth. Operating expenses as a percentage of revenues decreased to 49.2% from 49.5%. The 2000 and 1999 expense includes $502.5 million and $141.9 million respectively, from acquired companies. Selling, general and administrative expenses increased to $969.1 million from $562.9 million as a result of increases in telecommunications and cable television sales and marketing costs and increases in additional personnel and overhead to service the increasing customer base. The 2000 and 1999 expense includes $377.9 million and $52.5 million respectively, from acquired companies. Pursuant to the terms of various United Kingdom licenses, the Company incurred license fees paid to the Independent Television Commission ("ITC") to operate as the exclusive service provider in certain of its franchise areas. Upon a request by the Company in 1999, the ITC converted all of the Company's fee bearing exclusive licenses to non-exclusive licenses at the end of 1999, and the Company's liability for license payments ceased upon the conversion. Franchise fees were $16.5 million in 1999. 1 2 In September 2000, the Board of Directors approved modifications to certain stock options granted to employees in November 1999 through May 2000. Options to purchase an aggregate of approximately 16.5 million shares of NTL Incorporated's common stock with a weighted average exercise price of $64.39 per share were modified such that the exercise price was reduced to $44.50 per share and the vesting schedule was delayed and/or lengthened. This change did not affect the exercise price of options granted to the Chairman of the Board, the President and Chief Executive Officer and the Company's Directors. In accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations, NTL Incorporated is accounting for these options as a variable plan beginning in September 2000. The Company will recognize non-cash compensation expense for the difference between the quoted market price of NTL Incorporated's common stock and the exercise price of the vested options while the options remain outstanding. There was no compensation expense recognized in the year ended December 31, 2000 as a result of these option modifications. Other charges of $92.7 million in 2000 include restructuring costs of $65.9 million and information technology integration costs of $26.8 million. Restructuring costs relate to NTL Incorporated's announcement in November 2000 of its completion of a consolidation review. Based on a comprehensive review of the combined company following NTL Incorporated's acquisition of ConsumerCo in May 2000 and the integration of several other acquired businesses, NTL Incorporated identified significant efficiency improvements and cost savings. The Company's restructuring provision includes employee severance and related costs of $47.9 million for approximately 2,300 employees to be terminated and lease exit costs of $18.0 million. As of December 31, 2000, approximately 360 of the employees had been terminated. None of the provision had been utilized through December 31, 2000. The information technology integration costs of $26.8 million were incurred for the integration of acquired companies' information technology. Other charges of $16.2 million in 1999 were incurred for the cancellation of certain contracts. Corporate expenses decreased to $23.7 million from $25.3 million due to a decrease in various overhead costs. Depreciation and amortization expense increased to $1,700.7 million from $765.7 million due to an increase in depreciation of telecommunications and cable television equipment. The 2000 and 1999 expense includes $1,066.3 million and $190.5 million respectively, from acquired companies, including amortization of acquisition related intangibles. Interest income and other, net decreased to $1.6 million from $29.9 million as a result of increases in the net losses of affiliates accounted for by the equity method and decreases in interest income. Interest expense increased to $886.3 million from $678.2 million due to the issuance of additional debt, and the increase in the accretion of original issue discount on the deferred coupon notes. The 2000 and 1999 expense includes $298.7 million and $133.8 million, respectively, from acquired companies. Interest of $459.0 million and $222.1 million was paid in the years ended December 31, 2000 and 1999, respectively. Other gains of $493.1 million in 1999 are from the sale of the Company's investment in Cable London. Foreign currency transaction (losses) gains decreased to losses of $58.1 million from gains of $22.8 million primarily due to the effect of unfavorable changes in exchange rates. The Company's results of operations are impacted by changes in foreign currency exchange rates as follows. The Company and certain of its subsidiaries have cash, cash equivalents and debt denominated in foreign currencies that are affected by changes in exchange rates. In addition, foreign subsidiaries of the Company whose functional currency is not the U.S. dollar hold cash, cash equivalents and debt denominated in U.S. dollars which are affected by changes in exchange rates. The Company recorded an extraordinary loss from the early extinguishment of debt of $3.0 million in 1999 as a result of the repayment of the bridge loan incurred in connection with the Cablelink acquisition. 2 3 Years ended December 31, 1999 and 1998 As a result of the completion of the acquisitions of ComTel in June and September 1998, NTL (Triangle) LLC (formerly Comcast U.K. Cable Partners Limited) ("NTL Triangle") in October 1998, EGT in December 1998, Diamond in March 1999, Cablelink in July 1999 and Workplace Technologies in September 1999, the Company consolidated the results of operations of these businesses from the dates of acquisition. The results of these businesses are not included in the 1998 results except for the results of operations of ComTel, NTL Triangle and EGT from the dates of acquisition. For the years ended December 31, 1999 and 1998, certain revenues have been reclassified from business telecommunications to broadcast transmission and other and certain costs have been reclassified between selling, general and administrative expenses and operating expenses to conform to 2000 classifications. Consumer telecommunications and television revenues increased to $827.3 million from $355.6 million primarily as a result of customer growth that increased the Company's current revenue stream. The 1999 and 1998 revenue includes $467.2 million and $74.2 million, respectively, from acquired companies. Business telecommunications revenues increased to $452.5 million from $157.7 million as a result of acquisitions, customer growth and increases in carrier service revenues. The 1999 and 1998 revenue includes $200.8 million and $8.5 million, respectively from acquired companies. Carrier services revenues increased due to growth in telephone services provided by the Company's wholesale operation to other telephone companies. Revenue growth in carrier services is primarily dependent upon the Company's ability to continue to attract new customers and expand services to existing customers. Broadcast transmission and other revenues increased to $257.3 million from $231.3 million due to increases in broadcast television and FM radio customers and accounts, which exceeded price cap reductions in the Company's regulated services and from increases in satellite and media services used by broadcast and media customers. Other telecommunications revenues decreased to zero from $2.4 million due to the sales of the assets of the Company's wholly-owned subsidiary, OCOM Corporation to AirTouch Communications, Inc. and to Cellular Communications of Puerto Rico, Inc. during 1998. Operating expenses increased to $761.5 million from $400.9 million as a result of increases in interconnection costs and programming costs due to customer growth. The 1999 and 1998 expense includes $330.1 million and $51.1 million, respectively, from acquired companies. Selling, general and administrative expenses increased to $562.9 million from $270.7 million as a result of increases in telecommunications and cable television sales and marketing costs and increases in additional personnel and overhead to service the increasing customer base. In addition, $47.4 million of the increase was due to the new national brand and advertising campaign, which began in the second quarter of 1999 and continued into 2000. The 1999 and 1998 expense includes $215.8 million and $25.1 million, respectively, from acquired companies. Pursuant to the terms of various United Kingdom licenses, the Company incurred license fees paid to the ITC to operate as the exclusive service provider in certain of its franchise areas. Upon a request by the Company in 1999, the ITC converted all of the Company's fee bearing exclusive licenses to non-exclusive licenses by the end of 1999, and the Company's liability for license payments ceased upon the conversion. Franchise fees decreased to $16.5 million from $25.0 million due to the reversal of the accrued liability for franchise fees of $13.6 million. The 1999 amount includes Diamond franchise fees of $5.0 million. Other charges of $16.2 million in 1999 were incurred for the cancellation of certain contracts. Other charges of $4.2 reversed in 1998 were the result of changes to a restructuring reserve that was recorded in 1997. Corporate expenses increased to $25.3 million from $17.1 million due to an increase in various overhead costs. 3 4 Depreciation and amortization expense increased to $765.7 million from $266.1 million due to an increase in depreciation of telecommunications and cable television equipment. The 1999 and 1998 expense includes $404.7 million and $45.9 million respectively, from acquired companies, including amortization of acquisition related intangibles. Interest expense increased to $678.2 million from $328.8 million due to the issuance of additional debt and the increase in the accretion of original issue discount on the deferred coupon notes. The 1999 expense includes $184.8 million from acquired companies. Interest of $222.1 million and $118.3 million was paid in the years ended December 31, 1999 and 1998, respectively. Other gains of $493.1 million in 1999 are from the sale of the Company's investment in Cable London. Foreign currency transaction gains increased to $22.8 million from $4.2 million primarily due to favorable changes in the exchange rate on the Company's pounds sterling and Euro denominated notes in 1999. The Company recorded an extraordinary loss from the early extinguishment of debt of $3.0 million in 1999 as a result of the repayment of the bridge loan incurred in connection with the Cablelink acquisition. The Company recorded an extraordinary loss from the early extinguishment of debt of $30.7 million in 1998 as a result of the redemption of the 10 7/8% Notes and the repayment of a bank loan. RECENT ACCOUNTING PRONOUNCEMENTS In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 provides guidance on the recognition, presentation and disclosure of revenue in financial statements. SAB 101 was required to be adopted retroactive to January 1, 2000. The adoption of SAB 101 had no significant effect on revenues or results of operations. Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS Nos. 137 and 138. The new accounting standard requires that all derivative instruments be recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded each period in the results of operations or in other comprehensive income (loss), depending on whether a derivative is designated as a fair value or cash flow hedge. The ineffective portion of all hedges will be recognized in the results of operations. On January 1, 2001, the Company recorded all of its outstanding derivative instruments at their fair value. The outstanding derivative instruments were comprised of cross currency swaps to hedge exposure to movements in the British pound/U.S. dollar exchange rate. The aggregate fair value on January 1, 2001 was a liability of $2.2 million, which was recorded as other comprehensive loss. LIQUIDITY AND CAPITAL RESOURCES The Company will continue to require significant amounts of capital to finance construction of its local and national networks, for connection of telephone, telecommunications, Internet and cable television customers to the networks, for other capital expenditures and for debt service. The Company estimates that these requirements, net of cash from operations, will aggregate up to approximately $1,900.0 million in 2001. The Company's commitments at December 31, 2000 for equipment and services through 2001 of approximately $162.0 million are included in the anticipated requirements. The Company had approximately $423.5 million in cash and securities on hand at December 31, 2000. The Company expects to utilize the proceeds from the issuance of notes in January and February 2001 and a portion of its bank credit facilities to fund the balance of these requirements. In January 2001, the Company issued E200.0 million ($187.8 million) principal amount of 12 3/8% Senior Notes due 2008. In February 2001, the Company issued an additional E100.0 million principal amount of 12 3/8% Senior Notes due 2008 at a price of 101.0% of the aggregate principal amount at maturity, plus accrued interest, or E101.5 million ($95.3 million) (together, the "2001 Euro Notes"). The underwriter's discount and commissions were E6.8 million ($6.4 million). Interest is payable semiannually in cash at the rate of 4 5 12 3/8% per annum beginning on August 1, 2001. The 2001 Euro Notes may not be redeemed by the Company except in limited circumstances. NTL Communications Limited ("NTLCL") and NTL Business wholly-owned indirect subsidiaries of the Company, have the option to draw on the unused portion of the L2,500.0 million ($3,738.8 million) commitment amounting to L222.8 million ($333.2 million) at December 31, 2000. NTLCL had L250.9 million ($375.3 million) and NTL Business had L2,026.3 million ($3,030.3 million) outstanding under the credit agreement at December 31, 2000. The unused portion of the commitment is available for refinancing ConsumerCo indebtedness and for working capital requirements of the UK Group, as defined. For purposes of this credit agreement, Diamond and subsidiaries and NTL Triangle and subsidiaries and certain other entities are excluded from the UK Group. NTLCL entered into a L1,300.0 million ($1,944.2 million) credit agreement with a group of banks dated May 30, 2000. Pursuant to the credit agreement, in connection with the issuance in October 2000 of $500.0 million aggregate principal amount of the Company's 11 7/8% notes, and the issuance in January and February 2001 of E300.0 million aggregate principal amount of the Company's 2001 Euro Notes, the commitment was reduced by L255.1 million ($381.4 million). As of December 31, 2000, there were no amounts borrowed under this agreement. NTLCL and other members of the UK Group (as defined above) may utilize the proceeds under this credit agreement to finance the working capital requirements of the UK Group, provided that in no event shall the proceeds be used for a purpose other than to finance the construction, capital expenditure and working capital needs of a cable television or telephone or telecommunications business, or a related business, in the United Kingdom or Ireland. Interest is payable at least every six months at LIBOR plus a margin rate of 4.5% per annum. The margin rate shall increase by 0.5% on the three month anniversary of the initial advance and by an additional 0.5% on each subsequent three month anniversary, up to a maximum total interest rate of 16% per annum. The unused portion of the commitment is subject to a commitment fee of 0.75% payable quarterly. Principal is due in full on March 31, 2006. Regarding the Company's estimated cash requirements described above, there can be no assurance that: (a) actual construction costs will not exceed the amounts estimated or that additional funding substantially in excess of the amounts estimated will not be required, (b) conditions precedent to advances under credit facilities will be satisfied when funds are required, (c) the Company and its subsidiaries will be able to generate sufficient cash from operations to meet capital requirements, debt service and other obligations when required, (d) the Company will be able to access such cash flow or (e) the Company will not incur losses from its exposure to exchange rate fluctuations or be adversely affected by interest rate fluctuations. The accreted value at December 31, 2000 of the Company's consolidated long-term indebtedness is $11,843.4 million, representing approximately 56.8% of total capitalization. The following summarizes the terms of the significant credit facilities and notes issued by the Company and its subsidiaries. NTL Communications: (1) 12 3/4% Senior Deferred Coupon Notes due April 15, 2005, principal amount at maturity of $277.8 million, interest payable semiannually beginning on October 15, 2000, redeemable at the Company's option on or after April 15, 2000; (2) 11 1/2% Senior Deferred Coupon Notes due February 1, 2006, principal amount at maturity of $1,050.0 million, interest payable semiannually beginning on August 1, 2001, redeemable at the Company's option on or after February 1, 2001; (3) 10% Senior Notes due February 15, 2007, principal amount of $400.0 million, interest payable semiannually from August 15, 1997, redeemable at the Company's option on or after February 15, 2002; (4) 9 1/2% Senior Sterling Notes due April 1, 2008, principal amount of L125.0 million ($186.9 million), interest payable semiannually from October 1, 1998, redeemable at the Company's option on or after April 1, 2003; 5 6 (5) 10 3/4% Senior Deferred Coupon Sterling Notes due April 1, 2008, principal amount at maturity of L300.0 million ($448.7 million), interest payable semiannually from October 1, 2003, redeemable at the Company's option on or after April 1, 2003; (6) 9 3/4% Senior Deferred Coupon Notes due April 1, 2008, principal amount at maturity of $1,300.0 million, interest payable semiannually beginning on October 1, 2003, redeemable at the Company's option on or after April 1, 2003; (7) 9 3/4% Senior Deferred Coupon Sterling Notes due April 15, 2009, principal amount at maturity of L330.0 million ($493.5 million), interest payable semiannually beginning on October 15, 2004, redeemable at the Company's option on or after April 15, 2004; (8) 11 1/2% Senior Notes due October 1, 2008, principal amount of $625.0 million, interest payable semiannually from April 1, 1999, redeemable at the Company's option on or after October 1, 2003; (9) 12 3/8% Senior Deferred Coupon Notes due October 1, 2008, principal amount at maturity of $450.0 million, interest payable semiannually beginning on April 1, 2004, redeemable at the Company's option on or after October 1, 2003; (10) 7% Convertible Subordinated Notes due December 15, 2008, principal amount of $599.3 million, interest payable semiannually from June 15, 1999, convertible into shares of NTL Incorporated common stock at a conversion price of $39.20 per share, redeemable at the Company's option on or after December 15, 2001; (11) 9 1/4% Senior Euro Notes due November 15, 2006, principal amount of E250.0 million ($234.7 million), interest payable semiannually beginning on May 15, 2000; (12) 9 7/8% Senior Euro Notes due November 15, 2009, principal amount of E350.0 million ($328.6 million), interest payable semiannually beginning on May 15, 2000, redeemable at the Company's option on or after November 15, 2004; (13) 11 1/2% Senior Deferred Coupon Euro Notes due November 15, 2009, principal amount at maturity of E210.0 million ($197.1 million), interest payable semiannually beginning on May 15, 2005, redeemable at the Company's option on or after November 15, 2004; (14) 11 7/8% Senior Notes due October 1, 2010, principal amount at maturity of $500.0 million, interest payable semiannually beginning on April 1, 2001, redeemable at the Company's option on or after October 1, 2005; (15) 12 3/8% Senior Euro Notes due February 1, 2008, principal amount at maturity of E300.0 million, interest payable semiannually beginning on August 1, 2001; NTLCL: (16) Credit Agreement of L1,300.0 million ($1,944.2 million), no amounts were outstanding at December 31, 2000, interest payable at least every six months at LIBOR plus a margin rate of 4.5% per annum, which is subject to adjustment, the unused portion of the commitment is subject to a commitment fee of 0.75% payable quarterly, principal is due in full on March 31, 2006, pursuant to the credit agreement, following the issuance in October 2000 of $500.0 million aggregate principal amount of the Company's 11 7/8% senior notes and the issuance in January and February 2001 of E300.0 million aggregate principal amount of the Company's 12 3/8% senior notes, the commitment was reduced by L255.1 ($381.4 million); NTLCL and NTL Business: (17) Credit Agreement of L2,500.0 million ($3,738.3 million), of which L2,277.2 million ($3,405.6 million) was outstanding at December 31, 2000, interest payable at least every six months at LIBOR plus a margin rate of 2.25% per annum, which is subject to adjustment, effective interest rate of 8.283% at December 31, 2000, the unused portion of the commitment is subject to a 6 7 commitment fee of 0.75% payable quarterly, which is reduced to 0.50% when over 50% of the commitment is utilized, principal is due in six quarterly installments beginning on June 30, 2004; NTL Triangle: (18) 11.2% Senior Discount Debentures due November 15, 2007, principal amount at maturity of $517.3 million, interest payable semiannually beginning on May 15, 2001, redeemable at NTL Triangle's option after November 15, 2000; Diamond: (19) 13 1/4% Senior Discount Notes due September 30, 2004, principal amount at maturity of $285.1 million, interest payable semiannually from March 31, 2000, redeemable at Diamond's option on or after September 30, 1999; (20) 11 3/4% Senior Discount Notes due December 15, 2005, principal amount at maturity of $531.0 million, interest payable semiannually beginning on June 15, 2001, redeemable at Diamond's option on or after December 15, 2000; (21) 10 3/4% Senior Discount Notes due February 15, 2007, principal amount at maturity of $420.5 million, interest payable semiannually beginning on August 15, 2002, redeemable at Diamond's option on or after December 15, 2002; (22) 10% Senior Notes due February 1, 2008, issued by Diamond Holdings plc, a wholly-owned subsidiary of Diamond, principal amount at maturity of L135.0 million ($201.9 million), interest payable semiannually from August 1, 1998, redeemable at Diamond's option on or after February 1, 2003; and (23) 9 1/8% Senior Notes due February 1, 2008, issued by Diamond Holdings plc, principal amount of $110.0 million, interest payable semiannually from August 1, 1998, redeemable at Diamond's option on or after February 1, 2003. Management does not anticipate that the Company and its subsidiaries will generate sufficient cash flow from operations to repay at maturity the entire principal amount of the outstanding indebtedness of the Company and its subsidiaries. Accordingly, the Company may be required to consider a number of measures, including: (a) refinancing all or a portion of such indebtedness, (b) seeking modifications to the terms of such indebtedness, (c) seeking additional debt financing, which may be subject to obtaining necessary lender consents, (d) seeking additional equity financing, or (e) a combination of the foregoing. The Company's operations are conducted through its direct and indirect wholly-owned subsidiaries. As a holding company, the Company holds no significant assets other than cash, securities and its investments in and advances to its subsidiaries. Accordingly, the Company's ability to make scheduled interest and principal payments when due to holders of its indebtedness may be dependent upon the receipt of sufficient funds from its subsidiaries. CONSOLIDATED STATEMENTS OF CASH FLOWS Cash (used in) provided by operating activities was $(170.3) million and $73.7 million in the years ended December 2000 and 1999, respectively. Cash paid during the year for interest exclusive of amounts capitalized was $363.9 million and $180.3 million in 2000 and 1999, respectively The remainder of this change is primarily due to the increase in the net loss and changes in working capital as a result of the timing of receipts and disbursements. Purchases of fixed assets were $1,961.8 million in 2000 and $1,198.3 million in 1999 as a result of the continuing fixed asset purchases and construction, including purchases and construction by acquired companies. Acquisitions, net of cash acquired of $7,514.9 million and proceeds from borrowings, net of financing costs of $5,009.8 million in 2000 were primarily for the acquisition of ConsumerCo including the credit 7 8 agreement entered into with a group of banks. Included in proceeds from borrowings, net of financing costs, are the Company's 11 7/8% senior notes in the amount of $476.4 million net of unamortized discount and $1,018.5 million of borrowings under credit facilities that are not related to the acquisition. Included in principal repayments is $73.7 million related to the Company's redemption of its Variable Rate Redeemable Guaranteed Loan Notes and $1,168.2 million of repayments of amounts borrowed under bank credit facilities. "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: Certain statements contained herein constitute "forward-looking statements" as that term is defined under the Private Securities Litigation Reform Act of 1995. When used in this Form 10-K, the words, "believe," "anticipate," "should," "intend," "plan," "will," "expects," "estimates," "projects," "positioned," "strategy," and similar expressions identify such forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Registrant, or industry results, to be materially different from those contemplated or projected, forecasted, estimated or budgeted, whether expressed or implied, by such forward-looking statements. Such factors include, among others: general economic and business conditions, industry trends, the Registrant's ability to continue to design network routes, install facilities, obtain and maintain any required government 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 new business opportunities requiring significant up-front investment and availability, terms and deployment of capital. 8 EX-99.4 8 y48736ex99-4.txt DISCLOSURES ABOUT MARKET RISK 1 EXHIBIT 99.4 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. MARKET RISK The Company is exposed to various market risks, including changes in foreign currency exchange rates and interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange and interest rates. The Company does not enter into derivative financial instruments for trading or speculative purposes. The Company has entered into derivative financial instruments to hedge exposure to movements in the British pound/U.S. dollar exchange rate. The counterparties are major financial institutions. FOREIGN EXCHANGE CONTRACTS To the extent that the Company obtains financing in U.S. dollars and incurs construction and operating costs in various other currencies, it will encounter currency exchange rate risks. At December 31, 2000, the Company had approximately $178.8 million in cash equivalents denominated in foreign currencies to reduce this risk. In addition, the Company's pounds sterling and Euro denominated notes also reduce this risk. Furthermore, the Company's revenues are generated in foreign currencies while its interest and principal obligations with respect to most of the Company's existing indebtedness are payable in U.S. dollars. In October 2000, the Company entered into cross currency swaps to hedge exposure to movements in the British pound to U.S. dollar exchange rate. The notional amount of the cross currency swaps was L135.0 million at December 31, 2000. INTEREST RATES The fair market value of long-term fixed interest rate debt and the amount of future interest payments on floating interest rate debt are subject to interest rate risk. Generally, the fair market value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. The following table provides information about the Company's long-term fixed and floating interest rate debt and derivative financial instruments that are sensitive to changes in interest rates and foreign currency exchange rates. 1 2
YEAR ENDING YEAR ENDING YEAR ENDING YEAR ENDING YEAR ENDING 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 ----------- ----------- ----------- ----------- ----------- (IN MILLIONS) Long-term Debt Including Current Portion U.S. dollars Fixed Rate -- -- -- $285.1 $808.8 Average Interest Rate 13.25% 12.09% U.K. pound Fixed Rate -- -- -- -- -- Average Interest Rate Average Forward Exchange Rate Euro Fixed Rate -- -- -- -- -- Average Interest Rate Average Forward Exchange Rate U.K. pound Floating Rate L4.8 L4.8 L4.8 L90.0 L2,187.2 Average Interest Rate LIBOR LIBOR LIBOR LIBOR LIBOR plus 2.04% plus 2.04% plus 2.04% plus 2.25% plus 2.25% Average Forward Exchange Rate 1.4988 1.4995 1.5001 1.5009 1.5014 Currency Swap Agreements Related to Long-term Debt Receipt of U.S. Dollars Notional U.K. Pound Amount L135.0 -- -- -- -- Average Contract Rate 1.4765 FAIR VALUE THEREAFTER TOTAL 12/31/00 ---------- -------- ---------- (IN MILLIONS) Long-term Debt Including Current Portion U.S. dollars Fixed Rate $5,972.1 $7,066.0 $5,505.1 Average Interest Rate 10.54% U.K. pound Fixed Rate L890.0 L890.0 L516.7 Average Interest Rate 10.09% Average Forward Exchange Rate 1.5097 Euro Fixed Rate E810.0 E810.0 E614.4 Average Interest Rate 10.10% Average Forward Exchange Rate .9717 U.K. pound Floating Rate -- L2,291.6 L2,291.6 Average Interest Rate Average Forward Exchange Rate Currency Swap Agreements Related to Long-term Debt Receipt of U.S. Dollars Notional U.K. Pound Amount -- L135.0 L(1.5) Average Contract Rate
2 EX-99.5 9 y48736ex99-5.txt QUARTERLY RESULTS OF OPERATIONS 1 EXHIBIT 99.5 QUARTERLY RESULTS OF OPERATIONS The following is a summary of the quarterly results of operations for the years ended December 31, 2000 and 1999.
2000 -------------------------------------------------- THREE MONTHS ENDED -------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------- ------- ------------ ----------- (IN MILLIONS) Revenues...................................... $ 470.9 $ 553.6 $ 717.7 $ 742.0 Operating (loss).............................. (173.2) (269.0) (453.4) (629.6) Net (loss).................................... (336.7) (526.1) (658.2) (867.1)
1999 ----------------------------------------------------- THREE MONTHS ENDED ----------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31(1) -------- ------- ------------ -------------- Revenues.................................... $ 313.4 $ 350.1 $ 400.3 $ 473.3 Operating (loss)............................ (121.2) (166.3) (141.1) (182.4) (Loss) income before extraordinary item..... (230.4) (346.5) (287.4) 150.8 Net (loss) income........................... (230.4) (346.5) (287.4) 147.8
- --------------- (1) In November 1999, the Company sold its investment in Cable London for cash of approximately $692.5 million and recognized a gain of $493.1 million. 1 EX-99.6 10 y48736ex99-6.txt PRO FORMA FINANCIAL INFORMATION 1 EXHIBIT 99.6 PRO FORMA FINANCIAL INFORMATION NTL COMMUNICATIONS CORP. In May 2000, NTL Incorporated acquired ConsumerCo and in September 1999, NTL (Delaware), Inc. acquired NTL Business. On February 21, 2001, as required by its bank credit agreements, NTL Communications completed a transaction whereby it acquired the entire issued share capital of ntl (CWC Holdings) Limited (the entity that owns ConsumerCo) from NTL Incorporated and the entire issued share capital of NTL Business from NTL Delaware in exchange for shares of its common stock. The unaudited pro forma financial information presented gives effect to the acquisition of ConsumerCo in May 2000 as if it had been consummated on January 1, 2000. The unaudited pro forma financial information is based on our historical financial statements restated in a manner similar to that used in a pooling of interests for the acquisition of ntl (CWC Holdings) from NTL Incorporated and the historical financial statements of ConsumerCo from January 1, 2000 to the date of acquisition. The historical financial statement of ConsumerCo is prepared in accordance with U.S. generally accepted accounting principles and have been translated into U.S. dollars. Certain amounts in the historical financial statement have been reclassified to conform to our presentation. The historical results of ConsumerCo reflect certain intercompany costs and expenses as they were prior to the separation for ConsumerCo which was completed in the second quarter of 2000. These costs and expenses do not necessarily reflect the costs and expenses that would have been incurred if CWC DataCo and ConsumerCo were separate entities during this period. Therefore, the historical financial statement of ConsumerCo, which is included in the unaudited pro forma financial information, is not reflective of results on a going forward basis. The acquisition of ConsumerCo has been accounted for at the historical cost of NTL Incorporated. This is consistent with a transfer of entities under common control, and is similar to the accounting used in a "pooling of interests." NTL Incorporated accounted for its acquisition of ConsumerCo using the purchase method of accounting. Accordingly, the assets acquired and the liabilities assumed were recorded at their estimated fair values. The pro forma adjustments are based upon available information and assumptions that we believe were reasonable at the time made. The unaudited pro forma financial information does not purport to present our results of operations had the acquisition occurred on the date specified, nor are they necessarily indicative of the results of operations that may be achieved in the future. The unaudited pro forma condensed combined statement of operations does not reflect any adjustments for cost savings that we expect to realize. The pro forma adjustments reflecting the acquisitions are based upon the assumptions set forth in the notes to the pro forma financial information. No assurances can be made as to the amount of cost savings or revenue enhancements, if any, that may be realized. 1 EX-99.7 11 y48736ex99-7.txt AUDITED FINANCIAL STATEMENTS 1 NTL COMMUNICATIONS CORP. PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE YEAR ENDED DECEMBER 31, 2000 (IN MILLIONS)
NTL COMMUNICATIONS CORP. CONSUMERCO (HISTORICAL) (HISTORICAL) ADJUSTMENTS PRO FORMA -------------------- ------------ ----------- --------- REVENUES....................... $ 2,484.2 $ 469.2 $ 2,953.4 COSTS AND EXPENSES Operating expenses............. 1,223.2 195.1 1,418.3 Selling, general and administrative expenses...... 969.1 199.2 1,168.3 Other charges.................. 92.7 -- 92.7 Corporate expenses............. 23.7 -- 23.7 Depreciation and amortization................. 1,700.7 191.8 $ 366.9 A 2,259.4 --------- ------- ------- --------- 4,009.4 586.1 366.9 4,962.4 --------- ------- ------- --------- Operating loss................. (1,525.2) (116.9) (366.9) (2,009.0) OTHER INCOME (EXPENSE) Interest income and other, net.......................... (56.5) 1.7 4.5 B (50.3) Interest expense............... (886.3) (132.3) (29.6) C (1,048.2) --------- ------- ------- --------- Loss before income taxes....... (2,468.0) (247.5) (392.0) (3,107.5) Income tax benefit (provision).................. 79.9 54.1 134.0 --------- ------- ------- --------- Net (loss)..................... $(2,388.1) $(193.4) $(392.0) $(2,973.5) ========= ======= ======= =========
A. Depreciation and Amortization: ConsumerCo ---------- For the year ended December 31, 2000 Intangibles (10 years).................................... $ 366.9 ========== B. Interest Income (using 4.867%): For the year ended December 31, 2000 Reduction of interest income on cash on hand used......... $ (2.1) Interest income on excess cash from Bank financing........ 6.6 ---------- $ 4.5 ========== C. Interest Expense: For the year ended December 31, 2000 Reduction of interest expense for debt not assumed........ $ 91.4 Interest on Bank Financing at 8.28%....................... (121.0) ---------- $ (29.6) ==========
2 2 EXHIBIT 99.7 NTL (CWC HOLDINGS) FINANCIAL STATEMENTS AS OF DECEMBER 31, 2000 AND FOR THE SEVEN MONTHS ENDED DECEMBER 31, 2000 Report of Independent Auditors.............................. F-2 Consolidated Balance Sheet as of December 31, 2000.......... F-3 Consolidated Statement of Operations for the seven months ended December 31, 2000................................... F-4 Consolidated Statement of Shareholders' Equity for the seven months ended December 31, 2000............................ F-5 Consolidated Statement of Cash Flows for the seven months ended December 31, 2000................................... F-6 Notes to Consolidated Financial Statements.................. F-7
F-1 3 To: The Board of Directors ntl (CWC Holdings) We have audited the accompanying consolidated balance sheet of ntl (CWC Holdings) as of December 31, 2000, and the related consolidated statements of operations, shareholders' equity and cash flows for the seven months then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of ntl (CWC Holdings) at December 31, 2000, and the consolidated results of its operations and its consolidated cash flows for the seven months then ended in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG London, England May 3, 2001 F-2 4 NTL (CWC HOLDINGS) CONSOLIDATED BALANCE SHEET DECEMBER 31, 2000 (EXPRESSED IN MILLIONS OF POUND STERLING, EXCEPT SHARE DATA) ASSETS CURRENT ASSETS: Cash and cash equivalents................................... L 24 Accounts receivable, net of allowance for doubtful accounts of L32.................................................... 87 Affiliate receivable........................................ 59 Prepaid expenses............................................ 36 ------ Total current assets........................................ 206 Investment in affiliates.................................... 2 Fixed assets, net of accumulated depreciation of L182....... 3,297 Intangible assets, net of accumulated amortization of L350...................................................... 5,568 Other assets................................................ 28 ------ Total assets................................................ L8,895 ====== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable............................................ L 64 Accrued expenses and other current liabilities.............. 368 Taxes, other than income taxes.............................. 6 Deferred revenue............................................ 29 Amounts owed to affiliates.................................. 147 Current portion of long-term debt........................... 5 ------ Total current liabilities................................... 619 3.5% Unsecured Convertible Loan Notes due 2001.............. -- Amount owed to affiliate.................................... 2,488 Long-term debt.............................................. 10 ------ Total liabilities........................................... 3,117 Commitments and contingencies Minority interests.......................................... 9 Shareholders' equity: Share capital Ordinary shares -- L1.32 nominal value. Authorized 1,625 million shares; issued and outstanding 1,497 million shares.................................................... 1,976 Additional paid-in capital.................................. 4,336 Retained earnings (deficit)................................. (543) ------ Total shareholders' equity.................................. 5,769 ------ Total liabilities and shareholders' equity.................. L8,895 ======
The accompanying notes are an integral part of these financial statements. F-3 5 NTL (CWC HOLDINGS) CONSOLIDATED STATEMENT OF OPERATIONS SEVEN MONTHS ENDED DECEMBER 31, 2000 (EXPRESSED IN MILLIONS OF POUNDS STERLING) REVENUES: Consumer telecommunications and television.................. L 362 Business telecommunications................................. 42 ----- 404 COSTS AND EXPENSES: Operating expenses.......................................... (191) Selling, general and administrative expenses................ (142) Restructuring costs......................................... (7) Depreciation and amortization............................... (532) ----- Operating loss.............................................. (468) Interest payable to affiliates.............................. (89) Interest payable to third parties........................... (1) ----- Loss before minority interests and income taxes............. (558) Income tax benefit.......................................... 13 ----- Loss after income taxes and before minority interests....... (545) Minority interests.......................................... 2 ----- Net loss.................................................... L(543) -----
The accompanying notes are an integral part of these financial statements. F-4 6 NTL (CWC HOLDINGS) CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE SEVEN MONTHS ENDED DECEMBER 31, 2000 (EXPRESSED IN MILLIONS OF POUNDS STERLING EXCEPT NUMBER OF SHARES)
ORDINARY SHARES L1.32 NOMINAL VALUE NUMBER OF ORDINARY ADDITIONAL RETAINED SHARES SHARES L1.32 PAID IN EARNINGS (MILLIONS) NOMINAL VALUE CAPITAL (DEFICIT) TOTAL ------------- ------------- ---------- --------- ------ Balance at beginning of period.............. 1,496 L1,976 L4,334 L -- L6,310 Net loss for the period..................... -- -- -- (543) (543) Conversion of 5% Unsecured Convertible Loan Notes..................................... 1 -- 2 -- 2 ----- ------ ------ ----- ------ Balance at end of period.................... 1,497 L1,976 L4,336 L(543) L5,769 ===== ====== ====== ===== ======
The accompanying notes are an integral part of these financial statements. F-5 7 NTL (CWC HOLDINGS) CONSOLIDATED STATEMENT OF CASH FLOWS SEVEN MONTHS ENDED DECEMBER 31, 2000 (EXPRESSED IN MILLIONS OF POUNDS STERLING) OPERATING ACTIVITIES Net loss.................................................... L(543) Adjustment to reconcile net loss to net cash provided by operating activities: Minority interests.......................................... (2) Depreciation and amortization............................... 532 Deferred income taxes....................................... (13) Provision for losses on accounts receivable................. (1) Changes in operating assets and liabilities: Accounts receivable......................................... (10) Prepaid expenses............................................ (3) Other assets................................................ 16 Accounts payable............................................ (5) Accrued expenses and other current liabilities.............. 119 Deferred revenue............................................ 9 ----- Net cash provided by operating activities................... 99 ----- INVESTING ACTIVITIES Purchase of fixed assets.................................... (304) ----- Net cash used in investing activities....................... (304) ----- FINANCING ACTIVITIES Increase in loans from affiliate............................ 200 Repayment of debt........................................... (8) ----- Net cash used by financing activities....................... 192 ----- Decrease in cash and cash equivalents....................... (13) Cash and cash equivalents at beginning of period............ 37 ----- Cash and cash equivalents at end of period.................. L 24 ===== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid during the period, net of amounts capitalized............................................... L 6 ===== SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES Conversion of 5% Unsecured Convertible Loan Notes........... L 2 =====
The accompanying notes are an integral part of these financial statements. F-6 8 NTL (CWC HOLDINGS) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEVEN MONTHS ENDED DECEMBER 31, 2000 (EXPRESSED IN MILLIONS OF POUNDS STERLING) 1 ORGANIZATION AND NATURE OF BUSINESS ntl (CWC Holdings), formerly Cable & Wireless Communications (Holdings) plc (the "Company"), was incorporated on February 4, 2000. On May 12, 2000, the Company acquired the entire issued share capital of ntl (CWC) Limited, formerly Cable & Wireless Communications plc. The Company, an unlimited company registered in England and Wales, is a wholly owned subsidiary of NTL Incorporated ("NTL"). NTL acquired the Company on May 30, 2000. On February 21, 2001, as part of a corporate restructuring, the Company's immediate parent became NTL Group Limited. The Company, through its subsidiaries, owns and operates broadband communication networks for telephone, cable television and internet services in the United Kingdom. The Company offers telephony, cable television, internet access and interactive services to its consumer customers and telephony services to its business customers. These broadband cable and local telecommunications network currently passes in excess of four million residences and business establishments within its 47 franchise areas. 2 SIGNIFICANT ACCOUNTING POLICIES a) Basis of accounting The financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("US GAAP") and are expressed in Pounds Sterling. These financial statements have been prepared for the period post NTL's acquisition from May 31, 2000 to December 31, 2000. The purchase price accounting of the Company by NTL has been pushed down into these financial statements in accordance with SEC requirements. Use of estimates The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Principles of consolidation The consolidated financial statements include the accounts of ntl (CWC Holdings) and subsidiaries. The results of subsidiaries acquired or disposed of during the period are included from the date of their acquisition or up to the date of their disposal. Significant intercompany accounts and transactions have been eliminated in consolidation. b) Revenue recognition Revenue, which excludes United Kingdom value added tax, represents the amount receivable in respect of services provided to customers in each period and is recognized as follows: Telephony Revenue is recognized in respect of services provided to customers as the service is used. At the end of each quarter, adjustments are recorded to defer revenue with respect to services invoiced in advance and to accrue for unbilled services. F-7 9 NTL (CWC HOLDINGS) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEVEN MONTHS ENDED DECEMBER 31, 2000 (EXPRESSED IN MILLIONS OF POUNDS STERLING) Cable television Revenue is recognized in respect of services provided to customers as the service is used. At the end of each quarter, adjustments are recorded to defer revenue with respect to services invoiced in advance and to accrue for unbilled services. Rentals Revenue is recognized in respect of line rentals and rental equipment provided to customers on a straight-line basis over the term of the rental agreement. At the end of each quarter, adjustments are recorded to defer revenue with respect to rentals invoiced in advance and to accrue for unbilled rental income. Installations Installation fees are recognized as revenue whenever the cost of installation exceeds the installation fee. Where the installation fee exceeds the cost of installation, the excess is deferred and recognized as revenue over the expected life of the contract. c) Interconnection with other operators When traffic is carried by operators of other national and international telecommunications networks, the charges incurred are matched with the associated revenues. All charges payable to, or by, other telecommunications companies are negotiated separately and are subject to continuous review. d) Intangible assets Intangible assets include goodwill, customer lists and other intangibles. Goodwill is calculated as the excess of the purchase price over the fair value of net tangible and identifiable intangible assets acquired in business combinations accounted for as purchases. Goodwill is amortized on a straight-line basis over periods benefited up to 10 years. Customer lists represent the portion of the purchase price allocated to the value of the customer base. Customer lists are amortized on a straight-line basis over periods benefited up to 5 years. Other intangibles include the portion of the purchase price allocated to the value of the workforce in place. Workforce in place is amortized over the period benefited of up to four years. The Company periodically reviews events and changes in circumstances to determine whether the recoverability of the carrying value of goodwill should be reassessed. An impairment assessment is performed whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value (determined using expected future discounted cash flows) and the carrying value of the asset. e) Fixed assets Fixed assets are recorded at cost, which includes amounts capitalized for labor and overhead expended in connection with the design and installation of operating equipment. Capitalization of interest Interest is capitalized as a component of the cost of fixed assets constructed. F-8 10 NTL (CWC HOLDINGS) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEVEN MONTHS ENDED DECEMBER 31, 2000 (EXPRESSED IN MILLIONS OF POUNDS STERLING) Depreciation Depreciation is computed by the straight-line method over the estimated useful lives of the assets. Estimated useful lives are as follows: Land and buildings: Lives freehold buildings 40 years leasehold land and buildings up to 40 years or term of lease if less leasehold improvements remaining term of lease or expected useful life of the improvements if less Communications network plant and equipment: ducting and network construction 10 to 40 years electronic equipment and cabling 10 to 20 years other network plant and equipment 6 to 25 years Non-network plant and equipment 3 to 10 years
Freehold land, where the cost is distinguishable from the cost of the building thereon, is not depreciated. The Company periodically reviews the recoverability of the carrying value of these assets using the same methodology that it uses for the evaluation of its intangible assets. f) Leased assets All leases are operating leases and the annual rentals are charged to the statement of operations on a straight-line basis over the lease term. g) Cash equivalents Cash equivalents are short-term highly liquid investments purchased with a maturity of three months or less. Cash equivalents were L1 at December 31, 2000, which consisted of bank time deposits. h) Deferred taxation Deferred taxes are determined based on the difference between the tax basis of an asset or liability and its reported amount in the financial statements. A deferred tax liability or asset is recorded using the enacted tax rates expected to apply to taxable income in the period in which the deferred tax liability or asset is expected to be settled or realized. Future tax benefits attributable to these differences, if any, are recognizable to the extent that realization of such benefits is more likely than not. i) Pensions Defined contribution schemes Where ntl (CWC Holdings) companies participate in defined contribution pension schemes for their employees, the pension costs charged to the statement of operations represent contributions payable during the period. Defined benefit schemes The Company also participates in a defined benefit pension scheme operated by Cable and Wireless plc for certain employees. This scheme has been accounted for as a multi-employer plan under the provisions of F-9 11 NTL (CWC HOLDINGS) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEVEN MONTHS ENDED DECEMBER 31, 2000 (EXPRESSED IN MILLIONS OF POUNDS STERLING) SFAS No 87, "Employers' Accounting for Pensions". The pension costs charged to the statement of operations therefore represent contributions payable during the period. j) Loss contingencies An estimated loss from a loss contingency is recognized through a charge to income if information available prior to the issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements and the amount of loss can be reasonably estimated. k) Stock based compensation As permitted by SFAS No 123, "Accounting for Stock-Based Compensation", the Company applies APB Opinion No 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its stock option plans. l) Advertising expenditure The Company charges the cost of advertising to expense as incurred. Advertising costs were L29 in the seven months ended December 31, 2000. 3 RECENT ACCOUNTING PRONOUNCEMENTS In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements". SAB 101 provides guidance on the recognition, presentation and disclosure of revenue in financial statements. SAB 101 was required to be adopted retrospectively to January 1, 2000. The adoption of SAB 101 by the Company on May 31, 2000 had no effect on revenues or results of operations. Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS Nos. 137 and 138. The new accounting standard requires that all derivative instruments be recorded on the balance sheet at fair value. As the Company had no derivative instruments at that date, the adoption of SFAS 133 had no effect on the financial statements. 4 FIXED ASSETS Fixed assets consist of:
2000 ------ Cost Network assets.............................................. L3,090 Non-network assets.......................................... 153 Property.................................................... 76 Construction-in-progress.................................... 160 ------ 3,479 Accumulated depreciation.................................... (182) ------ Net property and equipment.................................. L3,297 ======
Depreciation expense was L182 in the seven months ended December 31, 2000. F-10 12 NTL (CWC HOLDINGS) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEVEN MONTHS ENDED DECEMBER 31, 2000 (EXPRESSED IN MILLIONS OF POUNDS STERLING) Interest totaling L9 for the seven months ended December 31, 2000 that is directly applicable to the design, construction and installation of cable television and telecommunications network has been capitalized. 5 INTANGIBLE ASSETS Intangible assets include:
2000 ------ Customer lists.............................................. L 35 Workforce in place.......................................... 25 Goodwill.................................................... 5,858 ------ 5,918 Accumulated amortization.................................... (350) ------ Net book value.............................................. L5,568 ======
Amortization expense was L350 in the seven months ended December 31, 2000. 6 AMOUNTS OWED TO AFFILIATES The long-term amount owed to affiliate of L2,488 is due to ntl Business Limited ("ntl Business") and is derived from a L2,500 credit agreement entered into in May 2000. Interest is payable by the Company on the same basis as that between ntl Business and the lending bank. Interest is payable at least every six months at LIBOR plus a margin of 2.25% per annum, which is subject to adjustment based on a ratio of EBITDA to finance charges of the UK Group. The effective rate of interest at December 31, 2000 was 8.283%. The unused portion of the facility is subject to a commitment fee of 0.75% payable quarterly, which is reduced to 0.50% when over 50% of the commitment fee is utilized. The long-term amount owed to affiliate is due as follows: Year ending December 31: 2004........................................................ L 90 2005........................................................ 2,398 ------ L2,488 ======
Short-term amounts owed to affiliates comprise accrued interest on the above facility of L86 and L61 owed to other affiliates, which is non-interest bearing and payable on demand. F-11 13 NTL (CWC HOLDINGS) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEVEN MONTHS ENDED DECEMBER 31, 2000 (EXPRESSED IN MILLIONS OF POUNDS STERLING) 7 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consists of:
2000 ---- Interconnect................................................ L88 IT Systems.................................................. 81 Purchase ledger accruals.................................... 48 Other accruals.............................................. 40 Networks and maintenance.................................... 34 Telecommunications expenses................................. 34 Content accruals............................................ 25 Property.................................................... 11 Marketing................................................... 7 ---- L368 ====
8 LONG-TERM DEBT Long-term debt consists of:
2000 ---- Bank loans.................................................. L15 Less: current portion....................................... 5 --- L10 ===
On April 18, 1995, NTL (South Hertfordshire) Limited, a majority owned subsidiary ("NTL South Herts"), entered into an agreement with two major banks to provide a L25 revolving credit and term loan credit facility agreement maturing on December 31, 2003 (the "South Herts Credit Agreement"). On October 18, 1996, L5 was cancelled and the facility reduced to L20. The credit facility was structured as a revolving facility through December 31, 1997, at which time the facility was converted into a term loan. The facility is divided into two tranches, denoted Facility A and Facility B, and the aggregate amount drawn down under both tranches may not exceed L20. Amounts drawn down under Facility A bear interest at sterling LIBOR plus a margin of 2.5%. The availability of Facility B of L20 is subject to certain conditions which have been satisfied and amounts drawn down under Facility B bear interest at sterling LIBOR plus a margin ranging from 0.75% to 2.0% depending on the bank debt ratio (the ratio of bank debt to annualized operating cash flow) of NTL South Herts. At December 31, 2000, sterling LIBOR was 6%. The South Herts Credit Agreement contains certain events of default including non-payment of amounts due under the South Herts Credit Agreement, breaches of representations and covenants (including financial ratios) contained in the South Herts Credit Agreement, cross-default to certain other indebtedness of NTL South Herts, certain bankruptcy and insolvency events and certain changes of ownership. The obligations of NTL South Herts under the South Herts Credit Agreement are secured by first fixed and floating charges over all of the assets of NTL South Herts. In addition, there is a pledge of all of the share capital of NTL South Herts given by NTL (CWC Holdings) as additional security for the facility. F-12 14 NTL (CWC HOLDINGS) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEVEN MONTHS ENDED DECEMBER 31, 2000 (EXPRESSED IN MILLIONS OF POUNDS STERLING) Repayment of the credit facility at December 31, 2000 fell due in twelve equal quarterly installments. The facility was repaid in full with funding from NTL Incorporated on February 21, 2001. 9 SHAREHOLDERS' EQUITY At December 31, 2000, capital instruments of a subsidiary undertaking which were convertible into ordinary shares of ntl (CWC Holdings) were as follows:
PROJECTED PRINCIPAL NUMBER PERIOD OF AMOUNT OF SHARES CONVERSION --------- --------- ---------- 3.5% Unsecured Convertible Loan Notes due 2001....................................... L-- 23,176 1999-2001 == ====== =========
The 3.5% Unsecured Convertible Loan Notes are convertible at the option of the holders. During the seven months ended December 31, 2000, 5% Unsecured Convertible Loan Notes due 1995 (as extended) with a convertible value of L2 were converted into 618,484 ordinary shares. Share options Options over shares in NTL Incorporated Certain employees of the Company participate in the NTL Incorporated stock option plans. No expense has been recognized in the financial statements because the exercise price of the option awards were equal to the underlying stock fair market value on the date of grant. 10 INCOME TAXES The benefit for income taxes consists of the following:
2000 ---- United Kingdom taxation: Current corporation tax at 30%.............................. L -- Deferred tax................................................ (13) Adjustment in respect of prior years........................ -- ---- Total income tax benefit.......................... L(13) ====
The effective tax rate for the period ended December 31, 2000 is 12%. The current period rate is lower than the statutory tax rate of 30% because the companies within ntl (CWC Holdings) were loss making in the period and deferred tax assets for such losses were not recognized in full. F-13 15 NTL (CWC HOLDINGS) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEVEN MONTHS ENDED DECEMBER 31, 2000 (EXPRESSED IN MILLIONS OF POUNDS STERLING) Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the deferred tax liabilities and assets are as follows:
2000 ---- Deferred tax liabilities: Depreciation................................................ L333 Intangibles................................................. 16 Capitalized interest........................................ 3 ---- Total deferred tax liabilities.............................. 352 ---- Deferred tax assets: Net operating loss carryforwards............................ 570 Purchase accounting liabilities............................. 104 Other....................................................... 17 ---- Total deferred tax assets................................... 691 Valuation allowance for deferred tax assets................. (339) ---- Net deferred tax assets..................................... 352 ---- Net deferred tax liabilities................................ L-- ====
At December 31, 2000, the Company had a valuation allowance against its deferred tax assets to the extent it was more likely than not that such assets would be realized in the future. At December 31, 2000, the valuation allowance includes approximately L283, which, if realized, would be accounted for as a reduction to goodwill. At December 31, 2000 the group had United Kingdom net operating loss carryforwards of approximately L1,800 that have no expiry date. Pursuant to United Kingdom law, these net operating losses are only available to offset income of the separate entity that generated the loss. A portion of the United Kingdom net operating loss carryforwards belong to dual resident companies, of which US net operating loss carryforwards amount to approximately $1,000. For US tax purposes these operating loss carryforwards will expire in varying amounts between 2010 and 2020. The reconciliation of income tax computed at United Kingdom statutory rates to income tax benefit is as follows:
2000 ----- Benefit at statutory rate................................... L(167) Losses with no benefit...................................... 154 ----- Income tax benefit.......................................... L(13) =====
11 RESTRUCTURING COSTS Restructuring costs relate to NTL's announcement in November 2000 of its completion of a strategic review. Based on a comprehensive review of the enlarged group following the acquisition of ntl (CWC Holdings) and the integration of several other acquired businesses, NTL identified significant efficiency improvements and cost savings. The restructuring provision, representing the Company's share of the group provision, includes employee severance and related costs of L6 for approximately 437 employees to be made F-14 16 NTL (CWC HOLDINGS) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEVEN MONTHS ENDED DECEMBER 31, 2000 (EXPRESSED IN MILLIONS OF POUNDS STERLING) redundant and lease termination costs of L1. None of the provision had been utilized through December 31, 2000. 12 EMPLOYEE BENEFIT PLANS During the seven months ended December 31, 2000, ntl (CWC Holdings) participated in a pension plan operated by Cable and Wireless plc, the Company's former parent. The plan is a defined benefit scheme whereby retirement benefits are based on the employees' final remuneration and length of service, and is funded through a separate trustee administered scheme. Contributions to the plan are based on pension costs for all members of the plan across the Cable and Wireless plc group and are made in accordance with the recommendations of independent actuaries who value the plan at regular intervals, usually triennially. The last valuation currently available relates to the position of the scheme as at March 31, 2000. The total contributions payable to the Cable and Wireless plc pension plan was L2. The Company also operates several defined contribution pension plans. The total contributions payable to these plans in the seven months ended December 31, 2000 amounted to L2. All permanent employees are eligible to join and contributions are determined as a percentage of salary. On January 1, 2001 the Company established a new approved pension plan and employees of ntl (CWC Holdings) who were active members of the Cable and Wireless plc plan were invited to join the new ntl (CWC Holdings) plan and to transfer their accrued rights to it. Employees of the Company who were active members of ntl (CWC Holdings) pension plans were also invited to join. 13 LEASES Future minimum lease payments under non-cancellable operating leases as of December 31, 2000 are as follows: Land and buildings 2001........................................................ L8 2002........................................................ 8 2003........................................................ 8 2004........................................................ 8 2005........................................................ 8 Thereafter.................................................. 41 --- Total....................................................... L81 === Other assets 2001........................................................ L3 2002........................................................ 3 2003........................................................ 3 2004........................................................ 2 --- Total....................................................... L11 ===
F-15 17 NTL (CWC HOLDINGS) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEVEN MONTHS ENDED DECEMBER 31, 2000 (EXPRESSED IN MILLIONS OF POUNDS STERLING) The rental expense recorded in the statement of operations was L9 in the seven months ended December 31, 2000. 14 COMMITMENTS AND CONTINGENCIES The Company is contracted to IBM under an IT outsource agreement. At December 31, 2000, the total outstanding commitment was L575. The IT outsource agreement is for a period expiring in September 2008. Other capital commitments at December 31, 2000 amounted to L62. F-16 EX-99.8 12 y48736ex99-8.txt AUDITED FINANCIAL STATEMENTS 1 EXHIBIT 99.8 CWC CONSUMERCO A DIVISION OF NTL (CWC) LIMITED (FORMERLY CABLE & WIRELESS COMMUNICATIONS LIMITED) REPORT AND FINANCIAL STATEMENTS AS OF MARCH 31, 1999 AND 2000 AND FOR THE THREE YEARS ENDED MARCH 31, 2000 F-1 2 FINANCIAL STATEMENTS OF CWC CONSUMERCO REPORT OF INDEPENDENT AUDITORS To the Directors of NTL Incorporated We have audited the accompanying financial statements of CWC ConsumerCo as of March 31, 1999 and 2000 and for the three years ended March 31, 2000 which have been prepared on the bases and in accordance with the accounting policies set out therein under the historical cost convention. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS The Directors of ntl (CWC) Limited are responsible for the preparation of the financial statements in accordance with the applicable United Kingdom law and accounting standards. Our responsibilities, as independent auditors, are established by the United Kingdom Auditing Practices Board and by our profession's ethical guidance. BASIS OF OPINION We conducted our audit in accordance with generally accepted auditing standards in the United States. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements and of whether the accounting policies are appropriate to the circumstances of CWC ConsumerCo, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. OPINION In our opinion, the financial statements referred to above present fairly, in all material respects, the state of affairs of CWC ConsumerCo as at March 31, 1999 and 2000 and of CWC ConsumerCo's results and cash flows for each of the three years ended March 31, 2000 in accordance with the bases of preparation detailed in the accompanying financial statements, applied using accounting principles generally accepted in the United Kingdom. RECONCILIATION TO US GAAP Accounting practices used by CWC ConsumerCo in preparing the accompanying financial statements conform with generally accepted accounting principles in the United Kingdom, but do not conform with generally accepted accounting principles in the United States. A description of these differences and a reconciliation of net loss and shareholders' equity to generally accepted accounting principles in the United States is set out in Note 35. ARTHUR ANDERSEN Chartered Accountants London United Kingdom 6th October 2000 F-2 3 COMBINED PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31
2000 1999 1998 NOTE L M L M L M ---- ---- ---- ---- TURNOVER Continuing operations....................................... 694 688 104 Acquisitions................................................ -- -- 446 4 694 688 550 OPERATING COSTS Outpayments and other cost of sales......................... 5 (269) (251) (188) GROSS PROFIT................................................ 425 437 362 Millennium and NCNC costs................................... 5, 6 (12) (16) (2) Other operating expenses (net).............................. 5 (270) (241) (197) Depreciation and amortisation............................... 5, 7 (156) (135) (103) OPERATING (LOSS)/PROFIT Continuing operations....................................... (13) 45 49 Acquisitions................................................ -- -- 11 TOTAL OPERATING (LOSS)/PROFIT............................... (13) 45 60 Costs of fundamental reorganisation......................... 10 -- -- (96) Release of surplus fundamental reorganisation provision..... 2 -- -- Profit on disposal of tangible fixed assets................. 1 -- -- Net interest payable........................................ 11 (190) (179) (121) LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION................. 7 (200) (134) (157) Taxation.................................................... 12 34 -- -- LOSS ON ORDINARY ACTIVITIES AFTER TAXATION.................. (166) (134) (157) Minority interests.......................................... 1 (1) -- NET LOSS -- TRANSFER TO RESERVES............................ (165) (135) (157)
As more fully explained in Note 2, CWC ConsumerCo did not operate as a separate legal or reporting entity throughout the period. Accordingly the above profit and loss account may not be representative of its future results. All operations are continuing. There are no recognised gains or losses other than those reflected in the combined profit and loss account and accordingly, no statement of total recognised gains and losses is presented. The accompanying notes are an integral part of this combined profit and loss account. F-3 4 COMBINED BALANCE SHEET AS AT MARCH 31
2000 1999 NOTE L M L M ---- ------ ------ FIXED ASSETS Intangible assets........................................... 13 8 8 Tangible assets............................................. 14 3,167 2,860 3,175 2,868 CURRENT ASSETS Debtors: Due within one year....................................... 15 131 67 Due after one year........................................ 15 68 69 Debtors within receivables securitisation................... 16 Gross debtors............................................. 56 85 Non-returnable proceeds................................... (29) (62) 27 23 Cash at bank and in hand.................................... 87 127 313 286 CREDITORS: amounts falling due within one year.............. 17 (826) (487) NET CURRENT LIABILITIES..................................... (513) (201) TOTAL ASSETS LESS CURRENT LIABILITIES....................... 2,662 2,667 CREDITORS: amounts falling due after more than one year..... 18 (3,075) (2,916) PROVISIONS FOR LIABILITIES AND CHARGES...................... 19 (6) (14) NET LIABILITIES............................................. (419) (263) CAPITAL AND RESERVES Called up share capital..................................... 21 748 746 Share premium............................................... 22 17 9 Other reserves.............................................. 22 (1,199) (1,034) Equity shareholders' funds.................................. (434) (279) Equity minority interest.................................... 15 16 (419) (263)
The accompanying notes are an integral part of this combined balance sheet. APPROVED AND SIGNED ON BEHALF OF THE BOARD 6th October 2000 By: /s/ DAVID W. KELHAM -------------------------------------------------- Name: David W. Kelham Title: Group Commercial Director ntl Group Ltd. F-4 5 COMBINED CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31
2000 1999 1998 NOTE L M L M L M ---- ---- ---- ------ Net cash (outflow)/inflow before fundamental reorganisation costs and IT outsource.................................... (89) 220 386 Outflow related to fundamental reorganisation costs and IT outsource................................................. (6) (41) (30) ---- ---- ------ NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES......... 27 (95) 179 356 ---- ---- ------ RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest received........................................... 5 15 10 Interest paid............................................... (224) (227) (144) ---- ---- ------ NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE................................................ (219) (212) (134) ---- ---- ------ TAXATION UK Corporation tax paid..................................... -- -- (16) ---- ---- ------ TAX PAID.................................................... -- -- (16) ---- ---- ------ CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Purchase of tangible fixed assets........................... (452) (375) (529) Interest bearing deposit (net of VAT)....................... -- (109) -- Sale of tangible fixed assets............................... 19 57 -- ---- ---- ------ NET CASH OUTFLOW FROM CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT................................................ (433) (427) (529) ---- ---- ------ ACQUISITIONS AND DISPOSALS Purchase of subsidiary undertakings, net of cash acquired... 28 -- -- 88 Disposal of business........................................ 28 -- 4 -- ---- ---- ------ NET CASH INFLOW FROM ACQUISITIONS AND DISPOSALS............. -- 4 88 ---- ---- ------ EQUITY DIVIDENDS PAID Ordinary dividends paid..................................... -- -- (9) ---- ---- ------ CASH OUTFLOW BEFORE FINANCING............................... (747) (456) (244) ---- ---- ------ FINANCING Increase in bank and other loans............................ 932 669 3,257 Increase in share capital................................... 1 -- -- Net proceeds from issue of loan notes....................... -- 433 1,585 Repayment of debt........................................... (222) (736) (4,448) Capital element of finance lease rental payments............ (4) (12) (6) ---- ---- ------ (DECREASE)/INCREASE IN CASH................................. 29 (40) (102) 144 ==== ==== ======
The accompanying notes are an integral part of this combined cash flow statement. F-5 6 RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS FOR THE YEAR ENDED MARCH 31
2000 1999 1998 NOTE L M L M L M ------ ---- ---- ------ Loss for the financial year................................ (165) (135) (157) Share issues............................................... 21, 22 10 10 1,957 Goodwill acquired and written off during the year.......... -- -- (2,006) Other movements on reserves................................ -- (31) (7) ---- ---- ------ Net decrease in equity shareholders' funds................. (155) (156) (213) Equity shareholders' funds at beginning of year............ (279) (123) 90 ---- ---- ------ EQUITY SHAREHOLDERS' FUNDS AT END OF YEAR.................. (434) (279) (123) ==== ==== ======
The accompanying notes are an integral part of this reconciliation of movements in equity shareholders' funds. F-6 7 1 BACKGROUND On July 26, 1999, Cable and Wireless plc ("Cable and Wireless"), NTL Incorporated ("NTL") and Cable & Wireless Communications (now ntl (CWC) Limited and hereafter "ntl (CWC)") announced that they had agreed to propose a restructuring of ntl (CWC) to its shareholders. The restructuring was agreed by the shareholders, and completed on May 30, 2000. As part of the restructuring, ntl (CWC), which was a 52.8% owned subsidiary of Cable and Wireless was separated into its residential cable, business cable, indirect residential telephony, residential internet and digital television development and services businesses, referred to as CWC ConsumerCo, and its corporate, business, internet protocol and wholesale operations, referred to as CWC Data Co. NTL indirectly acquired all of CWC ConsumerCo and Cable and Wireless indirectly acquired the interest in CWC DataCo. which was not already attributable to it, thereby achieving 100% ownership of CWC DataCo. These two acquisitions, collectively, are referred to as the "Transaction". 2 BASIS OF PREPARATION a) Structure of Financial Statements The financial statements, have been prepared on the basis set out within the "Basis of preparation" below. In the financial statements, ntl (CWC) and its subsidiary undertakings, as appropriate, are referred to as "ntl (CWC) group". The activities of CWC ConsumerCo were carried out as an integral part of the ntl (CWC) group and as such the operations comprising CWC ConsumerCo were carved out from the financial statements of the ntl (CWC) group. Consequently, certain revenues, costs, assets and liabilities previously reported within legal entities, comprising the ntl (CWC) group, have been allocated to CWC ConsumerCo to reflect the assets and liabilities attributable to CWC ConsumerCo and the results of such operations for the periods shown. As a result of the carve out, the combined balance sheet presents an "Other reserves" balance for CWC ConsumerCo, consistent with the fact that CWC ConsumerCo did not operate as a standalone group. Accordingly, the net liabilities position is presented with an equal and opposite equity shareholders' funds figure after including this "Other reserves" balance which represents the investment in CWC ConsumerCo held by the ntl (CWC) group. The financial statements have been prepared specifically in connection with the acquisition of CWC ConsumerCo by NTL and consequently do not contain certain reports, disclosures or other matters that would be required under the UK Companies Act 1985. Further, the financial statements do not necessarily reflect the terms of the Transaction agreement referred to in Note 1 above. b) Basis of Preparation Revenue All CWC ConsumerCo's revenues are specifically identifiable from the total revenues of the ntl (CWC) group. Specifically Attributable Costs, Assets and Liabilities Most of the costs, assets and liabilities reflected in the financial statements are specifically identifiable to CWC ConsumerCo. Such specific costs, assets and liabilities have been allocated directly to CWC ConsumerCo. - Outpayments Outpayments and other cost of sales figures represent third party costs incurred by CWC ConsumerCo. F-7 8 Allocation of Indirectly Attributable Costs, Assets and Liabilities Where costs, assets and liabilities were incurred for the benefit of CWC ConsumerCo, but could not be specifically identified, an allocation has been made. Indirectly attributable costs, assets and liabilities have been allocated using bases which the Directors believe provide an appropriate mechanism to carve out CWC ConsumerCo's financial results for the three years ended March 31, 2000 and financial position as at March 31, 1999 and 2000, from the ntl (CWC) group financial statements. Costs Particular indirectly attributable costs have been allocated consistently on the following bases unless otherwise stated: - Net operating expenses -- three years ended March 31, 2000 Net operating expenses consist primarily of network operations and central ntl (CWC) group support costs, principally those of the Finance and IT departments. A significant element of these costs are staff related. - Network operations costs have been allocated based upon the relative usage of the ntl (CWC) group telecommunications network by those products and services provided by CWC ConsumerCo. - Staff and related costs have been allocated based upon management's estimation of the relative proportion of individuals' time providing services to CWC ConsumerCo. The Directors believe that this provides a fair allocation of costs to CWC ConsumerCo. - IT department costs relating to general IT support and services have been allocated in the proportion of CWC ConsumerCo headcount, including allocated headcount, to total ntl (CWC) group headcount. Specific IT projects and systems have been allocated on the basis of estimated usage by CWC ConsumerCo. - Finance department costs have been allocated in the proportion of CWC ConsumerCo headcount (including allocated headcount) to total ntl (CWC) group headcount. In the year ended March 31, 1998 these costs were allocated on the basis of revenue due to the lack of retrospective information regarding Finance department headcount. The Directors believe that despite the different bases applied the overall allocation is appropriate. - Facilities and other related costs have been allocated based on relative usage by CWC ConsumerCo. - Depreciation Depreciation for the three years ended 31 March 2000 has been allocated consistent with the allocation of fixed assets to CWC ConsumerCo. Assets and Liabilities Particular indirectly attributable assets and liabilities have been consistently allocated on the following bases as at March 31, 1999 and 2000 unless otherwise stated: - Fixed assets CWC ConsumerCo has allocated fixed asset additions and disposals on the basis of management's estimate of relative usage of those assets. The Directors believe this fairly presents the historic asset base attributable to CWC ConsumerCo. F-8 9 - Trade creditors Trade creditor amounts relate to operating and capital expenditure. Where not specifically attributable, such amounts have been allocated based on the allocation to CWC ConsumerCo of net operating expenses and capital expenditure. - Debt Substantially all ntl (CWC)'s debt has been allocated to CWC ConsumerCo on the basis that it is primarily used to fund CWC ConsumerCo activities. See Note 18. - Other assets and liabilities Prepayments and accrued income and accruals and deferred income amounts are attributable to specific CWC ConsumerCo cost centres and where not specifically attributable, have been allocated based on the allocation of the net operating expenses to each respective cost centre. Limitations on Use of Financial Statements Because of the allocations referred to above and the proposed changes in the structure and financing of CWC ConsumerCo going forward, these financial statements should not be relied upon as being representative of the future financial position or performance of CWC ConsumerCo. In particular: - Outpayments for all periods presented are not representative of those amounts that will be incurred by CWC ConsumerCo in the future as it will need to enter into arms' length arrangements for the carriage and delivery of telecommunications traffic and services either with CWC DataCo and with other third parties. - The operating costs attributed to CWC ConsumerCo for the year ended March 31, 2000 are not representative of the costs it will incur after the proposed transaction as they represent the carve out of costs incurred by the ntl (CWC) group, which was managed as an integrated business. The activities of CWC ConsumerCo on a stand alone basis may be restructured following the transaction which may result in certain costs being duplicated, other costs being avoided altogether and yet other costs being incurred. For this reason the reported result for the year ended March 31, 2000 is not representative of the amounts to be incurred by CWC ConsumerCo after the Transaction. - In view of the refinancing and corporate restructuring of the businesses, the debt, interest and taxation figures included in these financial statements are not representative of the amounts of those items for CWC ConsumerCo following the Transaction. 3 STATEMENT OF ACCOUNTING POLICIES The financial statements have been prepared applying CWC ConsumerCo's accounting policies and no adjustments have been made with respect to any differences between these and NTL's accounting policies. The principal accounting policies of CWC ConsumerCo, which have been applied consistently throughout the three years ended March 31, 2000, unless expressly stated otherwise, are as follows: a) Basis of Accounting The financial statements have been prepared applying accounting principles generally accepted in the United Kingdom and on the historical cost basis. The results of subsidiary undertakings acquired or disposed of during the year are included from the date of their acquisition or up to the date of their disposal, except for the acquisition of Mercury Communications Limited which has been merger accounted for under the group reorganisation provisions of FRS 6 "Acquisitions and mergers". Intercompany sales and profits are eliminated fully. F-9 10 b) Turnover and Revenue Recognition Turnover, which excludes value added tax, represents the amount receivable in respect of services provided to customers in each year and is accounted for on the accruals basis. At the end of each year adjustments are recorded to defer revenue with respect to services invoiced in advance and to accrue for unbilled services. c) Interconnection With Other Operators When operators of other national and international telecommunications networks carry traffic, the charges incurred are matched with the associated revenues. All charges payable to, or by, overseas telecommunications administrations are negotiated separately and are subject to continuous review. Charges payable by CWC ConsumerCo to British Telecommunications plc, referred to as BT, for the conveyance of traffic and connections to the BT network are subject to government regulation in the form of a determination by OFTEL, the Office of Telecommunications. During 1998, the basis for calculation of these charges changed from one based on the fully allocated historic cost of providing the delivery mechanism on their network, to one based upon the long-run incremental cost of providing that service. Up until September 30, 1997, OFTEL undertook a review, in the form of a determination, after the end of each financial year, and for the half year to September 30, 1997, to assess the bases used for the calculation of the charges made in that year. Amendments were backdated to take effect from April 1, in the year under review, but were accounted for in subsequent financial periods. Since October 1, 1997, the charging mechanism has been designed to reflect the commercial considerations surrounding a competitive market. OFTEL has set a framework of controls within which BT will have the price flexibility to set its own charges. The degree of control depends on the competitiveness of the services concerned. d) Goodwill With effect from April 1, 1998, goodwill arising on the acquisition of subsidiary undertakings and businesses, being the difference between the fair value of the purchase consideration and the fair value attributed to the identifiable assets and liabilities acquired, is capitalised and amortised in equal annual instalments through the profit and loss account over the ntl (CWC)' Directors' estimate of its useful economic life. CWC ConsumerCo periodically reviews events and changes in circumstances to determine whether the recoverability of the carrying value of goodwill should be reassessed. An impairment assessment is performed whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. As permitted under the transitional provisions in FRS 10, "Goodwill and Intangible Assets", goodwill on acquisitions prior to April 1, 1998 is dealt with as a movement on reserves. Where subsidiary undertakings are wholly or partially disposed of during the year, goodwill that was written off to reserves or has not been amortised through the profit and loss account is charged to the profit and loss account. e) Tangible Fixed Assets and Depreciation Tangible fixed assets are recorded at cost, which includes materials, direct labour and other incremental costs applicable to the design, construction and connection of the telecommunications and cable television networks and equipment. Other incremental costs capitalised include all costs of those departments responsible solely for design, construction and connection. Where departments spend only part of their time on functions directly connected with design, construction and connection, the relevant proportion of total costs is capitalised. Costs which are initially capitalised in projects under construction where the projects do not become operational are written off to the profit and loss account, once it is determined that the project will not become operational. F-10 11 Costs of departments relating to revenue related operations such as direct selling, marketing and other customer related departments, are not capitalised. Capitalisation of Interest Interest is capitalised as part of the cost of separately identifiable major capital projects, up to the time that such projects are substantially complete. The amount of interest capitalised is calculated as the capitalisation rate multiplied by the weighted average carrying amount of major capital projects under construction during the period. Depreciation Depreciation is provided on the difference between the cost of tangible fixed assets and the estimated residual value in equal annual instalments over the estimated useful lives of the assets. These lives are as follows: Land and buildings: Lives freehold buildings 40 years leasehold land and buildings up to 40 years or term of lease if less leasehold improvements remaining term of lease or expected useful life of the improvements if less Communications network plant and equipment: ducting and network 10 to 40 years construction electronic equipment and 10 to 20 years cabling other network plant and 6 to 25 years equipment Non-network plant and 3 to 10 years equipment
Freehold land, where the cost is distinguishable from the cost of the building thereon, is not depreciated. After a portion of the network is fully constructed and released to operations, depreciation of the network commences either when target rates of penetration are achieved or no later than one year after the release date. f) Leased Assets Where assets are financed by leasing agreements that give rights approximating to ownership, the assets are treated as if they had been purchased outright. The amount capitalised is the present value of the minimum lease payments payable during the lease term. The corresponding leasing commitments are shown as obligations to the lessor. Lease payments are split between capital and interest elements using the annuity method. Depreciation on the relevant assets and interest are charged to the profit and loss account. All other leases are operating leases and the annual rentals are charged to operating profit on a straight line basis over the lease term. g) Fixed Asset Investments Fixed asset investments are stated at cost less provisions for impairment. Any impairment is charged to the profit and loss account in the year in which it is identified. F-11 12 h) Deferred Taxation The charge for taxation is based on the results for the year and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes. CWC ConsumerCo provides for deferred tax unless there is a reasonable probability that the liability will not arise in the foreseeable future. Where deferred tax is provided, the liability method is used. No deferred tax assets are recognised in respect of accumulated tax losses. i) Pensions Defined Contribution Schemes Where CWC ConsumerCo companies through the ntl (CWC) group participate in defined contribution pension schemes for their employees, the pension costs charged to the profit and loss account represent contributions payable during the year. Defined Benefit Schemes CWC ConsumerCo through the ntl (CWC) group also participates in a defined benefit pension scheme operated by Cable and Wireless for certain employees. The regular cost of providing benefits is charged to operating profit over the service lives of the members of the scheme so as to achieve a constant percentage of pensionable pay. j) Foreign Currencies Transactions are translated into sterling at the rate of exchange ruling on the date of the transaction. All outstanding monetary assets and liabilities denominated in foreign currency are retranslated at the rates ruling at the balance sheet date. Any exchange differences arising are dealt with through the profit and loss account. The results of overseas operations are translated at the average rate of exchange during the period and their balance sheets at the rate ruling at the balance sheet date. Exchange differences arising on translation of the opening net assets and results of overseas operations are dealt with through reserves. All other exchange differences are included in the profit and loss account. k) Forward Exchange Contracts and Interest Rate Swaps CWC ConsumerCo through the ntl (CWC) group uses financial instruments, including forward exchange contracts and interest rate swaps, in its management of exchange rate and interest rate exposures. While these instruments are subject to the risk of loss from changes in exchange rates and interest rates, these losses would generally be offset by gains in the related exposures. Financial instruments are only used to hedge underlying economic exposures. CWC ConsumerCo does not speculate in derivative financial instruments. Realised and unrealised gains and losses on forward contracts which hedge firm third party commitments are recognised in the profit and loss account in the same period as the gain or loss on the underlying transaction. Net interest paid or received on interest rate swaps is included in interest expense on an accruals basis. l) Capital Instruments and Financing Costs Capital instruments are accounted for and classified as equity or non-equity share capital, equity or non-equity minority interests or debt according to their form. The costs of issue of non-equity and debt capital instruments are charged to the profit and loss account on an annual basis over the life of the instruments at a constant rate on the carrying amount. Where permitted by law, a corresponding amount is subsequently transferred from the share premium account to retained earnings. The cost of issue of equity instruments is written off against the share premium account. F-12 13 m) Provisions CWC ConsumerCo accounts for provisions in accordance with FRS12 "Provisions and Contingencies". Consequently, provisions are only recognised when CWC ConsumerCo has a legal or constructive obligation to transfer economic benefits as a result of past events. To the extent that the provisions are surplus to requirements they are released in the profit and loss account. n) IT Outsource CWC ConsumerCo through the ntl (CWC) group has entered into a 10 year contract for the provision of commercial IT services. Certain costs are paid in advance of the benefit received. These costs are deferred and amortised over the period during which benefit is derived. The charge for the provision of the consolidated billing system is amortised over the expected levels of billing activity. o) Millennium and National Code Number Change Costs Costs incurred in modifying existing software to achieve Year 2000 compliance are normally written off to the profit and loss account in the period in which they are incurred. However, to the extent that any expenditure not only achieves compliance, but also represents an enhancement of an asset's service potential, it is capitalised and depreciated over the estimated remaining useful life of the asset, in accordance with Urgent Issues Task Force Abstract 20, "Year 2000: Accounting and Disclosures". Costs incurred in modifying equipment in preparation for National Code Number Changes are normally written off to the profit and loss account in the period in which they are incurred. However, to the extent that any expenditure not only achieves the necessary modification but also represents an enhancement of an asset's service potential, it is capitalised and depreciated over the estimated remaining useful life of the asset. 4 TURNOVER Turnover derives from: - local, national and international telecommunications and cable television services; and - the sale and rental of telecommunications equipment. Turnover comprised the following:
2000 1999 1998 L M L M L M ---- ---- ---- Consumer Markets Direct telephony.......................................... 279 292 219 Indirect telephony........................................ 93 102 104 Television................................................ 253 222 172 Business Markets............................................ 69 72 55 --- --- --- Total Turnover.............................................. 694 688 550 === === ===
The Directors consider this to be a single class of business and accordingly no segmental analysis of operating profit or loss or net assets is shown. In the year ended March 31, 2000 all of the turnover was generated by operations in the United Kingdom (1999: 100% and 1998: 100%). F-13 14 5 COST OF SALES AND OPERATING EXPENSES
2000 1999 1998 TOTAL TOTAL CONTINUING ACQUISITION TOTAL L M L M L M L M L M ----- ----- ---------- ----------- ----- Outpayments and other cost of sales................ 269 251 36 152 188 Other operating expenses (net)..................... 270 241 19 178 197 Millennium and NCNC costs.......................... 12 16 -- 2 2 Depreciation and amortisation...................... 156 135 2 101 103
All activities in the years ended March 31, 1999 and 2000 were continuing. 6 MILLENNIUM AND NATIONAL CODE NUMBER CHANGE COSTS Millennium Costs Millennium costs comprise the costs allocated to CWC ConsumerCo through the ntl (CWC) group Year 2000 Programme. This includes CWC ConsumerCo's share of the costs of making software and systems compliant, upgrading rented customer premises equipment, purchasing new software and employing external consultants and advisors, as well as the costs of CWC ConsumerCo employees working on the Year 2000 Programme. A cumulative total of Pound Sterling 30 million has been incurred to date, of which Pound Sterling 1 million has been capitalised and Pound Sterling 29 million has been written off to the profit and loss account. National Code Number Change Costs National Code Number Change costs are being incurred by CWC ConsumerCo through the ntl (CWC) group, in relation to the change in national code numbers which has been initiated by OFTEL. National dialling codes are being reorganised to provide additional UK numbering capacity required for long term growth in new numbers for fixed and mobile telephones, fax, pager, and internet use. Costs of Pound Sterling 2 million had been incurred during the year in relation to National Code Number Change, which were capitalised (1999: Pound Sterling 1 million expensed in the profit and loss account). The National Code Number Change programme is expected to take a further year to complete. Total costs are expected to be Pound Sterling 5 million of which Pound Sterling 3 million is expected to relate to capital expenditure, the balance being written off to the profit and loss account as incurred. 7 LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION Loss on ordinary activities before taxation is stated after charging:
2000 1999 1998 L M L M L M ---- ---- ---- Depreciation of owned tangible fixed assets................. 144 122 91 Depreciation of fixed assets held under finance leases...... 12 12 12 Amortisation of goodwill.................................... -- 1 -- Operating lease payments -- hire of plant and machinery..... -- 2 2 Operating lease payments -- other........................... 5 8 9 Management service fees payable (see Note 33)............... -- 1 3
8 EMPLOYEES In 2000 the average monthly number of persons working within CWC ConsumerCo was 5,262 (1999: 5,130 and 1998: 5,407). F-14 15 The aggregate remuneration and associated costs of CWC ConsumerCo employees were:
2000 1999 1998 L M L M L M ---- ---- ---- Salaries and wages.......................................... 142 126 106 Social security costs....................................... 11 11 10 Pension costs of defined benefit scheme..................... 3 3 3 Pension costs of defined contribution schemes............... 3 3 2 --- --- --- Total staff costs........................................... 159 143 121 Less: Staff costs capitalised within network fixed assets... (79) (47) (34) --- --- --- 80 96 87 === === ===
Details of the pension schemes are given in Note 9. 9 PENSIONS CWC ConsumerCo, through ntl (CWC), participates in a pension scheme operated by Cable and Wireless. The scheme is a defined benefit scheme whereby retirement benefits are based on the employees' final remuneration and length of service, and is funded through a separate trustee administered scheme. Contributions to the scheme are based on pension costs for all members of the scheme across the Cable and Wireless group and are made in accordance with the recommendations of independent actuaries who value the scheme at regular intervals, usually triennially. The last valuation currently available relates to the position of the scheme as at March 31, 1999. Full details relating to the pension scheme are disclosed in the financial statements of Cable and Wireless. CWC ConsumerCo also operates several defined contribution pension plans. CWC ConsumerCo will establish a new exempt approved pension scheme and employees allocated to CWC ConsumerCo who are active members of the Cable and Wireless superannuation fund will be invited to join the new CWC ConsumerCo scheme and to transfer their accrued rights to it. Employees allocated to CWC ConsumerCo who are active members of ntl (CWC) pension schemes will, for the time being, remain in those schemes. 10 COSTS OF FUNDAMENTAL REORGANISATION Following the formation of the ntl (CWC) group on April 28, 1997, the nature and focus of operations of the constituent companies were fundamentally reorganised. Costs of Pound Sterling 96 million have been allocated to CWC ConsumerCo and include branding, employee related costs such as redundancies and property rationalisations. The inclusion of the costs of fundamental reorganisation had no material impact on the tax charge for 2000 or 1999 or 1998. F-15 16 11 NET INTEREST PAYABLE
2000 1999 1998 L M L M L M ---- ---- ---- Interest receivable and similar income: Deposits and short term loan interest....................... 4 8 8 Funds placed with parent undertaking........................ -- 6 1 ---- ---- ---- 4 14 9 ==== ==== ==== Interest payable: Finance charges on leases................................... (6) (9) (7) Bank loans and overdrafts................................... (70) (89) (90) Loan notes.................................................. (146) (132) (58) Funds borrowed from parent undertaking...................... (2) -- (1) ---- ---- ---- (224) (230) (156) Less: interest capitalised within network fixed assets (Note 14)....................................................... 30 37 26 ---- ---- ---- (194) (193) (130) ---- ---- ---- Net interest payable........................................ (190) (179) (121) ==== ==== ====
12 TAXATION The tax credit comprises:
2000 1999 1998 L M L M L M ---- ---- ---- United Kingdom taxation: Current corporation tax at 30% (1999: 31%, 1998: 31%)....... 34 -- -- Deferred tax................................................ -- -- -- Adjustment in respect of prior years........................ -- -- -- -- -- -- Tax credit on profit on ordinary activities................. 34 -- -- == == ==
If deferred tax had been provided in 2000 on a full provision basis, there would have been no change in the tax charge for the year (1999: no change, 1998: no change). The effective tax rate for the year ended March 31, 2000 is 0% (1999: 0%, 1998: 0% after costs of fundamental reorganisation). This rate differs from the statutory tax rate of 30% because the companies within CWC ConsumerCo were loss making in the period and deferred tax assets for such losses were not recognised in full. The tax credit in the year ended March 31, 2000 reflects a payment of Pounds Sterling 34 million from CWC DataCo for losses surrendered by way of group relief. F-16 17 13 INTANGIBLE FIXED ASSETS
GOODWILL L M -------- COST At April 1, 1999............................................ 9 Additions................................................... -- -- At March 31, 2000........................................... 9 -- AMORTISATION At April 1, 1999............................................ 1 Charge for the year......................................... -- -- At March 31, 2000........................................... 1 -- Net book value at March 31, 2000............................ 8 -- Net book value at March 31, 1999............................ 8 ==
Goodwill arising on the acquisition of Two Way TV Limited is amortised over 20 years, which is the ntl (CWC)' Directors' estimate of its economic useful life. 14 TANGIBLE FIXED ASSETS
NETWORK CABLE, NON-NETWORK LAND AND PLANT AND PLANT AND BUILDINGS EQUIPMENT EQUIPMENT TOTAL L M L M L M L M --------- -------------- ----------- ----- COST At April 1, 1999...................... 53 3,020 14 3,087 Additions............................. 1 423 73 497 Disposals............................. -- (8) (18) (26) --- ----- --- ----- At March 31, 2000..................... 54 3,435 69 3,558 --- ----- --- ----- DEPRECIATION At April 1, 1999...................... 4 218 5 227 Charge for the year................... 5 130 21 156 Transfers............................. -- 16 -- 16 Disposals............................. -- (3) (5) (8) --- ----- --- ----- At 31 March 2000...................... 9 361 21 391 --- ----- --- ----- NET BOOK VALUE AT March 31, 2000........................ 45 3,074 48 3,167 --- ----- --- ----- March 31, 1999........................ 49 2,802 9 2,860 === ===== === =====
2000 1999 L M L M ---- ---- The net book value of land and buildings comprised: Freehold.................................................. 19 19 Long leasehold............................................ 2 2 Short leasehold........................................... 24 28 -- -- 45 49 == ==
Interest totalling Pound Sterling 30 million (1999: Pound Sterling 37 million) for the year ended March 31, 2000 that is directly applicable to the design, construction and installation of CWC ConsumerCo's cable television and telecommunications network has been capitalised within additions to network assets. F-17 18 Accumulated interest capitalised included in the total cost of tangible fixed assets at March 31, 2000 amounted to Pound Sterling 93 million (1999: Pound Sterling 63 million). Included in the net book value of Network cable, plant and equipment is Pound Sterling 83 million in respect of assets held under finance leases and similar hire purchase contracts (1999: Pound Sterling 95 million). Accumulated depreciation on these assets is Pound Sterling 42 million (1999: Pound Sterling 30 million) and the charge for the year is Pound Sterling 12 million (1999: Pound Sterling 12 million). Network cable, plant and equipment includes Pound Sterling 127 million (1999: Pound Sterling 118 million) in respect of assets not yet in service and consequently upon which depreciation has not been charged. 15 DEBTORS
2000 1999 L M L M ---- ---- DUE WITHIN ONE YEAR Trade debtors outside receivables securitisations........... 12 7 Amounts due from CWC DataCo (see below)..................... 63 -- Other debtors............................................... 18 11 Prepayments and accrued income.............................. 38 49 --- --- 131 67 --- --- DUE AFTER MORE THAN ONE YEAR Prepayments and accrued income.............................. 68 69 --- --- 199 136 === ===
Where, as part of attributing assets and liabilities to CWC ConsumerCo and CWC DataCo these assets and liabilities are to be transferred between legal entities within the ntl (CWC) group, intragroup balances have been set up. Included within prepayments and accrued income, is an amount of Pound Sterling 100 million (1999: Pound Sterling 112 million) in respect of the IT outsource representing:
2000 --------------------- DUE DUE AFTER 1999 WITHIN MORE THAN -------------- ONE YEAR ONE YEAR TOTAL TOTAL L M L M L M L M -------- --------- ----- ----- Security deposit.......................................... 21 32 53 85 Consolidated billing system charge........................ 9 27 36 14 Transition costs.......................................... 2 9 11 13 -- -- --- --- 32 68 100 112 == == === ===
The consolidated billing system charge is amortised over the life of the outsource contract based on expected billing levels. The transition costs billed by IBM in relation to the transition of the IT function to the outsource provider include external legal, consultancy, property and other technical fees which are amortised over differing periods depending on the period over which CWC ConsumerCo, through the ntl (CWC) group derives benefit. F-18 19 16 DEBTORS WITHIN RECEIVABLES SECURITISATION
2000 1999 L M L M ---- ---- Gross debtors............................................... 56 85 Non-returnable proceeds..................................... (29) (62) --- --- 27 23 === ===
Within the overall working capital facilities, certain trade debtors have been assigned as security against the advance of cash. This security is represented by the assignment of a pool of trade debts to a trust for the benefit of the providers of this securitisation facility. The financing provided against this pool takes into account, inter alia, the risks that may be attached to individual debtors and the expected collection period. CWC ConsumerCo, through the ntl (CWC) group, is not obliged (and does not intend) to support any losses arising from the assigned debts against which cash has been advanced. The providers of the finance have confirmed in writing that, in the event of default in payment by a debtor, they will seek repayment of the cash advanced only from the remainder of the pool of debts in which they hold an interest, and that repayment will not be required from CWC ConsumerCo in any other way. 17 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
2000 1999 L M L M ---- ---- Unsecured convertible loan notes............................ -- 9 Current instalments due on loans............................ 543 33 Obligations under finance leases............................ 7 5 Trade creditors............................................. 34 35 Amounts owed to CWC DataCo (see below)...................... -- 199 Amounts owed to parent undertaking.......................... 13 -- Other taxation and social security.......................... 11 5 Other creditors............................................. 7 30 Accruals and deferred income................................ 211 171 --- --- 826 487 === ===
Where, as part of attributing assets and liabilities to CWC ConsumerCo and CWC DataCo these assets and liabilities are to be transferred between legal entities within the ntl (CWC) group, intragroup balances have been set up. 18 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
2000 1999 L M L M ----- ----- Notes due 2003 ($750m at a coupon rate of 6.375%)........... 453 453 Notes due 2005 ($650m at a coupon rate of 6.625%)........... 393 393 Notes due 2008 ($1.1bn at a coupon rate of 6.750%).......... 665 665 Bonds due 2005 (L300m at a coupon rate of 7.125%)........... 298 298 Bonds due 2017 (L200m at a coupon rate of 7.375%)........... 199 199 Loans....................................................... 965 795 Obligations under finance lease............................. 100 108 Accruals and deferred income................................ 2 5 ----- ----- 3,075 2,916 ===== =====
F-19 20 With the exception of certain specific finance lease obligations, all debt of ntl (CWC) group has been allocated to CWC ConsumerCo as such debt has primarily been necessary to fund CWC ConsumerCo's activities. Substantially all third party borrowings were repaid as part of the Transaction Agreement and were replaced with approximately Pound Sterling 2.2 billion of borrowings from another NTL group company. 19 PROVISIONS FOR LIABILITIES AND CHARGES
ONEROUS PROPERTY OBLIGATIONS COSTS TOTAL L M L M L M ----------- -------- ----- At March 31, 1999........................................ 5 9 14 Amounts used during the year............................. (3) (5) (8) Established during the year.............................. -- -- -- -- -- -- At March 31, 2000........................................ 2 4 6 == == ==
At March 31, 2000 the onerous obligations provision relates to onerous contract commitments not recorded in the books of Two Way TV Limited. This is expected to be utilised over the next five years. The remaining provision for property costs relates to the fair value property provision for overmarket rents set up as a result of the acquisition of Bell Cablemedia and NYNEX CableComms in April 1997, and is expected to be utilised over the next 18 years. 20 DEFERRED TAX The amount provided, and the full potential liability, in respect of UK deferred taxation is as follows:
2000 1999 L M L M ---- ---- Amount provided and potential liability:.................... -- -- ==== ==== Tax effect of timing differences due to: Excess capital allowances over depreciation............... (206) (140) Other timing differences.................................. -- -- ---- ---- (206) (140) ==== ====
As at March 31, 2000, CWC ConsumerCo had substantial UK tax losses available to carry forward which exceeded the timing differences due to the excess of capital allowances over depreciation. No deferred tax asset has been recognised in the accounts in respect of any unutilised tax losses. 21 CALLED UP SHARE CAPITAL
NUMBER OF SHARES ---------------- 2000 1999 2000 1999 M M L M L M ------ ------ ----- ----- Authorised: Ordinary shares of 50p each....................... 2,250 2,250 1,125 1,125 ----- ----- ----- ----- Allotted, issued and fully paid: Ordinary shares of 50p each....................... 1,496 1,493 748 746 ----- ----- ----- -----
ntl (CWC) was listed on the London and New York Stock exchanges on April 28, 1997, when 1,489,253,555 shares were issued to acquire Bell Cablemedia and NYNEX CableComms with a further 102,707 being issued on offer acceptances received post-listing. F-20 21 Allotments of ordinary shares of 50p each during the year to March 31, 2000 were as follows:
GROSS NUMBER CONSIDERATION OF SHARES RECEIVED ALLOTTED L --------- ------------- Bell Cablemedia plc Savings-Related Share Option Plan 1994...................................................... 20,135 59,781 Bell Cablemedia plc No 1 Executive Share Option Plan 1994... 13,944 41,521 Bell Cablemedia plc No 2 Executive Share Option Plan 1994... 26,902 78,089 3.5% Bell Cablemedia plc unsecured convertible loan notes due 2001.................................................. 46,242 -- 5% Bell Cablemedia unsecured convertible loan notes due 1995 (extended)................................................ 2,815,385 -- NYNEX CableComms Employees Share Option Plan................ 252,250 940,388 NYNEX CableComms Savings-Related Share Option Plan 1995..... 7,309 22,080 NYNEX CableComms Savings-Related Share Option Plan 1996..... 36,916 85,867 --------- --------- 3,219,083 1,227,726 ========= =========
Allotments of ordinary shares of 50p each during the year to March 31, 1999 were as follows:
GROSS NUMBER CONSIDERATION OF SHARES RECEIVED ALLOTTED L --------- ------------- Bell Cablemedia plc Savings-Related Share Option Plan 1994...................................................... 36,041 107,006 Bell Cablemedia plc No. 1 Executive Share Option Plan 1994...................................................... 137,199 394,646 Bell Cablemedia plc No. 2 Executive Share Option Plan 1994...................................................... 254,974 731,162 3.5% Bell Cablemedia plc unsecured convertible loan notes due 2001.................................................. 9,366 -- NYNEX CableComms Employees Share Option Plan................ 2,373,139 8,847,066 NYNEX CableComms Savings-Related Share Option Plan 1995..... 29,098 87,905 NYNEX CableComms Savings-Related Share Option Plan 1996..... 46,218 107,504 --------- ---------- 2,886,035 10,275,289 ========= ==========
At March 31, 2000, capital instruments which were convertible into ordinary shares of ntl (CWC) were as follows:
PRINCIPAL PROJECTED AMOUNT NUMBER PERIOD OF L OF SHARES CONVERSION --------- --------- ---------- 5% unsecured convertible loan notes due 1995 (extended)...................................... 1,925,000 826,303 1999-2001 3.5% unsecured convertible loan notes due 2001.... 57,564 23,086 1999-2001 ========= ======= =========
Both loan notes are convertible at the option of the holders. 22 RESERVES
SHARE OTHER PREMIUM RESERVES L M L M ------- -------- At April 1, 1999.......................................... 9 (1,034) Gross premiums on shares allotted......................... 8 -- Amortisation of issue costs relating to capital instruments............................................. -- -- Loss for the financial year............................... -- (165) Other movements........................................... -- -- -- ------ At March 31, 2000......................................... 17 (1,199) == ======
F-21 22 23 FINANCIAL INSTRUMENTS CWC ConsumerCo, through the ntl (CWC) group, holds or issues financial instruments to finance its operations and to manage the interest rate and currency risks arising from its sources of finance. In addition, various financial assets and liabilities, for example, trade debtors, trade creditors, accruals and prepayments, arise directly from operations. CWC ConsumerCo has taken advantage of the exemption available to exclude short term debtors and creditors from disclosures of financial assets and liabilities. Disclosure focuses on those financial instruments which play a significant medium to long term role in the financial risk profile. CWC ConsumerCo, through the ntl (CWC) group finances its operations by a mixture of bank borrowings and other long term debt. The ntl (CWC) group borrows in the major debt markets in Sterling and US dollars at both fixed and floating rates of interest, using derivatives where appropriate to generate the desired effective currency profile and interest rate basis. The derivatives used for this purpose are principally interest rate swaps and cross currency swaps. The main risks arising from financial instruments are interest rate risk and currency risk. Finance and Interest Rate Risk CWC ConsumerCo, through the ntl (CWC) group's exposure to interest rate fluctuations on its borrowings and deposits is managed by using interest rate swaps and forward rate agreements (FRAs). The minimum proportion fixed is higher in the near term than in the longer term, with the aim of reducing the volatility of short term interest costs whilst maintaining the opportunity to benefit from the movements in longer term rates. The interest rate profile of the financial liabilities, after taking account of interest rate swaps, FRAs and cross currency swaps, of CWC ConsumerCo as at March 31, 2000 and 1999 was:
2000 1999 STERLING STERLING L M L M -------- -------- Floating rate financial liabilities........................ 1,492 117 Fixed rate financial liabilities........................... 2,131 2,828 ----- ----- Total...................................................... 3,623 2,945 ===== ===== Fixed rate financial liabilities Weighted average interest rate(%)........................ 6.9% 7.1% Weighted average period for which rate is fixed (years)............................................... 5 6 ===== =====
In addition to swaps, further protection from interest rate movements will be provided by interest rate collars on Pound Sterling 700 million for 3 years from July 15, 1999. These start when the last FRAs mature and at this stage the weighted average interest rate is expected to fall further. CWC ConsumerCo held the following financial assets as part of its financing arrangements at March 31, 2000:
L M --- Sterling.................................................... 87 ==
Liquidity Risk CWC ConsumerCo, through ntl (CWC) group treasury operations, manages borrowings with respect to both interest and financing risk. Accordingly there are a range of maturities of debt from one year to 17 years. Financial flexibility is provided via the Pound Sterling 1,500 million revolving facility, of which Pound Sterling 1,000 million is for five years and Pound Sterling 500 million for 364 days. At the 2000 year end Pound Sterling 700 million was drawn under the five year facility and Pound Sterling 350 million was drawn under the 364 day facility. F-22 23 The maturity profile of financial liabilities, other than short term creditors such as trade creditors and accruals, at March 31, 2000 and 1999 was:
2000 1999 L M L M ---- ---- Finance lease obligations are repayable as follows: Within one year............................................. 7 6 Between one and two years................................... 8 6 Between two and five years.................................. 31 28 In five or more years....................................... 61 74 --- --- 107 114 === ===
All finance lease obligations were settled upon acquisition by NTL on May 30, 2000 and replaced with group financing.
2000 1999 L M L M ----- ----- Loans and Notes are repayable as follows: Within one year............................................. 543 29 Between one and two years................................... 6 4 Between two and five years.................................. 1,854 1,541 In five or more years....................................... 1,113 1,257 ----- ----- 3,516 2,831 ===== =====
All loans and notes were settled prior to, or upon, acquisition by NTL on May 30, 2000 and replaced with group financing. The maturity profile of the CWC ConsumerCo's undrawn committed borrowing facilities at March 31, 2000 was:
2000 1999 L M L M ---- ---- Within one year............................................. 150 500 Greater than two years...................................... 40 225 --- --- 190 725 === ===
F-23 24 Fair Values of Financial Assets and Liabilities The estimated fair value of CWC ConsumerCo's financial instruments are summarised below:
2000 ---------------------- CARRYING ESTIMATED AMOUNT FAIR VALUE L M L M -------- ---------- Primary Financial Instruments Held or Issued to Finance Operations: Long Term Debt........................................... (3,075) (3,127) ------ --------- Cash and short term deposits............................. 87 87 Derivative financial instruments held to manage the interest rate and currency profile Interest rate swaps -- assets............................ -- 9 Interest rate swaps -- (liabilities)..................... -- -- INTEREST RATE COLLARS -- ASSETS.......................... -- 5 ------ --------- INTEREST RATE COLLARS -- (LIABILITIES)................... -- -- ------ --------- CROSS CURRENCY SWAPS -- ASSETS........................... -- -- ------ --------- Cross currency swaps -- (liabilities).................... -- (48) ------ ---------
1999 ---------------------- CARRYING ESTIMATED AMOUNT FAIR VALUE L M L M -------- ---------- Primary Financial Instruments Held or Issued to Finance Operations: Long Term Debt........................................... (2,911) (2,962) ------ ------ Cash and short term deposits............................. 127 127 Derivative financial instruments held to manage the interest rate and currency profile Interest rate swaps -- assets............................ -- -- Interest rate swaps -- (liabilities)..................... -- (76) INTEREST RATE COLLARS -- ASSETS.......................... -- -- ------ ------ INTEREST RATE COLLARS -- (LIABILITIES)................... -- (8) ------ ------ CROSS CURRENCY SWAPS -- ASSETS........................... -- 38 ------ ------ Cross currency swaps -- (liabilities).................... -- (17) ====== ======
Cash at Bank and in Hand, Account Receivable, Account Payable, Short Term Borrowings and Current Investment Liabilities. The carrying value approximates fair value either because of the short maturity of the instruments or because the interest rate on investments is reset after periods not greater than six months. Long Term Borrowings The fair value is based on quoted market prices or, where these are not available, on the quoted market prices of comparable debt issued by other companies. Interest Rate Swaps, Collars and Currency Swaps The fair value of interest rate and currency swaps is the estimated amount which CWC ConsumerCo, through the ntl (CWC) group, expects to pay or receive on the termination of the agreement, taking into F-24 25 consideration current interest rates and the current credit worthiness of the counterparties. The nominal value of the interest rate and currency swaps at March 31, 2000 was Pound Sterling 2,898 million (1999: Pound Sterling 2,935 million). The nominal value of the interest rate collars at March 31, 2000 was Pound Sterling 700 million (1999: Pound Sterling 700 million). Currency Risk CWC ConsumerCo, through the ntl (CWC) group has significant sources of finance denominated in US dollars which have been hedged back into sterling using cross currency swaps. Gains and losses on instruments used for hedging are not recognised until the exposure that is being hedged is itself recognised. Unrecognised gains and losses on the instruments used for hedging, and the movements thereon are as follows as at March 31, 2000:
GAINS LOSSES TOTAL L M L M L M ----- ------ ----- Unrecognised gains and losses on hedges As at April 1, 1999......................................... 38 (101) (63) --- ---- --- Gains and losses arising before April 1, 1999 that were not recognised in the year.................................... 38 (101) (63) Gains and losses arising in the year that were not recognised in the year.................................... (24) 53 29 --- ---- --- Unrecognised gains and losses on hedges at March 31, 2000... 14 (48) (34) --- ---- --- Gains and losses expected to be realised in 2000............ 14 (48) (34) Gains and losses expected to be realised in 2001 or later... -- -- -- --- ---- --- 14 (48) (34) === ==== ===
24 COMMITMENTS The amount of capital expenditure, excluding that relating to the IT outsource, authorised by CWC ConsumerCo, for which no provision has been made in the consolidated financial information is as follows:
2000 1999 L M L M ---- ---- Contracted.................................................. 86 180 == ===
CWC ConsumerCo, through the ntl (CWC) group, is also contracted to IBM under the IT outsource agreement. At March 31, 2000, the total outstanding commitment was Pound Sterling 1.3 billion which was shared equally between CWC ConsumerCo and CWC DataCo in accordance with the Transaction Agreement for a 10 year period against which the security deposit is offset throughout the term of the contract (1999: Pound Sterling 1.5 billion, 1998: Pound Sterling nil). 25 CONTINGENT LIABILITIES There are no contingent liabilities at March 31, 2000. F-25 26 26 LEASES Operating lease commitments payable in the following year, analysed according to the period in which each lease expires are as follows:
2000 1999 L M L M ---- ---- LAND AND BUILDINGS Expiring within one year.................................... -- -- Expiring in years two to five............................... 1 -- Expiring thereafter......................................... 5 7 -- -- 6 7 -- -- OTHER ASSETS Expiring within one year.................................... 1 1 Expiring in years two to five............................... 3 -- Expiring thereafter......................................... -- -- -- -- 4 1 == ==
27 RECONCILIATION OF OPERATING (LOSS) PROFIT TO NET CASH (OUTFLOW) INFLOW FROM OPERATING ACTIVITIES
2000 1999 1998 L M L M L M ---- ---- ---- Operating (loss)/profit..................................... (13) 45 60 Depreciation and amortisation............................... 156 135 103 Decrease in non refundable receipts from receivables securitisation............................................ (33) 1 61 Increase in debtors......................................... 32 (21) (29) Decrease in creditors....................................... (231) 60 191 ---- --- --- Net cash (outflow)/inflow from operating activities before fundamental reorganisation and IT outsource costs......... (89) 220 386 Outflow relating to fundamental reorganisation.............. (6) (28) (30) Outflow relating to IT outsource transition costs........... -- (13) -- ---- --- --- Net cash (outflow)/inflow from operating activities......... (95) 179 356 ==== === ===
28 CASH INFLOW FROM ACQUISITIONS AND DISPOSALS The analysis of net inflow of cash in respect of the acquisition and disposal of subsidiaries is as follows:
2000 1999 1998 L M L M L M ---- ---- ---- Acquisition of subsidiaries................................. -- (4) -- Share issue costs........................................... -- -- (49) Cash acquired with subsidiaries............................. -- 4 137 -- -- --- Net cash inflow from acquisition............................ -- -- 88 Disposal of business........................................ -- 4 -- == == === Net cash inflow from acquisitions and disposals............. -- 4 88 == == ===
F-26 27 29 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
2000 1999 1998 L M L M L M ------ ------ ------ (Decrease) increase in cash in the period................... (40) (102) 144 Cash outflow resulting from debt and lease financing........ (706) (331) (378) ------ ------ ------ Changes in net debt resulting from cash flows............... (746) (433) (234) Other movements............................................. 12 7 -- Acquisition of subsidiaries................................. -- -- (2,197) Inception of finance lease contracts........................ -- -- (30) ------ ------ ------ Movement in net debt in the period.......................... (734) (426) (2,461) Net (debt) funds at April 1................................. (2,802) (2,376) 85 ------ ------ ------ Net debt at March 31........................................ (3,536) (2,802) (2,376) ====== ====== ======
30 ANALYSIS OF CHANGES IN NET DEBT
AT AT AT APRIL 1, CASH OTHER APRIL 1, CASH OTHER MARCH 31, 1998 FLOW MOVEMENTS 1999 FLOW MOVEMENTS 2000 L M L M L M L M L M L M L M -------- ---- --------- -------- ---- --------- --------- Cash at bank and in hand............. 229 (102) -- 127 (40) -- 87 ------ ---- -- ------ ---- -- ------ Debt due within one year............. (28) 10 -- (18) (541) 9 (550) Debt due after more than one year.... (2,577) (341) 7 (2,911) (165) 3 (3,073) ------ ---- -- ------ ---- -- ------ Total debt........................... (2,605) (331) 7 (2,929) (706) 12 (3,623) ------ ---- -- ------ ---- -- ------ Total net (debt) cash................ (2,376) (433) 7 (2,802) (746) 12 (3,536) ====== ==== == ====== ==== == ======
31 ACQUISITIONS AND DISPOSALS Acquisitions On July 28, 1998, CWC ConsumerCo, through ntl (CWC) subscribed for shares representing 50.1% of the enlarged ordinary share capital of Two Way TV Limited for Pound Sterling 13 million. For Two Way TV Limited the fair value of assets and liabilities acquired, together with the fair value of consideration paid (including acquisition costs) is set out below:
1999 ---------------------------------- CWC BOOK FAIR VALUE CONSUMERCO VALUE ADJUSTMENTS FAIR VALUE L M L M L M ----- ----------- ---------- NET ASSETS ACQUIRED: Tangible fixed assets........................ 1 -- 1 Stocks....................................... -- -- -- Debtors...................................... 9 -- 9 Cash......................................... 4 -- 4 Creditors: amounts falling due within one year....................................... (2) -- (2) Creditors: amounts falling due after one year....................................... (1) -- (1) Provisions................................... -- (3) (3) Minority interest............................ (4) -- (4) -- -- -- 7 (3) 4 Goodwill..................................... 9 -- -- -- Fair value of consideration.................. 16 (3) 13 -- -- --
F-27 28
1999 ---------------------------------- CWC BOOK FAIR VALUE CONSUMERCO VALUE ADJUSTMENTS FAIR VALUE L M L M L M ----- ----------- ---------- SATISFIED BY: Cash......................................... 4 Deferred cash consideration.................. 9 == == ==
On April 28, 1997 CWC ConsumerCo, through ntl (CWC) acquired 100% of Bell Cablemedia, as enlarged by its acquisition of Videotron, and 100% of NYNEX CableComms. This transaction has been accounted for under the acquisition method. The consideration comprised Pound Sterling 2 billion in shares. For the acquisition of Bell Cablemedia and NYNEX CableComms the fair value of assets and liabilities acquired, together with the fair value of consideration paid (including acquisition costs) is set out below:
1998 ----------------------------------------------------- ACCOUNTING FAIR VALUE POLICY BOOK VALUE ADJUSTMENTS ALIGNMENT FAIR VALUE L M L M L M L M ---------- ----------- ---------- ---------- NET ASSETS ACQUIRED: Intangible fixed assets........................ 517 -- (517) -- Tangible fixed assets.......................... 2,371 (194) -- 2,177 Debtors........................................ 144 (36) -- 108 Cash and cash equivalents...................... 137 -- -- 137 Borrowings..................................... (2,000) (197) -- (2,197) Creditors: amounts falling due within one year......................................... (139) (26) -- (165) Provisions..................................... -- (48) -- (48) Minority interests............................. (13) -- -- (13) ------ ---- ---- ------ ............................................... 1,017 (501) (517) (1) Goodwill....................................... 2,006 ------ ---- ---- ------ Fair value of consideration SATISFIED BY: Shares allotted................................ 2,005 Cash........................................... -- ------ ---- ---- ------ ............................................... 2,005 ====== ==== ==== ======
Bell Cablemedia held Pound Sterling 517 million of goodwill in its balance sheet arising principally on its acquisition of Videotron. This amount has been written off directly to reserves in accordance with CWC ConsumerCo policy in 1998. The principal fair value adjustments were: - An adjustment for Pound Sterling 129 million to write-down analogue set-top boxes and head-end equipment, Pound Sterling 31 million for property and IT systems and Pound Sterling 34 million of other fixed assets; - An adjustment to write off deferred financing costs and arrangement fees of Pound Sterling 58 million, Pound Sterling 25 million of which were classified in debtors and Pound Sterling 33 million in borrowings; - An adjustment of Pound Sterling 164 million to borrowings to restate the high yield debt obligations of Bell Cablemedia at their fair value; F-28 29 - An adjustment to provide for onerous contracts of Pound Sterling 48 million, including programming costs, future commitments to purchase analogue set-top boxes, property and other items; - Other adjustments of Pound Sterling 37 million relating to other assets and liabilities. The fair value of assets and liabilities acquired on each of the significant acquisitions is set out below:
FAIR VALUE BOOK VALUE ADJUSTMENTS FAIR VALUE NYNEX CABLECOMMS: L M L M L M ----------------- ---------- ----------- ---------- Tangible fixed assets............................. 1,158 (60) 1,098 Debtors........................................... 66 (27) 39 Cash.............................................. 5 -- 5 Borrowings........................................ (615) -- (615) Creditors: amounts falling due within one year.... (28) (5) (33) Provisions........................................ -- (23) (23) ----- ---- ----- 586 (115) 471 ===== ==== =====
ACCOUNTING FAIR VALUE POLICY BOOK VALUE ADJUSTMENTS ALIGNMENT FAIR VALUE BELL CABLEMEDIA: L M L M L M L M ---------------- ---------- ----------- ---------- ---------- Intangible fixed assets............... 517 -- (517) -- Tangible fixed assets................. 1,214 (133) -- 1,081 Debtors............................... 78 (9) -- 69 Cash.................................. 132 -- -- 132 Borrowings............................ (1,385) (197) -- (1,582) Creditors: amounts falling due within one year............................ (111) (21) -- (132) Provisions............................ -- (26) -- (26) Minority interests.................... (13) -- -- (13) ------ ---- ---- ------ 432 (386) (517) (471) ====== ==== ==== ======
The summarised results of CWC ConsumerCo's material acquisitions through ntl (CWC) from the end of the previous financial year to the date of acquisition by ntl (CWC) were as follows:
NYNEX BELL CABLEMEDIA CABLECOMMS JAN 1, 1997 TO JAN 1, 1997 TO APRIL 28, 1997 APRIL 28, 1997 L M L M --------------- -------------- Turnover................................................. 35 63 Operating loss........................................... (27) (24) Loss before tax.......................................... (56) (33) Taxation................................................. -- 7 Loss after tax........................................... (56) (26) Minority interests....................................... -- -- Loss attributable to shareholders........................ (56) (26) === ===
There were no recognised gains and losses in these periods other than the losses attributable to shareholders. The table below gives summarised financial information for the CWC ConsumerCo's material acquisitions for their full financial year prior to acquisition. F-29 30
NYNEX BELL CABLEMEDIA CABLECOMMS YEAR ENDED YEAR ENDED DEC 31, 1996 DEC 31, 1996 L M L M --------------- ------------ Loss after tax................................... (96) (74) Minority interests............................... -- 11 === ===
32 SUBSEQUENT EVENTS Certain key transaction steps have taken place subsequent to the balance sheet date, as detailed below. Following the announcement of the clearance by the Secretary of State of France Telecom's investment in NTL on May 10, 2000, all necessary conditions to the ntl (CWC) Scheme of Arrangement which forms part of the Transaction were satisfied. With effect from close of trading on May 11, 2000, the listing of ntl (CWC) shares on the London Stock Exchange was cancelled. On May 12, 2000, the ntl (CWC) Scheme became effective. As part of the Scheme, all of the existing ntl (CWC) shares were cancelled and the resulting credit in the books of ntl (CWC) was applied in issuing paid up in full, new ntl (CWC) shares to Cable & Wireless Communications (Holdings) plc. Consequently, Cable & Wireless Communications (Holdings) plc has become the immediate parent undertaking of ntl (CWC). ntl (CWC) shareholders who were on the register of ntl (CWC) at the Dealings Record Time were issued with shares in Cable & Wireless Communications (Holdings) plc in proportion to their cancelled holdings of ntl (CWC) shares. In addition, ntl (CWC) has been re-registered as a private company. On May 12, 2000, the ntl (CWC) issued a 30 day redemption notice to the Yankee Bondholders and deposited redemption monies with the Trustee of the Yankee Bonds. On May 13, 2000, CWC DataCo was transferred to Cable & Wireless Communications (Holdings) plc. On May 24, 2000, ntl exercised the option granted to it by Cable and Wireless plc, required for completion of the Transaction, which took place on May 30, 2000. Following completion, ntl became the ultimate parent undertaking of the ntl (CWC). On June 13, 2000 the Cable & Wireless Communications changed its name to ntl (CWC) Limited. 33 RELATED PARTY TRANSACTIONS Transactions With Affiliates Cable and Wireless and Bell Atlantic Corporation are considered related parties on the basis of their equity shareholdings in ntl (CWC) which at April 30, 2000 amounted to 52.73% (1999: 52.84%) and 18.55% (1999: 18.59%) respectively. During the period CWC ConsumerCo had the following transactions with Cable and Wireless:
2000 1999 1998 NOTE L M L M L M ---- ---- ---- ---- Interest payable......................................... -- -- (1) Contribution towards group development programme......... (i) (1) (1) (1) Management service charge payable........................ (ii) -- (1) (3) Net lease payments on property........................... (iii) (1) (1) -- == == ==
All transactions with CWC DataCo undertakings are on commercial terms. F-30 31 Notes: (i) Cable and Wireless undertakes a number of development programmes which are of benefit to its subsidiary undertakings. CWC ConsumerCo makes contributions for its share of the cost of these development programmes. (ii) Management service charges cover the provision of technical training, marketing, taxation, internal audit and treasury services and other professional advice. (iii) This relates to office space in properties rented from Cable and Wireless. Other CWC ConsumerCo Transactions as Part of the NTL (CWC) Group In the year ended March 31, 1998 CWC ConsumerCo, through the ntl (CWC) group had transactions with Bell Canada International Telecommunications Holdings relating to the transfer of consortium relief. The balance due to Bell Canada International Telecommunication Holdings at March 31, 1998 was Pound Sterling 3 million. CWC ConsumerCo, through ntl (CWC) had an interconnect agreement with Mercury Personal Communications, trading as One2One, a partnership in which Cable and Wireless until October 1999 had a 50% interest. The agreement covers the carrying of traffic on each party's respective networks. During the year ended March 31, 1998, revenues from One2One were Pound Sterling 30 million and purchases were Pound Sterling 41 million. CWC ConsumerCo, through ntl (CWC) reinsures its health care claims fund through Pender Insurance Ltd, a wholly owned subsidiary company of Cable and Wireless. The cost of this arrangement is Pound Sterling 3.5 million. NTL (CWC) Shareholders' Agreement On March 21, 1997, Cable and Wireless, Bell Canada International Telecommunication Holdings, Bell Atlantic, together the Shareholder Companies, and ntl (CWC) entered into an agreement setting out the terms of the relationship among them in respect of ntl (CWC). Under this agreement, the Shareholder Companies have agreed that their group members will enter into contracts with ntl (CWC) only on a normal commercial basis and on arms' length terms. Management and Technical Services Agreement The Shareholder Companies and ntl (CWC) entered into a management and technical services agreement under which each of the Shareholder Companies provide various services to ntl (CWC) at ntl (CWC)' request, including tax, legal, internal audit, treasury and corporate finance and human resource services. The services which may be provided by ntl (CWC) to each of the Shareholder Companies include payroll and accounting, car fleet management and VAT services. The terms and conditions of any services requested will be negotiated and agreed on an arm's length basis. Secondment Agreement The Shareholder Companies and ntl (CWC) have also entered into the Secondment Agreement pursuant to which each of the Shareholder Companies, on the one hand, and ntl (CWC), on the other hand, will, subject to certain conditions, be able to second their employees or employees of their subsidiary undertakings to each other, respectively, or to companies within their respective groups. The fee for any such secondment will broadly be based on the employee's salary, remuneration and other benefits paid or provided to the employee by the providing company. Tax Agreements Under the Tax Sharing Agreement entered into on March 21, 1997 between the Shareholder Companies and ntl (CWC) i) the tax affairs of ntl (CWC) will be managed on a 'stand alone' basis; ii) dividends paid by F-31 32 ntl (CWC) will be paid outside of any election under Section 247 of the Income and Corporation Tax Act 1988; iii) Cable and Wireless will be entitled to surrender, but did not in the year ended March 31, 1999, to ntl (CWC) ACT to the fullest extent permitted by law (such surrender to be for payment); iv) the shareholders will consider proposals to structure such surrenders in such a way as to reduce the tax disadvantage for Bell Atlantic; v) ntl (CWC) will make, at the request of Bell Atlantic, certain elections with regard to its subsidiaries for the purposes of reducing US tax disadvantages to Bell Atlantic, unless such elections would have a detrimental effect on the affairs of ntl (CWC), its subsidiaries, or the other shareholders; vi) ntl (CWC) will consult generally with the shareholders regarding its tax affairs. Cable and Wireless Licence Cable and Wireless has granted ntl (CWC) the right to use the 'Cable & Wireless', 'C&W' and Globe Device trade marks (together with other trade marks relating to Cable and Wireless products previously offered by Mercury) in the United Kingdom on a royalty free basis. 34 PRINCIPAL OPERATING SUBSIDIARY UNDERTAKINGS
COUNTRY OF SUBSIDIARY INCORPORATION HOLDING PRINCIPAL ACTIVITIES - ---------- ------------- ------- -------------------- ntl (Aylesbury and Chiltern) Limited..................... UK 100% Cable TV and telecommunications provider ntl (Broadland) Limited....... UK 100% Cable TV and telecommunications provider ntl (County Durham) Limited... UK 100% Cable TV and telecommunications provider ntl (Ealing) Limited.......... UK 100% Cable TV and telecommunications provider ntl (Fenland) Limited......... UK 100% Cable TV and telecommunications provider ntl (Greenwich and Lewisham) Limited..................... UK 100% Cable TV and telecommunications provider ntl (Hampshire) Limited....... UK 100% Cable TV and telecommunications provider ntl (Harrogate) Limited....... UK 100% Cable TV and telecommunications provider ntl (Harrow) Limited.......... UK 100% Cable TV and telecommunications provider ntl (Kent) Limited............ UK 100% Cable TV and telecommunications provider ntl (Lambeth and Southwark) Limited..................... UK 100% Cable TV and telecommunications provider ntl (Leeds) Limited........... UK 100% Cable TV and telecommunications provider ntl Wirral Telephone and Cable TV Company.................. UK 100% Cable TV and telecommunications provider ntl (Norwich) Limited......... UK 100% Cable TV and telecommunications provider ntl (Peterborough) Limited.... UK 100% Cable TV and telecommunications provider ntl (Southampton and Eastleigh) Limited.......... UK 100% Cable TV and telecommunications provider ntl (South East) Limited...... UK 100% Cable TV and telecommunications provider ntl (South Hertfordshire) Limited..................... UK 33.3% Cable TV and telecommunications provider ntl (South London) Limited.... UK 100% Cable TV and telecommunications provider ntl (Thamesmead) Limited...... UK 100% Cable TV and telecommunications provider ntl (Wandsworth) Limited...... UK 100% Cable TV and telecommunications provider ntl (Wearside) Limited........ UK 100% Cable TV and telecommunications provider ntl (West London) Limited..... UK 100% Cable TV and telecommunications provider
F-32 33
COUNTRY OF SUBSIDIARY INCORPORATION HOLDING PRINCIPAL ACTIVITIES - ---------- ------------- ------- -------------------- ntl (York) Limited............ UK 100% Cable TV and telecommunications provider ntl CableComms Bolton......... UK 100% Cable TV and telecommunications provider ntl CableComms Bromley........ UK 100% Cable TV and telecommunications provider ntl CableComms Bury and Rochdale.................... UK 100% Cable TV and telecommunications provider ntl CableComms Cheshire....... UK 100% Cable TV and telecommunications provider ntl CableComms Derby.......... UK 100% Cable TV and telecommunications provider ntl CableComms East Lancashire.................. UK 100% Cable TV and telecommunications provider ntl CableComms Greater Manchester.................. UK 100% Cable TV and telecommunications provider ntl CableComms Macclesfield... UK 100% Cable TV and telecommunications provider ntl CableComms Oldham and Tameside.................... UK 100% Cable TV and telecommunications provider ntl CableComms Solent......... UK 100% Cable TV and telecommunications provider ntl CableComms Staffordshire............... UK 100% Cable TV and telecommunications provider ntl CableComms Stockport...... UK 100% Cable TV and telecommunications provider ntl CableComms Surrey......... UK 100% Cable TV and telecommunications provider ntl CableComms Sussex......... UK 100% Cable TV and telecommunications provider ntl CableComms Wessex......... UK 100% Cable TV and telecommunications provider ntl CableComms Wirral......... UK 100% Cable TV and telecommunications provider ntl (CWC) Programming Limited..................... UK 100% Cable programming company ntl Communications Services Limited..................... UK 100% Management company Two Way TV Limited............ UK 50.1% Development company
35 SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES Basis of Preparation CWC ConsumerCo has prepared its combined financial statements in accordance with generally accepted accounting principles in the United Kingdom which differ in certain material respects from US generally accepted accounting principles. The significant differences relate principally to the following items and the adjustments necessary to restate net loss and shareholders' equity in accordance with US generally accepted accounting principles are shown below. a) Goodwill Under UK generally accepted accounting principles, goodwill arising on acquisitions before April 1, 1998 is eliminated directly against reserves. Goodwill arising on acquisitions after April 1, 1998 is capitalised and amortised through the profit and loss account over the Directors' estimate of its useful economic life, which may be up to 20 years. Under US generally accepted accounting principles goodwill is capitalised and amortised by charges against income up to 20 years. b) Deferred Tax Under UK generally accepted accounting principles, provision is made for deferred taxation only when there is a reasonable probability that the liability will arise in the foreseeable future. US generally accepted F-33 34 accounting principles requires full provision for deferred income taxes under the liability method on all temporary differences and, if required, a valuation allowance is established to reduce gross deferred tax assets to the amount which is likely to be realised. c) Prematurity Under US generally accepted accounting principles, depreciation of costs in the period between the completion of a portion of the network and the time that expected subscriber numbers are achieved (the prematurity period) are determined in accordance with SFAS 51, "Financial Reporting by Cable Television Companies". This requires that depreciation and capitalisation during the prematurity period be determined by reference to the ratio of the greater of i) the average number of customers expected that month as estimated at the beginning of the prematurity period; ii) the average number of customers that would be attained using at least equal, that is, straight line, monthly progress in adding new customers towards the estimate of customers at the end of the prematurity period; and iii) the average number of actual customers -- to the estimated number of customers at the end of the prematurity period. CWC ConsumerCo follows policies which, because the size of the portion of the network tracked is significantly smaller than a "portion" under SFAS 51, result in no material difference to applying SFAS 51. Under UK generally accepted accounting principles interest on borrowings used to finance construction of the network is capitalized until that portion of the network is completed, hence no interest on borrowings that continue to finance completed portions of the network in the prematurity period is capitalised. However, US generally accepted accounting principles allow such interest to continue to be capitalised in the prematurity period. d) Cash Flows The Cash Flow Statement is prepared in accordance with the UK Financial Reporting Standard No. 1 Revised, Cash Flow Statements, referred to as FRS 1 Revised, for UK generally accepted accounting principles reporting. Its objective and principles are similar to those set out in Statement of Financial Accounting Standard (SFAS) 95, "Statement of Cash Flows". The principal difference between the standards is in respect of classification. Under FRS 1 Revised, CWC ConsumerCo presents its combined cash flows for: operating activities; returns on investments and servicing of finance; taxation; capital expenditure and financial investment; acquisitions and disposals; equity dividends paid; and financing. SFAS 95 requires only three categories of cash flow activity; operating; investing and financing. Cash flows arising from taxation and returns on investments and servicing of finance under FRS 1 Revised would, with the exception of dividends paid, be included as operating activities under SFAS 95; dividend payments would be included as a financing activity under SFAS 95. Under FRS 1 Revised, cash is defined as cash in hand and deposits repayable on demand, short term deposits which are readily convertible into known amounts of cash at or close to their carrying value are classified as liquid resources. SFAS 95 defines cash and cash equivalents as cash in hand and short term highly liquid investments with original maturities of three months or less. Cash flows in respect of short term deposits with original maturities exceeding three months are included in investing activities under SFAS 95 and are included in capital expenditure and financial investments under FRS 1 Revised. e) Debt On May 12, 2000, CWC ConsumerCo issued a 30 day redemption notice to Yankee Bondholders and deposited redemption monies with the Trustee of the Yankee Bonds. This debt was treated as long term under UK GAAP. However, in accordance with US GAAP, CWC ConsumerCo had committed to pay the monies prior to release of these financial statements, therefore this debt is classified as current. F-34 35 The effects of these different accounting principles are as follows: An exchange rate of US$1.63 has been used to translate sterling to US dollars. Such translations are for convenience only and should not be construed as representations that the sterling amounts have been converted into US dollars at that or any other rate. RECONCILIATION OF UK/US GAAP RECONCILIATION OF UK/US GAAP -- NET LOSS
2000 2000 1999 $M L M L M ---- ---- ---- NET LOSS AS REPORTED UNDER UK GAAP.......................... (269) (165) (135) US GAAP ADJUSTMENTS: Amortisation of goodwill.................................... (165) (101) (101) Capitalisation of Prematurity Interest...................... 7 4 -- Deferred Tax................................................ (18) (11) -- ---- ---- ---- NET LOSS UNDER US GAAP...................................... (445) (273) (236) ==== ==== ====
RECONCILIATION OF UK/US GAAP -- SHAREHOLDERS' EQUITY
2000 2000 1999 $M L M L M ----- ----- ----- SHAREHOLDERS' EQUITY AS REPORTED UNDER UK GAAP.............. (707) (434) (279) Goodwill.................................................... 2,799 1,717 1,818 Capitalisation of Prematurity Interest...................... 7 4 -- Deferred Tax................................................ (18) (11) -- ----- ----- ----- SHAREHOLDERS' EQUITY UNDER US GAAP.......................... 2,081 1,276 1,539 ===== ===== =====
COMBINED STATEMENT OF CASH FLOWS UNDER US GAAP
2000 2000 1999 $M L M L M ------ ---- ---- Net cash (used) provided by operating activities............ (31) (19) (223) Net cash used in investing activities....................... (1,133) (695) (234) Net cash provided by financing activities................... 1,099 674 355 ------ ---- ---- NET CHANGE IN CASH UNDER US GAAP............................ (65) (40) (102) ====== ==== ====
F-35 EX-99.9 13 y48736ex99-9.txt SELECTED FINANCIAL DATA 1 EXHIBIT 99.9 SELECTED FINANCIAL DATA NTL BUSINESS
FOR THE PERIOD FROM FOR THE PERIOD SEPTEMBER 21, FROM YEAR ENDED 1999 TO JANUARY 1, 1999 YEAR ENDED DECEMBER 31, DECEMBER 31, TO SEPTEMBER 20, DECEMBER 31, 2000 1999 1999 1998 ------------ -------------- ---------------- ------------ (IN MILLIONS POUND STERLING) Income Statement Data: Revenues............................. 82.2 36.5 70.3 83.0 Operating income (loss).............. (18.8) .2 (17.8) 3.8 Net income (loss).................... (17.1) .2 (17.9) 1.3
AS OF DECEMBER 31, --------------- 2000 1999 ------- ---- (IN MILLIONS POUND STERLING) Working capital (deficiency)................................ (8.1) (1.2) Fixed assets, net........................................... 1.3 1.8 Total assets................................................ 2,687.8 60.2 Long-term debt(1)........................................... 2,026.3 1.2 Shareholder's equity........................................ 615.0 .9
- --------------- (1) In May 2000, NTL Business was a party to a L2,500.0 million credit agreement. As of December 31, 2000, NTL Business had L2,026.3 million outstanding under the credit agreement. These funds were loaned to an affiliate of NTL Business. F-1 -----END PRIVACY-ENHANCED MESSAGE-----