<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 20, 2000.
REGISTRATION STATEMENT NO. 333-48648
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
AMENDMENT NO. 1 to
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------------------
NTL COMMUNICATIONS CORP.
(Exact name of Registrant as specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 4899 52-1822078
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification Number)
incorporation or Code Number)
organization)
</TABLE>
110 EAST 59TH STREET
NEW YORK, NEW YORK 10022
(212) 906-8440
(Address, including zip code and telephone number, including area code,
of Registrant's principal executive office)
COPIES TO:
<TABLE>
<S> <C> <C>
RICHARD J. LUBASCH, ESQ. THOMAS H. KENNEDY, ESQ. ADRIAN J. S. DEITZ
EXECUTIVE VICE PRESIDENT, SKADDEN, ARPS, SLATE, MEAGHER SKADDEN, ARPS, SLATE, MEAGHER
GENERAL COUNSEL AND SECRETARY & FLOM LLP & FLOM LLP
NTL COMMUNICATIONS CORP. 919 THIRD AVENUE ONE CANADA SQUARE
110 EAST 59TH STREET NEW YORK, NEW YORK 10022 CANARY WHARF
NEW YORK, NEW YORK 10022 (212) 735-3000 LONDON E14 5DS, ENGLAND
(212) 906-8440 (011) (44) (20) 7519-7000
(Name, address, including zip
code, and telephone number,
including area code, of agent
for service)
</TABLE>
------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
------------------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------
------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and we are not
soliciting offers to buy these securities in any state where the offer
or sale is not permitted.
PROSPECTUS
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED DECEMBER 20, 2000.
OFFER TO EXCHANGE
NTL COMMUNICATIONS CORP.
11 7/8% SERIES B SENIOR NOTES DUE 2010
------------------------
We are offering to exchange an aggregate principal amount of up to
$500,000,000 of our new 11 7/8% series B senior notes due 2010 for a like amount
of our old 11 7/8% senior notes due 2010.
------------------------
- The exchange offer expires at 5:00 p.m., New York City time, on
, 2001, unless we extend it.
- We will apply to list the new notes on the Luxembourg Stock Exchange in
accordance with the Luxembourg Stock Exchange Rules.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF RISK FACTORS
THAT YOU SHOULD CONSIDER BEFORE DECIDING TO TENDER YOUR OLD NOTES.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is .
[LOGO GRAPHIC]
<PAGE> 3
Until , 2001, which is 90 days after the date of this prospectus,
if you are a dealer effecting transactions in the new notes, whether or not you
participate in the exchange offer, you may be required to deliver a prospectus.
This obligation is in addition to your obligation if you are a dealer to deliver
a prospectus when acting as an underwriter and with respect to any unsold
allotments or subscriptions.
------------------------
In this prospectus, "NTL," the "company," "we," "us" and "our" refer to NTL
Communications Corp. and its consolidated subsidiaries except where we expressly
state that we are only referring to NTL Communications Corp.
We confirm that the information contained in this prospectus in relation to
our company and our subsidiaries and the notes is true and accurate in all
material respects and is not misleading in any material respect. Any opinions
expressed in this prospectus on the part of our company are honestly held or
made and this prospectus does not omit to state any material fact necessary to
make such information and opinions (in such context) not misleading in any
material respect. All proper enquiries have been made to ascertain and to verify
that information. We accept responsibility for the information contained in this
document accordingly.
You should rely only on the information contained in this prospectus. We
have not authorized any other person to provide you with different information.
If anyone provides you with different or inconsistent information, you should
not rely on it. We are not making an offer of the new notes in any jurisdiction
where the offer or sale is not permitted. You should assume that the information
appearing in this prospectus is accurate as of the date on the front cover of
this prospectus only. Our business, financial condition, results of operations
and prospects may have changed since that date.
This prospectus incorporates important business and financial information
about NTL that is not included in or delivered with this prospectus. We will
provide you without charge on your request, a copy of any or all documents which
are incorporated by reference to this prospectus, except for exhibits which are
specifically incorporated by reference into those documents. You should make
your request in writing or by telephone to: NTL Communications Corp., 110 East
59th Street, 26th Floor, New York, NY 10022, Attention: Richard J. Lubasch, Tel:
(212) 906-8440.
i
<PAGE> 4
EXPLANATORY NOTE REGARDING CORPORATE STRUCTURE OF NTL
The NTL group of companies has been restructured over the past two years.
The following chart depicts the summary corporate structure of the NTL group and
the position of NTL Communications Corp. within that group:
[NTL'S SUMMARY CORP. STRUCTURE GRAPHIC]
NTL Incorporated and NTL (Delaware), Inc. have no obligations under the old
notes or the new notes to be issued in exchange for the old notes. ConsumerCo is
currently a wholly owned subsidiary of NTL Incorporated. Under the terms of the
credit agreement of NTL Business Limited ("NTL Business"), a subsidiary of NTL
Incorporated, all of the outstanding share capital of ConsumerCo and NTL
Business is required to be contributed to us by July 2001. ConsumerCo and NTL
Business have no obligations under the old notes or the new notes to be issued
in exchange for the old notes.
Our principal executive office is located at 110 East 59th Street, New
York, New York 10022 and our telephone number is (212) 906-8440. Our World Wide
Web address is www.ntl.com. The information on our website is not incorporated
by reference into this prospectus.
PRESENTATION OF INFORMATION
References to "pounds sterling," "L," "pence" or "p" are to the lawful
currency of the United Kingdom and references to "U.S. dollars," "dollars," "$"
or "(cent)" are to the lawful currency of the United States. Solely for your
convenience, this prospectus contains translations of some pound sterling
amounts into U.S. dollars and some U.S. dollar amounts into pounds sterling. We
are not making any representation to you regarding those translated amounts.
Unless we otherwise clearly indicate, the translations of pounds sterling into
U.S. dollars and U.S. dollars into pounds sterling have been made at $1.4787 per
L1.00, the noon buying rate in the City of New York for cable transfers in
pounds sterling as certified for customs purposes by the Federal Reserve Bank of
New York on September 30, 2000, provided, however, that amounts associated with
acquisitions, dispositions have been translated at the noon buying rate on the
closing date of the transaction. On December 19, 2000, the noon buying rate was
$1.4620 per L1.00.
ii
<PAGE> 5
Before January 1, 1999, the pound sterling was a part of the European
Monetary System exchange rate mechanism known as the EMS. Within the EMS,
exchange rates fluctuated within permitted margins, fixed by central bank
intervention. In accordance with the provisions of the Treaty on European Union
negotiated at Maastricht in 1991 and signed by the then 12 member states of the
European Union in early 1992, a European Monetary Union, known as the EMU,
superseded the EMS on January 1, 1999 and the Euro was introduced as the single
European currency. Since that date, the Euro has been the lawful currency of the
EMU states. The following 11 member states participate in the EMU and have
adopted the Euro as their national currency: Austria, Belgium, Finland, France,
Germany, the Republic of Ireland, Italy, Luxembourg, The Netherlands, Portugal
and Spain.
iii
<PAGE> 6
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in, or incorporated
by reference in, this prospectus. This summary does not contain all of the
information that may be important to you. You should read the entire prospectus
carefully, including the documents incorporated by reference, before making a
decision to exchange your old notes. The operating data for NTL included in this
prospectus does not give effect to the proposed contribution of ConsumerCo to us
unless we specifically state otherwise.
ABOUT NTL
NTL Communications is a leading broadband communications company in the
United Kingdom and the Republic of Ireland with approximately 1.9 million cable
television and telephony customers, as of September 30, 2000, and assuming the
contribution of CWC ConsumerCo ("ConsumerCo") from NTL Incorporated to us had
occurred, approximately 3.1 million cable television and telephony customers as
of September 30, 2000. In addition, as of September 30, 2000, assuming the
contribution of ConsumerCo, we had approximately 1.5 million Internet service
customers and approximately 454,000 off-net telephony customers. We provide
residential, business and carrier customers with a broad array of competitive
communications products and services, including the following:
- CONSUMER SERVICES, including telephony, cable television, personal
computer and television-based Internet access and interactive services;
- BUSINESS SERVICES, including business telecoms, national and
international carrier telecommunications, Internet services and satellite
communications services; and
- BROADCAST TRANSMISSION AND TOWER SERVICES, including digital and analog
television and radio broadcast transmission services, wireless network
management and tower site rental services.
Our objective is to focus on customer service and the development of
product offerings that emphasize value rather than simply price discounts. Our
product offerings incorporate our fundamental customer proposition:
"to allow our customers to buy what they need and pay for what they use"
We believe that this simple construct has allowed us to achieve the
industry leading customer penetration (approximately 50%) and customer retention
levels (approximately 1.0% churn per month) within the franchises that we have
been developing since 1993. In 1998, we expanded our consumer services through
the national offer of our television, Internet and indirect access telephony
services. This product allows us to serve over 15 million British
telecommunications customers that will not be passed by our local broadband
network infrastructure.
We provide our broad range of services over local, national and
international network infrastructure. This network infrastructure consists of:
- BROADBAND COMMUNICATIONS NETWORKS that pass approximately 4.5 million
homes as of September 30, 2000, and will be expanded to cover the nearly
5.8 million homes currently in our regional U.K. franchise areas and the
Republic of Ireland. ConsumerCo's broadband networks pass approximately
4.3 million homes as of September 30, 2000, of the approximately 6.0
million homes in its franchise areas in the United Kingdom. These
high-capacity two-way local broadband fiber networks serve entire
communities throughout these regional franchise areas. Our fiber optic
cables pass most businesses in our regional franchise areas and are
connected to nodes, which are typically within approximately 500 meters
of each of the approximately 500 homes typically served by each node.
Each home is then connected by a "Siamese" cable consisting of two copper
pair telephone wires and a coaxial cable, allowing us to deliver
telephone, cable television and Internet services
1
<PAGE> 7
over a single integrated network. This "Siamese" cable also allows us to deploy
both cable modems and digital subscriber line technology for the provision of
broadband communications services.
- A NATIONAL/INTERNATIONAL SYNCHRONOUS DIGITAL HIERARCHY (KNOWN AS SDH)
FIBER OPTIC TELECOMMUNICATIONS NETWORK which connects all of the major
population centers in the United Kingdom to Ireland, continental Europe
and the United States. This self-healing, fully redundant backbone
network utilizes Asynchronous Transfer Mode (known as ATM) technology and
was built with sufficient duct capacity to accommodate over 2,300 fibers
on the majority of its routes. We have designed this network to allow us
to place the active components such as routing devices at its edge and
close to our customers. We believe this design should ultimately reduce
our costs and increase our ability to offer a broad range of voice and
data solutions.
- A NATIONAL BROADCAST TRANSMISSION AND TOWER NETWORK INFRASTRUCTURE in the
United Kingdom, which provides national, regional and local broadcast and
wireless communications coverage and is comprised of over 2,182 tower
sites in the United Kingdom.
On April 1, 1999, we completed a corporate restructuring to create a
holding company, which took our original name "NTL Incorporated". The holding
company was created to pursue opportunities outside of the United Kingdom and
Ireland. On May 18, 2000, NTL Incorporated completed a further corporate
restructuring to create a new holding company in connection with the acquisition
of ConsumerCo.
NTL Communications Corp. was incorporated on April 2, 1993 under the
General Corporation Law of the State of Delaware.
RECENT DEVELOPMENTS
SALE OF INTEREST IN CABLE LONDON
In August 1999, Telewest Communications PLC exercised its right to purchase
all of our shares of Cable London PLC and all of our related rights and
interests for a purchase price of approximately L428.0 million in cash. We
established the purchase price pursuant to a buy/sell agreement between the
parties. The sale was completed on November 21, 1999. The sale of our shares of
Cable London PLC is an "Asset Sale" for the purposes of the indentures for some
of our indebtedness. As required under the terms of the indentures, we used an
amount equal to the proceeds from the sale to invest in fixed assets in the
United Kingdom and Ireland which are "Replacement Assets."
COMPLETION OF ACQUISITION OF CONSUMERCO BY OUR PARENT, NTL INCORPORATED
On May 30, 2000, our ultimate parent company, NTL Incorporated, completed
its acquisition of the residential cable, business cable, indirect residential
telephony, residential internet and digital television development and services
business of Cable & Wireless Communications plc, referred to as ConsumerCo. NTL
Incorporated paid cash of L2,846.3 million ($4,258.9 million) and issued an
aggregate of 84.9 million shares of its common stock (valued at $5,485.4 million
at the time of announcement) in exchange for all of the shares of ConsumerCo. In
addition, NTL Incorporated paid L2,214.0 million ($3,312.8 million) to repay a
portion of ConsumerCo's debt. 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. France Telecom paid
L1,555.6 million ($2,327.6 million) for 42.2 million shares of NTL
Incorporated's common stock and L1,244.4 million ($1,862.0 million) for 2.0
million shares of NTL Incorporated's convertible preferred stock with a 5%
dividend, a conversion price of $80 per share and a redemption price of $96 per
share. ConsumerCo and Workplace Technologies (now renamed NTL Business), one of
the United Kingdom's leading data network service integrators which was acquired
by NTL Incorporated in 1999, are not currently our subsidiaries. Pursuant to NTL
Business's credit agreement which was used to partially fund the acquisition of
ConsumerCo, all of the outstanding share capital of
2
<PAGE> 8
ConsumerCo and NTL Business is required to be contributed to NTL Communications
Corp. by July 2001, thereby making ConsumerCo and NTL Business subsidiaries of
NTL Communications Corp.
ADDITIONAL INVESTMENT BY FRANCE TELECOM IN OUR PARENT, NTL INCORPORATED
In March 2000, our ultimate parent company, NTL Incorporated received
$1,850.0 million in cash from France Telecom and a group of commercial banks in
exchange for 1.9 million shares of a new issue of redeemable 5% cumulative
preferred stock of NTL Incorporated. The proceeds of the issuance of the
preferred stock were used primarily for the purpose of the consummation of the
acquisition of the assets of Cablecom Holding AG, which was completed in March
2000, with any remaining proceeds to be used to help fund NTL Incorporated's
acquisition of companies primarily engaged in the broadband communications,
broadcasting and cable television businesses in continental Europe outside of
France. The holders of the preferred stock other than any commercial banks or
their affiliates may at any time after September 2000 elect, subject to some
conditions, for the preferred stock to be exchanged for up to a 50% interest in
a new company which will own certain or all of NTL Incorporated's broadband
communications, broadcast and cable television interests in continental Europe
outside of France. Under some circumstances, at NTL Incorporated's option, any
portion of its obligation that may not be satisfied by the exchange may be
satisfied with a security convertible into NTL Incorporated's common stock or
cash.
NTL WITHDRAWS OFFER FOR PAY-PER-VIEW RIGHTS FOR BRITISH PREMIERSHIP SOCCER
In June 2000, we announced that we were successful in our bid for the 40
game pay-per-view rights package auctioned by the British Football Associations'
Premier League. The license was to run for 3 years, beginning at the start of
the 2001/2 season and would have required NTL Delaware to pay approximately L109
million annually for the rights. On October 18, 2000, we announced that we had
been unable to agree to final terms regarding the pay-per-view rights package
and that negotiations had ceased.
ANNOUNCEMENT OF INTENTION TO ACQUIRE 100% OF VIRGINNET'S ISP BUSINESS FROM
VIRGIN
In July 2000, we announced that we had signed a non-binding letter of
intent with Virgin allowing both parties to explore ways to develop the parts of
the VirginNet business that best fit their own Internet strategies. VirginNet is
a joint venture in which we own a 49% interest and Virgin Group a 51% interest.
It is proposed that we will acquire 100% of VirginNet's ISP business, which
includes approximately 800,000 customers as of September 30, 2000. Virgin will
assume 100% ownership of VirginNet's content and commerce business.
NTL AND BSKYB AGREE PROGRAM SUPPLY DEAL
In September 2000, we and British Sky Broadcasting ("BSkyB") announced that
we had entered into a 5-year program supply deal. The agreement is designed to
increase the viewing choices of our customers. Under the agreement, we will
carry all of BSkyB's main channels. The supply of these channels will be
pursuant to a new wholesale pricing structure developed by the parties. The
agreement includes a mutual commitment to offer the other new services which
either we or BSkyB develop in the future, including channels, pay-per-view
sports events and enhanced and interactive TV services. The agreement includes a
mutual commitment to work together to find technical solutions to facilitate the
distribution of these services on both cable and DTH platforms. The agreement is
subject to regulatory approval.
3
<PAGE> 9
THE EXCHANGE OFFER
Notes offered.............. We are offering up to $500,000,000 principal amount
of new 11 7/8% series B senior notes due 2010.
The series B notes have been registered under the
Securities Act.
The exchange offer......... We are offering to issue the new notes in exchange
for a like principal amount of your old notes. For
procedures for tendering, see "The Exchange Offer."
Tenders, expiration date;
withdrawal............... The exchange offer will expire at 5:00 p.m. New
York City time on , 2000 unless we extend
it. If you decide to tender your old notes in the
exchange offer, you may withdraw them at any time
before , 2000. If we decide for any
reason not to accept any old note for exchange, it
will be returned without expense to you promptly
after the end of the exchange offer.
United States federal
income tax consequences.... Your exchange of old notes for new notes in the
exchange offer will not result in any income, gain
or loss to you for federal income tax purposes. See
"Federal Income Tax Considerations."
Use of proceeds............ We will not receive any proceeds from the exchange
pursuant to the exchange offer.
Exchange agent............. The Chase Manhattan Bank through its offices
specified in this prospectus in New York and
Luxembourg is acting as the exchange agent for the
exchange offer. See "The Exchange Offer -- Exchange
agent" and the inside back cover of this prospectus
for the location of the offices of the exchange
agent.
CONSEQUENCES OF EXCHANGING OLD NOTES IN THE EXCHANGE OFFER
The following summary is based on interpretations by the staff of the SEC
in no action letters issued to third parties. Unless you are an affiliate of
NTL, generally if you exchange your old notes for new notes in the exchange
offer you may offer those new notes for resale, resell those new notes, and
otherwise transfer those new notes without compliance with the registration and
prospectus delivery provisions of the Securities Act. However, those new notes
must have been acquired by you in the ordinary course of your business. In
addition, unless you are a broker-dealer, you must not engage in, intend to
engage in or have any arrangement or understanding with any person to
participate in, a distribution of new notes.
If you do not exchange your old notes for new notes in the exchange offer,
your old notes will continue to be subject to provisions of the indenture under
which they were issued regarding transfer and exchange of the old notes and the
restrictions on transfer contained in the legend on the old notes. See "Risk
Factors -- If you do not exchange your old notes for new notes, you will
continue to hold notes subject to restrictions on transfer and which are not
freely tradable", "The Exchange Offer" and "Registration Rights."
4
<PAGE> 10
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the new notes and the old notes are identical in all material
respects, except for:
(1) the transfer restrictions and registration rights relating to the old
notes, and
(2) provisions under the registration rights agreements providing for
special interest on the old notes under circumstances relating to timing
of the exchange offer, which will terminate on completion of the
exchange offer.
Issuer..................... NTL Communications Corp.
Notes Offered.............. $500.0 million in principal amount of 11 7/8%
series B senior notes due 2010.
Maturity................... The notes mature on October 1, 2010.
Issue Price................ The issue price for the notes is 97.872%.
Yield and Interest......... The notes will accrue interest at a rate of 11 7/8%
per year and will be payable in cash, semi-annually
in arrears, on April 1 and October 1, commencing
April 1, 2001.
Ranking.................... These notes are senior debts. They rank ahead of
all of our subordinated indebtedness and rank equal
in right of payment with all of our existing and
future senior debts.
Assuming we had completed the offering of the old
notes and applied the proceeds on September 30,
2000, these notes:
- would have ranked equally with approximately $5.2
billion of our senior debts, and
- would have ranked senior in right of payment to
approximately $0.6 billion of our subordinated
indebtedness.
In addition, the notes will effectively rank behind
all existing and future indebtedness and other
liabilities and commitments of our subsidiaries. On
September 30, 2000 the total liabilities of our
subsidiaries were approximately $3,241.9 million.
Optional Redemption........ On or after October 1, 2005, we may redeem some or
all of the notes at any time at the redemption
prices listed in the "Description of the Notes"
section under the heading "Optional Redemption."
Mandatory Offer
to Repurchase............ If we experience specific kinds of changes of
control accompanied by a ratings decline or engage
in certain asset sales, we must offer to repurchase
the notes at the redemption prices stated in the
"Description of the Notes" section under the
headings "Change of Control" and "Asset Sale",
respectively.
Basic Covenants of
Indenture................ The indenture will, among other things, restrict
our ability and the ability of certain of our
subsidiaries to:
- make restricted payments,
- incur additional indebtedness and issue preferred
stock,
- incur liens,
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<PAGE> 11
- pay dividends on stock or repurchase stock,
- sell all or substantially all of our assets or
merge with or into other companies, and
- engage in certain transactions with affiliates.
These covenants are subject to important
exceptions. For more details, see the "Description
of the Notes" section under the heading "--
Covenants".
Governing Law and
Judgments................ The notes and the indenture under which the notes
will be issued will be governed exclusively by the
laws of the State of New York.
Trustee, principal paying
agent and registrar........ The Chase Manhattan Bank.
Paying agent and transfer
agent in Luxembourg........ Chase Manhattan Bank Luxembourg S.A.
Listing Agent in
Luxembourg................. Banque Internationale a Luxembourg.
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<PAGE> 12
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF
NTL COMMUNICATIONS CORP.
The summary consolidated financial information for NTL Communications Corp.
presented below under the captions income statement data for the years ended
December 31, 1999, 1998 and 1997, and balance sheet data at December 31, 1999,
was derived from our audited consolidated financial statements. Interim data at
September 30, 2000 and for the nine months ended September 30, 1999 and 2000 are
unaudited, but include, in the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of that data. Results for the nine months ended September 30, 2000
are not necessarily indicative of the results that may be expected for any other
interim period or for the year as a whole.
In June and September 1998, we purchased ComTel Limited and Telecential
Communications, which we refer to collectively as ComTel, for an aggregate
purchase price of approximately $969.0 million, including intangibles
aggregating approximately $224.0 million. In October 1998, we purchased Comcast
UK Cable Partners Limited (now known as NTL (Triangle) LLC) for an aggregate
purchase price of approximately $600.4 million, including intangibles of
approximately $129.8 million. In December 1998, we purchased Eastern Group
Telecoms ("EGT") for an aggregate purchase price of approximately $151.0
million, including intangibles of approximately $45.0 million. In March 1999, we
purchased Diamond Cable Communications plc ("Diamond") for an aggregate purchase
price of approximately $986.1 million, including intangibles of $1.3 billion.
The net assets and results of operations of ComTel, Comcast UK, EGT and Diamond
are included in the consolidated financial statements from their respective
dates of acquisition. In August 1999, Telewest exercised its right to purchase
all of our shares of Cable London PLC and all of our related rights and
interests for a purchase price of approximately L428.0 million.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- -----------------------------
2000 1999 1999 1998 1997
-------- -------- --------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues.................................... $1,312.3 $1,052.8 $1,477.9 $ 747.0 $ 491.8
Operating loss.............................. (556.6) (429.7) (609.5) (228.6) (192.1)
Net loss.................................... (1,107.6) (864.9) (715.0) (534.6) (333.1)
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(IN MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............ $ 103.9 $ 1,075.1
Working capital............................................. (522.7) 440.9
Fixed assets, net........................................... 5,620.4 5,340.5
Total assets................................................ 8,471.3 9,502.3
Long-term debt.............................................. 7,931.1 7,598.0
Shareholder's equity (deficiency)........................... (610.7) 900.5
</TABLE>
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<PAGE> 13
RISK FACTORS
You should consider carefully all of the information in this prospectus and
incorporated by reference in this prospectus. See "Where You Can Find More
Information About Us." In particular, you should carefully evaluate the
following risks before tendering your old notes in the exchange offer. However,
the risk factors set forth below, other than the first risk factor, are
generally applicable to the old notes as well as the new notes. This prospectus
contains forward-looking statements that involve risks and uncertainties. Our
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including the risks
faced by us described below and elsewhere in this prospectus.
IF YOU DO NOT EXCHANGE YOUR OLD NOTES FOR NEW NOTES, YOU WILL CONTINUE TO HOLD
NOTES SUBJECT TO RESTRICTIONS ON TRANSFER AND WHICH ARE NOT FREELY TRADEABLE
If you do not tender your old notes or you tender your old notes and we do
not accept the tender, your old notes will continue to be subject to their
existing restrictions on transfer and exchange. In general, unless the old notes
are registered under the Securities Act, you cannot offer or sell your old notes
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. Except in limited
circumstances which we summarize under "Registration Rights" in this prospectus,
we do not have any obligation to register your old notes under the Securities
Act. We do not expect that we will take any action to register the old notes
under the Securities Act unless we are required to so in those limited
circumstances.
OUR SUBSTANTIAL LEVERAGE COULD ADVERSELY AFFECT THE FINANCIAL HEALTH OF THE
COMPANY
We are and, for the foreseeable future will continue to be, highly
leveraged. On September 30, 2000, our total long-term indebtedness was
approximately $7,931.1 million.
This debt represents approximately 108% of our total capitalization. The
instruments governing our outstanding indebtedness permit and the indenture
governing the notes will permit us to incur additional indebtedness to finance
our working capital and capital expenditure requirements, finance the
construction of our network and finance the acquisition of assets, licenses and
computer software that are used in connection with a cable business, as well as
entities that are engaged in the cable business.
Our substantial indebtedness could adversely affect our financial health
by, among other things:
- increasing our vulnerability to adverse changes in general economic
conditions or increases in prevailing interest rates particularly if any
of our borrowings are at variable interest rates;
- limiting our ability to obtain the additional financing we need to
operate, develop and expand our business; and
- requiring us to dedicate a substantial portion of our cash flow from
operations to service our debt, which reduces the funds available for
operations and future business opportunities.
IN SOME CIRCUMSTANCES INVOLVING A CHANGE OF CONTROL OF OUR PARENT, WE WILL BE
REQUIRED TO REPURCHASE SOME OF OUR INDEBTEDNESS INCLUDING THE NOTES -- IF THIS
OCCURS, WE MAY NOT HAVE THE FINANCIAL RESOURCES NECESSARY TO MAKE THOSE
REPURCHASES
We may, under some circumstances involving a change of control of our
parent, be obligated to offer to repurchase outstanding debt securities,
including the notes, before maturity. We cannot assure you that we will have
available financial resources necessary to repurchase those securities in those
circumstances.
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THE ANTICIPATED CONSTRUCTION COSTS OF OUR NETWORK WILL INCREASE AS A RESULT OF
OUR RECENT ACQUISITIONS AND WILL REQUIRE SUBSTANTIAL AMOUNTS OF ADDITIONAL
FUNDING
As a result of our recent acquisitions, our capital expenses and cost of
operations for the development, construction and operation of our combined
telecommunications networks will significantly increase. We estimate that
significant amounts of additional funding will be necessary to meet these
capital expenditure requirements. We estimate that capital expenditure and debt
service requirements, net of cash from operations, will aggregate up to
approximately $1,400 million from October 1, 2000 to September 30, 2001. Our
commitments at September 30, 2000 for equipment and services through September
30, 2001 are included in the anticipated requirements. At September 30, 2000 we
had approximately $103.9 million in cash and securities. We expect to fund the
balance of these requirements through borrowings under the L2,500.0 million
credit agreement of NTL Business, a wholly-owned subsidiary of NTL Delaware and
NTL Communications Limited, our indirect wholly-owned subsidiary, the L1,300.0
million credit agreement of NTL Communications Limited, the proceeds of the
offering of the old notes or the issuance of debt or equity to our immediate
parent, NTL Delaware.
We cannot be certain that:
- actual construction costs will meet our expectations,
- we will satisfy conditions precedent to advances under NTL Communications
Limited's credit agreement,
- we will not acquire additional businesses that require additional
capital,
- we will be able to generate sufficient cash from operations to meet
capital requirements, debt service and other obligations when required,
or
- we will be able to withstand exposure to exchange and interest rate
fluctuations.
WE WILL REQUIRE ADDITIONAL FINANCING BECAUSE WE DO NOT EXPECT TO GENERATE
SUFFICIENT CASH FLOW TO REPAY AT MATURITY THE ENTIRE PRINCIPAL AMOUNT OF OUR
OUTSTANDING INDEBTEDNESS
We anticipate that we will not generate sufficient cash flow from
operations to repay at maturity the entire principal amount of our outstanding
indebtedness. Some of the measures we may take to refinance our debt include:
- refinancing all or portions of that indebtedness,
- seeking modifications to the terms of that indebtedness, and
- seeking additional debt financing, which may require us to obtain the
consent of some of our lenders.
We cannot be certain that we will succeed in executing any of these
measures.
CONSUMERCO AND NTL BUSINESS ARE NOT CURRENTLY OUR SUBSIDIARIES. ALTHOUGH THE
CREDIT AGREEMENT WHICH PARTIALLY FUNDED THE ACQUISITION BY OUR PARENT OF
CONSUMERCO REQUIRES THE OUTSTANDING SHARE CAPITAL OF CONSUMERCO AND NTL BUSINESS
TO BE CONTRIBUTED TO US, SUCH CONTRIBUTION MAY NOT OCCUR OR MAY NOT RESULT IN
THE BENEFITS WE ANTICIPATE. ACCORDINGLY, THE PRO FORMA FINANCIAL INFORMATION
INCLUDED IN THIS PROSPECTUS MAY NOT REFLECT OUR FUTURE ASSETS OR OPERATING
RESULTS.
ConsumerCo and Workplace Technologies (now renamed NTL Business Limited)
are not currently our subsidiaries. NTL Business's credit agreement contains a
covenant requiring the contribution of all of the outstanding share capital of
ConsumerCo and NTL Business to NTL Communications Corp. by July 2001, thereby
making ConsumerCo a subsidiary of NTL Communications. Failure to comply with
this requirement would result in a default under NTL Business's credit
agreement. A default under NTL Business's credit agreement could result in the
acceleration of the indebtedness outstanding under such
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credit agreement and thereby result in cross defaults and cross accelerations
under our, NTL Delaware's and NTL Incorporated's indebtedness.
While the lenders under NTL Business's credit agreement could waive the
requirement to contribute all of the outstanding share capital of ConsumerCo and
NTL Business, we have not requested, and do not presently intend to request, any
such waiver. If we made such a request, and the lenders under NTL Business's
credit agreement granted such a waiver, the pro forma financial information
contained in this prospectus, which includes adjustments for the contribution of
all of ConsumerCo's and NTL Business's outstanding share capital, would not
reflect our operating results and balance sheet data. In particular, if
ConsumerCo and NTL Business are not contributed to us, ConsumerCo's and NTL
Business's cash flows and assets would not be available to service our
obligations under the notes. This offering is not conditioned upon the
contribution of all of the outstanding share capital of ConsumerCo and/or NTL
Business to us.
Any benefits that arise from the contribution of ConsumerCo and/or NTL
Business to us may be less than expected. There is also the risk that
integration of ConsumerCo and NTL Business with our existing business could be
more difficult than anticipated or that there are unknown liabilities relating
to ConsumerCo and NTL Business. Any such risks or liabilities could result in a
material adverse effect on us.
WE CANNOT BE CERTAIN THAT WE WILL BE SUCCESSFUL IN INTEGRATING ACQUIRED
BUSINESSES INTO OURS, OR THAT WE WILL REALIZE THE BENEFITS WE ANTICIPATE FROM
ANY ACQUISITION
We will continue to consider strategic acquisitions and combinations that
involve operators or owners of licenses to operate cable, telephone, television
or telecommunications systems or services and related businesses. If
consummated, some of these transactions would significantly alter our holdings
and might require us to incur substantial indebtedness. We cannot assure you
that, with respect to our recent acquisitions, as well as future acquisitions,
if they occur, that we will:
- realize any anticipated benefits,
- successfully integrate the businesses with our operations, or
- manage that integration without adversely affecting us.
WE ARE A HOLDING COMPANY THAT IS DEPENDENT UPON CASH FLOW FROM OUR SUBSIDIARIES
TO MEET OUR OBLIGATIONS -- OUR ABILITY TO ACCESS THAT CASH FLOW MAY BE LIMITED
IN SOME CIRCUMSTANCES
We are a holding company with no independent operations or significant
assets other than our investments in and advances to our subsidiaries and
affiliated joint ventures. We depend upon the receipt of sufficient funds from
our subsidiaries and affiliated joint ventures to meet our obligations. The
terms of existing and future indebtedness of our subsidiaries and the laws of
the jurisdictions under which those subsidiaries are organized may limit the
payment of dividends, loan repayments and other distributions to us.
Your right to receive payments on or in respect of the notes could be
adversely affected in the event of a bankruptcy of any of our subsidiaries.
Following the liquidation of one of our subsidiaries or joint ventures, the
creditors of that subsidiary or joint venture will generally be entitled to be
paid in full before we are entitled to a distribution of any assets in the
liquidation. On September 30, 2000, the total liabilities of our subsidiaries
were approximately $3,241.9 million.
WE HAVE HISTORICALLY INCURRED LOSSES AND GENERATED NEGATIVE CASH FLOWS AND
CANNOT ASSURE YOU THAT WE WILL BE PROFITABLE IN THE FUTURE
Construction and operating expenditures have resulted in negative cash
flow, which we expect will continue at least until we establish an adequate
customer base. We have also incurred and expect to continue to incur substantial
losses. We cannot be certain that we will achieve or sustain profitability in
the future.
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<PAGE> 16
Failure to achieve profitability could diminish our ability to sustain
operations and obtain additional required funds.
We had net losses for the nine months ended September 30, 2000 of $1,107.6
million, and for the years ended December 31:
- 1999: $715.0 million
- 1998: $534.6 million
- 1997: $333.1 million
- 1996: $254.5 million
- 1995: $90.8 million
As of September 30, 2000, our accumulated deficit was $3.1 billion.
WE HAVE HISTORICALLY HAD A DEFICIENCY OF EARNINGS TO FIXED CHARGES AND OUR
EARNINGS IN THE FUTURE MAY NOT BE SUFFICIENT TO COVER THOSE FIXED CHARGES
For the nine months ended September 30, 2000 and the years ended December
31, 1999, 1998, 1997, 1996 and 1995, our earnings were insufficient to cover
fixed charges by approximately $1,182.9 million, $783.7 million, $535.0 million,
$350.9 million, $268.9 million and $112.4 million, respectively. Fixed charges
consist of interest expense, including capitalized interest, amortization of
fees related to debt financing and rent expense deemed to be interest. Our
earnings in the future may not be sufficient to cover those fixed charges,
including our obligations on the notes.
WE HAVE DISTRIBUTED FUNDS TO OUR PARENT NTL DELAWARE IN THE PAST AND MAY DO SO
IN THE FUTURE
Under our existing indentures, we are permitted, and under the indenture
for these notes we will be permitted, to dividend or distribute funds up to
specified limits to NTL Delaware, our parent. In April 1999, we distributed
$500.0 million to NTL Delaware to finance NTL Delaware's purchase of the
Australian National Transmission Network for approximately $425.8 million,
including related expenses, and its purchase of the "1G Networks" in France for
approximately $59.0 million. NTL Delaware may, but is not required to,
recontribute those funds to us. Any dividends and distributions, to the extent
permitted, may be made at other times for other purposes.
ALTHOUGH WE MAY, SUBJECT TO THE LIMITATIONS UNDER OUR INDENTURES, CONTRIBUTE
CASH TO NTL DELAWARE TO FINANCE CERTAIN ACQUISITIONS, THE CASH FLOW GENERATED
FROM OPERATIONS AT OUR PARENT WILL NOT BE AVAILABLE TO SERVICE OUR OBLIGATIONS
UNDER THE NOTES
Neither NTL Incorporated nor NTL Delaware will guarantee the notes.
Consequently, any cash flow generated by assets located at, or acquired by, NTL
Incorporated, NTL Delaware or any of their subsidiaries which are not our
subsidiaries, will not be available to service our obligations under the notes
unless contributed or otherwise distributed to us. Furthermore, the acquisitions
of ConsumerCo and NTL Business were initially made at the parent company level
and any cash flow generated from ConsumerCo and NTL Business will not be
available to service our obligations under the notes unless and until ConsumerCo
and NTL Business are subsequently contributed to us.
WE ARE SUBJECT TO SIGNIFICANT COMPETITION, WHICH WE EXPECT TO INTENSIFY, IN EACH
OF OUR BUSINESS AREAS -- IF WE ARE UNABLE TO COMPETE SUCCESSFULLY, OUR FINANCIAL
HEALTH COULD BE ADVERSELY AFFECTED
We face significant competition from established and new competitors in
each of our businesses. As existing technology develops and new technologies
emerge, we believe that competition will intensify in each of our business
areas, particularly business telecommunications and the Internet. Some of our
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<PAGE> 17
competitors have substantially greater financial and technical resources than we
do. If we are unable to compete successfully, our business, financial condition
and results of operations could be adversely affected.
OUR PRINCIPAL BUSINESSES ARE SUBJECT TO GOVERNMENT REGULATION, INCLUDING PRICING
REGULATION, WHICH MAY CHANGE AND ADVERSELY AFFECT US
Our principal business activities in the United Kingdom are regulated and
supervised by various governmental bodies. Changes in laws, regulations or
governmental policy or the interpretations of those laws or regulations
affecting our activities and those of our competitors, such as licensing
requirements, pricing regulation and deregulation of interconnection
arrangements, could have a material adverse effect on us.
We are also subject to regulatory initiatives of the European Commission.
Changes in EU Directives may reduce our range of programing and increase the
costs of purchasing television programming or require us to provide access to
our cable network infrastructure to other service providers, which could have a
material adverse effect on us.
OUR BROADCAST SERVICES BUSINESS IS DEPENDENT UPON SITE SHARING ARRANGEMENTS WITH
OUR PRINCIPAL COMPETITOR
As a result of, among other factors, a natural shortage of potential
transmission sites and the difficulties in obtaining planning permission for
erection of further masts, we have arranged with the Castle Tower Corporation
Consortium to share a large number of tower sites. We cannot assure you that the
site sharing arrangements will not be terminated. Termination of the site
sharing arrangements would have a material adverse effect on us.
Under the present arrangements, one of the parties is the owner, lessor or
licensor of each site and the other party is entitled to request a license to
use specified facilities at that site. Each site license granted pursuant to the
site sharing agreement is for an initial period expiring on December 31, 2005,
subject to title to the site and to the continuation in force of the site
sharing agreement. Each site sharing agreement provides that, if requested by
the sharing party, it will be extended for further periods. Either party may
terminate the agreement by giving 5 years' notice in writing to the other prior
to December 31, 2005, or at any date which is a date 10 years or a multiple of
10 years after December 31, 2005.
OUR BROADCAST SERVICES BUSINESS IS DEPENDENT UPON ITV AND OTHER CONTRACTS
Our broadcast services business is substantially dependent upon contracts
with the ITV contractors, Channel 4/Welsh Fourth Channel and Vodafone for the
provision of transmission services. The prices that we may charge these
companies for transmission services are subject to regulation by OFTEL. The
contracts with the ITV contractors and Channel 4/Welsh Fourth Channel terminate
on December 31, 2002. Although, historically, the ITV contractors and Channel
4/Welsh Fourth Channel have renewed their contracts with us, we cannot assure
you that they will do so upon expiration of the current contracts, that they
will not negotiate terms for provision of transmission services by us on a basis
less favorable to us or that they would not seek to obtain from third parties a
portion of the transmission services that we currently provide. The loss of any
one of these contracts could have a material adverse effect on us.
FAILURE TO MANAGE OUR GROWTH AND EXPANSION COULD HAVE A MATERIAL ADVERSE EFFECT
ON US
We have experienced rapid growth and development in a relatively short
period, and to meet our strategic objectives will require a continuation of that
growth. Management of that growth will require, among other things:
- stringent control of construction and other costs,
- continued development of our financial and management controls,
- increased marketing activities, and
- the training of new personnel.
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<PAGE> 18
Failure to manage our rapid growth and development successfully could have
a material adverse effect on us.
WE ARE DEPENDENT UPON A SMALL NUMBER OF KEY PERSONNEL
A small number of key executive officers manage our businesses, and the
loss of one or more of these executive officers could have a material adverse
effect on us. We believe that our future success will depend in large part on
our continued ability to attract and retain highly skilled and qualified
personnel. We have not entered into written employment contracts or non-compete
agreements with, nor have we obtained life insurance policies covering, those
key executive officers. Some of our senior managers also serve as members of
senior management of other companies in the telecommunications business.
THE TELECOMMUNICATIONS INDUSTRY IS SUBJECT TO RAPID TECHNOLOGICAL CHANGES AND WE
CANNOT PREDICT THE EFFECT OF ANY CHANGES ON OUR BUSINESSES
The telecommunications industry is subject to rapid and significant changes
in technology and the effect of technological changes on our businesses cannot
be predicted. The cost of implementation of emerging and future technologies
could be significant, and our ability to fund such implementation may depend on
our ability to obtain additional financing.
WE ARE SUBJECT TO CURRENCY RISK BECAUSE WE OBTAIN A SUBSTANTIAL AMOUNT OF
FINANCING IN U.S. DOLLARS AND EURO BUT GENERALLY GENERATE REVENUES AND INCUR
EXPENSES IN OTHER CURRENCIES
We encounter currency exchange rate risks because we generate revenues and
incur construction and operating expenses in other currencies, primarily in
pounds sterling, while we pay interest and principal obligations with respect to
most of our existing indebtedness in U.S. dollars and Euro. We cannot assure you
that any hedging transaction we might enter into will be successful and that
shifts in the currency exchange rates will not have a material adverse effect on
us.
WE DO NOT INSURE THE UNDERGROUND PORTION OF OUR NETWORK
We obtain insurance of the type and in the amounts that we believe are
customary in the United Kingdom for similar companies. Consistent with this
practice, we do not insure the underground portion of our cable network.
Substantially all of our cable network is constructed underground. Any
catastrophe that affects a significant portion of a system's underground cable
network could result in substantial uninsured losses.
THERE HAS BEEN NO PUBLIC MARKET FOR THE NOTES -- WE CANNOT ASSURE YOU THAT A
LIQUID MARKET WILL DEVELOP FOR THE NOTES
There has been no public market for the notes. We do not intend to seek to
have any of the notes listed or quoted on any securities exchange or automated
quotation system, except for the Luxembourg Stock Exchange. Although the initial
purchasers of the old notes have advised us that they currently intend to make a
market in the notes, they are not obligated to do so and any market making may
be discontinued at any time without notice. As a result, we cannot assure you as
to the ongoing development of a market or the liquidity of any market that may
develop for the notes.
YOU SHOULD BE AWARE THAT ACTUAL RESULTS MAY TURN OUT TO BE MATERIALLY DIFFERENT
FROM ANY FORWARD-LOOKING STATEMENTS INCLUDED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS
This prospectus includes or incorporates by reference projections of
broadcast transmission revenues, build-out results and other forward-looking
statements, including those using words such as "believe," "anticipate,"
"should," "intend," "plan," "will," "expects," "estimates," "projects,"
"positioned," "strategy," and similar expressions. In reviewing information
included or incorporated by reference in this
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<PAGE> 19
prospectus, it should be kept in mind that actual results may differ materially
from those expressed or implied in those projections and forward-looking
statements. Important assumptions and factors that could cause actual results to
differ materially from those contemplated or projected, forecast, estimated or
budgeted in or expressed or implied by those projections and forward-looking
statements include those specified in this Risk Factors section, as well as:
- industry trends,
- our ability to
-- continue to design network routes and 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,
- assumptions about
-- customer acceptance,
-- churn rates,
-- overall market penetration and competition from providers of
alternative services, and
-- availability, terms and deployment of capital.
We assume no obligation to update projections or other forward-looking
statements to reflect actual funding requirements, capital expenditures and
results, changes in assumptions or in the factors affecting these projections or
other forward-looking statements. We cannot assure you that:
- any financings will be obtained when required, on acceptable terms or at
all,
- actual amounts required to complete our planned build out will not exceed
the amount we estimate (see "-- The anticipated construction costs of our
network will increase as a result of our recent acquisitions and will
require substantial amounts of additional funding") or that additional
financing substantially in excess of that amount will not be required,
- we will not acquire franchises, licenses or other new businesses that
would require additional capital,
- operating cash flow will meet expectations or that we will be able to
access such cash from our subsidiaries' operations to meet any unfunded
portion of our capital requirements when required or to satisfy the terms
of the notes, or our other debt instruments and agreements for the
incurrence of additional debt financing (see "-- We are a holding company
that is dependent upon cash flow from our subsidiaries to meet our
obligations -- our ability to access that cash flow may be limited in
some circumstances"),
- we will achieve the cost savings expected as a result of the ConsumerCo
acquisition and the integration of several other acquired businesses (see
"Management's Discussion and Analysis of Financial Condition and Results
of Operations of NTL Communications -- Results of Operations"),
- we will not incur losses from exposure to exchange rate fluctuations or
be adversely affected by interest rate fluctuations (see "-- We are
subject to currency risk because we obtain a substantial amount of
financing in U.S. dollars but generally generate revenues and incur
expenses in other currencies"),
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- there will not be adverse changes in applicable United States, United
Kingdom or Republic of Ireland tax laws, or
- the future effects of monetary union in Europe will not be materially
adverse to us.
All forward-looking statements included or incorporated by reference in this
prospectus are expressly qualified by the foregoing.
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<PAGE> 21
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE; PERIOD FOR TENDERING OLD NOTES
This prospectus and the accompanying letter of transmittal set out the
terms and conditions of the exchange offer. On and subject to those terms and
conditions, we will accept for exchange old notes which are properly tendered on
or before the expiration date and not withdrawn as permitted below. The
expiration date is 5:00 p.m., New York City time, on , 2000. However,
if we, in our sole discretion, extend the period of time for which the exchange
offer is open, the expiration date will be the latest time and date to which we
extend the exchange offer.
This prospectus, together with the letter of transmittal, is first being
sent on or about the date of this prospectus, to all holders of old notes known
to us. Our obligation to accept old notes for exchange under the exchange offer
is subject to the conditions described under "Conditions to the exchange offer"
below.
We expressly reserve the right, at any time or on one or more occasions, to
extend the period of time during which the exchange offer is open, and delay
acceptance for exchange of any old notes, by giving oral or written notice of
the extension to you. During any extension of the exchange offer, all old notes
previously tendered will remain subject to the exchange offer and may be
accepted for exchange by us. If we do not accept any old notes tendered for
exchange for any reason they will be returned to you. We will return those notes
without expense to you as promptly as practicable after the end of the exchange
offer.
Old notes tendered in the exchange offer must be in denominations of
principal amount of $1,000 and any whole multiple of $1,000.
We expressly reserve the right to amend or terminate the exchange offer,
and not to accept for exchange any old notes which we have already accepted for
exchange, if any of the conditions of the exchange offer specified below under
"Conditions to the exchange offer" occur. We will give oral or written notice of
any extension, amendment, non-acceptance or termination to you as promptly as
practicable. A notice in the case of any extension will be issued by means of a
press release or other public announcement no later than 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
The tender to us of old notes by you and the acceptance of your tender by
us will be a binding agreement between us on the terms and subject to the
conditions set forth in this prospectus and in the accompanying letter of
transmittal in respect of the old notes tendered by you.
PROCEDURES FOR TENDERING OLD NOTES
When we refer to a holder of old notes in this section of the prospectus
relating to the exchange offer, we include any participant in the DTC system
whose name appears on a security position listing as the holder of those old
notes. Any holder who wishes to tender old notes for exchange in the exchange
offer must transmit the letter of transmittal, properly completed and duly
executed, including all other documents required by the letter of transmittal
or, in the case of a book-entry transfer, an agent's message instead of a letter
of transmittal to The Chase Manhattan Bank as exchange agent at one of the
addresses set forth below under "Exchange agent", on or before the expiration
date.
In addition, either
- certificates for the tendered old notes must be received by the exchange
agent along with the letter of transmittal before the expiration date,
- a timely confirmation of a book-entry transfer of the tendered old
notes, which we refer to as a book-entry confirmation, into the
appropriate exchange agent's account at DTC pursuant to the procedure
for book-entry transfer described below, must be received by the
exchange agent before
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<PAGE> 22
the expiration date along with the letter of transmittal or an agent's
message instead of a letter of transmittal, or
- the holder must comply with the guaranteed delivery procedures we
describe below.
An agent's message means a message, transmitted by DTC to and received by
the exchange agent. An agent's message forms a part of a book-entry
confirmation, which states that DTC has received an express acknowledgment from
the tendering participant stating that the participant has received and agrees
to be bound by, and make the representations and warranties contained in, the
appropriate letter of transmittal and that we may enforce such letter of
transmittal against the participant.
The method of delivery of old notes, letters of transmittal and all other
required documents is at your election and risk. If delivery is by mail, we
recommend that you use registered mail, properly insured, with return receipt
requested. In all cases, you should allow sufficient time to assure delivery
before the expiration date. No letters of transmittal or old notes should be
sent to NTL.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless
- you have not completed the box entitled "Special Issuance Instructions"
or "Special Delivery Instructions" on the letter of transmittal or
- the old notes are tendered for the account of an eligible institution,
as we define that term below.
In the event that a signature on a letter of transmittal or a notice of
withdrawal is required to be guaranteed, the guarantee must be by a firm which
is
- a member of a registered national securities exchange,
- a member of the National Association of Securities Dealers, Inc.,
- a commercial bank or trust company having an office or correspondent in
the United States or
- another eligible institution within the meaning of Rule 17(A)(d)-15 of
the Exchange Act.
We refer to each of the institutions in the bullet points above as eligible
institutions. If old notes are registered in the name of a person other than a
signer of the letter of transmittal, the old notes surrendered for exchange must
be endorsed by, or be accompanied by a written instrument or instruments of
transfer, or exchange, in satisfactory form as determined by us in our sole
discretion, duly executed by the registered holder with the signature on those
documents guaranteed by an eligible institution.
All questions as to the validity, form, eligibility, including time of
receipt, and acceptance of old notes tendered for exchange will be determined by
us in our sole discretion. Our determination shall be final and binding. We
reserve the absolute right to reject any and all tenders of any particular old
note not properly tendered or to not accept any particular old note which
acceptance might, in our judgment or the judgment of our counsel, be unlawful.
We also reserve the absolute right to waive any defects or irregularities or
conditions of the exchange offer as to any particular old note either before or
after the expiration date, including the right to waive the ineligibility of any
holder who seeks to tender old notes in the exchange offer.
The interpretation by us of the terms and conditions of the exchange offer
as to any particular old note either before or after the expiration date,
including the appropriate letter of transmittal and the instructions to the
letter of transmittal shall be final and binding on all parties. Any defects or
irregularities in connection with tenders of old notes for exchange must be
cured within reasonable period of time determined by us unless we waive those
defects or irregularities. Neither we, the exchange agent nor any other person
shall be under any duty to give you notification of any defect or irregularity
with respect to any tender of old notes by you for exchange, nor shall any of
them incur any liability for failure to give such notification.
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If a letter of transmittal is signed by a person or persons other than the
registered holder or holders of old notes, the old notes must be endorsed or
accompanied by appropriate powers of attorney. The old notes or the power of
attorney should be signed exactly as the name or names of the registered holder
or holders that appear on the old notes.
If a letter of transmittal, any old notes or powers of attorney are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, the
person signing should so indicate when signing and, in addition, proper evidence
satisfactory to us of their authority to so act must be submitted with the
letter of transmittal, unless we waive it.
By tendering old notes, you will represent to us that, among other things,
- the new notes acquired in the exchange offer are being obtained in the
ordinary course of business of the person receiving the new notes,
whether or not that person is the holder,
- that neither the holder nor any other person receiving the new notes has
an arrangement or understanding with any person to participate in the
distribution of the notes and
- that neither the holder nor any other person receiving the new notes is
an affiliate, as defined under Rule 405 of the Securities Act, of NTL.
If you are an affiliate of NTL, are engaged in or intend to engage in or
have any arrangement with any person to participate in the distribution of the
new notes to be acquired pursuant to the exchange offer, you
- cannot rely on the applicable interpretations of the staff of the SEC
and
- must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction.
If you are a broker-dealer who holds old notes acquired for your own
account as a result of market-making activities or other trading activities, and
you receive new notes in exchange for those old notes in the exchange offer, you
may be an "underwriter" within the meaning of the Securities Act and must
acknowledge that you will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of the new notes. The letter of
transmittal states that by so acknowledging and by delivering a prospectus, you
will not be deemed to admit that you are an "underwriter" within the meaning of
the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will
- accept, promptly after the expiration date, all old notes properly
tendered,
- issue the new notes promptly after acceptance of the old notes and
- cause the new notes to be authenticated by the trustee.
For purposes of the exchange offer, we shall be deemed to have accepted
properly tendered old notes for exchange when, as and if we have given oral,
promptly confirmed in writing, or written notice of that acceptance to the
exchange agent. For each old note accepted for exchange, the holder of such old
note will receive a new note of the same class having a principal amount equal
to that of the surrendered old note.
If any old notes tendered by you are not accepted for any reason set forth
in the terms and conditions of the exchange offer or if you submitted old notes
for an amount or quantity greater than you desire to exchange, those unaccepted
or non-exchanged old notes will be returned without expense to you. In the case
of old notes tendered by book-entry transfer into the exchange agent's account
at DTC pursuant to the book-
18
<PAGE> 24
entry procedures described below, those non-exchanged old notes will be credited
to an account maintained with DTC as promptly as practicable after the end of
the exchange offer.
BOOK-ENTRY TRANSFER
The exchange agent will request the establishment of accounts with respect
to the old notes at DTC for purposes of the exchange offer within two business
days after the date of this prospectus unless the exchange agent already has
established an account with DTC suitable for the exchange offer. If you are a
financial institution that is a participant in DTC's system you may make
book-entry delivery of old notes by causing DTC to transfer such old notes into
the exchange agent's account at DTC in accordance with DTC's procedures for
transfer.
Although you may deliver old notes to the exchange agent in the exchange
offer through book-entry transfer at DTC, the letter of transmittal or a
facsimile of it, with any required signature guarantees or an agent's message
instead and any other required documents, must be transmitted to and received by
the exchange agent at one of the addresses set forth below under "exchange
agent," on or before the expiration date. If this is not possible, the
guaranteed delivery procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If you want to tender old notes and your old notes are not immediately
available, or time will not permit your old notes or other required documents to
reach the exchange agent before the expiration date, or you cannot complete the
procedure for book-entry transfer on a timely basis, you may tender your old
notes if
- the tender is made through an eligible institution,
- before the expiration date, the exchange agent received from the
eligible institution the appropriate notice of guaranteed delivery,
substantially in the form provided by us, by telegram, telex, facsimile
transmission, mail or hand delivery, setting forth your name and address
and the amount of old notes tendered, stating that the tender is being
made by that notice. The notice of guaranteed delivery must guarantee
that within five New York Stock Exchange trading days after the date of
execution of the notice of guaranteed delivery, the certificates for all
physically tendered old notes, in proper form for transfer, or a
book-entry confirmation, as the case may be, together with a properly
completed and duly executed letter of transmittal, or facsimile of the
letter of transmittal or agent's message instead, with any required
signature guarantees, and any other documents required by the
appropriate letter of transmittal will be deposited by the eligible
institution with the exchange agent and
- the certificates for all physically tendered old notes, in proper form
for transfer, or a book-entry confirmation, as the case may be, together
with a properly completed and duly executed appropriate letter of
transmittal, or facsimile of the letter of transmittal or agent's
message instead, with any required signature guarantees, and all other
documents required by the letter of transmittal, are received by the
exchange agent within five New York Stock Exchange trading days after
the date of execution of the notice of guaranteed delivery.
WITHDRAWAL RIGHTS
You may withdraw tenders of old notes at any time before the expiration
date.
For withdrawal to be effective, a written notice of withdrawal must be
received by the exchange agent at the addresses set forth below under "Exchange
agent". Any notice of withdrawal must:
- specify the name of the person having tendered the old notes to be
withdrawn,
19
<PAGE> 25
- identify the old notes to be withdrawn, including the principal amount
and
- where certificates for old notes have been transmitted, specify the name
in which those old notes are registered, if different from that of the
withdrawing holder.
If certificates for old notes have been delivered or otherwise identified
to the exchange agent then, before the release of such certificates you must
also submit the serial numbers of the particular certificates to be withdrawn
and a signed notice of withdrawal with signatures guaranteed by an eligible
institution unless you are an eligible institution. If you tendered old notes
under the procedure for book-entry transfer described above, the executed notice
of withdrawal, guaranteed by an eligible institution, unless you are an eligible
institution, must specify the name and number of the account at DTC to be
credited with the withdrawn old notes and otherwise comply with the procedures
of that facility. All questions as to the validity, form and eligibility,
including time of receipt, of notices of withdrawal will be determined by us.
Our determination will be final and binding on all parties. Any old notes
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the exchange offer. Any old notes which you tender for exchange but
which are not exchanged for any reason will be returned to you without cost to
you or, in the case of old notes tendered by book-entry transfer into the
exchange agent's account at DTC pursuant to the book-entry transfer procedures
described above, such old notes will be credited to an account maintained with
DTC for the old notes as soon as practicable after withdrawal. Properly
withdrawn old notes may be retendered by following one of the procedures
described under "-- Procedures for tendering old notes" above at any time on or
before the expiration date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, we will not be
required to accept for exchange, or to issue new notes in exchange for, the old
notes and may terminate or amend the exchange offer if at any time before the
acceptance of the old notes for exchange or the exchange of the new notes for
the old notes any of the following events occurs:
(1) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission,
(a) seeking to restrain or prohibit the making or consummation of the
exchange offer or any other transaction contemplated by the
exchange offer, or assessing or seeking any damages as a result of
the exchange offer or any transaction contemplated by the exchange
offer, or
(b) resulting in a material delay in our ability to accept for
exchange or exchange some or all of the old notes in the exchange
offer,
or any statute, rule, regulation, order or injunction shall be sought,
proposed, introduced, enacted, promulgated or deemed applicable to the
exchange offer or any of the transactions contemplated by the exchange
offer by any government or governmental authority, domestic or foreign,
or any action shall have been taken, proposed or threatened, by any
government, governmental authority, agency or court, domestic or foreign,
that in our sole judgment might directly or indirectly result in any of
the consequences referred to in clauses (a) or (b) above or, in our sole
judgment, might result in the holders of new notes having obligations
with respect to resales and transfers of new notes which are greater than
those described in the interpretation of the Commission referred to in
this prospectus, or would otherwise make it inadvisable to proceed with
the exchange offer;
(2) there shall have occurred
(a) any general suspension of or general limitation on prices for, or
trading in, securities on any national securities exchange or in
the over-the-counter market,
20
<PAGE> 26
(b) any limitation by any governmental agency or authority which may
adversely affect the ability of NTL to complete the transactions
contemplated by the exchange offer,
(c) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or any
limitation by any governmental agency or authority which adversely
affects the extension of credit;
(3) a commencement of a war, armed hostilities or other similar
international calamity directly or indirectly involving the United
States, or, in the case of any of the foregoing existing at the time
of the commencement of the exchange offer, a material acceleration or
worsening of those circumstances; or
(4) any change or any development involving a prospective change shall
have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations
or prospects of NTL and our subsidiaries taken as a whole that, in
our reasonable judgment, is or may be adverse to us, or we shall have
become aware of facts that, in our reasonable judgment, have or may
have adverse significance with respect to the value of the old notes
or the new notes; which, in our reasonable judgment in any case, and
regardless of the circumstances, including any action by us, giving
rise to that condition, makes it inadvisable to proceed with the
exchange offer and/or with such acceptance or exchange or with that
exchange.
The conditions described above are for our sole benefit. Those conditions
may be asserted by us regardless of the circumstances giving rise to that
condition or may be waived by us in whole or in part at any time and from time
to time in our sole discretion. The failure by us at anytime to exercise any of
the foregoing rights shall not be deemed a waiver of any of our rights and each
of our rights shall be deemed an ongoing right which may be asserted at any time
and from time to time.
In addition, we will not accept for exchange any old notes tendered, and no
new notes will be issued in exchange for any such old notes, if at such time any
stop order shall be threatened or in effect with respect to the registration
statement of which this prospectus constitutes a part or the qualification of
the indenture under the Trust Indenture Act of 1939, as amended.
EXCHANGE AGENT
The Chase Manhattan Bank has been appointed as the exchange agent in
respect of the notes for the exchange offer. All executed letters of transmittal
should be sent to the exchange agent at one of the addresses set forth below.
Questions and requests for assistance, requests for additional copies of this
prospectus or of the letter of transmittal in respect of the notes and requests
for notices of guaranteed delivery should be directed to the exchange agent
addressed as follows:
Delivery To: The Chase Manhattan Bank, as exchange agent.
<TABLE>
<S> <C>
In New York
By Mail, By Hand and Overnight Courier: By Facsimile:
The Chase Manhattan Bank (212) 638-7380
Corporate Trust-Securities Window (212) 638-7381
Room 234 -- North Building
55 Water Street Confirm by Telephone:
New York, New York 10041 Carlos Esteves: (212) 638-0828
(212) 638-0454
</TABLE>
21
<PAGE> 27
<TABLE>
<S> <C>
In Luxembourg
By Mail, By Hand and Overnight Courier: By Facsimile:
Chase Manhattan Bank Luxembourg S.A. (352) 46 26 85 380
Attn: Operations Manager
5 Rue Plaetis Confirm by Telephone:
L-2338, Luxembourg Operations Manager:
(352) 46 26 85 236
</TABLE>
Delivery of the letter of transmittal in respect of the notes to an address
other than as set forth above or transmission via facsimile other than as set
forth above is not a valid delivery of the letter of transmittal.
FEES AND EXPENSES
We will not make any payment to brokers, dealers, or others soliciting
acceptances of the exchange offer except for reimbursement of mailing expenses.
The estimated cash expenses to be incurred in connection with the exchange
offer will be paid by us and are estimated in the aggregate to be $250,000.
TRANSFER TAXES
You will not be obligated to pay any transfer taxes in connection with any
tender of old notes for exchange, except if you instruct us to register new
notes in the name of, or request that old notes not tendered or not accepted in
the exchange offer be returned to, a person other than the registered tendering
holder, you will be responsible for the payment of any applicable transfer tax
thereon.
22
<PAGE> 28
USE OF PROCEEDS
We will not receive any cash proceeds from the exchange of the old notes
for new notes. We will use the aggregate net proceeds from the offering of the
old notes of approximately $476.5 million, after deducting the estimated initial
purchasers' discounts and estimated offering expenses, to finance our
construction, capital expenditure and working capital requirements, including
debt service and repayment obligations and to make acquisitions of businesses
and assets related to our business.
Following the offering of the old notes, the lenders' commitments under NTL
Communications Limited's L1,300.0 million credit agreement were reduced by
approximately L161.8 million. NTL Communications Limited and various other
members of the NTL UK group including us may utilize the proceeds under the
credit agreement to finance their working capital requirements. As of September
30, 2000, no amounts have been borrowed under this agreement.
EXCHANGE RATES
The following table sets forth, for the periods indicated, the noon buying
rate for pounds sterling expressed in U.S. dollars per L1.00.
The average rate is the average of the noon buying rates on the last day of
each month during the relevant period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD END AVERAGE HIGH LOW
----------------------- ---------- ---------- ---- ----
<S> <C> <C> <C> <C>
1995........................................ 1.55 1.58 1.64 1.53
1996........................................ 1.71 1.56 1.72 1.49
1997........................................ 1.65 1.64 1.71 1.56
1998........................................ 1.66 1.66 1.72 1.61
1999........................................ 1.62 1.61 1.68 1.55
2000 (through December 19).................. 1.46 1.51 1.65 1.40
</TABLE>
Before January 1, 1999, the pound sterling was a part of the European
Monetary System exchange rate mechanism known as the EMS. Within the EMS,
exchange rates fluctuated within permitted margins, fixed by central bank
intervention. In accordance with the provisions of the Treaty on European Union
negotiated at Maastricht in 1991 and signed by the then 12 member states of the
European Union in early 1992, a European Monetary Union, known as the EMU,
superseded the EMS on January 1, 1999 and the Euro was introduced as the single
European currency. Since that date, the Euro has been the lawful currency of the
EMU states. The following 11 member states participate in the EMU and have
adopted the Euro as their national currency: Austria, Belgium, Finland, France,
Germany, the Republic of Ireland, Italy, Luxembourg, The Netherlands, Portugal
and Spain.
23
<PAGE> 29
CAPITALIZATION
The following table sets forth our consolidated capitalization as of
September 30, 2000: (1) on an actual basis, (2) as adjusted to give effect to
the offering of the old notes and the application of the net proceeds from the
sale of the old notes and (3) as further adjusted to give pro forma effect to
the planned contributions of the outstanding share capital of ConsumerCo and NTL
Business to NTL Communications.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 2000
---------------------------------------
PRO FORMA
ACTUAL(1) AS ADJUSTED AS ADJUSTED
--------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Cash, cash equivalents and marketable securities..... $ 103.9 $ 582.0 $ 692.7
========= ========= ==========
Current portion of long-term debt.................... $ 4.5 $ 4.5 $ 14.3
========= ========= ==========
Long-term debt:
NTL Communications:
12 3/4% Series A Senior Deferred Coupon Notes
due 2005...................................... $ 277.8 $ 277.8 $ 277.8
11 1/2% Series B Senior Deferred Coupon Notes
due 2006...................................... 1,011.9 1,011.9 1,011.9
9 1/4% Senior Euro Notes due 2006............... 220.9 220.9 220.9
10% Series B Senior Notes due 2007.............. 400.0 400.0 400.0
9 1/2% Senior Sterling Notes due 2008........... 184.4 184.4 184.4
10 3/4% Senior Deferred Coupon Sterling Notes
due 2008...................................... 340.4 340.4 340.4
9 3/4% Senior Deferred Coupon Notes due 2008.... 1,023.4 1,023.4 1,023.4
11 1/2% Senior Notes due 2008................... 625.0 625.0 625.0
12 3/8% Senior Deferred Coupon Notes due 2008... 313.9 313.9 313.9
7% Convertible Subordinated Notes due 2008...... 599.3 599.3 599.3
9 3/4% Senior Deferred Coupon Sterling Notes due
2009.......................................... 348.3 348.3 348.3
9 7/8% Senior Euro Notes due 2009............... 309.3 309.3 309.3
11 1/2% Senior Deferred Coupon Euro Notes due
2009.......................................... 117.0 117.0 117.0
11 7/8% Senior Notes due 2010, less unamortized
discount of $10.6 million..................... -- 489.4 489.4
NTL Communications Ltd:
Credit Agreement................................ 163.0 163.0 163.0
NTL Triangle:
11.2% Senior Discount Debentures due 2007....... 510.5 510.5 510.5
Other........................................... 4.3 4.3 4.3
Diamond:
13 1/4% Senior Discount Notes due 2004.......... 285.1 285.1 285.1
11 3/4% Senior Discount Notes due 2005.......... 518.7 518.7 518.7
10 3/4% Senior Discount Notes due 2007.......... 364.2 364.2 364.2
10% Senior Sterling Notes due 2008.............. 199.6 199.6 199.6
9 1/8% Senior Notes due 2008.................... 110.0 110.0 110.0
Other........................................... 4.1 4.1 4.1
ConsumerCo:
Term loan facility and other.................... -- -- 16.1
NTL Business:
Credit Agreement................................ -- -- 2,813.0
--------- --------- ----------
Total long-term debt....................... 7,931.1 8,420.5 11,249.6
--------- --------- ----------
</TABLE>
24
<PAGE> 30
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 2000
---------------------------------------
PRO FORMA
ACTUAL(1) AS ADJUSTED AS ADJUSTED
--------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Shareholder's equity (deficiency)
Common stock, $0.01 par value, 100 shares
authorized, issued and outstanding............ -- -- --
Additional paid-in capital...................... 2,877.7 2,877.7 12,790.7
Accumulated other comprehensive (loss).......... (415.2) (415.2) (377.7)
(Deficit)....................................... (3,073.2) (3,073.2) (3,486.0)
--------- --------- ----------
Total shareholder's equity (deficiency).... (610.7) (610.7) 8,927.0
--------- --------- ----------
Total capitalization................................. $ 7,320.4 $ 7,809.8 $ 20,176.6
========= ========= ==========
</TABLE>
---------------
(1) There has been no material change to our capitalization since September 30,
2000.
25
<PAGE> 31
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated financial information for NTL Communications
Corp. presented below under the captions income statement data for the years
ended December 31, 1999, 1998, 1997, 1996 and 1995, and balance sheet data at
December 31, 1999, 1998, 1997, 1996 and 1995, was derived from our consolidated
financial statements audited by Ernst & Young LLP. Interim data at September 30,
2000, and for the nine months ended September 30, 1999 and 2000 are unaudited,
but include in the opinion of management, all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of that data.
Results for the nine months ended September 30, 2000 are not necessarily
indicative of the results that may be expected for any other interim period or
for the year as a whole.
In June and September 1998, we purchased ComTel and Telecential
Communications, which we refer to collectively as ComTel, for an aggregate
purchase price of approximately $969.0 million, including intangibles
aggregating approximately $224.0 million. In October 1998, we purchased Comcast
UK Cable Partners Limited (now known as NTL (Triangle) LLC) for an aggregate
purchase price of approximately $600.4 million, including intangibles of
approximately $129.8 million. In December 1998, we purchased EGT for an
aggregate purchase price of approximately $151.0 million, including intangibles
of approximately $45.0 million. In March 1999, we purchased Diamond for an
aggregate purchase price of $986.1 million, including intangibles of $1.3
billion. The net assets and results of operations of ComTel, Comcast UK, EGT and
Diamond are included in the consolidated financial statements from their
respective dates of acquisition. In August 1999, Telewest exercised its right to
purchase all of our shares of Cable London PLC and all of our related rights and
interests for a purchase price of approximately L428.0 million.
In May 1996, we purchased NTL Group Limited for an aggregate purchase price
of approximately $439.0 million, including goodwill of approximately $263.0
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.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------- -----------------------------------------------
2000 1999 1999 1998 1997 1996 1995
--------- --------- -------- ------- ------- ------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues....................... $ 1,312.3 $ 1,052.8 $1,477.9 $ 747.0 $ 491.8 $ 228.3 $ 33.7
Costs and expenses
Operating expenses........... 620.5 507.3 704.7 372.1 301.7 144.3 24.4
Selling, general and
administrative expenses... 537.6 416.1 561.8 299.5 169.1 115.0 57.9
Depreciation and
amortization.............. 677.0 518.4 762.9 266.1 150.5 98.6 29.8
Franchise fees............... -- 22.3 16.5 25.0 23.6 13.1 --
Corporate expenses........... 14.1 18.4 25.3 17.1 18.4 14.9 14.7
Other charges................ 19.7 -- 16.2 (4.2) 20.6 -- --
--------- --------- -------- ------- ------- ------- ------
Total costs and
expenses................ 1,868.9 1,482.5 2,087.4 975.6 683.9 385.9 126.8
--------- --------- -------- ------- ------- ------- ------
Operating (loss)............. (556.6) (429.7) (609.5) (228.6) (192.1) (157.6) (93.1)
</TABLE>
26
<PAGE> 32
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------- -----------------------------------------------
2000 1999 1999 1998 1997 1996 1995
--------- --------- -------- ------- ------- ------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Other income (expense)
Interest income and other,
net....................... 3.5 26.8 29.8 46.0 28.4 33.6 21.1
Interest expense............. (547.8) (484.5) (678.0) (328.8) (202.6) (137.0) (28.4)
Other gains.................. -- -- 493.1 -- 21.5 -- --
Foreign currency transaction
gains (losses)............ (25.5) 22.5 22.7 4.2 0.6 2.4 0.1
--------- --------- -------- ------- ------- ------- ------
(Loss) before income taxes,
minority interests and
extraordinary item........... (1,126.4) (864.9) (741.9) (507.2) (344.2) (258.6) (100.3)
Income tax benefit
(provision).................. 18.8 -- 29.9 3.3 15.6 (7.7) 2.5
--------- --------- -------- ------- ------- ------- ------
(Loss) before minority
interests and extraordinary
item......................... (1,107.6) (864.9) (712.0) (503.9) (328.6) (266.3) (97.8)
Minority interests............. -- -- -- -- -- 11.8 7.0
--------- --------- -------- ------- ------- ------- ------
(Loss) before extraordinary
item (1,107.6) (864.9) (712.0) (503.9) (328.6) (254.5) (90.8)
(Loss) from early
extinguishment of debt....... -- -- (3.0) (30.7) (4.5) -- --
--------- --------- -------- ------- ------- ------- ------
Net (loss)..................... $(1,107.6) $ (864.9) $ (715.0) $(534.6) $(333.1) $(254.5) $(90.8)
========= ========= ======== ======= ======= ======= ======
OTHER DATA:
Capital expenditures........... $ 1,143.9 $ 855.7 $1,196.5 $ 772.1 $ 503.7 $ 505.7 $445.6
Ratio of Earnings to fixed
charges(1) -- -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ----------------------------------------------------
2000 1999 1998 1997 1996 1995
------------- -------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
marketable securities........ $ 103.9 $1,075.1 $ 996.9 $ 103.9 $ 445.9 $ 175.3
Working capital................ (522.7) 440.9 600.5 (52.3) 242.1 76.1
Fixed assets, net.............. 5,620.4 5,340.5 3,854.4 1,757.0 1,459.5 639.7
Total assets................... 8,471.3 9,502.3 6,194.1 2,421.6 2,454.6 1,010.7
Long-term debt................. 7,931.1 7,598.0 5,043.8 2,015.1 1,732.2 513.0
Redeemable preferred stock..... -- -- 124.1 108.5 -- --
Shareholder's equity
(deficiency)................. (610.7) 900.5 355.2 (61.7) 328.1 339.3
</TABLE>
---------------
(1) For the purposes of calculating the ratio of earnings to fixed charges,
fixed charges consist of interest expense, including capitalized interest,
amortization of fees related to debt financing and rent expense deemed to be
interest. For the nine months ended September 30, 2000 and the years ended
December 31, 1999, 1998, 1997, 1996 and 1995, our earnings were insufficient
to cover fixed charges by approximately $1,182.9 million, $783.7 million,
$535.0 million, $350.9 million, $268.9 million and $112.4 million,
respectively.
27
<PAGE> 33
UNAUDITED PRO FORMA FINANCIAL DATA
In May 2000, NTL Incorporated acquired ConsumerCo and in September 1999,
NTL Delaware acquired NTL Business. In March 1999, we acquired Diamond Cable
Communications plc. The credit agreement which partially funded the acquisition
of ConsumerCo requires the outstanding share capital of ConsumerCo and NTL
Business to be contributed to us by July 2001.
The unaudited pro forma financial data presented gives effect to the
completed acquisition of Diamond and to the proposed contributions of all of the
outstanding share capital of ConsumerCo and NTL Business to us. The unaudited
pro forma financial data is based on our historical financial statements and the
historical financial statements of Diamond, NTL Business and ConsumerCo. The
historical financial statements of Diamond, NTL Business and ConsumerCo are
prepared in accordance with U.S. generally accepted accounting principles and
have been translated into U.S. dollars using an exchange rate of: (1) $1.4787 to
L1.00 for the unaudited pro forma condensed combined balance sheet as of
September 30, 2000; (2) $1.5390 to L1.00 for the unaudited pro forma condensed
combined statement of operations for the nine-month period ended September 30,
2000 (the average exchange rate for such period); and (3) $1.6179 to L1.00 for
the unaudited pro forma condensed combined statement of operations for the year
ended December 31, 1999 (the average exchange rate for such period). Certain
amounts in these historical financial statements have been reclassified to
conform to our presentation.
The unaudited pro forma financial data does not give effect to the issuance
of the old notes on October 2, 2000 or the use of the proceeds from such
issuance. As a result of the issuance of the old notes, our interest expense
will increase by $60.0 million in the first twelve months after issuance.
Because we have not and do not intend to use the proceeds of the offering of the
old notes to repay any of our outstanding indebtedness, we do not expect any
corresponding decrease in interest expense.
The historical results of ConsumerCo for the year ended December 31, 1999
and for the nine months ended September 30, 2000 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 if
DataCo (the non-ConsumerCo part of Cable & Wireless Communications plc that was
retained by Cable and Wireless) and ConsumerCo were separate entities for these
periods. Therefore, the historical financial statements of ConsumerCo, which are
included in the unaudited pro forma financial data, are not reflective of
results on a going forward basis. NTL Incorporated's immediate focus will be on
the following priorities: reducing the fault rate, improving the installation
experience, continuing with the digital rollout and improving the value
proposition for the service bundle. These are all factors that will reduce churn
and increase penetration. However, they will increase costs through the second
quarter of 2001.
The acquisition of Diamond has been accounted for using the purchase method
of accounting, in which the assets acquired and the liabilities assumed have
been recorded at their estimated fair values.
The proposed contributions of all of the outstanding share capital of
ConsumerCo and NTL Business have been accounted for at the historical cost of
NTL Incorporated and NTL Delaware, respectively. 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 and NTL Delaware each accounted
for their respective acquisitions of ConsumerCo and NTL Business using the
purchase method of accounting. Accordingly, the assets acquired and the
liabilities assumed were recorded at their estimated fair values. We, as well as
NTL Incorporated, are unaware of events other than those disclosed in the
unaudited notes to the pro forma financial data that would require a material
change to the preliminary purchase price allocation. However, a final
determination of necessary purchase accounting adjustments for the ConsumerCo
acquisition will be made upon the completion of a study to be undertaken to
determine the fair value of certain assets and liabilities, including intangible
assets. The actual financial position and results of operations will differ,
perhaps significantly, from the unaudited pro forma amounts reflected because of
a variety of factors,
28
<PAGE> 34
including access to additional information, changes in value not currently
identified and changes in operating results between the dates of the unaudited
pro forma financial data and the actual acquisition date.
The unaudited pro forma condensed combined statements of operations for the
nine months ended September 30, 2000 and for the year ended December 31, 1999
give effect to the acquisition of Diamond and the contributions of all of the
outstanding share capital of ConsumerCo and NTL Business as if they had been
consummated on January 1, 1999. The unaudited pro forma condensed combined
balance sheet at September 30, 2000 gives effect to the contributions of all of
the outstanding share capital of ConsumerCo and NTL Business as if they occurred
on September 30, 2000.
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 data does not purport to present our financial position or
results of operations had the acquisition and contributions occurred on the
dates specified, nor are they necessarily indicative of the financial position
or results of operations that may be achieved in the future. The unaudited pro
forma condensed combined statements of operations do not reflect any adjustments
for cost savings that we expect to realize. The pro forma adjustments reflecting
the acquisition and contributions are based upon the assumptions set forth in
the notes to the pro forma financial data. No assurances can be made as to the
amount of cost savings or revenue enhancements, if any, that may be realized.
29
<PAGE> 35
NTL COMMUNICATIONS CORP.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 2000
(in millions)
<TABLE>
<CAPTION>
NTL
COMMUNICATIONS CORP. NTL BUSINESS CONSUMERCO ADJUSTMENTS PRO FORMA
-------------------- ------------ ------------ ----------- ---------
(HISTORICAL) (HISTORICAL) (HISTORICAL)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.... $ 103.9 $ 38.5 $ 72.2 $ 214.6
Due from affiliates.......... 21.1 3,686.0 87.6 $(3,699.3)A 95.4
Other current assets......... 451.2 44.8 244.6 740.6
--------- --------- --------- --------- ---------
Total current assets........... 576.2 3,769.3 404.4 (3,699.3) 1,050.6
Fixed assets, net.............. 5,620.4 2.0 4,879.0 10,501.4
Intangible assets, net......... 2,088.4 156.1 8,600.0 10,844.5
Other assets, net.............. 186.3 79.5 66.9 332.7
--------- --------- --------- --------- ---------
Total assets................... $ 8,471.3 $ 4,006.9 $13,950.3 $(3,699.3) $22,729.2
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDER'S
EQUITY
Current liabilities:
Other current liabilities.... $ 1,089.9 $ 56.0 $ 804.5 $ 1,950.4
Due to affiliates............ 4.5 999.0 3,690.5 $(3,699.3)A 994.7
Current portion of long-term
debt...................... 4.5 -- 9.8 14.3
--------- --------- --------- --------- ---------
Total current liabilities...... 1,098.9 1,055.0 4,504.8 (3,699.3) 2,959.4
Long-term debt................. 7,931.1 2,813.0 16.1 10,760.2
Deferred income taxes.......... 29.6 -- 16.0 45.6
Minority interests............. 22.4 -- 14.6 37.0
Shareholder's equity:
Additional paid-in capital... 2,877.7 167.2 9,745.8 12,790.7
Accumulated other
comprehensive income
(loss).................... (415.2) (3.2) 40.7 (377.7)
Accumulated deficit.......... (3,073.2) (25.1) (387.7) (3,486.0)
--------- --------- --------- --------- ---------
(610.7) 138.9 9,398.8 -- 8,927.0
--------- --------- --------- --------- ---------
Total liabilities and
shareholder's equity......... $ 8,471.3 $ 4,006.9 $13,950.3 $(3,699.3) $22,729.2
========= ========= ========= ========= =========
</TABLE>
30
<PAGE> 36
NTL COMMUNICATIONS CORP.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(in millions)
<TABLE>
<CAPTION>
NTL
COMMUNICATIONS CORP. NTL BUSINESS CONSUMERCO ADJUSTMENTS PRO FORMA
-------------------- ------------ ------------ ----------- ---------
(HISTORICAL) (HISTORICAL) (HISTORICAL)
<S> <C> <C> <C> <C> <C>
REVENUES....................... $ 1,312.3 $ 92.0 $ 807.1 $ 2,211.4
COSTS AND EXPENSES
Operating expenses............. 620.5 73.5 354.6 1,048.6
Selling, general and
administrative expenses...... 537.6 30.6 322.0 890.2
Other charges.................. 19.7 -- -- 19.7
Corporate expenses............. 14.1 -- -- 14.1
Depreciation and
amortization................. 677.0 15.1 556.9 363.5C 1,612.5
--------- ------- -------- -------- ---------
1,868.9 119.2 1,233.5 363.5 3,585.1
--------- ------- -------- -------- ---------
Operating loss................. (556.6) (27.2) (426.4) (363.5) (1,373.7)
OTHER INCOME (EXPENSE)
Interest income and other,
net.......................... (22.0) 3.1 2.8 3.0D (13.1)
Interest income from
affiliate.................... -- 88.5 -- (88.5)B --
Interest expense............... (547.8) (88.8) (219.6) 60.8B,E (795.4)
--------- ------- -------- -------- ---------
Loss before income taxes....... (1,126.4) (24.4) (643.2) (388.2) (2,182.2)
Income tax benefit
(provision).................. 18.8 (0.1) 36.7 55.4
--------- ------- -------- -------- ---------
Net (loss)..................... $(1,107.6) $ (24.5) $ (606.5) $ (388.2) $(2,126.8)
========= ======= ======== ======== =========
</TABLE>
31
<PAGE> 37
NTL COMMUNICATIONS CORP.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(in millions)
<TABLE>
<CAPTION>
NTL
COMMUNICATIONS
CORP. DIAMOND NTL BUSINESS CONSUMERCO ADJUSTMENTS PRO FORMA
-------------- ------------ ------------ ------------ ----------- ---------
(HISTORICAL) (HISTORICAL) (HISTORICAL) (HISTORICAL)
<S> <C> <C> <C> <C> <C> <C>
REVENUES..................... $1,477.9 $ 28.8 $ 184.5 $1,122.5 $ 2,813.7
COSTS AND EXPENSES
Operating expenses........... 704.7 10.0 148.4 424.1 1,287.2
Selling, general and
administrative expenses.... 561.8 12.4 31.4 459.4 1,065.0
Franchise fees............... 16.5 -- -- -- 16.5
Corporate expenses........... 25.3 -- -- -- 25.3
Non-recurring charges........ 16.2 13.9 -- -- $ (13.9) 16.2
Depreciation and
amortization............... 762.9 15.0 5.3 389.5 916.3C 2,089.0
-------- ------- ------- -------- ------- ---------
2,087.4 51.3 185.1 1,273.0 902.4 4,499.2
-------- ------- ------- -------- ------- ---------
Operating loss............... (609.5) (22.5) (0.6) (150.5) (902.4) (1,685.5)
OTHER INCOME (EXPENSE)
Interest and other income,
net........................ 545.6 (38.4) (1.0) 9.7 7.8D 523.7
Interest expense............. (678.0) (25.6) (2.1) (294.5) (67.2)E (1,067.4)
-------- ------- ------- -------- ------- ---------
Loss before income taxes and
extraordinary item......... (741.9) (86.5) (3.7) (435.3) (961.8) (2,229.2)
Income tax benefit
(provision)................ 30.0 -- 0.3 -- 30.3
-------- ------- ------- -------- ------- ---------
Loss before extraordinary
item....................... $ (711.9) $ (86.5) $ (3.4) $ (435.3) $(961.8) $(2,198.9)
======== ======= ======= ======== ======= =========
</TABLE>
32
<PAGE> 38
NTL COMMUNICATIONS CORP.
NOTES TO THE PRO FORMA FINANCIAL DATA
(in millions)
<TABLE>
<CAPTION>
NTL
COMMUNICATIONS
CORP. NTL BUSINESS CONSUMERCO TOTAL
-------------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
A. ELIMINATION OF INTERCOMPANY BALANCES:
September 30, 2000
Due from affiliates............................ $12.5 $3,686.0 $ 0.8 $ 3,699.3
Due to affiliates.............................. (0.8) (12.5) (3,686.0) (3,699.3)
----- -------- --------- ---------
$11.7 $3,673.5 $(3,685.2) $ --
===== ======== ========= =========
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
B. ELIMINATION OF INTERCOMPANY INTEREST INCOME
AND EXPENSE:
For the nine months ended September 30, 2000
Interest income from affiliate................. $ 88.5 $ -- $ 88.5
Interest expense............................... -- (88.5) (88.5)
-------- --------- ---------
$ 88.5 $ (88.5) $ --
======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
DIAMOND NTL BUSINESS CONSUMERCO
------- ------------ ----------
<S> <C> <C> <C> <C>
C. DEPRECIATION AND AMORTIZATION:
For the year ended December 31, 1999
Fixed assets (15 years)........................ $ 1.0 $ -- $ --
Intangibles (10 and 15 years).................. 26.0 11.7 884.5
Historical amortization........................ (2.0) (4.9) --
----- -------- ---------
$25.0 $ 6.8 $ 884.5
===== ======== =========
For the nine months ended September 30, 2000
Fixed assets (15 years)........................ $ --
Intangibles (10 years)......................... 363.5
Historical amortization........................ --
---------
$ 363.5
=========
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
D. INTEREST INCOME (USING 4.867%):
For the year ended December 31, 1999
Reduction of interest income on cash on hand
used........................................ $ (4.0)
Interest income on excess cash from bank
financing................................... 11.8
---------
$ 7.8
=========
For the nine months ended September 30, 2000
Reduction of interest income on cash on hand
used........................................ $ (1.8)
Interest income on excess cash from bank
financing................................... 4.8
---------
$ 3.0
=========
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
E. INTEREST EXPENSE:
For the year ended December 31, 1999
Reduction of interest expense for debt not
assumed..................................... $ 228.6
Interest on bank financing at 8.32%............ (295.8)
---------
$ (67.2)
=========
For the nine months ended September 30, 2000
Reduction of interest expense for debt not
assumed..................................... $ 93.9
Interest on bank financing at 8.32%............ (121.6)
---------
$ (27.7)
=========
</TABLE>
33
<PAGE> 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF NTL COMMUNICATIONS
RESULTS OF OPERATIONS
As a result of the completion of the acquisitions of Diamond Cable
Communications Limited ("Diamond") in March 1999 and Cablelink Limited
("Cablelink") in July 1999, we consolidated the results of operations of these
businesses from the dates of acquisition.
On November 2, 2000, we announced the completion of a consolidation review.
Based on a comprehensive review of the combined company following our
acquisition of ConsumerCo and the integration of several other acquired
businesses over the last 18 months, we identified significant efficiency
improvements and cost savings. These include the elimination of duplicate
technologies and processes, consolidation of support functions and reductions in
levels of management. Approximately 1,300 roles will become redundant over the
next 15 months as part of the cost savings. We expect to realize the cost
savings beginning in the latter half of 2001. We expect to incur a restructuring
charge in fiscal 2000 as a result of this review, although to date we are still
in the process of finalizing this charge.
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Residential telecommunications and television revenues increased to $732.2
million from $583.7 million as a result of acquisitions and from customer growth
that increased our current revenue stream. The 2000 and 1999 revenue includes
$179.3 million and $101.4 million, respectively, from acquired companies. We
expect our customer base to continue to increase which will drive further
revenue growth as we continue to connect customers to our broadband network. We
also expect revenue growth from the continuing rollout of our cable modem and
digital cable television services.
National and international telecommunications revenues increased to $457.2
million from $349.2 million as a result of acquisitions and from increases in
business telecommunications revenues, Internet services revenues and carrier
services revenues. The 2000 and 1999 revenue includes $35.4 million and $22.7
million, respectively, from acquired companies. Business telecommunications and
Internet services revenues increased primarily as a result of customer growth.
We expect our business telecommunications and Internet services customer base to
continue to increase, which will drive further revenue growth. We continue to
focus specific sales and marketing effort on business customers and for Internet
services in our completed network. Carrier services revenues increased due to
growth in voice, video and data services provided by our wholesale operation to
broadcasters and telephone companies, respectively. Revenue growth in carrier
services is primarily dependent upon our ability to continue to attract new
customers and expand services to existing customers.
Broadcast transmission and other revenues increased to $122.9 million from
$119.9 million due to increases in broadcast television and FM radio customers
and accounts, which exceeded price cap reductions in our regulated services. We
expect our digital broadcasting services to increase in the future.
Operating expenses increased to $620.5 million from $507.3 million as a
result of increases in interconnection costs and programming costs due to
customer growth. The 2000 and 1999 expense includes $86.2 million and $47.2
million, respectively, from acquired companies.
Selling, general and administrative expenses increased to $537.6 million
from $416.1 million as a result of increases in telecommunications and CATV
sales and marketing costs and increases in additional personnel and overhead to
service the increasing customer base. The 2000 and 1999 expense includes $90.7
million and $37.6 million, respectively, from acquired companies.
Pursuant to the terms of various U.K. licenses, we incurred license fees
paid to the Independent Television Commission ("ITC") to operate as the
exclusive service provider in certain of our franchise areas. Upon a request by
us in 1999, the ITC converted all of our fee bearing exclusive licenses to non-
34
<PAGE> 40
exclusive licenses at the end of 1999, and our liability for license payments
ceased upon the conversion. Franchise fees were $22.3 million in 1999.
One of our major costs has been for the integration of acquired companies'
information technology systems, while simultaneously upgrading them for digital
television, interactive services and video-on-demand. Other charges of $19.7
million in 2000 were incurred for this integration effort.
Corporate expenses decreased to $14.1 million from $18.4 million due to a
decrease in various overhead costs.
Depreciation and amortization expense increased to $677.0 million from
$518.4 million due to an increase in depreciation of telecommunications and CATV
equipment. The 2000 and 1999 expense includes $191.4 million and $136.1 million,
respectively, from acquired companies, including amortization of acquisition
related intangibles.
Interest income and other, net decreased to $3.5 million from $26.8 million
as a result of increases in net losses of affiliates accounted for by the equity
method and decreases in interest income.
Interest expense increased to $547.8 million from $484.5 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 $123.2
million and $92.6 million, respectively, related to acquisitions. Cash interest
of $242.3 million and $172.1 million was paid in the nine months ended September
30, 2000 and 1999, respectively.
Foreign currency transaction gains (losses) decreased to a loss of $25.5
million from a gain of $22.5 million primarily due to the effect of unfavorable
changes in the exchange rates. Our results of operations are impacted by changes
in foreign currency exchange rates as follows. We have cash, cash equivalents
and debt denominated in foreign currencies that are affected by changes in
exchange rates. In addition, our foreign subsidiaries 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.
YEARS ENDED DECEMBER 31, 1999 AND 1998
Residential telecommunications and television revenues increased to $827.3
million from $355.6 million as a result of acquisitions and from 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. We expect our customer base to continue to increase as we complete
the construction of our broadband network past the remaining homes in our
franchise areas.
National and international telecommunications revenues increased to $488.6
million from $248.9 million as a result of acquisitions and from increases in
business telecommunications revenues, Internet services revenues and carrier
services revenues. The 1999 and 1998 revenue includes $141.6 million and $8.5
million, respectively from acquired companies. Business telecommunications and
Internet services revenues increased primarily as a result of customer growth.
We expect our business telecommunications and Internet services customer base to
continue to increase. We are expanding our sales and marketing effort to
business customers and for Internet services in our completed network. Carrier
services revenues increased due to growth in satellite services and telephone
services provided by our wholesale operations to broadcasters and telephone
companies, respectively. Revenue growth in carrier services is primarily
dependent upon our ability to continue to attract new customers and expand
services to existing customers.
Broadcast transmission and other revenues increased to $161.9 million from
$140.2 million due to increases in broadcast television and FM radio customers
and accounts, which exceeded price cap reductions in our regulated services. We
expect our digital broadcasting services to increase in the future.
35
<PAGE> 41
Other telecommunications revenues decreased to zero from $2.4 million due
to the sales of the assets of our wholly-owned subsidiary, OCOM Corporation, to
AirTouch Communications, Inc. and to Cellular Communications of Puerto Rico,
Inc. during 1998.
Operating expenses increased to $704.7 million from $372.1 million as a
result of increases in interconnection costs and programming costs due to
customer growth. The 1999 and 1998 expense includes $254.0 million and $35.3
million, respectively, from acquired companies.
Selling, general and administrative expenses increased to $561.8 million
from $299.5 million as a result of increases in telecommunications and CATV
sales and marketing costs and increases in additional personnel and overhead to
service the increasing customer base. In addition, approximately $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 will continue into 2000. The 1999 and
1998 expense includes $233.9 million and $40.9 million, respectively, from
acquired companies.
Pursuant to the terms of various U.K. licenses, we incurred license fees
paid to the ITC to operate as the exclusive service provider in certain of our
franchise areas. Upon a request by us in 1999, the ITC converted all of our fee
bearing exclusive licenses to non-exclusive licenses by the end of 1999, and our
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.
Corporate expenses increased to $25.3 million from $17.1 million due to an
increase in various overhead costs.
Non-recurring charges of $16.2 million in 1999 were the fee incurred for
the cancellation of certain contracts. Non-recurring charges of $20.6 million in
1997 include deferred costs written-off of $5.0 million and restructuring costs
of $15.6 million. The deferred costs written-off arose in connection with our
unsuccessful bid for U.K. digital terrestrial television multiplex licenses.
Restructuring costs relate to our announcement in September 1997 of a
reorganization of certain of our operations. This charge consisted of employee
severance and related costs of $6.7 million for approximately 280 employees to
be terminated, lease exit costs of $6.5 million and penalties of $2.4 million
associated with the cancellation of contractual obligations. As of December 31,
1998, $9.2 million of the provision had been used, including $5.5 million for
severance and related costs, $1.5 million for lease exit costs and $2.2 million
for penalties associated with the cancellation of contractual obligations. As of
December 31, 1998, 177 employees had been terminated. The $4.2 million reversed
in 1998 includes $1.2 million for severance and related costs, $2.8 million for
lease exit costs and $0.2 million for penalties associated with the cancellation
of contractual obligations. This reversal was necessary because employees whose
positions were eliminated chose to remain with us in other positions rather than
leave us and receive severance pay, and the real estate markets in which we
sublet space improved increasing the sublet rentals and shortening the period of
time required to find subtenants. The remaining restructuring reserve of $2.2
million at December 31, 1998 is for lease costs net of sublease revenue.
Depreciation and amortization expense increased to $762.9 million from
$266.1 million due to an increase in depreciation of telecommunications and CATV
equipment. The 1999 and 1998 expense includes $404.2 million and $45.9 million
respectively, from acquired companies, including amortization of acquisition
related intangibles.
Interest expense increased to $678.0 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 $221.6 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 investment
in Cable London.
36
<PAGE> 42
Foreign currency transaction gains increased to $22.7 million from $4.2
million primarily due to the effect of favorable changes in the exchange rates
on our pound sterling and Euro denominated notes in 1999.
We 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. We 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.
YEARS ENDED DECEMBER 31, 1998 AND 1997
Residential telecommunications and television revenues increased to $355.6
million from $167.0 million primarily as a result of customer growth that
increased our current revenue stream. The 1998 revenue includes $74.2 million
from acquired companies.
National and international telecommunications revenues increased to $248.9
million from $185.2 million primarily as a result of increases in business
telecommunications revenues, Internet services revenues and carrier services
revenues. Business telecommunications and Internet services revenues increased
primarily as a result of customer growth. Carrier services revenues increased
due to growth in satellite services and telephone services provided by our
wholesale operation to broadcasters and telephone companies, respectively.
Broadcast transmission and other revenues increased to $140.2 million from
$130.8 million primarily due to increases in broadcast television and FM radio
customers and accounts, revenues from which outweighed the negative impact of
price cap reductions in our regulated services.
Other telecommunications revenues decreased to $2.4 million from $8.8
million primarily due to the sales of the assets of our wholly-owned subsidiary,
OCOM Corporation, to AirTouch Communications, Inc. and to Cellular
Communications of Puerto Rico, Inc. during 1998.
Operating expenses increased to $372.1 million from $301.7 million
primarily as a result of increases in interconnection costs and programming
costs due to customer growth. The 1998 expenses include $35.3 million from
acquired companies.
Selling, general and administrative expenses increased to $299.5 million
from $169.1 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 1998 expenses include
$40.9 million from acquired companies.
Franchise fees increased to $25.0 million from $23.6 million primarily as a
result of the inflation adjustment to the Northern Ireland license payment.
Corporate expenses decreased to $17.1 million from $18.4 million primarily
due to the sale of OCOM's assets in 1998. Certain OCOM personnel were included
in corporate expenses in 1997.
Nonrecurring charges of $20.6 million in 1997 were comprised of
restructuring costs of $15.6 million and deferred costs written-off of $5.0
million. The deferred costs written off arose in connection with our
unsuccessful bid for digital terrestrial television multiplex licenses.
Restructuring costs relate to our announcement in September 1997 of a
reorganization of certain of our operations.
Depreciation and amortization expense increased to $266.1 million from
$150.5 million primarily due to an increase in depreciation of
telecommunications and cable television equipment. The 1998 expense includes
$45.9 million from acquired companies, including amortization of acquisition
related intangibles.
Interest expense increased to $328.8 million from $202.6 million due to the
issuance of additional debt in 1998 and the increase in the accretion of
original issue discount on our existing deferred coupon notes.
37
<PAGE> 43
Interest of $118.3 million and $78.8 million was paid in the years ended
December 31, 1998 and 1997, respectively.
Other gains of $21.5 million in 1997 include a gain on a sale of fixed
assets of $11.5 million and a $10.0 million payment from LeGroupe Videotron Ltee
pursuant to the settlement of a lawsuit.
Foreign currency transaction gains increased to $4.2 million from $0.6
million due to favorable changes in the exchange rate subsequent to the issuance
in March 1998 of new debt denominated in pounds sterling.
We 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 the bank loan. In connection with the repayment of debt, a
subsidiary recorded an extraordinary loss of $4.5 million in 1997 from the
write-off of unamortized deferred financing costs.
LIQUIDITY AND CAPITAL RESOURCES
We will continue to require significant amounts of capital to finance
construction of our local and national networks, for connection of telephone,
telecommunications, Internet and CATV customers to the networks, for other
capital expenditures and for debt service. We estimate that these requirements,
net of cash from operations, will aggregate up to approximately $1,400.0 million
from October 1, 2000 to September 30, 2001. Our commitments at September 30,
2000 for equipment and services through September 30, 2001 are included in the
anticipated requirements. We had $103.9 million in cash on hand at September 30,
2000. We expect to fund the balance of these requirements through borrowings
under the NTL Communications Limited ("NTLCL") and NTL Business L2,500.0 million
credit agreement, borrowings under the NTLCL L1,300.0 million credit agreement,
the proceeds of the offering of the old notes or the issuance of debt or equity
to NTL Delaware.
NTLCL, our wholly-owned indirect subsidiary and NTL Business, a
wholly-owned subsidiary of NTL Delaware entered into a L2,500.0 million credit
agreement in May 2000 in connection with the acquisition of ConsumerCo. As of
December 15, 2000, L2,227.2 million of borrowings were outstanding and L272.8
million was available for borrowing under this 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 NTL UK Group. The effective rate at December 15, 2000 was 8.28%.
The unused portion of the commitment is available for refinancing ConsumerCo
indebtedness and for working capital requirements of the U.K. Group, as defined.
For purposes of this credit agreement, Diamond Cable Communications Limited and
subsidiaries, NTL (Triangle) LLC and subsidiaries and certain other entities are
excluded from the U.K. 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 as utilized.
NTLCL entered into a L1,300.0 million credit agreement with a group of
banks dated May 30, 2000. As of September 30, 2000, no amounts have been
borrowed under this agreement. Following the offering of the old notes, the
lenders' commitments under the credit agreement were reduced by approximately
L161.8 million. NTLCL and other members of the U.K. Group may utilize the
proceeds under this credit agreement to finance the working capital requirements
of the U.K. Group (as defined above), 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.
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<PAGE> 44
Regarding our 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) we and our
subsidiaries will be able to generate sufficient cash from operations to meet
capital requirements, debt service and other obligations when required, (d) we
will be able to access such cash flow, or (e) we will not incur losses from our
exposure to exchange rate fluctuations or be adversely affected by interest rate
fluctuations.
We are highly leveraged. At September 30, 2000, our consolidated long-term
indebtedness was $7,931.1 million, representing approximately 108.3% of total
capitalization. The following summarizes the terms of those notes issued by us
and our 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 our 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 our option on or after February 1, 2001;
(3) 10% Senior Notes due February 15, 2007, principal amount at maturity of
$400.0 million, interest payable semiannually from August 15, 1997,
redeemable at our option on or after February 15, 2002;
(4) 9 1/2% Senior Sterling Notes due April 1, 2008, principal amount at
maturity of L125.0 million ($184.8 million), interest payable semiannually
from October 1, 1998, redeemable at our option on or after April 1, 2003;
(5) 10 3/4% Senior Deferred Coupon Sterling Notes due April 1, 2008, principal
amount at maturity of L300.0 million ($443.6 million), interest payable
semiannually beginning on October 1, 2003, redeemable at our 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 our 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 ($488.0 million), interest payable
semiannually beginning on October 15, 2004, redeemable at our option on or
after April 15, 2004;
(8) 11 1/2% Senior Notes due October 1, 2008, principal amount at maturity of
$625.0 million, interest payable semiannually from April 1, 1999,
redeemable at our 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 our option on or after October 1, 2003;
(10) 7% Convertible Subordinated 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 our option on or after
December 15, 2001;
(11) 9 1/4% Senior Euro Notes due November 15, 2006, principal amount at
maturity of E250.0 million ($220.9 million), interest payable semiannually
from May 15, 2000;
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<PAGE> 45
(12) 9 7/8% Senior Euro Notes due November 15, 2009, principal amount at
maturity of E350.0 million ($309.3 million), interest payable semiannually
from May 15, 2000, redeemable at our 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 ($185.6 million), interest payable
semiannually beginning on May 15, 2005, redeemable at our option on or
after November 15, 2004;
NTL TRIANGLE:
(14) 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:
(15) 13 1/4% Senior Discount Notes due September 30, 2004, principal amount at
maturity of $285.1 million, interest payable semiannually from June 30,
2000, redeemable at Diamond's option after September 30, 1999;
(16) 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;
(17) 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;
(18) 10% Senior Sterling Notes due February 1, 2008, issued by Diamond Holdings
plc, a wholly-owned subsidiary of Diamond, principal amount at maturity of
L135.0 million ($199.6 million), interest payable semiannually from August
1, 1998, redeemable at Diamond's option on or after February 1, 2003; and
(19) 9 1/8% Senior Notes due February 1, 2008, issued by Diamond Holdings plc,
principal amount at maturity 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 we will generate sufficient cash flow
from operations to repay at maturity the entire principal amount of our
outstanding consolidated indebtedness. Accordingly, we 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.
Our operations are conducted through our direct and indirect wholly-owned
subsidiaries. As a holding company, we hold no significant assets other than
cash and our investments in and advances to our subsidiaries. Accordingly, our
ability to make scheduled interest and principal payments when due to holders of
our indebtedness may be dependent upon the receipt of sufficient funds from our
subsidiaries.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Cash provided by operating activities was $22.2 million and $20.3 million
in the nine months ended September 30, 2000 and 1999, respectively. This change
is primarily due to changes in working capital as a result of the timing of
receipts and disbursements.
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Purchases of fixed assets were $1,143.9 million in the nine months ended
September 30, 2000 and $855.7 million in the nine months ended September 30,
1999 as a result of the continuing fixed asset purchases and construction,
including purchases and construction by acquired companies.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
MARKET RISK
We are 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. We do not enter into derivatives or other
financial instruments for trading or speculative purposes. We have entered into
financial instruments to manage and reduce the impact of changes in foreign
currency exchange rates, primarily U.S. dollar/pound sterling. The
counterparties are major financial institutions. We do not enter into
derivatives or financial instruments to manage or reduce the impact of changes
in interest rates.
FOREIGN EXCHANGE CONTRACTS
To the extent that we obtain financing in U.S. dollars and incur
construction and operation costs in various other currencies, we will encounter
currency exchange rate risks. At September 30, 2000, we had approximately $77.1
million in cash equivalents denominated in foreign currencies to reduce this
risk. In addition, our pounds sterling and Euro denominated notes also reduce
this risk. Furthermore, our revenues are generated in foreign currencies while
our interest and principal obligations with respect to most of our existing
indebtedness are payable in U.S. dollars. We have entered into an option
agreement to hedge some of the risk of exchange rate fluctuations related to
interest and principal payments on U.S. dollar denominated debt and for parent
company expenses up to an annual limit of approximately $13 million. We may
purchase U.S. dollars at a fixed rate of L1 to $1.40 on specified dates through
June 2001 for specified amounts of U.S. dollars. The dates and U.S. dollar
amounts correspond to our interest and principal payment dates and amounts for a
portion of our U.S. dollar denominated debt and anticipated amounts of parent
company expenses. In addition, NTL Triangle has option agreements of L250
million notional amount to purchase U.S. dollars at a fixed rate of L1 to $1.35
in November 2000. This option provides a hedge against an adverse change in
exchange rates when interest payments commence on NTL Triangle's U.S. dollar
denominated Discount Debentures.
The estimated fair value of foreign currency contracts represents the
amount required to enter into offsetting contracts with similar remaining
maturities based on quoted market prices. At December 31, 1999, the difference
between the fair value of the outstanding contracts and the contract amounts was
immaterial.
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<PAGE> 47
INTEREST RATES
The fair market value of long-term fixed interest rate debt is 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. In the
following table, fair values were determined from quoted market prices.
INTEREST RATE SENSITIVITY
PRINCIPAL AMOUNT BY EXPECTED MATURITY
AVERAGE INTEREST RATE
<TABLE>
<CAPTION>
FAIR VALUE
2000 2001 2002 2003 2004 THEREAFTER TOTAL 12/31/99
--------------- ----- ----- ----- ----- ---------- ----- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt, including
Current portion..........
U.S. dollars
Fixed rate............... -- -- -- -- $ 285 $6,281 $6,566 $6,880
Average interest rate.... 13.25% 10.2%
Pounds sterling
Fixed rate............... -- -- -- -- -- L890 L890 L654
Average interest rate.... 10.09%
Average forward exchange
rate................... 1.67
Euro
Fixed rate............... -- -- -- -- -- E810 E810 E731
Average interest rate.... 10.1%
Average forward exchange
rate................... 1.103
Irish punts
Variable rate............ IRL60 -- -- -- -- -- IRL60 IRL60
Average interest rate.... Euribor
Average forward exchange
rate................... 1.297
</TABLE>
There have been no material changes in the reported market risks since the
end of the most recent fiscal year.
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<PAGE> 48
BUSINESS
We are a leading broadband communications company in the United Kingdom and
the Republic of Ireland. We provide residential, business, and carrier customers
with a broad array of competitive communications products and services including
the following:
- CONSUMER SERVICES, including residential telephone, cable television,
personal computer and television-based Internet access and interactive
services. We are the largest provider of broadband services in the United
Kingdom and Ireland with approximately 1.9 million cable television and
telephony customers as of September 30, 2000, and assuming the
contribution of ConsumerCo from NTL Incorporated to us had occurred,
approximately 3.1 million cable television and telephony customers as of
September 30, 2000. In addition, as of September 30, 2000 we had
approximately 1.5 million Internet service customers and approximately
454,000 off-net telephony customers, in each case, assuming the
contribution of ConsumerCo. We are also the first broadband provider in
the United Kingdom to launch high-speed cable modem Internet services. In
the franchises which we have been developing since 1993, we have
approximately 50% customer penetration.
- BUSINESS SERVICES, including business telecommunications, national and
international carrier telecommunications, Internet services and radio
communications services. We currently serve approximately 47,200 business
and carrier customers, and approximately 74,800 assuming the contribution
of ConsumerCo had occurred, including: AT&T, Cisco, COLT, MCI Worldcom,
Microsoft, Orange, Sun Microsystems and Vodafone.
- BROADCAST TRANSMISSION AND TOWER SERVICES, including digital and analog
television and radio broadcast transmission services, wireless network
management and tower site rental services. We broadcast channels for
customers such as Turner Broadcasting Systems, Flextech, the BBC and QVC.
We serve our broadcasting and wireless communications customers under
long-term contracts that account for L1.4 billion of our forward order
book.
The industries in which we compete are growing rapidly as a result of
technological developments and the resulting increase in demand for bandwidth
and information handling capacity. The integration of communications services
and the Internet, as well as the development of digital wireless communications
services, is resulting in numerous growth opportunities for us.
Our success to date has been due largely to our focus on customer service
and the development of product offerings that emphasize value rather than simply
price discounts. Our product offerings incorporate our fundamental customer
proposition of providing our customers with choices:
"To allow our customers to buy what they need and pay for what they use"
We believe that this simple construct has allowed us to achieve and
maintain the industry leading customer penetration and customer retention levels
within the franchises that we have been developing since 1993. We recently
expanded our consumer services through the national offer of PC and
television-based Internet access in combination with indirect access telephone
services. We believe these products will allow us to increase our target market
dramatically by offering our services to residences which will not be passed by
our local broadband network infrastructure.
In the business market our sales strategy employs a mixture of telephone
sales and marketing for single line businesses and a direct and consultative
sales approach for the larger businesses. We are market-driven and have
segmented our business market into communities of interest -- for example,
education, government and industry.
Our sales and marketing teams are structured to support a focused approach:
- through a regionally focused sales and marketing structure; and
- through a dedicated team of national account managers interfacing with
the largest national accounts including many of the other
telecommunications carriers.
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Our competitive position is underpinned by the $6.0 billion investment, or
$10.9 billion assuming the contribution of ConsumerCo, we have made in our
network infrastructure. This investment allows us to serve every residence,
business, school, hospital and public institution in the United Kingdom that is
either directly connected to our network or indirectly through the BT telephone
network. This network infrastructure consists of:
- BROADBAND COMMUNICATIONS NETWORKS that are high-capacity two-way local
broadband fiber networks that serve entire communities throughout our
regional franchise areas. Our fiber optic cables pass most businesses in
our regional franchise areas and are connected to nodes which are
typically within approximately 500 meters of each of the approximately
500 homes typically served by each node. Each home is then connected by a
"Siamese" cable consisting of two copper pair telephone wires and a
coaxial cable, allowing us to deliver telephone, cable television and
Internet services over a single integrated network. This "Siamese" cable
also allows us to deploy both cable modems and DSL technology for the
provision of broadband communications services.
The following is an illustration of this cabling:
[Graphic of Two Pair of Telephone Wires]
- A NATIONAL/INTERNATIONAL SYNCHRONOUS DIGITAL HIERARCHY (KNOWN AS SDH)
FIBER OPTIC TELECOMMUNICATIONS NETWORK which connects all of the major
population centers in the United Kingdom to one another on our owned
facilities and to Ireland, continental Europe and the United States
through our owned or leased facilities. In the United Kingdom, our
self-healing, fully redundant 3,500 mile backbone network utilizes
Asynchronous Transfer Mode technology (known as ATM), a high-speed
switching technique that uses fixed size cells to transmit voice, data
and video. The network was built with two ducts and sufficient capacity
to accommodate over 2,300 fibers on the majority of its routes. We have
designed this network to allow us to place the active components (such as
routing devices) at its edge and close to our customers. This design will
ultimately reduce our costs and increase our ability to offer a broad
range of voice and data solutions.
[NTL's National Backbone Network Graphic]
- NATIONAL BROADCAST TRANSMISSION AND TOWER NETWORK INFRASTRUCTURE in the
United Kingdom which provides national, regional and local broadcast and
wireless communications coverage and is comprised of over 2,182 tower
sites in the United Kingdom.
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Our fixed line and tower-based networks in the United Kingdom are
interconnected and
- allow us to provide our customers with flexible products, packages,
solutions and prices. For example, each of our regional broadband
networks is connected to our national/international SDH fiber network,
allowing us to carry voice and data traffic between customer sites
throughout the United Kingdom and Ireland and significantly reduce our
interconnect charges. This flexibility has allowed us to develop and
launch the United Kingdom's first distance insensitive telephone tariff,
"NTL 3-2-1 Pence," which is a flat rate per minute tariff that is
designed to charge customers a rate which is determined by when they
call, not where they call.
- our national tower infrastructure has allowed us to connect business
customers to our national and international facilities with point to
point microwave links in situations where fiber connections are not
feasible. This opportunity may be further expanded by a local loop access
solution that utilizes our national 10Ghz point to multi-point wireless
broad band license, comprising 30Mhz of spectrum, allowing us to connect
business customers to our networks with broadband wireless links.
RECENT DEVELOPMENTS
SALE OF INTEREST IN CABLE LONDON
In August 1999, Telewest Communications PLC exercised its right to purchase
all of our shares of Cable London PLC and all of our related rights and
interests for a purchase price of approximately L428.0 million in cash. We
established the purchase price pursuant to a buy/sell agreement between the
parties. The sale was completed on November 21, 1999. The sale of our shares of
Cable London PLC is an "Asset Sale" for the purposes of the indentures for some
of our indebtedness. As required under the terms of the indentures, we used an
amount equal to the proceeds from the sale to invest in fixed assets in the
United Kingdom and Ireland which are "Replacement Assets."
COMPLETION OF ACQUISITION OF CONSUMERCO BY OUR PARENT, NTL INCORPORATED
On May 30, 2000, our ultimate parent company, NTL Incorporated, completed
its acquisition of the residential cable, business cable, indirect residential
telephony, residential internet and digital television development and services
business of Cable & Wireless Communications plc, referred to as ConsumerCo. NTL
Incorporated paid cash of L2,846.3 million ($4,258.9 million) and issued an
aggregate of 84.9 million shares of its common stock (valued at $5,485.4 million
at the time of announcement) in exchange for all of the shares of ConsumerCo. In
addition, NTL Incorporated paid L2,214.0 million ($3,312.8 million) to repay a
portion of ConsumerCo's debt. 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. France Telecom paid
L1,555.6 million ($2,327.6 million) for 42.2 million shares of NTL
Incorporated's common stock and L1,244.4 million ($1,862.0 million) for 2.0
million shares of NTL Incorporated's convertible preferred stock with a 5%
dividend, a conversion price of $80 per share and a redemption price of $96 per
share. ConsumerCo and NTL Business (formerly Workplace Technologies) are not
currently our subsidiaries. Pursuant to NTL Business's credit agreement which
was used to partially fund the acquisition of ConsumerCo, all of the outstanding
share capital of ConsumerCo and NTL Business, one of the United Kingdom's
leading data network service integrators which was acquired by NTL Delaware in
1999, is required to be contributed to us by July 2001, thereby making
ConsumerCo and NTL Business our subsidiaries. See the risk factor titled
"ConsumerCo and NTL Business are not currently our subsidiaries. Although the
credit agreement which partially funded the acquisition by our parent of
ConsumerCo requires the outstanding share capital of ConsumerCo and NTL Business
to be contributed to us, such contribution may not occur or may not result in
the benefits we anticipate. Accordingly, the pro forma financial information
included in this prospectus may not reflect our future assets or operating
results."
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ADDITIONAL INVESTMENT BY FRANCE TELECOM IN OUR PARENT, NTL INCORPORATED
In March 2000, our ultimate parent company, NTL Incorporated received
$1,850.0 million in cash from France Telecom and a group of commercial banks in
exchange for 1.9 million shares of new redeemable 5% cumulative preferred stock
of NTL Incorporated. The proceeds of the issuance of the preferred stock were
used primarily for the purpose of its consummation of the acquisition of the
assets of Cablecom Holding AG, which was completed in March 2000, with any
remaining proceeds to be used to help fund NTL Incorporated's acquisition of
companies primarily engaged in the broadband communications broadcasting and
cable television businesses in continental Europe outside of France. The holders
of the preferred stock other than any commercial banks or their affiliates may
at any time after September 2000 elect, subject to some conditions, for the
preferred stock to be exchanged for up to a 50% interest in a new company which
will own certain or all of NTL Incorporated's broadband communications,
broadcast and cable television interests in continental Europe outside of
France. Under some circumstances, at NTL Incorporated's option, any portion of
its obligation that may not be satisfied by the exchange may be satisfied with a
security convertible into NTL Incorporated's common stock or cash.
NTL WITHDRAWS OFFER FOR PAY-PER-VIEW RIGHTS FOR BRITISH PREMIERSHIP SOCCER
In June 2000, we announced that we were successful in our bid for the 40
game pay-per-view rights package auctioned by the British Football Associations'
Premier League. The license was to run for 3 years, beginning at the start of
the 2001/2 season and would have required NTL Delaware to pay approximately L109
million annually for the rights. On October 18, 2000, we announced that we had
been unable to agree to final terms regarding the pay-per-view rights package
and that negotiations had ceased.
ANNOUNCEMENT OF INTENTION TO ACQUIRE 100% OF VIRGINNET'S ISP BUSINESS FROM
VIRGIN
In July 2000, we announced that we had signed a non-binding letter of
intent with Virgin allowing both parties to explore ways to develop the parts of
the VirginNet business that best fit their own Internet strategies. VirginNet is
a joint venture in which we own a 49% interest and Virgin Group a 51% interest.
It is proposed that we will acquire 100% of VirginNet's ISP business, which
includes approximately 800,000 customers as of September 30, 2000. Virgin will
assume 100% ownership of VirginNet's content and commerce business.
NTL AND BSKYB AGREE PROGRAM SUPPLY DEAL
In September 2000, we and British Sky Broadcasting ("BSkyB") announced that
we had entered into a 5-year program supply deal. The agreement is designed to
increase the viewing choices of our customers. Under the agreement, we will
carry all of BSkyB's main channels. The supply of these channels will be
pursuant to a new wholesale pricing structure developed by the parties. The
agreement includes a mutual commitment to offer the other new services which
either we or BSkyB develop in the future, including channels, pay-per-view
sports events and enhanced and interactive TV services. The agreement includes a
mutual commitment to work together to find technical solutions to facilitate the
distribution of these services on both cable and DTH platforms. The agreement is
subject to regulatory approval.
CORPORATE STRATEGY
Our objective is to exploit the convergence of the telecommunications,
entertainment and information services industries to become the leading full
service broadband communications company in the markets in which we compete. We
offer services to residential, business and wholesale customers on a national
and an international scale. We believe that we will be able to deliver our
strategy through our entrepreneurial approach, innovative marketing,
state-of-the-art networks and technical excellence. We are currently employing
several strategies to achieve our objective:
- INSTALLING FLEXIBLE INTEGRATED FULL-SERVICE NETWORKS. Our integrated
full-service networks provide a high-speed, high-capacity, two-way
communications pathway to the consumer that is capable of delivering new
services which are emerging from the convergence of telecommunications,
information and entertainment. This strategy allows us to pursue four
revenue
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streams -- residential cable television, residential telephone, business
telecommunications services and Internet services -- without significant
incremental cost or capital investment.
- MAXIMIZING NETWORK CAPACITY UTILIZATION. We believe the fixed cost
structure of building communications networks allows us to gain
significant operating efficiencies from incremental services provided
over our networks. In our local franchise areas, our strategy is to
maximize gross profit contribution per home passed, rather than revenue
per customer, by increasing overall penetration of the number of services
provided over our network.
- FOCUSING ON TARGET MARKET SEGMENTS. We believe that tailoring our
services to the needs of our customers will increase the penetration of
these services.
- PROVIDING SUPERIOR CUSTOMER SERVICE. We believe customer service and
attentiveness to the needs of customers are critical to the continued
growth of our residential and business services. We operate multiple
customer call centers, including three large call centers in Luton, South
Wales and Central Scotland, as well as multiple call centers throughout
the regions of our recently acquired businesses. Calls are answered at
most locations 24 hours a day, 365 days a year.
- DEVELOPING ADVANCED MANAGEMENT INFORMATION SYSTEMS. We believe that
advanced management information systems are critical to effectively,
efficiently and accurately serve our customers. We use proprietary
software to handle our subscriber management functions from one central
location. Our system is capable of managing our tariff and discounting
structures, and will also allow for the introduction of new telephone and
cable television services, such as 0800 numbers.
- GAINING COST EFFICIENCIES. We gain cost efficiencies by centralizing
some services provided to the franchise areas in our head office in Hook,
England.
NTL INCORPORATED'S EUROPEAN STRATEGY
NTL Incorporated, the parent company of NTL Communications, has made
several strategic investments in leading European markets during the last 12
months. In August 2000, NTL Incorporated announced that it intends to make a 27%
minority investment in Noos S.A., the market leading French broadband company,
for approximately $627 million. Also in August 2000, NTL Incorporated completed
a 50% investment in eKabel InvestCo, which owns 65% of eKabel L.P., the Hessen
cable network in Germany. In March 2000, NTL Incorporated completed the purchase
of the cable assets of the Cablecom Group, the largest cable company in
Switzerland, for CHF 5.8 billion. Finally, NTL Incorporated owns a 25% stake in
Svenska Bredbandsbolaget A.B., a company based in Scandanavia which is
aggressively deploying fiber directly to the home throughout Sweden and Norway.
These investments highlight NTL's strategy of focusing its European
investment activity in highly desirable communications markets. Pro-forma for
announced and closed transactions, NTL Incorporated and its subsidiaries will
have a premier footprint across Europe, including:
- Europe's three biggest financial centres -- London, Paris and Frankfurt;
- Europe's wealthiest population -- Switzerland; and
- Europe's most highly penetrated Internet market -- Sweden.
These transactions ensure participation by NTL in these highly attractive
markets and offer substantial opportunities for growth, building on NTL's
considerable market expertise and success in marketing and promoting
communication services in the United Kingdom. NTL is now in a strong position to
grow revenues from bundled subscriptions to cable TV, Internet and telephony
across these key markets and can use its experience in driving take-up through
product bundling, value propositions, greater choice and high levels of customer
service. Pro forma for all completed and announced transactions NTL Incorporated
has access, on a gross basis, to 20.2 million homes across Europe, and serves
approximately 6.7 million cable/telephony customers.
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The ongoing capital needs of each of the following entities have been
financed on a non-recourse basis to NTL Communications. Cablecom has secured a
CHF 1.4 billion non-recourse bank facility to fund the capital expenditures
associated with the rollout of new services. eKabel has secured E750 million of
bank financing for network and product rollout. B2 has raised over $450 million
via a significant vendor financing facility. As we work to complete the Noos
transaction, we will be developing and finalizing a financing plan with our
partners, Suez Lyonnaise and Morgan Stanley Capital Partners. We would expect
this financing to be recourse only to the Noos assets.
Each of NTL Incorporated's subsidiaries and investments in Europe has
experienced management teams. NTL Incorporated expects to continue emphasizing
local management teams, as this has been one of the hallmarks of its success in
the United Kingdom. To ensure a consistent and focused execution across all the
investments in Europe, NTL Incorporated recently appointed a Chief Operating
Officer, Bruno Claude, who will be solely focused on overseeing and managing NTL
Incorporated's operations and investments in Europe.
CONSUMERCO
On May 30, 2000, our ultimate parent, NTL Incorporated, completed its
acquisition of the residential cable, business cable, indirect residential
telephony, residential internet and digital television development and services
businesses of Cable & Wireless Communications plc, referred to as ConsumerCo.
ConsumerCo is not currently a subsidiary of NTL Communications Corp. Under the
credit agreement that was used to fund a portion of the acquisition of
ConsumerCo, all of the share capital of ConsumerCo is required to be contributed
to us by July 2001.
ConsumerCo's 46 franchise areas cover approximately 6.0 million homes in
the United Kingdom of which approximately 4.3 million were passed as of
September 30, 2000. These franchise areas do not overlap with NTL's existing
franchise areas. As of September 30, 2000, ConsumerCo had approximately 1.2
million cable television and telephony customers and approximately 266,000
Internet customers. ConsumerCo also provides telecommunications services to
approximately 27,600 small and medium-sized businesses connected to its
networks. In late 1999, ConsumerCo launched digital cable television. In August
2000, approximately 70% of ConsumerCo's networks were digital ready and we
expect over 90% of its network will be digital ready by the end of 2000.
Assuming that ConsumerCo's share capital is contributed to us, our
franchise areas will cover approximately 11.8 million households in the United
Kingdom and Ireland, representing approximately 50% of all U.K. households.
Importantly, ConsumerCo's franchises will give us direct access to households in
the main urban areas of metropolitan London, Manchester and Leeds.
We believe that the expanded scale of our business will provide us with a
number of benefits. Our increased customer base will facilitate the marketing of
our services by allowing us to spread marketing costs and customer acquisition
costs over an expanded revenue base. In addition, we believe that the increased
coverage of our franchise areas and our off-net indirect access services will
allow us to target a wider audience using more efficient national marketing
campaigns. The expanded size of our business should also assist us in
negotiating supply arrangements with program and content providers and equipment
manufacturers as well as in negotiating interconnection arrangements.
To facilitate our integration of ConsumerCo's business, several of their
senior employees have been appointed to key positions within our operating
management. We intend to converge customer service and product offerings across
NTL and ConsumerCo as soon as is practicable. The NTL brand was introduced
across ConsumerCo's services shortly after the acquisition of ConsumerCo was
consummated by NTL Incorporated. Our immediate focus on the ConsumerCo business
will be on the following priorities: reducing the fault rate, improving the
installation experience, continuing the digital rollout and improving the value
proposition of the service bundle. These are all factors that we believe will
reduce churn and increase penetration. However, they will increase costs in the
next 12 months and may impact near-term revenue growth as well.
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<PAGE> 54
NATIONAL CORPORATE BRANDING.
In June 1999, we launched an advertising campaign in the United Kingdom to
promote NTL as the United Kingdom's complete communications company serving both
the residential and the business markets. During 1999, we spent approximately
L29 million on the advertising campaign. This campaign coincided with a relaunch
of the NTL brand itself, which replaced all of our distinct brand-names (such as
CableTel, Comcast, Diamond and ComTel). We recently introduced the NTL brand
into the ConsumerCo franchise areas.
Along with highlighting our ability to provide customers with unique
communications services throughout the United Kingdom, the campaign builds on
our core aim of simplifying technology for the benefit of business and
residential customers. Extensive consumer research showed that customers were
confused by the technologies available and unable to easily make informed
decisions.
CONSUMER SERVICES
We are a national provider of telecommunications, entertainment and
Internet access services to residential customers throughout the United Kingdom
and Ireland. As of September 30, 2000, our local broadband networks pass
approximately 4.5 million homes. Assuming the contribution of ConsumerCo to us
has occurred as of September 30, 2000 our local-broadband networks pass
approximately 8.8 million homes. These networks serve entire regional
communities, passing virtually every home, business, and government institution.
We currently provide our telephone services over traditional telephone wires and
our cable services over a coaxial cable connection. We estimate that our local
franchise networks (not including our national network or NTL Incorporated's
recent acquisition of ConsumerCo) cover approximately 7,000 route miles of fiber
backbone network, with approximately 400,000 fiber miles, and an estimated
75,000 route miles of coaxial/copper connections. These full-service networks
are capable of providing a high speed, high capacity, two-way voice, data and
video communications pathway to every customer. This approach allows us to
pursue four revenue streams -- residential telephone, residential cable
television, Internet services and business telecommunications services --
without a significant increase in fixed investment. A graphical depiction of our
regional networks appears below.
NTL'S REGIONAL NETWORK
[NTL's Regional Network Graphic]
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Our cable entertainment network employs a coaxial cable and is built with
an initial capacity of 750MHz, which is easily expandable to 1 GHz of capacity.
The network currently has an active reverse path that allows us to provide
impulse pay-per-view. Most importantly, the fact that we have installed two
pairs of telephone wires and coaxial cables in each of our customers' homes
allows us the advantage of deploying either of the major high bandwidth
communications technologies that are developing today: cable modems and xDSL
solutions. The graphic below depicts this advantage.
NTL'S NEIGHBORHOOD NETWORK
[NTL's Neighborhood Network Graphic]
NETWORK DESIGN. We are installing our broadband and telecommunications
network using established state-of-the-art technology, deploying fiber optics
directly to highly concentrated business areas and residential nodes typically
averaging approximately 600 telephone lines or approximately 500 homes,
respectively. We install spare duct and can thus "pull" fiber into a home when
economically justifiable. In this manner, we achieve cost efficiencies and rapid
deployment from using standardized equipment, while retaining flexibility to
expand and adapt our network to technological advances with little or no
additional construction investment.
The design and construction of a new network varies depending upon several
factors including the number of route miles to be installed, density of homes
and businesses, type of road and sidewalk surface, and architecture of the
network backbone. Each system has been designed with at least one head-end and
at least one telephone switching office. Each system's head-end and telephone
switching office is directly connected to each node by fiber optic cable. Each
node is then connected to a subscriber's premises. Construction of each system
has been planned on a neighborhood-by-neighborhood basis to allow revenue
generating operations to commence in a neighborhood as construction of the
portion of the system serving such neighborhood is completed.
FIBER OPTICS. The evolution of fiber optic technology over the past
decade, including increases in the capacity of laser transmitters and decreases
in the price of optical receivers, has enabled the economic deployment of fiber
optic cable much closer to the customer than in traditional coaxial cable
television and
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<PAGE> 56
twisted copper pair telephone networks, thereby improving the quality and
capacity of the cable television and telephone service. The main advantages of
deploying fiber in place of both coaxial cable or copper wire are its smaller
size, greater capacity, freedom from electrical interference, and significant
reduction of the requirement for periodic maintenance. We deploy fiber to nodes
which are normally less than 500 meters from the furthest home and recently
announced a plan to extend fiber directly to the home.
NETWORK ARCHITECTURE. Our broadband networks are being built with an
initial capacity of 750 MHz, which is sufficient to carry over 60 analog
channels of television. With digital compression of the television signal, many
more channels can be transmitted. The system is upgradeable to 1 GHz. Generally,
only one amplifier is required between the head-end optical receivers and a
home. Traditional cable systems often employ "cascades" of more than 5
amplifiers which degrade signal quality and increase the potential for system
failure.
Our local telecommunications network uses an SDH self-healing
redundant-ring based architecture, which improves our ability to flexibly deploy
capacity and further enhances system resilience. Telephone signals are carried
from the node to the home over traditional copper pair, over a shorter distance
than in traditional telephone networks, which improves signal quality and allows
higher bandwidth services such as ADSL to be more easily deployed. Within a
residential node, we use a dual drop consisting of "Siamese" coaxial cable,
capable of transmitting up to 1 GHz of bandwidth, and two copper twisted pairs
capable of providing two telephone connections. Moreover, the dual drop is
placed in an underground conduit that has capacity for a fiber drop in the
future. Large business customers are connected to the telephone network directly
through fiber optic cable or microwave links.
Our network design allows us to implement either of the two main broadband
local-loop solutions: cable modems and DSL. The use of xDSL Technologies could
enable us to exploit our copper wire assets more fully. We already use HDSL to
meet the needs of particular business customers. ADSL speeds vary according to
the length of the copper wire loop; the advantage that we have compared to an
established telephone company is our relatively short copper wire
runs -- typically under 500 meters. This facilitates down-load speeds of over 6
Mb/s.
PRODUCTS, SERVICES AND MARKETING. We believe the most effective strategies
to achieve maximum revenues and maximum penetration is to bundle telephone,
cable and Internet services. Our product and pricing strategies emphasize
choice, value, and quality and are designed to encourage subscription to
multiple services and maximize customer retention. We believe that people want a
value proposition based upon packages of services. We believe that our ability
to design attractive marketing plans and better service packages relative to our
competitors should have a positive effect on our penetration rates and customer
retention.
BUNDLED CABLE SERVICES. In 1996, we implemented a promotional pricing and
packaging structure called "Choices" for our in-region telephone and cable
television service. We have continued to refine and enhance the initial package.
The monthly price for the analog Starter Pack is L9.25, which is the same as
BT's monthly line rental charge as of September 2000. The Starter Pack offers
the customer:
- telephone service;
- Internet access service; and
- all six of the terrestrial channels, seven cable television channels and
our local TV channel; or
- a second telephone line.
This means that our customers can receive their analog telephone line plus
Internet access as well as cable television or a second telephone line for the
same monthly price that BT charges for telephone line rental alone. Our
customers can add either of the services they do not choose as a part of the
package for L5 each. The L9.25 price point was specifically chosen to provide
the customer with a simple price/value proposition: for the price of a BT
telephone line, we provide a telephone line and more. BT has a long history of
raising its line rental charge annually, creating a rising pricing umbrella
under which we can
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<PAGE> 57
position our services. We continue to improve the packaging structure in order
to enhance its attractiveness to customers.
In addition to the Starter Pack entry packages, our Choice Collections
packages enable the customer to select from several channel groupings each of
which can be purchased for an additional charge.
We believe that our bundled and flexible service package is responsive to
the desires and tastes of our customers. It emphasizes the "value" of our
residential telephone service by bundling it with a choice of additional
services for the price of BT's telephone line rental. As opposed to choosing
from a limited set of service options, the packages provide the customer the
opportunity to add services according to their individual tastes, and change
various aspects of the bundle rather than disconnect the service completely.
Through the use of our customer care and billing systems, we can change our
customers' services quickly and easily, thus encouraging each customer to choose
a package that meets his or her individual needs. We seek to gain incremental
revenues by selling additional products and services as well as encouraging
customers to purchase higher tier packages. The Starter Pack serves as a shop
window for other incremental services.
ANALOG CHOICES
<TABLE>
<S> <C>
STARTER PACK L9.25 TELEPHONE PRICING
---------------------------------------------- ----------------------------------------------
Includes: - 3,2,1 pence per minute Nationwide,
- Telephone line rental, and 3 pence for the day, 2 pence for the
- Dial-up PC Internet access evenings, and 1 pence for the weekends
Plus choose one of the following: - Free Internet access at all times to NTL
- Television service with six terrestrial and telephony customers
seven cable channels, COLLECTIONS*
or ----------------------------------------------
- Second telephone line - Music & youth,
ADDITIONAL SERVICES - Classic,
---------------------------------------------- - News & documentary, and
- Extra telephone line - Contemporary
or additional converter boxes L5.00 each Two TV packs L 8.00
- Advance features: reminder call, Four TV packs L13.00
three-way calling, quick dial, BSKYB PACKAGES
call barring, voicemail, call divert, ----------------------------------------------
call waiting, caller display - Sky Sports 1 or 2 L16.00
- One feature L1.00 - Movie Collection L17.00
- All features, subject to availability L3.00 - Sport Collection L20.00
- Movie & Sports Collection L23.00
* CableTel franchises. PAY PER VIEW
----------------------------------------------
- Movies on Demand (per screening) L2.99
</TABLE>
CHOICE COLLECTIONS
<TABLE>
<S> <C>
COLLECTIONS CHANNEL LINE-UP
---------------------------------------------- ----------------------------------------------
Music and Youth MTV, VH-1, Cartoon Network, Rapture, Trouble,
The Box, Nickelodeon, BET on Jazz, UK Play
Classic Granada Plus, Carlton Food, UK Gold,
Performance, Discovery Home & Leisure
News and Documentaries Discovery, History Channel, CNN, National
Geographic, Travel Channel, Animal Planet, UK
Horizons
Contemporary Sci-Fi, Turner Classic Movies, Paramount
Comedy Channel, Granada Men & Motors, Granada
Breeze, Bravo, Living
</TABLE>
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<PAGE> 58
DIGITAL CHOICES
<TABLE>
<S> <C>
STARTER PACK L10.00 TELEPHONE PRICING
---------------------------------------------- ----------------------------------------------
Includes: - 3,2,1 pence per minute Nationwide,
- Telephone line rental, 3 pence for the day, 2 pence for the evenings,
- Dial-up PC Internet access, and 1 pence for the weekends
- Television service with six terrestrial and - Free Internet access at all times to NTL
seven cable channels, telephony customers
- NVOD service, COLLECTIONS
- Walled garden, and ----------------------------------------------
- E-mail - Entertainment,
ADDITIONAL SERVICES - Fun,
---------------------------------------------- - Life,
- Extra telephone line - Music, and
or additional converter boxes L5.00 each - World
- Advance features: reminder call, Each pack L 4.00
three-way calling, speed dialing, Fifth pack is free when four are purchased
call barring, voicemail, call diverting, BSKYB PACKAGES
call waiting ----------------------------------------------
- One feature L1.00 - Sky Sports 1 or 2 L16.00
- All six features L3.00 - Movie Collection L17.00
- Sport Collection L20.00
- Movie & Sports Collection L23.00
PAY PER VIEW
----------------------------------------------
- Movies on Demand (per screening) L2.99
</TABLE>
CHOICE COLLECTIONS
<TABLE>
<S> <C>
CHOICE COLLECTIONS CHANNEL LINE-UP
---------------------------------------- ----------------------------------------
Entertainment Sky One, Sci fi, Granada Plus, Bravo,
Tara**, Carlton Cinema, UK Gold 1, TCM,
UK Drama, UK Gold 2*
Fun Cartoon Network, Challenge, Nick Jnr*,
Nickelodeon, Fox Kids*, Paramount,
Rapture, British Eurosport, Trouble
Life Discovery H&L, Living, QVC, Carlton
Food, Shop, UK Style, Discovery T&A, Men
& Motors, Granada Breeze, TV Travel Shop
Music MTV, MTV Base+, VH-1 Classic+, The Box,
MTV Extra+, VH-1, UK Play, MTV2,
Performance**
World Discovery, CNN, Animal Planet, Sky
News*, ITN, UK Horizons, Discovery Sci
Trek, History, Discovery +1, National
Geographic, Bloomberg, Discovery
Civilizations
* Ex-ConsumerCo franchises only.
** Old NTL franchises only.
+ To be launched in old NTL franchises.
</TABLE>
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PAY PER VIEW SERVICES. We are party to a joint venture with Telewest for
the provision of a cable-only movie, sport and special events pay-per-view
television service called Front Row which was launched to our customers in March
1998. The joint venture represents the first-ever alternative to BSkyB in the
provision of movies and sports for pay television. Front Row has signed content
output contracts with major Hollywood studios, including Warner Brothers, Sony
Pictures Entertainment (Columbia/Tristar), the Walt Disney Company (Walt Disney
Studios, Miramax, Hollywood Pictures and Touchstone), Dreamworks, MGM and
Universal.
TELEPHONE TARIFFS. As a result of our investment in our national fiber
backbone network, we are able to design and offer innovative telephone service
packages to our customers. By integrating our national telecommunications
network with our local networks, we are able to bypass a portion of the
wholesale long distance fees charged by BT and other carriers for carrying calls
to and from our local telephone networks. This increased flexibility allows us
to introduce more volume-oriented and/or geographically based calling plans
designed to give the customer even greater choice and value. As an example, in
1999 we launched "NTL 3-2-1 Pence", a per minute national call tariff of 3 pence
during the day, 2 pence during the evening and 1 pence during the weekend. The
tariff is designed to charge customers a rate which is affected by when they
call, not where they call. Internet access and unlimited usage is free to NTL
telephony customers. The simplicity of this telephone tariff provides us with a
distinct pricing advantage over BT. While BT offers its customers a series of
complex discount plans, our 3-2-1 pricing structure offers a clear and simple
savings formula for customers.
The following table compares our tariffs to BT's published tariffs.
BASE CHARGES
<TABLE>
<CAPTION>
BT TOGETHER
NTL BT BASE RATE RATE*
------ ------------ -----------
<S> <C> <C> <C>
Line rental.............................. L9.25 9L.25 L11.99
Call set up fee/minimum fee.............. 3.5p 4.9p 4.9p
</TABLE>
TELEPHONE PER MINUTE CHARGES
<TABLE>
<CAPTION>
TELEPHONE TARIFFS (PER MINUTE)
------------------------------------------
BT TOGETHER
NTL BT BASE RATE RATE*
----------- ------------ -----------
<S> <C> <C> <C>
Local
Daytime......................... 3.00p 3.95p 3.00p
Evening......................... 2.00p 1.48p 1.00p
Weekend......................... 1.00p 1.00p 1.00p
Short National
Daytime......................... 3.00p 7.91p 4.00p
Evening......................... 2.00p 3.95p 2.00p
Weekend......................... 1.00p 2.00p 2.00p
Long National
Daytime......................... 3.00p 7.91p 4.00p
Evening......................... 2.00p 3.95p 2.00p
Weekend......................... 1.00p 2.00p 2.00p
</TABLE>
--------------------
* Includes 180 minutes of local evening weekend phone calling every month.
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Residential Marketing. We market our local telecommunications and
television service as an integral part of the emerging information
super-highway. This marketing strategy is continually being refined and includes
the following concepts in our advertising, literature and other materials:
- positioning us as a national telephone company with a strong local
presence;
- introducing alternative telephone service, multi-channel television and
Internet access as the first of an expanding array of services which will
be carried on the network in the future; and
- emphasizing that we are bringing "More Choice" in television viewing,
"Better Value" in telephone service and "State of the Art" communications
technology in providing access to the Internet.
We employ an extensive direct marketing and selling approach to gain
customers. We begin by building a relationship with our communities before
construction commences in a given area by closely coordinating our upcoming
activities with local government authorities and community groups and eliciting
feedback on ways to minimize disruptions and inconvenience. Information packages
and construction notices are delivered to the neighborhood prior to
construction. Our consumer liaisons personally visit affected neighborhoods and
households in order to meet the special needs of the residents. All written and
telephonic inquiries from residents are input by name into a lead-tracking
database, so that when areas are released to marketing, our sales personnel have
complete customer profiles of the residents in their selling area.
We initiate our marketing in an area by direct mail, which is followed by a
personal appointment with a sales advisor. All information regarding both
current and future sales opportunities is entered into the database, and current
sales information is updated in our provisioning, billing and subscriber
management system. Unsold household data is maintained for future telemarketing,
direct mail, and re-marketing by the sales force.
Additionally, as part of our focus in ensuring and maximizing customer
retention, we usually charge an installation fee of L25.00 for analog and L40.00
for digital. We adopt a one year service agreement and encourage direct debit
payment as the standard. The installation fee and one year contract provide
qualifying mechanisms to ensure that the customer understands and recognizes the
value of the services, while the encouragement of direct debit payment helps to
avoid non-payment or non-payment related cancellations.
NON-CABLE CUSTOMERS. In 1999, we extended our service offerings beyond our
franchise areas in order to offer a set of alternative service options to over
15 million BT customers who are not passed by our local broadband networks or
those of ConsumerCo. By utilizing our investments in our national telecoms
network, our international Internet facilities and our back office and billing
operations, we launched a set of products and services that allow us to provide
telephone and Internet services to every home in the United Kingdom with a BT
telephone line and a television. A graphical depiction of this network solution
appears below.
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<PAGE> 61
[NTL's Off-Net Solution Graphic]
The National Consumer Services, our first retail offering to the U.K.
consumer outside our franchise areas, have allowed us to significantly increase
our U.K. target market. We carry the consumer's telephone traffic via indirect
access for voice and Internet calls. Using indirect access, the customer retains
their BT line, but the calls are automatically routed to our switch and national
network. We therefore receive the call revenue associated with the customer's
voice traffic. The "off-net" customer receives the benefit of our 3-2-1 pricing
while we receive the revenues from their telephone calls.
In the future, we plan to provide digital television services over a
digital terrestrial television box that will form part of our National Consumer
Services product offering. In January 2000, we selected the Microsoft TV
software platform to deliver enhanced interactive TV services as part of our
digital terrestrial TV and telephony package for U.K. consumers. The Microsoft
TV platform will enhance the "free to air" digital terrestrial TV capability of
the set top box by enabling us to provide interactive digital TV services.
Digital Terrestrial Television will allow us to offer customers throughout the
United Kingdom a bundled offering of telephone, television, Internet and
interactive services, that will mirror our in-franchise product offerings. The
bundle of services provides Internet access via the personal computer or through
our TV-Internet set top box which enables full Internet access without the need
to purchase a PC. Customers simply use a keyboard and set-top box to access the
Internet over their television. This is an important market opportunity as it is
estimated that of the 24 million U.K. TV homes, approximately 18 million homes
do not have an Internet capable PC or Internet service.
NTL AND THE INTERNET
Internet use in U.K. homes, businesses and education is rising rapidly. We
regard data services as one of the three legs -- voice, data and video -- upon
which our business has been built. We provide Internet services throughout the
United Kingdom. Our subscribers can take advantage of the high data rates
provided by our fiber network in order to access the Internet via a personal
computer or a television. We offer both consumer and business Internet services
and own 49% of VirginNet with Virgin Communications Limited. In July 2000, we
announced our intention to acquire 100% of VirginNet's ISP business with Virgin
assuming ownership of VirginNet's content and commerce business. However, our
involvement is not simply based on enabling reliable Internet access. Rather, we
also operate to support the development of
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<PAGE> 62
Internet applications and usage. We provide the backbone for VirginNet and
Which? Online, with our call centers handling thousands of calls a day for the
two entities, consistently winning awards for speed of service and customer
satisfaction.
On March 7, 2000, NTL announced a plan to offer its residential customers
genuinely free, unlimited Internet access throughout the United Kingdom via PC
or TV. Called "ntlworld", the new free Internet service was available from April
11, 2000 for PC users and from April 17, 2000 for TV users. As of September 30,
we served approximately 381,200 ntlworld customers. Initial indications are that
approximately 37% of our current ntlworld customers subscribe for a second line
versus only 7% of our other residential customers. In addition, we have found
that ntlworld customers spend an average of L7, or 37%, more per month on
telephone calls than our other residential customers. Upon consummation of the
recently announced VirginNet transaction, NTL will be the third largest Internet
service provider in the United Kingdom with approximately 1.5 million customers,
assuming the contribution of ConsumerCo.
ntlworld features no ISP subscription charge, no call connection charge and
no Internet per minute call charges. Our customer research suggests that dial-up
Internet subscribers are higher spending, more apt to buy digital and high speed
services and "stickier" from a retention point of view. This service builds upon
NTL's vision of becoming the premier provider of communication services in the
United Kingdom and Europe.
For businesses, we offer reliable and scalable solutions for connecting to
the Internet. These range from easy-to-connect dial up connections to fixed
access solutions for high volume, dedicated Internet connectivity. Furthermore,
our extensive and expanding network of entry points guarantees rapid access to
the Internet at all times. Other Internet services available from NTL include:
firewalls, web hosting, and virtual ISP services.
For the growing number of companies who wish to provide virtual Internet
services, we act as a wholesale provider of Internet services. Furthermore,
companies are increasingly turning to us for electronic commerce solutions and,
as a result, our Internet services for businesses continue to grow. In all these
cases, we offer a unique set of assets:
- networks;
- technology;
- customers; and
- interactive content.
INTERNET ACCESS, INTERACTIVE SERVICES AND ENHANCED TELEVISION. We have
moved rapidly to take advantage of, and drive the convergence between the
Internet and the television. We are aggregating a broad range of interactive
content into a seamless service that can be deployed as part of our interactive
television services, such as TV-Internet and digital cable. In May 2000, we
launched digital cable television throughout Scotland, Northern Ireland and
Wales. As of December 18, 2000, we had approximately 505,700 digital cable
television customers. Digital cable television was launched by ConsumerCo in
late 1999. In September 2000, approximately 80% and 70% of NTL and ConsumerCo's
networks, respectively, were digital ready. We expect over 90% of both networks
will be digital ready by the end of 2000. We expect the service will roll out to
the remaining NTL franchises by the end of the fourth quarter, except for
Westminster and Milton Keynes which we expect will commence service in 2001.
We have found that digital cable television customers spend an average of
L4 more per month on telephone calls than our other residential customers.
ConsumerCo is currently conducting a commercial trial of open web access on its
digital television platform. We expect to roll out interactive services and open
web access across ConsumerCo's and NTL's digital platforms during 2001.
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<PAGE> 63
Our decision to use open Internet standards for these products has allowed
us to rapidly integrate a wide range of advanced technologies and partner with
content companies who have already developed sites for the Internet. Because we
have built our interactive service offering on open Internet standards, our
platform allows these content sources to be easily and cost effectively
integrated to create a television/entertainment experience rather than a
computer-like experience. This includes using the NTL user interface to allow
simple navigation by remote control. In designing the look and feel of our
interactive services, we built upon the United Kingdom's familiarity with
teletext services by allowing customers to use the familiar four color remote
control buttons to navigate through the interactive screens. These enhanced
services will ultimately be deployed as part of our digital cable offering
within our franchise areas.
We have partnered with over 80 content providers to deliver a wide range of
interactive services, including education, home shopping and banking, travel,
entertainment, games, news, sports and local content. Content is organized in
channels which include news, sports, travel, entertainment and retailing.
Already over 180 brands can be accessed through our interactive services.
Partners include Tesco and The Arcadia Group in the retail sector, ITN for news,
the Sporting Life for sports coverage and the BBC's Beeb service for
entertainment.
For example, the travel channel allows viewers to search for travel
destinations, gather destination information and find travel deals from a large
real-time database. In addition, we are developing additional channels that will
provide games, education and financial and investment content. All partners have
contracted to provide a commission to NTL on e-commerce transactions and we have
also formed a joint venture to exploit the advertising opportunity associated
with this service.
The next stage in the development of our consumer proposition is enhanced
television services. Enhanced television is the use of interactive technologies
to enable television programs to become interactive. Enhanced television can be
viewed as a modified form of interactive services which are constantly "on
supply" as the viewer watches television. Applications include the ability to
enable viewers to participate in game shows, access further information in
documentaries or respond directly to advertising. Viewers use their remote
controls to access the additional program information on demand. A graphical
representation of the enhanced TV system follows.
[Enhanced TV Diagram of Overall System and Technology Partners]
A major advantage of our cable technology is that these enhanced television
links are not restricted to information delivered in the broadcast stream, a
major restriction of satellite delivered services. A broad range of additional
content can be delivered over the cable modem integrated in the digital TV set
top box.
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<PAGE> 64
We are working with a number of major broadcasters to develop the service and
have already demonstrated a number of program pilots. We expect to roll out
enhanced television service in early 2001.
Delivering enhanced television service requires close coordination between
the program creation and the technology of the broadcast system. Our digital
media center is being developed with the ability to schedule the television feed
and to add the interactive components to the broadcast feed.
These new technologies not only provide a powerful new set of tools for
television producers, but also create large new commercial opportunities for
operators like us in providing a unique service to help acquire and retain
customers with a package of communications services. In addition, we can exploit
new revenue opportunities from e-commerce generated by the interactive elements
and from interactive advertising on existing television services.
DIGITAL MEDIA CENTER. We have invested in a new media center which is at
the heart of our digital operations. The center acts as the marshaling point for
all digital content, both television and interactive. Television and interactive
services are brought to the center over satellite or fiber telecommunication
links. Currently, a 55 channel near video on demand service is produced using
advanced digital storage and server technology. A complete sports channel,
British Eurosport, is originated in the media center. In addition to the
interactive television elements, conditional access for pay TV and electronic
program guide datastreams are created and played out from the center.
The new media center also houses the interactive servers for on-demand
elements and is the point at which the broadband cable modem path is routed to
access the Internet. The interactive system, scheduling and conditional access
system are directly integrated with our customer management system. This allows
direct customer interface through the TV screen for billing, on-line help or
self-provisioning of new services. The system is controlled by a sophisticated
scheduling system and control room that monitors all channels. The resulting
service feed is carried from the center to each regional head-end using ATM
technology. This feed is then combined with local content, such as regional TV
channels for delivery over that local network. The system is capable of allowing
full flexibility of the regional line up of channels, for example to include
regional services from the major broadcasters, ITV, Channel 4 and the BBC.
The media center is connected to our U.K. national network and linked to
our satellite hubs for both in-bound and out-bound traffic. The system
architecture and flexibility allows the delivery of a customized service to any
point connected to our fiber telecoms network (for example, the current reach
includes Dublin which allows us to connect Cablelink's Dublin franchise to the
media center).
HIGH SPEED INTERNET SERVICE. In 1999, we launched NTL HiSpeed Internet,
which links our broadband cable network to the Internet at up to ten times the
speed of standard telephone modems. We expect over 90% of our network and
Consumer Co's networks will be digital ready by the end of 2000. As of September
30, 2000, we had over 3,500 cable modem customers with over 20,000 additional
requests for the service. Approximately 80% of our networks are currently able
to provide cable modem service, which we expect to increase to 90% by year end
2000. The new cable modem service operates at speeds of up to 2.0 Mbps and will
be offered at a minimum delivery speed of 512 Kbps. Our HiSpeed Internet is an
"always on" service, removing logging-on delays and the need to log-off while
using your telephone. It also utilizes the hybrid fiber/coaxial cable television
portion of our broadband network, leaving the telephone line free to make or
receive calls. This service is currently priced at a flat rate of L40 per month.
In addition, we are in the process of implementing a commercial pilot of
ADSL technology in parts of our Surrey franchise. ADSL can be particularly
attractive for us to install because we have very short copper telephone line
runs to our customers' premises which is critical for clear, efficient data
transport. Typically, our customer is within 500 meters from a node whereas in
the United States, ADSL customers' premises may be more than 5,400 meters from
the end of the copper wire. As a result, ADSL is relatively easy for us to
deploy and attractive to the customer, particularly because customers buy the
amounts of bandwidth they need and receive a dedicated path, rather than the
shared path of a coax cable.
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FIBER-TO-THE-HOME. In an initiative called "Total Broadband," we will
concentrate on bringing fiber to the home in newly constructed areas, but will
also begin retrofitting existing areas in the near future. In the final 500
meters to the home, we have traditionally used a "siamese" cable which pairs
coaxial cable for television and cable modem data service, and traditional
copper wiring for telephone and ADSL data service. We now plan to use a
"triamese" bundle that includes a fiber optic cable together with the coax and
copper plant.
Our first fiber-based service will be an Ethernet-to-the-home fast data
access connection. The 10-100 Mbps Ethernet service will represent an upgrade
path from our cable modem services. As Ethernet is a widespread business
standard, it is especially suited for home working and telecommuting
applications. Over time, TV and telephone services can be migrated to the fiber
connection as well, with significant enhancements such as video-streaming,
video-mail, and "one number" telephony services.
VIRGINNET. In addition to telecommunications and data services, we offer
wholesale Internet access solutions including network services, call center
operations, customer provisioning and billing to U.K. ISPs and other corporate
customers that would like to expand their Internet presence. This service was
launched in 1995 as our first national product offering.
In 1996, we established the VirginNet joint venture with Virgin
Communications Limited. As of September 30, 2000, VirginNet had over 800,000
customers. The joint venture is owned 49% by NTL and 51% by Virgin. In July
2000, we announced our intention to acquire 100% of VirginNet's ISP business
with Virgin assuming ownership of VirginNet's content and commerce business.
VirginNet offers connectivity and proprietary content services to consumers and
small businesses throughout the United Kingdom. VirginNet recently launched a
"free access" product offering, whereby customers only pay for the minutes that
they are online or in contact with a customer care representative. We are able
to support this service profitably because we carry the majority of the
VirginNet Internet traffic on our owned network facilities.
By integrating our Internet infrastructure with our national telecoms
network we have been able to decrease the costs of providing these wholesale
services as well as increase the value of the proposition by retaining a higher
portion of the revenue from the data traffic that our customers generate. We
plan to continue to enhance our Internet network, both nationally and
internationally, to accommodate the growth in the business.
OPERATING RESULTS
Based on trials and experiences in the United Kingdom and the prior
experience of our management in the U.S. telecommunications market, we have
developed innovative marketing strategies that have led to increased customer
penetration rates, customer retention and operating profitability.
As of September 30, 2000, we had approximately 1.9 million residential
customers (excluding ConsumerCo), approximately 56% of which subscribed to both
telephone and television services. We counted a total of 3,026,100 revenue
generating units (known as RGUs) resulting in over 49% customer penetration,
approximately 42% telephone penetration and approximately 41% cable penetration,
yielding approximately 77% RGU penetration of homes marketed. An RGU is one
telephone account or one cable television account. A customer who takes
telephone and cable television service generates two RGUs.
The franchises which NTL has developed since 1993 have achieved
industry-leading customer penetration and retention levels. As of September 30,
2000, for the franchises which NTL has developed since 1993, approximately 92%
of customers subscribed to both telephone and television services and our CATV
and telephone penetration rates both stood at 48%. This compares favorably to
CATV and telephone penetration rates of 25% and 32%, respectively, achieved by
the second largest service provider. Similarly, for the franchises which NTL has
developed since 1993, we have experienced an annualized customer churn rate of
approximately 12.1% versus the second largest provider's churn rate of
approximately 26.3% for CATV and 20.6% per telephony line.
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We believe this success has been largely due to our focus on customer
service and the development of product offerings that emphasize choice, value
and simplicity. We plan to apply our marketing and customer service skills to
enhance the operational performance of the combined entity. We also expect to
achieve significant operating synergies from the combined operations including
economies of scale in content and equipment purchasing, reduced telephone
interconnect and call termination costs and improved operating leverage.
The following table illustrates operating statistics of our cable
television and telephony customers as of September 30, 2000:
<TABLE>
<CAPTION>
COMCAST,
COMTEL CABLELINK PRO FORMA
"ORIGINAL" AND AND COMBINED COMBINED
NTL(1) DIAMOND(2) BT CABLE(3) NTL CONSUMERCO(4) NTL(5)
------------ ---------- ----------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Homes in franchise(6).... 2,090,000 3,037,600 640,500 5,768,100 6,049,600 11,817,700
Homes passed(7).......... 1,423,500 2,427,500 605,500 4,456,500 4,308,200 8,764,700
Homes marketed
(Telephone)............ 1,230,500 2,101,600 1,000 3,333,100 4,058,400 7,391,500
Homes marketed (Cable)... 1,230,500 2,161,900 560,600 3,953,000 4,058,400 8,011,400
Total customers(8)....... 615,000 893,500 432,000 1,940,500 1,177,400 3,117,900
Dual................... 566,800 518,600 200 1,085,600 812,600 1,898,200
Telephone-only......... 24,300 288,500 -- 312,800 234,400 547,200
Cable
television-only..... 23,900 86,400 431,800 542,100 130,400 672,500
Total RGUs(9)............ 1,181,800 1,412,100 432,200 3,026,100 1,990,000 5,016,100
Customer penetration..... 50.0% 41.3% 77.1% 49.1% 29.0% 38.9%
Telephone penetration.... 48.0% 38.4% 20.0% 42.0% 25.8% 33.1%
Cable television
penetration............ 48.0% 28.0% 77.1% 41.2% 23.2% 32.1%
RGU penetration.......... 96.0% 65.3% 77.1% 76.6% 49.0% 62.6%
</TABLE>
---------------
(1) Data for franchises which NTL has been developing since 1993.
(2) Data for Comcast UK, ComTel and Diamond Cable.
(3) Data for Cablelink (Ireland) and BT Cable (Westminster/Milton Keynes).
(4) Data for ConsumerCo franchises acquired by NTL Incorporated in May 2000.
(5) Gives effect to the planned contribution of the share capital of ConsumerCo
to us.
(6) Franchise home information from The Media Map Datafile 2000.
(7) "Homes passed" is the expression in common usage in the cable industry as
the measurement of the size of a cabled area, meaning the total number of
residential premises which have the potential to be connected to our
network.
(8) Excludes approximately 454,000 off-net telephony customers. In addition, we
had approximately 1.5 million Internet subscribers (assuming the
contribution of ConsumerCo to us) as of September 30, 2000.
(9) An RGU is one cable television account or one telephone account; a dual
customer generates two RGUs.
Consistent with our objectives, our high penetration rates have led to
increased levels of gross profit contribution per home passed and thus
increasing rates of return on invested assets. Our success has been consistent
as we have increased our penetration for 19 consecutive quarters as shown by the
following graph (excluding our recent acquisitions).
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NTL HOUSEHOLD PENETRATION
[Percentage Household Penetration Line Chart]
The quality of our customer's experience is further evidenced by the
results published by OFTEL. These results are exhibited in the following table
and charts and highlight our improved performance over BT and our peers in a
number of measures which effect the quality of our residential customer's
experience.
NTL VS BT
RESIDENTIAL CUSTOMERS
[NTL vs. BT - Faults Cleared and Faults Reported Bar Chart]
<TABLE>
<CAPTION>
RESIDENTIAL CUSTOMERS
1999
--------------------------------
NTL TELEWEST CWC BT
---- -------- ---- ----
<S> <C> <C> <C> <C>
Faults Cleared................................... 93.5% 82.1% 76.9% 76.8%
Reported Faults per 100 lines.................... 2.6 4.9 5.7 4.6
Orders Completed................................. 97.0% 90.5% 88.6% 96.2%
</TABLE>
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INDUSTRY STATISTICS
Our industry has demonstrated strong growth over the last several years.
The industry has now passed approximately 12.8 million homes (or 53% of the
United Kingdom's total TV homes) with a broadband communications network. As a
result, the United Kingdom can claim to have one of the most advanced
communications infrastructures in the world. In addition, since January 1, 1992,
the industry has connected approximately 5.4 million telephone lines. (During
the same period, BT has also grown, adding over 2.8 million telephone lines.)
The following tables illustrate these statistics:
<TABLE>
<CAPTION>
CABLE INDUSTRY TELEPHONE LINES
--------------------------------------------------------------------------
RESIDENTIAL
RESIDENTIAL AND BUSINESS RESIDENTIAL TELEPHONE LINE
TELEPHONE LINES TELEPHONE LINES HOMES PASSED PENETRATION
------------------------ --------------- ------------ --------------
<S> <C> <C> <C> <C>
July 1, 2000..................... 5,445,484 4,462,262 12,827,054 35%
January 1, 2000.................. 4,896,121 4,242,828 12,650,435 34%
January 1, 1999.................. 4,070,866 3,567,786 11,904,341 30%
January 1, 1998.................. 3,442,196 3,038,809 10,693,809 28%
January 1, 1997.................. 2,278,113 2,039,081 8,351,310 24%
January 1, 1996.................. 1,419,819 1,287,248 6,042,296 21%
January 1, 1995.................. 717,566 649,350 4,116,971 16%
January 1, 1994.................. 314,381 279,728 2,786,202 10%
January 1, 1993.................. 106,989 92,715 1,954,829 5%
January 1, 1992.................. 21,225 N/A 1,343,557 --
</TABLE>
---------------
Source: ITC
<TABLE>
<CAPTION>
MULTI-CHANNEL HOMES
-----------------------------------------------------------
TOTAL TOTAL DTH DTH
CUSTOMERS DTH(1) HOMES AS A % OF TOTAL NET ADDITIONS
--------- ------------ --------------- -------------
<S> <C> <C> <C> <C>
June 30, 2000........................... 8,988,000(2) 4,513,000 50.2% 1,053,000
December 31, 1999....................... 8,404,000(3) 3,966,000 47.2% 508,000
December 31, 1998....................... 7,073,000(4) 3,458,000 48.9% (125,000)
December 31, 1997....................... 6,721,000 3,583,000 53.3% 137,000
December 31, 1996....................... 6,072,000 3,446,000 56.8% 276,000
December 31, 1995....................... 5,180,000 3,170,000 61.2% 358,400
December 31, 1994....................... 3,960,000 2,811,600 71.0% --
</TABLE>
---------------
Source: BSkyB
(1) Direct to Home refers to homes receiving service via satellite dish.
(2) Includes 613,000 and 740,000 Eire and OnDigital customers, respectively, as
at June 30, 2000.
(3) Includes 605,000 and 527,000 Eire and OnDigital customers, respectively at
December 31, 1999.
(4) Includes 576,000 Eire customers at December 31, 1998.
MOBILE
We continue to negotiate to secure a "virtual network operator" (VNO)
agreement for both current and UMTS services with one or more carriers in the
United Kingdom. A VNO agreement will allow us to provide an NTL branded mobile
service as part of our bundle of services. The customer experience will be
identical as if NTL were the actual carrier and we will have the ability to
manage their experience through our customer management and billing systems, in
addition to providing value-added services such as messaging or access to their
ntlworld account.
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BUSINESS SERVICES
Our business and nonresidential services have undergone a significant
transformation as we have moved away from a simple product-based sales approach
to a sector-based approach. In the business market (comprised of government,
industry, health and education sectors) this sector approach enables us to
provide a broad array of services ranging from simple connectivity for small
businesses to integrated solutions of voice, video and data for large
enterprises. These services are provided on local, regional or national bases to
approximately 47,200 business customers (excluding ConsumerCo). Our
communication products are appealing because of our highly reliable network
services. In the business market, our reported faults (as compiled by the
regulator, OFTEL) as of June 2000 were 1.3 per 100 lines as compared to 3.3 per
100 lines, for BT, a statistically significant difference.
In recognition of the developing needs and concerns of our large customers,
in September 1999 NTL Delaware acquired Workplace Technologies plc (now renamed
NTL Business), one of the United Kingdom's leading data network service
integrators. NTL Business's consultancy services range from the design and
installation of data, voice and video networks to remote monitoring and support
of these networks. We believe that large customers are more concerned with
functionality of voice, video and data needs rather than costs. The combination
of network capability, ISP experience and the market presence of NTL enables us
to offer a unique and comprehensive service to large customers.
Our primary activity in national telecommunications is to grow our customer
base, revenues, and EBITDA from our targeted carrier and business customers. To
date, we have implemented a strategy where we sell "connectivity" to very large,
sophisticated customers such as carriers and large corporations, and "solutions"
to smaller businesses.
Our objective is to provide high quality voice, data and video
communications services to businesses throughout the United Kingdom and to
carriers which require U.K. and international connectivity. According to
published OFTEL statistics, the total market for telecommunications services in
the United Kingdom for the twelve months ended March 31, 2000 was estimated at
approximately L24 billion. Of the total telecommunications market, we estimate
that approximately L13 billion represents business telecommunications and
carrier telecommunications services. Our national network has significantly
expanded our telecommunications opportunities beyond our franchise areas
allowing us to serve the much greater U.K. national market. We approach this
market by serving the following two market segments:
- national business telecommunications, and
- carrier services.
In addition, we serve a national base of customers for a variety of
telecommunications and related services using our national tower infrastructure.
These lines of business are discussed in greater detail under the "Broadcast and
Tower Services" section below.
NATIONAL BUSINESS TELECOMMUNICATIONS. In the business market, we describe
ourselves as a "nationally competitive but locally accountable" service
provider, whose business purpose is to "enable businesses to become more
efficient and effective."
Our general business telecommunications strategy is to provide
comprehensive communications solutions to our customers. Rather than simply
offering our customers a lower price for their existing service, we offer a
package of services to the customer that is designed to address all of their
communications needs at a price which offers good value. The services which we
offer are often custom-designed for the specific needs of the customer.
To date, we have been successful in obtaining telecoms contracts from
businesses located within our franchise areas. As of September 30, 2000, we had
approximately 47,200 business customers (excluding ConsumerCo) and more than
212,600 telephony lines installed in the United Kingdom (excluding ConsumerCo).
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Business Customers. While we offer our services to a wide array of
companies throughout the United Kingdom within our franchise areas, we focus
upon education, healthcare, local government, and media and information
technology companies. Our communications solutions are attractive to these
customers because of our reliable, high bandwidth services and our ability to
package several services together at attractive prices. In addition, we have a
strong local presence due to the localization of our facilities and the services
we provide. As a result, our customers view us as a community partner and
benefit from our local account management.
We use a variety of different access technologies to connect customers,
based on customer size, geographic location and our network reach. Access
technologies currently deployed in our network include fiber optics, copper wire
and microwave radio.
We connect our larger business customers to our network using fiber optic
cable. This utilizes the significant penetration of fiber that we have in our
local access network. As the cost of fiber falls, the size of business we will
connect with fiber extends correspondingly. We use copper wire pairs to connect
small enterprises.
An example of our sector focused strategy is our success in penetrating the
education market. We support customers at all levels of education within the
United Kingdom. One such customer is the United Kingdom's Joint Academic Network
(JANET), which is the United Kingdom's academic and research system connecting
several hundred institutions, including all U.K. universities, most higher
education colleges and most research establishments. SuperJANET is the
broadband, or high-speed portion of JANET. We developed high bandwidth
metropolitan area networks in a number of our regions throughout the United
Kingdom to support SuperJANET. NTL now provides student and academic services to
more than 25 universities through the United Kingdom, and has won new contracts
this year with universities, including Southampton, Surrey, Swansea, and
Strathclyde.
Cambridge University is a SuperJANET node where we provide all of the
university's high-speed data circuits and approximately 10,000 local extensions,
including lines in 6,500 student dorm rooms. At Oxford University, students use
our links for access to SuperJANET, and more than 700 students also have our
phone lines in their dorm rooms. We also provide the services of the South Wales
Academic Network (SWAN). SWAN is a 60 mile fiber network, with 13 sites which
serve approximately 16,000 PCs, creating approximately 2 million e-mails and 12
million hits on the world wide web every month. SWAN will provide the gateway to
SuperJANET for 23 institutions of higher learning that was previously available
only to the Universities in Cardiff and Swansea.
Our program for education has not only provided value-added technology
services to universities, but has also accelerated the connection of local
secondary and primary schools to the Internet. We provide services to more than
2,500 primary and secondary schools. Funding for these connections has been
provided by the National Grid for Learning and the Technology Trust
infrastructure campaign. We were the first company in the United Kingdom to
introduce an economical flat rate Internet access package to all schools within
our franchise areas. Over 1,600 schools have taken advantage of our attractive
Internet offers. In England, Technology Colleges Trust has partnered with us to
link up the trust's more than 650 schools. This will enable the schools, for a
flat rate, to get unlimited usage of a 2 Mbps broadband connection to a new
supergrid.
Our schools initiative in Londonderry aims to provide free Internet access
to every school in the city. This long term project will introduce modern
technology into education utilising our infrastructure. We will also host
approximately 150,000 e-mail accounts (one for every student and teacher) and
connect to all 568 schools in Hertfordshire County Council using ISDN and PSTN
dial up. Bedfordshire County Council now has all 270 schools connected to the
Internet via our ISDN Select.
National Services. Capitalizing on our experience in local business
markets and the extended reach of our national network, we have expanded the
scope of our business in order to compete for a share of the
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business telecoms market on a national basis. We believe that we can build on
the strengths gained in our local franchise areas to approach targeted business
users located in other areas of the United Kingdom, initially focusing on users
with multiple business locations. We recently launched our national business
service and our strategy is to target the largest national businesses in
specific market sectors.
We have a variety of alternative methods to connect the "last mile" to the
customers' premises from the national network:
- As a certified national public telecommunications operator, we can
readily obtain the permits to construct telecoms networks, and can simply
build out our network to reach customers. Although this is often clearly
the most costly approach, the expense can be justified in the case of
large customers or when a significant level of traffic is obtained from
several customers. For example, we have extended our fiber optic network
in London to support CNN's facilities.
- We can lease circuits on the local networks of other service providers to
connect to the customer's premises. Although this may reduce the
operating margin on a particular account, it requires significantly less
capital expenditure than a direct connection, can often be installed
relatively quickly, and can be replaced at a later date if a more
profitable connection method can be deployed.
- We can also connect customers to our national network by implementing one
of two wireless bandwidth solutions, described in more detail below.
Wireless Bandwidth Delivery. We have already been successful in utilizing
our significant tower infrastructure to efficiently connect our network to
customers using digital point to point microwave radio links. As part of our
broadcasting businesses, we own or have direct access to over 2,032 tower sites
in attractive locations all across the United Kingdom Microwave radio represents
an efficient and reliable method for connecting customer locations to the
national network.
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An illustration of the current use of our tower infrastructure to connect
our network to customers follows:
SERE Motor Group, Northern Ireland, CENTREX Network.
Illustration of three customer locations connected to a switch. The switch
is shown as connected to an NTL transmission tower which is shown as connected
by 'wireless fibre' to another location.
[SEE COMMENT LINES ON BITS PAGE FOR GRAPHIC DESCRIPTION TO BE INPUT TO EDGAR
PAGE]
In addition to the methods to connect the "last mile" described above, we have
been awarded a license to operate radio fixed access services on a national
basis throughout the United Kingdom at the 10 GHz frequency, comprising 30 MHz
of spectrum. With the 30 MHz, we will be able to transmit at 16 Mbps in any
direction; our goal is to be able to simultaneously operate in up to 12
directions from a single base station, thereby enabling us to provide up to 192
Mbps from a particular site. Furthermore, we believe the use of ATM across the
10 GHz network will allow even greater capacity (up to 4x 192 Mbps) from a
single base station. This technology can be used as a "wireless local loop"
alternative to connect to customers which are not currently connected to our
national network via wired circuits. We intend to use this point-to-multipoint
wireless service where it represents a more efficient method to connect to
customers than traditional wired or point-to-point wireless links. The 10 GHz
frequency of our license is lower than the frequency which is being used by
several major wireless telephony providers in the United States. (for example,
the U.S. frequency allocation for companies like Teligent and Winstar is
typically in the 24-38 GHz band). This lower frequency is advantageous because
lower frequencies offer better propagation and lower interference (and thus
greater range) than higher frequencies.
Using our 10 GHz service, we have the potential of reaching a large
customer base in regions not covered by our fiber network. We are currently
evaluating the services that we will offer over 10 GHz. We intend to take
advantage of our national network as well as our ATM technology. Our 10 GHz
technology will use this ATM platform, to enable delivery of voice, data and
multimedia services to small and medium-sized business customers. Such services
include voice access, leased line, Internet access, private Internet,
LAN-to-LAN, and Frame Relay. We also intend to use the frequency for backhaul
purposes, where a wireless connection will be less costly to install than our
fiber or microwave links.
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The following chart depicts the 10 GHz wireless local loop technology:
EDGAR DESCRIPTION OF PRINTED GRAPHIC
[SEE COMMENT LINES ON BITS PAGE FOR GRAPHIC DESCRIPTION TO BE INPUT TO EDGAR
PAGE]
BUSINESS PRODUCTS AND SERVICES
- SIMPLE "ACCESS" SERVICES that connect the customer to us for inbound and
outbound voice and data calls. These access services include traditional
analog Business Exchange Lines (BELs) and Digital Business Exchange Lines
(DELs). DEL services include Basis Rate Access, also known as "ISDN2",
and Primary Rate Access, also known as "ISDN30". These and other direct
and indirect access services are priced competitively and offered in
competition with a number of other direct and indirect suppliers.
- MANAGED VOICE SERVICES which are best illustrated by our Central Exchange
"Centrex" service. This service presents the customer with business
exchange lines configured as a "virtual PABX", as we completely handle
the services normally associated with a traditional PABX (or PBX). The
success of this product is well demonstrated in the East Midlands where
eight of the 11 local government organizations use NTL Centrex as their
main business service, including the Nottingham City council with more
than 3,500 lines.
- MANAGED DATA SERVICES include fixed point-to-point private circuits at
speeds from 64 Kbps, through multiples of that speed and individually
tailored 100 Mbps and 155 Mbps services. Other services include the
provision of intersite data services with particular transmission
protocols, such as Internet Protocol also known as TCP/IP, Frame Relay
and ATM. Our ability to design, deploy and manage a customer's data
service was greatly enhanced by the September 1999 acquisition of
Workplace Technologies (now renamed NTL Business).
- INTERNET SERVICES provided by us range from "Dial-up" customers to
dedicated private circuits for greater access speeds. We are launching a
range of new services and branded hardware products,
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which include both entry level and advanced "firewalls", and a self
provisioning web-hosting service. We own an interest in and provide
communications network and back office support for VirginNet and provide
services to more than twenty other ISPs.
LOCAL BUSINESS SERVICES. The local business telecommunications market
provides an attractive opportunity to us. For the most part, the underlying
capital investment needed to address this market is made through the buildout of
the network for the residential market in our franchised areas.
REGIONAL BUSINESS SERVICES. The communications services we provide to the
education and government sectors is an excellent example of the possibilities
created by our newly built high bandwidth networks where we can provide both
region wide and intra-regional connectivity. We provide extensive services to
numerous local governments, particularly our Centrex service that eliminates the
need for a PBX, simplifies moves, adds and changes and provides free calling
between locations. Additionally, our focus on the education market is
demonstrated by the more than 3,000 primary schools, colleges and universities
we serve; the majority of which we connect to the Internet with speeds ranging
from 128 Kbps to 2 Mbps. Funding for the Internet segment of the services has
been largely provided by the government, for whom Internet connectivity has
become a high priority.
REGION-WIDE BUSINESS SERVICES. In Hertfordshire, we provide county-wide
telecommunications for all the local schools as well as widely dispersed
municipal administrative offices. We were awarded all of Hertfordshire County
Council's voice and data traffic and installed Centrex across all of the
Council's sites (upward of 500 Centrex lines) based upon an integrated solution.
These sites include libraries, social services offices and environmental
services offices all linked to an NTL-provisioned voice and data call center.
In addition to providing county-wide municipal council service in
Hertfordshire, we provide a customized package of Internet and
telecommunications services to all schools county-wide. The service, known as
the "Hertfordshire Learning Grid", inaugurated one of the largest Internet and
intranet projects in the U.K. education sector. We installed, maintain and
manage PCs at all primary schools. We arranged to train three teachers in each
school on how to use the Internet for communication, i.e. e-mail, how to use the
intranet for their administration, and how to use the world wide web to gather
information which would support the teachers and help them to teach the
children. Additionally, we built a bespoke intranet service for both the
council's administration and schools which entailed a help desk, an e-mail
filtering system, Internet filtering, and intranet filtering. The complete
solution is fully managed by us and completely seamless to the customer. All
queries are managed by their respective NTL local account manager.
INTRA-REGIONAL BUSINESS SERVICES. Within regions, we have overlaid
dedicated high capacity Virtual Private Networks (VPNS) on our previously
constructed intrafrastructure. An excellent example of a VPN is the provision of
155 Mbps metropolitan area networks (MAN) in a number of our regions throughout
the United Kingdom to support SuperJANET. The U.K. Government established the
Joint Academic Network (JANET) in order to facilitate a sharing of knowledge and
research among all U.K. universities and other government-funded research
facilities. SuperJANET is the broadband, or high speed, portion of JANET. A good
example is the SuperJANET network in South Wales (SWAN). SWAN provides the
gateway to SuperJANET for 23 institutions of higher learning in Wales. SWAN is a
60 mile fiber network, connecting with 13 sites which serve approximately 16,000
PC's, creating approximately 2 million e-mails and 12 million hits on the world
wide web every month.
NATIONAL BUSINESS SERVICES. Our national network (excluding ConsumerCo)
was designed specifically to connect our local networks and enable distance
insensitive calling tariffs. We estimate that our national network covers
approximately 3,500 route miles and 170,000 resilient fiber miles across
England, Scotland and Wales, Northern Ireland and the Republic of Ireland. Our
national network has been designed with significant excess capacity. For
example, the trunk route specification provides for two large
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ducts, each with capacity for 4 sub-ducts, only one of those eight sub-ducts is
currently used. Our total duct capacity exceeds 2,300 fibers of which only a
small portion is currently used.
Our national network is a fully redundant, SDH digital fiber network. The
major fiber routes are complemented by microwave radio connections which
increase the reach of the network. SDH technology improves network reliability
and performance and provides greater flexibility than conventional transmission
architecture. In addition, network availability, management and routing are also
superior to conventional transmission architecture because signals are
automatically rerouted to the best path available if another is severed or
degraded. We believe that we have a competitive advantage over other carriers
such as BT because SDH technology has been built into our networks from the
start, thus avoiding integration problems with older network technologies.
An important source of revenue for us is the bandwidth and connectivity we
provide to other communications carriers. Our network is used to interconnect
these carriers to cities throughout the United Kingdom and Ireland. We provide
customers with bandwidth ranging from 2 Mbps to STM-16's. Owning core
infrastructure also opens up avenues for international network expansion.
Increasingly, network operators are looking at minimizing capital outlay by
swapping capacity on their infrastructure for new nodes or additional capacity
elsewhere. Our customers include fixed wireline and mobile telecommunications
operators, cable operators, Internet service providers, and various information
technology and facilities management companies, notably:
- COLT where we have been awarded "preferred supplier" status for the
distribution of COLT's traffic outside the London area. This covers
bandwidths from 2 Mbps to STM-1.
- ENERGIS for which we provide high speed managed services to enable the
operator to more effectively address its "off-net" customer base.
- GLOBAL ONE where as part of this international operator's roll-out, we
are providing managed services between London and Dublin utilizing our
recently completed sub-sea cable.
- VODAFONE AND ORANGE, for which we provide inter-switch capacity on our
national network. In July 2000, we signed a L150 million, 5-year contract
with Orange to provide transmission capacity between Orange switch sites,
call centers and key base station controller sites.
CARRIER SERVICES PRODUCTS, AND MARKETING. We expect to continue to
successfully serve this marketplace through our strategy of providing high
quality and competitively priced services. Additionally, we continue to utilize
our specialized ability to provide tailored solutions necessary to serve this
demanding market.
The rapid expansion in voice traffic is expected to continue and we have
entered into interconnect agreements with national and international operators
to both reduce the costs of carriage and termination of our originated traffic
and of termination of other carriers' traffic.
The expected growth in the number of international operators building and
operating submarine cable systems has been substantial and continues to grow
with many of these cables transiting the United Kingdom. We have considerably
increased physical connectivity to U.K. international cable landing stations and
products have been successfully developed to address the needs of these
international cable operators for backhaul services between the cable landing
sites and the major U.K. international nodes such as Telehouse, London.
We believe the U.K. market for wholesale data services is significant and
growing rapidly due to the fast growth in IP, Internet and other data traffic.
Utilizing our state of the art ATM network, we have developed Frame Relay and
ATM wholesale products to address this increasing demand for high speed data
connectivity. Additionally, utilizing our core data network, local loop
infrastructure and connectivity to the main international U.K. nodes will allow
us to address the needs of international operators for the
termination/origination of U.K. bound/generated data traffic.
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In addition to telecoms and data services we also offer wholesale Internet
access solutions including network services, call center operations, customer
provisioning and billing to U.K. ISPs and other corporate customers that would
like to expand their Internet presence. This service was launched in 1995 as our
first national product offering.
In 1996, we established the VirginNet joint venture with Virgin
Communications Limited. The joint venture is owned 49% by us and 51% by Virgin.
VirginNet offers connectivity and proprietary content services to consumers and
small businesses throughout the United Kingdom. In July 2000, we announced our
intention to acquire 100% of VirginNet's ISP business with Virgin assuming
ownership of VirginNet's content and commerce business. VirginNet recently
launched a "free access" product offering, whereby customers only pay for the
minutes that they are online or in contact with a customer care representative.
We are able to support this service profitably because we carry the majority of
the VirginNet Internet traffic on our owned network facilities.
By integrating our Internet infrastructure with our national
telecommunications network, we have been able to decrease the costs of providing
these wholesale services as well as increase the value of the proposition by
retaining a higher portion of the revenue from the data traffic that our
customers generate. We plan to continue to enhance our Internet network, both
nationally and internationally, to accommodate the growth in the business.
Our carrier services product portfolio also includes a comprehensive range
of satellite services for media and broadcast customers who need to distribute
programming around the globe either occasionally or full time. We enable TV
broadcasters with full time channels to transmit their programming from their
playout or production center, using a fiber link, to one of our three satellite
teleports. This is then beamed up to the satellite, which in turn re-transmits
the programming towards earth for reception by viewers.
Our teleports are connected by fiber and radio circuits and provide
uplinking services to U.K. cable television programme suppliers. At our main
site near Winchester, United Kingdom, we have antennae up to 40 feet in
diameter. The site is linked to our two London teleports through our own
national broadband network. Together they form an interconnected virtual
teleport offering non-stop resilience.
Through these teleports we have access to all the main satellites orbiting
Earth including Astra, Eutelsat, Intelsat, Orion, and PanAmSat.
The ultimate end users for our full-time services include households
receiving a television channel in their own home, or other program distributors
such as cable companies who pass the signal onto their end users. Our major
fixed service customers include Turner Broadcasting Systems, Flextech, the BBC
and QVC.
To cover live news coverage and sporting events, we operate a fleet of
satellite news gathering trucks. Our global capability and infrastructure means
we can respond rapidly to consumer demand. In addition, we can now offer
customers the facility to transmit programming between 48 U.S. cities and Europe
by use of a transatlantic fiber link.
BROADCAST AND TOWER SERVICES
We are a leading owner and operator of broadcast, transmission and wireless
communications infrastructure in the United Kingdom. As of December, 2000, we
owned or managed 2,182 towers and sites in the United Kingdom and had access to
an additional 678 towers and sites for our U.K. broadcast customers.
We provide a number of services:
- Television and radio broadcast transmission
- Tower and site leasing
- Radio communications services
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Based on our track record of more than 40 years of providing broadcast
services to the United Kingdom's commercial television operators and our
expertise in digital broadcasting, we believe that we are uniquely positioned to
capitalize on the trends towards privatization, outsourcing and digitalization
of broadcast transmission infrastructure and the tremendous growth opportunities
in the wireless communications industry.
U.K. BROADCAST TRANSMISSION
We have been involved in broadcast television since the 1950's when we
designed and built the television transmission system for the United Kingdom's
first independent commercial television network. The Broadcast Transmission
Group operates a national infrastructure in the United Kingdom of 2,182 owned or
shared transmission sites and its owned network of approximately 3,500
transmitters delivering broadcast signals for the three commercial national
television channels and many of the United Kingdom's independent local, regional
and national radio broadcasters. Additionally, the group designs, installs,
operates, and maintains new transmitter networks and has a spectrum planning
service to monitor the coverage of television and radio networks. In addition,
we are able, through our satellite and our fiber networks, to provide content
distribution services to our broadcast customers and their program and content
suppliers.
In addition, we have expanded our service offerings over time to meet the
growing needs of our customer base as new technologies create new broadcast
markets. In 1993, we became active in the satellite services market following
the establishment of a direct to home satellite service on the European Astra
satellite fleet. We believe that we have become accepted in the industry as one
of the leading providers of satellite services in the 7 years since we entered
the market. Now supporting more than 130 full time satellite TV channels, we
have been chosen by broadcasters such as the BBC, CNN, Discovery, Flextech and
QVC to meet their transmission needs based on our reputation for quality and
reliability.
Subsequent service developments have included:
- offering a range of occasional use services which meet the outside
broadcast needs of customers whether they be for breaking news, sports
events or music concerts; and
- the establishment of playout services which enables us to take ownership
of the customer's transmission needs from the point that they deliver the
program or content on tape and need a channel to be created.
The Broadcast Transmission Group provides a recurring contracted revenue
stream from these customers through long term contracts. The projected total
value of our present contracts for broadcast services is L1.4 billion with some
contracts extending until 2012. An attractive feature of our broadcast contracts
is our ownership of both towers and transmission equipment responsible for
generating the broadcast signal. In essence, TV and radio station owners are
programmers and we are the broadcaster. The nature of these arrangements is such
that there are significant switching costs for any TV broadcaster wishing to
change service provider. The barriers to entry a new provider would need to
overcome include:
- The provisioning of capital equipment for transmission services and
studio coding, decoding and distribution circuits;
- Re-engineering of network either around our sites or, more challenging,
around a different set of sites. In the latter case, planning permission
would be particularly difficult to receive for an alternative set of
large transmitter sites; and
- Attaining spectrum for a differently engineered network as there is a
broadcast spectrum shortage.
TELEVISION BROADCASTING. We currently provide digital broadcast
transmission for two of the three commercial national television channels in the
United Kingdom, ITV and Channel 4/S4C, and analog
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broadcast transmission services for ITV, Channel 4/S4C and Channel 5, the third
commercial national television channel in the United Kingdom.
In November 1998 we made broadcast history with the launch of the first
commercial digital terrestrial television network. Two of the four recipients of
the digital terrestrial television (DTT) multiplexes, ITV and Channel 4 and SDN
(in which we hold a 33% equity interest) selected us as the supplier of
transmission services. As of April 2000, we were operating 81 DTT transmitting
stations reaching around 85% of the population of 59 million people in the
United Kingdom. We have not only successfully completed the first phase of the
build program from playout centers to transmission in a timely fashion but have
also signed 12 year contracts to provide end-to-end service, including studio
compression, transmission and full systems integration. It is anticipated that
the digital network will ultimately grow to match the coverage of the analog
system to enable its switch-off.
Digital broadcast systems require a more complex engineering design than
their analog predecessors. We have exploited this by extending our range of
services to include tower leasing and transmission services (as with analog)
plus "end-to-end" system integration and service ranging from studio playout
centers to terrestrial transmission. This has the twin benefits of enlarging the
total market available from broadcasting and further differentiating us as a
unique provider able to offer towers, transmission and system integration
services for digital television.
RADIO BROADCASTING. The broadcast radio market in the United Kingdom
comprises the publicly funded BBC and the commercial radio industry. The BBC
operates five national radio networks and 44 local radio stations. All non-BBC
radio in the United Kingdom is regulated by the Radio Authority, who currently
licence three national commercial stations (such as Virgin and Classic FM) and
250 metropolitan, regional and local stations. Despite this diversity, ownership
concentration is high, with five or six major groups controlling the majority of
stations.
We are one of two major companies providing transmission sites and services
to the radio industry. As a part of privatization arrangements of the U.K.
engineering arm of the BBC, the BBC has contracted with Crown Castle
International for all its transmission services. These contracts extend until
2006. However, commercial radio stations are free to contract with any supplier
for their transmission needs. We have an 85% share by value of the addressable
local commercial radio transmission market and a 40% share by value of the
national commercial market.
We offer a range of services to local and national radio broadcasters in
the United Kingdom including: target service area planning; site location,
installation and construction; and equipment selection, procurement, operation,
monitoring and maintenance. We also offer total broadcast contract services,
where we design, build, own and maintain the operator's transmission facilities,
and facility management contract services where we maintain customer-owned
equipment and administer the operation of the transmission service.
The migration to a new digital transmission platform will create
significant growth in the broadcast radio transmission market. The Radio
Authority is committed to a fast roll-out of the new digital multiplex licenses
and has already awarded the only national licence to Digital One, of which we
are a founding equity partner with a 33% equity interest. We have a contract for
the transmission of Digital One with a total order book value in excess of L40
million. A total of 12 further licenses for regional and local digital radio
will be awarded during 2000. As of September 2000, we have won transmission
contracts for eight of these and believe we are well positioned to win contracts
for the remaining licenses. For those with whom we do not win transmission
contracts, we will still be well placed to provide site leasing services using
our tower and site portfolio.
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THE TOWER AND SITES DIVISION
We rent antenna space on our owned and leased towers and sites to a variety
of carriers operating cellular, PCS, Specialized Mobile Radio (SMR), Enhanced
Specialized Mobile Radio (ESMR), paging and other wireless networks. We
typically receive fees for installing customer's equipment and antennae on a
tower and also receive rental payments from customers payable under site leases.
As of September 30, 2000, over 400 companies rented antenna space on our towers
and sites. These site rental agreements have terms which are typically 10 years
in length (and renewable), and are generally subject to price indexation with
inflation. Site sharing customers are typically billed a year in advance. During
the last four years, the number of lessees on our towers has grown from 1,989 to
over 3,813 in April 2000 (excluding broadcast customers).
The cellular market is the largest of these markets in terms of users,
coverage, and usage of radio sites, and is witnessing extraordinary growth.
Subsequent to licensing first generation analog voice-only cellular systems in
1985 and second generation digital GSM cellular systems in 1992, the U.K.
government has now awarded 3(rd) generation UMTS licenses. These licenses have
been awarded to four existing operators, all of whom are existing customers of
ours for site sharing and one new entrant. Because UMTS provides significantly
higher bandwidth than existing cellular technologies, UMTS will be able to
introduce a range of new services to consumers such as e-commerce, video and
Internet access. We believe that these operators will require a complete
national network based around a radio site infrastructure of up to 4,000 sites
each by 2003 and potentially up to 10,000 or more sites each by 2010,
ultimately, at a time when environmental concerns are making the acquisition and
completion of these sites increasingly difficult.
Cellular growth will necessitate reliable communications infrastructure in
all commercial areas, leading to a requirement for good cellular coverage inside
buildings. We believe this creates a new type of radio site, which unlike towers
will exist within commercial buildings, transport hubs, shopping malls and other
large buildings. Our initial analysis shows that there are approximately 2,000
large retail, transport or other multi-tenanted commercial properties in the
United Kingdom that may require communications infrastructure to facilitate
mobile telephony. To this end we have won the exclusive contract to provide this
service inside Bluewater, Britain's largest and newest shopping complex.
Against the backdrop of projected demand for suitable radio sites, the U.K.
planning/regulatory environment is increasingly encouraging site sharing to
prevent proliferation of single-user towers. Intense price competition in the
cellular market is leading to out-sourcing opportunities as the network
operators look to achieve broad and deep coverage without developing significant
single-user tower portfolios.
As of December 2000, we owned or shared 2,182 towers and sites in the
United Kingdom. Our inventory of owned and shared towers and sites was increased
substantially from 1995 to today as a result of the following transactions.
- In 1995, we embarked on a contract to build a network for the U.K. PCN
operator "one2one." As part of this contract, we acquired approximately
240 cellular sites, with one2one as anchor tenant.
- In May 1998, we purchased 114 sites from Simoco Group. This portfolio was
originally developed as part of the Phillips PMR business, the sites
being strategically located across the United Kingdom in hilltop
locations ideally suited to PMR VHF systems.
- In December 1998, we acquired 126 sites as part of the purchase of all of
the business and assets of EGT. This transaction included the right to
develop up to 1,000 more locations of Eastern Group property for site
sharing purposes. Overall, we believe that this portfolio has been
developed for good cellular telephone coverage.
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RADIO COMMUNICATION SERVICES
Our RadioComms division is involved in mobile communications maintenance,
support and facilities management. This enables us to offer customers the
optimum solution to their requirements, from equipment specific component
repair/replacement, to full turnkey site and equipment maintenance.
The group offers a full range of services, including the operation of radio
networks and the provision of support and maintenance services to customers with
"mission critical" radio communications needs. We serve a substantial portion of
the radio installation and maintenance market for public safety services within
England and Wales and associated customers such as HM Prison Service and HM
Coast Guard. These customers provide us with a steady source of revenues, and
have also proven to be very effective references for other services and
products.
We intend to secure further customers and contracts, expanding from
facilities and maintenance activities into complete outsource arrangements. We
have positioned ourselves to effectively compete in the major growth sector in
the radio communications market over the next five years by targeting both
public and private mobile operators. Several large contracts of this type are
subject to bid processes in 1999, with contract awards expected within a year.
Long-term contracts (typically greater than five years) of this nature, if
awarded to us, are expected to substantially increase the revenue profile of the
group and help us maintain our overall revenue stability. There can be no
assurance that such contracts will be awarded to us.
KEY TRENDS IN THE TOWERS AND SITES MARKETS
There are a number of key market trends that are creating opportunities for
us to expand and grow our Broadcast Transmission and Tower Services businesses:
- Digital terrestrial broadcast services will gradually replace their
analog predecessors, resulting in major new services with operators
running in parallel and in competition with existing analog services. The
growth of digital terrestrial television services will ultimately require
the creation of an entire national broadcast network of approximately
1,200 sites to serve the U.K. population.
- The increasing global trend towards private rather than state ownership
and operation of television and radio broadcast transmission networks.
The outsourcing of these networks will result in new business
opportunities for us.
- The continuation of the rapid growth of cellular mobile telephony in the
United Kingdom with greater than 50% annual growth in subscribers for
current services. According to published reports, mobile subscribers have
grown from 10.5 million in October 1998 to approximately 29 million in
May 2000, or approximately 50% of the population of the United Kingdom.
The rapid growth in mobile subscribers has increased demand for antenna
space and tower sites.
- The rollout of new wireless communications technologies, such as PCN and
digital Terrestrial Trunked Radio (TETRA) and granting of five licenses
in the United Kingdom for 3rd generation Universal Mobile Telephone
Service (UMTS mobile) earlier this year will further enhance demand for
antenna space and tower sites.
- The continuing liberalization of the telecommunications market, causing
proliferation of radio fixed links as the most economic and quickest
method of establishing competition within the local loop. These links
will be driven by competition for local loop traffic, high bandwidth WANs
and core network for newly licensed PTOs. This will also enhance the
demand for antenna space and tower sites.
- The growing utilization of wireless delivery to the commercial market in
order to extend bandwidth to all possible locations. There is a
developing market for wireless delivery where fiber is not currently
available or practical to be delivered.
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NTL CORPORATE STRUCTURE
We are a holding company and conduct our operations through direct and
indirect wholly owned subsidiaries, principally NTL Group Limited, National
Transcommunications Limited and NTL Communications (Ireland) Limited (formerly
Cablelink Limited), in each of which we indirectly own 100% of the issued and
outstanding capital stock.
NTL Group Limited
Our operations in the United Kingdom relating to our residential services
business, and certain of our business telecom operations, are conducted through
NTL Group Limited, either for itself, or as agent on behalf of certain other of
our subsidiaries in the United Kingdom. As of January 1, 2000, NTL Group Limited
had issued and outstanding 5,179,680 fully paid new ordinary shares, par value
$0.20 per share and 5,179,794 fully paid Ordinary Shares, par value L0.01 per
share. NTL Group Limited did not pay dividends for the fiscal year ended
December 31, 1999. The registered office of NTL Group Limited is NTL House,
Bartley Wood Business Park, Hook, Hampshire RG27 9XA, United Kingdom.
National Transcommunications Limited
Our worldwide broadcasting and telecommunications transmission operations
are principally conducted through National Transcommunications Limited. As of
January 1, 2000, National Transcommunications Limited had issued and outstanding
30,000,101 fully paid ordinary shares par value L1.00 per share. National
Transcommunications Limited did not pay dividends for the fiscal year ended
December 31, 1999. The registered office of National Transcommunications Limited
is NTL House, Bartley Wood Business Park, Hook, Hampshire RG27 9UP, United
Kingdom.
NTL Communications Ireland
Our consumer services business in the Republic of Ireland are conducted by
NTL Communications Ireland Limited. As of January 1, 2000, NTL Communications
Ireland Limited had issued and outstanding 86,980 ordinary shares, par value
IRL1 per ordinary share. NTL Communications Ireland Limited did not pay
dividends for the fiscal year ended December 31, 1999. The registered office of
NTL Communications Ireland Limited is 10 Pembroke Place, Ballsbridge, Dublin 4,
Ireland. For the year ended December 31, 1999, NTL Communications Ireland
Limited did not contribute more than 10% of our consolidated revenues.
COMPETITION
We face significant competition from established and new competitors in the
areas of residential telephony, business telecommunications services, Internet
and cable television. We believe that competition will intensify in each of
these business areas, particularly business telecommunications and Internet.
Residential Services. We compete primarily with BT in providing telephone
services to residential customers. BT occupies an established market position
and manages fully built networks and resources substantially greater than ours.
According to the Office of Telecommunications ("OFTEL"), in May 2000, BT
serviced 80% of U.K. residential telephone exchange line customers. Our growth
in telecommunications services, therefore, depends upon our ability to convince
BT's customers to switch to our telecommunications services. We believe that
value for money is currently one of the most important factors influencing the
decision of U.K. customers to switch from BT to a competitive telecommunications
service. BT has, however, introduced price reductions in certain categories of
calls and, due to regulatory price controls, BT will be making further
reductions in its telecommunications prices. Accordingly, although we intend to
remain competitive, in the future we may be unable to offer residential
telephone services at rates lower than those offered by BT. In such case, we may
not achieve desired penetration rates and may
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experience a decline in total revenues. There can be no assurance that any such
decline in revenues or penetration rates will not adversely affect us. In
addition to BT, other telecommunications competitors could prevent us from
increasing our share of the residential telecommunications market. In
particular, BT is under a regulatory obligation to introduce carrier
pre-selection on its network, which it expects to start offering in December
2000, although the necessary network changes will not be complete until the end
of 2001. Carrier pre-selection may increase the appeal of indirect access
operators, whose discounted call charges may undercut us.
We also compete with mobile networks. This technology may grow to become a
competitive threat to our networks, particularly if call charges are reduced
further on the mobile networks. Our radio communications group may enable us to
benefit from the growth in this technology. There can be no assurance, however,
that we will be able to compete successfully with such telecommunications
operators.
We believe that we have a competitive advantage in the residential market
because we offer integrated telephone, cable television, telecommunications
services (including Internet, interactive and on-line services) and
multi-product packages designed to encourage customers to subscribe to multiple
services. However, there can be no assurance that this competitive advantage
will continue. Indeed, BT and all other operators will be permitted to provide
and convey cable television services throughout the United Kingdom starting
January 1, 2001. In addition, all areas currently without franchises will open
to general competition in the future, and exclusive franchises will no longer be
awarded.
British Sky Broadcasting Limited (BSkyB) currently markets
telecommunications services on an indirect access basis (which requires the
customer to dial additional digits before entering the primary telephone number,
thus diverting calls onto another operator's network). In addition, BSkyB has a
joint venture with BT that is known as Open (formerly British Interactive
Broadcasting). BSkyB increased its holding in Open to 80.1% in July 2000 as a
result of buying out HSBC and Matsushita. The joint venture could provide
significant competition.
Our cable television systems compete with direct reception over-the-air
broadcast television, DTH satellite services and satellite master antenna
systems. In addition, pay television and pay-per-view services offered by us
compete to varying degrees with other communications and entertainment media,
including home video, cinema exhibition of feature films, live theater and newly
emerging multimedia services. We expect that, in the future, we may face
competition from programming provided by video-on-demand services.
In 1999, BSkyB and OnDigital dropped the practice of charging any upfront
fee for digital set-top boxes, although they still charge in some instances for
installation. Coupled with BSkyB's move to bundle free Internet access and
discounted indirect access telephony (with calls priced at 40% below BT headline
rates), these moves have reduced the competitive advantages previously
represented by our offerings.
We believe that the underlying technological advantages of our networks
will allow us to respond to such moves by our competitors. Nevertheless, there
can be no assurances that we will be able to continue to compete successfully in
all segments of the residential markets.
Business Telecommunications. BT is also our principal competitor in
providing business telecommunications services. In addition, we compete with
Cable & Wireless plc, Energis Communications Limited, Thus in Scotland and with
other companies that have been granted telecommunications licenses such as
MCI-WorldCom and COLT. In the future, we may compete with additional entrants to
the business telecommunications market. Competition is based on price, range and
quality of services, and we expect price competition to intensify if existing
and other new market entrants compete aggressively. Most of these competitors
have substantial resources and there can be no assurance that these or other
competitors will not expand their businesses in our existing markets or that we
will be able to continue to compete successfully with such competitors in the
business telecommunications market.
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Broadcast Transmission and Tower Services. Castle Transmission Ltd
("Castle"), a subsidiary of Crown Castle, Inc., is NTL's primary competition in
the terrestrial broadcast transmission market in the United Kingdom. Castle
provides analog transmission services to the BBC. It also has been awarded the
transmission contract for the new DTT multiplex service for the BBC and
OnDigital. Castle has diversified from its core television broadcasting business
using its transmission infrastructure to enter into the radio transmission and
telecommunications sectors.
Although Castle is our direct competitor, we each have reciprocal rights to
use each others' sites for broadcast transmission usage in order to enable each
of us to achieve the necessary country-wide coverage. This relationship is
formalized by the site-sharing agreement entered into in 1991 when those towers
were privatized.
Castle also offers site rental on a significant number of its sites (some
of which are managed on behalf of third parties). Like us, Castle offers a full
range of site-related services to its customers, including installation and
maintenance. We believe our towers to be at least as well situated as Castle's
and that we will be able to continue expanding our own third-party site-sharing
penetration.
All four U.K. mobile operators own site infrastructure and lease space to
other users. Their openness to sharing with direct competitors varies by
operator. Cellnet and Vodafone have agreed to cut site costs by jointly
developing and acquiring sites in the Scottish Highlands. BT and Cable &
Wireless plc are both major site-sharing customers but also compete by leasing
their own sites to third parties. BT's position in the market is even larger
when considered in combination with its interest in Cellnet.
Several other companies compete in the market for site rental. These
include British Gas, Racal Network Systems, Aerial Sites Plc, Relcom Aerial
Services and the Royal Automobile Club. Some companies own sites initially
developed for their own networks, while others are developing sites specifically
to exploit this market.
We face competition from a large number of companies in the provision of
network services. The companies include CTL, speciality consultants and
equipment manufacturers such as Nortel and Ericsson.
REGULATION
Telecommunications service industries in the United Kingdom are governed by
legislation under the Telecommunications Act 1984, the Broadcasting Act 1990,
and the Broadcasting Act 1996. The operator of a full-service telecommunications
system in the United Kingdom requires the following two principal licenses:
- a telecommunications license, granted under the Telecommunications Act
by the Secretary of State and supervised by the DTI and OFTEL, which
authorizes the installation and operation of the telecommunications
network used to provide cable television and cable telephone services;
and
- a cable television license granted under the Broadcasting Act and
supervised by the Secretary of State and the ITC, which authorizes the
provision of broadcasting services within a defined geographical area.
Each type of license described above contains various conditions, and in
the event of the breach of such conditions, the Director General of
Telecommunications (the head of OFTEL) or the ITC, as appropriate, could issue
an enforcement order and ultimately commence proceedings to require compliance
or to revoke such licenses.
Under the Broadcasting Act 1990, cable operators may elect to replace
certain Prescribed Diffusion Service Licenses with Local Delivery Licenses with
similar terms.
The regulatory environment in the United Kingdom has generally encouraged
the development of the cable telecommunications and the cable television
industry by, among other things, licensing only one
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operator for each cable franchise area and restricting other operations from
competing in the provision of broadcast entertainment in those areas. From
January 1, 2001, competition within current cable franchises in respect of
broadcasting will also be permitted.
Price Regulation
Although to date we have for the most part been able to price our cable
telephone call charges below those of BT, there can be no assurance that we will
be able to continue to do so in the future. BT currently is subject to controls
over the prices it may charge customers, including a requirement that the
overall basket of charges may not be changed by more than an amount equal to the
percentage change in the RPI less X (and BT may, as a result, have to decrease
prices). In particular, BT may not increase charges for certain services by more
than the amount of the percentage change in the RPI.
The current retail price controls will continue until 2001. The controls
will only be put in place where consumer protection is required, that is, for
low to medium-spending residential customers and small businesses. The current
price cap is RPI minus 4.5% on the narrower basket of services described above.
Safeguard caps of RPI plus 0% have been imposed on certain services.
BT has limited opportunity for differential pricing to the same class of
customer because it is subject to prohibitions on undue preference and undue
discrimination across the United Kingdom. Following the Duopoly Review, BT's
telecommunications license was modified to permit it to offer discounts to high
volume users, subject to several conditions. However, BT may not offer
discounted services in local markets without offering the discounts nationally
if such discounts result in undue discrimination or unfair cross-subsidy.
In Autumn 1999, OFTEL began the process of examining what price controls,
if any, should apply to BT after 2001. At this stage it is too early to say what
controls will apply, although OFTEL has indicated that further controls are
likely. Further consultation has been issued on this issue and a statement from
OFTEL is expected in January 2001.
We are not subject to equivalent scrutiny and control by OFTEL of our
retail telephone prices, given our non-dominant status in the market. We, as
well as other public telecommunications operators, are required to publish our
standard prices, terms and conditions.
Carrier Pre-Selection
On December 1, 1997, the EC Council of Telecommunications Ministers reached
political agreement on a draft directive to amend the Interconnection Directive
(Directive 97/33/EC) with regard to number portability and carrier
pre-selection. This required member states (except those which have been granted
a derogation under the Full Competition Directive (Dir 96/19/EC)) to introduce
carrier pre-selection by January 1, 2000, for operators designated as having
"Significant Market Power" as defined in the Interconnection Directive. OFTEL
has concluded that BT and Kingston Communication should be so designated in the
United Kingdom. Kingston Communications made carrier pre-selection available on
its network from January 1, 2000. BT is upgrading its network to provide carrier
pre-selection approximately December 2000, but the process will not be complete
until the end of 2001. In early 2000, OFTEL directed BT to provide an interim
form of carrier pre-selection using dialler apparatus. OFTEL is entitled to
direct BT to subsidize the cost of basic dialler apparatus. In July 2000, we
requested carrier pre-selection from BT to augment our indirect access services.
Number Portability
The European Union agreed in 1998 to a revision to the Interconnection
Directive that made it a requirement for Member States to mandate number
portability. An OFTEL consultation of December 1999 suggested that number
portability should be offered as of right to all customers switching between
different
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operators from January 1, 2000. NTL has a process in place to comply with its
existing obligations and it is in the process of negotiating more service
establishment arrangements.
Local Loop Unbundling
In November 1999, OFTEL mandated the unbundling of BT's local loop to rival
providers, enabling them to offer a range of higher bandwith services using
Digital Subscriber Line (DSL) technology. In September 2000, it was announced
that a number of service providers, including NTL, had been allocated space in
an initial tranche of BT exchanges, with a view to commencing services in 2001.
Further exchanges are likely to be made available to service providers for
unbundling through the remainder of 2000 and into 2001. In addition, BT is
currently rolling out ADSL over its own network. ADSL will allow consumers
access to high speed information services. The introduction of local loop
unbundling could give rise to opportunities for us, but would also give rise to
increased competition.
Interconnection
The NTL UK group has Annex II status giving it rights of interconnection at
wholesale rates to other operators with similar status.
Open Access to Cable Infrastructure
In April 2000, OFTEL issued a public consultation document on regulated
access to cable infrastructure ("open access"). The preliminary conclusion
reached by OFTEL was that no case existed for mandating open access to cable
infrastructure at that time. However, OFTEL proposed to take reserve powers to
mandate open access in the future if:
- the operator of the network in question possessed market power in the
relevant market;
- the expected benefits of open access were sufficient to justify the
costs; and
- open access would be an effective and proportionate regulatory instrument
to tackle the obstacle to effective competition which had been
identified.
BSkyB Carriage Agreement
NTL's carriage agreement with BSkyB is subject to regulatory approval by
the UK Office of Fair Trading (the "OFT"). The agreement was therefore notified
to the OFT in Autumn 2000, with a view to a decision being obtained from the OFT
by the end of February 2001.
In December 2000, the OFT separately announced that it was commencing a
six-month investigation under the UK Competition Act into BSkyB's activities, in
particular the wholesale prices offered to rival distributors of pay TV
services. This investigation would run in parallel to the separate consideration
of the NTL/BSkyB carriage agreement.
Competition Act 1998
The Competition Act came into force in March 2000, and granted concurrent
powers to the industry specific regulators and the Director General of Fair
Trading for the enforcement of prohibitions modeled on Article 81 and 82 of the
European Community Treaty. The Competition Act introduced a prohibition on the
abuse of a dominant position and on anti-competitive agreements, and introduced
third party rights, stronger investigation powers, interim measures and
effective enforcement powers (including fines of up to 10% of U.K. turnover).
Under the Competition Act, the Director General of Telecommunications is
able, but not required, to exercise concurrent powers with the Director General
of Fair Trading in relation to "commercial activities connected with
telecommunications". The Competition Act enables third parties to bring
enforcement actions directly against telecommunications operators who are in
breach of the prohibitions and seek damages, rather than have to wait for the
Director General of Telecommunications to make an enforcement order.
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In February 2000, OFTEL issued specific guidance on the application of the
Competition Act in the telecommunications sector. This guidance states that
OFTEL would follow closely the general principles of competition law in its
application of the new prohibitions. In addition, the regulators must not reach
decisions which are inconsistent with EC law.
Broadcast Services
A significant proportion of our total revenue is attributable to the
provision of television and radio transmission and distribution services. In the
United Kingdom, the provision of such services is governed by the
Telecommunications Act 1984 and The Wireless Telegraphy Act 1949.
TELECOMMUNICATIONS ACT LICENSES
NTL's broadcasting transmission license contains conditions and other
provisions which, among other things:
- require us to provide specified telecommunications services to specified
persons on request;
- specify certain criteria to be met by us in providing those services;
- require the connection of our telecommunications systems with those of
certain other transmission operators and the transmission over those
systems by such operators of messages for general reception;
- require us to publish our charges and terms and conditions of business
and not to show undue preference to or exercise undue discrimination
against particular persons in the provision of certain telecommunications
services;
- require us to hold Wireless Telegraphy Act licenses in respect of each
item of wireless telegraphy comprised in its system;
- impose on us an obligation to share our transmission sites with other
transmission operators;
- restrict the prices which we are allowed to charge for the provision of
some services;
- prohibit us from cross-subsidizing the unregulated side of our business;
and
- impose a requirement for separate accounts to be produced in relation to
both the regulated and unregulated parts of our business. However, we are
not obliged to do anything "not reasonably practicable."
Following consultation with OFTEL, NTL's transmission license was modified
in August 2000 to improve access to NTL sites and allow relevant persons to
trigger the determination process where there is a dispute about a price being
changed.
Price Cap Review
Our regulated business may be divided into two categories: Price Regulated
Business and Applicable Rate Business. Price Regulated Business comprises those
telecommunication services which we are obliged to provide pursuant to its
Transmission License and in respect of which price controls are imposed. Our
Applicable Rate Business comprises those telecommunications services which we
are obliged to provide but which do not fall within the definition of Price
Regulated Business. Charges for Applicable Rate Business are agreed between us
and the relevant customer. If despite all reasonable efforts an agreement cannot
be reached between us and a significant proportion of our customers in respect
of any particular telecommunications service, the charge will be determined by
the Director General.
In respect of any services provided by us which are not Price Regulated
Business or Applicable Rate Business, our prices are wholly unregulated, except
for the overriding duty not to engage in any pricing policy which constitutes
undue preference or undue discrimination against any person or class of persons
in respect of telecommunications services. Our unregulated income would include,
for example, charges for site rentals to PCN operators.
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Our Price Regulated Business consists of the television transmission
service provided to the ITV (Channel 3) companies and Channel 4/S4C including
the operation and maintenance of transmission equipment and the provision to
third party transmission operators of the accommodation, masts and antennae
necessary for the operation of broadcast transmission services.
On December 24, 1996, the Director General of Telecommunications issued the
formal modification to our Telecommunications Act Licenses to effect the price
controls which are to apply to us for the period from January 1, 1997 to
December 31, 2002. The Price Cap Review had two purposes: (1) to establish a new
"P0" (allowable revenues for the first year of the next control period, 1997, in
respect of our Maximum Price Regulated Business) and (2) to establish a new "X"
(the percentage by which such revenues must, after allowing for consumer price
inflation, be reduced each year thereafter). The Director General's review
concluded that, on present assumptions, the new P0 is L53.15 million and the new
X is 4.0%.
In addition to price control, the Price Cap Review raised a number of other
issues which will impact upon our Price Regulated Business in the future. In
particular, the Director General suggested that it would be desirable for us to
"unbundle" the prices for operational services and required site rentals which
it charges to each broadcaster (such as Channel 3 and Channel 4/S4C) in the form
of a transmission fee in order to expose those elements of the service which are
potentially competitive and allow broadcasters to choose an alternative supplier
if they wish. OFTEL has proposed to review whether we should publish a ratecard
with a menu of prices for unbundled services in 2002 when our regulated business
is next due for full review. At present, the system for calculating the
proportion of Channel 3's total transmission fee which is charged to each
individual franchisee is based on net advertising revenues (NAR) accruing to
each franchisee, rather than the costs of actually providing the transmission
service to each of the franchisees.
OFTEL proposed that we should continue to charge Channel 3 as a group a
single price for each component of its transmission service, although each
component would be separately distinguished. This arrangement would continue
unless and until NAR arrangements no longer applied. This decision could only be
taken after agreement with the department of Culture, Media and Sport and
consultation with other interested bodies.
European Union Legislation
Our business is further regulated by the EU under various European
Commission Directives. In July 2000, the European Commission adopted a package
of legislative proposals which sets out a new framework for electronic
communication and ensures that the legislation is more technology neutral. The
proposed new framework consists of five harmonization Directives, including a
framework Directive and four specific Directives on authorization, access and
interconnection, universal service and users' rights, and data protection in
telecommunications services, a Regulation on unbundling the local loop, a draft
liberalization Directive and a decision on Community radio spectrum policy.
Communications Bill
In Spring 2000, the U.K. government issued a consultation on possible
reform of the U.K. telecommunications and broadcasting regimes. The direction of
the consultation suggested that the U.K. government was considering bringing the
existing Telecommunications Act and Broadcasting Act regimes closer together,
possibly under a single regulatory body, to recognise the increasing convergence
of the two sectors. These issues have been brought forward to a communications
White Paper issued in December 2000.
RESEARCH AND DEVELOPMENT
Our research and development activities involve the analysis of
technological developments affecting our cable television, telephone and
telecommunications business, the evaluation of existing services and sales and
marketing techniques and the development of new services and techniques.
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PATENTS, COPYRIGHTS AND LICENSES
We do not have any material patents or copyrights nor do we believe that
patents play a material role in our business. We are substantially dependent on
the licenses and franchises granted by the legislative agencies which regulate
our respective businesses. The loss of any one or more of our licenses or
franchises could have a material adverse effect on our business and financial
condition. There are no material intellectual property licenses used by us, the
loss of which would have such an effect.
CUSTOMERS
Except for our broadcast services business, no material part of our
business is dependent upon a single customer or a few customers, the loss of any
one or more of which would have a materially adverse effect on us. The broadcast
services business is, however, substantially dependent on the revenues it
receives pursuant to its contracts with the ITV companies, Channel 4/S4C and
Channel 5, the loss of one or more of which may have a material adverse effect
on us.
EMPLOYEES
At June 30, 2000, we had over 13,200 employees (excluding ConsumerCo) or
approximately 20,000 assuming the contribution of ConsumerCo. We believe that
our relationship with our employees is good.
PROPERTIES
We own, lease or occupy under license 243 offices, warehouses and shops
throughout the United Kingdom and our corporate head-office in Hook, Hampshire.
In addition, we own or lease approximately 410 switching centers/head-ends and
operational hub-sites together with other non-operational properties, as well as
various cable television, telephone and telecommunications equipment used in
each of our regional systems.
The NTL group has 2,182 transmitter sites which are owned, leased or
managed and which are used in the broadcast business. In addition, we have
licensed access to 679 sites of which 645 are shared with Castle.
We maintain offices under lease for our corporate staff in New York City.
We believe that our facilities are presently adequate for their current
use. We intend to continue to expand the systems in accordance with the
requirements of the network build schedules and acquire new sites as part of the
ongoing expansion of our transmission networks.
LEGAL PROCEEDINGS
We are involved in, or have been involved in, certain disputes and
litigation arising in the ordinary course of business, including claims
involving contractual disputes and claims for damages to property and personal
injury resulting from the construction of our networks and the maintenance and
servicing of our transmission masts, none of which are expected to have a
material adverse effect on our financial position or results of operations or
cash flows.
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DESCRIPTION OF THE NOTES
GENERAL
The new notes will be issued pursuant to an indenture, dated as of October
2, 2000, the closing date, between NTL and The Chase Manhattan Bank, as Trustee.
The following summary of selected provisions of the Indenture is not complete
and is qualified in its entirety by reference to the Indenture, including the
definitions therein of certain terms used below. The definitions of certain
terms used in the following summary are set forth below under "-- Definitions."
In this "Description of the Notes," the term "NTL" refers to NTL Communications
Corp. and not any of its subsidiaries.
The notes will be unsecured obligations of NTL, ranking equal in right of
payment with all senior unsecured Indebtedness of NTL and senior in right of
payment to all subordinated Indebtedness of NTL.
The operations of NTL are conducted through its subsidiaries. NTL is
dependent upon the cash flow of its subsidiaries to meet its obligations,
including its obligations under the notes. As a result, the notes will be
effectively subordinated to all existing and future indebtedness and other
liabilities and commitments of NTL's subsidiaries with respect to the cash flow
and assets of those subsidiaries.
NTL Incorporated and NTL Delaware have no obligations under the notes.
ConsumerCo is currently a wholly owned subsidiary of NTL Incorporated. Under the
terms of the credit agreement of NTL Business, a subsidiary of NTL Incorporated,
all of the outstanding share capital of ConsumerCo and NTL Business is required
to be contributed to us by July 2001. ConsumerCo and NTL Business have no
obligations under the notes.
Application will be made to list the notes on the Luxembourg Stock
Exchange.
PRINCIPAL, MATURITY AND INTEREST
From the date of issuance (the closing date), the notes to be issued in
this exchange offer will be limited in aggregate principal amount to $500.0
million. Up to an additional $500.0 million aggregate principal amount of notes
(the "Additional Notes") may be issued at any time, subject to the provisions of
the Indenture described below under the caption "-- Certain Covenants --
Incurrence of Indebtedness and Issuance of Preferred Stock". If the Additional
Notes are issued more than one year after October 2, 2000, NTL will prepare an
updated listing memorandum to facilitate the listing of the Additional Notes
with the Luxembourg Stock Exchange. The notes will accrue interest at the rate
of 11 7/8% per annum and will be payable in cash, semi-annually in arrears, on
April 1 and October 1 of each year, beginning on April 1, 2001, to the holders
of record on the immediately preceding March 15 and September 15, respectively.
Interest on the notes will accrue from and including the date of issuance
(October 2, 2000), or the most recent date to which interest has been paid or
duly provided for, up to and including the date immediately preceding the date
on which interest is paid or duly provided for.
Interest on overdue principal and to the extent permitted by law on overdue
installments of interest will accrue at a rate equal to the rate borne by the
notes. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months. A reference to a payment of interest in respect of the
notes includes a payment of special interest, if any, and a reference to a
payment of principal includes a reference to a payment of premium, if any.
The notes will be payable both as to principal and interest on presentation
of such notes if in certificated form at the offices or agencies of NTL
maintained for such purpose within the City and State of New York or, at the
option of NTL, payment of interest may be made by check mailed to the holders of
the notes at their respective addresses set forth in the register of holders of
notes or, if a holder so requests, by wire transfer of immediately available
funds to an account previously specified in writing by such holder to NTL and
the Trustee. Until otherwise designated by NTL, NTL's office or agency in New
York and London, respectively, will be the offices of the Trustee maintained for
such purpose. In addition, as described under
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the caption "Listing," so long as the notes are listed on the Luxembourg Stock
Exchange, an agent for making payments on, and transfers of, notes will be
maintained in Luxembourg. The notes will be payable on maturity on October 1,
2010 at 100% of their principal amount and will be issued in registered form,
without coupons, and in denominations of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
Except as referred to herein under "-- Covenants -- Additional Amounts;
Optional Tax Redemption," the notes are not redeemable at NTL's option prior to
October 1, 2005. Thereafter, the notes will be subject to redemption at the
option of NTL, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on October
1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2005........................................................ 105.938%
2006........................................................ 103.958%
2007........................................................ 101.979%
2008 and thereafter......................................... 100.000%
</TABLE>
In the case of a redemption of any class of notes referred to herein under
"-- Covenants -- Additional Amounts; Optional Tax Redemption," redemption of
such notes shall be made at the redemption prices specified in the Indenture
plus accrued and unpaid interest, if any, to the applicable redemption date.
MANDATORY REDEMPTION AND REPURCHASE
NTL is not required to make mandatory redemption or sinking fund payments
with respect to the notes. NTL is required to make a Change of Control Offer (as
defined below) and an Asset Sale Offer (as defined below) with respect to a
repurchase of the notes under the circumstances described under the captions
"Change of Control" and "Asset Sale," respectively.
CHANGE OF CONTROL
If a Change of Control Triggering Event occurs, each holder of notes shall
have the right to require NTL to repurchase all or any part of such holder's
notes equal to $1,000 or an integral multiple thereof pursuant to the offer
described below (the "Change of Control Offer") at a purchase price equal to
101% of the principal amount thereof plus accrued and unpaid interest, if any,
to the date of purchase. The payment shall be referred to as the Change of
Control Payment. Within 40 days following any Change of Control Triggering
Event, NTL shall mail a notice to each holder, and, if and as long as the notes
are listed on the Luxembourg Stock Exchange, publish a notice in one leading
newspaper with circulation in Luxembourg, stating:
(1) that the Change of Control Offer is being made pursuant to the covenant
entitled "Change of Control" and that all notes tendered will be
accepted for payment;
(2) the purchase price and the purchase date, which shall be no earlier
than 30 days nor later than 40 days from the date such notice is
mailed. This date is referred to as the "Change of Control Payment
Date";
(3) that any notes not tendered will continue to accrue interest;
(4) that, unless NTL defaults in the payment of the Change of Control
Payment, all notes accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of
Control Payment Date;
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(5) that holders electing to have any notes purchased pursuant to a Change
of Control Offer will be required to surrender the notes, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the
notes completed, to the paying agent at the address specified in the
notice prior to the close of business on the third Business Day
preceding the Change of Control Payment Date;
(6) that holders will be entitled to withdraw their election if the paying
agent receives, not later than the close of business on the second
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount of notes delivered for purchase, and a
statement that such holder is withdrawing his election to have such
notes purchased; and
(7) that holders whose notes are being purchased only in part will be
issued new notes equal in principal amount to the unpurchased portion
of the notes surrendered, which unpurchased portion must be equal to
$1,000 in principal amount.
NTL will comply with the requirements of Rules 13e-4 and 14e-1 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and any other
securities laws and regulations thereunder to the extent those laws and
regulations are applicable in connection with the repurchase of the notes in
connection with a Change of Control Triggering Event.
On the Change of Control Payment Date, NTL will, to the extent lawful:
(1) accept for payment notes or portions thereof tendered pursuant to the
Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of Control
Payment in respect of all notes or portions thereof so tendered; and
(3) deliver or cause to be delivered to the Trustee the notes so accepted
together with an Officers' Certificate stating the notes or portions of
the notes tendered to NTL.
The paying agent shall promptly mail to each holder of notes so accepted
or, if such a holder requests, wire transfer immediately available funds to an
account previously specified in writing by such holder to NTL and the paying
agent, payment in an amount equal to the purchase price for such notes, and, if
such notes are in certificated form, payment may be made at the office of the
paying agent in Luxembourg. The Trustee shall promptly authenticate and mail to
each holder a new note equal in principal amount to any unpurchased portion of
the notes surrendered, if any; provided that each such new note shall be in a
principal amount of $1,000 or an integral multiple of $1,000. NTL will publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
Except as described above with respect to a Change of Control Triggering
Event, the Indenture does not contain any other provision that permits the
holders of the notes to require that NTL repurchase or redeem the notes in the
event of a takeover, recapitalization or similar restructuring. The Indenture
contains covenants which may afford holders of the notes protection in the event
of a highly leveraged transaction, reorganization, restructuring, merger or
similar transaction, including the Change of Control provision described above
and the provisions described under "-- Incurrence of Indebtedness and Issuance
of Preferred Stock" and "-- Merger, Consolidation or Sale of Assets" below. Each
of those covenants is, however, subject to exceptions which may permit NTL to be
involved in a highly leveraged transaction that may adversely affect the holders
of the notes.
The Change of Control Offer requirement of the notes may, in certain
circumstances, make more difficult or discourage a takeover of NTL, and, thus,
the removal of incumbent management. Management has not entered into any
agreement or plan involving a Change of Control, although it is possible that
NTL would decide to do so in the future. Subject to the limitations discussed
below, NTL could, in the future, enter into various transactions including
acquisitions, refinancings or other recapitalizations, that would not constitute
a Change of Control Triggering Event under the Indenture, but that could
increase the amount of indebtedness outstanding at such time or otherwise affect
NTL's capital structure or credit ratings.
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The indentures for our other outstanding notes also contain change of
control provisions.
NTL's ability to pay cash to the holders of notes pursuant to a Change of
Control Offer may be limited by NTL's then existing financial resources. See
Risk Factors "-- Our substantial leverage could adversely affect the financial
health of the company", "-- We are a holding company that is dependent upon cash
flow from our subsidiaries to meet our obligations -- our ability to access that
cash flow may be limited in some circumstances" and "In some circumstances
involving a change of control of our parent, we will be required to repurchase
some of our indebtedness including the notes -- if this occurs, we may not have
the financial resources necessary to make those repurchases". Any future credit
agreements or other agreements relating to indebtedness of NTL may, contain
prohibitions or restrictions on NTL's ability to effect a Change of Control
Payment. In the event a Change of Control Triggering Event occurs at a time when
such prohibitions or restrictions are in effect, NTL could seek the consent of
its lenders to the purchase of notes and other Indebtedness containing change of
control provisions or could attempt to refinance the borrowings that contain
such prohibition. If NTL does not obtain such a consent or repay such
borrowings, NTL will be effectively prohibited from purchasing notes. In such
case, NTL's failure to purchase tendered notes would constitute an Event of
Default under the Indenture. Moreover, the events that constitute a Change of
Control or require an Asset Sale Offer under the Indenture may also constitute
events of default under existing or future debt instruments or credit agreements
of NTL or NTL's subsidiaries. Such events of default may permit the lenders
under such debt instruments or credit agreements to accelerate the debt and, if
such debt is not paid or repurchased, to enforce their security interests in
what may be all or substantially all of the assets of NTL's Subsidiaries. Any
such enforcement may limit NTL's ability to raise cash to repay or repurchase
the notes.
NTL will not be required to make a Change of Control Offer in the event NTL
enters into a transaction with management or their affiliates who are Permitted
Holders. The definition of Change of Control includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of all or substantially
all of NTL's assets. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of notes to require NTL to repurchase such notes as a result of a sale,
lease, transfer, conveyance or other disposition of less than all of the assets
of NTL and its Subsidiaries to another Person may be uncertain.
ASSET SALE
The Indenture provides that NTL will not and will not permit any of its
Restricted Subsidiaries to cause, make or suffer to exist any Asset Sale,
unless:
(1) no Default exists or is continuing immediately prior to and after
giving effect to such Asset Sale;
(2) NTL, or the Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the
fair market value (evidenced for purposes of this covenant by a
resolution of the Board of Directors set forth in an Officers'
Certificate delivered to the Trustee) of the assets sold or
otherwise disposed of; and
(3) at least 80% of the consideration therefor received by NTL or such
Restricted Subsidiary is in the form of:
(a) Cash Equivalents;
(b) Replacement Assets;
(c) publicly traded Equity Interests of a Person who is, directly
or indirectly, engaged primarily in one or more Cable
Businesses; provided, however, that NTL or the Restricted
Subsidiary shall Monetize the Equity Interests by sale to one
or more Persons
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(other than to NTL or a Subsidiary thereof) at a price not less
than the fair market value thereof within 180 days of the
consummation of the Asset Sale; or
(d) any combination of the foregoing clauses (a) through (c);
provided, however, that the amount of:
(x) any liabilities, as shown on NTL's or the Restricted
Subsidiary's most recent balance sheet or in the notes
thereto, of NTL or any Restricted Subsidiary, other than
liabilities that are by their terms subordinated to the
notes, that are assumed by the transferee of any such
assets; and
(y) any notes or other obligations received by NTL or any
Restricted Subsidiary from such transferee that are within
five Business Days converted by NTL or the Restricted
Subsidiary into cash, shall be deemed to be Cash
Equivalents, to the extent of the Cash Equivalents received
in such conversion, for purposes of this clause (3).
Within 360 days after any Asset Sale, NTL, or the Restricted Subsidiary, as
the case may be, will cause the Net Proceeds from the Asset Sale:
(1) to be used to permanently reduce Indebtedness of a Restricted
Subsidiary; or
(2) to be invested or reinvested in Replacement Assets.
Pending final application of the Net Proceeds, NTL may temporarily reduce
revolving credit borrowings or otherwise invest the Net Proceeds in any manner
that is not prohibited by the Indenture.
Any Net Proceeds from any Asset Sale that are not used or reinvested as
provided in the preceding sentence constitute Excess Proceeds. When the
aggregate amount of Excess Proceeds exceeds $15.0 million, NTL will make an
Asset Sale Offer to all holders of notes and Other Qualified Notes to purchase
the maximum principal amount of notes and Other Qualified Notes, determined on a
pro rata basis according to the accreted value or principal amount, as the case
may be, of the notes and the Other Qualified Notes that may be purchased out of
the Excess Proceeds:
(1) with respect to the Other Qualified Notes, based on the terms set
forth in the indenture related to each issue of the Other Qualified
Notes; and
(2) with respect to the notes, at an offer price in cash in an amount
equal to 100% of the outstanding principal amount thereof plus
accrued and unpaid interest, if any, to the date fixed for the
closing of such offer, in accordance with the procedures set forth
in the Indenture.
To the extent that the aggregate principal amount or accreted value, as the
case may be, of notes and Other Qualified Notes tendered pursuant to an Asset
Sale Offer is less than the Excess Proceeds, NTL may use such deficiency for
general corporate purposes. If the aggregate principal amount or accreted value,
as the case may be, of notes and Other Qualified Notes surrendered by holders
thereof exceeds the amount of Excess Proceeds then the remaining Excess Proceeds
will be allocated pro rata according to accreted value or principal amount, as
the case may be, to the notes and each issue of the Other Qualified Notes, and
the Trustee will select the notes to be purchased from the amount allocated to
the notes on the basis set forth under "Selection and Notice" below. Upon
completion of such offers to purchase each of the notes and the Other Qualified
Notes, the amount of Excess Proceeds will be reset at zero.
Notwithstanding the foregoing, NTL and its Subsidiaries may:
(1) sell, lease, transfer, convey or otherwise dispose of assets or
property acquired after October 14, 1993, by NTL or any Subsidiary
in a sale-and-leaseback transaction so long as the proceeds of such
sale are applied within five Business Days to permanently reduce
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Indebtedness of a Restricted Subsidiary or if there is no such
Indebtedness or such proceeds exceed the amount of such
Indebtedness then such proceeds or excess proceeds are reinvested
in Replacement Assets within 360 days after such sale, lease,
transfer, conveyance or disposition;
(2) (x) swap or exchange assets or property with a Cable Controlled
Subsidiary; or
(y) issue, sell, lease, transfer, convey or otherwise dispose of
equity securities of any of NTL's Subsidiaries to a Cable
Controlled Subsidiary, in each of cases (x) and (y) so long as
(A) the ratio of Indebtedness to Annualized Pro Forma EBITDA of
NTL after such transaction is equal to or less than the
ratio of Indebtedness to Annualized Pro Forma EBITDA of NTL
immediately preceding such transaction; provided, however,
that if the ratio of Indebtedness to Annualized Pro Forma
EBITDA of NTL immediately preceding such transaction is 6:1
or less, then the ratio of Indebtedness to Annualized Pro
Forma EBITDA of NTL may be 0.5 greater than such ratio
immediately preceding such transaction; and
(B) either:
(I) the assets so contributed consist solely of a license
to operate a Cable Business and the Net Households
covered by all of the licenses to operate cable and
telephone systems held by NTL and its Restricted
Subsidiaries immediately after and giving effect to
such transaction equals or exceeds the number of Net
Households covered by all of the licenses to operate
cable and telephone systems held by NTL and its
Restricted Subsidiaries immediately prior to such
transaction; or
(II) the assets so contributed consist solely of Cable
Assets and the value of the Capital Stock received,
immediately after and giving effect to such
transaction, as determined by an investment banking
firm of recognized standing with knowledge of the
Cable Business, equals or exceeds the value of the
Cable Assets exchanged for such Capital Stock; or
(3) issue, sell, lease, transfer, convey or otherwise dispose of Equity
Interests of NTL, or any Capital Stock Sales Proceeds therefrom, to
any Person including Non-Restricted Subsidiaries.
SELECTION AND NOTICE
If less than all of the notes are to be redeemed at any time, selection of
notes for redemption will be made by the Trustee in compliance with the
requirements of any securities exchange on which the notes are listed. In the
absence of any requirements of any securities exchange or if the notes are not
so listed, selection of the notes to be redeemed will be made on a pro rata
basis, provided that no notes of $1,000 or less shall be redeemed in part.
Notice of redemption shall be mailed by first class mail at least 30 but not
more than 60 days before the redemption date to each holder of notes to be
redeemed at its registered address. If any note is to be redeemed in part only,
the notice of redemption that relates to such note shall state the portion of
the principal amount thereof to be redeemed. A new note in principal amount
equal to the unredeemed portion thereof will be issued in the name of the holder
thereof upon cancellation of the original note. On and after the redemption
date, interest ceases to accrue on notes or portions of them called for
redemption.
If the notes are listed on the Luxembourg Stock Exchange, NTL will publish
any redemption notice in a daily newspaper with general circulation in
Luxembourg.
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COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that NTL will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any distribution on account of
NTL's or any of its Restricted Subsidiaries' Equity Interests,
other than:
(x) dividends or distributions payable in Equity Interests, other
than Disqualified Stock, of NTL or such Restricted Subsidiary;
(y) dividends or distributions payable to NTL or any Wholly Owned
Subsidiary of NTL; or
(z) pro rata dividends or pro rata distributions payable by a
Restricted Subsidiary;
(2) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of NTL, other than any such Equity Interests
owned by NTL or any Wholly Owned Subsidiary of NTL;
(3) voluntarily purchase, redeem or otherwise acquire or retire for
value any Indebtedness that is subordinated to the notes; or
(4) make any Restricted Investment.
All such payments and other actions set forth in clauses (1) through (4)
above are collectively referred to as Restricted Payments.
NTL or the Restricted Subsidiary may make a Restricted Payment if, at the
time of such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) such Restricted Payment, together with the aggregate of all
other Restricted Payments made by NTL and its Restricted
Subsidiaries after the Issuance Date, including Restricted
Payments permitted by clauses (2) through (10) of the next
succeeding paragraph, is less than the sum of:
(x) the difference between Cumulative EBITDA and 1.5 times
Cumulative Interest Expense; plus
(y) Capital Stock Sale Proceeds; plus
(z) cash received by NTL or a Restricted Subsidiary from a
Non-Restricted Subsidiary (other than cash which is or is
required to be repaid or returned to such Non-Restricted
Subsidiary); provided, however, that to the extent that
any Restricted Investment that was made after the date of
the Indenture is sold for cash or otherwise liquidated or
repaid for cash, the amount credited pursuant to this
clause (z) shall be the lesser of:
(A) the cash received with respect to such sale,
liquidation or repayment of such Restricted
Investment, less the cost of such sale, liquidation
or repayment, if any; and
(B) the initial amount of such Restricted Investment, in
each case as determined in good faith by NTL's Board
of Directors.
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The foregoing provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment
would have complied with the provisions of the Indenture;
(2) (x) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of NTL or any Restricted Subsidiary; or
(y) an Investment in any Person;
in each case, in exchange for, or out of the proceeds of, the
substantially concurrent sale, other than to a Restricted Subsidiary
of NTL, of other Equity Interests other than any Disqualified Stock)
of NTL provided that NTL delivers to the Trustee:
(A) with respect to any transaction involving in excess of
$5.0 million, a resolution of the Board of Directors set
forth in an Officers' Certificate certifying that such
transaction is approved by a majority of the directors on
the Board of Directors; and
(B) with respect to any transaction involving in excess of
$25.0 million, an opinion as to the fairness to NTL or the
Restricted Subsidiary from a financial point of view
issued by an investment banking firm of national standing
with high yield experience, together with an Officers'
Certificate to the effect that such opinion complies with
this clause (2);
(3) Investments by NTL or any Restricted Subsidiary in a Non-Controlled
Subsidiary which:
(A) has no Indebtedness on a consolidated basis other than
Indebtedness incurred to finance the purchase of equipment used
in a Cable Business;
(B) has no restrictions (other than restrictions imposed or
permitted by the Indenture or the indentures governing the Other
Qualified Notes or any other instrument governing unsecured
indebtedness of NTL which is pari passu with the notes) on its
ability to pay dividends or make any other distributions to NTL
or any of its Restricted Subsidiaries;
(C) is or will be a Cable Business; and
(D) uses the proceeds of such Investment for constructing a Cable
Business or the working capital needs of a Cable Business;
(4) the redemption, purchase, defeasance, acquisition or retirement of
Indebtedness that is subordinated to the notes (including premium,
if any, and accrued and unpaid interest) made by exchange for, or
out of the proceeds of the substantially concurrent sale, other
than to a Restricted Subsidiary of NTL, of:
(A) Equity Interests of NTL; or
(B) Refinancing Indebtedness permitted to be incurred under the
"Incurrence of Indebtedness and Issuance of Preferred Stock"
covenant;
(5) Investments by NTL or any Restricted Subsidiary in a Non-Controlled
Subsidiary which is or will be a Cable Business in an amount not to
exceed $100.0 million in the aggregate plus the sum of:
(A) cash received by NTL or a Restricted Subsidiary from a
Non-Restricted Subsidiary (other than cash which is or is
required to be repaid or returned to such Non-Restricted
Subsidiary); and
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(B) Capital Stock Sale Proceeds, excluding the aggregate net sale
proceeds to be received upon conversion of the Convertible
Subordinated Notes;
(6) Investments by NTL or any Restricted Subsidiary in Permitted
Non-Controlled Assets;
(7) Investments by NTL or any Restricted Subsidiary in SDN Limited, a
joint venture organized to operate a digital terrestrial
television multiplex, in an amount not exceeding L11.4 million;
(8) the extension by NTL or any Restricted Subsidiary of trade credit
to a Non-Restricted Subsidiary extended on usual and customary
terms in the ordinary course of business, provided that the
aggregate amount of such trade credit shall not exceed $25.0
million at any one time;
(9) the payment of cash dividends on the Preferred Stock accruing on
or after February 15, 2004 or any mandatory redemption or
repurchase of the Preferred Stock, in each case, in accordance
with the Certificate of Designations therefor; and
(10) the exchange of all of the outstanding shares of Preferred Stock
for Subordinated Debentures in accordance with the Certificate of
Designation for the Preferred Stock.
Any Investment in a Subsidiary, other than the issuance, transfer or other
conveyance of Equity Interests of NTL or any Capital Stock Sales Proceeds
therefrom, that is designated by the Board of Directors as a Non-Restricted
Subsidiary shall become a Restricted Payment made on the date of such
designation in the amount of the greater of:
(x) the book value of such Subsidiary on the date such Subsidiary
becomes a Non-Restricted Subsidiary; and
(y) the fair market value of such Subsidiary on such date as
determined:
(A) in good faith by the Board of Directors of such Subsidiary if
such fair market value is determined to be less than $25.0
million; and
(B) by an investment banking firm of national standing with high
yield underwriting expertise if such fair market value is
determined to be in excess of $25.0 million.
Not later than the fifth Business Day after making any Restricted Payment
(other than those referred to in sub-clause (8) of the second paragraph
preceding this paragraph), NTL shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by the covenant "Restricted
Payments" were computed, which calculations may be based upon NTL's latest
available financial statements.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture provides that NTL will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guaranty or otherwise become directly or indirectly liable with respect
to any Indebtedness, including Acquired Debt, and that NTL will not issue any
Disqualified Stock and will not permit any of its Restricted Subsidiaries to
issue any shares of preferred stock that is Disqualified Stock; provided,
however, that NTL may incur Indebtedness or issue shares of Disqualified Stock
and any of its Restricted Subsidiaries may issue shares of preferred stock that
is Disqualified Stock if after giving effect to such issuance or incurrence on a
pro forma basis, the sum of:
(x) Indebtedness of NTL and its Restricted Subsidiaries, on a
consolidated basis;
(y) the liquidation value of outstanding preferred stock of Restricted
Subsidiaries; and
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(z) the aggregate amount payable by NTL and its Restricted
Subsidiaries, on a consolidated basis, upon redemption of
Disqualified Stock to the extent such amount is not included in the
preceding clause (y)
shall be less than the product of Annualized Pro Forma EBITDA for the latest
fiscal quarter for which internal financial statements are available immediately
preceding the date on which such additional Indebtedness is incurred or such
Disqualified Stock or preferred stock is issued multiplied by 7.0, determined on
a pro forma basis, including a pro forma application of the net proceeds
therefrom, as if the additional Indebtedness had been incurred, or the
Disqualified Stock or preferred stock had been issued, as the case may be, at
the beginning of such quarter.
The foregoing limitations will not apply to:
(a) the incurrence by NTL or any Restricted Subsidiary of Indebtedness
pursuant to the Credit Facility;
(b) the issuance by any Restricted Subsidiary of preferred stock (other
than Disqualified Stock) to NTL, any Restricted Subsidiary of NTL
or the holders of Equity Interests in any Restricted Subsidiary on
a pro rata basis to such holders;
(c) the incurrence of Indebtedness or the issuance of preferred stock
by NTL or any of its Restricted Subsidiaries the proceeds of which
are (or the credit support provided by any such Indebtedness is),
in each case, used to finance the construction, capital expenditure
and working capital needs of a Cable Business (including, without
limitation, payments made pursuant to any License), the acquisition
of Cable Assets or the Capital Stock of a Qualified Subsidiary;
(d) the incurrence by NTL or any of its Restricted Subsidiaries of
additional Indebtedness in an outstanding aggregate principal
amount not to exceed $100.0 million at any time;
(e) the incurrence by NTL or any Restricted Subsidiary of any Permitted
Acquired Debt;
(f) the incurrence by NTL or any Subsidiary of Indebtedness issued in
exchange for, or the proceeds of which are used to extend,
refinance, renew, replace, or refund the notes issued in this
offering, Existing Indebtedness or Indebtedness referred to in
clauses (a), (b), (c), (d) or (e) above or Indebtedness incurred
pursuant to the preceding paragraph (the "Refinancing
Indebtedness"); provided, however, that:
(1) the principal amount of, and any premium payable in respect of,
such Refinancing Indebtedness shall not exceed the principal
amount of Indebtedness so extended, refinanced, renewed,
replaced or refunded (plus the amount of reasonable expenses
incurred in connection therewith);
(2) the Refinancing Indebtedness shall have:
(A) a Weighted Average Life to Maturity equal to or greater
than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced
or refunded; and
(B) a stated maturity no earlier than the stated maturity of,
the Indebtedness being extended, refinanced, renewed,
replaced or refunded; and
(3) the Refinancing Indebtedness shall be subordinated in right of
payment to the notes as and to the extent of the Indebtedness
being extended, refinanced, renewed, replaced or refunded;
(g) the issuance of the Preferred Stock in lieu of payment of cash
interest on the Subordinated Debentures or the incurrence by NTL of
Indebtedness represented by the Subordinated
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Debentures upon the exchange of the Preferred Stock in accordance
with the Certificate of Designations therefor;
(h) Indebtedness under Exchange Rate Contracts, provided that such
Exchange Rate Contracts are related to payment obligations under
Existing Indebtedness or Indebtedness incurred under this paragraph
or the preceding paragraph that are being hedged thereby, and not
for speculation and that the aggregate notional amount under each
such Exchange Rate Contract does not exceed the aggregate payment
obligations under such Indebtedness;
(i) Indebtedness under Interest Rate Agreements, provided that the
obligations under such agreements are related to payment
obligations on Existing Indebtedness or Indebtedness otherwise
incurred pursuant to this paragraph or the preceding paragraph, and
not for speculation;
(j) the incurrence of Indebtedness between NTL and any Restricted
Subsidiary, between or among Restricted Subsidiaries and between
any Restricted Subsidiary and other holders of Equity Interests of
such Restricted Subsidiary (or other Persons providing funding on
their behalf) on a pro rata basis and on substantially identical
principal financial terms, provided, however, that if any such
Restricted Subsidiary that is the payee of any such Indebtedness
ceases to be a Restricted Subsidiary or transfers such Indebtedness
(other than to NTL or a Restricted Subsidiary of NTL), such events
shall be deemed, in each case, to constitute the incurrence of such
Indebtedness by NTL or by a Restricted Subsidiary, as the case may
be, at the time of such event; and
(k) Indebtedness of NTL and/or any Restricted Subsidiary in respect of
performance bonds of NTL or any Subsidiary or surety bonds provided
by NTL or any Restricted Subsidiary received in the ordinary course
of business in connection with the construction or operation of a
Cable Business.
Any redesignation of a Non-Restricted Subsidiary as a Restricted Subsidiary
shall be deemed for purposes of the foregoing covenant to be an incurrence of
Indebtedness by NTL and its Restricted Subsidiaries of the Indebtedness of such
Non-Restricted Subsidiary as of the time of such redesignation to the extent
such Indebtedness does not already constitute Indebtedness of NTL or one of its
Restricted Subsidiaries.
LIENS
The Indenture provides that neither NTL nor any of its Restricted
Subsidiaries may directly or indirectly create, incur, assume or suffer to exist
any Lien on any asset now owned or hereafter acquired, or any income or profits
therefrom or assign or convey any right to receive income therefrom, except:
(1) Permitted Liens;
(2) Liens securing Indebtedness and related obligations incurred under
clauses (a), (c), (d), (e), (h), (i) and (k) of the second
paragraph of the "Incurrence of Indebtedness and Issuance of
Preferred Stock" covenant;
(3) Liens on the assets acquired or leased with the proceeds of
Indebtedness permitted to be incurred under the "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant; and
(4) Liens securing Refinancing Indebtedness permitted to be incurred
under the "Incurrence of Indebtedness and Issuance of Preferred
Stock" covenant; provided that the Refinancing Indebtedness so
issued and secured by such Lien shall not be secured by any
property or assets of NTL or any of its Restricted Subsidiaries
other than the property or assets subject to the Liens securing
such Indebtedness being refinanced.
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DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
The Indenture provides that NTL will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to:
(1) (a) pay dividends or make any other distributions to NTL or any of
its Subsidiaries:
(A) on its Capital Stock; or
(B) with respect to any other interest or participation in, or
measured by, its profits; or
(b) pay any indebtedness owed to NTL or any of its Subsidiaries; or
(2) make loans or advances to NTL or any of its Subsidiaries; or
(3) transfer any of its properties or assets to NTL or any of its
Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of:
(a) Existing Indebtedness as in effect on the Issuance Date;
(b) the Indenture relating to the notes;
(c) any agreement covering or relating to Indebtedness permitted to be
incurred under clause (a), (b), (c), (d), (e), (h) or (i) (but
only, in the case of clause (h) or (i), to the extent contemplated
by the then-existing Credit Facility) of the second paragraph of
the "Incurrence of Indebtedness and Issuance of Preferred Stock"
covenant, provided that the provisions of such agreement permit any
action referred to in clause (1) above in aggregate amounts
sufficient to enable the payment of interest and principal and
mandatory repurchases pursuant to the terms of the Indenture and
the notes but provided further that:
(x) any such agreement may nevertheless encumber, prohibit or
restrict any action referred to in clause (1) above if an
event of default under such agreement has occurred and is
continuing or would occur as a result of any such action; and
(y) any such agreement may nevertheless contain:
(I) restrictions limiting the payment of dividends or the
making of any other distributions to all or a portion
of excess cash-flow (or any similar formulation
thereof); and
(II) subordination provisions governing Indebtedness owed to
NTL or any Restricted Subsidiary;
(d) applicable law;
(e) any instrument governing Indebtedness or Capital Stock of a Person
acquired by NTL or any of its Subsidiaries as in effect at the time
of such acquisition (except to the extent such Indebtedness was
incurred in connection with such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or
assets of the Person, so acquired; provided that the EBITDA of such
Person is not taken into account in determining whether such
acquisition was permitted by the terms of the Indenture;
(f) customary nonassignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
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(g) provisions of joint venture or stockholder agreements, so long as
such provisions are determined by a resolution of the Board of
Directors to be, at the time of such determination, customary for
such agreements;
(h) with respect to clause (3) above, purchase money obligations for
property acquired in the ordinary course of business or the
provisions of any agreement with respect to any Asset Sale (or
transaction which, but for its size, would be an Asset Sale),
solely with respect to the assets being sold; or
(i) permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Refinancing Indebtedness
are determined by a resolution of the Board of Directors to be no
more restrictive than those contained in the agreements governing
the Indebtedness being refinanced.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture provides that NTL may not consolidate or merge with or into,
whether or not NTL is the surviving corporation, or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its properties
or assets in one or more related transactions to, another corporation, Person or
entity unless:
(1) NTL is the surviving corporation or the entity or the Person formed
by or surviving any such consolidation or merger, if other than
NTL, or to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made is a corporation
organized or existing under the laws of the United Kingdom, the
Netherlands, the Netherlands Antilles, Bermuda or the Cayman
Islands or of the United States, any state thereof or the District
of Columbia;
(2) the entity or Person formed by or surviving any such consolidation
or merger, if other than NTL, or the entity or Person to which such
sale, assignment, transfer, lease, conveyance or other disposition
will have been made assumes all the Obligations, including the due
and punctual payment of Additional Amounts as defined in the
Indenture if the surviving corporation is a corporation organized
or existing under the laws of the United Kingdom, the Netherlands,
the Netherlands Antilles, Bermuda or the Cayman Islands, of NTL,
pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee, under the notes and the Indenture;
(3) immediately after such transaction no Default or Event of Default
exists;
(4) NTL or any entity or Person formed by or surviving any such
consolidation or merger, or to which such sale, assignment,
transfer, lease, conveyance or other disposition will have been
made will have a ratio of Indebtedness to Annualized Pro Forma
EBITDA equal to or less than the ratio of Indebtedness to
Annualized Pro Forma EBITDA of NTL immediately preceding the
transaction provided, however, that if the ratio of Indebtedness to
Annualized Pro Forma EBITDA of NTL immediately preceding such
transaction is 6:1 or less, then the ratio of Indebtedness to
Annualized Pro Forma EBITDA of NTL may be 0.5 greater than such
ratio immediately preceding such transaction; and
(5) such transaction would not result in the loss of any material
authorization or Material License of NTL or its Subsidiaries.
ADDITIONAL AMOUNTS; OPTIONAL TAX REDEMPTION
The Indenture provides that the "Payment of Additional Amounts" provision
in the Indenture, relating to United Kingdom, Netherlands, Netherlands Antilles,
Bermuda and Cayman Islands withholding and other United Kingdom, Netherlands,
Netherlands Antilles, Bermuda and Cayman Islands taxes, and the
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"Optional Tax Redemption" provision in the Indenture relating to NTL's option to
redeem the notes under specified circumstances if Additional Amounts are
payable, apply to the notes in specified circumstances. The provisions of the
Indenture relating to the payment of Additional Amounts will only apply in the
event that NTL becomes, or a successor to NTL is, a corporation organized or
existing under the laws of the United Kingdom, the Netherlands, the Netherlands
Antilles, Bermuda or the Cayman Islands. In such circumstances, all payments
made by NTL on the notes will be made without deduction or withholding, for or
on account of, any and all present or future taxes, duties, assessments, or
governmental charges of whatever nature unless the deduction or withholding of
such taxes, duties, assessments or governmental charges is then required by law.
If any deduction or withholding for or on account of any present or future
taxes, assessments or other governmental charges of the United Kingdom, the
Netherlands, the Netherlands Antilles, Bermuda or the Cayman Islands, or any
political subdivision or taxing authority thereof or therein, shall at any time
be required in respect of any amounts to be paid by NTL under the notes, NTL
will pay or cause to be paid such additional amounts ("Additional Amounts") as
may be necessary in order that the net amounts received by a holder of the notes
after such deduction or withholding shall be not less than the amounts specified
in the notes to which the holder of such notes is entitled; provided, however,
that NTL shall not be required to make any payment of Additional Amounts for or
on account of:
(1) any tax, assessment or other governmental charge to the extent such
tax, assessment or other governmental charge would not have been
imposed but for:
(a) the existence of any present or former connection between such
holder, or between a fiduciary, settlor, beneficiary, member or
shareholder of, or possessor of a power over, such holder, if
such holder is an estate, nominee, trust, partnership or
corporation, other than the holding of the notes or the receipt
of amounts payable in respect of the notes and the United
Kingdom, the Netherlands, the Netherlands Antilles, Bermuda or
the Cayman Islands or any political subdivision or taxing
authority thereof or therein, including, without limitation,
such holder or such fiduciary, settlor, beneficiary, member,
shareholder or possessor, being or having been a citizen or
resident thereof or being or having been present or engaged in
trade or business therein or having had a permanent
establishment therein; or
(b) the presentation of the notes, where presentation is required,
for payment on a date more than 30 days after the date on which
such payment became due and payable or the date on which payment
thereof is duly provided for, whichever occurs later, except to
the extent that the holder would have been entitled to
Additional Amounts had the notes been presented on the last day
of such period of 30 days;
(2) any governmental charge that is imposed or withheld by reason of
the failure to comply by the holder of the notes or, if different,
the beneficial owner of the interest payable on the notes, with a
timely request of NTL addressed to such holder or beneficial owner
to provide information, documents or other evidence concerning the
nationality, identity or connection with the taxing jurisdiction of
such holder or beneficial owner which is required or imposed by a
statute, regulation or administrative practice of the taxing
jurisdiction as a precondition to exemption from all or part of
such tax assessment or governmental charge;
(3) any estate, inheritance, gift, sales, transfer, personal property
or similar tax assessment or other governmental charge;
(4) any tax assessment or other governmental charge which is
collectible otherwise than by withholding from payments of
principal amount, redemption amount, Change of Control Payment or
interest with respect to a note or withholding from the proceeds of
a sale or exchange of a note;
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(5) any tax, assessment or other governmental charge required to be
withheld by any paying agent from any payment of principal amount,
redemption amount, Change of Control Payment or interest with
respect to a note, if such payment can be made, and is in fact
made, without such withholding by any other paying agent located
inside the United States;
(6) any tax, assessment or other governmental charge imposed on a
holder that is not the beneficial owner of a note to the extent
that the beneficial owner would not have been entitled to the
payment of any such Additional Amounts had the beneficial owner
directly held the note; or
(7) any combination of items (1), (2), (3), (4), (5) and (6) above;
nor shall Additional Amounts be paid with respect to any payment of the
principal of, or any interest on the notes to any holder who is a fiduciary or
partnership or other than the sole beneficial owner of such payment to the
extent that a beneficiary or settlor would not have been entitled to any
Additional Amounts had such beneficiary or settlor been the holder of the notes.
The notes may be redeemed at the option of NTL, in whole but not in part,
upon not less than 30 nor more than 60 days notice, at any time upon the
circumstances set forth below. The redemption price will be equal to the
principal amount thereof plus accrued and unpaid interest to the date fixed for
redemption if after the Issuance Date there has occurred any change in or
amendment to the laws or any regulations or official rulings promulgated
thereunder of the United Kingdom, the Netherlands, the Netherlands Antilles,
Bermuda or the Cayman Islands, or any political subdivision or taxing authority
thereof or therein, or any change in or amendment to the official application or
interpretation of such laws, regulation or rulings which becomes effective after
the Issuance Date, as a result of which NTL is or would be so required on the
next succeeding Interest Payment Date to pay Additional Amounts with respect to
the notes with respect to withholding taxes imposed by the United Kingdom, the
Netherlands, the Netherlands Antilles, Bermuda or the Cayman Islands, or any
political subdivision or taxing authority thereof or therein, a "Withholding
Tax" and such Withholding Tax is imposed at a rate that exceeds the rate (if
any) at which any Withholding Tax was imposed on the Issuance Date provided
that:
(1) this paragraph shall not apply to the extent that, at the Relevant
Date, it was known or would have been known had professional advice
of a nationally recognized accounting firm in the United Kingdom,
Netherlands, Netherlands Antilles, Bermuda or the Cayman Islands,
as the case may be, been sought, that a Change in Tax Law in the
United Kingdom, the Netherlands, the Netherlands Antilles, Bermuda
or the Cayman Islands, was to occur after the Issuance Date;
(2) no such notice of redemption may be given earlier than 90 days
prior to the earliest date on which NTL would be obliged to pay
such Additional Amounts were a payment in respect of the notes then
due;
(3) at the time such notice of redemption is given, such obligation to
pay such Additional Amount remains in effect; and
(4) the payment of such Additional Amounts cannot be avoided by the use
of any reasonable measures available to NTL.
The notes may also be redeemed, in whole but not in part, at any time upon
the circumstances set forth below. The redemption price will be equal to the
principal amount of the notes plus accrued and unpaid interest to the date fixed
for redemption if the person formed after the Issuance Date by a consolidation,
amalgamation, reorganization, reconstruction or other similar arrangement of NTL
or the person into which NTL is merged after the Issuance Date or to which NTL
conveys, transfers or leases its properties and assets after the Issuance
substantially as an entirety (collectively, a "Subsequent Consolidation") is
required, as a consequence of such Subsequent Consolidation and as a consequence
of a Change in Tax Law in the United
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Kingdom, the Netherlands, the Netherlands Antilles, Bermuda or the Cayman
Islands occurring after the date of such Subsequent Consolidation to pay
Additional Amounts with respect to notes with respect to Withholding Tax and
such Withholding Tax is imposed at a rate that exceeds the rate, if any, at
which Withholding Tax was or would have been imposed on the date of such
Subsequent Consolidation. This paragraph shall not apply to the extent that, at
the date of such Subsequent Consolidation it was known or would have been known
had professional advice of a nationally recognized accounting firm in the United
Kingdom, the Netherlands, the Netherlands Antilles, Bermuda or the Cayman
Islands, as the case may be, been sought, that a Change in Tax Law in the United
Kingdom, the Netherlands, the Netherlands Antilles, Bermuda or the Cayman
Islands, was to occur after such date.
NTL will also pay, or make available for payment, to holders on the
redemption date any Additional Amounts resulting from the payment of such
redemption price.
TRANSACTIONS WITH AFFILIATES
The Indenture provides that NTL will not, and will not permit any of its
Restricted Subsidiaries to, sell, lease, transfer or otherwise dispose of any of
its properties or assets to, or purchase any property or assets from, or enter
into or amend any contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable
to NTL or the relevant Subsidiary than those that could have been
obtained in a comparable transaction by NTL or such Subsidiary with
an unrelated Person; and
(2) NTL delivers to the Trustee:
(a) with respect to any Affiliate Transaction involving aggregate
payments in excess of $5.0 million or any series of Affiliate
Transactions with an Affiliate involving aggregate payments in
excess of $5.0 million, a resolution of the Board of Directors
set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (1) above and such
Affiliate Transaction is approved by a majority of the
disinterested directors on the Board of Directors; and
(b) with respect to any Affiliate Transaction or any series of
Affiliate Transactions involving aggregate payments in excess of
$25.0 million, an opinion as to the fairness to NTL or such
Subsidiary from a financial point of view issued by an
investment banking firm of national standing with high yield
experience together with an Officers' Certificate to the effect
that such opinion complies with this clause (b);
provided, however, that notwithstanding the foregoing provisions, the
following shall not be deemed to be Affiliate Transactions:
(1) any employment agreement entered into by NTL or any of its
Subsidiaries in the ordinary course of business and consistent with
the past practice of NTL or its predecessor or such Subsidiary;
(2) transactions between or among NTL and/or its Restricted
Subsidiaries;
(3) transactions permitted by the provisions of the Indenture described
above under the covenant "Restricted Payments";
(4) Liens permitted under the Liens covenant which are granted by NTL
or any of its Subsidiaries to an unrelated Person for the benefit
of NTL or any other Subsidiary of NTL;
(5) any transaction pursuant to an agreement in effect on the Issuance
Date;
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(6) the incurrence of Indebtedness by a Restricted Subsidiary where
such Indebtedness is owed to the holders of the Equity Interests of
such Restricted Subsidiary on a pro rata basis and on substantially
identical principal financial terms;
(7) management, operating, service or interconnect agreements entered
into in the ordinary course of business with any Cable Business in
which NTL or any Restricted Subsidiary has an Investment and which
is not a Cable Controlled Subsidiary, and of which no Affiliate of
NTL is an Affiliate other than as a result of such Investment; and
(8) any tax sharing agreement.
REPORTS
Whether or not required by the rules and regulations of the SEC, so long as
any notes are outstanding, NTL will file with the SEC and furnish to the holders
of notes all quarterly and annual financial information required to be contained
in a filing with the SEC on Forms 10-Q and 10-K, or the equivalent of those
reports under the Exchange Act for foreign private issuers in the event NTL
becomes a corporation organized under the laws of the United Kingdom, the
Netherlands, the Netherlands Antilles, Bermuda or the Cayman Islands, including
a "Management's Discussion and Analysis of Results of Operations and Financial
Condition" and, with respect to the annual information only, a report by NTL's
certified independent accountants, in each case, as required by the rules and
regulations of the SEC as in effect on the Issuance Date. If and so long as the
notes are listed on the Luxembourg Stock Exchange, copies of such reports will
be available at the specified office of the listing agent in Luxembourg. NTL
does not publish unconsolidated financial reports.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default:
(1) default for 30 days in the payment when due of interest and
Additional Amounts, if applicable, on the notes;
(2) default in payment when due of principal on the notes;
(3) failure by NTL to comply with the provisions described under the
covenants "Change of Control," "Restricted Payments" or "Incurrence
of Indebtedness and Issuance of Preferred Stock";
(4) failure by NTL for 60 days after notice to comply with certain
other covenants and agreements contained in the Indenture or the
notes;
(5) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by NTL or any of its Restricted
Subsidiaries, or the payment of which is guaranteed by NTL or any
of its Restricted Subsidiaries, whether such Indebtedness or
guarantee now exists, or is created after the Issuance Date, which
default:
(a) is caused by a failure to pay when due principal or interest on
such Indebtedness within the grace period provided in such
Indebtedness, which Payment Default continues beyond any
applicable grace period; or
(b) results in the acceleration of such Indebtedness prior to its
express maturity and, in each case, the principal amount of any
such Indebtedness, together with the principal amount of any
other such Indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated,
aggregates $10.0 million or more;
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(6) failure by NTL or any Restricted Subsidiary of NTL to pay final
judgments (other than any judgment as to which a reputable
insurance company has accepted full liability) aggregating in
excess of $5.0 million, which judgments are not stayed within 60
days after their entry;
(7) certain events of bankruptcy or insolvency with respect to NTL or
any of its Material Subsidiaries; and
(8) the revocation of a Material License.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of then outstanding notes may
declare all the notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to NTL or any Material Subsidiary, all
outstanding notes will become due and payable without further action or notice.
Holders of the notes may not enforce the Indenture or the notes except as
provided in the Indenture. Subject to certain limitations, holders of a majority
in principal amount of outstanding notes may direct the Trustee in its exercise
of any trust or power. The Trustee may withhold from holders of the notes notice
of any continuing Default or Event of Default (except a Default or Event of
Default relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
The holders of a majority in aggregate principal amount of each class of
notes then outstanding by notice to the Trustee may on behalf of the holders of
all of the applicable class of notes waive any existing Default or Event of
Default and its consequences under the Indenture except a continuing Default or
Event of Default in the payment of interest on, or the principal of, the notes.
NTL is required to deliver to the Trustee annually a statement regarding
compliance with the Indenture, and NTL is required, upon becoming aware of any
Default or Event of Default, to deliver to the Trustee a statement specifying
such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS
No director, officer, employee, incorporator or shareholder of NTL, as
such, shall have any liability for any Obligations of NTL under the notes or the
Indenture or for any claim based on, in respect of, or by reason of, such
Obligations or their creation. Each holder of the notes by accepting a note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the notes. Such waiver may not be effective to
waive liabilities under the federal securities laws, and it is the view of the
SEC that a waiver of such liabilities is against public policy.
DEFEASANCE AND DISCHARGE OF THE INDENTURE AND THE NOTES
NTL may cause the defeasance of the notes if NTL irrevocably deposits, or
causes to be deposited, in trust with the Trustee or the paying agent, at any
time prior to the stated maturity of the notes or the date of redemption of all
the outstanding notes, as trust funds in trust, money or direct noncallable
obligations of or guaranteed by the United States of America in an amount
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, without reinvestment thereof, to pay timely and discharge the
entire principal of the then outstanding notes of such class and all interest
due thereon to maturity or redemption. The Indenture will then cease to be of
further effect as to all outstanding notes except, among other things, as to:
(1) remaining rights of registration of transfer and substitution and
exchange of the notes of such class;
(2) rights of holders to receive payment of principal of and interest
on the notes; and
(3) the rights, obligations and immunities of the Trustee.
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In order to exercise Defeasance:
(1) NTL shall have delivered to the Trustee an Opinion of Counsel
reasonably acceptable to the Trustee confirming that:
(a) NTL has received from, or there has been published by, the
Internal Revenue Service, a ruling; or
(b) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect
that, and based thereon, such Opinion of Counsel shall confirm
that the holders of the outstanding notes will not recognize
income, gain or loss for federal income tax purposes as a result
of such Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as
would have been the case if such Defeasance had not occurred;
(2) no Event of Default shall have occurred and be continuing on the
date of such deposit (other than an Event of Default resulting from
the borrowing of funds to be applied to such deposit) or insofar as
Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after
the date of deposit;
(3) such Defeasance shall not result in a breach or violation of, or
constitute a default under, any material agreement or instrument
(other than the Indenture) to which NTL or any of its Subsidiaries
is a party or by which NTL or any of its Subsidiaries is bound;
(4) NTL shall have delivered to the Trustee an Opinion of Counsel to
the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
(5) NTL shall have delivered to the Trustee an Officers' Certificate
stating that the deposit was not made by NTL with the intent of
preferring the holders of notes over the other creditors of NTL
with the intent of defeating, hindering, delaying or defrauding
creditors of NTL or others;
(6) the deposit shall not result in NTL, the Trustee or the trust being
subject to the Investment Company Act of 1940;
(7) holders of the notes will have a valid, perfected and unavoidable
(under applicable bankruptcy or insolvency laws), subject to the
passage of time referred to in clause (4) above, first priority
security interest in the trust funds; and
(8) NTL shall have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions
precedent relating to the Defeasance have been complied with.
UNCLAIMED MONEY, PRESCRIPTION
If money deposited with the Trustee or paying agent for the payment of
principal or interest remains unclaimed for two years, the Trustee and the
paying agent shall pay the money back to NTL at its written request. After that,
holders of notes entitled to the money must look to NTL for payment unless an
abandoned property law designates another person and all liability of the
Trustee and such paying agent shall cease. Other than as set forth in this
paragraph, the Indenture does not provide for any prescription period for the
payment of interest and principal on the notes.
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TRANSFER AND EXCHANGE
A holder may transfer or exchange interests in the notes in accordance with
procedures described in "Book-Entry; Delivery and Form." The registrar and the
Trustee may require a holder, among other things, to furnish appropriate
endorsements and transfer documents and NTL may require a holder to pay any
taxes and fees required by law or permitted by the Indenture. The Company is not
required to transfer or exchange any note selected for redemption. Also, NTL is
not required to transfer or exchange any note for a period of 15 days before a
selection of notes to be redeemed. All transfers or exchanges of certificated
notes may be effected at the offices of the transfer agent in Luxembourg.
The registered holder of a note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraph, the Indenture or notes
may be amended or supplemented with the consent of the holders of at least a
majority in principal amount of the then outstanding notes (including consents
obtained in connection with a tender offer or exchange offer for such notes),
and any existing default or compliance with any provision of the Indenture or
the notes may be waived with the consent of the holders of a majority in
principal amount of the then outstanding notes, including consents obtained in
connection with a tender offer or exchange offer for such notes.
Without the consent of each holder affected, an amendment or waiver may
not, with respect to any notes held by a non-consenting holder of notes:
(1) reduce the amount of notes whose holders must consent to an
amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note or
alter the provisions with respect to the redemption of the notes
except for repurchases of the notes pursuant to the covenants
described above under the captions "-- Asset Sale" and "-- Change
of Control";
(3) reduce the rate of or change the time for payment of interest on
any note;
(4) waive a default in the payment of principal of or interest on any
notes, except a rescission of acceleration of the notes by the
holders of at least a majority in aggregate principal amount of the
notes and a waiver of the payment default that resulted from such
acceleration;
(5) make any note payable in money other than that stated in the notes;
(6) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of holders of notes to
receive payments of principal of or interest on the notes;
(7) waive a redemption payment with respect to any note; or
(8) make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of notes,
NTL and the Trustee may amend or supplement the Indenture or notes to cure any
ambiguity, defect or inconsistency, to provide for uncertificated notes in
addition to or in place of certificated notes, to provide for the assumption of
NTL's obligations to holders of the notes in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the holders of the notes or that does not adversely affect the legal
rights under the Indenture of any such holder, or to comply with requirements of
the SEC in order to maintain the qualification of the Indenture under the Trust
Indenture Act.
Any notice or communication to a holder of notes shall be mailed by
first-class mail to such holder's address as shown in the register kept by the
registrar. If a notice or communication is mailed in the manner provided in the
preceding sentence within the time period prescribed, it is duly given, whether
or not the
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addressee receives it. If the notes are listed on the Luxembourg Stock Exchange,
NTL will publish a notice in a daily newspaper with general circulation in
Luxembourg.
GOVERNING LAW AND JUDGMENTS
The notes and the Indenture will be governed exclusively by the laws of the
State of New York. Under the Judiciary Law of the State of New York, a judgment
or decree in an action based upon an obligation denominated in a currency other
than U.S. dollars will be rendered in the foreign currency of the underlying
obligation and converted into U.S. dollars at a rate of exchange prevailing on
the date of entry of the judgment or decree.
CONCERNING THE TRUSTEE
The Indenture contains limitations on the rights of the Trustee, should it
become a creditor of NTL, to obtain payment of claims in certain cases, or to
realize on certain property received in respect of any such claim as security or
otherwise. The Trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such conflict
within 90 days, apply to the SEC for permission to continue or resign.
The Indenture will provide that the holders of a majority in principal
amount of then outstanding notes will have the right to direct the time, method
and place of conducting any proceeding for exercising any remedy available to
the Trustee under the Indenture, subject to certain exceptions. The Indenture
provides that in case an Event of Default shall occur (which shall not be
cured), the Trustee will be required, in the exercise of its power, to use the
degree of care of a prudent man in the conduct of his own affairs. The Indenture
will provide that subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any holder of notes, unless such holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
The Chase Manhattan Bank is also the trustee for all of the Existing Notes
and the Convertible Notes.
LISTING
Application will be made to list the notes on the Luxembourg Stock
Exchange. The legal notice relating to the issue of the notes and the articles
of association of NTL will be registered prior to the listing with the Registrar
of the District Court in Luxembourg, where such documents are available for
inspection and where copies thereof can be obtained upon request. In addition,
if and as long as the notes are listed on the Luxembourg Stock Exchange, an
agent for making payments on, and transfers of, notes will be maintained in
Luxembourg. NTL has initially designated Chase Manhattan Bank Luxembourg S.A. as
its agent for such purposes.
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BOOK-ENTRY, DELIVERY AND FORM
FORM OF NOTES
All certificates representing the notes will be issued in fully registered
form without interest coupons. The old notes sold within the United States to
qualified institutional buyers are represented by one or more global notes in
definitive, fully registered form, without interest coupons (each a "U.S. global
note"). The old notes sold in offshore transactions in reliance on Regulation S
under the Securities Act are represented by one or more global notes in
definitive, fully registered form, without interest coupons (each an
"International global note"). Each global note was deposited with the Trustee as
custodian for, and registered in the name of Cede & Co, as a nominee of DTC.
New notes issued in exchange (1) for the old International global notes
will be represented by one or more permanent global notes in definitive, fully
registered form without interest coupons and (2) for the U.S. global notes, will
be represented by one or more permanent global notes in fully registered form
without interest coupons. Each new global note will be deposited with the
Trustee as custodian for, and registered in the name of Cede & Co., as a nominee
of DTC. Each of the global notes so issued in exchange are referred to as Global
Notes.
DEPOSITORY PROCEDURES
NTL understands as follows with respect to DTC, Euroclear and Clearstream:
DTC is a limited purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities of its participants and to facilitate the
clearance and settlement of transactions among its participants in such
securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. DTC participants include securities brokers and dealers, banks,
trust companies, clearing corporations including Euroclear and Clearstream and
certain other organizations, some of whom (and/or their representatives) own
DTC. Access to the DTC book-entry system is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and certain banks, the ability of an owner of a
book-entry interest to pledge such interest to persons of entities that do not
participate in the DTC system, or otherwise take actions in respect of such
interest, may be limited by the lack of a definitive certificate for such
interest. The laws of some states require that certain persons take physical
delivery of securities in definitive form. Consequently, the ability to transfer
book-entry interests to such persons may be limited. In addition, beneficial
owners of book-entry interests through the DTC system will receive distributions
attributable to the Global Notes only through DTC participants.
Euroclear and Clearstream each hold securities for their customers and
facilitate the clearance and settlement of securities transactions by electronic
book-entry transfer between their respective account holders. Euroclear and
Clearstream provide various services including safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Euroclear and Clearstream also deal with domestic
securities markets in several countries through established depositary and
custodial relationships. Euroclear and Clearstream have established an
electronic bridge between their two systems across which their respective
participants may settle trades with each other.
Euroclear and Clearstream customers are world-wide financial institutions
including underwriters, securities brokers and dealers, banks trust companies
and clearing corporations. Indirect access to Euroclear
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and Clearstream is available to other institutions that clear through or
maintain a custodian relationship with an account holder of either system.
DTC has advised us that pursuant to procedures established by it,
(1) upon deposit of the new Global Notes, DTC will credit the accounts of
participants with portions of the principal amount of the Global
Notes representing the new notes and
(2) ownership of such beneficial interests in the Global Notes will be
shown on, and the transfer of that ownership will be effected only
through, records maintained in book-entry form by DTC and or its
nominees (with respect to interests of participants) and the records
of participants, including Euroclear and Clearstream (with respect to
interests of persons other than participants).
So long as the notes are held in global form, DTC (or its nominees), will
be considered the sole holder of Global Notes for all purposes under the
Indenture. Investors in a Global Note may hold their interests therein directly
through DTC, if they are participants in such system, or indirectly through
organizations including Euroclear and Clearstream which are participants in such
system. Euroclear and Clearstream will hold interests in a Global Note on behalf
of their participants through their respective depositories, which in turn will
hold such interests in the Global Note customers' securities accounts in their
respective names on the books of DTC. All interests in a Global Note, including
those held through Euroclear and Clearstream, may be subject to the procedures
and requirements of DTC. Those interests held through Euroclear or Clearstream
may also be subject to the procedures and requirements of such system.
REDEMPTION OF GLOBAL NOTES
In the event any Global Note (or any portion thereof) is redeemed, the
relevant depositary will redeem an equal amount of the book-entry interests in
such Global Note from the amount received by it in respect of the redemption of
such Global Note. The redemption price payable in connection with the redemption
of such book-entry interests will be equal to the amount received by the
relevant depositary or clearing agency in connection with the redemption of such
Global Note (or any portion thereof). NTL understands that under existing
practices of DTC, Euroclear and Clearstream, if fewer than all of the notes are
to be redeemed at any time, DTC, Euroclear and Clearstream will credit their
respective participants' accounts on a proportionate basis (with adjustments to
prevent fractions) or by lot or on such other basis as they deem fair and
appropriate; provided, however, that no book-entry interest of less than $1,000
principal amount may be redeemed in part.
PAYMENTS ON GLOBAL NOTES
Payments of any amounts owing in respect of the Global Notes (including
principal, premium, if any, and interest) will be made by NTL in U.S. dollars to
the paying agent. The paying agent will, in turn, make payments to DTC, which
will distribute such payments to participants, including Euroclear and
Clearstream, in accordance with its procedures.
Under the terms of the Indenture, NTL, the Trustee, the paying agent and
the registrar will treat the registered holder of the Global Notes (e.g., DTC
(or its nominee)) as the owner thereof for the purpose of receiving payments and
for all other purposes. Consequently, none of such persons has or will have any
responsibility or liability for:
(1) any aspect or accuracy of the records of DTC, Euroclear, Clearstream
or any participant or indirect participant relating to or payments
made on account of a book-entry interest or for maintaining,
supervising or reviewing any of the records of DTC, Euroclear,
Clearstream or any participant or indirect participant relating to
our payments made on account of a book-entry interest; or
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(2) any other matter relating to the actions and practices of DTC,
Euroclear, Clearstream or any participant or indirect participant.
DTC has advised NTL that its current practice, upon receipt of any payment
in respect of securities such as the notes (including principal and interest),
is to credit the accounts of the relevant participants with the payment on the
payment date unless DTC has reason to believe it will not receive payment on
such payment date. Each relevant participant is credited with an amount
proportionate to its beneficial ownership of an interest in the principal amount
of the relevant security as shown on the records of DTC. Payments by the
participants, including Euroclear and Clearstream, and the indirect participants
to the beneficial owners of notes will be governed by standing instructions and
customary practices and will be the responsibility of the participants or the
indirect participants and will not be the responsibility of DTC, the Trustee or
NTL. We expect that Euroclear or Clearstream as applicable, upon receipt of any
payment in respect of a Global Note, will credit participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
such Global Note as shown on their respective records. Neither NTL nor the
Trustee will be liable for any delay by DTC or any of its participants in
identifying the beneficial owners of the notes, and NTL and the Trustee may
conclusively rely on and will be protected in relying on instructions from DTC
or its nominee for all purposes.
Payments by participants to owners of book-entry interests held through
participants are the responsibility of such participants, as is now the case
with securities held for the accounts of customers registered in "street name."
TRANSFER AND EXCHANGE
Except for trades involving only Euroclear and Clearstream participants,
interests in the Global Notes will trade in DTC's same-day funds settlement
system and secondary market trading activity in such interests will therefore
settle in immediately available funds, subject in all cases to the rules and
procedures of DTC and the participants. NTL expects that secondary trading in
any certificated notes will also be settled in immediately available funds.
All transfers of book-entry interests between participants in DTC,
participants in Euroclear or participants in Clearstream will be effected by
DTC, Euroclear or Clearstream pursuant to their respective customary procedures
and subject to the applicable rules and procedures established by DTC Euroclear
or Clearstream and their respective participants.
Cross-market transfers between the participants in DTC, on the one hand,
and participants in Euroclear or Clearstream, on the other hand, will be
effected through DTC in accordance with DTC's rules on behalf of each of
Euroclear or Clearstream by its common depositary; however, such cross-market
transactions will require delivery of instructions to Euroclear or Clearstream
by the counterparty in such system in accordance with the rules and procedures
and within the established deadlines (Brussels time) of such system. Euroclear
or Clearstream, as the case may be, will, if the transaction meets its
settlement requirements, deliver instructions to its respective depository to
take action to effect final settlement on its behalf by delivering or receiving
interests in the relevant Global Note in DTC, and making or receiving payment in
accordance with normal procedures for same-day funds settlement applicable to
DTC. Euroclear and Clearstream account holders may not deliver instructions
directly to the depositories for Euroclear and Clearstream.
Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in a Global Note from a
participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear or Clearstream participant, during the securities
settlement processing day (which must be a business day for Euroclear and
Clearstream) immediately following the settlement date of DTC. Cash received in
Euroclear and Clearstream as a result of sales of interest in a Global Note by
or through a Euroclear or Clearstream participant to a participant in DTC will
be received
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with value on the settlement date of DTC but will be available in the relevant
Euroclear or Clearstream cash account only as of the business day for Euroclear
or Clearstream following DTC's settlement date.
DTC, Euroclear and Clearstream have advised NTL that they will take any
action permitted to be taken by a holder of notes (including the tender of notes
for repurchase as described above) only at the direction of one or more
participants to whose account the book-entry interests in the Global Notes are
credited and only in respect of such portion of the aggregate principal amount
of notes as to which such participant or participants has or have given such
direction. The relevant depositary will not exercise any discretion in the
granting of consents, waivers or the taking of any other action in respect of
the Global Notes. However, if any of the events described below under "--
Definitive Registered Notes" occurs, DTC reserves the right to exchange the
Global Notes for definitive registered notes in certificated form, and to
distribute such notes to its participants.
Although DTC, Euroclear and Clearstream are expected to follow the
foregoing procedures in order to facilitate transfers of interests in the Global
Notes among participants of DTC, Euroclear or Clearstream, as the case may be,
they are under no obligation to perform or continue to perform such procedures,
and such procedures may be discontinued at any time. None of NTL, the Trustee or
the paying agent will have any responsibility for the performance by DTC,
Euroclear or Clearstream or their respective participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
DEFINITIVE REGISTERED NOTES
Under the terms of the Indenture, owners of book-entry interests will
receive notes in definitive registered form ("definitive registered notes") if:
(1) DTC notifies NTL that it is unwilling or unable to continue to act as
depositary or ceases to be a clearing agency registered under the
Exchange Act and, in either case, a successor depositary is not
appointed by NTL within 90 days; or
(2) an Event of Default under the Indenture has occurred and is
continuing.
Upon the occurrence of an event described in clauses (1)-(2) of the
preceding paragraph, the registrar will issue definitive registered notes,
registered in the name or names and issued in any approved denominations,
requested by or on behalf of DTC or Euroclear and Clearstream, as applicable (in
accordance with their respective customary procedures and based upon directions
received from participants reflecting the beneficial ownership of book-entry
interests).
If definitive registered notes are issued and such notes are then listed on
the Luxembourg Stock Exchange, transfers of such notes will have to be cleared
through a clearing system or a method approved by the rules and regulations of
the Luxembourg Stock Exchange in order to continue to be listed on the
Luxembourg Stock Exchange.
To the extent permitted by law, NTL, the Trustee, the paying agent and the
registrar shall be entitled to treat the holder of any note as the absolute
owner thereof.
NTL will not impose any fees or other charges in respect of the notes;
however, holders of the book-entry interests may incur fees normally payable in
respect of the maintenance and operation of accounts in DTC, Euroclear and
Clearstream.
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DEFINITIONS
Set forth below are selected defined terms used in the Indenture. Reference
is made to the Indenture for a full definition of all terms, as well as any
other capitalized terms used in the descriptions of the Notes for which no
definition is provided.
"12 3/4% notes" means 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 our option on or after
April 15, 2000;
"1996 11 1/2% deferred coupon notes" means 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 our
option on or after February 1, 2001;
"10% notes" means 10% Senior Notes due February 15, 2007, principal amount
at maturity of $400.0 million, interest payable semiannually from August 15,
1997, redeemable at our option on or after February 15, 2002;
"9 1/2% notes" means 9 1/2% Senior Sterling Notes due April 1, 2008,
principal amount at maturity of L125.0 million ($184.8 million), interest
payable semiannually from October 1, 1998, redeemable at our option on or after
April 1, 2003;
"10 3/4 notes" means 10 3/4% Senior Deferred Coupon Sterling Notes due April
1, 2008, principal amount at maturity of L300.0 million ($443.6 million),
interest payable semiannually beginning on October 1, 2003, redeemable at our
option on or after April 1, 2003;
"1998 9 3/4% notes" means 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 our option on or after
April 1, 2003;
"1999 9 3/4% notes" means 9 3/4% Senior Deferred Coupon Sterling Notes due
April 15, 2009, principal amount at maturity of L330.0 million ($488.0 million),
interest payable semiannually beginning on October 15, 2004, redeemable at our
option on or after April 15, 2004;
"11 1/2% notes" means 11 1/2% Senior Notes due October 1, 2008, principal
amount at maturity of $625.0 million, interest payable semiannually from April
1, 1999, redeemable at our option on or after October 1, 2003;
"12 3/8% notes" means 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 our option on or after
October 1, 2003;
"9 1/4 notes" means 9 1/4% Senior Euro Notes due November 15, 2006,
principal amount at maturity of E250.0 million ($220.9 million), interest
payable semiannually from May 15, 2000;
"9 7/8% notes" means 9 7/8% Senior Euro Notes due November 15, 2009,
principal amount at maturity of E350.0 million ($309.3 million), interest
payable semiannually from May 15, 2000, redeemable at our option on or after
November 15, 2004;
"1999 11 1/2% deferred coupon notes" means 11 1/2% Senior Deferred Coupon
Euro Notes due November 15, 2009, principal amount at maturity of E210.0 million
($185.6 million), interest payable semiannually beginning on May 15, 2005,
redeemable at our option on or after November 15, 2004;
"Acquired Debt" means, with respect to any specified Person, Indebtedness
of any other Person (the "Acquired Person") existing at the time such Acquired
Person merged with or into or became a Subsidiary of such specified Person,
including Indebtedness incurred in connection with, or in contemplation of, such
Acquired Person merging with or into or becoming a Subsidiary of such specified
Person.
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"Acquired Person" has the meaning specified in the definition of Acquired
Debt.
"Adjusted Total Assets" means the total amount of assets of NTL and its
Restricted Subsidiaries, including the amount of any Investment in any
Non-Restricted Subsidiary, except to the extent resulting from write-ups of
assets, other than write-ups in connection with accounting for acquisitions in
conformity with GAAP, after deducting therefrom
(1) all current liabilities of NTL and its Restricted Subsidiaries, and
(2) all goodwill, trade names, trademarks, patents, unamortized debt
discount and expense and other like intangibles, all as calculated
in conformity with GAAP.
For purposes of this Adjusted Total Assets definition,
(a) assets shall be calculated less applicable accumulated
depreciation, accumulated amortization and other valuation
reserves, and
(b) all calculations shall exclude all intercompany items.
"Adjusted Total Controlled Assets" means the total amount of assets of NTL
and its Cable Controlled Subsidiaries, except to the extent resulting from
write-ups of assets, other than write-ups in connection with accounting for
acquisitions in conformity with GAAP, after deducting therefrom
(1) all current liabilities of NTL and such Cable Controlled
Subsidiaries; and
(2) all goodwill, trade names, trademarks, patients, unamortized debt
discount and expense and other like intangibles of NTL and such
Restricted Subsidiaries, all as calculated in conformity with GAAP;
provided that Adjusted Total Controlled Assets shall be reduced (to the extent
not otherwise reduced in accordance with GAAP) by an amount equal to the
aggregate amount of all Investments of NTL or any such Cable Controlled
Subsidiaries in any Person other than a Cable Controlled Subsidiary, except Cash
Equivalents. For purposes of this Adjusted Total Controlled Assets definition,
(a) assets shall be calculated less applicable accumulated
depreciation, accumulated amortization and other valuation
reserves, and
(b) all calculations shall exclude all intercompany items.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control",
including, with correlative meanings, the terms "controlling", "controlled by"
and "under common control with", as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"Annualized Pro Forma EBITDA" means, with respect to any Person, such
Person's Pro Forma EBITDA for the latest fiscal quarter multiplied by four.
"Asset Sale" means
(1) any sale, lease, transfer, conveyance or other disposition of any
assets, including by way of a sale-and-leaseback, other than the
sale or transfer of inventory or goods held for sale in the
ordinary course of business, provided that the sale, lease,
transfer, conveyance or other disposition of all or substantially
all of the assets of NTL shall be governed by the provisions of the
Indenture described under the captions "Change of Control" or
"Merger, Consolidation or Sale of Assets", or
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(2) any issuance, sale, lease, transfer, conveyance or other
disposition of any Equity Interests of any of the NTL's Restricted
Subsidiaries to any Person;
in either case other than
(a) to
(A) NTL,
(B) any Wholly Owned Subsidiary, or
(C) any Subsidiary which is a Subsidiary of NTL on the Issuance
Date provided that at the time of and after giving effect
to such issuance, sale, lease, transfer, conveyance or
other disposition to such Subsidiary, NTL's ownership
percentage in such Subsidiary is equal to or greater than
such percentage on the Issuance Date, or
(b) the issuance, sale, transfer, conveyance or other disposition of
Equity Interests of a Subsidiary in exchange for capital
contributions made on a pro rata basis by the holders of the
Equity Interests of such Subsidiary.
"Cable Assets" means tangible or intangible assets, licenses, including,
without limitation, Licenses, and computer software used in connection with a
Cable Business.
"Cable Business" means
(i) any Person directly or indirectly operating, or owning a license
to operate, a cable and/or television and/or telephone and/or
telecommunications system or service principally within the United
Kingdom and/or the Republic of Ireland, and
(ii) any Cable Related Business.
"Cable Controlled Property" means a Cable Controlled Subsidiary or a Cable
Asset held by a Cable Controlled Subsidiary.
"Cable Controlled Subsidiary" means any Restricted Subsidiary which is
primarily engaged, directly or indirectly, in one or more Cable Businesses.
"Cable Related Business" means a Person which directly or indirectly owns
or provides a service or product used in a Cable Business, including, without
limitation, any television programming, production and/or licensing business or
any programming guide or telephone directory business or content or software
related thereto.
"Capital Stock" means any and all shares, interests, participations, rights
or other equivalents, however designated, of corporate stock, including, without
limitation, partnership interests.
"Capital Stock Sale Proceeds" means the aggregate net sale proceeds,
including from the sale of any property received for the Capital Stock or the
fair market value of such property, as determined by an independent appraisal
firm, received by NTL or any Subsidiary of NTL from the issue or sale, other
than to a Subsidiary, by NTL of any class of its Capital Stock after October 14,
1993, including Capital Stock of NTL issued after October 14, 1993 upon
conversion of or in exchange for other securities of NTL.
"Cash Equivalents" means
(1) Permitted Currency,
(2) securities issued or directly and fully guaranteed or insured by
the U.S. government, a European Union member government or any
agency or instrumentality thereof having maturities of not more
than six months and two days from the date of acquisition,
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(3) certificates of deposit and eurodollar time deposits with
maturities of six months or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any commercial bank(s)
domiciled in the United States, the United Kingdom, the Republic of
Ireland or any other European Union member having capital and
surplus in excess of $500.0 million,
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3)
entered into with any financial institution meeting the
qualifications specified in clause (3) above,
(5) commercial paper rated P-1 or the equivalent thereof by Moody's or
A-1 or the equivalent thereof by S&P and in each case maturing
within six months and two days after the date of acquisition and
(6) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1)-(5) of this
definition.
"Change of Control" means
(1) the sale, lease or transfer of all or substantially all of the
assets of NTL to any "Person" or "group", within the meaning of
Sections 13(d)(3) and 14(d)(2) of the Exchange Act or any successor
provision to either of the foregoing, including any group acting
for the purpose of acquiring, holding or disposing of securities
within the meaning of Rule 13d-5(b)(1) under the Exchange Act,
other than any Permitted Holder,
(2) the approval by the requisite stockholders of NTL of a plan of
liquidation or dissolution of NTL,
(3) any "Person" or "group", within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act or any successor provision to either
of the foregoing, including any group acting for the purpose of
acquiring, holding or disposing of securities within the meaning of
Rule 13d-5(b)(1) under the Exchange Act, other than any Permitted
Holder, becomes the "beneficial owner", as defined in Rule 13d-3
under the Exchange Act, of more than 50% of the total voting power
of all classes of the voting stock of NTL and/or warrants or
options to acquire such voting stock, calculated on a fully diluted
basis, unless, as a result of such transaction, the ultimate direct
or indirect ownership of NTL is substantially the same immediately
after such transaction as it was immediately prior to such
transaction, or
(4) during any period of two consecutive years, individuals who at the
beginning of such period constituted NTL's Board of Directors,
together with any new directors whose election or appointment by
such board or whose nomination for election by the shareholders of
NTL was approved by a vote of a majority of the directors then
still in office who were either directors at the beginning of such
period or whose election or nomination for election was previously
so approved, cease for any reason to constitute a majority of NTL's
Board of Directors then in office.
"Change of Control Triggering Event" means the occurrence of both a Change
of Control and a Ratings Decline.
"Consolidated Interest Expense" means, for any Person, for any period, the
amount of interest in respect of Indebtedness, including amortization of
original issue discount, amortization of debt issuance costs, and non-cash
interest payments on any Indebtedness and the interest portion of any deferred
payment obligation and after taking into account the effect of elections made
under any Interest Rate Agreement, however denominated, with respect to such
Indebtedness, the amount of Redeemable Dividends, Restricted Subsidiary
Preferred Stock Dividends and the interest component of rentals in respect of
any capital lease obligation paid, in each case whether accrued or scheduled to
be paid or accrued by such Person and its
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Subsidiaries, other than Non-Restricted Subsidiaries, during such period to the
extent such amounts were deducted in computing Consolidated Net Income,
determined on a consolidated basis in accordance with GAAP. For purposes of this
definition, interest on a capital lease obligation shall be deemed to accrue at
an interest rate reasonably determined by such Person to be the rate of interest
implicit in such capital lease obligation in accordance with GAAP consistently
applied.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries, other than
Non-Restricted Subsidiaries, for such period, on a consolidated basis,
determined in accordance with GAAP; provided, that
(1) the Net Income of any Person that is not a Subsidiary or that is
accounted for by the equity method of accounting shall be included
only to the extent of the amount of dividends or distributions paid
to the referent Person or a Wholly Owned Subsidiary,
(2) the Net Income of any Person that is a Subsidiary, other than a
Subsidiary of which at least 80% of the Capital Stock having
ordinary voting power for the election of directors or other
governing body of such Subsidiary is owned by the referent Person
directly or indirectly through one or more Subsidiaries, shall be
included only to the extent of the amount of dividends or
distributions paid to the referent Person or a Wholly Owned
Subsidiary,
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition
shall be excluded, and
(4) the cumulative effect of a change in accounting principles shall be
excluded.
"Convertible Subordinated Notes" means NTL's 7% Convertible Subordinated
Notes due 2008 issued pursuant to an indenture dated as of December 16, 1998
between NTL and The Chase Manhattan Bank, as trustee, as supplemented by a first
supplemental indenture dated as of March 31, 1999 between NTL, NTL Incorporated
and The Chase Manhattan Bank, as further supplemented by a second supplemental
indenture dated as of March 16, 2000 between NTL, NTL Incorporated and The Chase
Manhattan Bank and as further supplemented by a third supplemental indenture
dated as of May 17, 2000 between NTL, NTL Incorporated and NTL Holdings
Incorporated.
"Credit Facility" means the Facilities Agreement dated October 17, 1997
between NTL (UK) Group Inc., as principal guarantor, Chase Manhattan plc, as
arranger, Chase Manhattan International Limited, as agent and security trustee
and The Chase Manhattan Bank as issuer, as such Facilities Agreement may be
supplemented, amended, restated, modified, renewed, refunded, replaced or
refinanced, in whole or in part, from time to time in an aggregate outstanding
principal amount not to exceed the greater of
(1) L555.0 million and
(2) the amount of the aggregate commitments thereunder as the same may
be increased after March 13, 1998 as contemplated by the Facilities
Agreement as amended or supplemented to March 13, 1998, but in no
event greater than L875.0 million, less, in each case, the
aggregate amount of all Net Proceeds of Asset Sales that have been
applied to permanently reduce Indebtedness under the Credit
Facility pursuant to the covenant described above under "-- Asset
Sale".
Indebtedness that may otherwise be incurred under the indenture may, but need
not, be incurred under the Credit Facility without regard to the limit set forth
in the preceding sentence. Indebtedness outstanding under the Credit Facility on
the date of the indenture shall be deemed to have been incurred on such date in
reliance on the exception provided by clause (a) of the second paragraph of the
covenant described above under "-- Incurrence of Indebtedness and Issuance of
Preferred Stock".
"Cumulative EBITDA" means the cumulative EBITDA of NTL from and after the
Issuance Date to the end of the fiscal quarter immediately preceding the date of
a proposed Restricted Payment, or, if such
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cumulative EBITDA for such period is negative, minus the amount by which such
cumulative EBITDA is less than zero; provided, however, that EBITDA of
Non-Restricted Subsidiaries shall not be included.
"Cumulative Interest Expense" means the aggregate amount of Consolidated
Interest Expense paid, accrued or scheduled to be paid or accrued by NTL from
the Issuance Date to the end of the fiscal quarter immediately preceding a
proposed Restricted Payment, determined on a consolidated basis in accordance
with GAAP.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Diamond Notes" means the 10% Diamond Senior Notes due 2008, the 9 1/8%
Diamond Senior Notes due 2008, the 10 3/4% Diamond Senior Discount Notes due
2007, the 11 3/4% Diamond Senior Discount Notes due 2005 and the 13 1/4% Diamond
Senior Discount Notes due 2004.
"Disqualified Stock" means any Capital Stock which, by its terms, or by the
terms of any security into which it is convertible or for which it is
exchangeable, or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
on which the Notes mature.
"EBITDA" means, for any Person, for any period, an amount equal to
(1) the sum of
(a) Consolidated Net Income for such period, exclusive of any
gain or loss realized in such period upon an Asset Sale, plus
(b) the provision for taxes for such period based on income or
profits to the extent such income or profits were included in
computing Consolidated Net Income and any provision for taxes
utilized in computing net loss under clause (a) hereof, plus
(c) Consolidated Interest Expense for such period, plus
(d) depreciation for such period on a consolidated basis, plus
(e) amortization of intangibles for such period on a consolidated
basis, plus
(f) any other non-cash item reducing Consolidated Net Income for
such period, excluding any such non-cash item to the extent
that it represents an accrual of or reserve for cash expenses
in any future period or amortization of a prepaid cash
expense that was paid in a prior period,
minus
(2) all non-cash items increasing Consolidated Net Income for such
period, all for such Person and its Subsidiaries determined in
accordance with GAAP consistently applied.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock, but excluding any Indebtedness that is
convertible into, or exchangeable for, Capital Stock.
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office as operator of the Euroclear system.
"European Union member" means any country that is or becomes a member of
the European Union or any successor organization thereto.
"Exchange Rate Contract" means, with respect to any Person, any currency
swap agreements, forward exchange rate agreements, foreign currency futures or
options, exchange rate collar agreements, exchange rate insurance and other
agreements or arrangements, or combination thereof, the principal purpose of
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which is to provide protection against fluctuations in currency exchange rates.
An Exchange Rate Contract may also include an Interest Rate Agreement.
"Existing Indebtedness" means Indebtedness of NTL and its Subsidiaries in
existence on the Issuance Date, until such amounts are repaid, including,
without limitation, the Existing Notes.
"Existing Notes" means the Old Notes and the Convertible Subordinated
Notes.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
which are in effect on the Issuance Date and are applied on a consistent basis.
"Guarantee" means a guarantee, other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner, including, without limitation, letters of credit and
reimbursement agreements in respect thereof, of all or any part of any
Indebtedness.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit, or
reimbursement agreements in respect thereof, or representing the balance
deferred and unpaid of the purchase price of any property, including pursuant to
capital leases and sale-and-leaseback transactions, or representing any hedging
obligations under an Exchange Rate Contract or an Interest Rate Agreement,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing indebtedness, other than obligations
under an Exchange Rate Contract or an Interest Rate Agreement, would appear as a
liability upon a balance sheet of such Person prepared in accordance with GAAP,
and also includes, to the extent not otherwise included, the Guarantee of items
which would be included within this definition. The amount of any Indebtedness
outstanding as of any date shall be the accreted value thereof, in the case of
any Indebtedness issued with original issue discount.
"Interest Rate Agreement" means, with respect to any Person, any interest
rate swap agreement, interest rate cap agreement, interest rate collar agreement
or other similar agreement the principal purpose of which is to protect the
party indicated therein against fluctuations in interest rates.
"Investment Grade" means BBB- or higher by S&P or Baa3 or higher by Moody's
or the equivalent of such ratings by S&P or Moody's. In the event that NTL shall
be permitted to select any other Rating Agency, the equivalent of such ratings
by such Rating Agency shall be used.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons, including Affiliates, in the forms of loans, including
Guarantees, advances or capital contributions, excluding commission, travel and
similar advances and loans, joint property ownership and other arrangements, in
each case, made to officers and employees made in the ordinary course of
business, purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
"Issuance Date" means the date on which the notes are first authenticated
and issued.
"License" means any license issued or awarded pursuant to the Broadcasting
Act 1990, the Cable and Broadcasting Act 1984, the Telecommunications Act 1984
or the Wireless Telegraphy Act 1948, in each case, as such Acts may, from time
to time be, amended, modified or re-enacted, or equivalent statutes of any
jurisdiction, to operate or own a Cable Business.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the
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nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code, or equivalent or successor statutes, of any
jurisdiction.
"Material License" means a License held by NTL or any of its Subsidiaries
which License at the time of determination covers a number of Net Households
which equals or exceeds 5% of the aggregate number of Net Households covered by
all of the Licenses held by NTL and its Subsidiaries at such time.
"Material Subsidiary" means
(1) NTL UK Group, Inc., formerly known as OCOM Sub II, Inc., NTLIH, NTL
Group Limited, CableTel Surrey Limited, CableTel Cardiff Limited,
CableTel Glasgow, CableTel Newport and CableTel Kirklees and
(2) any other Subsidiary of NTL which is a "significant subsidiary" as
defined in Rule 1-02(v) of Regulation S-X under the Securities Act
and the Exchange Act, as such Regulation is in effect on the date
of the indenture.
"Monetize" means a strategy with respect to Equity Interests that generates
an amount of cash equal to the fair value of such Equity Interests.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Households" means the product of
(1) the number of households covered by a License in the United Kingdom
and
(2) the percentage of the entity holding such License which is owned
directly or indirectly by NTL.
"Net Income" means, with respect to any Person for a specific period, the
net income (loss) of such Person during such period, determined in accordance
with GAAP, excluding, however, any gain, but not loss, during such period,
together with any related provision for taxes on such gain, but not loss,
realized during such period in connection with any Asset Sale, including,
without limitation, dispositions pursuant to sale-and-leaseback transactions,
and excluding any extraordinary gain, but not loss, during such period, together
with any related provision for taxes on such extraordinary gain, but not loss.
"Net Proceeds" means the aggregate cash proceeds received by NTL or any of
its Subsidiaries in respect of any Asset Sale, net of the direct costs relating
to such Asset Sale, including, without limitation, legal, accounting and
investment banking fees, and sales commissions, and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof, after
taking into account any available tax credits or deductions and any tax sharing
arrangements, amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets the subject of such Asset Sale and any
reserve for adjustment in respect of the sale price of such asset or assets.
"Non-Controlled Subsidiary" means an entity which is not a Cable Controlled
Subsidiary.
"Non-Recourse Debt" means Indebtedness or that portion of Indebtedness as
to which none of NTL, nor any Restricted Subsidiary:
(1) provides credit support, including any undertaking, agreement or
instrument which would constitute Indebtedness;
(2) is directly or indirectly liable; or
(3) constitutes the lender.
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"Non-Restricted Subsidiary" means
(1) a Subsidiary that
(a) at the time of its designation by the Board of Directors as a
Non-Restricted Subsidiary has not acquired any assets, other
than as specifically permitted by clause (5) of "Permitted
investments" or by the "Restricted Payments" covenant, at any
previous time, directly or indirectly from the Company or any of
its Restricted Subsidiaries,
(b) has no Indebtedness other than Non-Recourse Debt and
(c) that at the time of such designation, after giving pro forma
effect to such designation, the ratio of Indebtedness to
Annualized Pro Forma EBITDA of NTL is equal to or less than the
ratio of Indebtedness to Annualized Pro Forma EBITDA of NTL
immediately preceding such designation, provided, however, that
if the ratio of Indebtedness to Annualized Pro Forma EBITDA of
NTL immediately preceding such designation is 6:1 or less, then
the ratio of Indebtedness to Annualized Pro Forma EBITDA of NTL
may be 0.5 greater than such ratio immediately preceding such
designation;
(2) any Subsidiary which
(a) has been acquired or capitalized out of or by Equity Interests
of NTL or Capital Stock Sales Proceeds therefrom,
(b) has no Indebtedness other than Non-Recourse Debt and
(c) is designated as a Non-Restricted Subsidiary by the Board of
Directors or is merged, amalgamated or consolidated with or
into, or its assets or capital stock is to be transferred to, a
Non-Restricted Subsidiary; or
(3) any Subsidiary of a Non-Restricted Subsidiary.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Old Notes" means the 12 3/8% notes, the 11 1/2% notes, the 12 3/4% notes,
the 1996 11 1/2% deferred coupon notes, the 10 3/4% notes, the 10% notes, the
1998 9 3/4% notes, the 1999 9 3/4 notes, the 9 1/2% notes, the 9 1/4% notes, the
9 7/8% notes and the 1999 11 1/2% deferred coupon notes.
"Other Qualified Notes" means any outstanding senior indebtedness of NTL
issued pursuant to an indenture having a provision substantially similar to the
Asset Sale Offer provision contained in the Indenture, including, without
limitation, the new notes and the old notes, the Old Notes and the Diamond
Notes.
"Permitted Acquired Debt" means, with respect to any Acquired Person,
including, for this purpose, any Non-Restricted Subsidiary at the time such
Non-Restricted Subsidiary becomes a Restricted Subsidiary, Acquired Debt of such
Acquired Person and its Subsidiaries in an amount, determined on a consolidated
basis, not exceeding the sum of
(1) amount of the gross book value of property, plant and equipment of
the Acquired Person and its Subsidiaries as set forth on the most
recent consolidated balance sheet of the Acquired Person, which may
be unaudited, prior to the date it becomes an Acquired Person and
(2) the aggregate amount of any Cash Equivalents held by such Acquired
Person at the time it becomes an Acquired Person.
"Permitted Currency" means the lawful currency of the United States or a
European Union member.
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"Permitted Designee" means
(1) a spouse or a child of a Permitted Holder,
(2) trusts for the benefit of a Permitted Holder or a spouse or child
of a Permitted Holder,
(3) in the event of the death or incompetence of a Permitted Holder,
his estate, heirs, executor, administrator, committee or other
personal representative or
(4) any Person so long as a Permitted Holder owns at least 50% of the
voting power of all classes of the voting stock of such Person.
"Permitted Holders" means George S. Blumenthal, J. Barclay Knapp and their
Permitted Designees.
"Permitted Investments" means
(1) any Investments in NTL or in a Cable Controlled Property or in a
Qualified Subsidiary, including, without limitation,
(a) Guarantees of Indebtedness of NTL, a Cable Controlled Subsidiary
or a Qualified Subsidiary,
(b) Liens securing such Indebtedness or Guarantees or
(c) the payment of any balance deferred and unpaid of the purchase
price of any Qualified Subsidiary;
(2) any Investments in Cash Equivalents;
(3) Investments by NTL in Indebtedness of a counter-party to an
Exchange Rate Contract for hedging a Permitted Currency exchange
risk that are made, for purposes other than speculation, in
connection with such contract to hedge not more than the aggregate
principal amount of the Indebtedness being hedged, or, in the case
of Indebtedness issued with original issue discount, based on the
amounts payable after the amortization of such discount;
(4) Investments by NTL or any Subsidiary of NTL in a Person, if as a
result of such Investment
(a) such Person becomes a Cable Controlled Subsidiary or
(b) such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or
is liquidated into, NTL or a Wholly Owned Subsidiary of NTL; and
(5) any issuance, transfer or other conveyance of Equity Interests in
NTL, or any Capital Stock Sales Proceeds therefrom, to a Subsidiary
of NTL.
"Permitted Liens" means
(1) Liens in favor of NTL;
(2) Liens on property of a Person existing at the time such Person is
merged into or consolidated with NTL or any Subsidiary of NTL;
provided, that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not secure any
property or assets of NTL or any of its Subsidiaries other than the
property or assets subject to the Liens prior to such merger or
consolidation;
(3) liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar liens arising in the ordinary
course of business which secure payment of obligations not more
than 60 days past due or are being contested in good faith and by
appropriate proceedings;
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(4) Liens existing on the Issuance Date;
(5) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently
concluded; provided, that any reserve or other appropriate
provision as shall be required in conformity with GAAP shall have
been made therefor and
(6) easements, rights of way, restrictions and other similar easements,
licenses, restrictions on the use of properties or minor
imperfections of title that, in the aggregate, are not material in
amount, and do not in any case materially detract from the
properties subject thereto or interfere with the ordinary conduct
of the business of NTL or its Restricted Subsidiaries.
"Permitted Non-Controlled Assets" means Equity Interests in any Person
primarily engaged, directly or indirectly, in one or more Cable Businesses if
such Equity Interests
(1) were acquired by NTL or any of its Restricted Subsidiaries in
connection with any Asset Sale or any Investment otherwise
permitted under the terms of the Indenture and
(2) to the extent that, after giving pro forma effect to the
acquisition thereof by NTL or any of its Restricted Subsidiaries,
Adjusted Total Controlled Assets is greater than 80% of Adjusted
Total Assets based on the most recent consolidated balance sheet of
NTL.
"Pro Forma EBITDA" means for any Person, for any period, the EBITDA of such
Person as determined on a consolidated basis for such Person and its
Subsidiaries in accordance with GAAP after giving effect to the following:
(1) if, during or after such period, such Person or any of its
Subsidiaries shall have made any Asset Sale, Pro Forma EBITDA of
such Person and its Subsidiaries for such period shall be reduced
by an amount equal to the Pro Forma EBITDA, if positive, directly
attributable to the assets which are the subject of such Asset Sale
for the period or increased by an amount equal to the Pro Forma
EBITDA, if negative, directly attributable thereto for such period
and
(2) if, during or after such period, such Person or any of its
Subsidiaries completes an acquisition of any Person or business
which immediately after such acquisition is a Subsidiary of such
Person or whose assets are held directly by such Person or a
Subsidiary of such Person, Pro Forma EBITDA shall be computed so as
to give pro forma effect to the acquisition of such Person or
business, without giving effect to clause (3) of the definition of
Consolidated Net Income;
and provided further that, with respect to NTL, all of the foregoing references
to "Subsidiary" or "Subsidiaries" shall be deemed to refer only to a "Restricted
Subsidiary" or "Restricted Subsidiaries" of NTL.
"Qualified Subsidiary" means a Wholly Owned Subsidiary, or an entity that
will become a Wholly Owned Subsidiary after giving effect to the transaction
being considered, that at the time of and after giving effect to the
consummation of the transaction under consideration,
(1) is a Cable Business or holds only Cable Assets,
(2) has no Indebtedness (other than Indebtedness being incurred to
consummate such transaction) and
(3) has no encumbrances or restrictions, other than such encumbrances
or restrictions imposed or permitted by the Indenture, the
indentures governing the Old Notes or any other instrument
governing unsecured indebtedness of NTL which is pari passu with
the notes, on its ability to pay dividends or make any other
distributions to NTL or any of its Subsidiaries.
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"Rating Agencies" means
(1) S&P,
(2) Moody's and
(3) if S&P or Moody's or both shall not make a rating of the notes
publicly available, a nationally recognized securities rating
agency or agencies, as the case may be, selected by NTL, which
shall be substituted for S&P or Moody's or both, as the case may
be.
"Rating Category" means
(1) with respect to S&P, any of the following categories: BB, B, CCC,
CC, C and D, or equivalent successor categories,
(2) with respect to Moody's, any of the following categories: Ba, B,
Caa, Ca, C and D, or equivalent successor categories, and
(3) the equivalent of any such category of S&P or Moody's used by
another Rating Agency.
In determining whether the rating of the notes has decreased by one or more
gradations, gradations within Rating Categories + and -- for S&P; 1, 2 and 3 for
Moody's; or the equivalent gradations for another Rating Agency shall be taken
into account e.g., with respect to S&P, a decline in a rating from BB to BB-, as
well as from BB- to B+, will constitute a decrease of one gradation.
"Rating Date" means that date which is 90 days prior to the earlier of
(1) a Change of Control and
(2) public notice of the occurrence of a Change of Control or of the
intention by NTL or any Permitted Holder to effect a Change of
Control.
"Ratings Decline" means the occurrence of any of the following events on,
or within six months after, the date of public notice of the occurrence of a
Change of Control or of the intention of NTL or any Person to effect a Change of
Control, which period shall be extended so long as the rating of any of NTL's
debt securities is under publicly announced consideration for possible downgrade
by any of the Rating Agencies:
(1) in the event that any of NTL's debt securities are rated by both of
the Rating Agencies on the Rating Date as Investment Grade, the
rating of such securities by either of the Rating Agencies shall be
below Investment Grade,
(2) in the event that any of NTL's debt securities are rated by either,
but not both, of the Rating Agencies on the Rating Date as
Investment Grade, the rating of such securities by both of the
Rating Agencies shall be below Investment Grade, or
(3) in the event any of NTL's debt securities are rated below
Investment Grade by both of the Rating Agencies on the Rating Date,
the rating of such securities by either Rating Agency shall be
decreased by one or more gradations, including gradations within
Rating Categories as well as between Rating Categories.
"Redeemable Dividend" means, for any dividend with regard to Disqualified
Stock, the quotient of the dividend divided by the difference between one and
the maximum statutory federal income tax rate, expressed as a decimal number
between 1 and 0, then applicable to the issuer of such Disqualified Stock.
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"Replacement Assets" means
(1) Cable Assets,
(2) Equity Interests of any Person engaged, directly or indirectly,
primarily in a Cable Business, which Person is or will become on
the date of acquisition thereof a Restricted Subsidiary as a result
of NTL's acquiring such Equity Interests,
(3) Permitted Non-Controlled Assets or
(4) any combination of the foregoing.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any Subsidiary of NTL which is not a
Non-Restricted Subsidiary.
"Restricted Subsidiary Preferred Stock Dividend" means, for any dividend
with regard to preferred stock of a Restricted Subsidiary, the quotient of the
dividend divided by the difference between one and the maximum statutory federal
income tax rate, expressed as a decimal number between 1 and 0, then applicable
to the issuer of such preferred stock.
"S&P" means Standard & Poor's Ratings Group and its successors.
"Subordinated Debentures" means the debentures exchangeable by NTL for the
Preferred Stock in accordance with the Certificate of Designation therefor.
"Subsidiary" means any corporation, association or other business entity of
which more than 50% of the total voting power of shares of Capital Stock
entitled, without regard to the occurrence of any contingency, to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by any Person or one or more of the other
Subsidiaries of that Person or a combination thereof.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing
(1) the sum of the products obtained by multiplying
(a) the amount of each then remaining installment, sinking fund, serial
maturity or other required payments of principal, including payment
at final maturity, in respect thereof, by
(b) the number of years, calculated to the nearest one-twelfth, that
will elapse between such date and the making of such payment, by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" means, at any time, a Restricted Subsidiary all
of the Capital Stock of which, except directors' qualifying shares, is at the
time owned directly or indirectly by NTL.
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REGISTRATION RIGHTS
The following summary of the registration rights provided in the
registration rights agreement and the notes is not complete. You should refer to
the registration rights agreement and the notes for a full description of the
registration rights that apply to the notes. The registration rights agreement
is filed as an exhibit to the registration statement of which this prospectus
forms a part.
Under the registration rights agreement, we agreed to file with the SEC a
registration statement, including a prospectus, on the appropriate form under
the Securities Act with respect to an offer to exchange the old notes for new
notes registered under the Securities Act with terms substantially identical to
those of the old notes. If:
(1) on or prior to the time the exchange offer is completed existing SEC
interpretations are changed such that the debt securities received by
holders other than restricted holders in the exchange offer for
registrable securities are not or would not be, upon receipt,
transferable by each such holder without restriction under the
Securities Act,
(2) the exchange offer has not been completed by May 10, 2001 or
(3) the exchange offer is not available to any holder of the notes,
we will file with the SEC a shelf registration statement to cover resales of the
notes by the holders who satisfy certain conditions relating to the provision of
information in connection with the shelf registration statement. We will use our
best efforts to cause the applicable registration statement to be declared
effective as promptly as practicable by the SEC.
The registration rights agreement provides that:
(a) we will file an exchange registration statement with the SEC by
December 31, 2000,
(b) we will use our best efforts to have the exchange registration
statement declared effective by the SEC by March 31, 2001,
(c) unless the exchange offer would not be permitted by applicable law or
SEC policy, we will commence the exchange offer and use our best
efforts to issue on or prior to May 10, 2001, new notes in exchange
for all notes tendered before that date in the exchange offer and
(d) if obligated to file the shelf registration statement, we will use our
best efforts to file the shelf registration statement with the SEC as
promptly as practicable after such filing obligation arises and to
cause the shelf registration to be declared effective by the SEC
within 90 days after the filing of such shelf registration statement.
If, with respect to the notes:
(1) we fail to file the exchange registration statement or the shelf
registration statement on or before the date specified for such
filing,
(2) the exchange registration statement is not declared effective by March
31, 2001 or the shelf registration statement is not declared effective
within 90 days from the date such shelf registration statement is
filed,
(3) we fail to complete the exchange offer within the specified time frame
or
(4) the exchange registration statement or the shelf registration
statement is filed and declared effective but is thereafter either
withdrawn or becomes subject to an effective stop order suspending the
effectiveness (except as specifically permitted in the registration
rights agreement) without being succeeded immediately by an additional
registration statement which becomes effective,
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then we will pay special interest pursuant to provisions of the registration
rights agreement and the notes to each holder of the notes.
Special interest will accrue from:
(1) the date specified for such filing, in the case of clause (1)
above,
(2) the date specified for effectiveness in the case of clause (2)
above,
(3) the date specified for completion of the exchange offer, in the
case of clause (3) above or
(4) the date such exchange registration statement or shelf
registration statement ceases to be effective, in the case of
clause (4) above (each such period referred to in clauses (1)-(4)
above an "Accrual Period"),
at a rate per annum equal to 0.25% for the first 90 days of the Accrual Period;
0.50% for the second 90 days of the Accrual Period; 0.75% for the third 90 days
of the Accrual Period and 1.0% for the remaining portion of the Accrual Period
of the principal amount of the notes. In the event that any special interest is
required to be paid, a notice which sets forth the special interest rate and
other relevant details will be published in Luxembourg and delivered to the
Luxembourg Stock Exchange.
All accrued special interest will be paid by us on each interest payment
date to the applicable Global Note holder by wire transfer of immediately
available funds or by federal funds check and to holders of certificated
securities by wire transfer to the accounts specified by them in writing or by
mailing checks to their registered addresses if no such accounts have been
specified in writing. Following the cure of all registration defaults, the
accrual of special interest will cease.
Special interest on the notes, if any, will be computed on the basis of a
360-day year comprised of twelve 30-day months.
Holders of notes will be required to make certain representations to us as
described in the registration rights agreement in order to participate in the
exchange offer and will be required to deliver information to be used in
connection with the shelf registration statement and to provide comments on the
shelf registration statement within the time periods set forth in the
registration rights agreement in order to have their notes included in the shelf
registration statement and benefit from the provisions regarding special
interest pursuant to provisions of the notes, as set forth above.
Application will be made to list the new notes on the Luxembourg Stock
Exchange. All notices relating to the exchange offer will be published in
Luxembourg and will be delivered to the Luxembourg Stock Exchange. All
documentation in connection with the exchange offer will be available at and all
actions necessary in connection with the exchange offer will be able to be
carried out through the office of an exchange agent located in Luxembourg. A
prospectus supplement will be prepared and delivered to the Luxembourg Stock
Exchange which will confirm the results of the exchange offer, including the
aggregate principal amount of outstanding new notes and the aggregate principal
amount of the outstanding old notes following the exchange offer.
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DESCRIPTION OF OTHER INDEBTEDNESS
Each of the following are summaries of NTL's or its subsidiaries' existing
debt instruments. You should refer to the relevant agreements for a full
description of the terms of those debt instruments. See "Where you can find more
information about us." Capitalized terms used and not defined below have the
meanings set forth in such debt instruments.
THE 12 3/4% NOTES
In April 1995, we issued $277,803,500 aggregate principal amount at
maturity of our 12 3/4% senior deferred coupon notes due 2005, the "old 12 3/4%
notes", at a discount to their aggregate principal amount to generate gross
proceeds to us of approximately $150.0 million. The old 12 3/4% notes were
issued and sold in a transaction exempt from the registration requirement of the
Securities Act pursuant to Rule 144A under the Securities Act or in transactions
complying with Regulation S under the Securities Act. On August 18, 1995 we
issued $277,803,500 aggregate principal amount at maturity of the 12 3/4% series
A senior deferred coupon notes due 2005, the "12 3/4% notes", in exchange for
the old 12 3/4% notes pursuant to the indenture relating thereto, the "12 3/4%
notes indenture". The terms of the 12 3/4% notes are identical in all material
respects to the old 12 3/4% notes except for certain transfer restrictions and
registration rights applicable to the old 12 3/4% notes. The old 12 3/4% notes
were cancelled on August 18, 1995 on consummation of the exchange offer which
was made pursuant to our prospectus dated July 18, 1995, forming part of the
registration statement on Form S-4 (File No. 33-92794) filed with the Commission
on May 26, 1995.
The 12 3/4% notes accrete at a rate of 12 3/4% computed on a semiannual
bond equivalent basis to an aggregate principal amount at maturity of
$277,803,500. Cash interest on the 12 3/4% notes does not accrue until prior to
April 15, 2000. Thereafter, the 12 3/4% notes accrue interest in cash at the
rate of 12 3/4% per annum on the principal amount payable semiannually on April
15 and October 15 of each year, commencing October 15, 2000 to holders of record
on the immediately preceding April 1, and October 1. The 12 3/4% notes mature on
April 15, 2005. The 12 3/4% notes are redeemable, at our option at any time, in
whole or in part, on or after April 15, 2000 at the redemption prices set forth
in the 12 3/4% notes indenture, plus any unpaid interest, if any, to the date of
redemption. The 12 3/4% notes may also be redeemed at our option in whole but
not in part in some circumstances where additional amounts, as defined in the
12 3/4% notes indenture, are payable under the 12 3/4% notes. In those
circumstances the 12 3/4% notes to be repurchased must be repurchased at 100% of
Accreted Value, or, as the case may be, principal amount thereof. Upon a Change
of Control Triggering Event, as defined in the 12 3/4% notes indenture, holders
of the 12 3/4% notes have the right to require us to repurchase all or any part
of the 12 3/4% notes at a repurchase price equal to 101% of the accreted value
thereof plus accrued and unpaid interest, if any. Subject to various conditions,
we are obligated to offer to purchase the 12 3/4% notes and other Qualified
Senior Notes, as defined in the 12 3/4% notes indenture, with the Excess
Proceeds of some Asset Sales at a redemption price of 100% of the accreted value
or, as the case may be, principal amount thereof plus accrued and unpaid
interest. The 12 3/4% notes indenture contains restrictions with respect to,
among other things, the payment of dividends, the repurchase of stock and the
making of certain other Restricted Payments, the incurrence of additional
Indebtedness, the creation of certain Liens, certain Asset Sales, transactions
with Subsidiaries and other Affiliates and mergers and consolidations.
The 12 3/4% notes are our senior unsecured obligations ranking equal in
right of payment of principal and interest with all of our other existing and
future senior unsecured obligations and rank senior to all of our other existing
and future subordinated debt.
In January 1996, we obtained the necessary consents of the registered
holders of the 12 3/4% notes to certain proposed amendments to the 12 3/4% notes
indenture. On January 22, 1996, NTL and Chemical Bank, now known as The Chase
Manhattan Bank, as trustee, executed a first supplemental indenture to effect
those amendments. In general, the amendments modified the 12 3/4% notes
indenture by amending the covenant entitled "Limitations on Dividend and Other
Payment Restrictions Affecting Subsidiaries" and other
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provisions to facilitate the arrangement of our then proposed credit facilities
and other financings and make certain conforming and other changes to the
12 3/4% notes indenture.
In October 1998, we received the necessary consents of registered holders
of the 12 3/4% notes to amend the 12 3/4% notes indenture so as to allow us to
take certain actions that were previously prohibited under the 12 3/4% notes
indenture, particularly regarding the financing of our business and pending and
future acquisitions, including our acquisition of NTL Bermuda. In addition, the
amendment eliminated some, but not all, of certain differences between the
covenants in the 12 3/4% notes indenture and the existing 10 3/4% notes, 9 3/4%
notes and 9 1/2% notes indentures. On October 14, 1998, we and The Chase
Manhattan Bank, as trustee, executed a second supplemental indenture to effect
such amendment.
THE 11 1/2% DEFERRED COUPON NOTES
In January 1996, we issued $1,050.0 million aggregate principal amount at
maturity of 11 1/2% series A senior deferred coupon notes due 2006, the "old
11 1/2% deferred coupon notes", at a discount to their aggregate principal
amount to generate gross proceeds to us of approximately $600,127,500. The old
11 1/2% deferred coupon notes were issued and sold in a transaction exempt from
the registration requirement of the Securities Act pursuant to Rule 144A under
the Securities Act. On May 23, 1996, we issued $1,050.0 million aggregate
principal amount at maturity of the 11 1/2% series B senior deferred coupon
notes due 2006, the "11 1/2% deferred coupon notes", in exchange for the old
11 1/2% deferred coupon notes pursuant to the indenture relating thereto, the
"11 1/2% deferred coupon notes indenture". The terms of the 11 1/2% deferred
coupon notes are identical in all material respects to the old 11 1/2% deferred
coupon notes except for certain transfer restrictions and registration rights
applicable to the old 11 1/2% deferred coupon notes. The old 11 1/2% deferred
coupon notes tendered for exchange were cancelled on May 23, 1996 on
consummation of the exchange offer made pursuant to our prospectus dated April
22, 1996, forming part of our registration statement on Form S-4 (File No.
333-1010) filed with the Commission on April 16, 1996.
The 11 1/2% deferred coupon notes accrete at a rate of 11 1/2% computed on
a semiannual bond equivalent basis to an aggregate principal amount at maturity
of $1,050.0 million. Cash interest on the 11 1/2% deferred coupon notes does not
accrue until February 1, 2001. Thereafter, the 11 1/2% deferred coupon notes
accrue interest in cash at the rate of 11 1/2% per annum on the principal amount
payable semiannually on February 1 and August 1 of each year, commencing August
1, 2001, to holders of record on the immediately preceding January 15, and July
15. The 11 1/2% deferred coupon notes mature on February 1, 2006. The 11 1/2%
deferred coupon notes are redeemable, at our option at any time, in whole or in
part, on or after February 1, 2001 at the redemption prices set forth in the
11 1/2% deferred coupon notes indenture plus any accrued unpaid interest to the
date of redemption. The 11 1/2% deferred coupon notes may also be redeemed at
our option in whole but not in part in some circumstances where "Additional
Amounts", as defined in the 11 1/2% deferred coupon notes indenture, are payable
under the 11 1/2% notes. In those circumstances, the 11 1/2% deferred coupon
notes to be repurchased must be repurchased at 100% of accreted value or, as the
case may be, principal amount thereof plus accrued and unpaid interest. Upon a
Change of Control Triggering Event, as defined in the 11 1/2% deferred coupon
notes indenture, holders of the 11 1/2% deferred coupon notes have the right to
require us to repurchase all or any part of the 11 1/2% deferred coupon notes at
a repurchase price equal to 101% of the accreted value or, as the case may be,
principal amount thereof plus accrued and unpaid interest, if any. Subject to
various conditions, we are obligated to offer to purchase the 11 1/2% deferred
coupon notes and other Qualified Senior Notes, as defined in the 11 1/2%
deferred coupon notes indenture, with the Excess Proceeds of certain Asset Sales
at a redemption price of 100% of the accreted value or, as the case may be,
principal amount thereof plus accrued and unpaid interest, if any. The 11 1/2%
deferred coupon notes indenture contains restrictions with respect to, among
other things, the payment of dividends, the repurchase of stock and the making
of some other Restricted Payments, the incurrence of additional Indebtedness,
the creation of some Liens, some sales of assets, transactions with Subsidiaries
and other Affiliates and mergers and consolidations.
In October 1998, we received the necessary consents of registered holders
of the 11 1/2% deferred coupon notes to amend the 11 1/2% deferred coupon notes
indenture so as to allow us to take certain actions
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that were previously prohibited under the 11 1/2% deferred coupon notes
indenture, particularly regarding the financing of our business and pending and
future acquisitions, including our acquisition of NTL Bermuda. In addition, the
amendment eliminated some, but not all, of certain differences between the
covenants in the 11 1/2% deferred coupon notes indenture and the existing
10 3/4% notes, 9 3/4% notes and 9 1/2% notes indentures. On October 14, 1998,
NTL and The Chase Manhattan Bank, as trustee, executed a first supplemental
indenture to effect such amendment.
The 11 1/2% deferred coupon notes are our senior unsecured obligations of
ranking equal in right of payment of principal and interest with all of our
other existing and future senior unsecured obligations and rank senior to all of
our other existing and future subordinated debt.
THE 10% NOTES
In February 1997, we issued $400.0 million aggregate principal amount of
our 10% series A senior notes due 2007, the "old 10% notes". The old 10% notes
were issued and sold in a transaction exempt from the registration requirement
of the Securities Act pursuant to Rule 144A under the Securities Act. On June
27, 1997 we issued $400.0 million aggregate principal amount at maturity of its
10% series B senior notes due 2007, the "10% notes", in exchange for the old 10%
notes pursuant to the indenture relating thereto, the "10% notes indenture". The
terms of the 10% notes are identical in all material respects to the old 10%
notes except for certain transfer restrictions and registration rights
applicable to the old 10% notes. The old 10% notes tendered for exchange were
cancelled on June 27, 1997 on consummation of the exchange offer made pursuant
to our prospectus dated May 27, 1997, forming part of our registration statement
on Form S-4 (File No. 333-25577) filed with the Commission on April 21, 1997.
The 10% notes accrue interest in cash at the rate of 10% per annum on the
principal amount payable semiannually on February 15 and August 15 of each year,
to holders of record on the immediately preceding February 1 and August 1. The
10% notes mature on February 15, 2007. The 10% notes are redeemable, at our
option at any time, in whole or in part, on or after February 15, 2002 at
redemption prices set forth in the 10% notes indenture, plus any accrued unpaid
interest to the date of redemption. The 10% notes may also be redeemed at our
option in whole but not in part in some circumstances where "Additional
Amounts", as defined in the 10% notes indenture, are payable under the 10%
notes. In those circumstances, the 10% notes to be repurchased must be
repurchased at 100% of the principal amount thereof plus accrued and unpaid
interest. Upon a Change of Control Triggering Event, as defined in the 10% notes
indenture, holders of the 10% notes have the right to require us to repurchase
all or any part of the 10% notes at a repurchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any. Subject to
various conditions, we are obligated to offer to purchase the 10% notes and
other Qualified Senior Notes, as defined in the 10% notes indenture, with the
Excess Proceeds of some Asset Sales at a redemption price of 100% of the
principal amount thereof plus accrued and unpaid interest, if any. The 10% notes
indenture contains restrictions with respect to, among other things, the payment
of dividends, the repurchase of stock and the making of some other Restricted
Payments, the incurrence of additional Indebtedness, the creation of some Liens,
some sales of assets, transactions with Subsidiaries and other Affiliates and
mergers and consolidations.
In October 1998, we received the necessary consents of registered holders
of the 10% notes to amend the 10% notes indenture so as to allow us to take
certain actions that were previously prohibited under the 10% notes indenture,
particularly regarding the financing of our business and pending and future
acquisitions, including our acquisition of Partners. In addition, the amendment
eliminated some, but not all, differences between the covenants in the 10% notes
indenture and the existing 10 3/4% notes, the 9 3/4% notes and the 9 1/2% notes
indentures. On October 14, 1998, NTL and The Chase Manhattan Bank, as trustee,
executed a first supplemental indenture to effect such amendment.
The 10% notes are our senior unsecured obligations ranking equal in right
of payment of principal and interest with all of our other existing and future
senior unsecured obligations and rank senior to all of our other existing and
future subordinated debt.
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THE 9 1/2% NOTES
In March 1998 we issued L125.0 million ($184.8 million) aggregate principal
amount of our 9 1/2% senior notes due 2008, the "old 9 1/2% notes". The old
9 1/2% notes were issued and sold in a transaction exempt from the registration
requirement of the Securities Act pursuant to Rule 144A under the Securities
Act. On December 24, 1998 we closed an exchange offer exchanging L123,686,000
principal amount of the 9 1/2% series B senior notes due 2008, the "new 9 1/2%
notes" and, together with the old 9 1/2% notes, the "9 1/2% notes", registered
under the Securities Act for a like principal amount of the old 9 1/2% notes.
The terms of the new 9 1/2% notes are identical in all material respects to the
old 9 1/2% notes except for some transfer restrictions and registration rights
applicable to the old 9 1/2% notes.
The 9 1/2% notes accrue interest in cash at the rate of 9 1/2% per annum on
the principal amount payable semiannually on April 1, and October 1 of each
year, to holders of record on the immediately preceding March 15 and September
15. The 9 1/2% notes mature on April 1, 2008. The 9 1/2% notes are redeemable at
our option at any time, in whole or in part, on or after April 1, 2003 at
redemption prices set forth in the 9 1/2% notes indenture, plus any accrued
unpaid interest to the date of redemption. The 9 1/2% notes may also be redeemed
at our option in whole but not in part in some circumstances where "Additional
Amounts", as defined in the 9 1/2% notes indenture, are payable under the 9 1/2%
notes. In those circumstances, the 9 1/2% notes to be repurchased must be
repurchased at 100% of the principal amount thereof plus accrued and unpaid
interest. Upon a Change of Control Triggering Event, as defined in the 9 1/2%
notes indenture, holders of the 9 1/2% notes have the right to require us to
repurchase all or any part of the 10% notes at a repurchase price equal to 101%
of the principal amount thereof plus accrued and unpaid interest, if any.
Subject to various conditions, we are obligated to offer to purchase the 9 1/2%
notes and other Qualified Senior Notes, as defined in the 9 1/2% notes
indenture, with the Excess Proceeds of certain Asset Sales at a redemption price
of 100% of the principal amount thereof plus accrued and unpaid interest, if
any. The 9 1/2% notes indenture contains restrictions with respect to, among
other things, the payment of dividends, the repurchase of stock and the making
of some other Restricted Payments, the incurrence of additional Indebtedness,
the creation of some Liens, some sales of assets, transactions with Subsidiaries
and other Affiliates and mergers and consolidations.
The 9 1/2% notes are senior unsecured obligations of NTL ranking equal in
right of payment of principal and interest with all of its other existing and
future senior unsecured obligations and rank senior to all of its other existing
and future subordinated debt.
THE 10 3/4% NOTES
In March 1998, we issued L300.0 million ($443.6 million) aggregate
principal amount of maturity of our 10 3/4% senior deferred coupon notes due
2008, the "old 10 3/4% notes", at a discount to their aggregate principal amount
to generate gross proceeds to us of approximately L124,587,000. The old 10 3/4%
notes were issued and sold in a transaction exempt from the registration
requirement of the Securities Act pursuant to Rule 144A under the Securities
Act. On December 24, 1998 we closed an exchange offer exchanging L300.0 million
principal amount at maturity of the 10 3/4% series B senior deferred coupon
notes due 2008, the "new 10 3/4% notes" and, together with the old 10 3/4%
notes, the "10 3/4% notes", registered under the Securities Act for a like
principal amount at maturity of the old 10 3/4% notes. The terms of the new
10 3/4% notes are identical in all material respects to the old 10 3/4% notes
except for some transfer restrictions and registration rights applicable to the
old 10 3/4% notes.
The 10 3/4% notes accrete at a rate of 10 3/4% computed on a semiannual
bond equivalent basis to an aggregate principal amount at maturity of L300.0
million ($497,850,000). Cash interest on the 10 3/4% notes does not accrue until
April 1, 2003. Thereafter, the 10 3/4% notes accrue interest in cash at the rate
of 10 3/4% per annum on the principal amount payable semiannually on April 1 and
October 1 of each year, commencing April 1, 2003, to holders of record on the
immediately preceding March 15, and September 15. The 10 3/4% notes mature on
April 1, 2008. The 10 3/4% notes are redeemable, at our option at any time, in
whole or in part, on or after April 1, 2003 at the redemption prices set forth
in the 10 3/4% notes indenture
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plus any accrued unpaid interest to the date of redemption. The 10 3/4% notes
may also be redeemed at our option in whole but not in some circumstances where
"Additional Amounts", as defined in the 10 3/4% notes indenture, are payable
under the 10 3/4% notes. In those circumstances, the 10 3/4% notes to be
repurchased must be repurchased at 100% of accreted value or, as the case may
be, principal amount thereof plus accrued and unpaid interest. Upon a Change of
Control Triggering Event, as defined in the 10 3/4% notes indenture, holders of
the 10 3/4% notes have the right to require us to repurchase all or any part of
the 10 3/4% notes at a repurchase price equal to 101% of the accreted value or,
as the case may be, principal amount thereof plus accrued and unpaid interest,
if any. Subject to various conditions, we are obligated to offer to purchase the
10 3/4% notes and other Qualified Senior Notes, as defined in the 10 3/4% notes
indenture, with the Excess Proceeds of some Asset Sales at a redemption price of
100% of the accreted value or, as the case may be, principal amount thereof plus
accrued and unpaid interest, if any. The 10 3/4% notes indenture contains
restrictions with respect to, among other things, the payment of dividends, the
repurchase of stock and the making of some other Restricted Payments, the
incurrence of additional Indebtedness, the creation of some Liens, some sales of
assets, transactions with Subsidiaries and other Affiliates and mergers and
consolidations.
The 10 3/4% notes are our senior unsecured obligations ranking equal in
right of payment of principal and interest with all of our other existing and
future senior unsecured obligations and rank senior to all of our other existing
and future subordinated debt.
THE 9 3/4% NOTES
In March 1998, we issued $1.3 billion aggregate principal amount at
maturity of our 9 3/4% senior deferred coupon notes due 2008, the "old 9 3/4%
notes", at a discount to their aggregate principal amount to generate gross
proceeds to us of approximately $802,412,000. The old 9 3/4% notes were issued
and sold in a transaction exempt from the registration requirement of the
Securities Act pursuant to Rule 144A under the Securities Act. On December 24,
1998 we closed an exchange offer exchanging $1,248,970,000 principal amount at
maturity of the 9 3/4% series B senior deferred coupon notes due 2006, the "new
9 3/4% notes" and, together with the old 9 3/4% notes, the "9 3/4% notes,"
registered under the securities act for a like principal amount at maturity of
the old 9 3/4% notes. The terms of the new 9 3/4% notes are identical in all
material respects to the old 9 3/4% notes except for some transfer restrictions
and registration rights applicable to the old 9 3/4% notes.
The 9 3/4% notes accrete at a rate of 9 3/4% computed on a semiannual bond
equivalent basis to an aggregate principal amount at maturity of $1.3 billion.
Cash interest on the 9 3/4% notes does not accrue until April 1, 2003.
Thereafter, the 9 3/4% notes accrue interest in cash at the rate of 9 3/4% per
annum on the principal amount payable semiannually on April 1 and October 1 of
each year, commencing April 1, 2003, to holders of record on the immediately
preceding March 15, and September 15. The 9 3/4% notes mature on April 1, 2008.
The 9 3/4% notes are redeemable, at our option at any time, in whole or in part,
on or after April 1, 2003 at the redemption prices set forth in the 9 3/4% notes
indenture plus any accrued unpaid interest to the date of redemption. The 9 3/4%
notes may also be redeemed at our option in whole but not in part in certain
circumstances where "Additional Amounts", as defined in the 9 3/4% notes
indenture, are payable under the 9 3/4% notes. In those circumstances, the
9 3/4% notes to be repurchased must be repurchased at 100% of the accreted value
or, as the case may be, principal amount thereof plus accrued and unpaid
interest. Upon a Change of Control Triggering Event, as defined in the 9 3/4%
notes indenture, holders of the 9 3/4% notes have the right to require us to
repurchase all or any part of the 9 3/4% notes at a repurchase price equal to
101% of the accreted value or, as the case may be, principal amount thereof plus
accrued and unpaid interest, if any. Subject to various conditions, we are
obligated to offer to purchase the 9 3/4% notes and other Qualified Senior
Notes, as defined in the 9 3/4% notes indenture, with the Excess Proceeds of
some Asset Sales at a redemption price of 100% of the accreted value or, as the
case may be, principal amount thereof plus accrued and unpaid interest, if any.
The 9 3/4% notes indenture contains restrictions with respect to, among other
things, the payment of dividends, the repurchase of stock and the making of some
other
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Restricted Payments, the incurrence of additional Indebtedness, the creation of
some Liens, some sales of assets, transactions with Subsidiaries and other
Affiliates and mergers and consolidations.
The 9 3/4% notes are our senior unsecured obligations ranking equal in
right of payment of principal and interest with all of our other existing and
future senior unsecured obligations and rank senior to all of our other existing
and future subordinated debt.
THE 1999 9 3/4% NOTES
On April 7, 1999, we issued L330.0 million ($488.0 million) aggregate
principal amount at maturity of our 9 3/4% senior deferred coupon notes due
2009, the "1999 9 3/4% notes". The 1999 9 3/4% notes were offered and sold in
transactions exempt from the registration requirements of the Securities Act
pursuant to Rule 144A under 144A under the Securities Act and Regulation S under
the Securities Act. On September 3, 1999, we closed an exchange offer exchanging
L327,826,000 aggregate principal amount at maturity of 1999 9 3/4% notes for a
like principal amount of 1999 9 3/4% Series B senior deferred coupon note, due
2008, the "1999 9 3/4% new notes" and, together with the 1999 9 3/4% old notes,
the "1999 9 3/4% notes." The terms of the 1999 9 3/4% new notes are identical to
the 1999 9 3/4% old notes except for certain transfer restrictions and
registration rights applicable to the 1999 9 3/4% old notes.
The 1999 9 3/4% notes accrete at a rate of 9 3/4% computed on a semiannual
bond equivalent basis to an aggregate principal amount at maturity of L330.0
million. Cash interest on the 1999 9 3/4% notes does not accrue until April 15,
2004. Thereafter, the 1999 9 3/4% notes accrue interest in cash at the rate of
9 3/4% per annum on the principal amount payable semiannually on April 15 and
October 15 of each year, commencing October 15, 2004, to holders of record on
the immediately preceding April 1 and October 1. The 1999 9 3/4% notes mature on
April 15, 2009. The 9 3/4% notes are redeemable, at our option at any time, in
whole or in part, on or after April 15, 2004 at the redemption prices set forth
in the 1999 9 3/4% notes indenture plus any accrued unpaid interest to the date
of redemption. The 1999 9 3/4% notes may also be redeemed at our option in whole
but not in part in some circumstances where "Additional Amounts", as defined in
the 1999 9 3/4% notes indenture, are payable under the 1999 9 3/4% notes. In
those circumstances, the 1999 9 3/4% notes to be repurchased must be repurchased
at 100% of accreted value or, as the case may be, principal amount thereof plus
accrued and unpaid interest. Upon a Change of Control Triggering Event, as
defined in the 1999 9 3/4% notes indenture, holders of the 1999 9 3/4% notes
have the right to require us to repurchase all or any part of the 1999 9 3/4%
notes at a repurchase price equal to 101% of the accreted value or, as the case
may be, principal amount thereof plus accrued and unpaid interest, if any.
Subject to various conditions, we are obligated to offer to purchase the 1999
9 3/4% notes and Other Qualified Notes, as defined in the 1999 9 3/4% notes
indenture, with the Excess Proceeds of some Asset Sales at a redemption price of
100% of the accreted value or, as the case may be, principal amount thereof plus
accrued and unpaid interest, if any. The 1999 9 3/4% notes indenture contains
restrictions with respect to, among other things, the payment of dividends, the
repurchase of stock and the making of some other Restricted Payments, the
incurrence of additional Indebtedness, the creation of some Liens, some sales of
assets, transactions with Subsidiaries and other Affiliates and mergers and
consolidations.
The 1999 9 3/4% notes are our senior unsecured obligations ranking equal in
right of payment of principal and interest with all of its other existing and
future senior unsecured obligations and rank senior to all of its other existing
and future subordinated debt, including, without limitation, the convertible
notes and the existing convertible notes.
THE 11 1/2% NOTES
On November 2, 1998, we issued $625.0 million aggregate principal amount of
our 11 1/2% senior notes due 2008, the "11 1/2% old notes". The 11 1/2% old
notes were offered and sold in transactions exempt from the registration
requirement of the Securities Act pursuant to Rule 144A under the Securities Act
and Regulation S under the Securities Act. On June 10, 1999, we closed an
exchange offer exchanging $625.0 million aggregate principal amount of 11 1/2%
old notes for a like principal amount of 11 1/2% series B senior
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notes due 2008, the "11 1/2% new notes" and, together with the 11 1/2% old
notes, the "11 1/2% notes." The terms of the 11 1/2% new notes are identical in
all material respects to the 11 1/2% old notes except for certain transfer
restrictions and registration rights applicable to the 11 1/2% old notes.
The 11 1/2% notes accrue interest in cash at the rate of 11 1/2% per annum
on the principal amount payable semiannually on April 1, and October 1 of each
year, to holders of record on the immediately preceding March 15 and September
15. The 11 1/2% notes mature on October 1, 2008. The 11 1/2% notes are
redeemable at our option at any time, in whole or in part, on or after October
1, 2003 at redemption prices set forth in the 11 1/2% notes indenture, plus any
accrued unpaid interest to the date of redemption. The 11 1/2% notes may also be
redeemed at our option in whole but not in part in some circumstances where
"Additional Amounts", as defined in the 11 1/2% notes indenture, are payable
under the 11 1/2% notes. In those circumstances, the 11 1/2% notes to be
repurchased must be repurchased at 100% of the principal amount thereof plus
accrued and unpaid interest. Upon a Change of Control Triggering Event, as
defined in the 11 1/2% notes indenture, holders of the 11 1/2% notes have the
right to require us to repurchase all or any part of the 11 1/2% notes at a
repurchase price equal to 101% of the principal amount thereof plus accrued and
unpaid interest, if any. Subject to various conditions, we are obligated to
offer to purchase the 11 1/2% notes and other Qualified Senior Notes, as defined
in the 11 1/2% notes indenture, with the Excess Proceeds of some Asset Sales at
a redemption price of 100% of the principal amount thereof plus accrued and
unpaid interest, if any. The 11 1/2% notes indenture contains restrictions with
respect to, among other things, the payment of dividends, the repurchase of
stock and the making of some other Restricted Payments, the incurrence of
additional Indebtedness, the creation of some Liens, some sales of assets,
transactions with Subsidiaries and other Affiliates and mergers and
consolidations.
The 11 1/2% notes are our senior unsecured obligations ranking equal in
right of payment of principal and interest with all our other existing and
future senior unsecured obligations and rank senior to all of our other existing
and future subordinated debt.
THE 12 3/8% NOTES
On November 6, 1998, we issued $450.0 million aggregate principal amount at
maturity of our 12 3/8% senior deferred coupon notes due 2008, the "12 3/8% old
notes". The 12 3/8% old notes were offered and sold in transactions exempt from
the registration requirements of the Securities Act pursuant to Rule 144A under
144A under the Securities Act and Regulation S under the Securities Act. On June
10, 1999, we closed an exchange offer exchanging $450.0 million aggregate
principal amount at maturity of 12 3/8% old notes for a like principal amount of
12 3/8% series B senior deferred coupon notes due 2008, the "12 3/8% new notes"
and, together with the 12 3/8% old notes, the "12 3/8% notes." The terms of the
12 3/8% new notes are identical in all material respects to the 12 3/8% old
notes except for certain transfer restrictions and registration rights
applicable to the 12 3/8% old notes.
The 12 3/8% notes accrete at a rate of 12 3/8% computed on a semiannual
bond equivalent basis to an aggregate principal amount at maturity of $450.0
million. Cash interest on the 12 3/8% notes does not accrue until April 1, 2003.
Thereafter, the 12 3/8% notes accrue interest in cash at the rate of 12 3/8% per
annum on the principal amount payable semiannually on April 1 and October 1 of
each year, commencing October 1, 2003, to holders of record on the immediately
preceding March 15, and September 15. The 12 3/8% notes mature on October 1,
2008. The 12 3/8% notes are redeemable, at our option at any time, in whole or
in part, on or after October 1, 2003 at the redemption prices set forth in the
12 3/8% notes indenture plus any accrued unpaid interest to the date of
redemption. The 12 3/8% notes may also be redeemed at our option in whole but
not in part in some circumstances where "Additional Amounts", as defined in the
12 3/4% notes indenture, are payable under the 12 3/8% notes. In those
circumstances, the 12 3/8% notes to be repurchased must be repurchased at 100%
of accreted value or, as the case may be, principal amount thereof plus accrued
and unpaid interest. Upon a Change of Control Triggering Event, as defined in
the 12 3/8% notes indenture, holders of the 12 3/8% notes have the right to
require us to repurchase all or any part of the 12 3/8% notes at a repurchase
price equal to 101% of the accreted value or, as the case may be, principal
amount thereof plus
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accrued and unpaid interest, if any. Subject to various conditions, we are
obligated to offer to purchase the 12 3/8% notes and other Qualified Senior
Notes, as defined in the 12 3/8% notes indenture, with the Excess Proceeds of
some Asset Sales at a redemption price of 100% of the accreted value or, as the
case may be, principal amount thereof plus accrued and unpaid interest, if any.
The 12 3/8% notes indenture contains restrictions with respect to, among other
things, the payment of dividends, the repurchase of stock and the making of some
other Restricted Payments, the incurrence of additional Indebtedness, the
creation of some Liens, some sales of assets, transactions with Subsidiaries and
other Affiliates and mergers and consolidations.
The 12 3/8% notes are our senior unsecured obligations ranking equal in
right of payment of principal and interest with all of our other existing and
future senior unsecured obligations and rank senior to all of our other existing
and future subordinated debt.
THE 1999 11 1/2% NOTES
On November 24, 1999, we issued E210.0 million ($185.6 million) aggregate
principal amount at maturity of our 11 1/2% senior deferred coupon notes due
2009 (the "1999 11 1/2% notes"). The 1999 11 1/2% notes were offered and sold in
transactions exempt from the registration requirements of the Securities Act
under Rule 144A under the Securities Act and Regulation S under the Securities
Act. On April 5, 2000, we closed an exchange offer exchanging E210.0 million
aggregate principal amount of old notes for a like principal amount of 11 1/2%
series B senior notes, the "11 1/2% new notes" and, together with the 11 1/2%
old notes, the "11 1/2% notes". The terms of the 11 1/2% new notes are identical
in all material respects to the 11 1/2% old notes except for certain transfer
restrictions and other registration rights applicable to the 11 1/2% old notes.
The 1999 11 1/2% notes accrete at a rate of 11 1/2% computed on a
semiannual bond equivalent basis to an aggregate principal amount at maturity of
L210.0 million. Cash interest on the 1999 11 1/2% notes does not accrue until
November 15, 2004. Thereafter, the 1999 11 1/2% notes accrue interest in cash at
the rate of 11 1/2% per annum on the principal amount payable semiannually on
May 15 and November 15 of each year, commencing May 15, 2005, to holders of
record on the immediately preceding May 1 and November 1. The 1999 11 1/2% notes
mature on November 15, 2009. The 1999 11 1/2% notes are redeemable, at our
option at any time, in whole or in part, on or after November 15, 2004 at the
redemption prices set forth in the 1999 11 1/2% notes indenture plus any accrued
unpaid interest to the date of redemption. The 1999 11 1/2% notes may also be
redeemed at our option in whole but not in part in some circumstances where
"Additional Amounts", as defined in the 1999 11 1/2% notes indenture, are
payable under the 1999 11 1/2% notes. In those circumstances, the 1999 11 1/2%
notes to be purchased must be repurchased at 100% of accreted value or, as the
case may be, principal amount thereof plus accrued and unpaid interest. Upon a
Change of Control Triggering Event, as defined in the 1999 11 1/2% notes
indenture, holders of the 1999 9 3/4% notes have the right to require us to
repurchase all or any part of the 1999 11 1/2% notes at a repurchase price equal
to 101% of the accreted value or, as the case may be, principal amount thereof
plus accrued and unpaid interest, if any. Subject to various conditions, we are
obligated to offer to purchase the 1999 11 1/2% notes and Other Qualified Notes,
as defined in the 1999 11 1/2% notes indenture, with the Excess Proceeds of some
Asset Sales at a redemption price of 100% of the accreted value or, as the case
may be, principal amount thereof plus accrued and unpaid interest, if any. The
1999 11 1/2% notes indenture contains restrictions with respect to, among other
things, the payment of dividends, the repurchase of stock and the making of some
other Restricted Payments, the incurrence of additional Indebtedness, the
creation of some Liens, some sales of assets, transactions with Subsidiaries and
other Affiliates and mergers and consolidations.
The 1999 11 1/2% notes are our senior unsecured obligations ranking equal
in right of payment of principal and interest with all of our other existing and
future senior unsecured obligations and rank senior to all of our other existing
and future subordinated debt.
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THE 9 1/4% NOTES
On November 24, 1999, we issued E250.0 million ($220.9 million) aggregate
principal amount of our 9 1/4% senior notes due 2006. The 9 1/4% notes were
offered and sold in transactions exempt from the registration requirement of the
Securities Act pursuant to Rule 144A under the Securities Act and Regulation S
under the Securities Act. On April 5, 2000, we closed an exchange offer
exchanging E246,855,000 aggregate principal amount of old notes for a like
principal amount of 9 1/4% series B senior notes, the "9 1/4% new notes" and,
together with the 9 1/4% old notes, the "9 1/4% notes". The terms of the 9 1/4%
new notes are identical in all material respects to the 9 1/4% old notes except
for certain transfer restrictions and other registration rights applicable to
the 9 1/4% old notes.
The 9 1/4% notes accrue interest in cash at the rate of 9 1/4% per annum on
the principal amount payable semiannually on May 15, and November 15 of each
year, to holders of record on the immediately preceding May 1 and November 1.
The 9 1/4% notes mature on November 15, 2006. The 9 1/4% notes are not
redeemable. The 9 1/2% notes may only be redeemed at our option in whole but not
in part in some circumstances where "Additional Amounts", as defined in the
9 1/4% notes indenture, are payable under the 9 1/4% notes. In those
circumstances, the 9 1/4% notes to be repurchased must be repurchased at 100% of
the principal amount thereof plus accrued and unpaid interest. Upon a Change of
Control Triggering Event, as defined in the 9 1/4% notes indenture, holders of
the 9 1/4% notes have the right to require us to repurchase all or any part of
the 9 1/4% notes at a repurchase price equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any. Subject to various conditions,
we are obligated to offer to purchase the 9 1/4% notes and other Qualified
Senior Notes, as defined in the 9 1/4% notes indenture, with the Excess Proceeds
of some Asset Sales at a redemption price of 100% of the principal amount
thereof plus accrued and unpaid interest, if any. The 9 1/4% notes indenture
contains restrictions with respect to, among other things, the payment of
dividends, the repurchase of stock and the making of some other Restricted
Payments, the incurrence of additional Indebtedness, the creation of some Liens,
some sales of assets, transactions with Subsidiaries and other Affiliates and
mergers and consolidations.
The 9 1/4% notes are our senior unsecured obligations ranking equal in
right of payment of principal and interest with all our other existing and
future senior unsecured obligations and rank senior to all of our other existing
and future subordinated debt.
THE 9 7/8% NOTES
On November 24, 1999, we issued E350.0 million ($309.3 million) aggregate
principal amount of our 9 7/8% senior notes due 2009, the "9 7/8% notes". The
9 7/8% notes were offered and sold in transaction exempt from the registration
requirement of the Securities Act pursuant to Rule 144A under the Securities Act
and Regulation S under the Securities Act. On April 5, 2000, we closed an
exchange offer exchanging E349,925,000 aggregate principal amount of old notes
for a like principal amount of 9 7/8% series B senior notes, the "9 7/8% new
notes" and, together with the 9 7/8% old notes, the 9 7/8% notes. The terms of
9 7/8% new notes, are identical in all material respects to the 9 7/8% old notes
except for certain transfer restrictions and other registration rights
applicable to the 9 7/8% old notes.
The 9 7/8% notes accrue interest in cash at the rate of 9 7/8% per annum on
the principal amount payable semiannually on May 15, and November 15 of each
year, to holders of record on the immediately preceding May 1 and November 1.
The 9 7/8% notes mature on November 15, 2009. The 9 7/8% notes are redeemable at
our option at any time, in whole or in part, on or after November 15, 2006 at
redemption prices set forth in the 9 7/8% notes indenture, plus any accrued
unpaid interest to the date of redemption. The 9 7/8% notes may also be redeemed
at our option in whole but not in part in some circumstances where "Additional
Amounts", as defined in the 9 7/8% notes indenture, are payable under the 9 7/8%
notes. In those circumstances, the 9 7/8% notes to be repurchased must be
repurchased at 100% of the principal amount thereof plus accrued and unpaid
interest. Upon a Change of Control Triggering Event, as defined in the 9 7/8%
notes indenture, holders of the 9 7/8% notes have the right to require us to
repurchase all or any part of the 9 7/8% notes at a repurchasing price equal to
101% of the principal amount thereof plus accrued and
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unpaid interest, if any. Subject to various conditions, we are obligated to
offer to purchase the 9 7/8% notes and other Qualified Senior Notes, as defined
in the 9 7/8% notes indenture, with the Excess Proceeds of some Asset Sales at a
redemption price of 100% of the principal amount thereof plus accrued and unpaid
interest, if any. The 9 7/8% notes indenture contains restrictions with respect
to, among other things, the payment of dividends, the repurchase of stock and
the making of some other Restricted Payments, the incurrence of additional
Indebtedness, the creation of some Liens, some sales of assets, transactions
with Subsidiaries and other Affiliates and mergers and consolidations.
The 9 7/8% notes are our senior unsecured obligations ranking equal in
right of payment of principal and interest with all our other existing and
future senior unsecured obligations and rank senior to all of our other existing
and future subordinated debt.
THE 7% CONVERTIBLE NOTES
In December 1998, we issued and sold an aggregate principal amount of
$600.0 million of our 7% convertible subordinated notes due 2008, in
transactions exempt from, or not subject to, the registration requirements of
the Securities Act. Cash interest on the existing convertible notes is payable
semiannually on June 15 and December 15 of each year, commencing December 15,
1999. These convertible notes mature on December 15, 2008. These convertible
notes are convertible at the option of the holder thereof at any time prior to
maturity, unless previously redeemed, into shares of common stock of NTL
Incorporated, at a conversion price of $61.25 per share subject to further
adjustment in some events. These convertible notes are redeemable, in whole or
in part, at our option, at any time on or after December 15, 2001, at the
redemption prices set forth in the indenture pursuant to which the convertible
notes were issued. Upon a Change of Control Triggering Event, as defined in the
indenture relating to those convertible notes, holders of the convertible notes
have the right to require us to purchase all or any part of the convertible
notes at a purchase price equal to 101% of the principal amount thereof and any
accrued and unpaid interest to the date of purchase. The indenture relating to
those convertible notes contains restrictions with respect to, among other
things, some Asset Sales, payment of Additional Amounts and mergers and
consolidations.
These convertible notes are unsecured obligations of ours, as well as NTL
Incorporated and NTL Delaware, subordinated in right of payment to all of our
existing and their future senior debt, as defined in the indenture relating to
those convertible notes, including, without limitation, the Notes.
On June 7, 1999, the Commission declared effective the shelf registration
statement relating to the resale of these convertible notes and the common stock
of NTL Incorporated issuable upon conversion thereof by the holders thereof and
on August 30, 2000 declared effective a post-effective amendment to that
registration statement.
NTL TRIANGLE 11.20% DISCOUNT DEBENTURES DUE 2007
On November 15, 1995, NTL Triangle issued $517,321,000 aggregate principal
amount at maturity of its 11.20% senior discount debentures due 2007, the "NTL
Triangle 11.20% debentures", at a discount to their aggregate principal amount
to generate gross proceeds to NTL Triangle of approximately $299,999,621. The
NTL Triangle 11.20% debentures were registered with the Commission on NTL
Triangle's registration statement on Form S-1 (File No. 33-96932).
The NTL Triangle 11.20% debentures accrete at the rate of 11.20% per annum,
compounded semiannually to an aggregate principal amount at maturity of
$517,321,000. Cash interest on the NTL Triangle 11.20% debentures does not
accrue until November 15, 2000. Thereafter, the NTL Triangle 11.20% debentures
accrue interest at the rate of 11.20% per annum on the principal amount payable
semiannually on May 15 and November 15 of each year, commencing May 15, 2001.
The NTL Triangle 11.20% debentures mature on November 15, 2007. The NTL Triangle
11.20% debentures are redeemable, at the option of NTL Triangle at any time, in
whole or in part, on or after November 15, 2000 at the redemption prices set
forth in the NTL Triangle 11.20% debentures indenture plus accrued and unpaid
interest to the date of redemption. The NTL Triangle 11.20% debentures may also
be redeemed by NTL
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Triangle in whole but not in part in certain circumstances where "Additional
Amounts", as defined in the NTL Triangle 11.20% debentures indenture, are
payable on the NTL Triangle 11.20% debentures after November 15, 2001. In such
circumstances, the NTL Triangle 11.20% debentures may be redeemed at 100% of
their principal amount plus accrued and unpaid interest to the date of
redemption. Upon a Change of Control Triggering Event, as defined in the NTL
Triangle 11.20% debentures indenture, holders of the Partners 11.20% debentures
have the right to require NTL Triangle to repurchase all or any part of the NTL
Triangle 11.20% debentures at a repurchase price equal to 101% of the accreted
value or, as the case may be, principal amount thereof plus accrued and unpaid
interest, if any. Subject to various conditions, NTL Triangle is obligated to
offer to purchase the NTL Triangle 11.20% debentures with the Excess Proceeds of
some Asset Sales at a redemption price of 100% of the accreted value or, as the
case may be, principal amount thereof plus accrued and unpaid interest, if any.
The NTL Triangle 11.20% debentures indenture contains restrictions with respect
to, among other things, the payment of dividends, the repurchase of stock and
the making of some other Restricted Payments, the incurrence of additional
Indebtedness, the creation of some Liens, some sales of assets, transactions
with Affiliates and mergers and consolidations.
The NTL Triangle 11.20% debentures are senior unsecured obligations of NTL
Triangle ranking equal in right of payment of principal and interest with all
other existing and future senior unsecured obligations of NTL Triangle.
THE DIAMOND 13 1/4% NOTES
In September 1994, Diamond issued its 13 1/4% senior discount notes due
September 30, 2004 (the "Diamond 13 1/4% notes"). Interest on the Diamond
13 1/4% notes will be payable on March 31 and September 30 of each year,
commencing March 31, 2000, at a rate of 13 1/4% per annum.
The Diamond 13 1/4% notes are redeemable, in whole or in part, at the
option of Diamond at any time on or after September 30, 1999. The Diamond
13 1/4% notes are also redeemable in whole, but not in part, at the option of
Diamond at any time at 100% of the principal amount thereof plus accrued
interest to the date of redemption (or, prior to September 30, 1999, at 100% of
accreted value, as defined in the indenture governing the Diamond 13 1/4% notes)
in the event of certain tax law changes requiring the payment of additional
amounts. Diamond is required to offer to repurchase all outstanding Diamond
13 1/4% notes at 101% of the principal amount thereof plus accrued interest to
the date of repurchase (or, prior to September 30, 1999, at 101% of accreted
value on the date of repurchase) after the occurrence of a Change of Control, as
defined in the indenture governing the Diamond 13 1/4% notes. In addition, upon
the occurrence of an Asset Disposition, as defined in the indenture governing
the Diamond 13 1/4% notes, Diamond may be obligated to make an offer to purchase
all or a portion of the outstanding Diamond 13 1/4% notes at 100% of the
principal amount thereof plus accrued interest to the date of repurchase (or,
prior to December 15, 2000, at 100% of accreted value on the date of
repurchase).
THE DIAMOND 11 3/4% NOTES
In December 1995, Diamond issued its 11 3/4% senior discount notes due
December 15, 2005 (the "11 3/4% Diamond notes"). Interest on the Diamond 11 3/4%
notes will be payable on June 15 and December 15 of each year, commencing June
15, 2001, at a rate of 11 3/4% per annum.
The Diamond 11 3/4% notes are redeemable, in whole or in part, at the
option of Diamond at any time on or after December 15, 2000. The Diamond 11 3/4%
notes are also redeemable in whole, but not in part, at the option of Diamond at
any time at 100% of the principal amount thereof plus accrued interest to the
date of redemption (or, prior to December 15, 2000, at 100% of the accreted
value thereof, as defined in the indenture governing the Diamond 11 3/4% notes)
in the event of certain tax law changes requiring the payment of additional
amounts. Diamond is required to offer to repurchase all outstanding Diamond
11 3/4% notes at 101% of principal amount thereof plus accrued interest to the
date of repurchase (or, prior to December 15, 2000, at 101% of accreted value on
the date of repurchase) after the occurrence of a Change of Control, as defined
in the indenture governing the Diamond 11 3/4% notes. In addition, upon the
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occurrence of an Asset Disposition, as defined in the indenture governing the
Diamond 11 3/4% notes, Diamond may be obligated to make an offer to purchase all
or a portion of the outstanding Diamond 11 3/4% notes at 100% of the principal
amount thereof plus accrued interest to the date of repurchase (or, prior to
December 15, 2000, at 100% of accreted value on the date of repurchase).
THE DIAMOND 10 3/4% NOTES
In February 1997, Diamond issued its 10 3/4% Senior Discount Notes due
February 15, 2007 (the "Diamond 10 3/4% notes"). Interest on the Diamond 10 3/4%
notes will be payable on February 15 and August 15 of each year, commencing
August 15, 2002, at a rate of 10 3/4% per annum.
The Diamond 10 3/4% notes are redeemable, in whole or in part, at the
option of Diamond at any time on or after February 15, 2002. The Diamond 10 3/4%
notes are also redeemable in whole, but not in part, at the option of Diamond at
any time at 100% of the principal amount thereof plus accrued interest to the
date of redemption (or, prior to February 15, 2002, at 100% of accreted value,
as defined in the indenture governing the Diamond 10 3/4% notes) in the event of
certain tax law changes requiring the payment of additional amounts. Diamond is
required to offer to repurchase all outstanding Diamond 10 3/4% notes at 101% of
the principal amount thereof plus accrued interest to the date of repurchase
(or, prior to February 15, 2002, at 101% of accreted value on the date of
repurchase) after the occurrence of a Change of Control, as defined in the
indenture governing the Diamond 10 3/4% notes. In addition, upon the occurrence
of an Asset Disposition, as defined in the indenture governing the Diamond
10 3/4% notes, Diamond may be obligated to make an offer to purchase all or a
portion of the outstanding Diamond 10 3/4% notes at 100% of the principal amount
thereof plus accrued interest to the date of repurchase (or, prior to February
15, 2002, at 100% of accreted value on the date of repurchase).
THE DIAMOND 10% NOTES
In February 1998 Diamond issued L135.0 million aggregate principal amount
at maturity of its 10% senior notes due February 1, 2008 (the "Diamond 10%
notes"). Interest on the Diamond 10% notes is payable semi-annually in arrears
on August 1 and February 1 of each year at a rate of 10% per annum.
The Diamond 10% notes will be redeemable, in whole or in part, at the
option of Diamond at any time on or after February 1, 2003. The 10% notes are
also redeemable in whole, but not in part, at the option of Diamond at any time
at 100% of the principal amount thereof, plus accrued and unpaid interest and
any other amounts payable thereon to the date of redemption in the event of
certain tax law changes requiring the payment of additional amounts. Upon the
occurrence of a Change of Control, as defined in the indenture governing the
Diamond 10% notes, Diamond is required to offer to repurchase all outstanding
10% notes at 101% of their principal amount plus accrued and unpaid interest and
any other amounts payable thereon to the date of repurchase.
THE DIAMOND 9 1/8% NOTES
In February 1998, Diamond issued $110.0 million aggregate principal amount
at maturity of its 9 1/8% senior notes due February 1, 2008 (the "Diamond 9 1/8%
notes"). Interest on the Diamond 9 1/8% notes is payable semi-annually in
arrears on August 1 and February 1 of each year, commencing August 1, 1998 at a
rate of 9 1/8% per annum.
The Diamond 9 1/8% notes will be redeemable, in whole or in part, at the
option of Diamond at any time on or after February 1, 2003. The Diamond 9 1/8%
notes are also redeemable in whole, but not in part at the option of Diamond at
any time at 100% of the principal amount thereof, plus accrued and unpaid
interest and any other amounts payable thereon to the date of redemption in the
event of certain tax law changes requiring the payment of additional amounts.
Upon the occurrence of a Change of Control, as defined in the indenture
governing the 9 1/8% notes, Diamond is required to offer to repurchase all
outstanding 9 1/8% notes at 101% of their principal amount plus accrued and
unpaid interest and any other amounts payable thereon to the date of repurchase.
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CREDIT AGREEMENTS
NTLCL, one of our wholly-owned indirect subsidiaries, entered into a
L1,300.0 million ($1,922.3 million) credit agreement with a group of banks dated
May 30, 2000. As of September 30, 2000, no amounts have been borrowed under this
agreement. NTLCL and other members of the NTL UK Group may utilize the proceeds
under this credit agreement to finance our working capital requirements,
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. For purposes of this credit
agreement, Diamond Cable Communication Limited and subsidiaries, NTL (Triangle)
LLC and subsidiaries and certain other entities are excluded from the NTL UK
Group. 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 NTL
UK Group, and restrictions on dividends and distributions by the NTL UK Group.
Following the offering of the old notes, the lenders' commitment under the
credit agreement was reduced by approximately L161.8 million.
In May 2000, NTLCL and NTL Business, a wholly-owned indirect subsidiary of
NTL Delaware, entered into a L2,500.0 million ($3,696.8 million) credit
agreement in connection with the ConsumerCo acquisition. As of September 30,
2000, NTLCL had L110.2 million ($163.0 million) and NTL Business had L1,902.3
million ($2,813.0 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 NTL UK Group. The effective rate at September 30, 2000 was 8.32%.
The unused portion of the commitment is available for refinancing ConsumerCo
indebtedness and for working capital requirements of the NTL UK Group. For
purposes of this credit agreement, Diamond Cable Communications Limited and
subsidiaries, NTL (Triangle) LLC and subsidiaries and certain other entities are
excluded from the NTL 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 NTL UK Group, and restrictions
on dividends and distributions by the NTL UK Group.
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FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain U.S. federal income tax consequences
of the acquisition, ownership and disposition of new notes by a holder that
acquires new notes on original issuance pursuant to the exchange offer for old
notes. The discussion is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations, judicial authorities, published
positions of the Internal Revenue Service (the "IRS") and other applicable
authorities, all as in effect on the date hereof and all of which are subject to
change or differing interpretations (possibly with retroactive effect). The
discussion does not address all of the tax consequences that may be relevant to
a particular holder or to holders subject to special treatment under federal
income tax laws. This discussion is limited to holders who hold their new notes
and old notes as capital assets. No ruling has been or will be sought from the
IRS regarding any matter discussed herein. No assurance can be given that the
IRS would not assert, or that a court would not sustain, a position contrary to
any of the tax aspects set forth below. PROSPECTIVE INVESTORS MUST CONSULT THEIR
OWN TAX ADVISORS AS TO THE FEDERAL INCOME TAX CONSEQUENCES OF ACQUIRING, HOLDING
AND DISPOSING OF NEW NOTES, AS WELL AS THE EFFECTS OF STATE, LOCAL AND NON-U.S.
TAX LAWS.
For purposes of this discussion, a holder who is a U.S. person means any
one of the following:
- a citizen or resident of the United States,
- a corporation, partnership, or other entity created or organized in the
United States or under the laws of the United States or of any political
subdivision of the United States,
- an estate, the income of which is includible in gross income for U.S.
federal income tax purposes regardless of its source, or
- a trust, the administration of which is subject to the primary
supervision of the U.S. courts and that has one or more U.S. persons who
have the authority to control all substantial decisions of the trust, or
that was in existence on August 20, 1996 and properly elected to continue
to be treated as a U.S. person.
As used herein, the term "U.S. holder" means a holder that is a U.S. person
and the term "non-U.S. holder" means a holder that is not a U.S. person.
U.S. HOLDERS
Payments of Interest. Payments of interest on new notes generally will be
taxable to a U.S. holder as ordinary interest income at the time such payments
are accrued or received (in accordance with the U.S. holder's method of
accounting for federal income tax purposes).
Exchange Offer. Pursuant to the exchange offer, an exchange of the old
notes for the new notes will not be a taxable event for U.S. federal income tax
purposes. Thus, a U.S. holder will have the same tax basis and holding period in
the new notes received as in the old notes surrendered in exchange therefor.
Disposition of New Notes. Upon the sale or other disposition of a new
note, a U.S. holder will generally recognize capital gain or loss equal to the
difference between the amount realized on the sale or other disposition and the
holder's adjusted tax basis in the new note. For these purposes, the amount
realized on the sale or other disposition of a new note does not include any
amount received attributable to accrued but unpaid interest, which will be
taxable as ordinary income unless previously taken into account. Capital gain or
loss on the sale or other disposition of a new note will be long-term capital
gain or loss if the new note and the old note were held for a total of more than
one year.
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NON-U.S. HOLDERS
Subject to the discussion below concerning information reporting and backup
withholding, payments of interest on a new note to any non-U.S. holder will
generally not be subject to U.S. federal income tax or withholding tax, provided
that all of the following are true:
- the non-U.S. holder does not actually or constructively own 10% or more
of the total combined voting power of all of our classes of stock
entitled to vote;
- the non-U.S. holder is not a controlled foreign corporation to which we
are a related person for U.S. federal income tax purposes; and
- the non-U.S. holder certifies, on Form W8-BEN (or a permissible
substitute or successor form) under penalties of perjury, that it is a
non-U.S. holder and provides its name and address.
Interest paid to a non-U.S. holder that does not qualify for the above
exemption from withholding tax generally will be subject to withholding of U.S.
federal income tax at the rate of 30%, unless the non-U.S. holder of the new
note provides us or our paying agent, as the case may be, with a properly
executed:
(1) IRS Form W8-BEN (or successor form) claiming an exemption from (or
reduction in) withholding under the benefit of an applicable income
tax treaty; or
(2) IRS Form W8-ECI (or successor form) stating that the interest paid on
the new note is not subject to withholding tax because it is
effectively connected with the non-U.S. holder's conduct of a trade or
business in the United States. If, however, the interest is
effectively connected with the conduct of a trade or business in the
United States by the non-U.S. holder, the interest will be subject to
U.S. federal income tax imposed on net income on the same basis as
that applies to U.S. persons generally, and, for corporate holders and
under certain circumstances, also the branch profits tax.
Non-U.S. holders should consult any applicable income tax treaties, which
may provide for exemption from (or reduction in) U.S. withholding and for other
rules different from those described above.
Sale or Other Disposition of New Notes. Subject to the discussion below
concerning information reporting and backup withholding, any gain realized by a
non-U.S. holder on the sale or other disposition of a new note generally will
not be subject to a U.S. federal income tax, unless (i) such gain is effectively
connected with the conduct by such non-U.S. holder of a trade or business within
the United States, (ii) the non-U.S. holder is an individual who is present in
the United States for 183 days or more in the taxable year of the disposition
and certain other conditions are satisfied, or (iii) the non-U.S. holder is
subject to tax pursuant to the provisions of U.S. tax law applicable to certain
U.S. expatriates.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Generally, we must report annually to the IRS and to each holder the amount
of interest that we paid to that holder, and the amount of tax, if any, that we
withheld on the interest. This information may also be made available to the tax
authorities of a country in which a non-U.S. holder resides.
Under current U.S. Treasury Regulations, backup withholding at the rate of
31% will generally apply to payments to persons that fail to furnish certain
required information. Backup withholding generally will not apply to payments
made in respect of new notes held by a non-U.S. holder, if the holder properly
certifies as to its non-U.S. status under penalties of perjury or otherwise
establishes an exemption. Generally, a non-U.S. holder will provide this
information on IRS Form W8-BEN.
The payment of the proceeds from the disposition of new notes to or through
the U.S. office of any broker, U.S. or foreign, will be subject to information
reporting (and possible backup withholding unless the owner certifies as to its
non-U.S. status under penalty of perjury or otherwise establishes an exemption).
In the case of the payment of proceeds from the disposition of new notes to or
through a non-U.S. office of a
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U.S. broker, or foreign brokers with certain types of relationships to the
United States, information reporting, but not backup withholding, will be
required on the payment, unless the broker has documentary evidence in its files
that the owner is a non-U.S. holder and certain other conditions are met, or the
holder otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts we withhold under
the backup withholding rules will be allowed as a refund or a credit against
such non-U.S. holder's federal income tax liability, provided that the requisite
procedures are followed and certain information is provided to the IRS.
The Treasury Department promulgated new final regulations regarding the
withholding and information reporting rules discussed above. In general, the
final regulations do not significantly alter the substantive withholding and
information reporting requirements, but rather unify current certification
procedures and forms and clarify reliance standards. However, the Treasury
regulations may require non-U.S. holders to furnish new certification of their
foreign status after December 31, 2000. The final regulations are generally
effective for payments made after December 31, 2000, subject to certain
transition rules. Non-U.S. holders should consult their own tax advisors with
respect to the impact, if any, of these regulations.
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PLAN OF DISTRIBUTION
If you are a broker-dealer and hold old notes for your own account as a
result of market-making activities or other trading activities and you receive
new notes in exchange for old notes in the exchange offer, you may be a
statutory underwriter and must acknowledge that you will deliver a prospectus in
connection with any resale of such new notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of new notes received in exchange for old notes where
such old notes were acquired as a result of market-making activities or other
trading activities. We acknowledge and, unless you are a broker-dealer, you must
acknowledge that you are not engaged in, do not intend to engage in, and have no
arrangement of understanding with any person to participate in a distribution of
new notes. We have agreed that starting on the expiration date of the exchange
offer and ending on the close of business on the 180th day following the
expiration date of the exchange offer, we will make this prospectus, as amended
or supplemented, available to any broker-dealer for use in connection with any
such resale.
We will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the new notes or a combination of those methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any resale of that kind may
be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such new notes. Any broker-dealer
that resells new notes that were received by it for its own account pursuant to
the exchange offer and any broker or dealer that participates in a distribution
of such new notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of new notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the expiration date, we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests those documents in the letter of
transmittal.
We have agreed to pay all expenses incident to the exchange offer
(including the expenses of one counsel for the holders of the notes) other than
commissions or concessions of any brokers or dealers and will indemnify the
holders of the notes, including any broker-dealers, against various liabilities,
including liabilities under the Securities Act.
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LEGAL MATTERS
The validity of the issuance of the new notes offered by this prospectus
will be passed upon for us by Skadden, Arps, Slate, Meagher & Flom LLP, London,
England.
EXPERTS
The consolidated financial statements of NTL Communications Corp. at
December 31, 1999 and 1998, and for each of the three years in the period ended
December 31, 1999, appearing in this prospectus and registration statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given on the authority of such firm as experts in accounting and
auditing.
The combined financial statements of ConsumerCo as of March 31, 2000 and
1999 and for the three years ended March 31, 2000 included in this prospectus
have been audited by Arthur Andersen, Independent Auditors, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given on the authority of such firm as experts in accounting
and auditing.
ENFORCEABILITY OF CIVIL LIABILITIES
A substantial majority of our assets are located outside the United States.
As a result, it may not be possible for you to realize in the United States upon
judgments of courts of the United States predicated upon the civil liability
provisions under the federal securities laws of the United States. The United
States and England do not currently have a treaty providing for the reciprocal
recognition and enforcement of judgments, other than arbitration awards, in
civil and commercial matters. Therefore, a final judgment for the payment of a
fixed debt or sum of money rendered by any United States court based on civil
liability, whether or not predicated solely upon the U.S. federal securities
laws, would not automatically be enforceable in England. In order to enforce in
England a U.S. judgment, proceedings must be initiated by way of common law
action before a court of competent jurisdiction in England. An English court
will, subject to what is said below, normally order summary judgment on the
basis that there is no defense to the claim for payment and will not
reinvestigate the merits of the original dispute. In such an action, an English
court will treat the U.S. judgment as creating a valid debt upon which the
judgment creditor could bring an action for payment, as long as
(1) the U.S. court had jurisdiction over the original proceeding,
(2) the judgment is final and conclusive on the merits,
(3) the judgment does not contravene English public policy,
(4) the judgment must not be for a tax, penalty or a judgment arrived at
by doubling, trebling or otherwise multiplying a sum assessed as
compensation for the loss or damage sustained and
(5) the judgment has not been obtained by fraud or in breach of the
principles of natural justice.
Based on the foregoing, there can be no assurance that you will be able to
enforce in England judgments in civil and commercial matters obtained in any
U.S. court. There is doubt as to whether an English court would impose civil
liability in an original action predicated solely upon the U.S. federal
securities laws brought in a court of competent jurisdiction in England.
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WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We are currently subject to the informational requirements of the
Securities Exchange Act of 1934, as amended. We file reports, proxy statements,
information statements and other information with the Commission under the
Exchange Act. You can inspect and copy at prescribed rates any reports, proxy
statements, information statements and other information we file with the
Commission at the public reference facilities the Commission maintains at:
Room 1024, Judiciary Plaza,
450 Fifth Street, N.W.,
Washington, D.C. 20549,
and at the Commission's Regional Offices located at:
Suite 1400, Northwestern Atrium Center,
500 West Madison Street,
Chicago, Illinois 60661
and
13th Floor, Seven World Trade Center,
New York, New York 10048,
and you may also obtain copies of that material by mail from the Public
Reference Room of the Commission at:
450 Fifth Street, N.W.,
Washington, D.C. 20549,
You may obtain information on the operation at the Public Reference Room by
calling the Commission at 1-800-SEC-0330. The Commission also maintains a site
on the world wide web, the address of which is http://www.sec.gov. That site
also contains our reports, proxy and information statements and other
information.
We are incorporating by reference some information about us that we file
with the Commission. We are disclosing important information to you by
referencing those filed documents. Any information that we reference this way is
considered part of this prospectus.
The following documents filed by us with the Commission are incorporated by
reference into this prospectus:
(a) NTL Communications' Annual Report on Form 10-K for the year ended
December 31, 1999, dated March 27, 2000;
(b) NTL Communications' Quarterly Reports on Form 10-Q for the quarter
ended March 31, 2000, dated May 12, 2000, for the quarter ended June
30, 2000, dated August 10, 2000 and for the quarter ended September
30, 2000, dated November 13, 2000; and
(c) NTL Communications' Current Reports on Form 8-K dated January 25,
2000 (filed on January 25, 2000), February 4, 2000 (filed on February
10, 2000), February 15, 2000 (filed on February 16, 2000), August 3,
2000 (filed on August 7, 2000) September 25, 2000 (filed on September
26, 2000) and September 28, 2000 (filed on October 3, 2000).
142
<PAGE> 148
We will provide you without charge on your request, a copy of any or all
documents which are incorporated by reference to this prospectus, except for
exhibits which are specifically incorporated by reference into those documents.
You should make your request in writing or by telephone to:
NTL Communications Corp.
110 East 59th Street
26th Floor
New York NY 10022
Attention: Richard J. Lubasch
Tel: (212) 906-8440
Copies of these documents will be available without charge (if and so long
as any notes are issued on the Luxembourg Stock Exchange) at the specified
office of the listing agent in Luxembourg.
143
<PAGE> 149
GENERAL INFORMATION
LISTING
A notice relating to the issue of the new notes and the certificate of
incorporation of our company will be filed with the Chief Registrar of the
District Court of Luxembourg (Greffier en Chef du Tribunal d'Arrondissement de
et a Luxembourg) where such documents are available for inspection and where
copies of such documents will be obtainable upon request. According to Chapter
VI, Article 3, point A/II/2 of the Rules and Regulations of the Luxembourg Stock
Exchange, the notes shall be freely transferable and therefore, no transaction
made on the Luxembourg Stock Exchange shall be cancelled.
CLEARING SYSTEMS
The International Securities Identification Number for the new
International global notes is US62940NAK81 and for the new U.S. global notes is
US62940NAM48 and the CUSIP number for the new International global notes is
62940NAK8 and for the new U.S. global notes is 62940NAM4. The Global Notes have
been accepted for clearance by DTC.
AUTHORIZATION
The issue of the new notes was authorized by a resolution of the board of
directors of NTL on September 27, 2000.
AVAILABLE DOCUMENTS, FINANCIAL REPORTS AND INFORMATION
Copies of the indenture and the registration rights agreement referred to
herein will, if and so long as the notes are listed on the Luxembourg Stock
Exchange, be available for inspection during normal business hours at the
specified office of the listing agent in Luxembourg.
A copy of the Certificate of Incorporation and By-laws of NTL will be
available for inspection during normal business hours at the specified office of
the listing agent in Luxembourg if and so long as the notes are issued on the
Luxembourg Stock Exchange.
Whether or not required by the rules and regulations of the SEC, so long as
the notes are outstanding, NTL will file with the SEC and furnish to holders of
notes all quarterly and annual financial information required to be contained in
a filing with the SEC on Forms 10-Q and 10-K (or the equivalent thereof under
the Exchange Act for foreign private issuers in the event NTL becomes a
corporation organized under the laws of the United Kingdom, the Netherlands, the
Netherlands Antilles, Bermuda or the Cayman Islands), including a "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and,
with respect to the annual information only, a report thereon by NTL's certified
independent public accountants, in each case, as required by the rules and
regulations of the SEC as in effect on November 2, 1998.
In compliance with Forms 10-Q and 10-K, NTL currently publishes audited
annual consolidated financial reports and unaudited quarterly consolidated
financial reports. If and as long as the notes are listed on the Luxembourg
Stock Exchange, copies of such reports or any other reports NTL is required to
furnish to holders of the notes in accordance with the preceding paragraph, will
be available at the specified office of the listing agent in Luxembourg. NTL
does not publish unconsolidated financial reports.
Copies of reports, proxy statements and other information concerning NTL
filed by NTL with the SEC (including all material agreements filed as exhibits
thereto) will, if and as long as the notes are listed on the Luxembourg Stock
Exchange, be available at the specified office of the listing agent in
Luxembourg.
144
<PAGE> 150
LEGAL PROCEEDINGS
We are involved in, or have been involved in, certain disputes and
litigation arising in the ordinary course of business, including claims
involving contractual disputes and claims for damages to property and personal
injury resulting from the construction of our networks and the maintenance and
servicing of our transmission masts, none of which are expected to have a
material adverse effect on our financial position or results of operations or
cash flows.
MATERIAL ADVERSE CHANGE
Except as disclosed in this prospectus, there has been no material adverse
change in the financial position of NTL since September 30, 2000.
145
<PAGE> 151
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997.......................... F-4
Consolidated Statements of Shareholder's Equity for the
Years Ended December 31, 1999, 1998 and 1997.............. F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997.......................... F-7
Notes to Consolidated Financial Statements.................. F-9
Condensed Consolidated Balance Sheets as of September 30,
2000...................................................... F-28
Condensed Consolidated Statements of Operations for the Nine
Months Ended September 30, 2000 and 1999.................. F-29
Condensed Consolidated Statement of Shareholder's Equity
(Deficiency) for the Nine Months Ended September 30,
2000...................................................... F-30
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2000 and 1999.................. F-32
Notes to Condensed Consolidated Financial Statements........ F-33
CONSUMERCO
COMBINED FINANCIAL STATEMENTS
Independent Auditors' Report................................ F-39
Combined Statements of Operations for the Years Ended March
31, 2000, March 31, 1999 and March 31, 1998............... F-40
Combined Balance Sheets as of March 31, 2000 and 1999....... F-41
Combined Statements of Cash Flows for the Years Ended March
31, 2000, March 31, 1999 and March 31, 1998............... F-42
Notes to the Combined Financial Statements.................. F-44
</TABLE>
F-1
<PAGE> 152
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, 1999 and 1998, 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, 1999. 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 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, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
Ernst & Young LLP
New York, New York
March 7, 2000
F-2
<PAGE> 153
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,070,076 $ 736,265
Marketable securities..................................... 5,014 260,631
Accounts receivable -- trade, less allowance for doubtful
accounts of $82,996 (1999) and $38,475 (1998).......... 249,905 152,356
Other..................................................... 66,606 55,248
----------- -----------
Total current assets........................................ 1,391,601 1,204,500
Fixed assets, net........................................... 5,340,555 3,854,430
Intangible assets, net...................................... 2,474,057 725,028
Investment in Cable London PLC, net of accumulated
amortization of $3,093.................................... -- 229,093
Other assets, net of accumulated amortization of $49,170
(1999) and
$56,264 (1998)............................................ 296,060 181,046
----------- -----------
Total assets................................................ $ 9,502,273 $ 6,194,097
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 198,623 $ 167,079
Accrued expenses and other................................ 373,096 221,070
Accrued construction costs................................ 79,302 88,033
Interest payable.......................................... 69,024 34,258
Deferred revenue.......................................... 147,952 69,820
Current portion of long-term debt......................... 82,601 23,691
----------- -----------
Total current liabilities................................... 950,598 603,951
Long-term debt.............................................. 7,598,024 5,043,803
Commitments and contingent liabilities
Deferred income taxes....................................... 53,124 67,062
Senior redeemable exchangeable preferred stock -- $.01 par
value, plus accreted dividends; less unamortized discount
of $3,133 (1998); issued and outstanding none (1999) and
125,000 (1998) shares..................................... -- 124,127
Shareholder's equity:
Series preferred stock -- $.01 par value;
authorized none (1999) and 10,000,000 (1998) shares:
issued and outstanding none (1999) and 177,000 (1998)
shares................................................. -- 2
Common stock -- $.01 par value; authorized 100 (1999) and
400,000,000 (1998) shares; issued and outstanding 100
(1999) and 60,249,000 (1998) shares.................... -- 602
Additional paid-in capital................................ 2,863,677 1,501,561
Accumulated other comprehensive income.................... 2,395 104,657
(Deficit)................................................. (1,965,545) (1,251,668)
----------- -----------
900,527 355,154
----------- -----------
Total liabilities and shareholder's equity.................. $ 9,502,273 $ 6,194,097
=========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 154
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
REVENUES
Residential telecommunications and television....... $ 827,324 $ 355,589 $ 166,951
National and international telecommunications....... 488,640 248,895 185,194
Broadcast transmission and other.................... 161,907 140,156 130,799
Other telecommunications............................ -- 2,375 8,831
---------- --------- ---------
1,477,871 747,015 491,775
COSTS AND EXPENSES
Operating expenses.................................. 704,689 372,134 301,644
Selling, general and administrative expenses........ 561,797 299,494 169,133
Franchise fees...................................... 16,538 25,036 23,587
Corporate expenses.................................. 25,260 17,048 18,324
Nonrecurring charges................................ 16,179 (4,194) 20,642
Depreciation and amortization....................... 762,858 266,112 150,509
---------- --------- ---------
2,087,321 975,630 683,839
---------- --------- ---------
Operating (loss).................................... (609,450) (228,615) (192,064)
OTHER INCOME (EXPENSE)
Interest and other income........................... 29,767 46,024 28,415
Interest expense.................................... (678,036) (328,815) (202,570)
Other gains......................................... 493,121 -- 21,497
Foreign currency transaction gains.................. 22,733 4,152 574
---------- --------- ---------
(Loss) before income taxes and extraordinary item... (741,865) (507,254) (344,148)
Income tax benefit.................................. 29,943 3,327 15,591
---------- --------- ---------
(Loss) before extraordinary item.................... (711,922) (503,927) (328,557)
Loss from early extinguishment of debt.............. (3,034) (30,689) (4,500)
---------- --------- ---------
Net (loss).......................................... $ (714,956) $(534,616) $(333,057)
========== ========= =========
</TABLE>
See accompanying notes.
F-4
<PAGE> 155
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
(dollars in thousands)
<TABLE>
<CAPTION>
SERIES PREFERRED STOCK COMMON STOCK
$.01 PAR VALUE $.01 PAR VALUE
---------------------- --------------------
SHARES PAR SHARES PAR
----------- -------- ------------ -----
<S> <C> <C> <C> <C>
Balance, December 31, 1996....................... 780 $ -- 32,066,000 $ 321
Exercise of stock options........................ 119,000 1
Exercise of warrants............................. 25,000 --
Accreted dividends on senior redeemable
exchangeable preferred stock...................
Accretion of discount on senior redeemable
exchangeable preferred stock...................
Comprehensive income:
Net loss for the year ended December 31, 1997....
Currency translation adjustment..................
Total..........................................
-------- ----- ------------ -----
Balance, December 31, 1997....................... 780 -- 32,210,000 322
Exercise of stock options........................ 298,000 3
Exercise of warrants............................. 70,000 --
Accreted dividends on preferred stock............
Accretion of discount on preferred stock.........
Conversion of 7 1/4% Convertible Subordinated
Notes.......................................... 6,958,000 70
Conversion of Series Preferred Stock............. (780) -- 1,950,000 20
Preferred stock issued for an acquisition........ 177,000 2
Common stock issued for an acquisition........... 18,763,000 187
Warrants issued in connection with consent
solicitations
Comprehensive income:
Net loss for the year ended December 31, 1998....
Currency translation adjustment..................
Total..........................................
-------- ----- ------------ -----
Balance, December 31, 1998....................... 177,000 2 60,249,000 602
Exercise of stock options........................ 432,000 4
Exercise of warrants............................. 15,000 1
Preferred stock issued for cash.................. 500,000 5
Warrants issued for cash.........................
Accreted dividends on preferred stock............ 4,000
Accretion of discount on preferred stock.........
Conversion of 7% Convertible Subordinated
Notes.......................................... 1,000 --
Common stock issued for an acquisition........... 12,705,000 127
Stock options issued in connection with an
acquisition....................................
Corporate restructuring.......................... (681,000) (7) (73,402,000) (734)
Distribution to NTL Incorporated.................
Contributions from NTL Incorporated..............
Distribution of subsidiary to NTL Incorporated...
Comprehensive income:
Net loss for the year ended December 31, 1999....
Currency translation adjustment..................
Total..........................................
-------- ----- ------------ -----
Balance, December 31, 1999....................... -- $ -- -- $ --
======== ===== ============ =====
</TABLE>
See accompanying notes.
F-5
<PAGE> 156
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
PAID-IN COMPREHENSIVE COMPREHENSIVE
CAPITAL LOSS INCOME (DEFICIT)
---------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1996............... $ 548,647 $ 163,141 $ (383,995)
Exercise of stock options................ 1,532
Exercise of warrants..................... 138
Accreted dividends on senior redeemable
exchangeable preferred stock........... (11,978)
Accretion of discount on senior
redeemable exchangeable preferred
stock.................................. (285)
Comprehensive income:
Net loss for the year ended December 31,
1997................................... $(333,057) (333,057)
Currency translation adjustment.......... (46,133) (46,133)
---------
Total.................................. $(379,190)
---------- --------- --------- -----------
Balance, December 31, 1997............... 538,054 117,008 (717,052)
Exercise of stock options................ 6,331
Exercise of warrants..................... 508
Accreted dividends on preferred stock.... (18,761)
Accretion of discount on preferred
stock.................................. (311)
Conversion of 7 1/4% Convertible
Subordinated Notes..................... 186,942
Conversion of Series Preferred Stock..... (20)
Preferred stock issued for an
acquisition............................ 178,493
Common stock issued for an acquisition... 600,245
Warrants issued in connection with
consent solicitations.................. 10,080
Comprehensive income:
Net loss for the year ended December 31,
1998................................... $(534,616) (534,616)
Currency translation adjustment.......... (12,351) (12,351)
---------
Total.................................. $(546,967)
---------- --------- --------- -----------
Balance, December 31, 1998............... 1,501,561 104,657 (1,251,668)
Exercise of stock options................ 12,054
Exercise of warrants..................... 102
Preferred stock issued for cash.......... 483,805
Warrants issued for cash................. 16,190
Accreted dividends on preferred stock.... (8,644)
Accretion of discount on preferred
stock.................................. (78)
Conversion of 7% Convertible Subordinated
Notes.................................. 50
Common stock issued for an acquisition... 971,310
Stock options issued in connection with
an acquisition......................... 6,599
Corporate restructuring.................. 405,604
Distribution to NTL Incorporated......... (500,000)
Contributions from NTL Incorporated...... 5,637
Distribution of subsidiary to NTL
Incorporated........................... (30,513) 1,079
Comprehensive income:
Net loss for the year ended December 31,
1999................................... $(714,956) (714,956)
Currency translation adjustment.......... (102,262) (102,262)
---------
Total.................................. $(817,218)
---------- --------- --------- -----------
Balance, December 31, 1999............... $2,863,677 $ 2,395 $(1,965,545)
========== ========= ========= ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 157
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss......................................... $ (714,956) $ (534,616) $(333,057)
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization.................. 762,858 266,112 150,509
Loss from early extinguishment of debt......... 3,034 30,689 4,500
Gain on sale of investment in Cable London
PLC......................................... (493,121) -- --
Amortization of non competition agreements..... -- 1,389 1,852
Provision for losses on accounts receivable.... 45,295 27,282 6,891
Deferred income taxes.......................... (30,943) (3,327) (16,852)
Amortization of original issue discount........ 451,356 232,691 122,639
Other.......................................... (7,987) (30,916) (8,148)
Changes in operating assets and liabilities,
net of effect from business acquisitions:
Accounts receivable......................... (129,120) (70,364) (30,430)
Other current assets........................ (46,509) 22,631 (6,563)
Other assets................................ (25,241) 6 2,303
Accounts payable............................ 32,690 (2,564) (4,615)
Accrued expenses and other.................. 155,324 15,272 74,706
Deferred revenue............................ 68,789 26,772 18,994
----------- ----------- ---------
Net cash provided by (used in) operating
activities..................................... 71,469 (18,943) (17,271)
INVESTING ACTIVITIES
Acquisitions, net of cash acquired............... (473,696) (746,817) --
Purchase of fixed assets......................... (1,196,519) (772,144) (503,656)
Payment of deferred purchase price............... -- -- (57,330)
Increase in other assets......................... (30,100) (35,595) (4,322)
Proceeds from sales of assets.................... 692,490 1,312 --
Purchase of marketable securities................ (354,524) (540,639) (145,939)
Proceeds from sales of marketable securities..... 618,625 291,276 142,596
----------- ----------- ---------
Net cash (used in) investing activities.......... (743,724) (1,802,607) (568,651)
</TABLE>
See accompanying notes.
F-7
<PAGE> 158
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
---------- ---------- ---------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Distribution to NTL Incorporated................... (500,000) -- --
Proceeds from borrowings, net of financing costs... 1,846,003 3,525,588 490,302
Proceeds from issuance of preferred stock and
warrants......................................... 500,000 -- --
Principal payments................................. (758,212) (845,018) (242,424)
Cash in escrow for debt repayment.................. (86,993) (217,622) --
Consent solicitation payments...................... -- (11,333) --
Proceeds from exercise of stock options and
warrants......................................... 12,161 6,842 1,671
---------- ---------- ---------
Net cash provided by financing activities.......... 1,012,959 2,458,457 249,549
Effect of exchange rate changes on cash............ (6,893) 456 (10,609)
---------- ---------- ---------
Increase (decrease) in cash and cash equivalents... 333,811 637,363 (346,982)
Cash and cash equivalents at beginning of year..... 736,265 98,902 445,884
---------- ---------- ---------
Cash and cash equivalents at end of year........... $1,070,076 $ 736,265 $ 98,902
========== ========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest exclusive of
amounts capitalized.............................. $ 179,787 $ 90,513 $ 72,047
Income taxes paid.................................. -- 336 1,107
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING
ACTIVITIES
Accretion of dividends and discount on preferred
stock............................................ $ 8,722 $ 19,072 $ 12,263
Conversion of Convertible Notes, net of unamortized
deferred financing costs......................... 269,285 187,012 --
Preferred stock issued for an acquisition.......... -- 178,495 --
Common stock and stock options issued for an
acquisition...................................... 978,036 600,432 --
Warrants issued in connection with consent
solicitations.................................... -- 10,080 --
</TABLE>
See accompanying notes.
F-8
<PAGE> 159
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. CORPORATE RESTRUCTURING AND BUSINESS
Effective 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 has taken 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.
The Company, through its subsidiaries and joint ventures, owns and operates
broadband communications networks for telephone, cable television and Internet
services and television and radio broadcasting systems in the United Kingdom and
the Republic of Ireland. Based on revenues and identifiable assets, the
Company's predominant lines of business are residential services, national
telecommunications services and broadcast transmission and tower services in the
United Kingdom. Residential services include telephony, cable television,
Internet access and interactive services. National telecommunications services
include business telephony, national and international carrier
telecommunications, Internet services and satellite communications services.
Broadcast transmission and tower services include digital and analog television
and radio broadcasting and related 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.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's foreign subsidiaries have been
translated into U.S. dollars in accordance with 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 gains or losses resulting from the change in exchange rates have been
reported as a component of accumulated other comprehensive income. 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 $605 million and $651
million at December 31, 1999 and 1998, respectively, which consisted primarily
of bank time deposits and corporate commercial paper. At December 31, 1999
F-9
<PAGE> 160
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and 1998, $575 million and $121 million, respectively, of the cash equivalents
were denominated in foreign currencies.
MARKETABLE SECURITIES
Marketable securities are 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. 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.
Marketable securities at December 31, 1999 and 1998 consisted of corporate
commercial paper. During the years ended December 31, 1999, 1998 and 1997, there
were no realized gains or losses on sales of securities. All of the marketable
securities as of December 31, 1999 and 1998 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.
INVESTMENT IN CABLE LONDON PLC
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
F-10
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NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 1999, 1998 and 1997, interest of $41,810,000, $27,760,000 and
$6,770,000, respectively, was capitalized.
REVENUE RECOGNITION
Revenues are recognized at the time the service is provided to the
customer. Charges for services that are billed in advance are deferred and
recognized when earned.
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 $35,817,000, $33,951,000 and $31,003,000 in 1999, 1998
and 1997, respectively.
STOCK-BASED COMPENSATION
The Company had 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.
3. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted by the
Company effective January 1, 2001. The Company is evaluating the impact that the
adoption of SFAS No. 133 will have on its results of operations and financial
position.
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 television and radio broadcasting business is substantially
dependent upon contracts with a small group of companies for the right to
broadcast their programming, and upon a site sharing
F-11
<PAGE> 162
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Operating equipment......................................... $4,858,950 $3,528,973
Other equipment............................................. 694,712 376,518
Construction-in-progress.................................... 668,741 369,923
---------- ----------
6,222,403 4,275,414
Accumulated depreciation.................................... (881,848) (420,984)
---------- ----------
$5,340,555 $3,854,430
========== ==========
</TABLE>
6. INTANGIBLE ASSETS
Intangible assets consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
---------- --------
(IN THOUSANDS)
<S> <C> <C>
Goodwill, net of accumulated amortization of $183,612 (1999)
and
$32,358 (1998)............................................ $2,089,723 $514,529
License acquisition costs, net of accumulated amortization
of $141,682 (1999) and $69,202 (1998)..................... 224,998 153,007
Customer lists, net of accumulated amortization of $30,870
(1999) and
$3,375 (1998)............................................. 159,336 57,492
---------- --------
$2,474,057 $725,028
========== ========
</TABLE>
The Company made the following acquisitions in 1998:
The Company acquired ComTel Limited and Telecential Communications
(collectively, "ComTel") for a total of L550 million comprised of L475 million
in cash and 125,000 shares of 9.9% Non-voting Mandatorily Redeemable Preferred
Stock, Series A in two stages completed in June and September 1998. The
preferred stock was valued at L75 million, the fair value on the date of
issuance. ComTel is a provider of telephone, cable television and Internet
services in England.
In October 1998, a wholly-owned subsidiary of the Company, NTL (Triangle)
LLC ("NTL Triangle") (formerly known as NTL (Bermuda) Limited) acquired all of
the outstanding common stock of Comcast
F-12
<PAGE> 163
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
UK Cable Partners Limited in exchange for 29.3 million shares of the Company's
common stock. The Company's common stock was valued at $600,432,000, the fair
value at the time of the announcement. NTL Triangle provides telephone, cable
television and Internet services in England.
In December 1998, the Company acquired Eastern Group Telecoms ("EGT") for
L60 million in cash and 52,000 shares of 9.9% Non-voting Mandatorily Redeemable
Preferred Stock, Series B. The preferred stock was valued at $52,217,000, the
fair value on the date of issuance. EGT's telecoms division hasa fibre-optic
network across portions of England, and its radio sites division serves mobile
phone operators in portions of England.
These acquisitions have been 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 $1.7 billion, which includes the related
acquisition costs and the return of cash acquired in the ComTel transaction of
pound sterling 31 million, exceeded the fair value of the net tangible assets
acquired by $591 million, which has been allocated as follows: $185.6 million to
the investment in Cable London PLC, $52.4 million to license acquisition costs,
$60.9 million to customer lists and $292.1 million to goodwill.
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 $971,437,000, 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 $6,599,000. The Company assumed Diamond's debt including five
different notes with an aggregate principal amount at maturity of $1.6 billion.
Diamond is a provider of telephone, cable television and Internet services in
England.
In July 1999, the Company acquired Cablelink Limited ("Cablelink") for
IRL535.18 million ($693 million), of which IRL455.18 million ($589 million) was
paid in cash and IRL80 million ($104 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.
Also in July 1999, the Company acquired certain broadband cable franchises
from British Telecommunications plc for an aggregate of up to pound sterling 19
million ($31 million). The Company paid approximately pound sterling 5 million
($8 million) on closing and will pay up to pound sterling 14 million ($23
million) on completion of the upgrade of certain networks.
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 $1.69 billion, including costs incurred of $18
million, plus the fair value of liabilities assumed net of tangible assets
acquired aggregated $1.983 billion, which has been allocated as follows: $143
million to license acquisition costs, $131 million to customer lists and $1.709
billion to goodwill.
F-13
<PAGE> 164
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma unaudited consolidated results of operations for the years
ended December 31, 1999 and 1998 assuming consummation of the above mentioned
transactions as of January 1, 1998 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Total revenue............................................... $1,537,764 $1,170,480
(Loss) before extraordinary item............................ (854,096) (1,058,438)
Net (loss).................................................. (857,130) (1,089,127)
</TABLE>
7. INVESTMENT IN CABLE LONDON PLC
Pursuant to an agreement with Telewest Communications plc ("Telewest")
relating to NTL Triangle's and Telewest's respective 50% ownership interests in
Cable London PLC ("Cable London"), in November 1999 Telewest purchased all of
NTL Triangle's shares of Cable London for approximately pound sterling 428
million (approximately $692 million) in cash. The Company recorded a gain of
$493 million on the sale. The sale of the Cable London interest is an "Asset
Sale" for purposes of the Company's Indentures for certain of its notes. The
Company will need to use an amount equal to the proceeds from the sale to repay
subsidiary debt, invest in "Replacement Assets" or make an offer to redeem
certain of its notes by November 2000.
F-14
<PAGE> 165
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
NTL Communications:
12 3/4% Senior Deferred Coupon Notes................... (a) $ 268,108 $ 236,935
11 1/2% Senior Deferred Coupon Notes................... (b) 930,404 831,976
10% Senior Notes....................................... (c) 400,000 400,000
9 1/2% Senior Sterling Notes, less unamortized
discount of $567 (1999) and $639 (1998)............. (d) 201,408 206,800
10 3/4% Senior Deferred Coupon Sterling Notes.......... (e) 343,691 317,511
9 3/4% Senior Deferred Coupon Notes.................... (f) 952,825 865,880
9 3/4% Senior Deferred Coupon Sterling Notes........... (g) 354,394 --
11 1/2% Senior Notes................................... (h) 625,000 625,000
12 3/8% Senior Deferred Coupon Notes................... (i) 286,967 254,718
7% Convertible Subordinated Notes...................... (j) -- 275,000
7% Convertible Subordinated Notes...................... (k) 599,300 600,000
Variable Rate Redeemable Guaranteed Loan Notes......... (l) 76,794 --
9 1/4% Senior Euro Notes............................... (m) 252,300 --
9 7/8% Senior Euro Notes............................... (n) 353,220 --
11 1/2% Senior Deferred Coupon Euro Notes.............. (o) 123,080 --
NTL Triangle:
11.2% Senior Discount Debentures....................... (p) 467,317 421,835
Other.................................................. 7,969 31,839
Diamond:
13 1/4% Senior Discount Notes.......................... (q) 285,101 --
11 3/4% Senior Discount Notes.......................... (r) 476,215 --
10 3/4% Senior Discount Notes.......................... (s) 336,891 --
10% Senior Sterling Notes.............................. (t) 218,133 --
9 1/8% Senior Notes.................................... (u) 110,000 --
Other.................................................. 11,508 --
---------- ----------
7,680,625 5,067,494
Less current portion..................................... 82,601 23,691
---------- ----------
$7,598,024 $5,043,803
========== ==========
</TABLE>
(a) 12 3/4% Notes due April 15, 2005, principal amount at maturity of
$277,804,000, interest payable semiannually beginning 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
$1,050,000,000, interest payable semiannually beginning on August 1, 2001,
redeemable at the Company's option on or after February 1, 2001;
F-15
<PAGE> 166
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) 10% Notes due February 15, 2007, principal amount at maturity of
$400,000,000, 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
L125,000,000 ($201,975,000), 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
L300,000,000 ($484,740,000), 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
$1,300,000,000, 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
L330,000,000 ($533,214,000), 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
$625,000,000, 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
$450,000,000, interest payable semiannually beginning on April 1, 2004,
redeemable at the Company's option on or after October 1, 2003;
(j) In May 1999, the Company called for redemption all of its $275,000,000
principal amount of 7% Convertible Notes due 2008 at a redemption price of
104.9% of their principal amount, plus accrued and unpaid interest. In June
1999, all of the 7% Convertible Notes were converted into approximately
11,344,000 shares of NTL Incorporated's common stock at the applicable
conversion price of $24.24 per share. The unamortized deferred financing
costs related to the 7% Notes of $6,415,000 were written-off to equity;
(k) 7% Convertible Notes due December 15, 2008, principal amount at maturity of
$599,300,000, 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;
(l) Variable Rate Redeemable Guaranteed Notes due January 5, 2002, principal
amount at maturity of IRL60,000,000 ($76,794,000), interest payable
quarterly at EURIBOR (3.345% at December 31, 1999), redeemable at any time
at the option of the holder, IRL20,000,000 ($25,730,000) redeemed in 1999
using cash held in escrow, E86,475,000 ($87,270,000) remaining in escrow at
December 31, 1999;
(m) 9 1/4% Notes due November 15, 2006, principal amount at maturity of
E250,000,000 ($252,300,000), interest payable semiannually beginning on May
15, 2000;
(n) 9 7/8% Notes due November 15, 2009, principal amount at maturity of
E350,000,000 ($353,220,000), interest payable semiannually beginning on
beginning May 15, 2000, redeemable at the Company's option on or after
November 15, 2004;
F-16
<PAGE> 167
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(o) 11 1/2% Deferred Notes due November 15, 2009, principal amount at maturity
of E210,000,000 ($211,932,000), interest payable semiannually beginning on
May 15, 2005, redeemable at the Company's option on or after November 15,
2004;
(p) 11.2% Debentures due November 15, 2007, principal amount at maturity of
$517,321,000, interest payable semiannually beginning on May 15, 2001;
(q) 13 1/4% Notes due September 30, 2004, principal amount at maturity of
$285,101,000, interest payable semiannually beginning on March 31, 2000,
redeemable at the Company's option on or after September 30, 1999;
(r) 11 3/4% Notes due December 15, 2005, principal amount at maturity of
$530,955,000, interest payable semiannually beginning on June 15, 2001,
redeemable at the Company's option on or after December 15, 2000;
(s) 10 3/4% Notes due February 15, 2007, principal amount at maturity of
$420,500,000, interest payable semiannually beginning on August 15, 2002,
redeemable at the Company's option on or after December 15, 2002;
(t) 10% Sterling Notes due February 1, 2008, principal amount at maturity of
L135,000,000 ($218,133,000), interest payable semiannually from August 1,
1998, redeemable at the Company's option on or after February 1, 2003; and
(u) 9 1/8% Notes due February 1, 2008, principal amount of $110,000,000,
interest payable semiannually from August 1, 1998, redeemable at the
Company'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 1999, 1998 and 1997, the Company recognized $451,356,000,
$232,691,000 and $122,639,000, respectively, of original issue discount as
interest expense.
In September 1999, NTL Triangle repaid at maturity the $21,529,000 due
under its notes payable to Comcast U.K. Holdings, Inc.
In connection with the Cablelink acquisition, the Company issued
$704,615,000 principal amount Senior Increasing Rate Notes due 2000. In November
1999, the Company received net proceeds of $720,743,000 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 $716,505,000 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 $3,034,000 in 1999.
In connection with the ComTel acquisition, the Company borrowed an
aggregate of L475,000,000 under its bank credit facility. In November 1998, the
Company received net proceeds of $849,000,000 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 $799,000,000 outstanding under the bank loan. The Company recorded an
extraordinary loss from the early extinguishment of the bank loan of $18,579,000
in 1998.
In October 1998, the Company redeemed its 10 7/8% Senior Deferred Coupon
Notes with an accreted value of $211,000,000 for cash of $218,000,000. The
Company recorded an extraordinary loss from the early extinguishment of the
10 7/8% Notes of $12,110,000 in 1998, which included approximately $4,800,000 of
unamortized deferred financing costs.
F-17
<PAGE> 168
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $11,333,000 in consent payments
and issued warrants to purchase 1,197,000 shares of common stock in lieu of
additional consent payments of $10,080,000.
The NTL Triangle and Diamond notes restrict the payment of cash dividends
and loans to the Company. At December 31, 1999, restricted net assets were
approximately $1.4 billion.
Long-term debt repayments are due as follows (in thousands):
<TABLE>
<S> <C>
Year ending December 31:
2000.......................................... $ 82,601
2001.......................................... 1,270
2002.......................................... 1,062
2003.......................................... 981
2004.......................................... 286,001
Thereafter.................................... 8,545,710
----------
$8,917,625
==========
</TABLE>
9. NONRECURRING CHARGES INCLUDING RESTRUCTURING CHARGES
Nonrecurring charges of $16,179,000 in 1999 were the fee incurred for the
cancellation of certain contracts.
Nonrecurring charges of $20,642,000 in 1997 include deferred costs
written-off of $5,013,000 and restructuring costs of $15,629,000. The deferred
costs written-off arose in connection with the Company's unsuccessful bid for
United Kingdom digital terrestrial television multiplex licenses. Restructuring
costs relate to the Company's announcement in September 1997 of a reorganization
of certain of its operations. This charge consisted of employee severance and
related costs of $6,726,000 for approximately 280 employees to be terminated,
lease exit costs of $6,539,000 and penalties of $2,364,000 associated with the
cancellation of contractual obligations. As of December 31, 1998, $9,172,000 of
the provision had been used, including $5,558,000 for severance and related
costs, $1,450,000 for lease exit costs and $2,164,000 for penalties associated
with the cancellation of contractual obligations. As of December 31, 1998, 177
employees had been terminated. The $4,194,000 reversed in 1998 includes
$1,168,000 for severance and related costs, $2,826,000 for lease exit costs and
$200,000 for penalties associated with the cancellation of contractual
obligations. This reversal was necessary because employees whose positions were
eliminated chose to remain with the Company in other positions rather than leave
the Company and receive severance pay, and the real estate markets in which the
Company sublet space improved increasing the sublet rentals and shortening the
period of time required to find subtenants. The remaining restructuring reserve
of $2,263,000 at December 31, 1998 is for lease costs net of sublease revenue.
10. OTHER GAINS
Other gains of $493,121,000 in 1999 are from the sale of the investment in
Cable London. Other gains of $21,497,000 in 1997 include a legal settlement of
$10,000,000 and a gain on the sale of fixed assets of $11,497,000. In October
1997, following the U.S. District Court's decision to dismiss the Company's
complaint against LeGroupe Videotron Ltee and its subsidiary, the Company
entered into a Settlement Agreement dismissing the Company's complaint in
exchange for a payment of $10,000,000. In December
F-18
<PAGE> 169
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1997, a U.S. subsidiary of the Company sold its fixed and other assets utilized
in its microwave transmission service business and recognized a gain of
$11,497,000.
11. INCOME TAXES
The benefit for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................................ $ 1,000 $ -- $ --
State and local........................................ -- -- 1,261
Foreign................................................ -- -- --
-------- ------- --------
Total current............................................ 1,000 -- 1,261
-------- ------- --------
Deferred:
Federal................................................ -- -- --
State and local........................................ -- -- --
Foreign................................................ (30,943) (3,327) (16,852)
-------- ------- --------
Total deferred........................................... (30,943) (3,327) (16,852)
-------- ------- --------
$(29,943) $(3,327) $(15,591)
======== ======= ========
</TABLE>
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:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Fixed assets.............................................. $ 66,461 $ 68,766
Intangibles............................................... 76,457 --
--------- ---------
Total deferred tax liabilities.............................. 142,918 68,766
Deferred tax assets:
Net operating losses...................................... 389,722 244,394
Net deferred interest expense............................. 150,120 113,993
Depreciation and amortization............................. 269,322 100,780
Other..................................................... 12,237 19,975
--------- ---------
Total deferred tax assets................................... 821,401 479,142
Valuation allowance for deferred tax assets................. (731,607) (477,438)
--------- ---------
Net deferred tax assets..................................... 89,794 1,704
--------- ---------
Net deferred tax liabilities................................ $ 53,124 $ 67,062
========= =========
</TABLE>
At December 31, 1999, the Company had net operating loss carryforwards of
approximately $260 million for U.S. federal income tax purposes that expire in
varying amounts commencing in 2009. The Company also has United Kingdom net
operating loss carryforwards of approximately $947 million which
F-19
<PAGE> 170
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
The Company is currently undergoing a U.S. federal income tax audit. The
Internal Revenue Service has issued notices of proposed adjustment. 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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
(Benefit) at federal statutory rate (35%)........... $(260,715) $(188,309) $(120,452)
Add:
State and local income tax, net of federal
benefit........................................ -- -- 820
Foreign losses with no benefit.................... 102,467 83,500 59,804
Amortization of goodwill and license acquisition
costs.......................................... 4,145 4,366 3,925
U.S. losses with no benefit....................... 124,160 97,116 40,312
--------- --------- ---------
$ (29,943) $ (3,327) $ (15,591)
========= ========= =========
</TABLE>
12. 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 amount of the Variable Rate Notes approximates
their fair value. The fair values of the Company's other debt are based on
the quoted market prices.
Redeemable Preferred Stock: The fair value is based on the quoted market
price.
F-20
<PAGE> 171
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying amounts and fair values of the Company's financial instruments
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------ --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents............... $1,070,076 $1,070,076 $736,265 $736,265
Long-term debt:
12 3/4% Notes......................... 268,108 278,499 236,935 252,801
11 1/2% Notes......................... 930,404 950,250 831,976 882,000
10% Notes............................. 400,000 414,000 400,000 408,000
9 1/2% Sterling Senior Notes.......... 201,408 196,926 206,800 192,917
10 3/4% Sterling Notes................ 343,691 327,200 317,511 293,732
9 3/4% Notes.......................... 952,825 913,250 865,880 835,250
9 3/4% Sterling Notes................. 354,394 313,263 -- --
11 1/2% Notes......................... 625,000 682,813 625,000 681,250
12 3/8% Notes......................... 286,967 319,500 254,718 274,500
7% Convertible Notes.................. -- -- 275,000 411,125
7% Convertible Notes.................. 599,300 1,582,152 600,000 656,340
Variable Rate Notes................... 76,794 76,794 -- --
9 1/4% Euro Notes..................... 252,300 254,823 -- --
9 7/8% Euro Notes..................... 353,220 356,752 -- --
11 1/2% Euro Deferred Notes........... 123,080 125,040 -- --
11.2% Debentures...................... 467,317 486,282 421,835 437,119
13 1/4% Notes......................... 285,101 305,414 -- --
11 3/4% Notes......................... 476,215 499,140 -- --
10 3/4% Notes......................... 336,891 340,605 -- --
10% Sterling Notes.................... 218,133 218,133 -- --
9 1/8% Notes.......................... 110,000 108,900 -- --
Redeemable Preferred Stock.............. -- -- 124,127 124,127
</TABLE>
13. 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 1997, the Company charged CCPR and CCII $1,492,000 and $871,000,
respectively, for direct costs where identifiable and a fixed percentage of its
corporate overhead. In 1998, the Company charged CCPR, CCII and CoreComm Limited
(which was formed in 1998 and has certain common officers and directors with the
Company) $1,148,000, $982,000 and $313,000, respectively, for direct costs where
identifiable and a fixed percentage of its corporate overhead. In the fourth
quarter of 1999, CoreComm Limited began charging the Company a percentage of
CoreComm Limited's office rent and supplies expense. In 1999, the Company
charged CCPR, CCII and CoreComm Limited $144,000, $439,000 and $1,336,000,
respectively, for direct costs where identifiable and a fixed percentage of its
corporate overhead, net of CoreComm Limited'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. These charges reduced corporate expenses. It
is not practicable to determine the amounts of these expenses that would have
been incurred had the Company
F-21
<PAGE> 172
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
operated as an unaffiliated entity. In the opinion of management of the Company,
the allocation methods are reasonable.
At December 31, 1999 and 1998, the Company had receivables of $508,000 and
$1,038,000 from CoreComm Limited and none and $588,000 from CCPR, respectively.
In addition, at December 31, 1999, the Company had $8,427,000 due to NTL
Incorporated.
14. SHAREHOLDER'S EQUITY
SALES OF PREFERRED STOCK AND WARRANTS
In January 1999, the Company received $500 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 1,875,000 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 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 the ComTel 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 the EGT 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.
In October 1996, 780 shares of Non-voting Convertible Preferred Stock,
Series A were issued in connection with an acquisition. In May 1998, the 780
outstanding shares were converted into 3,047,000 shares of common stock.
The changes in the number of shares of Series Preferred Stock, excluding
the Redeemable Preferred Stock, were as follows:
<TABLE>
<CAPTION>
CONVERTIBLE 9.9% 9.9%
SERIES A SERIES A SERIES B 5.25%
----------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 and 1997.......... 780 -- -- --
Conversion................................... (780) -- -- --
Issued for acquisitions...................... -- 125,000 52,000 --
---- -------- ------- --------
Balance, December 31, 1998................... -- 125,000 52,000 --
Issued for cash.............................. -- -- -- 500,000
Issued for dividends......................... -- -- -- 4,000
Corporate restructuring...................... -- (125,000) (52,000) (504,000)
---- -------- ------- --------
Balance, December 31, 1999................... -- -- -- --
==== ======== ======= ========
</TABLE>
STOCK OPTIONS
The Company's employees participate in the NTL Incorporated stock option
plans. The following is a description of NTL Incorporated's stock option plans.
F-22
<PAGE> 173
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
There are 23,438,000 shares of common stock reserved for issuance under the
1998 Non-Qualified Stock Option Plan. The exercise price of a NQSO shall be
determined by the Compensation and Option Committee. 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.
There were 6,368,000, 13,850,000 and 2,455,000 options granted under these
plans for the years ended December 31, 1999, 1998 and 1997, 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 1999, 1998 and 1997: risk-free interest rates of 6.81%, 5.02%
and 5.89%, respectively, dividend yield of 0%, volatility factor of the expected
market price of NTL Incorporated's common stock of .336, .331 and .276,
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 $801,969,000, $580,747,000, and $343,850,000
for the years ended December 31, 1999, 1998 and 1997, respectively.
15. 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
F-23
<PAGE> 174
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year..................... $213,449 $202,645
Service cost................................................ 11,599 13,365
Interest cost............................................... 11,832 14,684
Actuarial gains............................................. (40,800) (14,640)
Benefits paid............................................... (5,239) (4,968)
Foreign currency exchange rate changes...................... (5,050) 2,363
-------- --------
Benefit obligation at end of year........................... $185,791 $213,449
======== ========
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year.............. $225,273 $193,607
Actual return on plan assets................................ 41,829 24,144
Company contributions....................................... 7,211 7,242
Plan participants' contributions............................ 2,788 2,991
Benefits paid............................................... (5,239) (4,968)
Foreign currency exchange rate changes...................... (5,329) 2,257
-------- --------
Fair value of plan assets at end of year.................... $266,533 $225,273
======== ========
Funded status of the plan................................... $ 80,742 $ 11,824
Unrecognized net actuarial gains............................ (88,166) (23,060)
Unrecognized transition obligation.......................... 8,177 9,306
-------- --------
Prepaid/(accrued)benefit cost............................... $ 753 $ (1,930)
======== ========
Actuarial assumptions:
Weighted average discount rate............................ 6.25% 5.75%
Weighted average rate of compensation increase............ 4.50% 5.50%
Expected long-term rate of return on plan assets.......... 8.00% 8.00%
</TABLE>
The components of net pension costs are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost.............................................. $11,599 $13,365 $10,693
Interest cost............................................. 11,832 14,684 12,765
Actual return on plan assets.............................. (41,829) (24,144) (30,852)
Net amortization and deferral............................. 25,759 8,282 17,327
------- ------- -------
$ 7,361 $12,187 $ 9,933
======= ======= =======
</TABLE>
F-24
<PAGE> 175
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. LEASES
Leases for buildings, office space and equipment extend through 2031. Total
rental expense for the years ended December 31, 1999, 1998 and 1997 under
operating leases was $27,548,000, $29,356,000 and $20,674,000, respectively.
Future minimum lease payments under noncancellable operating leases as of
December 31, 1999 are as follows (in thousands):
<TABLE>
<S> <C>
Year ended December 31:
2000.......................................... $ 33,558
2001.......................................... 31,077
2002.......................................... 28,354
2003.......................................... 26,952
2004.......................................... 25,723
Thereafter.................................... 138,557
--------
$284,221
========
</TABLE>
17. COMMITMENTS AND CONTINGENT LIABILITIES
At December 31, 1999, the Company was committed to pay approximately
$218,000,000 for equipment and services.
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, 1998 and 1997, the Company paid
$30,130,000, $25,036,000 and $23,587,000, 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
$13,592,000.
The Company intends to make an offer to convert its 7% Convertible Notes
with a principal amount of $599.3 million into NTL Incorporated common stock.
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.
18. INDUSTRY SEGMENTS
The Company has four reportable segments: Residential Telecoms and
Television, National Telecoms, Broadcast and Corporate and Other. The
Residential Telecoms and Television segment delivers residential telephony,
cable television, Internet access and interactive services in regional franchise
areas in the United Kingdom and Ireland. The National Telecoms segment includes
the Company's business telecoms, national and international carrier telecoms,
Internet services and satellite communications services business units in the
United Kingdom. The Broadcast segment provides television and radio broadcasters
with digital and analog broadcast transmission and related services from owned
and shared tower sites throughout the United Kingdom. Corporate and other
includes the Company's shared services departments in the United
F-25
<PAGE> 176
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Kingdom and OCOM, a subsidiary that operated long distance and microwave
transmission businesses in the United States until June 1998.
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, nonrecurring charges, other
gains, foreign currency transactions gains 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. Segment
assets include only those assets that are specific to the segment. 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 offer different services. They are managed
separately because each business requires different technology and marketing
strategies.
<TABLE>
<CAPTION>
RESIDENTIAL
TELECOMS AND NATIONAL CORPORATE
BROADCAST TELEVISION TELECOMS AND OTHER TOTAL
--------- ------------ ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Revenues...................... $161,907 $ 827,324 $ 488,640 $ -- $1,477,871
Depreciation and
amortization................ 44,480 527,093 58,046 133,239 762,858
EBITDA(1)..................... 102,107 245,029 143,545 (279,296) 211,385
Expenditures for long-lived
assets...................... 37,330 590,529 387,147 124,516 1,139,522
Total assets.................. 281,687 5,978,509 1,078,474 2,163,603 9,502,273
YEAR ENDED DECEMBER 31, 1998
Revenues...................... $140,156 $ 355,589 $ 248,895 $ 2,375 $ 747,015
Depreciation and
amortization................ 29,974 143,479 29,476 63,183 266,112
EBITDA(1)..................... 91,687 67,587 35,848 (119,735) 75,387
Expenditures for long-lived
assets...................... 88,476 413,917 297,745 67,141 867,279
Total assets.................. 289,068 3,100,492 761,097 2,043,440 6,194,097
YEAR ENDED DECEMBER 31, 1997
Revenues...................... $130,799 $ 166,951 $ 185,194 $ 8,831 $ 491,775
Depreciation and
amortization................ 13,584 78,730 9,666 48,529 150,509
EBITDA(1)..................... 73,636 18,693 13,522 (84,853) 20,998
Expenditures for long-lived
assets...................... 36,142 304,656 105,076 20,519 466,393
Total assets.................. 230,920 1,323,808 220,318 646,593 2,421,639
</TABLE>
---------------
(1) Represents earnings before interest, taxes, depreciation and amortization,
corporate expenses, franchise fees, nonrecurring charges, other gains,
foreign currency transaction gains and extraordinary items.
F-26
<PAGE> 177
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The reconciliation of segment combined EBITDA to loss before income taxes
and extraordinary item is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Segment Combined EBITDA.............................. $ 211,385 $ 75,387 $ 20,998
(Add) Deduct:
Franchise fees....................................... 16,538 25,036 23,587
Corporate expenses................................... 25,260 17,048 18,324
Nonrecurring charges................................. 16,179 (4,194) 20,642
Depreciation and amortization........................ 762,858 266,112 150,509
Interest and other income............................ (29,767) (46,024) (28,415)
Interest expense..................................... 678,036 328,815 202,570
Other gains.......................................... (493,121) -- (21,497)
Foreign currency transaction gains................... (22,733) (4,152) (574)
--------- --------- ---------
953,250 582,641 365,146
--------- --------- ---------
Loss before income taxes and extraordinary item...... $(741,865) $(507,254) $(344,148)
========= ========= =========
</TABLE>
19. GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
UNITED STATES UNITED KINGDOM IRELAND TOTAL
------------- -------------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1999
Revenues................................. $ -- $1,446,681 $31,190 $1,477,871
Long-lived assets........................ 499,070 7,463,600 148,002 8,110,672
1998
Revenues................................. $ 2,375 $ 744,640 $ -- $ 747,015
Long-lived assets........................ 137,223 4,852,374 -- 4,989,597
1997
Revenues................................. $ 8,831 $ 482,944 $ -- $ 491,775
Long-lived assets........................ 55,173 2,129,312 -- 2,184,485
</TABLE>
F-27
<PAGE> 178
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in millions)
<TABLE>
<CAPTION>
SEPTEMBER 30,
2000
-------------
(UNAUDITED)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 103.9
Marketable securities..................................... --
Accounts receivable -- trade, less allowance for doubtful
accounts of $88.6 (2000)............................... 276.6
Other..................................................... 195.7
---------
Total current assets........................................ 576.2
Fixed assets, net........................................... 5,620.4
Intangible assets, net...................................... 2,088.4
Other assets, net of accumulated amortization of $65.7
(2000).................................................... 186.3
---------
Total assets................................................ $ 8,471.3
=========
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable.......................................... $ 335.0
Accrued expenses and other................................ 375.3
Accrued construction costs................................ 139.9
Due to affiliates......................................... 4.5
Interest payable.......................................... 66.4
Deferred revenue.......................................... 173.3
Current portion of long-term debt......................... 4.5
---------
Total current liabilities................................... 1,098.9
Long-term debt.............................................. 7,931.1
Commitments and contingent liabilities
Deferred income taxes....................................... 29.6
Minority interests.......................................... 22.4
Shareholder's equity (deficiency):
Common stock -- $.01 par value; authorized, issued and
outstanding 100 shares................................. --
Additional paid-in capital................................ 2,877.7
Accumulated other comprehensive (loss) income............. (415.2)
(Deficit)................................................. (3,073.2)
---------
(610.7)
---------
Total liabilities and shareholder's equity (deficiency)..... $ 8,471.3
=========
</TABLE>
See accompanying notes.
F-28
<PAGE> 179
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(dollars in millions)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
2000 1999
--------- --------
<S> <C> <C>
REVENUES
Residential telecommunications and television............... $ 732.2 $ 583.7
National and international telecommunications............... 457.2 349.2
Broadcast transmission and other............................ 122.9 119.9
--------- --------
1,312.3 1,052.8
COSTS AND EXPENSES
Operating expenses.......................................... 620.5 507.3
Selling, general and administrative expenses................ 537.6 416.1
Franchise fees.............................................. -- 22.3
Other charges............................................... 19.7 --
Corporate expenses.......................................... 14.1 18.4
Depreciation and amortization............................... 677.0 518.4
--------- --------
1,868.9 1,482.5
--------- --------
Operating (loss)............................................ (556.6) (429.7)
OTHER INCOME (EXPENSE)
Interest income and other, net.............................. 3.5 26.8
Interest expense............................................ (547.8) (484.5)
Foreign currency transaction gains (losses)................. (25.5) 22.5
--------- --------
(Loss) before income tax benefit............................ (1,126.4) (864.9)
Income tax benefit.......................................... 18.8 --
--------- --------
Net (loss).................................................. $(1,107.6) $ (864.9)
========= ========
</TABLE>
See accompanying notes.
F-29
<PAGE> 180
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIENCY)
(UNAUDITED)
(dollars in millions)
<TABLE>
<CAPTION>
COMMON STOCK
$.01 PAR VALUE
----------------
SHARES PAR
------ ------
<S> <C> <C>
Balance, December 31, 1999.................................. 100 $ --
Contributions from NTL (Delaware), Inc......................
Comprehensive loss:.........................................
Net loss for the nine months ended September 30, 2000.......
Currency translation adjustment.............................
Total.....................................................
--- ------
Balance, September 30, 2000................................. 100 $ --
=== ======
</TABLE>
See accompanying notes.
F-30
<PAGE> 181
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIENCY)
(UNAUDITED) -- (CONTINUED)
(dollars in millions)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
PAID-IN COMPREHENSIVE COMPREHENSIVE
CAPITAL LOSS INCOME (LOSS) DEFICIT
---------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
Balance, December 31, 1999.................... $2,863.7 $ 2.4 $(1,965.6)
Contributions from NTL (Delaware), Inc........ 14.0
Comprehensive loss:
Net loss for the nine months ended September
30 2000..................................... $(1,107.6) (1,107.6)
Currency translation adjustment............... (417.6) (417.6)
---------
Total......................................... $(1,525.2)
-------- --------- ------- ---------
Balance, September 30, 2000................... $2,877.7 $(415.2) $(3,073.2)
======== ========= ======= =========
</TABLE>
See accompanying notes.
F-31
<PAGE> 182
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in millions)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Net cash provided by operating activities................... $ 22.2 $ 20.3
INVESTING ACTIVITIES
Acquisitions, net of cash acquired.......................... -- (473.8)
Purchase of marketable securities........................... (3.4) (349.6)
Proceeds from sales of marketable securities................ 8.4 527.2
Cash deposited into escrow for an acquisition............... -- (118.7)
Increase in other assets.................................... (34.0) (28.0)
Purchase of fixed assets.................................... (1,143.9) (855.7)
-------- --------
Net cash (used in) investing activities..................... (1,172.9) (1,298.6)
FINANCING ACTIVITIES
Cash released from escrow................................... 77.5 --
Proceeds from borrowings, net of financing costs............ 168.9 1,125.5
Principal payments.......................................... (78.6) (25.9)
Proceeds from investment in subsidiary...................... 23.9 --
Distribution to NTL (Delaware), Inc......................... -- (500.0)
Contributions from NTL (Delaware), Inc...................... 14.0 --
Proceeds from exercise of stock options and warrants........ -- 12.2
Proceeds from issuance of preferred stock and warrants...... -- 500.0
-------- --------
Net cash provided by financing activities................... 205.7 1,111.8
Effect of exchange rate changes on cash..................... (21.2) 2.6
-------- --------
(Decrease) in cash and cash equivalents..................... (966.2) (163.9)
Cash and cash equivalents at beginning of period............ 1,070.1 736.3
-------- --------
Cash and cash equivalents at end of period.................. $ 103.9 $ 572.4
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest exclusive of
amounts capitalized....................................... $ 185.7 $ 140.2
Income taxes paid........................................... 1.4 --
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Accretion of dividends and discount on preferred stock...... $ -- $ 8.7
Conversion of Convertible Notes, net of unamortized deferred
financing costs........................................... -- 269.3
Common stock and stock options issued for an acquisition.... -- 978.0
</TABLE>
See accompanying notes.
F-32
<PAGE> 183
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine months ended
September 30, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000. For further information, refer
to the consolidated financial statements and footnotes thereto of NTL
Communications Corp.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted by the
Company effective January 1, 2001. The Company is evaluating the impact that the
adoption of SFAS No. 133 will have on its results of operations and financial
position.
NOTE B -- CORPORATE RESTRUCTURING
On May 18, 2000, NTL Incorporated completed a corporate restructuring to
create a holding company structure. The formation of the holding company is due
to NTL Incorporated's 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 Communications Corp.
(the "Company") is a wholly-owned subsidiary of NTL (Delaware), Inc.
NOTE C -- FIXED ASSETS
Fixed assets consist of (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
2000
-------------
(UNAUDITED)
<S> <C>
Operating equipment......................................... $4,596.9
Other equipment............................................. 872.2
Construction-in-progress.................................... 1,385.8
--------
6,854.9
Accumulated depreciation.................................... (1,234.5)
--------
$5,620.4
========
</TABLE>
Depreciation expense for the nine months ended September 30, 2000 and 1999
was $432.6 million and $328.4 million, respectively.
F-33
<PAGE> 184
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE D -- INTANGIBLE ASSETS
Intangible assets consist of (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
2000
-------------
(UNAUDITED)
<S> <C>
Goodwill, net of accumulated amortization of $300.5
(2000).................................................... $1,808.2
License acquisition costs, net of accumulated amortization
of $194.7 (2000).......................................... 160.8
Customer lists, net of accumulated amortization of $54.7
(2000).................................................... 119.4
--------
$2,088.4
========
</TABLE>
In 1999, the Company completed the acquisitions of Diamond Cable
Communications Limited, Cablelink Limited and certain broadband cable franchises
of British Telecommunications plc.
The pro forma unaudited consolidated results of operations for the nine
months ended September 30, 1999 assuming consummation of these transactions as
of January 1, 1999 is as follows, (in millions):
<TABLE>
<S> <C>
Total revenue.............................................. $ 1,112.6
Net (loss)................................................. (1,001.4)
</TABLE>
Amortization of intangible and other assets charged to expense for the nine
months ended September 30, 2000 and 1999 was $244.4 million and $190.0 million,
respectively.
F-34
<PAGE> 185
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE E -- LONG-TERM DEBT
Long-term debt consists of (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
2000
-------------
(UNAUDITED)
<S> <C>
NTL Communications:
12 3/4% Senior Deferred Coupon Notes...................... $ 277.8
11 1/2% Senior Deferred Coupon Notes...................... 1,011.9
10% Senior Notes.......................................... 400.0
9 1/2% Senior Sterling Notes, less unamortized discount... 184.4
10 3/4% Senior Deferred Coupon Sterling Notes............. 340.4
9 3/4% Senior Deferred Coupon Notes....................... 1,023.4
9 3/4% Senior Deferred Coupon Sterling Notes.............. 348.3
11 1/2% Senior Notes...................................... 625.0
12 3/8% Senior Deferred Coupon Notes...................... 313.9
7% Convertible Subordinated Notes......................... 599.3
9 1/4% Senior Euro Notes.................................. 220.9
9 7/8% Senior Euro Notes.................................. 309.3
11 1/2% Senior Deferred Coupon Euro Notes................. 117.0
NTL Triangle:
11.2% Senior Discount Debentures.......................... 510.5
Other..................................................... 5.5
NTL Communications Limited:
Credit Agreement.......................................... 163.0
Diamond:
13 1/4% Senior Discount Notes............................. 285.1
11 3/4% Senior Discount Notes............................. 518.7
10 3/4% Senior Discount Notes............................. 364.2
10% Senior Sterling Notes................................. 199.6
9 1/8% Senior Notes....................................... 110.0
Other..................................................... 7.4
--------
7,935.6
Less current portion........................................ 4.5
--------
$7,931.1
========
</TABLE>
In May 2000, NTL Communications Limited ("NTLCL"), a wholly-owned indirect
subsidiary of the Company and NTL Business Limited ("NTL Business"), a
wholly-owned subsidiary of NTL (Delaware), Inc., entered into a L2,500.0 million
($3,696.8 million) credit agreement in connection with the acquisition by NTL
Incorporated of the consumer cable telephone, Internet and television operations
of CWC in the United Kingdom ("ConsumerCo"). As of September 30, 2000, NTLCL had
L110.2 million ($163.0 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 at September 30, 2000 was 8.34%. As
of September 30, 2000, NTL Business (which is not a subsidiary of the Company)
had L1,902.3 million ($2,813.0 million) outstanding under this agreement. The
unused portion of the commitment is available for refinancing ConsumerCo
indebtedness and for working capital requirements of the UK Group. For purposes
F-35
<PAGE> 186
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
of this credit agreement, Diamond Cable Communications Limited and subsidiaries,
NTL (Triangle) LLC 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 ($1,922.3 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 commitment has been reduced
by L161.8 million ($239.3 million). As of September 30, 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. 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 March 2000, the Company redeemed in full its Variable Rate Redeemable
Guaranteed Loan Notes, principal amount of IRL60.0 million ($67.3 million), plus
accrued and unpaid interest using cash held in escrow.
NOTE F -- COMPREHENSIVE LOSS
The Company's comprehensive loss for the nine months ended September 30,
2000 and 1999 was $(1,525.2) million and $(872.2) million, respectively.
NOTE G -- SEGMENT DATA
<TABLE>
<CAPTION>
RESIDENTIAL
TELECOMS
AND NATIONAL CORPORATE
BROADCAST TELEVISION TELECOMS AND OTHER TOTAL
--------- ----------- -------- --------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Nine months ended September 30, 2000
Revenues............................... $122.9 $ 732.2 $ 457.2 $ -- $1,312.3
EBITDA(1).............................. 71.2 195.3 187.0 (299.3) 154.2
Nine months ended September 30, 1999
Revenues............................... $119.9 $ 583.7 $ 349.2 $ -- $1,052.8
EBITDA(1).............................. 76.4 163.6 89.4 (200.0) 129.4
Total assets
September 30, 2000..................... $235.6 $5,319.8 $1,410.6 $1,505.3 $8,471.3
December 31, 1999...................... 281.7 5,978.5 1,078.5 2,163.6 9,502.3
</TABLE>
---------------
(1) Represents earnings before interest, taxes, depreciation and amortization,
corporate expenses, franchise fees, other charges and foreign currency
transaction gains (losses).
F-36
<PAGE> 187
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
The reconciliation of segment combined EBITDA to loss before income tax
benefit is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
2000 1999
--------- -------
(IN MILLIONS)
<S> <C> <C>
Segment combined EBITDA..................................... $ 154.2 $ 129.4
(Add) deduct:
Franchise fees.............................................. -- 22.3
Other charges............................................... 19.7 --
Corporate expenses.......................................... 14.1 18.4
Depreciation and amortization............................... 677.0 518.4
Interest income and other, net.............................. (3.5) (26.8)
Interest expense............................................ 547.8 484.5
Foreign currency transaction (gains) losses................. 25.5 (22.5)
--------- -------
1,280.6 994.3
--------- -------
(Loss) before income tax benefit............................ $(1,126.4) $(864.9)
========= =======
</TABLE>
NOTE H -- COMMITMENTS AND CONTINGENT LIABILITIES
At September 30, 2000, the Company was committed to pay approximately
$135.0 million for equipment and services.
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.
NOTE I -- SUBSEQUENT EVENT
In October 2000, the Company issued $500.0 million principle amount 11 7/8%
Senior Notes due 2010. The Notes were issued at a price of 97.872% of the
aggregate principal amount at maturity or $489.4 million. The underwriters'
discount and commissions were $11.3 million. Interest is payable semiannually in
cash at the rate of 11 7/8% per annum beginning on April 1, 2001. The Notes may
be redeemed at the Company's option, in whole or in part, at any time on or
after October 1, 2005. Also in October 2000, L110.6 million ($163.5 million) of
the principal amount outstanding under the NTL Business and NTLCL credit
agreement was repaid.
F-37
<PAGE> 188
CWC CONSUMERCO, A DIVISION
OF NTL (CWC) LIMITED
(FORMERLY CABLE & WIRELESS
COMMUNICATIONS LIMITED)
"CONSUMERCO"
REPORT AND FINANCIAL STATEMENTS AS OF MARCH 31, 1999
AND 2000 AND FOR THE THREE YEARS ENDED MARCH 31, 2000
F-38
<PAGE> 189
FINANCIAL STATEMENTS OF CONSUMERCO
REPORT OF INDEPENDENT AUDITORS
TO THE DIRECTORS OF NTL INCORPORATED
We have audited the accompanying financial statements of CWC ConsumerCo
("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 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 ConsumerCo as at March 31,
1999 and 2000 and of 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 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-39
<PAGE> 190
CONSUMERCO
COMBINED PROFIT & LOSS ACCOUNT
FOR THE YEAR ENDED MARCH 31
<TABLE>
<CAPTION>
NOTE 2000 1999 1998
---- ---- ---- ----
LM LM LM
<S> <C> <C> <C> <C>
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 as tangible first 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 FROM RESERVES......................... (165) (135) (157)
---- ---- ----
</TABLE>
As more fully explained in Note 2, 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
recognized gains and losses is presented.
The accompanying notes are an integral part of this combined profit and
loss account.
F-40
<PAGE> 191
CONSUMERCO
COMBINED BALANCE SHEET
AS AT MARCH 31
<TABLE>
<CAPTION>
NOTE 2000 1999
---- ------ ------
LM LM
<S> <C> <C> <C>
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)
</TABLE>
The accompanying notes are an integral part of this combined balance sheet.
APPROVED AND SIGNED ON BEHALF OF THE BOARD
6TH OCTOBER 2000
F-41
<PAGE> 192
CONSUMERCO
COMBINED CASH FLOW STATEMENT
FOR THE YEAR ENDED MARCH 31
<TABLE>
<CAPTION>
NOTE 2000 1999 1998
---- ---- ---- ------
LM LM LM
<S> <C> <C> <C> <C>
Net cash 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
U.K. 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
==== ==== ======
</TABLE>
The accompanying notes are an integral part of this combined cash flow
statement.
F-42
<PAGE> 193
CONSUMERCO
RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS
FOR THE YEAR ENDED MARCH 31
<TABLE>
<CAPTION>
NOTE 2000 1999 1998
----- ----- ---- ------
LM LM LM
<S> <C> <C> <C> <C>
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' fund................. (155) (156) (213)
Equity shareholders' funds at beginning of year........... (279) 123 90
----- ---- ------
EQUITY SHAREHOLDERS' FUNDS AT END OF YEAR................. (434) (279) (123)
===== ==== ======
</TABLE>
The accompanying notes are an integral part of this reconciliation of movements
in equity shareholders' funds.
F-43
<PAGE> 194
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS
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 ConsumerCo, and its
corporate, business, internet protocol and wholesale operations, referred to as
CWC Data Co. NTL indirectly acquired all of 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 ConsumerCo were carried out as an integral part of the
ntl (CWC) group and as such the operations comprising 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 ConsumerCo to
reflect the assets and liabilities attributable to 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 ConsumerCo, consistent with the fact that 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
ConsumerCo held by the ntl (CWC) group.
The financial statements have been prepared specifically in connection with
the acquisition of 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 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 ConsumerCo. Such specific costs,
assets and liabilities have been allocated directly to ConsumerCo.
F-44
<PAGE> 195
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
- Outpayments
Outpayments and other cost of sales figures represent third party costs
incurred by ConsumerCo.
Allocation of indirectly attributable costs, assets and liabilities
Where costs, assets and liabilities were incurred for the benefit of
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 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 ConsumerCo.
- Staff and related costs have been allocated based upon management's
estimation of the relative proportion of individuals' time providing
services to ConsumerCo. The Directors believe that this provides a
fair allocation of costs to ConsumerCo.
- IT department costs relating to general IT support and services have
been allocated in the proportion of 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 ConsumerCo.
- Finance department costs have been allocated in the proportion of
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 ConsumerCo.
- Depreciation
Depreciation for the three years ended 31 March 2000 has been allocated
consistent with the allocation of fixed assets to ConsumerCo.
F-45
<PAGE> 196
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
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
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 ConsumerCo.
- 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 ConsumerCo of net operating expenses and capital expenditure.
- Debt
Substantially all ntl (CWC)'s debt has been allocated to ConsumerCo on the
basis that it is primarily used to fund ConsumerCo activities. See Note 18.
- Other assets and liabilities
Prepayments and accrued income and accruals and deferred income amounts are
attributable to specific 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 ConsumerCo going forward, these financial
statements should not be relied upon as being representative of the future
financial position or performance of ConsumerCo. In particular:
- Outpayments for all periods presented are not representative of those
amounts that will be incurred by 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 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 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 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
ConsumerCo following the Transaction.
F-46
<PAGE> 197
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
3 STATEMENT OF ACCOUNTING POLICIES
The financial statements have been prepared applying 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 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.
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 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
F-47
<PAGE> 198
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
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.
F-48
<PAGE> 199
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
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:
<TABLE>
<CAPTION>
LAND AND BUILDINGS: LIVES
<S> <C>
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
</TABLE>
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.
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. 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.
F-49
<PAGE> 200
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
i) Pensions
Defined contribution schemes
Where 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
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
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.
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-50
<PAGE> 201
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
m) Provisions
ConsumerCo accounts for provisions in accordance with FRS12 "Provisions and
Contingencies". Consequently, provisions are only recognised when 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
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:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
LM LM LM
<S> <C> <C> <C>
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
=== === ===
</TABLE>
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-51
<PAGE> 202
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
5 COST OF SALES AND OPERATING EXPENSES
<TABLE>
<CAPTION>
1998
2000 1999 --------------------------------
TOTAL TOTAL CONTINUING ACQUISITION
----- ----- ---------- ----------- TOTAL
LM LM LM LM LM
<S> <C> <C> <C> <C> <C>
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
=== === == === ===
</TABLE>
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 ConsumerCo through the ntl
(CWC) group Year 2000 Programme. This includes 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 ConsumerCo employees working on the Year 2000
Programme. A cumulative total of L30 million has been incurred to date, of which
L1 million has been capitalised and L29 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 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 L2 million had been incurred during the year in relation to
National Code Number Change, which were capitalised (1999: L1 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 L5
million of which L3 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:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
LM LM LM
<S> <C> <C> <C>
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
</TABLE>
F-52
<PAGE> 203
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
8 EMPLOYEES
In 2000 the average monthly number of persons working within ConsumerCo was
5,262 (1999: 5,130 and 1998: 5,407).
The aggregate remuneration and associated costs of ConsumerCo employees
were:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
LM LM LM
<S> <C> <C> <C>
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
=== === ===
</TABLE>
Details of the pension schemes are given in Note 9.
9 PENSIONS
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.
ConsumerCo also operates several defined contribution pension plans.
ConsumerCo will establish a new exempt approved pension scheme and
employees allocated to ConsumerCo who are active members of the Cable and
Wireless superannuation fund will be invited to join the new ConsumerCo scheme
and to transfer their accrued rights to it. Employees allocated to 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 L96 million have been allocated to 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-53
<PAGE> 204
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
11 NET INTEREST PAYABLE
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
LM LM LM
<S> <C> <C> <C>
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)
==== ==== ====
</TABLE>
12 TAXATION
The tax credit comprises:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
LM LM LM
<S> <C> <C> <C>
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 -- --
== == ==
</TABLE>
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
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 L34 million from CWC DataCo for losses surrendered by
way of group relief.
F-54
<PAGE> 205
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
13 INTANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
GOODWILL
--------
LM
<S> <C>
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
==
</TABLE>
Goodwill arising on the acquisition of Two Way TV Limited is amortised over
20 years, which is the ntl (CWC)'s Directors' estimate of its economic useful
life.
14 TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
LAND NETWORK CABLE, NON-NETWORK
AND PLANT AND PLANT AND
BUILDINGS EQUIPMENT EQUIPMENT TOTAL
--------- -------------- ----------- -----
LM LM LM LM
<S> <C> <C> <C> <C>
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
== ===== === =====
</TABLE>
F-55
<PAGE> 206
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
2000 1999
---- ----
LM LM
<S> <C> <C>
The net book value of land and buildings comprised:
Freehold.................................................. 19 19
Long leasehold............................................ 2 2
Short leasehold........................................... 24 28
-- --
45 49
== ==
</TABLE>
Interest totalling L30 million (1999: L37 million) for the year ended March
31, 2000 that is directly applicable to the design, construction and
installation of ConsumerCo's cable television and telecommunications network has
been capitalised within additions to network assets. Accumulated interest
capitalised included in the total cost of tangible fixed assets at March 31,
2000 amounted to L93 million (1999: L63 million).
Included in the net book value of Network cable, plant and equipment is L83
million in respect of assets held under finance leases and similar hire purchase
contracts (1999: L95 million). Accumulated depreciation on these assets is L42
million (1999: L30 million) and the charge for the year is L12 million (1999:
L12 million). Network cable, plant and equipment includes L127 million (1999:
L118 million) in respect of assets not yet in service and consequently upon
which depreciation has not been charged.
15 DEBTORS
<TABLE>
<CAPTION>
2000 1999
---- ----
LM LM
<S> <C> <C>
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
=== ===
</TABLE>
Where, as part of attributing assets and liabilities to 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 L100
million (1999: L112 million) in respect of the IT outsource representing:
F-56
<PAGE> 207
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
2000 1999
------------------------------ -----
DUE AFTER
DUE WITHIN MORE THAN
ONE YEAR ONE YEAR TOTAL TOTAL
---------- --------- ----- -----
LM LM LM LM
<S> <C> <C> <C> <C>
Security deposit................................... 21 32 53 85
Consolidated billing system charge................. 9 27 36 14
Transition costs................................... 2 9 11 13
-- -- --- ---
32 68 100 112
== == === ===
</TABLE>
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
ConsumerCo, through the ntl (CWC) group derives benefit.
16 DEBTORS WITHIN RECEIVABLES SECURITISATION
<TABLE>
<CAPTION>
2000 1999
---- ----
LM LM
<S> <C> <C>
Gross debtors.............................................. 56 85
Non-returnable proceeds.................................... (29) (62)
--- ---
27 23
=== ===
</TABLE>
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.
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 ConsumerCo in any other
way.
F-57
<PAGE> 208
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
17 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
2000 1999
---- ----
LM LM
<S> <C> <C>
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
=== ===
</TABLE>
Where, as part of attributing assets and liabilities to 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
<TABLE>
<CAPTION>
2000 1999
----- -----
LM LM
<S> <C> <C>
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
===== =====
</TABLE>
With the exception of certain specific finance lease obligations, all debt
of ntl (CWC) group has been allocated to ConsumerCo as such debt has primarily
been necessary to fund ConsumerCo's activities.
Substantially all third party borrowings were repaid as part of the
Transaction Agreement and were replaced with approximately L2.2 billion of
borrowings from another NTL group company.
19 PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
ONEROUS PROPERTY
OBLIGATIONS COSTS TOTAL
----------- -------- -----
LM LM LM
<S> <C> <C> <C>
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
=== == ===
</TABLE>
F-58
<PAGE> 209
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
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:
<TABLE>
<CAPTION>
2000 1999
---- ----
LM LM
<S> <C> <C>
Amount provided and potential liability:.................... -- --
Tax effect of timing differences due to:
Excess capital allowances over depreciation............... (206) (140)
Other timing differences.................................. -- --
---- ----
(206) (140)
==== ====
</TABLE>
As at March 31, 2000, 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
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------
2000 1999 2000 1999
------ ------ ----- -----
M M LM LM
<S> <C> <C> <C> <C>
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
</TABLE>
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-59
<PAGE> 210
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Allotments of ordinary shares of 50p each during the year to March 31, 2000
were as follows:
<TABLE>
<CAPTION>
NUMBER OF GROSS
SHARES CONSIDERATION
ALLOTTED RECEIVED
--------- -------------
L
<S> <C> <C>
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
========= =========
</TABLE>
Allotments of ordinary shares of 50p each during the year to March 31, 1999
were as follows:
<TABLE>
<CAPTION>
NUMBER OF GROSS
SHARES CONSIDERATION
ALLOTTED RECEIVED
--------- -------------
L
<S> <C> <C>
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
========= ==========
</TABLE>
At March 31, 2000, capital instruments which were convertible into ordinary
shares of ntl (CWC) were as follows:
<TABLE>
<CAPTION>
PROJECTED
PRINCIPAL NUMBER OF PERIOD OF
AMOUNT SHARES CONVERSION
--------- --------- ----------
L
<S> <C> <C> <C>
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
</TABLE>
Both loan notes are convertible at the option of the holders.
F-60
<PAGE> 211
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
22 RESERVES
<TABLE>
<CAPTION>
SHARE OTHER
PREMIUM RESERVES
------- --------
LM LM
<S> <C> <C>
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)
== ======
</TABLE>
23 FINANCIAL INSTRUMENTS
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. 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.
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
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 ConsumerCo as at March 31, 2000 and 1999 was:
<TABLE>
<CAPTION>
2000 1999
STERLING STERLING
-------- --------
LM LM
<S> <C> <C>
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
</TABLE>
F-61
<PAGE> 212
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
In addition to swaps, further protection from interest rate movements will
be provided by interest rate collars on L700 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.
ConsumerCo held the following financial assets as part of its financing
arrangements at March 31, 2000:
<TABLE>
<CAPTION>
CURRENCY LM
-------- ---
<S> <C>
Sterling.................................................... 87
</TABLE>
Liquidity risk
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 L1,500 million revolving facility, of which L1,000 million is
for five years and L500 million for 364 days. At the 2000 year end L700 million
was drawn under the five year facility and L350 million was drawn under the 364
day facility.
The maturity profile of financial liabilities, other than short term
creditors such as trade creditors and accruals, at March 31, 2000 and 1999 was:
<TABLE>
<CAPTION>
2000 1999
---- ----
LM LM
<S> <C> <C>
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
=== ===
</TABLE>
All finance lease obligations were settled upon acquisition by NTL on May
30, 2000 and replaced with group financing.
<TABLE>
<CAPTION>
2000 1999
----- -----
LM LM
<S> <C> <C>
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
===== =====
</TABLE>
All loans and notes were settled prior to, or upon, acquisition by NTL on
May 30, 2000 and replaced with group financing.
F-62
<PAGE> 213
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
The maturity profile of the ConsumerCo's undrawn committed borrowing
facilities at March 31, 2000 was:
<TABLE>
<CAPTION>
2000 1999
---- ----
LM LM
<S> <C> <C>
Within one year............................................. 150 500
Greater than two years...................................... 40 225
--- ---
190 725
=== ===
</TABLE>
Fair values of financial assets and liabilities
The estimated fair value of ConsumerCo's financial instruments are
summarised below:
<TABLE>
<CAPTION>
2000 1999
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
LM LM LM LM
<S> <C> <C> <C> <C>
PRIMARY FINANCIAL INSTRUMENTS HELD OR
ISSUED TO FINANCE OPERATIONS:
Long term debt.......................... (3,075) (3,127) (2,911) (2,962)
Cash and short term deposits............ 87 87 127 127
Derivative financial instruments held to
manage the interest rate and currency
profile
Interest rate swaps -- assets........... -- 9 -- --
Interest rate swaps -- (liabilities).... -- -- -- (76)
INTEREST RATE COLLARS -- ASSETS......... -- 5 -- --
INTEREST RATE COLLARS --
(LIABILITIES)......................... -- -- -- (8)
CROSS CURRENCY SWAPS -- ASSETS.......... -- -- -- 38
Cross currency swaps -- (liabilities)... -- (48) -- (17)
</TABLE>
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 ConsumerCo, through the ntl (CWC) group, expects to pay or receive on the
termination of the agreement, taking into 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 L2,898 million (1999:
L2,935 million). The nominal value of the interest rate collars at March 31,
2000 was L700 million (1999: L700 million).
F-63
<PAGE> 214
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Currency risk
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:
<TABLE>
<CAPTION>
GAINS LOSSES TOTAL
----- ------ -----
LM LM LM
<S> <C> <C> <C>
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)
=== ==== ===
</TABLE>
24 COMMITMENTS
The amount of capital expenditure, excluding that relating to the IT
outsource, authorised by ConsumerCo, for which no provision has been made in the
consolidated financial information is as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
LM LM
<S> <C> <C>
Contracted.................................................. 86 180
</TABLE>
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 L1.3 billion which was shared equally between 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: L1.5
billion, 1998: Lnil).
25 CONTINGENT LIABILITIES
There are no contingent liabilities at March 31, 2000.
F-64
<PAGE> 215
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
26 LEASES
Operating lease commitments payable in the following year, analysed
according to the period in which each lease expires are as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
LM LM
<S> <C> <C>
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
== ==
</TABLE>
27 RECONCILIATION OF OPERATING (LOSS) PROFIT TO NET CASH (OUTFLOW) INFLOW FROM
OPERATING ACTIVITIES
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
LM LM LM
<S> <C> <C> <C>
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
==== === ===
</TABLE>
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:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
LM LM LM
<S> <C> <C> <C>
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
== == ===
</TABLE>
F-65
<PAGE> 216
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
29 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
<TABLE>
<CAPTION>
2000 1999 1998
------ ------ ------
LM LM LM
<S> <C> <C> <C>
(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)
====== ====== ======
</TABLE>
30 ANALYSIS OF CHANGES IN NET DEBT
<TABLE>
<CAPTION>
AT AT AT
APRIL 1, CASH OTHER APRIL 1, CASH OTHER MARCH 31,
1998 FLOW MOVEMENTS 1999 FLOW MOVEMENTS 2000
-------- ---- --------- -------- ---- --------- ---------
LM LM LM LM LM LM LM
<S> <C> <C> <C> <C> <C> <C> <C>
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)
====== ==== == ====== ==== == ======
</TABLE>
31 ACQUISITIONS AND DISPOSALS
Acquisitions
On July 28, 1998, ConsumerCo, through ntl (CWC) subscribed for shares
representing 50.1% of the enlarged ordinary share capital of Two Way TV Limited
for L13 million.
F-66
<PAGE> 217
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
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:
<TABLE>
<CAPTION>
1999
----------------------------------
1999 CWC
BOOK FAIR VALUE CONSUMERCO
VALUE ADJUSTMENTS FAIR VALUE
----- ----------- ----------
LM LM LM
<S> <C> <C> <C>
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
-- -- --
Satisfied by:
Cash............................................. 4
Deferred cash consideration...................... 9
==
</TABLE>
On April 28, 1997 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 L2 billion in shares.
F-67
<PAGE> 218
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
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:
<TABLE>
<CAPTION>
1998
-----------------------------------------------------
1998 ACCOUNTING
FAIR VALUE POLICY
BOOK VALUE ADJUSTMENTS ALIGNMENT FAIR VALUE
---------- ----------- ---------- ----------
LM LM LM LM
<S> <C> <C> <C> <C>
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
======
</TABLE>
Bell Cablemedia held L517 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 ConsumerCo policy in 1998.
The principal fair value adjustments were:
- An adjustment for L129 million to write-down analogue set-top boxes and
head-end equipment, L31 million for property and IT systems and L34
million of other fixed assets;
- An adjustment to write off deferred financing costs and arrangement fees
of L58 million, L25 million of which were classified in debtors and L33
million in borrowings;
- An adjustment of L164 million to borrowings to restate the high yield
debt obligations of Bell Cablemedia at their fair value;
- An adjustment to provide for onerous contracts of L48 million, including
programming costs, future commitments to purchase analogue set-top boxes,
property and other items;
- Other adjustments of L37 million relating to other assets and
liabilities.
F-68
<PAGE> 219
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of assets and liabilities acquired on each of the
significant acquisitions is set out below:
<TABLE>
<CAPTION>
FAIR VALUE
BOOK VALUE ADJUSTMENTS FAIR VALUE
---------- ----------- ----------
LM LM LM
<S> <C> <C> <C>
NYNEX CableComms:
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
===== ==== =====
</TABLE>
<TABLE>
<CAPTION>
FAIR VALUE ACCOUNTING
BOOK VALUE ADJUSTMENTS POLICY ALIGNMENT FAIR VALUE
---------- ----------- ---------------- ----------
LM LM LM LM
<S> <C> <C> <C> <C>
Bell Cablemedia:
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)
====== ==== ==== ======
</TABLE>
The summarised results of 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:
<TABLE>
<CAPTION>
NYNEX
BELL CABLEMEDIA CABLECOMMS
JAN. 1, 1997 TO JAN. 1, 1997 TO
APRIL 28, 1997 APRIL 28, 1997
--------------- ---------------
LM LM
<S> <C> <C>
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)
</TABLE>
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 ConsumerCo's material acquisitions for their full financial
year prior to acquisition.
F-69
<PAGE> 220
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
NYNEX
BELL CABLEMEDIA CABLECOMMS
YEAR ENDED YEAR ENDED
DEC. 31, 1996 DEC. 31, 1996
--------------- -------------
LM LM
<S> <C> <C>
Loss after tax........................................ (96) (74)
Minority interests.................................... -- 11
</TABLE>
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 ConsumerCo had the following transactions with Cable and
Wireless:
<TABLE>
<CAPTION>
NOTE 2000 1999 1998
----- ---- ---- ----
LM LM LM
<S> <C> <C> <C> <C>
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) --
</TABLE>
All transactions with CWC DataCo undertakings are on commercial terms.
F-70
<PAGE> 221
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTES:
(i) Cable and Wireless undertakes a number of development programmes which are
of benefit to its subsidiary undertakings. 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 Consumerco transactions as part of the ntl (CWC) group
In the year ended March 31, 1998 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 L3 million.
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 L30 million and purchases were L41
million.
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 L3.5 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.
F-71
<PAGE> 222
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
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 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
<TABLE>
<CAPTION>
COUNTRY OF
SUBSIDIARY INCORPORATION HOLDING PRINCIPAL ACTIVITIES
---------- ------------- ------- --------------------
<S> <C> <C> <C>
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
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
</TABLE>
F-72
<PAGE> 223
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
COUNTRY OF
SUBSIDIARY INCORPORATION HOLDING PRINCIPAL ACTIVITIES
---------- ------------- ------- --------------------
<S> <C> <C> <C>
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
</TABLE>
35 SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
Basis of preparation
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 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. 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.
F-73
<PAGE> 224
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
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 FRS1
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, 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, 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, ConsumerCo had committed to pay the monies prior to release of
these financial statements, therefore this debt is classified as current.
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.
F-74
<PAGE> 225
CONSUMERCO
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
RECONCILIATION OF UK/US GAAP
<TABLE>
<CAPTION>
2000 2000 1999
----- ----- -----
$M LM LM
<S> <C> <C> <C>
RECONCILIATION OF UK/US GAAP -- NET LOSS
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)
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
2000 2000 1999
----- ----- -----
$M LM LM
<S> <C> <C> <C>
RECONCILIATION OF UK/US GAAP -- SHAREHOLDERS' EQUITY
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
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
2000 2000 1999
------ ----- -----
$M LM LM
<S> <C> <C> <C>
COMBINED STATEMENT OF CASH FLOWS UNDER US GAAP
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)
====== ===== =====
</TABLE>
F-75
<PAGE> 226
PRINCIPAL EXECUTIVE OFFICE OF THE COMPANY
NTL Communications Corp.
110 East 59th Street
New York, New York 10022
USA
TRUSTEE, PRINCIPAL PAYING AGENT, TRANSFER AGENT AND REGISTRAR
The Chase Manhattan Bank
450 West 33rd Street
New York, New York 10001
USA
LUXEMBOURG PAYING AND TRANSFER AGENT
Chase Manhattan Bank Luxembourg S.A.
5 Rue Plaetis
L-2338, Luxembourg
LISTING AGENT
Banque Internationale a Luxembourg
69, route d'Esch
1-1470 Luxembourg
LEGAL ADVISORS TO THE COMPANY
Skadden, Arps, Slate, Meagher & Flom LLP
One Canada Square
Canary Wharf
London E14 5DS
England
AUDITORS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
USA
<PAGE> 227
------------------------------------------------------
------------------------------------------------------
You should rely only on the information contained in this document or that
we have referred you to. We have not authorized any other person to provide you
with different information. This prospectus may be delivered to you after the
date of this prospectus. However, you should realize that the affairs of NTL may
have changed since the date of this prospectus. This prospectus will not reflect
such changes. You should not consider this prospectus to be an offer or
solicitation relating to the notes in any jurisdiction in which such an offer or
solicitation is not authorized.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Explanatory Note Regarding Corporate
Structure of NTL..................... ii
Presentation of Information............ ii
Prospectus Summary..................... 1
Risk Factors........................... 8
The Exchange Offer..................... 16
Use of Proceeds........................ 23
Exchange Rates......................... 23
Capitalization......................... 24
Selected Historical Consolidated
Financial Information................ 26
Unaudited Pro Forma Financial Data..... 28
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of NTL Communications..... 34
Business............................... 43
Description of the Notes............... 84
Book-Entry, Delivery and Form.......... 105
Definitions............................ 109
Registration Rights.................... 122
Description of Other Indebtedness...... 124
Federal Income Tax Considerations...... 137
Plan of Distribution................... 140
Legal Matters.......................... 141
Experts................................ 141
Enforceability of Civil Liabilities.... 141
Where You Can Find More Information.... 142
General Information.................... 144
Index to Financial Statements.......... F-1
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
Until , 2001, which is 90 days after the date of this prospectus,
if you are a dealer effecting transactions in the new notes, whether or not you
are participating in the exchange offer, you may be required to deliver a
prospectus. This obligation is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
[LOGO GRAPHIC]
NTL COMMUNICATIONS CORP.
$500,000,000
11 7/8% SERIES B SENIOR
NOTES DUE 2010
-------------------
PROSPECTUS
-------------------
, 2000
------------------------------------------------------
------------------------------------------------------
<PAGE> 228
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 102 of the Delaware General Corporation Law (the
"DGCL"), the Company's Restated Certificate of Incorporation eliminates a
director's personal liability for monetary damages to the Company and its
stockholders arising from a breach or alleged breach of a director's fiduciary
duty except for liability under Section 174 of the DGCL or liability for a
breach of the director's duty of loyalty to the Company or its stockholders, for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law or for any transaction in which the director derived an
improper personal benefit. The effect of this provision in the certificate of
incorporation is to eliminate the rights of the Company and its stockholders
(through stockholders, derivative suits on behalf of the Company) to recover
monetary damages against a director for breach of fiduciary duty as a director
(including breaches resulting from negligent or grossly negligent behavior)
except in the situations described above.
The Company's Restated By-laws provide that directors and officers of the
Company shall be indemnified against liabilities arising from their service as
directors and officers to the full extent permitted by law. Section 145 of the
DGCL empowers a corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the corporation
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorney's fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in, or not opposed to, the best interests
of the corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful.
Section 145 also empowers a corporation to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the fight of the corporation to procure a
judgment in its favor by reason of the fact that such person acted in any of the
capacities set forth above, against expenses (including attorney's fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted under similar standards, except
that no indemnification may be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the corporation
unless, and only to the extent that, the Court of Chancery or the court in which
such action was brought shall determine that despite the adjudication of
liability such person is fairly and reasonably entitled to indemnify for such
expenses which the court shall deem proper.
Section 145 further provides that to the extent that a director or officer
of a corporation has been successful in the defense of any action, suit or
proceeding referred to above or in the defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 145 shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and that the
corporation is empowered to purchase and maintain insurance on behalf of a
director or officer of the corporation against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liabilities under Section 145.
The Company has entered into a director and officer indemnity agreement
("Indemnity Agreement") with each officer and director of the company (an
"Indemnitee"). Under the Restated By-laws and these
II-1
<PAGE> 229
Indemnity Agreements, the Company must indemnify an Indemnitee to the fullest
extent permitted by the DGCL for losses and expenses incurred in connection with
actions in which the Indemnitee is involved by reason of having been a director
or officer of the Company. The Company is also obligated to advance expenses an
Indemnitee may incur in connection with such actions before any resolution of
the action.
ITEM 21. EXHIBITS
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of March 26, 1999,
among the Company, NTL Communications and NTL Merger Inc.
(Incorporated by reference to the Company's Registration
Statement on Form S-3, File No. 333-72335)
2.2 Agreement and Plan of Amalgamation, dated as of February 4,
1998, as amended, among the Company, NTL (Bermuda) Limited,
and Comcast U.K. Cable Partners Limited (Incorporated by
reference to the Company's Registration Statement on Form
S-4, File No. 333-64727)
2.3 Amendment No. 1 to Agreement and Plan of Amalgamation, dated
as of May 28, 1998, among the Company, NTL (Bermuda) Limited
and Comcast U.K. Cable Partners Limited (Incorporated by
reference to the Company's Registration Statement on Form
S-4, File No. 333-64727)
2.4 Share Exchange Agreement, dated as of June 16, 1998, as
amended, among the Company and the shareholders of Diamond
Cable Communications Plc (Incorporated by reference to the
Company's Proxy Statement, filed on January 29, 1999)
2.5 Amendment No. 1 to Share Exchange Agreement, dated as of
December 21, 1998, among the Company and the shareholders of
Diamond Cable Communications plc (Incorporated by reference
to the Company's Form 8-K, filed on December 23, 1998)
4.1 Indenture, dated as of October 2, 2000, by and between the
Company and The Chase Manhattan Bank, as Trustee, with
respect to the notes*
4.2 Registration Rights Agreement dated as of October 2, 2000,
by and among the Company and Morgan Stanley & Co.
International Limited, Goldman Sachs & Co., Chase Securities
Inc., Banc of America Securities LLC, BNP Paribas Securities
Corp., CIBC World Markets Corp. and The Royal Bank of
Scotland plc*
4.3 Form of new notes (included in Exhibit 4.1)*
4.4 Indenture, dated as of March 13, 1998, by and between the
Company and The Chase Manhattan Bank, as Trustee, with
respect to the 9 3/4% Senior Deferred Coupon Notes
(Incorporated by reference to the Company's 1997 Form 10-K,
filed on March 30, 1998)
4.5 Indenture, dated as of January 30, 1996, by and between the
Company and Chemical Bank as Trustee, with respect to the
11 1/2% Senior Notes (Incorporated by reference to the
Company's Registration Statement on Form S-4, File No.
333-1010)
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to
the legality of the notes being registered hereby**
10.1 Compensation Plan and Agreements, as amended and restated
effective June 3, 1997 (Incorporated by reference to the
Company's 1997 Form 10-K filed on March 30, 1998)
10.2 Rules of the NTL Sharesave Plan, adopted by the Company on
October 28, 1997 (Incorporated by reference to the Company's
1998 Form 10-K filed on March 30, 1999)
10.3 Form of Director and Officer Indemnity Agreement (together
with a schedule of executed Indemnity Agreements)
(Incorporated by reference to the 1999 Form 10-K filed by
NTL Incorporated (File No. 000-25691) on March 17, 2000)
</TABLE>
II-2
<PAGE> 230
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
10.4 1998 Non-Qualified Stock Option Plan, as Amended and
Restated October 1998 (Incorporated by reference to the
Company's 1998 Form 10-K filed on March 30, 1999)
10.5 Agreement, dated August 14, 1998, among TeleWest
Communications PLC, TeleWest Communications Holdings
Limited, NTL (Bermuda) Limited, and the Company
(Incorporated by reference to the Company's Form 8-K, filed
on August 18, 1998)
12.1 Computation of Ratio of Earnings to Fixed Charges and
Combined Fixed Charges and Preferred Stock Dividends**
23.1 Consent of Ernst & Young LLP**
23.2 Consent of Arthur Andersen, Chartered Accountants**
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1)
24.1 Powers of Attorney*
25.1 Form T-1 Statement of Eligibility of Trustee with respect to
Indenture included as Exhibit 4.1**
99.1 Form of Letter of Transmittal in respect of the notes*
99.2 Form of Notice of Guaranteed Delivery*
99.3 Form of Letter to clients*
99.4 Form of Letter to brokers, dealers, commercial banks, trust
companies and other nominees*
</TABLE>
---------------
* Previously filed.
** Filed herewith.
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11, or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE> 231
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized in the
City of New York, State of New York, on the 20th day of December, 2000.
NTL COMMUNICATIONS CORP.
/s/ RICHARD J. LUBASCH
By:
--------------------------------------
Richard J. Lubasch
Executive Vice President --
General Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board, December 20, 2000
--------------------------------------------- Treasurer and Director
George S. Blumenthal
* President, Chief Executive Officer December 20, 2000
--------------------------------------------- and Director
Barclay Knapp
* Senior Vice President -- December 20, 2000
--------------------------------------------- Chief Financial Officer
John F. Gregg
* Vice President -- Controller December 20, 2000
---------------------------------------------
Gregg N. Gorelick
* Director December 20, 2000
---------------------------------------------
Michael Bertinetto
Director
---------------------------------------------
Robert T. Goad
* Director December 20, 2000
---------------------------------------------
Bernard P. Izerable
* Director December 20, 2000
---------------------------------------------
Sidney R. Knafel
* Director December 20, 2000
---------------------------------------------
Ted H. McCourtney
Director
---------------------------------------------
Del Mintz
</TABLE>
II-4
<PAGE> 232
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director December 20, 2000
---------------------------------------------
Alan J. Patricof
* Director December 20, 2000
---------------------------------------------
Warren Potash
* Director December 20, 2000
---------------------------------------------
Jean-Louis Vinciguerra
Director
---------------------------------------------
Graham Wallace
* Director December 20, 2000
---------------------------------------------
Michael S. Willner
</TABLE>
---------------
*Richard J. Lubasch, by signing his name hereto, does hereby execute this
Amendment No. 1 to the Registration Statement on behalf of the officers and
directors of the Registrant indicated by the above asterisks, pursuant to
powers of attorney duly executed by the officers and directors and filed as
exhibits to the Registration Statement.
By: /s/ Richard J. Lubasch
----------------------------------------------------
Richard J. Lubasch
Attorney-in-fact
II-5
<PAGE> 233
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of March 26, 1999,
among the Company, NTL Communications and NTL Merger Inc.
(Incorporated by reference to the Company's Registration
Statement on Form S-3, File No. 333-72335)
2.2 Agreement and Plan of Amalgamation, dated as of February 4,
1998, as amended, among the Company, NTL (Bermuda) Limited,
and Comcast U.K. Cable Partners Limited (Incorporated by
reference to the Company's Registration Statement on Form
S-4, File No. 333-64727)
2.3 Amendment No. 1 to Agreement and Plan of Amalgamation, dated
as of May 28, 1998, among the Company, NTL (Bermuda) Limited
and Comcast U.K. Cable Partners Limited (Incorporated by
reference to the Company's Registration Statement on Form
S-4, File No. 333-64727)
2.4 Share Exchange Agreement, dated as of June 16, 1998, as
amended, among the Company and the shareholders of Diamond
Cable Communications Plc (Incorporated by reference to the
Company's Proxy Statement, filed on January 29, 1999)
2.5 Amendment No. 1 to Share Exchange Agreement, dated as of
December 21, 1998, among the Company and the shareholders of
Diamond Cable Communications plc (Incorporated by reference
to the Company's Form 8-K, filed on December 23, 1998)
4.1 Indenture, dated as of October 2, 2000, by and between the
Company and The Chase Manhattan Bank, as Trustee, with
respect to the notes*
4.2 Registration Rights Agreement dated as of October 2, 2000,
by and among the Company and Morgan Stanley & Co.
International Limited, Goldman Sachs & Co., Chase Securities
Inc., Banc of America Securities LLC, BNP Paribas Securities
Corp., CIBC World Markets Corp. and The Royal Bank of
Scotland plc*
4.3 Form of new notes (included in Exhibit 4.1)*
4.4 Indenture, dated as of March 13, 1998, by and between the
Company and The Chase Manhattan Bank, as Trustee, with
respect to the 9 3/4% Senior Deferred Coupon Notes
(Incorporated by reference to the Company's 1997 Form 10-K,
filed on March 30, 1998)
4.5 Indenture, dated as of January 30, 1996, by and between the
Company and Chemical Bank as Trustee, with respect to the
11 1/2% Senior Notes (Incorporated by reference to the
Company's Registration Statement on Form S-4, File No.
333-1010)
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to
the legality of the notes being registered hereby**
10.1 Compensation Plan and Agreements, as amended and restated
effective June 3, 1997 (Incorporated by reference to the
Company's 1997 Form 10-K filed on March 30, 1998)
10.2 Rules of the NTL Sharesave Plan, adopted by the Company on
October 28, 1997 (Incorporated by reference to the Company's
1998 Form 10-K filed on March 30, 1999)
10.3 Form of Director and Officer Indemnity Agreement (together
with a schedule of executed Indemnity Agreements)
(Incorporated by reference to the 1999 Form 10-K filed by
NTL Incorporated (File No. 000-25691) on March 17, 2000)
10.4 1998 Non-Qualified Stock Option Plan, as Amended and
Restated October 1998 (Incorporated by reference to the
Company's 1998 Form 10-K filed on March 30, 1999)
10.5 Agreement, dated August 14, 1998, among TeleWest
Communications PLC, TeleWest Communications Holdings
Limited, NTL (Bermuda) Limited, and the Company
(Incorporated by reference to the Company's Form 8-K, filed
on August 18, 1998)
12.1 Computation of Ratio of Earnings to Fixed Charges and
Combined Fixed Charges and Preferred Stock Dividends**
</TABLE>
II-6
<PAGE> 234
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
23.1 Consent of Ernst & Young, LLP**
23.2 Consent of Arthur Andersen, Chartered Accountants**
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1)
24.1 Powers of Attorney*
25.1 Form T-1 Statement of Eligibility of Trustee with respect to
Indenture included as Exhibit 4.1**
99.1 Form of Letter of Transmittal in respect of the notes*
99.2 Form of Notice of Guaranteed Delivery*
99.3 Form of Letter to clients*
99.4 Form of Letter to brokers, dealers, commercial banks, trust
companies and other nominees*
</TABLE>
---------------
* Previously filed.
** Filed herewith.
II-7
