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EXHIBIT 99.8
CWC CONSUMERCO A DIVISION OF
NTL (CWC) LIMITED
(FORMERLY CABLE & WIRELESS COMMUNICATIONS LIMITED)
REPORT AND FINANCIAL STATEMENTS AS OF MARCH 31, 1999
AND 2000 AND FOR THE THREE YEARS ENDED MARCH 31, 2000
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FINANCIAL STATEMENTS OF CWC CONSUMERCO
REPORT OF INDEPENDENT AUDITORS
To the Directors of NTL Incorporated
We have audited the accompanying financial statements of CWC ConsumerCo as
of March 31, 1999 and 2000 and for the three years ended March 31, 2000 which
have been prepared on the bases and in accordance with the accounting policies
set out therein under the historical cost convention.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The Directors of ntl (CWC) Limited are responsible for the preparation of
the financial statements in accordance with the applicable United Kingdom law
and accounting standards. Our responsibilities, as independent auditors, are
established by the United Kingdom Auditing Practices Board and by our
profession's ethical guidance.
BASIS OF OPINION
We conducted our audit in accordance with generally accepted auditing
standards in the United States. An audit includes examination, on a test basis,
of evidence relevant to the amounts and disclosures in the financial statements.
It also includes an assessment of the significant estimates and judgements made
by the Directors in the preparation of the financial statements and of whether
the accounting policies are appropriate to the circumstances of CWC ConsumerCo,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion, the financial statements referred to above present fairly,
in all material respects, the state of affairs of CWC ConsumerCo as at March 31,
1999 and 2000 and of CWC ConsumerCo's results and cash flows for each of the
three years ended March 31, 2000 in accordance with the bases of preparation
detailed in the accompanying financial statements, applied using accounting
principles generally accepted in the United Kingdom.
RECONCILIATION TO US GAAP
Accounting practices used by CWC ConsumerCo in preparing the accompanying
financial statements conform with generally accepted accounting principles in
the United Kingdom, but do not conform with generally accepted accounting
principles in the United States. A description of these differences and a
reconciliation of net loss and shareholders' equity to generally accepted
accounting principles in the United States is set out in Note 35.
ARTHUR ANDERSEN
Chartered Accountants
London
United Kingdom
6th October 2000
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COMBINED PROFIT & LOSS ACCOUNT
FOR THE YEAR ENDED MARCH 31
2000 1999 1998
NOTE L M L M L M
---- ---- ---- ----
TURNOVER
Continuing operations....................................... 694 688 104
Acquisitions................................................ -- -- 446
4 694 688 550
OPERATING COSTS
Outpayments and other cost of sales......................... 5 (269) (251) (188)
GROSS PROFIT................................................ 425 437 362
Millennium and NCNC costs................................... 5, 6 (12) (16) (2)
Other operating expenses (net).............................. 5 (270) (241) (197)
Depreciation and amortisation............................... 5, 7 (156) (135) (103)
OPERATING (LOSS)/PROFIT
Continuing operations....................................... (13) 45 49
Acquisitions................................................ -- -- 11
TOTAL OPERATING (LOSS)/PROFIT............................... (13) 45 60
Costs of fundamental reorganisation......................... 10 -- -- (96)
Release of surplus fundamental reorganisation provision..... 2 -- --
Profit on disposal of tangible fixed assets................. 1 -- --
Net interest payable........................................ 11 (190) (179) (121)
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION................. 7 (200) (134) (157)
Taxation.................................................... 12 34 -- --
LOSS ON ORDINARY ACTIVITIES AFTER TAXATION.................. (166) (134) (157)
Minority interests.......................................... 1 (1) --
NET LOSS -- TRANSFER TO RESERVES............................ (165) (135) (157)
As more fully explained in Note 2, CWC ConsumerCo did not operate as a
separate legal or reporting entity throughout the period. Accordingly the above
profit and loss account may not be representative of its future results.
All operations are continuing.
There are no recognised gains or losses other than those reflected in the
combined profit and loss account and accordingly, no statement of total
recognised gains and losses is presented.
The accompanying notes are an integral part of this combined profit and loss
account.
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COMBINED BALANCE SHEET
AS AT MARCH 31
2000 1999
NOTE L M L M
---- ------ ------
FIXED ASSETS
Intangible assets........................................... 13 8 8
Tangible assets............................................. 14 3,167 2,860
3,175 2,868
CURRENT ASSETS
Debtors:
Due within one year....................................... 15 131 67
Due after one year........................................ 15 68 69
Debtors within receivables securitisation................... 16
Gross debtors............................................. 56 85
Non-returnable proceeds................................... (29) (62)
27 23
Cash at bank and in hand.................................... 87 127
313 286
CREDITORS: amounts falling due within one year.............. 17 (826) (487)
NET CURRENT LIABILITIES..................................... (513) (201)
TOTAL ASSETS LESS CURRENT LIABILITIES....................... 2,662 2,667
CREDITORS: amounts falling due after more than one year..... 18 (3,075) (2,916)
PROVISIONS FOR LIABILITIES AND CHARGES...................... 19 (6) (14)
NET LIABILITIES............................................. (419) (263)
CAPITAL AND RESERVES
Called up share capital..................................... 21 748 746
Share premium............................................... 22 17 9
Other reserves.............................................. 22 (1,199) (1,034)
Equity shareholders' funds.................................. (434) (279)
Equity minority interest.................................... 15 16
(419) (263)
The accompanying notes are an integral part of this combined balance sheet.
APPROVED AND SIGNED ON BEHALF OF THE BOARD
6th October 2000
By: /s/ DAVID W. KELHAM
--------------------------------------------------
Name: David W. Kelham
Title: Group Commercial Director
ntl Group Ltd.
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COMBINED CASH FLOW STATEMENT
FOR THE YEAR ENDED MARCH 31
2000 1999 1998
NOTE L M L M L M
---- ---- ---- ------
Net cash (outflow)/inflow before fundamental reorganisation
costs and IT outsource.................................... (89) 220 386
Outflow related to fundamental reorganisation costs and IT
outsource................................................. (6) (41) (30)
---- ---- ------
NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES......... 27 (95) 179 356
---- ---- ------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received........................................... 5 15 10
Interest paid............................................... (224) (227) (144)
---- ---- ------
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING
OF FINANCE................................................ (219) (212) (134)
---- ---- ------
TAXATION
UK Corporation tax paid..................................... -- -- (16)
---- ---- ------
TAX PAID.................................................... -- -- (16)
---- ---- ------
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchase of tangible fixed assets........................... (452) (375) (529)
Interest bearing deposit (net of VAT)....................... -- (109) --
Sale of tangible fixed assets............................... 19 57 --
---- ---- ------
NET CASH OUTFLOW FROM CAPITAL EXPENDITURE AND FINANCIAL
INVESTMENT................................................ (433) (427) (529)
---- ---- ------
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary undertakings, net of cash acquired... 28 -- -- 88
Disposal of business........................................ 28 -- 4 --
---- ---- ------
NET CASH INFLOW FROM ACQUISITIONS AND DISPOSALS............. -- 4 88
---- ---- ------
EQUITY DIVIDENDS PAID
Ordinary dividends paid..................................... -- -- (9)
---- ---- ------
CASH OUTFLOW BEFORE FINANCING............................... (747) (456) (244)
---- ---- ------
FINANCING
Increase in bank and other loans............................ 932 669 3,257
Increase in share capital................................... 1 -- --
Net proceeds from issue of loan notes....................... -- 433 1,585
Repayment of debt........................................... (222) (736) (4,448)
Capital element of finance lease rental payments............ (4) (12) (6)
---- ---- ------
(DECREASE)/INCREASE IN CASH................................. 29 (40) (102) 144
==== ==== ======
The accompanying notes are an integral part of this combined cash flow
statement.
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RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS
FOR THE YEAR ENDED MARCH 31
2000 1999 1998
NOTE L M L M L M
------ ---- ---- ------
Loss for the financial year................................ (165) (135) (157)
Share issues............................................... 21, 22 10 10 1,957
Goodwill acquired and written off during the year.......... -- -- (2,006)
Other movements on reserves................................ -- (31) (7)
---- ---- ------
Net decrease in equity shareholders' funds................. (155) (156) (213)
Equity shareholders' funds at beginning of year............ (279) (123) 90
---- ---- ------
EQUITY SHAREHOLDERS' FUNDS AT END OF YEAR.................. (434) (279) (123)
==== ==== ======
The accompanying notes are an integral part of this reconciliation
of movements in equity shareholders' funds.
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1 BACKGROUND
On July 26, 1999, Cable and Wireless plc ("Cable and Wireless"), NTL
Incorporated ("NTL") and Cable & Wireless Communications (now ntl (CWC) Limited
and hereafter "ntl (CWC)") announced that they had agreed to propose a
restructuring of ntl (CWC) to its shareholders. The restructuring was agreed by
the shareholders, and completed on May 30, 2000.
As part of the restructuring, ntl (CWC), which was a 52.8% owned subsidiary
of Cable and Wireless was separated into its residential cable, business cable,
indirect residential telephony, residential internet and digital television
development and services businesses, referred to as CWC ConsumerCo, and its
corporate, business, internet protocol and wholesale operations, referred to as
CWC Data Co. NTL indirectly acquired all of CWC ConsumerCo and Cable and
Wireless indirectly acquired the interest in CWC DataCo. which was not already
attributable to it, thereby achieving 100% ownership of CWC DataCo. These two
acquisitions, collectively, are referred to as the "Transaction".
2 BASIS OF PREPARATION
a) Structure of Financial Statements
The financial statements, have been prepared on the basis set out within
the "Basis of preparation" below. In the financial statements, ntl (CWC) and its
subsidiary undertakings, as appropriate, are referred to as "ntl (CWC) group".
The activities of CWC ConsumerCo were carried out as an integral part of
the ntl (CWC) group and as such the operations comprising CWC ConsumerCo were
carved out from the financial statements of the ntl (CWC) group. Consequently,
certain revenues, costs, assets and liabilities previously reported within legal
entities, comprising the ntl (CWC) group, have been allocated to CWC ConsumerCo
to reflect the assets and liabilities attributable to CWC ConsumerCo and the
results of such operations for the periods shown.
As a result of the carve out, the combined balance sheet presents an "Other
reserves" balance for CWC ConsumerCo, consistent with the fact that CWC
ConsumerCo did not operate as a standalone group. Accordingly, the net
liabilities position is presented with an equal and opposite equity
shareholders' funds figure after including this "Other reserves" balance which
represents the investment in CWC ConsumerCo held by the ntl (CWC) group.
The financial statements have been prepared specifically in connection with
the acquisition of CWC ConsumerCo by NTL and consequently do not contain certain
reports, disclosures or other matters that would be required under the UK
Companies Act 1985.
Further, the financial statements do not necessarily reflect the terms of
the Transaction agreement referred to in Note 1 above.
b) Basis of Preparation
Revenue
All CWC ConsumerCo's revenues are specifically identifiable from the total
revenues of the ntl (CWC) group.
Specifically Attributable Costs, Assets and Liabilities
Most of the costs, assets and liabilities reflected in the financial
statements are specifically identifiable to CWC ConsumerCo. Such specific costs,
assets and liabilities have been allocated directly to CWC ConsumerCo.
- Outpayments
Outpayments and other cost of sales figures represent third party costs
incurred by CWC ConsumerCo.
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Allocation of Indirectly Attributable Costs, Assets and Liabilities
Where costs, assets and liabilities were incurred for the benefit of CWC
ConsumerCo, but could not be specifically identified, an allocation has been
made.
Indirectly attributable costs, assets and liabilities have been allocated
using bases which the Directors believe provide an appropriate mechanism to
carve out CWC ConsumerCo's financial results for the three years ended March 31,
2000 and financial position as at March 31, 1999 and 2000, from the ntl (CWC)
group financial statements.
Costs
Particular indirectly attributable costs have been allocated consistently
on the following bases unless otherwise stated:
- Net operating expenses -- three years ended March 31, 2000
Net operating expenses consist primarily of network operations and
central ntl (CWC) group support costs, principally those of the Finance
and IT departments. A significant element of these costs are staff
related.
- Network operations costs have been allocated based upon the relative
usage of the ntl (CWC) group telecommunications network by those
products and services provided by CWC ConsumerCo.
- Staff and related costs have been allocated based upon management's
estimation of the relative proportion of individuals' time providing
services to CWC ConsumerCo. The Directors believe that this provides a
fair allocation of costs to CWC ConsumerCo.
- IT department costs relating to general IT support and services have
been allocated in the proportion of CWC ConsumerCo headcount,
including allocated headcount, to total ntl (CWC) group headcount.
Specific IT projects and systems have been allocated on the basis of
estimated usage by CWC ConsumerCo.
- Finance department costs have been allocated in the proportion of CWC
ConsumerCo headcount (including allocated headcount) to total ntl
(CWC) group headcount. In the year ended March 31, 1998 these costs
were allocated on the basis of revenue due to the lack of
retrospective information regarding Finance department headcount. The
Directors believe that despite the different bases applied the overall
allocation is appropriate.
- Facilities and other related costs have been allocated based on
relative usage by CWC ConsumerCo.
- Depreciation
Depreciation for the three years ended 31 March 2000 has been allocated
consistent with the allocation of fixed assets to CWC ConsumerCo.
Assets and Liabilities
Particular indirectly attributable assets and liabilities have been
consistently allocated on the following bases as at March 31, 1999 and 2000
unless otherwise stated:
- Fixed assets
CWC ConsumerCo has allocated fixed asset additions and disposals on the
basis of management's estimate of relative usage of those assets. The
Directors believe this fairly presents the historic asset base
attributable to CWC ConsumerCo.
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- Trade creditors
Trade creditor amounts relate to operating and capital expenditure. Where
not specifically attributable, such amounts have been allocated based on
the allocation to CWC ConsumerCo of net operating expenses and capital
expenditure.
- Debt
Substantially all ntl (CWC)'s debt has been allocated to CWC ConsumerCo
on the basis that it is primarily used to fund CWC ConsumerCo activities.
See Note 18.
- Other assets and liabilities
Prepayments and accrued income and accruals and deferred income amounts
are attributable to specific CWC ConsumerCo cost centres and where not
specifically attributable, have been allocated based on the allocation of
the net operating expenses to each respective cost centre.
Limitations on Use of Financial Statements
Because of the allocations referred to above and the proposed changes in
the structure and financing of CWC ConsumerCo going forward, these financial
statements should not be relied upon as being representative of the future
financial position or performance of CWC ConsumerCo. In particular:
- Outpayments for all periods presented are not representative of those
amounts that will be incurred by CWC ConsumerCo in the future as it will
need to enter into arms' length arrangements for the carriage and
delivery of telecommunications traffic and services either with CWC
DataCo and with other third parties.
- The operating costs attributed to CWC ConsumerCo for the year ended March
31, 2000 are not representative of the costs it will incur after the
proposed transaction as they represent the carve out of costs incurred by
the ntl (CWC) group, which was managed as an integrated business. The
activities of CWC ConsumerCo on a stand alone basis may be restructured
following the transaction which may result in certain costs being
duplicated, other costs being avoided altogether and yet other costs
being incurred. For this reason the reported result for the year ended
March 31, 2000 is not representative of the amounts to be incurred by CWC
ConsumerCo after the Transaction.
- In view of the refinancing and corporate restructuring of the businesses,
the debt, interest and taxation figures included in these financial
statements are not representative of the amounts of those items for CWC
ConsumerCo following the Transaction.
3 STATEMENT OF ACCOUNTING POLICIES
The financial statements have been prepared applying CWC ConsumerCo's
accounting policies and no adjustments have been made with respect to any
differences between these and NTL's accounting policies.
The principal accounting policies of CWC ConsumerCo, which have been
applied consistently throughout the three years ended March 31, 2000, unless
expressly stated otherwise, are as follows:
a) Basis of Accounting
The financial statements have been prepared applying accounting principles
generally accepted in the United Kingdom and on the historical cost basis.
The results of subsidiary undertakings acquired or disposed of during the
year are included from the date of their acquisition or up to the date of their
disposal, except for the acquisition of Mercury Communications Limited which has
been merger accounted for under the group reorganisation provisions of FRS 6
"Acquisitions and mergers".
Intercompany sales and profits are eliminated fully.
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b) Turnover and Revenue Recognition
Turnover, which excludes value added tax, represents the amount receivable
in respect of services provided to customers in each year and is accounted for
on the accruals basis. At the end of each year adjustments are recorded to defer
revenue with respect to services invoiced in advance and to accrue for unbilled
services.
c) Interconnection With Other Operators
When operators of other national and international telecommunications
networks carry traffic, the charges incurred are matched with the associated
revenues. All charges payable to, or by, overseas telecommunications
administrations are negotiated separately and are subject to continuous review.
Charges payable by CWC ConsumerCo to British Telecommunications plc,
referred to as BT, for the conveyance of traffic and connections to the BT
network are subject to government regulation in the form of a determination by
OFTEL, the Office of Telecommunications. During 1998, the basis for calculation
of these charges changed from one based on the fully allocated historic cost of
providing the delivery mechanism on their network, to one based upon the
long-run incremental cost of providing that service.
Up until September 30, 1997, OFTEL undertook a review, in the form of a
determination, after the end of each financial year, and for the half year to
September 30, 1997, to assess the bases used for the calculation of the charges
made in that year. Amendments were backdated to take effect from April 1, in the
year under review, but were accounted for in subsequent financial periods.
Since October 1, 1997, the charging mechanism has been designed to reflect
the commercial considerations surrounding a competitive market. OFTEL has set a
framework of controls within which BT will have the price flexibility to set its
own charges. The degree of control depends on the competitiveness of the
services concerned.
d) Goodwill
With effect from April 1, 1998, goodwill arising on the acquisition of
subsidiary undertakings and businesses, being the difference between the fair
value of the purchase consideration and the fair value attributed to the
identifiable assets and liabilities acquired, is capitalised and amortised in
equal annual instalments through the profit and loss account over the ntl (CWC)'
Directors' estimate of its useful economic life.
CWC ConsumerCo periodically reviews events and changes in circumstances to
determine whether the recoverability of the carrying value of goodwill should be
reassessed. An impairment assessment is performed whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable.
As permitted under the transitional provisions in FRS 10, "Goodwill and
Intangible Assets", goodwill on acquisitions prior to April 1, 1998 is dealt
with as a movement on reserves. Where subsidiary undertakings are wholly or
partially disposed of during the year, goodwill that was written off to reserves
or has not been amortised through the profit and loss account is charged to the
profit and loss account.
e) Tangible Fixed Assets and Depreciation
Tangible fixed assets are recorded at cost, which includes materials,
direct labour and other incremental costs applicable to the design, construction
and connection of the telecommunications and cable television networks and
equipment. Other incremental costs capitalised include all costs of those
departments responsible solely for design, construction and connection. Where
departments spend only part of their time on functions directly connected with
design, construction and connection, the relevant proportion of total costs is
capitalised. Costs which are initially capitalised in projects under
construction where the projects do not become operational are written off to the
profit and loss account, once it is determined that the project will not become
operational.
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Costs of departments relating to revenue related operations such as direct
selling, marketing and other customer related departments, are not capitalised.
Capitalisation of Interest
Interest is capitalised as part of the cost of separately identifiable
major capital projects, up to the time that such projects are substantially
complete. The amount of interest capitalised is calculated as the capitalisation
rate multiplied by the weighted average carrying amount of major capital
projects under construction during the period.
Depreciation
Depreciation is provided on the difference between the cost of tangible
fixed assets and the estimated residual value in equal annual instalments over
the estimated useful lives of the assets. These lives are as follows:
Land and buildings: Lives
freehold buildings 40 years
leasehold land and buildings up to 40 years or term of lease if
less
leasehold improvements remaining term of lease or
expected useful life of the
improvements if less
Communications network plant and equipment:
ducting and network 10 to 40 years
construction
electronic equipment and 10 to 20 years
cabling
other network plant and 6 to 25 years
equipment
Non-network plant and 3 to 10 years
equipment
Freehold land, where the cost is distinguishable from the cost of the
building thereon, is not depreciated.
After a portion of the network is fully constructed and released to
operations, depreciation of the network commences either when target rates of
penetration are achieved or no later than one year after the release date.
f) Leased Assets
Where assets are financed by leasing agreements that give rights
approximating to ownership, the assets are treated as if they had been purchased
outright. The amount capitalised is the present value of the minimum lease
payments payable during the lease term. The corresponding leasing commitments
are shown as obligations to the lessor. Lease payments are split between capital
and interest elements using the annuity method. Depreciation on the relevant
assets and interest are charged to the profit and loss account.
All other leases are operating leases and the annual rentals are charged to
operating profit on a straight line basis over the lease term.
g) Fixed Asset Investments
Fixed asset investments are stated at cost less provisions for impairment.
Any impairment is charged to the profit and loss account in the year in which it
is identified.
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h) Deferred Taxation
The charge for taxation is based on the results for the year and takes into
account taxation deferred because of timing differences between the treatment of
certain items for taxation and accounting purposes. CWC ConsumerCo provides for
deferred tax unless there is a reasonable probability that the liability will
not arise in the foreseeable future. Where deferred tax is provided, the
liability method is used. No deferred tax assets are recognised in respect of
accumulated tax losses.
i) Pensions
Defined Contribution Schemes
Where CWC ConsumerCo companies through the ntl (CWC) group participate in
defined contribution pension schemes for their employees, the pension costs
charged to the profit and loss account represent contributions payable during
the year.
Defined Benefit Schemes
CWC ConsumerCo through the ntl (CWC) group also participates in a defined
benefit pension scheme operated by Cable and Wireless for certain employees. The
regular cost of providing benefits is charged to operating profit over the
service lives of the members of the scheme so as to achieve a constant
percentage of pensionable pay.
j) Foreign Currencies
Transactions are translated into sterling at the rate of exchange ruling on
the date of the transaction. All outstanding monetary assets and liabilities
denominated in foreign currency are retranslated at the rates ruling at the
balance sheet date. Any exchange differences arising are dealt with through the
profit and loss account.
The results of overseas operations are translated at the average rate of
exchange during the period and their balance sheets at the rate ruling at the
balance sheet date. Exchange differences arising on translation of the opening
net assets and results of overseas operations are dealt with through reserves.
All other exchange differences are included in the profit and loss account.
k) Forward Exchange Contracts and Interest Rate Swaps
CWC ConsumerCo through the ntl (CWC) group uses financial instruments,
including forward exchange contracts and interest rate swaps, in its management
of exchange rate and interest rate exposures. While these instruments are
subject to the risk of loss from changes in exchange rates and interest rates,
these losses would generally be offset by gains in the related exposures.
Financial instruments are only used to hedge underlying economic exposures.
CWC ConsumerCo does not speculate in derivative financial instruments.
Realised and unrealised gains and losses on forward contracts which hedge
firm third party commitments are recognised in the profit and loss account in
the same period as the gain or loss on the underlying transaction. Net interest
paid or received on interest rate swaps is included in interest expense on an
accruals basis.
l) Capital Instruments and Financing Costs
Capital instruments are accounted for and classified as equity or
non-equity share capital, equity or non-equity minority interests or debt
according to their form. The costs of issue of non-equity and debt capital
instruments are charged to the profit and loss account on an annual basis over
the life of the instruments at a constant rate on the carrying amount. Where
permitted by law, a corresponding amount is subsequently transferred from the
share premium account to retained earnings. The cost of issue of equity
instruments is written off against the share premium account.
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m) Provisions
CWC ConsumerCo accounts for provisions in accordance with FRS12 "Provisions
and Contingencies". Consequently, provisions are only recognised when CWC
ConsumerCo has a legal or constructive obligation to transfer economic benefits
as a result of past events. To the extent that the provisions are surplus to
requirements they are released in the profit and loss account.
n) IT Outsource
CWC ConsumerCo through the ntl (CWC) group has entered into a 10 year
contract for the provision of commercial IT services. Certain costs are paid in
advance of the benefit received. These costs are deferred and amortised over the
period during which benefit is derived. The charge for the provision of the
consolidated billing system is amortised over the expected levels of billing
activity.
o) Millennium and National Code Number Change Costs
Costs incurred in modifying existing software to achieve Year 2000
compliance are normally written off to the profit and loss account in the period
in which they are incurred. However, to the extent that any expenditure not only
achieves compliance, but also represents an enhancement of an asset's service
potential, it is capitalised and depreciated over the estimated remaining useful
life of the asset, in accordance with Urgent Issues Task Force Abstract 20,
"Year 2000: Accounting and Disclosures".
Costs incurred in modifying equipment in preparation for National Code
Number Changes are normally written off to the profit and loss account in the
period in which they are incurred. However, to the extent that any expenditure
not only achieves the necessary modification but also represents an enhancement
of an asset's service potential, it is capitalised and depreciated over the
estimated remaining useful life of the asset.
4 TURNOVER
Turnover derives from:
- local, national and international telecommunications and cable television
services; and
- the sale and rental of telecommunications equipment.
Turnover comprised the following:
2000 1999 1998
L M L M L M
---- ---- ----
Consumer Markets
Direct telephony.......................................... 279 292 219
Indirect telephony........................................ 93 102 104
Television................................................ 253 222 172
Business Markets............................................ 69 72 55
--- --- ---
Total Turnover.............................................. 694 688 550
=== === ===
The Directors consider this to be a single class of business and
accordingly no segmental analysis of operating profit or loss or net assets is
shown. In the year ended March 31, 2000 all of the turnover was generated by
operations in the United Kingdom (1999: 100% and 1998: 100%).
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5 COST OF SALES AND OPERATING EXPENSES
2000 1999 1998
TOTAL TOTAL CONTINUING ACQUISITION TOTAL
L M L M L M L M L M
----- ----- ---------- ----------- -----
Outpayments and other cost of sales................ 269 251 36 152 188
Other operating expenses (net)..................... 270 241 19 178 197
Millennium and NCNC costs.......................... 12 16 -- 2 2
Depreciation and amortisation...................... 156 135 2 101 103
All activities in the years ended March 31, 1999 and 2000 were continuing.
6 MILLENNIUM AND NATIONAL CODE NUMBER CHANGE COSTS
Millennium Costs
Millennium costs comprise the costs allocated to CWC ConsumerCo through the
ntl (CWC) group Year 2000 Programme. This includes CWC ConsumerCo's share of the
costs of making software and systems compliant, upgrading rented customer
premises equipment, purchasing new software and employing external consultants
and advisors, as well as the costs of CWC ConsumerCo employees working on the
Year 2000 Programme. A cumulative total of Pound Sterling 30 million has been
incurred to date, of which Pound Sterling 1 million has been capitalised and
Pound Sterling 29 million has been written off to the profit and loss account.
National Code Number Change Costs
National Code Number Change costs are being incurred by CWC ConsumerCo
through the ntl (CWC) group, in relation to the change in national code numbers
which has been initiated by OFTEL. National dialling codes are being reorganised
to provide additional UK numbering capacity required for long term growth in new
numbers for fixed and mobile telephones, fax, pager, and internet use.
Costs of Pound Sterling 2 million had been incurred during the year in
relation to National Code Number Change, which were capitalised (1999: Pound
Sterling 1 million expensed in the profit and loss account). The National Code
Number Change programme is expected to take a further year to complete. Total
costs are expected to be Pound Sterling 5 million of which Pound Sterling 3
million is expected to relate to capital expenditure, the balance being written
off to the profit and loss account as incurred.
7 LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION
Loss on ordinary activities before taxation is stated after charging:
2000 1999 1998
L M L M L M
---- ---- ----
Depreciation of owned tangible fixed assets................. 144 122 91
Depreciation of fixed assets held under finance leases...... 12 12 12
Amortisation of goodwill.................................... -- 1 --
Operating lease payments -- hire of plant and machinery..... -- 2 2
Operating lease payments -- other........................... 5 8 9
Management service fees payable (see Note 33)............... -- 1 3
8 EMPLOYEES
In 2000 the average monthly number of persons working within CWC ConsumerCo
was 5,262 (1999: 5,130 and 1998: 5,407).
F-14
15
The aggregate remuneration and associated costs of CWC ConsumerCo employees
were:
2000 1999 1998
L M L M L M
---- ---- ----
Salaries and wages.......................................... 142 126 106
Social security costs....................................... 11 11 10
Pension costs of defined benefit scheme..................... 3 3 3
Pension costs of defined contribution schemes............... 3 3 2
--- --- ---
Total staff costs........................................... 159 143 121
Less: Staff costs capitalised within network fixed assets... (79) (47) (34)
--- --- ---
80 96 87
=== === ===
Details of the pension schemes are given in Note 9.
9 PENSIONS
CWC ConsumerCo, through ntl (CWC), participates in a pension scheme
operated by Cable and Wireless. The scheme is a defined benefit scheme whereby
retirement benefits are based on the employees' final remuneration and length of
service, and is funded through a separate trustee administered scheme.
Contributions to the scheme are based on pension costs for all members of the
scheme across the Cable and Wireless group and are made in accordance with the
recommendations of independent actuaries who value the scheme at regular
intervals, usually triennially. The last valuation currently available relates
to the position of the scheme as at March 31, 1999. Full details relating to the
pension scheme are disclosed in the financial statements of Cable and Wireless.
CWC ConsumerCo also operates several defined contribution pension plans.
CWC ConsumerCo will establish a new exempt approved pension scheme and
employees allocated to CWC ConsumerCo who are active members of the Cable and
Wireless superannuation fund will be invited to join the new CWC ConsumerCo
scheme and to transfer their accrued rights to it. Employees allocated to CWC
ConsumerCo who are active members of ntl (CWC) pension schemes will, for the
time being, remain in those schemes.
10 COSTS OF FUNDAMENTAL REORGANISATION
Following the formation of the ntl (CWC) group on April 28, 1997, the
nature and focus of operations of the constituent companies were fundamentally
reorganised. Costs of Pound Sterling 96 million have been allocated to CWC
ConsumerCo and include branding, employee related costs such as redundancies and
property rationalisations.
The inclusion of the costs of fundamental reorganisation had no material
impact on the tax charge for 2000 or 1999 or 1998.
F-15
16
11 NET INTEREST PAYABLE
2000 1999 1998
L M L M L M
---- ---- ----
Interest receivable and similar income:
Deposits and short term loan interest....................... 4 8 8
Funds placed with parent undertaking........................ -- 6 1
---- ---- ----
4 14 9
==== ==== ====
Interest payable:
Finance charges on leases................................... (6) (9) (7)
Bank loans and overdrafts................................... (70) (89) (90)
Loan notes.................................................. (146) (132) (58)
Funds borrowed from parent undertaking...................... (2) -- (1)
---- ---- ----
(224) (230) (156)
Less: interest capitalised within network fixed assets (Note
14)....................................................... 30 37 26
---- ---- ----
(194) (193) (130)
---- ---- ----
Net interest payable........................................ (190) (179) (121)
==== ==== ====
12 TAXATION
The tax credit comprises:
2000 1999 1998
L M L M L M
---- ---- ----
United Kingdom taxation:
Current corporation tax at 30% (1999: 31%, 1998: 31%)....... 34 -- --
Deferred tax................................................ -- -- --
Adjustment in respect of prior years........................ -- -- --
-- -- --
Tax credit on profit on ordinary activities................. 34 -- --
== == ==
If deferred tax had been provided in 2000 on a full provision basis, there
would have been no change in the tax charge for the year (1999: no change, 1998:
no change). The effective tax rate for the year ended March 31, 2000 is 0%
(1999: 0%, 1998: 0% after costs of fundamental reorganisation). This rate
differs from the statutory tax rate of 30% because the companies within CWC
ConsumerCo were loss making in the period and deferred tax assets for such
losses were not recognised in full. The tax credit in the year ended March 31,
2000 reflects a payment of Pounds Sterling 34 million from CWC DataCo for losses
surrendered by way of group relief.
F-16
17
13 INTANGIBLE FIXED ASSETS
GOODWILL
L M
--------
COST
At April 1, 1999............................................ 9
Additions................................................... --
--
At March 31, 2000........................................... 9
--
AMORTISATION
At April 1, 1999............................................ 1
Charge for the year......................................... --
--
At March 31, 2000........................................... 1
--
Net book value at March 31, 2000............................ 8
--
Net book value at March 31, 1999............................ 8
==
Goodwill arising on the acquisition of Two Way TV Limited is amortised over
20 years, which is the ntl (CWC)' Directors' estimate of its economic useful
life.
14 TANGIBLE FIXED ASSETS
NETWORK CABLE, NON-NETWORK
LAND AND PLANT AND PLANT AND
BUILDINGS EQUIPMENT EQUIPMENT TOTAL
L M L M L M L M
--------- -------------- ----------- -----
COST
At April 1, 1999...................... 53 3,020 14 3,087
Additions............................. 1 423 73 497
Disposals............................. -- (8) (18) (26)
--- ----- --- -----
At March 31, 2000..................... 54 3,435 69 3,558
--- ----- --- -----
DEPRECIATION
At April 1, 1999...................... 4 218 5 227
Charge for the year................... 5 130 21 156
Transfers............................. -- 16 -- 16
Disposals............................. -- (3) (5) (8)
--- ----- --- -----
At 31 March 2000...................... 9 361 21 391
--- ----- --- -----
NET BOOK VALUE AT
March 31, 2000........................ 45 3,074 48 3,167
--- ----- --- -----
March 31, 1999........................ 49 2,802 9 2,860
=== ===== === =====
2000 1999
L M L M
---- ----
The net book value of land and buildings comprised:
Freehold.................................................. 19 19
Long leasehold............................................ 2 2
Short leasehold........................................... 24 28
-- --
45 49
== ==
Interest totalling Pound Sterling 30 million (1999: Pound Sterling 37
million) for the year ended March 31, 2000 that is directly applicable to the
design, construction and installation of CWC ConsumerCo's cable television and
telecommunications network has been capitalised within additions to network
assets.
F-17
18
Accumulated interest capitalised included in the total cost of tangible fixed
assets at March 31, 2000 amounted to Pound Sterling 93 million (1999: Pound
Sterling 63 million).
Included in the net book value of Network cable, plant and equipment is
Pound Sterling 83 million in respect of assets held under finance leases and
similar hire purchase contracts (1999: Pound Sterling 95 million). Accumulated
depreciation on these assets is Pound Sterling 42 million (1999: Pound Sterling
30 million) and the charge for the year is Pound Sterling 12 million (1999:
Pound Sterling 12 million). Network cable, plant and equipment includes Pound
Sterling 127 million (1999: Pound Sterling 118 million) in respect of assets not
yet in service and consequently upon which depreciation has not been charged.
15 DEBTORS
2000 1999
L M L M
---- ----
DUE WITHIN ONE YEAR
Trade debtors outside receivables securitisations........... 12 7
Amounts due from CWC DataCo (see below)..................... 63 --
Other debtors............................................... 18 11
Prepayments and accrued income.............................. 38 49
--- ---
131 67
--- ---
DUE AFTER MORE THAN ONE YEAR
Prepayments and accrued income.............................. 68 69
--- ---
199 136
=== ===
Where, as part of attributing assets and liabilities to CWC ConsumerCo and
CWC DataCo these assets and liabilities are to be transferred between legal
entities within the ntl (CWC) group, intragroup balances have been set up.
Included within prepayments and accrued income, is an amount of Pound
Sterling 100 million (1999: Pound Sterling 112 million) in respect of the IT
outsource representing:
2000
---------------------
DUE DUE AFTER 1999
WITHIN MORE THAN --------------
ONE YEAR ONE YEAR TOTAL TOTAL
L M L M L M L M
-------- --------- ----- -----
Security deposit.......................................... 21 32 53 85
Consolidated billing system charge........................ 9 27 36 14
Transition costs.......................................... 2 9 11 13
-- -- --- ---
32 68 100 112
== == === ===
The consolidated billing system charge is amortised over the life of the
outsource contract based on expected billing levels. The transition costs billed
by IBM in relation to the transition of the IT function to the outsource
provider include external legal, consultancy, property and other technical fees
which are amortised over differing periods depending on the period over which
CWC ConsumerCo, through the ntl (CWC) group derives benefit.
F-18
19
16 DEBTORS WITHIN RECEIVABLES SECURITISATION
2000 1999
L M L M
---- ----
Gross debtors............................................... 56 85
Non-returnable proceeds..................................... (29) (62)
--- ---
27 23
=== ===
Within the overall working capital facilities, certain trade debtors have
been assigned as security against the advance of cash. This security is
represented by the assignment of a pool of trade debts to a trust for the
benefit of the providers of this securitisation facility. The financing provided
against this pool takes into account, inter alia, the risks that may be attached
to individual debtors and the expected collection period.
CWC ConsumerCo, through the ntl (CWC) group, is not obliged (and does not
intend) to support any losses arising from the assigned debts against which cash
has been advanced. The providers of the finance have confirmed in writing that,
in the event of default in payment by a debtor, they will seek repayment of the
cash advanced only from the remainder of the pool of debts in which they hold an
interest, and that repayment will not be required from CWC ConsumerCo in any
other way.
17 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
2000 1999
L M L M
---- ----
Unsecured convertible loan notes............................ -- 9
Current instalments due on loans............................ 543 33
Obligations under finance leases............................ 7 5
Trade creditors............................................. 34 35
Amounts owed to CWC DataCo (see below)...................... -- 199
Amounts owed to parent undertaking.......................... 13 --
Other taxation and social security.......................... 11 5
Other creditors............................................. 7 30
Accruals and deferred income................................ 211 171
--- ---
826 487
=== ===
Where, as part of attributing assets and liabilities to CWC ConsumerCo and
CWC DataCo these assets and liabilities are to be transferred between legal
entities within the ntl (CWC) group, intragroup balances have been set up.
18 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
2000 1999
L M L M
----- -----
Notes due 2003 ($750m at a coupon rate of 6.375%)........... 453 453
Notes due 2005 ($650m at a coupon rate of 6.625%)........... 393 393
Notes due 2008 ($1.1bn at a coupon rate of 6.750%).......... 665 665
Bonds due 2005 (L300m at a coupon rate of 7.125%)........... 298 298
Bonds due 2017 (L200m at a coupon rate of 7.375%)........... 199 199
Loans....................................................... 965 795
Obligations under finance lease............................. 100 108
Accruals and deferred income................................ 2 5
----- -----
3,075 2,916
===== =====
F-19
20
With the exception of certain specific finance lease obligations, all debt
of ntl (CWC) group has been allocated to CWC ConsumerCo as such debt has
primarily been necessary to fund CWC ConsumerCo's activities.
Substantially all third party borrowings were repaid as part of the
Transaction Agreement and were replaced with approximately Pound Sterling 2.2
billion of borrowings from another NTL group company.
19 PROVISIONS FOR LIABILITIES AND CHARGES
ONEROUS PROPERTY
OBLIGATIONS COSTS TOTAL
L M L M L M
----------- -------- -----
At March 31, 1999........................................ 5 9 14
Amounts used during the year............................. (3) (5) (8)
Established during the year.............................. -- -- --
-- -- --
At March 31, 2000........................................ 2 4 6
== == ==
At March 31, 2000 the onerous obligations provision relates to onerous
contract commitments not recorded in the books of Two Way TV Limited. This is
expected to be utilised over the next five years.
The remaining provision for property costs relates to the fair value
property provision for overmarket rents set up as a result of the acquisition of
Bell Cablemedia and NYNEX CableComms in April 1997, and is expected to be
utilised over the next 18 years.
20 DEFERRED TAX
The amount provided, and the full potential liability, in respect of UK
deferred taxation is as follows:
2000 1999
L M L M
---- ----
Amount provided and potential liability:.................... -- --
==== ====
Tax effect of timing differences due to:
Excess capital allowances over depreciation............... (206) (140)
Other timing differences.................................. -- --
---- ----
(206) (140)
==== ====
As at March 31, 2000, CWC ConsumerCo had substantial UK tax losses
available to carry forward which exceeded the timing differences due to the
excess of capital allowances over depreciation. No deferred tax asset has been
recognised in the accounts in respect of any unutilised tax losses.
21 CALLED UP SHARE CAPITAL
NUMBER OF SHARES
----------------
2000 1999 2000 1999
M M L M L M
------ ------ ----- -----
Authorised:
Ordinary shares of 50p each....................... 2,250 2,250 1,125 1,125
----- ----- ----- -----
Allotted, issued and fully paid:
Ordinary shares of 50p each....................... 1,496 1,493 748 746
----- ----- ----- -----
ntl (CWC) was listed on the London and New York Stock exchanges on April
28, 1997, when 1,489,253,555 shares were issued to acquire Bell Cablemedia and
NYNEX CableComms with a further 102,707 being issued on offer acceptances
received post-listing.
F-20
21
Allotments of ordinary shares of 50p each during the year to March 31, 2000
were as follows:
GROSS
NUMBER CONSIDERATION
OF SHARES RECEIVED
ALLOTTED L
--------- -------------
Bell Cablemedia plc Savings-Related Share Option Plan
1994...................................................... 20,135 59,781
Bell Cablemedia plc No 1 Executive Share Option Plan 1994... 13,944 41,521
Bell Cablemedia plc No 2 Executive Share Option Plan 1994... 26,902 78,089
3.5% Bell Cablemedia plc unsecured convertible loan notes
due 2001.................................................. 46,242 --
5% Bell Cablemedia unsecured convertible loan notes due 1995
(extended)................................................ 2,815,385 --
NYNEX CableComms Employees Share Option Plan................ 252,250 940,388
NYNEX CableComms Savings-Related Share Option Plan 1995..... 7,309 22,080
NYNEX CableComms Savings-Related Share Option Plan 1996..... 36,916 85,867
--------- ---------
3,219,083 1,227,726
========= =========
Allotments of ordinary shares of 50p each during the year to March 31, 1999
were as follows:
GROSS
NUMBER CONSIDERATION
OF SHARES RECEIVED
ALLOTTED L
--------- -------------
Bell Cablemedia plc Savings-Related Share Option Plan
1994...................................................... 36,041 107,006
Bell Cablemedia plc No. 1 Executive Share Option Plan
1994...................................................... 137,199 394,646
Bell Cablemedia plc No. 2 Executive Share Option Plan
1994...................................................... 254,974 731,162
3.5% Bell Cablemedia plc unsecured convertible loan notes
due 2001.................................................. 9,366 --
NYNEX CableComms Employees Share Option Plan................ 2,373,139 8,847,066
NYNEX CableComms Savings-Related Share Option Plan 1995..... 29,098 87,905
NYNEX CableComms Savings-Related Share Option Plan 1996..... 46,218 107,504
--------- ----------
2,886,035 10,275,289
========= ==========
At March 31, 2000, capital instruments which were convertible into ordinary
shares of ntl (CWC) were as follows:
PRINCIPAL PROJECTED
AMOUNT NUMBER PERIOD OF
L OF SHARES CONVERSION
--------- --------- ----------
5% unsecured convertible loan notes due 1995
(extended)...................................... 1,925,000 826,303 1999-2001
3.5% unsecured convertible loan notes due 2001.... 57,564 23,086 1999-2001
========= ======= =========
Both loan notes are convertible at the option of the holders.
22 RESERVES
SHARE OTHER
PREMIUM RESERVES
L M L M
------- --------
At April 1, 1999.......................................... 9 (1,034)
Gross premiums on shares allotted......................... 8 --
Amortisation of issue costs relating to capital
instruments............................................. -- --
Loss for the financial year............................... -- (165)
Other movements........................................... -- --
-- ------
At March 31, 2000......................................... 17 (1,199)
== ======
F-21
22
23 FINANCIAL INSTRUMENTS
CWC ConsumerCo, through the ntl (CWC) group, holds or issues financial
instruments to finance its operations and to manage the interest rate and
currency risks arising from its sources of finance. In addition, various
financial assets and liabilities, for example, trade debtors, trade creditors,
accruals and prepayments, arise directly from operations. CWC ConsumerCo has
taken advantage of the exemption available to exclude short term debtors and
creditors from disclosures of financial assets and liabilities. Disclosure
focuses on those financial instruments which play a significant medium to long
term role in the financial risk profile.
CWC ConsumerCo, through the ntl (CWC) group finances its operations by a
mixture of bank borrowings and other long term debt. The ntl (CWC) group borrows
in the major debt markets in Sterling and US dollars at both fixed and floating
rates of interest, using derivatives where appropriate to generate the desired
effective currency profile and interest rate basis. The derivatives used for
this purpose are principally interest rate swaps and cross currency swaps.
The main risks arising from financial instruments are interest rate risk
and currency risk.
Finance and Interest Rate Risk
CWC ConsumerCo, through the ntl (CWC) group's exposure to interest rate
fluctuations on its borrowings and deposits is managed by using interest rate
swaps and forward rate agreements (FRAs). The minimum proportion fixed is higher
in the near term than in the longer term, with the aim of reducing the
volatility of short term interest costs whilst maintaining the opportunity to
benefit from the movements in longer term rates. The interest rate profile of
the financial liabilities, after taking account of interest rate swaps, FRAs and
cross currency swaps, of CWC ConsumerCo as at March 31, 2000 and 1999 was:
2000 1999
STERLING STERLING
L M L M
-------- --------
Floating rate financial liabilities........................ 1,492 117
Fixed rate financial liabilities........................... 2,131 2,828
----- -----
Total...................................................... 3,623 2,945
===== =====
Fixed rate financial liabilities
Weighted average interest rate(%)........................ 6.9% 7.1%
Weighted average period for which rate is fixed
(years)............................................... 5 6
===== =====
In addition to swaps, further protection from interest rate movements will
be provided by interest rate collars on Pound Sterling 700 million for 3 years
from July 15, 1999. These start when the last FRAs mature and at this stage the
weighted average interest rate is expected to fall further.
CWC ConsumerCo held the following financial assets as part of its financing
arrangements at March 31, 2000:
L M
---
Sterling.................................................... 87
==
Liquidity Risk
CWC ConsumerCo, through ntl (CWC) group treasury operations, manages
borrowings with respect to both interest and financing risk. Accordingly there
are a range of maturities of debt from one year to 17 years. Financial
flexibility is provided via the Pound Sterling 1,500 million revolving facility,
of which Pound Sterling 1,000 million is for five years and Pound Sterling 500
million for 364 days. At the 2000 year end Pound Sterling 700 million was drawn
under the five year facility and Pound Sterling 350 million was drawn under the
364 day facility.
F-22
23
The maturity profile of financial liabilities, other than short term
creditors such as trade creditors and accruals, at March 31, 2000 and 1999 was:
2000 1999
L M L M
---- ----
Finance lease obligations are repayable as follows:
Within one year............................................. 7 6
Between one and two years................................... 8 6
Between two and five years.................................. 31 28
In five or more years....................................... 61 74
--- ---
107 114
=== ===
All finance lease obligations were settled upon acquisition by NTL on May
30, 2000 and replaced with group financing.
2000 1999
L M L M
----- -----
Loans and Notes are repayable as follows:
Within one year............................................. 543 29
Between one and two years................................... 6 4
Between two and five years.................................. 1,854 1,541
In five or more years....................................... 1,113 1,257
----- -----
3,516 2,831
===== =====
All loans and notes were settled prior to, or upon, acquisition by NTL on
May 30, 2000 and replaced with group financing.
The maturity profile of the CWC ConsumerCo's undrawn committed borrowing
facilities at March 31, 2000 was:
2000 1999
L M L M
---- ----
Within one year............................................. 150 500
Greater than two years...................................... 40 225
--- ---
190 725
=== ===
F-23
24
Fair Values of Financial Assets and Liabilities
The estimated fair value of CWC ConsumerCo's financial instruments are
summarised below:
2000
----------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
L M L M
-------- ----------
Primary Financial Instruments Held or Issued to Finance
Operations:
Long Term Debt........................................... (3,075) (3,127)
------ ---------
Cash and short term deposits............................. 87 87
Derivative financial instruments held to manage the
interest rate and currency profile
Interest rate swaps -- assets............................ -- 9
Interest rate swaps -- (liabilities)..................... -- --
INTEREST RATE COLLARS -- ASSETS.......................... -- 5
------ ---------
INTEREST RATE COLLARS -- (LIABILITIES)................... -- --
------ ---------
CROSS CURRENCY SWAPS -- ASSETS........................... -- --
------ ---------
Cross currency swaps -- (liabilities).................... -- (48)
------ ---------
1999
----------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
L M L M
-------- ----------
Primary Financial Instruments Held or Issued to Finance
Operations:
Long Term Debt........................................... (2,911) (2,962)
------ ------
Cash and short term deposits............................. 127 127
Derivative financial instruments held to manage the
interest rate and currency profile
Interest rate swaps -- assets............................ -- --
Interest rate swaps -- (liabilities)..................... -- (76)
INTEREST RATE COLLARS -- ASSETS.......................... -- --
------ ------
INTEREST RATE COLLARS -- (LIABILITIES)................... -- (8)
------ ------
CROSS CURRENCY SWAPS -- ASSETS........................... -- 38
------ ------
Cross currency swaps -- (liabilities).................... -- (17)
====== ======
Cash at Bank and in Hand, Account Receivable, Account Payable, Short Term
Borrowings and Current Investment Liabilities.
The carrying value approximates fair value either because of the short
maturity of the instruments or because the interest rate on investments is reset
after periods not greater than six months.
Long Term Borrowings
The fair value is based on quoted market prices or, where these are not
available, on the quoted market prices of comparable debt issued by other
companies.
Interest Rate Swaps, Collars and Currency Swaps
The fair value of interest rate and currency swaps is the estimated amount
which CWC ConsumerCo, through the ntl (CWC) group, expects to pay or receive on
the termination of the agreement, taking into
F-24
25
consideration current interest rates and the current credit worthiness of the
counterparties. The nominal value of the interest rate and currency swaps at
March 31, 2000 was Pound Sterling 2,898 million (1999: Pound Sterling 2,935
million). The nominal value of the interest rate collars at March 31, 2000 was
Pound Sterling 700 million (1999: Pound Sterling 700 million).
Currency Risk
CWC ConsumerCo, through the ntl (CWC) group has significant sources of
finance denominated in US dollars which have been hedged back into sterling
using cross currency swaps.
Gains and losses on instruments used for hedging are not recognised until
the exposure that is being hedged is itself recognised. Unrecognised gains and
losses on the instruments used for hedging, and the movements thereon are as
follows as at March 31, 2000:
GAINS LOSSES TOTAL
L M L M L M
----- ------ -----
Unrecognised gains and losses on hedges
As at April 1, 1999......................................... 38 (101) (63)
--- ---- ---
Gains and losses arising before April 1, 1999 that were not
recognised in the year.................................... 38 (101) (63)
Gains and losses arising in the year that were not
recognised in the year.................................... (24) 53 29
--- ---- ---
Unrecognised gains and losses on hedges at March 31, 2000... 14 (48) (34)
--- ---- ---
Gains and losses expected to be realised in 2000............ 14 (48) (34)
Gains and losses expected to be realised in 2001 or later... -- -- --
--- ---- ---
14 (48) (34)
=== ==== ===
24 COMMITMENTS
The amount of capital expenditure, excluding that relating to the IT
outsource, authorised by CWC ConsumerCo, for which no provision has been made in
the consolidated financial information is as follows:
2000 1999
L M L M
---- ----
Contracted.................................................. 86 180
== ===
CWC ConsumerCo, through the ntl (CWC) group, is also contracted to IBM
under the IT outsource agreement. At March 31, 2000, the total outstanding
commitment was Pound Sterling 1.3 billion which was shared equally between CWC
ConsumerCo and CWC DataCo in accordance with the Transaction Agreement for a 10
year period against which the security deposit is offset throughout the term of
the contract (1999: Pound Sterling 1.5 billion, 1998: Pound Sterling nil).
25 CONTINGENT LIABILITIES
There are no contingent liabilities at March 31, 2000.
F-25
26
26 LEASES
Operating lease commitments payable in the following year, analysed
according to the period in which each lease expires are as follows:
2000 1999
L M L M
---- ----
LAND AND BUILDINGS
Expiring within one year.................................... -- --
Expiring in years two to five............................... 1 --
Expiring thereafter......................................... 5 7
-- --
6 7
-- --
OTHER ASSETS
Expiring within one year.................................... 1 1
Expiring in years two to five............................... 3 --
Expiring thereafter......................................... -- --
-- --
4 1
== ==
27 RECONCILIATION OF OPERATING (LOSS) PROFIT TO NET CASH (OUTFLOW) INFLOW FROM
OPERATING ACTIVITIES
2000 1999 1998
L M L M L M
---- ---- ----
Operating (loss)/profit..................................... (13) 45 60
Depreciation and amortisation............................... 156 135 103
Decrease in non refundable receipts from receivables
securitisation............................................ (33) 1 61
Increase in debtors......................................... 32 (21) (29)
Decrease in creditors....................................... (231) 60 191
---- --- ---
Net cash (outflow)/inflow from operating activities before
fundamental reorganisation and IT outsource costs......... (89) 220 386
Outflow relating to fundamental reorganisation.............. (6) (28) (30)
Outflow relating to IT outsource transition costs........... -- (13) --
---- --- ---
Net cash (outflow)/inflow from operating activities......... (95) 179 356
==== === ===
28 CASH INFLOW FROM ACQUISITIONS AND DISPOSALS
The analysis of net inflow of cash in respect of the acquisition and
disposal of subsidiaries is as follows:
2000 1999 1998
L M L M L M
---- ---- ----
Acquisition of subsidiaries................................. -- (4) --
Share issue costs........................................... -- -- (49)
Cash acquired with subsidiaries............................. -- 4 137
-- -- ---
Net cash inflow from acquisition............................ -- -- 88
Disposal of business........................................ -- 4 --
== == ===
Net cash inflow from acquisitions and disposals............. -- 4 88
== == ===
F-26
27
29 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
2000 1999 1998
L M L M L M
------ ------ ------
(Decrease) increase in cash in the period................... (40) (102) 144
Cash outflow resulting from debt and lease financing........ (706) (331) (378)
------ ------ ------
Changes in net debt resulting from cash flows............... (746) (433) (234)
Other movements............................................. 12 7 --
Acquisition of subsidiaries................................. -- -- (2,197)
Inception of finance lease contracts........................ -- -- (30)
------ ------ ------
Movement in net debt in the period.......................... (734) (426) (2,461)
Net (debt) funds at April 1................................. (2,802) (2,376) 85
------ ------ ------
Net debt at March 31........................................ (3,536) (2,802) (2,376)
====== ====== ======
30 ANALYSIS OF CHANGES IN NET DEBT
AT AT AT
APRIL 1, CASH OTHER APRIL 1, CASH OTHER MARCH 31,
1998 FLOW MOVEMENTS 1999 FLOW MOVEMENTS 2000
L M L M L M L M L M L M L M
-------- ---- --------- -------- ---- --------- ---------
Cash at bank and in hand............. 229 (102) -- 127 (40) -- 87
------ ---- -- ------ ---- -- ------
Debt due within one year............. (28) 10 -- (18) (541) 9 (550)
Debt due after more than one year.... (2,577) (341) 7 (2,911) (165) 3 (3,073)
------ ---- -- ------ ---- -- ------
Total debt........................... (2,605) (331) 7 (2,929) (706) 12 (3,623)
------ ---- -- ------ ---- -- ------
Total net (debt) cash................ (2,376) (433) 7 (2,802) (746) 12 (3,536)
====== ==== == ====== ==== == ======
31 ACQUISITIONS AND DISPOSALS
Acquisitions
On July 28, 1998, CWC ConsumerCo, through ntl (CWC) subscribed for shares
representing 50.1% of the enlarged ordinary share capital of Two Way TV Limited
for Pound Sterling 13 million.
For Two Way TV Limited the fair value of assets and liabilities acquired,
together with the fair value of consideration paid (including acquisition costs)
is set out below:
1999
----------------------------------
CWC
BOOK FAIR VALUE CONSUMERCO
VALUE ADJUSTMENTS FAIR VALUE
L M L M L M
----- ----------- ----------
NET ASSETS ACQUIRED:
Tangible fixed assets........................ 1 -- 1
Stocks....................................... -- -- --
Debtors...................................... 9 -- 9
Cash......................................... 4 -- 4
Creditors: amounts falling due within one
year....................................... (2) -- (2)
Creditors: amounts falling due after one
year....................................... (1) -- (1)
Provisions................................... -- (3) (3)
Minority interest............................ (4) -- (4)
-- -- --
7 (3) 4
Goodwill..................................... 9
-- -- --
Fair value of consideration.................. 16 (3) 13
-- -- --
F-27
28
1999
----------------------------------
CWC
BOOK FAIR VALUE CONSUMERCO
VALUE ADJUSTMENTS FAIR VALUE
L M L M L M
----- ----------- ----------
SATISFIED BY:
Cash......................................... 4
Deferred cash consideration.................. 9
== == ==
On April 28, 1997 CWC ConsumerCo, through ntl (CWC) acquired 100% of Bell
Cablemedia, as enlarged by its acquisition of Videotron, and 100% of NYNEX
CableComms. This transaction has been accounted for under the acquisition
method. The consideration comprised Pound Sterling 2 billion in shares.
For the acquisition of Bell Cablemedia and NYNEX CableComms the fair value
of assets and liabilities acquired, together with the fair value of
consideration paid (including acquisition costs) is set out below:
1998
-----------------------------------------------------
ACCOUNTING
FAIR VALUE POLICY
BOOK VALUE ADJUSTMENTS ALIGNMENT FAIR VALUE
L M L M L M L M
---------- ----------- ---------- ----------
NET ASSETS ACQUIRED:
Intangible fixed assets........................ 517 -- (517) --
Tangible fixed assets.......................... 2,371 (194) -- 2,177
Debtors........................................ 144 (36) -- 108
Cash and cash equivalents...................... 137 -- -- 137
Borrowings..................................... (2,000) (197) -- (2,197)
Creditors: amounts falling due within one
year......................................... (139) (26) -- (165)
Provisions..................................... -- (48) -- (48)
Minority interests............................. (13) -- -- (13)
------ ---- ---- ------
............................................... 1,017 (501) (517) (1)
Goodwill....................................... 2,006
------ ---- ---- ------
Fair value of consideration
SATISFIED BY:
Shares allotted................................ 2,005
Cash........................................... --
------ ---- ---- ------
............................................... 2,005
====== ==== ==== ======
Bell Cablemedia held Pound Sterling 517 million of goodwill in its balance
sheet arising principally on its acquisition of Videotron. This amount has been
written off directly to reserves in accordance with CWC ConsumerCo policy in
1998.
The principal fair value adjustments were:
- An adjustment for Pound Sterling 129 million to write-down analogue
set-top boxes and head-end equipment, Pound Sterling 31 million for
property and IT systems and Pound Sterling 34 million of other fixed
assets;
- An adjustment to write off deferred financing costs and arrangement fees
of Pound Sterling 58 million, Pound Sterling 25 million of which were
classified in debtors and Pound Sterling 33 million in borrowings;
- An adjustment of Pound Sterling 164 million to borrowings to restate the
high yield debt obligations of Bell Cablemedia at their fair value;
F-28
29
- An adjustment to provide for onerous contracts of Pound Sterling 48
million, including programming costs, future commitments to purchase
analogue set-top boxes, property and other items;
- Other adjustments of Pound Sterling 37 million relating to other assets
and liabilities.
The fair value of assets and liabilities acquired on each of the
significant acquisitions is set out below:
FAIR VALUE
BOOK VALUE ADJUSTMENTS FAIR VALUE
NYNEX CABLECOMMS: L M L M L M
----------------- ---------- ----------- ----------
Tangible fixed assets............................. 1,158 (60) 1,098
Debtors........................................... 66 (27) 39
Cash.............................................. 5 -- 5
Borrowings........................................ (615) -- (615)
Creditors: amounts falling due within one year.... (28) (5) (33)
Provisions........................................ -- (23) (23)
----- ---- -----
586 (115) 471
===== ==== =====
ACCOUNTING
FAIR VALUE POLICY
BOOK VALUE ADJUSTMENTS ALIGNMENT FAIR VALUE
BELL CABLEMEDIA: L M L M L M L M
---------------- ---------- ----------- ---------- ----------
Intangible fixed assets............... 517 -- (517) --
Tangible fixed assets................. 1,214 (133) -- 1,081
Debtors............................... 78 (9) -- 69
Cash.................................. 132 -- -- 132
Borrowings............................ (1,385) (197) -- (1,582)
Creditors: amounts falling due within
one year............................ (111) (21) -- (132)
Provisions............................ -- (26) -- (26)
Minority interests.................... (13) -- -- (13)
------ ---- ---- ------
432 (386) (517) (471)
====== ==== ==== ======
The summarised results of CWC ConsumerCo's material acquisitions through
ntl (CWC) from the end of the previous financial year to the date of acquisition
by ntl (CWC) were as follows:
NYNEX
BELL CABLEMEDIA CABLECOMMS
JAN 1, 1997 TO JAN 1, 1997 TO
APRIL 28, 1997 APRIL 28, 1997
L M L M
--------------- --------------
Turnover................................................. 35 63
Operating loss........................................... (27) (24)
Loss before tax.......................................... (56) (33)
Taxation................................................. -- 7
Loss after tax........................................... (56) (26)
Minority interests....................................... -- --
Loss attributable to shareholders........................ (56) (26)
=== ===
There were no recognised gains and losses in these periods other than the
losses attributable to shareholders. The table below gives summarised financial
information for the CWC ConsumerCo's material acquisitions for their full
financial year prior to acquisition.
F-29
30
NYNEX
BELL CABLEMEDIA CABLECOMMS
YEAR ENDED YEAR ENDED
DEC 31, 1996 DEC 31, 1996
L M L M
--------------- ------------
Loss after tax................................... (96) (74)
Minority interests............................... -- 11
=== ===
32 SUBSEQUENT EVENTS
Certain key transaction steps have taken place subsequent to the balance
sheet date, as detailed below.
Following the announcement of the clearance by the Secretary of State of
France Telecom's investment in NTL on May 10, 2000, all necessary conditions to
the ntl (CWC) Scheme of Arrangement which forms part of the Transaction were
satisfied.
With effect from close of trading on May 11, 2000, the listing of ntl (CWC)
shares on the London Stock Exchange was cancelled. On May 12, 2000, the ntl
(CWC) Scheme became effective. As part of the Scheme, all of the existing ntl
(CWC) shares were cancelled and the resulting credit in the books of ntl (CWC)
was applied in issuing paid up in full, new ntl (CWC) shares to Cable & Wireless
Communications (Holdings) plc. Consequently, Cable & Wireless Communications
(Holdings) plc has become the immediate parent undertaking of ntl (CWC). ntl
(CWC) shareholders who were on the register of ntl (CWC) at the Dealings Record
Time were issued with shares in Cable & Wireless Communications (Holdings) plc
in proportion to their cancelled holdings of ntl (CWC) shares. In addition, ntl
(CWC) has been re-registered as a private company.
On May 12, 2000, the ntl (CWC) issued a 30 day redemption notice to the
Yankee Bondholders and deposited redemption monies with the Trustee of the
Yankee Bonds. On May 13, 2000, CWC DataCo was transferred to Cable & Wireless
Communications (Holdings) plc.
On May 24, 2000, ntl exercised the option granted to it by Cable and
Wireless plc, required for completion of the Transaction, which took place on
May 30, 2000. Following completion, ntl became the ultimate parent undertaking
of the ntl (CWC).
On June 13, 2000 the Cable & Wireless Communications changed its name to
ntl (CWC) Limited.
33 RELATED PARTY TRANSACTIONS
Transactions With Affiliates
Cable and Wireless and Bell Atlantic Corporation are considered related
parties on the basis of their equity shareholdings in ntl (CWC) which at April
30, 2000 amounted to 52.73% (1999: 52.84%) and 18.55% (1999: 18.59%)
respectively.
During the period CWC ConsumerCo had the following transactions with Cable
and Wireless:
2000 1999 1998
NOTE L M L M L M
---- ---- ---- ----
Interest payable......................................... -- -- (1)
Contribution towards group development programme......... (i) (1) (1) (1)
Management service charge payable........................ (ii) -- (1) (3)
Net lease payments on property........................... (iii) (1) (1) --
== == ==
All transactions with CWC DataCo undertakings are on commercial terms.
F-30
31
Notes:
(i) Cable and Wireless undertakes a number of development programmes which are
of benefit to its subsidiary undertakings. CWC ConsumerCo makes
contributions for its share of the cost of these development programmes.
(ii) Management service charges cover the provision of technical training,
marketing, taxation, internal audit and treasury services and other
professional advice.
(iii) This relates to office space in properties rented from Cable and Wireless.
Other CWC ConsumerCo Transactions as Part of the NTL (CWC) Group
In the year ended March 31, 1998 CWC ConsumerCo, through the ntl (CWC)
group had transactions with Bell Canada International Telecommunications
Holdings relating to the transfer of consortium relief. The balance due to Bell
Canada International Telecommunication Holdings at March 31, 1998 was Pound
Sterling 3 million.
CWC ConsumerCo, through ntl (CWC) had an interconnect agreement with
Mercury Personal Communications, trading as One2One, a partnership in which
Cable and Wireless until October 1999 had a 50% interest. The agreement covers
the carrying of traffic on each party's respective networks. During the year
ended March 31, 1998, revenues from One2One were Pound Sterling 30 million and
purchases were Pound Sterling 41 million.
CWC ConsumerCo, through ntl (CWC) reinsures its health care claims fund
through Pender Insurance Ltd, a wholly owned subsidiary company of Cable and
Wireless. The cost of this arrangement is Pound Sterling 3.5 million.
NTL (CWC) Shareholders' Agreement
On March 21, 1997, Cable and Wireless, Bell Canada International
Telecommunication Holdings, Bell Atlantic, together the Shareholder Companies,
and ntl (CWC) entered into an agreement setting out the terms of the
relationship among them in respect of ntl (CWC). Under this agreement, the
Shareholder Companies have agreed that their group members will enter into
contracts with ntl (CWC) only on a normal commercial basis and on arms' length
terms.
Management and Technical Services Agreement
The Shareholder Companies and ntl (CWC) entered into a management and
technical services agreement under which each of the Shareholder Companies
provide various services to ntl (CWC) at ntl (CWC)' request, including tax,
legal, internal audit, treasury and corporate finance and human resource
services. The services which may be provided by ntl (CWC) to each of the
Shareholder Companies include payroll and accounting, car fleet management and
VAT services. The terms and conditions of any services requested will be
negotiated and agreed on an arm's length basis.
Secondment Agreement
The Shareholder Companies and ntl (CWC) have also entered into the
Secondment Agreement pursuant to which each of the Shareholder Companies, on the
one hand, and ntl (CWC), on the other hand, will, subject to certain conditions,
be able to second their employees or employees of their subsidiary undertakings
to each other, respectively, or to companies within their respective groups. The
fee for any such secondment will broadly be based on the employee's salary,
remuneration and other benefits paid or provided to the employee by the
providing company.
Tax Agreements
Under the Tax Sharing Agreement entered into on March 21, 1997 between the
Shareholder Companies and ntl (CWC) i) the tax affairs of ntl (CWC) will be
managed on a 'stand alone' basis; ii) dividends paid by
F-31
32
ntl (CWC) will be paid outside of any election under Section 247 of the Income
and Corporation Tax Act 1988; iii) Cable and Wireless will be entitled to
surrender, but did not in the year ended March 31, 1999, to ntl (CWC) ACT to the
fullest extent permitted by law (such surrender to be for payment); iv) the
shareholders will consider proposals to structure such surrenders in such a way
as to reduce the tax disadvantage for Bell Atlantic; v) ntl (CWC) will make, at
the request of Bell Atlantic, certain elections with regard to its subsidiaries
for the purposes of reducing US tax disadvantages to Bell Atlantic, unless such
elections would have a detrimental effect on the affairs of ntl (CWC), its
subsidiaries, or the other shareholders; vi) ntl (CWC) will consult generally
with the shareholders regarding its tax affairs.
Cable and Wireless Licence
Cable and Wireless has granted ntl (CWC) the right to use the 'Cable &
Wireless', 'C&W' and Globe Device trade marks (together with other trade marks
relating to Cable and Wireless products previously offered by Mercury) in the
United Kingdom on a royalty free basis.
34 PRINCIPAL OPERATING SUBSIDIARY UNDERTAKINGS
COUNTRY OF
SUBSIDIARY INCORPORATION HOLDING PRINCIPAL ACTIVITIES
- ---------- ------------- ------- --------------------
ntl (Aylesbury and Chiltern)
Limited..................... UK 100% Cable TV and telecommunications provider
ntl (Broadland) Limited....... UK 100% Cable TV and telecommunications provider
ntl (County Durham) Limited... UK 100% Cable TV and telecommunications provider
ntl (Ealing) Limited.......... UK 100% Cable TV and telecommunications provider
ntl (Fenland) Limited......... UK 100% Cable TV and telecommunications provider
ntl (Greenwich and Lewisham)
Limited..................... UK 100% Cable TV and telecommunications provider
ntl (Hampshire) Limited....... UK 100% Cable TV and telecommunications provider
ntl (Harrogate) Limited....... UK 100% Cable TV and telecommunications provider
ntl (Harrow) Limited.......... UK 100% Cable TV and telecommunications provider
ntl (Kent) Limited............ UK 100% Cable TV and telecommunications provider
ntl (Lambeth and Southwark)
Limited..................... UK 100% Cable TV and telecommunications provider
ntl (Leeds) Limited........... UK 100% Cable TV and telecommunications provider
ntl Wirral Telephone and Cable
TV Company.................. UK 100% Cable TV and telecommunications provider
ntl (Norwich) Limited......... UK 100% Cable TV and telecommunications provider
ntl (Peterborough) Limited.... UK 100% Cable TV and telecommunications provider
ntl (Southampton and
Eastleigh) Limited.......... UK 100% Cable TV and telecommunications provider
ntl (South East) Limited...... UK 100% Cable TV and telecommunications provider
ntl (South Hertfordshire)
Limited..................... UK 33.3% Cable TV and telecommunications provider
ntl (South London) Limited.... UK 100% Cable TV and telecommunications provider
ntl (Thamesmead) Limited...... UK 100% Cable TV and telecommunications provider
ntl (Wandsworth) Limited...... UK 100% Cable TV and telecommunications provider
ntl (Wearside) Limited........ UK 100% Cable TV and telecommunications provider
ntl (West London) Limited..... UK 100% Cable TV and telecommunications provider
F-32
33
COUNTRY OF
SUBSIDIARY INCORPORATION HOLDING PRINCIPAL ACTIVITIES
- ---------- ------------- ------- --------------------
ntl (York) Limited............ UK 100% Cable TV and telecommunications provider
ntl CableComms Bolton......... UK 100% Cable TV and telecommunications provider
ntl CableComms Bromley........ UK 100% Cable TV and telecommunications provider
ntl CableComms Bury and
Rochdale.................... UK 100% Cable TV and telecommunications provider
ntl CableComms Cheshire....... UK 100% Cable TV and telecommunications provider
ntl CableComms Derby.......... UK 100% Cable TV and telecommunications provider
ntl CableComms East
Lancashire.................. UK 100% Cable TV and telecommunications provider
ntl CableComms Greater
Manchester.................. UK 100% Cable TV and telecommunications provider
ntl CableComms Macclesfield... UK 100% Cable TV and telecommunications provider
ntl CableComms Oldham and
Tameside.................... UK 100% Cable TV and telecommunications provider
ntl CableComms Solent......... UK 100% Cable TV and telecommunications provider
ntl CableComms
Staffordshire............... UK 100% Cable TV and telecommunications provider
ntl CableComms Stockport...... UK 100% Cable TV and telecommunications provider
ntl CableComms Surrey......... UK 100% Cable TV and telecommunications provider
ntl CableComms Sussex......... UK 100% Cable TV and telecommunications provider
ntl CableComms Wessex......... UK 100% Cable TV and telecommunications provider
ntl CableComms Wirral......... UK 100% Cable TV and telecommunications provider
ntl (CWC) Programming
Limited..................... UK 100% Cable programming company
ntl Communications Services
Limited..................... UK 100% Management company
Two Way TV Limited............ UK 50.1% Development company
35 SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
Basis of Preparation
CWC ConsumerCo has prepared its combined financial statements in accordance
with generally accepted accounting principles in the United Kingdom which differ
in certain material respects from US generally accepted accounting principles.
The significant differences relate principally to the following items and the
adjustments necessary to restate net loss and shareholders' equity in accordance
with US generally accepted accounting principles are shown below.
a) Goodwill
Under UK generally accepted accounting principles, goodwill arising on
acquisitions before April 1, 1998 is eliminated directly against reserves.
Goodwill arising on acquisitions after April 1, 1998 is capitalised and
amortised through the profit and loss account over the Directors' estimate of
its useful economic life, which may be up to 20 years. Under US generally
accepted accounting principles goodwill is capitalised and amortised by charges
against income up to 20 years.
b) Deferred Tax
Under UK generally accepted accounting principles, provision is made for
deferred taxation only when there is a reasonable probability that the liability
will arise in the foreseeable future. US generally accepted
F-33
34
accounting principles requires full provision for deferred income taxes under
the liability method on all temporary differences and, if required, a valuation
allowance is established to reduce gross deferred tax assets to the amount which
is likely to be realised.
c) Prematurity
Under US generally accepted accounting principles, depreciation of costs in
the period between the completion of a portion of the network and the time that
expected subscriber numbers are achieved (the prematurity period) are determined
in accordance with SFAS 51, "Financial Reporting by Cable Television Companies".
This requires that depreciation and capitalisation during the prematurity period
be determined by reference to the ratio of the greater of i) the average number
of customers expected that month as estimated at the beginning of the
prematurity period; ii) the average number of customers that would be attained
using at least equal, that is, straight line, monthly progress in adding new
customers towards the estimate of customers at the end of the prematurity
period; and iii) the average number of actual customers -- to the estimated
number of customers at the end of the prematurity period. CWC
ConsumerCo follows policies which, because the size of the portion of the
network tracked is significantly smaller than a "portion" under SFAS 51, result
in no material difference to applying SFAS 51.
Under UK generally accepted accounting principles interest on borrowings
used to finance construction of the network is capitalized until that portion of
the network is completed, hence no interest on borrowings that continue to
finance completed portions of the network in the prematurity period is
capitalised. However, US generally accepted accounting principles allow such
interest to continue to be capitalised in the prematurity period.
d) Cash Flows
The Cash Flow Statement is prepared in accordance with the UK Financial
Reporting Standard No. 1 Revised, Cash Flow Statements, referred to as FRS 1
Revised, for UK generally accepted accounting principles reporting. Its
objective and principles are similar to those set out in Statement of Financial
Accounting Standard (SFAS) 95, "Statement of Cash Flows". The principal
difference between the standards is in respect of classification. Under FRS 1
Revised, CWC ConsumerCo presents its combined cash flows for: operating
activities; returns on investments and servicing of finance; taxation; capital
expenditure and financial investment; acquisitions and disposals; equity
dividends paid; and financing. SFAS 95 requires only three categories of cash
flow activity; operating; investing and financing.
Cash flows arising from taxation and returns on investments and servicing
of finance under FRS 1 Revised would, with the exception of dividends paid, be
included as operating activities under SFAS 95; dividend payments would be
included as a financing activity under SFAS 95. Under FRS 1 Revised, cash is
defined as cash in hand and deposits repayable on demand, short term deposits
which are readily convertible into known amounts of cash at or close to their
carrying value are classified as liquid resources. SFAS 95 defines cash and cash
equivalents as cash in hand and short term highly liquid investments with
original maturities of three months or less. Cash flows in respect of short term
deposits with original maturities exceeding three months are included in
investing activities under SFAS 95 and are included in capital expenditure and
financial investments under FRS 1 Revised.
e) Debt
On May 12, 2000, CWC ConsumerCo issued a 30 day redemption notice to Yankee
Bondholders and deposited redemption monies with the Trustee of the Yankee
Bonds. This debt was treated as long term under UK GAAP. However, in accordance
with US GAAP, CWC ConsumerCo had committed to pay the monies prior to release of
these financial statements, therefore this debt is classified as current.
F-34
35
The effects of these different accounting principles are as follows:
An exchange rate of US$1.63 has been used to translate sterling to US
dollars. Such translations are for convenience only and should not be construed
as representations that the sterling amounts have been converted into US dollars
at that or any other rate.
RECONCILIATION OF UK/US GAAP
RECONCILIATION OF UK/US GAAP -- NET LOSS
2000 2000 1999
$M L M L M
---- ---- ----
NET LOSS AS REPORTED UNDER UK GAAP.......................... (269) (165) (135)
US GAAP ADJUSTMENTS:
Amortisation of goodwill.................................... (165) (101) (101)
Capitalisation of Prematurity Interest...................... 7 4 --
Deferred Tax................................................ (18) (11) --
---- ---- ----
NET LOSS UNDER US GAAP...................................... (445) (273) (236)
==== ==== ====
RECONCILIATION OF UK/US GAAP -- SHAREHOLDERS' EQUITY
2000 2000 1999
$M L M L M
----- ----- -----
SHAREHOLDERS' EQUITY AS REPORTED UNDER UK GAAP.............. (707) (434) (279)
Goodwill.................................................... 2,799 1,717 1,818
Capitalisation of Prematurity Interest...................... 7 4 --
Deferred Tax................................................ (18) (11) --
----- ----- -----
SHAREHOLDERS' EQUITY UNDER US GAAP.......................... 2,081 1,276 1,539
===== ===== =====
COMBINED STATEMENT OF CASH FLOWS UNDER US GAAP
2000 2000 1999
$M L M L M
------ ---- ----
Net cash (used) provided by operating activities............ (31) (19) (223)
Net cash used in investing activities....................... (1,133) (695) (234)
Net cash provided by financing activities................... 1,099 674 355
------ ---- ----
NET CHANGE IN CASH UNDER US GAAP............................ (65) (40) (102)
====== ==== ====
F-35