1
EXHIBIT 99.1
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets -- December 31, 2000 and 1999... F-3
Consolidated Statements of Operations -- Years ended
December 31, 2000, 1999 and 1998.......................... F-4
Consolidated Statement of Shareholder's Equity -- Years
ended December 31, 2000, 1999 and 1998.................... F-5
Consolidated Statements of Cash Flows -- Years ended
December 31, 2000, 1999 and 1998.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
The following consolidated financial statement schedules of NTL
Communications Corp. and Subsidiaries are included herein:
Schedule I -- Condensed Financial Information of
Registrant................................................ F-28
Schedule II -- Valuation and Qualifying Accounts............ F-35
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and, therefore have been
omitted.
F-1
2
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholder
NTL Communications Corp.
We have audited the consolidated balance sheets of NTL Communications Corp.
and Subsidiaries as of December 31, 2000 and 1999, and the related consolidated
statements of operations, shareholder's equity and cash flows for each of the
three years in the period ended December 31, 2000. Our audits also included the
financial statement schedules listed in the Index at Exhibit 99.1. These
financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
NTL Communications Corp. and Subsidiaries at December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
/s/ Ernst & Young LLP
New York, New York
March 2, 2001
F-2
3
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
DECEMBER 31,
----------------------
2000 1999
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 423.5 $ 1,074.2
Marketable securities..................................... -- 5.0
Accounts receivable -- trade, less allowance for doubtful
accounts of $135.2 (2000) and $84.9 (1999)............. 527.4 286.9
Other..................................................... 389.2 73.7
--------- ---------
Total current assets........................................ 1,340.1 1,439.8
Fixed assets, net........................................... 10,916.8 5,348.4
Intangible assets, net...................................... 10,566.1 2,648.7
Other assets, net of accumulated amortization of $81.8
(2000) and $49.1 (1999)................................... 318.6 296.1
Deferred income taxes....................................... 4.9 --
--------- ---------
Total assets................................................ $23,146.5 $ 9,733.0
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable.......................................... $ 451.1 $ 212.7
Accrued expenses and other................................ 1,105.6 400.6
Accrued construction costs................................ 172.9 79.3
Due to affiliates......................................... 117.9 17.6
Interest payable.......................................... 127.6 69.1
Deferred revenue.......................................... 291.5 154.0
Current portion of long-term debt......................... 10.7 82.6
--------- ---------
Total current liabilities................................... 2,277.3 1,015.9
Long-term debt.............................................. 11,843.4 7,598.0
Other....................................................... 13.6 --
Commitments and contingent liabilities
Deferred income taxes....................................... -- 53.1
Shareholder's equity:
Common stock -- $.01 par value; authorized 100 shares;
issued and outstanding 12 (2000) and 100 (1999)
shares................................................. -- --
Additional paid-in capital................................ 13,746.7 3,031.3
Accumulated other comprehensive (loss) income............. (379.3) 1.8
(Deficit)................................................. (4,355.2) (1,967.1)
--------- ---------
9,012.2 1,066.0
--------- ---------
Total liabilities and shareholder's equity (deficiency)..... $23,146.5 $ 9,733.0
========= =========
See accompanying notes.
F-3
4
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS)
YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
--------- -------- -------
REVENUES
Consumer telecommunications and television.................. $ 1,518.2 $ 827.3 $ 355.6
Business telecommunications................................. 702.2 452.5 157.7
Broadcast transmission and other............................ 263.8 257.3 231.3
Other telecommunications.................................... -- -- 2.4
--------- -------- -------
2,484.2 1,537.1 747.0
COSTS AND EXPENSES
Operating expenses.......................................... 1,223.2 761.5 400.9
Selling, general and administrative expenses................ 969.1 562.9 270.7
Franchise fees.............................................. -- 16.5 25.0
Other charges............................................... 92.7 16.2 (4.2)
Corporate expenses.......................................... 23.7 25.3 17.1
Depreciation and amortization............................... 1,700.7 765.7 266.1
--------- -------- -------
4,009.4 2,148.1 975.6
--------- -------- -------
Operating (loss)............................................ (1,525.2) (611.0) (228.6)
OTHER INCOME (EXPENSE)
Interest income and other, net.............................. 1.6 29.9 46.0
Interest expense............................................ (886.3) (678.2) (328.8)
Other gains................................................. -- 493.1 --
Foreign currency transaction (losses) gains................. (58.1) 22.8 4.2
--------- -------- -------
(Loss) before income taxes and extraordinary item........... (2,468.0) (743.4) (507.2)
Income tax benefit.......................................... 79.9 29.9 3.3
--------- -------- -------
(Loss) before extraordinary item............................ (2,388.1) (713.5) (503.9)
Loss from early extinguishment of debt...................... -- (3.0) (30.7)
--------- -------- -------
Net (loss).................................................. $(2,388.1) $ (716.5) $(534.6)
========= ======== =======
See accompanying notes.
F-4
5
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
(DOLLARS IN MILLIONS)
SERIES PREFERRED
STOCK COMMON STOCK ACCUMULATED
$.01 PAR VALUE $.01 PAR VALUE ADDITIONAL OTHER
---------------- ------------------- PAID-IN COMPREHENSIVE COMPREHENSIVE
SHARES PAR SHARES PAR CAPITAL LOSS INCOME (LOSS) (DEFICIT)
--------- ---- ----------- ----- ---------- ------------- ------------- ---------
BALANCE, DECEMBER 31, 1997...... 780 $-- 32,210,000 $ 0.3 $ 538.1 $ 117.0 $ (717.1)
Exercise of stock options....... 298,000 -- 6.3
Exercise of warrants............ 70,000 -- 0.5
Accreted dividends on preferred
stock......................... (18.8)
Accretion of discount on
preferred stock............... (0.3)
Conversion of 7 1/4% Convertible
Subordinated Notes............ 6,958,000 0.1 186.9
Conversion of Series Preferred
Stock......................... (780) -- 1,950,000 -- --
Preferred stock issued for an
acquisition................... 177,000 -- 178.5
Common stock issued for an
acquisition................... 18,763,000 0.2 600.3
Warrants issued in connection
with consent solicitations.... 10.1
Comprehensive income:
Net loss for the year ended
December 31, 1998........... $ (534.6) (534.6)
Currency translation
adjustment.................. (12.3) (12.3)
---------
Total....................... $ (546.9)
-------- -- ----------- ----- --------- --------- ------- ---------
BALANCE, DECEMBER 31, 1998...... 177,000 -- 60,249,000 0.6 1,501.6 104.7 (1,251.7)
Exercise of stock options....... 432,000 -- 12.1
Exercise of warrants............ 15,000 -- --
Preferred stock issued for
cash.......................... 500,000 -- 483.8
Warrants issued for cash........ 16.2
Accreted dividends on preferred
stock......................... 4,000 (8.6)
Accretion of discount on
preferred stock............... --
Conversion of 7% Convertible
Subordinated Notes............ 1,000 -- --
Common stock issued for an
acquisition................... 12,705,000 0.1 971.3
Stock options issued in
connection with an
acquisition................... 6.6
Corporate restructuring......... (681,000) -- (73,401,900) (0.7) 405.6
Distribution to NTL
Incorporated.................. (500.0)
Contributions from NTL
Incorporated.................. 173.2
Distribution of subsidiary to
NTL Incorporated.............. (30.5) 1.1
Comprehensive income:
Net loss for the year ended
December 31, 1999........... $ (716.5) (716.5)
Currency translation
adjustment.................. (102.9) (102.9)
---------
Total....................... $ (819.4)
-------- -- ----------- ----- --------- --------- ------- ---------
BALANCE, DECEMBER 31, 1999...... -- -- 100 -- 3,031.3 1.8 (1,967.1)
Contributions from NTL
(Delaware), Inc. ............. 10,715.4
Corporate restructuring......... (88)
Comprehensive loss:
Net loss for the year ended
December 31, 2000........... $(2,388.1) (2,388.1)
Currency translation
adjustment.................. (381.1) (381.1)
---------
Total....................... $(2,769.2)
-------- -- ----------- ----- --------- --------- ------- ---------
BALANCE, DECEMBER 31, 2000...... -- $-- 12 $ -- $13,746.7 $(379.3) $(4,355.2)
======== == =========== ===== ========= ========= ======= =========
See accompanying notes.
F-5
6
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
YEAR ENDED DECEMBER 31,
-----------------------------------
2000 1999 1998
--------- --------- ---------
OPERATING ACTIVITIES
Net loss.................................................... $(2,388.1) $ (716.5) $ (534.6)
Adjustment to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 1,700.7 765.7 266.1
Loss from early extinguishment of debt.................... -- 3.0 30.7
Gain on sale of investment in Cable London PLC............ -- (493.1) --
Amortization of non competition agreements................ -- -- 1.4
Provision for losses on accounts receivable............... 98.5 45.7 27.3
Deferred income taxes..................................... (80.8) (30.9) (3.3)
Amortization of original issue discount................... 473.1 451.4 232.7
Other..................................................... (75.1) (8.0) (30.9)
Changes in operating assets and liabilities, net of effect
from business acquisitions:
Accounts receivable..................................... (247.9) (134.6) (70.4)
Other current assets.................................... (41.8) (34.6) 22.6
Other assets............................................ 42.4 (25.2) --
Accounts payable........................................ (102.2) 32.0 (2.6)
Accrued expenses and other.............................. 330.3 150.4 15.3
Deferred revenue........................................ 120.6 68.4 26.8
--------- --------- ---------
Net cash (used in) provided by operating activities......... (170.3) 73.7 (18.9)
INVESTING ACTIVITIES
Acquisitions, net of cash acquired.......................... (7,514.9) (637.6) (746.8)
Purchase of fixed assets.................................... (1,961.8) (1,198.3) (772.2)
Increase in other assets.................................... (33.7) (30.1) (35.6)
Proceeds from sales of assets............................... -- 692.5 1.3
Purchase of marketable securities........................... (3.3) (354.5) (540.6)
Proceeds from sales of marketable securities................ 8.3 618.6 291.3
--------- --------- ---------
Net cash (used in) investing activities..................... (9,505.4) (909.4) (1,802.6)
FINANCING ACTIVITIES
Distribution to NTL (Delaware), Inc......................... -- (500.0) --
Contributions from NTL (Delaware), Inc...................... 5,227.2 167.6 --
Proceeds from borrowings, net of financing costs............ 5,009.8 1,846.0 3,525.6
Proceeds from issuance of preferred stock and warrants...... -- 500.0 --
Principal payments.......................................... (1,263.9) (758.2) (845.0)
Cash released from (placed in) escrow for debt repayment.... 77.5 (87.0) (217.6)
Consent solicitation payments............................... -- -- (11.3)
Proceeds from exercise of stock options and warrants........ -- 12.1 6.8
--------- --------- ---------
Net cash provided by financing activities................... 9,050.6 1,180.5 2,458.5
Effect of exchange rate changes on cash..................... (25.6) (6.9) 0.4
--------- --------- ---------
(Decrease) increase in cash and cash equivalents............ (650.7) 337.9 637.4
Cash and cash equivalents at beginning of year.............. 1,074.2 736.3 98.9
--------- --------- ---------
Cash and cash equivalents at end of year.................... $ 423.5 $ 1,074.2 $ 736.3
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest exclusive of amounts
capitalized............................................... $ 363.9 $ 180.3 $ 90.5
Income taxes paid........................................... 1.5 2.4 0.3
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Contributions from NTL (Delaware), Inc...................... $ 5,488.2 $ 5.6 $ --
Accretion of dividends and discount on preferred stock...... -- 8.6 19.1
Conversion of Convertible Notes, net of unamortized Deferred
financing costs........................................... -- 269.3 187.0
Preferred stock issued for an acquisition................... -- -- 178.5
Common stock and stock options issued for an acquisition.... -- 978.0 600.5
Warrants issued in connection with consent solicitations.... -- -- 10.1
See accompanying notes.
F-6
7
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
1. CORPORATE RESTRUCTURING AND BUSINESS
On April 1, 1999, NTL Incorporated completed a corporate restructuring to
create a holding company structure. The holding company restructuring was
accomplished through a merger so that all the stockholders of NTL Incorporated
at the effective time of the merger became stockholders of the new holding
company, and NTL Incorporated became a subsidiary of the new holding company.
The new holding company took the name NTL Incorporated and the holding company's
subsidiary simultaneously changed its name to NTL Communications Corp. The
"Company" refers to NTL Incorporated and subsidiaries up to and including March
31, 1999, and to NTL Communications Corp. and subsidiaries beginning April 1,
1999. In addition, in April 1999, the Company distributed $500 million to NTL
Incorporated, principally to finance the acquisition of the Australian National
Transmission Network.
On May 18, 2000, NTL Incorporated completed a second corporate
restructuring to create a holding company structure in connection with the
acquisition of certain assets of Cable & Wireless Communications plc ("CWC").
The holding company restructuring was accomplished through a merger so that all
the stockholders of NTL Incorporated at the effective time of the merger became
stockholders of the new holding company, and NTL Incorporated became a
subsidiary of the new holding company. The new holding company has taken the
name NTL Incorporated and the holding company's subsidiary simultaneously
changed its name to NTL (Delaware), Inc. ("NTL Delaware"). The Company is a
wholly-owned subsidiary of NTL Delaware.
On February 21, 2001, the Company completed a transaction whereby it
acquired the entire issued share capital of NTL (CWC Holdings) Limited (the
entity that owns ConsumerCo) from NTL Incorporated and the entire issued share
capital of NTL Business Limited (formerly Workplace Technologies plc) from NTL
(Delaware), Inc. in exchange for shares of its common stock. As a result of this
transaction, ConsumerCo and NTL Business Limited became wholly-owned
subsidiaries of the Company. The Company accounted for the transaction in a
manner consistent with a transfer of entities under common control, which is
similar to a "pooling of interests." Accordingly, the net assets and results of
operations of ConsumerCo and NTL Business Limited have been included in the
Company's consolidated financial statements from their original dates of
acquisition, May 30, 2000 and September 20, 1999, respectively.
Revenues and net loss for the individual companies reported prior to the
acquisition were as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2000 1999
------------ ------------
(IN MILLIONS)
Revenues:
NTL Communications............................... $ 1,765.4 $1,477.9
NTL Business..................................... 124.6 59.2
NTL (CWC Holdings)............................... 594.2 --
--------- --------
Combined......................................... $ 2,484.2 $1,537.1
========= ========
Net Loss
NTL Communications............................... $(1,524.1) $ (715.0)
NTL Business..................................... (41.1) (1.5)
NTL (CWC Holdings)............................... (822.9) --
--------- --------
Combined......................................... $(2,388.1) $ (716.5)
========= ========
The Company, through its subsidiaries, owns and operates broadband
communications networks for telephone, cable television and Internet services in
the United Kingdom and Ireland, and transmission networks for television and
radio broadcasting in the United Kingdom. Based on revenues and identifiable
F-7
8
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
assets, the Company's predominant lines of business are consumer services,
business services and broadcast transmission and related services in the United
Kingdom. Consumer services include telephony, cable television, Internet access
and interactive services. Business services include telephony, national and
international wholesale carrier telecommunications, and radio communications
services for the emergency services community. Broadcast transmission and
related services include digital and analog television and radio broadcasting,
rental of antenna space on the Company's owned and leased towers and sites and
associated services, and satellite and media services.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries and entities where the Company's interest is
greater than 50%. Significant intercompany accounts and transactions have been
eliminated in consolidation.
Reclassification
Certain prior year amounts have been reclassified to conform to the current
year presentation.
Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries have been
translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation." All
balance sheet accounts have been translated using the current exchange rates at
the respective balance sheet dates. Statement of operations amounts have been
translated using the average exchange rates for the respective years. The
translation gains or losses resulting from the change in exchange rates have
been reported as a component of accumulated other comprehensive income (loss).
Foreign currency transaction gains and losses are included in the results of
operations as incurred.
Cash Equivalents
Cash equivalents are short-term highly liquid investments purchased with a
maturity of three months or less. Cash equivalents were $211.3 million and
$605.3 million at December 31, 2000 and 1999, respectively, which consisted
primarily of U.S. Treasury bills (2000 only), bank time deposits and corporate
commercial paper. At December 31, 2000 and 1999, $57.2 million and $574.8
million, respectively, of the cash equivalents were denominated in foreign
currencies.
Marketable Securities
Marketable securities were classified as available-for-sale, which are
carried at fair value. Unrealized holding gains and losses on securities, net of
tax, are carried as a component of accumulated other comprehensive income
(loss). The amortized cost of debt securities is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization is included
in interest income. Realized gains and losses and declines in value judged to be
other than temporary will be included in interest income. The cost of securities
sold or matured is based on the specific identification method. Interest on
securities is included in interest income.
F-8
9
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
Marketable securities at December 31, 1999 consisted of corporate
commercial paper. During the years ended December 31, 2000, 1999 and 1998, there
were no realized gains or losses on sales of securities. All of the marketable
securities as of December 31, 1999 had a contractual maturity of less than one
year.
Fixed Assets
Fixed assets are stated at cost, which includes amounts capitalized for
labor and overhead expended in connection with the design and installation of
operating equipment. Depreciation is computed by the straight-line method over
the estimated useful lives of the assets. Estimated useful lives are as follows:
operating equipment -- 5 to 40 years and other equipment -- 3 to 40 years.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the
sum of the expected future undiscounted cash flows is less than the carrying
amount of the asset, a loss is recognized for the difference between the fair
value and the carrying value of the asset.
Intangible Assets
Intangible assets include goodwill, license acquisition costs and customer
lists. Goodwill is the excess of the purchase price over the fair value of net
assets acquired in business combinations accounted for as purchases. Goodwill is
amortized on a straight-line basis over the periods benefited of 10, 15 or 30
years. License acquisition costs represent the portion of purchase price
allocated to the cable television and telecommunications licenses acquired in
business combinations. License acquisition costs are amortized on a
straight-line basis over the remaining lives of the licenses at acquisition,
which vary from approximately two years to 23 years. Customer lists represent
the portion of the purchase price allocated to the value of the customer base.
Customer lists are amortized on a straight-line basis over 5 years. The Company
continually reviews the recoverability of the carrying value of these assets
using the same methodology that it uses for the evaluation of its other
long-lived assets.
Equity Method Investments
All investments in which the Company has the ability to exercise
significant influence over the investee, but less than a controlling voting
interest, are accounted for using the equity method. The investment in Cable
London PLC was accounted for under the equity method. Equity method investments
are recorded at original cost and adjusted periodically to recognize the
Company's proportionate share of the investees' net income or losses after the
date of investment, additional contributions made and dividends received. The
difference between the Company's recorded investment and its proportionate
interest in the book value of the investees' net assets are being amortized on a
straight-line basis over 10 years.
Deferred Financing Costs
Deferred financing costs are incurred in connection with the issuance of
debt and are amortized over the term of the related debt.
Capitalized Interest
Interest is capitalized as a component of the cost of fixed assets
constructed. In 2000, 1999 and 1998, interest of $95.1 million, $41.8 million
and $27.8 million, respectively, was capitalized.
Revenue Recognition
Revenues are recognized at the time the service is rendered to the customer
or the performance of the service has been completed. Charges for services that
are billed in advance are deferred and recognized when
F-9
10
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
earned. Rental revenues are recognized when earned on a monthly basis.
Installation and maintenance service revenues are recognized when the
performance of the service has been completed.
Cable Television System Costs, Expenses and Revenues
The Company accounts for costs, expenses and revenues applicable to the
construction and operation of its broadband communications networks in
accordance with SFAS No. 51, "Financial Reporting by Cable Television
Companies."
Advertising Expense
The Company charges the cost of advertising to expense as incurred.
Advertising costs were $94.0 million, $35.8 million and $34.0 million in 2000,
1999 and 1998, respectively.
Stock-Based Compensation
The Company adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." The Company applied APB Opinion No.
25, "Accounting for Stock Issued to Employees" and related interpretations in
accounting for the stock option plans in which it participates.
Derivative Financial Instruments
The Company uses financial instruments to hedge a portion, but not all, of
its exposure from movements in the British pound/U.S. dollar exchange rate.
Gains and losses on these instruments are deferred and recognized in the
statement of operations when the related hedged transactions are recognized. To
date, premiums paid for these contracts have not been material. The Company does
not use derivative financial instruments for trading or speculative purposes
3. RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. SAB 101 was required to be
adopted retroactive to January 1, 2000. The adoption of SAB 101 had no
significant effect on revenues or results of operations.
Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," as amended by SFAS Nos. 137
and 138. The new accounting standard requires that all derivative instruments be
recorded on the balance sheet at fair value. Changes in the fair value of
derivatives are recorded each period in the results of operations or in other
comprehensive income (loss), depending on whether a derivative is designated as
a fair value or cash flow hedge. The ineffective portion of all hedges will be
recognized in the results of operations.
On January 1, 2001, the Company recorded all of its outstanding derivative
instruments at their fair value. The outstanding derivative instruments were
comprised of cross currency swaps to hedge exposure to movements in the British
pound/U.S. dollar exchange rate. The aggregate fair value on January 1, 2001 as
a liability of $9.0 million, of which $6.8 million was recorded as an expense
and $2.2 million was recorded as other comprehensive loss.
F-10
11
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
4. CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
Need for Additional Financing
The Company will require additional financing in the future. There can be
no assurance that the required financing will be obtainable on acceptable terms.
Concentrations
The Company's broadcast transmission and related services business is
substantially dependent upon contracts with a small group of companies for the
right to broadcast their programming, and upon a site sharing agreement for a
large number of its transmission sites. The loss of any one of these contracts
or the site sharing agreement could have a material adverse effect on the
business of the Company.
Currency Risk
To the extent that the Company obtains financing in U.S. dollars and incurs
construction and operating costs in various other currencies, it will encounter
currency exchange rate risks. In addition, the Company's revenues are generated
in foreign currencies while its interest and principal obligations with respect
to most of the Company's existing indebtedness are payable in U.S. dollars.
5. FIXED ASSETS
Fixed assets consist of:
DECEMBER 31,
---------------------
2000 1999
--------- --------
(IN MILLIONS)
Operating equipment.................................... $10,004.9 $4,859.0
Other equipment........................................ 1,079.8 704.3
Construction-in-progress............................... 1,509.7 668.7
--------- --------
12,594.4 6,232.0
Accumulated depreciation............................... (1,677.6) (883.6)
--------- --------
$10,916.8 $5,348.4
========= ========
Depreciation expense for the years ended December 31, 2000, 1999 and 1998
was $874.4 million, $475.5 million and $207.5 million, respectively.
F-11
12
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
6. INTANGIBLE ASSETS
Intangible assets consist of:
DECEMBER 31,
---------------------
2000 1999
--------- --------
(IN MILLIONS)
Goodwill, net of accumulated amortization of $837.3
(2000) and $185.9 (1999)............................. $10,236.4 $2,264.4
License acquisition costs, net of accumulated
amortization of $215.8 (2000) and $141.7 (1999)...... 139.2 225.0
Customer lists, net of accumulated amortization of
$70.4 (2000) and $30.9 (1999)........................ 158.6 159.3
Other intangibles, net of accumulated amortization of
$5.5 (2000).......................................... 31.9 --
--------- --------
$10,566.1 $2,648.7
========= ========
The Company made the following acquisitions in 1999:
In March 1999, the Company acquired Diamond Cable Communications plc
("Diamond"). The Company issued an aggregate of 19.9 million shares of common
stock in exchange for each ordinary share and deferred share of Diamond. The
Company's common stock was valued at $971.4 million, the fair value at the time
of the announcement. In addition, the Company issued options to purchase 191,000
shares of the Company's common stock to holders of Diamond options, which were
valued at $6.6 million. The Company assumed Diamond's debt including five
different notes with an aggregate principal amount at maturity of $1,564.6
million. Diamond is a provider of telephone, cable television and Internet
services in England.
In July 1999, the Company acquired Cablelink Limited ("Cablelink") for
IRL535.2 million ($692.5 million), of which IRL455.2 million ($589.0 million)
was paid in cash and IRL80.0 million ($103.5 million) was paid through the
issuance of Variable Rate Redeemable Guaranteed Loan Notes due 2002. Cablelink
provides multi-channel television and information services in Dublin, Galway and
Waterford, Ireland.
In September 1999, NTL Delaware acquired the shares of Workplace
Technologies plc, one of the United Kingdom's leading data network service
integrators, in exchange for L105.2 million ($172.5 million), of which L100.7
million ($165.1 million) was paid in cash and L4.5 million ($7.4 million) was
paid through the issuance of demand notes. On February 21, 2001, the Company
completed a transaction whereby it acquired the entire issued share capital of
NTL Business Limited (formerly Workplace Technologies plc) from NTL (Delaware),
Inc. in exchange for shares of its common stock. As a result of this
transaction, NTL Business Limited became a wholly-owned subsidiary of the
Company. The Company accounted for the transaction in a manner consistent with a
transfer of entities under common control, which is similar to a "pooling of
interests." Accordingly, the net assets and results of operations of NTL
Business Limited have been included in the Company's consolidated financial
statements from the date of acquisition by NTL Delaware.
These acquisitions were accounted for as purchases, and accordingly, the
net assets and results of operations of the acquired businesses have been
included in the consolidated financial statements from the dates of acquisition.
The aggregate purchase price of $1,860.1 million, including costs incurred of
$17.1 million, plus the fair value of liabilities assumed net of tangible assets
acquired aggregated $2,169.5 million, which has been allocated as follows:
$143.5 million to license acquisition costs, $130.9 million to customer lists
and $1,895.1 million to goodwill.
On May 30, 2000, NTL Incorporated acquired the consumer cable telephone,
Internet and television operations of CWC in the United Kingdom ("ConsumerCo").
NTL Incorporated paid cash of L2,917.0
F-12
13
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
million ($4,364.7 million) and issued an aggregate of 84.9 million shares of its
common stock in exchange for all of the shares of CWC. In addition, NTL
Incorporated paid L2,155.3 million ($3,225.0 million) to repay a portion of
ConsumerCo's debt. NTL Incorporated's common stock was valued at $5,488.3
million, the fair value at the time of the announcement. This acquisition was
funded by a new bank facility under which L2,376.0 million ($3,555.2 million)
was borrowed and by an additional investment by France Telecom in NTL
Incorporated. On February 21, 2001, the Company completed a transaction whereby
it acquired the entire issued share capital of NTL (CWC Holdings) Limited (the
entity that owns ConsumerCo) from NTL Incorporated in exchange for shares of its
common stock. As a result of this transaction, ConsumerCo became a wholly-owned
subsidiary of the Company. The Company accounted for the transaction in a manner
consistent with a transfer of entities under common control, which is similar to
a "pooling of interests." Accordingly, the net assets and results of operations
of ConsumerCo have been included in the Company's consolidated financial
statements from the date of acquisition by NTL Incorporated.
The aggregate purchase price of $13,111.0 million, including costs incurred
of $33.1 million, exceeded the fair value of net tangible assets acquired by
$8,879.0 million, which has been allocated as follows: $53.0 million to customer
lists, $37.4 million to other intangibles and $8,788.6 million to goodwill.
The pro forma unaudited consolidated results of operations for the years
ended December 31, 2000 and 1999 assuming consummation of the above mentioned
transactions as of January 1, 1999 is as follows. A significant component of the
pro forma results is associated with the acquisition of ConsumerCo. The
historical results of ConsumerCo reflect certain intercompany costs and expenses
as they were prior to the separation of ConsumerCo which was completed in the
second quarter of 2000. These costs and expenses do not necessarily reflect the
costs and expenses that would have been incurred had ConsumerCo reported as a
separate entity for these periods. Therefore the historical results of
ConsumerCo which are included in the pro forma results below are not reflective
of results on a going forward basis.
YEAR ENDED DECEMBER 31,
------------------------
2000 1999
---------- ----------
(IN MILLIONS)
Total revenue........................................... $2,953.4 $2,844.5
(Loss) before extraordinary item........................ (2,973.5) (2,326.0)
Net (loss).............................................. (2,973.5) (2,329.0)
Amortization of intangibles and other assets charged to expense for the
years ended December 31, 2000, 1999 and 1998 was $826.3 million, $290.2 million
and $58.6 million respectively.
7. INVESTMENT IN CABLE LONDON PLC
NTL (Triangle) LLC ("NTL Triangle") (formerly known as NTL (Bermuda)
Limited), a wholly-owned subsidiary of the Company, owned a 50% interest in
Cable London plc ("Cable London"). Pursuant to an agreement with Telewest
Communications plc ("Telewest") relating to NTL Triangle's and Telewest's
respective 50% ownership interests in Cable London, in November 1999 Telewest
purchased all of NTL Triangle's shares of Cable London for L428.0 million
($692.5 million) in cash. The Company recorded a gain of $493.1 million on the
sale. The sale of the Cable London interest was an "Asset Sale" for purposes of
the Company's Indentures for certain of its notes. The Company used an amount
equal to the proceeds from the sale to invest in "Replacement Assets" by
November 2000.
F-13
14
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
8. LONG-TERM DEBT
Long-term debt consists of:
DECEMBER 31,
---------------------
2000 1999
--------- --------
(IN MILLIONS)
NTL Communications:
12 3/4% Senior Deferred Coupon Notes...................... (a) $ 277.8 $ 268.1
11 1/2% Senior Deferred Coupon Notes...................... (b) 1,040.5 930.4
10% Senior Notes.......................................... (c) 400.0 400.0
9 1/2% Senior Sterling Notes, less unamortized discount... (d) 186.5 201.4
10 3/4% Senior Deferred Coupon Sterling Notes............. (e) 353.6 343.7
9 3/4% Senior Deferred Coupon Notes....................... (f) 1,048.5 952.8
9 3/4% Senior Deferred Coupon Sterling Notes.............. (g) 360.8 354.4
11 1/2% Senior Notes...................................... (h) 625.0 625.0
12 3/8% Senior Deferred Coupon Notes...................... (i) 323.6 287.0
7% Convertible Subordinated Notes......................... (j) 599.3 599.3
Variable Rate Redeemable Guaranteed Loan Notes............ (k) -- 76.8
9 1/4% Senior Euro Notes.................................. (l) 234.7 252.3
9 7/8% Senior Euro Notes.................................. (m) 328.6 353.2
11 1/2% Senior Deferred Coupon Euro Notes................. (n) 127.9 123.1
11 7/8% Senior Notes, less unamortized discount........... (o) 489.6 --
NTL Communications Limited:
Credit Agreement.......................................... (v) 375.3 --
NTL Business:
Credit Agreement.......................................... (v) 3,030.3 --
ConsumerCo:
Term Loan Facility and Other.............................. 21.7 --
NTL Triangle:
11.2% Senior Discount Debentures.......................... (p) 517.3 467.3
Other..................................................... 5.2 8.0
Diamond:
13 1/4% Senior Discount Notes............................. (q) 285.1 285.1
11 3/4% Senior Discount Notes............................. (r) 531.0 476.2
10 3/4% Senior Discount Notes............................. (s) 373.9 336.9
10% Senior Sterling Notes................................. (t) 201.9 218.1
9 1/8% Senior Notes....................................... (u) 110.0 110.0
Other..................................................... 6.0 11.5
--------- --------
11,854.1 7,680.6
Less current portion........................................ 10.7 82.6
--------- --------
$11,843.4 $7,598.0
========= ========
- ---------------
(a) 12 3/4% Notes due April 15, 2005, principal amount at maturity of $277.8
million, interest payable semiannually from October 15, 2000, redeemable at
the Company's option on or after April 15, 2000;
F-14
15
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(b) 11 1/2% Notes due February 1, 2006, principal amount at maturity of $1,050.0
million, interest payable semiannually beginning on August 1, 2001,
redeemable at the Company's option on or after February 1, 2001;
(c) 10% Notes due February 15, 2007, principal amount at maturity of $400.0
million, interest payable semiannually from August 15, 1997, redeemable at
the Company's option on or after February 15, 2002;
(d) 9 1/2% Sterling Notes due April 1, 2008, principal amount at maturity of
L125.0 million ($186.9 million), interest payable semiannually from October
1, 1998, redeemable at the Company's option on or after April 1, 2003;
(e) 10 3/4% Sterling Notes due April 1, 2008, principal amount at maturity of
L300.0 million ($448.7 million), interest payable semiannually beginning on
October 1, 2003, redeemable at the Company's option on or after April 1,
2003;
(f) 9 3/4% Notes due April 1, 2008, principal amount at maturity of $1,300.0
million, interest payable semiannually beginning on October 1, 2003,
redeemable at the Company's option on or after April 1, 2003;
(g) 9 3/4% Sterling Notes due April 15, 2009, principal amount at maturity of
L330.0 million ($493.5 million), interest payable semiannually beginning on
October 15, 2004, redeemable at the Company's option on or after April 15,
2004;
(h) 11 1/2% Notes due October 1, 2008, principal amount at maturity of $625.0
million, interest payable semiannually from April 1, 1999, redeemable at the
Company's option on or after October 1, 2003;
(i) 12 3/8% Notes due October 1, 2008, principal amount at maturity of $450.0
million, interest payable semiannually beginning on April 1, 2004,
redeemable at the Company's option on or after October 1, 2003;
(j) 7% Convertible Notes due December 15, 2008, principal amount at maturity of
$599.3 million, interest payable semiannually from June 15, 1999,
convertible into shares of NTL Incorporated common stock at a conversion
price of $39.20 per share, redeemable at the Company's option on or after
December 15, 2001 (there are approximately 15.3 million shares of NTL
Incorporated common stock reserved for issuance upon conversion);
(k) Variable Rate Redeemable Guaranteed Notes due January 5, 2002, principal
amount at maturity of IRL60.0 million after redemption of IRL20.0 million
($25.7 million) in 1999 using cash held in escrow, remainder redeemed in
March 2000 ($73.7 million) using cash held in escrow;
(l) 9 1/4% Euro Notes due November 15, 2006, principal amount at maturity of
E250.0 million, ($234.7 million), interest payable semiannually from May
15, 2000;
(m) 9 7/8% Euro Notes due November 15, 2009, principal amount at maturity of
E350.0 million, ($328.6 million), interest payable semiannually from on May
15, 2000 redeemable at the Company's option on or after November 15, 2004;
(n) 11 1/2% Deferred Euro Notes due November 15, 2009, principal amount at
maturity of E210.0 million ($197.1 million), interest payable semiannually
beginning on May 15, 2005, redeemable at the Company's option on or after
November 15, 2004;
(o) 11 7/8% Notes due October 1, 2010, issued in October 2000, principal amount
at maturity of $500.0 million, interest payable semiannually beginning on
April 1, 2001, redeemable at the Company's option on or after October 1,
2005;
F-15
16
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(p) 11.2% Debentures due November 15, 2007, principal amount at maturity of
$517.3 million, interest payable semiannually beginning on May 15, 2001,
redeemable at NTL Triangle's option after November 15, 2000;
(q) 13 1/4% Notes due September 30, 2004, principal amount at maturity of $285.1
million, interest payable semiannually from March 31, 2000, redeemable at
Diamond's option on or after September 30, 1999;
(r) 11 3/4% Notes due December 15, 2005, principal amount at maturity of $531.0
million, interest payable semiannually beginning on June 15, 2001,
redeemable at Diamond's option on or after December 15, 2000;
(s) 10 3/4% Notes due February 15, 2007, principal amount at maturity of $420.5
million, interest payable semiannually beginning on August 15, 2002,
redeemable at Diamond's option on or after December 15, 2002;
(t) 10% Sterling Notes due February 1, 2008, issued by Diamond Holdings plc,
principal amount at maturity of L135.0 million ($201.9 million), interest
payable semiannually from August 1, 1998, redeemable at Diamond's option on
or after February 1, 2003; and
(u) 9 1/8% Notes due February 1, 2008, issued by Diamond Holdings plc, principal
amount of $110.0 million, interest payable semiannually from August 1, 1998,
redeemable at Diamond's option on or after February 1, 2003.
The indentures governing the notes contain restrictions relating to, among
other things: (i) incurrence of additional indebtedness and issuance of
preferred stock, (ii) dividend and other payment restrictions and (iii) mergers,
consolidations and sales of assets.
During 2000, 1999 and 1998, the Company recognized $473.1 million, $451.4
million and $232.7 million, respectively, of original issue discount as interest
expense.
In addition to the notes described above, a subsidiary of the Company has
the following bank credit agreements outstanding:
(v) In May 2000, NTL Communications Limited ("NTLCL") and NTL Business Limited
("NTL Business"), wholly-owned indirect subsidiaries of the Company,
entered into a L2,500.0 million ($3,738.8 million) credit agreement in
connection with the ConsumerCo acquisition. As of December 31, 2000, NTLCL
had L250.9 million ($375.3 million) and NTL Business had L2,026.3 million
($3,030.3 million) outstanding under the credit agreement. Interest is
payable at least every six months at LIBOR plus a margin rate of 2.25% per
annum, which is subject to adjustment based on the ratio of EBITDA to
finance charges of the UK Group. The effective rate of interest at December
31, 2000 was 8.283%. The unused portion of the commitment is available for
refinancing ConsumerCo indebtedness and for working capital requirements of
the UK Group. For purposes of this credit agreement, Diamond and
subsidiaries and NTL Triangle and subsidiaries and certain other entities
are excluded from the UK Group. The unused portion of the commitment is
subject to a commitment fee of 0.75% payable quarterly, which is reduced to
0.50% when over 50% of the commitment is utilized. Principal is due in six
quarterly installments beginning on June 30, 2004. The credit agreement
contains various financial and other covenants with respect to the UK
Group, and restrictions on dividends and distributions by the UK Group.
NTLCL entered into a L1,300.0 million ($1,944.2 million) credit agreement
with a group of banks dated May 30, 2000. Pursuant to the credit agreement,
in connection with the issuance in October 2000 of $500.0 million aggregate
principal amount of the Company's 11 7/8% notes, the issuance in January
2001 of E200.0 million aggregate principal amount of the Company's 12 3/8%
Euro notes and the issuance in February 2001 of E100.0 million aggregate
principal amount of the Company's 12 3/8% Euro notes, the commitment was
reduced by L255.1 million ($381.4 million). As of December 31, 2000, there
were no
F-16
17
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
amounts borrowed under this agreement. NTLCL and other members of the UK
Group (as defined above) may utilize the proceeds under this credit
agreement to finance the working capital requirements of the UK Group,
provided that in no event shall the proceeds be used for a purpose other
than to finance the construction, capital expenditure and working capital
needs of a cable television or telephone or telecommunications business, or
a related business, in the United Kingdom or Ireland. Interest is payable
at least every six months at LIBOR plus a margin rate of 4.5% per annum.
The margin rate shall increase by 0.5% on the three month anniversary of
the initial advance and by an additional 0.5% on each subsequent three
month anniversary, up to a maximum total interest rate of 16% per annum.
The unused portion of the commitment is subject to a commitment fee of
0.75% payable quarterly. Principal is due in full on March 31, 2006. The
credit agreement contains various financial and other covenants with
respect to the UK Group, and restrictions on dividends and distributions by
the UK Group.
In September 1999, NTL Triangle repaid at maturity the $21.5 million due
under its notes payable to Comcast U.K. Holdings, Inc.
In connection with the Cablelink acquisition, the Company issued $704.6
million principal amount Senior Increasing Rate Notes due 2000. In November
1999, the Company received net proceeds of $720.7 from the issuance of the
9 1/4% Euro Notes, the 9 7/8% Euro Notes and the 11 1/2% Deferred Euro Notes, of
which $716.5 million was used to repay the Senior Increasing Rate Notes plus
accrued interest. The Company recorded an extraordinary loss from the early
extinguishment of the notes of $3.0 million in 1999.
In connection with an acquisition, the Company borrowed an aggregate of
L475.0 million under a bank credit facility. In November 1998, the Company
received net proceeds of $849.0 million from the issuance of the 11 1/2% Notes
and the 12 3/8% Notes, a substantial portion of which was used to repay the
$799.0 million outstanding under the bank loan. The Company recorded an
extraordinary loss from the early extinguishment of the bank loan of $18.6
million in 1998.
In October 1998, the Company redeemed its 10 7/8% Senior Deferred Coupon
Notes with an accreted value of $211.0 million for cash of $218.0 million. The
Company recorded an extraordinary loss from the early extinguishment of the
10 7/8% Notes of $12.1 million in 1998, which included approximately $4.8
million of unamortized deferred financing costs.
In 1998, the Company required consents from the holders of some of its
notes to modify certain indenture provisions in order to proceed with an
acquisition. In October 1998, the Company paid $11.3 million in consent payments
and issued warrants to purchase 1.2 million shares of common stock in lieu of
additional consent payments of $10.1 million.
The NTLCL bank credit facilities, as well as the NTL Triangle and Diamond
notes, restrict the payment of cash dividends and loans to the Company. At
December 31, 2000, restricted net assets were approximately $12,674.0 million.
Long-term debt repayments are due as follows (in millions):
Year ending December 31:
2001............................................ $ 10.7
2002............................................ 8.7
2003............................................ 8.3
2004............................................ 420.7
2005............................................ 4,080.7
Thereafter...................................... 8,066.8
---------
$12,595.9
=========
F-17
18
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
In January and February 2001, the Company issued E300.0 million ($281.6
million) aggregate principal amount of 12 3/8% Senior Euro Notes due February 1,
2008. The Company received proceeds of approximately $275.3 million after
underwriters' discount and commissions and other fees. Interest is payable
semiannually in cash at a rate of 12 3/8% per annum beginning on August 1, 2001.
These notes may not be redeemed by the Company except in limited circumstances.
9. OTHER CHARGES INCLUDING RESTRUCTURING CHARGES
Other charges of $92.7 million in 2000 include restructuring costs of $65.9
million and information technology integration costs of $26.8 million.
Restructuring costs relate to the NTL Incorporated's announcement in November
2000 of its completion of a consolidation review. Based on a comprehensive
review of the combined company following the acquisition of ConsumerCo and the
integration of several other acquired businesses, NTL Incorporated identified
significant efficiency improvements and cost savings. The restructuring
provision includes employee severance and related costs of $47.9 million for
approximately 2,300 employees to be terminated and lease exit costs of $18.0
million. As of December 31, 2000, approximately 360 of the employees had been
terminated. None of the provision had been utilized through December 31, 2000.
The information technology integration costs of $26.8 million were incurred for
the integration of acquired companies' information technology.
Other charges of $16.2 million in 1999 were incurred for the cancellation
of certain contracts. Other charges of $4.2 million reversed in 1998 were the
result of changes to a restructuring reserve that was recorded in 1997.
10. INCOME TAXES
The benefit for income taxes consists of the following:
YEAR ENDED DECEMBER 31,
-------------------------
2000 1999 1998
------ ------ -----
(IN MILLIONS)
Current:
Federal......................................... $ -- $ 1.0 $ --
Foreign......................................... 0.9 -- --
------ ------ -----
Total current..................................... 0.9 1.0 --
------ ------ -----
Deferred:
Federal......................................... -- -- --
Foreign......................................... (80.8) (30.9) (3.3)
------ ------ -----
Total deferred.................................... (80.8) (30.9) (3.3)
------ ------ -----
$(79.9) $(29.9) $(3.3)
====== ====== =====
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the deferred tax liabilities and assets are as follows:
F-18
19
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
DECEMBER 31,
--------------------
2000 1999
--------- -------
(IN MILLIONS)
Deferred tax liabilities:
Fixed assets......................................... $ 591.9 $ 66.5
Intangibles.......................................... 58.0 76.4
--------- -------
Total deferred tax liabilities......................... 649.9 142.9
Deferred tax assets:
Net operating losses................................. 1,491.9 396.0
Net deferred interest expense........................ 198.6 150.1
Depreciation and amortization........................ 378.0 269.9
Inventory............................................ 18.5 --
Purchase accounting liabilities...................... 158.5 --
Other................................................ 32.4 12.4
--------- -------
Total deferred tax assets.............................. 2,277.9 828.4
Valuation allowance for deferred tax assets............ (1,623.1) (738.6)
--------- -------
Net deferred tax assets................................ 654.8 89.8
--------- -------
Net deferred tax (assets) liabilities.................. $ (4.9) $ 53.1
========= =======
At December 31, 2000, the Company had a valuation allowance against its
deferred tax assets to the extent it was not more likely than not that such
assets would be realized in the future.
At December 31, 2000, the Company had net operating loss carryforwards of
approximately $550.0 million for U.S. federal income tax purposes that expire in
varying amounts commencing in 2009. This excludes net operating loss
carryforwards of companies that are resident in both the U.S. and the United
Kingdom. The Company also has United Kingdom net operating loss carryforwards of
approximately $4,000.0 million that have no expiration date. Pursuant to United
Kingdom law, these losses are only available to offset income of the separate
entity that generated the loss. A portion of the United Kingdom net operating
loss carryforward relates to dual resident companies, of which the U.S. net
operating loss carryforward amount is approximately $1,000.0 million.
In 2000, the Internal Revenue Service completed its federal income tax
audit of the Company for the years 1993, 1994 and 1995. The audit resulted in a
reduction in U.S. net operating loss carryforwards that had no material impact
on the Company. The Company is currently undergoing a U. S. federal income tax
audit for the years 1996 and 1997. The Company does not expect that the audit
adjustments will have a material adverse effect on its financial position,
results of operations or cash flows.
The reconciliation of income taxes computed at U.S. federal statutory rates
to income tax expense is as follows:
YEAR ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
------- ------- -------
(IN MILLIONS)
(Benefit) at federal statutory rate (35%)..... $(863.8) $(261.0) $(188.3)
Add:
Foreign losses with no benefit.............. 568.6 106.9 87.9
U.S. losses with no benefit................. 215.3 124.2 97.1
------- ------- -------
$ (79.9) $ (29.9) $ (3.3)
======= ======= =======
F-19
20
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
11. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the
consolidated balance sheets approximate fair value.
Long-term debt: The carrying amounts of the bank credit facility and
Variable Rate Notes approximate their fair values. The fair values of the
Company's other debt are based on the quoted market prices.
The carrying amounts and fair values of the Company's financial instruments
are as follows:
DECEMBER 31, 2000 DECEMBER 31, 1999
---------------------- ----------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(IN MILLIONS)
Cash and cash equivalents................ $ 423.5 $ 423.5 $1,074.2 $1,074.2
Long-term debt:
12 3/4% Notes.......................... 277.8 255.6 268.1 278.5
11 1/2% Notes.......................... 1,040.5 913.5 930.4 950.3
10% Notes.............................. 400.0 348.0 400.0 414.0
9 1/2% Sterling Senior Notes........... 186.5 154.2 201.4 196.9
10 3/4% Sterling Notes................. 353.6 242.3 343.7 327.2
9 3/4% Notes........................... 1,048.5 715.0 952.8 913.3
9 3/4% Sterling Notes.................. 360.8 214.7 354.4 313.3
11 1/2% Notes.......................... 625.0 556.3 625.0 682.8
12 3/8% Notes.......................... 323.6 252.0 287.0 319.5
7% Convertible Notes................... 599.3 470.5 599.3 1,582.2
Variable Rate Notes.................... -- -- 76.8 76.8
9 1/4% Euro Notes...................... 234.7 207.7 252.3 254.8
9 7/8% Euro Notes...................... 328.6 269.4 353.2 356.8
11 1/2% Euro Deferred Notes............ 127.9 99.6 123.1 125.0
11 7/8% Senior Notes................... 489.6 445.0 -- --
Credit Agreement....................... 3,405.6 3,405.6 -- --
11.2% Debentures....................... 517.3 439.7 467.3 486.3
13 1/4% Notes.......................... 285.1 270.8 285.1 305.4
11 3/4% Notes.......................... 531.0 467.3 476.2 499.1
10 3/4% Notes.......................... 373.9 281.7 336.9 340.6
10% Sterling Notes..................... 201.9 161.5 218.1 218.1
9 1/8% Notes........................... 110.0 89.7 110.0 108.9
The Company has derivative financial instruments for purposes other than
trading as follows. In 2000, the Company entered into cross currency swaps to
hedge exposure to movements in the British pound/U.S. dollar exchange rate. The
notional amount of the cross currency swaps was L135.0 million at December 31,
2000. These swaps have payment dates in 2001 that match interest payment dates
for a portion of the Company's notes. The fair value of the swaps at December
31, 2000 was $(2.2) million based on quoted market prices for comparable
instruments.
F-20
21
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
12. RELATED PARTY TRANSACTIONS
The Company provided management, financial, legal and technical services to
Cellular Communications International, Inc. ("CCII") and Cellular Communications
of Puerto Rico, Inc. ("CCPR"). Certain officers and directors of the Company
were officers and directors of CCII and CCPR.
In 1998, the Company charged CCPR, CCII and CoreComm Limited ("CoreComm")
(which was formed in 1998 and has certain common officers and directors with the
Company) $1.1 million, $1.0 million and $0.3 million, respectively, for direct
costs where identifiable and a fixed percentage of its corporate overhead. In
the fourth quarter of 1999, CoreComm began charging the Company a percentage of
CoreComm's office rent and supplies expense. In 1999, the Company charged CCPR,
CCII and CoreComm $0.1 million, $0.4 million and $1.3 million, respectively, for
direct costs where identifiable and a fixed percentage of its corporate
overhead, net of CoreComm's charges to the Company. Charges to CCPR and to CCII
ceased in 1999 due to each of them being acquired and a resulting termination of
services. In 2000, the Company charged CoreComm $0.9 million for direct costs
where identifiable and a fixed percentage of its corporate overhead, net of
CoreComm's charges to the Company. These charges reduced corporate expenses in
2000, 1999 and 1998. It is not practicable to determine the amounts of these
expenses that would have been incurred had the Company operated as an
unaffiliated entity. In the opinion of management of the Company, the allocation
methods are reasonable.
The Company obtains billing and software development services from
CoreComm. CoreComm billed the Company $5.9 million, $4.6 million and $2.9
million in 2000, 1999 and 1998, respectively, for these services. In addition,
CoreComm billed the Company $6.7 million in October 2000 for services to be
rendered from January to September 2001. In March 2000, the Company and CoreComm
announced that they had entered into an agreement to link their networks in
order to create an international Internet backbone. In November 2000, CoreComm
billed the Company $9.1 million primarily for usage of the network in 2001.
At December 31, 2000 and 1999, the Company had a payable to CoreComm of
$17.1 million and a receivable from CoreComm of $0.5 million, respectively.
13. SHAREHOLDER'S EQUITY
Sales of Preferred Stock and Warrants
In January 1999, the Company received $500.0 million in cash from Microsoft
Corp. ("Microsoft") in exchange for 500,000 shares of the Company's 5.25%
Convertible Preferred Stock and warrants to purchase 1.9 million shares of the
Company's common stock at an exercise price of $53.76 per share (as adjusted for
stock splits in 1999 and 2000).
Series Preferred Stock
In February 1997, the Company issued 100,000 shares of its 13% Senior
Redeemable Exchangeable Preferred Stock.
In September 1998, the Company issued 125,000 shares of 9.9% Non-voting
Mandatorily Redeemable Preferred Stock, Series A (the "Series A Preferred
Stock") in connection with an acquisition. Each share of Series A Preferred
Stock had a stated value of $1,000. Cumulative dividends accrued at 9.9% of the
stated value per share. Dividends were payable when and if declared by the Board
of Directors.
In December 1998, the Company issued 52,000 shares of 9.9% Non-voting
Mandatorily Redeemable Preferred Stock, Series B (the "Series B Preferred
Stock") in connection with an acquisition. Each share of Series B Preferred
Stock had a stated value of $1,000. Cumulative dividends accrued at 9.9% of the
stated value per share. Dividends were payable when and if declared by the Board
of Directors.
F-21
22
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
The changes in the number of shares of Series Preferred Stock were as
follows:
9.9% 9.9%
13% SERIES A SERIES B 5.25%
-------- -------- -------- --------
Balance, December 31, 1997............... 110,000 -- -- --
Issued for acquisitions.................. -- 125,000 52,000 --
Issued for dividends..................... 15,000 -- -- --
-------- -------- ------- --------
Balance, December 31, 1998............... 125,000 125,000 52,000 --
Issued for cash.......................... -- -- -- 500,000
Issued for dividends..................... 3,000 -- -- 4,000
Corporate restructuring.................. (128,000) (125,000) (52,000) (504,000)
-------- -------- ------- --------
Balance, December 31, 1999............... -- -- -- --
======== ======== ======= ========
Stock Options
The Company's employees participate in the following NTL Incorporated stock
option plans.
There are 3,381,000 shares and 10,396,000 shares of common stock reserved
for issuance under the 1991 Stock Option Plan and the 1993 Stock Option Plan,
respectively. These plans provide that incentive stock options ("ISOs") be
granted at the fair market value of NTL Incorporated's common stock on the date
of grant, and nonqualified stock options ("NQSOs") be granted at not less than
85% of the fair market value of NTL Incorporated's common stock on the date of
grant. Options are exercisable as to 20% of the shares subject thereto on the
date of grant and become exercisable as to an additional 20% of the shares
subject thereto on each January 1 thereafter, while the optionee remains an
employee of the Company. Options will expire ten years after the date of the
grant. No additional options will be granted under these plans.
There are 156,000 shares and 500,000 shares of common stock reserved for
issuance under 1991 and 1993 Non-Employee Director Stock Option Plans,
respectively. Under the terms of these plans, options will be granted to members
of the Board of Directors who are not employees of the Company or any of its
affiliates. These plans provide that all options be granted at the fair market
value of NTL Incorporated's common stock on the date of grant, and options will
expire ten years after the date of the grant. Options are exercisable as to 20%
of the shares subject thereto on the date of grant and become exercisable as to
an additional 20% of the shares subject thereto on each subsequent anniversary
of the grant date while the optionee remains a director of the Company. Options
will expire ten years after the date of the grant. No additional options will be
granted under these plans.
There are 83,438,000 shares of common stock reserved for issuance under the
1998 Non-Qualified Stock Option Plan, and there are 31,478,000 shares available
for issuance at December 31, 2000. The exercise price of a NQSO shall be
determined by the Compensation and Option Committee. Options are generally
exercisable ratably over five to ten years while the optionee remains an
employee of the Company. Options will expire ten years after the date of the
grant.
In September 2000, the Board of Directors approved modifications to certain
stock options granted to employees in November 1999 through May 2000. Options to
purchase an aggregate of approximately 16.5 million shares of NTL Incorporated's
common stock with a weighted average exercise price of $64.39 per share were
modified such that the exercise price was reduced to $44.50 per share and the
vesting schedule was delayed and/or lengthened. This change did not affect the
exercise price of options granted to the Chairman of the Board, the Chief
Executive Officer and the Company's Directors. In accordance with APB Opinion
No. 25, "Accounting for Stock Issued to Employees" and related interpretations,
NTL Incorporated is accounting for these options as a variable plan beginning in
September 2000. The Company will recognize
F-22
23
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
non-cash compensation expense for the difference between the quoted market price
of NTL Incorporated's common stock and the exercise price of the vested options
while the options remain outstanding.
There were 34.8 million, 6.4 million and 13.9 million options granted under
these plans for the years ended December 31, 2000, 1999, and 1998, respectively.
Pro forma information regarding net loss and net loss per share is required
by SFAS No. 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for 2000, 1999 and 1998: risk-free interest rates of 5.30%, 6.81%
and 5.02%, respectively, dividend yield of 0%, volatility factor of the expected
market price of NTL Incorporated's common stock of .385, .336, and .331,
respectively, and a weighted-average expected life of the option of 10 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because NTL Incorporated's stock options have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Pro forma net
loss would have been approximately $1,780.7 million, $802.0 million and $580.7
million for the years ended December 31, 2000, 1999 and 1998, respectively.
14. EMPLOYEE BENEFIT PLANS
Certain subsidiaries of the Company operate defined benefit pension plans
in the United Kingdom. The assets of the Plans are held separately from those of
the Company and are invested in specialized portfolios under the management of
an investment group. The pension cost is calculated using the attained age
method. The Company's policy is to fund amounts to the defined benefit plans
necessary to comply with the funding requirements as prescribed by the laws and
regulations in the United Kingdom.
YEAR ENDED
DECEMBER 31,
--------------------
2000 1999
------ ------
(IN MILLIONS)
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year................ $197.1 $213.4
Acquisition............................................ -- 10.7
Service cost........................................... 10.7 12.0
Interest cost.......................................... 11.3 12.0
Actuarial gains........................................ 0.2 (40.9)
Benefits paid.......................................... (5.7) (5.2)
Foreign currency exchange rate changes................. (11.8) (4.9)
------ ------
Benefit obligation at end of year...................... $201.8 $197.1
====== ======
F-23
24
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
YEAR ENDED
DECEMBER 31,
--------------------
2000 1999
------ ------
(IN MILLIONS)
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year......... $278.4 $225.3
Acquisition............................................ -- 10.1
Actual return on plan assets........................... 2.0 43.1
Company contributions.................................. 8.6 7.6
Plan participants' contributions....................... 3.4 2.9
Benefits paid.......................................... (5.7) (5.3)
Foreign currency exchange rate changes................. (17.6) (5.3)
------ ------
Fair value of plan assets at end of year............... $269.1 $278.4
====== ======
Funded status of the plan.............................. $ 67.3 $ 81.3
Unrecognized net actuarial gains....................... (62.0) (89.3)
Unrecognized transition obligation..................... 6.8 8.1
------ ------
Prepaid benefit cost................................... $ 12.1 $ 0.1
====== ======
YEAR ENDED
DECEMBER 31,
----------------------
2000 1999
------------- -----
Actuarial assumptions:
Weighted average discount rate..................... 6.00% 6.25%
Weighted average rate of compensation increase..... 3.50% - 4.25% 4.50%
Expected long-term rate of return on plan assets... 7.50% - 7.75% 8.00%
The components of net pension costs are as follows:
YEAR ENDED DECEMBER 31,
--------------------------
2000 1999 1998
------ ------ ------
(IN MILLIONS)
Service cost..................................... $ 10.7 $ 12.0 $ 13.4
Interest cost.................................... 11.3 12.0 14.7
Actual return on plan assets..................... (2.0) (43.1) (24.2)
Net amortization and deferral.................... (20.6) 26.8 8.3
------ ------ ------
$ (0.6) $ 7.7 $ 12.2
====== ====== ======
15. LEASES
Leases for buildings, office space and equipment extend through 2031. Total
rental expense for the years ended December 31, 2000, 1999 and 1998 under
operating leases was $46.2 million, $27.5 million and $29.4 million,
respectively.
F-24
25
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
Future minimum lease payments under noncancellable operating leases as of
December 31, 2000 are as follows (in millions):
Year ending December 31:
2001.............................................. $ 51.5
2002.............................................. 47.8
2003.............................................. 46.1
2004.............................................. 41.5
2005.............................................. 36.8
Thereafter........................................ 205.8
------
$429.5
======
16. COMMITMENTS AND CONTINGENT LIABILITIES
At December 31, 2000, the Company was committed to pay approximately
$1,112.0 million for equipment and services which includes approximately $860.0
million for certain operations and maintenance contracts through 2008.
The Company had certain exclusive local delivery operator licenses for
Northern Ireland and other franchise areas in the United Kingdom. Pursuant to
these licenses, various subsidiaries of the Company were required to make
monthly cash payments to the Independent Television Commission ("ITC") during
the 15-year license terms. Upon a request by the Company in 1999, the ITC
converted all of the Company's fee bearing exclusive licenses to non-exclusive
licenses by the end of 1999. In 1999 and 1998, the Company paid $30.1 million
and $25.0 million, respectively, in connection with these licenses. Since the
Company's liability for the license payments ceased upon the conversion, in 1999
the Company reversed an accrual for franchise fees of $13.6 million.
The Company is involved in certain disputes and litigation arising in the
ordinary course of its business. None of these matters are expected to have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
17. INDUSTRY SEGMENTS
The Company has four reportable segments: Broadcast Services, Consumer
Services, Business Services, and Shared Services. The Broadcast Services segment
operates in the United Kingdom and includes digital and analog television and
radio broadcasting, rental of antenna space on the Company's owned and leased
towers and sites and associated services, and satellite and media services.
Consumer Services include telephony, cable television, Internet access and
interactive services in regional franchise areas in the United Kingdom and
Ireland. The Business Services segment operates primarily in the United Kingdom
and includes telephony, national and international wholesale carrier
telecommunications, and radio communications services to the emergency services
community. Shared Services principally include network and information
technology management, finance, human resources and facilities management.
Shared Services also includes assets and related depreciation and amortization
that are not allocated to another segment. In 1998, Shared Services included
OCOM Corporation, a subsidiary that operated long distance and microwave
transmission businesses in the United States until June 1998.
In 2000, components of the National Telecoms segment became part of the
Broadcast Services segment, and the remainder of National Telecoms was renamed
Business Services. The rental of antenna space on the Company's owned and leased
towers and sites and associated services, and satellite and media services
became components of Broadcast Services. The 1999 and 1998 segment information
has been reclassified to conform
F-25
26
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
to the 2000 segments. Also, certain goodwill and related amortization was
reclassified to Broadcast Services from Shared Services in all of the periods
presented.
The accounting policies of the segments are the same as those described in
the Significant Accounting Policies note. The Company's management evaluates
segment performance based on various financial and non-financial measurements.
The results of operations data utilized in financial measurements are revenues
and EBITDA, which is earnings before interest, taxes, depreciation and
amortization, corporate expenses, franchise fees, other charges, other gains,
foreign currency transactions gains (losses) and extraordinary items. The
Company's primary measure of profit or loss is EBITDA. Certain selling, general
and administrative expenses are allocated to segments based on revenues.
Management does not allocate costs of shared services departments and jointly
used assets for purposes of measuring segment performance. The reportable
segments are strategic business units that are managed separately and offer
different services.
BROADCAST CONSUMER BUSINESS SHARED TOTAL
--------- --------- -------- -------- ---------
(IN MILLIONS)
Year ended December 31, 2000
Revenues............................. $263.8 $ 1,518.2 $ 702.2 $ -- $ 2,484.2
Depreciation and amortization........ 46.3 1,076.4 153.0 425.0 1,700.7
EBITDA(1)............................ 136.5 410.8 226.2 (481.6) 291.9
Expenditures for long-lived assets... 70.0 1,067.5 637.8 383.9 2,159.2
Total assets(2)...................... 647.3 17,888.3 1,525.5 3,085.4 23,146.5
Year ended December 31, 1999
Revenues............................. $257.3 $ 827.3 $ 452.5 $ -- $ 1,537.1
Depreciation and amortization........ 45.7 527.1 58.8 134.1 765.7
EBITDA(1)............................ 140.4 245.0 106.6 (279.3) 212.7
Expenditures for long-lived assets... 69.6 590.5 356.7 124.5 1,141.3
Total assets(3)...................... 658.3 5,978.5 805.9 2,290.3 9,733.0
Year ended December 31, 1998
Revenues............................. $231.3 $ 355.6 $ 157.7 $ 2.4 $ 747.0
Depreciation and amortization........ 41.7 143.5 17.8 63.1 266.1
EBITDA(1)............................ 115.2 67.6 12.3 (119.7) 75.4
Expenditures for long-lived assets... 165.9 413.9 220.4 67.1 867.3
Total assets......................... 645.8 3,100.5 406.1 2,041.7 6,194.1
- ---------------
(1) Represents earnings before interest, taxes, depreciation and amortization,
franchise fees, other charges, corporate expenses, other gains, foreign
currency transaction (losses) gains and extraordinary items.
(2) At December 31, 2000, shared assets included $355.0 million of cash, cash
equivalents and marketable securities, $1,794.1 million of goodwill and
$936.3 million of other assets.
(3) At December 31, 1999, shared assets included $828.6 million of cash, cash
equivalents and marketable securities, $916.4 million of goodwill and $545.3
million in other assets.
F-26
27
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
The reconciliation of segment combined EBITDA to loss before income taxes
and extraordinary item is as follows:
YEAR ENDED DECEMBER 31,
-------------------------------
2000 1999 1998
--------- ------- -------
(IN MILLIONS)
Segment Combined EBITDA.............................. $ 291.9 $ 212.7 $ 75.4
(Add) Deduct:
Franchise fees..................................... -- 16.5 25.0
Other charges...................................... 92.7 16.2 (4.2)
Corporate expenses................................. 23.7 25.3 17.1
Depreciation and amortization...................... 1,700.7 765.7 266.1
Interest income and other, net..................... (1.6) (29.9) (46.0)
Interest expense................................... 886.3 678.2 328.8
Other gains........................................ -- (493.1) --
Foreign currency transaction losses (gains)........ 58.1 (22.8) (4.2)
--------- ------- -------
2,759.9 956.1 582.6
--------- ------- -------
Loss before income taxes and extraordinary item...... $(2,468.0) $(743.4) $(507.2)
========= ======= =======
18. GEOGRAPHIC INFORMATION
UNITED STATES UNITED KINGDOM IRELAND TOTAL
------------- -------------- ------- ---------
(IN MILLIONS)
2000
Revenues........................... $ -- $ 2,423.0 $ 61.2 $ 2,484.2
Long-lived assets.................. 1.6 21,621.9 182.9 21,806.4
1999
Revenues........................... $ -- $ 1,505.9 $ 31.2 $ 1,537.1
Long-lived assets.................. 1.6 8,143.6 148.0 8,293.2
1998
Revenues........................... $2.4 $ 744.6 $ -- $ 747.0
Long-lived assets.................. 1.2 4,988.4 -- 4,989.6
F-27
28
NTL COMMUNICATIONS CORP.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
(IN MILLIONS)
DECEMBER 31,
----------------------
2000 1999
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 168.2 $ 703.4
Marketable securities..................................... -- 5.0
Other..................................................... 10.5 3.2
--------- ---------
Total current assets........................................ 178.7 711.6
Office improvements and equipment, net of accumulated
depreciation of $1.2 (2000) and $1.3 (1999)............... 1.6 1.6
Investments in and loans to subsidiaries.................... 15,188.5 5,947.6
Deferred financing costs, net of accumulated amortization of
$51.4 (2000) and $32.2 (1999)............................. 136.6 142.8
Other assets................................................ -- 87.4
--------- ---------
Total assets................................................ $15,505.4 $ 6,891.0
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities......................................... $ 96.8 $ 134.3
Long-term debt.............................................. 6,396.4 5,690.7
Shareholder's equity:
Common stock.............................................. -- --
Additional paid-in capital................................ 13,746.7 3,031.3
Accumulated other comprehensive income (loss)............. (379.3) 1.8
(Deficit)................................................. (4,355.2) (1,967.1)
--------- ---------
9,012.2 1,066.0
--------- ---------
Total liabilities and shareholder's equity.................. $15,505.4 $ 6,891.0
========= =========
See accompanying notes.
F-28
29
NTL COMMUNICATIONS CORP.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
(IN MILLIONS)
YEAR ENDED DECEMBER 31,
-------------------------------
2000 1999 1998
--------- ------- -------
COSTS AND EXPENSES
Corporate expenses.......................................... $ 23.6 $ 22.7 $ 14.7
General and administrative expenses......................... 5.9 -- --
Depreciation and amortization............................... 19.7 18.3 10.6
--------- ------- -------
Operating (loss)............................................ (49.2) (41.0) (25.3)
OTHER INCOME (EXPENSE)
Interest income and other, net.............................. 14.4 121.6 128.5
Interest expense............................................ (599.4) (529.5) (317.7)
Foreign currency transaction gains.......................... 67.8 21.9 3.7
--------- ------- -------
(Loss) before income taxes, extraordinary item and equity in
net (loss) of subsidiaries................................ (566.4) (427.0) (210.8)
Income tax provision........................................ -- (1.0) --
--------- ------- -------
(Loss) before extraordinary item and equity in net (loss) of
subsidiaries.............................................. (566.4) (428.0) (210.8)
Loss from early extinguishment of debt...................... -- (3.0) (12.1)
--------- ------- -------
(Loss) before equity in net (loss) of subsidiaries.......... (566.4) (431.0) (222.9)
Equity in net (loss) of subsidiaries........................ (1,821.7) (285.5) (311.7)
--------- ------- -------
Net (loss).................................................. $(2,388.1) $(716.5) $(534.6)
========= ======= =======
See accompanying notes.
F-29
30
NTL COMMUNICATIONS CORP.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
YEAR ENDED DECEMBER 31,
-----------------------------------
2000 1999 1998
--------- --------- ---------
Net cash (used in) operating activities................... $ (293.8) $ (118.3) $ (291.4)
INVESTING ACTIVITIES
Purchase of office improvements and equipment............. (0.5) (0.9) (0.1)
Purchase of marketable securities......................... -- (354.5) (540.6)
Proceeds from sales of marketable securities.............. 5.0 618.6 291.3
Increase in investments in and loans to subsidiaries...... (5,953.2) (1,164.8) (1,466.4)
--------- --------- ---------
Net cash (used in) investing activities................... (5,948.7) (901.6) (1,715.8)
FINANCING ACTIVITIES
Distribution to NTL (Delaware), Inc....................... -- (500.0) --
Contributions from NTL (Delaware), Inc.................... 5,227.2 167.6 --
Proceeds from borrowings, net of financing costs.......... 476.3 1,846.0 2,697.8
Proceeds from issuance of preferred stock and warrants.... -- 500.0 --
Principal payments........................................ (73.7) (730.3) --
Proceeds from exercise of stock options and warrants...... -- 12.1 6.8
Consent solicitation payments............................. -- -- (11.3)
Cash released from (placed in) escrow for debt
repayment............................................... 77.5 (87.0) (217.6)
--------- --------- ---------
Net cash provided by financing activities................. 5,707.3 1,208.4 2,475.7
--------- --------- ---------
(Decrease) increase in cash and cash equivalents.......... (535.2) 188.5 468.5
Cash and cash equivalents at beginning of year............ 703.4 514.9 46.4
--------- --------- ---------
Cash and cash equivalents at end of year.................. $ 168.2 $ 703.4 $ 514.9
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest.................................... $ 240.2 $ 209.1 $ 77.3
Income taxes paid......................................... 0.4 -- --
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Accretion of dividends and discount on preferred stock.... -- $ 8.6 $ 19.1
Conversion of Convertible Notes, net of unamortized
deferred financing costs................................ -- 269.3 187.0
Warrants issued in connection with consent
solicitations........................................... -- -- 10.1
Preferred stock issued for an acquisition................. -- -- 178.5
Common stock and stock options issued for an
acquisition............................................. -- 978.0 600.5
See accompanying notes.
F-30
31
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. CORPORATE RESTRUCTURING
On April 1, 1999, NTL Incorporated completed a corporate restructuring to
create a holding company structure. The holding company restructuring was
accomplished through a merger so that all the stockholders of NTL Incorporated
at the effective time of the merger became stockholders of the new holding
company, and NTL Incorporated became a subsidiary of the new holding company.
The new holding company took the name NTL Incorporated and the holding company's
subsidiary simultaneously changed its name to NTL Communications Corp.
On May 18, 2000, NTL Incorporated completed a second corporate
restructuring to create a holding company structure in connection with the
acquisition of ConsumerCo. The holding company restructuring was accomplished
through a merger so that all the stockholders of NTL Incorporated at the
effective time of the merger became stockholders of the new holding company, and
NTL Incorporated became a subsidiary of the new holding company. The new holding
company has taken the name NTL Incorporated and the holding company's subsidiary
simultaneously changed its name to NTL (Delaware), Inc. NTL Communications Corp.
(the "Company") is a wholly-owned subsidiary of NTL (Delaware), Inc.
On February 21, 2001, the Company completed a transaction whereby it
acquired the entire issued share capital of NTL (CWC Holdings) Limited (the
entity that owns ConsumerCo) from NTL Incorporated and the entire issued share
capital of NTL Business Limited (formerly Workplace Technologies plc) from NTL
(Delaware), Inc. in exchange for shares of its common stock. As a result of this
transaction, ConsumerCo and NTL Business Limited became wholly-owned
subsidiaries of the Company. The Company accounted for the transaction in a
manner consistent with a transfer of entities under common control, which is
similar to a "pooling of interests." Accordingly, the net assets and results of
operations of ConsumerCo and NTL Business Limited have been included in the
Company's consolidated financial statements from their original dates of
acquisition, May 30, 2000 and September 20, 1999, respectively.
2. BASIS OF PRESENTATION
In the Company's condensed financial statements, the Company's investment
in subsidiaries is stated at cost plus equity in the undistributed earnings of
the subsidiaries. The Company's share of net loss of its subsidiaries is
included in net loss using the equity method of accounting. The condensed
financial statements should be read in conjunction with the Company's
consolidated financial statements.
3. LONG-TERM DEBT
Long-term debt consists of:
DECEMBER 31,
--------------------
2000 1999
-------- --------
(IN MILLIONS)
12 3/4% Senior Deferred Coupon Notes.................... (a) $ 277.8 $ 268.1
11 1/2% Senior Deferred Coupon Notes.................... (b) 1,040.5 930.4
10% Senior Notes........................................ (c) 400.0 400.0
9 1/2% Senior Sterling Notes, less unamortized
discount.............................................. (d) 186.5 201.4
10 3/4% Senior Deferred Coupon Sterling Notes........... (e) 353.6 343.7
9 3/4% Senior Deferred Coupon Notes..................... (f) 1,048.5 952.8
9 3/4% Senior Deferred Coupon Sterling Notes............ (g) 360.8 354.4
11 1/2% Senior Notes.................................... (h) 625.0 625.0
12 3/8% Senior Deferred Coupon Notes.................... (i) 323.6 287.0
F-31
32
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31,
--------------------
2000 1999
-------- --------
(IN MILLIONS)
7% Convertible Subordinated Notes....................... (j) 599.3 599.3
Variable Rate Redeemable Guaranteed Loan Notes.......... (k) -- 76.8
9 1/4% Senior Euro Notes................................ (l) 234.7 252.3
9 7/8% Senior Euro Notes................................ (m) 328.6 353.2
11 1/2% Senior Deferred Coupon Euro Notes............... (n) 127.9 123.1
11 7/8% Senior Notes, less unamortized discount......... (o) 489.6 --
-------- --------
6,396.4 5,767.5
Less current portion.................................... -- 76.8
-------- --------
$6,396.4 $5,690.7
======== ========
- ---------------
(a) 12 3/4% Notes due April 15, 2005, principal amount at maturity of $277.8
million, interest payable semiannually from on October 15, 2000, redeemable
at the Company's option on or after April 15, 2000;
(b) 11 1/2% Notes due February 1, 2006, principal amount at maturity of
$1,050.0 million, interest payable semiannually beginning on August 1,
2001, redeemable at the Company's option on or after February 1, 2001;
(c) 10% Notes due February 15, 2007, principal amount at maturity of $400.0
million, interest payable semiannually from August 15, 1997, redeemable at
the Company's option on or after February 15, 2002;
(d) 9 1/2% Sterling Notes due April 1, 2008, principal amount at maturity of
L125.0 million ($186.9 million), interest payable semiannually from October
1, 1998, redeemable at the Company's option on or after April 1, 2003;
(e) 10 3/4% Sterling Notes due April 1, 2008, principal amount at maturity of
L300.0 million ($448.7 million), interest payable semiannually beginning on
October 1, 2003, redeemable at the Company's option on or after April 1,
2003;
(f) 9 3/4% Notes due April 1, 2008, principal amount at maturity of $1,300.0
million, interest payable semiannually beginning on October 1, 2003,
redeemable at the Company's option on or after April 1, 2003;
(g) 9 3/4% Sterling Notes due April 15, 2009, principal amount at maturity of
L330.0 million ($493.5 million), interest payable semiannually beginning on
October 15, 2004, redeemable at the Company's option on or after April 15,
2004;
(h) 11 1/2% Notes due October 1, 2008, principal amount at maturity of $625.0
million, interest payable semiannually from April 1, 1999, redeemable at
the Company's option on or after October 1, 2003;
(i) 12 3/8% Notes due October 1, 2008, principal amount at maturity of $450.0
million, interest payable semiannually beginning on April 1, 2004,
redeemable at the Company's option on or after October 1, 2003;
(j) 7% Convertible Notes due December 15, 2008, principal amount at maturity of
$599.3 million, interest payable semiannually from June 15, 1999,
convertible into shares of NTL Incorporated common stock at a conversion
price of $39.20 per share, redeemable at the Company's option on or after
December 15, 2001 (there are approximately 15.3 million shares of NTL
Incorporated common stock reserved for issuance upon conversion);
F-32
33
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(k) Variable Rate Redeemable Guaranteed Notes due January 5, 2002, principal
amount at maturity of IRL 60.0 million after redemption of IRL20.0 million
($25.7 million) in 1999 using cash held in escrow, remainder redeemed in
March 2000 ($73.7 million) using cash held in escrow;
(l) 9 1/4% Euro Notes due November 15, 2006, principal amount at maturity of
E250.0 million ($234.7 million), interest payable semiannually from May 15,
2000;
(m) 9 7/8% Euro Notes due November 15, 2009, principal amount at maturity of
E350.0 million ($328.6 million), interest payable semiannually from
beginning May 15, 2000, redeemable at the Company's option on or after
November 15, 2004;
(n) 11 1/2% Deferred Euro Notes due November 15, 2009, principal amount at
maturity of E210.0 million ($197.1 million), interest payable semiannually
beginning on May 15, 2005, redeemable at the Company's option on or after
November 15, 2004 and;
(o) 11 7/8% Notes due October 1, 2010, issued in October 2000, principal amount
at maturity of $500.0 million, interest payable semiannually beginning on
April 1, 2001, redeemable at the Company's option on or after October 1,
2005;
The indentures governing the notes contain restrictions relating to, among
other things: (i) incurrence of additional indebtedness and issuance of
preferred stock, (ii) dividend and other payment restrictions and (iii) mergers,
consolidations and sales of assets.
During 2000, 1999 and 1998, the Company recognized $334.3 million, $308.1
million and $232.7 million, respectively, of original issue discount as interest
expense.
In connection with the Cablelink acquisition, the Company issued $704.6
million principal amount Senior Increasing Rate Notes due 2000. In November
1999, the Company received net proceeds of $720.7 million from the issuance of
the 9 1/4% Euro Notes, the 9 7/8% Euro Notes and the 11 1/2% Deferred Euro
Notes, of which $716.5 million was used to repay the Senior Increasing Rate
Notes plus accrued interest. The Company recorded an extraordinary loss from the
early extinguishment of the notes of $3.0 million in 1999.
In October 1998, the Company redeemed its 10 7/8% Senior Deferred Coupon
Notes with an accreted value of $211.0 million for cash of $218.0 million. The
Company recorded an extraordinary loss from the early extinguishment of the
10 7/8% Notes of $12.1 million in 1998, which included approximately $4.8
million of unamortized deferred financing costs.
In 1998, the Company required consents from the holders of some of its
notes to modify certain indenture provisions in order to proceed with an
acquisition. In October 1998, the Company paid $11.3 million in consent payments
and issued warrants to purchase 1.2 million shares of common stock in lieu of
additional consent payments of $10.1 million.
Long-term debt repayments are due as follows (in millions):
Year ending December 31:
2001............................................. $ --
2002............................................. --
2003............................................. --
2004............................................. --
2005............................................. 277.8
Thereafter....................................... 6,813.8
--------
$7,091.6
========
F-33
34
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
In January and February 2001, the Company issued E300.0 million ($281.6
million) aggregate principal amount of 12 3/8% Senior Euro Notes due February 1,
2008. The Company received proceeds of approximately $275.3 million after
underwriters' discount and commissions and other fees. Interest is payable
semiannually in cash at a rate of 12 3/8% per annum beginning on August 1, 2001.
These notes may not be redeemed by the Company except in limited circumstances.
4. LEASES
Leases for office space end in 2004. Total rental expense for the years
ended December 31, 2000, 1999 and 1998 under operating leases was $2.0 million,
$1.2 million and $0.6 million, respectively.
Future minimum lease payments under noncancellable operating leases as of
December 31, 2000 are (in millions): $1.0 (2001), $1.1 (2002), $1.1 (2003) and
$0.7 (2004).
5. OTHER
No cash dividends were paid to the registrant by subsidiaries for the years
ended December 31, 2000, 1999 and 1998.
F-34
35
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
COL. A COL. B COL. C COL. D COL. E
- --------------------------------------- ------------ ------------------------ ------------- ---------
ADDITIONS
------------------------
(2)
(1) CHARGED TO
BALANCE AT CHARGED TO OTHER (DEDUCTIONS)/ BALANCE
BEGINNING OF COSTS AND ACCOUNTS -- ADDITIONS AT END
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
- ----------- ------------ ---------- ----------- ------------- ---------
Year ended December 31, 2000
Allowance for doubtful accounts...... $84.9 $98.5 $-- $(48.2)(a) $135.2
===== ===== == ====== ======
Year ended December 31, 1999
Allowance for doubtful accounts...... $38.5 $45.7 $-- $ 0.7(b) $ 84.9
===== ===== == ====== ======
Year ended December 31, 1998
Allowance for doubtful accounts...... $ 8.1 $27.3 $-- $ 3.1(c) $ 38.5
===== ===== == ====== ======
- ---------------
(a) Uncollectible accounts written-off, net of recoveries of $91.6 million and
$5.7 million foreign exchange currency translation adjustments, offset by
$49.1 million allowance for doubtful accounts as of acquisition dates of
purchased subsidiaries.
(b) Uncollectible accounts written-off, net of recoveries of $15.1 million and
$1.1 million foreign currency exchange translation adjustments, offset by
$16.9 million allowance for doubtful accounts as of acquisition dates of
purchased subsidiaries.
(c) Uncollectible accounts written-off, net of recoveries of $9.2 million,
offset by $12.2 million allowance for doubtful accounts as of acquisition
dates of purchased subsidiaries and $0.1 million foreign currency
translation adjustments.
F-35