Telewest Q3 Results Show
Growth and a Strong Operational Quarter
Telewest Global, Inc. (NASDAQ:
TLWT)("Telewest" or the "Reorganized Company") today
announces third quarter financial results for 2004.
Highlights
-- GBP 101m of free cash flow generated in year-to-date
-- Commitment received for refinancing of bank facility; extending maturity
and lowering cost of debt
-- Best quarterly growth in customer net adds for 2 years; strong
performance continuing in Q4
-- Customer quality maintained as triple play penetration increased 9.5
percentage points to 24.4% year-on-year
-- Continued strong broadband growth with 70,000 net additions in the
quarter
-- Revenue Generating Units grew by 92,000 in the quarter; RGUs per customer
grew from 1.87 to 2.00 year-on-year
-- Consumer sales division revenue growth of 5%
Financial highlights
Fresh Start Pre Fresh Start
------------------------------------------------
(unaudited in GBP m) Q3 2004 Q2 2004 Q3 2003
Revenue 328 326 325
Operating income* 10 20 5
Adjusted EBITDA** 122 122 110
Net loss (29) (126) (89)
Free cash flow 39 37 6
----------------------------------------------------------------------
* Q3 2004 operating income impacted by additional non-cash depreciation and
amortisation charges under fresh start accounting
** Q3 2004 Adjusted EBITDA was reduced by a first time non-cash charge of
GBP 3m of stock- based compensation expense and would have been GBP 125m
without this charge, up GBP 3m on Q2 2004
Operational highlights
Q3 2004 Q2 2004 Q3 2003
Customer net adds 17,000 10,000 2,000
Broadband net adds 70,000 72,000 38,000
RGU net adds 92,000 84,000 49,000
Triple play percentage 24.4% 21.8% 14.9%
----------------------------------------------------------------------
Eric Tveter, President and Chief Operating Officer of Telewest Global, Inc.
commented:
"Our performance this quarter reflects a focus on delivering profitable
growth, enhanced marketing and a continued effort to leverage product bundles.
Customer growth during the quarter has been the best for more than two years.
We expect the momentum in customer net additions to increase in the fourth
quarter. The content division is also seeing increases in advertising revenues,
driven by strong channel performance and the business division has been
strengthened by the completion of its reorganization.
We are encouraged by the progress made to date and remain confident in our
ability to achieve continued profitable growth. We continue to generate strong
free cash flow and will, following completion of the recently announced
refinancing of our senior secured credit facilities, have a capital structure
which provides the Telewest group with a sound platform for the future."
ENQUIRIES
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Brunswick
Nick Claydon Partner +44 (0) 20 7404 5959
OPERATIONAL OVERVIEW
This is the first set of results for Telewest Global, Inc. since the
completion of the financial restructuring of Telewest Communications plc
("the Predecessor Company") on July 15, 2004. These results
demonstrate the success of Telewest's bundling strategy, which continues to
resonate well with consumers. It has delivered accelerating customer growth and
increased revenue, ARPU and operating income. We are growing the number of
broadband subscribers strongly, and triple play penetration has increased
sharply to 24%. Telewest expects to launch Video On Demand services in the
first half and Personal Video Recorder services in the second half of 2005. We
also intend to increase connection speeds for our top three broadband tiers in
January 2005 as we again demonstrate the inherent advantages of our network
over our DSL competitors. Telewest will continue to leverage its unique network
advantage to meet customer needs and to continue to drive increased customer
additions.
Strong customer growth coupled with increased multi-service penetration has
resulted from more effective marketing, new product propositions, such as a
256Kb broadband service, and promotional campaigns, such as that offering
discounts on premium channels for customers bundling TV with a flat rate
telephone package, and also a "3 for GBP 30" offer. Promotional
campaigns have successfully increased the call-in rate to telesales centers as
customers are attracted by the headline promotion. Successful upselling and
cross-selling has ensured that new acquisitions were not dilutive to customer
ARPU.
The content division continues to perform well with significant increases in
advertising revenues, driven by strong channel performance, particularly Living
TV, as it continues to benefit from the increase in multi-channel penetration.
Market conditions for our business division remain challenging. However, we
have reorganized this operation to focus on cash optimization and it aims to
exploit growth in the managed data market.
FINANCIAL RESULTS
Refinancing
On November 2, 2004, Telewest announced that it had executed a commitment
letter for new GBP 1.8 billion credit facilities that will be used to replace
outstanding borrowings under the Telewest group's existing GBP 2.03 billion senior
credit facilities. Further details can be found in "Subsequent
Events" below.
Fresh-Start Accounting
As a result of the completion of the Predecessor Company's financial
restructuring on July 15, 2004, Telewest adopted fresh-start accounting in accordance
with Statement of Position 90-7, "Reporting by Entities in Reorganization
under the Bankruptcy Code", ("SOP 90-7"), with effect from July
1, 2004. Under SOP 90-7, Telewest has established a new accounting basis,
recording the Predecessor Company's assets at their fair value and liabilities
at the present value of amounts to be paid.
A reconciliation of the Predecessor Company's balance sheet at June 30, 2004
to the fresh-start balance sheet at July 1, 2004, is included in Telewest's
quarterly report on Form 10-Q for the quarter ended September 30, 2004.
As a result of the adoption of fresh-start accounting, the Reorganized
Company's balance sheet and results of operations for the three months ended
September 30, 2004 and for each reporting period thereafter will not be
comparable in many material respects to the balance sheet or results of
operations reflected in Predecessor Company's historical financial statements
for periods prior to July 1, 2004.
US GAAP Financial
Measures 3 months ended Sept. 30, 9 months ended Sept. 30,
------------------------ ------------------------
(unaudited in GBP
millions) 2004 2003 2004 2003
Reorganized Predecessor Combined Predecessor
Company Company Companies Company
----------------------------------------------------------------------
Operating income 10 5 49 10
Net loss (29) (89) (159) (247)
Net cash provided by
operating
activities 72 60 242 196
----------------------------------------------------------------------
Operating income for the third quarter of 2004 was GBP 10 million, up from
GBP 5 million for the third quarter of 2003, and for the nine months ended
September 30, 2004 was GBP 49 million, up GBP 39 million from GBP 10 million
for the nine months ended September 30, 2003. The improvements resulted
principally from lower operating costs and revenue growth within our Consumer
sales division.
Net loss decreased from GBP 89 million for the third quarter of 2003 to GBP
29 million for the third quarter of 2004, and decreased from GBP 247 million
for the nine months ended September 30, 2003 to GBP 159 million for the nine
months ended September 30, 2004. The improvement was principally due to the
enhanced operating income, and lower interest costs following our financial
restructuring.
Net cash provided by operating activities increased from GBP 60 million for
the third quarter of 2003 to GBP 72 million for the third quarter of 2004 and
from GBP 196 million for the nine months ended September 30, 2003 to GBP 242 million
for the nine months ended September 30, 2004. These increases were principally
as a result of improvements in operating income and reduced working capital.
Non-US GAAP
Financial Measures 3 months ended Sept. 30, 9 months ended Sept. 30,
------------------------ ------------------------
(unaudited in GBP
millions) 2004 2003 2004 2003
Reorganized Predecessor Combined Predecessor
Company Company Companies Company
----------------------------------------------------------------------
Adjusted EBITDA 122 110 366 320
Free cash flow 39 6 101 38
----------------------------------------------------------------------
Adjusted EBITDA for the third quarter of 2004 was GBP 122 million, up 11% as
compared to the third quarter of 2003 and for the nine months ended September
30, 2004 was GBP 366 million, up 14% as compared to the nine months ended
September 30, 2003. These increases reflect increased revenues, particularly in
the Consumer sales division, improved gross margin and lower selling, general
and administrative expenses ("SG&A").
Stock-based compensation expense ("SBCE") of GBP 3 million was
incurred in the third quarter of 2004. SBCE arises as a result of options and
restricted stock issued by the Reorganized Company upon completion of the
financial restructuring of the Predecessor Company. SBCE is accounted for in
accordance with SFAS 123, Accounting for Stock-Based Compensation, and will
similarly affect future periods. This is a non-cash item and no such expense
was incurred in either the second quarter of 2004, or the third quarter of
2003. Adjusted EBITDA before the deduction of SBCE was GBP 125 million in the
third quarter of 2004, an increase of GBP 3 million over the second quarter of
2004, and up 14% as compared to the third quarter of 2003.
Free cash flow for the three months ended September 30, 2004 was GBP 39
million, up GBP 33 million compared to the three months ended September 30,
2003, due to improvements in cash from operations and reductions in cash paid
for property and equipment.
Free cash flow for the nine months ended September 30, 2004 was GBP 101
million, up GBP 63 million compared to the nine months ended September 30,
2003, due principally to improvements in cash from operations.
Reconciliations of these non-US GAAP financial measures, Adjusted EBITDA and
free cash flow, to the most directly comparable US GAAP financial measures are
explained and shown on pages 19 and 20.
OPERATING RESULTS
Comparison of the three-month periods ended September 30, 2004 and 2003
Except where otherwise stated in this section, all comparisons compare
Telewest's three-month period ended September 30, 2004 to the Predecessor
Company's three-month period ended September 30, 2003.
Total revenue 3 months ended Sept. 30,
------------------------
(unaudited in GBP millions) 2004 2003 Percentage
Reorganized Predecessor Increase/
Company Company (Decrease)
----------------------------------------------------------------------
Cable Segment
Consumer sales 238 227 5%
Business sales 63 71 (11%)
----------------------------------------------------------------------
Total Cable Segment 301 298 1%
Content Segment 27 27 -
----------------------------------------------------------------------
Total revenue 328 325 1%
----------------------------------------------------------------------
Cable segment
Consumer sales division
Consumer sales division revenue increased 5% from GBP 227 million to GBP 238
million, primarily due to growth in broadband internet revenue, triple play
penetration and overall subscribers.
Overall, the Consumer sales division's Average Revenue Per User
("ARPU") for the quarter was up 3% to GBP 45.05 reflecting increasing
broadband internet and "triple play" penetration. During the quarter
the number of household customers increased by 17,000. Customer growth has
continued strongly into the fourth quarter and we expect customer net additions
to be significantly higher in the fourth quarter than in the third quarter.
Our successful focus on selling bundled products has resulted in the
percentage of customers subscribing to two or more services increasing
year-on-year from 72% to 76% and the percentage of "triple play"
customers increasing from 15% to 24%. This success is also reflected in the
growth of Revenue Generating Units (RGUs) which grew by 92,000 in the quarter.
RGUs per customer have grown from 1.87 to 2.00 over the last twelve months.
Cable television
Combined analog and digital TV subscribers rose by 9,000 and the number of
digital TV subscribers rose by 26,000 in the third quarter of 2004.
We increased the price of our digital Essential pack by GBP 1 per month to
GBP 9.50 with effect from July 1, 2004. We also increased the price of our
digital Starter pack by GBP 1 to GBP 4.50 per month with effect from November
1, 2004. TV ARPU rose from GBP 20.53 in the second quarter to GBP 20.72 in the
third quarter, following the Essential price rise and an increase in the take up
of premium channels.
At September 30, 2004, 83% of our TV subscribers took our digital service
compared with 75% at September 30, 2003. 94% of our network has been upgraded
for broadband and digital. We continue to upgrade further sections of our
network that are currently unable to receive digital television or broadband.
We expect to begin rolling out Video On Demand in the first half and
Personal Video Recorder services in the second half of 2005.
Consumer telephony
The number of telephony subscribers increased by 13,000 in the third quarter
as we successfully continued to add customers in a very competitive market.
We have continued our strategy of migrating customers to flat rate packages
to minimize the impact of declining telephony usage. As a result, the number of
subscribers to our "Talk" flat rate telephony packages increased by
36,000 in the third quarter. 34% of all telephony customers are now on a
"Talk" flat rate package compared to 27% at September 30, 2003. We
have recently introduced two further "Talk" packages. Talk Mobile
gives customers significant discounts on calls to mobiles for a flat rate of
GBP 1.50 per month on top of the usual line rental. Talk Weekends gives
customers free local and national calls at weekends.
Consumer internet
The third quarter was a very strong quarter for broadband with 70,000 net
additions compared to 38,000 net additions in the third quarter of 2003. Growth
has continued strongly in the fourth quarter. Subscriber growth in the quarter
has come mainly at the 256Kb level, reflected in broadband ARPU of GBP 22.27
down from GBP 23.04 in the second quarter.
Earlier in the year, we increased the connection speeds of our top three
broadband tiers at no additional cost to our customers. Our standard broadband
service increased in speed from 512Kb to 750Kb. The 1Mb and 2Mb services
increased to speeds of 1.5Mb and 3Mb, respectively. In January 2005, we intend
to increase customer speeds again for our top three tiers at no cost to our
customers, as we continue to demonstrate the inherent advantages of our network
over our DSL competitors. Our new top three broadband tiers will be at 1Mb, 2Mb
and 4Mb.
We believe we are the broadband internet market leader in our addressable
areas (those areas of the country where consumers are able to receive our
broadband internet services) with around 71% market share.
Broadband continues to be successful in attracting new customers to
Telewest. In the third quarter of 2004, 42% of broadband installations were for
customers who were not existing customers. We have also achieved strong
multi-service penetration amongst our broadband customers, with 71% subscribing
to the full "triple play" and 94% subscribing to at least one other
product as of September 30, 2004.
Business sales division
Business sales division revenue decreased GBP 8 million to GBP 63 million
primarily due to reductions of GBP 5 million in voice revenues, GBP 3 million
in carrier services revenues and GBP 1 million in travel revenues. This decline
in revenues included GBP 1 million arising as a result of the derecognition of
deferred revenues under fresh-start accounting. Declining product group revenue
streams have been partially offset by a GBP 1 million increase in data
revenues. Business revenues have stabilized with third quarter revenues at the
same level as in the second quarter. However, market conditions remain
challenging.
We have reorganized the business division to provide a differentiated
service to customers, based more closely on the services and products they have
or may require in the future, with separate service models for standard and
complex customer segments. These changes have resulted in cost savings but have
undoubtedly impacted revenue growth in 2004. However, the division has been
strengthened by the completion of its reorganization.
As part of our strategy of introducing new voice products to defend
declining telephony usage, we successfully launched our new SRS (Special Rate
Services) Advanced Solutions product during the third quarter. We had
previously launched Carrier Pre-Select and Wholesale Line Rental services
during the second quarter and we have now secured a number of contracts for
these services.
Content segment
Content segment revenue remained flat at GBP 27 million as increases in
advertising revenues were offset by a decline in other, non-core, revenues.
Advertising revenue was up 17% compared to a 5% growth in the overall market as
multi-channel penetration increased. Other non-core revenues were GBP 3 million
in the third quarter of 2004, flat on the second quarter of 2004 but down from
GBP 5 million in the third quarter of 2003.
Telewest's 50% share of its joint venture UKTV's net income was GBP 3
million in the third quarter compared to GBP 3 million in the corresponding
period of last year and is included within "share of net income of
affiliates".
Combined operating costs and expenses
Operating costs and expenses 3 months ended Sept. 30,
-------------------------
(unaudited in GBP millions) 2004 2003 Percentage
Reorganized Predecessor Increase/
Company Company (Decrease)
----------------------------------------------------------------------
Cable segment expenses 72 78 (8%)
Content segment expenses 17 19 (11%)
Depreciation 103 96 7%
Amortization 9 - -
----------------------------------------------------------------------
Cost of revenue 201 193 4%
SG&A expenses 117 127 (8%)
----------------------------------------------------------------------
Total operating costs and
expenses 318 320 (1%)
----------------------------------------------------------------------
Total gross margin (total revenue less cable and content segment expenses as
a percentage of total revenue) increased from 70% to 73% due primarily to the
growing number of high margin broadband subscribers and reductions in
interconnect costs.
Depreciation of tangible fixed assets was GBP 103 million, up from GBP 96
million. This increase is as a result of fresh-start accounting, whereby the
book value of plant, property and equipment was revised upwards. Amortization
of intangibles was GBP 9 million compared to zero in the third quarter of 2003
due to the implementation of fresh-start accounting, requiring that we value
and commence the amortization of our customer lists for the first time.
SG&A decreased by 8% to GBP 117 million, primarily because no financial
restructuring charges were incurred in the third quarter of 2004. Financial
restructuring charges represented costs incurred in connection with the
Predecessor Company's financial restructuring, and amounted to GBP 9 million
for the three months ended September 30, 2003.
Included in SG&A for the three months ended September 30, 2004 is SBCE
of GBP 3 million. This is a non-cash item and no such expense was incurred in
the third quarter of 2003.
Comparison of the nine-month periods ended September 30, 2004 and 2003
Except where otherwise stated in this section, all comparisons are of
Telewest's nine-month period ended September 30, 2004 aggregated with the
Predecessor Company's six-month period ended June 30, 2004, ("Combined
Companies") to the Predecessor Company's nine-month period ended September
30, 2003.
Total revenue 9 months ended Sept. 30,
--------------------------
(unaudited in GBP millions) 2004 2003 Percentage
Combined Predecessor Increase/
Companies Company (Decrease)
----------------------------------------------------------------------
Cable Segment
Consumer sales 708 677 5%
Business sales 193 210 (8%)
----------------------------------------------------------------------
Total Cable Segment 901 887 2%
Content Segment 81 80 1%
----------------------------------------------------------------------
Total revenue 982 967 2%
----------------------------------------------------------------------
Cable segment
Consumer sales division
Consumer sales division revenue increased 5% from GBP 677 million to GBP 708
million, primarily due to growth in the number of broadband internet
subscribers, triple play penetration and overall subscribers.
Business sales division
Business sales division revenue decreased GBP 17 million to GBP 193 million
due to a decline of GBP 13 million in business voice revenues and reductions of
GBP 8 million in carrier services revenues and GBP 4 million in travel
revenues, partially offset by 14% growth in data revenues. Business sales
division's revenue was also impacted by the decline in deferred revenue of GBP
1 million, as discussed above.
Content segment
Content segment revenue increased by GBP 1 million as increases in
advertising and subscription revenues were partially offset by a decline in
other, non-core, revenues.
Telewest's 50% share of its UKTV joint ventures' net income was GBP 12 million
in the nine months ended September 30, 2004, and is included within "share
of net income of affiliates".
Combined operating costs and expenses
Operating costs and expenses 9 months ended Sept. 30,
------------------------
(unaudited in GBP millions) 2004 2003 Percentage
Combined Predecessor Increase/
Companies Company (Decrease)
----------------------------------------------------------------------
Cable segment expenses 225 240 (6%)
Content segment expenses 51 54 (6%)
Depreciation 287 294 (2%)
Amortization 9 - -
----------------------------------------------------------------------
Cost of revenue 572 588 (3%)
SG&A expenses 361 369 (2%)
----------------------------------------------------------------------
Total operating costs and expenses 933 957 (3%)
----------------------------------------------------------------------
Total gross margin (total revenue less cable and content segment expenses as
a percentage of total revenue) increased from 70% to 72% due primarily to the
growing number of high margin broadband subscribers and reductions in
interconnect costs.
Depreciation of tangible fixed assets was GBP 287 million, down from GBP 294
million. Amortization of intangibles was GBP 9 million compared to zero in the
nine months ended September 30, 2003. Under fresh-start accounting, we have
valued and commenced the amortization of our customer lists for the first time.
Reflecting our continued focus on reducing costs, SG&A decreased 2% to
GBP 361 million due mainly to headcount reductions, lower severance costs and
bad debt savings achieved through improved credit policies, partially offset by
an increase in financial restructuring charges, which increased from GBP 16
million for the nine months ended September 30, 2003 to GBP 21 million for the
nine months ended September 30, 2004.
Included in SG&A for the nine months ended September 30, 2004 is SBCE of
GBP 3 million. This is a non-cash item and no such expense was incurred in the
nine months ended September 30, 2003.
Principal affiliate - UKTV
(unaudited in GBP millions) 3 months ended 9 months ended
Sept. 30, Sept. 30,
-------------- --------------
2004 2003 2004 2003
----------------------------------------------------------------------
Share of net income of UKTV 3 3 12 7
Cash inflow from UKTV, being interest
received and
repayments of loans made, net 6 6 15 24
Telewest owns 50% of the companies that comprise UKTV, a group of joint
ventures formed with BBC Worldwide. UKTV offers a portfolio of multi-channel
television channels based on the BBC's program library.
Telewest accounts for its interest in UKTV under the equity method and
recognized a share of net income of GBP 3 million and GBP 12 million for the
three and nine months ended September 30, 2004, respectively. This compares to
GBP 3 million and GBP 7 million for the three and nine months ended September 30,
2003, respectively.
UKTV is funded by a loan from Telewest which was GBP 190 million at
September 30, 2004. This loan effectively acts as a revolving facility for
UKTV. Total cash interest and repayments received in respect of this loan by
Telewest were GBP 6 million in the third quarter of 2004 and GBP 15 million in
the nine months ended September 30, 2004. Telewest's cash interest receipts
from UKTV are recorded in free cash flow but not in Telewest's Adjusted EBITDA.
Liquidity and Capital Resources
Net cash provided by operating activities increased from GBP 60 million for
the third quarter of 2003 to GBP 72 million for the third quarter of 2004, and
from GBP 196 million for the nine months ended September 30, 2003 to GBP 242
million for the nine months ended September 30, 2004. These increases were
principally as a result of improvements in operating income and reduced working
capital.
Net cash used in investing activities decreased from GBP 58 million for the
third quarter of 2003 to GBP 44 million for the third quarter of 2004,
primarily due to a reduction in cash paid for property and equipment. Net cash
used in investing activities increased from GBP 150 million for the nine months
ended September 30, 2003 to GBP 168 million for the nine months ended September
30, 2004, principally as a result of reduced loan repayments received from
affiliates.
Capital expenditure, on an accrual basis, for the third quarter of 2004 was
GBP 51 million. Capital expenditure, on an accrual basis, is expected to be in
the region of GBP 225 million in 2004 and in the range of GBP 240 million to
GBP 270 million in 2005. Capital expenditure is expected to increase in 2005,
due primarily to new product development expenditure, including Video On Demand
and Personal Video Recorder services, as well as billing system upgrades and
capacity upgrades to our IP network.
Cash and cash equivalents at September 30, 2004 were GBP 266 million.
Combined Companies
Combined Companies for the nine months ended September 30, 2004, represents
the combination of Telewest's results for the nine months ended September 30,
2004 and the Predecessor Company's results for the six months ended June 30,
2004.
Telewest and its subsidiary did not carry on any business and incurred only
immaterial expenses prior to the completion of the Predecessor Company's
financial restructuring. For that reason, Telewest's consolidated results of
operations for the three months ended September 30, 2004 and the nine months
ended September 30, 2004 are in all material respects identical. The Combined
Companies presentation does not include any adjustments to give pro forma
effect to the financial restructuring as of an earlier date and is not intended
to be indicative of the results that would have been obtained had the
restructuring been completed at the beginning of the periods presented. In
addition, it is not indicative of results for future periods.
Subsequent Events
On November 2, 2004, Telewest announced that it had executed a commitment
letter for new GBP 1.8 billion credit facilities that will be used to replace
outstanding borrowings under the Telewest group's existing GBP 2.03 billion
senior credit facilities. The new facilities will be underwritten by Barclays
Bank PLC, BNP Paribas, Citigroup Global Markets Limited, Credit Suisse First
Boston, Deutsche Bank and Royal Bank of Scotland. As a result of the planned
transaction, currently scheduled to be completed by January 2005, Telewest will
have significantly extended the maturity profile of its senior credit
facilities, the majority of which currently mature in December 2005, and
reduced its overall long-term cost of borrowing.
The new senior credit facility is expected to comprise five tranches:
tranche A, a 7-year, amortizing term facility of GBP 700 million bearing
interest of LIBOR plus 2.25%; tranche B, an 8-year term facility of GBP 425
million equivalent bearing interest of LIBOR plus 2.75%; tranche C, a 9-year
term facility of a GBP 325 million equivalent bearing interest of LIBOR plus
3.25%; a 7-year revolving loan facility of GBP 100 million bearing interest of
LIBOR plus 2.25%; and a 9 1/2-year second lien term facility of GBP 250 million
equivalent bearing interest at a rate to be determined. Interest rates on each
of tranche A, tranche B and the revolving loan facility are subject to
reduction based on the Company's ability to meet specified leverage ratios. The
revolving loan facility is expected to remain undrawn at funding of the new
facility.
The closing of the new credit facilities is subject to the satisfaction of
documentation and other customary closing conditions.
Assuming that the new credit facilities of GBP 1.8 billion are successfully
completed at the end of the year, net cash interest expense (ie after interest
income) in 2005 is expected to be in the range of GBP 145 million to GBP 155
million, excluding any facility fees. This range could be impacted by any
changes in UK interest rates as only GBP 1 billion of the new facilities are
expected to be covered by interest rate swaps.
3 months ended Sept. 30,
-------------------------
2004 2003
------------ -----------
Reorganized Predecessor
Company Company
(restated)
----------------------------------------------------------------------
Revenue
Consumer Sales Division 238 227
Business Sales Division 63 71
----------------------------------------------------------------------
Total Cable Segment 301 298
Content Segment 27 27
----------------------------------------------------------------------
Total revenue 328 325
----------------------------------------------------------------------
Operating costs and expenses
Cable segment expenses (72) (78)
Content segment expenses (17) (19)
Depreciation (103) (96)
Amortization (9) -
Selling, general and administrative expenses (117) (127)
----------------------------------------------------------------------
(318) (320)
----------------------------------------------------------------------
Operating income 10 5
Other income/(expense)
Interest income 6 5
Interest expense (including amortization of
debt discount) (49) (119)
Foreign exchange gains, net - 15
Share of net income of affiliates 4 2
Other, net - 1
----------------------------------------------------------------------
Loss before income taxes (29) (91)
Income taxes benefit - 2
----------------------------------------------------------------------
Net loss (29) (89)
----------------------------------------------------------------------
Basic and diluted loss per ordinary share of GBP (0.12)
common stock
Weighted average number of ordinary shares of
common stock - (millions) 245
----------------------------------------------------------------------
Nine months Six months Nine months Nine months
ended ended ended ended
Sept. 30, June 30, Sept. 30, Sept. 30,
2004 2004 2004 2003
----------- ----------- ----------- -----------
Reorganized Predecessor Combined Predecessor
Company Company Companies Company
(restated)
----------------------------------------------------------------------
Revenue
Consumer Sales Division 238 470 708 677
Business Sales Division 63 130 193 210
----------------------------------------------------------------------
Total Cable Segment 301 600 901 887
Content Segment 27 54 81 80
----------------------------------------------------------------------
Total revenue 328 654 982 967
----------------------------------------------------------------------
Operating costs and
expenses
Cable segment expenses (72) (153) (225) (240)
Content segment
expenses (17) (34) (51) (54)
Depreciation (103) (184) (287) (294)
Amortization (9) - (9) -
Selling, general and
administrative
expenses (117) (244) (361) (369)
----------------------------------------------------------------------
(318) (615) (933) (957)
----------------------------------------------------------------------
Operating income 10 39 49 10
Other income/(expense)
Interest income 6 15 21 17
Interest expense
(including
amortization of debt
discount) (49) (230) (279) (366)
Foreign exchange gains,
net - 40 40 84
Share of net income of
affiliates 4 8 12 4
Other, net - (1) (1) -
----------------------------------------------------------------------
Loss before income
taxes (29) (129) (158) (251)
Income taxes
(charge)/benefit - (1) (1) 4
----------------------------------------------------------------------
Net loss (29) (130) (159) (247)
----------------------------------------------------------------------
Basic and diluted loss
per ordinary share of
common stock GBP (0.12)
Weighted average number
of ordinary shares of
common stock -
(millions) 245
The Statement of Operations for the Combined Companies for the nine months
ended September 30, 2004 excludes the Predecessor Company's Statement of Operations
for July 1, 2004.
Sept. 30, Dec. 31
2004 2003
----------- -----------
Reorganized Predecessor
Company Company
----------------------------------------------------------------------
Assets
Cash and cash equivalents 266 427
Restricted cash 33 13
Trade receivables 114 114
Other receivables 34 39
Prepaid expenses 28 16
----------------------------------------------------------------------
Total current assets 475 609
Investments accounted for under the equity
method 305 362
Property and equipment 3,002 2,421
Intangible assets 323 -
Goodwill - 447
Reorganization value in excess of amounts
allocable to identifiable assets 425 -
Inventory 31 27
Other assets - 23
----------------------------------------------------------------------
Total assets 4,561 3,889
----------------------------------------------------------------------
Liabilities and shareholders' equity/(deficit)
Accounts payable 130 98
Other liabilities 444 809
Debt repayable within one year 1 5,287
Capital lease obligations repayable within one
year 39 89
----------------------------------------------------------------------
Total current liabilities 614 6,283
Deferred taxes 105 108
Debt repayable after more than one year 1,846 6
Capital lease obligations repayable after more
than one year 74 51
----------------------------------------------------------------------
Total liabilities 2,639 6,448
----------------------------------------------------------------------
----------------------------------------------------------------------
Minority interest (1) (1)
----------------------------------------------------------------------
Shareholders' equity/(deficit)
Ordinary shares - 10 pence par value;
authorized 4,300 million, issued 2,874
million (2003) - 287
Limited voting convertible ordinary shares -
10 pence par value; authorized 300 million,
issued 82 million (2003) - 8
Preferred stock - US$0.01 par value;
authorized 5,000,000 shares, issued none
(2004 and 2003) - -
Common stock - US$0.01 par value; authorized
1,000,000,000 shares, issued 245,000,001
(2004) and 1 (2003) 1 -
Additional paid-in capital 1,951 4,223
Accumulated deficit (29) (7,076)
----------------------------------------------------------------------
Total shareholders' equity/(deficit) 1,923 (2,558)
----------------------------------------------------------------------
----------------------------------------------------------------------
Total liabilities and shareholders'
equity/(deficit) 4,561 3,889
----------------------------------------------------------------------
9 months 6 months
ended ended
Sept. 30, June 30, July 1
2004 2004 2004
----------- ----------- -----------
Reorganized Predecessor Predecessor
Company Company Company
----------------------------------------------------------------------
Cash flows from operating
activities
Net loss (29) (130) -
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation 103 184 -
Amortization 9 - -
Amortization of deferred financing
costs and debt discount - 30 -
Deferred taxes charge/(credit) - 1 -
Unrealized gains on foreign
currency translation - (40) -
Non-cash accrued stock-based
compensation cost 3 - -
Share of net income of affiliates (4) (8) -
Amounts written off investments - 1 -
Changes in operating assets and
liabilities, net of effect of
acquisition of subsidiaries:
Change in receivables (7) 9 -
Change in prepaid expenses 5 (25) -
Change in other assets (2) (3) -
Change in accounts payable 10 27 -
Change in other liabilities (16) 124 -
----------------------------------------------------------------------
Net cash provided by operating
activities 72 170 -
----------------------------------------------------------------------
Cash flows from investing
activities
Cash paid for property and
equipment (50) (127) -
Repayment/(payment) of loans made
to affiliates, net 6 (4) -
Disposal of affiliate - 7 -
Proceeds from disposals of assets - - -
Other investing activities - - -
----------------------------------------------------------------------
Net cash used in investing
activities (44) (124) -
----------------------------------------------------------------------
Cash flows from financing
activities
Release/(placement) of restricted
cash 14 2 (36)
Capital element of capital lease
repayments (10) (23) -
Repayment of credit advance - - (160)
Payment of bank facility amendment
fee - - (22)
----------------------------------------------------------------------
Net cash provided by/(used in)
financing activities 4 (21) (218)
----------------------------------------------------------------------
Net increase/(decrease) in cash and
cash equivalents 32 25 (218)
Cash and cash equivalents at
beginning of period - 427 452
Cash and cash equivalents
transferred from Predecessor
Company to Reorganized Company 234 - (234)
----------------------------------------------------------------------
Cash and cash equivalents at end of
period 266 452 -
----------------------------------------------------------------------
Supplementary cash flow
information:
Cash paid for interest, net (39) (61) -
Cash received for income taxes - 2 -
9 months 9 months
ended ended
Sept. 30, Sept. 30,
2004 2003
---------- -----------
Combined Predecessor
Companies Company
(restated)
---------------------------------------------------------- -----------
Cash flows from operating activities
Net loss (159) (247)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 287 294
Amortization 9 -
Amortization of deferred financing costs and
debt discount 30 85
Deferred taxes charge/(credit) 1 (4)
Unrealized gains on foreign currency translation (40) (84)
Non-cash accrued stock-based compensation cost 3 -
Share of net income of affiliates (12) (4)
Amounts written off investments 1 -
Changes in operating assets and liabilities, net
of effect of acquisition of subsidiaries:
Change in receivables 2 24
Change in prepaid expenses (20) (5)
Change in other assets (5) (10)
Change in accounts payable 37 3
Change in other liabilities 108 144
---------------------------------------------------------- -----------
Net cash provided by operating activities 242 196
---------------------------------------------------------- -----------
Cash flows from investing activities
Cash paid for property and equipment (177) (173)
Repayment/(payment) of loans made to affiliates,
net 2 16
Disposal of affiliate 7 7
Proceeds from disposals of assets - 1
Other investing activities - (1)
---------------------------------------------------------- -----------
Net cash used in investing activities (168) (150)
---------------------------------------------------------- -----------
Cash flows from financing activities
Release/(placement) of restricted cash (20) (1)
Capital element of capital lease repayments (33) (41)
Repayment of credit advance (160) -
Payment of bank facility amendment fee (22) -
---------------------------------------------------------- -----------
Net cash provided by/(used in) financing
activities (235) (42)
---------------------------------------------------------- -----------
Net increase/(decrease) in cash and cash
equivalents (161) 4
Cash and cash equivalents at beginning of period 427 390
Cash and cash equivalents transferred from
Predecessor Company to Reorganized Company - -
---------------------------------------------------------- -----------
Cash and cash equivalents at end of period 266 394
---------------------------------------------------------- -----------
Supplementary cash flow information:
Cash paid for interest, net (100) (122)
Cash received for income taxes 2 -
Sep. 30, Jun. 30, Mar. 31,
2004 2004 2004
------------------------
Reorganized
Company Predecessor Company
----------------------------------------------------------------------
Customer Data
-------------
Homes passed and marketed (1) 4,686,799 4,682,777 4,678,182
Total customer relationships (2) 1,769,263 1,752,553 1,742,144
Customer penetration 37.7% 37.4% 37.2%
Customer additions 78,707 67,118 61,997
Customer disconnections (61,997) (56,709) (50,291)
Net customer additions 16,710 10,409 11,706
Revenue Generating Units
("RGUs") (3) 3,539,185 3,447,254 3,363,240
RGUs per customer 2.00 1.97 1.93
Net RGU additions 91,931 84,014 76,534
Average monthly revenue per GBP 45.05 GBP 44.98 GBP 45.05
customer (4)
Average monthly churn (5) 1.2% 1.1% 1.0%
----------------------------------------------------------------------
Bundled customers
-----------------------------------
Customers subscribing to two or
more services 1,338,632 1,312,842 1,291,141
Customers subscribing to three
services ("triple play") 431,290 381,859 329,955
Percentage of dual or triple-
service customers 75.7% 74.9% 74.1%
Percentage of triple-service
customers 24.4% 21.8% 18.9%
----------------------------------------------------------------------
Cable Television
-----------------------------------
Television ready homes passed
and marketed 4,686,799 4,682,777 4,678,182
Total subscribers 1,297,304 1,288,272 1,285,797
Quarterly net additions 9,032 2,475 13,733
Television penetration 27.7% 27.5% 27.5%
Digital ready homes passed and
marketed 4,405,162 4,401,860 4,386,050
Digital subscribers 1,078,623 1,052,855 1,029,759
Quarterly net digital additions 25,768 23,096 41,886
Penetration of digital
subscribers to total
subscribers 83.1% 81.7% 80.1%
Average monthly churn 1.4% 1.3% 1.2%
Average monthly revenue per GBP 20.72 GBP 20.53 GBP 21.18
subscriber (4)
----------------------------------------------------------------------
Consumer Telephony
-----------------------------------
Telephony ready homes passed and
marketed 4,682,002 4,677,861 4,674,932
3-2-1 telephony subscribers
(metered) 1,082,125 1,105,056 1,130,171
Talk subscribers (unmetered) 552,534 516,313 481,976
Total subscribers 1,634,659 1,621,369 1,612,147
Quarterly net additions 13,290 9,222 12,114
Telephony penetration 34.9% 34.7% 34.5%
Average monthly churn 1.2% 1.1% 1.0%
Average monthly revenue per GBP 23.53 GBP 23.70 GBP 24.20
subscriber (4)
----------------------------------------------------------------------
Dec. 31, Sep. 30,
2003 2003
------------------------
Predecessor Company
----------------------------------------------------------------------
Customer Data
-------------
Homes passed and marketed (1) 4,674,764 4,679,688
Total customer relationships (2) 1,730,438 1,721,550
Customer penetration 37.0% 36.8%
Customer additions 64,278 62,553
Customer disconnections (55,390) (60,871)
Net customer additions 8,888 1,682
Revenue Generating Units ("RGUs") (3) 3,286,706 3,217,600
RGUs per customer 1.90 1.87
Net RGU additions 69,106 49,395
Average monthly revenue per customer (4) GBP 44.42 GBP 43.93
Average monthly churn (5) 1.1% 1.2%
----------------------------------------------------------------------
Bundled customers
----------------------------------------------
Customers subscribing to two or more
services 1,264,756 1,239,659
Customers subscribing to three services
("triple play") 291,512 256,391
Percentage of dual or triple-service
customers 73.1% 72.0%
Percentage of triple-service customers 16.8% 14.9%
----------------------------------------------------------------------
Cable Television
----------------------------------------------
Television ready homes passed and marketed 4,674,764 4,679,688
Total subscribers 1,272,064 1,258,549
Quarterly net additions 13,515 8,038
Television penetration 27.2% 26.9%
Digital ready homes passed and marketed 4,306,251 4,292,032
Digital subscribers 987,873 945,595
Quarterly net digital additions 42,278 34,404
Penetration of digital subscribers to total
subscribers 77.7% 75.1%
Average monthly churn 1.3% 1.4%
Average monthly revenue per subscriber (4) GBP 21.16 GBP 20.93
----------------------------------------------------------------------
Consumer Telephony
----------------------------------------------
Telephony ready homes passed and marketed 4,670,494 4,678,970
3-2-1 telephony subscribers (metered) 1,144,474 1,164,549
Talk subscribers (unmetered) 455,559 427,092
Total subscribers 1,600,033 1,591,641
Quarterly net additions 8,392 3,283
Telephony penetration 34.3% 34.0%
Average monthly churn 1.1% 1.2%
Average monthly revenue per subscriber (4) GBP 24.13 GBP 24.53
----------------------------------------------------------------------
Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30,
2004 2004 2004 2003 2003
----------------------------------------
Reorganized
Company Predecessor Company
----------------------------------------------------------------------
Consumer Internet
-------------------
Broadband ready
homes passed and
marketed 4,405,162 4,401,860 4,386,050 4,306,251 4,292,032
Total metered
dial-up internet
subscribers 39,196 47,884 50,953 49,368 52,353
Total unmetered
dial-up internet
subscribers 127,745 151,457 177,250 184,009 190,571
Total broadband
internet
subscribers 607,222 537,613 465,296 414,609 367,410
Quarterly net
broadband
additions 69,609 72,317 50,687 47,199 38,074
Broadband internet
penetration 13.8% 12.2% 10.6% 9.6% 8.6%
Average monthly
churn 1.3% 1.2% 1.0% 1.1% 1.2%
Average monthly GBP 22.27 GBP 23.04 GBP 22.57 GBP 22.97 GBP 22.52
revenue per
broadband
subscriber (4)
----------------------------------------------------------------------
NCTA Capital GBP m GBP m GBP m GBP m GBP m
expenditure
(accrual basis)
(6)
----------------------------------------------------------------------
Customer premise
equipment ("CPE") 19 23 23 25 23
Scaleable
infrastructure 8 7 7 11 12
Commercial 12 9 11 15 9
Line extensions 1 1 1 - 1
Upgrade/rebuild 1 4 2 - -
Support capital 10 9 8 12 10
---------------------------------------------------
Total NCTA Capital
expenditure 51 53 52 63 55
Non NCTA Capital
expenditure:
Content Segment - 1 - 1 -
----------------------------------------------------------------------
Total Capital
expenditure
(accrual basis) 51 54 52 64 55
----------------------------------------------------------------------
(1) The number of homes within our service area that can
potentially be served by our network with minimal connection costs. (2) The
number of customers who receive at least one level of service, encompassing
television, telephony and broadband services, without regard to which
service(s) customers purchase. (3) Revenue Generating Units or RGUs represent
the sum total of all primary analog television, digital television, broadband
and telephony subscribers. Dial-up internet subscribers, second telephone lines
and additional TV outlets are not included although they are revenue generating
for Telewest. (4) Average monthly revenue per customer (often referred to as
"ARPU" or "Average Revenue per User") represents the
Consumer sales division's US GAAP total quarterly revenue of residential
customers, including installation revenues, divided by the average number of
residential customers in the quarter. The same methodology is used for
television, telephony and broadband ARPU. (5) Average monthly churn represents
the total number of customers who disconnected during the quarter divided by
the average number of customers in the quarter, divided by three. Subscribers
who move premises within Telewest's addressable areas (known as Moves and
Transfers) and retain Telewest's services are excluded from this churn
calculation. (6) In order to provide comparable data to the US and UK cable
industry, and in accordance with NCTA (National Cable & Telecommunications
Association) reporting guidelines, Telewest has allocated capital expenditure
(which represents fixed asset additions on an accrual basis) to the standard
reporting categories as per below. Telewest is not a member of the NCTA and is
providing this information solely for comparative purposes.
CPE - costs incurred at the customer's house to secure new customers,
revenue units and additional bandwidth revenues. Includes connections to
previously unserved houses in accordance with SFAS 51 and customer premise
equipment. Scaleable infrastructure - costs, not CPE or network related, to
secure growth of new customers, revenue units and additional bandwidth revenues
or provide service enhancements. Commercial - costs to provide high speed data
and telephony services to businesses and institutions. Includes network and
infrastructure expenditures. Line extensions - network costs associated with
entering new service areas including costs of fiber, coaxial cable, amplifiers,
electronic equipment, make-ready and design/engineering. Upgrade/rebuild -
costs to modify or replace existing coax and fiber networks. Includes
materials, contract labor, in-house labor, make-ready, design engineering and
other miscellaneous costs associated with all aspects of the construction of
the plant miles along an existing route. Benefits include added bandwidth
and/or reliability/extended life to the existing plant. Support capital - costs
associated with the replacement or enhancement of non-network assets due to
obsolescence and wear-out, replacement of network assets unrelated to line
extensions, rebuild/upgrade or customer growth.
Telewest Global, Inc.
Supplemental Analysis
-- Forward-Looking Statements
-- Quarterly Historical Information
-- Segmental Information
-- Use of Non-US GAAP Financial Measures
Forward-Looking Statements
Some of the statements in this earnings release constitute
"forward-looking statements" which we believe to be
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements relate to future events or our
future financial performance, including, but not limited to, strategic plans,
potential growth (including penetration of developed markets and opportunities
in emerging markets), product introductions and innovation, meeting customer
expectations, planned operational changes (including product improvements),
expected capital expenditures, future cash sources and requirements, liquidity,
customer service improvements, cost savings and other benefits of acquisitions
or joint ventures - potential and/or completed - that involve known and unknown
risks, uncertainties and other factors that may cause our or our businesses'
actual results, levels of activity, performance or achievements to be
materially different from those expressed or implied by any forward-looking
statements. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "could,"
"would," "should," "expect," "plan,"
"anticipate," "intend," "believe,"
"estimate," "predict," "potential," or
"continue," or the negative of those terms or other comparable
terminology.
There are a number of important factors that could cause our actual results
and future development to differ materially from those expressed or implied by
those forward-looking statements. These factors include those discussed under
the caption "Risk Factors" in the Registration Statement on Form S-1
(No. 333-115508) filed by Telewest Global, Inc. with, and declared effective
by, the United States Securities and Exchange Commission on July 16, 2004,
although those risk factors may not be exhaustive. Other sections of this
earnings release may describe additional factors that could adversely impact
our business and financial performance. We operate in a continually changing
business environment, and new risk factors may emerge from time to time.
Management cannot anticipate all of these new risk factors, nor can they
definitively assess the impact, if any, of new risk factors on us or the extent
to which any factor, or combination of factors, may cause actual results to
differ materially from those projected in any forward-looking statements.
Accordingly, forward-looking statements should not be relied upon as a prediction
of actual results.
Unless otherwise required by applicable securities laws, we assume no
obligation to publicly update or revise any of the forward-looking statements
after the date of this earnings release to reflect actual results, whether as a
result of new information, future events or otherwise.
Three-month periods ended
------------------------------------------------
Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30,
2004 2004 2004 2003 2003
(restated)
-------------------------------------
Reorganized
Company Predecessor Company
-------------------------------------
----------------------------------------------------------------------
Revenue
Consumer Sales
Division 238 235 235 230 227
Business Sales
Division 63 63 67 68 71
----------------------------------------------------------------------
Total Cable Segment 301 298 302 298 298
Content Segment 27 28 26 33 27
----------------------------------------------------------------------
Total revenue 328 326 328 331 325
----------------------------------------------------------------------
Operating costs and
expenses
Cable segment expenses (72) (74) (79) (78) (78)
Content segment
expenses (17) (18) (16) (27) (19)
Depreciation (103) (90) (94) (95) (96)
Amortization (9) - - - -
----------------------------------------------------------------------
Cost of revenue (201) (182) (189) (200) (193)
SG&A (117) (124) (120) (121) (127)
----------------------------------------------------------------------
(318) (306) (309) (321) (320)
----------------------------------------------------------------------
Operating income 10 20 19 10 5
Other income/(expense)
Interest income 6 8 7 7 5
Interest expense
(including
amortization of debt
discount) (49) (121) (109) (122) (119)
Foreign exchange
(losses)/gains, net - (37) 77 184 15
Share of net
income/(loss) of
affiliates 4 5 3 (3) 2
Other, net - - (1) 8 1
----------------------------------------------------------------------
(Loss)/income before
income taxes (29) (125) (4) 84 (91)
Income taxes
(charge)/benefit - (1) - (20) 2
----------------------------------------------------------------------
Net (loss)/income (29) (126) (4) 64 (89)
----------------------------------------------------------------------
Basic and diluted
(loss)/earnings per GBP (0.12)
ordinary share of
common stock
Weighted average
number of ordinary
shares of common
stock - (millions) 245
----------------------------------------------------------------------
Subsequent to the issue of the Predecessor Company's consolidated
financial statements for the year ended Dec. 31, 2002, the
Predecessor Group determined the need to adjust the classification of
debt previously reflected as non-current in the consolidated balance
sheet at Dec. 31, 2002 and wrote off deferred issue costs as at that
date relating to the restated debt. Accordingly, the Predecessor
Company's unaudited consolidated financial statements for the three
and nine months ended Sep. 30, 2003, and the quarterly historical
information for the three months ended Sep. 30, 2003 were also
restated.
Previously reported interest expense for the three and nine months
ended Sep. 30, 2003 included charges of GBP 2 million and GBP 7
million, respectively, in respect of amortization of deferred issue
costs. These charges were written back as all deferred issue costs on
the restated debt had been written off with effect from Dec. 31,
2002. Additionally, charges of GBP 6 million and GBP 14 million,
respectively, were made in the three and nine months ended Sep. 30,
2003, for further interest on bonds in default. Consequently, the net
effect of these adjustments to "Interest expense" for the three and
nine months ended Sep. 30, 2003 was GBP 4 million and GBP 7 million,
respectively.
----------------------------------------------------------------------
Restatement impact on Sep. 30, 2003
3 months ended 9 months ended
Sep. 30, 2003 Sep. 30, 2003
------------------ ------------------
As As As As
reported restated reported restated
GBP m GBP m GBP m GBP m
----------------------------------------------------------------------
Interest expense (including
amortization of debt discount) (115) (119) (359) (366)
Net loss (85) (89) (240) (247)
----------------------------------------------------------------------
Subsequent to the issue of the Predecessor Company's consolidated
financial statements for the year ended Dec. 31, 2002, the Predecessor Group
determined the need to adjust the classification of debt previously reflected
as non-current in the consolidated balance sheet at Dec. 31, 2002 and wrote off
deferred issue costs as at that date relating to the restated debt.
Accordingly, the Predecessor Company's unaudited consolidated financial
statements for the three and nine months ended Sep. 30, 2003, and the quarterly
historical information for the three months ended Sep. 30, 2003 were also
restated. Previously reported interest expense for the three and nine months
ended Sep. 30, 2003 included charges of GBP 2 million and GBP 7 million,
respectively, in respect of amortization of deferred issue costs. These charges
were written back as all deferred issue costs on the restated debt had been
written off with effect from Dec. 31, 2002. Additionally, charges of GBP 6
million and GBP 14 million, respectively, were made in the three and nine
months ended Sep. 30, 2003, for further interest on bonds in default.
Consequently, the net effect of these adjustments to "Interest
expense" for the three and nine months ended Sep. 30, 2003 was GBP 4
million and GBP 7 million, respectively.
----------------------------------------------------------------------
Restatement impact on Sep. 30, 2003
3 months ended 9 months ended
Sep. 30, 2003 Sep. 30, 2003
------------------ ------------------
As As As As
reported restated reported restated
GBP m GBP m GBP m GBP m
----------------------------------------------------------------------
Interest expense (including
amortization of debt discount) (115) (119) (359) (366)
Net loss (85) (89) (240) (247)
----------------------------------------------------------------------
3 months ended Sept. 30,
------------------------
2004 2003
------------------------
Reorganized Predecessor
Company Company
(restated)
----------------------------------------------------------------------
CABLE SEGMENT
Consumer Sales Division revenue 238 227
Business Sales Division revenue 63 71
----------------------------------------------------------------------
Third party revenue 301 298
Operating costs and expenses
(before financial restructuring charges) (183) (191)
------------------------
Adjusted EBITDA including inter-segment costs 118 107
Inter-segment costs * 2 3
----------------------------------------------------------------------
Adjusted EBITDA 120 110
----------------------------------------------------------------------
CONTENT SEGMENT
Content Segment revenue 29 30
Operating costs and expenses
(before financial restructuring charges) (25) (27)
------------------------
Adjusted EBITDA including inter-segment
revenues 4 3
Inter-segment revenues * (2) (3)
----------------------------------------------------------------------
Adjusted EBITDA 2 -
----------------------------------------------------------------------
Reconciliation to operating income
Cable Segment Adjusted EBITDA 120 110
Content Segment Adjusted EBITDA 2 -
----------------------------------------------------------------------
Total Adjusted EBITDA 122 110
Financial restructuring charges - (9)
Depreciation (103) (96)
Amortization (9) -
----------------------------------------------------------------------
Operating income 10 5
----------------------------------------------------------------------
Nine months Six months Nine months Nine months
ended ended ended Ended
Sept. 30, June 30, Sept. 30, Sept. 30,
2004 2004 2004 2003
-----------------------------------------------
Reorganized Predecessor Combined Predecessor
Company Company Companies Company
(restated)
----------------------------------------------------------------------
CABLE SEGMENT
Consumer Sales Division
revenue 238 470 708 677
Business Sales Division
revenue 63 130 193 210
----------------------------------------------------------------------
Third party revenue 301 600 901 887
Operating costs and
expenses (before
financial
restructuring charges) (183) (369) (552) (580)
-----------------------------------------------
Adjusted EBITDA
including inter-
segment costs 118 231 349 307
Inter-segment costs * 2 5 7 8
----------------------------------------------------------------------
Adjusted EBITDA 120 236 356 315
----------------------------------------------------------------------
CONTENT SEGMENT
Content Segment revenue 29 59 88 88
Operating costs and
expenses (before
financial
restructuring charges) (25) (46) (71) (75)
-----------------------------------------------
Adjusted EBITDA
including inter-
segment revenues 4 13 17 13
Inter-segment revenues
* (2) (5) (7) (8)
----------------------------------------------------------------------
Adjusted EBITDA 2 8 10 5
----------------------------------------------------------------------
Reconciliation to
operating income
Cable Segment Adjusted
EBITDA 120 236 356 315
Content Segment
Adjusted EBITDA 2 8 10 5
----------------------------------------------------------------------
Total Adjusted EBITDA 122 244 366 320
Financial restructuring
charges - (21) (21) (16)
Depreciation (103) (184) (287) (294)
Amortization (9) - (9) -
----------------------------------------------------------------------
Operating income 10 39 49 10
----------------------------------------------------------------------
* Inter-segment revenues are revenues of our Content Segment which are
costs in our Cable Segment and which are eliminated on consolidation.
The Segment Information for the Combined Companies for the nine months
ended September 30, 2004 excludes the Segment Information of the
Predecessor Company for July 1, 2004.
Telewest Global, Inc.
Use of Non-US GAAP Financial Measures
Adjusted EBITDA
Telewest's primary measure of income or loss for each of our reportable segments
is Adjusted EBITDA. Our management, including our chief operating decision
maker, considers Adjusted EBITDA an important indicator of the operational
strength and performance of our reportable segments. Adjusted EBITDA for each
segment and in total excludes the impact of costs and expenses that do not
directly affect our cash flows or do not directly relate to the operating
performance of that segment. These costs and expenses include depreciation,
amortization, financial restructuring charges, interest expense, foreign
exchange gains/(losses), share of net income/(loss) from affiliates and income
taxes. It is the belief of management that the legal and professional costs
relating to our financial restructuring are not characteristic of our underlying
business operations. Furthermore management believes that some of the
components of these charges are not directly related to the performance of a
single reportable segment.
Adjusted EBITDA is not a financial measure recognised under US GAAP. This
measure is most directly comparable to the US GAAP financial measure net
income/(loss). Some of the significant limitations associated with the use of
Adjusted EBITDA as compared to net income/(loss) are that Adjusted EBITDA does
not reflect the amount of required reinvestment in depreciable fixed assets,
financial restructuring charges, interest expense, foreign exchange gains or
losses, income taxes expense or benefit and similar items on our results of
operations. We believe Adjusted EBITDA is helpful for understanding our
performance and assessing our prospects for the future, and that it provides
useful supplemental information to investors. In particular, this non-US GAAP
financial measure reflects an additional way of viewing aspects of our
operations that, when viewed with our US GAAP results and the reconciliations
to net income/(loss), shown below, provide a more complete understanding of
factors and trends affecting our business. Because non-US GAAP financial
measures are not standardized, it may not be possible to compare Adjusted
EBITDA with other companies' non-US GAAP financial measures that have the same
or similar names. The presentation of this supplemental information is not
meant to be considered in isolation or as a substitute for net cash provided by
operating activities, operating income/(loss), net income/(loss), or other
measures of financial performance reported in accordance with US GAAP.
Free cash flow
Telewest's primary measure of cash flow is free cash flow. Free cash flow is
defined as net cash provided by/(used in) operating activities excluding cash
paid for financial restructuring charges, less cash paid for property and
equipment. Our management, including our chief operating decision maker,
considers free cash flow an important indicator of the operational performance
of our business.
Free cash flow is not a financial measure recognized under US GAAP. This
measure is most directly comparable to the US GAAP financial measure net cash
provided by/(used in) operating activities. The significant limitation
associated with the use of free cash flow as compared to net cash provided
by/(used in) operating activities is that free cash flow does not consider the
amount of cash required to pay financial restructuring charges. We believe free
cash flow is helpful for understanding our performance and it provides useful
supplemental information to investors. Because non-US GAAP financial measures
are not standardized, it may not be possible to compare free cash flow with
other companies' non-US GAAP financial measures that have the same or similar
names. The presentation of this supplemental information is not meant to be
considered in isolation or as a substitute for net cash provided by/(used in)
operating activities, or other measures of financial performance reported in
accordance with US GAAP.
Capital expenditure (accrual basis)
Telewest's primary measure of expenditure for fixed assets is Capital
expenditure (accrual basis). Capital expenditure (accrual basis) is defined as
the purchase of fixed assets as measured on an accrual basis. Telewest's
business is underpinned by its significant investment in network infrastructure
and information technology. Management therefore considers Capital expenditure
(accrual basis) an important component in evaluating Telewest's liquidity and
financial condition since capital expenditure is a necessary component of
ongoing operations. Capital expenditure (accrual basis) is most directly
comparable to the US GAAP financial measure cash paid for property and
equipment as reported in the Consolidated Statement of Cash Flows. The
significant limitation associated with the use of Capital expenditure (accrual
basis) as compared to cash paid for property and equipment is Capital
expenditure (accrual basis) excludes timing differences from payments of
liabilities related to capital expenditure. Management excludes this amount
from Capital expenditure (accrual basis) because it is more closely related to
the cash management treasury function than to Telewest's management of capital
expenditure for long-term operational performance and liquidity. Management
compensates for this limitation by separately measuring and forecasting working
capital and interest payments.
The presentation of this supplemental information is not meant to be
considered in isolation or as a substitute for other measures of financial
performance reported in accordance with US GAAP accepted in the United States.
These non-US GAAP financial measures reflect an additional way of viewing
aspects of Telewest's operations that, when viewed with Telewest's US GAAP
results and the accompanying reconciliation to cash paid for property and
equipment, shown below, provide a more complete understanding of factors and
trends affecting Telewest's business. Management encourages investors to review
Telewest's financial statements and publicly-filed reports in their entirety
and to not rely on any single financial measure.
Net debt
Net debt is defined as the sum of debt repayable, capital lease obligations
and accrued interest payable on notes and debentures less cash and cash
equivalents. The Company's management, including its chief operating
decision-maker, considers net debt an important measure of the financing
obligations undertaken by the Company.
Net debt is not a financial measure recognized under US GAAP. This measure
is most directly comparable to the US GAAP financial measure, total
liabilities. The significant limitation associated with the use of net debt as
compared total liabilities is that net debt does not consider current
liabilities due in respect of accounts payable and other liabilities. It also
assumes that
Telewest Global, Inc.
Use of Non-US GAAP Financial Measures (continued)
all of cash and cash equivalents is available to service debt. Telewest
believes net debt is helpful for understanding its entire net debt funding
obligations and it provides useful supplemental information to investors.
Because non-US GAAP financial measures are not standardized, it may not be
possible to compare net debt with other companies' non-US GAAP financial
measures that have the same or similar names. The presentation of this
supplemental information is not meant to be considered in isolation or as a
substitute for total liabilities, or other measures of financial performance
reported in accordance with US GAAP.
Reconciliations of Non-US GAAP Financial Measures
(amounts in GBP millions)
Reconciliation of Adjusted EBITDA to net loss
3 months 3 months 9 months
ended ended ended
Sept. 30, Sept. 30, Sept. 30,
2004 2003 2004
-------------------------------
Reorganized Predecessor Combined
Company Company Companies
----------------------------------------------------------------------
Adjusted EBITDA 122 110 366
Financial restructuring charges - (9) (21)
Depreciation (103) (96) (287)
Amortization (9) - (9)
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Operating income 10 5 49
Interest income 6 5 21
Interest expense (including amortization
of debt discount) (49) (119) (279)
Foreign exchange gains/(losses), net - 15 40
Share of net income of affiliates 4 2 12
Other, net - 1 (1)
Income taxes benefit/(charge) - 2 (1)
----------------------------------------------------------------------
Net loss (29) (89) (159)
----------------------------------------------------------------------
9 months 3 months
ended ended
Sept. 30, June 30,
2003 2004
----------------------
Predecessor Predecessor
Company Company
----------------------------------------------------------------------
Adjusted EBITDA 320 122
Financial restructuring charges (16) (12)
Depreciation (294) (90)
Amortization - -
----------------------------------------------------------------------
Operating income 10 20
Interest income 17 8
Interest expense (including amortization of debt
discount) (366) (121)
Foreign exchange gains/(losses), net 84 (37)
Share of net income of affiliates 4 5
Other, net - -
Income taxes benefit/(charge) 4 (1)
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Net loss (247) (126)
----------------------------------------------------------------------
Reconciliation of free cash flow to net cash provided by operating
activities
3 months 3 months 9 months
ended ended ended
Sept. 30, Sept. 30, Sept. 30,
2004 2003 2004
-------------------------------
Reorganized Predecessor Combined
Company Company Companies
----------------------------------------------------------------------
Free cash flow 39 6 101
Deduct cash paid for financial
restructuring charges (17) (9) (36)
Add cash paid for property and equipment 50 63 177
----------------------------------------------------------------------
Net cash provided by operating
activities 72 60 242
----------------------------------------------------------------------
Free cash flow is reported after cash paid for interest, net and cash
received for income taxes.
Supplementary cash flow information:
Cash paid for interest, net 39 34 100
Cash received for income taxes - - (2)
9 months 3 months
ended ended
Sept. 30, June 30,
2003 2004
----------------------
Predecessor Predecessor
Company Company
----------------------------------------------------------------------
Free cash flow 38 37
Deduct cash paid for financial
restructuring charges (15) (10)
Add cash paid for property and
equipment 173 61
----------------------------------------------------------------------
Net cash provided by operating
activities 196 88
----------------------------------------------------------------------
Free cash flow is reported after cash paid for interest, net and cash
received for incomE taxes.
Supplementary cash flow information:
Cash paid for interest, net 122
Cash received for income taxes -
Reconciliation of capital expenditure (accrual basis) to cash paid for
property and equipment
3 months 3 months 9 months 9 months
ended ended ended ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30
2004 2003 2004 2003
----------------------------------------------
Reorganized Predecessor Combined Predecessor
Company Company Companies Company
----------------------------------------------------------------------
Capital expenditure (accrual
basis) 51 55 157 159
Changes in capital accruals (1) 8 20 14
----------------------------------------------------------------------
Cash paid for property and
equipment 50 63 177 173
----------------------------------------------------------------------
Sept. 30, Dec. 31,
2004 2003
----------------------
ReorganizedPredecessor
Company Company
----------------------------------------------------------------------
Reconciliation of net debt to total liabilities
Sept. 30, Dec. 31,
2004 2003
----------------------
Reorganized Predecessor
Company Company
----------------------------------------------------------------------
Net debt 1,694 5,358
Cash and cash equivalents 266 427
----------------------------------------------------------------------
Total debt 1,960 5,785
Accrued interest payable on notes and debentures - (352)
Accounts payable 130 98
Other liabilities 444 809
Deferred taxes 105 108
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Total liabilities 2,639 6,448
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