--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------------------------
FORM 10-K/A
(AMENDMENT NO. 1)
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-20421
--------------------------
LIBERTY MEDIA CORPORATION
(Exact name of Registrant as specified in its charter)
STATE OF DELAWARE 84-1288730
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12300 LIBERTY BOULEVARD
ENGLEWOOD, COLORADO 80112
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (720) 875-5400
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
------------------- ------------------------------------
Series A Common Stock, par value $.01 per share New York Stock Exchange
Series B Common Stock, par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
Indicate by check mark whether the Registrant is an accelerated filer as
defined in Rule 12b-2 of the Exchange Act. Yes /X/ No / /
The aggregate market value of the voting stock held by nonaffiliates of
Liberty Media Corporation computed by reference to the last sales price of such
stock, as of the closing of trading on June 28, 2002, was approximately
$25,572,000,000.
The number of shares outstanding of Liberty Media Corporation's common stock
as of February 28, 2003 was:
Series A Common Stock--2,473,226,542 shares; and
Series B Common Stock--211,829,828 shares.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LIBERTY MEDIA CORPORATION
Dated: April 9, 2003 By /s/ CHARLES Y. TANABE
------------------------------------------
Charles Y. Tanabe
SENIOR VICE PRESIDENT AND
GENERAL COUNSEL
Dated: April 9, 2003 By /s/ CHRISTOPHER W. SHEAN
------------------------------------------
Christopher W. Shean
SENIOR VICE PRESIDENT AND
CONTROLLER
PART IV.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) FINANCIAL STATEMENTS
Included in Part II of this Report:
PAGE NO.
--------------
Liberty Media Corporation:
Independent Auditors' Report........................ II-29
Consolidated Balance Sheets,
December 31, 2002 and 2001........................ II-30 to II-31
Consolidated Statements of Operations,
Years ended December 31, 2002, 2001 and 2000...... II-32
Consolidated Statements of Comprehensive Earnings
(Loss),
Years ended December 31, 2002, 2001 and 2000...... II-33
Consolidated Statements of Stockholders' Equity,
Years ended December 31, 2002, 2001 and 2000...... II-34
Consolidated Statements of Cash Flows,
Years Ended December 31, 2002, 2001 and 2000...... II-35
Notes to Consolidated Financial Statements,
December 31, 2002, 2001 and 2000.................. II-36 to II-83
(a)(2) FINANCIAL STATEMENT SCHEDULES
Included in Part IV of this Report:
(i) All schedules have been omitted because they are not applicable, not
material or the required information is set forth in the financial
statements or notes thereto.
(ii) Separate financial statements for Telewest Communications plc:
PAGE NO.
--------------
Auditor's Report............................................ IV-5
Consolidated Statements of Operations....................... IV-6
Consolidated Balance Sheets................................. IV-7
Consolidated Statements of Cash Flows....................... IV-8 to IV-9
Consolidated Statements of Shareholders' Equity/(Deficit)
and Comprehensive Loss.................................... IV-10
Notes to Consolidated Financial Statements.................. IV-11 to IV-47
(iii) Separate financial statements of Teligent, Inc. were included in
Liberty's Registration Statement on Form S-1 related to its split
off from AT&T Corp. On May 21, 2001, Teligent and all of its direct
and indirect domestic subsidiaries filed voluntary petitions for
relief under chapter 11 of the U.S. Bankruptcy Code in the United
States Bankruptcy Court for the Southern District of New York.
Since then Teligent has been subject to a liquidation process.
Accordingly, Teligent's financial statements are not included
herein.
IV-1
(a)(3) EXHIBITS
Listed below are the exhibits which are filed as a part of this Report
(according to the number assigned to them in Item 601 of Regulation S-K):
3--Articles of Incorporation and Bylaws:
3.1 Restated Certificate of Incorporation of Liberty, dated
August 9, 2001 (incorporated by reference to Exhibit 3.2 to
the Registration Statement on Form S-1 of Liberty Media
Corporation (File No. 333-55998) as filed on February 21,
2001 (the "Split Off S-1 Registration Statement")).
3.2 Bylaws of Liberty, as adopted August 9, 2001 (incorporated
by reference to Exhibit 3.4 of the Split Off S-1
Registration Statement).
4--Instruments Defining the Rights of Securities Holders, including
Indentures:
4.1 Specimen certificate for shares of Series A common stock,
par value $.01 per share, of the Registrant (incorporated by
reference to Exhibit 4.1 to the Split Off S-1 Registration
Statement).
4.2 Specimen certificate for shares of Series B common stock,
par value $.01 per share, of the Registrant (incorporated by
reference to Exhibit 4.2 to the Split Off S-l Registration
Statement).
4.3 Liberty undertakes to furnish the Securities and Exchange
Commission, upon request, a copy of all instruments with
respect to long-term debt not filed herewith.
10--Material Contracts:
10.1 Inter-Group Agreement dated as of March 9, 1999, between
AT&T Corp. and Liberty Media Corporation, Liberty Media
Group LLC and each Covered Entity listed on the signature
pages thereof (incorporated by reference to Exhibit 10.2 to
the Registration Statement on Form S-4 of Liberty Media
Corporation (File No. 333-86491) as filed on September 3,
1999, the "Liberty S-4 Registration Statement").
10.2 Ninth Supplement to Inter-Group Agreement dated as of
June 14, 2001, between and among AT&T Corp., on the one
hand, and Liberty Media Corporation, Liberty Media Group
LLC, AGI LLC, Liberty SP, Inc., LMC Interactive, Inc. and
Liberty AGI, Inc., on the other hand (incorporated by
reference to Exhibit 10.25 to the Registration Statement on
Form S-1 of Liberty Media Corporation (File No. 333-66034)
as filed on July 27, 2001).
10.3 Intercompany Agreement dated as of March 9, 1999, between
Liberty and AT&T Corp. (incorporated by reference to
Exhibit 10.3 to the Liberty S-4 Registration Statement).
10.4 Tax Sharing Agreement dated as of March 9, 1999, by and
among AT&T Corp., Liberty Media Corporation,
Tele-Communications, Inc., Liberty Ventures Group LLC,
Liberty Media Group LLC, TCI Starz, Inc., TCI CT Holdings,
Inc. and each Covered Entity listed on the signature pages
thereof (incorporated by reference to Exhibit 10.4 to the
Liberty S-4 Registration Statement).
10.5 First Amendment to Tax Sharing Agreement dated as of
May 28, 1999, by and among AT&T Corp., Liberty Media
Corporation, Tele-Communications, Inc., Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.5 to the Liberty S-4 Registration Statement).
IV-2
10.6 Second Amendment to Tax Sharing Agreement dated as of
September 24, 1999, by and among AT&T Corp., Liberty Media
Corporation, Tele-Communications, Inc., Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.6 to the Registration Statement on Form S-1 of
Liberty Media Corporation (File No. 333-93917) as filed on
December 30, 1999 (the "Liberty S-1 Registration
Statement)).
10.7 Third Amendment to Tax Sharing Agreement dated as of
October 20, 1999, by and among AT&T Corp., Liberty Media
Corporation, Tele-Communications, Inc., Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.7 to the Liberty S-l Registration Statement).
10.8 Fourth Amendment to Tax Sharing Agreement dated as of
October 28, 1999, by and among AT&T Corp., Liberty Media
Corporation, Tele-Communications, Inc., Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.8 to the Liberty S-l Registration Statement).
10.9 Fifth Amendment to Tax Sharing Agreement dated as of
December 6, 1999, by and among AT&T Corp., Liberty Media
Corporation, Tele-Communications, Inc., Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.9 to the Liberty S-l Registration Statement).
10.10 Sixth Amendment to Tax Sharing Agreement dated as of
December 10, 1999, by and among AT&T Corp., Liberty Media
Corporation, Tele-Communications, Inc., Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.10 to the Liberty S-l Registration Statement).
10.11 Seventh Amendment to Tax Sharing Agreement dated as of
December 30, 1999, by and among AT&T Corp., Liberty Media
Corporation, Tele-Communications, Inc., Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.11 to the Liberty S-l Registration Statement).
10.12 Eighth Amendment to Tax Sharing Agreement dated as of
July 25, 2000, by and among AT&T Corp., Liberty Media
Corporation, AT&T Broadband LLC, Liberty Ventures Group LLC,
Liberty Media Group LLC, TCI Starz, Inc., TCI CT Holdings,
Inc. and each Covered Entity listed on the signature pages
thereof (incorporated by reference to Exhibit 10.12 to the
Split Off Registration Statement).
10.13 Instrument dated January 14, 2000, adding The Associated
Group, Inc. as a party to the Tax Sharing Agreement dated as
of March 9, 1999, as amended, among The Associated Group,
Inc., AT&T Corp., Liberty Media Corporation,
Tele-Communications, Inc., Liberty Ventures Group LLC,
Liberty Media Group LLC, TCI Starz, Inc., TCI CT Holdings,
Inc. and each Covered Entity listed on the signature pages
thereof (incorporated by reference to Exhibit 10.12 to the
Liberty S-1 Registration Statement).
10.14 Restated and Amended Employment Agreement dated November 1,
1992, between Tele-Communications, Inc. and John C. Malone
(assumed by Liberty as of March 9, 1999), and the amendment
thereto dated June 30, 1999 and effective as of March 9,
1999, between Liberty and John C. Malone (incorporated by
reference to Exhibit 10.6 to the Liberty S-4 Registration
Statement).
IV-3
10.15 Amended and Restated Agreement and Plan of Restructuring and
Merger among UnitedGlobalCom, Inc., New UnitedGlobalCom,
Inc., United/New United Merger Sub, Inc., Liberty Media
Corporation, Liberty Media International, Inc. and Liberty
Global, Inc., dated December 31, 2001 (incorporated by
reference to Current Form 8-K filed by Liberty Media
Corporation on January 9, 2002, Commission File
No. 0-20421).
10.16 Liberty Media Corporation 2000 Incentive Plan (As Amended
and Restated Effective September 11, 2002).*
10.17 Liberty Media Corporation 2002 Non-employee Director
Incentive Plan.*
21--Subsidiaries of Liberty Media Corporation.*
23.1 Consent of KPMG LLP.*
23.2 Consent of KPMG Audit plc, filed herewith.
99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.*
99.2 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, filed herewith.
------------------------
* Previously filed.
(b) Reports on Form 8-K filed during the quarter ended December 31, 2002:
ITEM FINANCIAL STATEMENTS
DATE OF REPORT REPORTED FILED
-------------- ---------------------- ---------------------
November 14, 2002........................... Item 9 None
November 20, 2002........................... Items 5 and 7 None
IV-4
TELEWEST COMMUNICATIONS PLC
US GAAP
AUDITOR'S REPORT
To the board of directors and shareholders of Telewest Communications plc
We have audited the accompanying consolidated balance sheets of Telewest
Communications plc and subsidiaries as of December 31, 2002 and 2001, and the
related consolidated statements of operations, shareholders' equity and
comprehensive income and cash flows for each of the years in the three-year
period ended December 31, 2002. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United Kingdom and the United States of America. 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 on pages 2 to 35
present fairly, in all material respects, the financial position of Telewest
Communications plc and subsidiaries as of December 31, 2002 and 2001, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2002 in conformity with generally accepted
accounting principles in the United States of America.
The accompanying financial statements have been prepared assuming that the
Group will continue as a going concern. As discussed in note 2 to the financial
statements, the Group is undergoing financial restructuring and this raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to the restructuring are also described in note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
As discussed in note 3 to the consolidated financial statements, the Group
adopted SFAS 141, BUSINESS COMBINATIONS and SFAS 142, GOODWILL AND OTHER
INTANGIBLE ASSETS, in 2002.
As discussed in note 3 to the consolidated financial statements, the Group
changed its method of accounting for derivative instruments and hedging
activities in 2001.
KPMG AUDIT PLC
Chartered Accountants
Registered Auditor
London, England
26 March 2003
IV-5
TELEWEST COMMUNICATIONS PLC
US GAAP
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31
2002 2002 2001 2000
NOTES $ MILLION L MILLION L MILLION L MILLION
-------- --------- --------- -------------- --------------
(NOTE 2)
REVENUE
Cable television........................................ 541 336 329 279
Consumer telephony...................................... 797 495 488 445
Internet and other...................................... 101 63 40 16
-------- --------- -------------- --------------
TOTAL CONSUMER DIVISION................................. 1,439 894 857 740
Business Services Division.............................. 455 283 268 248
-------- --------- -------------- --------------
TOTAL CABLE DIVISION.................................... 1,894 1,177 1,125 988
Content Division........................................ 171 106 129 81
-------- --------- -------------- --------------
TOTAL REVENUE........................................... 2,065 1,283 1,254 1,069
-------- --------- -------------- --------------
OPERATING COSTS AND EXPENSES
Consumer programming expenses........................... (206) (128) (142) (132)
Business and consumer telephony expenses................ (351) (218) (235) (235)
Content expenses........................................ (113) (70) (83) (46)
Depreciation............................................ (797) (495) (469) (423)
Impairment of fixed assets.............................. (1,353) (841) -- --
-------- --------- -------------- --------------
Cost of sales........................................... (2,820) (1,752) (929) (836)
Selling, general and administrative expenses............ (846) (526) (497) (445)
Amortization of goodwill................................ -- -- (183) (147)
Impairment of goodwill.................................. (2,326) (1,445) (766) --
-------- --------- -------------- --------------
(5,992) (3,723) (2,375) (1,428)
-------- --------- -------------- --------------
OPERATING LOSS.......................................... (3,927) (2,440) (1,121) (359)
OTHER INCOME/(EXPENSE)
Interest income (including L12 million, L15 million and
L15 million in 2002, 2001 and 2000, respectively, from
related parties)...................................... 21 30 19 15 15
Interest expense (including amortization of debt
discount)............................................. (829) (515) (487) (385)
Foreign exchange gains/(losses), net.................... 343 213 -- (15)
Share of net losses of affiliates and impairment........ (190) (118) (216) (15)
Other, net.............................................. 58 36 (3) (3)
Minority interests in losses of consolidated
subsidiaries, net..................................... 2 1 1 1
-------- --------- -------------- --------------
LOSS BEFORE INCOME TAXES................................ (4,513) (2,804) (1,811) (761)
Income tax benefit...................................... 16 45 28 70 6
-------- --------- -------------- --------------
NET LOSS................................................ (4,468) (2,776) (1,741) (755)
-------- --------- -------------- --------------
Basic and diluted loss per ordinary share............... $ (1.56) L (0.97) L (0.60) L (0.28)
Weighted average number of ordinary shares outstanding
(millions)............................................ 2,873 2,873 2,880 2,705
-------- --------- -------------- --------------
All income is derived from continuing operations.
See accompanying notes to the consolidated financial statements.
IV-6
TELEWEST COMMUNICATIONS PLC
US GAAP
CONSOLIDATED BALANCE SHEET
YEARS ENDED DECEMBER 31
2002 2002 2001
NOTES $ MILLION L MILLION L MILLION
-------- --------- --------- ---------
(NOTE 2)
ASSETS
Cash and cash equivalents................................... 628 390 14
Secured cash deposits restricted for more than one year..... 20 19 12 20
Trade receivables (net of allowance for doubtful accounts of
L12 million and L16 million).............................. 11 193 120 116
Other receivables........................................... 8 110 68 112
Prepaid expenses............................................ 43 27 33
------- ------ ------
Total current assets........................................ 993 617 295
Investment in affiliates, accounted for under the equity
method, and related receivables........................... 9 605 376 547
Property and equipment (less accumulated depreciation of
L3,196 million and L1,873 million)........................ 10 4,182 2,598 3,473
Goodwill (less accumulated amortization of L2,593 million
and L1,148 million)....................................... 5 719 447 1,892
Inventory................................................... 13 45 28 67
Other assets (less accumulated amortization of L58 million
and L47million)........................................... 12 65 40 58
------- ------ ------
TOTAL ASSETS................................................ 6,609 4,106 6,332
------- ------ ------
LIABILITIES AND SHAREHOLDERS' FUNDS
Accounts payable............................................ 177 110 109
Other liabilities........................................... 14 1,016 631 524
Debt repayable within one year.............................. 15 5,878 3,652 --
------- ------ ------
Total current liabilities................................... 7,071 4,393 633
Deferred tax................................................ 16 137 85 113
Debt........................................................ 15 2,894 1,798 4,897
Capital lease obligations................................... 328 204 238
------- ------ ------
TOTAL LIABILITIES........................................... 10,430 6,480 5,881
------- ------ ------
MINORITY INTERESTS.......................................... (2) (1) --
------- ------ ------
SHAREHOLDERS' (DEFICIT)/EQUITY
Ordinary shares, 10 pence par value; 4,300 million
authorized; 2,873 and 2,886 million issued in 2002 and
2001 respectively......................................... 462 287 287
Limited voting convertible ordinary shares, 10 pence par
value; 300 million authorized and 82 million and
63 million outstanding in 2002 and 2001 respectively...... 13 8 8
Additional paid in capital.................................. 6,797 4,223 4,224
Accumulated deficit......................................... (11,073) (6,880) (4,104)
Accumulated other comprehensive income...................... 19 (18) (11) 37
------- ------ ------
(3,819) (2,373) 452
Ordinary shares held in trust for the Telewest
Restricted Share Scheme and the Telewest Long-Term
Incentive Plan.......................................... -- -- (1)
------- ------ ------
TOTAL SHAREHOLDERS' (DEFICIT)/EQUITY........................ (3,819) (2,373) 451
------- ------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. 6,609 4,106 6,332
------- ------ ------
See accompanying notes to the consolidated financial statements.
IV-7
TELEWEST COMMUNICATIONS PLC
US GAAP
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
2002 2002 2001 2000
$ MILLION L MILLION L MILLION L MILLION
--------- --------- --------- ---------
(NOTE 2)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss................................................. (4,468) (2,776) (1,741) (755)
Adjustments to reconcile net loss to net cash
provided/(utilized) by operating activities
Depreciation............................................. 797 495 469 423
Impairment of fixed assets............................... 1,353 841 -- --
Amortization of goodwill................................. -- -- 183 --
Impairment of goodwill................................... 2,326 1,445 766 147
Amortization of deferred financing costs and issue
discount on Senior Discount Debentures................. 166 103 99 147
Deferred tax credit...................................... (45) (28) (70) --
Unrealized (gain)/loss on foreign currency translation... (343) (213) (10) 20
Non-cash accrued share based compensation
(credit)/cost.......................................... (2) (1) 1 5
Share of net (profits)/losses of affiliates and
impairment............................................. (16) (10) 216 15
Loss on disposal of assets............................... 148 92 4 --
Minority interests in losses of consolidated
subsidiaries........................................... -- -- (1) (1)
Changes in operating assets and liabilities net of effect
of acquisition of subsidiaries
Change in receivables.................................... 31 19 25 (8)
Change in prepaid expenses............................... 10 6 6 (19)
Change in accounts payable............................... 27 17 3 (2)
Change in other liabilities.............................. 157 98 62 70
Change in other assets................................... 24 15 1 (46)
------ ------ ------ ----
NET CASH PROVIDED/(UTILIZED) BY OPERATING ACTIVITIES..... 165 103 13 (4)
------ ------ ------ ----
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for property and equipment..................... (721) (448) (548) (527)
Cash paid for acquisition of subsidiaries, net of cash
acquired............................................... -- -- (6) (24)
Additional investments in and loans to affiliates........ -- -- (26) (10)
Repayment of loans made to joint ventures (net).......... 14 9 9 3
Proceeds from disposal of assets......................... 2 1 2 2
Disposal of subsidiary undertaking, net of cash
disposed............................................... 23 14 8 --
Disposal of associate undertaking, net of cash
disposed............................................... 95 59 -- --
------ ------ ------ ----
NET CASH USED IN INVESTING ACTIVITIES.................... (587) (365) (561) (556)
------ ------ ------ ----
IV-8
TELEWEST COMMUNICATIONS PLC
US GAAP
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31
2002 2002 2001 2000
$ MILLION L MILLION L MILLION L MILLION
--------- --------- --------- ---------
(NOTE 2)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of share options.................. -- -- 6 3
Share issue costs........................................ -- -- -- (13)
Proceeds from issue of Senior Discount Notes and Senior
Notes 2010............................................. -- -- -- 544
Proceeds from issue of Senior Convertible Notes 2005..... -- -- -- 330
Proceeds from issue of Accreting Convertible Notes
2003................................................... -- -- 30 20
Issue costs of Notes and credit facility arrangement
costs.................................................. -- -- (41) --
Net proceeds from maturity of forward contracts.......... 122 76 -- 107
Release/(placement) of restricted deposits............... 13 8 (8) --
Repayments from borrowings under old credit facilities... (3) (2) (824) (141)
Repayment of SMG equity swap............................. (53) (33) -- --
Proceeds/(repayment) from borrowings under new credit
facility............................................... 1,030 640 1,393 (260)
Capital element of finance lease repayments.............. (82) (51) (54) (35)
------ ------ ------ ----
NET CASH PROVIDED BY FINANCING ACTIVITIES................ 1,027 638 502 555
------ ------ ------ ----
Net increase/(decrease) in cash and cash equivalents..... 605 376 (46) (5)
Cash and cash equivalents at beginning of year........... 23 14 60 65
------ ------ ------ ----
CASH AND CASH EQUIVALENTS AT END OF YEAR................. 628 390 14 60
------ ------ ------ ----
See accompanying notes to the consolidated financial statements.
IV-9
TELEWEST COMMUNICATIONS PLC
US GAAP
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY/(DEFICIT) AND COMPREHENSIVE LOSS
LIMITED SHARES ADDITIONAL OTHER
ORDINARY VOTING HELD IN PAID-IN COMPREHENSIVE ACCUMULATED
SHARES SHARES TRUST CAPITAL LOSS DEFICIT TOTAL
L MILLION L MILLION L MILLION L MILLION L MILLION L MILLION L MILLION
---------- ---------- ---------- ---------- ------------- ----------- ----------
BALANCE AT DECEMBER 31, 1999... 228 6 (2) 2,328 -- (1,608) 952
Ordinary shares issued on
exercise of share options.... -- -- -- 3 -- -- 3
Shares issued to acquire
Flextech Plc net of issue
costs........................ 60 -- -- 1,873 -- -- 1,933
Accrued share based
compensation cost............ -- -- -- 5 -- -- 5
Unrealised gain on deemed
disposal of shares in an
affiliate.................... -- -- -- 7 -- -- 7
Net loss....................... -- -- -- -- -- (755) (755)
--- --------- --------- ----- --- ------ ------
BALANCE AT DECEMBER 31, 2000... 288 6 (2) 4,216 -- (2,363) 2,145
Unrealised gain/(loss) on
derivative financial
instruments:
Cumulative effects of
accounting change.......... -- -- -- -- (16) -- (16)
Amounts reclassified into
earnings................... -- -- -- -- (5) -- (5)
Current period increase in
fair value................. -- -- -- -- 57 -- 57
Net loss....................... -- -- -- -- -- (1,741) (1,741)
------
TOTAL COMPREHENSIVE LOSS....... (1,705)
Unrealised gain on deemed
partial disposal of
investment................... -- -- -- -- 1 -- 1
Ordinary shares issued on
exercise of share options.... 1 -- 1 6 -- -- 8
Gain on retranslation of
investment in an overseas
subsidiary................... -- -- -- 1 -- -- 1
Redesignation of ordinary
shares....................... (2) 2 -- -- -- -- --
Accrued share based
compensation cost............ -- -- -- 1 -- -- 1
--- --------- --------- ----- --- ------ ------
BALANCE AT DECEMBER 31, 2001... 287 8 (1) 4,224 37 (4,104) 451
Unrealised gain/(loss) on
derivative financial
instruments:
Amounts reclassified into
earnings..................... -- -- -- -- (48) -- (48)
Net loss....................... -- -- -- -- -- (2,776) (2,776)
------
TOTAL COMPREHENSIVE LOSS....... (2,824)
Accrued share based
compensation (credit)/cost... -- -- 1 (1) -- -- --
--- --------- --------- ----- --- ------ ------
BALANCE AT DECEMBER 31, 2002... 287 8 -- 4,223 (11) (6,880) (2,373)
--- --------- --------- ----- --- ------ ------
There was no other comprehensive income in the year ended December 31, 2000.
See accompanying notes to the consolidated financial statements.
IV-10
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 ORGANIZATION AND HISTORY
Telewest Communications plc ("the Company") and its subsidiary undertakings
(together "the Group") provide cable television, telephony and internet services
to business and residential customers in the United Kingdom ("UK"). The Group
derives its cable television revenues from installation fees, monthly basic and
premium service fees and advertising charges. The Group derives its telephony
revenues from connection charges, monthly line rentals, call charges, special
residential service charges and interconnection fees payable by other operators.
The Group derives its internet revenues from installation fees and monthly
subscriptions to its ISP. The cable television, telephony and internet services
account in 2002 for approximately 26%, 61% and 5%, respectively, of the Group's
revenue.
The Group is also engaged in broadcast media activities, being the supply of
entertainment content, interactive and transactional services to the UK pay-TV
broadcasting market. The Content Division accounts in 2002 for approximately 8%
of the Group's revenue.
2 BASIS OF PREPARATION
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America ("US
GAAP"). The preparation of financial statements in conformity with US GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. The
Group's significant estimates and assumptions include capitalisation of labor
and overhead costs; impairment of goodwill and long-lived assets (see note 5);
and accounting for debt and financial instruments (see note 4). Actual results
could differ from those estimates.
The financial statements are prepared on a going concern basis, which the
directors believe to be appropriate for the following reasons:
Following the directors' decision on September 30, 2002 not to pay the
interest on certain of the Group's bonds and other hedging instruments, the
Group is now in default of a majority of its bonds and its Senior Secured
Facility.
These liabilities are now due for repayment in full and the Group is
negotiating with its bondholder creditors ('the Scheme Creditors') and bank
facility creditors ('Senior Lenders') to effect a reorganization of the Group's
debt. This will involve, inter alia, the conversion of bond debt to equity and
the renegotiation of existing bank facilities. The directors believe the amended
facilities will provide the Group with sufficient liquidity to meet the Group's
funding needs after completion of the Financial Restructuring. Further details
of the planned Financial Restructuring are included in note 25.
In order for the Financial Restructuring to be effective, the Scheme
Creditors need to approve the plans by the relevant statutory majority. In
addition, the Group's shareholders need to approve the proposed share capital
reorganization.
The directors are of the opinion that the status of negotiations of the
financial restructuring will lead to a successful outcome and that this is
sufficient grounds for issuing the annual accounts under the assumption of going
concern.
The effect on the financial statements as presented, of the going concern
basis of preparation being inappropriate, is principally that the book value of
tangible fixed assets and investments would be
IV-11
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2 BASIS OF PREPARATION (CONTINUED)
restated from their present value in use to a net realizable value. Whilst the
directors believe that their net realizable values would be lower than the
current value in use there is insufficient information available for the
directors to quantify the difference.
The Group faces the following significant risks and uncertainties about:
- its continued ability to raise finance to fund its operations;
- its successful execution of its long term business plan, which in turn
will affect the Group's ability to raise further finance under the Senior
Secured Facility (see note 15); and
- the need to meet financial and other covenants relating to debt
instruments which have already been issued.
The economic environment and currency in which the Group operates is the UK
and hence its reporting currency is Pounds Sterling (L). Certain financial
information for the year ended December 31, 2002 has been translated into US
Dollars ($), with such US Dollar amounts being unaudited and presented solely
for the convenience of the reader, at the rate of $1.6095 =L1.00, the Noon
Buying Rate of the Federal Reserve Bank of New York on December 31, 2002. The
presentation of the US Dollar amounts should not be construed as a
representation that the Pounds Sterling amounts could be so converted into US
Dollars at the rate indicated or at any other rate.
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and those of its majority-owned subsidiaries. All significant inter-company
accounts and transactions have been eliminated upon consolidation. All
acquisitions have been accounted for under the purchase method of accounting.
Under this method, the results of subsidiaries and affiliates acquired in the
year are included in the consolidated statement of operations from the date of
acquisition.
IMPAIRMENT OF LONG LIVED ASSETS AND GOODWILL
The Group applies Statement of Financial Accounting Standard ("SFAS")
No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. The
Group adopted, from January 1, 2002 SFAS 144 which requires that long-lived
assets and certain identifiable intangibles, including goodwill, to be held and
used by an entity, be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Indications of impairment are determined by reviewing undiscounted
projected future cash flows. If impairment is indicated, the amount of the
impairment is the amount by which the carrying value exceeds the fair value of
the assets.
BUSINESS COMBINATIONS AND GOODWILL AND OTHER INTANGIBLE ASSETS
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
141, BUSINESS COMBINATIONS and SFAS 142, GOODWILL AND OTHER INTANGIBLE ASSETS.
SFAS 141 requires all business combinations undertaken after June 30, 2001 to be
accounted for using the purchase method. Under
IV-12
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SFAS 142, goodwill arising from business combinations and intangible assets with
indefinite lives are no longer amortized but are subject to annual review for
impairment (or more frequently should indications of impairment arise). Goodwill
associated with equity method investments will also no longer be amortized upon
adoption of SFAS 142, but will be subject to impairment testing as part of the
investment to which it relates in accordance with Accounting Principles Board
Opinion No. ("APB") 18, THE EQUITY METHOD OF ACCOUNTING FOR INVESTMENTS IN
COMMON STOCK. Separable intangible assets that do not have indefinite lives will
continue to be amortized over their estimated useful lives and will be subject
to review for impairment in accordance with SFAS 144 (see below). The
amortization provisions of SFAS 142 apply to goodwill and intangible assets
acquired after June 30, 2001. For goodwill and intangible assets acquired prior
to July 1, 2001, the Group was required to adopt SFAS 142 effective January 1,
2002. As of January 1, 2002 the Group had L2,199 million of unamortized
goodwill, L1,892 million of which related to business combinations and L307
million of which related to equity method investments.
Impairment under SFAS 142 is measured using a two-step approach, initially
based on a comparison of the reporting unit's fair value to its carrying value;
if the fair value is lower, then the second step compares the implied fair value
of the goodwill with its carrying value to determine the amount of the
impairment. The adoption of SFAS 142 on January 1, 2002 had no impact on the
Company's financial position or results of operations. As required by SFAS 142,
the standard has not been retroactively applied to the results for the period
prior to adoption.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments with original
maturities of three months or less that are readily convertible into cash.
DERIVATIVES AND HEDGING
At January 1, 2001 the Company adopted SFAS 133 ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES as amended by SFAS 137 and SFAS 138. SFAS 133
established accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and
hedging activities. It requires the recognition at fair value of all derivative
instruments as assets or liabilities in the Company's balance sheet. The
accounting treatment of changes in fair value is dependent upon whether or not a
derivative instrument is designated a hedge and if so, the type of hedge and its
effectiveness as a hedge.
For derivatives, which are not designated as hedges, changes in fair value
are recorded immediately in earnings.
For derivatives designated as cash flow hedges, changes in fair value on the
effective portion of the hedging instrument are recorded within other
comprehensive income ("OCI") until the hedged transaction occurs and are then
recorded within earnings. Changes in the ineffective portion of a hedge are
recorded in earnings. For derivatives designated as fair value hedges, changes
in fair value are recorded in earnings. The Group has not, however, had any fair
value hedges since the adoption of SFAS 133.
IV-13
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Group discontinues hedge accounting for derivative financial instruments
when it is determined that the derivative instrument is no longer effective in
offsetting changes in the cash flows of the hedged item; the derivative
instrument expires or is sold; the derivative instrument is no longer designated
as a hedging instrument, because it is unlikely that a forecasted transaction
will occur; a hedged firm commitment no longer meets the definition of a firm
commitment; or its management determines that designation of the derivative
instrument as a hedging instrument is no longer appropriate. The tests for
determining the effectiveness of a cash flow hedge compare on a strict basis the
amount and timing of cash flows on the underlying economic exposure with the
cash flows of the derivative instrument.
Upon discontinuation of cash flow hedge accounting, the net gain or loss
attributable to the hedging instrument, which has been reported in OCI to the
date of discontinuation, continues to be reported in OCI until the date the
hedged transaction impacts earnings. This occurs unless it is probable that the
hedged transaction will not occur by the end of the originally specified time
period. If the hedged transaction is not expected to occur, the net gain or loss
is reclassified from OCI to earnings upon discontinuation.
Prior to adoption of SFAS 133 the Group had the following accounting
policies in respect of financial instruments. Foreign currency forward
contracts, options and swaps, which were used to reduce the exchange risk on the
principal amounts and early call premiums on certain foreign currency
borrowings, were recorded on the balance sheet at their fair value. Gains and
losses arising from changes in fair value were recorded concurrently within
earnings. Such gains and losses were offset by gains and losses arising from
retranslating the principal amounts of the foreign currency borrowings.
The Group also used foreign currency forward contracts and cross currency
interest rate swaps to reduce its exposure to adverse changes in exchange rates
associated with the interest payments on certain foreign currency borrowings.
Such foreign currency forward contracts and cross currency interest rate swaps
were accounted for using the accruals method.
The Group also used interest rate swap agreements and an interest rate
collar to manage interest rate risk on the Group's borrowings. Net income or
expense resulting from the differential between exchanging floating and fixed
interest payments was recorded within the consolidated statement of operations
on an accruals basis from the effective date of the interest rate swap
agreements and interest rate collar.
INVESTMENTS
Generally, investments in partnerships, joint ventures and subsidiaries in
which the Group's voting interest is 20% to 50%, and others where the Group has
significant influence, are accounted for using the equity method. Investments
which do not have a readily determinable fair value, in which the Group's voting
interest is less than 20%, and in which the Group does not have significant
influence, are carried at cost and written down to the extent that there has
been an other-than-temporary diminution in value. The Group accounts for certain
investments in which the Group's ownership is greater than 50% using the equity
method. This method is used for such subsidiaries where the minorities have
substantive participating rights such as veto over key operational and financial
matters and equal representation on the board of directors.
IV-14
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Group reviews the carrying values of its investments in affiliates,
including any associated goodwill, to ensure that the carrying amount of such
investments are stated at no more than their recoverable amounts. The Group
assesses the recoverability of its investments by determining whether the
carrying value of the investments can be recovered through projected discounted
future operating cash flows (excluding interest) of the operations underlying
the investments. The assessment of the recoverability of the investments will be
impacted if projected future operating cash flows are not achieved. The amount
of impairment, if any, is measured based on the projected discounted future
operating cash flows using a rate commensurate with the risks associated with
the assets.
ADVERTISING COSTS
Advertising costs are expensed as incurred. The amount of advertising costs
expensed was L52 million, L48 million, and L38 million for the years ended
December 31, 2002, 2001, and 2000, respectively.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided to write
off the cost, less estimated residual value, of property and equipment by equal
instalments over their estimated useful economic lives as follows:
Freehold and long leasehold buildings....................... 50 years
Cable and ducting........................................... 20 years
Electronic equipment
System electronics........................................ 8 years
Switching equipment....................................... 8 years
Subscriber electronics.................................... 5 years
Headend, studio, and playback facilities.................. 5 years
Other equipment
Office furniture and fittings............................. 5 years
Motor vehicles............................................ 4 years
The Group accounts for costs, expenses and revenues applicable to the
construction and operation of its cable systems in accordance with SFAS 51
FINANCIAL REPORTING BY CABLE TELEVISION COMPANIES. Initial subscriber
installation costs are capitalized and depreciated over the life of the network.
DEFERRED FINANCING COSTS
Direct costs incurred in raising debt are deferred and recorded on the
consolidated balance sheet in other assets. The costs are amortized to the
consolidated statement of operations at a constant rate to the carrying value of
the debt over the life of the obligation.
MINORITY INTERESTS
Recognition of the minority interests' share of losses of consolidated
subsidiaries is limited to the amount of such minority interests' allocable
portion of the equity of those consolidated subsidiaries.
IV-15
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCIES
Transactions in foreign currencies are recorded using the rate of exchange
in effect at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated using the rate of exchange
prevailing at the balance sheet date and the gains or losses on translation are
included in the consolidated statement of operations.
REVENUE RECOGNITION
Revenues are recognized as network communication services are provided.
Credit risk is managed by disconnecting services to customers who are
delinquent. Connection and activation fees relating to cable television,
telephony and internet are recognized in the period of connection to the extent
that such fees are less than direct selling costs. Any excess connection and
activation fees over direct selling costs incurred are deferred and amortized
over the expected customer life.
Occasionally the Group sells capacity on its network to other
telecommunications providers. Sales of capacity are accounted for as sales-type
leases, operating leases, or service agreements depending on the terms of the
transaction. If title is not transferred or if the other requirements of
sales-type lease accounting are not met, revenues are recognized rateably over
the term of the agreement.
Programming revenues are recognized in accordance with Statement of Position
("SOP") 00--2, ACCOUNTING BY PRODUCERS OR DISTRIBUTORS OF FILMS. Revenue on
transactional and interactive sales is recognized as and when the services are
delivered. Advertising sales revenue is recognized at estimated realizable
values when the advertising is aired.
RECOGNITION OF CONTRACT COSTS
Certain of the sales of network capacity referred to above involve the Group
constructing new capacity. Where the Group retains some of this new capacity,
either for subsequent resale or for use within the business, then an element of
the construction costs is retained within inventory or equipment, respectively.
The allocation of construction cost between costs expensed to the statement of
operations and costs capitalized within inventory or equipment is based upon the
ratio of capacity to be sold and to be retained.
PENSION COSTS
The Group operates a defined contribution scheme (the Telewest
Communications plc Pension Trust) or contributes to third-party schemes on
behalf of employees. The amount included in expenses in 2002, 2001 and 2000 of
L11 million, L10 million and L8 million, respectively, represents the
contributions payable to the selected schemes in respect of the relevant
accounting periods.
INCOME TAXES
Under the asset and liability method of SFAS 109 Accounting for Income
Taxes, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.
IV-16
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered.
The Group recognises deferred tax assets only where it is more likely than
not that the benefit will be realized through future taxable income. Otherwise a
valuation allowance is established to provide against deferred tax assets.
SHARE-BASED COMPENSATION
SFAS 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, encourages, but does not
require, companies to record compensation costs for share-based employee
compensation plans at fair value. The Group has chosen to continue to account
for share-based compensation using the intrinsic value method prescribed in APB
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES and related interpretations.
Accordingly, compensation cost for fixed plan share options is measured as the
excess, if any, of the quoted market price of the Company's shares at the date
of the grant over the amount an employee must pay to acquire the shares.
Compensation cost for variable plan share options is measured each period using
the intrinsic value method until the variable or performance features of the
plan become fixed. Compensation expense is recognized over the applicable
vesting period.
Shares purchased by the trustees in connection with the Telewest Restricted
Share Scheme and certain LTIP awards, are valued at cost and are reflected as a
reduction of shareholders' equity in the consolidated balance sheet. This equity
account is reduced when the shares are issued to employees based on the original
cost of the shares to the trustees.
EARNINGS PER SHARE
Basic earnings per share has been computed by dividing net loss available to
ordinary shareholders by the weighted average number of ordinary shares
outstanding during the year. Diluted earnings per share is computed by adjusting
the weighted average number of ordinary shares outstanding during the year for
all dilutive potential ordinary shares outstanding during the year and adjusting
the net loss for any changes in income or loss that would result from the
conversion of such potential ordinary shares. There is no difference in net loss
and number of shares used for basic and diluted net loss per ordinary share, as
potential ordinary share equivalents for employee share options and convertible
debt are not included in the computation as their effect would be to decrease
the loss per share. The number of potential ordinary shares was 393 million, 393
million and 464 million in 2002, 2001 and 2000, respectively.
INVENTORIES
Inventories of equipment, held for use in the maintenance and expansion of
the Group's telecommunications systems, are stated at cost, including
appropriate overheads, less provision for deterioration and obsolescence.
Network capacity and ducting held for resale are stated at the lower of cost and
net realizable value.
IV-17
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING STANDARDS APPLICABLE TO THE GROUP
SFAS 143 ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS
In July 2001, the FASB issued SFAS 143, ACCOUNTING FOR ASSET RETIREMENT
OBLIGATIONS. SFAS 143, which is effective for fiscal years beginning after
June 15, 2002, requires entities to record the fair value of a liability for an
asset retirement obligation in the period in which it is incurred. When the
liability is initially recorded, an entity capitalizes a cost by increasing the
carrying amount of the related long-lived asset. Over time, the liability is
accreted to its present value each period, and the capitalized cost is
depreciated over the useful life of the related asset. Upon settlement of the
liability, an entity either settles the obligation for its recorded amount or
incurs a gain or loss upon settlement. The Group does not believe the adoption
of SFAS 143 will have a material impact on the financial statements.
SFAS 145 RESCISSION OF FASB STATEMENTS 4, 44 AND 64, AMENDMENT OF FASB 13, AND
TECHNICAL CORRECTIONS
In April 2002, the FASB issued SFAS 145, "Rescission of FASB Statements 4,
44 and 64, Amendment of FASB 13, and Technical Corrections". SFAS 145 provides
for the rescission of several previously issued accounting standards, new
accounting guidance for the accounting for certain lease modifications and
various technical corrections that are not substantive in nature to existing
pronouncements. The Group has adopted this standard from January 1, 2002 and
reclassified L15 million from extraordinary items to expense for the year ended
December 31, 2001. No material adjustments have been required in 2002.
SFAS 146 ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES
In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS 146 is effective for exit or disposal
activities that are initiated after December 31, 2002, and nullifies Emerging
Issues Task Force ("EITF") Issue No. 94-3 "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)". SFAS 146 applies to costs
associated with an exit activity that do not involve an entity newly acquired in
a business combination or with a disposal activity covered by SFAS 144
"Accounting for the Impairment or Disposal of Long-Lived Assets". The Group has
not yet determined the impact, if any, the adoption of this standard will have
on its financial position or results of operations.
SFAS 148 ACCOUNTING FOR STOCK BASED COMPENSATION--TRANSITION AND DISCLOSURE
An amendment of SFAS 123 is effective for the Group for the year ended
December 31, 2002. SFAS 148 permits two additional transition methods for
entities that adopt the fair value based method of accounting for stock-based
employee compensation. The Statement also requires new disclosures about the
ramp-up effect of stock-based employee compensation on reported results and that
those effects be disclosed more prominently by specifying the form, content, and
location of those disclosures. The Group has adopted the disclosure provisions
of the Statement in these financial statements. The Group has not adopted the
fair value based method of accounting for stock-based employee
IV-18
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
compensation and still accounts for these in accordance with APB Opinion 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES.
OTHER NEW STANDARDS
In November 2002, the Emerging Issues Task Force issued its consensus on
EITF 00-21, REVENUE ARRANGEMENTS WITH MULTIPLE DELIVERABLES (EITF 00-21) on an
approach to determine whether an entity should divide an arrangement with
multiple deliverables into separate units of accounting. According to the EITF,
in an arrangement with multiple deliverables, the delivered item(s) should be
considered a separate unit of accounting if all of the following criteria are
met: (1) the delivered item(s) has value to the customer on a standalone basis,
(2) there is objective and reliable evidence of the fair value of the
undelivered item(s), and (3) if the arrangement includes a general right of
return, delivery or performance of the undelivered item(s) is considered
probable and substantially in the control of the vendor. If all the conditions
above are met and there is objective and reliable evidence of fair value for all
units of accounting in an arrangement, the arrangement consideration should be
allocated to the separate units of accounting based on their relative fair
values. The guidance in this Issue is effective for revenue arrangements entered
into in fiscal beginning after June 15, 2003. The Group believes that the
adoption of EITF 00-21 will not have a material impact on the Group's financial
statements.
In November 2002, the FASB issued FASB Interpretation 45, GUARANTOR'S
ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING INDIRECT
GUARANTEES OF INDEBTEDNESS OF OTHERS ('FIN 45'), which addresses the disclosure
to be made by a guarantor in its financial statements about its obligations
under guarantees. FIN 45 also requires the recognition of a liability by a
guarantor at the inception of certain guarantees. It requires the guarantor to
recognize a liability for the non-contingent component of the guarantee, this is
the obligation to stand ready to perform in the event that specified triggering
events or conditions occur. The initial measurement of this liability is the
fair value of the guarantee at inception. The recognition of the liability is
required even it is not probable that payments will be required under the
guarantee or if the guarantee was issued with a premium payment or as part of a
transaction with multiple elements. The Group has adopted the disclosure
requirements and will apply the recognition and measurement provisions for all
guarantees entered into or modified after December 31, 2002. To date the company
has not entered into or modified guarantees.
In January 2003, the FASB issued FASB Interpretation 46, CONSOLIDATION OF
VARIABLE INTEREST ENTITIES (FIN 46) which interprets Accounting Research
Bulletin (ARB) 51, CONSOLIDATED FINANCIAL STATEMENTS. FIN 46 clarifies the
application of ARB 51 with respect to the consolidation of certain entities
(variable interest entities--'VIEs') to which the usual condition for
consolidation described in ARB 51 does not apply because the controlling
financial interest in VIEs may be achieved through arrangements that do not
involve voting interests. In addition, FIN 46 requires the primary beneficiary
of VIEs and the holder of a significant variable interest in VIEs to disclose
certain information relating to their involvement with the VIEs. The provisions
of FIN 46 apply immediately to VIEs created after January 31, 2003, and to VIEs
in which an enterprise obtains an interest after that date. FIN 46 applies in
the first fiscal year beginning after June 15, 2003, to VIEs in which an
enterprise holds a variable interest that it acquired before February 1, 2003.
The Group does not believe that the impact the adoption of FIN 46 will have a
material effect on its financial statements.
IV-19
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4 FINANCIAL INSTRUMENTS
The Group holds derivative financial instruments solely to hedge specific
risks and does not hold such instruments for trading purposes. The derivatives
are held to hedge against the variability in cash flows arising from the effect
of fluctuations of GBP:USD exchange rate on the Group's US Dollar-denominated
debt and from changes in interest rates on its variable rate bank debt.
The Group maintains risk management control systems to monitor currency
exchange and interest rate risk attributable to forecasted debt principal
payments and interest rate exposure.
CASH FLOW HEDGES
HEDGES OF US DOLLAR DENOMINATED DEBT
The Group has issued US Dollar denominated debt instruments with a range of
maturities. The Group previously hedged the principal amounts of these
instruments up to their first call dates or other such dates where the Group may
at its option redeem the instrument before maturity.
The Group has increased its foreign exchange risk since the discontinuation
of hedge accounting as described below. The Group continues to monitor this risk
until the Financial Restructuring is complete when the US Dollar-denominated
debt instruments will be swapped for equity and the foreign exchange risk is
minimised.
In the three-month period ended March 31, 2002, the Group determined that it
was probable that forecasted future prepayments of principal against outstanding
US dollar-denominated debt would not occur. Accordingly, the cumulative
adjustment in OCI of L53 million resulting from marking to market the derivative
instruments has been reclassified from OCI to foreign exchange gains in the
Statement of Operations. Subsequent adjustments of the carrying value of these
instruments to fair value are taken directly to the Statement of Operations as
incurred.
In the nine-month period ended September 30, 2002, the Group had the ability
to terminate in-the-money derivative contracts that fluctuate in value. Such
derivative contracts hedged our exposure to fluctuations in the US dollar/pound
sterling exchange rates on the Group's US dollar-denominated debt. In
March 2002, the Group terminated certain of these derivative contracts with a
nominal value of $999 million (L688 million), netting L74 million cash inflow.
In May 2002 the Group terminated further derivative contracts with a nominal
value of $367 million (L253 million) realizing an additional L30 million cash
inflow. In the three-month period ended September 30, 2002, the Group terminated
arrangements with a nominal value of $2.3 billion (approximately L1.5 billion).
Contracts with a nominal value of $1 billion were settled in cash resulting in
an outflow of L28 million. The remaining contracts with a nominal value of
$1.3 billion have yet to be settled for a total cost of L33 million of which
L19 million was due on October 1, 2002, but the Company deferred such payment
and is considering the payment in the context of its Financial Restructuring.
During the twelve-month period ended December 31, 2002, the Group recorded a
net L48 million transfer from cumulative OCI to the Statement of Operations
arising from the dedesignation of derivative contracts as ineffective hedges, as
described above. In the 12-month period ended December 30, 2001, the Group
recorded a L36 million gain in fair value to cumulative OCI, consisting of a
loss of L25 million to short-term derivative liabilities and a L61 million gain
to long-term derivative assets.
IV-20
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4 FINANCIAL INSTRUMENTS (CONTINUED)
HEDGES OF VARIABLE RATE DEBT
As described in note 15 to the consolidated financial statements, the Group
has a Senior Secured Facility with a syndicate of banks and a further amount
from an Institutional Tranche ("Institutional Tranche"). Draw downs under the
Senior Secured Facility and the Institutional Tranche bear interest at 0.75% to
2.00% above LIBOR and up to 4% above LIBOR respectively, so the Group is exposed
to variable cash flows arising from changes in LIBOR. The Group hedges these
variable cash flows by the use of interest rate swaps. The interest rate swaps
can be summarised as follows:
NOTIONAL
EFFECTIVE DATES MATURITIES PRINCIPAL RECEIVES PAYS
--------------- ---------------------- ------------- ------------------------- ----------------
1/2/1997 - 7/1/2002 12/31/2003 - 3/31/2005 L900m 6-month LIBOR 5.475% - 7.3550%
In June 2002, the Group reviewed the effectiveness as hedges of the
derivative instruments hedging our exposure to fluctuations in interest rates on
its long-term bank debt. The review concluded that continued designation of
these instruments as hedges was no longer appropriate and hedge accounting was
discontinued with immediate effect. The dedesignation of these instruments as
hedges resulted in a transfer of L7 million from cumulative OCI to interest
expense within the Statement of Operations. Any movements in the value of the
derivatives after June 2002 are recorded within interest expense.
The Group continues to hedge some of its interest rate risk on its Senior
Secured Facility through the use of interest rate swaps. The purpose of the
derivative instruments is to provide a measure of stability over the Company's
exposure to movements in sterling interest rates on its sterling denominated
bank debt.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS requires
disclosure of an estimate of the fair values of financial instruments. SFAS 107
defines the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties
other than in a forced sale. Fair value estimates are made at a specific point
in time, based on relevant market information and information about the
financial instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgement, and therefore cannot be
determined precisely. Changes in assumptions could significantly affect the
estimates.
At December 31, 2002 the Group's significant financial instruments include
cash and cash equivalents, trade receivables, interest rate swaps, trade
payables and short-term and long-term debt instruments. The following table
summarizes the fair value of certain instruments held by and obligations of the
Group. The fair value of the other financial instruments held by the Group
IV-21
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4 FINANCIAL INSTRUMENTS (CONTINUED)
approximates their recorded carrying amount due to the short maturity of these
instruments and these instruments are not presented in the following table:
AT AT
CARRYING DECEMBER 31, 2002 CARRYING DECEMBER 31, 2001
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
L MILLION L MILLION L MILLION L MILLION
---------- ----------------- ---------- -----------------
FINANCIAL INSTRUMENTS--ASSETS
Foreign exchange forward contracts......... -- -- 131 131
Foreign currency swaps..................... -- -- 15 15
----- ----- ----- -----
FINANCIAL INSTRUMENTS--LIABILITIES
Interest rate swap agreements.............. (34) (34) (25) (25)
Foreign exchange forward contracts......... -- -- (4) (4)
DEBT OBLIGATIONS
Accreting Convertible Notes 2003........... 282 282 268 268
Senior Convertible Notes 2005.............. 311 130 344 234
Senior Debentures 2006..................... 186 39 206 155
Senior Convertible Notes 2007.............. 300 63 300 174
Senior Discount Debentures 2007............ 955 200 1,059 803
Senior Notes 2008.......................... 217 46 226 185
Senior Discount Notes 2009................. 563 108 505 308
Senior Notes 2010.......................... 394 83 378 315
Senior Discount Notes 2010................. 222 46 185 136
Senior Secured Facility.................... 2,000 2,000 1,360 1,360
Other debt................................. 20 20 66 66
----- ----- ----- -----
The estimated fair values of the financial instruments specified above are
based on quotations received from independent, third party financial
institutions and represent the net amounts receivable or payable to terminate
the position. The estimated fair values of the Debentures and Notes are also
based on quotations from independent third party financial institutions and are
based on discounting the future cash flows to net present values using
appropriate market interest rates prevailing at the year end.
MARKET RISK AND CONCENTRATIONS OF CREDIT RISK
Market risk is the sensitivity of the value of the financial instruments to
changes in related currency and interest rates.
As described above, the Group terminated its portfolio of derivative
financial instruments which were used to hedge its exposure to fluctuations in
the USD: GBP exchange rate. Consequently the Group is exposed to fluctuations in
the value of its US Dollar denominated debt obligations.
Generally, the Group is not exposed to such market risk arising on its
interest rate derivative financial instruments because gains and losses on the
underlying assets and liabilities offset gains and losses on the financial
instruments.
IV-22
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4 FINANCIAL INSTRUMENTS (CONTINUED)
The Group may be exposed to potential losses due to the credit risk of
non-performance by the financial institution counterparties to its portfolio of
derivative financial instruments. However such losses are not anticipated as
these counterparties are major international financial institutions and the
portfolio is spread over a wide range of institutions.
Temporary cash investments also potentially expose the Group to
concentrations of credit risk, as defined by SFAS 133. At December 31, 2002 the
Group had L160 million on deposit with a major international financial
institution. Concentrations of credit risk with respect to trade receivables are
limited due to the large number of customers comprising the Group's customer
base.
5 IMPAIRMENT OF ASSETS
During the year ended December 31, 2002, the Group undertook an impairment
review of its network assets, of goodwill arising on recent acquisitions and of
its investments in affiliates acquired in recent years. The review covered the
Cable and Content Divisions. The principal reasons for the review were: a share
price decline indicative of a fall in the values of the underlying assets and a
softening of the ad-sales market, declining revenue growth and a lower than
expected customer take up of additional services.
The review found evidence of impairment in the value of goodwill arising on
the core Cable and Content business and in the value of the affiliated
undertaking UKTV. The carrying amount of goodwill, fixed assets and the
investments in the affiliated undertakings were written down to fair value,
resulting in a charge of L1,445 million against goodwill, an impairment of
L841 million against fixed assets and a charge of L88 million against the
investments in affiliated undertakings. These charges have been included in the
statement of operations within impairment of goodwill, impairment of fixed
assets and share of net losses of affiliates and impairment,respectively. The
estimated fair value of the goodwill and the investment in UKTV was based on
projected future cash flows at a post-tax discount rate of 11.5% which the Group
believes is commensurate with the risks associated with the assets. The
projected future cash flows were determined using the company's ten-year plan
for the business, with a terminal value which takes into account analysts' and
other published projections of future trends across pay TV platforms, including
the total television advertising market.
6 BUSINESS COMBINATIONS
On May 30, 2001, the Group acquired 51% of the issued share capital of Rapid
Travel Solutions Limited ("Rapid Travel") and was granted a series of call
options by, and granted a series of put options to, the vendors in respect of
the balance of 49%. Assuming that either party exercises these options, the
Group will acquire the remainder of the share capital in tranches ending on
November 30, 2003 for total consideration of L4 million. The acquisition has
been accounted for using the purchase method of accounting. Goodwill arising on
the acquisition was L7 million.
If the Group had acquired Rapid Travel at the beginning of 2000 and 2001,
the Group's results would not have been materially different from the actual
results as disclosed in these financial statements.
On April 19, 2000 the Company acquired the entire issued share capital of
Flextech Plc ("Flextech"), a company engaged in broadcast media activities, for
a total consideration of
IV-23
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6 BUSINESS COMBINATIONS (CONTINUED)
L1,978 million. This comprised 601 million shares of 10p each and acquisition
costs of L31 million. The value attributed to the shares issued was 323.85p per
share, being the average share market price for a five day period around
December 17, 2000, the day the terms of the acquisitions were agreed to and
announced. The acquisition was accounted for using the purchase method of
accounting. The goodwill arising on acquisition of Flextech was L1,382 million.
As described in note 5, the Group has undertaken an impairment review of
goodwill. As a result of the review, a charge of L413 million has been made.
On November 1, 2000 the Company acquired the entire issued share capital of
Eurobell (Holdings) PLC ("Eurobell"), from Deutsche Telekom ("DT") and agreed to
pay initial and deferred consideration to DT, (as discussed below), in the form
of 5% Accreting Convertible Notes due 2003. The aggregate principal amount of
such Notes, following agreement of the deferred consideration is L254 million.
The terms of the Accreting Convertible Notes are described in note 15 to these
financial statements.
Upon completion of the acquisition, the Company issued a L220 million
Accreting Convertible Note to DT in consideration for:
- Eurobell's entire issued share capital, L72 million
- the assignment of an inter-company loan previously owed by Eurobell to DT,
L128 million, and
- a cash payment remitted to Eurobell by DT shortly after the acquisition,
L20 million.
Subsequently, on January 15, 2001 DT remitted a further cash payment, L30
million, to Eurobell and the Company issued an additional Accreting Convertible
Note to DT for L30 million.
In addition under the terms of the acquisition, the Company was obliged to
provide deferred consideration, contingent on Eurobell's turnover for the year
ended December 31, 2000 exceeding a certain target. As a result, an additional
L3.5 million Accreting Convertible Note, dated April 2, 2001 was issued to DT.
This deferred consideration was accrued for at December 31, 2000.
Goodwill of L1 million arose on the acquisition.
If the Company had acquired Flextech and Eurobell on January 1, 2000 the
Group's net loss of L755 million and loss per share of L0.28 would have been
L820 million and L0.28, respectively.
IV-24
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7 SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash paid for interest was L287 million, L335 million and L164 million for
the years ended December 31, 2002, 2001 and 2000, respectively.
During 2002 there were no significant non-cash investing activities. The
amounts stated for 2001 represent the purchase of Rapid Travel. The amounts
stated for 2000 represent the purchase of Flextech and Eurobell. These
transactions are described in note 6 to the consolidated financial statements.
YEAR ENDED DECEMBER 31
------------------------------------
2002 2001 2000
L MILLION L MILLION L MILLION
---------- ---------- ----------
Acquisitions:
Assets............................................ -- 1 1,104
Liabilities assumed............................... -- (2) (172)
Debt assumed...................................... -- -- (261)
--- ----- -----
Net (liabilities)/assets (contributed)/ assumed... -- (1) 671
Less:
Goodwill arising.................................. -- 7 1,383
--- ----- -----
-- 6 2,054
--- ----- -----
Share consideration/capital contribution.......... -- -- 1,946
Debt consideration................................ -- -- 75
Purchase of shares................................ -- 2 --
Option consideration.............................. -- 4 --
Direct costs of acquisition....................... -- -- 33
--- ----- -----
-- 6 2,054
--- ----- -----
In 2002 the Group entered into capital lease obligations with a total
capital value of L17 million. The Group entered into no vendor financing
arrangements during the year, but had a remaining financed balance of L11
million at December 31, 2002. At December 31, 2002, the Group had accrued a
further L57 million of capital expenditure for property and equipment.
8 OTHER RECEIVABLES
AT DECEMBER 31
-----------------------
2002 2001
L MILLION L MILLION
---------- ----------
Interconnection receivables............................... 7 2
Accrued income............................................ 32 68
Other..................................................... 29 27
Foreign currency swap..................................... -- 15
-- ---
68 112
-- ---
Accrued income primarily represents telephone calls made by Cable Division
subscribers and income accrued under Business Services Division contracts that
have not been billed as at the accounting period end.
IV-25
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9 INVESTMENTS
The Group has investments in affiliates accounted for under the equity
method at December 31, 2002 and 2001 as follows:
PERCENTAGE
OWNERSHIP AT
DECEMBER 31
--------------------
2002 2001
-------- --------
Front Row Television Limited................................ 50.0% 50.0%
UKTV........................................................ 50.0% 50.0%
Blue Yonder Workwise Limited................................ -- 70.0%
SMG......................................................... -- 16.9%
During the year Blue Yonder Workwise Limited became a wholly owned
subsidiary of the Group. No goodwill arose on the acquisition.
Summarized combined financial information for such affiliates which operate
principally in the cable television, broadcasting and interactive media
industries is as follows:
AT DECEMBER 31
-----------------------
2002 2001
L MILLION L MILLION
---------- ----------
COMBINED FINANCIAL POSITION
Current assets............................................ 61 162
Property and equipment, net............................... -- 54
Intangible assets, net.................................... -- 112
Other assets, net......................................... 31 7
---- ----
Total assets.............................................. 92 335
---- ----
Current liabilities....................................... 42 133
Debt...................................................... 176 66
Other liabilities......................................... -- 557
Owners' equity............................................ (126) (421)
---- ----
Total liabilities and equity.............................. 92 335
---- ----
YEAR ENDED DECEMBER 31
------------------------------------
2002 2001 2000
L MILLION L MILLION L MILLION
---------- ---------- ----------
COMBINED OPERATIONS
Revenue........................................... 128 408 406
Operating expenses................................ (103) (324) (343)
---- ---- ----
Operating profit.................................. 25 84 63
Interest expense.................................. (12) (38) (30)
---- ---- ----
Net profit........................................ 13 46 33
---- ---- ----
IV-26
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9 INVESTMENTS (CONTINUED)
AT DECEMBER 31
-----------------------
2002 2001
L MILLION L MILLION
---------- ----------
THE GROUP'S INVESTMENTS IN AFFILIATES ARE COMPRISED AS
FOLLOWS:
Goodwill.................................................. -- 27
Loans..................................................... 208 260
Share of net assets....................................... 168 260
--- ---
376 547
--- ---
On September 4, 2002 the investment in SMG plc, a listed investment in an
associated undertaking, was reclassified as a current asset investment at net
realisable value. This resulted in L42 million being written off the carrying
value of the investment. The investment in SMG plc was subsequently sold in
November 2002 realising a gain of L1 million.
10 PROPERTY AND EQUIPMENT
CABLE AND ELECTRONIC OTHER
LAND BUILDINGS DUCTING EQUIPMENT EQUIPMENT TOTAL
L MILLION L MILLION L MILLION L MILLION L MILLION L MILLION
---------- ---------- ---------- ---------- ---------- ----------
ACQUISITION COSTS
Balance at January 1, 2002.......... 6 133 3,186 1,424 597 5,346
Additions........................... -- 7 269 135 50 461
Disposals........................... -- (2) -- -- (11) (13)
Balance at December 31, 2002........ 6 138 3,455 1,559 636 5,794
-- --- ----- ----- --- -----
ACCUMULATED DEPRECIATION
Balance at January 1, 2002.......... -- 45 894 661 273 1,873
Charge for the year................. -- 10 159 223 103 495
Impairment.......................... -- 39 678 90 34 841
Disposals........................... -- (2) -- -- (11) (13)
-- --- ----- ----- --- -----
Balance at December 31, 2002........ -- 92 1,731 974 399 3,196
-- --- ----- ----- --- -----
2002 NET BOOK VALUE................. 6 46 1,724 585 237 2,598
-- --- ----- ----- --- -----
ACQUISITION COSTS
Balance at January 1, 2001.......... 6 119 2,630 1,393 552 4,700
Additions........................... -- 14 556 31 52 653
Disposals........................... -- -- -- -- (7) (7)
-- --- ----- ----- --- -----
Balance at December 31, 2001........ 6 133 3,186 1,424 597 5,346
-- --- ----- ----- --- -----
ACCUMULATED DEPRECIATION
Balance at January 1, 2001.......... -- 35 546 605 225 1,411
Charge for the year................. -- 10 348 56 55 469
Disposals........................... -- -- -- -- (7) (7)
-- --- ----- ----- --- -----
Balance at December 31, 2001........ -- 45 894 661 273 1,873
-- --- ----- ----- --- -----
2001 NET BOOK VALUE................. 6 88 2,292 763 324 3,473
-- --- ----- ----- --- -----
IV-27
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10 PROPERTY AND EQUIPMENT (CONTINUED)
Cable and ducting consists principally of civil engineering and fiber optic
costs. In addition, cable and ducting includes net book value of
pre-construction and franchise costs of L18 million and L14 million as of
December 31, 2002 and 2001, respectively. Electronic equipment includes the
Group's switching, headend and converter equipment. Other equipment consists
principally of motor vehicles, office furniture and fixtures and leasehold
improvements.
11 VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
CHARGED TO
BALANCE AT ACQUISITION OF COSTS AND BALANCE AT
JANUARY 1 SUBSIDIARIES EXPENSES DEDUCTIONS DECEMBER 31
L MILLION L MILLION L MILLION L MILLION L MILLION
---------- -------------- ---------- ---------- ------------
2002 Deferred tax valuation allowances...... 901 -- 382 -- 1,283
Allowance for doubtful accounts........ 16 -- -- (4) 12
--- --------- --- --- -----
2001 Deferred tax valuation allowances...... 733 -- 168 -- 901
Allowance for doubtful accounts........ 19 -- 3 (6) 16
--- --------- --- --- -----
2000 Deferred tax valuation allowances...... 491 38 204 -- 733
Allowance for doubtful accounts........ 13 5 14 (13) 19
--- --------- --- --- -----
12 OTHER ASSETS
The components of other assets, net of amortization, are as follows:
AT DECEMBER 31
-----------------------
2002 2001
L MILLION L MILLION
---------- ----------
Deferred financing costs of debentures.................... 11 22
Deferred financing costs of Senior Secured Facility....... 29 36
-- --
40 58
-- --
13 INVENTORY
AT DECEMBER 31
-----------------------
2002 2001
L MILLION L MILLION
---------- ----------
Raw materials and consumables............................. -- 1
Inventories of spare capacity and duct held for resale.... 4 36
Programming inventory..................................... 24 30
--- --
28 67
--- --
IV-28
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14 OTHER LIABILITIES
Other liabilities are summarized as follows:
AT DECEMBER 31
-----------------------
2002 2001
L MILLION L MILLION
---------- ----------
Deferred income........................................... 111 114
Accrued construction costs................................ 64 67
Accrued programming costs................................. 21 24
Accrued interconnect costs................................ 17 39
Accrued interest.......................................... 220 111
Accrued staff costs....................................... 10 35
Accrued expenses.......................................... 42 41
Other liabilities......................................... 146 93
--- ---
631 524
--- ---
15 DEBT
Debt is summarized as follows at December 31, 2002 and 2001:
WEIGHTED AVERAGE
INTEREST RATE 2002 2001
2002 2001 2000 L MILLION L MILLION
-------- ---------------- -------- ---------- ----------
Accreting Convertible Notes 2003............ 5% 5% 5% 282 268
Senior Convertible Notes 2005............... 6% 6% 6% 311 344
Senior Debentures 2006...................... 9.625% 9.625% 9.625% 186 206
Senior Convertible Notes 2007............... 5.25% 5.25% 5.25% 300 300
Senior Discount Debentures 2007............. 11% 11% 11% 955 1,059
Senior Notes 2008........................... 11.25% 11.25% 11.25% 217 226
Senior Discount Notes 2009.................. 9.25% 9.25% 9.25% 287 261
Senior Discount Notes 2009.................. 9.875% 9.875% 9.875% 276 244
Senior Notes 2010........................... 9.875% 9.875% 9.875% 394 378
Senior Discount Notes 2010.................. 11.375% 11.375% 11.375% 222 185
Senior Secured Facility..................... 6.223% 7.265% 7.553% 2,000 1,360
Other debt.................................. 6.7% 6.767% 7.432% 20 66
------ ------ ------ ----- -----
5,450 4,897
------ ------ ------ ----- -----
IV-29
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15 DEBT (CONTINUED)
NOTES AND DEBENTURES
PRINCIPAL EARLIEST REDEMPTION INTEREST
M ORIGINAL MATURITY DATE DATE RATE
--------- ---------------------- ------------------- --------
Accreting Convertible Notes 2003................. GBP 294 November 1, 2003 November 1, 2003 5%
Senior Convertible Notes 2005.................... USD 500 July 7, 2005 July 7, 2003 6%
Senior Debentures 2006........................... USD 300 October 1, 2006 October 1, 2001 9.625%
Senior Convertible Notes 2007.................... GBP 300 February 19, 2007 March 9, 2003 5.25%
Senior Discount Debentures 2007.................. USD 1,537 October 1, 2007 October 1, 2001 11%
Senior Notes 2008................................ USD 350 November 1,2008 November 1, 2003 11.25%
Senior Discount Notes 2009....................... GBP 325 April 15, 2009 April 15, 2004 9.875%
Senior Discount Notes 2009....................... USD 500 April 15, 2009 April 15, 2004 9.25%
Senior Notes 2010................................ GBP 180 February 1, 2010 February 1, 2005 9.875%
Senior Notes 2010................................ USD 350 February 1, 2010 February 1, 2005 9.875%
Senior Discount Notes 2010....................... USD 450 February 1, 2010 February 1, 2005 11.375%
The Debentures and Notes are unsecured liabilities of the Group.
The Senior Convertible Notes 2005 are convertible into 114 million ordinary
shares of the Group at a conversion price of 288 pence per ordinary share.
Conversion is at the holders' option at any time up to the close of business on
June 22, 2005. The Senior Convertible Notes 2007 are convertible into
92 million ordinary shares of the Group at a conversion price of 325 pence per
ordinary share. Conversion is at the holders' option at any time up to close of
business on February 2, 2007. If Notes are called for redemption prior to
maturity, each holder has the right to convert Notes into ordinary shares. The
Accreting Convertible Notes 2003 are convertible into 162 million ordinary
shares of the Group at an initial conversion price of 156.56 pence per ordinary
share. Conversion is at maturity at the holder's option, but the Group can elect
to settle in cash at any time, in whole but not in part, at 100% of the accreted
value provided that for a certain 10 day period prior to redemption, the price
per ordinary share has been at least 130% of the average conversion price in
effect on each day during the 10 day period.
On January 15, 2001, DT remitted a cash payment of L30 million to its former
subsidiary Eurobell, under the terms of the acquisition of Eurobell by the
Company on November 1, 2000. In consideration the Company issued additional
Accreting Convertible Notes 2003 for the same amount. In addition, under the
terms of the acquisition, the Company was obliged to provide deferred
consideration, contingent on Eurobell's turnover for the year ended
December 31, 2000 exceeding a certain target. As a result additional
L3.5 million Accreting Convertible Notes 2003, dated April 2, 2001, were issued
to DT.
The unamortized portion of the discounts on issue on the Senior Discount
Notes 2009 and Senior Discount Notes 2010 was L73 million and L58 million
respectively. The discount on issue is being amortized up to the first call
dates of the bonds, such as to produce a constant rate of return on the carrying
amount.
The indentures under which the Debentures and Notes were issued contain
various covenants, which among other things, restrict the ability of the Group
to incur additional indebtedness, pay dividends, create certain liens, enter
into certain transactions with shareholders or affiliates, or sell certain
assets. As part of its refinancing, the Group elected not to pay: the interest
due on October 1, 2002 on its Senior Debentures 2006 and its Senior Discount
Debentures 2007; the interest due on November 1 2002 on its Senior Notes 2008;
and the interest due on January 7, 2003 on its Senior Convertible Notes 2005.
The non payment of interest constitutes a default event under the terms of these
four bonds.
IV-30
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15 DEBT (CONTINUED)
SENIOR SECURED FACILITY
On March 16, 2001 the Group entered into a new senior secured credit
facility (the "Senior Secured Facility") with a syndicate of banks for
L2 billion, of which L1,855 million was drawn down at December 31, 2002. The
Group is also able to raise a further L250m as part of the institutional
investors of which L145 million was drawn down at December 31, 2002. The first
draw downs under the Senior Secured Facility were used to repay amounts owed
under the old senior secured credit facilities.
Borrowings under the Senior Secured Facility are secured on the assets of
the Group including the partnership interests and shares of subsidiaries and
bear interest at 0.75% to 2.0% over LIBOR (depending on the ratio of borrowings
to quarterly, annualized, consolidated net operating cash flow). Borrowings
under the Institutional Tranche bear interest at up to 4% above LIBOR.
The Senior Secured Facility contains cross default clauses with other debt
instruments. As a result of the Group being in default on certain of its
Debentures and Notes, it is in default on the Senior Secured Facility.
The Group is renegotiating its bank facilities and debt financing
arrangements. Further details of the Financial Restructuring are included in
note 25.
VENDOR FINANCING
The Group has entered into vendor financing arrangements to fund its
purchase of equipment from certain suppliers. Under the terms of these
arrangements the Group defers payment for periods up to 36 months. Interest is
charged on these arrangements at a rate that is fixed for the life of the
arrangements. The balance on these arrangements at December 31, 2002 was
L11 million.
SMG LOAN
On July 11, 2001, the Group entered into a contract with Toronto Dominion
Bank ("TD"), whereby TD provided a loan to the Group, in return for security
over 55% of the Group's shareholding in SMG plc. The loan was fully repaid
during the year following the sale of the Group's investment in SMG.
BANK LOANS
Bank loans are property loans secured on certain freehold land and buildings
held by the Group. The balance at December 31, 2002 was L7 million.
IV-31
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15 DEBT (CONTINUED)
MATURITY PROFILE
The Maturity Profile of the Group's long-term debt is as follows:
2002
L MILLION
----------
2003........................................................ 3,652
2004........................................................ 1
2005........................................................ 316
2006........................................................ --
2007........................................................ 300
2008 and thereafter......................................... 1,181
-----
5,450
-----
16 INCOME TAXES
Loss before income taxes is solely attributable to the UK.
The provisions for income taxes follow:
2002 2001 2000
L MILLION L MILLION L MILLION
---------- ---------- ----------
Deferred tax benefit.............................. 28 70 6
-- -- --
A reconciliation of income taxes determined using the statutory UK rate of
30% (2001: 30%) to the effective rate of income tax is as follows:
YEAR ENDED
DECEMBER 31
------------------------------
2002 2001 2000
% % %
-------- -------- --------
Corporate tax at UK statutory rates........................ (30) (30) (30)
Write down of goodwill..................................... 12 -- --
Change in valuation allowance.............................. 14 34 31
--- --- ---
(4) 4 1
--- --- ---
IV-32
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16 INCOME TAXES (CONTINUED)
Deferred income tax assets and liabilities at December 31, 2002 and 2001 are
summarized as follows:
2002 2001
L MILLION L MILLION
---------- ----------
Deferred tax assets relating to:
Fixed assets.............................................. 763 410
Net operating loss carried forward........................ 494 465
Other--investments........................................ 26 26
------ ----
Deferred tax asset........................................ 1,283 901
Valuation allowance....................................... (1,283) (901)
Investments in affiliates................................. (85) (113)
------ ----
DEFERRED TAX LIABILITY PER BALANCE SHEET.................. (85) (113)
------ ----
At December 31, 2002 the Group estimates that it has, subject to Inland
Revenue agreement, net operating losses ("NOLs") of L1,647 million available to
relieve against future profits. This excludes capital allowances on assets which
are available to the Group, but have not been claimed.
A valuation allowance of 100% has been provided due to a history of
operating losses and management's belief that the likelihood of realizing the
benefit of the deferred tax asset is not more likely than not.
The NOLs have an unlimited carry forward period under UK tax law, but are
limited to their use to the type of business which has generated the loss.
17 SHAREHOLDERS' EQUITY
MOVEMENT IN SHARE CAPITAL
On March 31, 2000 the authorized share capital of the Company was increased
to L460 million divided into 4,300 million ordinary shares of 10 pence each and
300 million limited voting convertible ordinary shares of 10p each.
Between May 5 and July 5, 2000 the Company issued 601 million ordinary
shares of 10 pence each in consideration for the entire issued share capital of
Flextech. Also in 2000, 4 million ordinary shares of 10 pence each were issued
in consideration of L4.6 million on exercise of employee share options.
During 2001 the Company issued 7 million ordinary shares of 10 pence each
upon exercise of employee share options. Total consideration received was
L6 million. In addition the Company redesignated 20 million ordinary shares of
10p each into 20 million limited voting convertible ordinary shares of 10 pence
each.
LIMITED VOTING CONVERTIBLE ORDINARY SHARES
The ordinary shares and the limited voting convertible ordinary shares have
the same rights, except that the limited voting convertible ordinary shares do
not confer the right to vote on resolutions to
IV-33
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17 SHAREHOLDERS' EQUITY (CONTINUED)
appoint, reappoint, elect or remove directors of Telewest. No application will
be made for the limited voting convertible ordinary shares to be listed or dealt
in on any stock exchange. Holders of limited voting convertible ordinary shares
are entitled to convert all or some of their limited voting convertible ordinary
shares into fully paid ordinary shares, provided that the conversion would not
result in a change of control of the Company for the purposes of the indentures
governing certain Notes and Debentures. The limited voting convertible ordinary
shares are convertible into ordinary shares at the Company's option at any time,
subject to certain conditions. The sole holders of the limited voting
convertible ordinary shares are Liberty Media and Microsoft.
Members of the Liberty Media Group and/or the Microsoft Group can
redesignate all or any of their ordinary shares into limited voting convertible
ordinary shares. This is to ensure that, on any future purchase of ordinary
shares by members of the Microsoft Group and/or members of the Liberty Media
Group, they will, at that time, be able to re-designate such number of their
then existing holding of ordinary shares so as to avoid a change of control of
the Company for the purposes of the Notes and Debentures.
Future purchases of ordinary shares and/or limited voting convertible
ordinary shares by members of the Liberty Media Group and/or the Microsoft Group
will, however, be subject to Rule 9 of the UK's City Code on Take overs and
Mergers because both classes of shares are treated as voting shares for that
purpose. Under Rule 9, when any person acquires, whether by a series of
transactions over a period of time or not, shares which (taken together with
shares held or acquired by persons acting in concert with him) carry 30% or more
(but less than 50%) of the voting rights of a public company, that person is
normally required to make a general offer to shareholders for the entire share
capital of the company then in issue. Any person, or group of persons acting in
concert, owning shares carrying 50% or more of the voting rights of a public
company, subject to their own individual limits, is free to acquire further
shares in that public company without giving rise to the requirement to make a
general offer for the entire issued share capital of that company.
In May 2001, Liberty Media increased its shareholding in the Company as
result of the purchase of 20 million ordinary shares of 10 pence each. Prior to
the increase in shareholding, Liberty Media redesignated 20 million ordinary
shares of 10 pence each as limited voting convertible ordinary shares of 10
pence each. As a result Liberty Media and Microsoft's combined shareholdings
remained below 50% of the issued ordinary share capital, above which level a
change of control for the purposes of the Group's debt securities may occur.
18 SHARE-BASED COMPENSATION PLANS
At December 31, 2002, the Company operated five types of share-based
compensation plans: the Executive Share Option Schemes, the Sharesave Schemes,
the Telewest Restricted Share Scheme ("RSS"), the Telewest Long Term Incentive
Plan ("LTIP") and an Equity Participation Plan ("EPP").
The Company applies APB 25 and related interpretations in accounting for its
share-based compensation plans. Compensation cost is recognized over the
estimated service period in respect of performance based share option grants to
the extent that the market value of the Company's ordinary shares exceeds the
exercise price at the earlier of the vesting date or the Balance Sheet date.
Compensation cost is recognized for awards over ordinary shares made under the
RSS since the awards
IV-34
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18 SHARE-BASED COMPENSATION PLANS (CONTINUED)
have no exercise price. Compensation cost is recognized over the estimated
service period in respect of the LTIP to the extent that the market value of the
Company's ordinary shares exceeds the exercise price at the earlier of the
vesting date or the Balance Sheet date.
Compensation cost recognized for share option grants and awards is as
follows:
2002 2001 2000
L MILLION L MILLION L MILLION
---------- ---------- ----------
LTIP.............................................. (1) -- 5
Executive Share Option Scheme..................... -- 1 2
EPP............................................... -- 1 1
-- -- --
(1) 2 8
-- -- --
During the year, no options or awards were granted over any ordinary shares
of the Company. If compensation costs for share option grants and awards under
the RSS, LTIP, Executive Option Schemes and EPP had been determined based on
their fair value at the date of grant for 2001 and 2000 consistent with the
method prescribed by SFAS 123, the Group's net loss and basic and diluted loss
per share would have been adjusted to the pro forma amounts set out below:
2002 2001 2000
L MILLION L MILLION L MILLION
---------- ---------- ----------
Net loss
as reported..................................... (2,776) (1,741) (755)
pro forma....................................... (2,753) (1,750) (757)
------ ------ ----
PENCE PENCE PENCE
-------- -------- --------
Basic and diluted loss per share
as reported..................................... (97) (60) (28)
pro forma....................................... (96) (61) (28)
------ ------ ----
The fair value of each option grant in all plans was estimated as at the
date of grant using a Black-Scholes option-pricing model. The model used a
weighted-average, risk-free interest rate of 5.5% and 5.8% for grants in 2001
and 2000 respectively, and an expected volatility of 55% and 30%, respectively.
The Group does not expect to pay a dividend on its ordinary shares at any time
during the expected life of any outstanding option. The Group expects options to
be held until maturity.
PERFORMANCE-BASED SHARE OPTION COMPENSATION PLANS
The Group has two performance-based share option plans: the 1995 (No. 1)
Executive Share Option Scheme and the 1995 (No. 2) Executive Share Option
Scheme. Under both plans, certain officers and employees are granted options to
purchase ordinary shares of the Company. The exercise price of each option
generally equals the market price of the Company's ordinary shares on the date
of grant. The options are exercisable between three and ten years after the date
of the grant with exercise conditional on the Company's shares out-performing by
price the FTSE100 Index over any three-year period preceding exercise. The
Company may grant options for up to 295 million ordinary shares.
IV-35
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18 SHARE-BASED COMPENSATION PLANS (CONTINUED)
A summary of the status of the Company's performance-based share option
plans as of December 31, 2002, 2001, and 2000 and changes during the years ended
on those dates are presented below:
2002 2001 2000
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE
---------- -------- ---------- -------- ---------- --------
Outstanding at beginning of
year......................... 97,699,837 136.4P 52,503,409 173.2p 17,028,622 110.0p
Adjustments during the year.... -- -- -- -- 4,457,322 143.8p
Granted........................ -- -- 53,709,994 98.8p 35,154,239 205.1p
Exercised...................... -- -- (1,210,816) 78.2p (2,501,964) 114.9p
Forfeited...................... (7,642,594) 126.0P (7,302,750) 134.3p (1,634,810) 208.8p
---------- ------ ---------- ------ ---------- ------
Outstanding at end of year..... 90,057,243 137.3P 97,699,837 136.4p 52,503,409 173.2p
---------- ------ ---------- ------ ---------- ------
Options exercisable at year
end.......................... 36,358,298 141.4P 16,577,655 132.0p 14,938,772 129.8p
---------- ------ ---------- ------ ---------- ------
Weighted average fair value of
options granted during the
year......................... -- 69.7p 33.9p
---------- ------ ---------- ------ ---------- ------
The adjustments during 2000 arose as a result of the transfer in of former
Flextech outstanding options.
Share options are forfeited due to employees leaving the Group before their
share options become exercisable.
The following table summarizes information about the Company's
performance-based share option plans outstanding at December 31, 2002.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------- -------------------------------------
NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER
RANGE OF EXERCISE OUTSTANDING AT REMAINING AVERAGE EXERCISE EXERCISABLE AT WEIGHTED AVERAGE
PRICES DECEMBER 31, 2002 CONTRACTUAL LIFE PRICE DECEMBER 31, 2002 EXERCISE PRICE
----------------- ------------------ ---------------- ---------------- ------------------ ----------------
65.7--76.8p.......... 13,890,131 7.4 yrs 74.2p 6,307,995 73.3p
81.5--82.5p.......... 2,025,479 8.6 yrs 81.7p 257,834 81.7p
84.6--99.9p.......... 2,212,140 2.5 yrs 89.2p 2,212,140 89.0p
102.0--109.1p........ 33,133,132 8.2 yrs 103.8p 10,574,594 103.6p
114.0--125.9p........ 11,133,884 7.5 yrs 119.2p 3,890,521 120.1p
130.4--142.9p........ 982,642 4.2 yrs 139.1p 982,642 139.1p
160.0--170.0p........ 1,502,207 7.3 yrs 166.2p 709,386 167.7p
202.4--235.0p........ 23,883,741 7.5 yrs 229.4p 10,638,164 228.5p
237.3--249.4p........ 543,216 7.1 yrs 239.7p 268,467 240.9p
274.3--276.5p........ 361,832 6.4 yrs 276.4p 332,813 276.4p
289.0--294.8p........ 388,839 6.8 yrs 291.2p 183,742 291.7p
---------- ------- ------ ---------- ------
65.7--294.8p......... 90,057,243 7.6 yrs 137.3p 36,358,298 141.4p
---------- ------- ------ ---------- ------
IV-36
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18 SHARE-BASED COMPENSATION PLANS (CONTINUED)
FIXED SHARE OPTION COMPENSATION PLANS
The Company also operates the Sharesave Scheme, a fixed share option
compensation scheme. Under this plan, the Company grants options to employees to
purchase ordinary shares at up to a 20% discount to market price. These options
can be exercised only with funds saved by employees over time in a qualified
savings account. The options are exercisable between 37 and 66 months after
commencement of the savings contracts.
A summary of the status of the Company's fixed share option plan as of
December 31, 2002, 2001, and 2000 and the changes during the years ended on
those dates are presented below:
2002 2001 2000
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE
----------- -------- ---------- -------- ---------- --------
Outstanding at beginning of year..... 21,519,334 80.5P 26,635,135 91.1p 11,679,289 116.9p
Adjustments during the year.......... -- -- -- -- 654,868 126.2p
Granted.............................. -- -- 9,205,135 60.3p 17,946,934 88.3p
Exercised............................ -- -- (4,380,809) 57.3p (876,216) 98.1p
Forfeited............................ (12,550,048) 82.3P (9,940,127) 100.4p (2,769,740) 187.6p
Outstanding at end of year........... 8,969,286 78.0P 21,519,334 80.5p 26,635,135 91.1p
----------- ------- ---------- ------ ---------- ------
Options exercisable at year end...... 36,272 159.1P 72,926 98.0p 4,443,443 57.1p
----------- ------- ---------- ------ ---------- ------
Weighted average fair value of
Options granted during the year.... -- -- -- 33.3p -- 39.1p
----------- ------- ---------- ------ ---------- ------
The adjustments during 2000 arose as a result of the transfer in of former
Flextech outstanding options.
Share options are forfeited due to employees leaving the Group before their
share options become exercisable.
The following table summarizes information about the Company's fixed share
options outstanding at December 31, 2002:
OPTIONS OUTSTANDING
----------------------------
WEIGHTED
NUMBER AVERAGE
OUTSTANDING AT REMAINING
DECEMBER 31, CONTRACTUAL
RANGE OF EXERCISE PRICES 2002 LIFE
------------------------ -------------- -----------
58.5--88.3p................................................ 8,652,129 2.1 yrs
103.9--115.9p............................................... 40,262 0.9 yrs
128.6--161.9p............................................... 24,455 0.5 yrs
191.0--236.5p............................................... 252,440 0.6 yrs
--------- -------
58.5--236.5p............................................... 8,969,286 2.0 yrs
--------- -------
IV-37
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18 SHARE-BASED COMPENSATION PLANS (CONTINUED)
TELEWEST RESTRICTED SHARE SCHEME ("RSS")
The Company operates the RSS in conjunction with an employment trust, the
Telewest 1994 Employees' Share Ownership Plan Trust (the "Telewest ESOP"), which
has been designed to provide incentives to executives of the Company. Under the
RSS, executives may be granted awards over ordinary shares of the Company based
on a percentage of salary. The awards are made for no monetary consideration.
The awards generally vest three years after the date of the award and are
exercisable for up to seven years after the date when they vest.
The compensation charge related to each award is based on the share price of
the ordinary shares on the date the award was made.
A summary of the status of the RSS at December 31, 2002, 2001, and 2000 and
changes during the years ended on those dates are presented below:
2002 2001 2000
NUMBER NUMBER NUMBER
OF SHARES OF SHARES OF SHARES
--------- --------- ---------
Outstanding at beginning of year............................ 530,855 358,316 576,333
Granted..................................................... -- 248,595 --
Exercised................................................... (37,821) (76,056) (131,394)
Forfeited................................................... -- -- (86,623)
------- ------- --------
Outstanding at end of year.................................. 493,034 530,855 358,316
------- ------- --------
Awards exercisable at year end.............................. 214,114 38,338 86,989
------- ------- --------
Weighted average fair value of awards granted during the
year...................................................... -- L1.10 --
------- ------- --------
Share awards are forfeited due to employees leaving the Group before their
awards become exercisable.
At December 31, 2002, the 493,034 awards outstanding and the 214,114 awards
exercisable have weighted average remaining contractual lives of 7.4 years and
6.3 years respectively.
Deferred compensation cost relating to RSS is L38,000 (2001: L478,000.)
LONG TERM INCENTIVE PLAN ("LTIP")
The LTIP provides for share awards to executive directors and senior
executives. Under the LTIP, an executive will be awarded the provisional right
to receive, for no payment, a number of Telewest shares with a value equating to
a percentage of base salary. The shares will not vest unless certain performance
criteria, based on total shareholder return assessed over a three-year period
are met. The percentage of salary will be determined by the Remuneration
Committee and will be up to 100% of base salary for executive directors.
IV-38
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18 SHARE-BASED COMPENSATION PLANS (CONTINUED)
A summary of the status of the LTIP at December 31, 2002, 2001, and 2000 and
changes during the years ended on those dates are presented below:
2002 2001 2000
NUMBER NUMBER NUMBER
OF SHARES OF SHARES OF SHARES
---------- ---------- ----------
Outstanding at beginning of year.......................... 1,566,507 2,714,552 4,005,075
Granted................................................... -- 910,730 816,175
Exercised................................................. (29,502) (1,220,362) (1,152,826)
Forfeited................................................. (1,113,733) (838,413) (953,872)
---------- ---------- ----------
Outstanding at end of year................................ 423,272 1,566,507 2,714,552
---------- ---------- ----------
Awards exercisable at year end............................ 108,569 265,939 1,058,542
---------- ---------- ----------
Weighted average fair value of awards granted during the
year.................................................... -- L1.09 L0.24
---------- ---------- ----------
Share awards are forfeited due to employees leaving the Group before their
share options become exercisable or due to performance criteria not being met.
Deferred compensation cost relating to the LTIP is Lnil (2001: L189,000.)
EQUITY PARTICIPATION PLAN ("EPP")
The Remuneration Committee has provided that, under the EPP, an employee
with two years service or at manager level or above, can use up to 100% of the
Short Term Incentive Plan ("STIP") bonus payable to the employee to acquire
Telewest shares ("bonus shares"). The employee must deposit the bonus shares
with the Trustee of the existing Telewest ESOP. In return, the employee is
provisionally allocated for no payment a matching number of Telewest shares.
Provided the bonus shares are retained for three years and the employee remains
employed for three years, the bonus and matching shares would thereafter be
released to the employee.
A summary of the status of the Company's EPP at December 31, 2002, 2001, and
2000 and the changes during the years ended on those dates are presented below:
2002 2001 2000
NUMBER NUMBER NUMBER
OF SHARES OF SHARES OF SHARES
--------- --------- ---------
Outstanding at beginning of year............................ 572,053 1,193,839 1,074,150
Granted..................................................... -- -- 267,524
Exercised................................................... (256,790) (579,430) (130,576)
Forfeited................................................... (9,693) (42,356) (17,259)
-------- --------- ---------
Outstanding at end of year.................................. 305,570 572,053 1,193,839
-------- --------- ---------
Awards exercisable at year end.............................. 123,168 26,443 288,253
-------- --------- ---------
Weighted average fair value of awards granted during the
year...................................................... -- -- L2.49
-------- --------- ---------
Share awards are forfeited due to employees leaving the Group before their
share options become exercisable.
Deferred compensation cost relating to the EPP is L80,000 (2001: L419,000.)
IV-39
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19 ACCUMULATED OTHER COMPREHENSIVE INCOME
2002 2001
GAINS/(LOSSES) GAINS/(LOSSES)
ON MARK TO ON MARK TO
MARKET OF MARKET OF
CASHFLOW CASHFLOW
HEDGES HEDGES
L MILLION L MILLION
-------------- --------------
Balance at January 1, 2002.................................. 37 --
Cumulative effect of accounting change...................... -- (16)
Amounts reclassified into earnings.......................... (48) (5)
Current period increase in fair value....................... -- 57
Unrealised gain on deemed partial disposal of investment.... -- 1
--- ---
BALANCE AT DECEMBER 31, 2002................................ (11) 37
--- ---
The amounts reclassified into earnings are detailed in note 4.
20 COMMITMENTS AND CONTINGENCIES
RESTRICTED CASH
At December 31, 2002, the Group has cash restricted as to use of
L12 million which provides security for leasing obligations.
OTHER COMMITMENTS
The amount of capital expenditure authorized by the Group for which no
provision has been made in the consolidated financial statements is as follows:
2002 2001
L MILLION L MILLION
---------- ----------
Contracted.................................................. 13 28
-- --
In addition the Group has contracted to buy L28 million of programming
rights for which the license period has not yet started.
IV-40
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20 COMMITMENTS AND CONTINGENCIES (CONTINUED)
CAPITAL AND OPERATING LEASES
The Group leases a number of assets under arrangements accounted for as
capital leases, as follows:
ACQUISITION ACCUMULATED NET BOOK
COSTS DEPRECIATION VALUE
L MILLION L MILLION L MILLION
----------- ------------ ----------
At December 31, 2002:
Electronic equipment...................................... 283 (185) 98
Other equipment........................................... 118 (58) 60
At December 31, 2001:
Electronic equipment...................................... 290 (187) 103
Other equipment........................................... 109 (43) 66
--- ---- ---
Depreciation charged on these assets was L44 million and L45 million for
the years ended December 31, 2002 and 2001 respectively.
The Group leases business offices and uses certain equipment under lease
arrangements accounted for as operating leases. Minimum rental expense under
such arrangements amounted to L21 million, L19 million and L17 million for
the years ended December 31, 2002, 2001 and 2000, respectively and is included
in depreciation expense detailed in note 10.
Future minimum lease payments under capital and operating leases are
summarized as follows as of December 31, 2002:
CAPITAL LEASES OPERATING LEASES
L MILLION L MILLION
-------------- ----------------
2003........................................................ 89 25
2004........................................................ 46 18
2005........................................................ 38 14
2006........................................................ 29 13
2007........................................................ 19 12
2008 and thereafter......................................... 13 91
--- --
234
Imputed interest............................................ (30)
--- --
204
--- --
It is expected that, in the normal course of business, expiring leases will
be renewed or replaced.
IV-41
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20 COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Group leases capacity on its network to other telecommunications
companies. These leases are accounted for as operating leases and revenues
received are recognized over the life of the leases as follows:
L MILLION
----------
2003........................................................ 5
2004........................................................ 5
2005........................................................ 3
2006........................................................ 1
2007........................................................ 1
2008 and thereafter......................................... 5
--
The assets held under these leases are accounted for as follows:
ACQUISITION COSTS ACCUMULATED DEPRECIATION NBV
L MILLION L MILLION L MILLION
----------------- ------------------------ ----------
At December 31, 2002
Cable and ducting............................... 45 (5) 40
At December 31, 2001
Cable and ducting............................... 45 (3) 42
Depreciation charged on these assets was L2 million and L2 million for
the years ended December 31, 2002 and 2001 respectively.
CONTINGENT LIABILITIES
The Group has provided performance bonds in respect of its national licence
and to local authorities up to a maximum amount of L7 million (2001:
L7 million).
The Group is a party to various other legal proceedings in the ordinary
course of business which it does not believe will result, in aggregate, in a
material adverse effect on its financial condition or results of operations.
21 RELATED PARTY TRANSACTIONS
IDENTITY OF RELEVANT RELATED PARTIES
Liberty Media, Inc ("Liberty") and Microsoft are related parties of the
Group, in that they control or controlled, directly or indirectly, more than 20%
of the voting rights of the Company in 2002, 2001 and 2000.
Flextech up to its acquisition on April 19, 2000 was a related party of the
Group as Liberty owned more than 20% of the voting rights of Flextech.
UKTV is a related party of the Group, as the Group owns 50% of the voting
rights.
TV Travel Group Limited ("TVT") was a related party of the Group, as the
Group owned 37.95% of the voting rights before disposal in 2002.
IV-42
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
21 RELATED PARTY TRANSACTIONS (CONTINUED)
In 2001 Screenshop Limited ("Screenshop") became a related party when the
Group sold its shareholding in Screenshop to Sit-Up Limited in return for a
39.02% shareholding in Sit-Up Limited.
NATURE OF TRANSACTIONS
The Group purchases software and consultancy services from Microsoft, on
normal commercial terms. Purchases in the year ended December 31, 2002 amounted
to L1 million (2001: L2 million). The balance outstanding in respect of these
purchases was Lnil at December 31, 2002 and 2001.
The Group has billed overheads and costs incurred on their behalf to UKTV,
TVT and Screenshop of L11 million, L1 million and L1 million (2001: L8 million,
L3 million and L1 million) respectively. The Group has also made a loan to UKTV.
Interest charged on this loan was L12 million (2001: L12 million). Amounts due
from UKTV, TVT and Screenshop at December 31, 2002 were L206 million,
L1 million and L4 million respectively (2001: L217 million, L28 million and Lnil
respectively).
In the normal course of its business the Group purchases programming from
UKTV on normal commercial terms. Purchases in the year ended December 31, 2002
were L13 million (2001: L5 million, 2000: L4 million). The balance due to UKTV
at December 31, 2002 was Lnil (2001: L2 million).
22 SUBSEQUENT EVENTS
Since the balance sheet date a number of interest payments which became due
were not paid. As a result additional financing arrangements became technically
in default. At the date of issue of these financial statements the Senior
Convertible Notes 2005, Senior Convertible Notes 2007 and Senior Notes 2010 are
technically in default. The total amount of these financing arrangements of
L1,005 million has been classified in these accounts as due after more than one
year.
The Group is renegotiating its bank facilities and debt financing
arrangements. Further details of the proposed Financial Restructuring are
included in note 25.
23 QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
2002
--------------------------------------------------------------
FOURTH THIRD SECOND FIRST
TOTAL QUARTER* QUARTER QUARTER QUARTER
L MILLION L MILLION L MILLION L MILLION L MILLION
---------- ---------- ---------- ---------- ----------
Revenue......................................... 1,283 307 323 334 319
Operating loss.................................. (2,440) (2,349) (31) (29) (31)
Finance expenses, net........................... (283) (52) (70) (61) (100)
Net loss........................................ (2,776) (2,458) (134) (59) (125)
Basic and diluted loss per ordinary share....... (97P) (86P) (5P) (2P) (4P)
------------------------
* In the fourth quarter the Group recorded a goodwill impairment charge of
L1,445 million, wrote down the value of its investments in affiliates by
L130 million and recorded a fixed asset impairment of L841 million.
IV-43
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
23 QUARTERLY FINANCIAL INFORMATION (CONTINUED)
2001
--------------------------------------------------------------
FOURTH THIRD SECOND FIRST
TOTAL QUARTER* QUARTER QUARTER QUARTER
L MILLION L MILLION L MILLION L MILLION L MILLION
---------- ---------- ---------- ---------- ----------
Revenue......................................... 1,254 329 312 315 298
Operating loss.................................. (1,121) (844) (83) (87) (107)
Finance expenses, net........................... (472) (131) (104) (95) (142)
Net loss........................................ (1,741) (1,122) (192) (185) (242)
Basic and diluted loss per ordinary share....... (60p) (38p) (7p) (6p) (9p)
------------------------
* In the fourth quarter the Group recorded a goodwill impairment charge of
L766 million and wrote down the value of its investments in affiliates by
L202 million.
Finance expenses include foreign exchange gains and losses on the
retranslation or valuation of US Dollar-denominated financial instruments using
period end exchange rates and market valuations.
24 SEGMENTAL INFORMATION
The Group applies SFAS 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION. SFAS 131 establishes standards for reporting information
about operating segments in annual financial statements. It also establishes
standards for related disclosures about products and services, and geographic
areas. Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker, or decision-making group, in deciding how to
allocate resources and in assessing performance. The Group's chief operating
decision-making group is the board of directors. The operating segments are
managed separately because each operating segment represents a strategic
business unit that offers different products and services in different markets.
The Group operates in two main segments: Cable and Content. The Cable segment of
our business can be subdivided, for revenue purposes only, between four product
ranges: Cable Television, Consumer Telephony, Internet and other, and Business
Services. The Internet and Other unit comprises internet sales and sales of
cable publications. The Content segment provides entertainment content,
interactive and transactional services to the UK pay-TV broadcasting market.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies. In 2001,the Group
changed the structure of its segmental analysis, and certain corresponding
information from the previous years has been restated to reflect the change in
structure.
IV-44
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
24 SEGMENTAL INFORMATION (CONTINUED)
The following tables present summarized financial information relating to
the reportable segments for each of the three years ended December 31, 2002:
2002 2002 2001 2000
$ MILLION L MILLION L MILLION L MILLION
---------- ---------- ---------- ----------
NOTE 2
CABLE
Cable television............................................ 541 336 329 279
Consumer telephony.......................................... 797 495 488 445
Internet and other.......................................... 101 63 40 16
------ ------ ------ -----
TOTAL CONSUMER DIVISION..................................... 1,439 894 857 740
Business Services Division.................................. 455 283 268 248
------ ------ ------ -----
THIRD PARTY REVENUE......................................... 1,894 1,177 1,125 988
Operating costs and expenses................................ (1,333) (828) (822) (757)
Depreciation(3)............................................. (2,134) (1,326) (453) (392)
Amortization of goodwi11(2)................................. (1,635) (1,016) (82) (86)
------ ------ ------ -----
OPERATING LOSS.............................................. (3,208) (1,993) (232) (247)
------ ------ ------ -----
Share of net loss of affiliates............................. -- -- (5) (6)
Additions to property and equipment......................... 737 458 649 587
Investment in affiliates.................................... 5 3 2 3
Total assets................................................ 5,851 3,635 5,093 5,146
------ ------ ------ -----
CONTENT
Content division............................................ 195 121 143 88
Inter-segmenta1(1).......................................... (24) (15) (14) (7)
------ ------ ------ -----
THIRD PARTY REVENUE......................................... 171 106 129 81
OPERATING COSTS AND EXPENSES................................ (183) (114) (135) (101)
Depreciation(3)............................................. (16) (10) (16) (31)
Amortization of goodwi11(2)................................. (691) (429) (867) (61)
------ ------ ------ -----
OPERATING LOSS.............................................. (719) (447) (889) (112)
------ ------ ------ -----
Share of net loss of affiliates and impairment.............. (190) (118) (211) (9)
Additions to property and equipment......................... 5 3 4 8
Investment in affiliates.................................... 600 373 545 781
Total assets................................................ 758 471 1,239 2,178
------ ------ ------ -----
TOTAL
Cable television............................................ 541 336 329 279
Consumer telephony.......................................... 797 495 488 445
Internet and other.......................................... 101 63 40 16
------ ------ ------ -----
TOTAL CONSUMER DIVISION..................................... 1,439 894 857 740
Business Services Division.................................. 455 283 268 248
------ ------ ------ -----
TOTAL CABLE DIVISION........................................ 1,894 1,177 1,125 988
Content division............................................ 195 121 143 88
Inter-segmenta1(1).......................................... (24) (15) (14) (7)
------ ------ ------ -----
TOTAL REVENUE............................................... 2,065 1,283 1,254 1,069
Operating costs and expenses................................ (1,516) (942) (957) (858)
Depreciation(3)............................................. (2,150) (1,336) (469) (423)
Amortization of goodwi11(2)................................. (2,326) (1,445) (949) (147)
------ ------ ------ -----
OPERATING LOSS.............................................. (3,927) (2,440) (1,121) (359)
Other expense(2)............................................ (586) (364) (690) (402)
Income tax benefit.......................................... 45 28 70 6
------ ------ ------ -----
NET LOSS.................................................... (4,468) (2,776) (1,741) (755)
------ ------ ------ -----
Share of net loss of affiliates and impairment.............. (190) (118) (216) (15)
Additions to property and equipment......................... 742 461 653 595
Investment in affiliates.................................... 605 376 547 784
Total assets................................................ 6,609 4,106 6,332 7,324
------ ------ ------ -----
------------------------------
(1) Inter-segmental revenues are revenues from sales in our Content Division
which are costs in our Cable Division and are eliminated on consolidation.
IV-45
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
24 SEGMENTAL INFORMATION (CONTINUED)
(2) In the fourth quarter of 2002, the Group recorded a goodwill impairment
charge of L1,445 million and wrote down the value of its investments in
affiliates by L130 million. In the fourth quarter of 2001, the Group
recorded a goodwill impairment charge of L766 million and wrote down the
value of its investments in affiliates by L202 million.
(3) In the fourth quarter 2002 the Group recorded a fixed asset impairment of
L841 million.
25 FINANCIAL RESTRUCTURING
On September 30, 2002, we announced that we had reached a preliminary
agreement relating to a financial restructuring (the "Financial Restructuring")
with an ad hoc committee of our bondholders (the "Bondholder Committee"). That
agreement provides for the cancellation of all outstanding notes and debentures
("the Notes"), representing approximately L3.5 billion of indebtedness, issued
by the Company and Telewest Finance (Jersey) Limited and certain other unsecured
foreign exchange hedge contracts ("the Hedge Contracts") of the Company in
exchange for New Ordinary Shares ("New Shares") representing 97% of the issued
share capital of the Company immediately after the Financial Restructuring. The
Company's current ordinary shareholders will receive the remaining 3% of the
Company's issued ordinary share capital.
We also announced on September 30, 2002 that we were deferring payment of
interest under certain of our Notes and the settlement of the Hedge Contracts.
Such non-payment continues and has resulted in defaults under the Group's bank
facilities and a number of other financing arrangements. Based on one such
default, in respect of non-payment of approximately L10.5 million to a Hedge
Contract counter-party, that counter-party has filed a petition for the
winding-up of the Company with a UK court. The Company intends to deal with this
claim as part of the overall restructuring of its unsecured debt obligations and
does not believe that the legal action will significantly impede the Financial
Restructuring process. The Company will of course continue to meet its
obligations to its suppliers and trade creditors and this legal action is
expected to have no impact on customer service.
On January 15, 2003, we announced that we had reached a non-binding
agreement with respect to the terms of amended and restated credit facilities
with both the steering committee of our senior lenders and the Bondholder
Committee. In addition, the terms of these facilities have received credit
committee approval, subject to documentation and certain other issues, from all
of our senior lenders, save for those banks which are also creditors by virtue
of the unsecured Hedge Contracts with which we will deal in the overall
Financial Restructuring.
The terms of the amended and restated bank facilities are as follows:
- the amended facilities total L2,155 million, comprising term loans of
L1,840 million, L190 million of committed overdraft and revolving credit
facilities and an uncommitted term facility of L125 million;
- the amended facilities do not amortise; and the majority of the facilities
will mature on December 31, 2005 with the balance maturing on June 30,
2006;
- financial covenants will be re-set to reflect the Company's new business
plan; and
- the pricing on the facilities will be increased to reflect market
sentiment.
These amended facilities will replace the Group's existing bank facilities,
(the "Senior Secured Facility") and are, as noted above, conditional on various
matters, including the satisfactory finalisation
IV-46
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
25 FINANCIAL RESTRUCTURING (CONTINUED)
of arrangements for dealing with foreign exchange creditors and the completion
of our balance sheet restructuring. These amended credit facilities will provide
the Company with substantial liquidity, which is expected to be sufficient to
see the Company through to cash flow positive after completion of the Financial
Restructuring.
Negotiations are continuing with the Bondholder Committee, the Company's
senior lenders and certain other major stakeholders with a view to the timely
completion of the Financial Restructuring.
IV-47
CERTIFICATIONS
I, Robert R. Bennett, certify that:
1. I have reviewed this annual report on Form 10-K/A of Liberty Media
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: April 9, 2003
/s/ ROBERT R. BENNETT
-----------------------------------------
Robert R. Bennett
PRESIDENT AND CHIEF EXECUTIVE OFFICER
IV-48
I, David J.A. Flowers, certify that:
1. I have reviewed this annual report on Form 10-K/A of Liberty Media
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: April 9, 2003
/s/ DAVID J.A. FLOWERS
-----------------------------------------
David J.A. Flowers
SENIOR VICE PRESIDENT AND TREASURER
IV-49
I, Christopher W. Shean, certify that:
1. I have reviewed this annual report on Form 10-K/A of Liberty Media
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: April 9, 2003
/s/ CHRISTOPHER W. SHEAN
-----------------------------------------
Christopher W. Shean
SENIOR VICE PRESIDENT AND CONTROLLER
IV-50
EXHIBIT INDEX
Listed below are the exhibits which are filed as a part of this Report
(according to the number assigned to them in Item 601 of Regulation S-K):
3--Articles of Incorporation and Bylaws:
3.1 Restated Certificate of Incorporation of Liberty, dated
August 9, 2001 (incorporated by reference to Exhibit 3.2 to
the Registration Statement on Form S-1 of Liberty Media
Corporation (File No. 333-55998) as filed on February 21,
2001 (the "Split Off S-1 Registration Statement")).
3.2 Bylaws of Liberty, as adopted August 9, 2001 (incorporated
by reference to Exhibit 3.4 of the Split Off S-1
Registration Statement).
4--Instruments Defining the Rights of Securities Holders, including
Indentures:
4.1 Specimen certificate for shares of Series A common stock,
par value $.01 per share, of the Registrant (incorporated by
reference to Exhibit 4.1 to the Split Off S-1 Registration
Statement).
4.2 Specimen certificate for shares of Series B common stock,
par value $.01 per share, of the Registrant (incorporated by
reference to Exhibit 4.2 to the Split Off S-l Registration
Statement).
4.3 Liberty undertakes to furnish the Securities and Exchange
Commission, upon request, a copy of all instruments with
respect to long-term debt not filed herewith.
10--Material Contracts:
10.1 Inter-Group Agreement dated as of March 9, 1999, between
AT&T Corp. and Liberty Media Corporation, Liberty Media
Group LLC and each Covered Entity listed on the signature
pages thereof (incorporated by reference to Exhibit 10.2 to
the Registration Statement on Form S-4 of Liberty Media
Corporation (File No. 333-86491) as filed on September 3,
1999, the "Liberty S-4 Registration Statement").
10.2 Ninth Supplement to Inter-Group Agreement dated as of
June 14, 2001, between and among AT&T Corp., on the one
hand, and Liberty Media Corporation, Liberty Media
Group LLC, AGI LLC, Liberty SP, Inc., LMC Interactive, Inc.
and Liberty AGI, Inc., on the other hand (incorporated by
reference to Exhibit 10.25 to the Registration Statement on
Form S-1 of Liberty Media Corporation (File No. 333-66034)
as filed on July 27, 2001).
10.3 Intercompany Agreement dated as of March 9, 1999, between
Liberty and AT&T Corp. (incorporated by reference to
Exhibit 10.3 to the Liberty S-4 Registration Statement).
10.4 Tax Sharing Agreement dated as of March 9, 1999, by and
among AT&T Corp., Liberty Media Corporation,
Tele-Communications, Inc., Liberty Ventures Group LLC,
Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.4 to the Liberty S-4 Registration Statement).
10.5 First Amendment to Tax Sharing Agreement dated as of
May 28, 1999, by and among AT&T Corp., Liberty Media
Corporation, Tele-Communications, Inc., Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.5 to the Liberty S-4 Registration Statement).
10.6 Second Amendment to Tax Sharing Agreement dated as of
September 24, 1999, by and among AT&T Corp., Liberty Media
Corporation, Tele-Communications, Inc., Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.6 to the Registration Statement on Form S-1 of
Liberty Media Corporation (File No. 333-93917) as filed on
December 30, 1999 (the "Liberty S-1 Registration
Statement)).
10.7 Third Amendment to Tax Sharing Agreement dated as of
October 20, 1999, by and among AT&T Corp., Liberty Media
Corporation, Tele-Communications, Inc., Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.7 to the Liberty S-l Registration Statement).
10.8 Fourth Amendment to Tax Sharing Agreement dated as of
October 28, 1999, by and among AT&T Corp., Liberty Media
Corporation, Tele-Communications, Inc., Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.8 to the Liberty S-l Registration Statement).
10.9 Fifth Amendment to Tax Sharing Agreement dated as of
December 6, 1999, by and among AT&T Corp., Liberty Media
Corporation, Tele-Communications, Inc., Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.9 to the Liberty S-l Registration Statement).
10.10 Sixth Amendment to Tax Sharing Agreement dated as of
December 10, 1999, by and among AT&T Corp., Liberty Media
Corporation, Tele-Communications, Inc., Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.10 to the Liberty S-l Registration Statement).
10.11 Seventh Amendment to Tax Sharing Agreement dated as of
December 30, 1999, by and among AT&T Corp., Liberty Media
Corporation, Tele-Communications, Inc., Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.11 to the Liberty S-l Registration Statement).
10.12 Eighth Amendment to Tax Sharing Agreement dated as of
July 25, 2000, by and among AT&T Corp., Liberty Media
Corporation, AT&T Broadband LLC, Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.12 to the Split Off Registration Statement).
10.13 Instrument dated January 14, 2000, adding The Associated
Group, Inc. as a party to the Tax Sharing Agreement dated as
of March 9, 1999, as amended, among The Associated
Group, Inc., AT&T Corp., Liberty Media Corporation,
Tele-Communications, Inc., Liberty Ventures Group LLC,
Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.12 to the Liberty S-1 Registration Statement).
10.14 Restated and Amended Employment Agreement dated November 1,
1992, between Tele-Communications, Inc. and John C. Malone
(assumed by Liberty as of March 9, 1999), and the amendment
thereto dated June 30, 1999 and effective as of March 9,
1999, between Liberty and John C. Malone (incorporated by
reference to Exhibit 10.6 to the Liberty S-4 Registration
Statement).
10.15 Amended and Restated Agreement and Plan of Restructuring and
Merger among UnitedGlobalCom, Inc., New
UnitedGlobalCom, Inc., United/New United Merger Sub, Inc.,
Liberty Media Corporation, Liberty Media
International, Inc. and Liberty Global, Inc., dated
December 31, 2001 (incorporated by reference to Current
Form 8-K filed by Liberty Media Corporation on January 9,
2002, Commission File No. 0-20421).
10.16 Liberty Media Corporation 2000 Incentive Plan (As Amended
and Restated Effective September 11, 2002).*
10.17 Liberty Media Corporation 2002 Non-employee Director
Incentive Plan.*
21--Subsidiaries of Liberty Media Corporation.*
23.1 Consent of KPMG LLP.*
23.2 Consent of KPMG Audit plc, filed herewith.
99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.*
99.2 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, filed herewith.
------------------------
* Previously filed.