| NTL INC Item 1A Risk Factors Risks Related to Our Company Factors Relating to the Merger with Telewest and its Implementation The combined company may be unable to successfully integrate operations and realize the full anticipated synergies of the merger, which may harm the value of its common stock |
| The merger with Telewest will involve the integration of two companies that have previously operated independently |
| The difficulties of combining the companies &apos operations include: • the necessity of coordinating geographically separated organizations and facilities; • combining the two companies &apos product offerings and coordinating the branding and pricing of these offerings; • rationalizing each companyapstas internal systems and processes, including billing systems, which are different from each other; and • integrating personnel from different company cultures |
| The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of one or more of the combined companyapstas businesses and the loss of key personnel |
| The diversion of managementapstas attention and any delays or difficulties encountered in connection with the merger and the integration of the two companies &apos operations could result in the disruption of the combined companyapstas ongoing businesses or inconsistencies in the standards, controls, product offerings, level of customer service, procedures and policies of the two companies that could negatively affect the combined companyapstas ability to maintain relationships with customers, suppliers, employees and others with whom it has business dealings |
| Among the factors considered by the NTL board of directors in connection with its respective approval of the merger agreement were the opportunities that could result from the merger for realizing synergies by creating efficiencies in operations, capital expenditures and other areas |
| These savings may not be realized within the time periods contemplated or at all |
| If the combined company is not able to successfully achieve these savings, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected |
| The combined company will incur significant transaction and merger-related costs in connection with the merger |
| We expect that the combined company will incur a number of non-recurring transaction fees and other costs associated with completing the merger, combining the operations of the two companies and achieving desired synergies |
| These fees and costs will be substantial |
| We are in the process of collecting information in order to formulate integration plans to deliver the planned synergies |
| Additional unanticipated costs may be incurred in the integration of our business with Telewest |
| Although management of the combined company expects that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of our two businesses, will offset the incremental transaction and merger-related costs over time, this net benefit may not be achieved in the near term, or at all |
| Certain significant stockholders of both NTL and Telewest could have an influence over the business and affairs of the combined company after the merger |
| Certain persons or entities are significant stockholders of both NTL and Telewest, and would be significant stockholders of the combined company |
| Based on SEC filings to date, Ameriprise Financial Inc, or Ameriprise Financial, beneficially owned approximately 11dtta4prca, FMR Corp |
| 27 _________________________________________________________________ beneficially owned approximately 7dtta2prca, Franklin Mutual Advisers beneficially owned approximately 8dtta1prca, and Mr |
| William R Huff beneficially owned approximately 8dtta6prca of NTLapstas issued and outstanding common stock, and FMR Corp |
| beneficially owned approximately 4dtta7prca, Franklin Mutual Advisers beneficially owned approximately 7dtta9prca, and Mr |
| Huff beneficially owned approximately 12dtta2prca of Telewestapstas issued and outstanding common stock |
| Persons affiliated with Huff Asset Management currently serve on the boards of directors of both NTL and Telewest (Messrs |
| Huff and Edwin M Banks, in the case of NTL, and Messrs |
| William J Connors and Michael J McGuiness, in the case of Telewest) |
| Huff and Franklin Mutual Advisors has sold any of its or his holdings subsequent to February 24, 2006, and giving effect to the reclassification of Telewest common stock and to the exchange ratio under the merger agreement with respect to their holdings of Telewest and NTL common stock as of such date, FMR Corp |
| would beneficially own approximately 5dtta7prca, Ameriprise Financial would beneficially own approximately 7dtta4prca, Mr |
| Huff would beneficially own approximately 8dtta2prca, and Franklin Mutual Advisers would beneficially own approximately 7dtta0prca of the common stock of the combined company outstanding immediately after the merger on a fully diluted basis, based on currently outstanding NTL and Telewest shares, options and warrants, and each of them could have an influence over the business and affairs of the combined company |
| Huff, Banks and Connors will serve as directors of the combined company following the merger |
| As a result of their relationship with Huff Asset Management, if conflicts between the interests of Huff Asset Management and the interests of the combined companyapstas other stockholders should arise, these directors may not be disinterested |
| Whether or not the merger is completed, the announcement and pendency of the transaction could cause disruptions in our business, which could have an adverse effect on its business and financial results |
| Whether or not the merger with Telewest is completed, the announcement and pendency of the transaction could cause disruptions in our business |
| Specifically: • current and prospective employees may experience uncertainty about their future roles with the combined company, which might adversely affect our ability to retain key managers and other employees; • current and prospective customers may experience variations in levels of service as the companies prepare for integration and may choose to discontinue their service with us as a result; and • the attention of management may be diverted from the operation of the business toward the completion of the transaction |
| The merger could affect the combined companyapstas relationship with BBC Worldwide |
| The UKTV Group supplies television programming to us, Telewest and other third parties |
| The joint venture agreements include change of control provisions that, if triggered, would permit BBC Worldwide to acquire Telewestapstas interest in the joint ventures at "e fair value "e as defined in those agreements |
| In addition, the joint venture agreements require BBC Worldwide and Telewest to agree on significant operating and strategic matters for the joint ventures on an ongoing basis |
| We, as well as Telewest, believe that one of the consequences of the change in the merger structure is that no person or persons acting in concert will acquire a majority of the shares of Telewest and, as a result, there will be no change in control of Telewest within the meaning of the joint venture agreements |
| BBC Worldwide has previously asserted to Telewest and us that the merger as originally 28 _________________________________________________________________ structured constituted a change of control under the joint venture agreements and has made certain other claims |
| BBC Worldwide could attempt to continue to assert these claims or other claims under the joint venture agreements in connection with the merger as restructured |
| We and Telewest believe there is no basis for any claim that a change in control will occur under the joint venture agreements as a result of the merger |
| Any disagreement between BBC Worldwide and Telewest, whether about the application of the change in control provisions or any other terms of the joint venture agreements, could affect the relationship between Telewest and BBC Worldwide, the performance of the UKTV Group, and the business of the combined company following completion of the merger |
| In certain instances, the merger agreement requires payment of a termination fee of dlra175 million by NTL to Telewest |
| These terms could materially and adversely affect our financial condition and operations or prevent another party from proposing an alternative transaction to the merger |
| Under the terms of the merger agreement, we may be required to pay to Telewest a termination fee of dlra175 million if the merger agreement is terminated under certain circumstances |
| These terms could affect the structure, pricing and terms proposed by other parties seeking to acquire or merge with us, including potentially precluding any such other party from making an alternative transaction proposal to us |
| In addition, should the merger agreement be terminated in circumstances under which such a termination fee is payable, the payment of such a fee could have material and adverse consequences for our business and operations going forward |
| If the conditions under the commitment letter are not satisfied, the financing to be provided thereunder will not be available to satisfy the cash portion of the consideration to be paid to Telewest stockholders in the merger |
| We have obtained commitments for a total of £5dtta1 billion in financing to effect the merger with Telewest and pay the related fees, costs and expenses in connection therewith, to repay in full our existing senior credit facilities, to repay in full the existing senior and second lien credit facilities of Telewest and to finance the ongoing working capital needs and general corporate requirements of the combined company and its subsidiaries after the merger |
| Although the completion of the merger is not conditioned upon the receipt of these funds, the commitment letter contains conditions in addition to those contained in the merger agreement that must be satisfied before the lenders are committed to make the financing available |
| These conditions include there being no insolvency of us or, NTL Investment Holdings Limited or NTLIH, or of our subsidiaries, Telewest Communications Networks Limited, or TCN, and Neptune Bridge Borrower LLC, and the negotiation of customary financing documentation on terms satisfactory to the lenders and no material waivers or amendments under the merger agreement |
| If any of these conditions is not met, the financing will not be available, which may prevent or materially delay the merger |
| If we are unable to obtain the necessary financing, we will be forced to consider other alternatives to raise the necessary funds to satisfy the cash portion of the transaction consideration terms that could be less favorable, which may have a material adverse effect on our financial condition, and, if no other alternatives are available, the merger may not be completed and we and Telewest would continue as standalone companies |
| The pendency of the merger without the consummation of the merger may have a material adverse effect on our business or financial condition |
| Factors Relating to the Business of the Company and its Regulation Neither we, nor the combined company, may be able to fund our debt service obligations through operating cash flow in the future |
| It is possible that neither we, nor the combined company, may achieve or sustain sufficient cash flow in the future for the payment of interest |
| If our operating cash flow is not sufficient to meet our 29 _________________________________________________________________ debt payment obligations, we may be forced to raise cash or reduce expenses by doing one or more of the following: • increasing, to the extent permitted, the amount of borrowings under our bank facilities; • restructuring or refinancing our indebtedness prior to maturity, and/or on unfavorable terms; • selling or disposing of some of our assets, possibly on unfavorable terms; • revising or delaying the implementation of our strategic plans; or • foregoing business opportunities, including the introduction of new products and services, acquisitions and joint ventures |
| We could also be forced to seek additional equity capital, which could dilute the interests of the holders of our common stock |
| We cannot be sure that any, or a combination of, the above actions would be sufficient to fund our debt service obligations |
| Our current leverage is substantial, and, following the completion of the merger, the leverage of the combined company will be substantial, which may have an adverse effect on our available cash flow, our ability to obtain additional financing if necessary in the future, our flexibility in reacting to competitive and technological changes and our operations |
| Assuming the merger with Telewest closed on September 30, 2005, Telewest and NTL each had approximately £1dtta6 billion in net debt, for a pro forma combined net debt of £3dtta2 billion |
| Net debt upon completing the transaction, after refinancing of the existing senior facilities of both companies and the additional borrowing to finance part of the transaction, is expected to be approximately £5dtta7 billion |
| This high degree of leverage could have important consequences, including the following: • a substantial portion of the cash flow from operations will have to be dedicated to the payment of interest on existing indebtedness, thereby reducing the funds available for other purposes; • the ability to obtain additional financing in the future for working capital, capital expenditures, product development, acquisitions or general corporate purposes may be impaired; • our flexibility in reacting to competitive technological and other changes may be limited; • the substantial degree of leverage could make the combined company more vulnerable in the event of a downturn in general economic conditions or adverse developments in the combined companyapstas business; and • the combined company may be exposed to risks inherent in interest rate fluctuations |
| We emerged from reorganization under Chapter 11 of the US Bankruptcy Code on January 10, 2003 |
| We had losses from continuing operations for the year ended December 31, 2005 of £241dtta7 million, and losses from continuing operations for the years ended December 31: • 2004 of £509dtta4 million; • 2003 of £606dtta7 million; and • 2002 of £1cmam611dtta6 million 30 _________________________________________________________________ We cannot be certain that we (or, following the merger with Telewest, the combined company) will achieve or sustain profitability in the future |
| Failure to achieve profitability could diminish our ability to sustain operations, meet financial covenants, pay dividends on our common stock, obtain additional required funds and make required payments on present or future indebtedness |
| The restrictive covenants under our debt agreements, as well as that of the combined company after the merger, may limit our ability to operate our business |
| The agreements that govern our indebtedness, as well as that of the combined company following the merger, contain restrictive covenants that limit the discretion of our management over various business matters |
| For example, these covenants restrict our ability to: • incur or guarantee additional indebtedness; • pay dividends or make other distributions, or redeem or repurchase equity interests or subordinated obligations; • make investments; • sell assets, including the capital stock of subsidiaries; • enter into sale/leaseback transactions; • create liens; • enter into agreements that restrict certain of our subsidiaries &apos ability to pay dividends, transfer assets or make intercompany loans; • merge or consolidate or transfer all or substantially all of our assets; and • enter into transactions with affiliates |
| These restrictions could materially adversely affect our ability to finance future operations or capital needs or to engage in other business activities that may be in our best interests |
| We may also incur other indebtedness in the future that may contain financial or other covenants more restrictive than those that will be applicable under our current indebtedness or the indebtedness incurred in connection with the completion of the merger with Telewest |
| We are a holding company dependent upon cash flow from subsidiaries to meet our obligations |
| We and a number of our subsidiaries are, and following the completion of the merger, a number of the subsidiaries of the combined company will be, holding companies with no independent operations or significant assets other than investments in our subsidiaries |
| Each of these holding companies depends upon the receipt of sufficient funds from its subsidiaries to meet its obligations |
| The terms of our credit facilities and other debt securities limit the payment of dividends, loan repayments and other distributions to or from these companies under many circumstances |
| Various agreements governing the debt that may be issued by our subsidiaries from time to time may restrict and, in some cases, may also prohibit the ability of these subsidiaries to move cash within their restricted group |
| Applicable tax laws may also subject such payments to further taxation |
| Applicable law may also limit the amounts that some of our subsidiaries will be permitted to pay as dividends or distributions on their equity interests, or even prevent such payments |
| The inability to transfer cash among entities within their respective consolidated groups may mean that even though they may have sufficient resources to meet their obligations, they may not be permitted to make the necessary transfers from one entity in their restricted group to another entity in their restricted group in order to make payments to the entity owing the obligations |
| 31 _________________________________________________________________ We are, and the combined company will be, subject to currency and interest rate risks |
| We are subject to currency exchange rate risks, because substantially all of our revenues and operating expenses are paid in UK pounds sterling, but we pay interest and principal obligations with respect to a portion of our indebtedness in US dollars and euros |
| To the extent that the pound declines in value against the US dollar and the euro, the effective cost of servicing our US dollar and euro-denominated debt will be higher |
| Changes in the exchange rate result in foreign currency gains or losses |
| As of December 31, 2005, £477dtta2 million, or 20dtta9prca of our long-term debt, was denominated in US dollars and £259dtta1 million, or 11dtta4prca of our long-term debt, was denominated in euros |
| We are also subject to interest rate risk because we have substantial indebtedness at variable interest rates |
| As of December 31, 2005, interest is determined on a variable basis on £1cmam502dtta7 million, or 65dtta9prca, of our long-term debt |
| An increase in interest rates of 0dtta25prca would increase our interest expense by approximately £3dtta8 million per year |
| To manage these foreign exchange and interest rate risks, we and Telewest have each entered into a number of derivative instruments, including interest rate swaps, cross-currency interest rate swaps and foreign currency forward rate contracts |
| The combined company will be required by its lenders under the new senior credit facility to continue these programs post-completion of the merger |
| Specifically, the combined company will be required within six months of the closing date to fix the interest rate (whether through debt that is fixed rate, or through hedging) on not less than 66^2/3prca of the total debt represented by its senior credit facilities and high yield notes, for a period of not less than three years from the closing date |
| Exchange rate hedging to sterling for a period of not less than three years will be required for 100prca of all amounts, both principal and interest, denominated in euro or US dollars advanced under the new senior credit facility |
| Exchange rate hedging to sterling will be required for 100prca of coupon payments issued pursuant to the planned high-yield notes offering to refinance the senior subordinated bridge facilities to be entered into in connection with the combination with Telewest, and our existing high-yield debt, to the first call date for each such issue |
| On a pro forma basis after taking into account the impact of current hedging arrangements, as of September 30, 2005, the combined companyapstas interest would have had interest determined on a variable basis on £951 million, or 16prca, of its long term debt |
| An increase in interest rates of 1prca would increase the combined companyapstas pro forma interest expense by approximately £10 million per year |
| We cannot assure you that our hedging program, or that of the combined company following completion of the merger with Telewest, will be successful |
| Unhedged movements in currency exchange rates or interest rates in particular could have a material adverse effect on us or the combined company |
| We or the combined company may engage in a transaction with Virgin Mobile that could have a significant impact on the combined company |
| On December 5, 2005, we confirmed that we had approached Virgin Mobile about a potential offer to acquire Virgin Mobile, and that we had engaged in discussions with Virgin Enterprises Limited to extend our existing exclusive license for use of the Virgin name in the internet services area also to cover television and fixed and mobile telephone services |
| On January 16, 2006, we and the independent directors of Virgin Mobile confirmed that we were in discussions to enable a cash offer, with share alternative offers, to be made by us or one or more of our subsidiaries to acquire 100prca of the shares of Virgin Mobile, subject to the satisfaction of certain pre-conditions |
| It is not clear whether an acquisition transaction between the combined company and Virgin Mobile will occur and, if so, on what terms |
| It is also unclear whether we or the combined company will enter into a license with Virgin Enterprises Limited to use the Virgin name (though it is unlikely 32 _________________________________________________________________ that a Virgin Mobile transaction would occur without us or the combined company entering into such a license) |
| If an acquisition transaction were to occur, it could involve the issuance of a substantial equity interest in the combined company and substantial cash payments to Virgin Mobileapstas shareholders |
| For example, under the terms of the potential offer announced on January 16, 2006, the shareholders of Virgin Mobile would be entitled to receive equity securities representing approximately 15dtta4prca of the voting stock of the combined company on a fully-diluted basis, assuming all Virgin Mobile shareholders opted for stock |
| Moreover, the Virgin Group would hold over 10prca of the voting stock of the combined company |
| If the license transaction were to occur, it would involve payment of a cash royalty for use of the Virgin name |
| The acquisition of Virgin Mobile would, if consummated, carry various risks for the combined company, including the following: • Depending on market perception of the terms, conditions and potential risks and benefits of the transaction, the transaction could adversely affect the trading price of the combined companyapstas common stock |
| • The combined company would incur significant transaction-related costs in connection with the transaction |
| • The announcement and pendency of the transaction could cause disruptions in our business and that of Virgin Mobile, which could have an adverse effect on our business and financial results |
| • Obtaining court and regulatory approvals and other governmental or third party consents, including the consent of T-Mobile, the network provider used by Virgin Mobile to carry Virgin Mobile wireless calls, could delay or prevent the closing of a transaction with Virgin Mobile, reduce the anticipated benefits of that transaction to stockholders or result in additional transaction or operating costs for the combined company |
| • The indebtedness of the combined company will increase beyond current levels, because some or all of the cash consideration required could be borrowed |
| Additionally, we intend to obtain an additional £475 million of financing in connection with a potential offer for Virgin Mobile |
| This could have an adverse effect on the combined companyapstas available cash flow, its ability to obtain additional financing if necessary in the future or the cost of such financing, its flexibility in reacting to competitive and technological changes and its operations |
| • The combined company might not be able to fund its increased debt service obligations through operating cash flow in the future |
| • The combined company could be unable to realize the full anticipated synergies of the transaction, which may harm the value of the combined companyapstas common stock |
| • It is anticipated that, if the transaction should occur, the Virgin Group would hold significant voting power in the combined company with interests that could differ from those of stockholders generally |
| • The Virgin Mobile business is subject to risks (eg, competition and technological change in the mobile telephony sector, dependence on its network provider) to which the business of the combined company would not otherwise be subject |
| A license to use the Virgin name would also carry various risks, including the following: • The combined company would be substantially reliant on the general goodwill in the Virgin name |
| Consequently, adverse publicity in relation to the Virgin Group or its principals, particularly Sir Richard Branson, or in relation to another Virgin name licensee could have a material adverse effect on the combined companyapstas business |
| 33 _________________________________________________________________ • It is contemplated that, in connection with the license, Virgin Enterprise Limited would have the right to designate a member of the board of directors of the combined company |
| • It is anticipated that the license agreement would be a long-term license with a minimum term, and that the combined company would be obligated to pay a termination payment if the license should be terminated in some circumstances |
| • It is anticipated that the combined company would be required to meet certain performance obligations under the license, and a failure to meet those obligations could lead to a termination of the license |
| • It is anticipated that the license agreement will require the combined company to make cash royalty payments based on a fixed percentage of certain revenues relating to the license |
| • Any license to use the Virgin name will be limited geographically and otherwise because of rights of existing Virgin licensees |
| Failure to control customer churn may adversely affect our financial performance, as well as the financial performance of the combined company following the merger |
| The successful implementation of our business plan depends upon controlling customer churn |
| Customer churn could increase as a result of: • billing errors and/or general reduction in the quality of our customer service as a result of the integration of billing systems and customer databases; • interruptions to the delivery of services to customers over our network; • the availability of competing services, such as the digital satellite services offered by BSkyB, the free-to-air digital television services offered by Freeview and the telephone, broadband and dial-up internet services offered by BT, TalkTalk, OneTel, Wanadoo, Tiscali, AOL, Bulldog and other third parties, some of which may, from time to time, be less expensive or technologically superior to those offered by us; • the potential loss of customers due to their required migration from our analog TV, or ATV, services to our more expensive digital television, or DTV, services when we stop transmitting our ATV signal; • the loss of ATV customers to DTV providers in areas where we do not have adequate network capable of offering DTV; and • a reduction in the quality of our customer service as a result of new product introductions, such as the roll-out of video-on-demand, or VOD, or personal video recording, or PVR, services |
| An increase in customer churn can lead to slower customer growth, increased costs and a reduction in revenue |
| We are subject to significant competition and we expect that competition will intensify |
| The level of competition is intense in each of the markets in which we compete, and we expect competition to increase |
| In particular, our telephone services and consumer television businesses compete with BT in telephone services and internet access and BSkyB in multi-channel television, each of whom has significant operational scale, resources and national distribution capacity |
| We also compete with internet service providers and indirect telephone access operators that offer telephone, broadband and dial-up services over BTapstas network, and we will face increasing competition from mobile telephone 34 _________________________________________________________________ network providers and new market entrants, including those providing voice-over-internet-protocol, or VoIP The increase in competition will be compounded by technology changes and business consolidation, which may permit more competitors to offer the "e triple play "e of digital television, residential telephone and broadband services |
| In the digital television market, competition has been increased as a result of the launch of Freeview in October 2002, which provides approximately 35 digital terrestrial channels to consumers who have purchased a Freeview-enabled set-top box or a television with a digital tuner, and the launch in March 2004 by Top Up TV of a pay-television service offering approximately 11 pay-television channels for a fixed fee to subscribers who otherwise receive Freeview and have purchased Top Up TV software |
| Our broadband service faces increased competition from BT, Bulldog, OneTel, Wanadoo, Tiscali and others, as well as new providers such as BSkyB and Carphone Warehouse |
| Competitors may use new alternative access technology such as advanced, faster asymmetric digital subscriber lines, or ADSL+2, to deliver speeds faster than we can provide |
| Local loop unbundling may decrease costs for new entrants and existing BT wholesale customers, leading to increased pricing competition |
| Our business services also face a wide range of competitors, including BT and C&W, and a number of regional service providers |
| The nature of the competition will vary depending on geography, service offerings and the size of the marketable area |
| In order to compete, we may have to reduce the prices we charge for our services or increase the value of our services without being able to recoup associated costs |
| Reduced prices or increased costs would have a negative impact on our margins and profitability |
| In addition, if we are unable to compete successfully, even following price reductions or value enhancements, we may not be able to attract new customers, or retain existing customers |
| The sectors in which we compete are subject to rapid and significant changes in technology, and the effect of technological changes on our businesses cannot be predicted |
| The internet, television and telephone services sectors are characterized by rapid and significant changes in technology |
| The effect of future technological changes on our business cannot be predicted |
| It is possible that products or other technological breakthroughs, such as VoIP, WiFi (wireless fidelity), WiMax (the extension of local WiFi networks across greater distances) or IPTV (internet protocol television), may result in our core offerings becoming less competitive |
| We may not be able to develop new products and services at the same rate as competitors or keep up with trends in the technology market as well as our competitors |
| The cost of implementing emerging and future technologies could be significant, and our ability to fund that implementation may depend on our ability to obtain additional financing |
| There is no assurance that new products that we may introduce will achieve full functionality or market acceptance |
| Our long-range plan includes VOD and PVR products |
| Despite testing prior to release and the increasing implementation of VOD, we cannot guarantee that these new products, or any other new products that we may develop in the future, will perform as expected when first introduced in the market |
| Should these new products and services fail to perform as expected or should they fail to gain market acceptance, our results of operations may be negatively impacted |
| Systems failures may result in lost revenue |
| Our ability to identify, bill and collect revenue from our customers will be dependent on complex systems and processes |
| To the extent that any one or more of those systems or processes fail, we could 35 _________________________________________________________________ lose customer and transaction billing data, which would prevent us from billing and collecting revenue due to us |
| We will continually seek ways to improve our revenue collection processes, but it is possible that such improvements may not be successful or will not yield enhanced revenue collection |
| Inefficient collection could result in an increase in bad debt |
| If we do not maintain and upgrade our networks in a cost-effective and timely manner, we could lose customers |
| Maintaining an uninterrupted and high-quality service over our network infrastructure is critical to our ability to attract and retain customers |
| Providing a competitive service level will depend in part on our ability to maintain and upgrade our networks in a cost-effective and timely manner |
| The maintenance and upgrade of our networks will depend upon, among other things, our ability to: • modify network infrastructure for new products and services; • install and maintain cable and equipment; and • finance maintenance and upgrades |
| Our bank facilities limit the level of total capital expenditure that we can incur |
| If this affects our ability to replace network assets at the end of their useful lives or if there is any reduction in our ability to perform necessary maintenance on network assets, our networks may have an increased failure rate, which is likely to lead to increased customer churn |
| Our inability to obtain popular programming, or to obtain it at a reasonable cost, could potentially materially adversely affect the number of subscribers to our consumer television service or reduce margins |
| We have historically obtained a significant amount of our premium programming and some of our basic programming and pay-per-view sporting events from BSkyB or a BSkyB joint venture |
| BSkyB is a leading supplier of programming to cable television operators and is the exclusive supplier of some programming, including the Sky Sports channels and the most popular premium subscription film channels available in the UK We have continued to buy BSkyB wholesale premium content on the basis of an industry ratecard |
| There is no contractual agreement with BSkyB for the provision of such content |
| In addition to BSkyB, our significant programming suppliers include the BBC, ITV, Viacom, Discovery and Turner, a division of Time Warner |
| Our dependence on these suppliers for television programming could have a material adverse effect on our ability to provide attractive programming at a reasonable cost |
| A failure in our critical systems could significantly disrupt our operations, which could reduce our customer base and result in lost revenues |
| Our business is dependent on many sophisticated critical systems that support all of the various aspects of our cable network operations |
| Our systems are vulnerable to damage from a variety of sources, including telecommunications failures, malicious human acts, natural disasters, fire, power loss, war or other catastrophes |
| Moreover, despite security measures, our servers will be potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems |
| Despite the precautions we have taken in the past, unanticipated problems affecting their systems could cause failures in our information technology systems, including systems that are critical for timely and accurate customer billing, or our customer service centers or interrupt the transmission of signals over our cable network |
| Sustained or repeated system failures that interrupt our ability to provide service to our customers or otherwise meet our business obligations in a timely manner would adversely affect our reputation and result in a loss of customers and net revenue |
| 36 _________________________________________________________________ We may be subject to taxation in multiple jurisdictions, and our US holding company structure may make it difficult to repatriate cash from our UK operating subsidiaries for purposes of paying dividends, repurchasing shares or repaying debt incurred in the US without incurring US tax on such cash repatriations |
| We have historically been subject to taxation in the US, the UK, and the Republic of Ireland |
| Our effective tax rate and tax liability will be affected by a number of factors in addition to our operating results, including the amount of taxable income in particular jurisdictions, the tax rates in these jurisdictions, tax treaties between jurisdictions, the manner in and extent to which we transfer funds to and repatriate funds from our subsidiaries, and future changes in the law |
| Because we operate in multiple jurisdictions and may therefore incur loss in one jurisdiction that cannot be offset against income earned in a different jurisdiction, we may pay income taxes in one jurisdiction for a particular period even though on an overall basis we incur a net loss for that period |
| We have a US holding company structure in which substantially all of our operations are in UK subsidiaries that are owned by one or more members of a US holding company group |
| As a result, although we do not expect to have current UK tax liabilities on our operating earnings for at least the medium term, our operations may give rise to US tax on "e Subpart F "e income, or on repatriations of cash from our UK operating subsidiaries to the US holding company group |
| While we believe that we have substantial US tax basis in our UK subsidiaries which may be available to avoid or reduce US tax on repatriation of an equivalent amount of cash from our UK subsidiaries, there can be no assurance that the Internal Revenue Service will not seek to challenge the amount of such tax basis or that we will be able to utilize such basis under applicable tax law |
| As a result, although we will seek to minimize, in accordance with applicable law, our US tax liability as well as our overall worldwide tax liability, there can be no assurance that we will not incur material US tax liabilities with respect to repatriations of cash from our UK subsidiaries |
| Regulation of the markets in which we provide our services has been changing rapidly; unpredictable changes in UK and EU regulations affecting the conduct of our business, including price regulations, may have an adverse impact on our ability to set prices, enter new markets or control our costs |
| Our principal business activities have historically been regulated and supervised by various governmental bodies in the UK and by the regulatory initiatives of the European Commission |
| Regulatory changes have recently occurred, and may in the future occur, at the UK or EU level with respect to licensing requirements, price regulation, interconnection arrangements, number portability, carrier pre-selection, the ability to provide digital services, ownership of media companies, programming, local loop unbundling, data protection, the provision of open access by UK cable operators to other telecommunications operators, and the adoption of uniform digital technology standards or the bundling of services |
| Regulatory changes relating to our activities and those of our competitors, such as changes relating to third-party access to cable networks, the costs of interconnection with other networks or the prices of competing products and services, could adversely affect our ability to set prices, enter new markets or control costs |
| Provisions of our debt agreements, our stockholder rights plan, our certificate of incorporation, Delaware law and our contracts, as well as those of the combined company following the completion of the merger, could prevent or delay a change of control |
| We, and, upon completion of the merger with Telewest, the combined company, may, under some circumstances involving a change of control, be obligated to repay our outstanding indebtedness |
| The combined company or any possible acquiror may not have available financial resources necessary to repurchase those notes or repay that indebtedness in those circumstances |
| 37 _________________________________________________________________ If the combined company or any possible acquiror cannot repay our outstanding indebtedness in the event of a change of control of the combined company (if such repayment is required), the failure to do so would constitute an event of default under the agreements under which that indebtedness was incurred and could result in a cross-default under other indebtedness that does not have similar provisions |
| The threat of this could have the effect of delaying or preventing transactions involving a change of control of the combined company, including transactions in which the combined companyapstas stockholders would receive a substantial premium for their shares over then current market prices, or otherwise which they may deem to be in their best interests |
| Telewestapstas stockholder rights plan, some provisions of its second restated certificate of incorporation and its ability to issue additional shares of common stock or preferred stock to third parties without stockholder approval may have the effect, alone or in combination with each other, of preventing or making more difficult transactions involving a change of control of the combined company |
| In connection with the merger, the Telewest rights plan, which will become the rights plan of the combined company on consummation of the merger, will be amended, among other things, to reduce the trigger under the plan from 25prca to 15prca, to eliminate the permitted offer exception (that permits a majority of non-management directors who are unaffiliated and not otherwise associated with a potential acquiror to exempt a transaction from the Telewest rights plan), to remove the ability of a majority of Telewestapstas board of directors to deem a beneficial owner or group of owners of 10prca or more of Telewestapstas common stock to be an adverse person under the Telewest rights plan, and to ensure that the purchase price of a share of the preferred stock issued pursuant to the Telewest rights plan will not be adjusted as a result of the merger or the reclassification |
| The combined company will be subject to the Delaware business combinations law that, subject to limited exceptions, prohibits some Delaware corporations from engaging in some business combinations or other transactions with any stockholder who owns 15prca or more of the corporationapstas outstanding voting stock for three years following the date that the stockholder acquired that interest |
| The terms of certain existing agreements of the combined company relating to changes of control may also have the effect of delaying or preventing transactions involving a change of control of the combined company |
| Factors Relating to our Common Stock The market price of our common stock is subject to volatility, as well as to trends in the telecommunications industry in general, which will continue |
| The current market price of our common stock may not be indicative of prices that will prevail in the trading markets in the future, either before or after completion of the merger with Telewest |
| Stock prices in the telecommunications sector have historically been highly volatile, and the market price of our common stock could be subject to wide fluctuations in response to numerous factors, many of which will be beyond our control |
| These factors include actual or anticipated variations in our operational results (and, upon completion of the merger, those of the combined company) and cash flow, our earnings releases and our competitors &apos earnings releases, announcements of technological innovations, changes in financial estimates by securities analysts, trading volume, market conditions in the industry and the general state of the securities markets and the market for telecommunications stocks, changes in capital markets that affect the perceived availability of capital to communications companies, governmental legislation or regulation, currency and exchange rate fluctuations, as well as general economic and market conditions, like recessions |
| Trends in this industry are likely to have a corresponding impact on the price of our common stock |
| We may in the future seek to raise funds through equity offerings, which could have a dilutive effect on our common stock |
| We cannot predict the effect this dilution may have on the price of our common stock |
| For example, the potential transaction with Virgin Mobile may involve the issuance of equity securities |
| See "e —We or the combined company may engage in a transaction with Virgin Mobile that could have a significant impact on the combined company "e |
| We have not historically paid cash dividends on our common stock, we may not be able to pay or maintain dividends, and the failure to do so could adversely affect our stock price |
| Since its inception, we have not paid any cash dividends on our common stock |
| The terms of our existing indebtedness limit our ability to pay dividends from cash generated from operations |
| Likewise, the terms of the combined companyapstas indebtedness after the merger will limit the ability of the combined company to pay dividends |
| We cannot assure you that we will pay cash dividends on our common stock, or, if we begin to pay cash dividends on our common stock, that such dividends will continue to be paid |
| Sales of stock by stockholders in the combined company may decrease the price of the combined companyapstas common stock following the merger |
| Based on SEC filings to date, Ameriprise Financial Inc, or Ameriprise Financial, beneficially owned approximately 11dtta4prca, FMR Corp |
| beneficially owned approximately 7dtta2prca, Franklin Mutual Advisers beneficially owned approximately 8dtta1prca, and Mr |
| Huff beneficially owned approximately 8dtta6prca of NTLapstas issued and outstanding common stock, and FMR Corp |
| beneficially owned approximately 4dtta7prca, Franklin Mutual Advisers beneficially owned approximately 7dtta9prca, and Mr |
| Huff beneficially owned approximately 13dtta2prca of Telewestapstas issued and outstanding common stock |
| Huff and Franklin Mutual Advisors has sold any of its or his holdings subsequent to those filings, and giving effect to the reclassification of Telewest common stock and to the exchange ratio under the merger agreement with respect to their holdings of Telewest and NTL common stock as of such date, FMR Corp |
| would beneficially own approximately 5dtta9prca, Ameriprise Financial would beneficially own approximately 7dtta6prca, Mr |
| Huff would beneficially own approximately 8dtta6prca, and Franklin Mutual Advisers would beneficially own approximately 7dtta0prca of the combined companyapstas outstanding common stock immediately after the merger on a fully diluted basis, based on currently outstanding NTL and Telewest shares, options and warrants |
| Some of these stockholders will also have rights, subject to various conditions, to require the combined company to file one or more registration statements covering their shares, or to include their shares in registration statements that the combined company may file for itself or on behalf of other stockholders |
| Subsequent sales by any of these stockholders of a substantial amount of the combined companyapstas common stock may significantly reduce the market price of the common stock of the combined company |
| Moreover, the perception that these stockholders might sell significant amounts of such common stock could depress the trading price of the combined companyapstas common stock for a considerable period |
| Sales of the combined companyapstas common stock, and the possibility of these sales, could make it more difficult for the combined company to sell equity, or equity-related securities, in the future at a time, and price, that it considers appropriate |