TLWT Telewest Global (MM)

Telewest Global, Inc. ("Telewest") (NASDAQ: TLWT) today announces third quarter financial results for 2005. Highlights -- Adjusted EBITDA growth of 16% over Q3 04 -- Operating income increased 230% over Q3 04 -- Consumer sales division revenue growth of 5% over Q3 04 -- Triple play penetration increased by 10.6 percentage points over Q3 04 to 35.0% -- Revenue Generating Units grew by 81,000 in the quarter; RGUs per customer grew from 2.00 at Q3 04 to 2.14 at Q3 05 -0- *T Financial highlights (unaudited in GBP m) Q3 2005 Q2 2005(a) Q3 2004 Revenue 404 381 328 Operating income 33 48 10 Adjusted EBITDA 142 158 122 Net income/(loss) 5 19 (29) Free cash flow 50 64 39 Operational highlights Q3 2005 Q2 2005 Q3 2004 Customer net adds 11,000 15,000 17,000 Broadband net adds 67,000 66,000 70,000 RGU net adds 81,000 89,000 92,000 Triple play percentage 35.0% 32.8% 24.4% (a) Includes GBP 16m of Revenue, GBP 20m of Operating income, GBP 20m of Adjusted EBITDA, GBP 22m of Net income, and GBP 22m of Free cash flow resulting from a GBP 16m VAT recovery with related interest of GBP 2m and a GBP 4m rates (local government tax) rebate. *T Barry Elson, Acting Chief Executive Officer of Telewest Global, Inc., commented: "Telewest's third quarter results demonstrate strong financial and operational performance. Customer growth continued at our consumer division and ARPU increased to GBP 45.17. Revenues at our business division have stabilised in an extremely competitive market and Flextech continues its impressive growth. Our VOD rollout and broadband speed upgrades are well advanced and we have today given details of our planned launch of DVR and HDTV services. As a result, cable will be the first TV platform in the UK to offer the full range of TV services from free-to-air, basic and premium channels, through to VOD, DVR and HDTV, giving us a real competitive advantage over other platforms. As can be seen from these results, we have been operating effectively and driving growth. We believe that our performance demonstrates continued strength in both strategy and execution and we are confident that our team will contribute to the success of the combined company on completion of our recently announced proposed merger with NTL Inc." OPERATIONAL REVIEW Cable segment Consumer sales division The consumer sales division had gross customer additions of 89,000 in the quarter, representing an increase of 10,000 both from the previous quarter and from the same quarter last year, resulting from more effective marketing, selling and promotions. There was a net increase of 11,000 customer relationships in the quarter. As expected, churn at 1.4% was higher than the previous quarter as it continued to be affected by a high level of house movers, including student churn, as well as non-pay churn. Non-pay churn has continued to be impacted as a result of higher acquisition levels in recent periods. Churn has reduced since the end of the quarter and we now expect it to be 1.2% for the fourth quarter. Household ARPU was GBP 45.17 in the quarter, up from GBP 44.86 in the previous quarter, excluding the second quarter revenue impact of a GBP 16 million VAT recovery. This increase was principally attributable to selective TV price increases and continued growth in triple play penetration, partially offset by declines in broadband and telephony ARPU. ARPU in the fourth quarter will be impacted by price reductions on our top broadband tier and wireless broadband offerings as a consequence of our broadband speed upgrades. RGUs per customer grew to 2.14 and triple play penetration grew to 35.0%. This reflects our successful focus on profitable growth and on selling bundled products. Triple play growth over the last few quarters has been stronger than we had planned and as a result we believe we will now achieve our 40% triple play penetration target in 2006 - a year earlier than our previous guidance. Consumer internet We experienced good growth in the number of broadband subscribers, with 67,000 net additions in the quarter, which was slightly higher than in the previous quarter. Growth continued to be strongest in our lowest broadband tier. This impacted the mix of broadband subscribers and broadband ARPU, which fell GBP 0.36 to GBP 19.03 as compared to the previous quarter. However, the rate of ARPU decline slowed in the quarter. Broadband continued to be successful in attracting new customers to Telewest - 37% of broadband installations in the quarter were for customers who were not already existing customers. Multi-service penetration remained high in broadband, with 70% of all broadband internet customers subscribing to the full triple play and 94% subscribing to at least one other product. In September, we began implementing further broadband speed increases. As at November 10, approximately 60% of broadband customers had been upgraded to the higher speeds. We expect that approximately 80% of broadband customers will be upgraded by the end of the year, with the remainder expected to be upgraded in the first quarter of 2006. These speed upgrades will increase the speed of our lowest tier from 512Kb to 2Mb, the speed of our existing 1Mb to 4Mb and the speeds of our existing 2Mb and 4Mb tiers to 10Mb. These upgrades are at no extra charge to customers and our 4Mb customers will receive a GBP 15 per month price reduction when they migrate to the 10Mb tier. Consumer television The total number of TV subscribers grew by 17,000 in the quarter compared to 11,000 in the previous quarter. This represents the best performance for fifteen quarters, demonstrating the success we are having in driving Pay-TV penetration in a competitive market. The number of digital TV subscribers rose by 39,000. As a result, 91% of our TV subscribers now take our digital service and we estimate that we will be fully digital by the end of 2006. This will free up significant amounts of bandwidth in our network, which will allow extra capacity for Video-On-Demand (VOD), High Definition TV (HDTV), broadband speed increases and other services. TV ARPU increased to GBP 20.89 compared to GBP 20.78 in the previous quarter, primarily due to selected prices rises, partially offset by a reduction in premium revenue. Our VOD roll-out is continuing and is now available to around 62% of our digital TV subscribers. We plan to complete the national roll-out by the end of this year, earlier than initially anticipated. The service is branded "Teleport" and we have recently expanded the content available, including an increase in the number of movie titles to well over 300. We expect to launch a music on demand service later this month. We are planning to pilot a Digital Video Recorder (DVR) service with a number of customers in early December 2005. At the same time, we will be pre-registering customers on our website, ahead of the full national commercial launch early in the first quarter of 2006. We have branded the service "TV Drive" and it will be charged at GBP 10 to GBP 15 per month. TV Drive customers will receive a 160Gb, three tuner, HDTV compatible Scientific Atlanta DVR. For an extra GBP 5 per month, customers can use their existing digital set-top box as a second box in the home (additional outlet), representing a GBP 10 discount on current pricing. We plan to launch HDTV at the same time, becoming the first platform in the UK to offer HDTV to our DVR customers. We have recently secured HDTV content from the BBC and others and we plan to extend this over the coming months. Cable will be the first TV platform in the UK to offer the full range of TV services from free-to-air, basic and premium channels, through to VOD, DVR and HDTV, which we believe will give us a real competitive advantage over other platforms. Consumer telephony The number of telephony subscribers decreased by 3,000 in the quarter. Acquisition was impacted as marketing and promotions during the quarter focused more on our broadband and television services. Telephony remains an important element of our bundled offering and is likely to have increased focus in future marketing campaigns. Telephony ARPU was GBP 22.35 in the quarter, down slightly from GBP 22.42 in the previous quarter. This reduction was principally due to the continued impact of declining telephony usage due to mobile substitution, partially offset by some selected price increases. We have continued our strategy of migrating subscribers to flat rate packages to reduce the impact of declining telephony usage. As a result 39% of all telephony subscribers now subscribe to one of our two main "Talk" packages - "Talk Unlimited" or "Talk Evenings and Weekends". In July 2005 we migrated all of our existing "3-2-1" subscribers to "Talk Weekends" which gives subscribers free local and national calls at weekends. This package is charged at GBP 10.50 per month compared to GBP 10 per month for the "3-2-1" service. Business sales division Our business sales division had another solid quarter with revenues of GBP 64 million in the quarter, up GBP 1 million as compared to the previous quarter. Revenue in the quarter benefited from a GBP 1 million settlement received from BT Group plc in respect of rates being applied to Special Rate Services calls during prior periods. We are encouraged that our business revenues have been relatively stable over the past several quarters in extremely challenging market conditions. As a result of key competitive advantages we believe we are well placed to compete in this challenging market. In particular, because we own our own local network infrastructure, we keep more data and telephony traffic on our network producing higher margins and greater cash flow than would be possible without ownership of the local network infrastructure. We also have strong customer relationship management with locally based account managers and customer support teams. In line with our continued focus on corporate and mid-market customers, we have experienced a shift in revenue mix, with data revenues up 18% compared to the same quarter last year, while voice revenues have remained flat. We are countering usage declines in the voice market through the introduction of new services such as SRS Advance Solutions, which help customers manage their incoming calls and we are also trialling multimedia over the internet. Content segment Overall revenue in the content segment was GBP 33 million in the quarter, up 22% on the third quarter of 2004, and up GBP 1 million on the previous quarter. Advertising revenue was up 29% on the same quarter last year, and up GBP 2 million on the previous quarter at GBP 18 million, resulting primarily from an increase in market share, driven by improved commercial impacts on Flextech's channels. Subscription revenue was up 10% on the same quarter last year, and flat on the previous quarter at GBP 11 million, due to increased multi-channel penetration and improved pricing. The content segment's Adjusted EBITDA in the quarter was GBP 9 million before inter-company eliminations, up GBP 5 million from the same quarter last year. The content segment's Adjusted EBITDA in the quarter was GBP 6 million after inter-company eliminations. We expect that the content segment's Adjusted EBITDA in the fourth quarter of 2005 will be impacted by extra programming costs. We expect programming costs in the fourth quarter to increase by more than GBP 10 million as compared to the third quarter, as we invest in enriched programming in common with other UK broadcasters to drive advertising revenue growth in 2006. As a result, we expect Adjusted EBITDA to be at a similar level to the fourth quarter of 2004, when it showed a loss of GBP 1 million. Following this investment in programming and the increased costs of the Christmas season, we would expect an increase in revenue and Adjusted EBITDA in the first quarter of 2006 compared to the fourth quarter of 2005, as we have experienced historically. sit-up segment Revenue at sit-up, our recently acquired television home shopping business, was GBP 58 million in the quarter, up 16% from the same quarter last year (as reported by sit-up under UK GAAP), due to growth in multi-channel penetration and the ability of its innovative auction-based shopping channels to attract new customers. On a pro forma basis, revenue was up GBP 12 million from the previous quarter. However, year-on-year revenue growth has slowed and Adjusted EBITDA was only GBP 1 million in the quarter, down from GBP 4 million (as reported by sit-up under UK GAAP) in the same quarter last year. Adjusted EBITDA increased by GBP 1 million compared to the previous quarter. sit-up has been affected by the difficult operating conditions currently being experienced in the UK retail market. As a result, sit-up has experienced pressure on product margins, which has impacted Adjusted EBITDA. Adjusted EBITDA was also impacted during the quarter by extra supply chain costs incurred in advance of the Christmas season, sit-up's prime selling period. If these retail conditions persist in the fourth quarter we would expect fourth quarter Adjusted EBITDA to be below the GBP 8 million (as reported by sit-up under UK GAAP) in the fourth quarter of 2004. -0- *T FINANCIAL RESULTS GAAP Financial Measures 3 months ended (unaudited in GBP millions) Sep. 30, 2005 2004 ---------------------------------------------------------------------- Operating income 33 10 Net income/(loss) 5 (29) Net cash provided by operating activities 110 72 ---------------------------------------------------------------------- *T Operating income for the third quarter of 2005 was GBP 33 million, up from GBP 10 million for the third quarter of 2004, due principally to revenue growth in our cable and content segments, lower cable segment expenses and cable segment SG&A, and lower depreciation. The improvement from net loss of GBP 29 million for the third quarter of 2004 to net income of GBP 5 million for the third quarter of 2005 was due principally to our enhanced operating income and reduced interest costs following the refinancing of our bank debt in December 2004. Net cash provided by operating activities increased from GBP 72 million for the third quarter of 2004 to GBP 110 million for the third quarter of 2005. This increase arose principally as a result of improvements in net income, partially offset by increases in working capital. -0- *T Non-GAAP Financial Measures 3 months ended (unaudited in GBP millions) Sep. 30, 2005 2004 ---------------------------------------------------------------------- Adjusted EBITDA 142 122 Free cash flow 50 39 ---------------------------------------------------------------------- *T Adjusted EBITDA (earnings before interest, taxation, depreciation, amortization and financial restructuring expenses) for the third quarter of 2005 was GBP 142 million, up 16% as compared to the third quarter of 2004. This increase reflects increased revenues in the cable and content segments, and lower operating costs and expenses in the cable segment, partially offset by higher operating costs and expenses in the content segment. Adjusted EBITDA margin (Adjusted EBITDA as a percentage of revenue) has decreased from 37.2% to 35.1%. Whilst Adjusted EBITDA margins in the third quarter of 2005 in the cable and content segments increased, (from 39.9% to 43.1% and from 7.4% to 18.2%, respectively) the overall margin has been impacted by the acquisition of sit-up, which operates on significantly lower margins than our cable and content segments. Free cash flow (cash flow from operating activities excluding financial restructuring expenses less capital expenditure) for the three months ended September 30, 2005 was GBP 50 million, compared with GBP 39 million for the three months ended September 30, 2004. The increase was primarily due to increased Adjusted EBITDA and reduced interest payments, partially offset by increases in working capital and increased capital expenditure. Reconciliations of these and other non-GAAP financial measures to the most directly comparable GAAP financial measures are explained and shown on pages 19 to 22. Selling, general and administrative expenses (SG&A) SG&A of GBP 128 million for the quarter was up GBP 11 million from the third quarter of 2004 primarily due to the consolidation of GBP 13 million of sit-up segment SG&A, partially offset by a decrease in cable segment SG&A of GBP 2 million. Debt and Capital Resources Capital expenditure was GBP 60 million for the quarter an increase of GBP 10 million compared to the third quarter of 2004. Capital expenditure for the full year is now expected to be approximately GBP 230 million. This is at the higher end of earlier guidance and reflects our faster than expected VOD and broadband speed upgrade roll-outs and increased capital expenditures relating to strong TV growth. As at September 30, 2005, net debt was GBP 1,665 million. This consisted of GBP 1,811 million drawn down on our credit facilities (comprising GBP 1,701 million in respect of TCN Group bank facilities and GBP 110 million in respect of Flextech Group bank facilities) and GBP 114 million of leases and other loans, offset by cash balances of GBP 260 million. The GBP 1,701 million drawn amount includes US$150 million and Euro100 million. Net cash interest is expected to be approximately GBP 110 million, which is at the lower end of previous guidance. Principal affiliate -0- *T UKTV (unaudited in GBP millions) 3 months ended Sep. 30, ---------------- 2005 2004 ---------------------------------------------------------------------- Share of net income of UKTV 5 3 Cash inflow from UKTV, being interest received, repayment of loans made, net, and dividends received 9 6 ---------------------------------------------------------------------- *T Telewest owns 50% of the companies that comprise UKTV, a group of joint ventures formed with BBC Worldwide. UKTV offers a portfolio of multi-channel television channels based on the BBC's program library. Telewest accounts for its interest in UKTV under the equity method and recognized its share of net income of GBP 5 million for the three months ended September 30, 2005. This compares with GBP 3 million share of net income for the three months ended September 30, 2004. UKTV is funded by a loan from Telewest, the balance of which was GBP 173 million at September 30, 2005. Total cash interest and repayments received in respect of this loan by Telewest were GBP 8 million in the third quarter of 2005. Telewest's cash interest receipts from UKTV are recorded in free cash flow but not in Telewest's Adjusted EBITDA. During the three months ended September 30, 2005, we received GBP 1 million of dividends from UKTV. We expect to continue to receive dividends from UKTV as it continues to generate cash. Subsequent events On October 2, 2005, NTL Incorporated ("NTL"), and Telewest Global, Inc. entered into a definitive Agreement and Plan of Merger (the "Merger Agreement") pursuant to which a subsidiary of NTL will merge with and into Telewest, with Telewest continuing as the surviving corporation and as a wholly owned subsidiary of NTL (the "Merger"). Under the terms of the Merger Agreement, Telewest shareholders are to receive $16.25 in cash plus 0.115 shares of NTL stock for each Telewest share held. Further details relating to the Merger and the Merger Agreement are included in a Form 8-K filed by the Company with the Securities and Exchange Commission on October 6, 2005. -0- *T Telewest Global, Inc. Consolidated Statements of Operations (amounts in GBP millions, except share and per share data) (unaudited) Three months ended Sep. 30, ----------------- 2005 2004 -------- -------- Revenue Consumer Sales Division 249 238 Business Sales Division 64 63 ---------------------------------------------------------------------- Total Cable Segment 313 301 Content Segment 33 27 sit-up Segment 58 - ---------------------------------------------------------------------- Total revenue 404 328 ---------------------------------------------------------------------- Operating costs and expenses Cable segment expenses 71 72 Content segment expenses 19 17 sit-up segment expenses 44 - Depreciation 99 103 Amortization 10 9 Selling, general and administrative expenses 128 117 ---------------------------------------------------------------------- 371 318 ---------------------------------------------------------------------- Operating income 33 10 Other income/(expense) Interest income 6 6 Interest expense (38) (49) Foreign exchange losses, net (1) - Share of net income of affiliates 4 4 ---------------------------------------------------------------------- Income/(loss) before income taxes 4 (29) Income tax benefit/(charge) 1 - ---------------------------------------------------------------------- Net income/(loss) 5 (29) ---------------------------------------------------------------------- Basic and diluted earnings/(loss) per share of common stock GBP 0.02 GBP(0.12) Weighted average number of shares of common stock - (millions) 245 245 ---------------------------------------------------------------------- Telewest Global, Inc. Consolidated Statements of Operations (amounts in GBP millions, except share and per share data) (unaudited) Nine months Nine months Nine months Six months ended ended ended ended Sep. 30, Sep. 30, Sep. 30, Jun. 30, 2005 2004 2004 2004 ----------- --------- ----------- ----------- Reorganized Combined Reorganized Predecessor Company Companies Company Company ---------------------------------------------------------------------- Revenue Consumer Sales Division 757 708 238 470 Business Sales Division 188 193 63 130 ---------------------------------------------------------------------- Total Cable Segment 945 901 301 600 Content Segment 96 81 27 54 sit-up Segment 82 - - - ---------------------------------------------------------------------- Total revenue 1,123 982 328 654 ---------------------------------------------------------------------- Operating costs and expenses Cable segment expenses 210 225 72 153 Content segment expenses 56 51 17 34 sit-up segment expenses 61 - - - Depreciation 301 287 103 184 Amortization 28 9 9 - Selling, general and administrative expenses 362 361 117 244 ---------------------------------------------------------------------- 1,018 933 318 615 ---------------------------------------------------------------------- Operating income 105 49 10 39 Other income/(expense) Interest income 17 21 6 15 Interest expense (including amortization of debt discount) (108) (279) (49) (230) Foreign exchange (losses)/gains, net (8) 40 - 40 Share of net income of affiliates 17 12 4 8 Other, net 1 (1) - (1) ---------------------------------------------------------------------- Income/(loss) before income taxes 24 (158) (29) (129) Income tax benefit/(charge) 1 (1) - (1) ---------------------------------------------------------------------- Net income/(loss) 25 (159) (29) (130) ---------------------------------------------------------------------- Basic and diluted earnings/(loss) per share of common stock GBP 0.10 GBP (0.12) Weighted average number of shares of common stock - (millions) 245 245 ---------------------------------------------------------------------- The Consolidated Statement of Operations for Combined Companies for the nine months ended September 30, 2004 represents the Consolidated Statement of Operations for Telewest Global, Inc. ("Reorganized Company") for the nine months ended September 30, 2004, together with the Consolidated Statement of Operations for Telewest Communications plc ("Predecessor Company") for the six months ended June 30, 2004, prior to its financial restructuring. The Consolidated Statement of Operations for Combined Companies for the nine months ended September 30, 2004 is not in accordance with GAAP but our management considers Combined Companies' financial information an important indicator of the performance of the business as compared to future and prior periods. Our management also considers Combined Companies' financial information important to our investors. The Consolidated Statement of Operations for the Combined Companies for the nine months ended September 30, 2004 excludes the Predecessor Company's Statement of Operations for July 1, 2004, the date of adoption of Fresh-start reporting. Telewest Global, Inc. Consolidated Balance Sheets (amounts in GBP millions, except share and per share data) (unaudited) Sep. 30, Dec. 31, 2005 2004 ----------- ----------- Reorganized Reorganized Company Company ---------------------------------------------------------------------- Assets Cash and cash equivalents 260 68 Restricted cash 15 26 Trade receivables 118 108 Other receivables 31 33 Prepaid expenses 38 17 Inventory for re-sale, net 18 - Other assets 6 - ---------------------------------------------------------------------- Total current assets 486 252 Investments accounted for under the equity method 284 304 Property and equipment, net 2,856 2,974 Intangible assets, net 286 314 Reorganization value in excess of amounts allocable to identifiable assets 426 425 Goodwill 142 - Programming inventory 31 24 Deferred financing costs (net of amortization of GBP 5 million; 2004: GBP 0 million) 50 51 ---------------------------------------------------------------------- Total assets 4,561 4,344 ---------------------------------------------------------------------- Liabilities and shareholders' equity Accounts payable 139 93 Other liabilities 446 424 Debt repayable within one year 55 21 Capital lease obligations repayable within one year 62 38 ---------------------------------------------------------------------- Total current liabilities 702 576 Other liabilities 9 - Deferred taxes 105 105 Debt repayable after more than one year 1,761 1,686 Capital lease obligations repayable after more than one year 47 69 ---------------------------------------------------------------------- Total liabilities 2,624 2,436 ---------------------------------------------------------------------- ---------------------------------------------------------------------- Minority interest (1) (1) ---------------------------------------------------------------------- Shareholders' equity Preferred stock - US$0.01 par value; authorized 5,000,000 shares, issued none (2005 and 2004) - - Common stock - US$0.01 par value; authorized 1,000,000,000 shares, issued 245,678,524 (2005) and 245,080,629 (2004) 1 1 Additional paid-in capital 1,965 1,954 Accumulated other comprehensive loss (7) - Accumulated deficit (21) (46) ---------------------------------------------------------------------- Total shareholders' equity 1,938 1,909 ---------------------------------------------------------------------- ---------------------------------------------------------------------- Total liabilities and shareholders' equity 4,561 4,344 ---------------------------------------------------------------------- Telewest Global, Inc. Consolidated Statements of Cash Flows (amounts in GBP millions) (unaudited) Nine months ended Sep. 30, --------------------- 2005 2004 ----------- --------- Reorganized Combined Company Companies ---------------------------------------------------------------------- Cash flows from operating activities Net income/(loss) 25 (159) Adjustments to reconcile net income/(loss) to net cash provided by operating activities: Depreciation 301 287 Amortization 28 9 Amortization of deferred financing costs and debt discount 5 30 Deferred tax charge - 1 Fair value adjustment of interest rate swaps (10) - Accretion expense 2 - Unrealized losses/(gains) on foreign currency translation 8 (40) Stock-based compensation expense 8 3 Share of net income of affiliates (12) (12) Profit on disposal of assets (1) - Amounts written off investments - 1 Changes in operating assets and liabilities, net of effect of acquisition of subsidiaries: Change in receivables (6) 2 Change in prepaid expenses (20) (20) Change in other assets (14) (5) Change in accounts payable 21 37 Change in other liabilities 15 108 Income tax paid for unprovided tax contingency at fresh-start (1) - ---------------------------------------------------------------------- Net cash provided by operating activities 349 242 ---------------------------------------------------------------------- Cash flows from investing activities Capital expenditure (173) (177) Proceeds from disposal of fixed assets 2 - Cash paid for acquisition of subsidiaries, net of cash acquired (108) - Repayment/(advance) of loans made to affiliates, net 13 2 Disposal of affiliate - 7 Proceeds from sale and leaseback 13 - ---------------------------------------------------------------------- Net cash used in investing activities (253) (168) ---------------------------------------------------------------------- Cash flows from financing activities Release/(placement) of restricted cash 11 (20) Proceeds from new debt 110 - Repayment of debt (6) (160) Cash paid for financing costs (4) (22) Principal element of capital lease repayments (31) (33) Proceeds from issuance of common stock 4 - Proceeds from the issue of a subsidiary's redeemable preferred stock 12 - ---------------------------------------------------------------------- Net cash provided by/ (used in) financing activities 96 (235) ---------------------------------------------------------------------- Net increase/(decrease) in cash and cash equivalents 192 (161) Cash and cash equivalents at beginning of period 68 427 Cash and cash equivalents transferred from Predecessor Company to Reorganized Company - - ---------------------------------------------------------------------- Cash and cash equivalents at end of period 260 266 ---------------------------------------------------------------------- Supplementary cash flow information: Cash paid for interest, net (75) (100) Cash received for income taxes, net 2 2 Nine months Six months ended ended Sep. 30, Jun. 30, July 1, 2004 2004 2004 ----------- ----------- ----------- Reorganized Predecessor Predecessor Company Company Company ---------------------------------------------------------------------- Cash flows from operating activities Net income/(loss) (29) (130) - Adjustments to reconcile net income/ (loss) to net cash provided by operating activities: Depreciation 103 184 - Amortization 9 - - Amortization of deferred financing costs and debt discount - 30 - Deferred tax charge - 1 - Fair value adjustment of interest rate swaps - - - Accretion expense - - - Unrealized losses/(gains) on foreign currency translation - (40) - Stock-based compensation expense 3 - - Share of net income of affiliates (4) (8) - Profit on disposal of assets - - - Amounts written off investments - 1 - Changes in operating assets and liabilities, net of effect of acquisition of subsidiaries: Change in receivables (7) 9 - Change in prepaid expenses 5 (25) - Change in other assets (2) (3) - Change in accounts payable 10 27 - Change in other liabilities (16) 124 - Income tax paid for unprovided tax contingency at fresh-start - - - ---------------------------------------------------------------------- Net cash provided by operating activities 72 170 - ---------------------------------------------------------------------- Cash flows from investing activities Capital expenditure (50) (127) - Proceeds from disposal of fixed assets - - - Cash paid for acquisition of subsidiaries, net of cash acquired - - - Repayment/(advance) of loans made to affiliates, net 6 (4) - Disposal of affiliate - 7 - Proceeds from sale and leaseback - - - ---------------------------------------------------------------------- Net cash used in investing activities (44) (124) - ---------------------------------------------------------------------- Cash flows from financing activities Release/(placement) of restricted cash 14 2 (36) Proceeds from new debt - - - Repayment of debt - - (160) Cash paid for financing costs - - (22) Principal element of capital lease repayments (10) (23) - Proceeds from issuance of common stock - - - Proceeds from the issue of a subsidiary's redeemable preferred stock - - - ---------------------------------------------------------------------- Net cash provided by/(used in) financing activities 4 (21) (218) ---------------------------------------------------------------------- Net increase/(decrease) in cash and cash equivalents 32 25 (218) Cash and cash equivalents at beginning of period - 427 452 Cash and cash equivalents transferred from Predecessor Company to Reorganized Company 234 - (234) ---------------------------------------------------------------------- Cash and cash equivalents at end of period 266 452 - ---------------------------------------------------------------------- Supplementary cash flow information: Cash paid for interest, net (39) (61) - Cash received for income taxes, net - 2 - Telewest Global, Inc. Selected Quarterly Operating Data - unaudited The following table sets out certain operating data for the three-month periods shown. The information represents combined operating statistics for all of our franchises. ---------------------------------------------------------------------- Sep. 30, Jun. 30, Mar. 31, 2005 2005 2005 Reorganized Company -------------------------------- Customer Data ------------- Homes passed and marketed(1) 4,698,067 4,698,510 4,694,480 Total customer relationships(2) 1,848,096 1,837,191 1,822,530 Customer penetration 39.3% 39.1% 38.8% Customer additions 89,469 79,365 78,695 Customer disconnections (78,564) (64,704) (55,721) Net customer additions 10,905 14,661 22,974 Revenue Generating Units("RGUs")(3) 3,955,205 3,873,792 3,784,835 RGUs per customer 2.14 2.11 2.08 Net RGU additions 81,413 88,957 113,433 Average monthly revenue per customer(4) GBP 45.17 GBP 44.86 GBP 45.34 Average monthly churn(5) 1.4% 1.2% 1.0% ---------------------------------------------------------------------- Bundled customers ----------------- Customers subscribing to two or more services 1,459,848 1,434,161 1,409,998 Customers subscribing to three services ("triple play") 647,261 602,430 552,307 Percentage of dual or triple play customers 79.0% 78.1% 77.4% Percentage of triple play customers 35.0% 32.8% 30.3% ---------------------------------------------------------------------- Consumer Television ------------------- Television ready homes passed and marketed 4,698,067 4,698,510 4,694,480 Total subscribers 1,348,572 1,331,742 1,320,487 Quarterly net additions 16,830 11,255 7,662 Television penetration 28.7% 28.3% 28.1% Digital ready homes passed and marketed 4,503,909 4,501,169 4,451,420 Digital subscribers 1,228,164 1,189,521 1,149,641 Quarterly net digital additions 38,643 39,880 27,340 Penetration of digital subscribers to total subscribers 91.1% 89.3% 87.1% Average monthly churn(5) 1.8% 1.5% 1.4% Average monthly revenue per subscriber(4) GBP 20.89 GBP 20.78 GBP 21.12 ---------------------------------------------------------------------- Consumer Telephony ------------------ Telephony ready homes passed and marketed 4,696,439 4,694,030 4,691,704 "Talk Weekends" (and previously "3-2-1") telephony subscribers 1,027,271 1,045,139 1,053,226 "Talk Unlimited" and "Talk Evenings and Weekends" telephony subscribers 659,176 644,073 624,417 Total subscribers 1,686,447 1,689,212 1,677,643 Quarterly net (disconnects)/additions (2,765) 11,569 17,302 Telephony penetration 35.9% 36.0% 35.8% Average monthly churn(5) 1.4% 1.2% 1.0% Average monthly revenue per subscriber(4) GBP 22.35 GBP 22.42 GBP 23.00 ---------------------------------------------------------------------- Dec. 31, Sep. 30, 2004 2004 Reorganized Company --------------------- Customer Data ------------- Homes passed and marketed(1) 4,686,794 4,686,799 Total customer relationships(2) 1,799,556 1,769,263 Customer penetration 38.4% 37.7% Customer additions 89,452 78,707 Customer disconnections (59,159) (61,997) Net customer additions 30,293 16,710 Revenue Generating Units ("RGUs")(3) 3,671,402 3,539,185 RGUs per customer 2.04 2.00 Net RGU additions 132,217 91,931 Average monthly revenue per customer(4) GBP 45.13 GBP 45.05 Average monthly churn(5) 1.1% 1.2% ---------------------------------------------------------------------- Bundled customers ----------------- Customers subscribing to two or more services 1,379,057 1,338,632 Customers subscribing to three services ("triple play") 492,789 431,290 Percentage of dual or triple play customers 76.6% 75.7% Percentage of triple play customers 27.4% 24.4% ---------------------------------------------------------------------- Consumer Television ------------------- Television ready homes passed and marketed 4,686,794 4,686,799 Total subscribers 1,312,825 1,297,304 Quarterly net additions 15,521 9,032 Television penetration 28.0% 27.7% Digital ready homes passed and marketed 4,420,388 4,405,162 Digital subscribers 1,122,301 1,078,623 Quarterly net digital additions 43,678 25,768 Penetration of digital subscribers to total subscribers 85.5% 83.1% Average monthly churn(5) 1.5% 1.4% Average monthly revenue per subscriber(4) GBP 20.88 GBP 20.72 ---------------------------------------------------------------------- Consumer Telephony ------------------ Telephony ready homes passed and marketed 4,683,153 4,682,002 "Talk Weekends" (and previously "3-2-1") telephony subscribers 1,080,893 1,082,125 "Talk Unlimited" and "Talk Evenings and Weekends" telephony subscribers 579,448 552,534 Total subscribers 1,660,341 1,634,659 Quarterly net (disconnects)/additions 25,682 13,290 Telephony penetration 35.5% 34.9% Average monthly churn(5) 1.1% 1.2% Average monthly revenue per subscriber(4) GBP 23.18 GBP 23.53 ---------------------------------------------------------------------- Telewest Global, Inc. Selected Quarterly Operating Data - unaudited (continued) Sep. 30, Jun. 30, Mar. 31, 2005 2005 2005 Reorganized Company -------------------------------- Consumer Internet ----------------- Broadband ready homes passed and marketed 4,503,909 4,501,169 4,451,420 Total metered dial-up internet subscribers 23,645 25,048 29,376 Total unmetered dial-up internet subscribers 49,542 65,516 85,909 Total broadband internet subscribers 920,186 852,838 786,705 Quarterly net broadband internet additions 67,348 66,133 88,469 Broadband internet penetration 20.4% 18.9% 17.7% Average monthly broadband internet churn(5) 1.5% 1.3% 1.0% Average monthly revenue per broadband internet subscriber(4) GBP 19.03 GBP 19.39 GBP 19.89 ---------------------------------------------------------------------- NCTA Capital expenditure(6) GBP m GBP m GBP m ---------------------------------------------------------------------- Customer premise equipment ("CPE") 30 18 16 Scaleable infrastructure 9 12 7 Commercial 10 11 8 Line extensions - 1 2 Upgrade/rebuild 5 3 6 Support capital 12 12 13 ---------- ---------- ---------- Total NCTA Capital expenditure 66 57 52 Non NCTA Capital expenditure: Content Segment 1 1 - sit-up Segment 1 1 - Change in capital accruals and leasing (8) - 2 ---------------------------------------------------------------------- Total Capital expenditure 60 59 54 ---------------------------------------------------------------------- Dec. 31, Sep. 30, 2004 2004 Reorganized Company ---------------------- Consumer Internet ----------------- Broadband ready homes passed and marketed 4,420,388 4,405,162 Total metered dial-up internet subscribers 33,417 39,196 Total unmetered dial-up internet subscribers 107,220 127,745 Total broadband internet subscribers 698,236 607,222 Quarterly net broadband internet additions 91,014 69,609 Broadband internet penetration 15.8% 13.8% Average monthly broadband internet churn(5) 1.0% 1.3% Average monthly revenue per broadband internet subscriber(4) GBP 20.23 GBP 21.50(a) ---------------------------------------------------------------------- NCTA Capital expenditure(6) GBP m GBP m ---------------------------------------------------------------------- Customer premise equipment ("CPE") 25 19 Scaleable infrastructure 14 8 Commercial 8 12 Line extensions 1 1 Upgrade/rebuild 10 1 Support capital 7 10 ---------- ---------- Total NCTA Capital expenditure 65 51 Non NCTA Capital expenditure: Content Segment 1 - sit-up Segment - - Change in capital accruals and leasing (2) (1) ---------------------------------------------------------------------- Total Capital expenditure 64 50 ---------------------------------------------------------------------- (a) The product ARPU for broadband internet in this quarter has been adjusted to reflect the full value of promotional discounts offered. (1) The number of homes within our service area that can potentially be served by our network with minimal connection costs. Information concerning the number of homes "passed and marketed" is based on physical counts made by us during network construction or marketing phases. (2) The number of customers who receive at least one of our television, telephony or broadband internet services. (3) Revenue Generating Units ("RGUs"), refer to subscriptions to each of our analog television, digital television, telephony and broadband internet services on an individual basis. For example, when we provide one customer with digital television and broadband internet services, we record two RGUs. Dial-up internet services, second telephone lines and additional TV outlets are not recorded as RGUs although they generate revenue for us. (4) Average monthly revenue per customer (often referred to as "ARPU" or "Average Revenue per User") represents the consumer sales division's total quarterly revenue of residential customers, including installation revenues (but excluding the recovery of GBP 16 million VAT in the quarter ended June 30, 2005), divided by the average number of residential customers in the quarter, divided by three. The same methodology is used for television, telephony and broadband internet ARPU. (5) Average monthly churn represents the total number of customers who disconnected during the quarter divided by the average number of customers in the quarter, divided by three. Subscribers who move premises within our addressable areas (known as "Moves and Transfers") and retain our services are excluded from this churn calculation. (6) In order to provide comparable data to the US and UK cable industry, and in accordance with NCTA (National Cable & Telecommunications Association) reporting guidelines, Telewest has allocated capital expenditure to the standard reporting categories as per below. Telewest is not a member of the NCTA and is providing this information solely for comparative purposes. CPE - costs incurred at the customer's house to secure new customers, revenue units and additional bandwidth revenues. Includes connections to previously unserved houses in accordance with SFAS 51 (Financial Reporting by Cable Television Companies) and customer premise equipment. Scaleable infrastructure - costs, not CPE or network related, to secure growth of new customers, revenue units and additional bandwidth revenues or provide service enhancements. Commercial - costs to provide high-speed data and telephony services to businesses and institutions. Includes network and infrastructure expenditures. Line extensions - network costs associated with entering new service areas including costs of fiber, coaxial cable, amplifiers, electronic equipment, make-ready and design/engineering. Upgrade/rebuild - costs to modify or replace existing coax and fiber networks. Includes materials, contract labor, in-house labor, make-ready, design engineering and other miscellaneous costs associated with all aspects of the construction of the plant miles along an existing route. Benefits include added bandwidth and/or reliability/extended life to the existing plant. Support capital - costs associated with the replacement or enhancement of non-network assets due to obsolescence and wear-out, replacement of network assets unrelated to line extensions, rebuild/upgrade or customer growth. *T Telewest Global, Inc. Supplemental Analysis -- Forward-Looking Statements -- Additional Information and Where to Find It -- Participants in the Solicitation -- Fresh-Start Reporting -- Pro forma Consolidated Statements of Operations -- Quarterly Historical Information -- Segment Information -- Use of Non-GAAP Financial Measures Forward-Looking Statements Some of the statements in this earnings release constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance, including, but not limited to, strategic plans, our proposed merger with NTL Inc., potential growth (including customer net additions and average monthly revenue per customer), product introductions and innovation, meeting customer expectations, planned operational changes (including product improvements and the impact of price increases), expected capital expenditures, future cash sources and requirements, liquidity, customer service improvements, cost savings and the benefits of acquisitions or joint ventures - potential and/or completed - that involve known and unknown risks, uncertainties and other factors that may cause our or our businesses' actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "could," "would," "should," "expect," "plan," "anticipate," "intend," "believe," "estimate," "predict," "potential," or "continue," or the negative of those terms or other comparable terminology. There are a number of important factors that could cause our actual results and future development to differ materially from those expressed or implied by those forward-looking statements. These factors include those discussed under the caption "Risk Factors" in the Annual Report on Form 10-K for the year ended December 31, 2004 (No. 000-50886) filed by Telewest Global, Inc. on March 22, 2005 with the United States Securities and Exchange Commission, although those risk factors may not be exhaustive. Other sections of this earnings release may describe additional factors that could adversely impact our business and financial performance. We operate in a continually changing business environment, and new risk factors may emerge from time to time. Management cannot anticipate all of these new risk factors, nor can they definitively assess the impact, if any, of new risk factors on us or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those projected in any forward-looking statements. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. Unless otherwise required by applicable securities laws, we assume no obligation to publicly update or revise any of the forward-looking statements after the date of this earnings release to reflect actual results, whether as a result of new information, future events or otherwise. Additional Information and Where to Find It This filing may be deemed to be solicitation material in respect of the proposed merger of NTL and Telewest. In connection with the proposed merger, NTL and Telewest will file a joint proxy statement/prospectus with the U.S. Securities and Exchange Commission (the "SEC"). INVESTORS AND SECURITY HOLDERS OF NTL AND TELEWEST ARE ADVISED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE THOSE DOCUMENTS WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER. The final joint proxy statement/prospectus will be mailed to stockholders of NTL and Telewest. Investors and security holders may obtain a free copy of the joint proxy statement/prospectus, when it becomes available, and other documents filed by NTL and Telewest with the SEC, at the SEC's web site at http://www.sec.gov. Free copies of the joint proxy statement/prospectus, when it becomes available, and each company's other filings with the SEC may also be obtained from the respective companies. Free copies of Telewest's filings may be obtained by directing a request to Telewest Global, Inc., 160 Great Portland Street, London W1W 5QA, United Kingdom, Attention: Investor Relations. Participants in the Solicitation NTL, Telewest and their respective directors, executive officers and other members of their management and employees may be deemed to be soliciting proxies from their respective stockholders in favor of the merger. Information regarding NTL's directors and executive officers is available in NTL's proxy statement for its 2005 annual meeting of stockholders, which was filed with the SEC on April 5, 2005. Information regarding Telewest's directors and executive officers is available in Telewest's proxy statement for its 2005 annual meeting of stockholders, which was filed with the SEC on April 11, 2005. Additional information regarding the interests of such potential participants will be included in the joint proxy statement/prospectus and the other relevant documents filed with the SEC when they become available. Fresh-Start Reporting As a result of the completion of the financial restructuring of Telewest Communications plc, our predecessor, on July 15, 2004, Telewest adopted fresh-start reporting in accordance with Statement of Position 90-7, "Reporting by Entities in Reorganization under the Bankruptcy Code", ("SOP 90-7"), with effect from July 1, 2004. Under SOP 90-7, Telewest established a new accounting basis, recording our predecessor's assets at their fair value and liabilities at the present value of amounts to be paid. A reconciliation of our predecessor's balance sheet at June 30, 2004 to the fresh-start balance sheet at July 1, 2004, is included in Telewest's Annual Report on Form 10-K for the year ended December 31, 2004. As a result of the adoption of fresh-start reporting, our balance sheets and results of operations subsequent to July 1, 2004 will not be comparable in many material respects to the balance sheets or results of operations reflected in our predecessor's historical financial statements for periods prior to July 1, 2004. -0- *T Telewest Global, Inc. Pro forma Consolidated Statements of Operations (a) (amounts in GBP millions, except share and per share data) (unaudited) Nine months ended Sep 30, 2005 ----------- Reorganized Company (a) ---------------------------------------------------------------------- Revenue Consumer Sales Division 757 Business Sales Division 188 ---------------------------------------------------------------------- Total Cable Segment 945 Content Segment 96 sit-up Segment 156 ---------------------------------------------------------------------- Total revenue 1,197 ---------------------------------------------------------------------- Operating costs and expenses Cable segment expenses 210 Content segment expenses 56 sit-up segment expenses 116 Depreciation 302 Amortization 28 Selling, general and administrative expenses 379 ---------------------------------------------------------------------- 1,091 ---------------------------------------------------------------------- Operating income 106 Other income/(expense) Interest income 17 Interest expense (110) Foreign exchange losses, net (8) Share of net income of affiliates 16 Other, net 1 ---------------------------------------------------------------------- Income before income taxes 22 Income tax benefit 1 ---------------------------------------------------------------------- Net income 23 ---------------------------------------------------------------------- Basic and diluted earnings per share of common stock GBP 0.09 Weighted average number of shares of common stock - (millions) 245 ---------------------------------------------------------------------- (a) To show pro forma effect as if sit-up Limited had been purchased on January 1, 2005, for the nine months ended September 30, 2005. *T Pro forma adjustments reflect the revenue, segment expenses, depreciation and SG&A for sit-up for the period January 1, 2005 to May 11, 2005. Interest income and expense have been adjusted to reflect the interest income earned by sit-up during the above period and the additional interest expense that would have been incurred by Telewest to fund the acquisition at January 1, 2005. Share of net income of affiliates has been adjusted to reverse the equity accounting of sit-up for the period presented. Pro forma financial information for the three months ended September 30, 2005 has not been presented, as sit-up is a consolidated subsidiary of the Reorganized Company during the period, therefore there are no differences as compared to the Consolidated Statement of Operations. Comparable pro forma financial information for the three and nine months ended September 30, 2004 has not been presented since such pro forma information would not be meaningful as a result of the financial restructuring of the Predecessor Company during 2004. -0- *T Telewest Global, Inc. Quarterly Historical Information (amounts in GBP millions, except share and per share data) Three months ended ------------------------- Sep. 30, Jun. 30, Mar. 31, 2005 2005 2005 -------------------------- Reorganized Company ---------------------------------------------------------------------- Revenue Consumer Sales Division 249 262 246 Business Sales Division 64 63 61 ---------------------------------------------------------------------- Total Cable Segment 313 325 307 Content Segment 33 32 31 sit-up Segment 58 24 - ---------------------------------------------------------------------- Total revenue 404 381 338 ---------------------------------------------------------------------- Operating costs and expenses Cable segment expenses 71 70 69 Content segment expenses 19 17 20 sit-up segment expenses 44 17 - Depreciation 99 101 101 Amortization 10 9 9 Selling, general and administrative expenses 128 119 115 ---------------------------------------------------------------------- 371 333 314 ---------------------------------------------------------------------- Operating income 33 48 24 Other income/(expense) Interest income 6 7 4 Interest expense (38) (41) (29) Foreign exchange (losses)/gains, net (1) (3) (4) Share of net income of affiliates 4 7 6 Other, net - 1 - ---------------------------------------------------------------------- Income/(loss) before income taxes 4 19 1 Income tax benefit 1 - - ---------------------------------------------------------------------- Net income/(loss) 5 19 1 ---------------------------------------------------------------------- Basic and diluted earnings/(loss) per share of common stock GBP 0.02 GBP 0.08 - Weighted average number of shares of common stock - (millions) 245 245 245 ---------------------------------------------------------------------- Three months ended ------------------ Dec. 31, Sep. 30, 2004 2004 ------------------ Reorganized Company ---------------------------------------------------------------------- Revenue Consumer Sales Division 241 238 Business Sales Division 63 63 ---------------------------------------------------------------------- Total Cable Segment 304 301 Content Segment 32 27 sit-up Segment - - ---------------------------------------------------------------------- Total revenue 336 328 ---------------------------------------------------------------------- Operating costs and expenses Cable segment expenses 69 72 Content segment expenses 25 17 sit-up segment expenses - - Depreciation 101 103 Amortization 9 9 Selling, general and administrative expenses 114 117 ---------------------------------------------------------------------- 318 318 ---------------------------------------------------------------------- Operating income 18 10 Other income/(expense) Interest income 5 6 Interest expense (47) (49) Foreign exchange (losses)/gains, net 3 - Share of net income of affiliates 4 4 Other, net - - ---------------------------------------------------------------------- Income/(loss) before income taxes (17) (29) Income tax benefit - - ---------------------------------------------------------------------- Net income/(loss) (17) (29) ---------------------------------------------------------------------- Basic and diluted earnings/(loss) per share of common stock GBP (0.07)GBP(0.12) Weighted average number of shares of common stock - (millions) 245 245 ---------------------------------------------------------------------- Telewest Global, Inc. Segment Information (amounts in GBP millions) Three months Nine months ended Sep. 30, ended Sep. 30, ----------------------- --------------------- 2005 2004 2005 2004 --------------------------------------------- Reorganized Reorganized Reorganized Combined Company Company Company Companies ---------------------------------------------------------------------- CABLE SEGMENT Consumer Sales Division revenue 249 238 757 708 Business Sales Division revenue 64 63 188 193 ---------------------------------------------------------------------- Third party revenue 313 301 945 901 Operating costs and expenses (before depreciation, amortization and financial restructuring charges) (181) (183) (534) (552) ---------------------------------------------------------------------- Adjusted EBITDA including inter-segment costs 132 118 411 349 Inter-segment costs(1) 3 2 8 7 ---------------------------------------------------------------------- Adjusted EBITDA 135 120 419 356 ---------------------------------------------------------------------- CONTENT SEGMENT Content Segment revenue 36 29 104 88 Operating costs and expenses (before depreciation, amortization and financial restructuring charges) (27) (25) (82) (71) ---------------------------------------------------------------------- Adjusted EBITDA including inter-segment revenues 9 4 22 17 Inter-segment revenues(1) (3) (2) (8) (7) ---------------------------------------------------------------------- Adjusted EBITDA 6 2 14 10 ---------------------------------------------------------------------- SIT-UP SEGMENT sit-up Segment revenue 58 - 82 - Operating costs and expenses (before depreciation, amortization and financial restructuring charges) (57) - (81) - ---------------------------------------------------------------------- Adjusted EBITDA 1 - 1 - ---------------------------------------------------------------------- Reconciliation to operating income Cable Segment Adjusted EBITDA 135 120 419 356 Content Segment Adjusted EBITDA 6 2 14 10 sit-up Segment Adjusted EBITDA 1 - 1 - ---------------------------------------------------------------------- Adjusted EBITDA 142 122 434 366 Financial restructuring charges - - - (21) Depreciation (99) (103) (301) (287) Amortization (10) (9) (28) (9) ---------------------------------------------------------------------- Operating income 33 10 105 49 ---------------------------------------------------------------------- Nine months Six months ended ended Sep. 30, Jun. 30, 2004 2004 ------------------------ Reorganized Predecessor Company Company ---------------------------------------------------------------------- CABLE SEGMENT Consumer Sales Division revenue 238 470 Business Sales Division revenue 63 130 ---------------------------------------------------------------------- Third party revenue 301 600 Operating costs and expenses (before depreciation, amortization and financial restructuring charges) (183) (369) ---------------------------------------------------------------------- Adjusted EBITDA including inter-segment costs 118 231 Inter-segment costs(1) 2 5 ---------------------------------------------------------------------- Adjusted EBITDA 120 236 ---------------------------------------------------------------------- CONTENT SEGMENT Content Segment revenue 29 59 Operating costs and expenses (before depreciation, amortization and financial restructuring charges) (25) (46) ---------------------------------------------------------------------- Adjusted EBITDA including inter-segment revenues 4 13 Inter-segment revenues(1) (2) (5) ---------------------------------------------------------------------- Adjusted EBITDA 2 8 ---------------------------------------------------------------------- SIT-UP SEGMENT sit-up Segment revenue - - Operating costs and expenses (before depreciation, amortization and financial restructuring charges) - - ---------------------------------------------------------------------- Adjusted EBITDA - - ---------------------------------------------------------------------- Reconciliation to operating income Cable Segment Adjusted EBITDA 120 236 Content Segment Adjusted EBITDA 2 8 sit-up Segment Adjusted EBITDA - - ---------------------------------------------------------------------- Adjusted EBITDA 122 244 Financial restructuring charges - (21) Depreciation (103) (184) Amortization (9) - ---------------------------------------------------------------------- Operating income 10 39 ---------------------------------------------------------------------- (1) Inter-segment revenues are revenues of our Content Segment which are costs in our Cable Segment and which are eliminated on consolidation. The Segment Information for the Combined Companies for the nine months ended September 30, 2004 excludes the Segment Information of the Predecessor Company for July 1, 2004. *T Telewest Global, Inc. Use of Non-GAAP Financial Measures Adjusted EBITDA Telewest's primary measure of income or loss for each of our reportable segments is Adjusted EBITDA. Our management, including our chief operating decision-maker, considers Adjusted EBITDA an important indicator of the operational strength and performance of our reportable segments. Adjusted EBITDA for each segment and in total excludes the impact of costs and expenses that do not directly affect our cash flows or do not directly relate to the operating performance of that segment. These costs and expenses include depreciation, amortization, financial restructuring charges, interest expense, foreign exchange gains/(losses), share of net income/(loss) from affiliates and income taxes. It is the belief of management that the legal and professional costs relating to our financial restructuring are not characteristic of our underlying business operations. Furthermore management believes that some of the components of these charges are not directly related to the performance of a single reportable segment. Adjusted EBITDA is not a financial measure recognised under GAAP. This measure is most directly comparable to the GAAP financial measure net income/(loss). Some of the significant limitations associated with the use of Adjusted EBITDA as compared to net income/(loss) are that Adjusted EBITDA does not reflect the amount of required reinvestment in depreciable fixed assets, financial restructuring charges, interest expense, foreign exchange gains or losses, income taxes expense or benefit and similar items on our results of operations. We believe Adjusted EBITDA is helpful for understanding our performance and assessing our prospects for the future, and that it provides useful supplemental information to investors. In particular, this non-GAAP financial measure reflects an additional way of viewing aspects of our operations that, when viewed with our GAAP results and the reconciliations to net income/(loss), shown below, provide a more complete understanding of factors and trends affecting our business. Because non-GAAP financial measures are not standardized, it may not be possible to compare Adjusted EBITDA with other companies' non-GAAP financial measures that have the same or similar names. The presentation of this supplemental information is not meant to be considered in isolation or as a substitute for net cash provided by operating activities, operating income/(loss), net income/(loss), or other measures of financial performance reported in accordance with GAAP. Free cash flow Telewest's primary measure of cash flow is free cash flow. Free cash flow is defined as net cash provided by/(used in) operating activities excluding cash paid for financial restructuring charges, less capital expenditure. Our management, including our chief operating decision-maker, considers free cash flow an important indicator of the operational performance of our business. Free cash flow is not a financial measure recognized under GAAP. This measure is most directly comparable to the GAAP financial measure net cash provided by/(used in) operating activities. The significant limitation associated with the use of free cash flow as compared to net cash provided by/(used in) operating activities is that free cash flow does not consider the amount of cash required to pay financial restructuring charges. We believe free cash flow is helpful for understanding our performance and it provides useful supplemental information to investors. Because non-GAAP financial measures are not standardized, it may not be possible to compare free cash flow with other companies' non-GAAP financial measures that have the same or similar names. The presentation of this supplemental information is not meant to be considered in isolation or as a substitute for net cash provided by/(used in) operating activities, or other measures of financial performance reported in accordance with GAAP. Net debt Net debt is defined as the sum of debt repayable, capital lease obligations and accrued interest payable on notes and debentures less cash and cash equivalents. The Company's management, including its chief operating decision-maker, considers net debt an important measure of the financing obligations undertaken by the Company. Net debt is not a financial measure recognized under GAAP. This measure is most directly comparable to the GAAP financial measure, total liabilities. The significant limitation associated with the use of net debt as compared total liabilities is that net debt does not consider current liabilities due in respect of accounts payable and other liabilities. It also assumes that all of cash and cash equivalents is available to service debt. Telewest believes net debt is helpful for understanding its entire net debt funding obligations and it provides useful supplemental information to investors. Because non-GAAP financial measures are not standardized, it may not be possible to compare net debt with other companies' non-GAAP financial measures that have the same or similar names. The presentation of this supplemental information is not meant to be considered in isolation or as a substitute for total liabilities, or other measures of financial performance reported in accordance with GAAP. Average monthly revenue per customer or "Household ARPU (excluding impact of the GBP 16 million VAT recovery)" For a three month period, Household ARPU (excluding impact of the GBP 16 million VAT recovery) represents the consumer sales division's total quarterly revenue of residential customers, including installation revenues, but excluding the recovery of GBP 16 million VAT, divided by the average number of residential customers in the quarter, divided by three. Household ARPU (excluding impact of the GBP 16 million VAT recovery) is not a financial measure recognized under GAAP. This measure is most directly comparable to the GAAP financial measure, Household ARPU. The significant limitation associated with the use of Household ARPU (excluding impact of the GBP 16 million VAT recovery) as compared to Household ARPU is that Household ARPU (excluding impact of the GBP 16 million VAT recovery) does not consider GBP 16 million of revenues received in respect of recovered VAT. Telewest believes Household ARPU (excluding impact of the GBP 16 million VAT recovery) is helpful for understanding the trend in respect of its residential revenues derived from customers during the period and it provides useful supplemental information to investors. The VAT recovery is not expected to recur. Because non-GAAP financial measures are not standardized, it may not be possible to compare Household ARPU (excluding impact of the GBP 16 million VAT recovery) with other companies' non-GAAP financial measures that have the same or similar names. The presentation of this supplemental information is not meant to be considered in isolation or as a substitute for Household ARPU, or other measures of financial performance reported in accordance with GAAP. Average monthly revenue per television subscriber or "Television ARPU (excluding impact of the GBP 16 million VAT recovery)" For a three month period, Television ARPU (excluding impact of the GBP 16 million VAT recovery) represents the sum of the consumer sales division's total quarterly revenue of television subscribers, including installation revenues, but excluding the recovery of GBP 16 million VAT, divided by the average number of television subscribers in the quarter, divided by three. Television ARPU (excluding impact of the GBP 16 million VAT recovery) is not a financial measure recognized under GAAP. This measure is most directly comparable to the GAAP financial measure, Television ARPU. The significant limitation associated with the use of Television ARPU (excluding impact of the GBP 16 million VAT recovery) as compared to Television ARPU is that Television ARPU (excluding impact of the GBP 16 million VAT recovery) does not consider GBP 16 million of revenues received in respect of recovered VAT. Telewest believes Television ARPU (excluding impact of the GBP 16 million VAT recovery) is helpful for understanding the trend in respect of its television revenues derived from subscribers during the period and it provides useful supplemental information to investors. The VAT recovery is not expected to recur. Because non-GAAP financial measures are not standardized, it may not be possible to compare Television ARPU (excluding impact of the GBP 16 million VAT recovery) with other companies' non-GAAP financial measures that have the same or similar names. The presentation of this supplemental information is not meant to be considered in isolation or as a substitute for Television ARPU, or other measures of financial performance reported in accordance with GAAP. -0- *T Reconciliations of Non-GAAP Financial Measures (amounts in GBP millions) Three months ended Sep. 30, --------------------------- 2005 2004 --------------------------- Reorganized Reorganized Company Company Reconciliation of Adjusted EBITDA to net income/(loss) ---------------------------------------------------------------------- Adjusted EBITDA 142 122 Financial restructuring charges - - Depreciation (99) (103) Amortization (10) (9) ---------------------------------------------------------------------- Operating income 33 10 Interest income 6 6 Interest expense (including amortization of debt discount) (38) (49) Foreign exchange (losses)/gains, net (1) - Share of net income of affiliates 4 4 Other, net - - Income tax benefit/(charge) 1 - ---------------------------------------------------------------------- Net income/(loss) 5 (29) ---------------------------------------------------------------------- Reconciliation of free cash flow to net cash provided by operating activities ---------------------------------------------------------------------- Free cash flow 50 39 Deduct cash paid for financial restructuring charges - (17) Add capital expenditure 60 50 ---------------------------------------------------------------------- Net cash provided by operating activities 110 72 ---------------------------------------------------------------------- Free cash flow is reported after cash paid for interest, net, and cash received for income taxes. Supplementary cash flow information: Cash paid for interest, net 34 39 Cash received for income taxes, net (2) - Nine months Three months ended Sep. 30, ended Jun. 30, ---------------------------------------- 2005 2004 2005 ---------------------------------------- Reorganized Combined Reorganized Company Companies Company ---------------------------------------- Adjusted EBITDA 434 366 158 Financial restructuring charges - (21) - Depreciation (301) (287) (101) Amortization (28) (9) (9) ---------------------------------------------------------------------- Operating income 105 49 48 Interest income 17 21 7 Interest expense (including amortization of debt discount) (108) (279) (41) Foreign exchange (losses)/gains, net (8) 40 (3) Share of net income of affiliates 17 12 7 Other, net 1 (1) 1 Income tax benefit/(charge) 1 (1) - ---------------------------------------------------------------------- Net income/(loss) 25 (159) 19 ---------------------------------------------------------------------- Reconciliation of free cash flow to net cash provided by operating activities ---------------------------------------------------------------------- Free cash flow 177 101 64 Deduct cash paid for financial restructuring charges (1) (36) - Add capital expenditure 173 177 59 ---------------------------------------------------------------------- Net cash provided by operating activities 349 242 123 ---------------------------------------------------------------------- Free cash flow is reported after cash paid for interest, net, and cash received for income taxes. Supplementary cash flow information: Cash paid for interest, net 75 100 29 Cash received for income taxes, net (2) (2) - The reconciliation items disclosed above for Combined Companies represent the items for the Predecessor Company for the six months ended June 30, 2004, prior to its financial restructuring, together with the items for the Reorganized Company for the nine months ended September 30, 2004. Sep. 30, Dec. 31, 2005 2004 ------------------------ Reorganized Reorganized Company Company ---------------------------------------------------------------------- Reconciliation of net debt to total liabilities Net debt 1,665 1,746 Cash and cash equivalents 260 68 ---------------------------------------------------------------------- Total debt 1,925 1,814 Accounts payable 139 93 Other liabilities 455 424 Deferred taxes 105 105 ---------------------------------------------------------------------- Total liabilities 2,624 2,436 ---------------------------------------------------------------------- Three months ended June 30, 2005 ---------------------------------------------------------------------- Reconciliation of Household ARPU to Household ARPU (excluding impact of the GBP 16 million VAT recovery) Consumer sales division revenue in the period GBP 262 million Average number of residential customers in the period 1,830,895 ----------------- Household ARPU GBP 47.72 ----------------- Consumer sales division revenue in the period GBP 262 million VAT recovery GBP (16)million ----------------- Consumer sales division revenue (excluding GBP 16 GBP 246 million million VAT recovery) Average number of residential customers in the period 1,830,895 ----------------- Household ARPU (excluding impact of the GBP 16 GBP 44.86 million VAT recovery) ----------------- Reconciliation of Television ARPU to Television ARPU (excluding impact of the GBP 16 million VAT recovery) Consumer television revenue in the period GBP 98 million Average number of television subscribers in the period 1,326,317 ----------------- Television ARPU GBP 24.72 ----------------- Consumer television revenue in the period GBP 98 million VAT recovery GBP (16)million ----------------- Consumer television revenue (excluding GBP 16 GBP 82 million million VAT recovery) Average number of television subscribers in the period 1,326,317 ----------------- Television ARPU (excluding impact of the GBP 16 GBP 20.78 million VAT recovery) ----------------- *T