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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
F O R M 10-K/A-1
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NO. 0-25691
NTL (DELAWARE), INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(On May 18, 2000, the name of the Registrant was
changed from NTL Incorporated to NTL (DELAWARE), INC.)
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DELAWARE 13-4051921
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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110 EAST 59TH STREET, NEW YORK, NEW YORK 10022
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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(212) 906-8440
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)
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fqq
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether disclosure by delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.|_|
The aggregate market value of the Registrant's voting stock held by
non-affiliates at March 13, 2000, valued in all cases in accordance with the
NASDAQ/NMS closing sale price for the Registrant's Common Stock was
approximately $13,610,286,000.
Number of shares of Common Stock outstanding as at March 13, 2000: 141,606,516
DOCUMENTS INCORPORATED BY REFERENCE
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PART OF 10-K
IN WHICH
DOCUMENT INCORPORATED
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Definitive proxy statement for the Part III
2000 Annual Meeting of the
Stockholders of NTL Incorporated:
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* * * * * *
This Annual Report on Form 10-K for the year ended December 31, 1999, at the
time of filing with the Securities and Exchange Commission, modifies and
supersedes all prior documents filed pursuant to Section 13, 14 and 15(d) of the
Securities Exchange Act of 1934 for purposes of any offers or sales of any
securities after the date of such filing pursuant to any Registration Statement
or Prospectus filed pursuant to the Securities Act of 1933 which incorporates by
reference this Annual Report.
"Safe Harbor" Statement under the Private Securities Litigation
Reform Act of 1995:
Certain statements contained herein constitute "forward-looking
statements" as that term is defined under the Private Securities Litigation
Reform Act of 1995. When used in this Form 10-K, the words, "believe,"
"anticipate," "should," "intend," "plan," "will," "expects," "estimates,"
"projects," "positioned," "strategy," and similar expressions identify such
forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Registrant, or industry results, to
be materially different from those contemplated or projected, forecasted,
estimated or budgeted, whether expressed or implied, by such forward-looking
statements. Such factors include, among others: general economic and business
conditions, industry trends, the Registrant's ability to continue to design
network routes, install facilities, obtain and maintain any required government
licenses or approvals and finance construction and development, all in a timely
manner, at reasonable costs and on satisfactory terms and conditions, as well as
assumptions about customer acceptance, churn rates, overall market penetration
and competition from providers of alternative services, the impact of new
business opportunities requiring significant up-front investment, Year 2000
readiness and availability, terms and deployment of capital.
2
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TABLE OF CONTENTS
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PART I
Item 1. Business................................................................................ 1 *
Item 2. Properties.............................................................................. 34 *
Item 3. Legal Proceedings....................................................................... 35 *
Item 4. Submission of Matters to a Vote of Security Holders..................................... 35 *
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters............... 36 *
Item 6. Selected Financial Data................................................................. 37 *
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................................... 38 *
Item 7a. Quantitative and Qualitative Disclosure about Market Risk............................... 45 *
Item 8. Financial Statements and Supplementary Data............................................. 47 *
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................................................ 48 *
PART III
Items 10, 11, 12, and 13.................................................................................. 48 *
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K............................................................................. 48 *
Exhibit Index ........................................................................................ 49
Signatures ........................................................................................ 55 *
Index to Consolidated Financial Statements .............................................................. F-1
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* Previously filed
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The Annual Report on Form 10-K of NTL (Delaware), Inc. (formerly NTL
Incorporated) for the fiscal year ended December 31, 1999 is being amended by
this Form 10-K/A-1 (1) to revise Note 2 - Significant Accounting Policies -
Revenue Recognition in the Notes to Consolidated Financial Statements in Item
14, (2) to add information to Note 21 - Industry Segments in the Notes to
Consolidated Financial Statements in Item 14 and (3) to add Exhibit 23.2 to the
Exhibit Index in Part IV and to attach such exhibit thereto. All other exhibits
listed in the Exhibit Index were either incorporated by reference in or
originally filed with the Annual Report on Form 10-K of NTL (Delaware), Inc.
(formerly NTL Incorporated) for the fiscal year ended December 31, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
NTL Incorporated
Dated: August 29, 2000 By: /s/ Gregg N. Gorelick
---------------------
Name: Gregg N. Gorelick
Title: Vice President-Controller
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EXHIBIT INDEX
EXHIBIT NO.
2.1 Agreement and Plan of Merger, dated as of March 26, 1999, among the
Company, NTL Communications and NTL Merger Inc. (Incorporated by
reference to the Registration Statement on Form S-3, File No.
333-72335)
2.2 Agreement and Plan of Amalgamation, dated as of February 4, 1998, as
amended, among the Company, NTL (Bermuda) Limited, and Comcast U.K.
Cable Partners Limited (Incorporated by reference to the Registration
Statement on Form S-4, File No. 333-64727)
2.3 Amendment No. 1 to Agreement and Plan of Amalgamation, dated as of May
28, 1998, among the Company, NTL (Bermuda) Limited and Comcast U.K.
Cable Partners Limited (Incorporated by reference to the Registration
Statement on Form S-4, File No. 333-64727)
2.4 Share Exchange Agreement, dated as of June 16, 1998, as amended, among
the Company and the shareholders of Diamond Cable Communications Plc
(Incorporated by reference to the Proxy Statement, filed by NTL
Communications (File No. 0-22616) on January 29, 1999)
2.5 Amendment No. 1 to Share Exchange Agreement, dated as of December 21,
1998, among the Company and the shareholders of Diamond Cable,
Communications plc (Incorporated by reference to the Form 8-K filed
by NTL Communications (File No. 0-22616) on December 23, 1998)
2.6 Transaction Agreement, dated as of July 26, 1999, by and between, Bell
Atlantic Corporation, Cable and Wireless PLC, Cable and Wireless
Communications PLC and NTL Incorporated (Incorporated by reference to
the Company's Proxy Statement, filed on February 11, 2000)
2.7 Investment Agreement, dated as of July 26, 1999, by and between, NTL
Incorporated and France Telecom S.A. (Incorporated by reference to the
Company's Proxy Statement, filed on February 11, 2000)
2.7(a) Amendment No. 1 to the Investment Agreement, dated as of August 6, 1999
(Incorporated by reference to the Company's Proxy Statement, filed on
February 11, 2000)
2.7(b) Amendment No. 2 to the Investment Agreement, dated as of October 8,
1999 (Incorporated by reference to the Company's Proxy Statement
filed on February 11, 2000)
2.8 Purchase Agreement, dated as of February 17, 2000, by and between
France Telecom, S.A. and NTL Incorporated (Incorporated by reference to
the Company's Form 8-K, filed on February 22, 2000)
2.9 Transaction Agreement dated as of December 12, 1999 among Cablecom
Holding AG and NTL Incorporated and certain other parties thereto.
3.1 Restated Certificate of Incorporation of the Company (Incorporated by
reference to the Registration Statement on Form S-3, File No.
333-72335)
3.1(a) Certificate of Designation with respect to the 5% Cumulative
Participating Convertible Preferred Stock, Series A of the Company.
3.1(b) Certificate of Designation with respect to the 5% Cumulative
Participating Convertible Preferred Stock Series B of the Company
(Incorporated by reference to the Company's Proxy Statement filed on
February 11, 2000)
3.2 Restated By-Laws (Incorporated by reference to Exhibit 3.2 to the
Registration Statement on Form S-3, File No. 333-72335)
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4.1 Specimen of Common Stock Certificate (Incorporated by reference to
Exhibit 4.1 to the Registration Statement on Form S-1, File No.
33-63570)
4.2 Warrant Agreement, dated February 14, 1996 between the Company and
Chemical Bank as Warrant Agent (Incorporated by reference to the
Registration Statement on Form S-4, File No. 333-00118)
4.3 Form of Warrant to Purchase Common Stock (included in Exhibit 4.2)
4.4 Indenture, dated as of October 1, 1993, by and between the Company and
Chemical Bank with respect to the 10% Senior Notes (Incorporated by
reference to Exhibit 4.1 to the Registration Statement on Form S-1,
File No. 33-63572)
4.5 Indenture, dated as of April 20, 1995, by and between the Company and
Chemical Bank as Trustee, with respect to the 12-3/4% Senior Notes
(Incorporated by reference to the Registration Statement on
Form S-4, File No. 33-92794)
4.6 Indenture, dated as of January 30, 1996, by and between the Company and
Chemical Bank as Trustee, with respect to the 11-1/2% Senior Notes
(Incorporated by reference to the Registration Statement on
Form S-4, File No. 333-00118)
4.7 First Supplemental Indenture, dated as of January 22, 1996, by and
among the Company and Chemical Bank, as Trustee, with respect to the
12-3/4% Senior Notes (Incorporated by reference to the Registration
Statement on Form S-4, File No. 333-00118)
4.8 First Supplemental Indenture, dated as of January 23, 1996, by and
among the Company and Chemical Bank, as Trustee, with respect to the
10% Notes (Incorporated by reference to the Registration Statement
on Form S-4, File No. 333-00118)
4.9 Indenture, dated as of February 12, 1997, by and between the Company
and The Chase Manhattan Bank, as Trustee, with respect to the 10%
Senior Notes (Incorporated by reference to the 1996 Form 10-K, filed
by NTL Communications (File No. 0-22616) on March 28, 1997)
4.10 Indenture, dated as of March 13, 1998, by and between the Company and
The Chase Manhattan Bank, as Trustee, with respect to the 9-1/2% Senior
Notes (Incorporated by reference to the 1997 Form 10-K filed by NTL
Communications (File No. 0-22616) on March 30, 1998)
4.11 Indenture, dated as of March 13, 1998, by and between the Company and
The Chase Manhattan Bank, as Trustee, with respect to the 9-3/4% Senior
Deferred Coupon Notes (Incorporated by reference to the 1997 Form
10-K filed by NTL Communications (File No. 0-22616) on March 30 1998)
4.12 Indenture, dated as of March 13, 1998, by and between the Company and
The Chase Manhattan Bank, as Trustee, with respect to the 10-3/4%
Senior Deferred Coupon Notes (Incorporated by reference to the
1997 Form 10-K filed by NTL Communications (File No. 0-22616) on March
30 1998)
4.13 Indenture, dated as of November 2, 1998, by and among the Company and
The Chase Manhattan Bank, as Trustee, with respect to the 11-1/2%
Senior Notes due 2008 (Incorporated by reference to the 1998 Form 10-K
filed by NTL Communications (File No. 0-22616) on March 30, 1999)
4.14 Registration Rights Agreement, dated as of November 2, 1998 by and
among the Company and Morgan Stanley & Co. Incorporated, Chase
Securities Inc., Donaldson, Lufkin & Jenrette Securities Corporation
and Goldman, Sachs & Co., with respect to the 11-1/2% Senior Notes due
2008 (Incorporated by reference to the 1998 Form 10-K filed by NTL
Communications (File No. 0-22616) on March 30, 1999)
4.15 Indenture, dated as of November 6, 1998, by and among the Company and
The Chase Manhattan Bank, as Trustee, with respect to the 12-3/8%
Senior Deferred Coupon Notes due 2008 (Incorporated by reference to
the 1998 Form 10-K filed by NTL Communications (File No. 0-22616) on
March 30, 1999)
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4.16 Registration Rights Agreement, dated as of November 6, 1998 by and
among the Company and Morgan Stanley & Co. Incorporated, Chase
Securities Inc., Donaldson, Lufkin & Jenrette Securities Corporation
and Goldman, Sachs & Co., with respect to the 12-3/8% Senior Deferred
Coupon Notes due 2008 (Incorporated by reference to the 1998 Form 10-K
filed by NTL Communications (File No. 0-22616) on March 30, 1999)
4.17 Indenture, dated as of December 16, 1998, by and among the Company and
The Chase Manhattan Bank, as Trustee, with respect to the 7%
Convertible Subordinated Notes due 2008 (Incorporated by reference
to the 1998 Form 10-K filed by NTL Communications (File No. 0-22616)
on March 30,1999)
4.18 First Supplemental Indenture, dated as of March 31, 1999, between NTL
Inc., NTL Communications Corp. and The Chase Manhattan Bank (Trustee),
re: 7% Convertible Subordinated Notes due 2008 ($600,000,000 principal
amount) (Incorporated by reference to the Registration
Statement on Form S-4, File No. 333-72335)
4.19 Indenture, dated as of April 14, 1999, between NTL Communications Corp.
(Issuer) and The Chase Manhattan Bank (Trustee), re: 9-3/4 % Senior
Deferred Coupon Notes due 2009 ((pound sterling)330,000,000 principal
amount) (Incorporated by reference to the Registration
Statement on Form S-4, File No. 333-78405)
4.20 Indenture, dated as of February 6, 1998, between Diamond Holdings plc
(Issuer), Diamond Cable Communications plc (Guarantor), and The Bank of
New York (Trustee), re: 10% Senior Notes due February 1, 2008 ((pound
sterling)135,000,000 principal amount) and 9-1/8 % Senior Notes due
February 1, 2008 ((pound sterling)110,000,000 principal amount)
(Incorporated by reference to Diamond Cable Communications plc
Registration Statement on Form S-4, File No. 333-48413)
4.21 Indenture, dated as of February 27, 1997, between Diamond Cable
Communications plc (Issuer) and The Bank of New York (Trustee), re:
10-3/4% Senior Discount Notes due February 15, 2007 ($420,500,000
principal amount) (Incorporated by reference to Diamond Cable
Communications plc Registration Statement on Form S-4, File No.
333-25193)
4.22 Indenture, dated as of December 15, 1995, between Diamond Cable
Communications plc (Issuer) and The Bank of New York (Trustee), re:
11-3/4% Senior Discount Notes due December 15, 2005 (Incorporated by
reference to Diamond Cable Communications plc Registration Statement on
Form S-1, File No. 33-98374)
4.23 Indenture, dated as of November 11, 1995, between Comcast UK Cable
Partners Limited and Bank of Montreal Trust Company re: 11.20% Senior
Discount Debentures due 2007(Incorporated by reference to the
Registration Statement on Form S-3, File No. 333-72335)
4.24 Indenture, dated as of September 28, 1994, between Diamond Cable
Communications plc (Issuer) and The Bank of New York (Trustee), re:
13-1/4% Senior Discount Notes due September 30, 2004 (Incorporated by
reference to Diamond Cable Communications plc Registration Statement on
Form S-1, File No. 33-83740)
4.25 Indenture, dated as of November 24, 1999, between NTL Comm Corp.
(Issuer) and The Chase Manhattan Bank (Trustee), re: 9-1/4% Senior
Notes due 2006 ((euro) 250,000,000 principal amount) (Incorporated by
reference to the Registration Statement on Form S-4, File No.333-95267)
4.26 Indenture, dated as of November 24, 1999, between NTL Comm Corp.
(Issuer) and The Chase Manhattan Bank (Trustee), re: 9-7/8% Senior
Notes Due 2009 ((euro)350,000,000 principal amount) (Incorporated by
reference to the Registration Statement on Form S-4, File No.
333-95267)
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4.27 Indenture, dated as of November 24, 1999, between NTL Communications
Corp. (Issuer) and The Chase Manhattan Bank (Trustee), re: 11-1/2%
Senior Deferred Coupon Notes due 2009 ((euro) 175,000,000 principal
amount) (Incorporated by reference to the Registration Statement on
Form S-4, File No. 333-95267)
4.28 Indenture, dated as of December 22, 1999, between NTL Incorporated
(Issuer) and The Chase Manhattan Bank (Trustee), 5-3/4% Convertible
Subordinated Notes Due 2009 ($1,200,000,000 principal amount)
4.29 Registration Rights Agreement, dated as of December 16, 1998 by and
among the Company and Donaldson, Lufkin & Jenrette Securities
Corporation, Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co.,
Chase Securities Inc., Salomon Smith Barney Inc, BT Alex. Brown
Incorporated and Warburg Dillon Read LLC with respect to the 7%
Convertible Subordinated Notes due 2008. (Incorporated by reference to
the 1998 Form 10-K filed by NTL Communications (File No. 0-22616) on
March 30, 1999)
4.30 Registration Rights Agreement, dated February 12, 1997, by and among
the Company and Donaldson, Lufkin & Jenrette Securities Corporation,
Chase Securities, Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated with respect to the 10% Senior Notes. (Incorporated by
reference to the 1996 Form 10-K filed by NTL Communications (File No.
0-22616) on March 28, 1997)
4.31 Registration Rights Agreement, dated February 12, 1997, by and among
the Company and Donaldson, Lufkin & Jenrette Securities Corporation,
Chase Securities, Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated with respect to the 13% Senior Notes (Incorporated by
reference to the 1996 Form 10-K filed by NTL Communications (File No.
0-22616) on March 28, 1997)
4.32 Registration Rights Agreement, dated as of March 13, 1998, by and among
the Company and Donaldson, Lufkin & Jenrette International, Morgan
Stanley & Co. International Limited, BT Alex. Brown International,
Chase Securities Inc. and Salomon Brothers International Limited with
respect to the 9-1/2% Senior Notes (Incorporated by reference to the
1997 Form 10-K filed by NTL Communications (File No. 0-22616) on March
30, 1998)
4.33 Registration Rights Agreement, dated as of March 13, 1998, by and among
the Company and Donaldson, Lufkin & Jenrette Securities Corporation,
Morgan Stanley & Co. Incorporated, BT Alex. Brown Incorporated, Chase
Securities Inc. and Salomon Brothers Inc. with respect to the 9-3/4%
Senior Deferred Coupon Notes (Incorporated by reference to 1997 Form
10-K filed by NTL Communications (File No. 0-22616) on March 30, 1998)
4.34 Registration Rights Agreement, dated as of March 13, 1998, by and among
the Company and Donaldson, Lufkin & Jenrette International, Morgan
Stanley & Co. International Limited, BT Alex. Brown International,
Chase Securities Inc. and Salomon Brothers International Limited with
respect to the 10-3/4% Senior Deferred Coupon Notes (Incorporated by
reference to the 1997 Form 10-K filed by NTL Communications (File No.
0-22616) on March 30, 1998)
4.35 Registration Rights Agreement, dated as of August 13, 1999, by and
between NTL Incorporated and France Telecom re: 5% Cumulative
Participating Convertible Preferred Stock Series A.
4.36 Registration Rights Agreement, dated as of April 14, 1999 re: 9-3/4%
Senior Deferred Coupon Notes due 2009 (Incorporated by reference to the
Registration Statement on Form S-4, File No. 333-78405)
4.37 Registration Rights Agreement, dated as of March 5, 1999, between NTL
Communications Corp. and The Shareholders of Diamond Cable
Communications plc (Incorporated by reference to the Registration
Statement on Form S-2, File No. 333-81395)
4.38 Registration Rights Agreement, dated as of October 29, 1998, between
NTL Incorporated, NTL (Bermuda) Limited and Comcast Corporation and
Warburg, Pincus Investors, L.P. (Incorporated by reference to the
Registration Statement on Form S-2, File No. 333-81395)
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4.39 Registration Rights Agreement, dated as of January 30, 1996 re: 11-1/2%
Series A Senior Deferred Coupon Notes Due 2006 (Incorporated by
reference to the Registration Statement on Form S-4, File No.
333-01010)
4.40 Registration Rights Agreement, dated as of April 13, 1995 re: 12-3/4%
Senior Deferred Coupon Notes Due 2005 (Incorporated by reference to the
Registration Statement on Form S-4, File No. 333-92794)
4.41 Registration Rights Agreement, dated as of November 24, 1999, re:
9-1/4% Senior Notes Due 2006, 9-7/8% Senior Notes Due 2009, 11-1/2%
Senior Deferred Coupon Notes Due 2009. (Incorporated by reference to
the Registration Statement on Form S-4, File No. 333-95267)
4.42 Registration Rights Agreement, dated December 22, 1999, re: 5-3/4%
Convertible Subordinated Notes Due 2009.
4.43 Form of Preferred Stock (Incorporated by reference to the
1996 Form 10-K filed by NTL Communications (File No. 0-22616) on March
28, 1999)
4.44 Indenture, dated as of June 12, 1996, by and between the Company and
Chemical Bank, as Trustee, with respect to the 7% Convertible Notes
(Incorporated by reference from Registration Statement on
Form S-3, File No. 333-07879)
4.45 Registration Rights Agreement, dated June 12, 1996, by and among the
Company and Donaldson, Lufkin & Jenrette Securities Corporation and
Salomon Brothers Inc, with respect to the 7% Convertible Notes
(Incorporated by reference from Registration Statement on
Form S-3, File No. 33-07879)
4.46 Indenture, dated as of April 20, 1995, by and among the Company and
Chemical Bank, as Trustee, with respect to the 7-1/4% Convertible Notes
(Incorporated by reference from Registration Statement on Form S-3,
File No. 333-92792)
4.47 Registration Agreement, dated April 12, 1995, by and among the Company
and Salomon Brothers Inc, Donaldson, Lufkin & Jenrette Securities
Corporation and Goldman Sachs & Co., with respect to the 7-1/4%
Convertible Notes (Incorporated by reference from Registration
Statement on Form S-3, File No. 333-92792)
4.48 Rights Agreement entered into by the Company and Continental Stock
Transfer & Trust Company (Incorporated by reference to Exhibit 4.2,
to the Registration Statement on Form S-1, File No. 33-63570)
4.48(a) Amendment No. 1 to the Rights Agreement, dated as of March 31, 1999,
between the Company and Continental Stock Transfer & Trust Company, as
Rights Agent. (Incorporated by reference to the Company's Registration
Statement on Form S-8, File No. 333-76601)
4.48(b) Amendment No. 2 to the Rights Agreement, dated as of October 23, 1999,
between the Company and Continental Stock Transfer & Trust Company, as
Rights Agent.
10.1 Compensation Plan and Agreements, as amended and restated effective
June 3, 1997 (Incorporated by reference to the 1997 Form 10-K filed by
NTL Communications (File No. 0-22616) on March 30, 1998)
10.2 Rules of the NTL Sharesave Plan, adopted by the Company on October 28,
1997 (Incorporated by reference to the 1998 Form 10-K filed by NTL
Communications (File No. 0-22616) on March 30, 1999)
10.3 Form of Director and Officer Indemnity Agreement (together with a
schedule of executed Indemnity Agreements)
10.4 1998 Non-Qualified Stock Option Plan, as Amended and Restated October
1998 (Incorporated by reference to the 1998 Form 10-K filed by NTL
Communications (File No. 0-22616) on March 30, 1999)
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10.5 Bridge Loan Agreement, dated as of March 17, 1999, among the Company,
the Lenders named therein and Goldman Sachs Credit Partners L.P.
(Incorporated by reference to the 1998 Form 10-K filed by NTL
Communications (File No. 0-22616) on March 30, 1999)
10.6 Agreement, dated August 14, 1998, among TeleWest Communications PLC,
TeleWest Communications Holdings Limited, NTL (Bermuda) Limited, and
the Company (Incorporated by reference to the Form 8-K, filed by NTL
Communications (File No. 0-22616) on August 18, 1998)
10.7 Note Purchase Agreement, dated as of February 4, 2000, between NTL
Incorporated and Morgan Stanley and Co. Incorporated re: Senior
Increasing Rate Notes due 2001 ((pound sterling)2,376,000,000 principal
amount) (Incorporated by reference to the Company's Proxy Statement,
filed February 11, 2000)
11 Calculation of net loss per share
21 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
23.2 Consent of Ernst & Young LLP
27.1 Financial Data Schedule, for the year ended December 31, 1999
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Form 10-K--Item 14(a)(1) and (2)
NTL Incorporated and Subsidiaries
Index to Consolidated Financial Statements
and Financial Statement Schedules
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The following consolidated financial statements of NTL Incorporated and
Subsidiaries are included in Item 8:
Report of Independent Auditors F-2
Consolidated Balance Sheets - December 31, 1999 and 1998 F-3
Consolidated Statements of Operations -
Years ended December 31, 1999, 1998 and 1997 F-5
Consolidated Statement of Shareholders' Equity -
Years ended December 31, 1999, 1998 and 1997 F-6
Consolidated Statements of Cash Flows -
Years ended December 31, 1999, 1998 and 1997 F-8
Notes to Consolidated Financial Statements F-10
The following consolidated financial statement schedules of NTL Incorporated and
Subsidiaries are included in Item 14(d):
Schedule I - Condensed Financial Information of Registrant F-38
Schedule II - Valuation and Qualifying Accounts F-43
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All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore have been omitted.
F-1
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Report of Independent Auditors
The Board of Directors and Shareholders
NTL Incorporated
We have audited the consolidated balance sheets of NTL Incorporated and
Subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1999. Our audits also included the
financial statement schedules listed in the Index at Item 14(a). These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of NTL
Incorporated and Subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
ERNST & YOUNG LLP
New York, New York
March 7, 2000
F-2
<PAGE> 13
NTL Incorporated and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,597,144 $ 736,265
Marketable securities 344,502 260,631
Accounts receivable - trade, less allowance for doubtful
accounts of $85,594 (1999) and $38,475 (1998) 294,205 152,356
Other 82,737 55,248
------------------------------------------------
Total current assets 3,318,588 1,204,500
Fixed assets, net 5,597,648 3,854,430
Intangible assets, net 2,927,836 725,028
Investment in Cable London PLC, net of accumulated amortization of $3,093 - 229,093
Other assets, net of accumulated amortization
of $49,392 (1999) and $56,264 (1998) 367,494 181,046
------------------------------------------------
Total assets $12,211,566 $6,194,097
================================================
</TABLE>
F-3
<PAGE> 14
NTL Incorporated and Subsidiaries
Consolidated Balance Sheets (continued)
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
-------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 224,692 $ 167,079
Accrued expenses and other 438,198 221,070
Accrued construction costs 79,748 88,033
Interest payable 71,055 34,258
Deferred revenue 160,831 69,820
Current portion of long-term debt 82,601 23,691
-------------------------------------
Total current liabilities 1,057,125 603,951
Long-term debt 8,798,024 5,043,803
Commitments and contingent liabilities
Deferred income taxes 77,720 67,062
Senior redeemable exchangeable preferred stock - $.01 par value, plus accreted
dividends; liquidation preference $144,628; less unamortized discount of
$2,823 (1999) and $3,133 (1998); issued and outstanding 142,000 (1999) and
125,000 (1998) shares 141,805 124,127
Shareholders' equity:
Series preferred stock - $.01 par value;
authorized 10,000,000 shares; liquidation preference $1,346,509; issued
and outstanding 1,332,000 (1999) and 177,000 (1998) shares 13 2
Common stock - $.01 par value; authorized 400,000,000 shares; issued and outstanding
132,416,000 (1999) and 60,249,000 (1998) shares 1,324 602
Additional paid-in capital 4,125,047 1,501,561
Accumulated other comprehensive income (loss) (2,107) 104,657
(Deficit) (1,987,385) (1,251,668)
-------------------------------------
2,136,892 355,154
-------------------------------------
Total liabilities and shareholders' equity $12,211,566 $6,194,097
=====================================
</TABLE>
See accompanying notes.
F-4
<PAGE> 15
NTL Incorporated and Subsidiaries
Consolidated Statements of Operations
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
--------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Residential telecommunications and television $ 834,339 $355,589 $ 166,951
National and international telecommunications 547,895 248,895 185,194
Broadcast transmission and other 201,900 140,156 130,799
Other telecommunications - 2,375 8,831
--------------------------------------------------------------------------
1,584,134 747,015 491,775
COSTS AND EXPENSES
Operating expenses 799,756 372,134 301,644
Selling, general and administrative expenses 573,460 299,494 169,133
Franchise fees 16,538 25,036 23,587
Corporate expenses 29,402 17,048 18,324
Nonrecurring charges 16,179 (4,194) 20,642
Depreciation and amortization 791,322 266,112 150,509
--------------------------------------------------------------------------
2,226,657 975,630 683,839
--------------------------------------------------------------------------
Operating (loss) (642,523) (228,615) (192,064)
OTHER INCOME (EXPENSE)
Interest and other income 49,380 46,024 28,415
Interest expense (680,728) (328,815) (202,570)
Other gains 493,121 - 21,497
Foreign currency transaction gains 12,720 4,152 574
--------------------------------------------------------------------------
(Loss) before income taxes and extraordinary item (768,030) (507,254) (344,148)
Income tax benefit 35,347 3,327 15,591
--------------------------------------------------------------------------
(Loss) before extraordinary item (732,683) (503,927) (328,557)
Loss from early extinguishment of debt (3,034) (30,689) (4,500)
--------------------------------------------------------------------------
Net (loss) (735,717) (534,616) (333,057)
Preferred stock dividend (73,709) (18,761) (11,978)
--------------------------------------------------------------------------
Net (loss) available to common shareholders $ (809,426) $(553,377) $(345,035)
==========================================================================
Basic and diluted net (loss) per common share:
(Loss) before extraordinary item $(6.75) $(8.12) $(6.79)
Extraordinary item (.03) (.48) (.09)
--------------------------------------------------------------------------
Net (loss) per common share $(6.78) $(8.60) $(6.88)
==========================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE> 16
NTL Incorporated and Subsidiaries
Consolidated Statement of Shareholders' Equity
(dollars in thousands)
<TABLE>
<CAPTION>
SERIES PREFERRED STOCK COMMON STOCK
$.01 PAR VALUE $.01 PAR VALUE
SHARES PAR SHARES PAR
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 780 $ - 32,066,000 $ 321
Exercise of stock options 119,000 1
Exercise of warrants 25,000
Accreted dividends on senior redeemable exchangeable
preferred stock
Accretion of discount on senior redeemable exchangeable
preferred stock
Comprehensive income:
Net loss for the year ended December 31, 1997
Currency translation adjustment
Total
-----------------------------------------------------------------
Balance, December 31, 1997 780 - 32,210,000 322
Exercise of stock options 298,000 3
Exercise of warrants 70,000
Accreted dividends on preferred stock
Accretion of discount on preferred stock
Conversion of 7-1/4% Convertible Subordinated Notes 6,958,000 70
Conversion of Series Preferred Stock (780) 1,950,000 20
Preferred stock issued for an acquisition 177,000 2
Common stock issued for an acquisition 18,763,000 187
Warrants issued in connection with consent solicitations
Comprehensive income:
Net loss for the year ended December 31, 1998
Currency translation adjustment
Total
-----------------------------------------------------------------
Balance, December 31, 1998 177,000 2 60,249,000 602
Exercise of stock options 1,758,000 18
Exercise of warrants 129,000 1
Common stock issued for cash 2,703,000 27
Preferred stock issued for cash 1,250,000 13
Warrants issued for cash
Accreted dividends on preferred stock 30,000
Accretion of discount on preferred stock
Redemption of Series Preferred Stock (125,000) (2)
Conversion of 7% Convertible Subordinated Notes 7,271,000 73
Common stock issued for an acquisition 12,750,000 127
Stock options issued in connection with an acquisition
Issuance of warrants
Stock splits 47,556,000 476
Comprehensive income:
Net loss for the year ended December 31, 1999
Currency translation adjustment
Total
-----------------------------------------------------------------
Balance, December 31, 1999 1,332,000 $13 132,416,000 $1,324
=================================================================
</TABLE>
See accompanying notes.
F-6
<PAGE> 17
NTL Incorporated and Subsidiaries
Consolidated Statement of Shareholders' Equity (continued)
(dollars in thousands)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
PAID-IN COMPREHENSIVE COMPREHENSIVE
CAPITAL LOSS INCOME (LOSS) (DEFICIT)
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 $ 548,647 $163,141 $ (383,995)
Exercise of stock options 1,532
Exercise of warrants 138
Accreted dividends on senior redeemable
exchangeable preferred stock (11,978)
Accretion of discount on senior redeemable
exchangeable preferred stock (285)
Comprehensive income:
Net loss for the year ended December 31, 1997 $(333,057) (333,057)
Currency translation adjustment (46,133) (46,133)
----------
Total $(379,190)
-----------------------------------------------------------------
Balance, December 31, 1997 538,054 117,008 (717,052)
Exercise of stock options 6,331
Exercise of warrants 508
Accreted dividends on preferred stock (18,761)
Accretion of discount on preferred stock (311)
Conversion of 7-1/4% Convertible Subordinated Notes 186,942
Conversion of Series Preferred Stock (20)
Preferred stock issued for an acquisition 178,493
Common stock issued for an acquisition 600,245
Warrants issued in connection with consent
solicitations 10,080
Comprehensive income:
Net loss for the year ended December 31, 1998 $(534,616) (534,616)
Currency translation adjustment (12,351) (12,351)
----------
Total $(546,967)
-----------------------------------------------------------------
Balance, December 31, 1998 1,501,561 104,657 (1,251,668)
Exercise of stock options 41,302
Exercise of warrants 830
Common stock issued for cash 249,973
Preferred stock issued for cash 1,233,797
Warrants issued for cash 16,190
Accreted dividends on preferred stock (44,137)
Accretion of discount on preferred stock (311)
Redemption of Series Preferred Stock (125,278)
Conversion of 7% Convertible Subordinated Notes 269,212
Common stock issued for an acquisition 971,310
Stock options issued in connection with an acquisition 6,599
Issuance of warrants 4,475
Stock splits (476)
Comprehensive income:
Net loss for the year ended December 31, 1999 $(735,717) (735,717)
Currency translation adjustment (106,764) (106,764)
----------
Total $(842,481)
-----------------------------------------------------------------
Balance, December 31, 1999 $4,125,047 $ (2,107) $(1,987,385)
=================================================================
</TABLE>
See accompanying notes.
F-7
<PAGE> 18
NTL Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
----------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(735,717) $ (534,616) $ (333,057)
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 791,322 266,112 150,509
Loss from early extinguishment of debt 3,034 30,689 4,500
Gain on sale of investment in Cable London PLC (493,121) - -
Amortization of non competition agreements - 1,389 1,852
Provision for losses on accounts receivable 46,245 27,282 6,891
Deferred income taxes (37,347) (3,327) (16,852)
Amortization of original issue discount 451,356 232,691 122,639
Other (10,617) (30,916) (8,148)
Changes in operating assets and liabilities, net
of effect from business acquisitions:
Accounts receivable (139,372) (70,364) (30,430)
Other current assets (38,903) 22,631 (6,563)
Other assets (25,241) 6 2,303
Accounts payable 43,823 (2,564) (4,615)
Accrued expenses and other 126,242 15,272 74,706
Deferred revenue 71,865 26,772 18,994
----------------------------------------------------------------------------
Net cash provided by (used in) operating activities 53,569 (18,943) (17,271)
INVESTING ACTIVITIES
Acquisitions, net of cash acquired (1,128,338) (746,817) -
Purchase of fixed assets (1,211,317) (772,144) (503,656)
Payment of deferred purchase price - - (57,330)
Increase in other assets (59,294) (35,595) (4,322)
Proceeds from sales of assets 692,490 1,312 -
Purchase of marketable securities (747,397) (540,639) (145,939)
Proceeds from sales of marketable securities 676,642 291,276 142,596
----------------------------------------------------------------------------
Net cash (used in) investing activities (1,777,214) (1,802,607) (568,651)
</TABLE>
F-8
<PAGE> 19
NTL Incorporated and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
-------------------------------------------------------------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from borrowings, net of financing costs 3,019,383 3,525,588 490,302
Proceeds from issuance of preferred stock and warrants 1,250,000 - -
Proceeds from issuance of common stock 250,000 - -
Redemption of preferred stock (125,280) - -
Principal payments (758,212) (845,018) (242,424)
Cash in escrow for debt repayment (86,993) (217,622) -
Consent solicitation payments - (11,333) -
Proceeds from exercise of stock options and warrants 42,151 6,842 1,671
-------------------------------------------------------------------
Net cash provided by financing activities 3,591,049 2,458,457 249,549
Effect of exchange rate changes on cash (6,525) 456 (10,609)
-------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 1,860,879 637,363 (346,982)
Cash and cash equivalents at beginning of year 736,265 98,902 445,884
-------------------------------------------------------------------
Cash and cash equivalents at end of year $2,597,144 $ 736,265 $ 98,902
===================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest exclusive of
amounts capitalized $ 180,272 $ 90,513 $ 72,047
Income taxes paid 2,372 336 1,107
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Accretion of dividends and discount on preferred stock $ 44,448 $ 19,072 $ 12,263
Conversion of Convertible Notes, net of unamortized
deferred financing costs 269,285 187,012 -
Preferred stock issued for an acquisition - 178,495 -
Common stock and stock options issued for an acquisition 978,036 600,432 -
Warrants issued in connection with consent solicitations - 10,080 -
</TABLE>
See accompanying notes.
F-9
<PAGE> 20
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
1. CORPORATE RESTRUCTURING AND BUSINESS
Effective April 1, 1999, NTL Incorporated completed a corporate restructuring to
create a holding company structure. The formation of the holding company is part
of the Company's effort to pursue opportunities outside the United Kingdom and
the Republic of Ireland. The holding company restructuring was accomplished
through a merger so that all the stockholders of NTL Incorporated at the
effective time of the merger became stockholders of the new holding company, and
NTL Incorporated became a subsidiary of the new holding company. The new holding
company has taken the name NTL Incorporated (and together with its subsidiaries,
the "Company") and the holding company's subsidiary simultaneously changed its
name to NTL Communications Corp. (and together with its subsidiaries, "NTL
Communications").
The Company, through its subsidiaries and joint ventures, owns and operates
broadband communications networks for telephone, cable television and Internet
services and television and radio broadcasting systems in the United Kingdom and
the Republic of Ireland. In 1999, the Company expanded its operations through
the acquisition of broadband cable systems in France and the national
broadcasting network facilities in Australia, and has announced a proposed
acquisition in Switzerland. Based on revenues and identifiable assets, the
Company's predominant lines of business are residential services, national
telecommunications services and broadcast transmission and tower services in the
United Kingdom. Residential services include telephony, cable television,
Internet access and interactive services. National telecommunications services
include business telephony, national and international carrier
telecommunications, Internet services and satellite communications services.
Broadcast transmission and tower services include digital and analog television
and radio broadcasting, and related services.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company, its
wholly-owned subsidiaries and entities where the Company's interest is greater
than 50%. Significant intercompany accounts and transactions have been
eliminated in consolidation.
NET (LOSS) PER SHARE
The Company reports its basic and diluted net (loss) per share in accordance
with Financial Accounting Standards Board("FASB") Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share ", as adjusted
for stock splits.
F-10
<PAGE> 21
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's foreign subsidiaries have been
translated into U.S. dollars in accordance with SFAS No. 52, "Foreign Currency
Translation." All balance sheet accounts have been translated using the current
exchange rates at the respective balance sheet dates. Statement of operations
amounts have been translated using the average exchange rates for the respective
years. The gains or losses resulting from the change in exchange rates have been
reported as a component of accumulated other comprehensive income (loss).
Foreign currency transaction gains and losses are included in the results of
operations as incurred.
CASH EQUIVALENTS
Cash equivalents are short-term highly liquid investments purchased with a
maturity of three months or less. Cash equivalents were $2.1 billion and $651
million at December 31, 1999 and 1998, respectively, which consisted primarily
of bank time deposits and corporate commercial paper. At December 31, 1999 and
1998, $2.0 billion and $121 million, respectively, of the cash equivalents were
denominated in foreign currencies.
MARKETABLE SECURITIES
Marketable securities are classified as available-for-sale, which are carried at
fair value. Unrealized holding gains and losses on securities, net of tax, are
carried as a component of accumulated other comprehensive income (loss). The
amortized cost of debt securities is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is included in interest
income. Realized gains and losses and declines in value judged to be other than
temporary will be included in interest income. The cost of securities sold or
matured is based on the specific identification method. Interest on securities
is included in interest income.
Marketable securities at December 31, 1999 and 1998 consisted of corporate
commercial paper. During the years ended December 31, 1999, 1998 and 1997, there
were no realized gains or losses on sales of securities. All of the marketable
securities as of December 31, 1999 and 1998 had a contractual maturity of less
than one year.
FIXED ASSETS
Fixed assets are stated at cost, which includes amounts capitalized for labor
and overhead expended in connection with the design and installation of
operating equipment. Depreciation is computed by the straight-line method over
the estimated useful lives of the assets. Estimated useful lives are as follows:
operating equipment - 5 to 40 years and other equipment - 3 to 40 years.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the
sum of the expected future undiscounted cash flows is less than the carrying
amount of the asset, a loss is recognized for the difference between the fair
value and the carrying value of the asset.
F-11
<PAGE> 22
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets include goodwill, license acquisition costs and customer
lists. Goodwill is the excess of the purchase price over the fair value of net
assets acquired in business combinations accounted for as purchases. Goodwill is
amortized on a straight-line basis over the periods benefited of 10, 15 or 30
years. License acquisition costs represent the portion of purchase price
allocated to the cable television and telecommunications licenses acquired in
business combinations. License acquisition costs are amortized on a
straight-line basis over the remaining lives of the licenses at acquisition,
which vary from approximately two years to 23 years. Customer lists represent
the portion of the purchase price allocated to the value of the customer base.
Customer lists are amortized on a straight-line basis over 5 years. The Company
continually reviews the recoverability of the carrying value of these assets
using the same methodology that it uses for the evaluation of its other
long-lived assets.
INVESTMENT IN CABLE LONDON PLC
Investment in Cable London PLC was accounted for under the equity method. Equity
method investments are recorded at original cost and adjusted periodically to
recognize the Company's proportionate share of the investees' net income or
losses after the date of investment, additional contributions made and dividends
received. The difference between the Company's recorded investment and its
proportionate interest in the book value of the investees' net assets are being
amortized on a straight-line basis over 10 years.
DEFERRED FINANCING COSTS
Deferred financing costs are incurred in connection with the issuance of debt
and are amortized over the term of the related debt.
CAPITALIZED INTEREST
Interest is capitalized as a component of the cost of fixed assets constructed.
In 1999, 1998 and 1997, interest of $41,810,000, $27,760,000 and $6,770,000,
respectively, was capitalized.
REVENUE RECOGNITION
Revenues are recognized at the time the service is rendered to the customer or
the performance of the service has been completed. Charges for services that are
billed in advance are deferred and recognized when earned.
CABLE TELEVISION SYSTEM COSTS, EXPENSES AND REVENUES
The Company accounts for costs, expenses and revenues applicable to the
construction and operation of its broadband communications networks in
accordance with SFAS No. 51, "Financial Reporting by Cable Television
Companies."
F-12
<PAGE> 23
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING EXPENSE
The Company charges the cost of advertising to expense as incurred. Advertising
costs were $35,949,000, $33,951,000 and $31,003,000 in 1999, 1998 and 1997,
respectively.
STOCK-BASED COMPENSATION
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." The Company applies APB Opinion No.
25, "Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock option plans.
3. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted by the
Company effective January 1, 2001. The Company is evaluating the impact that the
adoption of SFAS No. 133 will have on its results of operations and financial
position.
4. CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
NEED FOR ADDITIONAL FINANCING
The Company will require additional financing in the future. There can be no
assurance that the required financing will be obtainable on acceptable terms.
CONCENTRATIONS
The Company's television and radio broadcasting business is substantially
dependent upon contracts with a small group of companies for the right to
broadcast their programming, and upon a site sharing agreement for a large
number of its transmission sites. The loss of any one of these contracts or the
site sharing agreement could have a material adverse effect on the business of
the Company.
CURRENCY RISK
To the extent that the Company obtains financing in U.S. dollars and incurs
construction and operating costs in various other currencies, it will encounter
currency exchange rate risks. In addition, the Company's revenues are generated
in foreign currencies while its interest and principal obligations with respect
to most of the Company's existing indebtedness are payable in U.S. dollars.
F-13
<PAGE> 24
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. FIXED ASSETS
Fixed assets consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
--------------------------------------------------
(in thousands)
<S> <C> <C>
Operating equipment $5,111,258 $3,528,973
Other equipment 715,215 376,518
Construction-in-progress 669,402 369,923
--------------------------------------------------
6,495,875 4,275,414
Accumulated depreciation (898,227) (420,984)
--------------------------------------------------
$5,597,648 $3,854,430
==================================================
</TABLE>
6. INTANGIBLE ASSETS
Intangible assets consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
-----------------------------------------------------
(in thousands)
<S> <C> <C>
Goodwill, net of accumulated amortization of $197,012
(1999) and $32,358 (1998) $2,543,502 $514,529
License acquisition costs, net of accumulated amortization
of $141,682 (1999) and $69,202 (1998) 224,998 153,007
Customer lists, net of accumulated amortization of
$30,870 (1999) and $3,375 (1998) 159,336 57,492
-----------------------------------------------------
$2,927,836 $725,028
=====================================================
</TABLE>
The Company made the following acquisitions in 1998:
The Company acquired ComTel Limited and Telecential Communications
(collectively, "ComTel") for a total of pound sterling 550 million comprised of
pound sterling 475 million in cash and 125,000 shares of 9.9% Non-voting
Mandatorily Redeemable Preferred Stock, Series A in two stages completed in June
and September 1998. The preferred stock was valued at pound sterling 75 million,
the fair value on the date of issuance. ComTel is a provider of telephone, cable
television and Internet services in England.
In October 1998, a wholly-owned subsidiary of the Company, NTL (Triangle) LLC
("NTL Triangle") (formerly known as NTL (Bermuda) Limited) acquired all of the
outstanding common stock of Comcast UK Cable Partners Limited in exchange for
29.3 million shares of the Company's common stock. The Company's common stock
was valued at $600,432,000, the fair value at the time of the announcement. NTL
Triangle provides telephone, cable television and Internet services in England.
F-14
<PAGE> 25
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. INTANGIBLE ASSETS (CONTINUED)
In December 1998, the Company acquired Eastern Group Telecoms ("EGT") for pound
sterling 60 million in cash and 52,000 shares of 9.9% Non-voting Mandatorily
Redeemable Preferred Stock, Series B. The preferred stock was valued at
$52,217,000, the fair value on the date of issuance. EGT's telecoms division has
a fibre-optic network across portions of England, and its radio sites division
serves mobile phone operators in portions of England.
These acquisitions have been accounted for as purchases, and accordingly, the
net assets and results of operations of the acquired businesses have been
included in the consolidated financial statements from the dates of acquisition.
The aggregate purchase price of $1.7 billion, which includes the related
acquisition costs and the return of cash acquired in the ComTel transaction of
pound sterling 31 million, exceeded the fair value of the net tangible assets
acquired by $591 million, which has been allocated as follows: $185.6 million to
the investment in Cable London PLC, $52.4 million to license acquisition costs,
$60.9 million to customer lists and $292.1 million to goodwill.
The Company made the following acquisitions in 1999:
In March 1999, the Company acquired Diamond Cable Communications plc
("Diamond"). The Company issued an aggregate of 19.9 million shares of common
stock in exchange for each ordinary share and deferred share of Diamond. The
Company's common stock was valued at $971,437,000, the fair value at the time of
the announcement. In addition, the Company issued options to purchase 191,000
shares of the Company's common stock to holders of Diamond options, which were
valued at $6,599,000. The Company assumed Diamond's debt including five
different notes with an aggregate principal amount at maturity of $1.6 billion.
Diamond is a provider of telephone, cable television and Internet services in
England.
In April 1999, a subsidiary of the Company ("NTL Australia") purchased all of
the shares of the entity which owns the Australian National Transmission Network
for an aggregate purchase price of approximately $423 million. NTL Australia
provides exclusive television and radio transmission services to Australia's
national TV and radio broadcasters, serves regional and community TV and radio
broadcasters and provides equipment hosting services to telecom operators and
emergency service communications providers on its towers.
In July 1999, the Company acquired Cablelink Limited ("Cablelink") for Irish
punts 535.18 million ($693 million), of which Irish punts 455.18 million ($589
million) was paid in cash and Irish punts 80 million ($104 million) was paid
through the issuance of Variable Rate Redeemable Guaranteed Loan Notes due 2002.
Cablelink provides multi-channel television and information services in Dublin,
Galway and Waterford, Ireland.
F-15
<PAGE> 26
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. INTANGIBLE ASSETS (CONTINUED)
Also in July 1999, the Company acquired certain broadband cable franchises from
British Telecommunications plc for an aggregate of up to pound sterling 19
million ($31 million). The Company paid approximately pound sterling 5 million
($8 million) on closing and will pay up to pound sterling 14 million ($23
million) on completion of the upgrade of certain networks.
The Company acquired the five franchise areas comprising the "1G Networks" of
France Telecom for approximately 373.2 million French francs ($60 million) in
two stages completed in August and December 1999. The 1G Networks hold exclusive
licenses to provide analog and digital television services in four franchise
areas in Ile-de-France (Greater Paris) and in the franchise area of Toulon and
LaValette.
In September 1999, the Company acquired the shares of Workplace Technologies
plc, one of the United Kingdom's leading data network service integrators, in
exchange for pound sterling 105.2 million ($173 million), of which pound
sterling 100.7 million ($166 million) was paid in cash and pound sterling 4.5
million ($7 million) was paid through the issuance of demand notes.
These acquisitions were accounted for as purchases, and accordingly, the net
assets and results of operations of the acquired businesses have been included
in the consolidated financial statements from the dates of acquisition. The
aggregate purchase price of $2.36 billion, including costs incurred of $26
million, plus the fair value of liabilities assumed net of tangible assets
acquired aggregated $2.446 billion, which has been allocated as follows: $143
million to license acquisition costs, $131 million to customer lists and $2.172
billion to goodwill.
The pro forma unaudited consolidated results of operations for the years ended
December 31, 1999 and 1998 assuming consummation of the above mentioned
transactions as of January 1, 1998 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
----------------------------------------------
(in thousands)
<S> <C> <C>
Total revenue $1,794,063 $1,370,399
(Loss) before extraordinary item (895,942) (1,076,238)
Net (loss) (898,976) (1,106,927)
Basic and diluted net loss per share:
(Loss) before extraordinary item (7.62) (10.14)
Net (loss) (7.64) (10.42)
</TABLE>
F-16
<PAGE> 27
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. INVESTMENT IN CABLE LONDON PLC
Pursuant to an agreement with Telewest Communications plc ("Telewest") relating
to NTL Triangle's and Telewest's respective 50% ownership interests in Cable
London PLC ("Cable London"), in November 1999 Telewest purchased all of NTL
Triangle's shares of Cable London for approximately pound sterling 428 million
(approximately $692 million) in cash. The Company recorded a gain of $493
million on the sale. The sale of the Cable London interest is an "Asset Sale"
for purposes of the Company's Indentures for certain of its notes. The Company
will need to use an amount equal to the proceeds from the sale to repay
subsidiary debt, invest in "Replacement Assets" or make an offer to redeem
certain of its notes by November 2000.
8. PENDING ACQUISITIONS
In July 1999, the Company agreed to acquire the consumer cable telephone,
Internet and television operations of Cable & Wireless Communications, plc
("CWC"). The Company will issue 85 million new shares of common stock and pay
pound sterling 2.85 billion ($4.6 billion) in cash. The Company will also assume
approximately pound sterling 1.9 billion ($3.1 billion) of CWC's net debt, plus
further debt up to an agreed amount of CWC cash outflow through closing. The
transaction is subject to various approvals and other conditions. The Company
has entered into a note purchase agreement for up to approximately pound
sterling 2.4 billion ($3.9 billion) to fund a portion of the cost of this
acquisition, as well as an additional investment by France Telecom, as described
below.
In connection with the CWC acquisition, France Telecom agreed to invest pound
sterling 2.8 billion ($4.5 billion) in the Company. France Telecom will invest
pound sterling 1.6 billion ($2.6 billion) for approximately 42.2 million shares
of the Company's common stock and pound sterling 1.2 billion ($1.9 billion) in
convertible preferred stock with a 5% dividend and a conversion price of $80 per
share. The closing of this additional investment is subject to the completion of
the CWC acquisition, unless France Telecom elects to accelerate the closing of
this investment, which it can do in a limited number of circumstances.
In December 1999, the Company agreed to acquire the cable assets of the Cablecom
Group ("Cablecom") for CHF 5.8 billion ($3.6 billion). Completion of the
acquisition is conditioned on certain regulatory approvals being obtained and is
expected to occur in the first quarter of 2000. The Company intends to fund this
acquisition using cash on hand, the proceeds from a proposed bank facility or
the proceeds from the issuance of new preferred stock. The Company has an
agreement for the arrangement of a bank facility of CHF 4.1 billion ($2.6
billion) consisting of CHF 2.7 billion ($1.7 billion) to be utilized in the
acquisition of Cablecom and CHF 1.4 billion ($0.9 billion) to be used for
working capital, capital expenditures and general corporate purposes.
In February 2000, the Company announced that it had entered into an arrangement
with France Telecom and certain commercial banks, subject to certain conditions,
for the issue of $1.85 billion of new preferred stock. The proceeds from this
subscription will be used to help fund the Company's acquisitions in Continental
Europe outside of France. The holders of the stock (other than any commercial
banks or their affiliates) may at any time after six months from issue elect,
subject to certain conditions, for the new preferred stock to be exchanged for
up to a 50% interest in a new company which will own certain or all of the
Company's broadband communications, broadcast and cable television interests in
Continental Europe outside of France. Under certain circumstances, at the
Company's option, any portion of the Company's obligation that may not be
satisfied by the exchange may be satisfied in a security convertible
F-17
<PAGE> 28
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. PENDING ACQUISITIONS (CONTINUED)
into the Company's common stock or cash. The new preferred stock will be
mandatorily redeemable for cash after two years.
9. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
----------------------------------------------------------
(in thousands)
<S> <C> <C>
NTL Incorporated:
5-3/4% Convertible Subordinated Notes (a) $1,200,000 $ -
NTL Communications:
12-3/4% Senior Deferred Coupon Notes (b) 268,108 236,935
11-1/2% Senior Deferred Coupon Notes (c) 930,404 831,976
10% Senior Notes (d) 400,000 400,000
9-1/2% Senior Sterling Notes, less unamortized
discount of $567 (1999) and $639 (1998) (e) 201,408 206,800
10-3/4% Senior Deferred Coupon Sterling Notes (f) 343,691 317,511
9-3/4% Senior Deferred Coupon Notes (g) 952,825 865,880
9-3/4% Senior Deferred Coupon Sterling Notes (h) 354,394 -
11-1/2% Senior Notes (i) 625,000 625,000
12-3/8% Senior Deferred Coupon Notes (j) 286,967 254,718
7% Convertible Subordinated Notes (k) - 275,000
7% Convertible Subordinated Notes (l) 599,300 600,000
Variable Rate Redeemable Guaranteed Loan Notes (m) 76,794 -
9-1/4% Senior Euro Notes (n) 252,300 -
9-7/8% Senior Euro Notes (o) 353,220 -
11-1/2% Senior Deferred Coupon Euro Notes (p) 123,080 -
NTL Triangle:
11.2% Senior Discount Debentures (q) 467,317 421,835
Other 7,969 31,839
Diamond:
13-1/4% Senior Discount Notes (r) 285,101 -
11-3/4% Senior Discount Notes (s) 476,215 -
10-3/4% Senior Discount Notes (t) 336,891 -
10% Senior Sterling Notes (u) 218,133 -
9-1/8% Senior Notes (v) 110,000 -
Other 11,508 -
----------------------------------------------------------
8,880,625 5,067,494
Less current portion 82,601 23,691
----------------------------------------------------------
$8,798,024 $5,043,803
==========================================================
</TABLE>
F-18
<PAGE> 29
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. LONG-TERM DEBT (CONTINUED)
(a) 5-3/4% Convertible Notes due December 15, 2009, issued in December
1999, principal amount at maturity of $1,200,000,000, interest payable
semiannually beginning on June 15, 2000, redeemable at the Company's
option, on or after December 18, 2002, convertible after March 21, 2000
into shares of common stock at a conversion price of $108.18 per share
(there are approximately 11,092,000 shares of common stock reserved for
issuance upon conversion);
(b) 12-3/4% Notes due April 15, 2005, principal amount at maturity of
$277,804,000, interest payable semiannually beginning on October 15,
2000, redeemable at the Company's option on or after April 15, 2000;
(c) 11-1/2% Notes due February 1, 2006, principal amount at maturity of
$1,050,000,000, interest payable semiannually beginning on August 1,
2001, redeemable at the Company's option on or after February 1, 2001;
(d) 10% Notes due February 15, 2007, principal amount at maturity of
$400,000,000, interest payable semiannually from August 15, 1997,
redeemable at the Company's option on or after February 15, 2002;
(e) 9-1/2% Sterling Notes due April 1, 2008, principal amount at maturity
of pound sterling 125,000,000 ($201,975,000), interest payable
semiannually from October 1, 1998, redeemable at the Company's option
on or after April 1, 2003;
(f) 10-3/4% Sterling Notes due April 1, 2008, principal amount at maturity
of pound sterling 300,000,000 ($484,740,000), interest payable
semiannually beginning on October 1, 2003, redeemable at the Company's
option on or after April 1, 2003;
(g) 9-3/4% Notes due April 1, 2008, principal amount at maturity of
$1,300,000,000, interest payable semiannually beginning on October 1,
2003, redeemable at the Company's option on or after April 1, 2003;
(h) 9-3/4% Sterling Notes due April 15, 2009, principal amount at maturity
of pound sterling 330,000,000 ($533,214,000), interest payable
semiannually beginning on October 15, 2004, redeemable at the Company's
option on or after April 15, 2004;
(i) 11-1/2% Notes due October 1, 2008, principal amount at maturity of
$625,000,000, interest payable semiannually from April 1, 1999,
redeemable at the Company's option on or after October 1, 2003;
(j) 12-3/8% Notes due October 1, 2008, principal amount at maturity of
$450,000,000, interest payable semiannually beginning on April 1, 2004,
redeemable at the Company's option on or after October 1, 2003;
F-19
<PAGE> 30
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. LONG-TERM DEBT (CONTINUED)
(k) In May 1999, the Company called for redemption all of its $275,000,000
principal amount of 7% Convertible Notes due 2008 at a redemption price
of 104.9% of their principal amount, plus accrued and unpaid interest.
In June 1999, all of the 7% Convertible Notes were converted into
approximately 11,344,000 shares of the Company's common stock at the
applicable conversion price of $24.24 per share. The unamortized
deferred financing costs related to the 7% Notes of $6,415,000 were
written-off to equity;
(l) 7% Convertible Notes due December 15, 2008, principal amount at
maturity of $599,300,000, interest payable semiannually from June 15,
1999, convertible into shares of common stock at a conversion price of
$39.20 per share, redeemable at the Company's option on or after
December 15, 2001 (there are approximately 15,288,000 shares of common
stock reserved for issuance upon conversion);
(m) Variable Rate Redeemable Guaranteed Notes due January 5, 2002,
principal amount at maturity of Irish punts 60,000,000
($76,794,000), interest payable quarterly at EURIBOR (3.345% at
December 31, 1999), redeemable at any time at the option of the holder,
Irish punts 20,000,000 ($25,730,000) redeemed in 1999 using cash
held in escrow, Euro 86,475,000 ($87,270,000) remaining in escrow at
December 31, 1999;
(n) 9-1/4% Notes due November 15, 2006, principal amount at maturity of
Euro 250,000,000 ($252,300,000), interest payable semiannually
beginning on May 15, 2000;
(o) 9-7/8% Notes due November 15, 2009, principal amount at maturity of
Euro 350,000,000 ($353,220,000), interest payable semiannually
beginning on beginning May 15, 2000, redeemable at the Company's option
on or after November 15, 2004;
(p) 11-1/2% Deferred Notes due November 15, 2009, principal amount at
maturity of Euro 210,000,000 ($211,932,000), interest payable
semiannually beginning on May 15, 2005, redeemable at the Company's
option on or after November 15, 2004;
(q) 11.2% Debentures due November 15, 2007, principal amount at maturity of
$517,321,000, interest payable semiannually beginning on May 15, 2001;
(r) 13-1/4% Notes due September 30, 2004, principal amount at maturity of
$285,101,000, interest payable semiannually beginning on March 31,
2000, redeemable at the Company's option on or after September 30,
1999;
(s) 11-3/4% Notes due December 15, 2005, principal amount at maturity of
$530,955,000, interest payable semiannually beginning on June 15, 2001,
redeemable at the Company's option on or after December 15, 2000;
(t) 10-3/4% Notes due February 15, 2007, principal amount at maturity of
$420,500,000, interest payable semiannually beginning on August 15,
2002, redeemable at the Company's option on or after December 15, 2002;
F-20
<PAGE> 31
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. LONG-TERM DEBT (CONTINUED)
(u) 10% Sterling Notes due February 1, 2008, principal amount at maturity
of pound sterling 135,000,000 ($218,133,000), interest payable
semiannually from August 1, 1998, redeemable at the Company's option on
or after February 1, 2003; and
(v) 9-1/8% Notes due February 1, 2008, principal amount of $110,000,000,
interest payable semiannually from August 1, 1998, redeemable at the
Company's option on or after February 1, 2003.
The indentures governing the notes contain restrictions relating to, among other
things: (i) incurrence of additional indebtedness and issuance of preferred
stock, (ii) dividend and other payment restrictions and (iii) mergers,
consolidations and sales of assets.
During 1999, 1998 and 1997, the Company recognized $451,356,000, $232,691,000
and $122,639,000, respectively, of original issue discount as interest expense.
In September 1999, NTL Triangle repaid at maturity the $21,529,000 due under its
notes payable to Comcast U.K. Holdings, Inc.
In connection with the Cablelink acquisition, the Company issued $704,615,000
principal amount Senior Increasing Rate Notes due 2000. In November 1999, the
Company received net proceeds of $720,743,000 from the issuance of the 9-1/4%
Euro Notes, the 9-7/8% Euro Notes and the 11-1/2% Deferred Euro Notes, of which
$716,505,000 was used to repay the Senior Increasing Rate Notes plus accrued
interest. The Company recorded an extraordinary loss from the early
extinguishment of the notes of $3,034,000 in 1999.
In connection with the ComTel acquisition, the Company borrowed an aggregate of
pound sterling 475,000,000 under its bank credit facility. In November 1998, the
Company received net proceeds of $849,000,000 from the issuance of the 11-1/2%
Notes and the 12-3/8% Notes, a substantial portion of which was used to repay
the $799,000,000 outstanding under the bank loan. The Company recorded an
extraordinary loss from the early extinguishment of the bank loan of $18,579,000
in 1998.
In October 1998, the Company redeemed its 10-7/8% Senior Deferred Coupon Notes
with an accreted value of $211,000,000 for cash of $218,000,000. The Company
recorded an extraordinary loss from the early extinguishment of the 10-7/8%
Notes of $12,110,000 in 1998, which included approximately $4,800,000 of
unamortized deferred financing costs.
In 1998, the Company required consents from the holders of some of its notes to
modify certain indenture provisions in order to proceed with an acquisition. In
October 1998, the Company paid $11,333,000 in consent payments and issued
warrants to purchase 1,197,000 shares of common stock in lieu of additional
consent payments of $10,080,000.
F-21
<PAGE> 32
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. LONG-TERM DEBT (CONTINUED)
Certain of the NTL Communications notes restrict the payment of cash dividends
and loans to the Company. At December 31, 1999, restricted net assets of NTL
Communications were approximately $901 million.
Long-term debt repayments are due as follows (in thousands):
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
2000 $ 82,601
2001 1,270
2002 1,062
2003 981
2004 286,001
Thereafter 9,745,710
-----------
$ 10,117,625
===========
</TABLE>
10. REDEEMABLE PREFERRED STOCK
In February 1997, the Company issued 100,000 shares of its 13% Senior Redeemable
Exchangeable Preferred Stock (the "Redeemable Preferred Stock"). The Company
received net proceeds of $96,625,000 after discounts and commissions from the
issuance of the Redeemable Preferred Stock. Discounts, commissions and other
fees incurred of $3,729,000 were recorded as unamortized discount at issuance.
Dividends accrue at 13% per annum ($130 per share) and are payable quarterly in
arrears. Dividends accruing on or prior to February 15, 2004 may, at the option
of the Company, be paid in cash, by the issuance of additional Redeemable
Preferred Stock or in any combination of the foregoing. As of December 31, 1999,
the Company has accrued $44,628,000 for dividends and has issued approximately
42,000 shares for $42,315,000 of such accrued dividends. The Redeemable
Preferred Stock may be redeemed, at the Company's option, in whole or in part,
at any time on or after February 15, 2002 at a redemption price of 106.5% of the
liquidation preference of $1,000 per share that declines annually to 100% in
2005, in each case together with accrued and unpaid dividends to the redemption
date. The Redeemable Preferred Stock is subject to mandatory redemption on
February 15, 2009. On any scheduled dividend payment date, the Company may, at
its option, exchange all of the shares of Redeemable Preferred Stock then
outstanding for the Company's 13% Subordinated Exchange Debentures due 2009 (the
"Subordinated Debentures").
The Subordinated Debentures, if issued, will bear interest at a rate of 13% per
annum, payable semiannually in arrears on February 15 and August 15 of each year
commencing with the first such date to occur after the date of exchange.
Interest accruing on or prior to February 15, 2004 may, at the option of the
Company, be paid in cash, by the issuance of additional Subordinated Debentures
or in any combination of the foregoing. The Subordinated Debentures will be
redeemable, at the Company's option, in whole or in part, on or after February
15, 2002 at a redemption price of 106.5% that declines annually to 100% in 2005,
in each case together with accrued and unpaid interest to the redemption date.
F-22
<PAGE> 33
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. NONRECURRING CHARGES INCLUDING RESTRUCTURING CHARGES
Nonrecurring charges of $16,179,000 in 1999 were the fee incurred for the
cancellation of certain contracts.
Nonrecurring charges of $20,642,000 in 1997 include deferred costs written-off
of $5,013,000 and restructuring costs of $15,629,000. The deferred costs
written-off arose in connection with the Company's unsuccessful bid for United
Kingdom digital terrestrial television multiplex licenses. Restructuring costs
relate to the Company's announcement in September 1997 of a reorganization of
certain of its operations. This charge consisted of employee severance and
related costs of $6,726,000 for approximately 280 employees to be terminated,
lease exit costs of $6,539,000 and penalties of $2,364,000 associated with the
cancellation of contractual obligations. As of December 31, 1998, $9,172,000 of
the provision had been used, including $5,558,000 for severance and related
costs, $1,450,000 for lease exit costs and $2,164,000 for penalties associated
with the cancellation of contractual obligations. As of December 31, 1998, 177
employees had been terminated. The $4,194,000 reversed in 1998 includes
$1,168,000 for severance and related costs, $2,826,000 for lease exit costs and
$200,000 for penalties associated with the cancellation of contractual
obligations. This reversal was necessary because employees whose positions were
eliminated chose to remain with the Company in other positions rather than leave
the Company and receive severance pay, and the real estate markets in which the
Company sublet space improved increasing the sublet rentals and shortening the
period of time required to find subtenants. The remaining restructuring reserve
of $2,263,000 at December 31, 1998 is for lease costs net of sublease revenue.
12. OTHER GAINS
Other gains of $493,121,000 in 1999 are from the sale of the investment in Cable
London. Other gains of $21,497,000 in 1997 include a legal settlement of
$10,000,000 and a gain on the sale of fixed assets of $11,497,000. In October
1997, following the U.S. District Court's decision to dismiss the Company's
complaint against LeGroupe Videotron Ltee and its subsidiary, the Company
entered into a Settlement Agreement dismissing the Company's complaint in
exchange for a payment of $10,000,000. In December 1997, a U.S. subsidiary of
the Company sold its fixed and other assets utilized in its microwave
transmission service business and recognized a gain of $11,497,000.
F-23
<PAGE> 34
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. INCOME TAXES
The benefit for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
----------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Current:
Federal $ 1,000 $ - $ -
State and local 1,000 - 1,261
Foreign - - -
----------------------------------------------------------------
Total current 2,000 - 1,261
----------------------------------------------------------------
Deferred:
Federal - - -
State and local - - -
Foreign (37,347) (3,327) (16,852)
----------------------------------------------------------------
Total deferred (37,347) (3,327) (16,852)
================================================================
$(35,347) $(3,327) $(15,591)
================================================================
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
----------------------------------------
(in thousands)
<S> <C> <C>
Deferred tax liabilities:
Fixed assets $66,461 $68,766
Intangibles 107,012 -
----------------------------------------
Total deferred tax liabilities 173,473 68,766
Deferred tax assets:
Net operating losses 417,149 244,394
Net deferred interest expense 150,120 113,993
Depreciation and amortization 269,888 100,780
Other 15,920 19,975
----------------------------------------
Total deferred tax assets 853,077 479,142
Valuation allowance for deferred tax assets (757,324) (477,438)
----------------------------------------
Net deferred tax assets 95,753 1,704
----------------------------------------
Net deferred tax liabilities $77,720 $67,062
========================================
</TABLE>
F-24
<PAGE> 35
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. INCOME TAXES (CONTINUED)
At December 31, 1999, the Company had net operating loss carryforwards of
approximately $300 million for U.S. federal income tax purposes that expire in
varying amounts commencing in 2009. The Company also has United Kingdom net
operating loss carryforwards of approximately $947 million which have no
expiration date. Pursuant to United Kingdom law, these losses are only available
to offset income of the separate entity that generated the loss.
The Company is currently undergoing a U.S. federal income tax audit. The
Internal Revenue Service has issued notices of proposed adjustment. The Company
does not expect that the audit adjustments will have a material adverse effect
on its financial position, results of operations or cash flows.
The reconciliation of income taxes computed at U.S. federal statutory rates to
income tax expense is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
-----------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
(Benefit) at federal statutory rate (35%) $(269,872) $(188,309) $(120,452)
Add:
State and local income tax, net of federal benefit 650 - 820
Foreign losses with no benefit 106,078 83,500 59,804
Amortization of goodwill and license acquisition costs 4,145 4,366 3,925
U.S. losses with no benefit 123,652 97,116 40,312
-----------------------------------------------------------
$ (35,347) $(3,327) $(15,591)
===========================================================
</TABLE>
14. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the
consolidated balance sheets approximate fair value.
Long-term debt: The carrying amount of the Variable Rate Notes
approximates their fair value. The fair values of the Company's other
debt are based on the quoted market prices.
Redeemable Preferred Stock: The fair value is based on the quoted
market price.
F-25
<PAGE> 36
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and fair values of the Company's financial instruments are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------------------- ------------------------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-----------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents $2,597,144 $2,597,144 $ 736,265 $ 736,265
Long-term debt:
5-3/4% Convertible Notes 1,200,000 1,290,000 - -
12-3/4% Notes 268,108 278,499 236,935 252,801
11-1/2% Notes 930,404 950,250 831,976 882,000
10% Notes 400,000 414,000 400,000 408,000
9-1/2% Sterling Senior Notes 201,408 196,926 206,800 192,917
10-3/4% Sterling Notes 343,691 327,200 317,511 293,732
9-3/4% Notes 952,825 913,250 865,880 835,250
9-3/4% Sterling Notes 354,394 313,263 - -
11-1/2% Notes 625,000 682,813 625,000 681,250
12-3/8% Notes 286,967 319,500 254,718 274,500
7% Convertible Notes - - 275,000 411,125
7% Convertible Notes 599,300 1,582,152 600,000 656,340
Variable Rate Notes 76,794 76,794 - -
9-1/4% Euro Notes 252,300 254,823 - -
9-7/8% Euro Notes 353,220 356,752 - -
11-1/2% Euro Deferred Notes 123,080 125,040 - -
11.2% Debentures 467,317 486,282 421,835 437,119
13-1/4% Notes 285,101 305,414 - -
11-3/4% Notes 476,215 499,140 - -
10-3/4% Notes 336,891 340,605 - -
10% Sterling Notes 218,133 218,133 - -
9-1/8% Notes 110,000 108,900 - -
Redeemable Preferred Stock 141,805 154,412 124,127 124,127
</TABLE>
15. RELATED PARTY TRANSACTIONS
The Company provided management, financial, legal and technical services to
Cellular Communications International, Inc. ("CCII") and Cellular Communications
of Puerto Rico, Inc. ("CCPR"). Certain officers and directors of the Company
were officers and directors of CCII and CCPR.
F-26
<PAGE> 37
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. RELATED PARTY TRANSACTIONS (CONTINUED)
In 1997, the Company charged CCPR and CCII $1,492,000 and $871,000,
respectively, for direct costs where identifiable and a fixed percentage of its
corporate overhead. In 1998, the Company charged CCPR, CCII and CoreComm Limited
(which was formed in 1998 and has certain common officers and directors with the
Company) $1,148,000, $982,000 and $313,000, respectively, for direct costs where
identifiable and a fixed percentage of its corporate overhead. In the fourth
quarter of 1999, CoreComm Limited began charging the Company a percentage of
CoreComm Limited's office rent and supplies expense. In 1999, the Company
charged CCPR, CCII and CoreComm Limited $741,000, $439,000 and $2,268,000,
respectively, for direct costs where identifiable and a fixed percentage of its
corporate overhead, net of CoreComm Limited's charges to the Company. Charges to
CCPR and to CCII ceased in 1999 due to each of them being acquired and a
resulting termination of services. These charges reduced corporate expenses. It
is not practicable to determine the amounts of these expenses that would have
been incurred had the Company operated as an unaffiliated entity. In the opinion
of management of the Company, the allocation methods are reasonable.
At December 31, 1999 and 1998, the Company had receivables of $508,000 and
$1,038,000 from CoreComm Limited and none and $588,000 from CCPR, respectively.
16. NET LOSS PER COMMON SHARE
The following table sets forth the computation of basic and diluted net loss per
share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
--------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C>
Numerator:
Loss before extraordinary item $(732,683) $(503,927) $(328,557)
Preferred stock dividend (73,709) (18,761) (11,978)
--------------------------------------------------------
(806,392) (522,688) (340,535)
Extraordinary item (3,034) (30,689) (4,500)
--------------------------------------------------------
Net loss available to common shareholders $(809,426) $(553,377) $(345,035)
--------------------------------------------------------
Denominator for basic net loss per common share 119,418 64,378 50,183
Effect of dilutive securities - - -
--------------------------------------------------------
Denominator for diluted net loss per common share 119,418 64,378 50,183
--------------------------------------------------------
Basic and diluted net loss per common share:
Loss before extraordinary item $(6.75) $(8.12) $(6.79)
Extraordinary item (.03) (.48) (.09)
--------------------------------------------------------
Net loss $(6.78) $(8.60) $(6.88)
========================================================
</TABLE>
Stock options, warrants and convertible securities are excluded from the
calculation of net loss per common share as their effect would be antidilutive.
F-27
<PAGE> 38
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
17. SHAREHOLDERS' EQUITY
STOCK SPLITS
In September 1999, the Company declared a 5-for-4 stock split by way of a stock
dividend with respect to its common stock. The record date for this dividend was
October 4, 1999 and the payment date was October 7, 1999. In January 2000, the
Company declared a 5-for-4 stock split by way of a stock dividend with respect
to its common stock. The record date for this dividend was January 31, 2000 and
the payment date was February 3, 2000. Common stock amounts in the notes to
consolidated financial statements and all per share data have been adjusted to
reflect the stock splits.
SALES OF COMMON STOCK, PREFERRED STOCK AND WARRANTS
In January 1999, the Company received $500 million in cash from Microsoft Corp.
("Microsoft") in exchange for 500,000 shares of the Company's 5.25% Convertible
Preferred Stock (the "5.25% Preferred Stock") and warrants to purchase 1,875,000
shares of the Company's common stock at an exercise price of $53.76 per share.
Dividends were payable quarterly at the Company's option in cash, common stock
or additional shares of preferred stock. The Company issued approximately 25,000
shares of 5.25% Preferred Stock for dividend payments of $24,572,000 through
December 31, 1999. In February 2000, all of the 5.25% Preferred Stock was
converted into approximately 8,229,000 shares of the Company's common stock.
In August 1999, the Company received $1.0 billion in cash from France Telecom in
exchange for 750,000 shares of 5% Cumulative Participating Convertible Preferred
Stock (the "5% Preferred Stock") and approximately 4.2 million shares of common
stock.
SERIES PREFERRED STOCK
In September 1998, the Company issued 125,000 shares of 9.9% Non-voting
Mandatorily Redeemable Preferred Stock, Series A (the "Series A Preferred
Stock") in connection with the ComTel acquisition. Each share of Series A
Preferred Stock had a stated value of $1,000. Cumulative dividends accrued at
9.9% of the stated value per share. Dividends were payable when and if declared
by the Board of Directors. On December 22, 1999, all outstanding shares of the
Series A Preferred Stock were redeemed for cash of $140.8 million, which
included $15.5 million for accrued dividends.
In December 1998, the Company issued 52,000 shares of 9.9% Non-voting
Mandatorily Redeemable Preferred Stock, Series B (the "Series B Preferred
Stock") in connection with the EGT acquisition. Each share of Series B Preferred
Stock has a stated value of $1,000. Cumulative dividends accrue at 9.9% of the
stated value per share. Dividends are payable when and if declared by the Board
of Directors and may be paid, in the sole discretion of the Board, in cash, in
shares of common stock, or through a combination of the foregoing. At December
31, 1999, accrued dividends were $5,283,000. The Series B Preferred Stock may be
redeemed, at the Company's option, any time at a price equal to $1,000 per
share, together with accrued and unpaid dividends to the redemption date. On
July 1, 2000 all outstanding shares of Series B Preferred Stock shall be
redeemed for $1,000 per share together with accrued and unpaid dividends, at
the Company's option, in cash, in shares of common stock, or through a
combination of the foregoing.
F-28
<PAGE> 39
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
17. SHAREHOLDERS' EQUITY (CONTINUED)
In August 1999, the Company issued 750,000 shares of 5% Preferred Stock to
France Telecom. The 5% Preferred Stock has a stated value of $1,000 per share,
is convertible into common stock at a conversion price of $80 per share and is
redeemable in August 2009 for cash, shares of common stock or a combination of
both. The 5% Preferred Stock may be redeemed by the Company on the earlier of
August 2006 or the date on which both the Company's common stock has traded
above $96 per share for 25 consecutive trading days and August 2003. Dividends
are payable quarterly at the Company's option in cash, common stock or
additional shares of 5% Preferred Stock. The Company issued 5,000 shares of 5%
Preferred Stock for dividend payments of $5,000,000 through December 31, 1999.
At December 31, 1999, the Company's preferred stock would have been redeemable
or convertible into an aggregate of 18,224,000 shares of the Company's common
stock.
In October 1996, 780 shares of Non-voting Convertible Preferred Stock, Series A
were issued in connection with an acquisition. In May 1998, the 780 outstanding
shares were converted into 3,047,000 shares of common stock.
The changes in the number of shares of Series Preferred Stock, excluding the
Redeemable Preferred Stock, were as follows:
<TABLE>
<CAPTION>
Convertible 9.9% 9.9%
Series A Series A Series B 5.25% 5%
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 and 1997 780 - - - -
Conversion (780) - - - -
Issued for acquisitions - 125,000 52,000 - -
------------------------------------------------------------------------------------
Balance, December 31, 1998 - 125,000 52,000 - -
Issued for cash - - - 500,000 750,000
Issued for dividends - - - 25,000 5,000
Redemption - (125,000) - - -
------------------------------------------------------------------------------------
Balance, December 31, 1999 - - 52,000 525,000 755,000
====================================================================================
</TABLE>
WARRANTS
The Company has the following warrants outstanding as of December 31, 1999: (a)
warrants to purchase an aggregate of 1,097,000 shares of common stock at $3.56
per share issued in 1993 that expire in 2000 (1,405,000 were originally issued),
(b) warrants to purchase an aggregate of 246,000 shares of common stock at
$15.22 per share issued in 1996 that expire in 2006 (256,000 were originally
issued), (c) warrants to purchase an aggregate of 1,178,000 shares of common
stock at $27.77 per share issued in 1998 that expire in 2008 (1,197,000 were
originally issued) and (d) warrants to purchase an aggregate of 1,875,000 shares
of common stock at $53.76 per share issued in 1999 that expire in 2004
(1,875,000 were originally issued).
F-29
<PAGE> 40
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
17. SHAREHOLDERS' EQUITY (CONTINUED)
SHAREHOLDER RIGHTS PLAN
The Rights Agreement provides that .48 of a Right will be issued with each share
of common stock issued on or after October 13, 1993. The Rights are exercisable
upon the occurrence of certain potential takeover events and will expire in
October 2003 unless previously redeemed by the Company. When exercisable, each
Right entitles the owner to purchase from the Company one one-hundredth of a
share of Series A Junior Participating Preferred Stock ("Rights Preferred
Stock") at a purchase price of $100.
The Rights Preferred Stock will be entitled to a minimum preferential quarterly
dividend payment of $.01 per share and will be entitled to an aggregate dividend
of 208.33 times the dividend, if any, declared per share of common stock. In the
event of liquidation, the holders of Rights Preferred Stock will be entitled to
a minimum preferential liquidation payment of $1 per share and will be entitled
to an aggregate payment of 208.33 times the payment made per share of common
stock. Each share of Rights Preferred Stock will have 208.33 votes and will vote
together with the common stock. In the event of any merger, consolidation or
other transaction in which shares of common stock are changed or exchanged, each
share of Rights Preferred Stock will be entitled to receive 208.33 times the
amount received per share of common stock. The Rights are protected by customary
antidilution provisions.
STOCK OPTIONS
There are 3,381,000 shares and 10,396,000 shares of common stock reserved for
issuance under the 1991 Stock Option Plan and the 1993 Stock Option Plan,
respectively. These plans provide that incentive stock options ("ISOs") be
granted at the fair market value of the Company's common stock on the date of
grant, and nonqualified stock options ("NQSOs") be granted at not less than 85%
of the fair market value of the Company's common stock on the date of grant.
Options are exercisable as to 20% of the shares subject thereto on the date of
grant and become exercisable as to an additional 20% of the shares subject
thereto on each January 1 thereafter, while the optionee remains an employee of
the Company. Options will expire ten years after the date of the grant.
There are 156,000 shares and 500,000 shares of common stock reserved for
issuance under 1991 and 1993 Non-Employee Director Stock Option Plans,
respectively. Under the terms of these plans, options will be granted to members
of the Board of Directors who are not employees of the Company or any of its
affiliates. These plans provide that all options be granted at the fair market
value of the Company's common stock on the date of grant, and options will
expire ten years after the date of the grant. Options are exercisable as to 20%
of the shares subject thereto on the date of grant and become exercisable as to
an additional 20% of the shares subject thereto on each subsequent anniversary
of the grant date while the optionee remains a director of the Company. Options
will expire ten years after the date of the grant.
There are 23,438,000 shares of common stock reserved for issuance under the 1998
Non-Qualified Stock Option Plan. The exercise price of a NQSO shall be
determined by the Compensation and Option Committee. Options are exercisable as
to 20% of the shares subject thereto on the date of grant and become exercisable
as to an additional 20% of the shares subject thereto on each January 1
thereafter, while the optionee remains an employee of the Company. Options will
expire ten years after the date of the grant.
F-30
<PAGE> 41
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
17. SHAREHOLDERS' EQUITY (CONTINUED)
Pro forma information regarding net loss and net loss per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for 1999, 1998 and 1997: risk-free interest rates of 6.81%, 5.02%
and 5.89%, respectively, dividend yield of 0%, volatility factor of the expected
market price of the Company's common stock of .336, .331 and .276, respectively,
and a weighted-average expected life of the option of 10 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. Following is the
Company's pro forma information:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
---------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Pro forma net (loss) $(822,730) $(580,747) $(343,850)
Basic and diluted pro forma net (loss) per share $ (7.51) $ (9.31) $ (7.09)
</TABLE>
A summary of the Company's stock option activity and related information for the
years ended December 31 follows:
<TABLE>
<CAPTION>
1999 1998
---------------------------------------------------------------------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
NUMBER OF OPTIONS EXERCISE PRICE NUMBER OF OPTIONS EXERCISE PRICE
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding-beginning of year 25,700,000 $17.29 12,746,000 $10.23
Granted 6,368,000 50.35 13,850,000 24.06
Exercised (2,590,000) 15.95 (466,000) 13.59
Forfeited (240,000) 24.22 (430,000) 29.74
--------------------- ---------------------
Outstanding-end of year 29,238,000 $24.60 25,700,000 $17.29
===================== =====================
Exercisable at end of year 12,218,000 $14.97 11,009,000 $10.59
===================== =====================
</TABLE>
<TABLE>
<CAPTION>
1997
--------------------------------------------
WEIGHTED-AVERAGE
NUMBER OF OPTIONS EXERCISE PRICE
--------------------------------------------
<S> <C> <C>
Outstanding-beginning of year 10,529,000 $ 9.02
Granted 2,455,000 15.34
Exercised (186,000) 8.22
Forfeited (52,000) 15.22
---------------------
Outstanding-end of year 12,746,000 $10.23
=====================
Exercisable at end of year 8,848,000 $ 7.93
=====================
</TABLE>
F-31
<PAGE> 42
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
17. SHAREHOLDERS' EQUITY (CONTINUED)
Weighted-average fair value of options, calculated using the Black-Scholes
option pricing model, granted during 1999, 1998 and 1997 is $30.97, $13.13 and
$8.15, respectively.
The following table summarizes the status of the stock options outstanding and
exercisable at December 31, 1999:
<TABLE>
<CAPTION>
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE
-------------------------------------------------------- ------------------------------------
RANGE OF NUMBER OF WEIGHTED-REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE PRICES OPTIONS CONTRACTUAL LIFE EXERCISE PRICE NUMBER OF OPTIONS EXERCISE PRICE
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.12 to $6.82 5,447,000 3.1 Years $ 4.921 5,447,000 $ 4.921
$6.83 to $13.64 393,000 5.2 Years $11.589 318,000 $11.530
$13.65 to $20.46 4,670,000 6.6 Years $15.692 3,548,000 $15.683
$20.47 to $27.28 11,630,000 8.1 Years $23.311 1,621,000 $23.090
$27.29 to $34.10 834,000 8.6 Years $28.609 276,000 $28.486
$34.11 to $40.92 216,000 9.0 Years $35.402 57,000 $35.530
$40.93 to $47.74 53,000 9.3 Years $47.440 11,000 $47.440
$47.75 to $54.56 5,472,000 9.2 Years $50.368 834,000 $50.405
$54.57 to $61.38 36,000 9.4 Years $59.960 9,000 $59.960
$61.39 to $68.20 487,000 9.8 Years $65.385 97,000 $65.385
----------------------------------------------------------------------------------------------------------------------------
Total 29,238,000 12,218,000
============================================================================================================================
</TABLE>
As of December 31, 1999, the Company has 78,238,000 shares of its common stock
reserved for issuance upon the exercise of warrants, stock options and the
conversion of debt and preferred stock.
F-32
<PAGE> 43
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
18. EMPLOYEE BENEFIT PLANS
Certain subsidiaries of the Company operate defined benefit pension plans in the
United Kingdom. The assets of the Plans are held separately from those of the
Company and are invested in specialized portfolios under the management of an
investment group. The pension cost is calculated using the attained age method.
The Company's policy is to fund amounts to the defined benefit plans necessary
to comply with the funding requirements as prescribed by the laws and
regulations in the United Kingdom.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
-----------------------------------------------------
(in thousands)
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $213,449 $202,645
Acquisition 10,686 -
Service cost 12,018 13,365
Interest cost 11,993 14,684
Actuarial gains (40,896) (14,640)
Benefits paid (5,247) (4,968)
Foreign currency exchange rate changes (4,893) 2,363
-----------------------------------------------------
Benefit obligation at end of year $197,110 $213,449
=====================================================
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $225,273 $193,607
Acquisition 10,095 -
Actual return on plan assets 43,064 24,144
Company contributions 7,558 7,242
Plan participants' contributions 2,946 2,991
Benefits paid (5,247) (4,968)
Foreign currency exchange rate changes (5,329) 2,257
-----------------------------------------------------
Fair value of plan assets at end of year $278,360 $225,273
=====================================================
Funded status of the plan $ 81,250 $ 11,824
Unrecognized net actuarial gains (89,278) (23,060)
Unrecognized transition obligation 8,177 9,306
-----------------------------------------------------
Prepaid/(accrued)benefit cost $ 149 $ (1,930)
=====================================================
Actuarial assumptions:
Weighted average discount rate 6.25% 5.75%
Weighted average rate of compensation increase 4.50% 5.50%
Expected long-term rate of return on plan assets 8.00% 8.00%
</TABLE>
F-33
<PAGE> 44
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
18. EMPLOYEE BENEFIT PLANS (CONTINUED)
The components of net pension costs are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
-------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Service cost $ 12,018 $ 13,365 $ 10,693
Interest cost 11,993 14,684 12,765
Actual return on plan assets (43,064) (24,144) (30,852)
Net amortization and deferral 26,774 8,282 17,327
-------------------------------------------------------------------------
$ 7,721 $ 12,187 $ 9,933
=========================================================================
</TABLE>
19. LEASES
Leases for buildings, office space and equipment extend through 2031. Total
rental expense for the years ended December 31, 1999, 1998 and 1997 under
operating leases was $36,678,000, $29,356,000 and $20,674,000, respectively.
Future minimum lease payments under noncancellable operating leases as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Year ended December 31:
<S> <C>
2000 $ 40,185
2001 36,228
2002 32,222
2003 30,321
2004 28,716
Thereafter 148,153
--------------
$315,825
==============
</TABLE>
20. COMMITMENTS AND CONTINGENT LIABILITIES
At December 31, 1999, the Company was committed to pay approximately
$314,000,000 for equipment and services, which includes certain operations and
maintenance contracts through 2005.
The Company had certain exclusive local delivery operator licenses for Northern
Ireland and other franchise areas in the United Kingdom. Pursuant to these
licenses, various subsidiaries of the Company were required to make monthly cash
payments to the Independent Television Commission ("ITC") during the 15-year
license terms. Upon a request by the Company in 1999, the ITC converted all of
the Company's fee bearing exclusive licenses to non-exclusive licenses by the
end of 1999. In 1999, 1998 and 1997, the Company paid $30,130,000, $25,036,000
and $23,587,000, respectively, in connection with these licenses. Since the
Company's liability for the license payments ceased upon the conversion, in 1999
the Company reversed an accrual for franchise fees of $13,592,000.
F-34
<PAGE> 45
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
20. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
The Company intends to make an offer to convert its 7% Convertible Notes with a
principal amount of $599.3 million into common stock.
A wholly-owned subsidiary of the Company, Premium TV Limited, entered into media
partnerships with two United Kingdom football clubs whereby Premium TV will
receive certain marketing and sponsorship rights. Premium TV will provide loan
facilities to the clubs for an aggregate of pound sterling 51 million ($82
million), repayable after five years through the issue of ordinary shares in the
football clubs.
In January 2000, the Company announced that it would be bidding together with
France Telecom for one of the UMTS "third generation" mobile telephone licenses
that are being auctioned in the United Kingdom. In addition to the cost of the
license, the UMTS operators will incur costs to build a network, establish
operations and acquire customers. The auction is expected to begin in March
2000.
The Company is involved in certain disputes and litigation arising in the
ordinary course of its business. None of these matters are expected to have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
21. INDUSTRY SEGMENTS
The Company has four reportable segments: Residential Telecoms and Television,
National Telecoms, Broadcast and Corporate and Other. The Residential Telecoms
and Television segment delivers residential telephony, cable television,
Internet access and interactive services in regional franchise areas in the
United Kingdom, Ireland and France. The National Telecoms segment includes the
Company's business telecoms, national and international carrier telecoms,
Internet services and satellite communications services business units in the
United Kingdom. The Broadcast segment provides television and radio broadcasters
with digital and analog broadcast transmission and related services from owned
and shared tower sites throughout the United Kingdom and Australia. Corporate
and other includes the Company's shared services departments in the United
Kingdom and OCOM, a subsidiary that operated long distance and microwave
transmission businesses in the United States until June 1998.
The accounting policies of the segments are the same as those described in the
Significant Accounting Policies note. The Company's management evaluates segment
performance based on various financial and non-financial measurements. The
results of operations data utilized in financial measurements are revenues and
EBITDA, which is earnings before interest, taxes, depreciation and amortization,
corporate expenses, franchise fees, nonrecurring charges, other gains, foreign
currency transactions gains and extraordinary items. The Company's primary
measure of profit or loss is EBITDA. Certain selling, general and administrative
expenses are allocated to segments based on revenues. Segment assets include
only those assets that are specific to the segment. Management does not allocate
costs of shared services departments and jointly used assets for purposes of
measuring segment performance. The reportable segments are strategic business
units that offer different services. They are managed separately because each
business requires different technology and marketing strategies.
F-35
<PAGE> 46
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
21. INDUSTRY SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
RESIDENTIAL TELECOMS CORPORATE
AND NATIONAL AND
BROADCAST TELEVISION TELECOMS OTHER TOTAL
------------------------------------------------------------------------------------
(in thousands)
YEAR ENDED DECEMBER 31, 1999
<S> <C> <C> <C> <C> <C>
Revenues $201,900 $834,339 $ 547,895 $ - $1,584,134
Depreciation and amortization 68,584 528,344 59,852 134,542 791,322
EBITDA (1) 111,839 233,530 144,845 (279,296) 210,918
Expenditures for long-lived assets 42,210 591,364 388,965 131,766 1,154,305
Total assets (2) 748,658 6,106,536 1,180,779 4,175,593 12,211,566
YEAR ENDED DECEMBER 31, 1998
Revenues $140,156 $355,589 $ 248,895 $2,375 $747,015
Depreciation and amortization 29,974 143,479 29,476 63,183 266,112
EBITDA (1) 91,687 67,587 35,848 (119,735) 75,387
Expenditures for long-lived assets 88,476 413,917 297,745 67,141 867,279
Total assets 289,068 3,100,492 761,097 2,043,440 6,194,097
YEAR ENDED DECEMBER 31, 1997
Revenues $130,799 $166,951 $ 185,194 $8,831 $491,775
Depreciation and amortization 13,584 78,730 9,666 48,529 150,509
EBITDA (1) 73,636 18,693 13,522 (84,853) 20,998
Expenditures for long-lived assets 36,142 304,656 105,076 20,519 466,393
Total assets 230,920 1,323,808 220,318 646,593 2,421,639
</TABLE>
(1) Represents earnings before interest, taxes, depreciation and amortization,
corporate expenses, franchise fees, nonrecurring charges, other gains,
foreign currency transaction gains and extraordinary items.
(2) At December 31, 1999, corporate and other assets included approximately
$2.7 billion of cash, cash equivalents and marketable securities,
approximately $928 million of goodwill and approximately $577 million in
other assets.
F-36
<PAGE> 47
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
21. INDUSTRY SEGMENTS (CONTINUED)
The reconciliation of segment combined EBITDA to loss before income taxes and
extraordinary item is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
-----------------------------------------------
(in thousands)
<S> <C> <C> <C>
Segment Combined EBITDA $ 210,918 $ 75,387 $ 20,998
(Add) Deduct:
Franchise fees 16,538 25,036 23,587
Corporate expenses 29,402 17,048 18,324
Nonrecurring charges 16,179 (4,194) 20,642
Depreciation and amortization 791,322 266,112 150,509
Interest and other income (49,380) (46,024) (28,415)
Interest expense 680,728 328,815 202,570
Other gains (493,121) - (21,497)
Foreign currency transaction gains (12,720) (4,152) (574)
-----------------------------------------------
978,948 582,641 365,146
-----------------------------------------------
Loss before income taxes and extraordinary item $(768,030) $(507,254) $(344,148)
===============================================
</TABLE>
22. GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
United States United Kingdom Other Total
-----------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
1999
Revenues $ - $1,508,262 $ 75,872 $1,584,134
Long-lived assets 669,334 7,559,849 663,795 8,892,978
1998
Revenues $ 2,375 $ 744,640 $ - $ 747,015
Long-lived assets 137,223 4,852,374 - 4,989,597
1997
Revenues $ 8,831 $ 482,944 $ - $ 491,775
Long-lived assets 55,173 2,129,312 - 2,184,485
</TABLE>
F-37
