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, 1997
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. 0-22616
NTL INCORPORATED
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1822078
- --------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
110 East 59th Street, New York, New York 10022
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(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)
<PAGE>
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 20, 1998, valued in all cases in accordance with the
NASDAQ/NMS closing sale price for the Registrant's Common Stock was
approximately $1,289,800,000.
Number of shares of Common Stock outstanding as at March 20, 1998: 32,294,900
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Document Part of 10-K in which
Incorporated
Definitive proxy statement for the
1998 Annual Meeting of the Stockholders
of NTL Incorporated: Part III
* * * * * *
This Annual Report on Form 10-K for the year ended December 31, 1997, 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, forecast, estimated or budgeted in or 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, and availability, terms and deployment of capital.
<PAGE>
TABLE OF CONTENTS
Page
PART I
- ------
Item 1 Business..................................................... 1 *
Item 2 Properties................................................... 46 *
Item 3 Legal Proceedings............................................ 46 *
Item 4 Submission of Matters to a Vote of Stockholders.............. 46 *
PART II
- -------
Item 5 Market for the Registrant's Common Stock and Related
Stockholder Matters.......................................... 47 *
Item 6 Selected Financial Data...................................... 48 *
Item 7 Management's Discussion and Analysis of Results of
Operations and Financial Condition........................... 49
Item 7A Quantitative and Qualitative Disclosure About Market Risk.... 57 *
Item 8 Financial Statements and Supplementary Data.................. 58 *
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.......................... 58 *
PART III
- --------
Items 10, 11, 12, 13.................................................. 59 *
PART IV
- -------
Item 14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.......................................... 59 *
Exhibit Index......................................................... 60 *
Signatures............................................................ 70 *
Index to Financial Statements......................................... F-1
The Annual Report on Form 10-K of NTL Incorporated for the fiscal year ended
December 31, 1997 is being amended by this Form 10-K/A-1 for the following
reasons: (1) to add information to the Results of Operations section of Item 7,
Management's Discussion and Analysis of Results of Operations and Financial
Condition, (2) to add information to Note 3 of the Notes to Consolidated
Financial Statements in Item 14 and (3) to add information to Note 9 of the
Notes to Consolidated Financial Statements in Item 14.
* Previously filed
<PAGE>
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
By: /s/ Gregg Gorelick
Dated: October 12, 1998 --------------------------------------
Name: Gregg Gorelick
Title: Vice President-Controller
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
- --------------------------------------------------------------------------
RESULTS OF OPERATIONS
As a result of the acquisition of NTL Group Limited in May 1996, the
Company consolidated the results of operations of NTL Group Limited from the
date of acquisition.
Years Ended December 31, 1997 and 1996
- --------------------------------------
Local telecommunications and television revenues increased to $189,407,000
from $89,209,000 as a result of customer growth that increased the Company's
current revenue stream. The Company expects customer growth to continue to
increase which will drive further revenue growth as the Company completes the
construction of its dual service network past the remaining homes in its
franchise areas.
National and international telecommunications revenues increased to
$162,738,000 from $45,430,000 as a result of the acquisition of NTL Group
Limited in May 1996, plus the new site acquisition, installation, design and
construction projects and additional site sharing revenue in 1997. The Company
expects that site acquisition, installation, design and construction projects
and site sharing will not drive revenue growth in national and international
telecommunications in the future. Instead, the Company expects Internet services
revenues and carrier services revenues to increase due to customer growth and an
expanded selling and marketing effort.
Broadcast transmission and other revenues increased to $130,799,000 from
$83,618,000 as a result of the acquisition of NTL Group Limited in May 1996,
plus the revenues from NTL Group Limited's ten-year contract to broadcast
Channel 5 in the United Kingdom which commenced in 1997. The Company expects
that increases in broadcast television and FM radio customers and accounts will
result in revenue increases that exceed price cap reductions in the Company's
regulated services.
Operating expenses increased to $301,644,000 from $144,315,000. NTL Group
Limited operating expenses in the year ended December 31, 1997 and in the period
from May 9, 1996, the date of acquisition, to December 31, 1996 were
$185,995,000 and $71,871,000, respectively. The remainder of the increase was
primarily the result of increases in programming and interconnection costs.
Selling, general and administrative expenses increased to $169,133,000 from
$114,992,000. NTL Group Limited selling, general and administrative expenses in
the year ended December 31, 1997 and in the period from May 9, 1996, the date of
acquisition, to December 31, 1996 were $18,799,000 and $9,384,000, respectively.
The remainder of the increase was the result of increases in telecommunications
and CATV sales and marketing costs and in additional personnel and overhead to
service the increasing customer base.
Franchise fees of $23,587,000 and $13,117,000 in 1997 and 1996,
respectively, are for the Northern Ireland license. Franchise fee expense was
incurred upon the start of operations in Northern Ireland in June 1996.
Corporate expenses increased to $18,324,000 from $14,899,000 primarily due
to an increase in personnel and related costs. The 1997 and 1996 amounts include
$1,852,000 and $2,906,000, respectively, of non-cash expense related to
non-compete agreements.
49
<PAGE>
Nonrecurring charges of $20,642,000 in 1997 include restructuring costs of
$15,629,000 and deferred costs written-off of $5,013,000. The deferred costs
written-off arose in connection with the Company's unsuccessful bid for DTT
multiplex licenses. Restucturing costs relate to the Company's announcement in
September 1997 of a reorganization of certain of its operations. The Company is
consolidating the Customer Operations departments that serve its three franchise
areas in England into one department and is consolidating certain operations and
management groups within the Broadcast Services division, as well as certain
other consolidations or cessation of activities. This charge consisted of
employee severance and related benefit 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. The
entire $15,629,000 restructuring charge will require a cash outlay which will be
funded using cash on hand. The consolidations are expected to be completed in 12
months, the lease exit costs are for leases that extend over a number of years
and the contract cancellations are expected to be completed in 12 months. As of
December 31, 1997, $5,441,000 of the provision has been used, including
$2,916,000 for severance and related benefit costs, $324,000 for lease exit
costs and $2,201,000 for penalties associated with the cancellation of
contractual obligations, and 118 employees had been terminated. There was no
other adjustment to the liability.
Depreciation and amortization expense increased to $150,509,000 from
$98,653,000. The increase was primarily due to an increase in depreciation of
telecommunications and CATV equipment. Depreciation and amortization expense of
NTL Group Limited and amortization of goodwill as a result of the acquisition
was $37,724,000 and $20,339,000 in the year ended December 31, 1997 and in the
period from May 9, 1996, the date of acquisition, to December 31, 1996,
respectively.
Interest expense increased to $202,570,000 from $137,032,000 due to the
issuance of the 10% Senior Notes in February 1997, the issuance of the 7%
Convertible Subordinated Notes in June 1996 and the increase in accretion of the
original issue discount on the deferred coupon notes. Interest of $78,817,000
and $37,889,000 was paid in the years ended December 31, 1997 and 1996,
respectively.
Other gains of $21,497,000 in 1997 include a gain on sale of fixed assets
of $11,497,000 and a $10,000,000 payment from LeGroupe Videotron Ltee pursuant
to the settlement of a lawsuit.
In connection with the repayment of debt, a subsidiary of NTL Group Limited
recorded an extraordinary loss in 1997 of $4,500,000 from the write-off of
unamortized deferred financing costs.
Years Ended December 31, 1996 and 1995
- --------------------------------------
Local telecommunications and television revenues increased to $89,209,000
from $24,804,000 as a result of customer growth that increased the Company's
current revenue stream.
National and international telecommunications revenues increased to
$45,430,000 from none as a result of the acquisition of NTL Group Limited.
Broadcast transmission and other revenues increased to $83,618,000 from
none as a result of the acquisition of NTL Group Limited.
Operating expenses increased to $144,315,000 from $24,415,000. NTL Group
Limited operating expenses from May 9, 1996, the date of acquisition, through
December 31, 1996 were $71,871,000. The remainder of the increase was the result
of increases in programming costs, interconnection costs and costs of operating
the telecommunications and CATV network.
Selling, general and administrative expenses increased to $114,992,000 from
$57,932,000. NTL Group Limited selling, general and administrative expenses from
May 9, 1996, the date of acquisition, through December 31, 1996 were $9,384,000.
The remainder of the increase was the
50
<PAGE>
result of increases in telecommunications and CATV sales and marketing costs and
in additional personnel and overhead to service the increasing customer base.
Franchise fees of $13,117,000 in 1996 are for the Northern Ireland license
and were payable to the ITC beginning in January 1997. Franchise fee expense was
incurred upon the start of operations in Northern Ireland in June 1996.
Corporate expenses increased to $14,899,000 from $14,697,000 due to an
increase in personnel and related costs. The 1996 and 1995 amounts include
$2,906,000 and $3,256,000, respectively, of non-cash expense related to
non-compete agreements.
Depreciation and amortization expense increased to $98,653,000 from
$29,823,000. Depreciation and amortization expense of NTL Group Limited and
amortization of goodwill as a result of the acquisition was $20,339,000 from May
9, 1996, the date of acquisition, through December 31, 1996. The remainder of
the increase was primarily due to an increase in depreciation of
telecommunications and CATV equipment.
Interest and other income increased to $33,634,000 from $21,185,000 due to
an increase in funds available for short-term investment.
Interest expense increased to $137,032,000 from $28,379,000 due to the
interest on the bank loan in connection with the NTL Group Limited acquisition
in 1996 plus the issuance of the 11-1/2% Series B Senior Deferred Coupon Notes
and the 7% Convertible Subordinated Notes in 1996. Interest of $37,889,000 and
$13,918,000 was paid during the years ended December 31, 1996 and 1995,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company will continue to require significant amounts of capital to
finance construction of its local and national networks, for connection of
telephone, telecommunications and CATV customers to the networks, for other
capital expenditures, as well as for cash interest payments. Based on the
information currently available, the Company estimates that, from January 1,
1998 through December 31, 1998 (assuming conversion of the 7-1/4% Convertible
Subordinated Notes due to the March 1998 call for redemption in April 1998),
these requirements will aggregate 436 million pounds sterling (approximately
$720 million). The Company intends to fund its requirements from cash, cash
equivalents and marketable securities on hand of $103.9 million as of December
31, 1997 and from the aggregate proceeds of approximately $1.25 billion (after
discounts, commissions and expenses) from the issuance in March 1998 of
125,000,000 pounds sterling principal amount, 9-1/2% Senior Notes due 2008,
300,000,000 pounds sterling accreted value, 10-3/4% Senior Deferred Coupon Notes
due 2008 and $1,300,000,000 accreted value, 9-3/4% Senior Deferred Coupon Notes
due 2008 (together the "New Notes"). The Company's commitments for equipment and
services at December 31, 1997 of approximately $78 million are included in the
anticipated requirements.
51
<PAGE>
In 1997, NTL (UK) Group, Inc., a wholly-owned subsidiary of the Company,
which is the holding company for its United Kingdom operations and the parent
company of NTLIH, and NTLIH entered into an agreement with The Chase Manhattan
Bank pursuant to which Chase has agreed to fully underwrite a 555 million pounds
sterling, eight-year term loan facility with an initial four-year revolving
period (the "New Credit Facility"). By April 14, 1999, Chase's commitment will
be reduced to no less than 480,000,000 pounds sterling or such greater amount as
is necessary to ensure that the Company's United Kingdom operations remain fully
funded by reference to an agreed business plan. The New Credit Facility will be
used to finance capital expenditures and working capital for the Company's
United Kingdom operations, including its local broadband, national
telecommunications and national digital television networks. A portion of the
New Credit Facility (75 million pounds sterling) is conditional upon the
execution of contracts to provide digital television transmission services to
certain third parties. Chase has provided a portion of the New Credit Facility
in the form of a 350 million pounds sterling facility to the Company on the same
terms as to restrictions, covenants, guarantees and security as the 555 million
pounds sterling facility. As of March 20, 1998, the Company had 10 million
pounds sterling outstanding under the New Credit Facility. The principal amount
outstanding under the 350 million pounds sterling facility is required to be
repaid on December 31, 2005. Interest is payable either monthly, quarterly or
semi-annually, at the option of NTLIH, at LIBOR plus, at a maximum, 2.25% per
annum. The commitment fee is .375% per annum on the unutilized portion of the
350 million pounds sterling facility and is payable quarterly in arrears. The
New Credit Facility is secured by first fixed and floating charges over all
present and future assets and undertakings of the United Kingdom group. The New
Credit Facility contains customary financial covenants, and certain restrictions
relating to, among other things: (i) incurrence of additional indebtedness or
guarantees, (ii) investments, acquisitions and mergers and (iii) dividend and
other payment restrictions. In the absence of a default, the New Credit Facility
generally permits payments to the Company to pay interest and principal of
existing indebtedness of the Company.
In connection with the New Credit Facility, the Company entered into a
European Currency Option with a bank in which the Company may purchase U.S.
dollars at a fixed rate of 1 pound sterling to $1.40. The option is exercisable
on specified dates through June 2001 for specified amounts of U.S. dollars. The
dates and U.S. dollar amounts correspond to the Company's interest payment dates
and amounts for its U.S. dollar denominated debt and anticipated amounts of
parent company expenses.
The Company is highly leveraged. After giving effect to the issuance of the
New Notes, the accreted value at December 31, 1997 of the Company's total
long-term indebtedness (including the Redeemable Preferred Stock) is
approximately $3.4 billion, representing approximately 102% of total
capitalization. The following tables summarizes the terms of those
52
<PAGE>
notes and redeemable preferred stock issued by the Company.
<TABLE>
<CAPTION>
11-1/2% 12-3/4% 10-7/8% 10-3/4% 9-3/4%
Series B Senior Series A Senior Senior Deferred Senior Sterling Senior
Deferred Coupon Deferred Coupon Coupon Deferred Coupon Deferred Coupon
Notes Notes Notes Notes Notes
<S> <C> <C> <C> <C> <C>
Denomination................ $ $ $ Pounds Sterling $
Net Proceeds (in 000's)..... 582,000 145,125 119,797 170,584 778,340
Issue Date.................. January 30, 1996 April 20, 1995 October 7, 1993 March 13, 1998 March 13, 1998
Issue Price(1).............. 57.155% 53.995% 58.873% 58.62% 61.724%
Aggregate Principal Amount
at Maturity (in 000's).... 1,050,000 277,803 212,000 300,000 1,300,000
Maturity Date............... February 1, 2006 April 15, 2005 October 15, 2003 April 1, 2008 April 1, 2008
Yield or Interest Rate(2)... 11-1/2% 12-3/4% 10-7/8% 10-3/4% 9-3/4%
Interest or Dividend February 1 and April 15 and April 15 and April 1 and April 1 and
Payment August 1 October 15 October 15 October 1 October 1
Dates..................... from 8-1-01 from 10-15-00 From 4-15-99 from 10-1-2003 from 10-1-2003
Earliest Optional
Redemption Date(4)........ February 1, 2001 April 15, 2000 October 15, 1998 April 1, 2003 April 1, 2003
Redemption 105.75 (2001) 103.64 (2000) 103.107 (1998) 105.375 (2003) 104.875 (2003)
Price(%)(5)............... to 100 (2003) to 100 (2002) to 100 (2000) to 100 (2006) to 100 (2006)
Conversion Price(6)......... N/A N/A N/A N/A N/A
Senior/Subordinated......... Senior Senior Senior Senior Senior
</TABLE>
(table continues on the following page)
53
<PAGE>
<TABLE>
<CAPTION>
7% 7-1/4%
Convertible Convertible 9-1/2% 10% Redeemable
Subordinated Subordinated Senior Sterling Series B Preferred
Notes Notes (7) Notes Senior Notes Stock
<S> <C> <C> <C> <C> <C>
Denomination................ $ $ Pounds Sterling $ $
Net Proceeds (in 000's)..... 267,437 186,065 121,161 389,000 96,625
Issue Date.................. June 12, 1996 April 20, 1995 March 13, 1998 February 14, 1997 February 14, 1997
Issue Price(1).............. 100% 100% 99.670% 100% 100%
Aggregate Principal Amount
at Maturity (in 000's).... 275,000 191,750 125,000 400,000 100,000
Maturity Date............... June 15, 2008 April 15, 2005 April 1, 2008 February 15, 2007 February 15, 2009
Yield or Interest Rate(2)... 7% 7-1/4% 9-1/2% 10% 13%
Interest or Dividend June 15 and April 15 and April 1 and February 15 and May 15, August 15,
Payment December 15 October 15 October 1 August 15 November 15 and
Dates..................... from 12-15-96 from 10-15-95 From 10-1-98 from 8-15-97 February 15
from 5-15-97(3)
Earliest Optional
Redemption Date(4)........ June 15, 1999 April 15, 1998 April 1, 2003 February 15, 2002 February 15, 2002
Redemption 104.9 (1999) 105.08 (1998) 104.75 (2003) 105 (2002) 106.5 (2002)
Price(%)(5)............... to 100 (2006) to 100.73 (2004) to 100 (2006) to 100 (2005) to 100 (2005)
Conversion Price(6)......... 37.875 27.56 N/A N/A N/A
Senior/Subordinated......... Subordinated Subordinated Senior Senior N/A
- -------------------------
(1) Percent of aggregate principal amount at maturity (or aggregate liquidation preference in the case of the Redeemable Preferred
Stock).
(2) Percent per annum.
(3) Dividend payments on the Redeemable Preferred Stock are payable in cash or additional shares of Redeemable Preferred Stock, at
the Company's option. From May 15, 2004, dividend payments are payable in cash.
(4) This is the first date when redeemable at the Company's option. The Redeemable Preferred Stock is mandatorily redeemable for
cash on February 15, 2009.
(5) Expressed as a percentage of principal amount or liquidation preference, as applicable, plus, in each case, accrued and unpaid
interest or dividends thereon to the applicable redemption date.
(6) This is the conversion price per share of the Company's common stock, adjusted for the four-for-three stock split in August 1995
and subject to further adjustments in certain events.
(7) These notes have been called for redemption effective April 20, 1998, unless converted on or prior to April 19, 1998.
</TABLE>
Pursuant to the terms of the Northern Ireland LDL, CableTel Northern
Ireland Limited (a wholly-owned subsidiary of the Company) is required to make
annual cash payments to the ITC for fifteen years in the amount of approximately
14.4 million pounds sterling (subject to adjustments for inflation). CableTel
Northern Ireland Limited began making payments of 1.2 million pounds sterling
per month in January 1997. Such payments are in addition to the percentages of
qualifying revenue already set by the ITC of 0% for the first ten years and 2%
for the last five years of the fifteen year
54
<PAGE>
license. Pursuant to the terms of the Glamorgan and Gwent LDL, CableTel South
Wales Limited (a wholly-owned subsidiary of the Company) is required to make
annual cash payments to the ITC for fifteen years, commencing in the first full
calendar year after the start of operations, in the amount of 104,188 pounds
sterling (subject to adjustment for inflation). Such payments are in addition to
the percentages of qualifying revenue already set by the ITC of 0% for the first
five years, 2% for the second five years and 4% for the last five years of the
fifteen year license.
The Company has significant capital requirements for the completion of its
telephone, telecommunications and CATV network passed the total of 2,090,000
homes required by its regulatory build schedules, for its LDL payments and for
scheduled cash interest and principal payments, as well as requirements for
other capital expenditures. The Company expects to fund these requirements with
cash on hand, proceeds from the New Notes, funds from the New Credit Facility
and cash from operations. There can be no assurance that: (i) actual
construction costs will not exceed the amounts estimated or that additional
funding substantially in excess of the amounts estimated will not be required,
(ii) conditions precedent to advances under the New Credit Facility will be
satisfied when funds are required, (iii) the Company and its subsidiaries will
be able to generate sufficient cash from operations to meet capital
requirements, debt service and other obligations as they fall due when required,
(iv) the Company will be able to access such cash flow or (v) the Company will
not incur losses from its exposure to exchange rate fluctuations or be adversely
affected by interest rate fluctuations.
The Company's operations are conducted through its direct and indirect
wholly-owned subsidiaries. As a holding company, the Company holds no
significant assets other than its investments in and advances to its
subsidiaries. The Company is therefore dependent upon the receipt of sufficient
funds from its subsidiaries to meet its own obligations. Accordingly, the
Company's ability to make scheduled interest and principal payments when due to
holders of indebtedness of the Company and the Company's ability to pay cash
dividends to its stockholders is dependent upon the receipt of sufficient funds
from its subsidiaries.
To the extent that the Company obtains financing in United States dollars
and incurs costs in the construction and operation of the Company's regional
systems in the United Kingdom in British pounds sterling, it will encounter
currency exchange rate risks. At December 31, 1997, the Company had
approximately $42 million in pounds sterling cash accounts to reduce this risk.
In addition, the Company's New Credit Facility and the pounds sterling
denominated New Notes will also reduce this risk. Furthermore, the Company's
revenues are generated primarily in British pounds sterling while its interest
and principal obligations with respect to most of the Company's existing
indebtedness are payable in dollars. The Company has entered into an option
agreement to hedge some of the risk of exchange rate fluctuations related to
interest payments on U.S. dollar denominated debt.
The information in the preceding paragraphs does not include the impact of
the proposed Partners acquisition. In addition, the information in the preceding
paragraphs includes projections; in reviewing such information it should be kept
in mind that actual results may differ materially from those in such
projections. These projections were based on various factors and were derived
utilizing numerous assumptions. Important assumptions and factors that could
55
<PAGE>
cause actual results to differ materially from those in these projections
include the Company's ability to continue to design networks, install
facilities, obtain and maintain any required governmental 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 failure of such assumptions to be
realized as well as other factors may also cause actual results to differ
materially from those projected. The Company assumes no obligations to update
these projections to reflect actual results, changes in assumptions or changes
in other factors affecting such projections.
YEAR 2000
Many computer systems experience problems handling dates beyond the year
1999. Therefore, some computer hardware and software will need to be modified
prior to the year 2000 in order to remain functional. The Company is assessing
both the internal readiness of its computer systems and the compliance of the
computer systems of certain significant customers and vendors for handling the
year 2000. The Company expects to implement successfully the systems and
programming changes necessary to address year 2000 issues, and does not believe
that the cost of such actions will have a material adverse effect on the
Company. There can be no assurance, however, that there will not be a delay in,
or increased costs associated with, the implementation of such changes, and the
Company's inability to implement such changes could have an adverse effect on
the Company. In addition, the failure of certain of the Company's significant
customers and vendors to address the year 2000 issue could have a material
adverse effect on the Company.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash used in operating activities was $17,271,000 and $21,405,000 in the
years ended December 31, 1997 and 1996, respectively. The decrease in cash used
in operating activities is primarily due to changes in operating assets and
liabilities.
Purchases of fixed assets were $503,656,000 in 1997 and $505,664,000 in
1996 as a result of the continuing fixed asset purchases and construction in
1997. In May 1997, the Company paid $57,330,000 to the former shareholders of
NTL Group Limited in respect of the final payment of deferred purchase price.
56
<PAGE>
Proceeds from borrowings and sale of preferred stock, net of financing
costs, of $490,302,000 in 1997 is comprised of the proceeds from the 10% Notes
and the Redeemable Preferred Stock of $500,000,000, net of financing costs
incurred of $15,660,000, plus proceeds from borrowings under the NTLIH Term Loan
and Revolving Facility (the "NTLIH Facility") of $13,104,000 less $7,142,000 of
financing costs paid in connection with the New Credit Facility. Principal
payments of $242,424,000 represent the repayment of the NTLIH Facility (which
was a requirement of the New Credit Facility).
57
<PAGE>
Form 10-K - Item 14(a)(1) and (2)
NTL Incorporated and Subsidiaries
Index of Consolidated Financial Statements
and Financial Statement Schedules
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, 1997 and 1996................. F-3
Consolidated Statements of Operations - Years ended
December 31, 1997, 1996 and 1995...................................... F-5
Consolidated Statement of Shareholders' Equity (Deficiency) -
Years ended December 31, 1997, 1996 and 1995.......................... F-6
Consolidated Statements of Cash Flows - Years ended
December 31, 1997, 1996 and 1995...................................... F-7
Notes to Consolidated Financial Statements............................... F-9
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-35
Schedule II - Valuation and Qualifying Accounts.......................... F-41
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
<PAGE>
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, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity (deficiency) and cash flows for
each of the three years in the period ended December 31, 1997. 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 generally accepted auditing
standards. 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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. 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 20, 1998
F-2
<PAGE>
NTL Incorporated and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 98,902,000 $ 445,884,000
Marketable securities 4,998,000 -
Accounts receivable - trade, less allowance for
doubtful accounts of $8,056,000 (1997) and
$3,870,000 (1996) 66,022,000 28,340,000
Other 67,232,000 66,817,000
-------------- --------------
Total current assets 237,154,000 541,041,000
Fixed assets, net 1,756,985,000 1,459,528,000
Intangible assets, net 364,479,000 392,933,000
Other assets, net of accumulated amortization
of $25,889,000 (1997) and $21,789,000 (1996) 63,021,000 61,109,000
============== ==============
Total assets $2,421,639,000 $2,454,611,000
============== ==============
</TABLE>
F-3
<PAGE>
NTL Incorporated and Subsidiaries
Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
-------------- --------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable $ 45,475,000 $ 57,960,000
Accrued expenses and other 181,605,000 101,228,000
Accrued construction costs 26,930,000 62,723,000
Deferred revenue 35,060,000 16,491,000
Deferred purchase price - 60,537,000
-------------- --------------
Total current liabilities 289,070,000 298,939,000
Long-term debt 2,015,057,000 1,732,168,000
Other 428,000 459,000
Commitments and contingent liabilities
Deferred income taxes 70,218,000 94,931,000
Senior redeemable exchangeable preferred stock,
$.01 par value, plus accreted dividends;
liquidation preference $107,000,000; less
unamortized discount of $3,444,000 (1997);
issued and outstanding 110,000 shares (1997)
and none (1996) 108,534,000 -
Shareholders' equity (deficiency):
Series preferred stock - $.01 par value;
authorized 2,500,000 shares; liquidation
preference $78,000,000; issued and
outstanding 780 shares (1997 and 1996) - -
Common stock - $.01 par value; authorized
100,000,000 shares; issued and outstanding
32,210,000 (1997) and 32,066,000 (1996) shares 322,000 321,000
Additional paid-in capital 538,054,000 548,647,000
Cumulative translation adjustment 117,008,000 163,141,000
(Deficit) (717,052,000) (383,995,000)
-------------- --------------
(61,668,000) 328,114,000
-------------- --------------
Total liabilities and shareholders' equity (deficiency) $2,421,639,000 $2,454,611,000
============== ==============
</TABLE>
See accompanying notes.
F-4
<PAGE>
NTL Incorporated and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
REVENUES
Local telecommunications and television $ 189,407,000 $ 89,209,000 $ 24,804,000
National and international telecommunications 162,738,000 45,430,000 -
Broadcast transmission and other 130,799,000 83,618,000 -
Other telecommunications 8,831,000 10,086,000 8,937,000
-------------- -------------- --------------
491,775,000 228,343,000 33,741,000
COSTS AND EXPENSES
Operating expenses 301,644,000 144,315,000 24,415,000
Selling, general and administrative expenses 169,133,000 114,992,000 57,932,000
Franchise fees 23,587,000 13,117,000 -
Corporate expenses 18,324,000 14,899,000 14,697,000
Nonrecurring charges 20,642,000 - -
Depreciation and amortization 150,509,000 98,653,000 29,823,000
-------------- -------------- --------------
683,839,000 385,976,000 126,867,000
-------------- -------------- --------------
Operating (loss) (192,064,000) (157,633,000) (93,126,000)
OTHER INCOME (EXPENSE)
Interest and other income 28,415,000 33,634,000 21,185,000
Interest expense (202,570,000) (137,032,000) (28,379,000)
Other gains 21,497,000 - -
Foreign currency transaction gains 574,000 2,408,000 84,000
-------------- -------------- --------------
(Loss) before income taxes, minority interests
and extraordinary item (344,148,000) (258,623,000) (100,236,000)
Income tax benefit (provision) 15,591,000 (7,653,000) 2,477,000
-------------- -------------- --------------
(Loss) before minority interests and
extraordinary item (328,557,000) (266,276,000) (97,759,000)
Minority interests - 11,822,000 6,974,000
-------------- -------------- --------------
(Loss) before extraordinary item (328,557,000) (254,454,000) (90,785,000)
Loss from early extinguishment of debt (4,500,000) - -
-------------- -------------- --------------
Net (loss) $ (333,057,000) $ (254,454,000) $ (90,785,000)
============== ============== ==============
Basic and diluted net (loss) per common share:
(Loss) before extraordinary item $(10.60) $(8.20) $(3.01)
Extraordinary item (.14) - -
-------------- -------------- --------------
Net (loss) per common share $(10.74) $(8.20) $(3.01)
============== ============== ==============
</TABLE>
See accompanying notes.
F-5
<PAGE>
NTL Incorporated and Subsidiaries
Consolidated Statement of Shareholders' Equity (Deficiency)
<TABLE>
<CAPTION>
SERIES COMMON STOCK -
PREFERRED STOCK $.01 PAR VALUE ADDITIONAL CUMULATIVE
------------------ ---------------------- PAID-IN TRANSLATION
SHARES PAR SHARES PAR CAPITAL ADJUSTMENT (DEFICIT)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 22,635,000 $ 226,000 $ 462,197,000 $ 12,867,000 $ (38,756,000)
Exercise of stock options 20,000 1,000 101,000
Stock split 7,547,000 75,000 (75,000)
Net loss for the year ended
December 31, 1995 (90,785,000)
Currency translation adjustment (6,594,000)
-------------------------------------------------------------------------------------------
Balance, December 31, 1995 30,202,000 302,000 462,223,000 6,273,000 (129,541,000)
Exercise of stock options 396,000 4,000 1,362,000
Exercise of warrants 53,000 1,000 298,000
Issuance of warrants in connection
with consent solicitations 1,641,000
Shares issued for acquisitions 780 $ - 1,415,000 14,000 83,123,000
Net loss for the year ended
December 31, 1996 (254,454,000)
Currency translation adjustment 156,868,000
-------------------------------------------------------------------------------------------
Balance, December 31, 1996 780 - 32,066,000 321,000 548,647,000 163,141,000 (383,995,000)
Exercise of stock options 119,000 1,000 1,532,000
Exercise of warrants 25,000 138,000
Accreted dividends on senior
redeemable exchangeable
preferred stock (11,978,000)
Accretion of discount on senior
redeemable exchangeable
preferred stock (285,000)
Net loss for the year ended
December 31, 1997 (333,057,000)
Currency translation adjustment (46,133,000)
-------------------------------------------------------------------------------------------
Balance, December 31, 1997 780 $ - 32,210,000 $ 322,000 $538,054,000 $117,008,000 $(717,052,000)
===========================================================================================
</TABLE>
See accompanying notes.
F-6
<PAGE>
NTL Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
---------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (333,057,000) $ (254,454,000) $ (90,785,000)
Adjustment to reconcile net loss to net cash
(used in) operating activities:
Depreciation and amortization 150,509,000 98,653,000 29,823,000
Loss from early extinguishment of debt 4,500,000 - -
Amortization of non competition agreements 1,852,000 2,906,000 3,256,000
Provision for losses on accounts receivable 6,891,000 2,597,000 709,000
Minority interests - (11,822,000) (6,974,000)
Deferred income taxes (16,852,000) 5,063,000 -
Amortization of original issue discount 122,639,000 104,264,000 29,379,000
Other (8,148,000) 8,578,000 6,229,000
Changes in operating assets and liabilities, net
of effect from business acquisitions:
Accounts receivable (30,430,000) 10,050,000 (6,496,000)
Other current assets (6,563,000) (20,316,000) (6,749,000)
Other assets 2,303,000 (24,000) (123,000)
Accounts payable (4,615,000) (2,869,000) 20,583,000
Accrued expenses and other 74,706,000 35,691,000 9,926,000
Deferred revenue 18,994,000 278,000 1,075,000
----------------------------------------------------------
Net cash (used in) operating activities (17,271,000) (21,405,000) (10,147,000)
INVESTING ACTIVITIES
Purchase of fixed assets (503,656,000) (505,664,000) (445,550,000)
Payment of deferred purchase price (57,330,000) - -
Increase in other assets (4,322,000) (6,013,000) (3,361,000)
Acquisitions of subsidiaries and minority
interests, net of cash acquired - (332,693,000) (12,412,000)
Purchase of marketable securities (145,939,000) - -
Proceeds from sales of marketable securities 142,596,000 - -
----------------------------------------------------------
Net cash (used in) investing activities (568,651,000) (844,370,000) (461,323,000)
</TABLE>
F-7
<PAGE>
NTL Incorporated and Subsidiaries
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
----------------------------------------------------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from borrowings and sale of preferred
stock, net of financing costs $ 490,302,000 $1,146,190,000 $ 326,166,000
Principal payments (242,424,000) (95,283,000) (9,963,000)
Cash released from escrow - 1,600,000 2,810,000
Capital contribution from minority partner - - 12,626,000
Proceeds from borrowings from minority partner - 31,232,000 19,065,000
Proceeds from exercise of stock options and warrants 1,671,000 1,665,000 102,000
----------------------------------------------------------
Net cash provided by financing activities 249,549,000 1,085,404,000 350,806,000
Effect of exchange rate changes on cash (10,609,000) 50,972,000 1,345,000
----------------------------------------------------------
Increase (decrease) in cash and cash equivalents (346,982,000) 270,601,000 (119,319,000)
Cash and cash equivalents at beginning of year 445,884,000 175,283,000 294,602,000
----------------------------------------------------------
Cash and cash equivalents at end of year $ 98,902,000 $ 445,884,000 $ 175,283,000
==========================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest exclusive
of amounts capitalized $ 72,047,000 $ 27,595,000 $ 1,735,000
Income taxes paid 1,107,000 367,000 1,695,000
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Accretion of dividends and discount on senior redeemable
exchangeable preferred stock $ 12,263,000 $ - $ -
Warrants issued in connection with consent solicitations - 1,641,000 -
Common stock issued for acquisition - 34,137,000 -
Preferred stock issued for acquisition of minority interest,
including notes payable to minority partner - 49,000,000 -
Liabilities incurred in connection with acquisitions - 81,906,000 -
</TABLE>
See accompanying notes.
F-8
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
1. ORGANIZATION
NTL Incorporated (the "Company"), through its subsidiaries and joint ventures,
owns and operates television and radio broadcasting, cable television, telephone
and telecommunications systems in the United Kingdom and provides long-distance
telephone service in the United States. Based on revenues and identifiable
assets, the Company's predominant lines of business are television and radio
broadcasting, cable television, telephone and telecommunications services in the
United Kingdom.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles 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.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's foreign subsidiaries have been
translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards ("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
separately as a component of shareholders' equity (deficiency).
CASH EQUIVALENTS
Cash equivalents are short-term highly liquid investments purchased with a
maturity of three months or less. Cash equivalents were $55,894,000 and
$339,249,000 at December 31, 1997 and 1996, respectively, which consisted
primarily of repurchase agreements and corporate commercial paper. At December
31, 1997 and 1996, none and $238,862,000, respectively, of such cash equivalents
were denominated in British pounds sterling.
F-9
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 separate component of shareholders' equity (deficiency). 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, 1997 consist of federal agency notes.
During the year ended December 31, 1997, there were no realized gains or losses
on sales of securities. All of the marketable securities as of December 31, 1997
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 22.5 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.
INTANGIBLE ASSETS
Intangible assets include goodwill and license acquisition costs. 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, principally 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 life of the license as follows: cable television license - 7 to 12
years and telecommunications license - 23 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.
F-10
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER ASSETS
Other assets consist primarily of noncompetition agreements obtained in exchange
for the issuance of warrants to purchase an aggregate of 899,000 shares of
common stock and deferred financing costs. The noncompetition agreements were
valued at the difference between the fair market value of the common stock on
the date of grant and the exercise price of the warrants. The noncompetition
agreements are being expensed on a straight-line basis over the noncompetition
period of primarily five years. Deferred financing costs were 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 1997, 1996 and 1995, interest of $6,770,000, $10,294,000 and $12,183,000,
respectively, was capitalized.
REVENUE RECOGNITION
Revenues are recognized at the time the service is provided to the customer.
CABLE TELEVISION SYSTEM COSTS, EXPENSES AND REVENUES
The Company accounts for costs, expenses and revenues applicable to the
construction and operation of its cable television, telephone and
telecommunications systems in accordance with SFAS No. 51, "Financial Reporting
by Cable Television Companies."
ADVERTISING EXPENSE
The Company expenses the cost of advertising as incurred. Advertising costs were
$31,003,000, $22,727,000 and $10,370,000 in 1997, 1996 and 1995, respectively.
NET (LOSS) PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings Per Share". SFAS 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. The Company adopted SFAS No. 128 for each of the three years
in the period ended December 31, 1997.
F-11
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1997
presentation.
3. RECENT ACCOUNTING PRONOUNCEMENTS
COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income".
SFAS No. 130 requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. The Company will adopt SFAS No. 130 in the first interim
period for its fiscal year ending December 31, 1998.
SEGMENT REPORTING
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. SFAS No. 131
is effective for financial statements for periods beginning after December 15,
1997. The Company will adopt SFAS No. 131 for its fiscal year ending December
31, 1998. The Company is currently evaluating the effect that the adoption will
have on its financial statements.
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.
F-12
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES (CONTINUED)
REQUIREMENTS TO MEET BUILD MILESTONES
The telecommunications license for each United Kingdom franchise contains
specific construction milestones. Based on current network construction
scheduling, the Company believes it will be able to satisfy its milestones in
the future, but there can be no assurance that such milestones will be met. If
the Company is unable to meet the construction milestones required by any of its
licenses and is unable to obtain modifications to the milestones, the relevant
licenses could be revoked.
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.
LIMITED ACCESS TO PROGRAMMING
The Company's ability to make a competitive offering of cable television
services is dependent on the Company's ability to obtain access to programming
at a reasonable cost. There can be no assurance that the Company's current
programming will continue to be available on acceptable commercial terms or at
all.
CURRENCY RISK
To the extent that the Company obtains financing in United States dollars and
incurs construction and operating costs in British pounds sterling, it will
encounter currency exchange rate risks. In addition, the Company's revenues are
generated primarily in British pounds sterling while its interest and principal
obligations with respect to most of the Company's existing indebtedness are
payable in United States dollars. The Company has entered into an option
agreement to hedge some of the risk of exchange rate fluctuations related to
interest payments on United States dollar denominated debt.
F-13
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. FIXED ASSETS
Fixed assets consists of:
DECEMBER 31
1997 1996
------------------------------------------
Operating equipment $1,612,440,000 $1,080,135,000
Other equipment 225,514,000 197,368,000
Construction-in-progress 134,795,000 305,372,000
------------------------------------------
1,972,749,000 1,582,875,000
Accumulated depreciation (215,764,000) (123,347,000)
------------------------------------------
$1,756,985,000 $1,459,528,000
==========================================
6. INTANGIBLE ASSETS
Intangible assets consists of:
DECEMBER 31
1997 1996
------------------------------------------
License acquisition costs, net
of accumulated amortization
of $46,620,000 (1997) and
$34,894,000 (1996) $123,116,000 $134,909,000
Goodwill, net of accumulated
amortization of $13,449,000
(1997) and $5,986,000 (1996) 241,363,000 258,024,000
------------------------------------------
$364,479,000 $392,933,000
==========================================
In October 1996, the Company acquired the remaining 40% interest it did not
already own in CableTel Newport in exchange for 780 shares of the Company's
Series A Preferred Stock. CableTel Newport owns and operates cable television,
telephone and telecommunications franchises in South Wales. The Series A
Preferred Stock was valued at $49,000,000, based on an appraisal as of the date
of issuance. The fair value of the net tangible assets acquired of $67,710,000
exceeded the aggregate purchase price of $49,062,000 (including costs incurred
of $62,000) by $18,648,000, which is classified as a reduction to license
acquisition costs.
In September 1996, the Company acquired the remaining 30% minority interest of
English Cable Enterprises, Inc. ("ECE") that the Company did not own, in
exchange for 1,415,000 shares of its common stock. ECE, through its
subsidiaries, owns four cable television, telephone and telecommunications
licenses in the northern suburbs of London. The value of the shares, based on
the market price on the date of issuance, of $34,137,000 plus costs incurred of
$204,000 exceeded the fair value of the net tangible assets acquired by
$28,649,000, which is classified as license acquisition costs.
F-14
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. INTANGIBLE ASSETS (CONTINUED)
In May 1996, an indirect wholly-owned subsidiary of the Company, NTL Investment
Holdings Limited ("NTLIH"), acquired NTL Group Limited for payments of
approximately 204,000,000 pounds sterling at closing, 17,100,000 pounds sterling
in October 1996 and 35,000,000 pounds sterling in May 1997. NTL Group Limited
provides television and radio transmission services and a range of other
services in the broadcasting and telecommunications industries. This acquisition
has been accounted for as a purchase, and, accordingly, the net assets and
results of operations of NTL Group Limited have been included in the
consolidated financial statements from the date of acquisition. The aggregate
purchase price of 256,100,000 pounds sterling ($439,000,000) plus costs incurred
of $3,700,000 exceeded the fair value of the net tangible assets acquired by
$263,000,000, which is classified as goodwill.
The pro forma unaudited consolidated results of operations for the year ended
December 31, 1996 assuming consummation of the above mentioned transactions as
of January 1, 1996 is as follows:
Total revenue $289,638,000
Net loss (265,180,000)
Basic and diluted net loss per share (8.31)
In October 1995, CableTel South Wales Limited, a wholly-owned subsidiary of
CableTel Newport, acquired the cable television business of Metro Cable TV
Limited in South Wales ("Metro Wales"), and CableTel Central Hertfordshire
Limited, a wholly-owned subsidiary of ECE, acquired the cable television
business of Metro Cable TV Limited in Hertfordshire ("Metro Herts"), for an
aggregate consideration of $12,125,000. These acquisitions have been accounted
for as purchases, and, accordingly, the net assets and results of operations of
Metro Wales and Metro Herts have been included in the consolidated financial
statements from the date of acquisition. The aggregate purchase price exceeded
the fair value of the net tangible assets acquired by $10,167,000, which is
classified as license acquisition costs. In 1996, the Metro Wales license
acquisition costs were reduced by $565,000.
F-15
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
---------------------------------------------------
<S> <C> <C>
10-7/8% Senior Deferred Coupon Notes
("10-7/8% Notes") (a) $ 194,959,000 $ 175,368,000
12-3/4% Series A Senior Deferred Coupon Notes
("12-3/4% Notes") (b) 209,387,000 185,043,000
11-1/2% Series B Senior Deferred Coupon Notes
("11-1/2% Notes") (c) 743,961,000 665,257,000
10% Series B Senior Notes ("10% Notes") (d) 400,000,000 -
7-1/4% Convertible Subordinated Notes
("7-1/4 Convertible Notes") (e) 191,750,000 191,750,000
7% Convertible Subordinated Notes
("7% Convertible Notes") (f) 275,000,000 275,000,000
Term Loan and Revolving Facility (g) - 239,750,000
---------------------------------------------------
$2,015,057,000 $1,732,168,000
========================== ========================
</TABLE>
(a) In October 1993, the Company issued $212,000,000 aggregate principal amount
of 10-7/8% Senior Deferred Coupon Notes due 2003. The 10-7/8% Notes were
issued at a price to the public of 58.873% or $124,811,000. The Company
incurred $5,019,000 in fees and expenses which is included in deferred
financing costs. The original issue discount on the 10-7/8% Notes accretes
at a rate of 10-7/8%, compounded semiannually, to an aggregate principal
amount of $212,000,000 by October 15, 1998. Interest will thereafter accrue
at 10-7/8% per annum, payable semiannually beginning on April 15, 1999.
During 1997, 1996 and 1995, the Company recognized $19,591,000, $17,620,000
and $15,851,000, respectively, of the original issue discount as interest
expense.
The 10-7/8% Notes are effectively subordinated to all existing and future
indebtedness and other liabilities and commitments of the Company's
subsidiaries. The 10-7/8% Notes may be redeemed at the Company's option, in
whole or in part, at any time on or after October 15, 1998 at 103.107% the
first year, 101.554% the second year and 100% thereafter, plus accrued and
unpaid interest to the date of redemption. The indenture governing the
10-7/8% Notes contains 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.
F-16
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. LONG-TERM DEBT (CONTINUED)
(b) In April 1995, the Company issued $277,803,500 aggregate principal amount
of 12-3/4% Senior Deferred Coupon Notes due 2005. The 12-3/4% Notes were
issued at a price to the public of 53.995% or $150,000,000. The Company
incurred $6,192,000 in fees and expenses in connection with the issuance of
12-3/4% Notes which is included in deferred financing costs. The original
issue discount accretes at a rate of 12-3/4%, compounded semiannually, to
an aggregate principal amount of $277,803,500 by April 15, 2000. Interest
will thereafter accrue at 12-3/4% per annum, payable semiannually beginning
on October 15, 2000. During 1997, 1996 and 1995, the Company recognized
$24,344,000, $21,515,000 and $13,528,000, respectively, of original issue
discount as interest expense.
The 12-3/4% Notes are effectively subordinated to all existing and future
indebtedness and other liabilities and commitments of the Company's
subsidiaries, rank pari passu in right of payment with all senior unsecured
indebtedness and rank senior in right of payment to all subordinated
indebtedness of the Company. The 12-3/4% Notes may be redeemed at the
Company's option, in whole or in part, at any time on or after April 15,
2000 at 103.64% the first year, 101.82% the second year and 100%
thereafter, plus accrued and unpaid interest to the date of redemption. The
indenture governing the 12-3/4% Notes contains 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.
(c) In January 1996, the Company issued $1,050,000,000 aggregate principal
amount of 11-1/2% Series B Senior Deferred Coupon Notes due 2006. The
11-1/2% Notes were issued at a price to investors of 57.155% of the
aggregate principal amount at maturity or $600,127,500. The Company
incurred $19,273,000 in fees and expenses in connection with the issuance
of the 11-1/2% Notes which is included in deferred financing costs. The
original issue discount accretes at a rate of 11-1/2%, compounded
semiannually, to an aggregate principal amount of $1,050,000,000 by
February 1, 2001. Interest will thereafter accrue at 11-1/2% per annum,
payable semiannually beginning on August 1, 2001. During 1997 and 1996, the
Company recognized $78,704,000 and $65,129,000 of original issue discount
as interest expense.
The 11-1/2% Notes are effectively subordinated to all existing and future
indebtedness and other liabilities and commitments of the Company's
subsidiaries, rank pari passu in right of payment with all senior unsecured
indebtedness and rank senior in right of payment to all subordinated
indebtedness of the Company. The 11-1/2% Notes may be redeemed at the
Company's option, in whole or in part, at any time on or after February 1,
2001 at 105.75% the first year, 102.875% the second year and 100%
thereafter, plus accrued and unpaid interest to the date of redemption. The
indenture governing the 11-1/2% Notes contains 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.
F-17
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. LONG-TERM DEBT (CONTINUED)
(d) In February 1997, the Company issued $400,000,000 aggregate principal
amount of 10% Senior Notes due 2007. The Company received net proceeds of
$389,000,000 after discounts and commissions from the issuance of the 10%
Notes. Discounts, commissions and other fees incurred of $11,885,000 are
included in deferred financing costs. The 10% Notes accrue interest at 10%
per annum, payable semiannually as of August 15, 1997.
The 10% Notes are effectively subordinated to all existing and future
indebtedness and other liabilities and commitments of the Company's
subsidiaries. The 10% Notes 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 105% that declines annually to 100% in 2005, in each case together
with accrued and unpaid interest to the date of redemption. The indenture
governing the 10% Notes contains restrictions relating to, among other
things: (i) incurrence of additional indebtedness and the issuance of
preferred stock, (ii) dividend and other payment restrictions and (iii)
mergers, consolidations and sales of assets.
(e) In April and May 1995, the Company issued $191,750,000 principal amount of
7-1/4% Convertible Subordinated Notes due 2005. Interest payments began on
October 15, 1995 and interest is payable every six months thereafter. The
7-1/4% Convertible Notes will mature on April 15, 2005. The 7-1/4%
Convertible Notes are unsecured obligations convertible into shares of
common stock prior to maturity at a conversion price of $27.56 per share,
subject to adjustment. There are approximately 6,958,000 shares of common
stock reserved for issuance upon the conversion of the 7-1/4% Convertible
Notes. The 7-1/4% Convertible Notes are redeemable, in whole or in part, at
the option of the Company at any time on or after April 15, 1998, at a
redemption price of 105.08% that declines annually to 100.73% in 2004, in
each case together with accrued interest to the redemption date. The
Company incurred $6,822,000 in fees and expenses in connection with the
issuance of the 7-1/4% Convertible Notes, which is included in deferred
financing costs.
In March 1998, the Company announced that it was calling for redemption all
of the 7-1/4% Convertible Notes. The redemption date is April 20, 1998 and
the redemption price is 105.08% of the principal amount, plus accrued and
unpaid interest through the date of redemption.
(f) In June 1996, the Company issued $275,000,000 aggregate principal amount of
7% Convertible Subordinated Notes due 2008. Interest payments began on
December 15, 1996 and interest is payable every six months thereafter. The
7% Convertible Notes mature on June 15, 2008. The 7% Convertible Notes are
unsecured obligations convertible into shares of common stock prior to
maturity at a conversion price of $37.875 per share, subject to adjustment.
There are approximately 7,261,000 shares of common stock reserved for
issuance upon conversion of the 7% Convertible Notes. The 7% Convertible
Notes are redeemable, in whole or in part, at the option of the Company at
any time on or after June 15, 1999, at a redemption price of 104.9% that
declines annually to 100% in 2006, in
F-18
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. LONG-TERM DEBT (CONTINUED)
each case together with accrued and unpaid interest to the redemption date.
The Company incurred $8,616,000 in fees and expenses in connection with the
issuance of the 7% Convertible Notes, which is included in deferred
financing costs.
(g) To finance a substantial portion of the purchase price for NTL Group
Limited, NTLIH obtained from a syndicate of lenders senior secured loan
facilities (the "NTLIH Facility") of a maximum principal amount of
165,000,000 pounds sterling comprised of: (i) a long-term loan facility of
140,000,000 pounds sterling and (ii) a revolving credit facility of
25,000,000 pounds sterling. One of the Lenders also made available to NTLIH
a secured loan facility of 60,000,000 pounds sterling (the "Bridge
Facility") to finance the remainder of the payment due at closing and
acquisition costs and expenses due at closing. Loans under the NTLIH
Facility incurred interest at an annual rate equal to LIBOR plus a margin
that varied from 0.75% per annum to 1.75% per annum, based on certain
financial ratios of NTLIH and certain of its subsidiaries. Interest was
payable either monthly, quarterly or semiannually, at the option of NTLIH.
The effective interest rate on the NTLIH Facility at December 31, 1996 was
7.972%. The Bridge Facility was repaid in full in August 1996. In October
1997, the principal and accrued interest outstanding under the NTLIH
Facility of 140,138,000 pounds sterling ($231,466,000) was repaid using
cash on hand.
In 1997, NTL (UK) Group, Inc., a wholly-owned subsidiary of the Company, which
is the holding company for the United Kingdom operations and the parent company
of NTLIH, and NTLIH entered into an agreement with The Chase Manhattan Bank
pursuant to which Chase has agreed to fully underwrite a 555,000,000 pounds
sterling, eight-year term loan facility with an initial four-year revolving
period. By April 14, 1999, Chase's commitment will be reduced to no less than
480,000,000 pounds sterling or such greater amount as is necessary to ensure
that the Company's United Kingdom operations remain fully funded by reference to
an agreed business plan. The facility will be used to finance capital
expenditures and working capital for the Company's United Kingdom operations,
including its local broadband, national telecommunications and national digital
television networks. A portion of the facility (75,000,000 pounds sterling) is
conditional upon the execution of contracts to provide digital television
transmission services to certain third parties. Chase has provided a portion of
the 555,000,000 pounds sterling facility in the form of a 350,000,000 pounds
sterling facility to the Company on the same terms as to restrictions,
covenants, guarantees and security as the 555,000,000 pounds sterling facility.
As of March 20, 1998, 10,000,000 pounds sterling ($16,517,000) is outstanding
under the 350,000,000 pounds sterling facility. The principal amount outstanding
under the 350,000,000 pounds sterling facility is required to be repaid on
December 31, 2005. Interest is payable either monthly, quarterly or
semi-annually, at the option of NTLIH, at LIBOR plus, at a maximum, 2.25% per
annum. The commitment fee is .375% per annum on the unutilized portion of the
350,000,000 pounds sterling facility and is payable quarterly in arrears. The
facility is secured by first fixed and floating charges over all present and
future assets and undertakings of the United Kingdom group. The facility
F-19
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. LONG-TERM DEBT (CONTINUED)
contains customary financial covenants, and certain restrictions relating to,
among other things: (i) incurrence of additional indebtedness or guarantees,
(ii) investments, acquisitions and mergers and (iii) dividend and other payment
restrictions. In the absence of a default, the facility generally permits
payments to the Company to pay interest and principal of existing indebtedness
of the Company. At December 31, 1997, restricted net assets were approximately
$1,861,000,000.
In March 1998, the Company issued 125,000,000 pounds sterling aggregate
principal amount of 9-1/2% Senior Notes due 2008 (the "Sterling Senior Notes"),
300,000,000 pounds sterling aggregate principal amount of 10-3/4% Senior
Deferred Coupon Notes due 2008 (the "Sterling Deferred Coupon Notes") and
$1,300,000,000 aggregate principal amount of 9-3/4% Senior Deferred Coupon Notes
due 2008 (the "Dollar Deferred Coupon Notes") (together the "New Notes"). The
Sterling Senior Notes, Sterling Deferred Coupon Notes and the Dollar Deferred
Coupon Notes were issued at a price to the public of 99.67% or 124,588,000
pounds sterling, 58.62% or 175,860,000 pounds sterling and 61.724% or
$802,412,000, respectively. The Company received net proceeds of 121,161,000
pounds sterling, 170,584,000 pounds sterling and $778,340,000, after discounts
and commissions, from the issuance of the Sterling Senior Notes, the Sterling
Deferred Coupon Notes and the Dollar Deferred Coupon Notes, respectively.
The original issue discount of the Sterling Deferred Coupon Notes accretes at a
rate of 10-3/4%, compounded semiannually, to an aggregate principal amount of
300,000,000 pounds sterling by April 1, 2003. The original issue discount of the
Dollar Deferred Coupon Notes accretes at a rate of 9-3/4%, compounded
semiannually, to an aggregate principal amount of $1,300,000,000 by April 1,
2003. Interest on each of the Sterling Deferred Coupon Notes and the Dollar
Deferred Coupon Notes will thereafter accrue at 10-3/4% per annum and 9-3/4% per
annum, respectively, payable semiannually, beginning on October 1, 2003. The
Sterling Senior Notes accrue interest at 9-1/2% per annum, payable semiannually,
beginning on October 1, 1998.
The New Notes are effectively subordinated to all existing and future
indebtedness and other liabilities and commitments of the Company's
subsidiaries, rank pari passu in right of payment with each other and with all
senior unsecured indebtedness of the Company and rank senior in right of payment
to all subordinated indebtedness of the Company.
The New Notes may be redeemed at the Company's option, in whole or in part, at
any time on or after April 1, 2003, at a redemption price of 104-3/4% to
105-3/8% that declines annually to 100% in 2006, in each case together with
accrued and unpaid interest to the date of redemption.
The indentures governing the New Notes contain restrictions relating to, among
other things: (i) incurrence of additional indebtedness and the issuance of
preferred stock, (ii) dividend and other payment restrictions and (iii) mergers,
consolidations and sales of assets.
F-20
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. REDEEMABLE PREFERRED STOCK
In February 1997, the Company issued $100,000,000 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.
Of the 2,500,000 authorized shares of Series Preferred Stock, 100,000 shares of
Redeemable Preferred Stock were issued. Dividends accrue at 13% per annum ($130
per share) and are payable quarterly in arrears as of May 15, 1997. Dividends,
whether or not earned or declared, will accrue without interest until declared
and paid, which declaration may be for all or part of the accrued dividends.
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, 1997, the
Company has accrued $11,978,000 for dividends and has issued approximately
10,000 shares for $10,187,000 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.
9. NONRECURRING CHARGES INCLUDING RESTRUCTURING CHARGES
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 relate to 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. The Company is consolidating the Customer Operations departments
that serve its three franchise areas in England into one department, and is
consolidating certain operations and management groups within the Broadcast
Services division,
F-21
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. NONRECURRING CHARGES INCLUDING RESTRUCTURING CHARGES (CONTINUED)
as well as certain other consolidations or cessations of activities. 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, 1997, $5,441,000 of the provision has been used,
including $2,916,000 for severance and related costs, $324,000 for lease exit
costs and $2,201,000 for penalties associated with the cancellation of
contractual obligations, and 118 employees had been terminated. There was no
other adjustment to the liability.
10. OTHER GAINS
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.
11. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
YEAR ENDED DECEMBER 31
1997 1996 1995
---------------------------------------------------
Current:
Federal $ - $ - $ (181,000)
State and local 1,261,000 344,000 167,000
Foreign - 2,246,000 (2,463,000)
---------------------------------------------------
Total current 1,261,000 2,590,000 (2,477,000)
---------------------------------------------------
Deferred:
Federal - - -
State and local - - -
Foreign (16,852,000) 5,063,000 -
---------------------------------------------------
Total deferred (16,852,000) 5,063,000 -
---------------------------------------------------
$(15,591,000) $7,653,000 $(2,477,000)
===================================================
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
F-22
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. INCOME TAXES (CONTINUED)
income tax purposes. Significant components of the deferred tax liabilities and
assets are as follows:
DECEMBER 31
1997 1996
---------------------------------
Deferred tax liabilities:
Fixed assets $ 68,380,000 $ 78,433,000
Depreciation and amortization - 30,623,000
Other 4,894,000 6,018,000
---------------------------------
Total deferred tax liabilities 73,274,000 115,074,000
Deferred tax assets:
Net operating losses 107,208,000 99,227,000
Net deferred interest expense 94,689,000 51,770,000
Depreciation and amortization 16,935,000 -
Other 18,164,000 10,396,000
---------------------------------
Total deferred tax assets 236,996,000 161,393,000
Valuation allowance for deferred
tax assets (233,940,000) (141,250,000)
---------------------------------
Net deferred tax assets 3,056,000 20,143,000
---------------------------------
Net deferred tax liabilities $ 70,218,000 $ 94,931,000
=================================
At December 31, 1997, the Company had net operating loss carryforwards of
approximately $56,000,000 for U.S. federal income tax purposes that expire as
follows: $500,000 in 2008, $1,100,000 in 2009, $21,000,000 in 2010, $27,700,000
in 2011 and $5,700,000 in 2012. The Company also has United Kingdom net
operating loss carryforwards of approximately $290,000,000 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 reconciliation of income taxes computed at U.S. federal statutory rates to
income tax expense is as follows:
YEAR ENDED DECEMBER 31
1997 1996 1995
---------------------------------------------
Provision (benefit) at
federal statutory rate (35%) $(120,452,000) $(90,518,000) $(35,083,000)
Add (deduct):
State and local income tax,
net of federal benefit 820,000 224,000 109,000
Foreign losses with no benefit 59,804,000 44,610,000 6,699,000
Amortization of goodwill and
license acquisition costs 3,925,000 4,031,000 3,696,000
U.S. losses with no benefit 40,312,000 49,184,000 22,507,000
Other - 122,000 (405,000)
---------------------------------------------
$ (15,591,000) $7,653,000 $(2,477,000)
=============================================
F-23
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. 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 fair values of the 10-7/8% Notes, the 12-3/4% Notes,
the 11-1/2% Notes, the 10% Notes, the 7-1/4% Convertible Notes and the 7%
Convertible Notes are based on the quoted market price. The fair value of
the Term Loan and Revolving Facility is estimated using discounted cash
flow analysis, based on the Company's incremental borrowing rate for
similar types of borrowing arrangements.
Redeemable Preferred Stock: The fair value is based on the quoted market
price.
The carrying amounts and fair values of the Company's financial instruments are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------------- ----------------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 98,902,000 $ 98,902,000 $ 445,884,000 $ 445,884,000
Long-term debt:
10-7/8% Notes 194,959,000 199,810,000 175,368,000 179,140,000
12-3/4% Notes 209,387,000 230,577,000 185,043,000 202,797,000
11-1/2% Notes 743,961,000 819,000,000 665,257,000 714,000,000
10% Notes 400,000,000 422,000,000 - -
7-1/4% Convertible Notes 191,750,000 212,843,000 191,750,000 206,611,000
7% Convertible Notes 275,000,000 264,688,000 275,000,000 251,625,000
Term Loan and Revolving Facility - - 239,750,000 239,750,000
Redeemable Preferred Stock 108,534,000 121,846,000 - -
</TABLE>
13. RELATED PARTY TRANSACTIONS
On July 25, 1990, Cellular Communications, Inc. ("CCI") and AirTouch
Communications, Inc. ("AirTouch") entered into a Merger and Joint Venture
Agreement, as amended as of December 14, 1990. In connection with this
agreement, on July 31, 1991, CCI distributed to its shareholders the stock of
the Company.
F-24
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. RELATED PARTY TRANSACTIONS (CONTINUED)
Through August 1996, CCI provided management, financial and legal services to
the Company. Amounts charged to the Company included direct costs where
identifiable, and indirect costs allocated utilizing direct labor hours as
reported by the common officers and employees of CCI and the Company. For the
years ended December 31, 1996 and 1995, CCI charged $1,194,000, and $1,644,000,
respectively, which is included in corporate expenses. In August 1996, upon the
merger of CCI with AirTouch, the Company commenced providing management,
financial, legal and technical services to Cellular Communications
International, Inc. ("CCII") and CoreComm Incorporated ("CoreComm"). In 1996,
the Company charged CCII and CoreComm $351,000 and $200,000, respectively, which
included direct costs where identifiable and allocated corporate overhead based
upon the amount of time incurred on CCII and CoreComm business by the common
officers and employees of the Company, CCII and CoreComm. These charges reduced
corporate expenses in 1996.
In January 1997, the Company, CoreComm and CCII agreed to a change in the
Company's fee for the provision of services. In 1997, the Company charged
CoreComm and CCII $1,492,000 and $871,000, respectively, for direct costs where
identifiable and a fixed percentage of its corporate overhead. These charges
reduced corporate expenses. In the opinion of management of the Company, the
allocation methods are reasonable.
As of December 31, 1997 and 1996, the Company had receivables of $69,000 and
$586,000 from CCII and $71,000 and $102,000 from CoreComm, respectively.
In 1993, the Company entered into a consulting agreement with Insight
Communications Company, L.P. ("Insight U.S."), under which Insight U.S. provided
advice and assistance to the Company with respect to its cable television,
telephone and telecommunications operations in the United Kingdom. Two members
of the Company's Board of Directors are partners in Insight U.S. Pursuant to the
consulting agreement, which had a term of three years, the Company paid Insight
U.S. a fee of $50,000 per month for the first year, $40,000 per month for the
second year and $30,000 per month for the third year. The fees for the years
ended December 31, 1996 and 1995 of $270,000 and $450,000, respectively, are
included in corporate expenses.
F-25
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. 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
1997 1996 1995
--------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Loss before extraordinary item $(328,557,000) $(254,454,000) $(90,785,000)
Preferred stock dividend (11,978,000) - -
--------------------------------------------------------------
(340,535,000) (254,454,000) (90,785,000)
Extraordinary item (4,500,000) - -
--------------------------------------------------------------
Loss available to common shareholders $(345,035,000) $(254,454,000) $(90,785,000)
--------------------------------------------------------------
Denominator for basic net loss
per common share 32,117,000 31,041,000 30,190,000
Effect of dilutive securities - - -
--------------------------------------------------------------
Denominator for diluted net loss
per common share 32,117,000 31,041,000 30,190,000
--------------------------------------------------------------
Basic and diluted net loss per common share:
Loss before extraordinary item $(10.60) $(8.20) $(3.01)
Extraordinary item (.14) - -
--------------------------------------------------------------
Net (loss) $(10.74) $(8.20) $(3.01)
==============================================================
</TABLE>
Stock options, warrants and convertible securities are excluded from the
calculation of net loss per common share as their effect would be antidilutive.
15. SHAREHOLDERS' EQUITY (DEFICIENCY)
STOCK SPLIT
On July 25, 1995, the Company declared a 4-for-3 stock split by way of stock
dividend, which was paid on August 11, 1995. All common stock data in the
Consolidated Financial Statements give effect to the stock split.
SERIES PREFERRED STOCK
In October 1996, the Board of Directors created and authorized for issuance
2,000 shares of 5% Non-Voting Convertible Preferred Stock, Series A ("Series A
Preferred Stock"), of which 780 shares were issued in connection with the
CableTel Newport acquisition. Each share of Series A Preferred Stock has a
stated value of $100,000, subject to certain exceptions. The holders of
F-26
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. SHAREHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
Series A Preferred Stock are entitled to receive cumulative dividends beginning
in October 2001 at the rate of 5% of the stated value, payable semi-annually in
arrears, subject to certain exceptions. Dividends may be paid, in the sole
discretion of the Board of Directors, in cash, in common stock or in additional
shares of Series A Preferred Stock. The Company has the right, exercisable at
any time, to redeem all or some of the Series A Preferred Stock at a price equal
to the aggregate stated value of the shares to be redeemed, together with all
accrued and unpaid dividends, in cash or in shares of common stock (based on the
average market price of the common stock, as defined). The holder of Series A
Preferred Stock has the right to convert shares of Series A Preferred Stock into
common stock equal to the aggregate stated value of Series A Preferred Stock
divided by the greater of (a) $40.00 or (b) the average market price of the
common stock, as defined. The Series A Preferred Stock has a liquidation
preference equal to the stated value per share plus accrued and unpaid
dividends.
WARRANTS
In 1993, the Company issued warrants to purchase an aggregate of approximately
899,000 shares of common stock at an initial exercise price of $8.35 per share
in connection with certain noncompetition agreements. The exercise price
decreased to $6.96 per share in the second year after the grant and to $5.57 per
share thereafter. The warrants were valued at $13,193,000, the difference
between the fair market value of the common stock on the date of grant and $5.57
per share. The warrants expire in 2000.
In 1996, pursuant to the terms of the consent solicitations to the holders of
the 10-7/8% Notes and to the holders of the 12-3/4% Notes to gain consent to
modify certain indenture provisions, the Company paid an aggregate of $3,592,000
in consent payments and issued warrants to purchase 164,000 shares of common
stock at an exercise price of $23.78 per share in lieu of additional consent
payments of $1,641,000. The warrants expire in 2006.
SHAREHOLDER RIGHTS PLAN
The Rights Agreement provides that one 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.
F-27
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. SHAREHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
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 100 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 100 times the payment made per share of common stock.
Each share of Rights Preferred Stock will have 100 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 100 times the amount
received per share of common stock. These rights are protected by customary
antidilution provisions.
There are 2,500,000 authorized shares of Series Preferred Stock of which
1,000,000 shares are designated Rights Preferred Stock.
STOCK OPTIONS
There are 2,164,000 shares of common stock reserved for issuance under the OCOM
Corporation (a wholly-owned subsidiary of the Company) 1991 Stock Option Plan.
The plan provides that incentive stock options ("ISOs") be granted at the fair
market value of OCOM'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
OCOM'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 6,653,000 shares of common stock reserved for issuance under the NTL
Incorporated 1993 Stock Option Plan. The exercise price of an ISO may not be
less than 100% of the fair market value of the Company's common stock on the
date of grant, and the exercise price of a NQSO may not be 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 100,000 shares of common stock reserved for issuance under the OCOM
Corporation Non-Employee Director Stock Option Plan. The plan provides that all
options be granted at the fair market value of OCOM'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.
F-28
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. SHAREHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
There are 320,000 shares of common stock reserved for issuance under the NTL
Incorporated 1993 Non-Employee Director Stock Option Plan. Under the terms of
this plan, options will be granted to members of the Board of Directors who are
not employees of the Company or any of its affiliates. The plan provides 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.
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 1997, 1996 and 1995: risk-free interest rates of 5.89%, 6.56%
and 6.61%, respectively, dividend yield of 0%, volatility factor of the expected
market price of the Company's common stock of .276, .255 and .255, 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:
YEAR ENDED DECEMBER 31
1997 1996 1995
-----------------------------------------------
Pro forma net (loss) $(343,850,000) $(261,245,000) $(93,688,000)
Basic and diluted pro
forma net (loss) per share $(11.08) $(8.42) $(3.10)
F-29
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. SHAREHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
A summary of the Company's stock option activity and related information for the
years ended December 31, follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------------------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of year 6,738,000 $ 14.10 5,934,000 $11.04 4,795,000 $8.09
Granted 1,571,000 23.97 1,390,000 25.94 1,164,000 23.07
Exercised (119,000) 12.85 (396,000) 3.44 (21,000) 4.78
Forfeited (33,000) 23.78 (190,000) 27.39 (4,000) 17.50
--------- --------- ---------
Outstanding-end of year 8,157,000 $15.98 6,738,000 $14.10 5,934,000 $11.04
========= ========= =========
Exercisable at end of year 5,663,000 $12.39 4,258,000 $10.71 3,410,000 $ 8.22
========= ========= =========
</TABLE>
Weighted-average fair value of options, calculated using the Black-Scholes
option pricing model, granted during 1997, 1996 and 1995 is $12.74, $13.98 and
$12.47, respectively.
The following table summarizes the status of the stock options outstanding and
exercisable at December 31, 1997:
<TABLE>
<CAPTION>
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE
- ------------------- ----------------------------------------------- ---------------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OF CONTRACTUAL EXERCISE OF EXERCISE
EXERCISE PRICES OPTIONS LIFE PRICE OPTIONS PRICE
- ------------------- ----------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
$0.19 to $0.56 77,000 3.6 Years $0.245 77,000 $0.245
$0.73 to $1.12 150,000 3.6 Years $0.745 150,000 $0.745
$1.53 to $2.69 356,000 3.6 Years $2.157 356,000 $2.157
$3.09 to $4.50 75,000 4.4 Years $3.230 75,000 $3.230
$8.81 to $14.63 3,312,000 5.4 Years $8.873 3,305,000 $8.861
$15.19 to $22.88 1,498,000 7.4 Years $21.685 882,000 $21.659
$23.06 to $32.38 2,689,000 8.9 Years $25.038 818,000 $25.213
- ------------------- ----------------------------------------------- ---------------------------------
Total 8,157,000 5,663,000
=================== =============================================== =================================
</TABLE>
The Company has 25,309,000 shares of its common stock reserved for issuance upon
the exercise of warrants and stock options and the conversion of debt and
preferred stock.
F-30
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
16. EMPLOYEE BENEFIT PLANS
Certain subsidiaries of NTL Group Limited operate a defined benefit pension
plan in the United Kingdom. The assets of the Plan are held separately from
those of NTL Group Limited 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 plan necessary to comply with the funding requirements as prescribed by
the laws and regulations in the United Kingdom. The change in the projected
benefit obligation in 1997 is due to the change in actuarial assumptions used.
The components of net pension costs are as follows:
YEAR ENDED DECEMBER 31
1997 1996
--------------------------------------------
Service cost $ 10,693,000 $7,997,000
Interest cost 12,765,000 11,679,000
Actual return on plan assets (30,852,000) (16,103,000)
Net amortization and deferral 17,327,000 4,241,000
--------------------------------------------
$ 9,933,000 $7,814,000
============================================
The funded status (assets exceed accumulated benefits) of the plan is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
---------------------------------------
<S> <C> <C>
Accumulated benefit obligation:
Vested $178,828,000 $148,809,000
Nonvested - -
---------------------------------------
$178,828,000 $148,809,000
=======================================
Fair value of plan assets,
principally U.K. equity securities $195,226,000 $166,195,000
Projected benefit obligation 204,340,000 170,795,000
---------------------------------------
Excess of projected benefit obligation over assets (9,114,000) (4,600,000)
Unrecognized net transition obligation 10,203,000 11,541,000
Unrecognized net gain (1,065,000) (5,098,000)
---------------------------------------
Prepaid pension cost $ 24,000 $1,843,000
=======================================
Actuarial assumptions:
Weighted average discount rate 7.25% 8.25%
Weighted average rate of compensation increase 8.00% 8.00%
Expected long-term rate of return on plan assets 9.00% 9.50%
</TABLE>
F-31
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
17. LEASES
Leases for buildings, office space and equipment extend through 2031. Total
rental expense for the years ended December 31, 1997, 1996 and 1995 under
operating leases was $20,674,000, $14,886,000 and $2,607,000, respectively.
Future minimum lease payments under noncancellable operating leases as of
December 31, 1997 are as follows:
Year ended December 31:
1998 $21,169,000
1999 20,933,000
2000 20,572,000
2001 20,235,000
2002 16,352,000
Thereafter 82,420,000
------------
$181,681,000
============
18. COMMITMENTS AND CONTINGENT LIABILITIES
As of December 31, 1997, the Company was committed to pay approximately
$78,000,000 for equipment and services.
The Company has licenses issued by the United Kingdom Department of Trade and
Industry ("DTI") and the United Kingdom Independent Television Commission
("ITC") for its cable television, telephone and telecommunications business. The
initial terms of the Company's licenses was 23 years for the DTI licenses and 15
years for the ITC licenses. The Company's licenses expire in 2008 to 2016 for
the DTI licenses and 1999 to 2005 for the ITC licenses. The DTI requires a fixed
annual renewal fee of 2,500 pounds sterling ($4,200) per license. The ITC
requires an annual license fee ranging from 1,300 pounds sterling ($2,200) to
7,900 pounds sterling ($13,100) per license based on the number of homes in the
licensed area, which is subject to adjustment annually. The Company's license
fees in 1997 were $316,000.
In addition, the Company was awarded certain newly issued licenses by the ITC in
1995. Pursuant to the terms of the local delivery license ("LDL") for Northern
Ireland granted to a wholly-owned subsidiary of the Company, the Company is
required to make annual cash payments to the ITC for fifteen years commencing in
January 1997 in the amount of approximately 14,400,000 pounds sterling
($23,800,000) (subject to adjustments for inflation). Such payments are in
addition to the percentages of qualifying revenue already set by the ITC of 0%
for the first ten years and 2% for the last five years of the fifteen year
license. The Company paid $23,587,000 in 1997.
F-32
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
18. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
Pursuant to the terms of the LDL for Glamorgan and Gwent, Wales granted to a
wholly-owned subsidiary of the Company, the Company is required to make annual
cash payments to the ITC for fifteen years, commencing in the first full
calendar year after the start of operations, in the amount of 104,188 pounds
sterling ($172,000). Such payments are in addition to the percentages of
qualifying revenue already set by the ITC of 0% for the first five years, 2% for
the second five years and 4% for the last five years of the fifteen-year
license.
A significant portion of NTL Group Limited's revenues is attributable to the
provision of television and radio transmission and distribution services and the
provision of telecommunications services. In the United Kingdom, the provision
of such services is governed by the Telecommunications Act and The Wireless
Telegraphy Act 1949. NTL Group Limited holds five licenses under the
Telecommunications Act. The initial terms of these licenses were 10 or 25 years.
These licenses expire in 2002 to 2021. NTL Group Limited holds a number of
Wireless Telegraphy Act licenses which continue in force primarily from year to
year unless revoked or unless any of the license fees are not paid. The Company
paid $3,447,000 in 1997 in connection with these licenses.
The Company is involved in, or has been involved in, certain disputes and
litigation arising in the ordinary course of its business, including claims
involving contractual disputes and claims for damages to property and personal
injury resulting from the construction of the Company's networks and the
maintenance and servicing of the Company's transmission masts. None of these
matters are expected to have a material adverse effect on the Company's
financial position, results of operations or cash flows.
19. INDUSTRY SEGMENTS AND GEOGRAPHIC AREAS
The Company operates its long distance telephone and microwave transmission
business in the United States and its television and radio broadcasting, cable
television, telephone and telecommunications businesses in the United Kingdom.
The Company acquired its national and international telecom segment and its
broadcast transmission and other segment in 1996. Identifiable corporate assets
consist primarily of cash and cash equivalents. The industry segments and
geographic area information as of and for the years ended December 31, 1997,
1996 and 1995 are as follows:
F-33
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
19. INDUSTRY SEGMENTS AND GEOGRAPHIC AREAS (CONTINUED)
<TABLE>
<CAPTION>
Long
Distance
Telephone Local National Broadcast
and Telecom and Transmission
Microwave and International and
Transmission Television Telecom Other Corporate Consolidated
--------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Total revenues $ 8,831 $ 189,407 $162,738 $ 130,799 $ - $ 491,775
Operating income (loss) (1,207) (208,815) (5,327) 42,652 (19,367) (192,064)
Depreciation and amortization 2,368 103,704 17,454 20,328 6,655 150,509
Identifiable assets 27,623 1,579,044 350,704 358,302 105,966 2,421,639
Fixed asset additions 1,541 333,037 101,088 38,984 156 474,806
YEAR ENDED DECEMBER 31, 1996
Total revenues $ 10,086 $ 89,209 $ 45,430 $ 83,618 $ - $ 228,343
Operating income (loss) 773 (164,108) (7,774) 26,376 (12,900) (157,633)
Depreciation and amortization 2,744 69,200 8,601 13,152 4,956 98,653
Identifiable assets 15,660 1,655,759 220,764 412,989 149,439 2,454,611
Fixed asset additions 552 478,761 38,812 26,056 1,894 546,075
YEAR ENDED DECEMBER 31, 1995
Total revenues $ 8,937 $ 24,804 $ - $ - $ - $ 33,741
Operating (loss) (4,531) (76,161) - - (12,434) (93,126)
Depreciation and amortization 2,729 25,650 - - 1,444 29,823
Identifiable assets 15,774 892,935 - - 101,960 1,010,669
Fixed asset additions 1,557 473,795 - - - 475,352
</TABLE>
20. SUBSEQUENT EVENT
In February 1998, the Company entered into an agreement and plan of amalgamation
(the "Agreement") with Comcast UK Cable Partners Limited ("Partners"). Under the
Agreement, Partners' shareholders will receive 0.3745 shares of the Company's
Common Stock for each share of Partners Common Stock. Based on the closing price
of the Company's Common Stock on the date of the Agreement, the transaction is
valued at approximately $600,000,000. The Agreement contains provisions such
that if the purchase price per Partners share falls below $10.00, Partners has
the right to terminate the transaction, subject to the Company's right to adjust
the exchange ratio such that Partners' shareholders would receive $10.00 for
each Partners share. Under certain circumstances, the consideration payable to
Partners' shareholders may be adjusted based on the proceeds of the potential
exercise of certain rights of first refusal with respect to Partners' interests
in the London and Birmingham franchises. Completion of the transaction is
subject to a number of closing conditions including regulatory approvals,
shareholder approvals and consents from the holders of the Company's and
Partners' debt.
F-34
<PAGE>
NTL Incorporated
Schedule I - Condensed Financial Information of Registrant
Condensed Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
-------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 46,421,000 $ 101,555,000
Marketable securities 4,998,000 -
Other 8,804,000 1,008,000
-------------------------------------
Total current assets 60,223,000 102,563,000
Office improvements and equipment, net of accumulated
depreciation of $555,000 (1997) and $191,000 (1996) 1,551,000 1,759,000
Investments in and loans to subsidiaries 1,970,114,000 1,672,695,000
Deferred financing costs, net of accumulated amortization of
$13,141,000 (1997) and $6,850,000 (1996) 50,771,000 45,132,000
Other assets, net of accumulated amortization
of $11,803,000 (1997) and $9,952,000 (1996) 1,540,000 4,597,000
-------------------------------------
Total assets $2,084,199,000 $1,826,746,000
=====================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities $ 22,276,000 $ 6,214,000
Long-term debt 2,015,057,000 1,492,418,000
Senior redeemable exchangeable preferred stock 108,534,000 -
Shareholders' equity (deficiency):
Series preferred stock - -
Common stock 322,000 321,000
Additional paid-in capital 538,054,000 548,647,000
Cumulative translation adjustment 117,008,000 163,141,000
(Deficit) (717,052,000) (383,995,000)
-------------------------------------
(61,668,000) 328,114,000
-------------------------------------
Total liabilities and shareholders' equity (deficiency) $2,084,199,000 $1,826,746,000
=====================================
</TABLE>
See accompanying notes.
F-35
<PAGE>
NTL Incorporated
Schedule I - Condensed Financial Information of Registrant (continued)
Condensed Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
--------------------------------------------------------
<S> <C> <C> <C>
COSTS AND EXPENSES
Corporate expenses $ 12,811,000 $ 14,144,000 $ 14,697,000
Depreciation and amortization 6,655,000 4,954,000 1,445,000
--------------------------------------------------------
Operating (loss) (19,466,000) (19,098,000) (16,142,000)
OTHER INCOME (EXPENSE)
Interest and other income 4,490,000 5,017,000 7,470,000
Interest expense (191,124,000) (128,755,000) (39,033,000)
Other gain 10,000,000 - -
Foreign currency transaction gains (losses) (2,221,000) 1,376,000 (23,000)
--------------------------------------------------------
(Loss) before income taxes and equity in net
(loss) of subsidiaries (198,321,000) (141,460,000) (47,728,000)
Income tax (provision) (1,083,000) (193,000) -
--------------------------------------------------------
(Loss) before equity in net (loss) of subsidiaries (199,404,000) (141,653,000) (47,728,000)
Equity in net (loss) of subsidiaries (133,653,000) (112,801,000) (43,057,000)
--------------------------------------------------------
Net (loss) $(333,057,000) $(254,454,000) $(90,785,000)
========================================================
</TABLE>
See accompanying notes.
F-36
<PAGE>
NTL Incorporated
Schedule I - Condensed Financial Information of Registrant (continued)
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-----------------------------------------------------------
<S> <C> <C> <C>
Net cash (used in) operating activities $ (55,467,000) $ (28,152,000) $ (10,448,000)
INVESTING ACTIVITIES
Purchase of office improvements and equipment (156,000) (1,891,000) -
Purchase of marketable securities (145,939,000) - -
Proceeds from sales of marketable securities 142,596,000 - -
Increase in investments in and loans to subsidiaries (436,046,000) (955,652,000) (337,120,000)
-----------------------------------------------------------
Net cash (used in) investing activities (439,545,000) (957,543,000) (337,120,000)
FINANCING ACTIVITIES
Proceeds from borrowings and sale of preferred stock,
net of financing costs 484,340,000 842,820,000 328,731,000
Proceeds from exercise of stock options and warrants 1,671,000 1,665,000 102,000
-----------------------------------------------------------
Net cash provided by financing activities 486,011,000 844,485,000 328,833,000
Effect of exchange rate changes on cash (46,133,000) 156,868,000 (6,594,000)
-----------------------------------------------------------
Increase (decrease) in cash and cash equivalents (55,134,000) 15,658,000 (25,329,000)
Cash and cash equivalents at beginning of year 101,555,000 85,897,000 111,226,000
-----------------------------------------------------------
Cash and cash equivalents at end of year $ 46,421,000 $ 101,555,000 $ 85,897,000
===========================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 53,485,000 $ 23,687,000 $ -
Income taxes paid - 193,000 -
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Accretion of dividends and discount on senior
redeemable exchangeable preferred stock $ 12,263,000 $ - $ -
Warrants issued in connection with consent
solicitations - 1,641,000 -
Common stock issued for acquisition - 34,137,000 -
Preferred stock issued for acquisition of minority
interest, including notes payable to minority partner - 49,000,000 -
Liabilities incurred in connection with acquisitions - 81,906,000 -
</TABLE>
See accompanying notes.
F-37
<PAGE>
NTL Incorporated
Schedule I - Condensed Financial Information of Registrant
Notes to Condensed Financial Statements
1. BASIS OF PRESENTATION
In the NTL Incorporated condensed financial statements, the Company's investment
in subsidiaries is stated at cost plus equity in the undistributed earnings of
the subsidiaries since the date of acquisition. The Company's share of net loss
of its unconsolidated subsidiaries is included in consolidated net loss using
the equity method of accounting. The condensed financial statements should be
read in conjunction with the Company's consolidated financial statements.
2. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
--------------------------------------
<S> <C> <C>
10-7/8% Senior Deferred Coupon Notes
("10-7/8% Notes") (a) $ 194,959,000 $ 175,368,000
12-3/4% Series A Senior Deferred Coupon Notes
("12-3/4% Notes") (b) 209,387,000 185,043,000
11-1/2% Series B Senior Deferred Coupon Notes
("11-1/2% Notes") (c) 743,961,000 665,257,000
10% Series B Senior Notes ("10% Notes") (d) 400,000,000 -
7-1/4% Convertible Subordinated Notes
("7-1/4 Convertible Notes") (e) 191,750,000 191,750,000
7% Convertible Subordinated Notes
("7% Convertible Notes") (f) 275,000,000 275,000,000
--------------------------------------
$2,015,057,000 $1,492,418,000
======================================
</TABLE>
(a) In October 1993, the Company issued $212,000,000 aggregate principal amount
of 10-7/8% Senior Deferred Coupon Notes due 2003. The 10-7/8% Notes were
issued at a price to the public of 58.873% or $124,811,000.
(b) In April 1995, the Company issued $277,803,500 aggregate principal amount
of 12-3/4% Senior Deferred Coupon Notes due 2005. The 12-3/4% Notes were
issued at a price to the public of 53.995% or $150,000,000.
(c) In January 1996, the Company issued $1,050,000,000 aggregate principal
amount of 11-1/2% Series B Senior Deferred Coupon Notes due 2006. The
11-1/2% Notes were issued at a price to investors of 57.155% of the
aggregate principal amount at maturity or $600,127,500.
F-38
<PAGE>
NTL Incorporated
Schedule I - Condensed Financial Information of Registrant
Notes to Condensed Financial Statements (continued)
2. LONG-TERM DEBT (CONTINUED)
(d) In February 1997, the Company issued $400,000,000 aggregate principal
amount of 10% Senior Notes due 2007.
(e) In April and May 1995, the Company issued $191,750,000 principal amount of
7-1/4% Convertible Subordinated Notes due 2005. Interest payments began on
October 15, 1995 and interest is payable every six months thereafter. The
7-1/4% Convertible Notes will mature on April 15, 2005.
In March 1998, the Company announced that it was calling for redemption all
of the 7-1/4% Convertible Notes. The redemption date is April 20, 1998 and
the redemption price is 105.08% of the principal amount, plus accrued and
unpaid interest through the date of redemption.
(f) In June 1996, the Company issued $275,000,000 aggregate principal amount of
7% Convertible Subordinated Notes due 2008. Interest payments began on
December 15, 1996 and interest is payable every six months thereafter. The
7% Convertible Notes mature on June 15, 2008.
In March 1998, the Company issued 125,000,000 pounds sterling aggregate
principal amount of 9-1/2% Senior Notes due 2008 (the "Sterling Senior Notes"),
300,000,000 pounds sterling aggregate principal amount of 10-3/4% Senior
Deferred Coupon Notes due 2008 (the "Sterling Deferred Coupon Notes") and
$1,300,000,000 aggregate principal amount of 9-3/4% Senior Deferred Coupon Notes
due 2008 (the "Dollar Deferred Coupon Notes"). The Sterling Senior Notes,
Sterling Deferred Coupon Notes and the Dollar Deferred Coupon Notes were issued
at a price to the public of 99.67% or 124,588,000 pounds sterling, 58.62% or
175,860,000 pounds sterling and 61.724% or $802,412,000, respectively.
3. REDEEMABLE PREFERRED STOCK
In February 1997, the Company issued $100,000,000 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.
Of the 2,500,000 authorized shares of Series Preferred Stock, 100,000 shares of
Redeemable Preferred Stock were issued. Dividends accrue at 13% per annum ($130
per share) and are payable quarterly in arrears as of May 15, 1997. Dividends,
whether or not earned or declared, will accrue without interest until declared
and paid, which declaration may be for all or part of
F-39
<PAGE>
NTL Incorporated
Schedule I - Condensed Financial Information of Registrant
Notes to Condensed Financial Statements (continued)
3. REDEEMABLE PREFERRED STOCK (CONTINUED)
the accrued dividends. 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, 1997, the Company has accrued $11,978,000 for dividends and has
issued approximately 10,000 shares for $10,187,000 of such accrued dividends.
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.
4. LEASES
Leases for office space extend through 2004. Total rental expense for the years
ended December 31, 1997, 1996 and 1995 under operating leases was $503,000,
$220,000 and $22,000, respectively.
Future minimum lease payments under noncancellable operating leases as of
December 31, 1997 are as follows:
Year ended December 31:
1998 $ 565,000
1999 475,000
2000 462,000
2001 462,000
2002 462,000
Thereafter 924,000
----------
$3,350,000
==========
5. OTHER GAIN
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.
6. OTHER
No cash dividends were paid to the registrant by subsidiaries in any of the last
three years.
F-40
<PAGE>
NTL Incorporated and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- -----------------------------------------------------------------------------------------------------------------------------
ADDITIONS
--------------------------
(2)
(1) CHARGED
BALANCE AT CHARGED TO TO OTHER BALANCE
BEGINNING COSTS AND ACCOUNTS- DEDUCTIONS AT END
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Allowance for doubtful accounts
$3,870,000 $6,891,000 $ - $(2,705,000)(a) $8,056,000
==================================================================================
Year ended December 31, 1996:
Allowance for doubtful accounts
$ 767,000 $2,597,000 $ - $ 506,000 (b) $3,870,000
==================================================================================
Year ended December 31, 1995:
Allowance for doubtful accounts
$ 22,000 $ 709,000 $ - $ 36,000 (c) $ 767,000
==================================================================================
</TABLE>
(a) Uncollectible accounts written-off, net of recoveries of $2,604,000 and
$101,000 foreign currency translation adjustments.
(b) Uncollectible accounts written-off, net of recoveries of $645,000, offset
by $804,000 allowance for doubtful accounts as of acquisition date of
purchased subsidiary and $347,000 foreign currency translation adjustments.
(c) Recoveries of accounts previously written-off, net of uncollectible
accounts written-off of $49,000 less $13,000 foreign currency translation
adjustments.
F-41
