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FORM 10-K
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
Commission file number 0-24792
NTL (BERMUDA) LIMITED
(Exact name of registrant as specified in its charter)
BERMUDA Not Applicable
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Cedar House Secretary NTL Incorporated
41 Cedar Avenue 110 East 59th Street
Hamilton, HM 12, Bermuda New York, NY 10022
(441) 295-2244 (212) 906-8440
(Address, including zip code, (Name, address, including
and telephone number, zip code, and telephone
including area code, of number, including area code,
Registrant's principal executive of agent for service)
offices)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
11.20% Senior Discount Debentures due 2007
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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 _____
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ X ]
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As of March 26, 1999, there were 800,000 shares of the Registrant's common stock
outstanding. The Registrant is an indirect, wholly-owned subsidiary of NTL
Incorporated, and there is no market for the Registrant's common stock.
The Registrant meets the conditions set forth in General Instructions I(1)(a)
and I(1)(b) of Form 10-K and is filing this form with the reduced disclosure
format pursuant to General Instructions I(2)(b) and I(2)(c).
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DOCUMENTS INCORPORATED BY REFERENCE
NONE
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<PAGE>
NTL (BERMUDA) LIMITED
1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1 Business............................................................1
Item 2 Properties..........................................................1
Item 3 Legal Proceedings...................................................1
Item 4 Submission of Matters to a Vote of Security Holders.................1
PART II
Item 5 Market for the Registrant's Common Equity and Related
Shareholder Matters .............................................1
Item 6 Selected Financial and Other Data...................................2
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................3
Item 7A Qualitative and Quantitative Disclosures About Market Risk..........7
Item 8 Financial Statements and Supplementary Data.........................9
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................37
PART III
Item 10 Directors and Executive Officers of the Registrant.................37
Item 11 Executive Compensation.............................................37
Item 12 Security Ownership of Certain Beneficial Owners and Management.....37
Item 13 Certain Relationships and Related Transactions.....................37
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K.....................................................38
SIGNATURES...................................................................41
This Annual Report on Form 10-K for the year ended December 31, 1998, at the
time of filing with the Securities and Exchange Commission, modifies and
supersedes all prior documents filed pursuant to Sections 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.
This Annual Report on Form 10-K contains forward looking statements made
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Readers are cautioned that such forward looking statements
involve risks and uncertainties which could significantly affect expected
results in the future from those expressed in any such forward looking
statements made by, or on behalf of the Company. Certain factors that could
cause actual results to differ materially include, without limitation, the
effects of legislative and regulatory changes; the potential for increased
competition; technological changes; the need to generate substantial growth in
the subscriber base by successfully launching, marketing and providing services
in identified markets; pricing pressures which could affect demand for the
Company's services; the Company's ability to expand its distribution; changes in
labor, programming, equipment and capital costs; the Company's continued ability
to create or acquire programming and products that customers will find
attractive; Year 2000 readiness; future acquisitions; strategic partnerships and
divestitures; general business and economic conditions in the United Kingdom;
and other risks detailed from time to time in the Company's periodic reports
filed with the Securities and Exchange Commission.
<PAGE>
PART I
ITEM 1 BUSINESS
NTL (Bermuda) Limited (formerly Comcast UK Cable Partners Limited) (the
"Company") and its subsidiaries are principally engaged in the development,
construction, management and operation of companies in the United Kingdom ("UK")
cable and telecommunications industry. As of December 31, 1998, the Company had
interests in three operations (the "Operating Companies"): Cambridge Holding
Company Limited ("Cambridge Cable"), in which the Company owns a 100% interest,
two companies holding the franchises for Darlington and Teesside, England
("Teesside"), in which the Company owns a 100% interest, and Cable London PLC
("Cable London"), in which the Company owns a 50% interest.
The Company is a wholly-owned subsidiary of NTL Incorporated. NTL (Bermuda)
Limited's executive office is located at Cedar House, 41 Cedar Avenue, Hamilton,
HM 12, Bermuda and its telephone number is (441) 295-2244. NTL (Bermuda)
Limited's agent for service is the Secretary, NTL Incorporated, 110 East 59th
Street, New York, NY 10022 whose telephone number is (212) 906-8440.
ITEM 2 PROPERTY
The Company does not own or lease any significant real or personal property
other than through its interests in the Operating Companies.
The Operating Companies own their cable and telephony plant and equipment and
generally own or lease, under long-term leases, the head-end and switching node
sites. The Company believes that the Operating Companies' facilities are
adequate to serve their existing customers.
ITEM 3 LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position, results of operations or liquidity of the Company.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted pursuant to General Instruction I(2)(c) of Form 10-K.
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Company is a wholly-owned subsidiary of NTL Incorporated.
<PAGE>
ITEM 6 SELECTED FINANCIAL AND OTHER DATA
The following selected consolidated financial data have been derived from and
should be read in conjunction with the consolidated financial statements and
notes thereto included in Part II Item 8 of this Form 10-K.
The Company (1)
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(2) (In thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Service income..............................(UK Pound)77,649 (UK Pound)55,603 (UK Pound)31,358 (UK Pound)1,530 (UK Pound)
Consulting fee income....................... 938 1,059 1,070 1,313 1,356
Operating loss.............................. (15,567) (22,604) (24,553) (11,809) (2,824)
Equity in net losses of affiliates.......... (19,696) (21,359) (18,432) (23,677) (16,289)
Net income (loss) before extraordinary item. 43,205 (67,356) (40,575) (28,962) (16,266)
Extraordinary item.......................... (1,107)
Net income (loss)........................... 42,098 (67,356) (40,575) (28,962) (16,266)
Balance Sheet Data:
At year end:
Total assets........................... 512,324 445,854 484,370 431,889 254,739
Noncurrent liabilities................. 259,104 247,970 216,027 207,978 9,106
Contributed capital.................... 359,057 359,049 359,049 287,810 287,863
Accumulated deficit.................... (145,275) (187,373) (120,017) (79,442) (50,480)
</TABLE>
Cable London - Selected Consolidated Financial and Other Data
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Service income............................. (UK Pound)66,987 (UK Pound)52,816 (UK Pound)40,091 (UK Pound)30,277 (UK Pound)21,830
Operating loss............................. (7,800) (12,711) (13,906) (13,808) (10,524)
Net loss................................... (23,325) (25,168) (21,241) (17,675) (11,354)
Balance Sheet Data:
At year end:
Total assets.......................... 205,729 195,693 170,123 136,450 104,994
Noncurrent liabilities................ 204,648 173,038 60,831 73,772 27,659
</TABLE>
Notes to Selected Financial and Other Data
(1) As a result of the SingTel Transaction (see Note 4 to the Company's
consolidated financial statements), the Company owns 100% of Cambridge
Cable and has consolidated the financial position and results of operations
of Cambridge Cable beginning on March 31, 1996.
(2) In 1998, the Company sold its 27.5% ownership interest in Birmingham Cable
Corporation Limited to Telewest Communications plc for (UK Pound)130.0
million and recognized a gain on the sale of (UK Pound)110.5 million.
- 2 -
<PAGE>
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
NTL (Bermuda) Limited (formerly Comcast UK Cable Partners Limited) (the
"Company") and its subsidiaries are principally engaged in the development,
construction, management and operation of companies in the UK cable and
telecommunications industry. As of December 31, 1998, the Company had interests
in three operations (the "Operating Companies"): Cambridge Cable, in which the
Company owns a 100% interest, Teesside, in which the Company owns a 100%
interest, and Cable London, in which the Company owns a 50% interest. The
Company accounts for its interests in Cable London under the equity method.
Birmingham Cable Corporation Limited ("Birmingham Cable") in which the Company
owned a 27.5% interest was accounted for using the equity method for the years
1996 through 1998 until the interests were sold to Telewest Communications plc
("Telewest") in October 1998. See Note 1 to the Company's Consolidated Financial
Statements for a description of the Amalgamation with NTL Incorporated.
When build-out of the Operating Companies' systems is complete, these systems
are expected to have the potential to serve approximately 1.2 million homes and
the businesses within their franchise areas. As of December 31, 1998, the
Operating Companies' systems passed more than 875,000 homes or approximately 74%
of the homes in their franchise areas and served more than 214,000 cable
subscribers, 299,000 residential telephony subscribers and 10,000 business
telephony subscribers.
Liquidity and Capital Resources
Historically, the Company has financed its cash requirements through capital
contributions from its former shareholders and the issuance of common stock,
debentures and other debt. In November 1995, the Company issued $517.3 million
principal amount at maturity 11.20% Senior Discount Debentures due 2007 (the
"2007 Discount Debentures"). Interest accretes on the 2007 Discount Debentures
at 11.20% per annum compounded semi-annually from November 15, 1995 to November
15, 2000, after which date interest will be paid in cash on each May 15 and
November 15 through November 15, 2007. The 2007 Discount Debentures contain
restrictive covenants which limit the Company's ability to pay dividends.
In December 1997, Comcast UK Holdings Limited, a wholly-owned subsidiary of the
Company, entered into a loan agreement with a consortium of banks to provide
financing under a credit facility (the "UK Holdings Credit Facility") up to a
maximum of (UK Pound)200.0 million. Interest on the UK Holdings Credit Facility
was at LIBOR plus 1/2% to 2 1/4%. The consummation of the Amalgamation with NTL
Incorporated resulted in a change of control and all amounts outstanding
thereunder became immediately due and payable. The Company repaid the
approximately (UK Pound)100.0 million outstanding on October 29, 1998 using
proceeds from the sale of the Birmingham Cable interests. The Company recorded
an extraordinary loss from early extinguishment of debt of (UK Pound)1.1 million
from the write-off of unamortized deferred financing costs.
The Company has 9% Subordinated Notes payable to Comcast U.K. Holdings, Inc.
which are due in September 1999. Principal and accrued interest due will be
approximately (UK Pound)13 million.
In August 1998, the Company and NTL Incorporated entered into an agreement with
Telewest relating to the Company's and Telewest's respective 50% ownership
interests in Cable London and certain other related matters (the "Telewest
Agreement"). Pursuant to the Telewest Agreement, the Company and Telewest agreed
to a procedure to rationalize their joint ownership of Cable London as follows
(the "Cable London Shoot-out"). Between April 29 and July 29, 1999, the Company
can notify Telewest of the price at which it is willing to sell its 50%
ownership in Cable London to Telewest. Following such notification, Telewest at
its option will be required at that price to either purchase the Company's 50%
ownership interest in Cable London or sell its 50% ownership interest in Cable
London to the Company. If the Company fails to give notice to Telewest, it will
be deemed to have given a notice to Telewest offering to sell its Cable London
interest for (UK Pound)100 million.
The Company's ability to meet its long-term liquidity and capital requirements
is contingent upon the Operating Companies' ability to generate positive
operating cash flow, or, if necessary, to obtain external financing, although
there can be no assurance that any such financing will be obtained on acceptable
terms and conditions. Except for its working capital and debt service
requirements, the Company's cash needs will depend on management's investment
decisions.
- 3 -
<PAGE>
Investment considerations include (i) whether further capital contributions will
be made to Cable London, (ii) whether the Operating Companies can obtain debt
financing, (iii) whether the Operating Companies will be able to generate
positive operating cash flow, (iv) the timing of the build-out of the Operating
Companies' systems, and (v) whether there may be future acquisitions, including
the Cable London Shoot-out.
The Company estimates that the Operating Companies will require approximately
(UK Pound)100.0 million in 1999 to continue the build-out of their systems.
Management believes that the entire (UK Pound)100.0 million required will be
funded through cash from operations or from cash on hand, and, for Cable London,
through drawdowns under currently existing credit facilities (subject to
compliance with certain financial and operating covenants). If such credit
facilities are not available for drawdown, the Company expects that its
strategic and financial partners in Cable London will provide their pro-rata
share of any required fundings, although they are not contractually obligated to
do so. Thus, no assurance of such funding can be given. If the Company's
strategic and financial partners fail to provide such financing, Cable London
will be required to seek additional funds elsewhere. Such additional funds may
come from the Company, from new strategic and financial partners, from
borrowings under new credit facilities or from other sources, although there can
be no assurance that any such financing would be available on acceptable terms
and conditions. The Company and its strategic and financial partners generally
have veto rights over Cable London's debt financing decisions. Failure of any
Operating Company to obtain financing necessary to complete the build-out of its
system could result in loss of its cable franchises and licenses.
Year 2000 Issue
Strategy
The Company's operations are conducted through its Operating Companies, each of
which has different configurations of hardware and software. The Company itself
is a holding company with very limited activities. The Company uses personal
computers and software that are Year 2000 ready. Each of the Operating Companies
is conducting its own program for Year 2000 compliance. Each of the Operating
Companies has appointed a senior manager to be responsible for achieving Year
2000 readiness, and has set up an internal progress and review process. This
includes assessing the progress of significant vendors in achieving Year 2000
readiness. The Cambridge Cable and Teesside Year 2000 programs have been
integrated into the NTL Incorporated program.
Status to Date
The Operating Companies utilize hardware and software from vendors for
substantially all of their activities, including billing, customer service and
the operation of the network. The Operating Companies, therefore, are working
with these third-party vendors to ensure Year 2000 readiness. It is possible
that one or more suppliers will not be able to provide the Operating Companies
with reasonable assurances that they will be ready for the Year 2000, in which
case the Company expects the Operating Companies will seek another vendor. No
assurance, however, can be given that such alternative will be available.
The Operating Companies have already received assurances from vendors of its
main service platforms, including vendors of its telephony switches, cable TV
subsystems, and customer management systems ("CMS"), with the exception of
Cambridge Cable's CMS, that they expect to be Year 2000 ready. The cost of the
necessary software upgrades is generally included in the Operating Companies
maintenance contracts with its vendors.
Costs
There are few major costs directly attributable to the Year 2000 issues, as
suppliers will include any remedial software in their normal upgrade process.
For the smaller systems, such as PCs, there has or will be some acceleration of
routine replacement and upgrades to ensure all systems are Year 2000 ready. The
Company estimates that this acceleration will result in approximately (UK
Pound)300,000 per Operating Company to be incurred in 1999.
Risks
The primary risks of a serious business-affecting Year 2000 problem arise from
two separate external sources:
- 4 -
<PAGE>
First, a major utility (such as power, water, major telecommunications company
or public sector entity) fails to operate at or after the Year 2000. This risk,
which is beyond the Company's control or ability to monitor, could significantly
adversely affect the Company's financial condition and results of operations.
Second, a supplier of mission critical software fails to timely deliver suitable
Year 2000 software, despite its written assurances. Any such failure could
significantly adversely affect the Company's financial condition and results of
operations. The Operating Companies' Year 2000 project managers' primary task is
to prevent such a failure.
Contingency Plans
Cambridge Cable and Teesside will be included in NTL Incorporated's contingency
planning, which is in process.
Consolidated Statement of Cash Flows
Cash and cash equivalents increased (UK Pound)66.1 million as of December 31,
1998 from December 31, 1997, decreased (UK Pound)25.9 million as of December 31,
1997 from December 31, 1996 and decreased (UK Pound)98.9 million as of December
31, 1996 from December 31, 1995. The increase in cash from 1997 to 1998 is
primarily due to the proceeds from the sale of the interests in Birmingham Cable
for (UK Pound)130.0 million.
Net cash provided by (used in) operating activities amounted to (UK Pound)11.2
million, (UK Pound)7.5 million and ((UK Pound)1.5) million for the years ended
December 31, 1998, 1997 and 1996, respectively. The change in net cash provided
by (used in) operating activities in 1998 as compared to 1997 and in 1997 as
compared to 1996 is primarily due to the increase in the Company's operating
income before depreciation and amortization and changes in working capital as a
result of the timing of receipts and disbursements.
Net cash (used in) financing activities was ((UK Pound)5.6) million, ((UK
Pound)3.4) million and ((UK Pound)1.1) for the years ended December 31, 1998,
1997 and 1996, respectively. During 1998, net cash used in financing activities
includes (UK Pound)1.5 million of deferred financing costs.
Net cash provided by (used in) investing activities was (UK Pound)60.5 million,
((UK Pound)30.0) million and ((UK Pound)96.3) million for the years ended
December 31, 1998, 1997, and 1996, respectively. During 1998, net cash provided
by investing activities includes the proceeds from the sale of the interests in
Birmingham Cable of (UK Pound)130.0 million, offset by capital expenditures of
(UK Pound)61.8 million and capital contributions and loans to affiliates of (UK
Pound)1.8 million. During 1997, net cash used in investing activities includes
capital expenditures of (UK Pound)82.1 million and capital contributions and
loans to affiliates of (UK Pound)8.7 million, offset by proceeds from the sales
of short-term investments of (UK Pound)61.5 million. During 1996, net cash used
in investing activities includes the acquisition of Cambridge Cable of (UK
Pound)10.4 million, net of cash acquired, capital expenditures of (UK Pound)70.6
million and capital contributions and loans to affiliates of (UK Pound)10.7
million.
- 5 -
<PAGE>
Results of Operations
Summarized consolidated financial information for the Company for the three
years ended December 31, 1998 is as follows (in thousands, "NM" denotes
percentage is not meaningful):
<TABLE>
<CAPTION>
Year Ended
December 31, Increase/(Decrease)
1998 1997 (UK Pound) %
<S> <C> <C> <C> <C>
Revenues (UK Pound)78,587 (UK Pound)56,662 (UK Pound)21,925 38.7%
Operating, selling, general and administrative expenses 60,569 50,474 10,095 20.0
Management fees 2,400 3,204 (804) (25.1)
Depreciation and amortization 31,185 25,588 5,597 21.9
---------------- -----------------
Operating loss (15,567) (22,604) (6,497) (28.7)
---------------- -----------------
Interest expense 34,898 25,243 9,655 38.2
Investment income (9,054) (7,259) 1,795 24.7
Equity in net losses of affiliates 19,696 21,359 (1,663) (7.8)
Amalgamation costs 4,095 4,095 NM
Gain on sale of investments (110,497) (110,497) NM
Exchange losses and other 2,090 5,409 (3,319) (61.4)
---------------- -----------------
Net income (loss) before extraordinary item 43,205 (67,356) (110,561) NM
Loss from early extinguishment of debt (1,107) (1,107) NM
---------------- -----------------
Net income (loss) (UK Pound)42,098 ((UK Pound)67,356) ((UK Pound)109,454) NM
================ =================
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31, Increase/(Decrease)
1997 1996 (UK Pound) %
<S> <C> <C> <C> <C>
Revenues (UK Pound)56,662 (UK Pound)32,428 (UK Pound)24,234 74.7%
Operating, selling, general and administrative expenses 50,474 37,284 13,190 35.4
Management fees 3,204 2,997 207 6.9
Depreciation and amortization 25,588 16,700 8,888 53.2
---------------- -----------------
Operating loss (22,604) (24,553) (1,949) (7.9)
---------------- -----------------
Interest expense 25,243 23,627 1,616 6.8
Investment income (7,259) (12,555) (5,296) (42.2)
Equity in net losses of affiliates 21,359 18,432 2,927 15.9
Exchange losses (gains) and other 5,409 (13,482) 18,891 NM
---------------- -----------------
Net loss ((UK Pound)67,356)((UK Pound)40,575) (UK Pound)26,781 66.0%
================ =================
</TABLE>
The Company had a net income of (UK Pound)42.1 million and net losses of ((UK
Pound)67.4) million and ((UK Pound)40.6) million for the years ended December
31, 1998, 1997 and 1996, respectively, representing increases of (UK Pound)109.5
million from 1997 to 1998 and (UK Pound)26.8 million from 1996 to 1997. The
change from 1997 to 1998 is due to the gain on the sale of the interests in
Birmingham Cable of (UK Pound)110.0 million and to the increase in the Company's
operating income before depreciation and amortization. The increase in the
Company's net loss from 1996 to 1997 is due to the effects of the SingTel
Transaction which resulted in the consolidation of the results of operations of
Cambridge Cable beginning on March 31, 1996, decreases in investment income due
to the effects of lower average cash, cash equivalents and short-term investment
balances, the impact of fluctuations in the valuation of the UK Pound on the
2007 Discount Debentures, which are denominated in US Dollars, and the Company
recognizing its proportionate share of the Equity Investees' net losses.
Substantially all of the increases in revenues, operating expenses, selling,
general and administrative expenses, and depreciation and amortization expense
from 1997 to 1998 and from 1996 to 1997 are attributable to the effects of the
continued development of Teesside's and Cambridge Cable's operations and
increased business activity resulting from the growth in the number of
subscribers in their respective franchise areas. These trends are expected to
continue for the foreseeable future. The increases in 1996 to 1997 are also due
to the effects of the SingTel Transaction.
- 6 -
<PAGE>
Comcast U.K. Consulting, Inc., a wholly owned subsidiary of the Company, earned
consulting fee income included in revenues under consulting agreements with
Cable London and Birmingham Cable. The consulting fee income was generally based
on a percentage of gross revenues or a fixed amount per dwelling unit. The
consulting agreements were terminated pursuant to the Telewest Agreement.
Management fee expense was incurred under agreements between the Company on the
one hand, and Comcast Corporation ("Comcast") and Comcast UK Cable Partners
Consulting, Inc. ("Comcast Consulting"), an indirect wholly owned subsidiary of
Comcast, on the other, whereby Comcast and Comcast Consulting provided
consulting services to Cable London and Birmingham Cable on behalf of the
Company and management services to the Company. Such management fees were based
on Comcast's and Comcast Consulting's cost of providing such services. The
management agreement was terminated upon the Amalgamation with NTL Incorporated.
Interest expense for the years ended December 31, 1998, 1997 and 1996 was (UK
Pound)34.9 million, (UK Pound)25.2 million and (UK Pound)23.6 million,
respectively, representing increases of (UK Pound)9.7 million from 1997 to 1998
and (UK Pound)1.6 million from 1996 to 1997. The increases from 1997 to 1998 are
primarily attributable to interest on borrowings under the UK Holdings Credit
Facility and the compounding of interest on the 2007 Discount Debentures. The
increase from 1996 to 1997 is primarily attributable to the compounding of
interest on the 2007 Discount Debentures and the effects of foreign currency
exchange rate fluctuations.
Investment income for the years ended December 31, 1998, 1997 and 1996 was (UK
Pound)9.1 million, (UK Pound)7.3 million and (UK Pound)12.6 million,
respectively, representing a increase of (UK Pound)1.8 million from 1997 to 1998
and a decrease of (UK Pound)5.3 million from 1996 to 1997. The increase from
1997 to 1998 is primarily attributable to increases in the balances of loans to
Birmingham Cable and Cable London in 1998 as compared to 1997, and increases in
the average cash balances held by the Company for short term investment during
1998 as compared to 1997. The decrease from 1996 to 1997 is primarily
attributable to decreases in the average cash, cash equivalents and short-term
investments balances held by the Company during 1997 as compared to 1996 and the
effects of the SingTel Transaction.
Equity in net losses of affiliates for the years ended December 31, 1998, 1997
and 1996 was (UK Pound)19.7 million, (UK Pound)21.4 million and (UK Pound)18.4
million, respectively, representing a decrease of (UK Pound)1.7 million from
1997 to 1998 and an increase of (UK Pound)3.0 million from 1996 to 1997. The
decrease from 1997 to 1998 is attributable to a decrease in the net loss of
Cable London and the sale of Birmingham Cable in October 1998. The increase from
1996 to 1997 is attributable to increases in the net losses of Birmingham Cable
and Cable London, offset by the effects of the SingTel Transaction.
The Company incurred (UK Pound)4.1 million in costs associated with the
Amalgamation with NTL Incorporated in 1998.
Exchange losses (gains) and other for the years ended December 31, 1998, 1997
and 1996 were (UK Pound)2.1 million, (UK Pound)5.4 million and ((UK Pound)13.5)
million, respectively, representing changes of (UK Pound)3.3 million from 1997
to 1998 and (UK Pound)18.9 million from 1996 to 1997. These changes primarily
result from the impact of fluctuations in the valuation of the UK Pound on the
2007 Discount Debentures, which are denominated in US Dollars, and the Company's
FX Calls and on cash held in US Dollars. The Company's results of operations
will continue to be affected by exchange rate fluctuations.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk including changes in foreign currency
exchange rates. To manage the volatility relating to this exposure, the Company
has entered into various derivative transactions pursuant to the Company's
policies in areas such as counterparty exposure and hedging practices. Positions
are monitored using techniques including market value and sensitivity analyses.
The Company does not hold or issue any derivative financial instruments for
trading purposes and is not a party to leveraged instruments. The credit risks
associated with the Company's derivative financial instruments are controlled
through the evaluation and monitoring of the creditworthiness of the
counterparties. Although the Company may be exposed to losses in the event of
nonperformance by the counterparties, the Company does not expect such losses,
if any to be significant.
The Company has entered into certain foreign exchange option contracts ("FX
Options") as a normal part of its foreign currency risk management efforts.
During 1995, the Company entered into certain foreign exchange put option
contracts ("FX Puts") which may be settled only on November 16, 2000. These FX
Puts are used to limit the Company's exposure to the risk that the eventual cash
outflows related to net monetary liabilities denominated in currencies other
than its functional currency (the UK Pound Sterling or "UK Pound") (principally
the 2007 Discount Debentures) are adversely
- 7 -
<PAGE>
affected by changes in exchange rates. As of December 31, 1998 and 1997, the
Company had (UK Pound)250.0 million notional amount of FX Puts to purchase
United States ("US") dollars at an exchange rate of $1.35 per (UK Pound)1.00
(the "Ratio"). The FX Puts provide a hedge, to the extent the exchange rate
falls below the Ratio, against the Company's net monetary liabilities
denominated in US dollars since gains and losses realized on the FX Puts would
be offset against foreign exchange gains or losses realized on the underlying
net liabilities. Premiums paid for the FX Puts of (UK Pound)13.9 million are
included in foreign exchange put options and other in the Company's consolidated
balance sheet, net of related amortization. These premiums are being amortized
over the terms of the related contracts of five years. As of December 31, 1998,
1997 and 1996, the FX Puts had carrying values of (UK Pound)5.2 million, (UK
Pound)8.0 million and (UK Pound)10.7 million, respectively.
Interest Rate Sensitivity
Principal Amount by Expected Maturity
Average Interest Rate and Average Forward Foreign Exchange Rate
(USD/British Sterling)
<TABLE>
<CAPTION>
Fair
Value
(dollars in thousands) 1999 2000 2001 2002 2003 Thereafter Total 12/31/98
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term Debt, including
Current Portion
11.20% Senior Discount
Debentures due 2007
Fixed Rate --- --- --- --- --- $517,300 $517,300 $437,119
Average Interest Rate 11.2%
Average Forward
Exchange Rate 1.6506
</TABLE>
Purchased Options Contracts to Pay US$ for UK Pounds
Notional Amount by Expected Maturity
Average Strike Price (UK Pounds/USD)
<TABLE>
<CAPTION>
Fair
Value
(pounds in thousands) 1999 2000 2001 2002 2003 Total 12/31/98
<S> <C> <C> <C> <C> <C> <C> <C>
British Pounds Sterling
Notional Amount --- (UK Pound)250,000 --- --- --- (UK Pound)250,000 (UK Pound)567
Average Strike Price
(US Dollars) $1.35
</TABLE>
- 8 -
<PAGE>
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholder
NTL (Bermuda) Limited
We have audited the accompanying consolidated balance sheet of NTL (Bermuda)
Limited and subsidiaries as of December 31, 1998, and the related consolidated
statements of operations, shareholders' equity and cash flows for the year then
ended. Our audit also included the financial statement schedule for the year
ended December 31, 1998 listed in the index at Item 14(b)(i). These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audit. The
financial statements of Cable London PLC and subsidiaries ("Cable London") (a
corporation in which the Company has a 50% interest) have been audited by other
auditors whose report has been furnished to us; insofar as our opinion on the
consolidated financial statements relates to data included for Cable London, it
is based solely on their report.
We conducted our audit 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 audit and the report of other auditors provides a reasonable
basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements present fairly, in all material respects, the
consolidated financial position of NTL (Bermuda) Limited and subsidiaries as of
December 31, 1998, and the results of their operations and their cash flows for
the year then ended in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule for the year
ended December 31, 1998, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
New York, New York
March 26, 1999
- 9 -
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholder
NTL (Bermuda) Limited (formerly Comcast UK Cable Partners Limited)
We have audited the accompanying consolidated balance sheet of NTL (Bermuda)
Limited (formerly Comcast UK Cable Partners Limited) (a company incorporated in
Bermuda) and subsidiaries as of December 31, 1997, and the related consolidated
statements of operations, shareholders' equity and of cash flows for each of the
two years in the period ended December 31, 1997. Our audits also included the
financial statement schedule for each of the two years in the period ended
December 31, 1997, as listed in Item 14 (b)(i). These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of NTL (Bermuda) Limited (formerly
Comcast UK Cable Partners Limited) and subsidiaries as of December 31, 1997, and
the results of their operations and their cash flows for each of the two years
in the period ended December 31, 1997 in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, such
financial statement schedule for each of the two years in the period ended
December 31, 1997, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 27, 1998
- 10 -
<PAGE>
NTL (BERMUDA) LIMITED
CONSOLIDATED BALANCE SHEETS
(in (UK Pound)000's, except share data)
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.....................................(UK Pound)103,451 (UK Pound)37,372
Accounts receivable, less allowance for doubtful accounts of
(UK Pound)2,840 and (UK Pound)2,598........................ 5,603 4,255
Other current assets.......................................... 5,404 5,419
----------------- -----------------
Total current assets....................................... 114,458 47,046
----------------- -----------------
INVESTMENTS IN AFFILIATES......................................... 28,080 61,363
----------------- -----------------
PROPERTY AND EQUIPMENT............................................ 379,446 315,702
Accumulated depreciation ..................................... (57,624) (33,000)
----------------- -----------------
Property and equipment, net................................... 321,822 282,702
----------------- -----------------
DEFERRED CHARGES.................................................. 58,269 60,770
Accumulated amortization...................................... (15,493) (13,985)
----------------- -----------------
Deferred charges, net......................................... 42,776 46,785
----------------- -----------------
FOREIGN EXCHANGE PUT OPTIONS AND OTHER, net....................... 5,188 7,958
----------------- -----------------
(UK Pound)512,324 (UK Pound)445,854
================= =================
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses......................... (UK Pound)25,162 (UK Pound)23,605
Current portion of long-term debt............................. 1,966 1,683
Note payable to Comcast U.K. Holdings, Inc.................... 12,310
Net transactions with affiliates.............................. 920
----------------- -----------------
Total current liabilities.................................. 39,438 26,208
----------------- -----------------
LONG-TERM DEBT, less current portion.............................. 259,104 234,010
----------------- -----------------
FOREIGN EXCHANGE CALL OPTION...................................... 2,688
----------------- -----------------
NOTES PAYABLE TO COMCAST U.K. HOLDINGS, INC....................... 11,272
----------------- -----------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY
Common stock, (UK Pound).01 par value -
authorized and issued 800,000 shares 8
Class A common shares, (UK Pound).01 par value -
authorized, 50,000,000 shares; issued, 37,231,997.......... 372
Class B common shares, (UK Pound).01 par value -
authorized, 50,000,000 shares; issued, 12,872,605.......... 129
Additional capital............................................ 359,049 358,548
Accumulated deficit........................................... (145,275) (187,373)
----------------- -----------------
Total shareholder's equity................................. 213,782 171,676
----------------- -----------------
(UK Pound)512,324 (UK Pound)445,854
================= =================
</TABLE>
See notes to consolidated financial statements.
- 11 -
<PAGE>
NTL (BERMUDA) LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in (UK Pound)000's)
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
REVENUES
Service income.........................................(UK Pound)77,649 (UK Pound)55,603 (UK Pound)31,358
Consulting fee income.................................. 938 1,059 1,070
---------------- ----------------- -----------------
78,587 56,662 32,428
---------------- ----------------- -----------------
COSTS AND EXPENSES
Operating.............................................. 25,598 19,624 12,211
Selling, general and administrative.................... 34,971 30,850 25,073
Management fees........................................ 2,400 3,204 2,997
Depreciation and amortization.......................... 31,185 25,588 16,700
---------------- ----------------- -----------------
94,154 79,266 56,981
---------------- ----------------- -----------------
OPERATING LOSS............................................ (15,567) (22,604) (24,553)
OTHER (INCOME) EXPENSE
Interest expense....................................... 34,898 25,243 23,627
Investment income...................................... (9,054) (7,259) (12,555)
Equity in net losses of affiliates..................... 19,696 21,359 18,432
Gain on sale of investment............................. (110,497)
Amalgamation costs..................................... 4,095
Exchange losses (gains) and other...................... 2,090 5,409 (13,482)
---------------- ----------------- -----------------
(58,772) 44,752 16,022
---------------- ----------------- -----------------
Net income (loss) before extraordinary item............... 43,205 (67,356) (40,575)
Loss from early extinguishment of debt.................... (1,107)
---------------- ----------------- -----------------
NET INCOME (LOSS).........................................(UK Pound)42,098 ((UK Pound)67,356) ((UK Pound)40,575)
================ ================= =================
</TABLE>
See notes to consolidated financial statements.
- 12 -
<PAGE>
NTL (BERMUDA) LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in (UK Pound)000's)
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)......................................(UK Pound)42,098 ((UK Pound)67,356) ((UK Pound)40,575)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization........................ 31,185 25,588 16,700
Loss from early extinguishment of debt............... 1,107
Amortization on foreign exchange contracts........... 2,770 2,770 2,752
Non-cash interest expense............................ 27,264 24,684 23,209
Non-cash investment income........................... (2,841) (2,521) (2,854)
Gain on sale of investment........................... (110,497)
Exchange losses (gains).............................. (3,870) 2,852 (18,857)
Equity in net losses of affiliates................... 19,696 21,359 18,432
Other................................................ 4,095 991 (199)
----------------- ---------------- ----------------
11,007 8,367 (1,392)
Increase in accounts receivable and other
current assets .................................... (1,333) (1,393) (1,165)
Increase in accounts payable and accrued expenses.... 1,569 519 1,045
----------------- ---------------- ----------------
Net cash provided by (used in) operating
activities ................................... 11,243 7,493 (1,512)
----------------- ---------------- ----------------
FINANCING ACTIVITIES
Repayments of debt..................................... (102,064) (1,633) (1,711)
Proceeds from borrowings............................... 100,000
Deferred financing costs............................... (1,463)
Issuance of common stock............................... 8
Proceeds from sales of foreign exchange call options... 2,125
Net transactions with affiliates....................... (2,120) (1,810) (1,537)
----------------- ---------------- ----------------
Net cash (used in) financing activities.......... (5,639) (3,443) (1,123)
----------------- ---------------- ----------------
INVESTING ACTIVITIES
Acquisition, net of cash acquired...................... (10,373)
Proceeds from sale of affiliate........................ 130,000
Proceeds from sales (purchases) of short-term
investments, net..................................... 61,466 (4,226)
Capital contributions and loans to affiliates.......... (1,768) (8,713) (10,667)
Capital expenditures................................... (61,816) (82,125) (70,624)
Additions to deferred charges.......................... (5,941) (620) (392)
----------------- ---------------- ----------------
Net cash provided by (used) in investing
activities ................................... 60,475 (29,992) (96,282)
----------------- ---------------- ----------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................................ 66,079 (25,942) (98,917)
CASH AND CASH EQUIVALENTS, beginning of year.............. 37,372 63,314 162,231
----------------- ---------------- ----------------
CASH AND CASH EQUIVALENTS, end of year...................(UK Pound)103,451 (UK Pound)37,372 (UK Pound)63,314
================= ================ ================
</TABLE>
See notes to consolidated financial statements.
- 13 -
<PAGE>
NTL (BERMUDA) LIMITED
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
(in thousands)
<TABLE>
<CAPTION>
A Common B Common Common
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996..... 28,372 (UK Pound)284 12,873 (UK Pound)129
Net loss..................
Shares issued in connection
with SingTel Transaction... 8,860 88
-------- ------------- ------- ------------- ---- ----------
BALANCE, DECEMBER 31, 1996... 37,232 372 12,873 129
Net loss..................
-------- ------------- ------- ------------- ---- ----------
BALANCE, DECEMBER 31, 1997... 37,232 372 12,873 129
Net income................
Amalgamation with
NTL Incorporated........... (37,232) (372) (12,873) (129) 800 8
-------- ------------- ------- ------------- ---- ----------
BALANCE, DECEMBER 31, 1998... (UK Pound) (UK Pound) 800 (UK Pound)8
======== ============= ======= ============= ==== ==========
</TABLE>
<TABLE>
<CAPTION>
Additional Accumulated
Capital Deficit Total
------- ------- -----
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1996..... (UK Pound)287,397 ((UK Pound)79,442) (UK Pound)208,368
Net loss.................. (40,575) (40,575)
Shares issued in connection
with SingTel Transaction... 71,151 71,239
----------------- ----------------- -----------------
BALANCE, DECEMBER 31, 1996... 358,548 (120,017) 239,032
Net loss.................. (67,356) (67,356)
----------------- ----------------- -----------------
BALANCE, DECEMBER 31, 1997... 358,548 (187,373) 171,676
Net income................ 42,098 42,098
Amalgamation with
NTL Incorporated........... 501 8
----------------- ----------------- -----------------
BALANCE, DECEMBER 31, 1998... (UK Pound)359,049((UK)Pound)145,275 (UK Pound)213,782
================= ================= =================
</TABLE>
See notes to consolidated financial statements.
- 14 -
<PAGE>
NTL (BERMUDA) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND AMALGAMATION WITH NTL INCORPORATED
NTL (Bermuda) Limited (formerly Comcast UK Cable Partners Limited) (the
"Company") and its subsidiaries are principally engaged in the development,
construction, management and operation of companies in the United Kingdom
("UK") cable and telecommunications industry. As of December 31, 1998, the
Company had interests in three operations (the "Operating Companies"):
Cambridge Holding Company Limited ("Cambridge Cable"), in which the Company
owns a 100% interest, two companies holding the franchises for Darlington
and Teesside, England ("Teesside"), in which the Company owns a 100%
interest and Cable London PLC ("Cable London"), in which the Company owns a
50.0% interest . The Company accounts for its interest in Cable London
under the equity method. Birmingham Cable Corporation Limited ("Birmingham
Cable") in which the Company owned a 27.5% interest was accounted for using
the equity method for the years 1996 through 1998 until the interests were
sold to Telewest Communications plc ("Telewest") in October 1998.
On October 29, 1998, NTL Incorporated ("NTL"), NTL (Bermuda) Limited, a
wholly owned subsidiary of NTL, and Comcast UK Cable Partners Limited
("Partners") consummated a transaction (the "Amalgamation"), whereby NTL
(Bermuda) Limited merged with Partners.
Immediately following the Amalgamation, the Company and Bank of Montreal
Trust Company, as trustee, executed a First Supplemental Indenture (the
"First Supplemental Indenture") relating to Partner's 11.20% Senior
Discount Debentures due 2007 (the "Debentures"), which provides for the
assumption by the Company of the liabilities and the obligations of
Partners under the Indenture, dated as of November 15, 1995, governing the
Debentures (together with the First Supplemental Indenture, the
"Indenture") and the Debentures issued pursuant thereto. The First
Supplemental Indenture likewise provides that the Company shall succeed to,
and be substituted for, and may exercise every right and power of, Partners
under the Indenture and the Debentures.
Pursuant to then existing arrangements between Partners and Telewest, a
co-owner of interests in Cable London PLC and Birmingham Cable Corporation
Limited, Telewest had certain rights to acquire either or both of Partner's
interests in these systems (see Note 5) as a result of the Amalgamation. On
August 14, 1998, Partners and NTL entered into an agreement (the "Telewest
Agreement") with Telewest relating to Partner's ownership interests in
Birmingham Cable, Partner's and Telewest's respective ownership interests
in Cable London and certain other related matters. Pursuant to the Telewest
Agreement, Partners sold its 27.5% ownership interest in Birmingham Cable
to Telewest for (UK Pound)125 million, plus (UK Pound)5 million for certain
subordinated debt and fees. Partners and Telewest have also agreed within a
certain time period to rationalize their joint ownership of Cable London
pursuant to an agreed procedure (the "Shoot-out"). Between April 29 and
July 29, 1999, the Company can notify Telewest of the price at which it is
willing to sell its 50% ownership interest in Cable London to Telewest.
Following such notification, Telewest at its option will be required at
that price to either purchase the Company's 50% ownership interest in Cable
London or sell its 50% ownership interest in Cable London to the Company.
If the Company fails to give notice to Telewest during the Shoot-out
period, it will be deemed to have given a notice to Telewest offering to
sell its Cable London interest for (UK Pound)100 million.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
Subsidiaries of the Company maintain their books and records in accordance
with accounting principles generally accepted in the UK. The consolidated
financial statements have been prepared in accordance with generally
accepted accounting principles as practiced in the United States ("US") and
are stated in UK pounds sterling ("UK Pound"). There were no significant
differences between accounting principles followed for UK purposes and
generally accepted accounting principles practiced in the US. The UK Pound
exchange rate as of December 31, 1998 and 1997 was US $1.66 and US $1.65,
respectively, per (UK Pound)1.00.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and all wholly owned subsidiaries. All significant intercompany accounts
and transactions among the consolidated entities have been eliminated.
- 15 -
<PAGE>
NTL (BERMUDA) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Management's 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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fair Values
The estimated fair value amounts presented in these notes to consolidated
financial statements have been determined by the Company using available
market information and appropriate methodologies. However, considerable
judgment is required in interpreting market data to develop the estimates
of fair value. The estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts. Such fair value estimates are based on pertinent information
available to management as of December 31, 1998 and 1997, and have not been
comprehensively revalued for purposes of these consolidated financial
statements since such dates.
Cash Equivalents
Cash equivalents are short-term, highly liquid investments with maturities
of three months or less when purchased. Cash equivalents as of December 31,
1998 and 1997 consist principally of commercial paper, time deposits and
money market funds.
Investments in Affiliates
Investments in entities in which the Company has the ability to exercise
significant influence over the operating and financial policies of the
investee are accounted for under the equity method. Equity method
investments are recorded at original cost and adjusted periodically to
recognize the Company's proportionate share of the investees' net income or
losses after the date of investment, additional contributions made and
dividends received. The differences between the Company's recorded
investments and its proportionate interests in the book value of the
investees' net assets are being amortized to equity in net losses of
affiliates over the remaining original lives of the related franchises of
eight years.
Prematurity Period
The Company accounts for costs, expenses and revenues applicable to the
construction and operation of its cable telecommunications systems in
Teesside and Cambridge Cable under the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 51, "Financial Reporting by Cable
Television Companies."
Under SFAS No. 51, during the period while the systems are partially under
construction and partially in service (the "Prematurity Period"), costs of
cable telecommunications plant, including materials, direct labor and
construction overhead are capitalized. Subscriber-related costs and general
and administrative costs are expensed as incurred. Costs incurred in
anticipation of servicing a fully operating system that will not vary
regardless of the number of subscribers are partially expensed and
partially capitalized, based upon the percentage of average actual or
estimated subscribers, whichever is greater, to the total number of
subscribers expected at the end of the Prematurity Period (the "Fraction").
During the Prematurity Period, depreciation and amortization of system
assets is determined by multiplying the depreciation and amortization of
the total capitalized system assets expected at the end of the Prematurity
Period by the Fraction. At the end of the Prematurity Period, depreciation
and amortization of system assets is based on the remaining undepreciated
cost at that date. As of December 31, 1998, all of the Company's five
franchise areas which were under construction have completed their
Prematurity Period.
Property and Equipment
Property and equipment, which consists principally of system assets, is
shown at historical cost less accumulated depreciation. Improvements that
extend asset lives are capitalized; other repairs and maintenance charges
are
- 16 -
<PAGE>
NTL (BERMUDA) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
expensed as incurred. The cost and related accumulated depreciation
applicable to assets sold or retired are removed from the accounts and the
gain or loss on disposition is recognized as a component of depreciation
expense.
System assets
Prior to the Prematurity Period, no depreciation is provided on system
assets. During the Prematurity Period, depreciation is provided in
accordance with SFAS No. 51.
Depreciation of system assets is provided by the straight-line method over
estimated useful lives as follows:
Plant 15-40 years
Network 15 years
Subscriber equipment 6-10 years
Switch 10 years
Computers 4 years
Non-system assets
Depreciation of non-system assets is provided by the straight-line method
over estimated useful lives as follows:
Buildings 40 years
Fixtures, fittings and equipment 5 years
Vehicles 4 years
Computers 4 years
Leased Assets
Assets held under capital leases are treated as if they had been purchased
outright and the corresponding liability is included in long-term debt.
Capital lease payments include principal and interest, with the interest
portion being charged to expense. Payments on operating leases are charged
to expense on a straight-line basis over the lease term.
Deferred Charges
Deferred charges consist primarily of franchise acquisition costs
attributable to obtaining, developing and maintaining the franchise
licenses of Teesside and Cambridge Cable, debt acquisition costs relating
to the sale of approximately $517.3 million principal amount at maturity of
the Debentures and goodwill arising from the SingTel Transaction (see Note
4). Franchise acquisition costs are being amortized on a straight-line
basis over the remaining original lives of the related franchises of 12 to
15 years. Debt acquisition costs are being amortized on a straight-line
basis over the term of the Debentures of 12 years. Goodwill is being
amortized on a straight-line basis over the remaining original lives of the
related franchises of 11 years.
Valuation of Long-Lived Assets
The Company periodically evaluates the recoverability of its long-lived
assets, including property and equipment and deferred charges, using
objective methodologies. Such methodologies include evaluations based on
the cash flows generated by the underlying assets or other determinants of
fair value.
Revenue Recognition
Service income is recognized as service is provided. Credit risk is managed
by disconnecting services to subscribers who are delinquent.
Income Taxes
The Company is exempt from US federal, state and local income taxes. At the
present time, no income, profit, capital or capital gains taxes are levied
in Bermuda and, accordingly, no provision for such taxes has been recorded
by the Company. In the event that such taxes are levied, the Company has
received an undertaking from the Bermuda Government exempting it from all
such taxes until March 2016.
- 17 -
<PAGE>
NTL (BERMUDA) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company's wholly owned subsidiaries recognize deferred tax assets and
liabilities for temporary differences between the financial reporting basis
and the tax basis of their assets and liabilities and expected benefits of
utilizing net operating loss carryforwards. The impact on deferred taxes of
changes in tax rates and laws, if any, applied to the years during which
temporary differences are expected to be settled, are reflected in the
financial statements in the period of enactment.
Derivative Financial Instruments
The Company uses derivative financial instruments, principally foreign
exchange option contracts ("FX Options"), to manage its exposure to
fluctuations in foreign currency exchange rates. Written FX Options are
marked-to- market on a current basis in the Company's consolidated
statement of operations (see Note 6).
Those instruments that have been entered into by the Company to hedge
exposure to foreign currency exchange rate risks are periodically examined
by the Company to ensure that the instruments are matched with underlying
liabilities, reduce the Company's risks relating to foreign currency
exchange rates, and, through market value and sensitivity analysis,
maintain a high correlation to the underlying value of the hedged item. For
those instruments that do not meet the above criteria, variations in their
fair value are marked-to-market on a current basis in the Company's
consolidated statement of operations.
The Company does not hold or issue any derivative financial instruments for
trading purposes and is not a party to leveraged instruments (see Notes 6
and 7). The credit risks associated with the Company's derivative financial
instruments are controlled through the evaluation and monitoring of the
creditworthiness of the counterparties. Although the Company may be exposed
to losses in the event of nonperformance by the counterparties, the Company
does not expect such losses, if any, to be significant.
Reclassifications
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to those classifications used in 1998.
3. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (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 adopted SFAS No. 130 in 1998, which had no effect on the
consolidated financial statements since the Company did not have any other
comprehensive income items.
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 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 adopted SFAS No. 131 in 1998
which had no impact on the Company's financial position or results of
operations since the Company operates in a single segment.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement, which establishes
accounting and reporting standards for derivatives and hedging activities,
is effective for fiscal years beginning after June 15, 1999. Upon the
adoption of SFAS No. 133, all derivatives are required to be recognized in
the statement of financial position as either assets or liabilities and
measured at fair value. The Company is currently evaluating the impact the
adoption of SFAS No. 133 will have on its financial position and results of
operations.
- 18 -
<PAGE>
NTL (BERMUDA) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. SINGTEL TRANSACTION
In March 1996, the Company completed the acquisition (the "SingTel
Transaction") of Singapore Telecom International Pte. Limited's ("Singapore
Telecom") 50% interest in Cambridge Cable, pursuant to the terms of a Share
Exchange Agreement executed by the parties in December 1995. In exchange
for Singapore Telecom's 50% interest in Cambridge Cable and certain loans
made to Cambridge Cable, with accrued interest thereon, the Company issued
approximately 8.9 million of its Class A Common Shares and paid
approximately (UK Pound)11.8 million to Singapore Telecom. The Company
accounted for the SingTel Transaction under the purchase method. As a
result of the SingTel Transaction, the Company owns 100% of Cambridge Cable
and Cambridge Cable was consolidated with the Company effective March 31,
1996.
5. INVESTMENTS IN AFFILIATES
The Company has historically invested in three unconsolidated affiliates :
Birmingham Cable, Cable London and Cambridge Cable.
Included in investments in affiliates as of December 31, 1998 and 1997, are
loans to Cable London of (UK Pound)28.5 million and accrued interest of (UK
Pound)8.6 million and (UK Pound)6.0 million, respectively. The loans accrue
interest at a rate of 2% above the published base lending rate of Barclays
Bank PLC (8.25% effective rate as of December 31, 1998) and are subordinate
to Cable London's revolving bank credit facility. Of these loans, (UK
Pound)21.0 million as of December 31, 1998 and 1997 are convertible into
ordinary shares of Cable London at a per share conversion price of (UK
Pound)2.00. Also included in investments in affiliates as of December 31,
1997 are loans to Birmingham Cable of (UK Pound)1.9 million and accrued
interest of (UK Pound)133,000. Loans to Birmingham Cable and related
accrued interest were terminated in 1998 due to the sale of the interests
in Birmingham Cable in October 1998.
In May 1997, Cable London entered into a (UK Pound)170.0 million revolving
credit facility (the "London Revolver") with various banks, which converts
into a five year term loan on June 30, 2001. Interest rates on the London
Revolver are at LIBOR plus 1/2% to 2 3/8%. In May 1997, Cable London repaid
all amounts outstanding under its existing credit facility with proceeds
from borrowings under the London Revolver. The balance of the London
Revolver will be used, subject to certain restrictions, for capital
expenditures and working capital requirements relating to the build-out of
its systems. The London Revolver contains restrictive covenants which limit
Cable London's ability to enter into arrangements for the acquisition and
sale of property and equipment, investments, mergers and the incurrence of
additional debt. Certain of these covenants require that certain financial
ratios and cash flow levels be maintained and contain certain restrictions
on dividend payments. The Company's shares in Cable London have been
pledged to secure amounts outstanding under the London Revolver.
- 19 -
<PAGE>
NTL (BERMUDA) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Summarized financial information for affiliates accounted for under the
equity method for 1998, 1997 and 1996, is as follows:
<TABLE>
<CAPTION>
Birmingham Cable Cambridge
Cable(1) London Cable (2) Combined
(UK Pound)000 (UK Pound)000 (UK Pound)000 (UK Pound)000
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Results of operations
Service income................... (UK Pound)66,987 (UK Pound)66,987
Operating, selling, general and
administrative expenses........ (52,128) (52,128)
Depreciation and amortization.... (22,659) (22,659)
Operating loss................... (7,800) (7,800)
Net loss......................... (23,325) (23,325)
Company's equity in net loss.....((UK Pound)7,841) (11,855) (19,696)
AT DECEMBER 31, 1998
Financial position
Current assets................... 10,776 10,776
Noncurrent assets................ 194,953 194,953
Current liabilities.............. 24,653 24,653
Noncurrent liabilities........... 204,648 204,648
YEAR ENDED DECEMBER 31, 1997
Results of operations
Service income................... 67,166 52,816 119,982
Operating, selling, general and
administrative expenses........ (56,564) (45,787) (102,351)
Depreciation and amortization.... (26,427) (19,740) (46,167)
Operating loss................... (15,825) (12,711) (28,536)
Net loss......................... (30,826) (25,168) (55,994)
Company's equity in net loss..... (8,616) (12,743) (21,359)
AT DECEMBER 31, 1997
Financial position
Current assets................... 11,424 10,340 21,764
Noncurrent assets................ 248,611 185,353 433,964
Current liabilities.............. 22,293 22,902 45,195
Noncurrent liabilities........... 165,413 173,038 338,451
YEAR ENDED DECEMBER 31, 1996
Results of operations
Service income................... 52,472 40,091 (UK Pound)6,401 98,964
Operating, selling, general and
administrative expenses........ (44,476) (39,135) (6,366) (89,977)
Depreciation and amortization.... (19,690) (14,862) (2,168) (36,720)
Operating loss................... (11,694) (13,906) (2,133) (27,733)
Net loss......................... (20,378) (21,241) (4,419) (46,038)
Company's equity in net loss..... (5,671) (10,551) (2,210) (18,432)
<FN>
- ---------------
(1) The Company sold its 27.5% interest in Birmingham Cable in October 1998.
(2) 1996 results of operations information for Cambridge Cable is for the three months ended March 31, 1996 (see
Note 4).
</FN>
</TABLE>
- 20 -
<PAGE>
NTL (BERMUDA) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. FOREIGN CURRENCY RISK MANAGEMENT
The Company is exposed to market risk including changes in foreign currency
exchange rates. To manage the volatility relating to this exposure, the
Company entered into various derivative transactions pursuant to the
Company's policies in areas such as counterparty exposure and hedging
practices. Positions were monitored using techniques including market value
and sensitivity analyses.
The Company entered into certain FX Options as a normal part of its foreign
currency risk management efforts. During 1995, the Company entered into
certain foreign exchange put option contracts ("FX Puts") which may be
settled only on November 16, 2000. These FX Puts are used to limit the
Company's exposure to the risk that the eventual cash outflows related to
net monetary liabilities denominated in currencies other than its
functional currency (the UK Pound) (principally the Debentures - see Note
7) are adversely affected by changes in exchange rates. As of December 31,
1998 and 1997, the Company had (UK Pound)250.0 million notional amount of
FX Puts to purchase US dollars at an exchange rate of $1.35 per (UK
Pound)1.00 (the "Ratio"). The FX Puts provide a hedge, to the extent the
exchange rate falls below the Ratio, against the Company's net monetary
liabilities denominated in US dollars since gains and losses realized on
the FX Puts would be offset against foreign exchange gains or losses
realized on the underlying net liabilities. Premiums paid for the FX Puts
of (UK Pound)13.9 million are included in foreign exchange put options and
other in the Company's consolidated balance sheet, net of related
amortization. These premiums are being amortized over the terms of the
related contracts of five years. As of December 31, 1998 and 1997, the FX
Puts had carrying values of (UK Pound)5.2 million and (UK Pound)8.0
million, respectively. The estimated fair value of the FX Puts was (UK
Pound).567 million and (UK Pound)3.2 million as of December 31, 1998 and
1997, respectively.
In 1995, in order to reduce hedging costs, the Company sold foreign
exchange call option contracts ("FX Calls") to exchange (UK Pound)250.0
million notional amount and received (UK Pound)3.4 million. Of these
contracts, (UK Pound)200.0 million notional amount, with an exchange ratio
of $1.70 per (UK Pound)1.00, expired unexercised in November 1996 while the
remaining contract, with a (UK Pound)50.0 million notional amount and an
exchange ratio of $1.62 per (UK Pound)1.00, had a settlement date in
November 2000. In the fourth quarter of 1996, in order to continue to
reduce hedging costs, the Company sold additional FX Calls for (UK
Pound)2.1 million, to exchange (UK Pound)200.0 million notional amount at
an average exchange ratio of $1.75 per (UK Pound)1.00. These contracts
expired unexercised in the fourth quarter of 1997. The remaining contract
with a (UK Pound)50.0 million notional amount was unwound in October 1998.
The FX Calls were marked-to-market on a current basis in the Company's
consolidated statement of operations. As of December 31, 1997, the
estimated fair value of the liabilities related to the FX Calls as recorded
in the Company's consolidated balance sheet, was (UK Pound)2.7 million.
Changes in fair value between measurement dates relating to the FX Calls
resulted in exchange losses of (UK Pound)230,000 during the year ended
December 31, 1998, exchange gains of (UK Pound)4.5 million during the year
ended December 31, 1997 and exchange losses of (UK Pound)1.3 million during
the year ended December 31, 1996 in the Company's consolidated statement of
operations.
7. LONG-TERM DEBT
2007 Discount Debentures
In November 1995, the Company received net proceeds of approximately $291.1
million ((UK Pound)186.9 million) from the sale of its 2007 Discount
Debentures in a public offering ($517.3 million principal at maturity).
Interest accretes on the 2007 Discount Debentures at 11.20% per annum
compounded semi-annually from November 15, 1995 to November 15, 2000, after
which date interest will be paid in cash on each May 15 and November 15
through November 15, 2007. The accreted value of the 2007 Discount
Debentures was (UK Pound)254.2 million and (UK Pound)229.2 million as of
December 31, 1998 and 1997, respectively.
The 2007 Discount Debentures contain restrictive covenants which limit the
Company's ability to enter into arrangements for the sale of assets,
mergers, the incurrence of additional debt and the payment of dividends.
The Company was in compliance with such restrictive covenants as of
December 31, 1998.
- 21 -
<PAGE>
NTL (BERMUDA) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
UK Holdings Credit Facility
In December 1997, Comcast UK Holdings Limited, a wholly owned subsidiary of
the Company, entered into a loan agreement with a consortium of banks to
provide financing under a credit facility (the "UK Holdings Credit
Facility") up to a maximum of (UK Pound)200.0 million. The UK Holdings
Credit Facility's interest rate per annum was equal to the London Interbank
Offered Rate ("LIBOR") plus 1/2% to 2 1/4%. The consummation of the
Amalgamation resulted in a change in control and all amounts outstanding
thereunder became immediately due and payable. The Company repaid the (UK
Pound)100.0 million outstanding on October 29, 1998 using proceeds from the
sale of the Birmingham Cable interests. The Company recorded an
extraordinary loss from early extinguishment of debt of (UK Pound)1.1
million from the write-off of unamortized deferred financing costs.
Other
As of December 31, 1998 and 1997, Cambridge Cable has two outstanding bank
loans totaling (UK Pound)456,000 and (UK Pound)505,000, respectively, which
are included in long-term debt. These bank loans are secured by Cambridge
Cable's land and buildings in Cambridge and Bishop Stortford and are
payable in quarterly installments through April 2000 and bear interest at a
weighted average fixed rate of 9.35%. Also included in long-term debt are
capital lease obligations of Cambridge Cable and Teesside (see Note 11).
Maturities of long-term debt outstanding, as of December 31, 1998 for the
four years after 1999 are as follows (in (UK Pound)000's):
2000 (UK Pound)927
2001 760
2002 657
2003 602
The Company's long-term debt, had estimated fair values of (UK Pound)268.3
million and (UK Pound)259.6 million as of December 31, 1998 and 1997,
respectively. The estimated fair value of the Company's publicly traded
debt is based on quoted market prices for that debt. Interest rates that
are currently available to the Company for issuance of debt with similar
terms and remaining maturities are used to estimate fair value for debt
issues for which quoted market prices are not available.
8. RELATED PARTY TRANSACTIONS
Comcast U.K. Consulting, Inc., a wholly owned subsidiary of the Company,
earned consulting fee income under consulting agreements with Birmingham
Cable and Cable London. The consulting fee income was generally based on a
percentage of gross revenues or a fixed amount per dwelling unit. The
consulting agreements were terminated pursuant to the Telewest Agreement.
The Company's right to receive consulting fee payments from Birmingham
Cable and Cable London had been subordinated to the banks under their
credit facilities. Accordingly, a portion of these fees had been classified
as long-term receivables and included in investments in affiliates in the
Company's consolidated balance sheet.
Management fee expense was incurred under agreements between the Company on
the one hand, and Comcast and Comcast Consulting, on the other, whereby
Comcast and Comcast Consulting provided consulting services to Birmingham
Cable and Cable London on behalf of the Company and management services to
the Company. Such management fees were based on Comcast's and Comcast
Consulting's cost of providing such services. As of December 31, 1997, due
to affiliates consisted primarily of this management fee and operating
expenses paid by Comcast and its affiliates on behalf of the Company. The
management agreement was terminated upon the Amalgamation.
Investment income includes (UK Pound)2.8 million, (UK Pound)2.5 million and
(UK Pound)2.9 million of interest income in 1998, 1997 and 1996,
respectively, relating to the loans to unconsolidated affiliates described
in Note 5.
- 22 -
<PAGE>
NTL (BERMUDA) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Notes payable to Comcast U.K. Holdings, Inc. consists of 9% Subordinated
Notes payable which are due in 1999. During the years ended December 31,
1998, 1997 and 1996, interest expense on the Notes was (UK Pound)1.0
million, (UK Pound)950,000 and (UK Pound)870,000, respectively.
In management's opinion, the foregoing transactions were entered into on
terms no more or less favorable than those with non-affiliated parties.
9. INCOME TAXES
The Company's wholly owned subsidiaries have a deferred tax asset arising
from the carryforward of net operating losses and the differences between
the book and tax basis of property. However, a valuation allowance has been
recorded to fully reserve the deferred tax asset as its realization is
uncertain.
Significant components of deferred income taxes are as follows (in (UK
Pound)000's):
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Net operating loss carryforwards
(carried forward indefinitely)...................... (UK Pound)9,270 (UK Pound)14,382
Differences between book and tax
basis of property................................... 16,995 7,959
Other................................................. 638 321
Less: Valuation allowance............................. (26,903) (22,662)
--------------- ---------------
(UK Pound) (UK Pound)
=============== ===============
</TABLE>
10. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The Company made cash payments for interest of approximately (UK Pound)7.6
million, (UK Pound)559,000 and (UK Pound)418,000 during the years ended
December 31, 1998, 1997 and 1996, respectively.
The Company's wholly owned subsidiaries incurred capital lease obligations
of (UK Pound)3.4 million, (UK Pound)2.1 million and (UK Pound)1.2 million
during the years ended December 31, 1998, 1997 and 1996, respectively.
11. COMMITMENTS AND CONTINGENCIES
As of December 31, 1998, the Company was committed to purchase
approximately (UK Pound)3.1 million for equipment and services.
Certain of the Company's facilities and equipment are held under operating
or capital leases which expire through 2008.
A summary of assets held under capital lease are as follows (in (UK
Pound)000's):
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Land, buildings and equipment..........................(UK Pound)13,132 (UK Pound)10,735
Less: Accumulated depreciation......................... (4,805) (3,165)
---------------- ----------------
(UK Pound) 8,327 (UK Pound) 7,570
================ ================
</TABLE>
- 23 -
<PAGE>
NTL (BERMUDA) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
Future minimum rental payments under lease commitments with an initial or
remaining term of more than one year of December 31, 1998 are as follows
(in (UK Pound)000's):
<TABLE>
<CAPTION>
Capital Operating
leases leases
<S> <C> <C> <C>
1999....................................................(UK Pound)2,456 (UK Pound)1,506
2000.................................................... 1,305 997
2001.................................................... 1,063 299
2002.................................................... 894 46
2003.................................................... 779 36
Thereafter.............................................. 1,919
--------------- ---------------
Total minimum rental commitments........................ 8,416 (UK Pound)2,884
===============
Less: Amount representing interest...................... (1,538)
---------------
Present value of minimum rental commitments............. 6,878
Less: Current portion of capital lease obligations...... (1,965)
---------------
Long-term portion of capital lease obligations..........(UK Pound)4,913
===============
</TABLE>
Operating lease expense for the years ended December 31, 1998, 1997 and
1996 was (UK Pound)1.6 million, (UK Pound)1.7 million and (UK Pound)1.5
million, respectively.
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to these actions will not materially
affect the financial position, results of operations or liquidity of the
Company.
12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth Total
Quarter Quarter Quarter Quarter (1) Year
((UK Pound)000, except per share data)
<S> <C> <C> <C> <C> <C>
1998
Revenues.............................(UK Pound)17,576 (UK Pound)19,012 (UK Pound)19,944 (UK Pound)22,055 (UK Pound)78,587
Operating loss....................... (4,583) (3,941) (4,306) (2,737) (15,567)
Equity in net losses of affiliates... (6,415) (4,770) (4,731) (3,780) (19,696)
(Loss) income before extraordinary
item.............................. (15,491) (16,286) (12,730) 87,712 43,205
Extraordinary item................... (1,107) (1,107)
Net (loss) income.................... (15,491) (16,286) (12,730) 86,605 42,098
1997
Revenues.............................(UK Pound)12,351 (UK Pound)13,350 (UK Pound)14,241 (UK Pound)16,720 (UK Pound)56,662
Operating loss....................... (6,543) (6,364) (5,679) (4,018) (22,604)
Equity in net losses of affiliates... (5,152) (5,162) (5,195) (5,850) (21,359)
Net loss............................. (20,540) (13,108) (20,682) (13,026) (67,356)
<FN>
- ---------------
(1) The fourth quarter and total year net income resulted from a gain of (UK
Pound)110.0 million due to the sale of the interests in Birmingham Cable in
October 1998.
</FN>
</TABLE>
- 24 -
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Cable London PLC
We have audited the accompanying consolidated balance sheet of Cable London PLC
(a company incorporated in the United Kingdom) and subsidiaries as of December
31, 1998 and 1997, and the related consolidated statements of operations,
shareholders' (deficiency) equity and of cash flows for each of the three years
in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Cable London PLC and subsidiaries
as of December 31, 1998 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1998 in
conformity with accounting principles generally accepted in the United States of
America.
Deloitte & Touche
London, England
February 5, 1999
- 25 -
<PAGE>
CABLE LONDON PLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in (UK Pound)000's, except share data)
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash.......................................................... (UK Pound)2,793 (UK Pound)2,718
Accounts receivable, less allowance for doubtful accounts
of (UK Pound)1,901 and (UK Pound)1,762..................... 6,172 4,792
Other current assets.......................................... 1,811 2,830
----------------- -----------------
Total current assets.................................... 10,776 10,340
----------------- -----------------
PROPERTY AND EQUIPMENT............................................ 266,488 235,786
Accumulated depreciation...................................... (75,742) (55,292)
----------------- -----------------
Property and equipment, net................................... 190,746 180,494
----------------- -----------------
DEFERRED CHARGES.................................................. 7,637 8,073
Accumulated amortization...................................... (3,430) (3,214)
----------------- -----------------
Deferred charges, net......................................... 4,207 4,859
----------------- -----------------
(UK Pound)205,729 (UK Pound)195,693
================= =================
LIABILITIES AND SHAREHOLDERS' (DEFICIENCY)
CURRENT LIABILITIES
Accounts payable and accrued expenses......................... (UK Pound)21,814 (UK Pound)19,972
Other current liabilities..................................... 1,465 2,172
Current portion of long-term debt and capital lease obligations 1,374 758
----------------- -----------------
Total current liabilities............................... 24,653 22,902
----------------- -----------------
LONG-TERM DEBT, less current portion.............................. 115,698 89,727
----------------- -----------------
CAPITAL LEASE OBLIGATIONS, less current portion................... 10,841 11,751
----------------- -----------------
CONVERTIBLE DEBT AND LOANS FROM SHAREHOLDERS...................... 74,277 69,017
----------------- -----------------
OTHER LIABILITIES................................................. 3,832 2,543
----------------- -----------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' (DEFICIENCY)
Ordinary shares, (UK Pound).10 par value - authorized,
100,000,000 shares; issued, 55,572,916..................... 5,557 5,557
Additional capital............................................ 97,254 97,254
Accumulated deficit........................................... (126,383) (103,058)
----------------- -----------------
Total shareholders' (deficiency)........................ (23,572) (247)
----------------- -----------------
(UK Pound)205,729 (UK Pound)195,693
================= =================
</TABLE>
See notes to consolidated financial statements.
- 26 -
<PAGE>
CABLE LONDON PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(in (UK Pound)000's)
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
SERVICE INCOME........................................... (UK Pound)66,987 (UK Pound)52,816 (UK Pound)40,091
----------------- ----------------- -----------------
COSTS AND EXPENSES
Operating............................................. 27,259 22,084 17,978
Selling, general and administrative................... 24,869 23,703 21,157
Depreciation and amortization......................... 22,659 19,740 14,862
----------------- ----------------- -----------------
74,787 65,527 53,997
----------------- ----------------- -----------------
OPERATING LOSS........................................... (7,800) (12,711) (13,906)
INTEREST EXPENSE......................................... 15,730 12,692 7,556
INVESTMENT INCOME........................................ (205) (235) (221)
----------------- ----------------- -----------------
NET LOSS.................................................((UK Pound)23,325) ((UK Pound)25,168) ((UK Pound)21,241)
================= ================= =================
</TABLE>
See notes to consolidated financial statements.
- 27 -
<PAGE>
CABLE LONDON PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in (UK Pound)000's)
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss..............................................((UK Pound)23,325) ((UK Pound)25,168) ((UK Pound)21,241)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization........................ 22,659 19,740 14,862
Non-cash interest expense............................ 5,260 4,773 3,355
--------------- --------------- ---------------
4,594 (655) (3,024)
Increase in accounts receivable and
other current assets............................... (361) (618) (2,428)
Increase (decrease) in accounts payable and accrued
expenses, other current liabilities and other
liabilities........................................ 2,424 (135) 7,508
--------------- --------------- ---------------
Net cash provided by (used in) operating
activities...................................... 6,657 (1,408) 2,056
--------------- --------------- ---------------
FINANCING ACTIVITIES
Proceeds from borrowings............................... 26,000 94,029 40,000
Debt acquisition costs................................. (1,704)
Loans from shareholders................................ 12,000 3,000
Repayments of debt..................................... (26) (65,031) (33)
Repayment of capital leases............................ (741) (537) (21)
Issuances of shares.................................... 812
--------------- --------------- ---------------
Net cash provided by financing activities........ 25,233 39,569 42,946
--------------- --------------- ---------------
INVESTING ACTIVITIES
Capital expenditures................................... (31,815) (38,656) (46,082)
--------------- --------------- ---------------
Net cash used in investing activities ........... (31,815) (38,656) (46,082)
--------------- --------------- ---------------
INCREASE (DECREASE) IN CASH............................... 75 (495) (1,080)
CASH, beginning of year................................... 2,718 3,213 4,293
--------------- --------------- ---------------
CASH, end of year......................................... (UK Pound)2,793 (UK Pound)2,718 (UK Pound)3,213
=============== =============== ===============
</TABLE>
See notes to consolidated financial statements.
- 28 -
<PAGE>
CABLE LONDON PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' (DEFICIENCY) EQUITY
(in (UK Pound)000's)
<TABLE>
<CAPTION>
Ordinary Additional Accumulated
Shares Capital Deficit Total
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996.....................(UK Pound)5,513 (UK Pound)96,486 ((UK Pound)56,649) (UK Pound)45,350
Net loss................................ (21,241) (21,241)
--------------- ---------------- ----------------- -----------------
BALANCE, DECEMBER 31, 1996................... 5,513 96,486 (77,890) 24,109
Shares issued........................... 44 768 812
Net loss................................ (25,168) (25,168)
--------------- ---------------- ----------------- -----------------
BALANCE, DECEMBER 31, 1997................... 5,557 97,254 (103,058) (247)
Net loss................................ (23,325) (23,325)
--------------- ---------------- ----------------- -----------------
BALANCE, DECEMBER 31, 1998...................(UK Pound)5,557 (UK Pound)97,254 ((UK Pound)126,383) ((UK Pound)23,572)
=============== ================ ================= =================
</TABLE>
See notes to consolidated financial statements.
- 29 -
<PAGE>
CABLE LONDON PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. BUSINESS
Cable London PLC, a company incorporated in the United Kingdom ("UK"), and
subsidiaries (the "Company") is principally engaged in the development,
construction, management and operation of cable telecommunications systems.
The Company holds four franchises covering Camden, Haringey,
Hackney/Islington and Enfield, England.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Company maintains its books and records in accordance with accounting
principles generally accepted in the UK. The consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles as practiced in the United States ("US") and are
stated in UK pounds sterling ("UK Pound"). There were no significant
differences between accounting principles followed for UK purposes and
generally accepted accounting principles practiced in the US. The UK Pound
exchange rate as of December 31, 1998 and 1997 was US $1.66 and US $1.65,
respectively.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and all wholly owned subsidiaries. All significant intercompany accounts
and transactions among the consolidated entities have been eliminated.
Management's 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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fair Values
The estimated fair value amounts presented in these notes to consolidated
financial statements have been determined by the Company using available
market information and appropriate methodologies. However, considerable
judgment is required in interpreting market data to develop the estimates
of fair value. The estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts. Such fair value estimates are based on pertinent information
available to management as of December 31, 1998 and 1997, and have not been
comprehensively revalued for purposes of these consolidated financial
statements since such dates.
Prematurity Period
The Company accounts for costs, expenses and revenues applicable to the
construction and operation of its cable telecommunications systems under
the provisions of Statement of Financial Accounting Standards ("SFAS") No.
51, "Financial Reporting by Cable Television Companies."
Under SFAS No. 51, during the period while the systems are partially under
construction and partially in service (the "Prematurity Period"), costs of
cable telecommunications plant, including materials, direct labor and
construction overhead are capitalized. Subscriber-related costs and general
and administrative costs are expensed as incurred. Costs incurred in
anticipation of servicing a fully operating system that will not vary
regardless of the number of subscribers are partially expensed and
partially capitalized, based on the percentage of average actual or
estimated subscribers, whichever is greater, to the total number of
subscribers expected at the end of the Prematurity Period (the "Fraction").
During the Prematurity Period, depreciation and amortization of system
assets is determined by multiplying the depreciation and amortization of
the total capitalized system assets expected at the end of the Prematurity
Period by the Fraction. At the end of the Prematurity Period, depreciation
and amortization of system assets is based on
- 30 -
<PAGE>
CABLE LONDON PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
the remaining undepreciated cost at that date. As of December 31, 1998, all
of the Company's four franchise areas have completed their Prematurity
Period.
Property and Equipment
Property and equipment, which consists principally of system assets, is
shown at historical cost less accumulated depreciation. Improvements that
extend asset lives are capitalized; other repairs and maintenance charges
are expensed as incurred. The cost and related accumulated depreciation
applicable to assets sold or retired are removed from the accounts and the
gain or loss on disposition is recognized as a component of depreciation
expense.
System assets
Prior to the Prematurity Period, no depreciation is provided on system
assets. During the Prematurity Period, depreciation is provided in
accordance with SFAS No. 51.
Depreciation of system assets is provided by the straight-line method over
estimated useful lives as follows:
Plant 40 years
Network 15 years
Subscriber equipment 6-8 years
Switch 10 years
Computers 4 years
Non-system assets
Depreciation of non-system assets is provided by the straight-line method
over estimated useful lives as follows:
Leased buildings 40 years
Fixtures, fittings and equipment 5 years
Computers 4 years
Vehicles 3 years
Leased Assets
Assets held under capital leases are treated as if they had been purchased
outright and the corresponding liability is included in capital lease
obligations. Capital lease payments include principal and interest, with
the interest portion being expensed. Payments on operating leases are
expensed on a straight-line basis over the lease term.
Deferred Charges
Deferred charges consist primarily of franchise acquisition and development
costs directly attributable to obtaining, developing and maintaining the
franchise licenses and debt acquisition costs incurred by the Company in
entering into the London Revolver (see Note 3). Franchise acquisition and
development costs are being amortized on a straight-line basis over periods
from two to fifteen years. Debt acquisition costs are being amortized on a
straight-line basis over the term of the London Revolver of nine years.
Valuation of Long-Lived Assets
The Company periodically evaluates the recoverability of its long-lived
assets, including property and equipment and deferred charges, using
objective methodologies. Such methodologies include evaluations based on
the cash flows generated by the underlying assets or other determinants of
fair value.
Revenue Recognition
Service income is recognized as service is provided. Credit risk is managed
by disconnecting services to subscribers who are delinquent.
- 31 -
<PAGE>
CABLE LONDON PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
Income Taxes
The Company recognizes deferred tax assets and liabilities for temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities and expected benefits of utilizing net
operating loss carryforwards. The impact on deferred taxes of changes in
tax rates and laws, if any, applied to the years during which temporary
differences are expected to be settled, are reflected in the financial
statements in the period of enactment.
Derivative Financial Instruments
The Company uses derivative financial instruments, including interest rate
exchange agreements ("Swaps") and interest rate collar agreements
("Collars"), to manage its exposure to fluctuations in interest rates.
Swaps and Collars are matched with either fixed or variable rate debt and
periodic cash payments are accrued on a settlement basis as an adjustment
to interest expense.
Those instruments that have been entered into by the Company to hedge
exposure to interest rate risks are periodically examined by the Company to
ensure that the instruments are matched with underlying liabilities, reduce
the Company's risks relating to interest rates and, through market value
and sensitivity analysis, maintain a high correlation to the interest
expense or underlying value of the hedged item.
The Company does not hold or issue any derivative financial instruments for
trading purposes and is not a party to leveraged instruments (see Note 3).
The credit risks associated with the Company's derivative financial
instruments are controlled through the evaluation and monitoring of the
creditworthiness of the counterparties. Although the Company may be exposed
to losses in the event of nonperformance by the counterparties, the Company
does not expect such losses, if any, to be significant.
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement, which establishes
accounting and reporting standards for derivatives and hedging activities,
is effective for fiscal years beginning after June 15, 1999. Upon the
adoption of SFAS No. 133, all derivatives are required to be recognized in
the statement of financial position as either assets or liabilities and
measured at fair value. The Company is currently evaluating the impact the
adoption of SFAS No. 133 will have on its financial position and results of
operations.
3. LONG-TERM DEBT
In June 1995, the Company entered into a (UK Pound)60.0 million revolving
credit facility (the "London Facility") with various banks. The London
Facility had a two year term and an interest rate at the London Interbank
Offered Rate ("LIBOR") plus 2 1/2%. In April 1997, the amount available
under the London Facility was increased to (UK Pound)65.0 million.
In May 1997, the Company entered into a (UK Pound)170.0 million revolving
credit facility (the "London Revolver") with various banks, which converts
into a five year term loan on June 30, 2001. Interest rates on the London
Revolver are at LIBOR plus 1/2% to 2 3/8%. In May 1997, the Company repaid
all amounts outstanding under the London Facility with proceeds from
borrowings under the London Revolver. The balance of the London Revolver
will be used, subject to certain restrictions, for capital expenditures and
working capital requirements relating to the build-out of its systems.
The London Revolver contains restrictive covenants which limit the
Company's ability to enter into arrangements for the acquisition and sale
of property and equipment, investments, mergers and the incurrence of
additional debt. Certain of these covenants require that certain financial
ratios and cash flow levels be maintained and contain certain restrictions
on dividend payments. The Company's two principal shareholders' rights to
receive consulting fee payments from the Company had been subordinated to
the banks under the London Revolver. The payment of
- 32 -
<PAGE>
CABLE LONDON PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
consulting fees was restricted until the Company met certain financial
ratio tests under the London Revolver. The consulting fee agreements were
terminated in October 1998 pursuant to an agreement between the Company's
two principal shareholders. In addition, the Company's two principal
shareholders' shares in the Company have been pledged to secure the London
Revolver.
The Company enters into Swaps and Collars as a normal part of its risk
management efforts to limit its exposure to adverse fluctuations in
interest rates. Using Swaps, the Company agrees to exchange, at specified
intervals, the difference between fixed and variable interest amounts
calculated by reference to an agreed upon notional amount. Collars limit
the Company's exposure to and benefits from interest rate fluctuations on
variable rate debt to within a certain range of interest rates. In June
1997, the Company entered into a series of four year interest Swaps with
three banks. Under the agreements, the Company pays fixed rate interest at
7.34% and receives floating rate interest at three month LIBOR, based upon
the outstanding notional amount of the Swaps. As of December 31, 1998, the
notional amount outstanding on the Swaps was (UK Pound)64.5 million and
increased to (UK Pound)69.5 million on January 7, 1999. Also in June 1997,
the Company entered into a Collar which limits the interest rate on the
notional amount to between 6% and 9%. As of December 31, 1998, the notional
amount outstanding on the Collar was (UK Pound)32.3 million and increased
to (UK Pound)34.8 million on January 7, 1999. The notional amounts of
interest rate agreements and interest rate collar agreements are used to
measure interest to be paid or received and do not represent the amount of
exposure to credit loss. While Swaps and Collars represent an integral part
of the Company's interest rate risk management program, their incremental
effect on interest expense for the year ended December 31, 1998 was not
significant. The estimated amount to settle the Company's Swaps and Collar
was (UK Pound)3.7 million and (UK Pound)1.5 million as of December 31, 1998
and 1997, respectively.
Also included in long-term debt is a mortgage note payable with an
outstanding balance of (UK Pound)727,000 and (UK Pound)753,000 as of
December 31, 1998 and 1997, respectively, payable in monthly installments
through 2002 which is secured by property of the Company. The mortgage note
bears interest at a fixed rate of 9.79%.
Maturities of long-term debt outstanding as of December 31, 1998 for the
four years after 1999 are as follows ((UK Pound)000's):
2000 (UK Pound)31
2001 2,911
2002 12,131
2003 17,250
The differences between the carrying amounts and estimated fair value of
the Company's long-term debt was not significant as of December 31, 1998
and 1997. Interest rates that are currently available to the Company for
debt with similar terms and remaining maturities are used to estimate fair
value for debt issues for which quoted market prices are not available.
4. CONVERTIBLE DEBT AND LOANS FROM SHAREHOLDERS
As of December 31, 1998 and 1997, the Company had outstanding convertible
debt due to shareholders of (UK Pound)42.0 million and outstanding loans
from shareholders of (UK Pound)15.0 million. The convertible debt and loans
from shareholders bear interest at 2% above the base lending rate of
Barclays Bank PLC (8.25% effective rate as of December 31, 1998) and are
payable on demand. Accrued interest on the convertible debt and loans from
shareholders is (UK Pound)17.3 million and (UK Pound)12.0 million as of
December 31, 1998 and 1997, respectively. Under the terms of the London
Revolver, principal and interest on the convertible debt and loans from
shareholders cannot be paid until the London Revolver is repaid.
Accordingly, the convertible debt, loans from shareholders and accrued
interest thereon has been classified as long-term convertible debt and
other in the Company's consolidated balance sheet. The convertible debt,
along with accrued interest thereon, is convertible into the Company's
ordinary shares at (UK Pound)2.00 per share. Interest expense on the
convertible debt and loans from shareholders was (UK Pound)5.3 million, (UK
Pound)4.8 million and (UK Pound)3.3 million during the years ended December
31, 1998, 1997 and 1996, respectively. A reasonable estimate of the
- 33 -
<PAGE>
CABLE LONDON PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
fair value of the convertible debt and loans from shareholders is not
practicable to obtain because of the related party nature of these items
and the lack of quoted market prices.
5. RELATED PARTY TRANSACTIONS
The Company had consulting agreements with Comcast U.K. Consulting, Inc.
("Comcast Consulting") and Telewest Communications Group Ltd., subsidiaries
of the Company's two principal shareholders, Comcast UK and Telewest
Communications plc ("Telewest"), respectively. The Company pays a fee to
Telewest each year as a contribution to the operating expenses and capital
expenditures of Telewest's Network Service Center, which provides telephony
support to the Company. The consulting agreements were terminated in
October 1998 pursuant to an agreement between NTL (Bermuda) Limited and
Telewest.
A summary of related party charges included in the Company's consolidated
financial statements is as follows (in (UK Pound)000's):
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Consulting fees (UK Pound)1,100 (UK Pound)1,077 (UK Pound)790
Network Service Center fees 427 521 639
Other 653 355 125
--------------- --------------- ---------------
(UK Pound)2,180 (UK Pound)1,953 (UK Pound)1,554
=============== =============== ===============
</TABLE>
As of December 31, 1998 and 1997, accounts payable and accrued expenses
include (UK Pound)406,000 million and (UK Pound)176,000, respectively,
payable to the Company's two principal shareholders, principally for
consulting fees and normal operating expenses paid by the shareholders and
their affiliates on behalf of the Company. As of December 31, 1998 and
1997, other long-term liabilities includes (UK Pound)3.8 million and (UK
Pound)2.5 million, respectively of consulting fees and interest payable to
the Company's two principal shareholders as payment is restricted under the
London Revolver.
In management's opinion, the foregoing transactions were entered into on
terms no more or less favorable than those with non-affiliated third
parties.
6. INCOME TAXES
The Company has a deferred tax asset arising from the carryforward of net
operating losses and the differences between the book and tax basis of
property. However, a valuation allowance has been recorded to fully reserve
the deferred tax asset as its realization is uncertain.
Significant components of the Company's deferred income taxes are as
follows (in (UK Pound)000's):
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Net operating loss carryforwards (carried forward indefinitely).............. (UK Pound)19,609 (UK Pound)17,692
Differences between book and tax basis of property........................... 13,143 10,426
Other........................................................................ (106) (459)
Less: Valuation allowance.................................................... (32,646) (27,659)
---------------- ----------------
(UK Pound) (UK Pound)
================ ================
</TABLE>
- 34 -
<PAGE>
CABLE LONDON PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Concluded)
7. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The Company made cash payments for interest of approximately (UK Pound)10.0
million, (UK Pound)7.4 million and (UK Pound)3.7 million during the years
ended December 31, 1998, 1997 and 1996, respectively.
The Company incurred capital lease obligations of (UK Pound)444,000, (UK
Pound)4.8 million and (UK Pound)1.5 million during the years ended December
31, 1998, 1997 and 1996, respectively.
8. COMMITMENTS AND CONTINGENCIES
Certain of the Company's facilities and equipment are held under operating
or capital leases which expire through 2007.
A summary of assets held under capital leases are as follows (in (UK
Pound)000's):
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
System, fixtures, fittings, equipment and vehicles.......... (UK Pound)13,484 (UK Pound)13,040
Less: Accumulated depreciation.............................. (4,385) (2,836)
---------------- ----------------
(UK Pound)9,099 (UK Pound)10,204
================ ================
</TABLE>
Future minimum rental payments under lease commitments with an initial or
remaining term of more than one year as of December 31, 1998 are as follows
(in (UK Pound)000's):
<TABLE>
<CAPTION>
Capital Operating
leases leases
<S> <C> <C>
1999........................................................ (UK Pound)2,194 (UK Pound)786
2000........................................................ 2,125 665
2001........................................................ 2,340 615
2002........................................................ 1,491 597
2003........................................................ 1,674 597
Thereafter.................................................. 6,273 2,012
---------------- ---------------
Total minimum rental commitments............................ 16,097 (UK Pound)5,272
===============
Less: Amount representing interest.......................... (3,911)
----------------
Present value of minimum rental commitments................. 12,186
Less: Current portion of capital lease obligations.......... (1,345)
----------------
Long-term portion of capital lease obligations.............. (UK Pound)10,841
================
</TABLE>
Operating lease expense for the years ended December 31, 1998, 1997 and
1996 was (UK Pound)822,000, (UK Pound)919,000 and (UK Pound)1.2 million,
respectively.
- 35 -
<PAGE>
NTL (BERMUDA) LIMITED
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(in (UK Pound)000's)
<TABLE>
<CAPTION>
Additions
Balance at Effect of Charged to Deductions Balance
Beginning SingTel Costs and from at End
of Year Transaction Expenses Reserves(A) of Year
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts
1998.............................. (UK Pound)2,598 (UK Pound)1,720 (UK Pound)1,478 (UK Pound)2,840
1997.............................. 1,338 1,488 228 2,598
1996.............................. 40 (UK Pound)577 1,325 604 1,338
</TABLE>
(A) Uncollectible accounts written off.
- 36 -
<PAGE>
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10, 11, 12 AND 13
Omitted, pursuant to General Instruction I(2)(c) of Form 10-K.
- 37 -
<PAGE>
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following financial statements are included in Part II, Item 8:
<TABLE>
<CAPTION>
<S> <C>
NTL (Bermuda) Limited formerly Comcast UK Cable Partners Limited and Subsidiaries
Independent Auditors' Report.............................................9
Consolidated Balance Sheets--December 31, 1998 and 1997.................11
Consolidated Statements of Operations--Years
Ended December 31, 1998, 1997 and 1996.................................12
Consolidated Statements of Cash Flows--Years
Ended December 31, 1998, 1997 and 1996.................................13
Consolidated Statement of Shareholder's
Equity--Years Ended December 31, 1998, 1997 and 1996...................14
Notes to Consolidated Financial Statements..............................15
Cable London PLC and Subsidiaries
Independent Auditors' Report............................................25
Consolidated Balance Sheet--December 31, 1998 and 1997..................26
Consolidated Statement of Operations--Years
Ended December 31, 1998, 1997 and 1996.................................27
Consolidated Statement of Cash Flows--Years
Ended December 31, 1998, 1997 and 1996.................................28
Consolidated Statement of Shareholders' (Deficiency)
Equity--Years Ended December 31, 1998, 1997 and 1996...................29
Notes to Consolidated Financial Statements..............................30
</TABLE>
(b) (i) The following financial statement schedule required to be filed by
Items 8 and 14(d) of Form 10-K is included in Part II:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable,
not required or the required information is included in the
consolidated financial statements or notes thereto.
(c) Reports on Form 8-K.
(i) The Company filed the following Current Reports on Form 8-K:(i)
under Items 1, 4 and 7 on November 4, 1998 relating to the change
in control of the Registrant, (ii) under Items 5 and 7 on October
28, 1998 and (iii) under Items 5 and 7 on October 6, 1998. No
financial statements were filed with the above-referred reports.
(d) Exhibits required to be filed by Item 601 of Regulation S-K:
2.l* Reorganization Agreement, dated 19 September 1994, among
Warburg, Pincus Investors, L.P., Bankers Trust Investments
PLC ("Bankers Trust"), Comcast Corporation ("Comcast"),
Comcast U.K. Holdings, Inc., ("Holdings"), the Company and
UK Cable Partners Limited ("UKCPL").
2.2z Agreement and Plan of Amalgamation dated 4 February 1998
among NTL Incorporated, NTL (Bermuda) Limited and the
Company, as amended.
3(i)+ Memorandum of Association of the Company.
3(ii)+ Bye-laws of the Company.
4.l+ Form of Certificate for Class A Common Shares, par value (UK
Pound)0.01 per share.
4.2* Indenture dated as of 15 November 1995, between the Company
and Bank of Montreal Trust Company, as Trustee, in respect
of the Company's 11.20% Senior Discount Debentures Due 2007
(the "2007 Debentures").
4.2ax Form of certificate of the 2007 Debentures (included in
Exhibit 4.2).
- 38 -
<PAGE>
10.1+ Subscription and Contribution Agreement, dated 26 October
1992, among Comcast, UKCPL, the Company, Holdings, Comcast
Cablevision of Birmingham, Inc. ("Comcast Birmingham") and
Comcast Cablevision of London, Inc.
10.2+ Shareholders Agreement, dated 11 December 1992 (the
"Shareholders Agreement"), among Holdings, UKCPL, the
Company and Comcast.
10.3+ Delegation Agreement, dated 11 December 1992 (the
"Delegation Agreement"), among LTK Consulting, Comcast and
Comcast UK Consulting, Inc. ("Comcast Consulting").
10.4+ NewCo Services Agreement, dated 11 December 1992 (the "NewCo
Services Agreement"), between the Company and Comcast UK
Cable Partners Consulting, Inc. ("UK Consulting").
10.5++ Supplemental Agreement, dated 21 June 1995, among the
Company, Comcast Consulting, Comcast, Holdings, Warburg
Pincus and UK Consulting to the NewCo Services Agreement,
the Delegation Agreement and the Shareholders Agreement.
10.6+ Memorandum of Association and Articles of Association of
Birmingham Cable Corporation Limited ("Birmingham Cable").
10.7+ Co-ownership Agreement, dated 12 March 1990, between US West
International Holdings, Inc. ("US West") and Comcast
Birmingham.
10.7a+ Letter, dated 29 April 1992, from US West to Comcast
Birmingham relating to the Co-ownership Agreement.
10.7b+ Letter, dated 6 May 1992, from US West to Comcast Birmingham
relating to the Co-ownership Agreement.
10.8+ Subscription Agreement, dated 4 May 1989, between Birmingham
Cable and US West.
10.8a+ Subscription Agreement, dated 31 May 1989, among Birmingham
Cable, US West, Compagnie Generale des Eaux ("CGE"), The
Cable Corporation Limited ("TCC") and the Standard Life
Insurance Company ("Standard Life").
10.8b+ Supplemental Subscription Agreement, dated 16 March 1990,
among Birmingham Cable, US West, CGE, TCC, Standard Life,
Comcast Birmingham and General Cable PLC ("General Cable").
10.8c+ Second Supplemental Subscription Agreement, dated 16 March
1990, among Birmingham Cable, US West, CGE, TCC, Standard
Life, Comcast Birmingham and General Cable.
10.8d+ Third Supplemental Subscription Agreement, dated 12 May
1992, among Birmingham Cable, US West, CGE, TCC, Standard
Life, Comcast Birmingham, General Cable and US West Cable
Programming Corporation.
10.8e* Agreement relating to Birmingham Cable, dated 30 March 1994,
among General Cable, CGE, Telewest Communications plc
("Telewest"), US West, United Artists Cable Television
International Holdings, Inc., the Company, Comcast, TCC,
Birmingham Cable, Birmingham Cable Limited and Standard
Life.
10.9+ Management Agreement, dated 25 April 1990 (the "Management
Agreement"), among Birmingham Cable, Birmingham Cable
Limited, US West and Comcast Birmingham.
10.9a+ Assignment Agreement, dated 27 August 1990, relating to the
Management Agreement.
10.9b+ Assignment and Amendment Agreement, dated 5 August 1992,
relating to the Management Agreement.
10.10+ Consultant Agreement, dated 17 July 1992, among Birmingham
Cable, Birmingham Cable Limited and Telewest Communications
Group Limited.
10.12+ Memorandum of Association and Articles of Association of
Cable London PLC ("Cable London").
10.13+ Consultant Agreement, dated 16 August 1989, between Cable
London and US West Cable Communications Limited.
10.14+ Consultant Agreement, dated 17 August 1989 (the "London
Consultant Agreement"), between Cable London and Comcast.
10.14a+ Assignment Agreement, dated 14 September 1990, relating to
the London Consultant Agreement.
10.15+ Subscription Agreement, dated 10 July 1989, among Cable
London, US West, Comcast, Jerrold Samuel Nathan, Malcolm
John Gee, Sally Margaret Davis and Steven Michael Kirk.
10.16x Share Exchange Agreement, dated 4 December 1995, among
Singapore Telecom International Pte. Limited, Cambridge
Cable, the Company and Holdings.
10.17+ Share Exchange Agreement, dated 5 May 1994, between Avalon
Telecommunications L.L.C. and the Company.
10.18y Agreement dated August 14, 1998 among Telewest
Communications plc, Telewest Communications Holding Limited,
the Company and NTL Incorporated.
27.1 Financial Data Schedule.
- 39 -
<PAGE>
99.1y Consolidated financial statements of Cambridge Holding
Company Limited (a United Kingdom corporation in the
prematurity stage) and subsidiaries as of and for the years
ended December 31, 1995 and 1994.
- ---------------
* Incorporated by reference to the Company's Registration Statement on Form
S-1 (file number 33-96932) declared effective November 9, 1995.
+ Incorporated by reference to the Company's Registration Statement on Form
S-1 (file number 33-76160) declared effective September 20, 1994.
++ Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995 (file number 0-24792).
ss. Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995 (file number 0-24792).
x Incorporated by reference to the Company's Current Report on Form 8-K dated
January 22, 1996.
y Incorporated by reference to NTL Incorporated's Current Report on Form 8-K
dated August 18, 1998. (file number 000-22616).
z Incorporated by reference to NTL's Registration Statement on Form S-4 (file
number 333-64727)
- 40 -
<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 on March 30, 1999.
NTL (BERMUDA) LIMITED
By: /s/ J. Barclay Knapp
J. Barclay Knapp
President, Chief Executive Officer and
Chief Financial Officer (Principal Executive
and Principal Financial Officer)
Pursuant to the requirement of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ J. Barclay Knapp March 30, 1999
J. Barclay Knapp President, Chief Executive Officer
and Chief Financial Officer
(Principal Executive and
Principal Financial Officer)
/s/ George S. Blumenthal March 30, 1999
George S. Blumenthal Chairman of the Board and
Treasurer
/s/ Gregg Gorelick March 30, 1999
Gregg Gorelick Vice President - Controller
(Principal Accounting Officer)
/s/ Sidney R. Knafel March 30, 1999
Sidney R. Knafel Director
/s/ Ted H. McCourtney March 30, 1999
Ted H. McCourtney Director
/s/ Del Mintz March 30, 1999
Del Mintz Director
/s/ Alan J. Patricof March 30, 1999
Alan J. Patricof Director
/s/ Warren Potash March 30, 1999
Warren Potash Director
/s/ Michael S. Willner March 30, 1999
Michael S. Willner Director
</TABLE>
- 41 -
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.K. POUNDS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
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0
0
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