EXHIBIT 99.1
CASTLE TRANSMISSION SERVICES (HOLDINGS) LTD AND SUBSIDIARIES AND
THE BBC HOME SERVICE TRANSMISSION BUSINESS
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
of Castle Transmission Services (Holdings) Ltd:
We have audited the accompanying balance sheet of the BBC Home Service
Transmission business ("Home Service") at March 31, 1996 and the consolidated
balance sheets of Castle Transmission Services (Holdings) Ltd and its
subsidiaries ("Castle Transmission") at March 31, 1997 and December 31, 1997
and the profit and loss accounts, cash flow statements and reconciliations of
movements in corporate funding for Home Service for the year ended March 31,
1996 and the period from April 1, 1996 to February 27, 1997 and the related
consolidated profit and loss accounts, cash flow statements and reconciliations
of movements in shareholders' funds for Castle Transmission for the period from
February 28, 1997 to March 31, 1997 and the period from April 1, 1997 to
December 31, 1997. These financial statements are the responsibility of Castle
Transmission's and Home Service's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United Kingdom, which do not differ in any material respect
from generally accepted auditing standards in the United States. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Home Service at March 31,
1996 and the consolidated financial position of Castle Transmission at March
31, 1997 and December 31, 1997 and the results of operations and cash flows of
Home Service for the year ended March 31, 1996 and for the period from April 1,
1996 to February 27, 1997 and of Castle Transmission for the period from
February 28, 1997 to March 31, 1997 and for the period from April 1, 1997 to
December 31, 1997 in conformity with generally accepted accounting principles
in the United Kingdom.
Generally accepted accounting principles in the United Kingdom vary in
certain respects from generally accepted accounting principles in the United
States. Application of generally accepted accounting principles in the United
States would have affected results of operations for the year ended March 31,
1996 and the period from April 1, 1996 to February 27, 1997 for Home Service
and the period from February 28, 1997 to March 31, 1997 and from April 1, 1997
to December 31, 1997 for Castle Transmission and shareholders' equity at
March 31, 1996 for Home Service and at March 31, 1997 and December 31, 1997 for
Castle Transmission to the extent summarised in Note 27 to these financial
statements.
KPMG
Chartered Accountants
Registered Auditor
London, England
March 31, 1998
1
CASTLE TRANSMISSION SERVICES (HOLDINGS) LTD AND SUBSIDIARIES AND
THE BBC HOME SERVICE TRANSMISSION BUSINESS
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
Castle Transmission Services
BBC Home Service Transmission (Holdings) Ltd
-------------------------------------- --------------------------------------
Period Period Period
from April 1, Two from from April 1, Eight
1996 Months February 28, 1997 Months
Year Ended to Ended 1997 to Ended
March 31, February 27, February 27, to March 31, December 31, August 31,
Note 1996 1997 1997 1997 1997 1998
------ ----------- ------------- ------------ ------------ ------------- -----------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
(Unaudited) (Unaudited)
Turnover................ 3 70,367 70,614 12,805 6,433 56,752 59,033
Changes in stocks and
work in progress....... (635) (554) (150) 340 747 (1,279)
Own work capitalised.... 4,653 3,249 308 170 1,127 2,440
Raw materials and
consumables............ 14 (1,155) (387) (446) (2,410) (281)
Other external charges.. (34,750) (26,191) (4,130) (1,668) (13,811) (14,900)
Staff costs............. 4 (17,197) (16,131) (3,104) (1,421) (14,345) (16,032)
Depreciation and other
amounts written off
tangible and intangible
assets................. 5 (12,835) (13,038) (2,464) (1,819) (16,854) (15,594)
Other operating
charges................ (1,832) (2,792) (181) (344) (2,430) (2,175)
------- ------- ------- ------ ------- -------
(62,582) (56,612) (10,108) (5,188) (47,976) (47,821)
Operating profit........ 7,785 14,002 2,697 1,245 8,776 11,212
Other interest
receivable and similar
income................. -- -- -- 49 288 440
Interest payable and
similar charges........ 7 -- -- -- (969) (12,419) (9,507)
------- ------- ------- ------ ------- -------
Profit/(loss) on
ordinary activities
before and after
taxation............... 3-6, 8 7,785 14,002 2,697 325 (3,355) 2,145
Additional finance cost
of non-equity shares... -- -- -- (318) (2,862) --
------- ------- ------- ------ ------- -------
Retained profit/(loss)
for the period......... 7,785 14,002 2,697 7 (6,217) 2,145
======= ======= ======= ====== ======= =======
Neither BBC Home Service nor Castle Transmission have any recognised
gains or losses other than those reflected in the profit and loss accounts.
The accompanying notes are an integral part of these consolidated financial
statements.
2
CASTLE TRANSMISSION SERVICES (HOLDINGS) LTD AND SUBSIDIARIES AND
THE BBC HOME SERVICE TRANSMISSION BUSINESS
CONSOLIDATED BALANCE SHEETS
BBC Home Service Castle Transmission Services
Transmission (Holdings) Ltd
---------------- ------------------------------------------
At March 31, At March 31, At December 31, At August 31,
1996 1997 1997 1998
Note ---------------- ------------ --------------- -------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
(Unaudited)
Fixed assets
Intangible............ 9 -- 46,573 46,056 44,404
Tangible.............. 10 202,592 206,162 206,134 229,124
------- -------- -------- --------
202,592 252,735 252,190 273,528
Current assets
Stocks................ 11 1,750 807 1,340 2,620
Debtors............... 12 4,714 10,344 13,230 11,639
Amounts owed by group
undertakings......... -- -- -- 1,273
Cash at bank and in
hand................. -- 9,688 8,152 9,198
------- -------- -------- --------
6,464 20,839 22,722 24,730
Creditors: amounts fall-
ing due within one
year................... 13 (6,627) (14,820) (29,139) (36,514)
------- -------- -------- --------
Net current
assets/(liabilities)... (163) 6,019 (6,417) (11,784)
------- -------- -------- --------
Total assets less cur-
rent liabilities....... 202,429 258,754 245,773 261,744
Creditors: amounts fall-
ing due after more than
one year............... 14 -- (154,358) (143,748) (149,535)
Provisions for liabili-
ties and charges....... 15 -- (1,723) (2,157) (2,461)
------- -------- -------- --------
Net assets.............. 202,429 102,673 99,868 109,748
======= ======== ======== ========
Capital and reserves
Corporate funding..... 202,429 -- -- --
Called up share capi-
tal.................. 16 -- 102,348 102,898 108,303
Profit and loss ac-
count................ 17 -- 325 (3,030) 1,445
------- -------- -------- --------
202,429 102,673 99,868 109,748
======= -------- -------- --------
Shareholders'
funds/(deficit)
Equity................ 109 (6,107) 109,748
Non-equity............ 102,564 105,975 --
-------- -------- --------
102,673 99,868 109,748
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
CASTLE TRANSMISSION SERVICES (HOLDINGS) LTD AND SUBSIDIARIES AND
THE BBC HOME SERVICE TRANSMISSION BUSINESS
CONSOLIDATED CASH FLOW STATEMENTS
Castle Transmission Services
BBC Home Service Transmission (Holdings) Ltd
---------------------------------------- ----------------------------------------
Period from Period from Eight
Year Period from Two Months February 28, April 1, Months
Ended April 1, 1996 Ended 1997 1997 Ended
March 31, to February 27, February 27, to March 31, to December 31, August 31,
1996 1997 1997 1997 1997 1998
Note ----------- --------------- ------------ ------------ --------------- -----------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
(Unaudited) (Unaudited)
Cash inflow from
operating activities... 21 24,311 26,427 5,161 5,756 27,983 37,302
Returns on investment
and servicing of
finance................ 22 -- -- -- (885) (2,428) (10,076)
Capital expenditure and
financial investments.. 22 (17,190) (20,092) (711) (748) (14,361) (36,135)
Acquisitions and
disposals.............. 22 -- -- -- (251,141) (307) --
------- ------- ------ -------- -------- --------
Cash inflow/(outflow)... 7,121 6,335 4,450 (247,018) 10,887 (8,909)
Financing............... 22
Net (decrease) in
corporate funding...... (7,121) (6,335) (4,450) -- -- --
Issuance of shares...... -- -- -- 102,348 550 5,405
Increase/(decrease) in
debt................... -- -- -- 154,358 (12,973) 5,000
Capital element of
finance
lease rentals.......... -- -- -- -- -- (450)
------- ------- ------ -------- -------- --------
(7,121) (6,335) (4,450) 256,706 (12,423) 9,955
------- ------- ------ -------- -------- --------
Increase/(decrease) in
cash................... -- -- -- 9,688 (1,536) 1,046
======= ======= ====== ======== ======== ========
Reconciliation of net
cash flow to movement
in net debt............ 23
Increase/(decrease) in
cash in the period..... -- -- -- 9,688 (1,536) 1,046
Cash (inflow)/outflow
from
(increase)/decrease in
debt................... -- -- -- (154,358) 12,973 (4,550)
------- ------- ------ -------- -------- --------
Change in net debt
resulting from cash
flow................... -- -- -- (144,670) 11,437 (3,504)
New finance leases...... -- -- -- -- (711) (797)
Amortisation of bank
loan issue costs....... -- -- -- -- (2,087) (159)
Amortisation of
Guaranteed Bonds....... -- -- -- -- (55) (179)
------- ------- ------ -------- -------- --------
Movement in net debt in
the period............. -- -- -- (144,670) 8,584 (4,639)
Net debt at beginning of
the period............. -- -- -- -- (144,670) (136,086)
------- ------- ------ -------- -------- --------
Net debt at end of the
period................. -- -- -- (144,670) (136,086) (140,725)
======= ======= ====== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4
CASTLE TRANSMISSION SERVICES (HOLDINGS) LTD AND SUBSIDIARIES AND
THE BBC HOME SERVICE TRANSMISSION BUSINESS
CONSOLIDATED RECONCILIATION OF MOVEMENTS IN CORPORATE
FUNDING/SHAREHOLDERS' FUNDS
Castle Transmission Services
BBC Home Service Transmission (Holdings) Ltd
---------------------------------------- ----------------------------------------
Two Period from Eight
Year Period from Months February 28, Period from Months
Ended April 1, 1996 Ended 1997 April 1, 1997 Ended
March 31, to February 27, February 27, to March 31, to December 31, August 31,
1996 1997 1997 1997 1997 1998
----------- --------------- ------------ ------------ --------------- -----------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
(Unaudited) (Unaudited)
Profit/(loss) for the
period................. 7,785 14,002 2,697 325 (3,355) 2,145
Net (decrease) in
corporate funding...... (7,121) (6,335) (4,450) -- -- --
New share capital
subscribed............. -- -- -- 102,348 550 5,405
Charge on share option
arrangements........... -- -- -- -- -- 2,330
------- ------- ------- ------- ------- -------
Net
additions/(deductions)
to corporate
funding/shareholders'
funds.................. 664 7,667 (1,753) 102,673 (2,805) 9,880
Opening corporate
funding/shareholders'
funds.................. 201,765 202,429 211,849 -- 102,673 99,868
------- ------- ------- ------- ------- -------
Closing corporate
funding/shareholders'
funds.................. 202,429 210,096 210,096 102,673 99,868 109,748
======= ======= ======= ======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
5
CASTLE TRANSMISSION SERVICES (HOLDINGS) LTD AND SUBSIDIARIES AND
THE BBC HOME SERVICE TRANSMISSION BUSINESS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 Basis of preparation
As used in the financial statements and related notes, the terms "Castle
Transmission" or "the Group" refers to the operations of Castle Transmission
Services (Holdings) Ltd and its subsidiaries, Castle Transmission International
Ltd ("CTI") which is the successor business and Castle Transmission (Finance)
plc ("CTF"). The term "Home Service" refers to the operations of the Home
Service Transmission business of the British Broadcasting Corporation ("BBC")
which was the predecessor business.
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles ("GAAP") applicable in the United
Kingdom (UK) and comply with the financial reporting standards of the Institute
of Chartered Accountants in England and Wales. A summary of the differences
between UK GAAP and United States (US) GAAP as applicable to Castle
Transmission is set out in Note 27.
Castle Transmission Services (Holdings) Ltd (the "Company") was
incorporated on August 27, 1996 and did not trade in the period to February 27,
1997. CTI was incorporated by the BBC on May 9, 1996 and did not trade in the
period to February 27, 1997. On February 27, 1997, the assets and liabilities
of Home Service were transferred to CTI. On February 28, 1997 CTI was acquired
by the Company. During the period between August 27, 1996 and February 27, 1997
Castle Transmission did not trade and received no income and incurred no
expenditure. Accordingly the first consolidated profit and loss account for
Castle Transmission represents the trading of Castle Transmission for the
period from February 28, 1997 to March 31, 1997. CTF was incorporated
April 9, 1997.
The financial statements for the year ended March 31, 1996 and the period
from April 1, 1996 to February 27, 1997 represent the profit and loss accounts,
balance sheet, cash flow statements and reconciliations of movements in
corporate funding of Home Service. They have been prepared from the separate
financial records and management accounts of Home Service.
Home Service was charged a management fee by the BBC representing an
allocation of certain costs including pension, information technology,
occupancy and other administration costs which were incurred centrally by the
BBC but which were directly attributable to Home Service. Management believes
such allocation is reasonable. Such costs are based on the pension arrangement
and the cost structure of the BBC and are not necessarily representative of
such costs of Castle Transmission under separate ownership.
Home Service did not incur any costs in relation to financing as necessary
funding was provided from the BBC through the corporate funding account. No
interest is charged by the BBC on such funds because there is no debt at BBC
which is attributable to Home Service.
Home Service was not a separate legal entity and therefore was not directly
subject to taxation on its results. The BBC is a not-for-profit organisation
and is not subject to taxation except to the extent of activities undertaken
with the objective of making a profit, including all external activities
(principally site sharing and commercial projects). The tax charge attributable
to Home Service has been calculated as if Home Service were under separate
ownership since April 1, 1994 and as if all of its results of operations were
subject to normal taxation.
Redundancy costs were incurred by the BBC which related to Home Service
staff. The redundancy costs amounted to (Pounds)1.1m in 1996 and (Pounds)0.6m
in the period from April 1, 1996 to
6
CASTLE TRANSMISSION SERVICES (HOLDINGS) LTD AND SUBSIDIARIES AND
THE BBC HOME SERVICE TRANSMISSION BUSINESS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
February 27, 1997. The redundancy programmes were controlled by the BBC and the
costs were not recharged to Home Service. No adjustment has been made in the
Home Service financial statements for these costs because any costs incurred
would have been reflected in the cost base of Home Service, and as described in
note 25 would have been off-set by an increase in turnover from the BBC.
The consolidated financial statements for the two months ended February 27,
1997 and as of and for the eight months ended August 31, 1998 are unaudited;
however, in the opinion of all the directors, all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation have been made.
Accounting measurements at interim dates inherently involve greater reliance on
estimates than at year end. Operating results for the eight month period ended
August 31, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998.
2 Accounting policies
The following accounting policies have been applied consistently in dealing
with items which are considered material in relation to the financial
statements of Home Service and the consolidated financial statements of Castle
Transmission.
Basis of consolidation
The consolidated financial statements include the financial statements of
the Company and its subsidiaries made up to March 31, 1997 and December 31,
1997 after elimination of all significant inter-company accounts and
transactions. The acquisition method of accounting has been adopted. Under this
method, the results of subsidiaries acquired or disposed of in the period are
included in the consolidated profit and loss account from the date of
acquisition or up to the date of disposal.
Goodwill
Purchased goodwill on acquisitions (representing the excess of the fair
value of the consideration given over the fair value of the separable net
assets acquired) is capitalised and amortised over 20 years, the period over
which the Directors consider that the Group will derive economic benefits.
Tangible fixed assets and depreciation
Depreciation is provided to write off the cost or valuation less the
estimated residual value of tangible fixed assets by equal instalments over
their estimated useful economic lives as follows:
Land and buildings
Home Service Castle Transmission
-------------- -------------------
Freehold and long leasehold buildings... 50 years 50 years
Freehold and long leasehold improve-
ments.................................. 20 years 20 years
Short leasehold land and buildings...... Unexpired term Unexpired term
No depreciation is provided on freehold
land...................................
7
CASTLE TRANSMISSION SERVICES (HOLDINGS) LTD AND SUBSIDIARIES AND
THE BBC HOME SERVICE TRANSMISSION BUSINESS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Plant and equipment
Home Service Castle Transmission
------------ -------------------
Transmitters and power plant............... 25 years 20 years
Electric and mechanical infrastructure..... 10-20 years 10-20 years
Other plant and machinery.................. 3-10 years 3-10 years
Computer equipment......................... 5 years 5 years
Motor vehicles............................. -- 3 years
Strategic spares, which comprise those spares that are vital to the
operation of the transmission system, are included in the capitalised value of
the asset to which they relate and are depreciated over the life of the asset.
Assets under construction are included within fixed assets. The associated
labour costs are capitalised using a predetermined labour rate, and any over or
under recoveries are recognised in the profit and loss account in the period in
which they arise.
Foreign currencies
Transactions in foreign currencies are translated at the rate of exchange
ruling at the date of the transaction. Monetary assets and liabilities, to the
extent that they are denominated in foreign currency, are retranslated at the
rate of exchange ruling at the balance sheet date and gains or losses are
included in the profit and loss account.
Leases
Where the Company enters into a lease which entails taking substantially
all the risks and rewards of ownership of an asset, the lease is treated as a
"finance lease'. The asset is recorded in the balance sheet as a tangible fixed
asset and is depreciated over its useful life or term of the lease, whichever
is shorter. Future instalments under such leases, net of finance charges, are
included within creditors. Rentals payable are apportioned between the finance
element, which is charged to the profit and loss account, and the capital
element which reduces the outstanding obligation for future instalments.
Operating lease rentals are charged to the profit and loss account on a
straight line basis over the period of the lease.
Pensions
The pension costs charged in the period include costs incurred, at the
agreed employer's contribution rate. See note 20 for further details.
Stocks
Stocks held are general maintenance spares and manufacturing stocks. Stocks
are stated at the lower of weighted average cost and net realisable value.
Work in progress
For individual projects, the fees on account and project costs are
recorded in work in progress. When a project is complete, the project balances
are transferred to turnover and cost of
8
CASTLE TRANSMISSION SERVICES (HOLDINGS) LTD AND SUBSIDIARIES AND
THE BBC HOME SERVICE TRANSMISSION BUSINESS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
sales as appropriate, and the net profit is recognised. Where the payments on
account are in excess of project costs, these are recorded as payments on
account.
Provision is made for any losses as soon as they are foreseen.
Taxation
The charge for taxation is based on the result for the period and takes
into account taxation deferred because of timing differences between the
treatment of certain items for taxation and accounting purposes. Provision is
made for deferred tax only to the extent that it is probable that an actual
liability will crystallise.
Turnover
Turnover represents the amounts (excluding value added tax) derived from
the provision of transmission and maintenance contracts, site sharing
arrangements and commercial projects. Revenue is recognised on the basis of
contracts or as services are provided to customers.
Issue costs
Costs incurred in raising funds are deducted from the amount raised and
amortised over the life of the debt facility on a constant yield basis.
3 Analysis of turnover
Home Service Castle Transmission
------------------------ ------------------------------
Period from Period from
April 1, Period from April 1,
Year Ended 1996 to February 28, 1997 1997 to
March 31, February 27, to March 31, December 31,
1996 1997 1997 1997
----------- ------------ ----------------- ------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
By activity
BBC................. 45,704 49,903 3,982 35,640
Other--non BBC...... 24,663 20,711 2,451 21,112
------ ------ ----- ------
70,367 70,614 6,433 56,752
====== ====== ===== ======
9
CASTLE TRANSMISSION SERVICES (HOLDINGS) LTD AND SUBSIDIARIES AND
THE BBC HOME SERVICE TRANSMISSION BUSINESS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4 Staff numbers and costs
The average number of persons employed by the Group (including directors)
during the period, analysed by category was as follows:
Home Service Castle Transmission
----------------------- ------------------------------
Period from Period from
April 1, Period from April 1,
Year Ended 1996 to February 28, 1997 1997 to
March 31, February 27, to March 31, December 31,
1996 1997 1997 1997
---------- ------------ ----------------- ------------
Operational staff....... 381 357 313 289
Project staff........... 154 125 108 97
Management, finance,
personnel and other
support services....... 53 70 69 89
--- --- --- ---
588 552 490 475
=== === === ===
The aggregate payroll costs of these persons were as follows:
Home Service Castle Transmission
------------------------ ------------------------------
Period from Period from
April 1, Period from April 1,
Year Ended 1996 to February 28, 1997 1997 to
March 31, February 27, to March 31, December 31,
1996 1997 1997 1997
----------- ------------ ----------------- ------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
Wages and salaries...... 15,517 14,579 1,189 12,087
Social security costs... 1,159 1,061 76 768
Other pension costs..... 521 491 156 1,490
------ ------ ----- ------
17,197 16,131 1,421 14,345
====== ====== ===== ======
10
CASTLE TRANSMISSION SERVICES (HOLDINGS) LTD AND SUBSIDIARIES AND
THE BBC HOME SERVICE TRANSMISSION BUSINESS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5 Profit/(loss) on ordinary activities before taxation
Home Service Castle Transmission
------------------------- ------------------------------
Period from Period from
April 1, Period from April 1,
Years Ended 1996 to February 28, 1997 1997 to
March 31, February 27, to March 31, December 31,
1996 1997 1997 1997
----------- ------------- ----------------- ------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
Profit (loss) on
ordinary activities
before taxation is
stated after charging:
Depreciation and other
amounts written off
tangible fixed assets:
Owned................... 12,835 13,038 1,624 14,953
Leased.................. -- -- -- 147
Goodwill amortisation... -- -- 195 1,754
Hire of plant and
machinery--rentals
payable under operating
leases................. 112 53 79
Hire of other assets--
under operating
leases................. 396 36 530
====== ====== ===== ======
The information in respect of hire of plant and machinery and other assets
under operating leases is not available for the year ended March 31, 1996.
6 Remuneration of directors
There were no directors of Home Service.
The directors of Castle Transmission received no emoluments for the period
February 28, 1997 to March 31, 1997 and (Pounds)277,000 for the period April 1,
1997 to December 31, 1997. The amounts paid to third parties in respect of
directors' services were (Pounds)2,000 for the period from February 28, 1997 to
March 31, 1997 and (Pounds)23,000 for the period from April 1, 1997 to December
31, 1997.
The aggregate emoluments of the highest paid director were (Pounds)170,000.
The highest paid director is not a member of any Group pension scheme.
Pension entitlements
On retirement the directors participating in the Group defined benefit
scheme are entitled to 1/60th of their final pensionable salary for each year
of service.
11
CASTLE TRANSMISSION SERVICES (HOLDINGS) LTD AND SUBSIDIARIES AND
THE BBC HOME SERVICE TRANSMISSION BUSINESS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7 Interest payable and similar charges
Home Service Castle Transmission
---------------------------- ------------------------------
Period from
Period from Period from April 1,
Year Ended April 1, 1996 to February 28, 1997 1997 to
March 31, February 27, to March 31, December 31,
1996 1997 1997 1997
----------- ---------------- ----------------- ------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
On bank loans and over-
drafts................. -- -- 934 3,315
On all other loans...... -- -- -- 6,934
Finance charges payable
in respect of finance
leases and hire pur-
chase contracts........ -- -- -- 28
Finance charges
amortised in respect of
bank loans (see note
14).................... -- -- 35 2,087
Finance charges
amortised in respect of
the Bonds.............. -- -- -- 55
--- --- --- ------
-- -- 969 12,419
=== === === ======
8 Taxation
Home Service
There is no tax charge in respect of the results of Home Service for the
year ended March 31, 1996 or for the period from April 1, 1996 to February 27,
1997. As a separate legal entity subject to normal taxation, Home Service would
have capital allowances available as discussed below which would result in
taxable losses for all periods. Deferred tax assets have not been recognised on
such tax losses as management has concluded that it is not likely that the
deferred tax asset would be realised.
Castle Transmission
There is no tax charge in respect of the period from February 28, 1997 to
March 31, 1997 and April 1, 1997 to December 31, 1997. Based on an agreement
with the Inland Revenue Service, Castle Transmission will have capital
allowances available on capital expenditure incurred by Home Service and the
BBC prior to the acquisition of approximately (Pounds)179 million. The
accelerated tax deductions associated with such capital allowances result in a
taxable loss for both periods. Deferred tax assets have not been recognised on
such tax losses as management has concluded that it is not likely that the
deferred tax asset would be realised based on the limited operating history of
Castle Transmission.
12
CASTLE TRANSMISSION SERVICES (HOLDINGS) LTD AND SUBSIDIARIES AND
THE BBC HOME SERVICE TRANSMISSION BUSINESS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9 Intangible assets
Castle Transmission
As at As at
March 31, December 31,
1997 1997
----------- ------------
(Pounds)000 (Pounds)000
Goodwill
Cost
At beginning of period............................. -- 46,768
Arising on acquisition of Home Service............. 46,768 --
Adjustment to the allocation of fair value arising
on acquisition of Home Service (see notes 18 and
24)............................................... -- 1,237
------ ------
At end of the period............................... 46,768 48,005
====== ======
Amortisation
At beginning of period............................. -- 195
Charged in period.................................. 195 1,754
------ ------
At end of the period............................... 195 1,949
====== ======
Net book value
At end of the period............................... 46,573 46,056
====== ======
10 Tangible fixed assets
Home Service
Land and Plant and Computer Assets under
buildings machinery equipment construction Total
----------- ----------- ----------- ------------ -----------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
(i) Year ended March 31,
1996
Cost or valuation
At April 1, 1995........ 26,789 178,205 1,337 22,309 228,640
Additions............... -- 111 40 17,928 18,079
Disposals............... -- -- (1,325) -- (1,325)
Transfers............... 474 13,354 -- (13,828) --
------ ------- ------ ------- -------
At March 31, 1996....... 27,263 191,670 52 26,409 245,394
------ ------- ------ ------- -------
Depreciation
At April 1, 1995........ 7,291 22,671 441 -- 30,403
Charge for period....... 819 12,008 8 -- 12,835
On disposal............. -- -- (436) -- (436)
------ ------- ------ ------- -------
At March 31, 1996....... 8,110 34,679 13 -- 42,802
------ ------- ------ ------- -------
Net book value
At March 31, 1996....... 19,153 156,991 39 26,409 202,592
====== ======= ====== ======= =======
13
CASTLE TRANSMISSION SERVICES (HOLDINGS) LTD AND SUBSIDIARIES AND
THE BBC HOME SERVICE TRANSMISSION BUSINESS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Land and Plant and Computer Assets under
buildings machinery equipment construction Total
----------- ----------- ----------- ------------ -----------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
(ii) Period ended
February 27, 1997
Cost or valuation
At April 1, 1996........ 27,263 191,670 52 26,409 245,394
Additions............... -- 24 179 14,283 14,486
Disposals............... -- (1,816) -- (1,718) (3,534)
Transfers............... 2,585 23,972 252 (26,809) --
Transfer between
business units......... 10,824 (2,061) (4) 612 9,371
------ ------- --- ------- -------
At February 27, 1997.... 40,672 211,789 479 12,777 265,717
------ ------- --- ------- -------
Depreciation
At April 1, 1996........ 8,110 34,679 13 -- 42,802
Charge for period....... 807 12,158 73 -- 13,038
On disposal............. -- (1,816) -- -- (1,816)
Transfers............... 46 (108) 62 -- --
Transfers between
business units......... 2,185 (137) (1) -- 2,047
------ ------- --- ------- -------
At February 27, 1997.... 11,148 44,776 147 -- 56,071
------ ------- --- ------- -------
Net book value
At February 27, 1997.... 29,524 167,013 332 12,777 209,646
====== ======= === ======= =======
The transfers between business units reflect transactions made between the
predecessor business and other business units of the BBC, in preparation for
the sale of Home Service. These include the transfer of the head office at
Warwick into the books of Home Service prior to the sale.
Castle Transmission
Land and Plant and Computer Assets under
buildings machinery equipment construction Total
----------- ----------- ----------- ------------ -----------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
(i) Period ended March
31, 1997
Cost
On acquisition.......... 30,373 163,556 332 12,777 207,038
Additions............... -- 56 -- 692 748
Transfers............... 17 59 -- (76) --
------ ------- --- ------- -------
At March 31, 1997....... 30,390 163,671 332 13,393 207,786
------ ------- --- ------- -------
Depreciation
On acquisition.......... -- -- -- -- --
Charge for period....... 86 1,529 9 -- 1,624
------ ------- --- ------- -------
At March 31, 1997....... 86 1,529 9 -- 1,624
------ ------- --- ------- -------
Net book value
At March 31, 1997....... 30,304 162,142 323 13,393 206,162
====== ======= === ======= =======
(ii) Period ended
December 31, 1997
Cost
At April 1, 1997........ 30,390 163,671 332 13,393 207,786
Addition................ 10 3,602 582 10,878 15,072
Transfers............... 651 12,772 -- (13,423) --
------ ------- --- ------- -------
At December 31, 1997.... 31,051 180,045 914 10,848 222,858
------ ------- --- ------- -------
Depreciation
At April 1, 1997........ 86 1,529 9 -- 1,624
Charge for period....... 847 13,975 278 -- 15,100
------ ------- --- ------- -------
At December 31, 1997.... 933 15,504 287 -- 16,724
------ ------- --- ------- -------
Net book value
At December 31, 1997.... 30,118 164,541 627 10,848 206,134
====== ======= === ======= =======
14
CASTLE TRANSMISSION SERVICES (HOLDINGS) LTD AND SUBSIDIARIES AND
THE BBC HOME SERVICE TRANSMISSION BUSINESS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The net book value of land and buildings comprises:
Home Service Castle Transmission
------------ ----------------------------
At March 31, At March 31, At December 31,
1996 1997 1997
------------ ------------ ---------------
(Pounds)000 (Pounds)000 (Pounds)000
Freehold........................... 16,268 21,558 21,375
Long leasehold..................... 1,540 7,468 7,472
Short leasehold.................... 1,345 1,278 1,271
------ ------ ------
19,153 30,304 30,118
====== ====== ======
Included within fixed assets are the following assets held under finance
leases:
Home Service Castle Transmission
------------ ----------------------------
At March 31, At March 31, At December 31,
1996 1997 1997
------------ ------------ ---------------
(Pounds)000 (Pounds)000 (Pounds)000
Motor vehicles..................... -- -- 270
Computer equipment................. -- -- 441
--- --- ---
-- -- 711
=== === ===
11 Stocks
Home Service Castle Transmission
------------ ------------------------------------------
At March 31, At March 31, At December 31, At August 31,
1996 1997 1997 1998
------------ ------------ --------------- -------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
(Unaudited)
Work in progress (see
note 13)............... -- -- 274 1,421
Spares and manufacturing
stocks................. 1,750 807 1,066 1,199
----- --- ----- -----
1,750 807 1,340 2,620
===== === ===== =====
12 Debtors
Home Service Castle Transmission
------------ ----------------------------
At March 31, At March 31, At December 31,
1996 1997 1997
------------ ------------ ---------------
(Pounds)000 (Pounds)000 (Pounds)000
Trade debtors..................... 3,780 7,503 10,250
Other debtors..................... 212 2,259 2,200
Prepayments and accrued income.... 722 582 780
----- ------ ------
4,714 10,344 13,230
===== ====== ======
13 Creditors: amounts falling due within one year
Home Service Castle Transmission
------------ ----------------------------
At March 31, At March 31, At December 31,
1996 1997 1997
------------ ------------ ---------------
(Pounds)000 (Pounds)000 (Pounds)000
Payments on account.............. 426 347 --
Obligations under finance leases
and hire purchase contracts..... -- -- 490
Trade creditors.................. 872 4,123 1,916
Other creditors.................. -- 1,519 2,153
Accruals and deferred income..... 5,329 8,831 24,580
----- ------ ------
6,627 14,820 29,139
===== ====== ======
15
CASTLE TRANSMISSION SERVICES (HOLDINGS) LTD AND SUBSIDIARIES AND
THE BBC HOME SERVICE TRANSMISSION BUSINESS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Payments on account (and work in progress) relate to commercial projects
and are shown net in the financial statements. The gross billings amount to
(Pounds)3,222,000 in 1996, (Pounds)3,836,000 in March 1997 and
(Pounds)2,458,000 in December 1997. The related gross costs amounted to
(Pounds)2,796,000 in 1996, (Pounds)3,489,000 in March 1997 and
(Pounds)2,732,000 in December 1997.
14 Creditors: amounts falling due after more than one year
Castle Transmission
------------------------------------------
At March 31, At December 31, At August 31,
1997 1997 1998
------------ --------------- -------------
(Pounds)000 (Pounds)000 (Pounds)000
(Unaudited)
Guaranteed Bonds................ -- 120,582 120,761
Bank loans and overdrafts....... 154,358 22,945 28,104
Obligations under finance leases
and hire purchase contracts.... -- 221 670
------- ------- -------
154,358 143,748 149,535
======= ======= =======
Debts can be analysed as falling
due:
in one year or less, or on de-
mand........................... -- --
between one and two years....... 7,244 59
between two and five years...... 29,160 162
in five years or more........... 117,954 143,527
------- -------
154,358 143,748
======= =======
On May 21, 1997, CTF issued and Castle Transmission guaranteed,
(Pounds)125,000,000 9 percent Guaranteed Bonds due 2007 (the "Guaranteed
Bonds"). The Guaranteed Bonds are redeemable at their principal amount, unless
previously redeemed or purchased and cancelled, on March 30, 2007.
The Guaranteed Bonds may be redeemed in whole but not in part, at the
option of CTF, at their principal amount plus accrued interest if, as a result
of certain changes in the laws and regulations of the United Kingdom, CTF or
Castle Transmission becomes obliged to pay additional amounts.
The Guaranteed Bonds may be redeemed in whole or in part, at the option of
CTF, at any time at the higher of their principal amount and such a price as
will provide a gross redemption yield 0.50 percent per annum above the gross
redemption yield on the benchmark gilt plus (in either case) accrued interest.
Bondholders may, in certain circumstances including but not limited to a
change in control of CTF, or the early termination of the agreement between CTI
and the BBC relating to the domestic analogue transmission of radio and
television programmes by CTI, require the Guaranteed Bonds to be redeemed at
101 percent of their principal amount plus accrued interest.
The Guaranteed Bonds were issued at an issue price of 99.161 percent. The
Guaranteed Bonds are shown net of unamortised discount and issue costs.
Interest accrues from the date of issue and is payable in arrears on March 30
each year commencing March 30, 1998.
16
CASTLE TRANSMISSION SERVICES (HOLDINGS) LTD AND SUBSIDIARIES AND
THE BBC HOME SERVICE TRANSMISSION BUSINESS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On February 28, 1997 the Group entered into term and revolving loan
facilities with a syndicate of banks. There are three facilities. Facility A
and Facility B are (Pounds)122,500,000 and (Pounds)35,000,000 term loan
facilities. Facility A is repayable in instalments, the last of which is due in
June 2004, and Facility B is repayable in two instalments in December 2004 and
June 2005. These facilities were made available to finance the amount owed to
the BBC on the acquisition of the Home Service transmission business and were
drawn down in full on February 28, 1997.
The third facility, Facility C, is a (Pounds)5,000,000 revolving loan
facility maturing in June 2005 under which advances are to be made to the Group
to finance its working capital requirements and for general corporate purposes.
This facility was undrawn at March 31, 1997.
Borrowings under the facilities are secured by fixed and floating charges
over substantially all of the assets and undertakings of the Group and bear
interest at 2.25 percent above LIBOR for Facility B and between 0.875 percent
and 1.75 percent above LIBOR (depending on the annualised debt coverage and the
outstanding percentage of the facilities) for Facilities A and C.
The net proceeds of the Guaranteed Bonds were used to repay substantially
all of the amounts outstanding under Facilities A, B and C. The remaining
balance of Facilities A, B and C was replaced by a (Pounds)64,000,000 revolving
loan facility maturing in May 2002 (the "New Facility"), under which advances
will be made to CTI to finance its working capital requirements and finance
capital expenditures in respect of Digital Terrestrial Television.
Borrowings under the New Facility are secured by fixed and floating charges
over substantially all of the assets and undertakings of Castle Transmission
and bear interest at LIBOR plus the applicable margin plus cost rate.
Included within bank loans and overdrafts is an amount of (Pounds)3,142,000
at March 31, 1997 and (Pounds)1,055,000 at December 31, 1997 representing
finance costs deferred to future accounting periods in accordance with FRS4. As
a result of the issuance of the Guaranteed Bonds and the New Facility, the
remaining deferred financing costs of (Pounds)1,930,000, relating to Facilities
A, B and C were charged to the profit and loss account during the period from
April 1, 1997 to December 31, 1997.
15 Provision for liabilities and charges
Castle Transmission
----------------------------
At March 31, At December 31,
1997 1997
------------ ---------------
(Pounds)000 (Pounds)000
On acquisition/at the start of the period.......... 1,723 1,723
Fair value adjustments (see note 24)............... -- 1,016
Established in the period (see below).............. -- 417
Utilised in the period............................. -- (999)
----- -----
At the end of the period........................... 1,723 2,157
===== =====
Home Service did not make any provisions for liabilities and charges. On
the acquisition by Castle Transmission, a provision was established for costs
associated with the split of the BBC transmission business between Home Service
and World Service comprising redundancy costs and costs relating to the
relocation and reorganisation of shared sites. No payments or additional
provisions were made in the one month period and the balance on acquisition and
at March 31, 1997 was (Pounds)1,723,000.
17
CASTLE TRANSMISSION SERVICES (HOLDINGS) LTD AND SUBSIDIARIES AND
THE BBC HOME SERVICE TRANSMISSION BUSINESS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As a result of the completion of the fair value exercise this provision was
reduced by (Pounds)234,000 and a further provision was made of
(Pounds)1,250,000 in respect of a contingent liability for wind loading fees
that existed at February 27, 1997. See notes 18 and 24 for further details.
A further provision of (Pounds)417,000, in respect of these wind loading
fees, was charged to the profit and loss account during the period from April
1, 1997 to December 31, 1997.
16 Share capital
At March 31, At December 31,
1997 1997 At March 31, At December 31,
Number of Number of 1997 1997
shares shares (Pounds)000 (Pounds)000
-------------- --------------- ------------ ---------------
Authorised
Equity: Ordinary Shares
of 1 pence each........ 11,477,290 11,477,290 115 115
Non-equity: Redeemable
Preference Shares of 1
pence each............. 11,465,812,710 11,465,812,710 114,658 114,658
-------------- -------------- ------- -------
11,477,290,000 11,477,290,000 114,773 114,773
============== ============== ======= =======
Allotted, called up and
fully paid
Equity: Ordinary Shares
of 1 pence each........ 10,234,790 10,289,790 102 103
Non-equity: Redeemable
Preference Shares of 1
pence each............. 10,224,555,210 10,279,500,210 102,246 102,795
-------------- -------------- ------- -------
10,234,790,000 10,289,790,000 102,348 102,898
============== ============== ======= =======
On incorporation the Company had an authorised share capital of 100
Ordinary Shares of (Pounds)1 each of which 1 share was allotted, called up and
fully paid.
On January 23, 1997, the 100 issued and unissued Ordinary Shares of
(Pounds)1 each were subdivided into Ordinary Shares of 1 pence each and the
authorised share capital of the Company was increased to (Pounds)114,772,900 by
the creation of 11,467,290 additional Ordinary Shares of 1 pence each and by
the creation of 11,465,812,710 Redeemable Preference Shares of 1 pence each.
On February 28, 1997 the Company issued for cash 10,234,690 Ordinary Shares
of 1 pence each at par and 10,224,555,210 Redeemable Preference Shares of 1
pence each at par.
On September 19, 1997 a further 55,000 Ordinary Shares of 1 pence each and
54,945,000 Redeemable Preference Shares of 1 pence each were issued at par for
cash. These shares were issued to certain members of the management team.
Management believes that this sale price reflects the fair value of the shares
at that date.
The Redeemable Preference Shares are redeemable on December 31, 2050. The
Company may also redeem any number of Redeemable Preference Shares at any time
by giving at least two business days' notice in writing to the holders. In
addition, the Company shall redeem in full all the Redeemable Preference Shares
on or before the earlier or any listing or sale of 87.5 percent or more of the
issued share capital. No premium is payable on redemption.
18
CASTLE TRANSMISSION SERVICES (HOLDINGS) LTD AND SUBSIDIARIES AND
THE BBC HOME SERVICE TRANSMISSION BUSINESS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The holders of the Redeemable Preference Shares are entitled to receive a
dividend in respect of periods from January 1, 2004 at a rate of 5 percent per
annum. Dividends shall accrue on a daily basis and shall, unless the Company is
prohibited from paying dividends by the Companies Act 1985 or is not permitted
by any financing agreement to which it is a party to pay such dividend, become
a debt due from and payable to the holders of the Redeemable Preference Shares
on January 1 of each year beginning January 1, 2005.
In accordance with FRS4: Capital Instruments, a finance cost has been
calculated to result in a constant rate of return over the period and carrying
amount for these Redeemable Preference Shares and has been included in the
profit and loss account as an appropriation.
On a winding up of the Company, the holders of the Redeemable Preference
Shares would be entitled, in priority to any payment to the holders of the
Ordinary Shares, to receive an amount equal to the nominal amount paid up on
each Redeemable Preference Share together with all arrears and accruals of the
preferential dividend payable thereon, whether or not such dividend has become
due and payable.
The holders of the Redeemable Preference Shares have no right to vote at
any general meeting of the Company.
At December 31, 1997 two of the shareholders held share warrants which
entitled them to a maximum of 772,500 Ordinary Shares and 771,727,500
Redeemable Preference Shares issued at par. These are subject to adjustment in
accordance with the conditions set out in the warrant instrument which relate
to any reorganisation of the Company's share capital. The rights under the
share warrants can be exercised by giving 7 days' notice to the Company. The
rights lapse on the earliest of the following dates: the date of a listing of
any part of the share capital on the Official List of the London Stock Exchange
or any other stock exchange; the date of any sale of 85 percent or more of the
issued share capital of the Company; the date on which the Company goes into
liquidation; and February 28, 2007.
17 Reserves
Castle
Transmission
-----------------------------------
Period from Period from
February 28, 1997 April 1, 1997 to
to March 31, 1997 December 31, 1997
----------------- -----------------
(Pounds)000 (Pounds)000
Profit and loss account
At the start of the period............. -- 325
Retained profit/(loss) for the period.. 7 (6,217)
Additional finance cost of non-equity
shares................................ 318 2,862
--- ------
At the end of the period............... 325 (3,030)
=== ======
18 Acquisition
On February 28, 1997 the Company acquired the entire share capital of CTI.
CTI had itself acquired the assets and liabilities of Home Service on February
27, 1997, with the intention of CTI's ensuing disposal to the Company.
19
CASTLE TRANSMISSION SERVICES (HOLDINGS) LTD AND SUBSIDIARIES AND
THE BBC HOME SERVICE TRANSMISSION BUSINESS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As the two transactions were enacted for the purpose of the sale and
purchase of Home Service, a provisional fair value exercise was performed by
CTI on the acquisition of the trade and net assets of Home Service on 27
February 1997, giving rise to acquisition goodwill of (Pounds)39.6 million.
The fair value exercise was only provisional at March 31, 1997 as the
elapsed time had not been sufficient to form a final judgement on the fair
value adjustments. The fair value exercise has now been finalised and as a
result goodwill has been increased by (Pounds)1.2 million. See note 24.
The consideration paid for the acquisition of the shares of CTI by the
Company amounted to (Pounds)45 million plus fees of (Pounds)7.5 million.
(Pounds)7.2 million had been paid or accrued at March 31, 1997, which gave rise
to additional goodwill of (Pounds)7.5 million.
In addition, the BBC was paid (Pounds)199 million by CTI as a repayment of
the loan made by the BBC on the transfer of the assets and liabilities of Home
Service. The total consideration paid by the Group amounted to (Pounds)244
million (excluding fees), which resulted in total goodwill in the Consolidated
Financial Statements of (Pounds)48 million. This goodwill has been capitalised
and will be written off over 20 years, the period over which the Directors
consider that the Group will derive economic benefits.
19 Commitments
(a) Capital commitments at the end of the financial period for which no
provision has been made, were as follows:
Home Service Castle Transmission
------------ ----------------------------
At March 31, At March 31, At December 31,
1996 1997 1997
------------ ------------ ---------------
(Pounds)000 (Pounds)000 (Pounds)000
Contracted........................ 4,192 4,785 11,431
Authorised but not contracted..... 7,969 6,490 89,729
===== ===== ======
(b) Annual commitments under non-cancellable operating leases were as
follows:
Castle
Transmission
-----------------------
At December 31,
1997
-----------------------
Land and
buildings Other
----------- -----------
(Pounds)000 (Pounds)000
Operating leases which expire:
Within one year...................................... 90 159
In the second to fifth years inclusive............... 343 385
Over five years...................................... 235 --
--- ---
668 544
=== ===
20 Pension scheme
Home Service
Home Service participated in a multi-employer pension scheme operated by
the BBC. The scheme is a defined benefit scheme whereby retirement benefits are
based on the employees' final
20
CASTLE TRANSMISSION SERVICES (HOLDINGS) LTD AND SUBSIDIARIES AND
THE BBC HOME SERVICE TRANSMISSION BUSINESS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
remuneration and length of service and is funded through a separate trustee
administered scheme. Contributions to the scheme are based on pension costs for
all members of the scheme across the BBC and are made in accordance with the
recommendations of independent actuaries who value the scheme at regular
intervals, usually triennially. Pension scheme assets are not apportioned
between different parts of the BBC.
The pension rate charged to Home Service was 4.5 percent for the year ended
March 31, 1996 and for the period from April 1, 1996 to February 27, 1997. This
charge took into account the surplus shown by the last actuarial valuation of
the BBC scheme. Amounts charged were as follows: (Pounds)521,000 in 1996 and
(Pounds)491,000 in the period from April 1, 1996 to February 27, 1997.
Castle Transmission
The pension charge is not comparable between Home Service and Castle
Transmission due to the former having a reduced charge as a result of the
surplus in the BBC Pension scheme.
Under the terms of the sale agreement Castle Transmission was temporarily
participating in the BBC Pension scheme until July 31, 1997. From August 1,
1997 the Group was committed under the sale agreement to establish its own
pension scheme.
In respect of past service benefits, members were able to choose between
transferring past service benefits to the Group scheme or leaving them in the
BBC Pension scheme. To the extent that past service benefits were transferred,
the BBC Pension scheme made a full transfer payment to the Group scheme
calculated in accordance with the actuarial basis as set out in the sale
agreement.
The pension charge for the period from February 28, 1997 to March 31, 1997
included in the accounts represented contributions payable to the BBC Pension
scheme and amounted to (Pounds)156,000. Contributions are calculated at the
employers' contribution rate of 17.7 per cent of pensionable salary. The
contribution rate has been determined by a qualified actuary and is specified
in the sale agreement.
At August 1, 1997 Castle Transmission established its own pension scheme.
This is a defined benefit scheme and assets were transferred from the BBC
Pension scheme to the extent that members chose to transfer past benefits. From
August 1, the Castle Transmission Pension Scheme will be liable in respect of
future pension benefits. The pension charge for the period from April 1, 1997
to December 31, 1997 was (Pounds)1,490,000.
There were no outstanding or prepaid contributions at either the beginning
or end of the financial periods.
The Group also established a defined contribution scheme which will have a
backdated start date of August 1, 1997. This scheme will be open to employees
joining the Group after March 1, 1997. The defined benefit scheme will not be
open to these employees. The pensionable charge for the period from April 1,
1997 to December 31, 1997 represents contributions under this scheme amounting
to (Pounds)nil.
21
CASTLE TRANSMISSION SERVICES (HOLDINGS) LTD AND SUBSIDIARIES AND
THE BBC HOME SERVICE TRANSMISSION BUSINESS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
21 Reconciliation of operating profit to operating cash flows
Home Service Castle Transmission
--------------------------- ---------------------------------
Period from Period from Period from
Year Ended April 1, 1996 February 28, 1997 April 1, 1997
March 31, to February 27, to March 31, to December 31,
1996 1997 1997 1997
----------- --------------- ----------------- ---------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
Operating profit........ 7,785 14,002 1,245 8,776
Depreciation and
amortisation charge.... 12,835 13,038 1,819 16,854
(Increase)/Decrease in
stocks................. (678) 294 (2) (746)
Decrease/(Increase) in
debtors................ 2,571 (258) (5,372) (2,937)
Increase/(Decrease) in
creditors.............. 1,798 (649) 8,066 6,036
------ ------ ------ ------
Cash inflow from
operating activities... 24,311 26,427 5,756 27,983
====== ====== ====== ======
22
CASTLE TRANSMISSION SERVICES (HOLDINGS) LTD AND SUBSIDIARIES AND
THF BBC HOME SERVICE TRANSMISSION BUSINESS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
22 Analysis of cash flows for headings noted in the cash flow statement
Home Service Castle Transmission
---------------------------- ---------------------------------
Period from Period from Period from
Year Ended April 1, 1996 to February 28, 1997 April 1, 1997
March 31, February 27, to March 31, to December 31,
1996 1997 1997 1997
----------- ---------------- ----------------- ---------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
Returns on investment
and servicing of
finance
Interest received....... -- -- 49 242
Interest paid........... -- -- (934) (2,670)
------- ------- -------- --------
Net cash outflow for
returns on investment
and servicing of
finance................ -- -- (885) (2,428)
======= ======= ======== ========
Capital expenditure and
financial investments
Purchase of tangible
fixed assets........... (18,079) (21,810) (748) (14,361)
Proceeds on disposal of
tangible fixed assets.. 889 1,718 -- --
------- ------- -------- --------
Net cash outflow for
capital expenditure and
financial investments.. (17,190) (20,092) (748) (14,361)
======= ======= ======== ========
Acquisitions and
disposals
Purchase of subsidiary
undertaking (see note
24).................... -- -- (52,141) (307)
Amount paid to BBC on
acquisition............ -- -- (199,000) --
------- ------- -------- --------
Net cash outflow for
acquisition and
disposals.............. -- -- (251,141) (307)
======= ======= ======== ========
Financing
Issue of shares......... -- -- 102,348 550
Increase/(decrease) in
corporate funding...... (7,121) (6,335) -- --
Debt due beyond a year:
Facility A (net of issue
costs)................. -- -- 120,056 --
Facility B (net of issue
costs)................. -- -- 34,302 --
Repayment of Facility A
and B.................. -- -- -- (157,500)
New Facility............ -- -- -- 24,000
Guaranteed Bonds........ -- -- -- 120,527
------- ------- -------- --------
Net cash
inflow/(outflow) from
financing.............. (7,121) (6,335) 256,706 (12,423)
======= ======= ======== ========
23
CASTLE TRANSMISSION SERVICES (HOLDINGS) LTD AND SUBSIDIARIES AND
THE BBC HOME SERVICE TRANSMISSION BUSINESS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
23 Analysis of net debt due after one year
Other
At February 27, non-cash At March 31,
1997 Cashflow changes 1997
--------------- ----------- ----------- ------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
Cash at bank and in
hand................... -- 9,688 -- 9,688
Debt due after 1 year... -- (154,358) -- (154,358)
--- -------- --- --------
-- (144,670) -- (144,670)
=== ======== === ========
Other
At March 31, non-cash At December 31,
1997 Cashflow changes 1997
------------ ----------- ----------- ---------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
Cash at bank and in
hand................... 9,688 (1,536) -- 8,152
Finance leases.......... -- -- (711) (711)
Debt due after 1 year... (154,358) 12,973 (2,142) (143,527)
-------- ------ ------ --------
(144,670) 11,437 (2,853) (136,086)
======== ====== ====== ========
24 Purchase of subsidiary undertaking
At March 31, Fair value At December 31,
1997 adjustments 1997
------------ ----------- ---------------
(Pounds)000 (Pounds)000 (Pounds)000
Net assets acquired:
Tangible fixed assets........... 207,038 -- 207,038
Stocks.......................... 119 134 253
Debtors......................... 4,972 (97) 4,875
Creditors--trade................ (6,033) 49 (5,984)
--owed to BBC on
acquisition............... (199,000) -- (199,000)
Provisions (see note 15)........ (1,723) (1,016) (2,739)
-------- ------ --------
Adjusted net assets acquired.... 5,373 (930) 4,443
Goodwill........................ 46,768 1,237 48,005
-------- ------ --------
Cost of acquisition including
related fees................... 52,141 307 52,448
======== ====== ========
Satisfied by:
Cash............................ 52,141 307 52,448
======== ====== ========
The total consideration paid by Castle Transmission included the assumption
and subsequent repayment of (Pounds)199 million paid to the BBC, see note 18.
Fair value adjustments
The fair value adjustments result from the completion of the fair value
exercise performed by CTI on the acquisition of Home Service and the under
accrual of fees by the Company, in relation to the acquisition of CTI, at March
31, 1997. The (Pounds)1,237,000 increase in goodwill relates predominantly to
the provision of (Pounds)1,250,000 in respect of a dispute over wind loading
fees. This dispute was an existing contingent liability at the date of
acquisition and consequently provision has been made against the fair value of
the assets and liabilities of Home Service at February 27, 1998.
24
CASTLE TRANSMISSION SERVICES (HOLDINGS) LTD AND SUBSIDIARIES AND
THE BBC HOME SERVICE TRANSMISSION BUSINESS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
25 Related party disclosures
Home Service
Throughout the year ended March, 31 1996 and the period from April 1, 1996
to February 27, 1997, Home Service entered into a number of transactions with
other parts of the BBC. Substantially all of these transactions are exempt from
the disclosure provisions of FRS 8 "Related Party Disclosures" as they have
been undertaken between different parts of the BBC, and are eliminated in the
consolidated accounts of the BBC. However, brief details of the nature of these
transactions are set out below.
The majority of Home Service's income arises from trading with other parts
of the BBC. Prices are set at BBC group level on the basis of cost budgets
prepared by Home Service. The aggregate value of such sales in each of the
years covered by the combined financial statements is given in Note 3.
Administrative costs include expenses re-charged to Home Service by the
BBC. These re-charges related to costs incurred centrally in respect of
pension, information technology, occupancy and other administration costs.
These charges amounted to (Pounds)5.8 million in 1996 and (Pounds)1.2 million
in the period between April 1, 1996 and February 27, 1997. The reduced charge
for the period to February 27, 1997 is a result of more functions being carried
out by employees of Home Service in preparation for the change to a stand alone
entity.
In addition, re-charges were also made for distribution costs relating to
telecommunication links between the BBC and the transmitting stations and these
were then internally re-charged to other parts of the BBC. The charges amounted
to (Pounds)5.6 million in 1996 and (Pounds)6.4 million in the period between
April 1, 1996 and February 27, 1997.
25
CASTLE TRANSMISSION SERVICES (HOLDINGS) LTD AND SUBSIDIARIES AND
THF BBC HOME SERVICE TRANSMISSION BUSINESS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Castle Transmission
The Shareholders of Castle Transmission are:
Crown Castle International Corp. ("CCIC", formerly Castle Tower Holding
Corp.), Candover Investments plc and funds managed by it ("Candover"),
TeleDiffusion de France International S.A ("TdF") and Berkshire Partners LLC
and funds managed by it ("Berkshire"). They are considered to be related
parties as they are the consortium who own 99 percent of the shares of the
Company.
Castle Transmission paid fees to shareholders in respect of expenses
incurred during the acquisition and success fees. Castle Transmission also has
management agreements with CCIC (for commercial and financial advice and
training and consultancy) and TdF (for technical advice and consulting), these
agreements run for five years from February 28, 1997. Fees are payable on the
basis of an annual fee for agreed services provided to Castle Transmission,
together with fees on a commercial arm's length basis for any additional
services provided. In addition Castle Transmission has agreed to reimburse
shareholders' expenses in relation to attendance at board meetings. The amounts
paid and accrued by the Company during the period were as follows:
Total amounts
payable at
Amounts Amounts Amounts March 31,
Related party expensed capitalised paid 1997
------------- ----------- ----------- ----------- -------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
CCIC....................... 20 1,763 1,763 20
Candover................... 1 244 244 1
TdF........................ -- 129 -- 129
Berkshire.................. 1 315 316 --
--- ----- ----- ---
22 2,451 2,323 150
=== ===== ===== ===
Total amounts Total amounts
payable at payable at
March 31, Amounts Amounts Amounts December 31,
Related party 1997 expensed capitalised paid 1997
------------- ------------- ----------- ----------- ----------- -------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
CCIC.................... 20 253 -- 246 27
Candover................ 1 16 -- 13 4
TdF..................... 129 -- -- 129 --
Berkshire............... -- 55 -- 43 12
--- --- --- --- ---
150 324 -- 431 43
=== === === === ===
Ongoing BBC relationship
At the time of the acquisition of Home Service, Castle Transmission entered
into a ten year transmission contract with the BBC for the provision of
domestic terrestrial analogue television and radio transmission services
expiring on March 31, 2007. Thereafter, the contract continues until terminated
by twelve months notice by either party on March 31 in any contract year from
and including March 31, 2007. It may also be terminated early if certain
conditions are met.
The contract provides for charges of approximately (Pounds)46 million to be
payable by the BBC to Castle Transmission for the year to March 31, 1998.
Castle Transmission's charges for subsequent years of the contract are largely
determined by a formula which escalates the majority of the charges by a factor
which
26
CASTLE TRANSMISSION SERVICES (HOLDINGS) LTD AND SUBSIDIARIES AND
THE BBC HOME SERVICE TRANSMISSION BUSINESS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
is 1% below the rate of increase in the Retail Price Index over the previous
calendar year. Those elements of the charges which are subject to the
escalation formula for the contract year commencing April 1, 1998 amount to
approximately (Pounds)46 million.
26 Post balance sheet events
On January 23, 1998, the Board of Directors adopted: (i) the All Employee
Share Option Scheme; (ii) the Management Share Option Scheme; and (iii)
individual share option arrangements for certain directors of the Company.
The All Employee Share Option Scheme provides for an unlimited number of
shares to be granted to all employees of the Company. The Board may select any
number of individuals to apply for the grant of an option. Not later than
thirty days following the date by which an application must be made, the Board
may grant to each applicant the number of options specified in his application.
These options may be exercised at the earliest of the third anniversary of the
date of grant, in the event of a flotation or in the event of a take-over,
reconstruction, liquidation or option exchange as set out in the Scheme rules.
For options granted under this scheme the option price and the number of shares
will not change during the life of the option.
Under the terms of the Management Share Option Scheme and the individual
share option arrangements, share options may be granted to employees or
directors of the Company as determined by the Board of Directors up to a
maximum of 460,000 Ordinary Shares and 459,540,000 Redeemable Preference
Shares. Options will vest over periods of up to four years and have a maximum
term of up to nine years. For options over 223,333 Ordinary Shares and
223,110,000 Redeemable Preference Shares, the option price and the number of
shares will not change during the life of the option. The remaining options are
subject to certain performance criteria.
On January 23, 1998 and January 30, 1998 the Company granted options to
purchase an aggregate of 460,000 Ordinary Shares and 459,540,000 Redeemable
Preference Shares under the terms of the individual share option arrangements
and the Management Share Option Scheme, respectively. The weighted average
price for such options is 1.16 pence for Ordinary Shares and 1.16 pence for
Redeemable Preference Shares. The weighted average vesting period for such
options is 1.13 years. Any accounting charge resulting from a difference
between the fair value of the rights to the shares at the date of grant and the
amount of consideration to be paid for the shares will be charged to the profit
and loss account in the year to December 31, 1998 and subsequent years
according to the vesting provisions of the arrangements. Where the options are
subject to performance criteria, the amount initially recognised will be based
on a reasonable expectation of the extent to which these criteria will be met
and will be subject to subsequent adjustments as necessary to deal with changes
in the probability of performance criteria being met.
Update of post balance sheet events (Unaudited)
On March 23, 1998, the Company granted options to purchase an aggregate of
40,750 Ordinary Shares and 40,709,250 Redeemable Preference Shares under the
terms of the All Employee Share Option Scheme. The price for such options is
1.00 pence for both Ordinary Shares and Redeemable Preference Shares. The
vesting period for such options is three years.
The accounting charge related to all share options included within the
unaudited consolidated financial statements for the eight months ended August
31, 1998 is (Pounds)2,330,000.
27
CASTLE TRANSMISSION SERVICES (HOLDINGS) LTD AND SUBSIDIARIES AND
THE BBC HOME SERVICE TRANSMISSION BUSINESS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On April 23, 1998, the Board of Directors adopted share option arrangements
for certain individuals. On that same date, the Company granted options to
purchase 60,000 Ordinary Shares and 59,940,000 Redeemable Preference Shares
under the terms of such share option arrangements. These options will vest over
a period of four years and have a maximum term of six years. The weighted
average price of such options is 1.75 pence for both Ordinary Shares and
Redeemable Preference Shares. The weighted average vesting period for such
options is two years.
On July 1, 1998 and July 15, 1998, CCIC granted options to purchase 59,932
ordinary shares in CCIC to employees of CTI under terms of individual share
option arrangements. The weighted average price for such options is $37.54.
These options vested on August 18, 1998. The accounting charge related to these
options included in the unaudited consolidated financial statements for the
eight months ended August 31, 1998 is (Pounds)978,000.
On July 15, 1998, the Board of Directors of the Company resolved that the
Management Share Option Scheme would not be subject to any performance criteria
and would vest on a time basis only.
An August 11, 1998, the Company granted options to purchase 15,690 Ordinary
Shares and 15,674,310 Redeemable Preference Shares under the terms of the
Management Share Option Scheme. The weighted average price for such options is
2.5 pence for both Ordinary Shares and Redeemable Preference Shares. The
weighted average vesting period for such options is 2.7 years.
On August 21, 1998, the Company issued 515,000 Ordinary Shares and
514,485,000 Redeemable Preference Shares to CCIC for cash at par under the
terms of the warrant. In addition, CCIC subscribed for 10,210 Ordinary Shares
and 10,199,790 Redeemable Preference Shares for cash at a premium of 1.5 pence
per share.
On August 21, 1998, the Company became an 80% owned subsidiary of CCIC. On
that same date, (i) all issued and unissued Redeemable Preference Shares were
redesignated as Ordinary Shares; and (ii) all existing options to purchase
shares in the Company were converted into options to purchase shares in CCIC at
the rate of 7 shares in CCIC for every 1000 shares in the Company.
27 Summary of differences between United Kingdom and United States generally
accepted accounting principles
These consolidated financial statements have been prepared in accordance
with UK GAAP, which differ in certain respects from US GAAP. The differences
that affect Home Service and Castle Transmission are set out below:
(a) Tangible fixed assets
During 1993 Home Service revalued upwards its investments in certain
identifiable tangible fixed assets. Such upward revaluation is not permissible
under US GAAP. Rather, depreciated historical cost must be used in financial
statements prepared in accordance with US GAAP.
In the period between April 1, 1996 and February 27, 1997 there were a
number of transfers of fixed assets to and from other parts of the BBC as
explained in note 10. For US GAAP purposes these transfers have been accounted
for under the as-if-pooling-of-interests method for transactions between
entities under common control.
28
CASTLE TRANSMISSION SERVICES (HOLDINGS) LTD AND SUBSIDIARIES AND
THE BBC HOME SERVICE TRANSMISSION BUSINESS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(b) Deferred taxation
Under UK GAAP, deferred taxes are accounted for to the extent that it is
considered probable that a liability or asset will crystallise in the
foreseeable future. Under US GAAP, deferred taxes are accounted for on all
timing differences and a valuation allowance is established in respect of
those deferred tax assets where it is more likely than not that some portion
will remain unrealised. Deferred tax also arises in relation to the tax effect
of other US GAAP adjustments.
(c) Pensions
The Group accounts for costs of pensions under the rules set out in the UK
accounting standards. US GAAP is more prescriptive in respect of actuarial
assumptions and the allocation of costs to accounting periods.
(d) Capitalised interest
Under US GAAP, interest incurred during the construction periods of
tangible fixed assets is capitalised and depreciated over the life of the
assets.
(e) Redeemable preference shares
Under UK GAAP, preference shares with mandatory redemption features or
redeemable at the option of the security holder are classified as a component
of total shareholders' funds. US GAAP requires such redeemable preference
shares to be classified outside of shareholders' funds.
(f) Cash flow statement
Under US GAAP various items would be reclassified within the consolidated
cash flow statement. In particular, interest received, interest paid and
taxation would be part of net cash flows from operating activities, and
dividends paid would be included within net cash flow from financing. In
addition, under US GAAP, acquisitions and disposals would be included as
investing activities.
Movements in those current investments which are included under the heading
of cash under US GAAP form part of the movements entitled "Management of
liquid resources" in the consolidated cash flow statements.
29
CASTLE TRANSMISSION SERVICES (HOLDINGS) LTD AND SUBSIDIARIES AND
THE BBC HOME SERVICE TRANSMISSION BUSINESS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Summary combined statements of cash flows for Castle Transmission prepared
in accordance with US GAAP are set out below:
Home Service Castle Transmission
---------------------------------------- ----------------------------------------
Two Period from Eight
Year Period from Months February 28, Period from Months
Ended April 1, 1996 Ended 1997 April 1, 1997 Ended
March 31, to February 27, February 27, to March 31, to December 31, August 31,
1996 1997 1997 1997 1997 1998
----------- --------------- ------------ ------------ --------------- -----------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
(Unaudited) (Unaudited)
Net cash provided by
operating activities... 24,311 28,146 5,161 4,871 25,555 27,226
Net cash used by
investing activities... (17,190) (21,811) (711) (52,889) (14,668) (36,135)
Net cash (used)/provided
by financing
activities............. (7,121) (6,335) (4,450) 57,706 (12,423) 9,955
------- ------- ------ ------- ------- -------
Net increase/(decrease)
in cash and cash
equivalents............ -- -- -- 9,688 (1,536) 1,046
Cash and cash
equivalents at
beginning of period.... -- -- -- -- 9,688 8,152
------- ------- ------ ------- ------- -------
Cash and cash
equivalents at end of
period................. -- -- -- 9,688 8,152 9,198
======= ======= ====== ======= ======= =======
The following is a summary of the approximate effect on Home Service's and
Castle Transmission's net profit and corporate funding/shareholders' funds of
the application of US GAAP.
Home Service Castle Transmission
---------------------------------------- ---------------------------------------------
Two Eight
Year Period from Months Period from Period from Months
Ended April 1, 1996 Ended February 28, 1997 April 1, 1997 Ended
March 31, to February 27, February 27, to March 31, to December 31, August 31,
1996 1997 1997 1997 1997 1998
----------- --------------- ------------ ----------------- --------------- -----------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
(Unaudited) (Unaudited)
Net profit/(loss) as re-
ported in the profit
and loss accounts...... 7,785 14,002 2,697 325 (3,355) 2,145
US GAAP adjustments:
Depreciation
adjustment on
tangible fixed
assets............... 3,707 3,993 726 -- -- --
Pensions.............. -- -- -- -- 65 108
Capitalised interest.. -- -- -- 78 801 1,385
------ ------ ----- ---- ------ -----
Net income/(loss) under
US GAAP................ 11,492 17,995 3,423 403 (2,489) 3,638
Additional finance cost
of non-equity shares... -- -- -- (318) (2,862) --
------ ------ ----- ---- ------ -----
Net income/(loss)
attributable to
ordinary shareholders
under US GAAP.......... 11,492 17,995 3,423 85 (5,351) 3,638
====== ====== ===== ==== ====== =====
30
CASTLE TRANSMISSION SERVICES (HOLDINGS) LTD AND SUBSIDIARIES AND
THE BBC HOME SERVICE TRANSMISSION BUSINESS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Home Service Castle Transmission
------------ -----------------------------------------
At March 31,
------------------------ At December 31, At August 31,
1996 1997 1997 1998
------------ ----------- --------------- -------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
(Unaudited)
Corporate
funding/shareholders'
funds as reported in
the balance sheets..... 202,429 102,673 99,868 109,748
US GAAP adjustments:
Depreciation
adjustment on
tangible fixed
assets............... (35,945) -- -- --
Pensions.............. -- -- 65 173
Capitalised interest.. -- 78 879 2,264
Redeemable preference
shares (including ad-
ditional finance cost
of non-equity
shares).............. -- (102,564) (105,975) --
------- -------- -------- -------
Corporate
funding/shareholders'
funds/(deficit) under
US GAAP................ 166,484 187 (5,163) 112,185
======= ======== ======== =======
31