<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-25691
-------------------------------------------------------------
NTL INCORPORATED
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-4051921
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 East 59th Street, New York, New York 10022
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 906-8440
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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 |_|
The number of shares outstanding of the issuer's common stock as of March 31,
1999 was 73,401,941.
<PAGE> 2
NTL Incorporated and Subsidiaries
Index
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets-
March 31, 1999 and December 31, 1998 .................... 2
Condensed Consolidated Statements of Operations-
Three months ended March 31, 1999 and 1998 .............. 4
Condensed Consolidated Statement of Shareholders' Equity-
Three months ended March 31, 1999 ....................... 5
Condensed Consolidated Statements of Cash Flows-
Three months ended March 31, 1999 and 1998 .............. 7
Notes to Condensed Consolidated Financial Statements .... 8
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition ....................... 16
Item 3. Quantitative and Qualitative Disclosure about Market Risk 27
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ......................... 28
SIGNATURES ........................................................ 29
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NTL Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------------------------------
(unaudited) (see note)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $1,031,874,000 $ 736,265,000
Marketable securities 367,766,000 260,631,000
Accounts receivable--trade, less
allowance for doubtful accounts of
$49,752,000 (1999) and $38,475,000
(1998) and 167,629,000 152,356,000
Other 98,572,000 55,248,000
--------------------------------
Total current assets 1,665,841,000 1,204,500,000
Fixed assets, net 4,688,167,000 3,854,430,000
Intangible assets, net 1,986,306,000 725,028,000
Investment in Cable London PLC, net of
accumulated amortization of $7,510,000
(1999) and $3,093,000 (1998) 215,629,000 229,093,000
Other assets, net of accumulated
amortization of $34,219,000 (1999)
and $56,264,000 (1998) 254,528,000 181,046,000
--------------------------------
Total assets $8,810,471,000 $6,194,097,000
================================
</TABLE>
2
<PAGE> 4
NTL Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets - continued
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------------------------------
(unaudited) (see note)
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 216,890,000 $ 167,079,000
Accrued expenses and other 268,212,000 221,070,000
Accrued construction costs 66,015,000 88,033,000
Interest payable 22,864,000 34,258,000
Deferred revenue 66,556,000 69,820,000
Current portion of long-term debt 26,599,000 23,691,000
----------------------------------
Total current liabilities 667,136,000 603,951,000
Long-term debt 6,457,732,000 5,043,803,000
Commitments and contingent liabilities
Deferred income taxes 65,122,000 67,062,000
Senior redeemable exchangeable preferred
stock - $.01 par value, plus accreted
dividends; liquidation preference
$129,000,000; less unamortized discount
of $3,056,000 (1999) and $3,133,000
(1998); issued and outstanding 129,000
(1999) and 125,000 (1998) shares 128,340,000 124,127,000
Shareholders' equity:
Series preferred stock - $.01 par
value; authorized 10,000,000 shares:
Series A - liquidation preference
$131,860,000; issued and
outstanding 125,000 (1999) and
125,000 (1998) shares
Series B - liquidation preference 2,000 2,000
$53,624,000; issued and
outstanding 52,000 (1999) and
52,000 (1998) shares -- --
Convertible Series A - liquidation
preference $500,000,000; issued
and outstanding 504,000 (1999) and
none (1998) shares 5,000 --
Common stock - $.01 par value;
authorized 400,000,000 shares; issued
and outstanding 73,402,000 (1999) and
60,249,000 (1998) shares 734,000 602,000
Additional paid-in capital 2,982,949,000 1,501,561,000
Accumulated other comprehensive income (9,462,000) 104,657,000
(Deficit) (1,482,087,000) (1,251,668,000)
----------------------------------
1,492,141,000 355,154,000
----------------------------------
Total liabilities and shareholders' equity $ 8,810,471,000 $ 6,194,097,000
==================================
</TABLE>
Note: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date.
See accompanying notes.
3
<PAGE> 5
NTL Incorporated and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------------------
1999 1998
------------------------------
<S> <C> <C>
Revenues
Local telecommunications and television $ 168,827,000 $ 61,584,000
National and international telecommunications 105,730,000 51,012,000
Broadcast transmission and other 38,824,000 33,418,000
Other telecommunications -- 1,778,000
------------------------------
313,381,000 147,792,000
Costs and expenses
Operating expenses 161,544,000 77,333,000
Selling, general and administrative expenses 119,270,000 56,728,000
Franchise fees 6,848,000 6,195,000
Corporate expenses 5,252,000 3,642,000
Depreciation and amortization 141,734,000 45,856,000
------------------------------
434,648,000 189,754,000
------------------------------
Operating (loss) (121,267,000) (41,962,000)
Other income (expense)
Interest and other income 11,013,000 5,143,000
Interest expense (130,823,000) (58,058,000)
Foreign currency transaction gains 10,658,000 1,205,000
------------------------------
Net (loss) $(230,419,000) $ (93,672,000)
==============================
Basic and diluted net (loss) per common share $ (3.82) $ (3.02)
==============================
</TABLE>
See accompanying notes.
4
<PAGE> 6
NTL Incorporated and Subsidiaries
Condensed Consolidated Statement of Shareholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Series A Series B Convertible
Preferred Preferred Series A Common Stock--
Stock Stock Preferred Stock $.01 Par Value
Shares Par Shares Par Shares Par Shares Par
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 125,000 $2,000 52,000 $-- 60,249,000 $602,000
Exercise of stock options 432,000 4,000
Exercise of warrants 15,000 1,000
Preferred stock issued for cash 500,000 $5,000
Warrants issued for cash
Accreted dividends on
preferred stock 4,000 --
Accretion of discount on
preferred stock
Conversion of 7% Convertible
Subordinated Notes 1,000 --
Common stock issued for
acquisition 12,705,000 127,000
Issuance of stock options in
connection with an acquisition
Comprehensive income:
Net loss for the three months
ended March 31, 1999
Currency translation adjustment
Total
--------------------------------------------------------------------------------------------
Balance, March 31, 1999 125,000 $2,000 52,000 $-- 504,000 $5,000 73,402,000 $734,000
============================================================================================
</TABLE>
See accompanying notes.
5
<PAGE> 7
NTL Incorporated and Subsidiaries
Condensed Consolidated Statement of Shareholders' Equity
(Unaudited) - continued
<TABLE>
<CAPTION>
Accumulated
Additional Other
Paid-In Comprehensive Comprehensive
Capital Loss Income (Loss) (Deficit)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1998 $1,501,561,000 $104,657,000 $(1,251,668,000)
Exercise of stock options 12,054,000
Exercise of warrants 102,000
Preferred stock issued for cash 483,805,000
Warrants issued for cash 16,190,000
Accreted dividends on
preferred stock (8,644,000)
Accretion of discount on
preferred stock (78,000)
Conversion of 7% Convertible
Subordinated Notes 50,000
Common stock issued for acquisition 971,310,000
Issuance of stock options in
connection with an acquisition 6,599,000
Comprehensive income:
Net loss for the three months
ended March 31, 1999 $(230,419,000) (230,419,000)
Currency translation adjustment (114,119,000) (114,119,000)
-------------
Total $(344,538,000)
-------------------------------------------------------------------------------------
Balance, March 31, 1999 $2,982,949,000 $(9,462,000) $(1,482,087,000)
=====================================================================================
</TABLE>
See accompanying notes.
6
<PAGE> 8
NTL Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
----------------------------------
1999 1998
----------------------------------
<S> <C> <C>
Net cash (used in) operating activities $ (6,594,000) $ (16,605,000)
Investing activities
Purchase of fixed assets (276,126,000) (97,945,000)
Increase in other assets (48,905,000) (426,000)
Cash of subsidiary at acquisition, net of costs 233,852,000 --
Purchase of marketable securities (204,914,000) (78,481,000)
Proceeds from sales of marketable securities 101,352,000 --
----------------------------------
Net cash (used in) investing activities (194,741,000) (176,852,000)
Financing activities
Proceeds from borrowings, net of financing costs -- 1,332,902,000
Proceeds from issuance of preferred stock and
warrants 500,000,000 --
Increase in deferred financing costs (1,983,000) --
Principal payments -- (65,836,000)
Proceeds from exercise of stock options and
warrants 12,161,000 1,942,000
----------------------------------
Net cash provided by financing activities 510,178,000 1,269,008,000
Effect of exchange rate changes on cash (13,234,000) (4,754,000)
----------------------------------
Increase in cash and cash equivalents 295,609,000 1,070,797,000
Cash and cash equivalents at beginning of period 736,265,000 98,902,000
----------------------------------
Cash and cash equivalents at end of period $ 1,031,874,000 $ 1,169,699,000
==================================
Supplemental disclosure of cash flow information
Cash paid during the period for interest
exclusive of amounts capitalized $ 49,788,000 $ 20,366,000
Income taxes paid 376,000 19,000
Supplemental schedule of noncash financing
activities
Accretion of dividends and discount on preferred
stock $ 8,722,000 $ 3,716,000
Conversion of Convertible Notes 50,000 --
Common stock and stock options issued for an
acquisition 978,036,000 --
</TABLE>
See accompanying notes.
7
<PAGE> 9
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted by the
Company effective January 1, 2000. The Company is evaluating the impact the
adoption of SFAS No. 133 will have on its earnings and financial position.
Note B - Corporate Restructuring
Effective April 1, 1999, NTL Incorporated completed a corporate restructuring to
create a holding company structure. The holding company restructuring was
accomplished through a merger so that all the stockholders of NTL Incorporated
at the effective time of the merger became stockholders of the new holding
company, and NTL Incorporated became a subsidiary of the new holding company.
The new holding company has taken the name NTL Incorporated (and together with
its subsidiaries, the "Company") and the holding company's subsidiary
simultaneously changed its name to NTL Communications Corp. (and together with
its subsidiaries, "NTL Communications").
The formation of the holding company is part of the Company's effort to pursue
opportunities outside the United Kingdom and Ireland. The first of these
opportunities was through the acceptance in March 1999 by the Commonwealth of
Australia of the Company's bid to own and operate the Australian National
Transmission Network ("NTN"). NTN operates from over 560 tower sites and
provides exclusive television and radio transmission services to Australia's
national TV and radio broadcasters. In addition, NTN serves regional and
community TV and radio broadcasters, and provides equipment hosting services to
telecom operators and emergency service communications providers on its towers.
In April 1999, a subsidiary of the Company purchased all of the shares of the
entity which owns NTN for an aggregate purchase price of approximately $423
million. NTL Communications distributed $500 million to the Company, principally
to finance this acquisition.
8
<PAGE> 10
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
Note C - Sale of Preferred Stock and Warrants
In January 1999, the Company received $500 million in cash from Microsoft Corp.
in exchange for 500,000 shares of the Company's 5.25% Convertible Preferred
Stock, Series A and warrants to purchase 1,200,000 shares of the Company's
common stock at an exercise price of $84 per share. The preferred stock is
convertible into common stock at a conversion price of $100 per share. The
preferred stock is redeemable 10 years from the date of issuance in cash or
shares of common stock. The preferred stock may be redeemed by the Company on
the earlier of seven years or the date on which the Company's common stock has
traded above $120 per share for 25 consecutive trading days. Dividends are
payable quarterly at the Company's option in cash, common stock or additional
shares of preferred stock. The Company issued 4,000 shares of 5.25% Convertible
Preferred Stock on the first dividend payment date in March 1999. The warrants
expire in 2004.
Note D - Intangible Assets
Intangible assets consist of:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------------------------------
(unaudited)
<S> <C> <C>
License acquisition costs, net of accumulated amortization of
$80,673,000 (1999) and $69,202,000 (1998) $ 226,416,000 $153,007,000
Goodwill, net of accumulated amortization of $48,837,000 (1999)
and $32,358,000 (1998) 1,629,811,000 514,529,000
Customer lists, net of accumulated amortization of $7,542,000
(1999) and $3,375,000 (1998) 130,079,000 57,492,000
--------------------------------
$1,986,306,000 $725,028,000
================================
</TABLE>
The Company acquired Diamond Cable Communications plc ("Diamond") in March 1999.
The Company issued an aggregate of 12,705,000 shares in exchange for each
ordinary share and deferred share of Diamond at a ratio of .85 shares of the
Company's common stock for four Diamond ordinary shares or one deferred share.
The Company's common stock was valued at $971,437,000, the fair value on the
date prior to the announcement. In addition, the Company issued options to
purchase 122,000 shares of the Company's common stock to holders of Diamond
options. The Company's stock options were valued at $6,599,000. The Company
incurred costs of $1,831,000 in connection with the acquisition. The Company
assumed Diamond's debt including five different notes with an aggregate
principal amount at maturity of $1.6 billion. Diamond had offered to repurchase
its outstanding notes at 101% of their accreted value or principal amount plus
interest pursuant to the "change of control" provisions of the indentures. Only
$102,000 principal amount of notes were tendered for which Diamond will pay
$105,000.
9
<PAGE> 11
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
Note D - Intangible Assets (continued)
The acquisition was accounted for as a purchase, and accordingly, the net assets
and results of operations of Diamond have been included in the consolidated
financial statements from the date of acquisition. The aggregate purchase price
of $980 million exceeded the fair value of net tangible assets acquired by $1.3
billion, which was allocated as follows: $60 million to fixed assets, $78
million to customer lists, $85 million to license acquisition costs and $1.1
billion to goodwill.
In 1998, the Company completed the acquisitions of ComTel Limited and
Telecential Communications, NTL (Bermuda) Limited and Eastern Group Telecoms.
The pro forma unaudited consolidated results of operations for the three months
ended March 31, 1999 and 1998 assuming consummation of these acquisitions as of
January 1, 1998 are as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31
----------------------------------
1999 1998
----------------------------------
<S> <C> <C>
Total revenue $ 342,178,000 $ 249,271,000
Net (loss) (326,333,000) (202,986,000)
Basic and diluted net (loss) per common share (4.63) (3.31)
</TABLE>
Note E - Fixed Assets
Fixed assets consist of:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------------------------------
(unaudited)
<S> <C> <C>
Operating equipment $ 4,248,638,000 $ 3,528,973,000
Other equipment 515,806,000 376,518,000
Construction-in-progress 425,123,000 369,923,000
----------------------------------
5,189,567,000 4,275,414,000
Accumulated depreciation (501,400,000) (420,984,000)
----------------------------------
$ 4,688,167,000 $ 3,854,430,000
==================================
</TABLE>
10
<PAGE> 12
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
Note F - Investment in Cable London PLC
NTL Bermuda has a 50% ownership interest in Cable London PLC ("Cable London").
Cable London operates integrated cable television and telecommunications systems
in the London metropolitan area. Included in the investment in Cable London as
of March 31, 1999 and December 31, 1998 are loans to Cable London of (pound)28.5
million ($45.9 million) and accrued interest of (pound)9.2 million ($14.8
million) and (pound)8.6 million ($13.9 million), respectively. The loans accrue
interest at a rate of 2% above the published base lending rate of Barclays Bank
plc (7.50% effective rate as of March 31, 1999) and are subordinate to Cable
London's revolving bank credit facility. Of these loans, (pound)21.0 million
($33.8 million) are convertible into ordinary shares of Cable London at a
conversion price of (pound)2.00 per share.
In August 1998, NTL Bermuda and Telewest Communications plc ("Telewest") entered
into an agreement to rationalize their joint ownership of Cable London pursuant
to an agreed procedure (the "Shoot-out"). Between April 29 and July 29, 1999,
NTL Bermuda 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 NTL
Bermuda's 50% ownership interest in Cable London or sell its 50% ownership
interest in Cable London to NTL Bermuda. If NTL Bermuda fails to give notice to
Telewest by July 29, 1999, it will be deemed to have delivered an offer notice
for (pound)100 million ($161 million).
11
<PAGE> 13
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
Note G - Long-Term Debt
Long-term debt consists of:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
-------------------------------
(unaudited)
<S> <C> <C>
NTL Commiunications:
12-3/4% Series A Senior Deferred Coupon Notes $ 244,292,000 $ 236,935,000
11-1/2% Series B Senior Deferred Coupon Notes 855,677,000 831,976,000
10% Series B Senior Notes 400,000,000 400,000,000
9-1/2% Senior Sterling Notes, less unamortized discount of
$607,000 (1999) and $639,000 (1998) 200,844,000 206,800,000
10-3/4% Senior Deferred Coupon Sterling Notes 316,509,000 317,511,000
9-3/4% Senior Deferred Coupon Notes 886,589,000 865,880,000
11-1/2% Senior Notes 625,000,000 625,000,000
12-3/8% Senior Deferred Coupon Notes 262,136,000 254,718,000
7% Convertible Subordinated Notes 274,950,000 275,000,000
7% Convertible Subordinated Notes 600,000,000 600,000,000
NTL Bermuda:
11.2% Senior Discount Debentures 433,483,000 421,835,000
Other 30,358,000 31,839,000
Diamond:
13-1/4% Senior Discount Notes 266,989,000 --
11-3/4% Senior Discount Notes 436,385,000 --
10-3/4% Senior Discount Notes 309,458,000 --
10% Senior Sterling Notes 217,566,000 --
9-1/8% Senior Notes 109,836,000 --
Other 14,259,000 --
-------------------------------
6,484,331,000 5,067,494,000
Less current portion 26,599,000 23,691,000
-------------------------------
$6,457,732,000 $5,043,803,000
===============================
</TABLE>
In April 1999, the Company issued (pound)330,000,000 aggregate principal amount
at maturity of 9-3/4% Senior Deferred Coupon Notes due 2009 (the "9-3/4%
Notes"). The 9-3/4% Notes were issued at a price of 62.11% of the aggregate
principal amount at maturity or (pound)204,963,000. The original issue discount
accretes at a rate of 9-3/4%, compounded semiannually, to an aggregate principal
amount of (pound)330,000,000 by April 15, 2004. Interest will thereafter accrue
at 9-3/4% per annum, payable semiannually beginning on October 15, 2004. The
9-3/4% Notes may be redeemed at the Company's option, in whole or in part, at
any time on or after April 15, 2004 at 104.875% that declines annually to 100%
in 2007, plus accrued and unpaid interest to the date of redemption.
12
<PAGE> 14
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
Note H - Net Loss Per Common Share
The following table sets forth the computation of basic and diluted net loss per
common share:
<TABLE>
<CAPTION>
Three Months Ended March 31
------------------------------
1999 1998
------------------------------
<S> <C> <C>
Numerator:
Net loss $(230,419,000) $ (93,672,000)
Preferred stock dividend (13,092,000) (3,638,000)
------------------------------
Loss available to common shareholders $(243,511,000) $ (97,310,000)
------------------------------
Denominator for basic net loss per common share 63,784,000 32,250,000
Effect of dilutive securities -- --
------------------------------
Denominator for diluted net loss per common share 63,784,000 32,250,000
------------------------------
Basic and diluted net loss per common share $ (3.82) $ (3.02)
==============================
</TABLE>
The shares issuable upon the exercise of stock options and warrants and upon the
conversion of convertible securities are excluded from the calculation of net
loss per common share as their effect would be antidilutive.
Note I - Comprehensive Loss
The Company's comprehensive loss for the three months ended March 31, 1999 and
1998 was $(344,538,000) and $(75,347,000), respectively.
Note J - Segment Data
<TABLE>
<CAPTION>
Local Telecoms National Corporate
Broadcast and Television Telecoms and Other Total
--------- -------------- -------- --------- -----
(in thousands)
<S> <C> <C> <C> <C> <C>
Three Months Ended March 31, 1999
Revenues $ 38,824 $ 168,827 $105,730 $ - $ 313,381
EBITDA (1) 25,081 45,070 11,970 (49,554) 32,567
Three Months Ended March 31, 1998
Revenues $ 33,418 $ 61,584 $ 51,012 1,778 $ 147,792
EBITDA (1) 22,702 14,730 5,800 (29,501) 13,731
Total assets
March 31, 1999 $275,177 $5,618,661 $795,558 $2,121,075 $8,810,471
December 31, 1998 289,068 3,100,492 761,097 2,043,440 6,194,097
</TABLE>
(1) Represents earnings before interest, taxes, depreciation and amortization,
corporate expenses and franchise fees.
13
<PAGE> 15
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
Note J - Segment Data (continued)
The reconciliation of segment combined EBITDA to net loss is as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
1999 1998
---------------------------
(In thousands)
<S> <C> <C>
Segment Combined EBITDA $ 32,567 $ 13,731
(Add) Deduct:
Franchise fees 6,848 6,195
Corporate expenses 5,252 3,642
Depreciation and amortization 141,734 45,856
Interest and other income (11,013) (5,143)
Interest expense 130,823 58,058
Foreign currency transaction gains (10,658) (1,205)
---------------------------
262,986 107,403
---------------------------
Net (loss) $(230,419) $ (93,672)
===========================
</TABLE>
14
<PAGE> 16
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
Note K - Commitments and Contingent Liabilities
As of March 31, 1999, the Company was committed to pay approximately
$203,939,000 for equipment and services.
The Company has various licenses for its cable television, telephone and
telecommunications business, and for its transmission and distribution services.
The Company paid $1,920,000 in license fees in the first quarter of 1999.
Pursuant to the terms of the Company's local delivery operator license ("LDL")
for Northern Ireland, a subsidiary of the Company is required to make annual
cash payments to the ITC for 15 years in the amount of approximately (pound)15.4
million (subject to adjustment for inflation). This is in addition to the
percentages of qualifying revenue payments of 0% for the first ten years and 2%
for the last five years of the LDL.
The Company is involved in, or has been involved in, certain disputes and
litigation arising in the ordinary course of its business. None of these matters
are expected to have a material adverse effect on the Company's financial
position, results of operations or cash flows.
Note L - Subsequent Events
In May 1999, NTL Communications won the bid to acquire Cablelink Limited
("Cablelink"), Ireland's largest cable television provider. Cablelink holds
licenses to provide analog and digital television services over cable and
microwave in its franchises for 15 years, as well as a full service license to
provide public telephony, Internet and other value-added services throughout
Ireland. NTL Communications will acquire Cablelink for 535.18 million Irish
pounds (approximately $730 million). In addition, NTL Communications has
obtained a bridge debt financing commitment for the full purchase price. The
acquisition is expected to close in the second quarter of 1999.
Also in May 1999, the Company won the bid to acquire the "1G Networks" of France
Telecom. The 1G Networks provide multi-channel television services in four
franchise areas in Ile-de-France (Greater Paris) and in Toulon, France's tenth
largest city along the southern coast. The Company will hold exclusive licenses
to provide analog and digital television services over the 1G Networks. The
Company will acquire the 1G Networks for 350 million French Francs
(approximately $57 million). The closing of this transaction is expected in the
third quarter of 1999 subject to regulatory approvals.
15
<PAGE> 17
NTL Incorporated and Subsidiaries
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
The following table illustrates the number of homes passed, the number of homes
marketed and the total number of customers for the Company's newly constructed
dual network.
<TABLE>
<CAPTION>
=====================================================================================================
NTL Only Combined NTL (2) Proforma NTL (3)
- -----------------------------------------------------------------------------------------------------
03/31/98 12/31/98 03/31/99 03/31/99 3/31/99
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Homes passed 1,070,000 1,247,200 1,288,300 3,567,700 3,987,700
- -----------------------------------------------------------------------------------------------------
Homes marketed (Tel.) 887,400 1,064,600 1,098,400 3,001,500 3,001,500
- -----------------------------------------------------------------------------------------------------
Homes marketed (CATV) 887,400 1,064,600 1,098,400 3,121,600 3,541,600
- -----------------------------------------------------------------------------------------------------
Total customers 357,200 471,000 497,100 1,226,800 1,586,800
- -----------------------------------------------------------------------------------------------------
Dual 322,500 434,100 456,400 811,500 811,500
- -----------------------------------------------------------------------------------------------------
Telephone-only 15,300 16,100 16,300 297,900 297,900
- -----------------------------------------------------------------------------------------------------
Cable-only 19,400 20,800 24,400 117,400 477,400
- -----------------------------------------------------------------------------------------------------
Total RGUs (1) 679,700 905,100 953,500 2,038,300 2,398,300
- -----------------------------------------------------------------------------------------------------
Customer penetration 40.3% 44.2% 45.3% 39.3% 44.8%
- -----------------------------------------------------------------------------------------------------
RGU penetration 76.6% 85.0% 86.8% 65.3% 67.7%
- -----------------------------------------------------------------------------------------------------
Telephone penetration 38.1% 42.3% 43.0% 37.0% 37.0%
- -----------------------------------------------------------------------------------------------------
Cable penetration 38.5% 42.7% 43.8% 29.8% 36.4%
=====================================================================================================
</TABLE>
(1) An RGU (revenue generating unit) is one cable television account or one
telephone account; a dual customer generates two RGUs.
(2) Includes Comcast UK, ComTel, and Diamond Cable. Excludes 50% ownership of
Cable London.
(3) Proforma for the Cablelink acquisition.
16
<PAGE> 18
NTL Incorporated and Subsidiaries
Effective April 1, 1999, NTL Incorporated completed a corporate restructuring to
create a holding company structure. The holding company restructuring was
accomplished through a merger so that all the stockholders of NTL Incorporated
at the effective time of the merger became stockholders of the new holding
company, and NTL Incorporated became a subsidiary of the new holding company.
The new holding company has taken the name NTL Incorporated (and together with
its subsidiaries, the "Company") and the holding company's subsidiary
simultaneously changed its name to NTL Communications Corp. (and together with
its subsidiaries, "NTL Communications").
RESULTS OF OPERATIONS
As a result of the completion of the acquisitions of ComTel Limited and
Telecential Communications (collectively "ComTel"), Comcast UK Cable Partners
Limited ("NTL Bermuda") and Eastern Group Telecoms ("EGT") in the second and
third quarters of 1998, and Diamond Cable Communications plc ("Diamond") in
March 1999, the Company consolidated the results of operations of these
businesses from the date of acquisition. The results of these businesses are not
included in the 1998 results.
Three Months Ended March 31, 1999 and 1998
Local telecommunications and television revenues increased to $168,827,000 from
$61,584,000 as a result of acquisitions and from customer growth that increased
the Company's current revenue stream. The 1999 revenue includes $84,833,000 from
acquired companies. The Company expects its customer base to continue to
increase which will drive further revenue growth as the Company completes the
construction of its broadband network past the remaining homes in its
franchise areas.
National and international telecommunications revenues increased to $105,730,000
from $51,012,000 primarily as a result of increases in business
telecommunications revenues, Internet services revenues and carrier services
revenues. Business telecommunications and Internet services revenues increased
primarily as a result of customer growth. The Company expects its business
telecommunications and Internet services customer base to continue to increase
which will drive further revenue growth. The Company is expanding its sales and
marketing effort to business customers and for Internet services in its
completed network. Carrier services revenues increased due to growth in
satellite services and telephone services provided by the Company's wholesale
operation to broadcasters and telephone companies, respectively. Revenue growth
in carrier services is primarily dependent upon the Company's ability to
continue to attract new customers and expand services to existing customers.
Recent new contracts should contribute to revenue growth in the near term.
17
<PAGE> 19
NTL Incorporated and Subsidiaries
Broadcast transmission and other revenues increased to $38,824,000 from
$33,418,000 primarily due to increases in broadcast television and FM radio
customers and accounts, which exceeded price cap reductions in the Company's
regulated services. Broadcast television revenues are expected to increase in
the future as digital broadcasting revenues increase.
Other telecommunications revenues decreased to none from $1,778,000 due to the
sales of the assets of the Company's wholly-owned subsidiary, OCOM Corporation,
to AirTouch Communications, Inc. and to Cellular Communications of Puerto Rico,
Inc. during 1998.
Operating expenses increased to $161,544,000 from $77,333,000 as a result of
increases in interconnection costs and programming costs due to customer growth.
The 1999 expense includes $41,156,000 from acquired companies.
Selling, general and administrative expenses increased to $119,270,000 from
$56,728,000 as a result of increases in telecommunications and CATV sales and
marketing costs and increases in additional personnel and overhead to service
the increasing customer base. The 1999 expense includes $45,333,000 from
acquired companies.
Franchise fees increased to $6,848,000 from $6,195,000. The 1999 amount includes
Diamond franchise fees of $517,000.
Corporate expenses increased to $5,252,000 from $3,642,000 primarily due to an
increase in various overhead costs.
Depreciation and amortization expense increased to $141,734,000 from $45,856,000
due to an increase in depreciation of telecommunications and CATV equipment. The
1999 expense includes $63,331,000 from acquired companies, including
amortization of acquisition related intangibles.
Interest expense increased to $130,823,000 from $58,058,000 due to the issuance
of additional debt in 1998, and the increase in the accretion of original issue
discount on the deferred coupon notes. The 1999 expense includes $25,207,000
from acquired companies. Interest of $60,152,000 and $21,277,000 was paid in the
three months ended March 31, 1999 and 1998, respectively.
Foreign currency transaction gains increased to $10,658,000 from $1,205,000 due
to favorable changes in the exchange rate subsequent to the issuance in March
1998 of new debt denominated in British pounds sterling. The 1999 amount
includes net foreign currency transaction losses of $3,578,000 from acquired
companies.
18
<PAGE> 20
NTL Incorporated and Subsidiaries
LIQUIDITY AND CAPITAL RESOURCES
The Company will continue to require significant amounts of capital to finance
construction of its local and national networks in the United Kingdom, for
connection of telephone, telecommunications, Internet and CATV customers to the
networks, for other capital expenditures in the United Kingdom and for debt
service. The Company estimates that these requirements will aggregate
approximately $1.1 billion in the remainder of 1999. The Company intends to fund
these requirements from cash, cash equivalents and marketable securities on hand
of $1.4 billion as of March 31, 1999, and funds internally generated by the
operations of the Company's subsidiaries. The Company's commitments for
equipment and services at March 31, 1999 of approximately $204 million are
included in the anticipated requirements.
The Company is highly leveraged. The accreted value at March 31, 1999 of the
Company's consolidated long-term indebtedness, including the Redeemable
Preferred Stock, and adjusted for the issuance in April 1999 of (pound)330
million aggregate principal amount at maturity of 9-3/4% Senior Deferred Coupon
Notes due 2009, is approximately $6.9 billion, representing approximately 82% of
total capitalization. The following table summarizes the terms of those notes
and Redeemable Preferred Stock issued by the Company.
19
<PAGE> 21
NTL Incorporated and Subsidiaries
<TABLE>
<CAPTION>
11-1/2% 12-3/4% 10-3/4% 9-3/4%
Series B Series A Senior 9-3/4% 12-3/8% Senior
Senior Senior Sterling Senior Senior Sterling
Deferred Deferred Deferred Deferred Deferred Deferred
Coupon Coupon Coupon Coupon Coupon Coupon
Notes Notes Notes Notes Notes Notes
Denomination $ $ (pound) $ $ (pound)
<S> <C> <C> <C> <C> <C> <C>
Net Proceeds
(in 000's) ........... 582,000 145,125 170,584 778,340 241,967 204,963
Issue Date ............. Jan 30, 1996 April 20, 1995 March 13, 1998 March 13, 1998 Nov 6, 1998 April 14, 1999
Issue Price (1) ........ 57.155% 53.995% 58.62% 61.724% 55.505% 62.110%
Aggregate Principal
Amount at Maturity
(in 000's) ........... 1,050,000 277,803 300,000 1,300,000 450,000 330,000
Maturity Date .......... February 1, 2006 April 15, 2005 April 1, 2008 April 1, 2008 October 1, 2008 April 15, 2009
Yield or Interest
Rate (2) ............. 11-1/2% 12-3/4% 10-3/4% 9-3/4% 12-3/8% 9-3/4%
Interest or Dividend February 1 and April 15 and April 1 and April 1 and April 1 and April 15 and
Payment August 1 October 15 October 1 October 1 October 1 October 15
Dates ................ from 8-1-01 from 10-15-00 from 10-1-2003 from 10-1-2003 from 4-1-2004 from 10-15-2004
Earliest Optional
Redemption
Date (4) ............. February 1, 2001 April 15, 2000 April 1, 2003 April 1, 2003 October 1, 2003 April 15, 2004
Redemption 105.75 (2001) 103.64 (2000) 105.375 (2003) 104.875 (2003) 106.188 (2003) 104.875 (2004) to
Price (%)(5) ......... to 100 (2003) to 100 (2002) to 100 (2006) to 100 (2006) to 100 (2006) 100 (2007)
Conversion
Price (6) ............ N/A N/A N/A N/A N/A N/A
Senior/
Subordinated ......... Senior Senior Senior Senior Senior Senior
</TABLE>
(Table continues on the following page)
20
<PAGE> 22
NTL Incorporated and Subsidiaries
<TABLE>
<CAPTION>
7% 7%
11-1/2% Convertible Convertible 9-1/2% 10% Redeemable
Senior Subordinated Subordinated Senior Sterling Series B Preferred
Notes Notes Notes Notes Senior Notes Stock
Denomination $ $ $ (pound) $ $
<S> <C> <C> <C> <C> <C> <C>
Net Proceeds
(in 000's)......... 607,031 583,500 267,437 121,161 389,000 96,625
Issue Date........... Nov 2, 1998 Dec 16, 1998 June 12, 1996 March 13, 1998 February 14, 1997 February 14, 1997
Issue Price (1)...... 100% 100% 100% 99.670% 100% 100%
Aggregate Principal
Amount at
Maturity
(in 000's)......... 625,000 600,000 274,950 125,000 400,000 100,000
Maturity Date........ Oct 1, 2008 Dec 15, 2008 June 15, 2008 April 1, 2008 February 15, 2007 February 15, 2009
Yield or Interest
Rate (2)........... 11-1/2% 7% 7% 9-1/2% 10% 13%
Interest or Dividend April l and June 15 and June 15 and April 1 and February 15 and May 15, August 15,
Payment Oct 1 from December 15 December 15 October 1 August 15 November 15 and
Dates.............. 4-1-99 from 6-15-99 from 12-15-96 From 10-1-98 from 8-15-97 February 15
from 5-15-97 (3)
Earliest Optional
Redemption
Date (4)........... Oct 1, 2003 Dec 15, 2001 June 15, 1999 April 1, 2003 February 15, 2002 February 15, 2002
Redemption 105.75 (2003) 104.4 (2001) 104.9 (1999) 104.75 (2003) 105 (2002) 106.5 (2002)
Price (%) (5)...... to 100 (2006) to 100 (2006) to 100 (2006) to 100 (2006) to 100 (2005) to 100 (2005)
Conversion
Price (6).......... N/A 61.25 37.875 N/A N/A N/A
Senior/
Subordinated....... Senior Subordinated Subordinated Senior Senior N/A
</TABLE>
(1) Percent of aggregate principal amount at maturity (or aggregate
liquidation preference in the case of the Redeemable Preferred Stock).
(2) Percent per annum.
(3) Dividend payments on the Redeemable Preferred Stock are payable in cash or
additional shares of Redeemable Preferred Stock, at the Company's option.
From May 15, 2004, dividend payments are payable in cash.
(4) This is the first date when redeemable at the Company's option. The
Redeemable Preferred Stock is mandatorily redeemable for cash on February
15, 2009.
(5) Expressed as a percentage of principal amount or liquidation preference,
as applicable, plus, in each case, accrued and unpaid interest or
dividends thereon to the applicable redemption date.
(6) This is the conversion price per share of the Company's common stock,
adjusted for the four-for-three stock split in August 1995 and subject to
further adjustments in certain events.
21
<PAGE> 23
NTL Incorporated and Subsidiaries
In addition to the notes issued by the Company summarized above, NTL Bermuda and
Diamond have issued the following notes. NTL Bermuda has $517.3 million
principal at maturity Discount Debentures which are due on November 15, 2007.
Interest accretes at 11.2% per annum compounded semi-annually until November 15,
2000, after which date interest will be paid in cash beginning on May 15, 2001.
NTL Bermuda also has a (pound)8,456,000 note payable to Comcast U.K. Holdings,
Inc. that incurs interest at 9% per annum, compounded semi-annually. The note
plus accrued interest is due in September 1999. Accrued interest was
(pound)4,121,000 as of March 31, 1999.
Diamond was acquired in March 1999 when the Company issued an aggregate of
approximately 12.7 million shares in exchange for each ordinary share and
deferred share of Diamond at a ratio of approximately .85 shares of the
Company's common stock for four Diamond ordinary shares or one deferred share.
In addition, the Company issued options to purchase 122,000 shares of the
Company's common stock to holders of Diamond options. Diamond had the following
notes outstanding as of March 31, 1999:
(i) 13-1/4% Senior Discount Notes due September 30, 2004, principal amount at
maturity of $285 million, interest payable semi-annually beginning on
March 31, 2000, redeemable at Diamond's option after September 30, 1999,
(ii) 11-3/4% Senior Discount Notes due December 15, 2005, principal amount at
maturity of $531 million, interest payable semi-annually beginning on June
15, 2001, redeemable at Diamond's option on or after December 15, 2000,
(iii) 10-3/4% Senior Discount Notes due February 15, 2007, principal amount at
maturity of $421 million, interest payable semi-annually beginning on
August 15, 2002,
(iv) 10% Senior Notes due February 1, 2008, issued by Diamond Holdings plc, a
wholly-owned subsidiary of Diamond, principal amount of (pound)135 million
($218 million), interest payable semi-annually as of August 1, 1998,
(v) 9-1/8% Senior Notes due February 1, 2008, issued by Diamond Holdings plc,
principal amount of $110 million, interest payable semi-annually as of
August 1, 1998, and
(vi) mortgage of (pound)2.5 million ($4.0) million to fund the construction of
an office building, repayable over 20 years as of July 31, 1995, interest
at LIBOR plus 1 1/2%.
Diamond had offered to repurchase its outstanding notes at 101% of their
accreted value or principal amount plus interest pursuant to the "change of
control" provisions of the indentures. Only $102,000 principal amount of notes
were tendered for which Diamond will pay $105,000.
22
<PAGE> 24
NTL Incorporated and Subsidiaries
The Company has other significant commitments or potential commitments in
addition to those described above. These are as follows:
(i) Pursuant to the terms of the Northern Ireland LDL, a subsidiary of the
Company is required to make annual cash payments to the ITC for 15 years
in the amount of approximately (pound)15.4 million (subject to adjustment
for inflation) in addition to the percentages of qualifying revenue
payments of 0% for the first ten years and 2% for the last five years of
the LDL.
(ii) Pursuant to an agreement with TeleWest Communications plc relating to NTL
Bermuda's and TeleWest's respective 50% ownership interests in Cable
London PLC, between April 29 and July 29, 1999, NTL Bermuda 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 is required at that price to either purchase NTL Bermuda's 50%
interest or sell its 50% interest to NTL Bermuda. If NTL Bermuda fails to
give notice to TeleWest by July 29, 1999, it will be deemed to have
delivered an offer notice for(pound)100 million ($161 million).
(iii) In March 1999, the Commonwealth of Australia accepted the Company's bid to
own and operate the Australian National Transmission Network ("NTN"). NTN
operates from over 560 tower sites and provides exclusive television and
radio transmission services to Australia's only national TV and radio
broadcasters. In addition, NTN serves regional and community TV and radio
broadcasters, and provides equipment hosting services to telecom operators
and emergency service communications providers on its towers. In April
1999, a subsidiary of the Company purchased all of the shares of the
entity which owns NTN for an aggregate purchase price of approximately
$423 million. NTL Communications distributed $500 million to the Company,
principally to finance this acquisition.
(iv) In May 1999, NTL Communications won the bid to acquire Cablelink Limited
("Cablelink"), Ireland's largest cable television provider. NTL
Communications will acquire Cablelink for 535.18 million Irish pounds
(approximately $730 million). NTL Communications has obtained a bridge
debt financing commitment for the full purchase price. The acquisition is
expected to close in the second quarter of 1999.
(v) In May 1999, the Company won the bid to acquire the "1G Networks" of
France Telecom. The 1G Networks provide multi-channel television services
in four franchise areas in Ile-de-France (Greater Paris) and in Toulon,
France's tenth largest city along the southern coast. The Company will
hold exclusive licenses to provide analog and digital television services
over the 1G Networks. The Company will acquire the 1G Networks for 350
million French Francs (approximately $57 million). This will be initially
funded using existing resources. The closing of this transaction is
expected in the third quarter of 1999 subject to regulatory approvals.
23
<PAGE> 25
NTL Incorporated and Subsidiaries
From time to time the Company may fund its capital requirements outside the
United Kingdom and Ireland from dividends from NTL Communications subject to
certain conditions under the indentures. NTL Communications may use cash from
equity proceeds in excess of cumulative EBITDA (as defined in the indentures)
minus 1.5 times cumulative interest expense plus capital stock proceeds, for
payments other than for a cable-related business (as defined in the indentures).
There will also be restrictions on dividends under the bridge loan the Company
expects to enter into to finance the Cablelink acquisition. NTL Communications
distributed $500 million to the Company in April 1999. The Company intends to
repay certain amounts to NTL Communications when funds become available.
Currently there are no funds available to the Company from NTL Communications
due to these conditions and restrictions.
The development, construction and operations of the Company's combined
telecommunications networks in the United Kingdom will require substantial
capital. In addition, the Company will require significant amounts of capital to
finance the other capital expenditures and other obligations of its
subsidiaries. The Company will also require significant amounts of capital for
the acquisitions described above and for the capital expenditures of those
businesses. The Company intends to fund a portion of these requirements from
cash and securities on hand and cash from operations. In addition, additional
funding will be necessary to meet all of these requirements. There can be no
assurance that: (i) actual construction costs will not exceed the amounts
estimated or that additional funding substantially in excess of the amounts
estimated will not be required, (ii) additional financing will be obtained or
will be available on acceptable terms, (iii) conditions precedent to advances
under future credit facilities will be satisfied when funds are required, (iv)
the Company and its subsidiaries will be able to generate sufficient cash from
operations to meet capital requirements, debt service and other obligations when
required, (v) the Company will be able to access such cash flow or (vi) the
Company will not incur losses from its exposure to exchange rate fluctuations or
be adversely affected by interest rate fluctuations.
Management does not anticipate that the Company and its subsidiaries will
generate sufficient cash flow from operations to repay at maturity the entire
principal amount of the outstanding indebtedness of the Company and its
subsidiaries. Accordingly, the Company may be required to consider a number of
measures, including: (i) refinancing all or a portion of such indebtedness, (ii)
seeking modifications to the terms of such indebtedness, (iii) seeking
additional debt financing, which may be subject to obtaining necessary lender
consents, (iv) seeking additional equity financing, or (v) a combination of the
foregoing.
The Company's operations are conducted through its direct and indirect
wholly-owned subsidiaries. As a holding company, the Company holds no
significant assets other than its investments in and advances to its
subsidiaries. The Company is therefore dependent upon the receipt of sufficient
funds from its subsidiaries to meet its own obligations. Accordingly, the
Company's ability to make scheduled interest and principal payments when due to
holders of indebtedness of the Company and the Company's ability to pay cash
dividends to its stockholders is dependent upon the receipt of sufficient funds
from its subsidiaries.
24
<PAGE> 26
NTL Incorporated and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash used in operating activities was $6,594,000 and $16,605,000 in the three
months ended March 31, 1999 and 1998, respectively. The change is primarily due
to the Company's operations generating more cash in the current period.
Purchases of fixed assets were $276,126,000 in 1999 and $97,945,000 in 1998 as a
result of the continuing fixed asset purchases and construction in 1999,
including purchases and construction from acquired companies.
Proceeds from issuance of preferred stock and warrants of $500,000,000 in 1999
is from the sale of 5.25% Convertible Preferred Stock and warrants to purchase
1.2 million shares of the Company's common stock to Microsoft Corp.
Year 2000
The Company has a comprehensive Year 2000 project designed to identify and
assess the risks associated with its information systems, products, operations
and infrastructure, suppliers, and customers that are not Year 2000 compliant,
and to develop, implement and test remediation and contingency plans to mitigate
these risks. The project comprises four phases: (1) identification of risks, (2)
assessment of risks, (3) development of remediation and contingency plans and
(4) implementation and testing.
The Company has completed its compilation of equipment and systems that might be
affected by Year 2000 noncompliance. An impact and risk assessment is nearing
completion on all items to determine whether items are business critical, high
priority or low priority. This assessment will include all information systems
("IS") and non-IS equipment with embedded technology such as air conditioning,
generators and power supplies. All business critical and high priority items
have been identified. The Company's billing, provisioning and customer service
systems are being reviewed and modified for Year 2000 readiness. This is nearing
completion and should be finished in May. Integration testing of the complete
system will begin in the second quarter of 1999 and is expected to require three
months. Testing of other business critical and high priority items is in various
stages with some areas 100% complete. The target for the completion of this
testing is the end of June 1999, although a small portion of such testing is
scheduled to extend into the third quarter of 1999. Where appropriate, remedial
work has been minimized by bringing forward planned system revisions and
retiring old equipment. The Company is also communicating with its suppliers
with respect to the high priority and business critical items. A central
database has been established to insure all issues are resolved. This
communication is virtually complete. A Millennium Operations Plan is being
created that details the key resources needed for problems that may arise over
the Year 2000 weekend. All Business Continuity Plans are being reviewed and are
being revised to account for special circumstances related to the Year 2000.
These plans are expected to be finalized in the third quarter of 1999.
25
<PAGE> 27
NTL Incorporated and Subsidiaries
The Company expects to incur $13 million primarily in labor costs to compile
inventories, assess risks, prioritize remediation projects, communicate with
suppliers, maintain the supplier communications database, test remediations and
implement remediations. The Company incurred approximately $3.2 million of this
amount in 1998. The expected cost includes enhancements and upgrades that are
part of the normal upgrades and system revisions.
The Company currently believes that the most reasonably likely worst case
scenario with respect to the Year 2000 is the failure of public electricity
supplies during the millennium period. A number of critical sites have permanent
automatic standby generators and uninterruptible power supplies. Where critical
sites do not have permanent standby power, the Company intends to deploy its
mobile generators. In addition, other telephone operators have suggested that
the telephone network may overload due to excessive traffic. The Company is
reviewing its "cold start" scenarios and alternative interconnection routes in
the event of interruptions in the service of other telephone companies. The UK
Telecoms Regulator requires evidence of contingency plans from all the major
operators and the results will be shared through the Inter-Operator Forum.
Either or both of the above mentioned scenarios could have a material adverse
effect on operations, although it is not possible at this time to quantify the
amount of revenues and gross profit that might be lost, or the costs that could
be incurred.
As the Year 2000 project continues, the Company may discover additional
problems, may not be able to develop, implement or test remediation or
contingency plans, or may find that the costs of these activities exceed current
expectations. In many cases, the Company is relying on assurances from suppliers
that new and upgraded information systems and other products will be Year 2000
ready. The Company plans to test such third-party products, but cannot be sure
that its tests will be adequate or that, if problems are identified, they will
be addressed by the supplier in a timely and satisfactory way.
Because the Company uses a variety of information systems and has additional
systems embedded in its operations and infrastructure, the Company cannot be
sure that all of its systems will work together in a Year 2000-ready fashion.
Furthermore, the Company cannot be sure that it will not suffer business
interruptions, either because of its own Year 2000 problems or those of
third-parties upon whom the Company is reliant for services. The Company is
continuing to evaluate its Year 2000-related risks and corrective actions.
However, the risks associated with the Year 2000 problem are pervasive and
complex; they can be difficult to identify and address, and can result in
material adverse consequences to the Company. Even if the Company, in a timely
manner, completes all of its assessments, identifies and tests remediation plans
believed to be adequate, and develops contingency plans believed to be adequate,
some problems may not be identified or corrected in time to prevent material
adverse consequences to the Company.
26
<PAGE> 28
NTL Incorporated and Subsidiaries
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
Certain statements contained herein constitute "forward-looking statements" as
that term is defined under the Private Securities Litigation Reform Act of 1995.
When used herein, the words, "believe," "anticipate," "should," "intend,"
"plan," "will," "expects," "estimates," "projects," "positioned," "strategy,"
and similar expressions identify such forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from those
contemplated, projected, forecasted, estimated or budgeted, whether expressed or
implied, by such forward-looking statements. Such factors include the following:
general economic and business conditions in the United Kingdom, Ireland and
Australia, the Company's ability to continue to design networks, install
facilities, obtain and maintain any required governmental licenses or approvals
and finance construction and development, all in a timely manner at reasonable
costs and on satisfactory terms and conditions, as well as assumptions about
customer acceptance, churn rates, overall market penetration and competition
from providers of alternative services, the impact of new business opportunities
requiring significant up-front investment, Year 2000 readiness, and
availability, terms and deployment of capital.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
To the extent that the Company obtains financing in United States dollars and
incurs costs in the construction and operation of its networks in the United
Kingdom in British pounds sterling, it will encounter currency exchange rate
risks. At March 31, 1999, the Company had approximately $591 million in
pounds sterling cash and cash equivalents to reduce this risk. In addition, the
Company's pounds sterling denominated Notes will also reduce this risk.
Furthermore, the Company's revenues are generated primarily in British pounds
sterling while its interest and principal obligations with respect to most of
the Company's existing indebtedness are payable in U.S. dollars. The Company has
entered into an option agreement to hedge some of the risk of exchange rate
fluctuations related to interest and principal payments on U.S. dollar
denominated debt and for parent company expenses up to an annual limit of
approximately $13 million. The Company may purchase U.S. dollars at a fixed rate
of (pound)1 to $1.40 on specified dates through June 2001 for specified amounts
of U.S. dollars. The dates and U.S. dollar amounts correspond to the Company's
interest and principal payment dates and amounts for its U.S. dollar denominated
debt and anticipated amounts of parent company expenses. In addition, NTL
Bermuda has option agreements of (pound)250 million notional amount to purchase
U.S. dollars at a fixed rate of (pound)1 to $1.35 in November 2000. This option
provides a hedge against an adverse change in exchange rates when interest
payments commence on NTL Bermuda's U.S. dollar denominated Discount Debentures.
There have been no material changes in the reported market risks since the end
of the most recent fiscal year.
27
<PAGE> 29
NTL Incorporated and Subsidiaries
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27. Financial Data Schedule
(b) Reports on Form 8-K.
During the quarter ended March 31, 1999, the Company filed the
following reports on Form 8-K:
(i) Report dated January 25, 1999, reporting under Item 5, Other
Events, an agreement between Microsoft Corp. and the Company
to jointly develop new broadband services for delivery to
customers in the United Kingdom and Ireland. In addition,
Microsoft made a $500 million investment in the Company.
(ii) Report dated March 8, 1999, reporting under Item 5, Other
Events, the completion of the acquisition of Diamond Cable
Communications plc.
(iii) Report dated March 18, 1999, reporting under Item 5, Other
Events, that the Commonwealth of Australia had accepted the
Company's bid to own and operate the Australian National
Transmission Network.
No financial statements were filed with these reports.
28
<PAGE> 30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NTL INCORPORATED
Date: May 14, 1999 By: /s/ J. Barclay Knapp
-------------------------
J. Barclay Knapp
President, Chief Executive Officer and
Chief Financial Officer
Date: May 14, 1999 By: /s/ Gregg Gorelick
--------------------------
Gregg Gorelick
Vice President-Controller
(Principal Accounting Officer)
29
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