<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 June 30, 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)
<TABLE>
<S> <C>
Delaware 13-4051921
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
</TABLE>
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 June 30,
1999 was 81,388,364.
<PAGE> 2
NTL Incorporated and Subsidiaries
Index
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
- ------------------------------ ----
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets-
June 30, 1999 and December 31, 1998 .................................................. 2
Condensed Consolidated Statements of Operations-
Three and six months ended June 30, 1999 and 1998 .................................... 4
Condensed Consolidated Statement of Shareholders' Equity-
Six months ended June 30, 1999 ....................................................... 5
Condensed Consolidated Statements of Cash Flows-
Six months ended June 30, 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 .................................................... 17
Item 3. Quantitative and Qualitative Disclosure about Market Risk ............................. 30
PART II. OTHER INFORMATION
- ------------------------------
Item 4. Submission of Matters to Vote of Security Holders ..................................... 30
Item 6. Exhibits and Reports on Form 8-K ...................................................... 31
SIGNATURES ......................................................................................... 32
- ----------
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NTL Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------------------------------------
(unaudited) (see note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $931,595,000 $ 736,265,000
Marketable securities 154,155,000 260,631,000
Accounts receivable -- trade, less allowance for doubtful
accounts of $52,846,000 (1999) and $38,475,000 (1998) and 202,503,000 152,356,000
Other 67,214,000 55,248,000
----------------------------------------
Total current assets 1,355,467,000 1,204,500,000
Fixed assets, net 5,012,142,000 3,854,430,000
Intangible assets, net 2,086,016,000 725,028,000
Investment in Cable London PLC, net of accumulated amortization
of $11,769,000 (1999) and $3,093,000 (1998) 204,643,000 229,093,000
Other assets, net of accumulated amortization
of $37,408,000 (1999) and $56,264,000 (1998) 212,245,000 181,046,000
----------------------------------------
Total assets $8,870,513,000 $6,194,097,000
========================================
</TABLE>
2
<PAGE> 4
NTL Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets - continued
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------------------------------------
(unaudited) (see note)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $225,573,000 $167,079,000
Accrued expenses and other 293,389,000 221,070,000
Accrued construction costs 61,699,000 88,033,000
Interest payable 39,405,000 34,258,000
Deferred revenue 94,017,000 69,820,000
Current portion of long-term debt 26,317,000 23,691,000
----------------------------------------
Total current liabilities 740,400,000 603,951,000
Long-term debt 6,610,905,000 5,043,803,000
Commitments and contingent liabilities
Deferred income taxes 63,784,000 67,062,000
Senior redeemable exchangeable preferred stock - $.01 par
value, plus accreted dividends; liquidation preference
$133,000,000;
less unamortized discount of $2,978,000 (1999) and
$3,133,000 (1998); issued and outstanding 133,000 (1999) and
125,000 (1998) shares 132,688,000 124,127,000
Shareholders' equity:
Series preferred stock - $.01 par value; authorized 10,000,000 shares:
Series A - liquidation preference $134,995,000; issued
and outstanding 125,000 shares 2,000 2,000
Series B - liquidation preference $54,931,000; issued
and outstanding 52,000 shares -- --
Convertible Series A - liquidation preference
$511,000,000; issued and outstanding 511,000 (1999)
and none (1998) shares 5,000 --
Common stock - $.01 par value; authorized 400,000,000
shares; issued and outstanding 81,388,000 (1999) and
60,249,000 (1998) shares 814,000 602,000
Additional paid-in capital 3,254,746,000 1,501,561,000
Accumulated other comprehensive income (102,318,000) 104,657,000
(Deficit) (1,830,513,000) (1,251,668,000)
----------------------------------------
1,322,736,000 355,154,000
----------------------------------------
Total liabilities and shareholders' equity $8,870,513,000 $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 SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------------------------- ---------------------------------
1999 1998 1999 1998
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
REVENUES
Local telecommunications and television $196,493,000 $68,595,000 $365,320,000 $130,179,000
National and international telecommunications 112,855,000 51,648,000 218,585,000 102,660,000
Broadcast transmission and other 50,909,000 33,474,000 89,733,000 66,892,000
Other telecommunications -- 597,000 -- 2,375,000
--------------------------------- ---------------------------------
360,257,000 154,314,000 673,638,000 302,106,000
COSTS AND EXPENSES
Operating expenses 167,832,000 78,021,000 329,376,000 155,354,000
Selling, general and administrative expenses 155,101,000 56,799,000 274,371,000 113,527,000
Franchise fees 7,729,000 6,311,000 14,577,000 12,506,000
Corporate expenses 8,457,000 4,137,000 13,709,000 7,779,000
Depreciation and amortization 190,005,000 49,711,000 331,739,000 95,567,000
--------------------------------- ---------------------------------
529,124,000 194,979,000 963,772,000 384,733,000
--------------------------------- ---------------------------------
Operating (loss) (168,867,000) (40,665,000) (290,134,000) (82,627,000)
OTHER INCOME (EXPENSE)
Interest and other income 9,721,000 18,335,000 20,734,000 23,478,000
Interest expense (167,719,000) (83,564,000) (298,542,000) (141,622,000)
Foreign currency transaction gains (losses) (21,561,000) 1,592,000 (10,903,000) 2,797,000
--------------------------------- ---------------------------------
Net (loss) $(348,426,000) $(104,302,000) $(578,845,000) $(197,974,000)
================================= =================================
Basic and diluted net (loss) per common share $(4.89) $(2.80) $(8.78) $(5.79)
================================= =================================
</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 1,090,000 11,000
Exercise of warrants 39,000 1,000
Preferred stock issued for cash 500,000 $5,000
Warrants issued for cash
Accreted dividends on
preferred stock 11,000 --
Accretion of discount on
preferred stock
Conversion of 7% Convertible
Subordinated Notes 7,260,000 73,000
Common stock issued for
acquisition 12,750,000 127,000
Issuance of stock options in
connection with an acquisition
Comprehensive income:
Net loss for the six months
ended June 30, 1999
Currency translation adjustment
Total
-------------------------------------------------------------------------------------------
Balance, June 30, 1999 125,000 $2,000 52,000 $ -- 511,000 $5,000 81,388,000 $814,000
===========================================================================================
</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 24,044,000
Exercise of warrants 237,000
Preferred stock issued for cash 483,805,000
Warrants issued for cash 16,190,000
Accreted dividends on
preferred stock (17,356,000)
Accretion of discount on
preferred stock (156,000)
Conversion of 7% Convertible
Subordinated Notes 268,512,000
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 six months
ended June 30, 1999 $(578,845,000) (578,845,000)
Currency translation adjustment (206,975,000) (206,975,000)
-------------
Total $(785,820,000)
-------------------------------------------------------------------------------------
Balance, June 30, 1999 $3,254,746,000 $(102,318,000) $(1,830,513,000)
=====================================================================================
</TABLE>
See accompanying notes.
6
<PAGE> 8
NTL Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
-----------------------------------
1999 1998
-----------------------------------
<S> <C> <C>
Net cash provided by operating activities $46,050,000 $ 7,716,000
INVESTING ACTIVITIES
Acquisitions of subsidiaries, net of cash acquired (199,417,000) (443,844,000)
Purchase of fixed assets (559,347,000) (257,157,000)
Increase in other assets (28,537,000) (3,620,000)
Proceeds from sale of assets -- 1,312,000
Purchase of marketable securities (279,571,000) (253,345,000)
Proceeds from sales of marketable securities 391,894,000 143,840,000
-----------------------------------
Net cash (used in) investing activities (674,978,000) (812,814,000)
FINANCING ACTIVITIES
Proceeds from borrowings, net of financing costs 320,410,000 1,784,890,000
Proceeds from issuance of preferred stock and warrants 500,000,000 --
Principal payments (3,147,000) (65,992,000)
Cash placed in escrow -- (218,587,000)
Proceeds from exercise of stock options and warrants 24,293,000 3,552,000
-----------------------------------
Net cash provided by financing activities 841,556,000 1,503,863,000
Effect of exchange rate changes on cash (17,298,000) 6,618,000
-----------------------------------
Increase in cash and cash equivalents 195,330,000 705,383,000
Cash and cash equivalents at beginning of period 736,265,000 98,902,000
-----------------------------------
Cash and cash equivalents at end of period $931,595,000 $804,285,000
===================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest exclusive of
amounts capitalized $ 72,332,000 $ 36,765,000
Income taxes paid -- 136,000
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Accretion of dividends and discount on preferred stock $ 17,512,000 $ 7,552,000
Conversion of Convertible Notes, net of unamortized deferred financing
costs 268,585,000 187,012,000
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 - (unaudited)
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 and six months ended June 30,
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, 2001. The Company is evaluating the impact that 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 formation of the holding company is part
of the Company's effort to pursue opportunities outside the United Kingdom and
Ireland. The holding company restructuring was accomplished through a merger so
that all the stockholders of NTL Incorporated at the effective time of the
merger became stockholders of the new holding company, and NTL Incorporated
became a subsidiary of the new holding company. The new holding company has
taken the name NTL Incorporated (and together with its subsidiaries, the
"Company") and the holding company's subsidiary simultaneously changed its name
to NTL Communications Corp. (and together with its subsidiaries, "NTL
Communications").
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 warrants expire in 2004.
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 approximately 11,000
shares of 5.25% Convertible Preferred Stock for dividend payments through June
30, 1999.
8
<PAGE> 10
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements - (unaudited) (continued)
NOTE D - INTANGIBLE ASSETS
Intangible assets consist of:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
--------------------------------------
(unaudited)
<S> <C> <C>
License acquisition costs, net of accumulated amortization of
$98,411,000 (1999) and $69,202,000 (1998) $207,060,000 $153,007,000
Goodwill, net of accumulated amortization of $89,381,000 (1999)
and $32,358,000 (1998) 1,758,289,000 514,529,000
Customer lists, net of accumulated amortization of $14,128,000
(1999) and $3,375,000 (1998) 120,667,000 57,492,000
--------------------------------------
$2,086,016,000 $725,028,000
======================================
</TABLE>
In April 1999, a subsidiary of the Company ("NTL Australia") purchased all of
the shares of the entity which owns the Australian National Transmission Network
for an aggregate purchase price of approximately $423 million. NTL Australia
operates from over 560 tower sites and provides exclusive television and radio
transmission services to Australia's national TV and radio broadcasters. In
addition, NTL Australia serves regional and community TV and radio broadcasters,
and provides equipment hosting services to telecom operators and emergency
service communications providers on its towers. NTL Communications distributed
$500 million to the Company, principally to finance this acquisition. The
acquisition was accounted for as a purchase, and accordingly, the net assets and
results of operations of NTL Australia have been included in the consolidated
financial statements from the date of acquisition. The aggregate purchase price
of $425 million, including costs incurred of $2 million, exceeded the estimated
fair value of net tangible assets acquired by $180 million, which is included in
goodwill. Under the purchase method of accounting, the purchase price is
allocated to the assets acquired and liabilities assumed based on the estimated
fair values at acquisition. However, changes to the allocation of the purchase
price are expected as valuations or appraisals of assets and liabilities are
completed. Although the Company cannot ascertain what the changes will be at
this time, such changes are not expected to be significant.
9
<PAGE> 11
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements - (unaudited) (continued)
NOTE D - INTANGIBLE ASSETS - CONTINUED
In March 1999, the Company acquired Diamond Cable Communications plc
("Diamond"). The Company issued an aggregate of 12,750,000 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 $8,031,000 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 paid
$105,000. 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 $986 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 ("NTL Bermuda") and Eastern
Group Telecoms.
The pro forma unaudited consolidated results of operations for the six months
ended June 30, 1999 and 1998 assuming consummation of these acquisitions as of
January 1, 1998 are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
----------------------------------
1999 1998
----------------------------------
<S> <C> <C>
Total revenue $719,889,000 $535,899,000
Net (loss) (635,054,000) (448,815,000)
Basic and diluted net (loss) per common share (8.98) (6.95)
</TABLE>
10
<PAGE> 12
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements - (unaudited) (continued)
NOTE E - FIXED ASSETS
Fixed assets consist of:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------------------------------
(unaudited)
<S> <C> <C>
Operating equipment $4,527,951,000 $3,528,973,000
Other equipment 599,492,000 376,518,000
Construction-in-progress 485,733,000 369,923,000
-------------------------------------
5,613,176,000 4,275,414,000
Accumulated depreciation (601,034,000) (420,984,000)
-------------------------------------
$5,012,142,000 $3,854,430,000
=====================================
</TABLE>
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. 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"). Pursuant to this agreement, in July 1999 NTL Bermuda notified
Telewest of the price at which it is willing to sell its 50% ownership interest
in Cable London to Telewest. Telewest is now required to notify NTL Bermuda in
August 1999 whether it will, at that price, purchase NTL Bermuda's 50% ownership
interest in Cable London or sell its 50% ownership interest in Cable London to
NTL Bermuda. The Company has received an indication from a prominent investment
banking firm of its willingness to provide financing in the event that NTL
Bermuda is the buyer of the Cable London interest.
11
<PAGE> 13
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements - (unaudited) (continued)
NOTE G - LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---------------------------------------
(unaudited)
<S> <C> <C>
NTL Communications:
12-3/4% Series A Senior Deferred Coupon Notes $252,040,000 $236,935,000
11-1/2% Series B Senior Deferred Coupon Notes 879,815,000 831,976,000
10% Series B Senior Notes 400,000,000 400,000,000
9-1/2% Senior Sterling Notes, less unamortized discount of
$581,000 (1999) and $639,000 (1998) 196,731,000 206,800,000
10-3/4% Senior Deferred Coupon Sterling Notes 318,439,000 317,511,000
9-3/4% Senior Deferred Coupon Notes 908,313,000 865,880,000
9-3/4% Senior Deferred Coupon Sterling Notes 330,110,000 --
11-1/2% Senior Notes 625,000,000 625,000,000
12-3/8% Senior Deferred Coupon Notes 270,246,000 254,718,000
7% Convertible Subordinated Notes -- 275,000,000
7% Convertible Subordinated Notes 600,000,000 600,000,000
NTL Bermuda:
11.2% Senior Discount Debentures 445,457,000 421,835,000
Other 29,463,000 31,839,000
Diamond:
13-1/4% Senior Discount Notes 276,594,000 --
11-3/4% Senior Discount Notes 450,137,000 --
10-3/4% Senior Discount Notes 318,577,000 --
10% Senior Sterling Notes 213,098,000 --
9-1/8% Senior Notes 110,000,000 --
Other 13,202,000 --
---------------------------------------
6,637,222,000 5,067,494,000
Less current portion 26,317,000 23,691,000
---------------------------------------
$6,610,905,000 $5,043,803,000
=======================================
</TABLE>
In May 1999, the Company called for redemption all of its $275,000,000 principal
amount of 7% Convertible Subordinated Notes due 2008 (the "7% Notes") at a
redemption price of 104.9% of the principal amount, plus accrued and unpaid
interest. In June 1999, all of the 7% Notes were converted into approximately
7,260,000 shares of the Company's common stock at the applicable conversion
price of $37.875 per share. The unamortized deferred financing costs related to
the 7% Notes of $6,415,000 were written off to equity.
12
<PAGE> 14
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements - (unaudited) (continued)
NOTE G - LONG-TERM DEBT - CONTINUED
In April 1999, the Company issued pound sterling 330,000,000 aggregate principal
amount at maturity of 9-3/4% Senior Deferred Coupon Sterling 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 sterling 204,963,000. The
aggregate of the discounts, commissions and other fees incurred of $8,457,000 is
included in deferred financing costs. The original issue discount accretes at a
rate of 9-3/4%, compounded semiannually, to an aggregate principal amount of
pound sterling 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.
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 JUNE 30 SIX MONTHS ENDED JUNE 30
--------------------------------------------------------------------------------
1999 1998 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net loss $(348,426,000) $(104,302,000) $(578,845,000) $(197,974,000)
Preferred stock dividend (15,333,000) (3,759,000) (28,425,000) (7,397,000)
--------------------------------------------------------------------------------
Loss available to common
shareholders $(363,759,000) $(108,061,000) $(607,270,000) $(205,371,000)
--------------------------------------------------------------------------------
Denominator for basic net loss
per common share 74,419,000 38,611,000 69,131,000 35,448,000
Effect of dilutive securities -- -- -- --
--------------------------------------------------------------------------------
Denominator for diluted net loss
per common share 74,419,000 38,611,000 69,131,000 35,448,000
--------------------------------------------------------------------------------
Basic and diluted net loss per
common share $(4.89) $(2.80) $(8.78) $(5.79)
================================================================================
</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 and six months ended June 30,
1999 and 1998 was $(441,282,000), $(112,516,000), $(785,820,000) and
$(187,863,000), respectively.
13
<PAGE> 15
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements - (unaudited) (continued)
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>
Six Months Ended June 30, 1999
Revenues $89,733 $365,320 $218,585 $ -- $ 673,638
EBITDA (1) 52,790 100,644 46,693 (130,236) 69,891
Six Months Ended June 30, 1998
Revenues $ 66,892 $130,179 $102,660 $2,375 $302,106
EBITDA (1) 44,187 31,768 13,741 (56,471) 33,225
Total assets
June 30, 1999 $712,892 $5,438,369 $898,519 $1,820,733 $8,870,513
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.
The reconciliation of segment combined EBITDA to net loss is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
---------------------------------
1999 1998
---------------------------------
(In thousands)
<S> <C> <C>
Segment Combined EBITDA $ 69,891 $ 33,225
(Add) Deduct:
Franchise fees 14,577 12,506
Corporate expenses 13,709 7,779
Depreciation and amortization 331,739 95,567
Interest and other income (20,734) (23,478)
Interest expense 298,542 141,622
Foreign currency transaction (gains) losses 10,903 (2,797)
---------------------------------
648,736 231,199
---------------------------------
Net (loss) $(578,845) $(197,974)
=================================
</TABLE>
14
<PAGE> 16
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements - (unaudited) (continued)
NOTE K - COMMITMENTS AND CONTINGENT LIABILITIES
As of June 30, 1999, the Company was committed to pay approximately $261,000,000
for equipment and services. In addition, NTL Australia has operations and
maintenance contracts through 2004 with an aggregate annual commitment of
approximately $18,000,000.
The Company has various licenses for its cable television, telephone and
telecommunications business, and for its transmission and distribution services.
The Company paid approximately $3,600,000 in license fees in the six months
ended June 30, 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
sterling 15.4 million ($25 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 July 1999, the Company acquired Cablelink Limited ("Cablelink"), Ireland's
largest cable television provider. Cablelink provides multi-channel television
and information services in Dublin, Galway and Waterford. 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. The Company acquired Cablelink for 542.18 million Irish punts
(approximately $702 million), of which 462.18 million Irish punts ($598 million)
was paid in cash and the Company issued 80 million Irish punts ($104 million)
principal amount Variable Rate Redeemable Guaranteed Loan Notes due 2002 (the
"Guaranteed Notes"). The Company borrowed approximately $705 million, including
fees, under a bridge financing commitment for the purchase of Cablelink, a
portion of which (87 million Irish punts) ($113 million) was used for cash
collateral for the Guaranteed Notes.
Also in July 1999, the Company acquired certain broadband cable franchises from
British Telecommunications plc ("BT") for an aggregate of up to pound sterling
19 million ($30.0 million). The Company paid approximately pound sterling 5
million ($7.9 million) on closing and will pay up to pound sterling 14 million
($22.1 million) on completion of the upgrade of certain networks. The Company
expects to invest approximately pound sterling 15 million ($23.7 million) to
upgrade the networks for digital cable, interactive services and high speed
Internet access. The Company leases the networks from BT on a long-term basis
for an annual lease payment of approximately pound sterling 3.9 million ($6.2
million).
15
<PAGE> 17
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements - (unaudited) (continued)
NOTE L - SUBSEQUENT EVENTS - CONTINUED
In August 1999, France Telecom completed its initial investment of $1.0 billion
in the Company that was announced in July 1999. France Telecom purchased 750,000
shares of $1,000 par value 5% preferred stock, convertible into common stock at
$125 per share, and approximately 2.7 million shares of common stock at $92.50
per share.
In August 1999, the Company purchased four of the five franchise areas
comprising 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 the franchise area of Toulon and LaValette. The Company
will hold exclusive licenses to provide analog and digital television services
over the 1G Networks. The Company acquired the four franchise areas in
Ile-de-France for approximately 264.3 million French Francs (approximately $43
million) and paid approximately 12.3 million French Francs ($2 million) into
escrow as a deposit for Toulon and LaValette. The balance due for Toulon and
LaValette of approximately 134.3 million French Francs ($21.9 million) is
payable upon the closing of that franchise area which is expected to occur in
the third quarter of 1999.
In July 1999, the Company agreed to acquire the consumer cable telephone,
Internet and television operations of Cable & Wireless Communications, plc
("CWC"). The Company will issue 54.4 million new shares of NTL common stock and
pay pound sterling 2.85 billion ($4.6 billion) in cash representing
approximately pound sterling6.3 billion ($10 billion) in total equity
consideration. The Company will also discharge, refinance or assume
approximately pound sterling 1.9 billion ($3 billion) of CWC's net debt, plus
further debt up to an agreed amount of CWC cash outflow through closing. The
transaction is subject to various approvals and other conditions. The Company
has obtained a financing commitment for up to approximately pound sterling 2.1
billion ($3.3 billion) to fund a portion of the cost of this acquisition, as
well as an additional investment by France Telecom, as described below.
In connection with the CWC acquisition, the Company announced that France
Telecom agreed to invest an additional $4.5 billion in the Company. France
Telecom will invest $2.5 billion in the Company's common stock issued at $92.50
per share and $2.0 billion in convertible preferred stock with a 5% dividend and
a conversion price of $125 per share. The closing of this additional
investment is subject to the completion of the CWC acquisition, unless France
Telecom elects to accelerate the closing of this investment. In the event
France Telecom elects to accelerate the closing of the investment, the proceeds
will be used as mutually agreed by the Company and France Telecom prior to such
closing.
16
<PAGE> 18
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.
NTL Incorporated and Subsidiaries
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
BEFORE RECENT ACQUISITIONS COMBINED NTL(2) PROFORMA NTL(3)
- ---------------------------------------------------------------------------------------------------------------------
06/30/98 12/31/98 06/30/99 06/30/99 06/30/99
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Homes passed 1,134,300 1,247,200 1,312,500 3,624,600 4,044,600
- ---------------------------------------------------------------------------------------------------------------------
Homes marketed (Tel.) 957,900 1,064,600 1,123,600 3,079,800 3,079,800
- ---------------------------------------------------------------------------------------------------------------------
Homes marketed (CATV) 957,900 1,064,600 1,123,600 3,196,500 3,616,500
- ---------------------------------------------------------------------------------------------------------------------
Total customers 389,200 471,000 516,300 1,256,000 1,627,700
- ---------------------------------------------------------------------------------------------------------------------
Dual 354,200 434,000 475,700 847,000 847,000
- ---------------------------------------------------------------------------------------------------------------------
Telephone-only 14,900 16,100 16,300 283,100 283,100
- ---------------------------------------------------------------------------------------------------------------------
Cable-only 20,100 20,800 24,300 125,900 497,600
- ---------------------------------------------------------------------------------------------------------------------
Total RGUs (1) 743,400 905,100 992,000 2,103,000 2,474,700
- ---------------------------------------------------------------------------------------------------------------------
Customer penetration 41% 44% 46% 39% 45%
- ---------------------------------------------------------------------------------------------------------------------
RGU penetration 78% 85% 88% 66% 68%
- ---------------------------------------------------------------------------------------------------------------------
Telephone penetration 39% 42% 44% 37% 37%
- ---------------------------------------------------------------------------------------------------------------------
Cable penetration 39% 43% 45% 30% 37%
- ---------------------------------------------------------------------------------------------------------------------
</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 acquisition of Cablelink.
17
<PAGE> 19
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, Diamond Cable Communications plc ("Diamond") in March
1999 and the Australian National Transmission Network ("NTL Australia") in April
1999, the Company consolidated the results of operations of these businesses
from the dates of acquisition. The results of these businesses are not included
in the 1998 results except for the results of operations of the businesses
acquired upon the completion of the first stage of the ComTel acquisition in
June 1998.
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
Local telecommunications and television revenues increased to $196,493,000 from
$68,595,000 as a result of acquisitions and from customer growth that increased
the Company's current revenue stream. The 1999 and 1998 revenue includes
$110,607,000 and $1,742,000, respectively, 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 $112,855,000
from $51,648,000 as a result of acquisitions, which was $36,677,000 of the
increase, and from 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.
18
<PAGE> 20
NTL Incorporated and Subsidiaries
Broadcast transmission and other revenues increased to $50,909,000 from
$33,474,000 due to revenues of $10,131,000 from NTL Australia in 1999 and from
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 $597,000 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 $167,832,000 from $78,021,000 as a result of
increases in interconnection costs and programming costs due to customer growth.
The 1999 and 1998 expense includes $74,845,000 and $1,213,000, respectively,
from acquired companies.
Selling, general and administrative expenses increased to $155,101,000 from
$56,799,000 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. In addition, $23,730,000 of the increase was due
to the new national brand and advertising campaign which began in the second
quarter of 1999 and will continue through 1999. The 1999 and 1998 expense
includes $57,736,000 and $956,000, respectively, from acquired companies.
Franchise fees increased to $7,729,000 from $6,311,000. The 1999 amount includes
Diamond franchise fees of $1,500,000.
Corporate expenses increased to $8,457,000 from $4,137,000 primarily due to an
increase in various overhead costs.
Depreciation and amortization expense increased to $190,005,000 from $49,711,000
due to an increase in depreciation of telecommunications and CATV equipment. The
1999 expense includes $115,417,000 from acquired companies, including
amortization of acquisition related intangibles.
Interest expense increased to $167,719,000 from $83,564,000 due to the issuance
of additional debt, and the increase in the accretion of original issue discount
on the deferred coupon notes. The 1999 expense includes $52,273,000 from
acquired companies. Interest of $32,020,000 and $18,381,000 was paid in the
three months ended June 30, 1999 and 1998, respectively.
Foreign currency transaction gains (losses) decreased to a loss of $21,561,000
from a gain of $1,592,000 due to net foreign currency transaction losses of
$32,645,000 from acquired companies in 1999, offset by favorable changes in the
exchange rate subsequent to the issuance by NTL Communications in March 1998 and
April 1999 of new debt denominated in British pounds sterling.
19
<PAGE> 21
NTL Incorporated and Subsidiaries
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Local telecommunications and television revenues increased to $365,320,000 from
$130,179,000 as a result of acquisitions and from customer growth that increased
the Company's current revenue stream. The 1999 and 1998 revenue includes
$195,440,000 and $1,742,000, respectively, 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 $218,585,000
from $102,660,000 as a result of acquisitions, which was $65,442,000 of the
increase, and from 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.
Broadcast transmission and other revenues increased to $89,733,000 from
$66,892,000 due to revenues of $10,131,000 from NTL Australia in 1999 and from
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 $2,375,000 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 $329,376,000 from $155,354,000 as a result of
increases in interconnection costs and programming costs due to customer growth.
The 1999 and 1998 expense includes $116,001,000 and $1,213,000, respectively,
from acquired companies.
Selling, general and administrative expenses increased to $274,371,000 from
$113,527,000 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. In addition, $23,730,000 of the increase was due
to the new national brand and advertising campaign which began in the second
quarter of 1999 and will continue through 1999. The 1999 and 1998 expense
includes $103,069,000 and $956,000, respectively, from acquired companies.
Franchise fees increased to $14,577,000 from $12,506,000. The 1999 amount
includes Diamond franchise fees of $2,017,000.
20
<PAGE> 22
NTL Incorporated and Subsidiaries
Corporate expenses increased to $13,709,000 from $7,779,000 primarily due to an
increase in various overhead costs.
Depreciation and amortization expense increased to $331,739,000 from $95,567,000
due to an increase in depreciation of telecommunications and CATV equipment. The
1999 expense includes $178,748,000 from acquired companies, including
amortization of acquisition related intangibles.
Interest expense increased to $298,542,000 from $141,622,000 due to the issuance
of additional debt, and the increase in the accretion of original issue discount
on the deferred coupon notes. The 1999 expense includes $77,480,000 from
acquired companies. Interest of $92,172,000 and $39,658,000 was paid in the six
months ended June 30, 1999 and 1998, respectively.
Foreign currency transaction gains (losses) decreased to a loss of $10,903,000
from a gain of $2,797,000 due to net foreign currency transaction losses of
$36,223,000 from acquired companies in 1999, offset by favorable changes in the
exchange rate subsequent to the issuance by NTL Communications in March 1998 and
April 1999 of new debt denominated in British pounds sterling.
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, net of cash from
operations, will aggregate approximately $575 million in the second half of
1999. The Company intends to fund these net requirements from cash and
securities on hand of $1.1 billion as of June 30, 1999. The Company's
commitments for equipment and services in the United Kingdom at June 30, 1999 of
approximately $247 million are included in the anticipated requirements.
The Company is highly leveraged. The accreted value at June 30, 1999 of the
Company's consolidated long-term indebtedness, including the Redeemable
Preferred Stock, is approximately $6.7 billion, representing approximately 84%
of total capitalization. The following summarizes the terms of those notes and
Redeemable Preferred Stock issued by the Company and its subsidiaries.
21
<PAGE> 23
NTL Incorporated and Subsidiaries
NTL Communications:
(1) 12-3/4% Series A Senior Deferred Coupon Notes due April 15, 2005,
principal amount at maturity of $278 million, interest payable
semi-annually beginning on October 15, 2000, redeemable at the
Company's option on or after April 15, 2000;
(2) 11-1/2% Series B Senior Deferred Coupon Notes due February 1, 2006,
principal amount at maturity of $1.05 billion, interest payable
semi-annually beginning on August 1, 2001, redeemable at the Company's
option on or after February 1, 2001;
(3) 10% Series B Senior Notes due February 15, 2007, principal amount of
$400 million, interest payable semi-annually from August 15, 1997,
redeemable at the Company's option on or after February 15, 2002;
(4) 9-1/2% Senior Sterling Notes due April 1, 2008, principal amount of
pound sterling 125 million ($200 million), interest payable
semi-annually from October 1, 1998, redeemable at the Company's option
on or after April 1, 2003;
(5) 10-3/4% Senior Deferred Coupon Sterling Notes due April 1, 2008,
principal amount at maturity of pound sterling 300 million ($480
million), interest payable semi-annually from October 1, 2003,
redeemable at the Company's option on or after April 1, 2003;
(6) 9-3/4% Senior Deferred Coupon Notes due April 1, 2008, principal amount
at maturity of $1.3 billion, interest payable semi-annually from
October 1, 2003, redeemable at the Company's option on or after April
1, 2003;
(7) 9-3/4% Senior Deferred Coupon Sterling Notes due April 15, 2009,
principal amount at maturity of pound sterling 330 million ($528
million), interest payable semi-annually from October 15, 2004,
redeemable at the Company's option on or after April 15, 2004;
(8) 11-1/2% Senior Notes due October 1, 2008, principal amount of $625
million, interest payable semi-annually from April 1, 1999, redeemable
at the Company's option on or after October 1, 2003;
(9) 12-3/8% Senior Deferred Coupon Notes due October 1, 2008, principal
amount at maturity of $450 million, interest payable semi-annually from
April 1, 2004, redeemable at the Company's option on or after October
1, 2003; and
(10) 7% Convertible Subordinated Notes due December 15, 2008, principal
amount of $600 million, interest payable semi-annually from June 15,
1999, convertible into shares of the Company's common stock at a
conversion price of $61.25 per share, redeemable at the Company's
option on or after December 15, 2001;
22
<PAGE> 24
NTL Incorporated and Subsidiaries
NTL Incorporated:
(11) Senior Redeemable Exchangeable Preferred Stock due February 15, 2009,
stated value of $100 million, dividends accrue at 13% per annum payable
quarterly in arrears, at the Company's option until February 15, 2004
dividends may be paid in cash, by the issuance of additional shares or
in any combination of the foregoing, redeemable at the Company's option
on or after February 15, 2002, and on any dividend payment date the
Company may exchange all of the outstanding shares for 13% debentures
due 2009;
NTL Bermuda:
(12) 11.2% Senior Discount Debentures due November 15, 2007, principal
amount at maturity of $517.3 million, interest payable semi-annually
from May 15, 2001; and
(13) pound sterling 8.5 million ($13.6 million) principal amount note
payable to Comcast U.K. Holdings, Inc., interest accrues at 9% per
annum, compounded semi-annually, principal plus accrued interest of
$7.2 million due in September 1999;
Diamond:
(14) 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;
(15) 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;
(16) 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;
(17) 10% Senior Notes due February 1, 2008, issued by Diamond Holdings plc,
a wholly-owned subsidiary of Diamond, principal amount of pound
sterling 135 million ($216 million), interest payable semi-annually as
of August 1, 1998;
(18) 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
(19) mortgage of pound sterling 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%.
23
<PAGE> 25
NTL Incorporated and Subsidiaries
The Company has other significant commitments or potential commitments in
addition to those described above. These are as follows:
(1) 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 sterling 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.
(2) Pursuant to an agreement with TeleWest Communications plc relating to
NTL Bermuda's and TeleWest's respective 50% ownership interests in
Cable London PLC, in July 1999, NTL Bermuda notified TeleWest of the
price at which it is willing to sell its 50% ownership in Cable London
to TeleWest. TeleWest is now required to notify NTL Bermuda in August
1999 whether it will, at that price, purchase NTL Bermuda's 50%
interest or sell its 50% interest to NTL Bermuda. The Company has
received an indication from a prominent investment banking firm of its
willingness to provide financing in the event that NTL Bermuda is the
buyer of the Cable London interest.
(3) In April 1999, NTL Australia purchased all of the shares of the entity
which owns the Australian National Transmission Network. The Company
currently expects that NTL Australia will be able to fund its capital
expenditures in the second half of 1999 with cash on hand of $10
million at June 30, 1999 and cash from its operations.
(4) In July 1999, the Company acquired Cablelink Limited ("Cablelink"),
Ireland's largest cable television provider. The Company acquired
Cablelink for 542.18 million Irish punts (approximately $702 million),
of which 462.18 million Irish punts ($598 million) was paid in cash and
the Company issued 80 million Irish punts ($104 million) principal
amount Variable Rate Redeemable Guaranteed Loan Notes due 2002 (the
"Guaranteed Notes"). Interest on the Guaranteed Notes is payable
quarterly beginning September 30, 1999 at EURIBOR. The Guaranteed Notes
may be redeemed at any time, at the option of the holder, at par plus
accrued and unpaid interest to the date of the redemption. The
Guaranteed Notes are subject to mandatory redemption in January 2002.
The Company issued $705 million principal amount Senior Increasing Rate
Notes due 2000 (the "Senior Notes") under a bridge financing commitment
for the purchase of Cablelink. A portion of the proceeds from the
issuance of the Senior Notes (87 million Irish punts) ($113 million)
was used for cash collateral for the Guaranteed Notes. Interest on the
Senior Notes is payable quarterly beginning September 30, 1999 at the
higher of: (i) the Citibank, NA base rate plus 3%, (ii) three month
LIBOR plus 3%, or (iii) the highest yield on any of the 1, 3, 5 and 10
year direct obligations issued by the government of the United States
plus 3.5%. The interest rate on any unpaid principal will increase by a
further 0.5% every three months, not to exceed 16%. The current
interest rate is 12%. On June 8, 2000, the Senior Notes are subject to
a mandatory exchange for, at the option of the holder, either an
"Extended Note" in a principal amount equal to the principal amount of
the Senior Notes, or a "Rollover Note" in a principal amount equal to
the principal amount of the Senior Notes plus 3% of such principal
amount.
24
<PAGE> 26
NTL Incorporated and Subsidiaries
The Extended Note shall accrue interest at 14% per annum and shall
mature no later than ten years after issuance. The Rollover Note shall
accrue interest at 14% per annum and mature ten years after issuance.
(5) In July 1999, the Company agreed to acquire the consumer cable
telephone, Internet and television operations of Cable & Wireless
Communications, plc ("CWC"). The Company will issue 54.4 million new
shares of NTL common stock and pay pound sterling 2.85 billion ($4.6
billion) in cash representing approximately pound sterling 6.3 billion
($10 billion) in total equity consideration. The Company will also
discharge, refinance or assume approximately pound sterling 1.9 billion
($3 billion) of CWC's net debt, plus further debt up to an agreed
amount of CWC cash outflow through the closing. The transaction is
subject to various approvals and other conditions. The Company has
obtained a financing commitment for up to approximately pound
sterling 2.1 billion ($3.3 billion) to fund a portion of the cost of
this acquisition. The commitment is subject to the preparation,
execution and delivery of loan documentation and the accuracy and
completeness of representations. The commitment expires in November
1999 unless definitive documentation has been executed and delivered.
(6) In July 1999, the Company acquired certain broadband cable franchises
from British Telecommunications plc ("BT") for an aggregate of up to
pound sterling 19 million ($30.0 million). The Company paid
approximately pound sterling 5 million ($7.9 million) on closing and
will pay up to pound sterling 14 million ($22.1 million) on completion
of the upgrade of certain networks. The Company expects to invest
approximately pound sterling 15 million ($23.7 million) to upgrade the
networks for digital cable, interactive services and high speed
Internet access. The Company leases the networks from BT on a long-term
basis for an annual lease payment of approximately pound sterling 3.9
million ($6.2 million).
(7) In August 1999, the Company purchased four of the five franchise areas
comprising 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 the franchise area of Toulon and
LaValette. The Company will hold exclusive licenses to provide analog
and digital television services over the 1G Networks. The Company
acquired the four franchise areas in Ile-de-France for approximately
264.3 million French Francs (approximately $43 million) and paid
approximately 12.3 million French Francs ($2 million) into escrow as a
deposit for Toulon and LaValette. The balance due for Toulon and
LaValette of approximately 134.3 million French Francs ($21.9 million)
is payable upon the closing of that franchise area which is expected to
occur in the third quarter of 1999.
25
<PAGE> 27
NTL Incorporated and Subsidiaries
In July 1999, the Company announced that France Telecom agreed to invest a total
of $5.5 billion in the Company which includes an initial investment of $1
billion. France Telecom will invest $2.75 billion in the Company's common stock
issued at $92.50 per share and $2.75 billion in convertible preferred stock with
a 5% dividend and a conversion price of $125 per share. In August 1999, France
Telecom completed its $1 billion initial investment through the purchase of
750,000 shares of the preferred stock and approximately 2.7 million shares of
common stock. The closing of the additional investment is subject to the
completion of the CWC acquisition, unless France Telecom elects to accelerate
the closing of this investment. In the event France Telecom elects to accelerate
the closing of the investment, the proceeds will be used as mutually agreed by
NTL and France Telecom prior to such closing.
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 distributed $500
million to the Company in April 1999. 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
dividend payments to the extent such funds are not used for other Restricted
Payments (as defined in the indentures). The Senior Notes issued by NTL
Communications in connection with the Cablelink acquisition prohibits NTL
Communications from making dividend payments or other distributions to the
Company. 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 capital for its obligations, and
for 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 these requirements from cash and
securities on hand, cash from operations, the initial $1 billion France Telecom
investment, and the pound sterling 2.1 billion ($3.3 billion) financing
commitment and $4.5 billion additional France Telecom investment in connection
with the CWC acquisition. 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.
26
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NTL Incorporated and Subsidiaries
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 cash, securities and its investments in and
advances to its subsidiaries. The Company's ability to pay cash dividends to its
stockholders may be dependent upon the receipt of sufficient funds from its
subsidiaries. The Company's wholly-owned subsidiary, NTL Communications Corp.,
is also a holding company that conducts its operations through its subsidiaries.
Accordingly, NTL Communications Corp.'s ability to make scheduled interest and
principal payments when due to holders of its indebtedness may be dependent upon
the receipt of sufficient funds from its subsidiaries.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash provided by operating activities was $46,050,000 and $7,716,000 in the six
months ended June 30, 1999 and 1998, respectively. The change is primarily due
to changes in operating assets and liabilities.
Purchases of fixed assets were $559,347,000 in 1999 and $257,157,000 in 1998 as
a result of the continuing fixed asset purchases and construction in 1999,
including purchases and construction by acquired companies.
Proceeds from borrowings, net of financing costs, of $320,410,000 in 1999 is
from the issuance of the 9-3/4% Notes. 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.
27
<PAGE> 29
NTL Incorporated and Subsidiaries
The Company has completed its compilation of equipment and systems that might be
affected by Year 2000 noncompliance. An impact and risk assessment has been
completed on all items to determine whether items are business critical, high
priority or low priority. This assessment includes all information systems
("IS") and non-IS equipment with embedded technology such as air conditioning,
generators and power supplies. The Company's billing, provisioning and customer
service systems have been reviewed and modified for Year 2000 readiness.
Integration testing of the complete system began 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 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, and all items are now
cleared or have a definite planned upgrade path. A Millennium Operations Plan is
being created that details the key resources needed for problems that may arise
over the Year 2000 weekend. Existing Business Continuity Plans are being
reviewed and updated to account for special circumstances related to the Year
2000. These plans are expected to be finalized in the third quarter of 1999.
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 and approximately $5.5 million was incurred in the first half of
1999. 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. The
Company's plans have been audited and the results are available to other
operators. 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.
28
<PAGE> 30
NTL Incorporated and Subsidiaries
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 is testing 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.
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, 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.
29
<PAGE> 31
NTL Incorporated and Subsidiaries
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 June 30, 1999, the Company had approximately $340 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 sterling 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 sterling 250 million
notional amount to purchase U.S. dollars at a fixed rate of pound sterling 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.
The Company also incurs or will incur costs to operate its network and fund
capital expenditures in Ireland, France and Australia in Irish punts, French
Francs and Australian dollars, respectively. The Company also faces currency
exchange rate risks for these currencies. At June 30, 1999, the Company had
approximately $10 million in Australian dollar cash and cash equivalents to
reduce this risk. The Company does not currently have any derivative instruments
to manage its exposure to exchange rate changes in any of these currencies.
There have been no other material changes in the reported market risks since the
end of the most recent fiscal year.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 3, 1999, the Company held its annual meeting of stockholders.
The following management proposals were adopted: (i) the reelection of
George S. Blumenthal, J. Barclay Knapp and Michael S. Willner to the
Board of Directors and (ii) the ratification of the selection of Ernst
& Young LLP as the Company's independent auditors for 1999. The
shareholder's proposal regarding the adoption of the MacBride
Principles was defeated.
30
<PAGE> 32
NTL Incorporated and Subsidiaries
The stockholders approved the election of George S. Blumenthal by a
vote of 57,789,673 shares in favor and 27,128 shares withheld from
voting. The stockholders approved the election of J. Barclay Knapp by a
vote of 57,789,673 shares in favor and 27,128 shares withheld from
voting. The stockholders approved the election of Michael S. Willner by
a vote of 57,789,673 shares in favor and 27,128 shares withheld from
voting. The stockholders approved the second proposal by a vote of
57,794,343 shares in favor, 4,072 shares against and 18,386 shares
abstaining from voting. The stockholders defeated the proposal to adopt
the MacBride Principles by a vote of 1,428,110 share in favor,
46,231,573 shares against and 2,063,417 shares abstaining from voting.
There were 8,093,701 shares not voted of the shares outstanding that
were entitled to vote.
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 June 30, 1999, the Company filed the following
reports on Form 8-K:
(i) Report dated April 1, 1999, reporting under Item 5,
Other Events, the completion of the corporate
restructuring to create a holding company structure.
(ii) Report dated April 8, 1998, reporting under Item 5,
Other Events, the pricing of an issue of pound
sterling 330 million pounds sterling of 9-3/4% Senior
Deferred Coupon Notes due 2009.
(iii) Report dated April 30, 1999, reporting under Item 2,
Acquisition or Disposition of Assets, that NTL
Australia had completed the acquisition of the
Australian National Transmission Network, and, under
Item 5, Other Events, that the Company will acquire
Cablelink Limited and the 1G Networks.
(iv) Report dated May 26, 1999, reporting under Item 5,
Other Events, that NTL Communications Corp. called
for redemption of all its $275 million principal
amount Convertible Subordinated Notes due 2008.
(v) Report dated June 23, 1999, reporting under Item 5,
Other Events, that it had filed a Registration
Statement with respect to a proposed public offering.
There were no financial statements filed with any of these reports.
31
<PAGE> 33
NTL Incorporated and Subsidiaries
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: August 13, 1999 By: /s/ J. Barclay Knapp
-------------------------
J. Barclay Knapp
President and Chief Executive Officer
Date: August 13, 1999 By: /s/ Gregg Gorelick
--------------------------
Gregg Gorelick
Vice President-Controller
(Principal Accounting Officer)
32
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