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 September 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)
Delaware 13-4051921
- ------------------------------------ ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
110 East 59th Street, New York, New York 10022
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 906-8440
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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 September
30, 1999 was 105,355,584.
<PAGE>
NTL Incorporated and Subsidiaries
Index
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets-
September 30, 1999 and December 31, 1998 ........................ 2
Condensed Consolidated Statements of Operations-
Three and nine months ended September 30, 1999 and 1998 ......... 4
Condensed Consolidated Statement of Shareholders' Equity-
Nine months ended September 30, 1999 ............................ 5
Condensed Consolidated Statements of Cash Flows-
Nine months ended September 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 ....... 29
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ................................ 30
SIGNATURES ............................................................... 32
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NTL Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
----------------------------------
(unaudited) (see note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,265,613 $ 736,265
Marketable securities 302,197 260,631
Accounts receivable - trade, less allowance for doubtful
account of $72,486 (1999) and $38,475 (1998) 322,476 152,356
Other 78,790 55,248
----------------------------------
Total current assets 1,969,076 1,204,500
Fixed assets, net 5,484,183 3,854,430
Intangible assets, net 3,032,589 725,028
Investment in Cable London PLC, net of accumulated
amortization of $16,879 (1999) and $3,093 (1998) 207,038 229,093
Other assets, net of accumulated amortization
of $43,882 (1999) and $56,264 (1998) 334,431 181,046
----------------------------------
Total assets $ 11,027,317 $ 6,194,097
==================================
</TABLE>
2
<PAGE>
NTL Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets - continued
(dollars in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
-----------------------------------
(unaudited) (see note)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 248,431 $ 167,079
Accrued expenses and other 394,361 221,070
Accrued construction costs 83,596 88,033
Interest payable 27,077 34,258
Deferred revenue 161,310 69,820
Current portion of long-term debt 114,976 23,691
-----------------------------------
Total current liabilities 1,029,751 603,951
Long-term debt 7,482,814 5,043,803
Commitments and contingent liabilities
Deferred income taxes 89,574 67,062
Senior redeemable exchangeable preferred stock - $.01 par value,
plus accreted dividends; liquidation preference $138,000; less
unamortized discount of $2,900 (1999) and $3,133 (1998); issued
and outstanding 138,000 (1999) and 125,000 (1998) shares 137,175 124,127
Shareholders' equity:
Series preferred stock - $.01 par value; authorized 10,000,000
shares:
Series A - liquidation preference $138,165; issued and
outstanding 125,000 shares 2 2
Series B - liquidation preference $56,252; issued and
outstanding 52,000 shares - -
Convertible Series A - liquidation preference $518,000; issued
and outstanding 518,000 (1999) and none (1998) shares 5 -
5% Series A - liquidation preference $755,000; issued and
outstanding 755,000 (1999) and none (1998) shares 8 -
Common stock - $.01 par value; authorized 400,000,000 shares; issued
and outstanding 105,356,000 (1999) and 60,249,000 (1998) shares 1,054 602
Additional paid-in capital 4,256,265 1,501,561
Accumulated other comprehensive income 139,309 104,657
(Deficit) (2,108,640) (1,251,668)
-----------------------------------
2,288,003 355,154
-----------------------------------
Total liabilities and shareholders' equity $ 11,027,317 $ 6,194,097
===================================
</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>
NTL Incorporated and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
----------------------------- ------------------------------
1999 1998 1999 1998
----------------------------- ------------------------------
<S> <C> <C> <C> <C>
REVENUES
Local telecommunications and television $ 220,262 $ 84,366 $ 585,582 $ 214,545
National and international telecommunications 141,595 64,185 360,180 166,845
Broadcast transmission and other 55,198 33,933 144,931 100,825
Other telecommunications - - - 2,375
----------------------------- ------------------------------
417,055 182,484 1,090,693 484,590
COSTS AND EXPENSES
Operating expenses 206,839 88,122 536,215 243,476
Selling, general and administrative expenses 144,811 78,543 419,182 192,070
Franchise fees 7,710 6,223 22,287 18,729
Corporate expenses 7,373 4,018 21,082 11,797
Depreciation and amortization 201,888 61,218 533,627 156,785
----------------------------- ------------------------------
568,621 238,124 1,532,393 622,857
----------------------------- ------------------------------
Operating (loss) (151,566) (55,640) (441,700) (138,267)
OTHER INCOME (EXPENSE)
Interest and other income 13,416 16,318 34,150 39,796
Interest expense (186,670) (84,800) (485,212) (226,422)
Foreign currency transaction gains (losses) 46,693 (9,770) 35,790 (6,973)
------------------------------ ------------------------------
(Loss) before extraordinary item (278,127) (133,892) (856,972) (331,866)
(Loss) from early extinguishment of debt - (4,239) - (4,239)
----------------------------- ------------------------------
Net (loss) $ (278,127) $ (138,131) $ (856,972) $ (336,105)
============================= ==============================
Basic and diluted net (loss) per common share:
(Loss) before extraordinary item $ (2.89) $ (2.67) $ (9.83) $ (7.34)
Extraordinary item - (.08) - (.09)
----------------------------- ------------------------------
Net (loss) $ (2.89) $ (2.75) $ (9.83) $ (7.43)
============================= ==============================
</TABLE>
See accompanying notes.
4
<PAGE>
NTL Incorporated and Subsidiaries
Condensed Consolidated Statement of Shareholders' Equity
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
SERIES A SERIES B CONVERTIBLE
PREFERRED PREFERRED SERIES A 5% SERIES A COMMON STOCK -
STOCK STOCK PREFERRED STOCK PREFERRED STOCK $.01 PAR VALUE
SHARES PAR SHARES PAR SHARES PAR SHARES PAR SHARES PAR
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 125,000 $ 2 52,000 $ - 60,249,000 $ 602
Exercise of stock options 1,259,000 13
Exercise of warrants 53,000 1
Common stock issued for cash 2,703,000 27
Preferred stock issued for cash 500,000 $ 5 750,000 $ 8
Warrants issued for cash
Accreted dividends on
preferred stock 18,000 - 5,000 -
Accretion of discount on
preferred stock
Conversion of 7% Convertible
Subordinated Notes 7,271,000 73
Common stock issued for 12,750,000 127
acquisition
Issuance of stock options in
connection with an
acquisition
Issuance of warrants
Stock split 21,071,000 211
Comprehensive income:
Net loss for the nine months
ended September 30, 1999
Currency translation adjustment
Total
-------------------------------------------------------------------------------------------------
Balance, September 30, 1999 125,000 $ 2 52,000 $ - 518,000 $ 5 755,000 $ 8 105,356,000 $1,054
=================================================================================================
</TABLE>
See accompanying notes.
5
<PAGE>
NTL Incorporated and Subsidiaries
Condensed Consolidated Statement of Shareholders' Equity
(Unaudited) - continued
(dollars in thousands)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
PAID-IN COMPREHENSIVE COMPREHENSIVE
CAPITAL LOSS INCOME (DEFICIT)
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1998 $ 1,501,561 $ 104,657 $ (1,251,668)
Exercise of stock options 29,534
Exercise of warrants 314
Common stock issued for cash 249,973
Preferred stock issued for cash 1,233,797
Warrants issued for cash 16,190
Accreted dividends on preferred stock (26,256)
Accretion of discount on preferred stock (233)
Conversion of 7% Convertible Subordinated Notes 269,212
Common stock issued for acquisition 971,310
Issuance of stock options in connection with
an acquisition 6,599
Issuance of warrants 4,475
Stock split (211)
Comprehensive income:
Net loss for the nine months
ended September 30, 1999 $ (856,972) (856,972)
Currency translation adjustment 34,652 34,652
----------
Total $ (822,320)
--------------------------------------------------------------------
Balance, September 30, 1999 $ 4,256,265 $ 139,309 $ (2,108,640)
====================================================================
</TABLE>
See accompanying notes.
6
<PAGE>
NTL Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1999 1998
------------------------------
<S> <C> <C>
Net cash provided by (used in) operating activities $ 41,801 $ (27,656)
INVESTING ACTIVITIES
Acquisitions, net of cash acquired (1,103,153) (829,698)
Purchase of fixed assets (858,094) (464,944)
Increase in other assets (28,770) (10,397)
Proceeds from sale of assets - 1,312
Cash deposited into escrow for acquisitions (120,675) -
Purchase of marketable securities (573,779) (297,918)
Proceeds from sales of marketable securities 539,760 168,650
------------------------------
Net cash (used in) investing activities (2,144,711) (1,432,995)
FINANCING ACTIVITIES
Proceeds from borrowings, net of financing costs 1,125,494 2,093,602
Proceeds from issuance of preferred stock and warrants 1,250,000 -
Proceeds from issuance of common stock 250,000 -
Principal payments (25,863) (66,040)
Cash deposited into escrow for debt repayment - (221,427)
Proceeds from exercise of stock options and warrants 29,862 4,938
------------------------------
Net cash provided by financing activities 2,629,493 1,811,073
Effect of exchange rate changes on cash 2,765 10,119
------------------------------
Increase in cash and cash equivalents 529,348 360,541
Cash and cash equivalents at beginning of period 736,265 98,902
------------------------------
Cash and cash equivalents at end of period $ 1,265,613 $ 459,443
==============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest exclusive of
amounts capitalized $ 140,245 $ 79,112
Income taxes paid - 335
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Accretion of dividends and discount on preferred stock $ 26,489 $ 11,820
Conversion of Convertible Notes, net of unamortized
deferred financing costs 269,285 187,012
Preferred stock issued for an acquisition - 126,277
Common stock and stock options issued for an acquisition 978,036 -
</TABLE>
See accompanying notes.
7
<PAGE>
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 nine months ended September
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 NTL
Communications Corp.'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 results of operations and financial
position.
In September 1999, the Company declared a 5-for-4 stock split by way of a stock
dividend with respect to its common stock. The record date for this dividend was
October 4, 1999 and the payment date was October 7, 1999. All common stock
amounts in the Condensed Consolidated Financial Statements have been adjusted to
reflect the stock split.
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 - SALES OF COMMON STOCK, PREFERRED STOCK AND WARRANTS
In August 1999, the Company received $1.0 billion in cash from France Telecom in
exchange for 750,000 shares of 5% Cumulative Participating Convertible Preferred
Stock, Series A and approximately 3.4 million shares of common stock. The
preferred stock has a stated value of $1,000 per share, is convertible into
common stock at a conversion price of $100 per share and is redeemable in August
2009 for cash, shares of common stock or a combination of both. The preferred
stock may be redeemed by the Company on the earlier of August 2006 or the date
on which both the Company's common stock has traded above $120 per share for 25
consecutive trading days and August 2003. Dividends are payable quarterly at the
Company's option in cash, common stock or additional shares of preferred stock.
The Company issued 5,000 shares of preferred stock for dividend payments through
September 30, 1999.
8
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
NOTE C - SALES OF COMMON STOCK, PREFERRED STOCK AND WARRANTS (CONTINUED)
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 1,500,000 shares of the Company's
common stock at an exercise price of $67.20 per share. The warrants expire in
2004. The preferred stock is convertible into common stock at a conversion price
of $80 per share. The preferred stock is redeemable in January 2009 for cash or
shares of common stock. The preferred stock may be redeemed by the Company on
the earlier of January 2006 or the date on which the Company's common stock has
traded above $96 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 18,000 shares of
preferred stock for dividend payments through September 30, 1999.
NOTE D - INTANGIBLE ASSETS
Intangible assets consist of:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------------------------
(unaudited)
(in thousands)
<S> <C> <C>
License acquisition costs, net of accumulated amortization of
$118,484 (1999) and $69,202 (1998) $ 190,563 $ 153,007
Goodwill, net of accumulated amortization of $135,916 (1999) and
$32,358 (1998) 2,723,198 514,529
Customer lists, net of accumulated amortization of $21,765 (1999)
and $3,375 (1998) 118,828 57,492
------------------------------
$ 3,032,589 $ 725,028
==============================
</TABLE>
In September 1999, the Company acquired the shares of Workplace Technologies plc
("Workplace"), one of the United Kingdom's leading data network service
integrators, in exchange for cash of approximately 96.6 million pounds sterling
($158.3 million) and notes of approximately 4.5 million pounds sterling ($7.4
million).
In August 1999, the Company purchased four of the five franchise areas
comprising the "1G Networks" of France Telecom. The 1G Networks hold exclusive
licenses to provide analog and digital television services in four franchise
areas in Ile-de-France (Greater Paris) and in the franchise area of Toulon and
LaValette. The Company acquired the four franchise areas in Ile-de-France for
approximately 265.7 million French Francs (approximately $43 million) and
deposited 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 137.2 million French Francs ($22.4 million) is payable upon the
closing of that franchise area which is expected to occur in the fourth quarter
of 1999.
9
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
NOTE D - INTANGIBLE ASSETS (CONTINUED)
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, as well as a full service license to provide public
telephony, Internet and other value-added services throughout Ireland. The
Company acquired Cablelink for 535.18 million Irish punts (approximately $693
million), of which 455.18 million Irish punts ($589 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.
Also in July 1999, the Company acquired certain broadband cable franchises from
British Telecommunications plc ("BT") for an aggregate of up to 19 million
pounds sterling ($31.2 million). The Company paid approximately 5 million pounds
sterling ($8.2 million) on closing and will pay up to 14 million pounds sterling
($23.0 million) on completion of the upgrade of certain networks. The Company
expects to invest approximately 15 million pounds sterling ($24.7 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 3.9 million pounds sterling ($6.4
million).
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.
These acquisitions were accounted for as purchases, and accordingly, the net
assets and results of operations have been included in the consolidated
financial statements from the dates of acquisition. The aggregate purchase price
of approximately $1.35 billion, including costs incurred of $12.8 million,
exceeded the estimated fair value of net tangible assets acquired by $1.14
billion, 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. Changes to the allocation of
the purchase price are expected as valuations or appraisals of assets and
liabilities are completed.
10
<PAGE>
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 15,938,000 shares of common
stock in exchange for each ordinary share and deferred share of Diamond. The
Company's common stock was valued at $971,437,000, the fair value at the time of
the announcement. In addition, the Company issued options to purchase 153,000
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
$8,080,000 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. 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 plus the fair value of liabilities
assumed net of tangible assets acquired aggregated $1.3 billion, which was
allocated as follows: $78 million to customer lists, $85 million to license
acquisition costs and $1.16 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 nine months
ended September 30, 1999 and 1998 assuming consummation of these acquisitions as
of January 1, 1998 are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
----------------------------
1999 1998
----------------------------
(in thousands)
<S> <C> <C>
Total revenue $ 1,301,016 $ 964,022
(Loss) before extraordinary item (1,002,333) (728,714)
Net (loss) (1,002,333) (732,953)
Basic and diluted (loss) per share before extraordinary item (10.67) (8.75)
Basic and diluted net (loss) per common share (10.67) (8.80)
</TABLE>
NOTE E - PENDING ACQUISITION
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 68 million new shares of NTL common stock and
pay 2.85 billion pounds sterling ($4.7 billion) in cash. The Company will also
discharge, refinance or assume approximately 1.9 billion pounds sterling ($3.1
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 and NTL Communications have obtained a financing
commitment for up to approximately 2.1 billion pounds sterling ($3.5 billion) to
fund a portion of the cost of this acquisition, as well as an additional
investment by France Telecom, as described below.
11
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
NOTE E - PENDING ACQUISITION (CONTINUED)
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 $74 per
share and $2.0 billion in convertible preferred stock with a 5% dividend and a
conversion price of $100 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.
NOTE F - FIXED ASSETS
Fixed assets consist of:
SEPTEMBER 30, DECEMBER 31,
1999 1998
-----------------------------------
(unaudited)
(in thousands)
Operating equipment $ 4,942,925 $ 3,528,973
Other equipment 682,446 376,518
Construction-in-progress 613,727 369,923
-----------------------------------
6,239,098 4,275,414
Accumulated depreciation (754,915) (420,984)
-----------------------------------
$ 5,484,183 $ 3,854,430
===================================
NOTE G - INVESTMENT IN CABLE LONDON PLC
Pursuant to an agreement with Telewest Communications plc ("Telewest") relating
to NTL Bermuda's and Telewest's respective 50% ownership interests in Cable
London plc ("Cable London"), in August 1999 Telewest exercised its right to
purchase all of NTL Bermuda's shares of Cable London for approximately 428
million pounds sterling (approximately $705 million) in cash. The closing of the
sale of NTL Bermuda's interest in Cable London is expected to take place in
November 1999. The sale of the Cable London interest is an "Asset Sale" for the
purposes of the Company's Indentures for certain of its notes. The Company will
need to use an amount equal to the proceeds from the sale to repay subsidiary
debt, invest in "Replacement Assets" or make an offer to redeem certain of its
notes within 360 days after the sale.
12
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
NOTE H - LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
----------------------------------
(unaudited)
(in thousands)
<S> <C> <C>
NTL Communications:
12-3/4% Senior Deferred Coupon Notes $ 259,866 $ 236,935
11-1/2% Senior Deferred Coupon Notes 904,878 831,976
10% Senior Notes 400,000 400,000
9-1/2% Senior Sterling Notes, less unamortized discount of $592
(1999) and $639 (1998) 205,208 206,800
10-3/4% Senior Deferred Coupon Sterling Notes 340,929 317,511
9-3/4% Senior Deferred Coupon Notes 930,037 865,880
9-3/4% Senior Deferred Coupon Sterling Notes 352,540 -
11-1/2% Senior Notes 625,000 625,000
12-3/8% Senior Deferred Coupon Notes 278,356 254,718
7% Convertible Subordinated Notes - 275,000
7% Convertible Subordinated Notes 599,300 600,000
Senior Increasing Rate Notes 704,615 -
Variable Rate Redeemable Guaranteed Loan Notes 109,080 -
NTL Bermuda:
11.2% Senior Discount Debentures 457,758 421,835
Other 8,948 31,839
Diamond:
13-1/4% Senior Discount Notes 285,223 -
11-3/4% Senior Discount Notes 462,905 -
10-3/4% Senior Discount Notes 328,165 -
10% Senior Sterling Notes 222,264 -
9-1/8% Senior Notes 110,000 -
Other 12,718 -
---------------------------------
7,597,790 5,067,494
Less current portion 114,976 23,691
---------------------------------
$ 7,482,814 $ 5,043,803
=================================
</TABLE>
In September 1999, NTL Bermuda repaid at maturity the $21,529,000 due under its
notes payable to Comcast U.K. Holdings, Inc.
13
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
NOTE H - LONG-TERM DEBT (CONTINUED)
In July 1999, the Company issued $704,615,000 principal amount Senior Increasing
Rate Notes due 2000 (the "Senior Notes") in connection with the purchase of
Cablelink. The principal amount includes $3,034,000 in fees which is included in
deferred financing costs. Interest on the Senior Notes is payable quarterly 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 interest rate at September 30, 1999 was
11.25%. 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. 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 shall mature ten years after
issuance. The Company is in discussions with various parties relating to a
private placement offering to refinance the Senior Notes.
In July 1999, the Company also issued 80 million Irish punts ($109,080,000)
principal amount Variable Rate Redeemable Guaranteed Loan Notes due 2002 (the
"Guaranteed Notes") in connection with the Cablelink acquisition. Interest on
the Guaranteed Notes is payable quarterly at EURIBOR. The EURIBOR interest rate
at September 30, 1999 was 2.698%. 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 deposited 87 million Irish punts
($118,625,000) into escrow as cash collateral for the Guaranteed Notes, which is
included in other noncurrent assets.
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
9,075,000 shares of the Company's common stock at the applicable conversion
price of $30.30 per share. The unamortized deferred financing costs related to
the 7% Notes of $6,415,000 were written-off to equity.
In April 1999, the Company issued 330,000,000 pounds sterling 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 (UK Pound) 204,963,000. The
aggregate of the discounts, commissions and other fees incurred of $8,465,000 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
330,000,000 pounds sterling 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.
14
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
NOTE I - 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1999 1998 1999 1998
------------------------- -------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Numerator:
Loss before extraordinary item $ (278,127) $ (133,892) $ (856,972) $ (331,866)
Preferred stock dividend (20,608) (4,190) (49,033) (11,587)
------------------------- -------------------------
(298,735) (138,082) (906,005) (343,453)
Extraordinary item - (4,239) - (4,239)
------------------------- -------------------------
Loss available to common shareholders $ (298,735) $ (142,321) $ (906,005) $ (347,692)
------------------------- -------------------------
Denominator for basic net loss per common share 103,502 51,685 92,173 46,795
Effect of dilutive securities - - - -
------------------------- -------------------------
Denominator for diluted net loss per common share 103,502 51,685 92,173 46,795
------------------------- -------------------------
Basic and diluted net loss per common share:
Loss before extraordinary item $ (2.89) $ (2.67) $ (9.83) $ (7.34)
Extraordinary item - (0.08) - (0.09)
------------------------- -------------------------
Net loss $ (2.89) $ (2.75) $ (9.83) $ (7.43)
========================= =========================
</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 J - COMPREHENSIVE LOSS
The Company's comprehensive loss for the three and nine months ended September
30, 1999 and 1998 was $(36,500,000), $(822,320,000), $(81,135,000) and
$(268,998,000), respectively.
NOTE K - SEGMENT DATA
<TABLE>
<CAPTION>
Local Telecoms National Corporate
Broadcast and Television Telecoms and Other Total
---------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Nine Months Ended September 30, 1999
Revenues $ 144,931 $ 585,582 $ 360,180 $ - $ 1,090,693
EBITDA (1) 81,598 163,168 90,529 (199,999) 135,296
Nine Months Ended September 30, 1998
Revenues $ 100,825 $ 214,545 $ 166,845 $ 2,375 $ 484,590
EBITDA (1) 67,681 48,408 18,789 (85,834) 49,044
Total assets
September 30, 1999 $ 738,071 $ 5,739,753 $ 1,174,967 $ 3,374,526 $ 11,027,317
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.
15
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
NOTE K - SEGMENT DATA (CONTINUED)
The reconciliation of segment combined EBITDA to net loss is as follows:
NINE MONTHS ENDED
SEPTEMBER 30
--------------------------
1999 1998
--------------------------
(in thousands)
Segment Combined EBITDA $ 135,296 $ 49,044
(Add) Deduct:
Franchise fees 22,287 18,729
Corporate expenses 21,082 11,797
Depreciation and amortization 533,627 156,785
Interest and other income (34,150) (39,796)
Interest expense 485,212 226,422
Foreign currency transaction (gains) losses (35,790) 6,973
Loss from early extinguishment of debt - 4,239
--------------------------
992,268 385,149
--------------------------
Net (loss) $ (856,972) $(336,105)
==========================
NOTE L - COMMITMENTS AND CONTINGENT LIABILITIES
As of September 30, 1999, the Company was committed to pay approximately
$400,000,000 for equipment and services, which includes NTL Australia's
operations and maintenance contracts through 2005.
The Company has certain exclusive local delivery operator licenses for Northern
Ireland and other franchise areas in the United Kingdom. Pursuant to these
licenses, various subsidiaries of the Company are required to make monthly cash
payments to the ITC during the 15 year license terms. The Company has paid 14.4
million pounds sterling ($22.3 million) through September 30, 1999 in connection
with these licenses. The Company has requested the ITC to convert all of its fee
bearing exclusive licenses to non-exclusive licenses by the end of 1999. The
Company's liability for the license payments will end upon the conversion.
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.
16
<PAGE>
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 (2) Total
NTL(1) (with UK Combined
(Before recent acquisitions) acquisitions) NTL (3)
- ------------------------------------------------------------------------------------------------------------------------------------
09/30/98 12/31/98 09/30/99 09/30/99 09/30/99
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Homes passed 1,197,000 1,247,200 1,335,800 3,667,300 4,262,600
- ------------------------------------------------------------------------------------------------------------------------------------
Homes marketed (Tel.) 1,020,000 1,064,600 1,137,600 3,146,600 3,146,600
- ------------------------------------------------------------------------------------------------------------------------------------
Homes marketed (CATV) 1,020,000 1,064,600 1,137,600 3,261,100 3,817,900
- ------------------------------------------------------------------------------------------------------------------------------------
Total customers 429,600 471,000 529,800 1,291,800 1,705,700
- ------------------------------------------------------------------------------------------------------------------------------------
Dual 398,800 434,100 489,500 879,100 879,100
- ------------------------------------------------------------------------------------------------------------------------------------
Telephone-only 15,300 16,100 16,200 288,300 288,300
- ------------------------------------------------------------------------------------------------------------------------------------
Cable-only 20,500 20,800 24,100 124,400 538,300
- ------------------------------------------------------------------------------------------------------------------------------------
Total RGUs (4) 823,400 905,100 1,019,300 2,170,900 2,584,800
- ------------------------------------------------------------------------------------------------------------------------------------
Customer penetration 42.1% 44.2% 46.6% 39.6% 44.7%
- ------------------------------------------------------------------------------------------------------------------------------------
RGU penetration 80.7% 85.0% 89.6% 66.6% 67.7%
- ------------------------------------------------------------------------------------------------------------------------------------
Telephone penetration 40.6% 42.3% 44.5% 37.1% 37.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Cable penetration 36.4% 42.7% 45.1% 30.8% 37.1%
====================================================================================================================================
</TABLE>
(1) Data for franchises owned and operated by NTL prior to the 1998
acquisitions.
(2) Includes Comcast UK, ComTel, and Diamond Cable. Excludes 50% ownership of
Cable London and BT cable franchises.
(3) Includes the above UK acquisitions as well as Cablelink and the BT cable
franchises.
(4) An RGU (revenue generating unit) is one cable television account or one
telephone account; a dual customer generates two RGUs.
17
<PAGE>
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") in the second and third
quarters of 1998, Comcast UK Cable Partners Limited ("NTL Bermuda") and Eastern
Group Telecoms ("EGT") in the fourth quarter of 1998, Diamond Cable
Communications plc ("Diamond") in March 1999, the Australian National
Transmission Network ("NTL Australia") in April 1999, Cablelink Limited
("Cablelink") in July 1999, the "1G Networks" of France Telecom in August 1999,
and Workplace Technologies plc ("Workplace") in September 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 ComTel.
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
- ----------------------------------------------
Local telecommunications and television revenues increased to $220,262,000 from
$84,366,000 as a result of acquisitions and from customer growth that increased
the Company's current revenue stream. The 1999 and 1998 revenue includes
$130,034,000 and $12,667,000, 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 $141,595,000
from $64,185,000 as a result of acquisitions, which was $46,801,000 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>
NTL Incorporated and Subsidiaries
Broadcast transmission and other revenues increased to $55,198,000 from
$33,933,000 due to revenues of $14,901,000 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.
Operating expenses increased to $206,839,000 from $88,122,000 as a result of
increases in interconnection costs and programming costs due to customer growth.
The 1999 and 1998 expense includes $92,847,000 and $4,298,000, respectively,
from acquired companies.
Selling, general and administrative expenses increased to $144,811,000 from
$78,543,000 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, approximately $8.3 million 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 $58,196,000 and $11,579,000, respectively, from acquired
companies.
Pursuant to the terms of various United Kingdom licenses, the Company incurs
license fees paid to the ITC to operate as the exclusive service provider in
certain of its franchise areas. Franchise fees increased to $7,710,000 from
$6,223,000. The 1999 amount includes Diamond franchise fees of $1,500,000. The
Company has requested the ITC to convert all of its fee bearing exclusive
licenses to non-exclusive licenses by the end of 1999. The Company's liability
for the license payments will end upon the conversion.
Corporate expenses increased to $7,373,000 from $4,018,000 due to an increase in
various overhead costs.
Depreciation and amortization expense increased to $201,888,000 from $61,218,000
due to an increase in depreciation of telecommunications and CATV equipment. The
1999 expense includes $98,727,000 from acquired companies, including
amortization of acquisition related intangibles.
Interest expense increased to $186,670,000 from $84,800,000 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 $60,925,000 from
acquired companies. Interest of $79,937,000 and $55,076,000 was paid in the
three months ended September 30, 1999 and 1998, respectively.
Foreign currency transaction gains (losses) increased to a gain of $46,693,000
from a loss of $9,770,000 due to net foreign currency transaction gains of
$64,146,000 from acquired companies in 1999, offset by unfavorable changes in
exchange rates subsequent to the issuance of new debt denominated in foreign
currencies.
19
<PAGE>
NTL Incorporated and Subsidiaries
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
- ---------------------------------------------
Local telecommunications and television revenues increased to $585,582,000 from
$214,545,000 as a result of acquisitions and from customer growth that increased
the Company's current revenue stream. The 1999 and 1998 revenue includes
$325,474,000 and $14,409,000, 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 $360,180,000
from $166,845,000 as a result of acquisitions, which was $112,243,000 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 $144,931,000 from
$100,825,000 due to revenues of $25,032,000 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 zero 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 $536,215,000 from $243,476,000 as a result of
increases in interconnection costs and programming costs due to customer growth.
The 1999 and 1998 expense includes $208,848,000 and $5,511,000, respectively,
from acquired companies.
Selling, general and administrative expenses increased to $419,182,000 from
$192,070,000 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, approximately $32.1 million 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 $161,265,000 and $12,535,000, respectively, from acquired
companies.
20
<PAGE>
NTL Incorporated and Subsidiaries
Pursuant to the terms of various United Kingdom licenses, the Company incurs
license fees paid to the ITC to operate as the exclusive service provider in
certain of its franchise areas. Franchise fees increased to $22,287,000 from
$18,729,000. The 1999 amount includes Diamond franchise fees of $3,517,000. The
Company has requested the ITC to convert all of its fee bearing exclusive
licenses to non-exclusive licenses by the end of 1999. The Company's liability
for the license payments will end upon the conversion.
Corporate expenses increased to $21,082,000 from $11,797,000 due to an increase
in various overhead costs.
Depreciation and amortization expense increased to $533,627,000 from
$156,785,000 due to an increase in depreciation of telecommunications and CATV
equipment. The 1999 expense includes $277,475,000 from acquired companies,
including amortization of acquisition related intangibles.
Interest expense increased to $485,212,000 from $226,422,000 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 $138,405,000 from
acquired companies. Interest of $172,109,000 and $94,734,000 was paid in the
nine months ended September 30, 1999 and 1998, respectively.
Foreign currency transaction gains (losses) increased to a gain of $35,790,000
from a loss of $6,973,000 due to net foreign currency transaction gains of
$27,923,000 from acquired companies in 1999, and the effect of a favorable
change in the exchange rate on the Company's pound sterling denominated cash
equivalents.
LIQUIDITY AND CAPITAL RESOURCES
The Company will continue to require significant amounts of capital to finance
construction of its local and national networks, for connection of telephone,
telecommunications, Internet and CATV customers to the networks, for other
capital expenditures and for debt service. The Company estimates that these
requirements, net of cash from operations, will aggregate up to approximately
$1.75 billion in the fourth quarter of 1999 and through December 31, 2000. The
Company's commitments at September 30, 1999 for equipment and services through
2000 are included in the anticipated requirements. The Company had approximately
$1.57 billion in cash and securities on hand at September 30, 1999. The Company
will therefore need additional cash in order to fund these requirements, and the
Company is in discussions with various parties relating to sources of additional
financing.
Regarding the Company's estimated cash requirements described above, 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.
21
<PAGE>
NTL Incorporated and Subsidiaries
NTL Bermuda expects to close on the sale of its interest in Cable London in
November 1999. The sales price is approximately 428 million pounds sterling
(approximately $705 million). The sale of the Cable London interest is an "Asset
Sale" for the purposes of the Company's Indentures for certain of its notes. The
Company will need to use an amount equal to the proceeds from the sale to repay
subsidiary debt, invest in "Replacement Assets" or make an offer to redeem
certain of its notes within 360 days after the sale.
In July 1999, NTL Incorporated agreed to acquire the consumer cable telephone,
Internet and television operations of Cable & Wireless Communications, plc
("CWC"). NTL Incorporated will issue 68 million new shares of common stock and
pay 2.85 billion pounds sterling ($4.7 billion) in cash. NTL Incorporated will
also discharge, refinance or assume approximately 1.9 billion pounds sterling
($3.1 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. NTL Incorporated and NTL Communications have
obtained a financing commitment for up to approximately 2.1 billion pounds
sterling ($3.5 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.
In connection with the CWC acquisition, NTL Incorporated announced that France
Telecom agreed to invest an additional $4.5 billion in NTL Incorporated. France
Telecom will invest $2.5 billion in common stock issued at $74 per share and
$2.0 billion in convertible preferred stock with a 5% dividend and a conversion
price of $100 per share. 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 Incorporated and France Telecom prior to such closing.
The Company is highly leveraged. The accreted value at September 30, 1999 of the
Company's consolidated long-term indebtedness, including the Redeemable
Preferred Stock, is approximately $7.6 billion, representing approximately 77%
of total capitalization. The following summarizes the terms of those notes and
Redeemable Preferred Stock issued by the Company and its subsidiaries.
NTL Communications:
(1) 12-3/4% 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% 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;
22
<PAGE>
NTL Incorporated and Subsidiaries
(3) 10% 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
125 million pounds sterling ($205 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 300 million pounds sterling ($494
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 330 million pounds sterling ($543
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;
(10) 7% Convertible Subordinated Notes due December 15, 2008, principal
amount of $599 million, interest payable semi-annually from June 15,
1999, convertible into shares of the Company's common stock at a
conversion price of $49.00 per share, redeemable at the Company's
option on or after December 15, 2001;
(11) Senior Increasing Rate Notes due June 8, 2000, principal amount of
$705 million, interest payable quarterly from July 9, 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 will increase by a further 0.5% every
three months, not to exceed 16%, (the interest rate at September 30,
1999 was 11.25%), mandatory exchange for, at the option of the holder,
either an Extended Note or a Rollover Note, on June 8, 2000, an
Extended Note shall accrue interest at 14% per annum and shall mature
no later than ten years after issuance, a Rollover Note shall accrue
interest at 14% per annum and mature ten years after issuance. NTL
Communications is in discussions with various parties relating to a
private placement offering to refinance the Senior Increasing Rate
Notes;
23
<PAGE>
NTL Incorporated and Subsidiaries
(12) Variable Rate Redeemable Guaranteed Loan Notes due January 5, 2002,
principal amount of 80 million Irish punts ($109 million), interest
payable quarterly from July 9, 1999 at EURIBOR, (the interest rate at
September 30, 1999 was 2.698%), redeemable at any time at the option
of the holder, at par plus accrued and unpaid interest to the date of
redemption, for which 87 million Irish punts ($118.6 million) is in
escrow;
NTL Incorporated:
(13) 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:
(14) 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;
Diamond:
(15) 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;
(16) 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;
(17) 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;
(18) 10% Senior Notes due February 1, 2008, issued by Diamond Holdings plc,
a wholly-owned subsidiary of Diamond, principal amount of 135 million
pounds sterling ($222 million), interest payable semi-annually as of
August 1, 1998;
(19) 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
(20) mortgage of 2.5 million pounds sterling ($4.1 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%.
24
<PAGE>
NTL Incorporated and Subsidiaries
The Company has other significant commitments or potential commitments in
addition to those described above. These are as follows:
(1) The Company has certain exclusive local delivery operator licenses for
Northern Ireland and other franchise areas in the United Kingdom.
Pursuant to these licenses, various subsidiaries are required to make
monthly cash payments to the ITC during the 15 year license terms. The
Company has paid 14.4 million pounds sterling ($22 million) through
September 30, 1999 in connection with these licenses. The Company has
requested the ITC to convert all of its fee bearing exclusive licenses
to non-exclusive licenses by the end of 1999. The Company's liability
for the license payments will end upon the conversion.
(2) In July 1999, the Company acquired certain broadband cable franchises
from British Telecommunications plc ("BT") for an aggregate of up to
19 million pounds sterling ($31.2 million). The Company paid
approximately 5 million pounds sterling ($8.2 million) on closing and
will pay up to 14 million pounds sterling ($23.0 million) on
completion of the upgrade of certain networks. The Company expects to
invest approximately 15 million pounds sterling ($24.7 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 3.9
million pounds sterling ($6.4 million).
(3) In August 1999, the Company purchased four of the five franchise areas
comprising the "1G Networks" of France Telecom. The balance due for
the fifth franchise area of Toulon and LaValette of approximately
137.2 million French Francs ($22.4 million) is payable upon the
closing of that franchise area which is expected to occur in the
fourth quarter of 1999.
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.
25
<PAGE>
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 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 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, because the Senior
Increasing Rate Notes prohibit NTL Communications from making dividend payments
or other distributions to the Company.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash provided by operating activities was $41,801,000 and cash used in operating
activities was $27,656,000 in the nine months ended September 30, 1999 and 1998,
respectively. The change is primarily due to changes in operating assets and
liabilities.
Purchases of fixed assets were $858,094,000 in 1999 and $464,944,000 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 $1,125,494,000 in 1999 is
from the issuance of the 9-3/4% Notes and from the issuance of the Senior
Increasing Rate Notes and the Variable Rate Redeemable Guaranteed Loan Notes
issued in connection with the Cablelink acquisition. Proceeds from issuance of
preferred stock and warrants of $1,250,000 in 1999 is from the sale of 5.25%
Convertible Preferred Stock and warrants to purchase 1.5 million shares of the
Company's common stock to Microsoft Corp. and the sale of 5% Cumulative
Participating Convertible Preferred Stock to France Telecom. Proceeds from the
issuance of common stock of $250,000,000 is from the sale of approximately 3.4
million shares of common stock to France Telecom.
26
<PAGE>
NTL Incorporated and Subsidiaries
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 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 will continue until the end of 1999 as part of change control management
when new processes are introduced. Testing of other business critical and high
priority items is mostly complete, although some testing will continue into the
fourth quarter of 1999. Where appropriate, remedial work has been minimized by
bringing forward planned system revisions and retiring old equipment. The
Company has also communicated with its suppliers with respect to the high
priority and business critical items. A central database has been maintained to
insure all issues have been resolved. This communication is virtually complete,
and all items are now cleared or have a definite planned upgrade path. A
Millennium Operations Plan has been created and the key resources needed for
problems that may arise over the Year 2000 weekend have been scheduled. The
Millennium Operations Plan will be constantly revised throughout the fourth
quarter of 1999 to account for changes in external influences. The Company's
Year 2000 Project and Operations Plan have been independently audited by the
United Kingdom telecoms industry regulator, OFTEL, during 1999 and have been
declared satisfactory.
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 $7.5 million was incurred through September 30,
1999.
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. 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.
27
<PAGE>
NTL Incorporated and Subsidiaries
During the remainder of 1999, the Company may discover additional problems and
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 has tested most of such third-party products, but cannot be sure that
its tests were adequate or that, if problems are identified as testing is
completed, 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 the upgrades and testing that is 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.
28
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risks including changes in foreign currency
exchange rates and interest rates. To the extent that the Company obtains
financing in United States dollars and incurs costs in the construction and
operation of its networks in various other currencies, it will encounter
currency exchange rate risks. At September 30, 1999, the Company had
approximately $786 million in pounds sterling, $2.7 million in Irish punts and
$9.6 million in Australian dollar cash and cash equivalents to reduce this risk.
In addition, the Company's pounds sterling denominated Notes also reduce this
risk. The Company also has approximately $118.7 million in Euro's in escrow as
cash collateral for the Variable Rate Redeemable Guaranteed Loan Notes.
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 1 pound sterling 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 a portion of its
U.S. dollar denominated debt and anticipated amounts of parent company expenses.
In addition, NTL Bermuda has option agreements of 250 million pounds sterling
notional amount to purchase U.S. dollars at a fixed rate of 1 pound sterling 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 other material changes in the reported market risks since the
end of the most recent fiscal year.
29
<PAGE>
NTL Incorporated and Subsidiaries
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
4.1. Amendment No. 2 to the Rights Agreement, dated as of October 23,
1999, by and between NTL Incorporated and Continental Stock
Transfer & Trust Company, as Rights Agent
27. Financial Data Schedule
(b) Reports on Form 8-K.
During the quarter ended September 30, 1999, the Company filed the
following reports on Form 8-K:
(i) Report dated July 7, 1999, reporting under Item 5, Other Events,
that NTL Incorporated had filed a Registration Statement for 8
million shares of its common stock and $400 million of NTL
Communications Corp.'s convertible subordinated notes due 2009.
(ii) Report dated July 16, 1999, reporting under Item 2, Acquisition
or Disposition of Assets, that NTL Incorporated completed the
acquisition of Cablelink Limited, and under Item 5, Other Events,
that France Telecom agreed to make an initial investment of $1.0
billion in NTL Incorporated and that NTL Incorporated confirmed
that it has been in discussions with Cable and Wireless about a
possible merger transaction.
(iii)Report dated July 26, 1999, reporting under Item 5, Other
Events, that NTL Incorporated had acquired certain broadband
cable franchises from British Telecommunications plc and that NTL
Incorporated with the support of France Telecom, agreed to
acquire the consumer cable telephone, Internet and television
operations of CWC ConsumerCo.
(iv) Report dated July 30, 1999, reporting under Item 5, Other Events,
that NTL Incorporated announced the acquisition of the consumer
cable telephone, Internet and television operations of Cable &
Wireless Communications, plc and that the Board of Directors of
Bell Atlantic Corporation approved the related agreement.
(v) Report dated August 16, 1999, reporting under Item 5, Other
Events, that NTL Incorporated consummated an investment by France
Telecom S.A. of $1.0 billion in NTL Incorporated. NTL
Incorporated also announced that France Telecom's Senior
Executive Vice President, Jean-Louis Vinciguerra, joined the
Board of Directors.
30
<PAGE>
NTL Incorporated and Subsidiaries
(vi) Report dated September 17, 1999, reporting under Item 5, Other
Events, that NTL Incorporated agreed to acquire 100% of Workplace
Technologies plc and that NTL Incorporated announced that
Telewest Communications PLC exercised its right to purchase all
of NTL's shares of Cable London PLC and all of NTL's related
rights and interests.
There were no financial statements filed with any of these reports.
31
<PAGE>
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: November 10, 1999 By: /s/ J. Barclay Knapp
-------------------------------------
J. Barclay Knapp
President and Chief Executive Officer
Date: November 10, 1999 By: /s/ Gregg Gorelick
-------------------------------------
Gregg Gorelick
Vice President-Controller
(Principal Accounting Officer)
32
AMENDMENT NO. 2 TO THE RIGHTS AGREEMENT
AMENDMENT NO. 2 TO THE RIGHTS AGREEMENT (this "Amend ment"), dated as of
October 23, 1999, by and between NTL INCORPORATED, a Delaware corporation (the
"Company"), and CONTINENTAL STOCK TRANSFER & TRUST COMPANY, as Rights Agent (the
"Rights Agent"). This Amendment amends the Rights Agreement, as amended (the
"Rights Agreement"), dated October 13, 1993, by and between the Company and the
Rights Agent. Capitalized terms used in this Amendment without definition shall
have the meanings given to them in the Rights Agreement.
Whereas, in accordance with Section 27 of the Rights Agreement, an officer
of the Company has delivered to the Rights Agent an officer's certificate as to
the compliance of this Amendment with Section 27 of the Rights Agreement;
Whereas, the Company has been made aware of discussions between France
Telecom, S.A. ("France Telecom") on the one hand and European Cable Capital
Partners, L.P.; Bridge Street Fund 1996, L.P.; GS Capital Partners L.P. and
Stone Street Fund 1996, L.P. (collectively, the "Partnerships"), which hold
shares of Company Common Stock acquired earlier this year (collectively, the
"Partnership Shares"), on the other, concerning the sale by the Partnerships of
3,300,000 shares of the Partnership Shares (the "Partnership Sale Shares") to
France Telecom and pursuant to the provisions of Section 2.7 of the registration
rights agreement, dated March 8, 1999, by and between the Company and, among
other parties, the Partnerships (the "Partnerships Registration Rights
Agreement"), France Telecom has agreed to purchase up to an additional
approximately 1,400,000 shares of Common Stock from shareholders with
"tag-along" (collectively, the "Tag Along Shares" and together with the
Partnership Sale Shares, collectively, the "Sale Shares");
Whereas, France Telecom's wholly owned subsidiary, Compagnie Generale des
Communications (Cogecom) S.A. ("COGECOM") holds 3,378,379 shares of Common Stock
and 750,000 shares of 5% Cumulative Participating Convertible Preferred Stock,
Series A (the "Series A Preferred Stock"), of the Company, which is convertible
into an aggregate of 7,500,000 shares of Common Stock; and
Whereas, the Board of Directors of the Company has determined that it is in
the best interests of the Company and its stockholders, to amend, to the extent
necessary, the Rights Agreement to exempt the purchase of the Sale Shares by
France Telecom from the application of the Rights Agreement.
1
<PAGE>
In consideration of the premises and the mutual agreements set forth herein
and in the Rights Agreement, the parties hereto, intending to be legally bound
hereby, agree as follows:
Section 1. INCORPORATION OF "COGECOM," "FRANCE TELECOM," "PARTNERSHIP SALE
SHARES," "PARTNERSHIP SHARES," "PARTNERSHIPS," "PARTNERSHIPS REGISTRATION RIGHTS
AGREEMENT," "SALE SHARES," "SERIES A PREFERRED STOCK" AND "TAG ALONG SHARES" AS
DEFINED TERMS OF RIGHTS AGREEMENT. The terms "COGECOM," "France Telecom,"
"Partnership Sale Shares," "Partnership Shares," "Partnerships," "Partnerships
Registration Rights Agreement," "Sale Shares," "Series A Preferred Stock" and
"Tag Along Shares" and the respective definitions of such terms as set forth in
the preamble of this Amendment are hereby incorporated in the Rights Agreement
under the heading "Certain Definitions" in Section 1 thereof.
Section 2. AMENDMENT TO DEFINITION OF "ACQUIRING PERSON." Section 1(a) of
the Rights Agreement is hereby amended to add the following sentence after the
last sentence thereof, which sentence was added pursuant to Amendment No. 1 to
the Rights Agreement, dated as of March 31, 1999:
"Notwithstanding anything in this Agreement to the contrary, France
Telecom and/or any of France Telecom's Affiliates or Associates shall not
be considered an Acquiring Person as a result of having become the
Beneficial Owner of (i) the Common Stock issued and sold pursuant to the
Purchase Agreement, (ii) the Common Stock issued upon conversion or
redemption of, or as a dividend with respect to, the Series A Preferred
Stock and any subsequent series of preferred stock of the Company resulting
from the issuance of the Series A Preferred Stock or (iii) the Sale Shares.
Notwithstanding the foregoing, in the event France Telecom and/or any of
France Telecom's Affiliates or Associates shall acquire any Common Stock or
securities convertible, exercisable, exchangeable or redeemable into Common
Stock or be issued Common Stock upon the conversion, exercise, exchange or
redemption of, or as a dividend with respect to securities of the Company
after the date hereof and other than as described in the immediately
preceding sentence, then (i) France Telecom and/or any of France Telecom's
Affiliates or Associates shall be deemed to beneficially own all such
securities as well as any securities previously or thereafter acquired and
then owned by France Telecom and/or any of France Telecom's Affiliates or
Associates and (ii) all securities deemed to be beneficially owned by
France Telecom and/or any of France Telecom's Affiliates or Associates
shall be counted in determining when such Person is an "Acquiring Person."
2
<PAGE>
Section 3. RIGHTS AGREEMENT AS AMENDED. The term "Agreement" as used in the
Rights Agreement shall be deemed to refer to the Rights Agreement as amended
hereby. The foregoing amendments shall be effective as of the date hereof, and,
except as set forth herein, the Rights Agreement shall remain in full force and
effect and shall be otherwise unaffected hereby.
Section 4. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, and each of such counterparts shall for all purposes be deemed an
original, but all such counterparts shall together constitute but one and the
same instrument.
Section 5. GOVERNING LAW. This Amendment shall be deemed to be a contract
made under the laws of the State of Delaware and for all purposes shall be
governed by and construed in accordance with the laws of such State applicable
to contracts made and to be performed entirely within such State.
Section 6. DESCRIPTIVE HEADINGS. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
Attest: NTL INCORPORATED
By: /s/ Richard J. Lubasch By: /s/ George S. Blumenthal
--------------------------- ------------------------------
Name: Richard J. Lubasch Name: George S. Blumenthal
Title: Executive Vice President- Title: Chairman and Treasurer
General Counsel and
Secretary
Attest: CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
By: /s/ William F. Seegraber By: /s/ Michael J. Nelson
--------------------------- ------------------------------
Name: William F. Seegraber Name: Michael J. Nelson
Title: Vice President Title: President
3
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,265,613,000
<SECURITIES> 302,197,000
<RECEIVABLES> 394,962,000
<ALLOWANCES> (72,486,000)
<INVENTORY> 0
<CURRENT-ASSETS> 78,790,000
<PP&E> 6,239,098,000
<DEPRECIATION> (754,915,000)
<TOTAL-ASSETS> 11,027,317,000
<CURRENT-LIABILITIES> 1,029,751,000
<BONDS> 7,482,814,000
137,175,000
15,000
<COMMON> 1,054,000
<OTHER-SE> 2,286,934,000
<TOTAL-LIABILITY-AND-EQUITY> 11,027,317,000
<SALES> 0
<TOTAL-REVENUES> 1,090,693,000
<CGS> 0
<TOTAL-COSTS> 536,215,000
<OTHER-EXPENSES> 440,264,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 485,212,000
<INCOME-PRETAX> (856,972,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (856,972,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (856,972,000)
<EPS-BASIC> (9.83)
<EPS-DILUTED> (9.83)
</TABLE>
