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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-22616
------------------------------------------------------------
NTL INCORPORATED
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1822078
- ------------------------------- ------------------------------------
(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 June 30,
1998 was 41,291,410.
<PAGE>
NTL Incorporated and Subsidiaries
Index
PART I. FINANCIAL INFORMATION Page
- ------------------------------ ----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997 .............................. 2
Condensed Consolidated Statements of Operations -
Three and six months ended June 30, 1998 and 1997 ................ 3
Condensed Consolidated Statement of Shareholders'
(Deficiency) - Six months ended June 30, 1998 .................... 4
Condensed Consolidated Statements of Cash Flows -
Six months ended June 30, 1998 and 1997 .......................... 5
Notes to Condensed Consolidated Financial Statements ............. 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition ............................... 14
PART II. OTHER INFORMATION
- --------------------------
Item 4. Submission of Matters to a Vote of Security Holders .............. 25
Item 6. Exhibits and Reports on Form 8-K ................................. 25
SIGNATURES................................................................. 26
- ----------
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NTL Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------------------------------
(unaudited) (see note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 804,285,000 $ 98,902,000
Marketable securities 116,475,000 4,998,000
Accounts receivable - trade, less allowance for doubtful
accounts of $13,161,000 (1998) and $8,056,000 (1997) 101,117,000 66,022,000
Cash held in escrow 218,587,000 -
Other 30,901,000 67,232,000
------------------------------------
Total current assets 1,271,365,000 237,154,000
Fixed assets, net 2,279,636,000 1,756,985,000
Intangible assets, net 518,117,000 364,479,000
Other assets, net of accumulated amortization
of $30,315,000 (1998) and $25,889,000 (1997) 94,710,000 63,021,000
------------------------------------
Total assets $ 4,163,828,000 $ 2,421,639,000
====================================
LIABILITIES AND SHAREHOLDERS' (DEFICIENCY)
Current liabilities:
Accounts payable $ 107,833,000 $ 45,475,000
Accrued expenses and other 142,997,000 162,730,000
Interest payable 21,520,000 18,875,000
Accrued construction costs 31,634,000 26,930,000
Deferred revenue 54,742,000 35,060,000
Bank loan payable 458,343,000 -
Current portion of long-term debt 205,583,000 -
------------------------------------
Total current liabilities 1,022,652,000 289,070,000
Long-term debt 3,020,012,000 2,015,057,000
Other 902,000 428,000
Commitments and contingent liabilities
Deferred income taxes 70,695,000 70,218,000
Senior redeemable exchangeable preferred stock - $.01 par
value, plus accreted dividends; liquidation preference
$117,000,000; less unamortized discount of $3,289,000
(1998) and $3,444,000 (1997); issued and outstanding
117,000 (1998) and 110,000 (1997) shares 116,086,000 108,534,000
Shareholders' (deficiency):
Series preferred stock - $.01 par value; authorized
2,500,000 shares; issued and outstanding none (1998) and
780 shares (1997) - -
Common stock - $.01 par value; authorized 100,000,000
shares; issued and outstanding 41,291,000 (1998) and
32,210,000 (1997) shares 413,000 322,000
Additional paid-in capital 720,975,000 538,054,000
Accumulated other comprehensive income 127,119,000 117,008,000
(Deficit) (915,026,000) (717,052,000)
------------------------------------
(66,519,000) (61,668,000)
------------------------------------
Total liabilities and shareholders' (deficiency) $ 4,163,828,000 $ 2,421,639,000
====================================
</TABLE>
Note: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date.
See accompanying notes.
2
<PAGE>
NTL Incorporated and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------------------------- ----------------------------------
1998 1997 1998 1997
--------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
REVENUES
Local telecommunications and television $ 68,595,000 $ 37,107,000 $ 130,179,000 $ 68,987,000
National and international telecommunications 51,648,000 43,197,000 102,660,000 83,782,000
Broadcast transmission and other 33,474,000 32,174,000 66,892,000 64,287,000
Other telecommunications 597,000 2,344,000 2,375,000 4,583,000
--------------------------------- ----------------------------------
154,314,000 114,822,000 302,106,000 221,639,000
COSTS AND EXPENSES
Operating expenses 78,021,000 70,495,000 155,354,000 141,251,000
Selling, general and administrative expenses 56,799,000 43,893,000 113,527,000 82,210,000
Franchise fees 6,311,000 5,888,000 12,506,000 11,760,000
Corporate expenses 4,137,000 4,944,000 7,779,000 9,042,000
Write-off of deferred costs - 4,555,000 - 4,555,000
Depreciation and amortization 49,711,000 36,819,000 95,567,000 69,824,000
--------------------------------- ----------------------------------
194,979,000 166,594,000 384,733,000 318,642,000
--------------------------------- ----------------------------------
Operating (loss) (40,665,000) (51,772,000) (82,627,000) (97,003,000)
OTHER INCOME (EXPENSE)
Interest and other income 18,335,000 10,812,000 23,478,000 18,213,000
Interest expense (83,564,000) (51,508,000) (141,622,000) (99,117,000)
Foreign currency transaction gains (losses) 1,592,000 125,000 2,797,000 (197,000)
--------------------------------- ----------------------------------
(Loss) before income taxes (104,302,000) (92,343,000) (197,974,000) (178,104,000)
Income tax benefit - 4,669,000 - 4,669,000
--------------------------------- ----------------------------------
Net (loss) $ (104,302,000) $ (87,674,000) $ (197,974,000) $ (173,435,000)
================================= ==================================
Basic and diluted net (loss) per common share $ (2.80) $ (2.84) $ (5.79) $ (5.56)
================================= ==================================
</TABLE>
See accompanying notes.
3
<PAGE>
NTL Incorporated and Subsidiaries
Condensed Consolidated Statement of Shareholders' (Deficiency)
(Unaudited)
<TABLE>
<CAPTION>
ACCUMULATED
SERIES COMMON STOCK - ADDITIONAL OTHER
PREFERRED STOCK $.01 PAR VALUE PAID-IN COMPREHENSIVE COMPREHENSIVE
SHARES PAR SHARES PAR CAPITAL INCOME INCOME (DEFICIT)
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 780 $ - 32,210,000 $322,000 $538,054,000 $117,008,000 $(717,052,000)
Exercise of stock options 162,000 1,000 3,370,000
Exercise of warrants 11,000 181,000
Accreted dividends on
senior redeemable
exchangeable preferred
stock (7,397,000)
Accretion of discount on
senior redeemable
exchangeable preferred
stock (155,000)
Conversion of 7-1/4%
Convertible
Subordinated Notes 6,958,000 70,000 186,942,000
Conversion of Series
Preferred Stock (780) 1,950,000 20,000 (20,000)
Comprehensive income
Net loss for the six
months ended
June 30, 1998 $(197,974,000) (197,974,000)
Currency translation
adjustment 10,111,000 10,111,000
-------------
Total $(187,863,000)
-----------------------------------------------------------------------------------------------------
Balance, June 30, 1998 - $ - 41,291,000 $413,000 $720,975,000 $127,119,000 $(915,026,000)
=====================================================================================================
</TABLE>
See accompanying notes.
4
<PAGE>
NTL Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
------------------------------------
1998 1997
------------------------------------
<S> <C> <C>
Net cash provided by (used in) operating activities $ 7,716,000 $ (34,968,000)
INVESTING ACTIVITIES
Acquisition of subsidiary, net of cash acquired (443,844,000) -
Purchase of fixed assets (257,157,000) (239,760,000)
Payment of deferred purchase price - (57,166,000)
Increase in other assets (3,620,000) (3,261,000)
Proceeds from sale of assets 1,312,000 -
Purchase of marketable securities (253,345,000) (130,313,000)
Proceeds from sales of marketable securities 143,840,000 43,512,000
------------------------------------
Net cash (used in) investing activities (812,814,000) (386,988,000)
FINANCING ACTIVITIES
Proceeds from borrowings and sale of preferred stock,
net of financing costs 1,784,890,000 497,542,000
Principal payments (65,992,000) -
Cash placed in escrow (218,587,000) -
Proceeds from exercise of stock options and warrants 3,552,000 556,000
------------------------------------
Net cash provided by financing activities 1,503,863,000 498,098,000
Effect of exchange rate changes on cash 6,618,000 (8,961,000)
------------------------------------
Increase in cash and cash equivalents 705,383,000 67,181,000
Cash and cash equivalents at beginning of period 98,902,000 445,884,000
------------------------------------
Cash and cash equivalents at end of period $ 804,285,000 $ 513,065,000
====================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest exclusive of
amounts capitalized $ 36,765,000 $ 24,162,000
Income taxes paid 136,000 -
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Accretion of dividends and discount on senior redeemable
exchangeable preferred stock $ 7,552,000 $ 5,039,000
Conversion of Convertible Notes, net of unamortized
deferred financing costs of $4,738,000 187,012,000 -
</TABLE>
See accompanying notes.
5
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six months ended June 30,
1998 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1998. 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, 1997.
In March 1998, the Company issued debt denominated in British pounds sterling.
Interest expense has been translated using the average exchange rate for the
period and the debt balance has been translated using the current exchange rate
at the balance sheet date. Foreign currency gains and losses arising from
exchange rate fluctuations are included in the results of operations.
The Company has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income." Comprehensive loss for the three months ended
June 30, 1998 and 1997 was $(112,516,000) and $(61,295,000), respectively.
Comprehensive loss for the six months ended June 30, 1998 and 1997 was
$(187,863,000) and $(210,193,000), respectively.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
required to be adopted in years beginning after June 15, 1999. Management does
not anticipate that the adoption of the new Statement will have a significant
effect on earnings or the financial position of the Company.
Certain prior year amounts have been reclassified to conform to the 1998
presentation.
NOTE B - COMTEL ACQUISITION AND BANK LOAN PAYABLE
In June 1998, the Company entered into an acquisition agreement (the "ComTel
Agreement") with Vision Networks III B.V., a wholly owned subsidiary of Royal
PTT Nederland NV (KPN), for the acquisition of the operations of ComTel Limited
and Telecential Communications (collectively, "ComTel"). Under the ComTel
Agreement, the Company will acquire ComTel for a total of 550 million pounds
sterling in two stages. In the first stage, the Company acquired certain of the
ComTel properties for 275 million pounds sterling in cash. In the second stage,
upon the completion of certain corporate reorganizations within ComTel, the
Company will acquire the remaining ComTel properties for 200 million pounds
sterling in cash and 75 million pounds sterling in a new NTL PIK Preferred Stock
(the "PIK Preferred Stock"). The PIK Preferred Stock will have a pay-in-kind
coupon of 9.9%, will mature in 2008, and is redeemable within 15 months for
common stock valued at market, new NTL convertible preferred securities, or
cash. The Company financed the cash portion of the first stage of the
transaction through a bank loan, completed through an amendment to the Company's
existing bank facility with the Chase Manhattan Bank.
6
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
NOTE B - COMTEL ACQUISITION AND BANK LOAN PAYABLE (CONTINUED)
The bank loan payable of 275 million pounds sterling ($458.3 million) incurs
interest payable either monthly, quarterly or semiannually at LIBOR plus 3% per
annum increasing by .25% per annum each month beginning in September 1998 to a
maximum of 4% per annum. The Company may borrow an additional 200 million pounds
sterling on or before January 31, 1999, subject to extension to March 31, 1999,
for the cash portion of the second stage of the ComTel acquisition. The fee to
the bank for this commitment is 3% per annum payable quarterly in arrears. The
bank loan is required to be repaid on January 31, 1999, subject to extension to
June 30, 1999.
The ComTel acquisition has been accounted for as a purchase, and, accordingly,
the net assets and results of operations of the acquired businesses have been
included in the consolidated financial statements from the date of acquisition.
The assets acquired and liabilities assumed have been recorded at their
estimated fair values, which are subject to further adjustment based upon
appraisals and other analyses. The purchase price of 275 million pounds sterling
plus costs incurred of 1.4 million pounds sterling (an aggregate of 276.4
million pounds sterling ($460.6 million)) exceeded the estimated fair value of
the net tangible assets acquired by 100.5 million pounds sterling ($167.5
million), which is classified as license acquisition costs.
The pro forma unaudited consolidated results of operations for the six months
ended June 30, 1998 and 1997 assuming consummation of the completed portion of
the ComTel acquisition as of the beginning of the periods are as follows:
SIX MONTHS ENDED
JUNE 30
-------------------------------
1998 1997
-------------------------------
Total revenue $ 321,202,000 $ 235,859,000
Net (loss) (223,395,000) (194,371,000)
Basic and diluted net (loss)
per common share (6.51) (6.21)
NOTE C - PENDING ACQUISITIONS
In February 1998, the Company entered into an agreement and plan of amalgamation
(the "Partners Agreement") with Comcast UK Cable Partners Limited ("Partners").
Under the Partners Agreement, Partners' shareholders will receive 0.3745 shares
of the Company's Common Stock for each share of Partners Common Stock. Based on
the closing price of the Company's Common Stock on the date of the Partners
Agreement, the transaction is valued at approximately $600 million. The Partners
Agreement contains provisions such that if the purchase price per Partners share
falls below $10.00, Partners has the right to terminate the transaction, subject
to the Company's right to adjust the exchange ratio such that Partners'
shareholders would receive $10.00 for each Partners share. Under certain
circumstances, the consideration payable to Partners' shareholders may be
adjusted based on the proceeds of the potential exercise by a third party of
certain purchase rights with respect to Partners' interests in the London and
Birmingham franchises. Completion of the transaction is subject to a number of
7
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
NOTE C - PENDING ACQUISITIONS (CONTINUED)
closing conditions including regulatory approvals, shareholder approvals and
consents from the holders of the Company's and Partners' debt.
In June 1998, the Company entered into an acquisition agreement (the "Diamond
Agreement") with Diamond Cable Communications, plc ("Diamond"). Under the
Diamond Agreement, Diamond shareholders will receive 0.25 shares of NTL Common
Stock for each Diamond Ordinary Share. Diamond has approximately 60.7 million
fully diluted shares outstanding, and the total consideration for the
transaction will be approximately 15.2 million NTL shares. Based on the closing
price of the Company's Common Stock on the date of the Diamond Agreement, the
purchase price implies a total Diamond equity value of approximately $630
million. The Diamond Agreement contains provisions such that if the Company's
stock price exceeds $52 per share for a measuring period prior to closing (the
"Cap"), the number of the Company's shares issued to Diamond will be decreased
such that the consideration for four Diamond shares will not exceed $52. In the
event that the transaction is not closed within four months, the Cap will be
increased by $0.50, and an additional $0.50 per month thereafter until closing.
The Diamond Agreement also contains provisions such that if the Company's stock
price falls below $36 per share for a measuring period prior to closing, Diamond
has the right to terminate the transaction, subject to the Company's right to
adjust the exchange ratio such that the consideration will be $36 for four
Diamond shares. As of March 31, 1998, Diamond had total debt of approximately
$1.3 billion, which is expected to remain outstanding, and cash of approximately
$414 million. The closing of the Diamond Agreement is subject to shareholder
approval, bond consents and customary closing conditions.
NOTE D - FIXED ASSETS
Fixed assets consist of:
JUNE 30, DECEMBER 31,
1998 1997
---------------------------------------
(unaudited)
Operating equipment $ 2,001,302,000 $ 1,612,440,000
Other equipment 276,570,000 225,514,000
Construction-in-progress 294,217,000 134,795,000
---------------------------------------
2,572,089,000 1,972,749,000
Accumulated depreciation (292,453,000) (215,764,000)
---------------------------------------
$ 2,279,636,000 $ 1,756,985,000
=======================================
8
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
NOTE E - INTANGIBLE ASSETS
Intangible assets consists of:
JUNE 30, DECEMBER 31,
1998 1997
------------------------------
(unaudited)
License acquisition costs, net of
accumulated amortization of $53,949,000
(1998) and $46,620,000 (1997) $ 283,376,000 $ 123,116,000
Goodwill, net of accumulated amortization of
$22,368,000 (1998) and $13,449,000 (1997) 234,741,000 241,363,000
------------------------------
$ 518,117,000 $ 364,479,000
==============================
NOTE F - LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------------------------------
(unaudited)
<S> <C> <C>
10-7/8% Senior Deferred Coupon Notes $ 205,583,000 $ 194,959,000
12-3/4% Series A Senior Deferred Coupon Notes 222,736,000 209,387,000
11-1/2% Series B Senior Deferred Coupon Notes 786,739,000 743,961,000
10% Series B Senior Notes 400,000,000 400,000,000
9-1/2% Senior Sterling Notes, less unamortized
discount of $671,000 207,666,000 -
10-3/4% Senior Deferred Coupon Sterling Notes 302,441,000 -
9-3/4% Senior Deferred Coupon Notes 825,430,000 -
7-1/4% Convertible Subordinated Notes - 191,750,000
7% Convertible Subordinated Notes 275,000,000 275,000,000
------------------------------------
3,225,595,000 2,015,057,000
Less current portion 205,583,000 -
------------------------------------
$ 3,020,012,000 $ 2,015,057,000
====================================
</TABLE>
In June 1998, the Company announced that it had provided to the Trustee of its
10-7/8% Senior Deferred Coupon Notes due 2003 a notice that it will redeem the
10-7/8% Notes on October 15, 1998. Pending such redemption, the Company has
deposited in trust with the Trustee an amount equal to approximately $218.6
million to pay the redemption price (including principal) on the 10-7/8% Notes.
In July 1998, the Company redeemed a portion of the 10-7/8% Notes with an
accreted value of $62.2 million for cash of $65 million. The Company recorded an
extraordinary loss from the early extinguishment of this portion of the 10-7/8%
Notes of approximately $4.3 million in the third quarter of 1998.
In March 1998, the Company called for redemption all of its $191,750,000
principal amount 7-1/4% Convertible Subordinated Notes due 2005. The redemption
date was April 20, 1998, at a redemption price of 105.08% of the principal
amount plus accrued and unpaid interest through
9
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
NOTE F - LONG-TERM DEBT (CONTINUED)
the date of redemption. The 7-1/4% Notes were convertible into Common Stock at a
conversion price of $27.56 per share. In April 1998, all of the 7-1/4% Notes
were converted into approximately 6,958,000 shares of the Company's Common
Stock.
In March 1998, the Company issued 125 million pounds sterling aggregate
principal amount of 9-1/2% Senior Notes due 2008 (the "Sterling Senior Notes"),
300 million pounds sterling aggregate principal amount of 10-3/4% Senior
Deferred Coupon Notes due 2008 (the "Sterling Deferred Coupon Notes") and $1.3
billion aggregate principal amount of 9-3/4% Senior Deferred Coupon Notes due
2008 (the "Dollar Deferred Coupon Notes") (together the "New Notes"). The
Sterling Senior Notes, Sterling Deferred Coupon Notes and the Dollar Deferred
Coupon Notes were issued at a price to the public of 99.67% or 124.6 million
pounds sterling, 58.62% or 175.9 million pounds sterling and 61.724% or $802.4
million, respectively. The Company received net proceeds of 121.2 million pounds
sterling, 170.6 million pounds sterling and $778.3 million, after discounts and
commissions, from the issuance of the Sterling Senior Notes, the Sterling
Deferred Coupon Notes and the Dollar Deferred Coupon Notes, respectively. The
aggregate of the discounts, commissions and other fees incurred of $39.5 million
is included in deferred financing costs.
The original issue discount of the Sterling Deferred Coupon Notes accretes at a
rate of 10-3/4%, compounded semiannually, to an aggregate principal amount of
300 million pounds sterling by April 1, 2003. The original issue discount of the
Dollar Deferred Coupon Notes accretes at a rate of 9-3/4%, compounded
semiannually, to an aggregate principal amount of $1.3 billion by April 1, 2003.
Interest on each of the Sterling Deferred Coupon Notes and the Dollar Deferred
Coupon Notes will thereafter accrue at 10-3/4% per annum and 9-3/4% per annum,
respectively, payable semiannually, beginning on October 1, 2003. The Sterling
Senior Notes accrue interest at 9-1/2% per annum, payable semiannually,
beginning on October 1, 1998.
The New Notes are effectively subordinated to all existing and future
indebtedness and other liabilities and commitments of the Company's
subsidiaries, rank pari passu in right of payment with each other and with all
senior unsecured indebtedness of the Company and rank senior in right of payment
to all subordinated indebtedness of the Company.
The New Notes may be redeemed at the Company's option, in whole or in part, at
any time on or after April 1, 2003, at a redemption price of 104-3/4% to
105-3/8% that declines annually to 100% in 2006, in each case together with
accrued and unpaid interest to the date of redemption.
The indentures governing the New Notes contain restrictions relating to, among
other things: (i) incurrence of additional indebtedness and the issuance of
preferred stock, (ii) dividend and other payment restrictions and (iii) mergers,
consolidations and sales of assets.
NOTE G - CONVERSION OF SERIES PREFERRED STOCK
In May 1998, the 780 outstanding shares of 5% Non-Voting Convertible Preferred
Stock, Series A were converted into 1,950,000 shares of Common Stock.
10
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
NOTE H - GRANT OF STOCK OPTIONS
In March 1998, options to purchase approximately 7,800,000 shares of Common
Stock were granted to officers, non-employee directors and employees at an
exercise price of $36.50 per share. Officers and senior management employees
were granted options to purchase 3,260,000 shares and 2,765,000 shares,
respectively. These employees will not be granted any further options in 1998 to
2001 inclusive. These options will vest beginning January 1, 1999 through
January 1, 2004. The non-employee directors were granted options to purchase an
aggregate of 450,000 shares which vest on the same schedule. Supervisory
employees were granted options to purchase an aggregate of approximately
1,000,000 shares which are exercisable as to 20% of the shares subject thereto
on the date of grant and an additional 20% each January 1 thereafter, while the
optionee remains an employee of the Company. Finally, each employee who is not
included in the groups described above and who has at least one year of service
as of March 1, 1998 was granted an option to purchase 100 shares which are
exercisable on a 20% per year schedule.
Beginning in March 1998 and in each year thereafter, each employee who is not
otherwise granted options and has completed at least one year of employment will
be granted an option to purchase 100 shares of the Company's Common Stock each
year. The exercise price for these options will be equal to the closing price of
the Company's Common Stock on the date of issuance, and these options will vest
on a 20% per year schedule. It is anticipated that approximately 1,850,000
options will be granted each year in 1999, 2000 and 2001 to supervisory and
other employees.
NOTE I - RESTRUCTURING CHARGES
In September 1997, the Company announced a reorganization of certain of its
operations. Restructuring costs of $15,629,000 were recorded in September 1997
consisting of employee severance and related costs of $6,726,000 for
approximately 280 employees to be terminated, lease exit costs of $6,539,000 and
penalties of $2,364,000 associated with the cancellation of contractual
obligations. As of June 30, 1998, $7,620,000 of the provision has been used.
11
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
NOTE J - 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
-----------------------------------------------------------------------------
1998 1997 1998 1997
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net loss $ (104,302,000) $ (87,674,000) $ (197,974,000) $ (173,435,000)
Preferred stock dividend (3,759,000) (3,342,000) (7,397,000) (5,039,000)
-----------------------------------------------------------------------------
Loss available to common shareholders $ (108,061,000) $ (91,016,000) $ (205,371,000) $ (178,474,000)
-----------------------------------------------------------------------------
Denominator for basic net loss per common share 38,611,000 32,097,000 35,448,000 32,091,000
Effect of dilutive securities - - - -
-----------------------------------------------------------------------------
Denominator for diluted net loss per common share 38,611,000 32,097,000 35,448,000 32,091,000
-----------------------------------------------------------------------------
Basic and diluted net loss per common share $ (2.80) $ (2.84) $ (5.79) $ (5.56)
=============================================================================
</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 K - COMMITMENTS AND CONTINGENT LIABILITIES
As of June 30, 1998, the Company was committed to pay approximately $110,800,000
for equipment and services.
The Company has licenses issued by the United Kingdom Department of Trade and
Industry ("DTI") and the United Kingdom Independent Television Commission
("ITC") for its cable television ("CATV"), telephone and telecommunications
business. The initial terms of the Company's licenses was 15 or 23 years for the
DTI licenses and 15 years for the ITC licenses. The Company's licenses expire in
2005 to 2016 for the DTI licenses and 1999 to 2005 for the ITC licenses. The DTI
requires a fixed annual renewal fee of 2,500 pounds sterling ($4,200) per
license. The ITC requires an annual license fee ranging from 1,300 pounds
sterling ($2,200) to 7,900 pounds sterling ($13,000) per license based on the
number of homes in the licensed area, which is subject to adjustment annually.
The provision of the Company's transmission and distribution services is
governed by the Telecommunications Act and the Wireless Telegraphy Act 1949. The
Company holds five licenses under the Telecommunications Act. The initial terms
of these licenses were 10 or 25 years. These licenses expire in 2002 to 2021.
The Company holds a number of Wireless Telegraphy Act licenses which continue in
force primarily from year to year unless revoked or unless any of the license
fees are not paid. The Company's license fees paid in the six months ended June
30, 1998 were $742,000.
12
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
NOTE K - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
In addition, the Company was awarded certain newly issued licenses by the ITC in
1995. Pursuant to the terms of the local delivery license ("LDL") for Northern
Ireland granted to a wholly-owned subsidiary of the Company, the Company is
required to make annual cash payments to the ITC for fifteen years commencing in
January 1997 in the amount of approximately 14,400,000 pounds sterling
($24,000,000) (subject to adjustments for inflation). The fee for 1998 is
14,951,661 pounds sterling. Such payments are in addition to the percentages of
qualifying revenue already set by the ITC of 0% for the first ten years and 2%
for the last five years of the fifteen year license. The Company paid
$12,420,000 in the six months ended June 30, 1998.
Pursuant to the terms of the LDL for Glamorgan and Gwent, Wales granted to a
wholly-owned subsidiary of the Company, the Company is required to make annual
cash payments to the ITC for fifteen years, commencing in January 1998, in the
amount of 104,188 pounds sterling ($174,000). Such payments are in addition to
the percentages of qualifying revenue already set by the ITC of 0% for the first
five years, 2% for the second five years and 4% for the last five years of the
fifteen year license. The Company paid $86,000 in the six months ended June 30,
1998.
The Company is involved in, or has been involved in, certain disputes and
litigation arising in the ordinary course of its business, including claims
involving contractual disputes and claims for damages to property and personal
injury resulting from construction of the Company's networks and the maintenance
and servicing of the Company's transmission masts. None of these matters are
expected to have a material adverse effect on the Company's financial position,
results of operations or cash flows.
13
<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. The following table does not include any data from the Company's
recently announced acquisitions.
<TABLE>
<CAPTION>
=======================================================================================================
| NEWLY CONSTRUCTED DUAL NETWORK |
|=====================================================================================================|
| JUNE 30, DECEMBER 31, JUNE 30, |
| 1998 1997 1997 |
|-----------------------------------------------------------------------------------------------------|
<S> <C> <C> <C>
| Homes passed (1) 1,134,300 1,007,000 907,000 |
|-----------------------------------------------------------------------------------------------------|
| Homes marketed 957,900 810,000 669,700 |
|-----------------------------------------------------------------------------------------------------|
| Homes marketed (as % of homes passed) 84% 80% 74% |
|-----------------------------------------------------------------------------------------------------|
| Total customers 389,200 321,300 242,700 |
|-----------------------------------------------------------------------------------------------------|
| Dual 354,200 287,200 209,000 |
|-----------------------------------------------------------------------------------------------------|
| Telephone-only 14,900 15,300 14,900 |
|-----------------------------------------------------------------------------------------------------|
| CATV-only 20,100 18,800 18,800 |
|-----------------------------------------------------------------------------------------------------|
| Total RGUs (2) 743,400 608,500 451,700 |
|-----------------------------------------------------------------------------------------------------|
| Customer penetration 41% 40% 36% |
|-----------------------------------------------------------------------------------------------------|
| RGU penetration (3) 78% 75% 67% |
|-----------------------------------------------------------------------------------------------------|
| Telephone penetration 39% 37% 33% |
|-----------------------------------------------------------------------------------------------------|
| CATV penetration 39% 38% 34% |
=======================================================================================================
</TABLE>
(1) "Homes passed" is the expression in common usage in the cable industry as
the measurement of the size of a cabled area, meaning the total number of
residential premises which have the potential to be connected to the
Company's network. This number does not include CATV-only homes which are
only included in the Company's homes passed for the purpose of its
regulatory milestones.
(2) An RGU (revenue generating unit) is one CATV account or one telephone
account; a dual customer generates two RGUs.
(3) RGU penetration is the number of RGUs per 100 homes marketed. As defined,
maximum RGU penetration is 200%.
14
<PAGE>
NTL Incorporated and Subsidiaries
RESULTS OF OPERATIONS
As a result of the completion of the first stage of the acquisition of ComTel in
June 1998, the Company consolidated the results of operations of certain
acquired businesses from the date of acquisition. The results of operations of
the acquired businesses subsequent to the date of acquisition did not
significantly impact the consolidated results. The results of the acquired
businesses are not included in the 1997 results.
Three Months Ended June 30, 1998 and 1997
- -----------------------------------------
Local telecommunications and television revenues increased to $68,595,000 from
$37,107,000 as a result of customer growth that increased the Company's current
revenue stream. The Company expects customer growth to continue to increase
which will drive further revenue growth as the Company completes the
construction of its dual service network past the remaining homes in its
franchise areas.
National and international telecommunications revenues increased to $51,648,000
from $43,197,000 as a result of increases in business telecommunications
revenues, Internet services revenues and carrier services revenues. Business
telecommunications and Internet services revenues increased primarily as a
result of customer growth. The Company expects business telecommunications and
Internet services customer growth to continue to increase which will drive
further revenue growth. The Company is expanding its selling and marketing
effort to business customers and for Internet services in its completed network
and the Company has not yet completed the construction of its dual service
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 $33,474,000 from
$32,174,000 primarily due to increases in broadcast television and FM radio
customers and accounts, which exceeded price cap reductions in the Company's
regulated services.
Other revenues decreased primarily due to the sale of the assets of the
Company's wholly-owned subsidiary, OCOM Corporation, to AirTouch Communications,
Inc. and to CoreComm Incorporated during 1998.
Operating expenses increased to $78,021,000 from $70,495,000 primarily as a
result of increases in interconnection costs and programming costs due to
customer growth.
Selling, general and administrative expenses increased to $56,799,000 from
$43,893,000 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.
15
<PAGE>
NTL Incorporated and Subsidiaries
Franchise fees increased to $6,311,000 from $5,888,000 primarily as a result of
the inflation adjustment to the Northern Ireland license payment.
Corporate expenses decreased to $4,137,000 from $4,944,000 primarily due to
certain OCOM personnel no longer being classified as corporate. The 1998 and
1997 amounts include $463,000 of non-cash expense related to non-compete
agreements.
Write-off of deferred costs of $4,555,000 in 1997 relate to the Company's
unsuccessful bid for Digital Terrestrial Television multiplex licenses.
Depreciation and amortization expense increased to $49,711,000 from $36,819,000
primarily due to an increase in depreciation of telecommunications and CATV
equipment.
Interest expense increased to $83,564,000 from $51,508,000 due to the issuance
of the New Notes and the increase in the accretion of original issue discount on
the deferred coupon notes. Interest of $18,381,000 and $22,078,000 was paid in
the three months ended June 30, 1998 and 1997, respectively.
Foreign currency transaction gains increased to $1,592,000 from $125,000 due to
favorable changes in the exchange rate subsequent to the issuance in March 1998
of new debt denominated in British pounds sterling.
Six Months Ended June 30, 1998 and 1997
- ---------------------------------------
Local telecommunications and television revenues increased to $130,179,000 from
$68,987,000 as a result of customer growth that increased the Company's current
revenue stream. The Company expects customer growth to continue to increase
which will drive further revenue growth as the Company completes the
construction of its dual service network past the remaining homes in its
franchise areas.
National and international telecommunications revenues increased to $102,660,000
from $83,782,000 as a result of increases in business telecommunications
revenues, Internet services revenues and carrier services revenues. Business
telecommunications and Internet services revenues increased primarily as a
result of customer growth. The Company expects business telecommunications and
Internet services customer growth to continue to increase which will drive
further revenue growth. The Company is expanding its selling and marketing
effort to business customers and for Internet services in its completed network
and the Company has not yet completed the construction of its dual service
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.
16
<PAGE>
NTL Incorporated and Subsidiaries
Broadcast transmission and other revenues increased to $66,892,000 from
$64,287,000 primarily due to increases in broadcast television and FM radio
customers and accounts, which exceeded price cap reductions in the Company's
regulated services.
Other revenues decreased primarily due to the sale of the assets of the
Company's wholly-owned subsidiary, OCOM Corporation, to AirTouch Communications,
Inc. and to CoreComm Incorporated during 1998.
Operating expenses increased to $155,354,000 from $141,251,000 primarily as a
result of increases in interconnection costs and programming costs due to
customer growth.
Selling, general and administrative expenses increased to $113,527,000 from
$82,210,000 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.
Franchise fees increased to $12,506,000 from $11,760,000 primarily as a result
of the inflation adjustment to the Northern Ireland license payment.
Corporate expenses decreased to $7,779,000 from $9,042,000 primarily due to
certain OCOM personnel no longer being classified as corporate. The 1998 and
1997 amounts include $926,000 of non-cash expense related to non-compete
agreements.
Write-off of deferred costs of $4,555,000 in 1997 relate to the Company's
unsuccessful bid for Digital Terrestrial Television multiplex licenses.
Depreciation and amortization expense increased to $95,567,000 from $69,824,000
primarily due to an increase in depreciation of telecommunications and CATV
equipment.
Interest expense increased to $141,622,000 from $99,117,000 due to the issuance
of the New Notes and the increase in the accretion of original issue discount on
the deferred coupon notes. Interest of $39,658,000 and $26,954,000 was paid in
the six months ended June 30, 1998 and 1997, respectively.
Foreign currency transaction gains (losses) increased to gains of $2,797,000
from losses of $197,000 due to favorable changes in the exchange rate subsequent
to the issuance in March 1998 of new debt denominated in British pounds
sterling.
17
<PAGE>
NTL Incorporated and Subsidiaries
LIQUIDITY AND CAPITAL RESOURCES
The Company will continue to require significant amounts of capital to finance
construction of its local and national networks, for connection of telephone,
telecommunications and CATV customers to the networks, for other capital
expenditures, as well as for cash interest payments. Based on the information
currently available, the Company estimates that, from July 1, 1998 through June
30, 1999, these requirements will aggregate approximately 450 million pounds
sterling (approximately $740 million). The Company intends to fund its
requirements from cash, cash equivalents and marketable securities on hand of
$920 million as of June 30, 1998. The Company's commitments for equipment and
services at June 30, 1998 of approximately $111 million are included in the
anticipated requirements.
In March 1998, the Company issued 125 million pounds sterling aggregate
principal amount of 9-1/2% Senior Notes due 2008 (the "Sterling Senior Notes"),
300 million pounds sterling aggregate principal amount of 10-3/4% Senior
Deferred Coupon Notes due 2008 (the "Sterling Deferred Coupon Notes") and $1.3
billion aggregate principal amount of 9-3/4% Senior Deferred Coupon Notes due
2008 (the "Dollar Deferred Coupon Notes") (together the "New Notes"). The
Sterling Senior Notes, Sterling Deferred Coupon Notes and the Dollar Deferred
Coupon Notes were issued at a price to the public of 99.67% or 124.6 million
pounds sterling, 58.62% or 175.9 million pounds sterling and 61.724% or $802.4
million, respectively. The Company received net proceeds of 121.2 million pounds
sterling, 170.6 million pounds sterling and $778.3 million, after discounts and
commissions, from the issuance of the Sterling Senior Notes, the Sterling
Deferred Coupon Notes and the Dollar Deferred Coupon Notes, respectively.
In March 1998, the Company called for redemption all of its $191,750,000
principal amount of 7-1/4% Convertible Subordinated Notes due 2005. The
redemption date was April 20, 1998, at a redemption price of 105.08% of the
principal amount plus accrued and unpaid interest through the date of
redemption. The 7-1/4% Notes were convertible into Common Stock at a conversion
price of $27.56 per share. In April 1998, all of the 7-1/4% Notes were converted
into approximately 6,957,500 shares of the Company's Common Stock.
In June 1998, the Company announced that it had provided to the Trustee of its
10-7/8% Senior Deferred Coupon Notes due 2003 a notice that it will redeem the
10-7/8% Notes on October 15, 1998. Pending such redemption, the Company has
deposited in trust with the Trustee an amount equal to approximately $218.6
million to pay the redemption price (including principal) on the 10-7/8% Notes.
In July 1998, the Company redeemed a portion of the 10-7/8% Notes with an
accreted value of $62.2 million for cash of $65 million. The Company recorded an
extraordinary loss from the early extinguishment of this portion of the 10-7/8%
Notes of approximately $4.3 million in the third quarter of 1998.
18
<PAGE>
NTL Incorporated and Subsidiaries
In June 1998, the Company entered into an acquisition agreement (the "ComTel
Agreement") with Vision Networks III B.V., a wholly-owned subsidiary of Royal
PTT Nederland NV (KPN), for the acquisition of the operations of ComTel Limited
and Telecential Communications (collectively, "ComTel"). Under the ComTel
Agreement, the Company will acquire ComTel for a total of 550 million pounds
sterling in two stages. In the first stage, the Company acquired certain of the
ComTel properties for 275 million pounds sterling in cash. In the second stage,
upon the completion of certain corporate reorganizations within ComTel, the
Company will acquire the remaining ComTel properties for 200 million pounds
sterling in cash and 75 million pounds sterling in a new NTL PIK Preferred
Stock.
In 1997, NTL (UK) Group, Inc., a wholly-owned subsidiary of the Company, which
is the holding company for its United Kingdom operations and the parent company
of NTLIH, and NTLIH entered into an agreement with The Chase Manhattan Bank
pursuant to which Chase has agreed to fully underwrite a term loan facility. In
June 1998, the Company entered into an amendment to this term loan facility and
borrowed 275 million pounds sterling ($458 million) for the first stage of the
ComTel acquisition. The term loan incurs interest payable either monthly,
quarterly or semiannually at LIBOR plus 3% per annum increasing by .25% per
annum each month beginning in September 1998 to a maximum of 4% per annum. The
Company may borrow an additional 200 million pounds sterling on or before
January 31, 1999, subject to extension to March 31, 1999, for the cash portion
of the second stage of the ComTel acquisition. The fee to the bank for this
commitment is 3% per annum payable quarterly in arrears. The term loan is
required to be repaid on January 31, 1999, subject to extension to June 30,
1999.
Chase has committed to make available to the Company a 480 million pounds
sterling senior secured credit facility upon the repayment in full of the amount
borrowed for the ComTel acquisition and subject to the renegotiation of the term
loan facility structure and pricing.
The Company is highly leveraged. The accreted value at June 30, 1998 of the
Company's total long-term indebtedness (including the Redeemable Preferred
Stock) is approximately $3.1 billion, representing approximately 102% of total
capitalization. The following table summarizes the terms of those notes and
Redeemable Preferred Stock issued by the Company.
19
<PAGE>
NTL Incorporated and Subsidiaries
<TABLE>
<CAPTION>
11-1/2% 12-3/4% 10-3/4%
Series B Senior Series A Senior 10-7/8% Senior Sterling 9-3/4%
Deferred Coupon Deferred Coupon Senior Deferred Deferred Coupon Senior Deferred
Notes Notes Coupon Notes Notes Coupon Notes
Denomination $ $ $ Pounds Sterling $
(See Note)
<S> <C> <C> <C> <C> <C>
Net Proceeds (in 000's)..... 582,000 145,125 119,797 170,584 778,340
Issue Date.................. January 30, 1996 April 20, 1995 October 7, 1993 March 13, 1998 March 13, 1998
Issue Price (1)............. 57.155% 53.995% 58.873% 58.62% 61.724%
Aggregate Principal Amount
at Maturity (in 000's).... 1,050,000 277,803 212,000 300,000 1,300,000
Maturity Date............... February 1, 2006 April 15, 2005 October 15, 2003 April 1, 2008 April 1, 2008
Yield or Interest Rate (2).. 11-1/2% 12-3/4% 10-7/8% 10-3/4% 9-3/4%
Interest or Dividend February 1 and April 15 and April 15 and April 1 and April 1 and
Payment August 1 October 15 October 15 October 1 October 1
Dates..................... from 8-1-01 from 10-15-00 from 4-15-99 from 10-1-2003 from 10-1-2003
Earliest Optional
Redemption Date (4)....... February 1, 2001 April 15, 2000 October 15, 1998 April 1, 2003 April 1, 2003
105.75 (2001) to 103.64 (2000) to 103.107 (1998) to 105.375 (2003) to 104.875 (2003) to
Redemption Price (%)(5)..... 100 (2003) 100 (2002) 100 (2000) 100 (2006) 100 (2006)
Conversion Price (6)........ N/A N/A N/A N/A N/A
Senior/Subordinated......... Senior Senior Senior Senior Senior
</TABLE>
(Table continues on the following page)
Note: The Company will redeem the 10-7/8% Notes on October 15, 1998 at an
aggregate redemption price of approximately $219 million. The Company has
deposited this amount in trust with the Trustee
20
<PAGE>
NTL Incorporated and Subsidiaries
<TABLE>
<CAPTION>
7%
Convertible 9-1/2% 10% Redeemable
Subordinated Senior Sterling Series B Preferred
Notes Notes Senior Notes Stock
Denomination $ Pounds Sterling $ $
<S> <C> <C> <C> <C>
Net Proceeds (in 000's)..... 267,437 121,161 389,000 96,625
Issue Date.................. June 12, 1996 March 13, 1998 February 14, 1997 February 14, 1997
Issue Price (1)............. 100% 99.670% 100% 100%
Aggregate Principal Amount
at Maturity (in 000's).... 275,000 125,000 400,000 100,000
Maturity Date............... June 15, 2008 April 1, 2008 February 15, 2007 February 15, 2009
Yield or Interest Rate (2).. 7% 9-1/2% 10% 13%
Interest or Dividend June 15 and April 1 and February 15 and May 15, August 15,
Payment December 15 October 1 August 15 November 15 and February 15
Dates..................... from 12-15-96 from 10-1-98 from 8-15-97 from 5-15-97 (3)
Earliest Optional
Redemption Date (4)....... June 15, 1999 April 1, 2003 February 15, 2002 February 15, 2002
104.9 (1999) to 104.75 (2003) to 105 (2002) to 106.5 (2002) to
Redemption Price (%)(5)..... 100 (2006) 100 (2006) 100 (2005) 100 (2005)
Conversion Price (6)........ 37.875 N/A N/A N/A
Senior/Subordinated......... Subordinated Senior Senior N/A
</TABLE>
(1) Percent of aggregate principal amount at maturity (or aggregate liquidation
preference in the case of the Redeemable Preferred Stock).
(2) Percent per annum.
(3) Dividend payments on the Redeemable Preferred Stock are payable in cash or
additional shares of Redeemable Preferred Stock, at the Company's option.
From May 15, 2004, dividend payments are payable in cash.
(4) This is the first date when redeemable at the Company's option. The
Redeemable Preferred Stock is mandatorily redeemable for cash on February
15, 2009.
(5) Expressed as a percentage of principal amount or liquidation preference, as
applicable, plus, in each case, accrued and unpaid interest or dividends
thereon to the applicable redemption date.
(6) This is the conversion price per share of the Company's common stock,
adjusted for the four-for-three stock split in August 1995 and subject to
further adjustments in certain events.
21
<PAGE>
NTL Incorporated and Subsidiaries
Pursuant to the terms of the Northern Ireland LDL, CableTel Northern Ireland
Limited (a wholly-owned subsidiary of the Company) is required to make annual
cash payments to the ITC for fifteen years in the amount of approximately 14.4
million pounds sterling (subject to adjustments for inflation). The fee for 1998
is 14.95 million pounds sterling. CableTel Northern Ireland Limited began making
monthly payments in January 1997. Such payments are in addition to the
percentages of qualifying revenue already set by the ITC of 0% for the first ten
years and 2% for the last five years of the fifteen year license. Pursuant to
the terms of the Glamorgan and Gwent LDL, CableTel South Wales Limited (a
wholly-owned subsidiary of the Company) is required to make annual cash payments
to the ITC for fifteen years, commencing in January 1998, in the amount of
104,188 pounds sterling (subject to adjustment for inflation). Such payments are
in addition to the percentages of qualifying revenue already set by the ITC of
0% for the first five years, 2% for the second five years and 4% for the last
five years of the fifteen year license.
In February 1998, the Company entered into an agreement and plan of amalgamation
to acquire Comcast UK Cable Partners Limited ("Partners"). In June 1998, the
Company entered into an acquisition agreement to acquire Diamond Cable
Communications plc ("Diamond"). Both of these acquisitions are in exchange for
the Company's Common Stock. Completion of both of these transactions is subject
to, among other things, shareholder approvals and consents from debt holders.
The development, construction and operations of the combined telecommunications
networks of the Company, ComTel, Partners and Diamond will require substantial
capital. In addition, the Company will require significant amounts of capital to
finance the other capital expenditures and other obligations of its current and
future subsidiaries. The Company intends to fund a portion of these requirements
from cash and securities on hand and cash from operations. However, the
Company's management estimates that additional funding will be necessary to meet
these requirements. There can be no assurance that: (i) actual construction
costs will not exceed the amounts estimated or that additional funding
substantially in excess of the amounts estimated will not be required, (ii)
additional financing will be obtained or will be available on acceptable terms,
(iii) conditions precedent to advances under future credit facilities will be
satisfied when funds are required, (iv) the Company and its subsidiaries will be
able to generate sufficient cash from operations to meet capital requirements,
debt service and other obligations when required, (v) the Company will be able
to access such cash flow or (vi) the Company will not incur losses from its
exposure to exchange rate fluctuations or be adversely affected by interest rate
fluctuations.
The Company's operations are conducted through its direct and indirect
wholly-owned subsidiaries. As a holding company, the Company holds no
significant assets other than its investments in and advances to its
subsidiaries. The Company is therefore dependent upon the receipt of sufficient
funds from its subsidiaries to meet its own obligations. Accordingly, the
Company's ability to make scheduled interest and principal payments when due to
holders of indebtedness of the Company and the Company's ability to pay cash
dividends to its stockholders is dependent upon the receipt of sufficient funds
from its subsidiaries.
22
<PAGE>
NTL Incorporated and Subsidiaries
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, 1998, the Company had approximately $658 million in pounds
sterling cash and cash equivalents to reduce this risk. In addition, the
Company's pounds sterling denominated New 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 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 its U.S. dollar
denominated debt and anticipated amounts of parent company expenses.
The information in the preceding paragraphs includes projections; in reviewing
such information it should be kept in mind that actual results may differ
materially from those in such projections. These projections were based on
various factors and were derived utilizing numerous assumptions. Important
assumptions and factors that could cause actual results to differ materially
from those in these projections include general economic and business conditions
in the United Kingdom, 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, and
availability, terms and deployment of capital. The failure of such assumptions
to be realized as well as other factors may also cause actual results to differ
materially from those projected. The Company assumes no obligations to update
these projections to reflect actual results, changes in assumptions or changes
in other factors affecting such projections.
YEAR 2000
Many computer systems experience problems handling dates beyond the year 1999.
Therefore, some computer hardware and software will need to be modified prior to
the year 2000 in order to remain functional. The Company is assessing both the
internal readiness of its computer systems and the compliance of the computer
systems of certain significant customers and vendors for handling the year 2000.
The Company expects to implement successfully the systems and programming
changes necessary to address year 2000 issues, and does not believe that the
cost of such actions will have a material adverse effect on the Company. There
can be no assurance, however, that there will not be a delay in, or increased
costs associated with, the implementation of such changes, and the Company's
inability to implement such changes could have an adverse effect on the Company.
In addition, the failure of certain of the Company's significant customers and
vendors to address the year 2000 issue could have a material adverse effect on
the Company.
23
<PAGE>
NTL Incorporated and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash provided by operating activities was $7,716,000 and cash used in operating
activities was $34,968,000 in the six months ended June 30, 1998 and 1997,
respectively. The change is primarily due to changes in operating assets and
liabilities.
Purchases of fixed assets were $257,157,000 in 1998 and $239,760,000 in 1997 as
a result of the continuing fixed asset purchases and construction in 1998.
Proceeds from borrowings, net of financing costs, of $1,784,890,000 in 1998 is
comprised of the proceeds from the 9-1/2% Senior Sterling Notes, the 10-3/4%
Senior Deferred Coupon Sterling Notes and the 9-3/4% Senior Deferred Coupon
Notes of $1,305,902,000 net of financing costs incurred of $39,481,000 and
proceeds from borrowings under the bank loan of $519,687,000 less $1,218,000
paid for financing costs. Principal payments of $65,992,000 represent the
repayment of borrowings under the bank loan.
24
<PAGE>
NTL Incorporated and Subsidiaries
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 3, 1998, the Company held its annual meeting of stockholders.
The following management proposals were adopted: (i) the reelection of
Sidney R. Knafel, Ted H. McCourtney and Del Mintz to the Board of
Directors and (ii) the ratification of the selection of Ernst & Young
LLP as the Company's independent auditors for 1998.
The stockholders approved the election of Sidney R. Knafel by a vote
of 31,159,555 shares in favor and 31,496 shares withheld from voting.
The stockholders approved the election of Ted H. McCourtney by a vote
of 31,174,155 shares in favor and 16,896 shares withheld from voting.
The stockholders approved the election of Del Mintz by a vote of
31,171,973 shares in favor and 19,078 shares withheld from voting. The
stockholders approved the second proposal by a vote of 31,171,727
shares in favor, 12,925 shares against and 6,399 shares abstaining
from voting.
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, 1998, the Company filed the
following current reports on Form 8-K:
(i) Report dated May 29, 1998, reporting under Item 5, Other Events,
the announcement that the Company had filed confidential
preliminary proxy materials with the Securities and Exchange
Commission, and had entered into an amendment to its previously
announced Amalgamation Agreement with Comcast UK Cable Partners
Ltd.
(ii) Report dated June 16, 1998, reporting under Item 5, Other Events,
the announcement that the Company had entered into an acquisition
agreement with Vision Networks III B.V., a wholly owned
subsidiary of Royal PTT Nederland NV (KPN), for the acquisition
of the operations of ComTel Limited and Telecential
Communications. The Company also announced that it had entered
into an acquisition agreement with Diamond Cable Communications
plc. The Company also announced that it had provided to the
Trustee of its 10-7/8% Senior Deferred Coupon Notes due 2003 a
notice that it will redeem the Notes on October 15, 1998.
No financial statements were filed with any of these reports.
25
<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: August 12, 1998 By: /s/ J. Barclay Knapp
--------------------------------------
J. Barclay Knapp
President, Chief Executive Officer and
Chief Financial Officer
Date: August 12, 1998 By: /s/ Gregg Gorelick
--------------------------------------
Gregg Gorelick
Vice President-Controller
(Principal Accounting Officer)
26
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