UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 March 31,
1998 was 32,301,500.
<PAGE>
NTL Incorporated and Subsidiaries
Index
PART I. FINANCIAL INFORMATION Page
- ------------------------------ ----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets-
March 31, 1998 and December 31, 1997 .............................. 2
Condensed Consolidated Statements of Operations -
Three months ended March 31, 1998 and 1997 ........................ 3
Condensed Consolidated Statement of Shareholders'
(Deficiency) - Three months ended March 31, 1998 .................. 4
Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 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 ................................ 12
PART II. OTHER INFORMATION
- --------------------------
Item 6. Exhibits and Reports on Form 8-K .................................. 20
SIGNATURES ................................................................. 21
- ----------
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NTL Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------------------------------------
(unaudited) (see note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,169,699,000 $ 98,902,000
Marketable securities 83,591,000 4,998,000
Accounts receivable - trade, less allowance for doubtful
accounts of $9,940,000 (1998) and $8,056,000 (1997) 79,093,000 66,022,000
Other 51,209,000 67,232,000
--------------------------------------
Total current assets 1,383,592,000 237,154,000
Fixed assets, net 1,853,181,000 1,756,985,000
Intangible assets, net 359,251,000 364,479,000
Other assets, net of accumulated amortization
of $28,897,000 (1998) and $25,889,000 (1997) 98,927,000 63,021,000
--------------------------------------
Total assets $ 3,694,951,000 $ 2,421,639,000
======================================
LIABILITIES AND SHAREHOLDERS' (DEFICIENCY)
Current liabilities:
Accounts payable $ 68,296,000 $ 45,475,000
Accrued expenses and other 145,661,000 162,730,000
Interest payable 17,758,000 18,875,000
Accrued construction costs 27,764,000 26,930,000
Deferred revenue 33,457,000 35,060,000
--------------------------------------
Total current liabilities 292,936,000 289,070,000
Long-term debt 3,357,217,000 2,015,057,000
Other 430,000 428,000
Commitments and contingent liabilities
Deferred income taxes 70,907,000 70,218,000
Senior redeemable exchangeable preferred stock, $.01 par
value, plus accreted dividends; liquidation preference
$107,000,000; less unamortized discount of $3,366,000
(1998) and $3,444,000 (1997); issued and outstanding
114,000 (1998) and 110,000 (1997) shares 112,250,000 108,534,000
Shareholders' (deficiency):
Series preferred stock - $.01 par value; authorized
2,500,000 shares; liquidation preference $78,000,000;
issued and outstanding 780 shares (1998 and 1997) - -
Common stock - $.01 par value; authorized 100,000,000
shares; issued and outstanding 32,302,000 (1998) and
32,210,000 (1997) shares 323,000 322,000
Additional paid-in capital 536,279,000 538,054,000
Accumulated other comprehensive income 135,333,000 117,008,000
(Deficit) (810,724,000) (717,052,000)
--------------------------------------
(138,789,000) (61,668,000)
--------------------------------------
Total liabilities and shareholders' (deficiency) $ 3,694,951,000 $ 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
MARCH 31
-------------------------------------
1998 1997
-------------------------------------
<S> <C> <C>
REVENUES
Local telecommunications and television $ 61,584,000 $ 31,880,000
National and international telecommunications 51,012,000 40,585,000
Broadcast transmission and other 33,418,000 32,113,000
Other telecommunications 1,778,000 2,239,000
-------------------------------------
147,792,000 106,817,000
COSTS AND EXPENSES
Operating expenses 77,333,000 70,756,000
Selling, general and administrative expenses 56,728,000 38,317,000
Franchise fees 6,195,000 5,872,000
Corporate expenses 3,642,000 4,098,000
Depreciation and amortization 45,856,000 33,005,000
-------------------------------------
189,754,000 152,048,000
-------------------------------------
Operating (loss) (41,962,000) (45,231,000)
OTHER INCOME (EXPENSE)
Interest and other income 5,143,000 7,401,000
Interest expense (58,058,000) (47,609,000)
Foreign currency transaction gains (losses) 1,205,000 (322,000)
-------------------------------------
Net (loss) $ (93,672,000) $ (85,761,000)
=====================================
Basic and diluted net (loss) per common share $ (3.02) $ (2.73)
=====================================
</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 84,000 1,000 1,800,000
Exercise of warrants 8,000 141,000
Accreted dividends on senior
redeemable exchangeable
preferred stock (3,638,000)
Accretion of discount on senior
redeemable exchangeable
preferred stock (78,000)
Comprehensive income
Net loss for the three months
ended March 31, 1998 $(93,672,000) (93,672,000)
Currency translation adjustment 18,325,000 18,325,000
------------
Total $(75,347,000)
----------------------------------------------------------------------------------------------------
Balance, March 31, 1998 780 $ - 32,302,000 $323,000 $536,279,000 $135,333,000 $(810,724,000)
====================================================================================================
</TABLE>
See accompanying notes.
4
<PAGE>
NTL Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
----------------------------------
1998 1997
----------------------------------
<S> <C> <C>
Net cash (used in) operating activities $ (16,605,000) $ (13,435,000)
INVESTING ACTIVITIES
Purchase of fixed assets (97,945,000) (120,585,000)
Increase in other assets (426,000) (1,299,000)
Purchase of marketable securities (78,481,000) (101,234,000)
Proceeds from sales of marketable securities - 20,000,000
----------------------------------
Net cash (used in) investing activities (176,852,000) (203,118,000)
FINANCING ACTIVITIES
Proceeds from borrowings and sale of preferred stock,
net of financing costs 1,332,902,000 493,143,000
Principal payments (65,836,000) -
Proceeds from exercise of stock options and warrants 1,942,000 448,000
----------------------------------
Net cash provided by financing activities 1,269,008,000 493,591,000
Effect of exchange rate changes on cash (4,754,000) (16,544,000)
----------------------------------
Increase in cash and cash equivalents 1,070,797,000 260,494,000
Cash and cash equivalents at beginning of period 98,902,000 445,884,000
----------------------------------
Cash and cash equivalents at end of period $ 1,169,699,000 $ 706,378,000
==================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest exclusive of
amounts capitalized $ 20,366,000 $ 4,516,000
Income taxes paid 19,000 -
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Accretion of dividends and discount on senior redeemable
exchangeable preferred stock $ 3,716,000 $ 1,697,000
</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 months ended March 31, 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".
Certain prior year amounts have been reclassified to conform to the 1998
presentation.
NOTE B - FIXED ASSETS
Fixed assets consist of:
MARCH 31, DECEMBER 31,
1998 1997
--------------------------------------
(unaudited)
Operating equipment $ 1,704,728,000 $ 1,612,440,000
Other equipment 241,168,000 225,514,000
Construction-in-progress 162,715,000 134,795,000
--------------------------------------
2,108,611,000 1,972,749,000
Accumulated depreciation (255,430,000) (215,764,000)
--------------------------------------
$ 1,853,181,000 $ 1,756,985,000
======================================
6
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
NOTE C - INTANGIBLE ASSETS
Intangible assets consists of:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------------------------------
(unaudited)
<S> <C> <C>
License acquisition costs, net of accumulated
amortization of $50,337,000 (1998) and $46,620,000 (1997) $ 119,399,000 $ 123,116,000
Goodwill, net of accumulated amortization of
$18,023,000 (1998) and $13,449,000 (1997) 239,852,000 241,363,000
------------------------------------
$ 359,251,000 $ 364,479,000
====================================
</TABLE>
NOTE D - LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------------------------------------
(unaudited)
<S> <C> <C>
10-7/8% Senior Deferred Coupon Notes $ 200,142,000 $ 194,959,000
12-3/4% Series A Senior Deferred Coupon Notes 215,889,000 209,387,000
11-1/2% Series B Senior Deferred Coupon Notes 765,154,000 743,961,000
10% Series B Senior Notes 400,000,000 400,000,000
9-1/2% Senior Sterling Notes, less unamortized
discount of $687,000 208,275,000 -
10-3/4% Senior Deferred Coupon Sterling Notes 295,318,000 -
9-3/4% Senior Deferred Coupon Notes 805,689,000 -
7-1/4% Convertible Subordinated Notes 191,750,000 191,750,000
7% Convertible Subordinated Notes 275,000,000 275,000,000
--------------------------------------
$ 3,357,217,000 $ 2,015,057,000
======================================
</TABLE>
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 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 March 1998, the Company issued 125,000,000 pounds sterling aggregate
principal amount of 9-1/2% Senior Notes due 2008 (the "Sterling Senior Notes"),
300,000,000 pounds sterling aggregate principal amount of 10-3/4% Senior
Deferred Coupon Notes due 2008 (the "Sterling Deferred Coupon Notes") and
$1,300,000,000 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,
7
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
NOTE D - LONG-TERM DEBT (CONTINUED)
Sterling Deferred Coupon Notes and the Dollar Deferred Coupon Notes were issued
at a price to the public of 99.67% or 124,588,000 pounds sterling, 58.62% or
175,860,000 pounds sterling and 61.724% or $802,412,000, respectively. The
Company received net proceeds of 121,161,000 pounds sterling, 170,584,000 pounds
sterling and $778,340,000, 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 $38,787,000 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
300,000,000 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 $1,300,000,000 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 E - 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.
NOTE F - 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
8
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
NOTE F - GRANT OF STOCK OPTIONS (CONTINUED)
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 1999 and in each year thereafter, each employee who is not
otherwise granted options and has completed at least one year of employment at
the relevant date 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 G - 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 March 31, 1998, $6,200,000 of the provision has been used.
9
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
NOTE H - NET LOSS PER COMMON SHARE
The following table sets forth the computation of basic and diluted net loss per
common share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
-------------------------------------
1998 1997
-------------------------------------
<S> <C> <C>
Numerator:
Net loss $ (93,672,000) $ (85,761,000)
Preferred stock dividend (3,638,000) (1,697,000)
-------------------------------------
Loss available to common shareholders $ (97,310,000) $ (87,458,000)
-------------------------------------
Denominator for basic net loss per common share 32,250,000 32,084,000
Effect of dilutive securities - -
-------------------------------------
Denominator for diluted net loss per common share 32,250,000 32,084,000
-------------------------------------
Basic and diluted net loss per common share $ (3.02) $ (2.73)
=====================================
</TABLE>
The shares issuable upon the exercise of stock options and warrants and upon the
conversion of convertible securities are excluded from the calculation of net
loss per common share as their effect would be antidilutive.
NOTE I - COMMITMENTS AND CONTINGENT LIABILITIES
As of March 31, 1998, the Company was committed to pay approximately
$103,300,000 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 23 years for the DTI
licenses and 15 years for the ITC licenses. The Company's licenses expire in
2008 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 ($4,100) per
license. The ITC requires an annual license fee ranging from 1,300 pounds
sterling ($2,100) 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 three months ended
March 31, 1998 were $634,000.
10
<PAGE>
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
NOTE I - 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
($24,100,000) (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 $6,152,000
in the three months ended March 31, 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 $43,000 in the three months ended March
31, 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.
NOTE J - PARTNERS ACQUISITION
In February 1998, the Company entered into an agreement and plan of amalgamation
(the "Agreement") with Comcast UK Cable Partners Limited ("Partners"). Under the
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 Agreement, the transaction is
valued at approximately $600,000,000. The 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 closing conditions including regulatory approvals,
shareholder approvals and consents from the holders of the Company's and
Partners' debt.
11
<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:
================================================================================
| NEWLY CONSTRUCTED DUAL NETWORK |
|------------------------------------------------------------------------------|
| | MARCH 31, | DECEMBER 31, | MARCH 31, |
| | 1998 | 1997 | 1997 |
|--------------------------|----------------|-----------------|----------------|
| Homes passed (1) | 1,070,000 | 1,007,000 | 853,900 |
|--------------------------|----------------|-----------------|----------------|
| Homes marketed | 887,400 | 810,000 | 555,600 |
|--------------------------|----------------|-----------------|----------------|
| Homes marketed (as % | | | |
| of homes passed) | 83% | 80% | 65% |
|--------------------------|----------------|-----------------|----------------|
| Total customers | 357,200 | 321,300 | 201,450 |
|--------------------------|----------------|-----------------|----------------|
| Dual | 322,500 | 287,200 | 166,750 |
|--------------------------|----------------|-----------------|----------------|
| Telephone-only | 15,300 | 15,300 | 15,900 |
|--------------------------|----------------|-----------------|----------------|
| CATV-only | 19,400 | 18,800 | 18,800 |
|--------------------------|----------------|-----------------|----------------|
| Total RGUs (2) | 679,700 | 608,500 | 368,200 |
|--------------------------|----------------|-----------------|----------------|
| Customer penetration | 40% | 40% | 36% |
|--------------------------|----------------|-----------------|----------------|
| RGU penetration (3) | 77% | 75% | 66% |
|--------------------------|----------------|-----------------|----------------|
| Telephone penetration | 38% | 37% | 33% |
|--------------------------|----------------|-----------------|----------------|
| CATV penetration | 39% | 38% | 33% |
- --------------------------------------------------------------------------------
(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%.
12
<PAGE>
NTL Incorporated and Subsidiaries
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 and 1997
- ------------------------------------------
Local telecommunications and television revenues increased to $61,584,000 from
$31,880,000 as a result of customer growth that increased the Company's current
revenue stream.
National and international telecommunications revenues increased to $51,012,000
from $40,585,000 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. Carrier services revenues increased due to growth in
satellite services, cellular telephone services and national network
telecommunications services provided by the Company's wholesale operation to
broadcasters, mobile telephone companies and other telephone companies,
respectively.
Broadcast transmission and other revenues increased to $33,418,000 from
$32,113,000 primarily due to revenues from the launch of Channel 5 on March 30,
1997.
Operating expenses increased to $77,333,000 from $70,756,000 primarily as a
result of increases in programming costs and interconnection costs.
Selling, general and administrative expenses increased to $56,728,000 from
$38,317,000 as a result of increases in telecommunications and CATV sales and
marketing costs and increases in personnel and overhead to service the
increasing customer base. An increase in bad debt expense also contributed to
this increase.
Franchise fees increased to $6,195,000 from $5,872,000 primarily as a result of
the inflation adjustment to the Northern Ireland license payment.
Corporate expenses decreased to $3,642,000 from $4,098,000 primarily due to
certain personnel no longer being classified as corporate. The 1998 and 1997
amounts include $463,000 of non-cash expense related to non-compete agreements.
Depreciation and amortization expense increased to $45,856,000 from $33,005,000
primarily due to an increase in depreciation of telecommunications and CATV
equipment.
Interest expense increased to $58,058,000 from $47,609,000 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 $21,277,000 and $4,876,000 was paid in
the three months ended March 31, 1998 and 1997, respectively.
Foreign currency transaction gains (losses) increased to gains of $1,205,000
from losses of $(322,000) due to favorable changes in the exchange rate
subsequent to the issuance in March 1998 of new debt denominated in British
pounds sterling.
13
<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 April 1, 1998 through
March 31, 1999, these requirements will aggregate 354 million pounds sterling
(approximately $592 million). The Company intends to fund its requirements from
cash, cash equivalents and marketable securities on hand of $1.2 billion as of
March 31, 1998. The Company's commitments for equipment and services at March
31, 1998 of approximately $103.3 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 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 555 million pounds
sterling term loan facility with an initial four-year revolving period (the "New
Credit Facility"). By April 14, 1999, Chase's commitment will be reduced to no
less than 480 million pounds sterling or such greater amount as is necessary to
ensure that the Company's United Kingdom operations remain fully funded by
reference to an agreed business plan. The New Credit Facility will be used to
finance capital expenditures and working capital for the Company's United
Kingdom operations, including its local broadband, national telecommunications
and national digital television networks. Chase has provided a portion of the
New Credit Facility in the form of a 350 million pounds sterling facility to the
Company on the same terms as to restrictions, covenants, guarantees and security
as the 555 million pounds sterling facility. Amounts outstanding under the 350
million pounds sterling facility are required to be repaid in full by December
31, 2005. Interest is payable either monthly, quarterly or semi-annually, at the
option
14
<PAGE>
NTL Incorporated and Subsidiaries
of NTLIH, at LIBOR plus, at a maximum, 2.25% per annum. The commitment fee is
.375% per annum on the unutilized portion of the 350 million pounds sterling
facility and is payable quarterly in arrears. The New Credit Facility is secured
by first fixed and floating charges over all present and future assets and
undertakings of the United Kingdom group. The New Credit Facility contains
customary financial covenants, and certain restrictions relating to, among other
things: (i) incurrence of additional indebtedness or guarantees, (ii)
investments, acquisitions and mergers and (iii) dividend and other payment
restrictions. In the absence of a default, the New Credit Facility generally
permits payments to the Company to pay interest and principal of existing
indebtedness of the Company. There are no amounts currently outstanding under
the New Credit Facility.
In connection with the New Credit Facility, the Company entered into a European
Currency Option with a bank in which the Company may purchase U.S. dollars at a
fixed rate of 1 pound sterling to $1.40. The option is exercisable 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 payment dates and
amounts for its U.S. dollar denominated debt and anticipated amounts of parent
company expenses.
The Company is highly leveraged. The accreted value at March 31, 1998 of the
Company's total long-term indebtedness (including the Redeemable Preferred
Stock) is approximately $3.5 billion, representing approximately 104% of total
capitalization. The following tables summarizes the terms of those notes and
redeemable preferred stock issued by the Company.
15
<PAGE>
NTL Incorporated and Subsidiaries
<TABLE>
<CAPTION>
11-1/2% 12-3/4% 10-7/8% 10-3/4% 9-3/4%
Series B Senior Series A Senior Senior Deferred Senior Sterling Senior
Deferred Coupon Deferred Coupon Coupon Deferred Coupon Deferred Coupon
Notes Notes Notes Notes Notes
<S> <C> <C> <C> <C> <C>
Denomination $ $ $ Pounds Sterling $
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%
February 1 and April 15 and April 15 and April 1 and April 1 and
Interest or Dividend August 1 October 15 October 15 October 1 October 1
Payment 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
Redemption 105.75 (2001) 103.64 (2000) 103.107 (1998) 105.375 (2003) 104.875 (2003)
Price (%)(5).............. to 100 (2003) to 100 (2002) to 100 (2000) to 100 (2006) to 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)
16
<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
<S> <C> <C> <C> <C>
Denomination $ Pounds Sterling $ $
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%
June 15 and April 1 and February 15 and May 15, August 15,
Interest or Dividend December 15 October 1 August 15 November 15 and
Payment Dates............. from 12-15-96 from 10-1-98 from 8-15-97 February 15 from 5-15-97(3)
Earliest Optional
Redemption Date(4)........ June 15, 1999 April 1, 2003 February 15, 2002 February 15, 2002
Redemption 104.9 (1999) 104.75 (2003) 105 (2002) 106.5 (2002)
Price(%)(5)............... to 100 (2006) to 100 (2006) to 100 (2005) to 100 (2005)
Conversion Price(6)......... 37.875 N/A N/A N/A
Senior/Subordianted......... 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.
17
<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.
The Company has significant capital requirements for the completion of its
telephone, telecommunications and CATV network passed the total of 2,090,000
homes required by its regulatory build schedules, for its LDL payments and for
scheduled cash interest and principal payments, as well as requirements for
other capital expenditures. The Company expects to fund these requirements with
cash and securities on hand, funds from the New Credit Facility and cash from
operations. 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) conditions precedent
to advances under the New Credit Facility will be satisfied when funds are
required, (iii) the Company and its subsidiaries will be able to generate
sufficient cash from operations to meet capital requirements, debt service and
other obligations as they fall due when required, (iv) the Company will be able
to access such cash flow or (v) 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.
To the extent that the Company obtains financing in United States dollars and
incurs costs in the construction and operation of its networks in the United
Kingdom in British pounds sterling, it will encounter currency exchange rate
risks. At March 31, 1998, the Company had approximately $772 million in pounds
sterling cash and cash equivalents to reduce this risk. In addition, the
Company's New Credit Facility and the 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 dollars. The Company has entered into an option agreement to hedge
some of the risk of exchange rate fluctuations related to interest payments on
U.S. dollar denominated debt.
18
<PAGE>
NTL Incorporated and Subsidiaries
The information in the preceding paragraphs does not include the impact of the
proposed Partners acquisition. In addition, 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.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash used in operating activities was $16,605,000 and $13,435,000 in the three
months ended March 31, 1998 and 1997, respectively. The increase in cash used in
operating activities is primarily due to the $15,850,000 increase in cash paid
for interest exclusive of amounts capitalized.
Purchases of fixed assets were $97,945,000 in 1998 and $120,585,000 in 1997 as a
result of the continuing fixed asset purchases and construction in 1998.
Proceeds from borrowings, net of financing costs, of $1,332,902,000 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 $38,788,000 and
proceeds from borrowings under the New Credit Facility of $65,836,000 less
$48,000 paid for financing costs. Principal payments of $65,836,000 represent
the repayment of the New Credit Facility.
19
<PAGE>
NTL Incorporated and Subsidiaries
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended March 31, 1998, the Company filed the
following current reports on Form 8-K:
(i) Report dated February 5, 1998, reporting under Item 5, Other
Events, the announcement that the Company had entered into
an agreement and plan of amalgamation with Comcast UK Cable
Partners Limited.
(ii) Reported dated March 6, 1998, reporting under Item 5, Other
Events, the announcement that the Company priced a
concurrent offering of UK Sterling Senior Notes due 2008, UK
Sterling Deferred Coupon Notes due 2008 and US Dollar
Deferred Coupon Notes due 2008.
(iii) Report dated March 18, 1998, reporting under Item 5, Other
Events, the announcement that the Company was calling for
redemption all of its $191,750,000 principal amount of
7-1/4% Convertible Subordinated Notes due 2005.
No financial statements were filed with any of these reports.
20
<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: May 13, 1998 By: /s/ J. Barclay Knapp
----------------------------------------
J. Barclay Knapp
President, Chief Executive Officer and
Chief Financial Officer
Date: May 13, 1998 By: /s/ Gregg Gorelick
----------------------------------------
Gregg Gorelick
Vice President-Controller
(Principal Accounting Officer)
21
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,169,699,000
<SECURITIES> 83,591,000
<RECEIVABLES> 89,033,000
<ALLOWANCES> (9,940,000)
<INVENTORY> 0
<CURRENT-ASSETS> 51,209,000
<PP&E> 2,108,611,000
<DEPRECIATION> (255,430,000)
<TOTAL-ASSETS> 3,694,951,000
<CURRENT-LIABILITIES> 292,936,000
<BONDS> 3,357,217,000
112,250,000
0
<COMMON> 323,000
<OTHER-SE> (139,112,000)
<TOTAL-LIABILITY-AND-EQUITY> 3,694,951,000
<SALES> 0
<TOTAL-REVENUES> 147,792,000
<CGS> 0
<TOTAL-COSTS> 77,333,000
<OTHER-EXPENSES> 66,565,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58,058,000
<INCOME-PRETAX> (93,672,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (93,672,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (93,672,000)
<EPS-PRIMARY> (3.02)
<EPS-DILUTED> (3.02)
</TABLE>
