UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-22616
-------
NTL COMMUNICATIONS CORP.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
(On April 1, 1999, the name of the Registrant was changed from
NTL Incorporated to NTL Communications Corp.)
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 September
30, 1999 was 100. The Registrant is a wholly-owned subsidiary of NTL
Incorporated and there is no market for the Registrant's common stock. The
Registrant meets the conditions for the reduced disclosure format set forth in
General Instruction H(1) (a) and (b) of Form 10-Q.
<PAGE>
NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries
Index
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 1999 and December 31, 1998 ........................ 2
Condensed Consolidated Statements of Operations
Three and nine months ended September 30, 1999 and 1998 ......... 4
Condensed Consolidated Statement of Shareholder's Equity
Nine months ended September 30, 1999 ............................ 5
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 1999 and 1998 ................... 7
Notes to Condensed Consolidated Financial Statements ............ 8
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition .............................. 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ............................ 28
SIGNATURES ............................................................... 29
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries
Condensed Consolidated Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
---------------------------------
(unaudited) (see note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 572,387 $ 736,265
Marketable securities 90,531 260,631
Accounts receivable - trade, less allowance for
doubtful accounts of $69,757 (1999) and $38,475 (1998) 281,879 152,356
Other 58,624 55,248
---------------------------------
Total current assets 1,003,421 1,204,500
Fixed assets, net 5,229,317 3,854,430
Intangible assets, net 2,600,069 725,028
Investment in Cable London PLC, net of accumulated
amortization of $16,879 (1999) and $3,093 (1998) 207,038 229,093
Other assets, net of accumulated amortization
of $43,882 (1999) and $56,264 (1998) 328,838 181,046
---------------------------------
Total assets $ 9,368,683 $ 6,194,097
=================================
</TABLE>
2
<PAGE>
NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries
Condensed Consolidated Balance Sheets - continued
(dollars in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
---------------------------------
(unaudited) (see note)
<S> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 227,410 $ 167,079
Accrued expenses and other 324,363 221,070
Accrued construction costs 82,443 88,033
Interest payable 27,077 34,258
Deferred revenue 150,504 69,820
Current portion of long-term debt 114,976 23,691
---------------------------------
Total current liabilities 926,773 603,951
Long-term debt 7,482,814 5,043,803
Commitments and contingent liabilities
Deferred income taxes 84,087 67,062
Senior redeemable exchangeable preferred stock - $.01 par value, plus
accreted dividends; less unamortized discount of $3,133 (1998);
issued and outstanding none (1999) and
125,000 (1998) shares
- 124,127
Shareholder's equity:
Series preferred stock - $.01 par value; authorized none (1999) and
10,000,000 (1998) shares:
Series A - issued and outstanding none (1999) and 125,000
(1998) shares - 2
Series B - issued and outstanding none (1999) and 52,000
(1998) shares - -
Common stock - $.01 par value; authorized 100 (1999) and 400,000,000
(1998) shares; issued and outstanding 100 (1999) and 60,249,000
(1998) shares - 602
Additional paid-in capital 2,894,190 1,501,561
Accumulated other comprehensive income 97,375 104,657
(Deficit) (2,116,556) (1,251,668)
---------------------------------
875,009 355,154
---------------------------------
Total liabilities and shareholder's equity $ 9,368,683 $ 6,194,097
=================================
</TABLE>
Note: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date.
See accompanying notes.
3
<PAGE>
NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------------- -----------------------------
1999 1998 1999 1998
---------------------------- -----------------------------
<S> <C> <C> <C> <C>
REVENUES
Local telecommunications and television $ 218,408 $ 84,366 $ 583,728 $214,545
National and international telecommunications 130,647 64,185 349,232 166,845
Broadcast transmission and other 40,298 33,933 119,900 100,825
Other telecommunications - - - 2,375
---------------------------- -----------------------------
389,353 182,484 1,052,860 484,590
COSTS AND EXPENSES
Operating expenses 184,953 88,122 507,335 243,476
Selling, general and administrative expenses 142,669 78,543 416,077 192,070
Franchise fees 7,710 6,223 22,287 18,729
Corporate expenses 6,249 4,018 18,475 11,797
Depreciation and amortization 189,906 61,218 518,356 156,785
---------------------------- -----------------------------
531,487 238,124 1,482,530 622,857
---------------------------- -----------------------------
Operating (loss) (142,134) (55,640) (429,670) (138,267)
OTHER INCOME (EXPENSE)
Interest and other income 6,742 16,318 26,829 39,796
Interest expense (186,028) (84,800) (484,570) (226,422)
Foreign currency transaction gains (losses) 33,426 (9,770) 22,523 (6,973)
---------------------------- -----------------------------
(Loss) before extraordinary item (287,994) (133,892) (864,888) (331,866)
(Loss) from early extinguishment of debt - (4,239) - (4,239)
---------------------------- -----------------------------
Net (loss) $ (287,994) $ (138,131) $ (864,888) $ (336,105)
============================ =============================
</TABLE>
See accompanying notes.
4
<PAGE>
NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries
Condensed Consolidated Statement of Shareholder's Equity
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
SERIES A SERIES B CONVERTIBLE
PREFERRED PREFERRED SERIES A COMMON STOCK -
STOCK STOCK PREFERRED STOCK $.01 PAR VALUE
SHARES PAR SHARES PAR SHARES PAR SHARES PAR
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 125,000 $ 2 52,000 $ - 60,249,000 $ 602
Exercise of stock options 432,000 4
Exercise of warrants 15,000 1
Preferred stock issued for cash 500,000 $ 5
Warrants issued for cash
Accreted dividends on preferred stock 4,000 -
Accretion of discount on
preferred stock
Conversion of 7% Convertible
Subordinated Notes 1,000 -
Common stock issued for acquisition 12,705,000 127
Issuance of stock options in
connection with an acquisition
Corporate restructuring (125,000) (2) (52,000) - (504,000) (5) (73,402,000) (734)
Distribution to NTL Incorporated
Contributions from NTL Incorporated
Comprehensive income:
Net loss for the nine months
ended September 30, 1999
Currency translation adjustment
Total
-----------------------------------------------------------------------------
Balance, September 30, 1999 - $ - - $ - - $ - - $ -
=============================================================================
</TABLE>
See accompanying notes.
5
<PAGE>
NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries
Condensed Consolidated Statement of Shareholder's Equity
(Unaudited)(continued)
(dollars in thousands)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
PAID-IN COMPREHENSIVE COMPREHENSIVE
CAPITAL LOSS INCOME (DEFICIT)
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1998 $ 1,501,561 $ 104,657 $ (1,251,668)
Exercise of stock options 12,054
Exercise of warrants 102
Preferred stock issued for cash 483,805
Warrants issued for cash 16,190
Accreted dividends on
preferred stock (8,644)
Accretion of discount on
preferred stock (78)
Conversion of 7% Convertible Subordinated
Notes 50
Common stock issued for acquisition 971,310
Issuance of stock options in connection
with an acquisition 6,599
Corporate restructuring 405,604
Distribution to NTL Incorporated (500,000)
Contributions from NTL Incorporated 5,637
Comprehensive income:
Net loss for the nine months
ended September 30, 1999 $ (864,888) (864,888)
Currency translation adjustment (7,282) (7,282)
----------
Total $ (872,170)
------------------------------------------------------------------------
Balance, September 30, 1999 $ 2,894,190 $ 97,375 $ (2,116,556)
========================================================================
</TABLE>
See accompanying notes.
6
<PAGE>
NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
------------------------------
1999 1998
------------------------------
<S> <C> <C>
Net cash provided by (used in) operating activities $ 20,304 $ (27,656)
INVESTING ACTIVITIES
Acquisitions, net of cash acquired (473,816) (829,698)
Purchase of fixed assets (855,667) (464,944)
Increase in other assets (28,015) (10,397)
Proceeds from sale of assets - 1,312
Cash deposited into escrow for acquisition (118,700) -
Purchase of marketable securities (349,647) (297,918)
Proceeds from sales of marketable securities 527,218 168,650
------------------------------
Net cash (used in) investing activities (1,298,627) (1,432,995)
FINANCING ACTIVITIES
Distribution to NTL Incorporated (500,000) -
Proceeds from borrowings, net of financing costs 1,125,494 2,093,602
Proceeds from issuance of preferred stock and warrants 500,000 -
Principal payments (25,863) (66,040)
Cash deposited into escrow for debt repayment - (221,427)
Proceeds from exercise of stock options and warrants 12,161 4,938
------------------------------
Net cash provided by financing activities 1,111,792 1,811,073
Effect of exchange rate changes on cash 2,653 10,119
------------------------------
Increase (decrease) in cash and cash equivalents (163,878) 360,541
Cash and cash equivalents at beginning of period 736,265 98,902
------------------------------
Cash and cash equivalents at end of period $ 572,387 $ 459,443
==============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest exclusive of
amounts capitalized $ 140,245 $ 79,112
Income taxes paid - 335
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Accretion of dividends and discount on preferred stock $ 8,722 $ 11,820
Conversion of Convertible Notes, net of unamortized deferred
financing costs 269,285 187,012
Preferred stock issued for acquisition - 126,277
Common stock and stock options issued for an acquisition 978,036 -
</TABLE>
See accompanying notes.
7
<PAGE>
NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine months ended September
30, 1999 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1999. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted by the
Company effective January 1, 2001. The Company is evaluating the impact that the
adoption of SFAS No. 133 will have on its earnings and financial position.
In September 1999, NTL Incorporated declared a 5 for 4 stock split by way of a
stock dividend with respect to its common stock. The record date for this
dividend was October 4, 1999 and the payment date was October 7, 1999. All
common stock amounts in the Notes to Condensed Consolidated Financial Statements
have been adjusted to reflect the stock split.
NOTE B - CORPORATE RESTRUCTURING
Effective April 1, 1999, NTL Incorporated completed a corporate restructuring to
create a holding company structure. The formation of the holding company is part
of NTL Incorporated's effort to pursue opportunities outside the United Kingdom
and Ireland. The holding company restructuring was accomplished through a merger
so that all the stockholders of NTL Incorporated at the effective time of the
merger became stockholders of the new holding company, and NTL Incorporated
became a subsidiary of the new holding company. The new holding company has
taken the name NTL Incorporated and the holding company's subsidiary
simultaneously changed its name to NTL Communications Corp. The "Company" refers
to NTL Incorporated and subsidiaries up to and including March 31, 1999, and to
NTL Communications Corp. and subsidiaries beginning April 1, 1999. In addition,
in April 1999, the Company distributed $500 million to NTL Incorporated,
principally to finance the acquisition of the Australian National Transmission
Network.
8
<PAGE>
NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
NOTE C - SALE OF PREFERRED STOCK AND WARRANTS
In January 1999, the Company received $500 million in cash from Microsoft Corp.
in exchange for 500,000 shares of the Company's 5.25% Convertible Preferred
Stock, Series A and warrants to purchase 1,500,000 shares of the Company's
common stock at an exercise price of $67.20 per share.
NOTE D - INTANGIBLE ASSETS
Intangible assets consist of:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------------------------
(unaudited)
(in thousands)
<S> <C> <C>
License acquisition costs, net of accumulated
amortization of $118,484 (1999) and $69,202 (1998) $ 190,563 $ 153,007
Goodwill, net of accumulated amortization of $129,938
(1999) and $32,358 (1998) 2,290,678 514,529
Customer lists, net of accumulated amortization of
$21,765 (1999) and $3,375 (1998) 118,828 57,492
------------------------------
$ 2,600,069 $ 725,028
==============================
</TABLE>
In July 1999, the Company acquired Cablelink Limited ("Cablelink"), Ireland's
largest cable television provider. Cablelink provides multi-channel television
and information services in Dublin, Galway and Waterford. Cablelink holds
licenses to provide analog and digital television services over cable and
microwave in its franchises, as well as a full service license to provide public
telephony, Internet and other value-added services throughout Ireland. The
Company acquired Cablelink for 535.18 million Irish punts (approximately $693
million), of which 455.18 million Irish punts ($589 million) was paid in cash
and the Company issued 80 million Irish punts ($104 million) principal amount
Variable Rate Redeemable Guaranteed Loan Notes due 2002.
Also in July 1999, the Company acquired certain broadband cable franchises from
British Telecommunications plc ("BT") for an aggregate of up to 19 million
pounds sterling ($31.2 million). The Company paid approximately 5 million pounds
sterling ($8.2 million) on closing and will pay up to 14 million pounds sterling
($23.0 million) on completion of the upgrade of certain networks. The Company
expects to invest approximately 15 million pounds sterling ($24.7 million) to
upgrade the networks for digital cable, interactive services and high speed
Internet access. The Company leases the networks from BT on a long-term basis
for an annual lease payment of approximately 3.9 million pounds sterling ($6.4
million).
9
<PAGE>
NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
NOTE D - INTANGIBLE ASSETS (CONTINUED)
These acquisitions were accounted for as purchases, and accordingly, the net
assets and results of operations have been included in the consolidated
financial statements from the dates of acquisition. The aggregate purchase price
of approximately $710 million, including costs incurred of $8.5 million,
exceeded the estimated fair value of net tangible assets acquired by $698
million, which is included in goodwill. Under the purchase method of accounting,
the purchase price is allocated to the assets acquired and liabilities assumed
based on the estimated fair values at acquisition. Changes to the allocation of
the purchase price are expected as valuations or appraisals of assets and
liabilities are completed.
In March 1999, the Company acquired Diamond Cable Communications plc
("Diamond"). The Company issued an aggregate of 15,938,000 shares of common
stock in exchange for each ordinary share and deferred share of Diamond. The
Company's common stock was valued at $971,437,000, the fair value at the time of
the announcement. In addition, the Company issued options to purchase 153,000
shares of the Company's common stock to holders of Diamond options. The
Company's stock options were valued at $6,599,000. The Company incurred costs of
$8,080,000 in connection with the acquisition. The Company assumed Diamond's
debt including five different notes with an aggregate principal amount at
maturity of $1.6 billion. The acquisition was accounted for as a purchase, and
accordingly, the net assets and results of operations of Diamond have been
included in the consolidated financial statements from the date of acquisition.
The aggregate purchase price of $986 million plus the fair value of liabilities
assumed net of tangible assets acquired aggregated $1.3 billion, which was
allocated as follows: $78 million to customer lists, $85 million to license
acquisition costs and $1.16 billion to goodwill.
In 1998, the Company completed the acquisitions of ComTel Limited and
Telecential Communications, NTL (Bermuda) Limited ("NTL Bermuda") and Eastern
Group Telecoms.
The pro forma unaudited consolidated results of operations for the nine months
ended September 30, 1999 and 1998 assuming consummation of these acquisitions as
of January 1, 1998 are as follows:
NINE MONTHS ENDED
SEPTEMBER 30
-------------------------------
1999 1998
-------------------------------
(in thousands)
Total revenue $ 1,112,645 $ 831,241
(Loss) before extraordinary item (956,886) (700,475)
Net (loss) (956,886) (704,714)
10
<PAGE>
NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
NOTE E - FIXED ASSETS
Fixed assets consist of:
SEPTEMBER 30, DECEMBER 31,
1999 1998
--------------------------------
(unaudited)
(in thousands)
Operating equipment $ 4,696,801 $ 3,528,973
Other equipment 671,778 376,518
Construction-in-progress 606,530 369,923
--------------------------------
5,975,109 4,275,414
Accumulated depreciation (745,792) (420,984)
--------------------------------
$ 5,229,317 $ 3,854,430
================================
NOTE F - INVESTMENT IN CABLE LONDON PLC
Pursuant to an agreement with Telewest Communications plc ("Telewest") relating
to NTL Bermuda's and Telewest's respective 50% ownership interests in Cable
London PLC ("Cable London"), in August 1999 Telewest exercised its right to
purchase all of NTL Bermuda's shares of Cable London for approximately 428
million pounds sterling (approximately $705 million) in cash. The closing of the
sale of NTL Bermuda's interest in Cable London is expected to take place in
November 1999. The sale of the Cable London interest is an "Asset Sale" for the
purposes of the Company's Indentures for certain of its notes. The Company will
need to use an amount equal to the proceeds from the sale to repay subsidiary
debt, invest in "Replacement Assets" or make an offer to redeem certain of its
notes within 360 days after the sale.
11
<PAGE>
NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
NOTE G - LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------------------------
(unaudited)
(in thousands)
<S> <C> <C>
NTL Communications:
12-3/4% Senior Deferred Coupon Notes $ 259,866 $ 236,935
11-1/2% Senior Deferred Coupon Notes 904,878 831,976
10% Senior Notes 400,000 400,000
9-1/2% Senior Sterling Notes, less unamortized
discount of $592 (1999) and $639 (1998) 205,208 206,800
10-3/4% Senior Deferred Coupon Sterling Notes 340,929 317,511
9-3/4% Senior Deferred Coupon Notes 930,037 865,880
9-3/4% Senior Deferred Coupon Sterling Notes 352,540 -
11-1/2% Senior Notes 625,000 625,000
12-3/8% Senior Deferred Coupon Notes 278,356 254,718
7% Convertible Subordinated Notes - 275,000
7% Convertible Subordinated Notes 599,300 600,000
Senior Increasing Rate Notes 704,615 -
Variable Rate Redeemable Guaranteed Loan Notes 109,080 -
NTL Bermuda:
11.2% Senior Discount Debentures 457,758 421,835
Other 8,948 31,839
Diamond:
13-1/4% Senior Discount Notes 285,223 -
11-3/4% Senior Discount Notes 462,905 -
10-3/4% Senior Discount Notes 328,165 -
10% Senior Sterling Notes 222,264 -
9-1/8% Senior Notes 110,000 -
Other 12,718 -
------------------------------
7,597,790 5,067,494
Less current portion 114,976 23,691
-------------------------------
$ 7,482,814 $ 5,043,803
===============================
</TABLE>
12
<PAGE>
NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
NOTE G - LONG-TERM DEBT (CONTINUED)
In September 1999, NTL Bermuda repaid at maturity the $21,529,000 due under its
notes payable to Comcast U.K. Holdings, Inc.
In July 1999, the Company issued $704,615,000 principal amount Senior Increasing
Rate Notes due 2000 (the "Senior Notes") in connection with the purchase of
Cablelink. The principal amount includes $3,034,000 in fees which is included in
deferred financing costs. Interest on the Senior Notes is payable quarterly at
the higher of: (i) the Citibank, NA base rate plus 3%, (ii) three-month LIBOR
plus 3%, or (iii) the highest yield on any of the 1, 3, 5 and 10 year direct
obligations issued by the government of the United States plus 3.5%. The
interest rate on any unpaid principal will increase by a further 0.5% every
three months, not to exceed 16%. The interest rate at September 30, 1999 was
11.25%. On June 8, 2000, the Senior Notes are subject to a mandatory exchange
for, at the option of the holder, either an "Extended Note" in a principal
amount equal to the principal amount of the Senior Notes, or a "Rollover Note"
in a principal amount equal to the principal amount of the Senior Notes plus 3%
of such principal amount. The Extended Note shall accrue interest at 14% per
annum and shall mature no later than ten years after issuance. The Rollover Note
shall accrue interest at 14% per annum and mature ten years after issuance. The
Company is in discussions with various parties relating to a private placement
offering to refinance the Senior Notes.
In July 1999, the Company also issued 80 million Irish punts ($109,080,000)
principal amount Variable Rate Redeemable Guaranteed Loan Notes due 2002 (the
"Guaranteed Notes") in connection with the Cablelink acquisition. Interest on
the Guaranteed Notes is payable quarterly at EURIBOR. The EURIBOR rate at
September 30, 1999 was 2.698%. The Guaranteed Notes may be redeemed at any time,
at the option of the holder, at par plus accrued and unpaid interest to the date
of the redemption. The Guaranteed Notes are subject to mandatory redemption in
January 2002. The Company deposited 87 million Irish punts ($118,625,000) into
escrow as cash collateral for the Guaranteed Notes, which is included in other
noncurrent assets.
In May 1999, the Company called for redemption all of its $275,000,000 principal
amount of 7% Convertible Subordinated Notes due 2008 (the "7% Notes") at a
redemption price of 104.9% of the principal amount, plus accrued and unpaid
interest. In June 1999, all of the 7% Notes were converted into approximately
9,075,000 shares of NTL Incorporated common stock at the applicable conversion
price of $30.30 per share. The unamortized deferred financing costs related to
the 7% Notes of $6,415,000 were written-off to equity.
In April 1999, the Company issued 330,000,000 pounds sterling aggregate
principal amount at maturity of 9-3/4% Senior Deferred Coupon Sterling Notes due
2009 (the "9-3/4% Notes"). The 9-3/4% Notes were issued at a price of 62.11% of
the aggregate principal amount at maturity or 204,963,000 pounds sterling. The
aggregate of the discounts, commissions and the fees incurred of $8,465,000 is
included in deferred financing costs. The original issue discount accretes at a
rate of 9-3/4%, compounded semiannually, to an aggregate principal amount of
330,000,000 pounds sterling by April 15, 2004. Interest will thereafter accrue
at 9-3/4% per annum, payable semiannually beginning on October 15, 2004. The
9-3/4% Notes may be redeemed at the Company's option, in whole or in part, at
any time on or after April 15, 2004 at 104.875% that declines annually to 100%
in 2007, plus accrued and unpaid interest to the date of redemption.
13
<PAGE>
NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
NOTE H - COMPREHENSIVE LOSS
The Company's comprehensive loss for the three and nine months ended September
30, 1999 and 1998 was $(86,853,000), $(81,135,000), $(872,170,000) and
$(268,998,000), respectively.
NOTE I - SEGMENT DATA
<TABLE>
<CAPTION>
Local Telecoms National Corporate
Broadcast and Television Telecoms And Other Total
---------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Nine months ended September 30, 1999
Revenues $ 119,900 $ 583,728 $ 349,232 $ - $ 1,052,860
EBITDA (1) 76,404 163,625 89,418 (199,999) 129,448
Nine months ended September 30, 1998
Revenues $ 100,825 $ 214,545 $ 166,845 $ 2,375 $484,590
EBITDA (1) 67,681 48,408 18,789 (85,834) 49,044
Total assets
September 30, 1999 $ 303,387 $ 5,676,318 $ 1,074,260 $ 2,314,718 $ 9,368,683
December 31, 1998 289,068 3,100,492 761,097 2,043,440 6,194,097
</TABLE>
(1) Represents earnings before interest, taxes, depreciation and amortization,
corporate expenses and franchise fees.
The reconciliation of segment combined EBITDA to net loss is as follows:
NINE MONTHS ENDED SEPTEMBER 30
------------------------------
1999 1998
------------------------------
(in thousands)
Segment Combined EBITDA $ 129,448 $ 49,044
(Add) Deduct:
Franchise fees 22,287 18,729
Corporate expenses 18,475 11,797
Depreciation and amortization 518,356 156,785
Interest and other income (26,829) (39,796)
Interest expense 484,570 226,422
Foreign currency transaction (gains) losses (22,523) 6,973
Loss from early extinguishment of debt - 4,239
-----------------------------
994,336 385,149
-----------------------------
Net (loss) $ (864,888) $ (336,105)
=============================
14
<PAGE>
NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
NOTE J - COMMITMENTS AND CONTINGENT LIABILITIES
As of September 30, 1999, the Company was committed to pay approximately
$276,000,000 for equipment and services.
The Company has certain exclusive local delivery operator licenses for Northern
Ireland and other franchise areas in the United Kingdom. Pursuant to these
licenses, various subsidiaries of the Company are required to make monthly cash
payments to the ITC during the 15 year license terms. The Company has paid 14.4
million pounds sterling ($22.3 million) through September 30, 1999 in connection
with these licenses. The Company has requested the ITC to convert all of its fee
bearing exclusive licenses to non-exclusive licenses by the end of 1999. The
Company's liability for the license payments will end upon the conversion.
The Company is involved in, or has been involved in, certain disputes and
litigation arising in the ordinary course of its business. None of these matters
are expected to have a material adverse effect on the Company's financial
position, results of operations or cash flows.
15
<PAGE>
NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
The following table illustrates the number of homes passed, the number of homes
marketed and the total number of customers for the Company's newly constructed
dual network.
<TABLE>
<CAPTION>
====================================================================================================================================
NTL (2) Total
NTL(1) (with UK Combined
(Before recent acquisitions) acquisitions) NTL (3)
- ------------------------------------------------------------------------------------------------------------------------------------
09/30/98 12/31/98 09/30/99 09/30/99 09/30/99
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Homes passed 1,197,000 1,247,200 1,335,800 3,667,300 4,262,600
- ------------------------------------------------------------------------------------------------------------------------------------
Homes marketed (Tel.) 1,020,000 1,064,600 1,137,600 3,146,600 3,146,600
- ------------------------------------------------------------------------------------------------------------------------------------
Homes marketed (CATV) 1,020,000 1,064,600 1,137,600 3,261,100 3,817,900
- ------------------------------------------------------------------------------------------------------------------------------------
Total customers 429,600 471,000 529,800 1,291,800 1,705,700
- ------------------------------------------------------------------------------------------------------------------------------------
Dual 398,800 434,100 489,500 879,100 879,100
- ------------------------------------------------------------------------------------------------------------------------------------
Telephone-only 15,300 16,100 16,200 288,300 288,300
- ------------------------------------------------------------------------------------------------------------------------------------
Cable-only 20,500 20,800 24,100 124,400 538,300
- ------------------------------------------------------------------------------------------------------------------------------------
Total RGUs (4) 823,400 905,100 1,019,300 2,170,900 2,584,800
- ------------------------------------------------------------------------------------------------------------------------------------
Customer penetration 42.1% 44.2% 46.6% 39.6% 44.7%
- ------------------------------------------------------------------------------------------------------------------------------------
RGU penetration 80.7% 85.0% 89.6% 66.6% 67.7%
- ------------------------------------------------------------------------------------------------------------------------------------
Telephone penetration 40.6% 42.3% 44.5% 37.1% 37.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Cable penetration 36.4% 42.7% 45.1% 30.8% 37.1%
====================================================================================================================================
</TABLE>
(1) Data for franchises owned and operated by NTL prior to the 1998
acquisitions.
(2) Includes Comcast UK, ComTel, and Diamond Cable. Excludes 50% ownership of
Cable London and BT cable franchises.
(3) Includes the above UK acquisitions as well as Cablelink and the BT cable
franchises.
(4) An RGU (revenue generating unit) is one cable television account or one
telephone account; a dual customer generates two RGUs.
Effective April 1, 1999, NTL Incorporated completed a corporate restructuring to
create a holding company structure. The holding company restructuring was
accomplished through a merger so that all the stockholders of NTL Incorporated
at the effective time of the merger became stockholders of the new holding
company, and NTL Incorporated became a subsidiary of the new holding company.
The new holding company has taken the name NTL Incorporated and the holding
company's subsidiary simultaneously changed its name to NTL Communications Corp.
The "Company" refers to NTL Incorporated and subsidiaries up to and including
March 31, 1999, and to NTL Communications Corp. and subsidiaries beginning April
1, 1999.
16
<PAGE>
NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries
RESULTS OF OPERATIONS
As a result of the completion of the acquisitions of ComTel Limited and
Telecential Communications (collectively "ComTel") in the second and third
quarters of 1998, Comcast UK Cable Partners Limited ("NTL Bermuda") and Eastern
Group Telecoms ("EGT") in the fourth quarter of 1998, Diamond Cable
Communications plc ("Diamond") in March 1999 and Cablelink Limited ("Cablelink")
in July 1999, the Company consolidated the results of operations of these
businesses from the dates of acquisition. The results of these businesses are
not included in the 1998 results except for the results of operations of ComTel.
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
- ----------------------------------------------
Local telecommunications and television revenues increased to $218,408,000 from
$84,366,000 as a result of acquisitions and from customer growth that increased
the Company's current revenue stream. The 1999 and 1998 revenue includes
$128,180,000 and $12,667,000, respectively, from acquired companies. The Company
expects its customer base to continue to increase which will drive further
revenue growth as the Company completes the construction of its broadband
network past the remaining homes in its franchise areas.
National and international telecommunications revenues increased to $130,647,000
from $64,185,000 as a result of acquisitions, which was $35,853,000 of the
increase, and from increases in business telecommunications revenues, Internet
services revenues and carrier services revenues. Business telecommunications and
Internet services revenues increased primarily as a result of customer growth.
The Company expects its business telecommunications and Internet services
customer base to continue to increase which will drive further revenue growth.
The Company is expanding its sales and marketing effort to business customers
and for Internet services in its completed network. Carrier services revenues
increased due to growth in satellite services and telephone services provided by
the Company's wholesale operation to broadcasters and telephone companies,
respectively. Revenue growth in carrier services is primarily dependent upon the
Company's ability to continue to attract new customers and expand services to
existing customers. Recent new contracts should contribute to revenue growth in
the near term.
Broadcast transmission and other revenues increased to $40,298,000 from
$33,933,000 due to increases in broadcast television and FM radio customers and
accounts, which exceeded price cap reductions in the Company's regulated
services. Broadcast television revenues are expected to increase in the future
as digital broadcasting revenues increase.
Operating expenses increased to $184,953,000 from $88,122,000 as a result of
increases in interconnection costs and programming costs due to customer growth.
The 1999 and 1998 expense includes $70,961,000 and $4,298,000, respectively,
from acquired companies.
17
<PAGE>
NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries
Selling, general and administrative expenses increased to $142,669,000 from
$78,543,000 as a result of increases in telecommunications and CATV sales and
marketing costs and increases in additional personnel and overhead to service
the increasing customer base. In addition, approximately $8.3 million of the
increase was due to the new national brand and advertising campaign which began
in the second quarter of 1999 and will continue through 1999. The 1999 and 1998
expense includes $56,055,000 and $11,579,000, respectively, from acquired
companies.
Pursuant to the terms of various United Kingdom licenses, the Company incurs
license fees paid to the ITC to operate as the exclusive service provider in
certain of its franchise areas. Franchise fees increased to $7,710,000 from
$6,223,000. The 1999 amount includes Diamond franchise fees of $1,500,000. The
Company has requested the ITC to convert all of its fee bearing exclusive
licenses to non-exclusive licenses by the end of 1999. The Company's liability
for the license payments will end upon the conversion.
Corporate expenses increased to $6,249,000 from $4,018,000 due to an increase in
various overhead costs.
Depreciation and amortization expense increased to $189,906,000 from $61,218,000
due to an increase in depreciation of telecommunications and CATV equipment. The
1999 expense includes $86,746,000 from acquired companies, including
amortization of acquisition related intangibles.
Interest expense increased to $186,028,000 from $84,800,000 due to the issuance
of additional debt, and the increase in the accretion of original issue discount
on the deferred coupon notes. The 1999 expense includes $54,632,000 from
acquired companies. Interest of $79,937,000 and $55,076,000 was paid in the
three months ended September 30, 1999 and 1998, respectively.
Foreign currency transaction gains (losses) increased to a gain of $33,426,000
from a loss of $9,770,000 due to net foreign currency transaction gains of
$64,137,000 from acquired companies in 1999, offset by unfavorable changes in
exchange rates subsequent to the issuance of new debt denominated in foreign
currencies.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
- ---------------------------------------------
Local telecommunications and television revenues increased to $583,728,000 from
$214,545,000 as a result of acquisitions and from customer growth that increased
the Company's current revenue stream. The 1999 and 1998 revenue includes
$323,620,000 and $14,409,000, respectively, from acquired companies. The Company
expects its customer base to continue to increase which will drive further
revenue growth as the Company completes the construction of its broadband
network past the remaining homes in its franchise areas.
18
<PAGE>
NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries
National and international telecommunications revenues increased to $349,232,000
from $166,845,000 as a result of acquisitions, which was $101,295,000 of the
increase, and from increases in business telecommunications revenues, Internet
services revenues and carrier services revenues. Business telecommunications and
Internet services revenues increased primarily as a result of customer growth.
The Company expects its business telecommunications and Internet services
customer base to continue to increase which will drive further revenue growth.
The Company is expanding its sales and marketing effort to business customers
and for Internet services in its completed network. Carrier services revenues
increased due to growth in satellite services and telephone services provided by
the Company's wholesale operation to broadcasters and telephone companies,
respectively. Revenue growth in carrier services is primarily dependent upon the
Company's ability to continue to attract new customers and expand services to
existing customers. Recent new contracts should contribute to revenue growth in
the near term.
Broadcast transmission and other revenues increased to $119,900,000 from
$100,825,000 due to increases in broadcast television and FM radio customers and
accounts, which exceeded price cap reductions in the Company's regulated
services. Broadcast television revenues are expected to increase in the future
as digital broadcasting revenues increase.
Other telecommunications revenues decreased to zero from $2,375,000 due to the
sales of the assets of the Company's wholly-owned subsidiary, OCOM Corporation,
to AirTouch Communications, Inc. and to Cellular Communications of Puerto Rico,
Inc. during 1998.
Operating expenses increased to $507,335,000 from $243,476,000 as a result of
increases in interconnection costs and programming costs due to customer growth.
The 1999 and 1998 expense includes $179,968,000 and $5,511,000, respectively,
from acquired companies.
Selling, general and administrative expenses increased to $416,077,000 from
$192,070,000 as a result of increases in telecommunications and CATV sales and
marketing costs and increases in additional personnel and overhead to service
the increasing customer base. In addition, approximately $32.1 million of the
increase was due to the new national brand and advertising campaign which began
in the second quarter of 1999 and will continue through 1999. The 1999 and 1998
expense includes $158,161,000 and $12,535,000, respectively, from acquired
companies.
Pursuant to the terms of various United Kingdom licenses, the Company incurs
license fees paid to the ITC to operate as the exclusive service provider in
certain of its franchise areas. Franchise fees increased to $22,287,000 from
$18,729,000. The 1999 amount includes Diamond franchise fees of $3,517,000. The
Company has requested the ITC to convert all of its fee bearing exclusive
licenses to non-exclusive licenses by the end of 1999. The Company's liability
for the license payments will end upon the conversion.
Corporate expenses increased to $18,475,000 from $11,797,000 due to an increase
in various overhead costs.
19
<PAGE>
NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries
Depreciation and amortization expense increased to $518,356,000 from
$156,785,000 due to an increase in depreciation of telecommunications and CATV
equipment. The 1999 expense includes $262,205,000 from acquired companies,
including amortization of acquisition related intangibles.
Interest expense increased to $484,570,000 from $226,422,000 due to the issuance
of additional debt, and the increase in the accretion of original issue discount
on the deferred coupon notes. The 1999 expense includes $132,112,000 from
acquired companies. Interest of $172,109,000 and $94,734,000 was paid in the
nine months ended September 30, 1999 and 1998, respectively.
Foreign currency transaction gains (losses) increased to a gain of $22,523,000
from a loss of $6,973,000 primarily due to net foreign currency transaction
gains of $27,914,000 from acquired companies in 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company will continue to require significant amounts of capital to finance
construction of its local and national networks in the United Kingdom and
Ireland, for connection of telephone, telecommunications, Internet and CATV
customers to the networks, for other capital expenditures and for debt service.
The Company estimates that these requirements, net of cash from operations, will
aggregate up to approximately $1.7 billion in the fourth quarter of 1999 and
through December 31, 2000. The Company's commitments for equipment and services
at September 30, 1999 of approximately $276 million are included in the
anticipated requirements. The Company had approximately $663 million in cash and
securities on hand at September 30, 1999. In addition, NTL Incorporated had
approximately $889 million in cash and securities on hand at September 30, 1999,
excluding cash of its subsidiaries, most of which is available to fund the
Company's cash requirements. The Company will therefore need additional cash in
order to fund these requirements, and the Company is in discussions with various
parties relating to sources of additional financing.
Regarding the Company's estimated cash requirements described above, there can
be no assurance that: (i) actual construction costs will not exceed the amounts
estimated or that additional funding substantially in excess of the amounts
estimated will not be required, (ii) additional financing will be obtained or
will be available on acceptable terms, (iii) conditions precedent to advances
under future credit facilities will be satisfied when funds are required, (iv)
the Company and its subsidiaries will be able to generate sufficient cash from
operations to meet capital requirements, debt service and other obligations when
required, (v) the Company will be able to access such cash flow or (vi) the
Company will not incur losses from its exposure to exchange rate fluctuations or
be adversely affected by interest rate fluctuations.
NTL Bermuda expects to close on the sale of its interest in Cable London in
November 1999. The sales price is approximately 428 million pounds sterling
(approximately $705 million). The sale of the Cable London interest is an "Asset
Sale" for the purposes of the Company's Indentures for certain of its notes.
20
<PAGE>
NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries
The Company will need to use an amount equal to the proceeds from the sale to
repay subsidiary debt, invest in "Replacement Assets" or make an offer to redeem
certain of its notes within 360 days after the sale.
In July 1999, NTL Incorporated agreed to acquire the consumer cable telephone,
Internet and television operations of Cable & Wireless Communications, plc
("CWC"). NTL Incorporated will issue 68 million new shares of NTL common stock
and pay 2.85 billion pounds sterling ($4.7 billion) in cash. NTL Incorporated
will also discharge, refinance or assume approximately 1.9 billion pounds
sterling ($3.1 billion) of CWC's net debt, plus further debt up to an agreed
amount of CWC cash outflow through the closing. The transaction is subject to
various approvals and other conditions. The Company and NTL Incorporated have
obtained a financing commitment for up to approximately 2.1 billion pounds
sterling ($3.5 billion) to fund a portion of the cost of this acquisition. The
commitment is subject to the preparation, execution and delivery of loan
documentation and the accuracy and completeness of representations. The
commitment expires in November 1999, unless definitive documentation has been
executed and delivered.
In connection with the CWC acquisition, NTL Incorporated announced that France
Telecom agreed to invest an additional $4.5 billion in NTL Incorporated. France
Telecom will invest $2.5 billion in NTL Incorporated common stock issued at $74
per share and $2.0 billion in convertible preferred stock with a 5% dividend and
a conversion price of $100 per share. The closing of the additional investment
is subject to the completion of the CWC acquisition, unless France Telecom
elects to accelerate the closing of this investment. In the event France Telecom
elects to accelerate the closing of the investment, the proceeds will be used as
mutually agreed by NTL Incorporated and France Telecom prior to such closing.
The Company is highly leveraged. The accreted value at September 30, 1999 of the
Company's consolidated long-term indebtedness is approximately $7.5 billion,
representing approximately 90% of total capitalization. The following summarizes
the terms of those notes issued by the Company and its subsidiaries.
NTL Communications:
(1) 12-3/4% Senior Deferred Coupon Notes due April 15, 2005, principal amount
at maturity of $278 million, interest payable semi-annually beginning on
October 15, 2000, redeemable at the Company's option on or after April 15,
2000;
(2) 11-1/2% Senior Deferred Coupon Notes due February 1, 2006, principal amount
at maturity of $1.05 billion, interest payable semi-annually beginning on
August 1, 2001, redeemable at the Company's option on or after February 1,
2001;
(3) 10% Senior Notes due February 15, 2007, principal amount of $400 million,
interest payable semi-annually from August 15, 1997, redeemable at the
Company's option on or after February 15, 2002;
21
<PAGE>
NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries
(4) 9-1/2% Senior Sterling Notes due April 1, 2008, principal amount of 125
million pounds sterling ($205 million), interest payable semi-annually from
October 1, 1998, redeemable at the Company's option on or after April 1,
2003;
(5) 10-3/4% Senior Deferred Coupon Sterling Notes due April 1, 2008, principal
amount at maturity of 300 million pounds sterling ($494 million), interest
payable semi-annually from October 1, 2003, redeemable at the Company's
option on or after April 1, 2003;
(6) 9-3/4% Senior Deferred Coupon Notes due April 1, 2008, principal amount at
maturity of $1.3 billion, interest payable semi-annually from October 1,
2003, redeemable at the Company's option on or after April 1, 2003;
(7) 9-3/4% Senior Deferred Coupon Sterling Notes due April 15, 2009, principal
amount at maturity of 330 million pounds sterling ($543 million), interest
payable semi-annually from October 15, 2004, redeemable at the Company's
option on or after April 15, 2004;
(8) 11-1/2% Senior Notes due October 1, 2008, principal amount of $625 million,
interest payable semi-annually from April 1, 1999, redeemable at the
Company's option on or after October 1, 2003;
(9) 12-3/8% Senior Deferred Coupon Notes due October 1, 2008, principal amount
at maturity of $450 million, interest payable semi-annually from April 1,
2004, redeemable at the Company's option on or after October 1, 2003;
(10) 7% Convertible Subordinated Notes due December 15, 2008, principal amount
of $599 million, interest payable semi-annually from June 15, 1999,
convertible into shares of NTL Incorporated's common stock at a conversion
price of $49.00 per share, redeemable at the Company's option on or after
December 15, 2001;
(11) Senior Increasing Rate Notes due June 8, 2000, principal amount of $705
million, interest payable quarterly from July 9, 1999 at the higher of: (i)
the Citibank, NA base rate plus 3%, (ii) three month LIBOR plus 3%, or
(iii) the highest yield on any of the 1, 3, 5 and 10 year direct
obligations issued by the government of the United States plus 3.5%, the
interest rate will increase by a further 0.5% every three months, not to
exceed 16%, (the interest rate at September 30, 1999 was 11.25%), mandatory
exchange for, at the option of the holder, either an Extended Note or a
Rollover Note, on June 8, 2000, an Extended Note shall accrue interest at
14% per annum and shall mature no later than ten years after issuance, a
Rollover Note shall accrue interest at 14% per annum and mature ten years
after issuance. The Company is in discussions with various parties relating
to a private placement offering to refinance the Senior Increasing Rate
Notes;
22
<PAGE>
NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries
(12) Variable Rate Redeemable Guaranteed Loan Notes due January 5, 2002,
principal amount of 80 million Irish punts ($109 million), interest payable
quarterly from July 9, 1999 at EURIBOR, (the interest rate at September 30,
1999 was 2.698%), redeemable at any time, at the option of the holder, at
par plus accrued and unpaid interest to the date of redemption, for which
87 million Irish punts ($118.6 million) is in escrow;
NTL Bermuda:
(13) 11.2% Senior Discount Debentures due November 15, 2007, principal amount at
maturity of $517.3 million, interest payable semi-annually from May 15,
2001;
Diamond:
(14) 13-1/4% Senior Discount Notes due September 30, 2004, principal amount at
maturity of $285 million, interest payable semi-annually beginning on March
31, 2000, redeemable at Diamond's option after September 30, 1999;
(15) 11-3/4% Senior Discount Notes due December 15, 2005, principal amount at
maturity of $531 million, interest payable semi-annually beginning on June
15, 2001, redeemable at Diamond's option on or after December 15, 2000;
(16) 10-3/4% Senior Discount Notes due February 15, 2007, principal amount at
maturity of $421 million, interest payable semi-annually beginning on
August 15, 2002;
(17) 10% Senior Notes due February 1, 2008, issued by Diamond Holdings plc, a
wholly-owned subsidiary of Diamond, principal amount of 135 million pounds
sterling ($222 million), interest payable semi-annually as of August 1,
1998;
(18) 9-1/8% Senior Notes due February 1, 2008, issued by Diamond Holdings plc,
principal amount of $110 million, interest payable semi-annually as of
August 1, 1998; and
(19) mortgage of 2.5 million pounds sterling ($4.1 million) to fund the
construction of an office building, repayable over 20 years as of July 31,
1995, interest at LIBOR plus 1-1/2%.
The Company has other significant commitments or potential commitments in
addition to those described above. These are as follows:
(1) The Company has certain exclusive local delivery operator licenses for
Northern Ireland and other franchise areas in the United Kingdom. Pursuant
to these licenses, various subsidiaries are required to make monthly cash
payments to the ITC during the 15 year license terms. The Company has paid
14.4 million pounds sterling ($22 million) through September 30, 1999 in
connection with these licenses. The Company has requested the ITC to
convert all of its fee bearing exclusive licenses to non-exclusive licenses
by the end of 1999. The Company's liability for the license payments will
end upon the conversion.
23
<PAGE>
NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries
(2) In July 1999, the Company acquired certain broadband cable franchises from
British Telecommunications plc ("BT") for an aggregate of up to 19 million
pounds sterling ($31.2 million). The Company paid approximately 5 million
pounds sterling ($8.2 million) on closing and will pay up to 14 million
pounds sterling ($23.0 million) on completion of the upgrade of certain
networks. The Company expects to invest approximately 15 million pounds
sterling ($24.7 million) to upgrade the networks for digital cable,
interactive services and high speed Internet access. The Company leases the
networks from BT on a long-term basis for an annual lease payment of
approximately 3.9 million pounds sterling ($6.4 million).
Management does not anticipate that the Company and its subsidiaries will
generate sufficient cash flow from operations to repay at maturity the entire
principal amount of the outstanding indebtedness of the Company and its
subsidiaries. Accordingly, the Company may be required to consider a number of
measures, including: (i) refinancing all or a portion of such indebtedness, (ii)
seeking modifications to the terms of such indebtedness, (iii) seeking
additional debt financing, which may be subject to obtaining necessary lender
consents, (iv) seeking additional equity financing, or (v) a combination of the
foregoing.
The Company's operations are conducted through its direct and indirect
wholly-owned subsidiaries. As a holding company, the Company holds no
significant assets other than cash, securities and its investments in and
advances to its subsidiaries. Accordingly, the Company's ability to make
scheduled interest and principal payments when due to holders of its
indebtedness may be dependent upon the receipt of sufficient funds from its
subsidiaries.
From time to time NTL Incorporated may fund its capital requirements outside the
United Kingdom and Ireland from dividends from the Company subject to certain
conditions under the Indentures. The Company distributed $500 million to NTL
Incorporated in April 1999. The Company may use cash from equity proceeds in
excess of cumulative EBITDA (as defined in the Indentures) minus 1.5 times
cumulative interest expense plus capital stock proceeds, for dividend payments
to the extent such funds are not used for other Restricted Payments (as defined
in the Indentures). NTL Incorporated intends to repay certain amounts to the
Company when funds become available. Currently there are no funds available to
NTL Incorporated from the Company, because the Senior Increasing Rate Notes
prohibit the Company from making dividend payments or other distributions to NTL
Incorporated.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash provided by operating activities was $20,304,000 and cash used in operating
activities was $27,656,000 in the nine months ended September 30, 1999 and 1998,
respectively. The change is primarily due to changes in operating assets and
liabilities.
Purchases of fixed assets were $855,667,000 in 1999 and $464,944,000 in 1998 as
a result of the continuing fixed asset purchases and construction in 1999,
including purchases and construction by acquired companies.
24
<PAGE>
NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries
Proceeds from borrowings, net of financing costs, of $1,125,494,000 in 1999 is
from the issuance of the 9-3/4% Notes and from the issuance of the Senior
Increasing Rate Notes and the Variable Rate Redeemable Guaranteed Loan Notes
issued in connection with the Cablelink acquisition. Proceeds from issuance of
preferred stock and warrants of $500,000,000 in 1999 is from the sale of 5.25%
Convertible Preferred Stock and warrants to purchase 1.5 million shares of NTL
Incorporated's common stock to Microsoft Corp. The distribution to NTL
Incorporated of $500,000,000 in 1999 was primarily for NTL Incorporated's
acquisition of the Australian National Transmission Network.
YEAR 2000
The Company has a comprehensive Year 2000 project designed to identify and
assess the risks associated with its information systems, products, operations
and infrastructure, suppliers, and customers that are not Year 2000 compliant,
and to develop, implement and test remediation and contingency plans to mitigate
these risks. The project comprises four phases: (1) identification of risks, (2)
assessment of risks, (3) development of remediation and contingency plans and
(4) implementation and testing.
The Company has completed its compilation of equipment and systems that might be
affected by Year 2000 noncompliance. An impact and risk assessment has been
completed on all items to determine whether items are business critical, high
priority or low priority. This assessment includes all information systems
("IS") and non-IS equipment with embedded technology such as air conditioning,
generators and power supplies. The Company's billing, provisioning and customer
service systems have been reviewed and modified for Year 2000 readiness.
Integration testing of the complete system began in the second quarter of 1999
and will continue until the end of 1999 as part of change control management
when new processes are introduced. Testing of other business critical and high
priority items is mostly complete, although some testing will continue into the
fourth quarter of 1999. Where appropriate, remedial work has been minimized by
bringing forward planned system revisions and retiring old equipment. The
Company has also communicated with its suppliers with respect to the high
priority and business critical items. A central database has been maintained to
insure all issues have been resolved. This communication is virtually complete,
and all items are now cleared or have a definite planned upgrade path. A
Millennium Operations Plan has been created and the key resources needed for
problems that may arise over the Year 2000 weekend have been scheduled. The
Millennium Operations Plan will be constantly revised throughout the fourth
quarter of 1999 to account for changes in external influences. The Company's
Year 2000 Project and Operations Plan have been independently audited by the
United Kingdom telecoms industry regulator, OFTEL, during 1999 and have been
declared satisfactory.
25
<PAGE>
NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries
The Company expects to incur $13 million primarily in labor costs to compile
inventories, assess risks, prioritize remediation projects, communicate with
suppliers, maintain the supplier communications database, test remediations and
implement remediations. The Company incurred approximately $3.2 million of this
amount in 1998 and approximately $7.5 million was incurred through September 30,
1999.
The Company currently believes that the most reasonably likely worst case
scenario with respect to the Year 2000 is the failure of public electricity
supplies during the millennium period. A number of critical sites have permanent
automatic standby generators and uninterruptible power supplies. Where critical
sites do not have permanent standby power, the Company intends to deploy its
mobile generators. In addition, other telephone operators have suggested that
the telephone network may overload due to excessive traffic. The Company is
reviewing its "cold start" scenarios and alternative interconnection routes in
the event of interruptions in the service of other telephone companies. Either
or both of the above mentioned scenarios could have a material adverse effect on
operations, although it is not possible at this time to quantify the amount of
revenues and gross profit that might be lost, or the costs that could be
incurred.
During the remainder of 1999, the Company may discover additional problems and
may not be able to develop, implement or test remediation or contingency plans,
or may find that the costs of these activities exceed current expectations. In
many cases, the Company is relying on assurances from suppliers that new and
upgraded information systems and other products will be Year 2000 ready. The
Company has tested most of such third-party products, but cannot be sure that
its tests were adequate or that, if problems are identified as testing is
completed, they will be addressed by the supplier in a timely and satisfactory
way.
Because the Company uses a variety of information systems and has additional
systems embedded in its operations and infrastructure, the Company cannot be
sure that all of its systems will work together in a Year 2000-ready fashion.
Furthermore, the Company cannot be sure that it will not suffer business
interruptions, either because of its own Year 2000 problems or those of
third-parties upon whom the Company is reliant for services. The Company is
continuing to evaluate its Year 2000-related risks and corrective actions.
However, the risks associated with the Year 2000 problem are pervasive and
complex; they can be difficult to identify and address, and can result in
material adverse consequences to the Company. Even if the Company, in a timely
manner, completes all of the upgrades and testing that is believed to be
adequate, and develops contingency plans believed to be adequate, some problems
may not be identified or corrected in time to prevent material adverse
consequences to the Company.
26
<PAGE>
NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements contained herein constitute "forward-looking statements" as
that term is defined under the Private Securities Litigation Reform Act of 1995.
When used herein, the words, "believe," "anticipate," "should," "intend,"
"plan," "will," "expects," "estimates," "projects," "positioned," "strategy,"
and similar expressions identify such forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from those
contemplated, projected, forecasted, estimated or budgeted, whether expressed or
implied, by such forward-looking statements. Such factors include the following:
general economic and business conditions, the Company's ability to continue to
design networks, install facilities, obtain and maintain any required
governmental licenses or approvals and finance construction and development, all
in a timely manner at reasonable costs and on satisfactory terms and conditions,
as well as assumptions about customer acceptance, churn rates, overall market
penetration and competition from providers of alternative services, the impact
of new business opportunities requiring significant up-front investment, Year
2000 readiness, and availability, terms and deployment of capital.
27
<PAGE>
NTL Communications Corp. (formerly 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 September 30, 1999, the Company filed a
report on Form 8-K dated September 17, 1999, reporting under Item 5,
Other Events, that NTL Incorporated agreed to acquire 100% of
Workplace Technologies plc and that NTL Incorporated announced that
Telewest Communications plc exercised its right to purchase all of
NTL's shares of Cable London PLC. There were no financial statements
filed with this report.
28
<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 COMMUNICATIONS CORP.
Date: November 10 , 1999 By: /s/ J. Barclay Knapp
-------------------------------------
J. Barclay Knapp
President and Chief Executive Officer
Date: November 10, 1999 By: /s/ Gregg Gorelick
-------------------------------------
Gregg Gorelick
Vice President-Controller
(Principal Accounting Officer)
29
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