-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G6jyIXimn7W+tCTvGStGPAeAzIq3Mo49tj2/2FsCZDP9Aem8PjCgac46Ccm8ZL18 YqvgMsinMyCa8N6RFaIqjw== 0000906347-98-000035.txt : 19980515 0000906347-98-000035.hdr.sgml : 19980515 ACCESSION NUMBER: 0000906347-98-000035 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NTL INC /DE/ CENTRAL INDEX KEY: 0000906347 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 521822078 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22616 FILM NUMBER: 98620040 BUSINESS ADDRESS: STREET 1: 110 E 59TH ST STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2129068480 MAIL ADDRESS: STREET 1: 110 EAST 59TH STREET STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL CABLETEL INC DATE OF NAME CHANGE: 19930601 10-Q 1 NTL INCORPORATED - FORM 10Q - MARCH 31, 1998 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. 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 - ---------- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NTL Incorporated and Subsidiaries Condensed Consolidated Balance Sheets
MARCH 31, DECEMBER 31, 1998 1997 -------------------------------------- (unaudited) (see note) 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 ======================================
Note: The balance sheet at December 31, 1997 has been derived from the audited financial statements at that date. See accompanying notes. 2 NTL Incorporated and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited)
THREE MONTHS ENDED MARCH 31 ------------------------------------- 1998 1997 ------------------------------------- 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) =====================================
See accompanying notes. 3 NTL Incorporated and Subsidiaries Condensed Consolidated Statement of Shareholders' (Deficiency) (Unaudited)
ACCUMULATED SERIES COMMON STOCK - ADDITIONAL OTHER PREFERRED STOCK $.01 PAR VALUE PAID-IN COMPREHENSIVE COMPREHENSIVE SHARES PAR SHARES PAR CAPITAL INCOME INCOME (DEFICIT) ---------------------------------------------------------------------------------------------------- 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) ====================================================================================================
See accompanying notes. 4 NTL Incorporated and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited)
THREE MONTHS ENDED MARCH 31 ---------------------------------- 1998 1997 ---------------------------------- 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
See accompanying notes. 5 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 NTL Incorporated and Subsidiaries Notes to Condensed Consolidated Financial Statements (continued) NOTE C - INTANGIBLE ASSETS Intangible assets consists of:
MARCH 31, DECEMBER 31, 1998 1997 ------------------------------------ (unaudited) 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 ====================================
NOTE D - LONG-TERM DEBT Long-term debt consists of:
MARCH 31, DECEMBER 31, 1998 1997 -------------------------------------- (unaudited) 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 ======================================
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 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 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 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:
THREE MONTHS ENDED MARCH 31 ------------------------------------- 1998 1997 ------------------------------------- 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) =====================================
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 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 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 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 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 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 NTL Incorporated and Subsidiaries
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 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 continues on the following page) 16 NTL Incorporated and Subsidiaries
7% Convertible 9-1/2% 10% Redeemable Subordinated Senior Sterling Series B Preferred Notes Notes Senior Notes Stock 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
(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 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 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 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 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 EX-27 2 QUARTERLY FINANCIAL DATA SCHEDULE - MARCH 31, 1998
5 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 1,169,699,000 83,591,000 89,033,000 (9,940,000) 0 51,209,000 2,108,611,000 (255,430,000) 3,694,951,000 292,936,000 3,357,217,000 112,250,000 0 323,000 (139,112,000) 3,694,951,000 0 147,792,000 0 77,333,000 66,565,000 0 58,058,000 (93,672,000) 0 (93,672,000) 0 0 0 (93,672,000) (3.02) (3.02)
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