-----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, PTzhRnwhBQLpy84MBMVQJcE/uwYkMvpIG+5No8TI04QdkK0ltY7DIzurGjamFZdb nInxWwfEm1ra5CSwEnzWow== 0000950123-99-004805.txt : 19990518 0000950123-99-004805.hdr.sgml : 19990518 ACCESSION NUMBER: 0000950123-99-004805 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NTL COMMUNICATIONS CORP 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: 99625462 BUSINESS ADDRESS: STREET 1: 110 E 59TH ST STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2129068440 MAIL ADDRESS: STREET 1: 110 EAST 59TH STREET STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: NTL INC /DE/ DATE OF NAME CHANGE: 19970326 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL CABLETEL INC DATE OF NAME CHANGE: 19930601 10-Q 1 NTL COMMUNICATIONS CORP. 1 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, 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 incorporation (I.R.S. Employer or organization) Identification No.) 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, 1999 was 73,401,941. 2 NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries Index PART I. FINANCIAL INFORMATION Page - ----------------------------- ---- Item 1. Financial Statements Condensed Consolidated Balance Sheets- March 31, 1999 and December 31, 1998 .................... 2 Condensed Consolidated Statements of Operations- Three months ended March 31, 1999 and 1998 .............. 4 Condensed Consolidated Statement of Shareholders' Equity- Three months ended March 31, 1999 ....................... 5 Condensed Consolidated Statements of Cash Flows- Three months ended March 31, 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 Item 3. Quantitative and Qualitative Disclosure about Market Risk 26 PART II. OTHER INFORMATION - -------------------------- Item 6. Exhibits and Reports on Form 8-K ......................... 27 SIGNATURES ........................................................ 28 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NTL Communications Corp. (formerly NTL Incoporated) and Subsidiaries Condensed Consolidated Balance Sheets
March 31, December 31, 1999 1998 ---------------------------------- (unaudited) (see note) Assets Current assets: Cash and cash equivalents $1,031,874,000 $ 736,265,000 Marketable securities 367,766,000 260,631,000 Accounts receivable--trade, less allowance for doubtful accounts of $49,752,000 (1999) and $38,475,000 (1998) and 167,629,000 152,356,000 Other 98,572,000 55,248,000 ---------------------------------- Total current assets 1,665,841,000 1,204,500,000 Fixed assets, net 4,688,167,000 3,854,430,000 Intangible assets, net 1,986,306,000 725,028,000 Investment in Cable London PLC, net of accumulated amortization of $7,510,000 (1999) and $3,093,000 (1998) 215,629,000 229,093,000 Other assets, net of accumulated amortization of $34,219,000 (1999) and $56,264,000 (1998) 254,528,000 181,046,000 ---------------------------------- Total assets $8,810,471,000 $6,194,097,000 ==================================
2 4 NTL Communications Corp. (formerly NTL Incoporated) and Subsidiaries Condensed Consolidated Balance Sheets - continued
March 31, December 31, 1999 1998 ---------------------------------- (unaudited) (see note) Liabilities and shareholders' equity Current liabilities: Accounts payable $216,890,000 $167,079,000 Accrued expenses and other 268,212,000 221,070,000 Accrued construction costs 66,015,000 88,033,000 Interest payable 22,864,000 34,258,000 Deferred revenue 66,556,000 69,820,000 Current portion of long-term debt 26,599,000 23,691,000 ---------------------------------- Total current liabilities 667,136,000 603,951,000 Long-term debt 6,457,732,000 5,043,803,000 Commitments and contingent liabilities Deferred income taxes 65,122,000 67,062,000 Senior redeemable exchangeable preferred stock - $.01 par value, plus accreted dividends; liquidation preference $129,000,000; less unamortized discount of $3,056,000 (1999) and $3,133,000 (1998); issued and outstanding 129,000 (1999) and 125,000 (1998) shares 128,340,000 124,127,000 Shareholders' equity: Series preferred stock - $.01 par value; authorized 10,000,000 shares: Series A - liquidation preference $131,860,000; issued and outstanding 125,000 (1999) and 125,000 (1998) shares 2,000 2,000 Series B - liquidation preference $53,624,000; issued and outstanding 52,000 (1999) and 52,000 (1998) shares -- -- Convertible Series A - liquidation preference $500,000,000; issued and outstanding 504,000 (1999) and none (1998) shares 5,000 -- Common stock - $.01 par value; authorized 400,000,000 shares; issued and outstanding 73,402,000 (1999) and 60,249,000 (1998) shares 734,000 602,000 Additional paid-in capital 2,982,949,000 1,501,561,000 Accumulated other comprehensive income (9,462,000) 104,657,000 (Deficit) (1,482,087,000) (1,251,668,000) ---------------------------------- 1,492,141,000 355,154,000 ---------------------------------- Total liabilities and shareholders' equity $8,810,471,000 $6,194,097,000 ==================================
Note: The balance sheet at December 31, 1998 has been derived from the audited financial statements at that date. See accompanying notes. 3 5 NTL Communications Corp. (formerly NTL Incoporated) and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended March 31 ---------------------------------- 1999 1998 ---------------------------------- Revenues Local telecommunications and television $168,827,000 $61,584,000 National and international telecommunications 105,730,000 51,012,000 Broadcast transmission and other 38,824,000 33,418,000 Other telecommunications -- 1,778,000 ---------------------------------- 313,381,000 147,792,000 Costs and expenses Operating expenses 161,544,000 77,333,000 Selling, general and administrative expenses 119,270,000 56,728,000 Franchise fees 6,848,000 6,195,000 Corporate expenses 5,252,000 3,642,000 Depreciation and amortization 141,734,000 45,856,000 ---------------------------------- 434,648,000 189,754,000 ---------------------------------- Operating (loss) (121,267,000) (41,962,000) Other income (expense) Interest and other income 11,013,000 5,143,000 Interest expense (130,823,000) (58,058,000) Foreign currency transaction gains 10,658,000 1,205,000 ---------------------------------- Net (loss) $(230,419,000) $(93,672,000) ================================== Basic and diluted net (loss) per common share $(3.82) $(3.02) ==================================
See accompanying notes. 4 6 NTL Communications Corp. (formerly NTL Incoporated) and Subsidiaries Condensed Consolidated Statement of Shareholders' Equity (Unaudited)
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 ----------------------------------------------------------------------------------------------- Balance, December 31, 1998 125,000 $2,000 52,000 $-- 60,249,000 $602,000 Exercise of stock options 432,000 4,000 Exercise of warrants 15,000 1,000 Preferred stock issued for cash 500,000 $5,000 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 12,705,000 127,000 Issuance of stock options in connection with an acquisition Comprehensive income: Net loss for the three months ended March 31, 1999 Currency translation adjustment Total ----------------------------------------------------------------------------------------------- Balance, March 31, 1999 125,000 $2,000 52,000 $-- 504,000 $5,000 73,402,000 $734,000 ===============================================================================================
See accompanying notes. 5 7 NTL Communications Corp. (formerly NTL Incoporated) and Subsidiaries Condensed Consolidated Statement of Shareholders' Equity (Unaudited) - continued
Accumulated Additional Other Paid-In Comprehensive Comprehensive Capital Loss Income (Loss) (Deficit) -------------------------------------------------------------------------------------------- Balance, December 31, 1998 $1,501,561,000 $104,657,000 $(1,251,668,000) Exercise of stock options 12,054,000 Exercise of warrants 102,000 Preferred stock issued for cash 483,805,000 Warrants issued for cash 16,190,000 Accreted dividends on preferred stock (8,644,000) Accretion of discount on preferred stock (78,000) Conversion of 7% Convertible Subordinated Notes 50,000 Common stock issued for acquisition 971,310,000 Issuance of stock options in connection with an acquisition 6,599,000 Comprehensive income: Net loss for the three months ended March 31, 1999 $(230,419,000) (230,419,000) Currency translation adjustment (114,119,000) (114,119,000) ------------- Total $(344,538,000) -------------------------------------------------------------------------------------------- Balance, March 31, 1999 $2,982,949,000 $(9,462,000) $(1,482,087,000) ============================================================================================
See accompanying notes. 6 8 NTL Communications Corp. (formerly NTL Incoporated) and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31 ------------------------------------------ 1999 1998 ------------------------------------------ Net cash (used in) operating activities $(6,594,000) $ (16,605,000) Investing activities Purchase of fixed assets (276,126,000) (97,945,000) Increase in other assets (48,905,000) (426,000) Cash of subsidiary at acquisition, net of costs 233,852,000 - Purchase of marketable securities (204,914,000) (78,481,000) Proceeds from sales of marketable securities 101,352,000 - ------------------------------------------ Net cash (used in) investing activities (194,741,000) (176,852,000) Financing activities Proceeds from borrowings, net of financing costs -- 1,332,902,000 Proceeds from issuance of preferred stock and warrants 500,000,000 -- Increase in deferred financing costs (1,983,000) -- Principal payments -- (65,836,000) Proceeds from exercise of stock options and warrants 12,161,000 1,942,000 ------------------------------------------ Net cash provided by financing activities 510,178,000 1,269,008,000 Effect of exchange rate changes on cash (13,234,000) (4,754,000) ------------------------------------------ Increase in cash and cash equivalents 295,609,000 1,070,797,000 Cash and cash equivalents at beginning of period 736,265,000 98,902,000 ------------------------------------------ Cash and cash equivalents at end of period $1,031,874,000 $1,169,699,000 ========================================== Supplemental disclosure of cash flow information Cash paid during the period for interest exclusive of amounts capitalized $ 49,788,000 $ 20,366,000 Income taxes paid 376,000 19,000 Supplemental schedule of noncash financing activities Accretion of dividends and discount on preferred stock $ 8,722,000 $ 3,716,000 Conversion of Convertible Notes 50,000 -- Common stock and stock options issued for an acquisition 978,036,000 --
See accompanying notes. 7 9 NTL Communications Corp. (formerly NTL Incoporated) 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, 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, 2000. The Company is evaluating the impact the adoption of SFAS No. 133 will have on its earnings and financial position. Note B - Corporate Restructuring 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. The formation of the holding company is part of NTL Incorporated's effort to pursue opportunities outside the United Kingdom and Ireland. The first of these opportunities was through the acceptance in March 1999 by the Commonwealth of Australia of NTL Incorporated's bid to own and operate the Australian National Transmission Network ("NTN"). NTN operates from over 560 tower sites and provides exclusive television and radio transmission services to Australia's national TV and radio broadcasters. In addition, NTN serves regional and community TV and radio broadcasters, and provides equipment hosting services to telecom operators and emergency service communications providers on its towers. In April 1999, a subsidiary of NTL Incorporated purchased all of the shares of the entity which owns NTN for an aggregate purchase price of approximately $423 million. The Company distributed $500 million to NTL Incorporated, principally to finance this acquisition. 8 10 NTL Communications Corp. (formerly NTL Incoporated) and Subsidiaries Notes to Condensed Consolidated Financial Statements (continued) Note C - Sale of Preferred Stock and Warrants In January 1999, NTL Incorporated received $500 million in cash from Microsoft Corp. in exchange for 500,000 shares of NTL Incorporated's 5.25% Convertible Preferred Stock, Series A and warrants to purchase 1,200,000 shares of NTL Incorporated's common stock at an exercise price of $84 per share. The preferred stock is convertible into common stock at a conversion price of $100 per share. The preferred stock is redeemable 10 years from the date of issuance in cash or shares of common stock. The preferred stock may be redeemed by NTL Incorporated on the earlier of seven years or the date on which NTL Incorporated's common stock has traded above $120 per share for 25 consecutive trading days. Dividends are payable quarterly at NTL Incorporated's option in cash, common stock or additional shares of preferred stock. NTL Incorporated issued 4,000 shares of 5.25% Convertible Preferred Stock on the first dividend payment date in March 1999. The warrants expire in 2004. Note D - Intangible Assets Intangible assets consist of:
March 31, December 31, 1999 1998 ----------------------------------------------- (unaudited) License acquisition costs, net of accumulated amortization of $80,673,000 (1999) and $69,202,000 (1998) $ 226,416,000 $153,007,000 Goodwill, net of accumulated amortization of $48,837,000 (1999) and $32,358,000 (1998) 1,629,811,000 514,529,000 Customer lists, net of accumulated amortization of $7,542,000 (1999) and $3,375,000 (1998) 130,079,000 57,492,000 ----------------------------------------------- $1,986,306,000 $725,028,000 ===============================================
The Company acquired Diamond Cable Communications plc ("Diamond") in March 1999. The Company issued an aggregate of 12,705,000 shares in exchange for each ordinary share and deferred share of Diamond at a ratio of .85 shares of the Company's common stock for four Diamond ordinary shares or one deferred share. The Company's common stock was valued at $971,437,000, the fair value on the date prior to the announcement. In addition, the Company issued options to purchase 122,000 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 $1,831,000 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. Diamond had offered to repurchase its outstanding notes at 101% of their accreted value or principal amount plus interest pursuant to the "change of control" provisions of the indentures. Only $102,000 principal amount of notes were tendered for which Diamond will pay $105,000. 9 11 NTL Communications Corp. (formerly NTL Incoporated) and Subsidiaries Notes to Condensed Consolidated Financial Statements (continued) Note D - Intangible Assets (continued) 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 $980 million exceeded the fair value of net tangible assets acquired by $1.3 billion, which was allocated as follows: $60 million to fixed assets, $78 million to customer lists, $85 million to license acquisition costs and $1.1 billion to goodwill. In 1998, the Company completed the acquisitions of ComTel Limited and Telecential Communications, NTL (Bermuda) Limited and Eastern Group Telecoms. The pro forma unaudited consolidated results of operations for the three months ended March 31, 1999 and 1998 assuming consummation of these acquisitions as of January 1, 1998 are as follows:
Three Months Ended March 31 --------------------------------------------- 1999 1998 --------------------------------------------- Total revenue $ 342,178,000 $ 249,271,000 Net (loss) (326,333,000) (202,986,000) Basic and diluted net (loss) per common share (4.63) (3.31)
Note E - Fixed Assets Fixed assets consist of:
March 31, December 31, 1999 1998 ----------------------------------------------- (unaudited) Operating equipment $4,248,638,000 $3,528,973,000 Other equipment 515,806,000 376,518,000 Construction-in-progress 425,123,000 369,923,000 ----------------------------------------------- 5,189,567,000 4,275,414,000 Accumulated depreciation (501,400,000) (420,984,000) ----------------------------------------------- $4,688,167,000 $3,854,430,000 ===============================================
10 12 NTL Communications Corp. (formerly NTL Incoporated) and Subsidiaries Notes to Condensed Consolidated Financial Statements (continued) Note F - Investment in Cable London PLC NTL Bermuda has a 50% ownership interest in Cable London PLC ("Cable London"). Cable London operates integrated cable television and telecommunications systems in the London metropolitan area. Included in the investment in Cable London as of March 31, 1999 and December 31, 1998 are loans to Cable London of (pound)28.5 million ($45.9 million) and accrued interest of (pound)9.2 million ($14.8 million) and (pound)8.6 million ($13.9 million), respectively. The loans accrue interest at a rate of 2% above the published base lending rate of Barclays Bank plc (7.50% effective rate as of March 31, 1999) and are subordinate to Cable London's revolving bank credit facility. Of these loans, (pound)21.0 million ($33.8 million) are convertible into ordinary shares of Cable London at a conversion price of (pound)2.00 per share. In August 1998, NTL Bermuda and Telewest Communications plc ("Telewest") entered into an agreement to rationalize their joint ownership of Cable London pursuant to an agreed procedure (the "Shoot-out"). Between April 29 and July 29, 1999, NTL Bermuda can notify Telewest of the price at which it is willing to sell its 50% ownership interest in Cable London to Telewest. Following such notification, Telewest at its option will be required at that price to either purchase NTL Bermuda's 50% ownership interest in Cable London or sell its 50% ownership interest in Cable London to NTL Bermuda. If NTL Bermuda fails to give notice to Telewest by July 29, 1999, it will be deemed to have delivered an offer notice for (pound)100 million ($161 million). 11 13 NTL Communications Corp. (formerly NTL Incoporated) and Subsidiaries Notes to Condensed Consolidated Financial Statements (continued) Note G - Long-Term Debt Long-term debt consists of:
March 31, December 31, 1999 1998 -------------------------------------------------- (unaudited) NTL Commiunications: 12-3/4% Series A Senior Deferred Coupon Notes $ 244,292,000 $ 236,935,000 11-1/2% Series B Senior Deferred Coupon Notes 855,677,000 831,976,000 10% Series B Senior Notes 400,000,000 400,000,000 9-1/2% Senior Sterling Notes, less unamortized discount of $607,000 (1999) and $639,000 (1998) 200,844,000 206,800,000 10-3/4% Senior Deferred Coupon Sterling Notes 316,509,000 317,511,000 9-3/4% Senior Deferred Coupon Notes 886,589,000 865,880,000 11-1/2% Senior Notes 625,000,000 625,000,000 12-3/8% Senior Deferred Coupon Notes 262,136,000 254,718,000 7% Convertible Subordinated Notes 274,950,000 275,000,000 7% Convertible Subordinated Notes 600,000,000 600,000,000 NTL Bermuda: 11.2% Senior Discount Debentures 433,483,000 421,835,000 Other 30,358,000 31,839,000 Diamond: 13-1/4% Senior Discount Notes 266,989,000 -- 11-3/4% Senior Discount Notes 436,385,000 -- 10-3/4% Senior Discount Notes 309,458,000 -- 10% Senior Sterling Notes 217,566,000 -- 9-1/8% Senior Notes 109,836,000 -- Other 14,259,000 -- -------------------------------------------------- 6,484,331,000 5,067,494,000 Less current portion 26,599,000 23,691,000 -------------------------------------------------- $6,457,732,000 $5,043,803,000 ==================================================
In April 1999, the Company issued (pound)330,000,000 aggregate principal amount at maturity of 9-3/4% Senior Deferred Coupon 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 (pound)204,963,000. The original issue discount accretes at a rate of 9-3/4%, compounded semiannually, to an aggregate principal amount of (pound)330,000,000 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. 12 14 NTL Communications Corp. (formerly NTL Incoporated) 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 ------------------------------------------- 1999 1998 ------------------------------------------- Numerator: Net loss $(230,419,000) $(93,672,000) Preferred stock dividend (13,092,000) (3,638,000) ------------------------------------------- Loss available to common shareholders $(243,511,000) $(97,310,000) ------------------------------------------- Denominator for basic net loss per common share 63,784,000 32,250,000 Effect of dilutive securities -- -- ------------------------------------------- Denominator for diluted net loss per common share 63,784,000 32,250,000 ------------------------------------------- Basic and diluted net loss per common share $(3.82) $(3.02) ===========================================
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 - Comprehensive Loss The Company's comprehensive loss for the three months ended March 31, 1999 and 1998 was $(344,538,000) and $(75,347,000), respectively. Note J - Segment Data
Local Telecoms National Corporate Broadcast and Television Telecoms and Other Total --------- -------------- -------- --------- ----- (in thousands) Three Months Ended March 31, 1999 Revenues $ 38,824 $ 168,827 $105,730 $ -- $ 313,381 EBITDA (1) 25,081 45,070 11,970 (49,554) 32,567 Three Months Ended March 31, 1998 Revenues $ 33,418 $ 61,584 $ 51,012 $ 1,778 $ 147,792 EBITDA (1) 22,702 14,730 5,800 (29,501) 13,731 Total assets March 31, 1999 $275,177 $5,618,661 $795,558 $2,121,075 $8,810,471 December 31, 1998 289,068 3,100,492 761,097 2,043,440 6,194,097
(1) Represents earnings before interest, taxes, depreciation and amortization, corporate expenses and franchise fees. 13 15 NTL Communications Corp. (formerly NTL Incoporated) and Subsidiaries Notes to Condensed Consolidated Financial Statements (continued) Note J - Segment Data (continued) The reconciliation of segment combined EBITDA to net loss is as follows:
Three Months Ended March 31 ------------------------------------------- 1999 1998 ------------------------------------------- (In thousands) Segment Combined EBITDA $ 32,567 $ 13,731 (Add) Deduct: Franchise fees 6,848 6,195 Corporate expenses 5,252 3,642 Depreciation and amortization 141,734 45,856 Interest and other income (11,013) (5,143) Interest expense 130,823 58,058 Foreign currency transaction gains (10,658) (1,205) ------------------------------------------- 262,986 107,403 ------------------------------------------- Net (loss) $(230,419) $(93,672) ===========================================
Note K - Commitments and Contingent Liabilities As of March 31, 1999, the Company was committed to pay approximately $203,939,000 for equipment and services. The Company has various licenses for its cable television, telephone and telecommunications business, and for its transmission and distribution services. The Company paid $1,920,000 in license fees in the first quarter of 1999. Pursuant to the terms of the Company's local delivery operator license ("LDL") for Northern Ireland, a subsidiary of the Company is required to make annual cash payments to the ITC for 15 years in the amount of approximately (pound)15.4 million (subject to adjustment for inflation). This is in addition to the percentages of qualifying revenue payments of 0% for the first ten years and 2% for the last five years of the LDL. 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. 14 16 NTL Communications Corp. (formerly NTL Incoporated) and Subsidiaries Notes to Condensed Consolidated Financial Statements (continued) Note L - Subsequent Events In May 1999, the Company won the bid to acquire Cablelink Limited ("Cablelink"), Ireland's largest cable television provider. Cablelink holds licenses to provide analog and digital television services over cable and microwave in its franchises for 15 years, as well as a full service license to provide public telephony, Internet and other value-added services throughout Ireland. The Company will acquire Cablelink for 535.18 million Irish pounds (approximately $730 million). In addition, the Company has obtained a bridge debt financing commitment for the full purchase price. The acquisition is expected to close in the second quarter of 1999. 15 17 NTL Communications Corp. (formerly NTL Incoporated) 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.
===================================================================================================== NTL Only Combined NTL (2) Proforma NTL (3) - ----------------------------------------------------------------------------------------------------- 03/31/98 12/31/98 03/31/99 03/31/99 3/31/99 - ----------------------------------------------------------------------------------------------------- Homes passed 1,070,000 1,247,200 1,288,300 3,567,700 3,987,700 - ----------------------------------------------------------------------------------------------------- Homes marketed (Tel.) 887,400 1,064,600 1,098,400 3,001,500 3,001,500 - ----------------------------------------------------------------------------------------------------- Homes marketed (CATV) 887,400 1,064,600 1,098,400 3,121,600 3,541,600 - ----------------------------------------------------------------------------------------------------- Total customers 357,200 471,000 497,100 1,226,800 1,586,800 - ----------------------------------------------------------------------------------------------------- Dual 322,500 434,100 456,400 811,500 811,500 - ----------------------------------------------------------------------------------------------------- Telephone-only 15,300 16,100 16,300 297,900 297,900 - ----------------------------------------------------------------------------------------------------- Cable-only 19,400 20,800 24,400 117,400 477,400 - ----------------------------------------------------------------------------------------------------- Total RGUs (1) 679,700 905,100 953,500 2,038,300 2,398,300 - ----------------------------------------------------------------------------------------------------- Customer penetration 40.3% 44.2% 45.3% 39.3% 44.8% - ----------------------------------------------------------------------------------------------------- RGU penetration 76.6% 85.0% 86.8% 65.3% 67.7% - ----------------------------------------------------------------------------------------------------- Telephone penetration 38.1% 42.3% 43.0% 37.0% 37.0% - ----------------------------------------------------------------------------------------------------- Cable penetration 38.5% 42.7% 43.8% 29.8% 36.4% =====================================================================================================
(1) An RGU (revenue generating unit) is one cable television account or one telephone account; a dual customer generates two RGUs. (2) Includes Comcast UK, ComTel, and Diamond Cable. Excludes 50% ownership of Cable London. (3) Proforma for the Cablelink acquisition. 16 18 NTL Communications Corp. (formerly NTL Incoporated) and Subsidiaries Effective April 1, 1999, NTL Incorporated completed a corporate restructuring to create a holding company structure. The holding company restructuring was accomplished through a merger so that all the stockholders of NTL Incorporated at the effective time of the merger became stockholders of the new holding company, and NTL Incorporated became a subsidiary of the new holding company. The new holding company has taken the name NTL Incorporated and 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. RESULTS OF OPERATIONS As a result of the completion of the acquisitions of ComTel Limited and Telecential Communications (collectively "ComTel"), Comcast UK Cable Partners Limited ("NTL Bermuda") and Eastern Group Telecoms ("EGT") in the second and third quarters of 1998, and Diamond Cable Communications plc ("Diamond") in March 1999, the Company consolidated the results of operations of these businesses from the date of acquisition. The results of these businesses are not included in the 1998 results. Three Months Ended March 31, 1999 and 1998 Local telecommunications and television revenues increased to $168,827,000 from $61,584,000 as a result of acquisitions and from customer growth that increased the Company's current revenue stream. The 1999 revenue includes $84,833,000 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 $105,730,000 from $51,012,000 primarily as a result of increases in business telecommunications revenues, Internet services revenues and carrier services revenues. Business telecommunications and Internet services revenues increased primarily as a result of customer growth. The Company expects 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. 17 19 NTL Communications Corp. (formerly NTL Incoporated) and Subsidiaries Broadcast transmission and other revenues increased to $38,824,000 from $33,418,000 primarily due to increases in broadcast television and FM radio customers and accounts, which exceeded price cap reductions in the Company's regulated services. Broadcast television revenues are expected to increase in the future as digital broadcasting revenues increase. Other telecommunications revenues decreased to none from $1,778,000 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 $161,544,000 from $77,333,000 as a result of increases in interconnection costs and programming costs due to customer growth. The 1999 expense includes $41,156,000 from acquired companies. Selling, general and administrative expenses increased to $119,270,000 from $56,728,000 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. The 1999 expense includes $45,333,000 from acquired companies. Franchise fees increased to $6,848,000 from $6,195,000. The 1999 amount includes Diamond franchise fees of $517,000. Corporate expenses increased to $5,252,000 from $3,642,000 primarily due to an increase in various overhead costs. Depreciation and amortization expense increased to $141,734,000 from $45,856,000 due to an increase in depreciation of telecommunications and CATV equipment. The 1999 expense includes $63,331,000 from acquired companies, including amortization of acquisition related intangibles. Interest expense increased to $130,823,000 from $58,058,000 due to the issuance of additional debt in 1998, and the increase in the accretion of original issue discount on the deferred coupon notes. The 1999 expense includes $25,207,000 from acquired companies. Interest of $60,152,000 and $21,277,000 was paid in the three months ended March 31, 1999 and 1998, respectively. Foreign currency transaction gains increased to $10,658,000 from $1,205,000 due to favorable changes in the exchange rate subsequent to the issuance in March 1998 of new debt denominated in British pounds sterling. The 1999 amount includes net foreign currency transaction losses of $3,578,000 from acquired companies. 18 20 NTL Communications Corp. (formerly NTL Incoporated) 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 in the United Kingdom, for connection of telephone, telecommunications, Internet and CATV customers to the networks, for other capital expenditures in the United Kingdom and for debt service. The Company estimates that these requirements will aggregate approximately $1.1 billion in the remainder of 1999. The Company intends to fund these requirements from cash, cash equivalents and marketable securities on hand of $1.4 billion as of March 31, 1999, and funds internally generated by the operations of the Company's subsidiaries. The Company's commitments for equipment and services at March 31, 1999 of approximately $204 million are included in the anticipated requirements. The Company is highly leveraged. The accreted value at March 31, 1999 of the Company's consolidated long-term indebtedness, including the Redeemable Preferred Stock, and adjusted for the issuance in April 1999 of (pound)330 million aggregate principal amount at maturity of 9-3/4% Senior Deferred Coupon Notes due 2009, is approximately $6.9 billion, representing approximately 82% of total capitalization. The following table summarizes the terms of those notes and Redeemable Preferred Stock issued by the Company. 19 21 NTL Communications Corp. (formerly NTL Incoporated) and Subsidiaries
11-1/2% 12-3/4% 10-3/4% 9-3/4% Series B Series A Senior 9-3/4% 12-3/8% Senior Senior Senior Sterling Senior Senior Sterling Deferred Deferred Deferred Deferred Deferred Deferred Coupon Coupon Coupon Coupon Coupon Coupon Notes Notes Notes Notes Notes Notes Denomination $ $ (pound) $ $ (pound) Net Proceeds (in 000's) ........... 582,000 145,125 170,584 778,340 241,967 204,963 Issue Date ............. Jan 30, 1996 April 20, 1995 March 13, 1998 March 13, 1998 Nov 6, 1998 April 14, 1999 Issue Price (1) ........ 57.155% 53.995% 58.62% 61.724% 55.505% 62.110% Aggregate Principal Amount at Maturity (in 000's) ........... 1,050,000 277,803 300,000 1,300,000 450,000 330,000 Maturity Date .......... February 1, 2006 April 15, 2005 April 1, 2008 April 1, 2008 October 1, 2008 April 15, 2009 Yield or Interest Rate (2) ............. 11-1/2% 12-3/4% 10-3/4% 9-3/4% 12-3/8% 9-3/4% Interest or Dividend February 1 and April 15 and April 1 and April 1 and April 1 and April 15 and Payment August 1 October 15 October 1 October 1 October 1 October 15 Dates ................ from 8-1-01 from 10-15-00 from 10-1-2003 from 10-1-2003 from 4-1-2004 from 10-15-2004 Earliest Optional Redemption Date (4) ............. February 1, 2001 April 15, 2000 April 1, 2003 April 1, 2003 October 1, 2003 April 15, 2004 Redemption 105.75 (2001) 103.64 (2000) 105.375 (2003) 104.875 (2003) 106.188 (2003) 104.875 (2004) to Price (%)(5) ......... to 100 (2003) to 100 (2002) to 100 (2006) to 100 (2006) to 100 (2006) 100 (2007) Conversion Price (6) ............ N/A N/A N/A N/A N/A N/A Senior/ Subordinated ......... Senior Senior Senior Senior Senior Senior
(Table continues on the following page) 20 22 NTL Communications Corp. (formerly NTL Incoporated) and Subsidiaries
7% 7% 11-1/2% Convertible Convertible 9-1/2% 10% Redeemable Senior Subordinated Subordinated Senior Sterling Series B Preferred Notes Notes Notes Notes Senior Notes Stock Denomination $ $ $ (pound) $ $ Net Proceeds (in 000's)......... 607,031 583,500 267,437 121,161 389,000 96,625 Issue Date........... Nov 2, 1998 Dec 16, 1998 June 12, 1996 March 13, 1998 February 14, 1997 February 14, 1997 Issue Price (1)...... 100% 100% 100% 99.670% 100% 100% Aggregate Principal Amount at Maturity (in 000's)......... 625,000 600,000 274,950 125,000 400,000 100,000 Maturity Date........ Oct 1, 2008 Dec 15, 2008 June 15, 2008 April 1, 2008 February 15, 2007 February 15, 2009 Yield or Interest Rate (2)........... 11-1/2% 7% 7% 9-1/2% 10% 13% May 15, August 15, Interest or Dividend April l and June 15 and June 15 and April 1 and February 15 and November 15 and Payment Oct 1 from December 15 December 15 October 1 August 15 February 15 Dates.............. 4-1-99 from 6-15-99 from 12-15-96 From 10-1-98 from 8-15-97 from 5-15-97 (3) Earliest Optional Redemption Date (4)........... Oct 1, 2003 Dec 15, 2001 June 15, 1999 April 1, 2003 February 15, 2002 February 15, 2002 Redemption 105.75 (2003) 104.4 (2001) 104.9 (1999) 104.75 (2003) 105 (2002) 106.5 (2002) Price (%) (5)...... to 100 (2006) to 100 (2006) to 100 (2006) to 100 (2006) to 100 (2005) to 100 (2005) Conversion Price (6).......... N/A 61.25 37.875 N/A N/A N/A Senior/ Subordinated....... Senior Subordinated 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. 21 23 NTL Communications Corp. (formerly NTL Incoporated) and Subsidiaries In addition to the notes issued by the Company summarized above, NTL Bermuda and Diamond have issued the following notes. NTL Bermuda has $517.3 million principal at maturity Discount Debentures which are due on November 15, 2007. Interest accretes at 11.2% per annum compounded semi-annually until November 15, 2000, after which date interest will be paid in cash beginning on May 15, 2001. NTL Bermuda also has a (pound)8,456,000 note payable to Comcast U.K. Holdings, Inc. that incurs interest at 9% per annum, compounded semi-annually. The note plus accrued interest is due in September 1999. Accrued interest was (pound)4,121,000 as of March 31, 1999. Diamond was acquired in March 1999 when the Company issued an aggregate of approximately 12.7 million shares in exchange for each ordinary share and deferred share of Diamond at a ratio of approximately .85 shares of the Company's common stock for four Diamond ordinary shares or one deferred share. In addition, the Company issued options to purchase 122,000 shares of the Company's common stock to holders of Diamond options. Diamond had the following notes outstanding as of March 31, 1999: (i) 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, (ii) 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, (iii) 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, (iv) 10% Senior Notes due February 1, 2008, issued by Diamond Holdings plc, a wholly-owned subsidiary of Diamond, principal amount of (pound)135 million ($218 million), interest payable semi-annually as of August 1, 1998, (v) 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 (vi) mortgage of (pound)2.5 million ($4.0) 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%. Diamond had offered to repurchase its outstanding notes at 101% of their accreted value or principal amount plus interest pursuant to the "change of control" provisions of the indentures. Only $102,000 principal amount of notes were tendered for which Diamond will pay $105,000. 22 24 NTL Communications Corp. (formerly NTL Incoporated) and Subsidiaries The Company has other significant commitments or potential commitments in addition to those described above. These are as follows: (i) Pursuant to the terms of the Northern Ireland LDL, a subsidiary of the Company is required to make annual cash payments to the ITC for 15 years in the amount of approximately (pound)15.4 million (subject to adjustment for inflation) in addition to the percentages of qualifying revenue payments of 0% for the first ten years and 2% for the last five years of the LDL. (ii) Pursuant to an agreement with TeleWest Communications plc relating to NTL Bermuda's and TeleWest's respective 50% ownership interests in Cable London PLC, between April 29 and July 29, 1999, NTL Bermuda can notify TeleWest of the price at which it is willing to sell its 50% ownership in Cable London to TeleWest. Following such notification, TeleWest at its option is required at that price to either purchase NTL Bermuda's 50% interest or sell its 50% interest to NTL Bermuda. If NTL Bermuda fails to give notice to TeleWest by July 29, 1999, it will be deemed to have delivered an offer notice for(pound)100 million ($161 million). (iii) In May 1999, the Company won the bid to acquire Cablelink Limited ("Cablelink"), Ireland's largest cable television provider. The Company will acquire Cablelink for 535.18 million Irish pounds (approximately $730 million). The Company has obtained a bridge debt financing commitment for the full purchase price. The acquisition is expected to close in the second quarter of 1999. 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 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 payments other than for a cable-related business (as defined in the indentures). There will also be restrictions on dividends under the bridge loan the Company expects to enter into to finance the Cablelink acquisition. The Company distributed $500 million to NTL Incorporated in April 1999. NTL Incorporated intends to repay certain amounts when funds become available. Currently there are no funds available to NTL Incorporated from the Company due to these conditions and restrictions. The development, construction and operations of the Company's combined telecommunications networks in the United Kingdom will require substantial capital. In addition, the Company will require significant amounts of capital to finance the other capital expenditures and other obligations of its subsidiaries. The Company will also require significant amounts of capital for the acquisitions described above and for the capital expenditures of those businesses. The Company intends to fund a portion of these requirements from cash and securities on hand and cash from operations. In addition, additional funding will be necessary to meet all of these requirements. There can be no assurance that: (i) actual construction costs will not exceed the amounts estimated or that additional funding substantially in excess of the amounts estimated will not be required, (ii) additional financing will be obtained or will be available on acceptable terms, (iii) conditions precedent to advances under future credit facilities will be satisfied when funds are required, (iv) the Company and its subsidiaries will be able to generate sufficient cash from operations to meet capital requirements, debt service and other obligations when required, (v) the Company will be able to access such cash flow or (vi) the Company will not incur losses from its exposure to exchange rate fluctuations or be adversely affected by interest rate fluctuations. 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. 23 25 NTL Communications Corp. (formerly NTL Incoporated) and Subsidiaries 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 is dependent upon the receipt of sufficient funds from its subsidiaries. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Cash used in operating activities was $6,594,000 and $16,605,000 in the three months ended March 31, 1999 and 1998, respectively. The change is primarily due to the Company's operations generating more cash in the current period. Purchases of fixed assets were $276,126,000 in 1999 and $97,945,000 in 1998 as a result of the continuing fixed asset purchases and construction in 1999, including purchases and construction from acquired companies. 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 1.2 million shares of NTL Incorporated's common stock to Microsoft Corp. 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 is nearing completion on all items to determine whether items are business critical, high priority or low priority. This assessment will include all information systems ("IS") and non-IS equipment with embedded technology such as air conditioning, generators and power supplies. All business critical and high priority items have been identified. The Company's billing, provisioning and customer service systems are being reviewed and modified for Year 2000 readiness. This is nearing completion and should be finished in May. Integration testing of the complete system will begin in the second quarter of 1999 and is expected to require three months. Testing of other business critical and high priority items is in various stages with some areas 100% complete. The target for the completion of this testing is the end of June 1999, although a small portion of such testing is scheduled to extend into the third quarter of 1999. Where appropriate, remedial work has been minimized by bringing forward planned system revisions and retiring old equipment. The Company is also communicating with its suppliers with respect to the high priority and business critical items. A central database has been established to insure all issues are resolved. This communication is virtually complete. A Millennium Operations 24 26 NTL Communications Corp. (formerly NTL Incoporated) and Subsidiaries Plan is being created that details the key resources needed for problems that may arise over the Year 2000 weekend. All Business Continuity Plans are being reviewed and are being revised to account for special circumstances related to the Year 2000. These plans are expected to be finalized in the third quarter of 1999. 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. The expected cost includes enhancements and upgrades that are part of the normal upgrades and system revisions. 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. The UK Telecoms Regulator requires evidence of contingency plans from all the major operators and the results will be shared through the Inter-Operator Forum. 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. As the Year 2000 project continues, the Company may discover additional problems, 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 plans to test such third-party products, but cannot be sure that its tests will be adequate or that, if problems are identified, 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 its assessments, identifies and tests remediation plans 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. 25 27 NTL Communications Corp. (formerly NTL Incoporated) 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 in the United Kingdom and Ireland, 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 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, 1999, the Company had approximately $591 million in pounds sterling cash and cash equivalents to reduce this risk. In addition, the Company's pounds sterling denominated Notes will also reduce this risk. Furthermore, the Company's revenues are generated primarily in British pounds sterling while its interest and principal obligations with respect to most of the Company's existing indebtedness are payable in U.S. dollars. The Company has entered into an option agreement to hedge some of the risk of exchange rate fluctuations related to interest and principal payments on U.S. dollar denominated debt and for parent company expenses up to an annual limit of approximately $13 million. The Company may purchase U.S. dollars at a fixed rate of (pound)1 to $1.40 on specified dates through June 2001 for specified amounts of U.S. dollars. The dates and U.S. dollar amounts correspond to the Company's interest and principal payment dates and amounts for its U.S. dollar denominated debt and anticipated amounts of parent company expenses. In addition, NTL Bermuda has option agreements of (pound)250 million notional amount to purchase U.S. dollars at a fixed rate of (pound)1 to $1.35 in November 2000. This option provides a hedge against an adverse change in exchange rates when interest payments commence on NTL Bermuda's U.S. dollar denominated Discount Debentures. There have been no material changes in the reported market risks since the end of the most recent fiscal year. 26 28 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 March 31, 1999, NTL Incorporated filed the following reports on Form 8-K: (i) Report dated January 25, 1999, reporting under Item 5, Other Events, an agreement between Microsoft Corp. and the Company to jointly develop new broadband services for delivery to customers in the United Kingdom and Ireland. In addition, Microsoft made a $500 million investment in the Company. (ii) Report dated March 8, 1999, reporting under Item 5, Other Events, the completion of the acquisition of Diamond Cable Communications plc. (iii) Report dated March 18, 1999, reporting under Item 5, Other Events, that the Commonwealth of Australia had accepted NTL Incorporated's bid to own and operate the Australian National Transmission Network. No financial statements were filed with these reports. 27 29 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: May 14, 1999 By: /s/ J. Barclay Knapp ------------------------- J. Barclay Knapp President, Chief Executive Officer and Chief Financial Officer Date: May 14, 1999 By: /s/ Gregg Gorelick -------------------------- Gregg Gorelick Vice President-Controller (Principal Accounting Officer) 28 EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1999 MAR-31-1999 JAN-01-1999 1,031,874,000 367,766,000 217,381,000 (49,752,000) 0 98,572,000 5,189,567,000 (501,400,000) 8,810,471,000 667,136,000 6,457,732,000 128,340,000 7,000 734,000 1,491,400,000 8,810,471,000 0 313,381,000 0 161,544,000 119,270,000 0 130,823,000 (230,419,000) 0 (230,419,000) 0 0 0 (230,419,000) (3.82) (3.82)
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