-----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, QSifmnKDSi94LVSMANdVX9s2qpygmhcXTpGDmjiYwFMj8pZ2Wt4BUtNvb9BcNIRo 7fAR9vafeRxnvapztYeDKQ== 0000950172-99-001606.txt : 19991115 0000950172-99-001606.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950172-99-001606 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: 99748653 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. - FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-22616 ------- NTL COMMUNICATIONS CORP. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) (On April 1, 1999, the name of the Registrant was changed from NTL Incorporated to NTL Communications Corp.) Delaware 52-1822078 - ------------------------------------ ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 110 East 59th Street, New York, New York 10022 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (212) 906-8440 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares outstanding of the issuer's common stock as of September 30, 1999 was 100. The Registrant is a wholly-owned subsidiary of NTL Incorporated and there is no market for the Registrant's common stock. The Registrant meets the conditions for the reduced disclosure format set forth in General Instruction H(1) (a) and (b) of Form 10-Q. NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries Index PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements Condensed Consolidated Balance Sheets September 30, 1999 and December 31, 1998 ........................ 2 Condensed Consolidated Statements of Operations Three and nine months ended September 30, 1999 and 1998 ......... 4 Condensed Consolidated Statement of Shareholder's Equity Nine months ended September 30, 1999 ............................ 5 Condensed Consolidated Statements of Cash Flows Nine months ended September 30, 1999 and 1998 ................... 7 Notes to Condensed Consolidated Financial Statements ............ 8 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition .............................. 16 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K ............................ 28 SIGNATURES ............................................................... 29 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries Condensed Consolidated Balance Sheets (dollars in thousands)
SEPTEMBER 30, DECEMBER 31, 1999 1998 --------------------------------- (unaudited) (see note) ASSETS Current assets: Cash and cash equivalents $ 572,387 $ 736,265 Marketable securities 90,531 260,631 Accounts receivable - trade, less allowance for doubtful accounts of $69,757 (1999) and $38,475 (1998) 281,879 152,356 Other 58,624 55,248 --------------------------------- Total current assets 1,003,421 1,204,500 Fixed assets, net 5,229,317 3,854,430 Intangible assets, net 2,600,069 725,028 Investment in Cable London PLC, net of accumulated amortization of $16,879 (1999) and $3,093 (1998) 207,038 229,093 Other assets, net of accumulated amortization of $43,882 (1999) and $56,264 (1998) 328,838 181,046 --------------------------------- Total assets $ 9,368,683 $ 6,194,097 =================================
2 NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries Condensed Consolidated Balance Sheets - continued (dollars in thousands)
SEPTEMBER 30, DECEMBER 31, 1999 1998 --------------------------------- (unaudited) (see note) LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities: Accounts payable $ 227,410 $ 167,079 Accrued expenses and other 324,363 221,070 Accrued construction costs 82,443 88,033 Interest payable 27,077 34,258 Deferred revenue 150,504 69,820 Current portion of long-term debt 114,976 23,691 --------------------------------- Total current liabilities 926,773 603,951 Long-term debt 7,482,814 5,043,803 Commitments and contingent liabilities Deferred income taxes 84,087 67,062 Senior redeemable exchangeable preferred stock - $.01 par value, plus accreted dividends; less unamortized discount of $3,133 (1998); issued and outstanding none (1999) and 125,000 (1998) shares - 124,127 Shareholder's equity: Series preferred stock - $.01 par value; authorized none (1999) and 10,000,000 (1998) shares: Series A - issued and outstanding none (1999) and 125,000 (1998) shares - 2 Series B - issued and outstanding none (1999) and 52,000 (1998) shares - - Common stock - $.01 par value; authorized 100 (1999) and 400,000,000 (1998) shares; issued and outstanding 100 (1999) and 60,249,000 (1998) shares - 602 Additional paid-in capital 2,894,190 1,501,561 Accumulated other comprehensive income 97,375 104,657 (Deficit) (2,116,556) (1,251,668) --------------------------------- 875,009 355,154 --------------------------------- Total liabilities and shareholder's equity $ 9,368,683 $ 6,194,097 =================================
Note: The balance sheet at December 31, 1998 has been derived from the audited financial statements at that date. See accompanying notes. 3 NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) (in thousands, except per share data)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ---------------------------- ----------------------------- 1999 1998 1999 1998 ---------------------------- ----------------------------- REVENUES Local telecommunications and television $ 218,408 $ 84,366 $ 583,728 $214,545 National and international telecommunications 130,647 64,185 349,232 166,845 Broadcast transmission and other 40,298 33,933 119,900 100,825 Other telecommunications - - - 2,375 ---------------------------- ----------------------------- 389,353 182,484 1,052,860 484,590 COSTS AND EXPENSES Operating expenses 184,953 88,122 507,335 243,476 Selling, general and administrative expenses 142,669 78,543 416,077 192,070 Franchise fees 7,710 6,223 22,287 18,729 Corporate expenses 6,249 4,018 18,475 11,797 Depreciation and amortization 189,906 61,218 518,356 156,785 ---------------------------- ----------------------------- 531,487 238,124 1,482,530 622,857 ---------------------------- ----------------------------- Operating (loss) (142,134) (55,640) (429,670) (138,267) OTHER INCOME (EXPENSE) Interest and other income 6,742 16,318 26,829 39,796 Interest expense (186,028) (84,800) (484,570) (226,422) Foreign currency transaction gains (losses) 33,426 (9,770) 22,523 (6,973) ---------------------------- ----------------------------- (Loss) before extraordinary item (287,994) (133,892) (864,888) (331,866) (Loss) from early extinguishment of debt - (4,239) - (4,239) ---------------------------- ----------------------------- Net (loss) $ (287,994) $ (138,131) $ (864,888) $ (336,105) ============================ =============================
See accompanying notes. 4 NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries Condensed Consolidated Statement of Shareholder's Equity (Unaudited) (dollars in thousands)
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 52,000 $ - 60,249,000 $ 602 Exercise of stock options 432,000 4 Exercise of warrants 15,000 1 Preferred stock issued for cash 500,000 $ 5 Warrants issued for cash Accreted dividends on preferred stock 4,000 - Accretion of discount on preferred stock Conversion of 7% Convertible Subordinated Notes 1,000 - Common stock issued for acquisition 12,705,000 127 Issuance of stock options in connection with an acquisition Corporate restructuring (125,000) (2) (52,000) - (504,000) (5) (73,402,000) (734) Distribution to NTL Incorporated Contributions from NTL Incorporated Comprehensive income: Net loss for the nine months ended September 30, 1999 Currency translation adjustment Total ----------------------------------------------------------------------------- Balance, September 30, 1999 - $ - - $ - - $ - - $ - =============================================================================
See accompanying notes. 5 NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries Condensed Consolidated Statement of Shareholder's Equity (Unaudited)(continued) (dollars in thousands)
ACCUMULATED ADDITIONAL OTHER PAID-IN COMPREHENSIVE COMPREHENSIVE CAPITAL LOSS INCOME (DEFICIT) ------------------------------------------------------------------------ Balance, December 31, 1998 $ 1,501,561 $ 104,657 $ (1,251,668) Exercise of stock options 12,054 Exercise of warrants 102 Preferred stock issued for cash 483,805 Warrants issued for cash 16,190 Accreted dividends on preferred stock (8,644) Accretion of discount on preferred stock (78) Conversion of 7% Convertible Subordinated Notes 50 Common stock issued for acquisition 971,310 Issuance of stock options in connection with an acquisition 6,599 Corporate restructuring 405,604 Distribution to NTL Incorporated (500,000) Contributions from NTL Incorporated 5,637 Comprehensive income: Net loss for the nine months ended September 30, 1999 $ (864,888) (864,888) Currency translation adjustment (7,282) (7,282) ---------- Total $ (872,170) ------------------------------------------------------------------------ Balance, September 30, 1999 $ 2,894,190 $ 97,375 $ (2,116,556) ========================================================================
See accompanying notes. 6 NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) (dollars in thousands)
NINE MONTHS ENDED SEPTEMBER 30 ------------------------------ 1999 1998 ------------------------------ Net cash provided by (used in) operating activities $ 20,304 $ (27,656) INVESTING ACTIVITIES Acquisitions, net of cash acquired (473,816) (829,698) Purchase of fixed assets (855,667) (464,944) Increase in other assets (28,015) (10,397) Proceeds from sale of assets - 1,312 Cash deposited into escrow for acquisition (118,700) - Purchase of marketable securities (349,647) (297,918) Proceeds from sales of marketable securities 527,218 168,650 ------------------------------ Net cash (used in) investing activities (1,298,627) (1,432,995) FINANCING ACTIVITIES Distribution to NTL Incorporated (500,000) - Proceeds from borrowings, net of financing costs 1,125,494 2,093,602 Proceeds from issuance of preferred stock and warrants 500,000 - Principal payments (25,863) (66,040) Cash deposited into escrow for debt repayment - (221,427) Proceeds from exercise of stock options and warrants 12,161 4,938 ------------------------------ Net cash provided by financing activities 1,111,792 1,811,073 Effect of exchange rate changes on cash 2,653 10,119 ------------------------------ Increase (decrease) in cash and cash equivalents (163,878) 360,541 Cash and cash equivalents at beginning of period 736,265 98,902 ------------------------------ Cash and cash equivalents at end of period $ 572,387 $ 459,443 ============================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for interest exclusive of amounts capitalized $ 140,245 $ 79,112 Income taxes paid - 335 SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES Accretion of dividends and discount on preferred stock $ 8,722 $ 11,820 Conversion of Convertible Notes, net of unamortized deferred financing costs 269,285 187,012 Preferred stock issued for acquisition - 126,277 Common stock and stock options issued for an acquisition 978,036 -
See accompanying notes. 7 NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries Notes to Condensed Consolidated Financial Statements (unaudited) NOTE A - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is required to be adopted by the Company effective January 1, 2001. The Company is evaluating the impact that the adoption of SFAS No. 133 will have on its earnings and financial position. In September 1999, NTL Incorporated declared a 5 for 4 stock split by way of a stock dividend with respect to its common stock. The record date for this dividend was October 4, 1999 and the payment date was October 7, 1999. All common stock amounts in the Notes to Condensed Consolidated Financial Statements have been adjusted to reflect the stock split. NOTE B - CORPORATE RESTRUCTURING Effective April 1, 1999, NTL Incorporated completed a corporate restructuring to create a holding company structure. The formation of the holding company is part of NTL Incorporated's effort to pursue opportunities outside the United Kingdom and Ireland. The holding company restructuring was accomplished through a merger so that all the stockholders of NTL Incorporated at the effective time of the merger became stockholders of the new holding company, and NTL Incorporated became a subsidiary of the new holding company. The new holding company has taken the name NTL Incorporated and the holding company's subsidiary simultaneously changed its name to NTL Communications Corp. The "Company" refers to NTL Incorporated and subsidiaries up to and including March 31, 1999, and to NTL Communications Corp. and subsidiaries beginning April 1, 1999. In addition, in April 1999, the Company distributed $500 million to NTL Incorporated, principally to finance the acquisition of the Australian National Transmission Network. 8 NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries Notes to Condensed Consolidated Financial Statements (unaudited) (continued) NOTE C - SALE OF PREFERRED STOCK AND WARRANTS In January 1999, the Company received $500 million in cash from Microsoft Corp. in exchange for 500,000 shares of the Company's 5.25% Convertible Preferred Stock, Series A and warrants to purchase 1,500,000 shares of the Company's common stock at an exercise price of $67.20 per share. NOTE D - INTANGIBLE ASSETS Intangible assets consist of:
SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------------------------ (unaudited) (in thousands) License acquisition costs, net of accumulated amortization of $118,484 (1999) and $69,202 (1998) $ 190,563 $ 153,007 Goodwill, net of accumulated amortization of $129,938 (1999) and $32,358 (1998) 2,290,678 514,529 Customer lists, net of accumulated amortization of $21,765 (1999) and $3,375 (1998) 118,828 57,492 ------------------------------ $ 2,600,069 $ 725,028 ==============================
In July 1999, the Company acquired Cablelink Limited ("Cablelink"), Ireland's largest cable television provider. Cablelink provides multi-channel television and information services in Dublin, Galway and Waterford. Cablelink holds licenses to provide analog and digital television services over cable and microwave in its franchises, as well as a full service license to provide public telephony, Internet and other value-added services throughout Ireland. The Company acquired Cablelink for 535.18 million Irish punts (approximately $693 million), of which 455.18 million Irish punts ($589 million) was paid in cash and the Company issued 80 million Irish punts ($104 million) principal amount Variable Rate Redeemable Guaranteed Loan Notes due 2002. Also in July 1999, the Company acquired certain broadband cable franchises from British Telecommunications plc ("BT") for an aggregate of up to 19 million pounds sterling ($31.2 million). The Company paid approximately 5 million pounds sterling ($8.2 million) on closing and will pay up to 14 million pounds sterling ($23.0 million) on completion of the upgrade of certain networks. The Company expects to invest approximately 15 million pounds sterling ($24.7 million) to upgrade the networks for digital cable, interactive services and high speed Internet access. The Company leases the networks from BT on a long-term basis for an annual lease payment of approximately 3.9 million pounds sterling ($6.4 million). 9 NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries Notes to Condensed Consolidated Financial Statements (unaudited) (continued) NOTE D - INTANGIBLE ASSETS (CONTINUED) These acquisitions were accounted for as purchases, and accordingly, the net assets and results of operations have been included in the consolidated financial statements from the dates of acquisition. The aggregate purchase price of approximately $710 million, including costs incurred of $8.5 million, exceeded the estimated fair value of net tangible assets acquired by $698 million, which is included in goodwill. Under the purchase method of accounting, the purchase price is allocated to the assets acquired and liabilities assumed based on the estimated fair values at acquisition. Changes to the allocation of the purchase price are expected as valuations or appraisals of assets and liabilities are completed. In March 1999, the Company acquired Diamond Cable Communications plc ("Diamond"). The Company issued an aggregate of 15,938,000 shares of common stock in exchange for each ordinary share and deferred share of Diamond. The Company's common stock was valued at $971,437,000, the fair value at the time of the announcement. In addition, the Company issued options to purchase 153,000 shares of the Company's common stock to holders of Diamond options. The Company's stock options were valued at $6,599,000. The Company incurred costs of $8,080,000 in connection with the acquisition. The Company assumed Diamond's debt including five different notes with an aggregate principal amount at maturity of $1.6 billion. The acquisition was accounted for as a purchase, and accordingly, the net assets and results of operations of Diamond have been included in the consolidated financial statements from the date of acquisition. The aggregate purchase price of $986 million plus the fair value of liabilities assumed net of tangible assets acquired aggregated $1.3 billion, which was allocated as follows: $78 million to customer lists, $85 million to license acquisition costs and $1.16 billion to goodwill. In 1998, the Company completed the acquisitions of ComTel Limited and Telecential Communications, NTL (Bermuda) Limited ("NTL Bermuda") and Eastern Group Telecoms. The pro forma unaudited consolidated results of operations for the nine months ended September 30, 1999 and 1998 assuming consummation of these acquisitions as of January 1, 1998 are as follows: NINE MONTHS ENDED SEPTEMBER 30 ------------------------------- 1999 1998 ------------------------------- (in thousands) Total revenue $ 1,112,645 $ 831,241 (Loss) before extraordinary item (956,886) (700,475) Net (loss) (956,886) (704,714) 10 NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries Notes to Condensed Consolidated Financial Statements (unaudited) (continued) NOTE E - FIXED ASSETS Fixed assets consist of: SEPTEMBER 30, DECEMBER 31, 1999 1998 -------------------------------- (unaudited) (in thousands) Operating equipment $ 4,696,801 $ 3,528,973 Other equipment 671,778 376,518 Construction-in-progress 606,530 369,923 -------------------------------- 5,975,109 4,275,414 Accumulated depreciation (745,792) (420,984) -------------------------------- $ 5,229,317 $ 3,854,430 ================================ NOTE F - INVESTMENT IN CABLE LONDON PLC Pursuant to an agreement with Telewest Communications plc ("Telewest") relating to NTL Bermuda's and Telewest's respective 50% ownership interests in Cable London PLC ("Cable London"), in August 1999 Telewest exercised its right to purchase all of NTL Bermuda's shares of Cable London for approximately 428 million pounds sterling (approximately $705 million) in cash. The closing of the sale of NTL Bermuda's interest in Cable London is expected to take place in November 1999. The sale of the Cable London interest is an "Asset Sale" for the purposes of the Company's Indentures for certain of its notes. The Company will need to use an amount equal to the proceeds from the sale to repay subsidiary debt, invest in "Replacement Assets" or make an offer to redeem certain of its notes within 360 days after the sale. 11 NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries Notes to Condensed Consolidated Financial Statements (unaudited) (continued) NOTE G - LONG-TERM DEBT Long-term debt consists of:
SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------------------------ (unaudited) (in thousands) NTL Communications: 12-3/4% Senior Deferred Coupon Notes $ 259,866 $ 236,935 11-1/2% Senior Deferred Coupon Notes 904,878 831,976 10% Senior Notes 400,000 400,000 9-1/2% Senior Sterling Notes, less unamortized discount of $592 (1999) and $639 (1998) 205,208 206,800 10-3/4% Senior Deferred Coupon Sterling Notes 340,929 317,511 9-3/4% Senior Deferred Coupon Notes 930,037 865,880 9-3/4% Senior Deferred Coupon Sterling Notes 352,540 - 11-1/2% Senior Notes 625,000 625,000 12-3/8% Senior Deferred Coupon Notes 278,356 254,718 7% Convertible Subordinated Notes - 275,000 7% Convertible Subordinated Notes 599,300 600,000 Senior Increasing Rate Notes 704,615 - Variable Rate Redeemable Guaranteed Loan Notes 109,080 - NTL Bermuda: 11.2% Senior Discount Debentures 457,758 421,835 Other 8,948 31,839 Diamond: 13-1/4% Senior Discount Notes 285,223 - 11-3/4% Senior Discount Notes 462,905 - 10-3/4% Senior Discount Notes 328,165 - 10% Senior Sterling Notes 222,264 - 9-1/8% Senior Notes 110,000 - Other 12,718 - ------------------------------ 7,597,790 5,067,494 Less current portion 114,976 23,691 ------------------------------- $ 7,482,814 $ 5,043,803 ===============================
12 NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries Notes to Condensed Consolidated Financial Statements (unaudited) (continued) NOTE G - LONG-TERM DEBT (CONTINUED) In September 1999, NTL Bermuda repaid at maturity the $21,529,000 due under its notes payable to Comcast U.K. Holdings, Inc. In July 1999, the Company issued $704,615,000 principal amount Senior Increasing Rate Notes due 2000 (the "Senior Notes") in connection with the purchase of Cablelink. The principal amount includes $3,034,000 in fees which is included in deferred financing costs. Interest on the Senior Notes is payable quarterly at the higher of: (i) the Citibank, NA base rate plus 3%, (ii) three-month LIBOR plus 3%, or (iii) the highest yield on any of the 1, 3, 5 and 10 year direct obligations issued by the government of the United States plus 3.5%. The interest rate on any unpaid principal will increase by a further 0.5% every three months, not to exceed 16%. The interest rate at September 30, 1999 was 11.25%. On June 8, 2000, the Senior Notes are subject to a mandatory exchange for, at the option of the holder, either an "Extended Note" in a principal amount equal to the principal amount of the Senior Notes, or a "Rollover Note" in a principal amount equal to the principal amount of the Senior Notes plus 3% of such principal amount. The Extended Note shall accrue interest at 14% per annum and shall mature no later than ten years after issuance. The Rollover Note shall accrue interest at 14% per annum and mature ten years after issuance. The Company is in discussions with various parties relating to a private placement offering to refinance the Senior Notes. In July 1999, the Company also issued 80 million Irish punts ($109,080,000) principal amount Variable Rate Redeemable Guaranteed Loan Notes due 2002 (the "Guaranteed Notes") in connection with the Cablelink acquisition. Interest on the Guaranteed Notes is payable quarterly at EURIBOR. The EURIBOR rate at September 30, 1999 was 2.698%. The Guaranteed Notes may be redeemed at any time, at the option of the holder, at par plus accrued and unpaid interest to the date of the redemption. The Guaranteed Notes are subject to mandatory redemption in January 2002. The Company deposited 87 million Irish punts ($118,625,000) into escrow as cash collateral for the Guaranteed Notes, which is included in other noncurrent assets. In May 1999, the Company called for redemption all of its $275,000,000 principal amount of 7% Convertible Subordinated Notes due 2008 (the "7% Notes") at a redemption price of 104.9% of the principal amount, plus accrued and unpaid interest. In June 1999, all of the 7% Notes were converted into approximately 9,075,000 shares of NTL Incorporated common stock at the applicable conversion price of $30.30 per share. The unamortized deferred financing costs related to the 7% Notes of $6,415,000 were written-off to equity. In April 1999, the Company issued 330,000,000 pounds sterling aggregate principal amount at maturity of 9-3/4% Senior Deferred Coupon Sterling Notes due 2009 (the "9-3/4% Notes"). The 9-3/4% Notes were issued at a price of 62.11% of the aggregate principal amount at maturity or 204,963,000 pounds sterling. The aggregate of the discounts, commissions and the fees incurred of $8,465,000 is included in deferred financing costs. The original issue discount accretes at a rate of 9-3/4%, compounded semiannually, to an aggregate principal amount of 330,000,000 pounds sterling by April 15, 2004. Interest will thereafter accrue at 9-3/4% per annum, payable semiannually beginning on October 15, 2004. The 9-3/4% Notes may be redeemed at the Company's option, in whole or in part, at any time on or after April 15, 2004 at 104.875% that declines annually to 100% in 2007, plus accrued and unpaid interest to the date of redemption. 13 NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries Notes to Condensed Consolidated Financial Statements (unaudited) (continued) NOTE H - COMPREHENSIVE LOSS The Company's comprehensive loss for the three and nine months ended September 30, 1999 and 1998 was $(86,853,000), $(81,135,000), $(872,170,000) and $(268,998,000), respectively. NOTE I - SEGMENT DATA
Local Telecoms National Corporate Broadcast and Television Telecoms And Other Total --------------------------------------------------------------------------------- (in thousands) Nine months ended September 30, 1999 Revenues $ 119,900 $ 583,728 $ 349,232 $ - $ 1,052,860 EBITDA (1) 76,404 163,625 89,418 (199,999) 129,448 Nine months ended September 30, 1998 Revenues $ 100,825 $ 214,545 $ 166,845 $ 2,375 $484,590 EBITDA (1) 67,681 48,408 18,789 (85,834) 49,044 Total assets September 30, 1999 $ 303,387 $ 5,676,318 $ 1,074,260 $ 2,314,718 $ 9,368,683 December 31, 1998 289,068 3,100,492 761,097 2,043,440 6,194,097
(1) Represents earnings before interest, taxes, depreciation and amortization, corporate expenses and franchise fees. The reconciliation of segment combined EBITDA to net loss is as follows: NINE MONTHS ENDED SEPTEMBER 30 ------------------------------ 1999 1998 ------------------------------ (in thousands) Segment Combined EBITDA $ 129,448 $ 49,044 (Add) Deduct: Franchise fees 22,287 18,729 Corporate expenses 18,475 11,797 Depreciation and amortization 518,356 156,785 Interest and other income (26,829) (39,796) Interest expense 484,570 226,422 Foreign currency transaction (gains) losses (22,523) 6,973 Loss from early extinguishment of debt - 4,239 ----------------------------- 994,336 385,149 ----------------------------- Net (loss) $ (864,888) $ (336,105) ============================= 14 NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries Notes to Condensed Consolidated Financial Statements (unaudited) (continued) NOTE J - COMMITMENTS AND CONTINGENT LIABILITIES As of September 30, 1999, the Company was committed to pay approximately $276,000,000 for equipment and services. The Company has certain exclusive local delivery operator licenses for Northern Ireland and other franchise areas in the United Kingdom. Pursuant to these licenses, various subsidiaries of the Company are required to make monthly cash payments to the ITC during the 15 year license terms. The Company has paid 14.4 million pounds sterling ($22.3 million) through September 30, 1999 in connection with these licenses. The Company has requested the ITC to convert all of its fee bearing exclusive licenses to non-exclusive licenses by the end of 1999. The Company's liability for the license payments will end upon the conversion. The Company is involved in, or has been involved in, certain disputes and litigation arising in the ordinary course of its business. None of these matters are expected to have a material adverse effect on the Company's financial position, results of operations or cash flows. 15 NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION. The following table illustrates the number of homes passed, the number of homes marketed and the total number of customers for the Company's newly constructed dual network.
==================================================================================================================================== NTL (2) Total NTL(1) (with UK Combined (Before recent acquisitions) acquisitions) NTL (3) - ------------------------------------------------------------------------------------------------------------------------------------ 09/30/98 12/31/98 09/30/99 09/30/99 09/30/99 ==================================================================================================================================== Homes passed 1,197,000 1,247,200 1,335,800 3,667,300 4,262,600 - ------------------------------------------------------------------------------------------------------------------------------------ Homes marketed (Tel.) 1,020,000 1,064,600 1,137,600 3,146,600 3,146,600 - ------------------------------------------------------------------------------------------------------------------------------------ Homes marketed (CATV) 1,020,000 1,064,600 1,137,600 3,261,100 3,817,900 - ------------------------------------------------------------------------------------------------------------------------------------ Total customers 429,600 471,000 529,800 1,291,800 1,705,700 - ------------------------------------------------------------------------------------------------------------------------------------ Dual 398,800 434,100 489,500 879,100 879,100 - ------------------------------------------------------------------------------------------------------------------------------------ Telephone-only 15,300 16,100 16,200 288,300 288,300 - ------------------------------------------------------------------------------------------------------------------------------------ Cable-only 20,500 20,800 24,100 124,400 538,300 - ------------------------------------------------------------------------------------------------------------------------------------ Total RGUs (4) 823,400 905,100 1,019,300 2,170,900 2,584,800 - ------------------------------------------------------------------------------------------------------------------------------------ Customer penetration 42.1% 44.2% 46.6% 39.6% 44.7% - ------------------------------------------------------------------------------------------------------------------------------------ RGU penetration 80.7% 85.0% 89.6% 66.6% 67.7% - ------------------------------------------------------------------------------------------------------------------------------------ Telephone penetration 40.6% 42.3% 44.5% 37.1% 37.1% - ------------------------------------------------------------------------------------------------------------------------------------ Cable penetration 36.4% 42.7% 45.1% 30.8% 37.1% ====================================================================================================================================
(1) Data for franchises owned and operated by NTL prior to the 1998 acquisitions. (2) Includes Comcast UK, ComTel, and Diamond Cable. Excludes 50% ownership of Cable London and BT cable franchises. (3) Includes the above UK acquisitions as well as Cablelink and the BT cable franchises. (4) An RGU (revenue generating unit) is one cable television account or one telephone account; a dual customer generates two RGUs. Effective April 1, 1999, NTL Incorporated completed a corporate restructuring to create a holding company structure. The holding company restructuring was accomplished through a merger so that all the stockholders of NTL Incorporated at the effective time of the merger became stockholders of the new holding company, and NTL Incorporated became a subsidiary of the new holding company. The new holding company has taken the name NTL Incorporated and the holding company's subsidiary simultaneously changed its name to NTL Communications Corp. The "Company" refers to NTL Incorporated and subsidiaries up to and including March 31, 1999, and to NTL Communications Corp. and subsidiaries beginning April 1, 1999. 16 NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries RESULTS OF OPERATIONS As a result of the completion of the acquisitions of ComTel Limited and Telecential Communications (collectively "ComTel") in the second and third quarters of 1998, Comcast UK Cable Partners Limited ("NTL Bermuda") and Eastern Group Telecoms ("EGT") in the fourth quarter of 1998, Diamond Cable Communications plc ("Diamond") in March 1999 and Cablelink Limited ("Cablelink") in July 1999, the Company consolidated the results of operations of these businesses from the dates of acquisition. The results of these businesses are not included in the 1998 results except for the results of operations of ComTel. THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 - ---------------------------------------------- Local telecommunications and television revenues increased to $218,408,000 from $84,366,000 as a result of acquisitions and from customer growth that increased the Company's current revenue stream. The 1999 and 1998 revenue includes $128,180,000 and $12,667,000, respectively, from acquired companies. The Company expects its customer base to continue to increase which will drive further revenue growth as the Company completes the construction of its broadband network past the remaining homes in its franchise areas. National and international telecommunications revenues increased to $130,647,000 from $64,185,000 as a result of acquisitions, which was $35,853,000 of the increase, and from increases in business telecommunications revenues, Internet services revenues and carrier services revenues. Business telecommunications and Internet services revenues increased primarily as a result of customer growth. The Company expects its business telecommunications and Internet services customer base to continue to increase which will drive further revenue growth. The Company is expanding its sales and marketing effort to business customers and for Internet services in its completed network. Carrier services revenues increased due to growth in satellite services and telephone services provided by the Company's wholesale operation to broadcasters and telephone companies, respectively. Revenue growth in carrier services is primarily dependent upon the Company's ability to continue to attract new customers and expand services to existing customers. Recent new contracts should contribute to revenue growth in the near term. Broadcast transmission and other revenues increased to $40,298,000 from $33,933,000 due to increases in broadcast television and FM radio customers and accounts, which exceeded price cap reductions in the Company's regulated services. Broadcast television revenues are expected to increase in the future as digital broadcasting revenues increase. Operating expenses increased to $184,953,000 from $88,122,000 as a result of increases in interconnection costs and programming costs due to customer growth. The 1999 and 1998 expense includes $70,961,000 and $4,298,000, respectively, from acquired companies. 17 NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries Selling, general and administrative expenses increased to $142,669,000 from $78,543,000 as a result of increases in telecommunications and CATV sales and marketing costs and increases in additional personnel and overhead to service the increasing customer base. In addition, approximately $8.3 million of the increase was due to the new national brand and advertising campaign which began in the second quarter of 1999 and will continue through 1999. The 1999 and 1998 expense includes $56,055,000 and $11,579,000, respectively, from acquired companies. Pursuant to the terms of various United Kingdom licenses, the Company incurs license fees paid to the ITC to operate as the exclusive service provider in certain of its franchise areas. Franchise fees increased to $7,710,000 from $6,223,000. The 1999 amount includes Diamond franchise fees of $1,500,000. The Company has requested the ITC to convert all of its fee bearing exclusive licenses to non-exclusive licenses by the end of 1999. The Company's liability for the license payments will end upon the conversion. Corporate expenses increased to $6,249,000 from $4,018,000 due to an increase in various overhead costs. Depreciation and amortization expense increased to $189,906,000 from $61,218,000 due to an increase in depreciation of telecommunications and CATV equipment. The 1999 expense includes $86,746,000 from acquired companies, including amortization of acquisition related intangibles. Interest expense increased to $186,028,000 from $84,800,000 due to the issuance of additional debt, and the increase in the accretion of original issue discount on the deferred coupon notes. The 1999 expense includes $54,632,000 from acquired companies. Interest of $79,937,000 and $55,076,000 was paid in the three months ended September 30, 1999 and 1998, respectively. Foreign currency transaction gains (losses) increased to a gain of $33,426,000 from a loss of $9,770,000 due to net foreign currency transaction gains of $64,137,000 from acquired companies in 1999, offset by unfavorable changes in exchange rates subsequent to the issuance of new debt denominated in foreign currencies. NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 - --------------------------------------------- Local telecommunications and television revenues increased to $583,728,000 from $214,545,000 as a result of acquisitions and from customer growth that increased the Company's current revenue stream. The 1999 and 1998 revenue includes $323,620,000 and $14,409,000, respectively, from acquired companies. The Company expects its customer base to continue to increase which will drive further revenue growth as the Company completes the construction of its broadband network past the remaining homes in its franchise areas. 18 NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries National and international telecommunications revenues increased to $349,232,000 from $166,845,000 as a result of acquisitions, which was $101,295,000 of the increase, and from increases in business telecommunications revenues, Internet services revenues and carrier services revenues. Business telecommunications and Internet services revenues increased primarily as a result of customer growth. The Company expects its business telecommunications and Internet services customer base to continue to increase which will drive further revenue growth. The Company is expanding its sales and marketing effort to business customers and for Internet services in its completed network. Carrier services revenues increased due to growth in satellite services and telephone services provided by the Company's wholesale operation to broadcasters and telephone companies, respectively. Revenue growth in carrier services is primarily dependent upon the Company's ability to continue to attract new customers and expand services to existing customers. Recent new contracts should contribute to revenue growth in the near term. Broadcast transmission and other revenues increased to $119,900,000 from $100,825,000 due to increases in broadcast television and FM radio customers and accounts, which exceeded price cap reductions in the Company's regulated services. Broadcast television revenues are expected to increase in the future as digital broadcasting revenues increase. Other telecommunications revenues decreased to zero from $2,375,000 due to the sales of the assets of the Company's wholly-owned subsidiary, OCOM Corporation, to AirTouch Communications, Inc. and to Cellular Communications of Puerto Rico, Inc. during 1998. Operating expenses increased to $507,335,000 from $243,476,000 as a result of increases in interconnection costs and programming costs due to customer growth. The 1999 and 1998 expense includes $179,968,000 and $5,511,000, respectively, from acquired companies. Selling, general and administrative expenses increased to $416,077,000 from $192,070,000 as a result of increases in telecommunications and CATV sales and marketing costs and increases in additional personnel and overhead to service the increasing customer base. In addition, approximately $32.1 million of the increase was due to the new national brand and advertising campaign which began in the second quarter of 1999 and will continue through 1999. The 1999 and 1998 expense includes $158,161,000 and $12,535,000, respectively, from acquired companies. Pursuant to the terms of various United Kingdom licenses, the Company incurs license fees paid to the ITC to operate as the exclusive service provider in certain of its franchise areas. Franchise fees increased to $22,287,000 from $18,729,000. The 1999 amount includes Diamond franchise fees of $3,517,000. The Company has requested the ITC to convert all of its fee bearing exclusive licenses to non-exclusive licenses by the end of 1999. The Company's liability for the license payments will end upon the conversion. Corporate expenses increased to $18,475,000 from $11,797,000 due to an increase in various overhead costs. 19 NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries Depreciation and amortization expense increased to $518,356,000 from $156,785,000 due to an increase in depreciation of telecommunications and CATV equipment. The 1999 expense includes $262,205,000 from acquired companies, including amortization of acquisition related intangibles. Interest expense increased to $484,570,000 from $226,422,000 due to the issuance of additional debt, and the increase in the accretion of original issue discount on the deferred coupon notes. The 1999 expense includes $132,112,000 from acquired companies. Interest of $172,109,000 and $94,734,000 was paid in the nine months ended September 30, 1999 and 1998, respectively. Foreign currency transaction gains (losses) increased to a gain of $22,523,000 from a loss of $6,973,000 primarily due to net foreign currency transaction gains of $27,914,000 from acquired companies in 1999. LIQUIDITY AND CAPITAL RESOURCES The Company will continue to require significant amounts of capital to finance construction of its local and national networks in the United Kingdom and Ireland, for connection of telephone, telecommunications, Internet and CATV customers to the networks, for other capital expenditures and for debt service. The Company estimates that these requirements, net of cash from operations, will aggregate up to approximately $1.7 billion in the fourth quarter of 1999 and through December 31, 2000. The Company's commitments for equipment and services at September 30, 1999 of approximately $276 million are included in the anticipated requirements. The Company had approximately $663 million in cash and securities on hand at September 30, 1999. In addition, NTL Incorporated had approximately $889 million in cash and securities on hand at September 30, 1999, excluding cash of its subsidiaries, most of which is available to fund the Company's cash requirements. The Company will therefore need additional cash in order to fund these requirements, and the Company is in discussions with various parties relating to sources of additional financing. Regarding the Company's estimated cash requirements described above, there can be no assurance that: (i) actual construction costs will not exceed the amounts estimated or that additional funding substantially in excess of the amounts estimated will not be required, (ii) additional financing will be obtained or will be available on acceptable terms, (iii) conditions precedent to advances under future credit facilities will be satisfied when funds are required, (iv) the Company and its subsidiaries will be able to generate sufficient cash from operations to meet capital requirements, debt service and other obligations when required, (v) the Company will be able to access such cash flow or (vi) the Company will not incur losses from its exposure to exchange rate fluctuations or be adversely affected by interest rate fluctuations. NTL Bermuda expects to close on the sale of its interest in Cable London in November 1999. The sales price is approximately 428 million pounds sterling (approximately $705 million). The sale of the Cable London interest is an "Asset Sale" for the purposes of the Company's Indentures for certain of its notes. 20 NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries The Company will need to use an amount equal to the proceeds from the sale to repay subsidiary debt, invest in "Replacement Assets" or make an offer to redeem certain of its notes within 360 days after the sale. In July 1999, NTL Incorporated agreed to acquire the consumer cable telephone, Internet and television operations of Cable & Wireless Communications, plc ("CWC"). NTL Incorporated will issue 68 million new shares of NTL common stock and pay 2.85 billion pounds sterling ($4.7 billion) in cash. NTL Incorporated will also discharge, refinance or assume approximately 1.9 billion pounds sterling ($3.1 billion) of CWC's net debt, plus further debt up to an agreed amount of CWC cash outflow through the closing. The transaction is subject to various approvals and other conditions. The Company and NTL Incorporated have obtained a financing commitment for up to approximately 2.1 billion pounds sterling ($3.5 billion) to fund a portion of the cost of this acquisition. The commitment is subject to the preparation, execution and delivery of loan documentation and the accuracy and completeness of representations. The commitment expires in November 1999, unless definitive documentation has been executed and delivered. In connection with the CWC acquisition, NTL Incorporated announced that France Telecom agreed to invest an additional $4.5 billion in NTL Incorporated. France Telecom will invest $2.5 billion in NTL Incorporated common stock issued at $74 per share and $2.0 billion in convertible preferred stock with a 5% dividend and a conversion price of $100 per share. The closing of the additional investment is subject to the completion of the CWC acquisition, unless France Telecom elects to accelerate the closing of this investment. In the event France Telecom elects to accelerate the closing of the investment, the proceeds will be used as mutually agreed by NTL Incorporated and France Telecom prior to such closing. The Company is highly leveraged. The accreted value at September 30, 1999 of the Company's consolidated long-term indebtedness is approximately $7.5 billion, representing approximately 90% of total capitalization. The following summarizes the terms of those notes issued by the Company and its subsidiaries. NTL Communications: (1) 12-3/4% Senior Deferred Coupon Notes due April 15, 2005, principal amount at maturity of $278 million, interest payable semi-annually beginning on October 15, 2000, redeemable at the Company's option on or after April 15, 2000; (2) 11-1/2% Senior Deferred Coupon Notes due February 1, 2006, principal amount at maturity of $1.05 billion, interest payable semi-annually beginning on August 1, 2001, redeemable at the Company's option on or after February 1, 2001; (3) 10% Senior Notes due February 15, 2007, principal amount of $400 million, interest payable semi-annually from August 15, 1997, redeemable at the Company's option on or after February 15, 2002; 21 NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries (4) 9-1/2% Senior Sterling Notes due April 1, 2008, principal amount of 125 million pounds sterling ($205 million), interest payable semi-annually from October 1, 1998, redeemable at the Company's option on or after April 1, 2003; (5) 10-3/4% Senior Deferred Coupon Sterling Notes due April 1, 2008, principal amount at maturity of 300 million pounds sterling ($494 million), interest payable semi-annually from October 1, 2003, redeemable at the Company's option on or after April 1, 2003; (6) 9-3/4% Senior Deferred Coupon Notes due April 1, 2008, principal amount at maturity of $1.3 billion, interest payable semi-annually from October 1, 2003, redeemable at the Company's option on or after April 1, 2003; (7) 9-3/4% Senior Deferred Coupon Sterling Notes due April 15, 2009, principal amount at maturity of 330 million pounds sterling ($543 million), interest payable semi-annually from October 15, 2004, redeemable at the Company's option on or after April 15, 2004; (8) 11-1/2% Senior Notes due October 1, 2008, principal amount of $625 million, interest payable semi-annually from April 1, 1999, redeemable at the Company's option on or after October 1, 2003; (9) 12-3/8% Senior Deferred Coupon Notes due October 1, 2008, principal amount at maturity of $450 million, interest payable semi-annually from April 1, 2004, redeemable at the Company's option on or after October 1, 2003; (10) 7% Convertible Subordinated Notes due December 15, 2008, principal amount of $599 million, interest payable semi-annually from June 15, 1999, convertible into shares of NTL Incorporated's common stock at a conversion price of $49.00 per share, redeemable at the Company's option on or after December 15, 2001; (11) Senior Increasing Rate Notes due June 8, 2000, principal amount of $705 million, interest payable quarterly from July 9, 1999 at the higher of: (i) the Citibank, NA base rate plus 3%, (ii) three month LIBOR plus 3%, or (iii) the highest yield on any of the 1, 3, 5 and 10 year direct obligations issued by the government of the United States plus 3.5%, the interest rate will increase by a further 0.5% every three months, not to exceed 16%, (the interest rate at September 30, 1999 was 11.25%), mandatory exchange for, at the option of the holder, either an Extended Note or a Rollover Note, on June 8, 2000, an Extended Note shall accrue interest at 14% per annum and shall mature no later than ten years after issuance, a Rollover Note shall accrue interest at 14% per annum and mature ten years after issuance. The Company is in discussions with various parties relating to a private placement offering to refinance the Senior Increasing Rate Notes; 22 NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries (12) Variable Rate Redeemable Guaranteed Loan Notes due January 5, 2002, principal amount of 80 million Irish punts ($109 million), interest payable quarterly from July 9, 1999 at EURIBOR, (the interest rate at September 30, 1999 was 2.698%), redeemable at any time, at the option of the holder, at par plus accrued and unpaid interest to the date of redemption, for which 87 million Irish punts ($118.6 million) is in escrow; NTL Bermuda: (13) 11.2% Senior Discount Debentures due November 15, 2007, principal amount at maturity of $517.3 million, interest payable semi-annually from May 15, 2001; Diamond: (14) 13-1/4% Senior Discount Notes due September 30, 2004, principal amount at maturity of $285 million, interest payable semi-annually beginning on March 31, 2000, redeemable at Diamond's option after September 30, 1999; (15) 11-3/4% Senior Discount Notes due December 15, 2005, principal amount at maturity of $531 million, interest payable semi-annually beginning on June 15, 2001, redeemable at Diamond's option on or after December 15, 2000; (16) 10-3/4% Senior Discount Notes due February 15, 2007, principal amount at maturity of $421 million, interest payable semi-annually beginning on August 15, 2002; (17) 10% Senior Notes due February 1, 2008, issued by Diamond Holdings plc, a wholly-owned subsidiary of Diamond, principal amount of 135 million pounds sterling ($222 million), interest payable semi-annually as of August 1, 1998; (18) 9-1/8% Senior Notes due February 1, 2008, issued by Diamond Holdings plc, principal amount of $110 million, interest payable semi-annually as of August 1, 1998; and (19) mortgage of 2.5 million pounds sterling ($4.1 million) to fund the construction of an office building, repayable over 20 years as of July 31, 1995, interest at LIBOR plus 1-1/2%. The Company has other significant commitments or potential commitments in addition to those described above. These are as follows: (1) The Company has certain exclusive local delivery operator licenses for Northern Ireland and other franchise areas in the United Kingdom. Pursuant to these licenses, various subsidiaries are required to make monthly cash payments to the ITC during the 15 year license terms. The Company has paid 14.4 million pounds sterling ($22 million) through September 30, 1999 in connection with these licenses. The Company has requested the ITC to convert all of its fee bearing exclusive licenses to non-exclusive licenses by the end of 1999. The Company's liability for the license payments will end upon the conversion. 23 NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries (2) In July 1999, the Company acquired certain broadband cable franchises from British Telecommunications plc ("BT") for an aggregate of up to 19 million pounds sterling ($31.2 million). The Company paid approximately 5 million pounds sterling ($8.2 million) on closing and will pay up to 14 million pounds sterling ($23.0 million) on completion of the upgrade of certain networks. The Company expects to invest approximately 15 million pounds sterling ($24.7 million) to upgrade the networks for digital cable, interactive services and high speed Internet access. The Company leases the networks from BT on a long-term basis for an annual lease payment of approximately 3.9 million pounds sterling ($6.4 million). Management does not anticipate that the Company and its subsidiaries will generate sufficient cash flow from operations to repay at maturity the entire principal amount of the outstanding indebtedness of the Company and its subsidiaries. Accordingly, the Company may be required to consider a number of measures, including: (i) refinancing all or a portion of such indebtedness, (ii) seeking modifications to the terms of such indebtedness, (iii) seeking additional debt financing, which may be subject to obtaining necessary lender consents, (iv) seeking additional equity financing, or (v) a combination of the foregoing. The Company's operations are conducted through its direct and indirect wholly-owned subsidiaries. As a holding company, the Company holds no significant assets other than cash, securities and its investments in and advances to its subsidiaries. Accordingly, the Company's ability to make scheduled interest and principal payments when due to holders of its indebtedness may be dependent upon the receipt of sufficient funds from its subsidiaries. From time to time NTL Incorporated may fund its capital requirements outside the United Kingdom and Ireland from dividends from the Company subject to certain conditions under the Indentures. The Company distributed $500 million to NTL Incorporated in April 1999. The Company may use cash from equity proceeds in excess of cumulative EBITDA (as defined in the Indentures) minus 1.5 times cumulative interest expense plus capital stock proceeds, for dividend payments to the extent such funds are not used for other Restricted Payments (as defined in the Indentures). NTL Incorporated intends to repay certain amounts to the Company when funds become available. Currently there are no funds available to NTL Incorporated from the Company, because the Senior Increasing Rate Notes prohibit the Company from making dividend payments or other distributions to NTL Incorporated. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Cash provided by operating activities was $20,304,000 and cash used in operating activities was $27,656,000 in the nine months ended September 30, 1999 and 1998, respectively. The change is primarily due to changes in operating assets and liabilities. Purchases of fixed assets were $855,667,000 in 1999 and $464,944,000 in 1998 as a result of the continuing fixed asset purchases and construction in 1999, including purchases and construction by acquired companies. 24 NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries Proceeds from borrowings, net of financing costs, of $1,125,494,000 in 1999 is from the issuance of the 9-3/4% Notes and from the issuance of the Senior Increasing Rate Notes and the Variable Rate Redeemable Guaranteed Loan Notes issued in connection with the Cablelink acquisition. Proceeds from issuance of preferred stock and warrants of $500,000,000 in 1999 is from the sale of 5.25% Convertible Preferred Stock and warrants to purchase 1.5 million shares of NTL Incorporated's common stock to Microsoft Corp. The distribution to NTL Incorporated of $500,000,000 in 1999 was primarily for NTL Incorporated's acquisition of the Australian National Transmission Network. YEAR 2000 The Company has a comprehensive Year 2000 project designed to identify and assess the risks associated with its information systems, products, operations and infrastructure, suppliers, and customers that are not Year 2000 compliant, and to develop, implement and test remediation and contingency plans to mitigate these risks. The project comprises four phases: (1) identification of risks, (2) assessment of risks, (3) development of remediation and contingency plans and (4) implementation and testing. The Company has completed its compilation of equipment and systems that might be affected by Year 2000 noncompliance. An impact and risk assessment has been completed on all items to determine whether items are business critical, high priority or low priority. This assessment includes all information systems ("IS") and non-IS equipment with embedded technology such as air conditioning, generators and power supplies. The Company's billing, provisioning and customer service systems have been reviewed and modified for Year 2000 readiness. Integration testing of the complete system began in the second quarter of 1999 and will continue until the end of 1999 as part of change control management when new processes are introduced. Testing of other business critical and high priority items is mostly complete, although some testing will continue into the fourth quarter of 1999. Where appropriate, remedial work has been minimized by bringing forward planned system revisions and retiring old equipment. The Company has also communicated with its suppliers with respect to the high priority and business critical items. A central database has been maintained to insure all issues have been resolved. This communication is virtually complete, and all items are now cleared or have a definite planned upgrade path. A Millennium Operations Plan has been created and the key resources needed for problems that may arise over the Year 2000 weekend have been scheduled. The Millennium Operations Plan will be constantly revised throughout the fourth quarter of 1999 to account for changes in external influences. The Company's Year 2000 Project and Operations Plan have been independently audited by the United Kingdom telecoms industry regulator, OFTEL, during 1999 and have been declared satisfactory. 25 NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries The Company expects to incur $13 million primarily in labor costs to compile inventories, assess risks, prioritize remediation projects, communicate with suppliers, maintain the supplier communications database, test remediations and implement remediations. The Company incurred approximately $3.2 million of this amount in 1998 and approximately $7.5 million was incurred through September 30, 1999. The Company currently believes that the most reasonably likely worst case scenario with respect to the Year 2000 is the failure of public electricity supplies during the millennium period. A number of critical sites have permanent automatic standby generators and uninterruptible power supplies. Where critical sites do not have permanent standby power, the Company intends to deploy its mobile generators. In addition, other telephone operators have suggested that the telephone network may overload due to excessive traffic. The Company is reviewing its "cold start" scenarios and alternative interconnection routes in the event of interruptions in the service of other telephone companies. Either or both of the above mentioned scenarios could have a material adverse effect on operations, although it is not possible at this time to quantify the amount of revenues and gross profit that might be lost, or the costs that could be incurred. During the remainder of 1999, the Company may discover additional problems and may not be able to develop, implement or test remediation or contingency plans, or may find that the costs of these activities exceed current expectations. In many cases, the Company is relying on assurances from suppliers that new and upgraded information systems and other products will be Year 2000 ready. The Company has tested most of such third-party products, but cannot be sure that its tests were adequate or that, if problems are identified as testing is completed, they will be addressed by the supplier in a timely and satisfactory way. Because the Company uses a variety of information systems and has additional systems embedded in its operations and infrastructure, the Company cannot be sure that all of its systems will work together in a Year 2000-ready fashion. Furthermore, the Company cannot be sure that it will not suffer business interruptions, either because of its own Year 2000 problems or those of third-parties upon whom the Company is reliant for services. The Company is continuing to evaluate its Year 2000-related risks and corrective actions. However, the risks associated with the Year 2000 problem are pervasive and complex; they can be difficult to identify and address, and can result in material adverse consequences to the Company. Even if the Company, in a timely manner, completes all of the upgrades and testing that is believed to be adequate, and develops contingency plans believed to be adequate, some problems may not be identified or corrected in time to prevent material adverse consequences to the Company. 26 NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Certain statements contained herein constitute "forward-looking statements" as that term is defined under the Private Securities Litigation Reform Act of 1995. When used herein, the words, "believe," "anticipate," "should," "intend," "plan," "will," "expects," "estimates," "projects," "positioned," "strategy," and similar expressions identify such forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from those contemplated, projected, forecasted, estimated or budgeted, whether expressed or implied, by such forward-looking statements. Such factors include the following: general economic and business conditions, the Company's ability to continue to design networks, install facilities, obtain and maintain any required governmental licenses or approvals and finance construction and development, all in a timely manner at reasonable costs and on satisfactory terms and conditions, as well as assumptions about customer acceptance, churn rates, overall market penetration and competition from providers of alternative services, the impact of new business opportunities requiring significant up-front investment, Year 2000 readiness, and availability, terms and deployment of capital. 27 NTL Communications Corp. (formerly NTL Incorporated) and Subsidiaries PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. 27. Financial Data Schedule (b) Reports on Form 8-K. During the quarter ended September 30, 1999, the Company filed a report on Form 8-K dated September 17, 1999, reporting under Item 5, Other Events, that NTL Incorporated agreed to acquire 100% of Workplace Technologies plc and that NTL Incorporated announced that Telewest Communications plc exercised its right to purchase all of NTL's shares of Cable London PLC. There were no financial statements filed with this report. 28 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NTL COMMUNICATIONS CORP. Date: November 10 , 1999 By: /s/ J. Barclay Knapp ------------------------------------- J. Barclay Knapp President and Chief Executive Officer Date: November 10, 1999 By: /s/ Gregg Gorelick ------------------------------------- Gregg Gorelick Vice President-Controller (Principal Accounting Officer) 29 EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 572,387,000 90,531,000 351,636,000 (69,757,000) 0 58,624,000 5,975,109,000 (745,792,000) 9,368,683,000 926,773,000 7,482,814,000 0 0 0 875,009,000 9,368,683,000 0 1,052,860,000 0 507,335,000 434,552,000 0 484,570,000 (864,888,000) 0 (864,888,000) 0 0 0 (864,888,000) 0 0
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