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 June 30, 2001
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)
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 June 30,
2001 was 12. The Registrant is an indirect 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.
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NTL Communications Corp. and Subsidiaries
Index
Page
----
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets-
June 30, 2001 and December 31, 2000 ........................ 2
Condensed Consolidated Statements of Operations-
Three and six months ended June 30, 2001 and 2000 .......... 4
Condensed Consolidated Statement of Shareholder's Equity-
Six months ended June 30, 2001 ............................. 5
Condensed Consolidated Statements of Cash Flows-
Six months ended June 30, 2001 and 2000 .................... 7
Notes to Condensed Consolidated Financial Statements ....... 8
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition ......................... 17
PART II. OTHER INFORMATION
- --------------------------
Item 6. Exhibits and Reports on Form 8-K ........................... 28
SIGNATURES .......................................................... 29
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NTL Communications Corp. and Subsidiaries
Condensed Consolidated Balance Sheets
(dollars in millions)
JUNE 30, DECEMBER 31,
2001 2000
--------- ---------
(unaudited) (see note)
ASSETS
Current assets:
Cash and cash equivalents $ 753.7 $ 423.5
Marketable securities 9.9 --
Accounts receivable - trade, less allowance for doubtful
accounts of $152.8 (2001) and $135.2 (2000) 479.7 527.4
Due from affiliates 104.1 105.1
Other 327.1 284.1
--------- ---------
Total current assets 1,674.5 1,340.1
Fixed assets, net 10,554.0 10,916.8
Intangible assets, net 10,068.4 10,566.1
Other assets, net of accumulated amortization
of $92.6 (2001) and $81.8 (2000) 271.6 318.6
Deferred incomes taxes 7.3 4.9
--------- ---------
Total assets $22,575.8 $23,146.5
========= =========
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NTL Communications Corp. and Subsidiaries
Condensed Consolidated Balance Sheets - continued
(dollars in millions)
JUNE 30, DECEMBER 31,
2001 2000
--------- ---------
(unaudited) (see note)
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 388.4 $ 451.1
Accrued expenses and other 911.8 1,105.6
Accrued construction costs 87.6 172.9
Due to affiliates -- 117.9
Interest payable 207.8 127.6
Deferred revenue 331.3 291.5
Current portion of long-term debt 2.5 10.7
--------- ---------
Total current liabilities 1,929.4 2,277.3
Long-term debt 13,200.0 11,843.4
Other 7.9 13.6
Commitments and contingent liabilities
Shareholder's equity:
Common stock - $.01 par value; authorized
100 shares; issued and outstanding 12 (2001)
and 12 (2000) shares -- --
Additional paid-in capital 13,953.4 13,746.7
Accumulated other comprehensive (loss) (525.0) (379.3)
(Deficit) (5,989.9) (4,355.2)
--------- ---------
7,438.5 9,012.2
--------- ---------
Total liabilities and shareholder's equity $22,575.8 $23,146.5
========= =========
Note: The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date.
See accompanying notes.
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NTL Communications Corp. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(in millions)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2001 2000 2001 2000
-------- -------- -------- --------
REVENUES
Consumer telecommunications and television $ 511.9 $ 320.2 $1,014.1 $ 568.5
Business and international telecommunications 196.6 168.2 396.8 326.2
Broadcast transmission and other 68.4 65.2 136.5 129.8
-------- -------- -------- --------
776.9 553.6 1,547.4 1,024.5
COSTS AND EXPENSES
Operating expenses 350.4 264.4 737.2 477.4
Selling, general and administrative expenses 288.6 227.3 568.0 416.5
Other charges 17.9 13.7 25.3 13.7
Corporate expenses 6.0 5.3 10.1 11.9
Depreciation and amortization 655.5 311.9 1,279.2 547.2
-------- -------- -------- --------
1,318.4 822.6 2,619.8 1,466.7
-------- -------- -------- --------
Operating (loss) (541.5) (269.0) (1,072.4) (442.2)
OTHER INCOME (EXPENSE)
Interest income and other, net 1.8 7.9 9.4 16.4
Interest expense (284.6) (202.8) (592.6) (391.5)
Foreign currency transaction gains (losses) 24.1 (68.0) 18.4 (56.0)
-------- -------- -------- --------
(Loss) before income tax benefit (800.2) (531.9) (1,637.2) (873.3)
Income tax benefit 1.3 5.8 2.5 10.5
-------- -------- -------- --------
Net (loss) $ (798.9) $ (526.1) $(1,634.7) $ (862.8)
======== ======== ======== ========
See accompanying notes.
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NTL Communications Corp. and Subsidiaries
Condensed Consolidated Statement of Shareholder's Equity
(Unaudited)
(dollars in millions)
COMMON STOCK
$.01 PAR VALUE
SHARES PAR
------ ------
Balance, December 31, 2000 12 $ --
Contribution from NTL
(Delaware), Inc.
Comprehensive loss:
Net loss for the six months ended
June 30, 2001
Currency translation adjustment
Unrealized net gains on derivatives
Total
-- ----
Balance, June 30, 2001 12 $ --
== ====
See accompanying notes.
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NTL Communications Corp. and Subsidiaries
Condensed Consolidated Statement of Shareholder's Equity
(Unaudited) - continued
(dollars in millions)
ACCUMULATED OTHER
COMPREHENSIVE LOSS
-----------------------------
ADDITIONAL FOREIGN UNREALIZED
PAID-IN COMPREHENSIVE CURRENCY NET GAINS ON
CAPITAL LOSS TRANSLATION DERIVATIVES DEFICIT
------- ---- ----------- ----------- -------
Balance, December 31, 2000 $13,746.7 $(379.3) $(4,355.2)
Contribution from NTL
(Delaware), Inc. 206.7
Comprehensive loss:
Net loss for the six months ended
June 30, 2001 $(1,634.7) (1,634.7)
Currency translation adjustment (146.3) (146.3)
Unrealized net gains on derivatives 0.6 $0.6
---------
Total $(1,780.4)
--------- --------- ------- ---- ---------
Balance, June 30, 2001 $13,953.4 $(525.6) $0.6 $(5,989.9)
========= ========= ======= ==== =========
See accompanying notes.
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NTL Communications Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in millions)
SIX MONTHS ENDED
JUNE 30,
--------------------------------
2001 2000
-------- --------
Net cash (used in) operating activities $ (296.4) $ (156.8)
INVESTING ACTIVITIES
Acquisition, net of cash acquired -- (7,545.8)
Purchase of marketable securities (9.9) (3.4)
Proceeds from sales of marketable securities -- 8.4
Increase in other assets (8.7) (26.0)
Purchase of fixed assets (926.8) (728.6)
-------- --------
Net cash (used in) investing activities (945.4) (8,295.4)
FINANCING ACTIVITIES
Cash released from escrow -- 77.5
Increase in deferred financing costs -- (0.7)
Proceeds from borrowings, net of financing costs 1,994.5 3,640.6
Principal payments (418.0) (1,025.5)
Due to affiliate -- 1,036.6
Contribution from NTL (Delaware), Inc. 8.6 4,177.5
-------- --------
Net cash provided by financing activities 1,585.1 7,906.0
Effect of exchange rate changes on cash (13.1) (27.1)
-------- --------
Increase (decrease) in cash and cash equivalents 330.2 (573.3)
Cash and cash equivalents at beginning of period 423.5 1,074.2
-------- --------
Cash and cash equivalents at end of period $ 753.7 $ 500.9
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest exclusive of
amounts capitalized $ 350.3 $ 135.5
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Conversion of Convertible Notes $ 109.5 $--
Contribution from NTL (Delaware), Inc. 198.1 --
See accompanying notes.
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NTL Communications Corp. 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 six months ended June 30,
2001 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2001. For further information, refer to the
consolidated financial statements and footnotes thereto included in a Current
Report on Form 8-K/A dated May 4, 2001 of NTL Communications Corp.
Certain prior period amounts have been reclassified to conform to the current
presentation.
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations," and No. 142,
"Goodwill and Other Intangible Assets," effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill and intangible assets
deemed to have indefinite lives will no longer be amortized but will be subject
to annual impairment tests in accordance with the Statements. Other intangible
assets will continue to be amortized over their useful lives. The Company will
apply the new rules on accounting for goodwill and other intangible assets
beginning in the first quarter of 2002. During 2002, the Company will perform
the first of the required impairment tests of goodwill and indefinite lived
intangible assets as of January 1, 2002. The Company has not yet determined what
the effect of these tests will be on its results of operations and financial
position.
NOTE B - CORPORATE RESTRUCTURING
On May 18, 2000, NTL Incorporated completed a corporate restructuring to create
a holding company structure in connection with the acquisition of certain assets
of Cable & Wireless Communications plc ("CWC") (the operations acquired from CWC
are called "ConsumerCo"). 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 (Delaware), Inc. ("NTL Delaware"). The
Company is a wholly-owned subsidiary of NTL Delaware.
On February 21, 2001, the Company completed a transaction whereby it acquired
the entire issued share capital of NTL (CWC Holdings) Limited (the entity that
owns ConsumerCo) from NTL Incorporated and the entire issued share capital of
NTL Business Limited (formerly Workplace Technologies plc) from NTL Delaware in
exchange for shares of its common stock. As a result of this transaction,
ConsumerCo and NTL Business Limited became wholly-owned subsidiaries of the
Company. The Company accounted for the transaction in a manner consistent with a
transfer of entities under common control, which is similar to a "pooling of
interests." Accordingly, the net assets and results of operations of ConsumerCo
and NTL Business Limited have been included in the consolidated financial
statements from their original dates of acquisition, May 30, 2000 and September
20, 1999, respectively.
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NTL Communications Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
NOTE C - FIXED ASSETS
Fixed assets consist of:
JUNE 30, DECEMBER 31,
2001 2000
--------- ------------
(unaudited)
(in millions)
Operating equipment $10,320.5 $10,004.9
Other equipment 1,192.0 1,079.8
Construction-in-progress 1,212.8 1,509.7
--------- ---------
12,725.3 12,594.4
Accumulated depreciation (2,171.3) (1,677.6)
--------- ---------
$10,554.0 $10,916.8
========= =========
Depreciation expense for the six months ended June 30, 2001 and 2000 was $614.0
million and $317.9 million, respectively. Depreciation expense for the three
months ended June 30, 2001 and 2000 was $321.1 million and $172.6 million,
respectively.
NOTE D - INTANGIBLE ASSETS
Intangible assets consist of:
JUNE 30, DECEMBER 31,
2001 2000
--------- ------------
(unaudited)
(in millions)
Goodwill, net of accumulated amortization
of $1,384.3 (2001) and $837.3 (2000) $ 9,809.9 $ 10,236.4
License acquisition costs, net of accumulated
amortization of $242.6 (2001) and $215.8 (2000) 105.3 139.2
Customer lists, net of accumulated amortization
of $88.1 (2001) and $70.4 (2000) 127.5 158.6
Other intangibles, net of accumulated amortization
Of $9.5 (2001) and $5.5 (2000) 25.7 31.9
----------- -----------
$ 10,068.4 $ 10,566.1
=========== ===========
In September 1999, NTL Delaware acquired the shares of Workplace Technologies
plc. On February 21, 2001, the Company completed a transaction whereby it
acquired the entire issued share capital of NTL Business Limited (formerly
Workplace Technologies plc) from NTL Delaware in exchange for shares of its
common stock. As a result of this transaction, NTL Business Limited became a
wholly-owned subsidiary of the Company. The Company accounted for the
transaction in a manner consistent with a transfer of entities under common
control, which is similar to a "pooling of interests." Accordingly, the net
assets and results of operations of NTL Business Limited have been included in
the Company's consolidated financial statements from the date of acquisition by
NTL Delaware.
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NTL Communications Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
NOTE D - INTANGIBLE ASSETS (CONTINUED)
On May 30, 2000, NTL Incorporated acquired ConsumerCo. On February 21, 2001, the
Company completed a transaction whereby it acquired the entire issued share
capital of NTL (CWC Holdings) Limited (the entity that owns ConsumerCo) from NTL
Incorporated in exchange for shares of its common stock. As a result of this
transaction, ConsumerCo became a wholly-owned subsidiary of the Company.
The Company accounted for the transaction in a manner consistent with a transfer
of entities under common control, which is similar to a "pooling of interests."
Accordingly, the net assets and results of operations of ConsumerCo have been
included in the Company's consolidated financial statements from the date of
acquisition by NTL Incorporated.
The proforma unaudited consolidated results of operations for the six months
ended June 30, 2000 assuming consummation of the above mentioned transactions as
of January 1, 2000 is as follows (in millions). A significant component of the
proforma results is associated with the acquisition of ConsumerCo. The
historical results of ConsumerCo reflect certain intercompany costs and expenses
as they were prior to the separation of ConsumerCo, which was completed in the
second quarter of 2000. These costs and expenses do not necessarily reflect the
costs and expenses that would have been incurred had ConsumerCo reported as a
separate entity for these periods. Therefore the historical results of
ConsumerCo, which are included in the proforma results below are not reflective
of results on a going forward basis.
Total revenue $1,493.7
Net (loss) (1,452.5)
Amortization of intangible and other assets charged to expense for the six
months ended June 30, 2001 and 2000 was $665.2 million and $229.3 million,
respectively. Amortization of intangible and other assets charged to expense for
the three months ended June 30, 2001 and 2000 was $334.4 million and $139.3
million, respectively.
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NTL Communications Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
NOTE E - LONG-TERM DEBT
Long-term debt consists of:
JUNE 30, DECEMBER 31,
2001 2000
--------- ---------
(unaudited)
(in millions)
NTL Communications:
12-3/4% Senior Deferred Coupon Notes $ 277.8 $ 277.8
11-1/2% Senior Deferred Coupon Notes 1,050.0 1,040.5
10% Senior Notes 400.0 400.0
9-1/2% Senior Sterling Notes, less unamortized discount 175.5 186.5
10-3/4% Senior Deferred Coupon Sterling Notes 351.0 353.6
9-3/4% Senior Deferred Coupon Notes 1,099.9 1,048.5
9-3/4% Senior Deferred Coupon Sterling Notes 356.2 360.8
11-1/2% Senior Notes 625.0 625.0
12-3/8% Senior Deferred Coupon Notes 343.6 323.6
7% Convertible Subordinated Notes 489.8 599.3
9-1/4% Senior Euro Notes 211.9 234.7
9-7/8% Senior Euro Notes 296.6 328.6
11-1/2% Senior Deferred Coupon Euro Notes 122.0 127.9
11-7/8% Senior Notes, less unamortized discount 490.2 489.6
12-3/8% Senior Euro Notes, plus unamortized premium 255.0 --
6-3/4% Convertible Senior Notes 1,150.0 --
NTL Communications Limited:
Credit Agreement 3,413.7 375.3
Other 58.0 --
NTL Business:
Credit Agreement -- 3,030.3
ConsumerCo:
Term Loan Facility and Other -- 21.7
NTL Triangle:
11.2% Senior Discount Debentures 517.3 517.3
Other 4.4 5.2
Diamond:
13-1/4% Senior Discount Notes 285.1 285.1
11-3/4% Senior Discount Notes 531.0 531.0
10-3/4% Senior Discount Notes 394.0 373.9
10% Senior Sterling Notes 190.0 201.9
9-1/8% Senior Notes 110.0 110.0
Other 4.5 6.0
--------- ---------
13,202.5 11,854.1
Less current portion 2.5 10.7
--------- ---------
$13,200.0 $11,843.4
========= =========
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NTL Communications Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
NOTE E - LONG-TERM DEBT (CONTINUED)
In May 2000, NTL Business Limited ("NTL Business"), a wholly-owned subsidiary of
the Company and NTL Communications Limited ("NTLCL"), a wholly-owned indirect
subsidiary of the Company, entered into a pound sterling 2,500.0 million
($3,519.3 million) credit agreement in connection with the ConsumerCo
acquisition. As of June 30, 2001, there was pound sterling 2,425.0 million
($3,413.7 million) outstanding under the credit agreement. The effective
interest rate at June 30, 2001 was 7.38%.
In January 2001, the Company issued euro 200.0 million ($169.5 million)
aggregate principal amount of 12-3/8% Senior Euro Notes due February 1, 2008. In
February 2001, the Company issued an additional euro 100.0 million principal
amount of 12-3/8% Senior Euro Notes due February 1, 2008 at a price of 100.1% of
the aggregate principal amount at maturity or euro 101.0 million ($85.6
million). The Company received aggregate proceeds of approximately $271.2
million after underwriters' commissions and other fees. Interest is payable
semiannually in cash at a rate of 12-3/8% per annum beginning on August 1, 2001.
These notes may not be redeemed by the Company except in limited circumstances.
In February 2001, $109.5 million principal amount of 7% Convertible Subordinated
Notes due December 15, 2008 were converted into 2.8 million shares of NTL
Incorporated common stock at the applicable conversion price of $39.20 per
share. NTL Incorporated issued as a premium on the conversion an additional 0.5
million shares which were valued at the closing common stock price on the dates
of conversion. The premium, which amounted to $17.6 million, is included in
interest expense. Additionally, accrued and unpaid interest of $1.2 million at
the time of the conversion was waived by the holders of the convertible notes.
On February 21, 2001, as required by the NTL Business and NTLCL credit
agreement, the Company completed a transaction whereby it acquired the entire
issued share capital of NTL (CWC Holdings) Limited (the entity that owns
ConsumerCo) from NTL Incorporated and the entire issued share capital of NTL
Business from NTL Delaware in exchange for shares of its common stock. As a
result of this transaction, ConsumerCo and NTL Business became subsidiaries of
the Company and NTL Business' rights and obligations under the pound sterling
2,500.0 million credit agreement were assigned to a subsidiary of NTLCL.
On April 27, 2001, NTL Incorporated received a financing commitment from a unit
of GE Capital. Subject to definitive documentation and customary closing
conditions, GE Capital will provide an additional pound sterling 200.0 million
($281.5 million) through an increase to the pound sterling 2,500.0 million
credit agreement of NTLCL. This increase is also subject to the consent of the
existing lenders under the credit agreement.
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NTL Communications Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
NOTE E - LONG-TERM DEBT (CONTINUED)
In May 2001, the Company issued $1,150.0 million aggregate principal amount of
6-3/4% Convertible Senior Notes due May 15, 2008. The Company received proceeds
of approximately $1,114.8 million after underwriters' commission and other fees.
Interest is payable semiannually in cash at a rate of 6-3/4% per annum beginning
on November 15, 2001. These notes are convertible into shares of NTL
Incorporated common stock at the option of the holder after August 13, 2001 at a
conversion price of $32.728 per share. After May 20, 2004, the notes are
redeemable, in whole or from time to time in part, at the option of the Company
or NTL Incorporated. NTL Incorporated is a co-obligator of the notes on a
subordinated basis.
NTLCL has a pound sterling 1,300.0 million ($1,830.0 million) credit agreement
with a group of banks which is available to finance working capital requirements
of the U.K. Group, as defined. For purposes of this credit agreement, Diamond
Cable Communications Limited and subsidiaries, NTL (Triangle) LLC and
subsidiaries and certain other entities are excluded from the U.K. Group.
Pursuant to the credit agreement, in connection with the issuance of notes by
the Company beginning in October 2000, the commitment was reduced by pound
sterling 711.1 million ($1,001.0 million). As of June 30, 2001, there were no
amounts borrowed under this credit agreement.
NOTE F - DERIVATIVE FINANCIAL INSTRUMENTS
Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS Nos. 137 and
138. The new accounting standard requires that all derivative instruments be
recorded on the balance sheet at fair value. Changes in the fair value of
derivatives are recorded each period in the results of operations or in other
comprehensive income (loss), depending on whether a derivative is designated as
a fair value or cash flow hedge. The ineffective portion of all hedges is
recognized in the results of operations.
On January 1, 2001, the Company recorded all of its outstanding derivative
instruments at their fair value. The outstanding derivative instruments were
comprised of cross currency swaps to hedge exposure to movements in the British
pound/U.S. dollar exchange rate. The aggregate fair value on January 1, 2001 was
a liability of $2.2 million, which was recorded as other comprehensive loss. In
2001, the Company entered into cross currency swaps to hedge exposure to
movements in the Euro/British pound exchange rate. In the six months ended June
30, 2001, the Company recorded other comprehensive income of $2.8 million as a
result of changes in the fair values. The aggregate fair value at June 30, 2001
was a net asset of $0.6 million.
NOTE G - OTHER CHARGES
Other charges of $25.3 million and $13.7 million for the six months ended June
30, 2001 and 2000, respectively include costs incurred primarily to integrate
acquired companies, mostly related to information technology integration, as
well as costs incurred for business rationalization consulting.
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NTL Communications Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
NOTE H - RESTRUCTURING COSTS
The Company recorded restructuring costs in November 2000 as a result of the
completion of a consolidation review. This charge consisted of employee
severance and related costs of $47.9 million for approximately 2,300 employees
to be terminated and lease exit costs of $18.0 million. As of June 30, 2001,
$31.5 million of the provision had been used, including $26.9 million for
employee severance and related costs and $4.6 million for lease exit costs. As
of June 30, 2001, approximately 1,400 employees had been terminated. The
remaining restructuring reserve of $34.4 million includes $21.0 million for
employee severance and related costs and $13.4 million for lease exit costs.
NOTE I - COMPREHENSIVE LOSS
The Company's comprehensive loss for the three months ended June 30, 2001 and
2000 was $822.2 million and $714.7 million, respectively. The Company's
comprehensive loss for the six months ended June 30, 2001 and 2000 was $1,780.4
million and $1,112.7 million, respectively.
NOTE J - RELATED PARTY TRANSACTIONS
On April 12, 2001, NTL Incorporated purchased $15.0 million of an unsecured
convertible note of CoreComm Limited, a company that offers telecommunications
and Internet services to residential and business customers in the United
States. In addition, concurrently with the note purchase and without additional
compensation, NTL Incorporated entered into a network and software agreement
with CoreComm. Under the agreement, CoreComm will provide U.S. network access
for Internet traffic from NTL Incorporated's U.K. customers, as well as a
royalty free license to use certain billing and provisioning software and
know-how. Certain officers and directors of NTL Incorporated are also officers
and directors of CoreComm. In light of this relationship, the independent
directors of NTL Incorporated examined the transaction with CoreComm. The board
of directors determined that the transaction was inherently fair and provided
NTL Incorporated with benefits that exceeded those that could be obtained from a
third party.
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NTL Communications Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
NOTE K - SEGMENT DATA
BROADCAST CONSUMER BUSINESS SHARED TOTAL
--------- --------- --------- ------- ---------
(in millions)
Six months ended June 30, 2001
Revenues $ 136.5 $ 1,014.1 $ 396.8 $ -- $ 1,547.4
EBITDA (1) 70.6 332.3 143.2 (303.9) 242.2
Six months ended June 30, 2000
Revenues $ 129.8 $ 568.5 $ 326.2 $ -- $ 1,024.5
EBITDA (1) 66.5 174.8 101.2 (211.9) 130.6
Total assets
June 30, 2001 (2) $ 649.2 $18,197.5 $ 1,547.9 $ 2,181.2 $22,575.8
December 31, 2000 (3) 647.3 19,113.0 1,753.3 1,632.9 23,146.5
(1) Represents earnings before interest, taxes, depreciation and amortization,
other charges, corporate expenses, and foreign currency transaction gains
(losses).
(2) At June 30, 2001, shared assets included $699.8 million of cash, cash
equivalents and marketable securities, $469.9 million of goodwill and
$1,011.5 million of other assets.
(3) At December 31, 2000, shared assets included $355.0 million of cash and
cash equivalents, $418.8 million of goodwill and $859.1 million of other
assets.
The reconciliation of segment combined EBITDA to loss before income tax benefit
is as follows:
SIX MONTHS ENDED JUNE 30,
2001 2000
-------- --------
(in millions)
Segment Combined EBITDA $ 242.2 $ 130.6
(Add) Deduct:
Other charges 25.3 13.7
Corporate expenses 10.1 11.9
Depreciation and amortization 1,279.2 547.2
Interest income and other, net (9.4) (16.4)
Interest expense 592.6 391.5
Foreign currency transaction (gains) losses (18.4) 56.0
-------- -------
1,879.4 1,003.9
-------- -------
(Loss) before income tax benefit $(1,637.2) $ (873.3)
======== =======
15
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NTL Communications Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
NOTE L - STOCK OPTIONS
In July 2001, the Compensation and Option Committee of the Board of Directors
(the "Compensation Committee") approved modifications to certain stock options.
Options to purchase an aggregate of approximately 4.7 million shares of NTL
Incorporated common stock with exercise prices from $.17 to $14.76 per share
that were going to expire on July 30, 2001 to October 2004 were extended to
January 30, 2006. In July 2001, the Company recognized non-cash compensation
expense of $30.6 million based on the difference between the quoted market price
of the common stock on the date of the modification of $12.05 per share and the
exercise price per share.
In addition, in July 2001, (subject to appropriate documentation) the
Compensation Committee approved an offer to all employees of NTL Incorporated,
except George Blumenthal, the Chairman of the Board, Barclay Knapp, the Chief
Executive Officer and the Board of Directors. NTL Incorporated will offer to
re-price some or all options with an exercise price above $20.01 per share to
$13.25 per share. For those options for which this offer is accepted, a
moratorium will be in effect until January 1, 2003 on further vesting and on
all sales of shares that are obtained after re-pricing from the exercise of
re-priced options. The expiration date for re-priced options will remain the
same but in no event will be earlier than January 30, 2006. In July 2001, there
were options to purchase an aggregate of approximately 29.3 million shares of
NTL Incorporated common stock with an average exercise price of $40.11 per
share that would be subject to the re-pricing offer. In accordance with APB No.
25 and related interpretations, NTL Incorporated will account for options that
are subject to this offer as a variable plan. Options to purchase an aggregate
of approximately 16.5 million shares of NTL Incorporated common stock at an
exercise price of $44.50 per share are already accounted for as a variable
plan. The Company will recognize its share of non-cash compensation expense for
the difference between the quoted market price of the common stock and the
exercise price of the vested options while the options remain outstanding.
The Compensation Committee has taken the actions described above to continue to
provide the appropriate performance incentives to those affected.
NOTE M - COMMITMENTS AND CONTINGENT LIABILITIES
At June 30, 2001, the Company was committed to pay approximately $1,100.0
million for equipment and services, which includes approximately $800.0 million
for operations and maintenance and other contracts though 2006.
The Company is 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.
16
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NTL Communications Corp. and Subsidiaries
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
================================================================================================
OPERATING STATISTICS AS OF JUNE 30, 2001 (IN 000S)
- ------------------------------------------------------------------------------------------------
(UK) (IRELAND) UK/IRELAND
NTL CABLELINK TOTAL
- ------------------------------------------------------------------------------------------------
Ownership Interest 100% 100% 100%
Homes in Franchise 11,411.2 420.0 11,831.2
Homes passed 8,404.1 419.4 8,823.5
Homes marketed (Telco) 7,477.6 20.0 7,497.6
Homes marketed (CATV) 7,701.0 419.4 8,120.4
Homes marketed (Ethernet) -- -- --
Customers 2,868.5 374.1 3,242.6
Single RGU 825.6 370.6 1,196.2
Dual / Triple RGU 2,042.9 3.5 2,046.4
CATV 2,316.2 374.1 2,690.3
Digital 951.3 -- 951.3
Analog 1,364.9 374.1 1,739.0
Telephone (Direct) 2,595.2 3.5 2,598.7
Broadband Internet 45.8 -- 45.8
RGUs 4,957.2 377.6 5,334.8
Internet Subscribers 2,060.3 -- 2,060.3
Wholesale 1,133.0 -- 1,133.0
ntlworld 622.6 -- 622.6
Telephone (Indirect) 396.6 -- 396.6
Residential Customers 4,398.1 374.1 4,772.2
Residential Services 7,368.3 377.6 7,745.9
Business Customers 76.0 1.0 77.0
PENETRATION
CATV 30.1% 89.2% 33.1%
Telephone 34.7% nm 34.7%
Customer 37.2% 89.2% 39.9%
RGU 64.4% 90.0% 65.7%
Dual/Triple 71.2% 0.9% 63.1%
17
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NTL Communications Corp. and Subsidiaries
RESULTS OF OPERATIONS
As a result of the completion of the acquisition of the consumer cable
telephone, Internet and television operations of Cable & Wireless Communications
plc ("ConsumerCo") in May 2000, the Company consolidated the results of
operations of ConsumerCo from the date of acquisition.
Certain revenues have been reclassified from business telecommunications to
broadcast transmission and other, and certain costs have been reclassified from
operating expenses to selling, general and administrative expenses in 2000 to
conform to the 2001 classifications. In 2000 and 2001, the substantial majority
of revenues in all segments were derived from operations in the United Kingdom.
Three Months Ended June 30, 2001 and 2000
Consumer telecommunications and television revenues increased to $511.9 million
from $320.2 million as a result of the ConsumerCo acquisition, price increases,
upselling customers to new services and from growth in the Company's customer
base. The 2001 and 2000 revenue includes $238.1 million and $76.6 million,
respectively, from ConsumerCo. Upselling to existing customers, new digital and
cable modem customers and the price increases implemented in the first and
second quarters of 2001 resulted in average revenue per unit ("ARPU") increases
that contributed to the revenue increase. The impact of the price increases
will continue throughout 2001 with the full effect on ARPU expected to be
realized by the beginning of 2002. Increase in ARPU is also expected to be
achieved by providing new services such as digital television and cable modem
services to residential customers.
Business telecommunications revenues increased to $196.6 million from $168.2
million as a result of the ConsumerCo acquisition, growth in the Company's
customer base and increases in carrier services revenues. The 2001 and 2000
revenue includes $25.3 million and $7.9 million, respectively, from ConsumerCo.
The Company continues to focus specific sales and marketing effort on winning
business customers in its franchise areas and increasing revenue from its
existing customers. Carrier services revenues increased due to growth in
services provided by the Company's wholesale operation to other telephone
companies, including wireless service operators. 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.
Broadcast transmission and other revenues increased to $68.4 million from $65.2
million. The increase reflects increases in the number of broadcast television
and FM radio customers and accounts, which exceeded price cap reductions in the
Company's regulated services, and increases in satellite and media services used
by broadcast and media customers. The Company expects growth in broadcast
services to be driven primarily by contracts related to the increased demand for
tower infrastructure by wireless services operators expanding and upgrading
their networks for wireless broadband, the privatization of national broadcast
networks, the digitalization of analog television and radio signals and the
further development of programming for the European markets requiring satellite
and terrestrial distribution services.
18
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NTL Communications Corp. and Subsidiaries
Operating expenses (including network expenses) increased to $350.4 million from
$264.4 million as a result of the acquisition of ConsumerCo and increases in
interconnection and programming costs due to customer growth. The 2001 and 2000
expense includes $102.7 million and $31.6 million, respectively, from
ConsumerCo. Operating expenses as a percentage of revenues decreased to 45.1% in
2001 from 47.8% in 2000. The percentage decrease reflects cost savings efforts
such as fault reduction and increased field force effectiveness.
Selling, general and administrative expenses increased to $288.6 million from
$227.3 million as a result of the acquisition of ConsumerCo. The 2001 and 2000
expense includes $108.9 million and $41.2 million, respectively, from
ConsumerCo. Selling, general and administrative expenses as a percentage of
revenues decreased to 37.1% in 2001 from 41.1% in 2000. The percentage decrease
reflects cost savings efforts including the restructuring in November 2000. The
Company expects additional headcount reductions in Shared Services departments,
plus the outsourcing of facilities management and certain information technology
services, will result in cost reductions in 2002.
Other charges increased to $17.9 million from $13.7 million. Other charges
include costs incurred primarily to integrate the acquired companies, mostly
related to information technology integration, as well as costs incurred for
business rationalization consulting. The increase in other charges was the
result of an acceleration of a number of these projects, and the associated fees
to the consultants and advisors, in order to achieve the cost savings earlier
than projected.
Corporate expenses increased to $6.0 million from $5.3 million primarily due to
write-downs of certain investments of $1.5 million, offset in part by a
reduction in various overhead costs.
Depreciation and amortization expense increased to $655.5 million from $311.9
million due to an increase in amortization on acquisition related intangibles
and an increase in depreciation of telecommunications and cable television
equipment. The 2001 and 2000 expense includes $396.5 million and $80.3 million,
respectively, from ConsumerCo, including amortization of acquisition related
intangibles.
Interest income and other, net decreased to $1.8 million from $7.9 million as a
result of increases in the net losses of affiliates accounted for by the equity
method and decreases in interest income. Interest income and other, net includes
equity in net losses of affiliates of $4.3 million in 2001 and $1.6 million in
2000.
Interest expense increased to $284.6 million from $202.8 million due to the
issuance of additional debt, and the increase in the accretion of original issue
discount on the deferred coupon notes. The 2001 and 2000 expense includes $56.8
million and $22.5 million in interest expense related to the acquisition of
ConsumerCo. Interest of $204.9 million and $67.0 million was paid in cash in the
three months ended June 30, 2001 and 2000, respectively.
19
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NTL Communications Corp. and Subsidiaries
Foreign currency transaction gains (losses) were gains of $24.1 million in 2001
and losses of $68.0 million in 2000 primarily due to the effect of changes in
exchange rates. The Company and certain of its subsidiaries have cash, cash
equivalents and debt denominated in non-U.S. dollar currencies that are affected
by changes in exchange rates. In addition, foreign subsidiaries of the Company
whose functional currency is not the U.S. dollar hold cash, cash equivalents and
debt denominated in U.S. dollars which are affected by changes in exchange
rates.
Six Months Ended June 30, 2001 and 2000
Consumer telecommunications and television revenues increased to $1,014.1
million from $568.5 million as a result of the ConsumerCo acquisition, price
increases, upselling customers to new services and from growth in the Company's
customer base. The 2001 and 2000 revenue includes $478.0 million and $76.6
million, respectively, from ConsumerCo. Upselling to existing customers, new
digital and cable modem customers and the price increases implemented in the
first and second quarters of 2001 resulted in ARPU increases that contributed
to the revenue increase. The impact of the price increases will continue
throughout 2001 with the full effect on ARPU expected to be realized by the
beginning of 2002. Increase in ARPU is also expected to be achieved by
providing new services such as digital television and cable modem services to
residential customers.
Business telecommunications revenues increased to $396.8 million from $326.2
million as a result of the ConsumerCo acquisition, growth in the Company's
customer base and increases in carrier services revenues. The 2001 and 2000
revenue includes $51.8 million and $7.9 million, respectively, from ConsumerCo.
The Company continues to focus specific sales and marketing effort on winning
business customers in its franchise areas and increasing revenue from its
existing customers. Carrier services revenues increased due to growth in
services provided by the Company's wholesale operation to other telephone
companies, including wireless service operators. 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.
Broadcast transmission and other revenues increased to $136.5 million from
$129.8 million. The increase reflects increases in the number of broadcast
television and FM radio customers and accounts, which exceeded price cap
reductions in the Company's regulated services, and increases in satellite and
media services used by broadcast and media customers. The Company expects growth
in broadcast services to be driven primarily by contracts related to the
increased demand for tower infrastructure by wireless services operators
expanding and upgrading their networks for wireless broadband, the privatization
of national broadcast networks, the digitalization of analog television and
radio signals and the further development of programming for the European
markets requiring satellite and terrestrial distribution services.
Operating expenses (including network expenses) increased to $737.2 million from
$477.4 million as a result of the acquisition of ConsumerCo and increases in
interconnection and programming costs due to customer growth. The 2001 and 2000
expense includes $210.0 million and $31.6 million, respectively, from
ConsumerCo.
20
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NTL Communications Corp. and Subsidiaries
Selling, general and administrative expenses increased to $568.0 million from
$416.5 million primarily as a result of the acquisition of ConsumerCo. The 2001
and 2000 expense includes $200.9 million and $41.2 million, respectively, from
ConsumerCo. Selling, general and administrative expenses as a percentage of
revenues decreased to 36.7% in 2001 from 40.7% in 2000. The percentage decrease
reflects cost savings efforts including the restructuring in November 2000. The
Company expects additional headcount reductions in Shared Services departments,
plus the outsourcing of facilities management and certain information technology
services, will result in cost reductions in 2002.
Other charges increased to $25.3 million from $13.7 million. Other charges
include costs incurred primarily to integrate the acquired companies, mostly
related to information technology integration, as well as costs incurred for
business rationalization consulting. The increase in other charges was the
result of an acceleration of a number of these projects, and the associated fees
to the consultants and advisors, in order to achieve the cost savings earlier
than projected.
Corporate expenses decreased to $10.1 million from $11.9 million due to the
reduction in various overhead costs.
Depreciation and amortization expense increased to $1,279.2 million from $547.2
million due to an increase in amortization on acquisition related intangibles
and an increase in depreciation of telecommunications and cable television
equipment. The 2001 and 2000 expense includes $792.7 million and $80.3 million,
respectively, from ConsumerCo, including amortization of acquisition related
intangibles.
Interest income and other, net decreased to $9.4 million from $16.4 million as a
result of increases in the net losses of affiliates accounted for by the equity
method and decreases in interest income. Interest income and other, net includes
equity in net losses of affiliates of $6.9 million in 2001 and $4.8 million in
2000.
Interest expense increased to $592.6 million from $391.5 million due to the
issuance of additional debt, and the increase in the accretion of original issue
discount on the deferred coupon notes. The 2001 and 2000 expense includes $115.0
million and $22.5 million in interest expense related to ConsumerCo. Interest of
$390.9 million and $170.6 million was paid in cash in the six months ended June
30, 2001 and 2000, respectively.
Foreign currency transaction gains (losses) were gains of $18.4 million in 2001
and losses of $56.0 million in 2000 primarily due to the effect of changes in
exchange rates. The Company and certain of its subsidiaries have cash, cash
equivalents and debt denominated in non-U.S. dollar currencies that are affected
by changes in exchange rates. In addition, foreign subsidiaries of the Company
whose functional currency is not the U.S. dollar hold cash, cash equivalents and
debt denominated in U.S. dollars which are affected by changes in exchange
rates.
21
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NTL Communications Corp. and Subsidiaries
OTHER RESULTS OF OPERATIONS MATTERS
The Company recorded restructuring costs in November 2000 as a result of the
completion of a consolidation review. This charge consisted of employee
severance and related costs of $47.9 million for approximately 2,300 employees
to be terminated and lease exit costs of $18.0 million. As of June 30, 2001,
$31.5 million of the provision had been used, including $26.9 million for
employee severance and related costs and $4.6 million for lease exit costs. As
of June 30, 2001, approximately 1,400 employees had been terminated. The
remaining restructuring reserve of $34.4 includes $21.0 million for employee
severance and related costs and $13.4 million for lease exit costs.
In July 2001, the Compensation and Option Committee of the Board of Directors
(the "Compensation Committee") approved modifications to certain stock options.
Options to purchase an aggregate of approximately 4.7 million shares of NTL
Incorporated common stock with exercise prices from $.17 to $14.76 per share
that were going to expire on July 30, 2001 to October 2004 were extended to
January 30, 2006. In July 2001, the Company recognized non-cash compensation
expense of $30.6 million based on the difference between the quoted market price
of the common stock on the date of the modification of $12.05 per share and the
exercise price per share.
In addition, in July 2001, (subject to appropriate documentation) the
Compensation Committee approved an offer to all employees of NTL Incorporated,
except George Blumenthal, the Chairman of the Board, Barclay Knapp, the Chief
Executive Officer and the Board of Directors. NTL Incorporated will offer to
re-price some or all options with an exercise price above $20.01 per share to
$13.25 per share. For those options for which this offer is accepted, a
moratorium will be in effect until January 1, 2003 on further vesting and on
all sales of shares that are obtained after re-pricing from the exercise of
re-priced options. The expiration date for re-priced options will remain the
same but in no event will be earlier than January 30, 2006. In July 2001, there
were options to purchase an aggregate of approximately 29.3 million shares of
NTL Incorporated common stock with an average exercise price of $40.11 per
share that would be subject to the re-pricing offer. In accordance with APB No.
25 and related interpretations, NTL Incorporated will account for options that
are subject to this offer as a variable plan. Options to purchase an aggregate
of approximately 16.5 million shares of NTL Incorporated common stock at an
exercise price of $44.50 per share are already accounted for as a variable
plan. The Company will recognize its share of non-cash compensation expense for
the difference between the quoted market price of the common stock and the
exercise price of the vested options while the options remain outstanding.
The Compensation Committee has taken the actions described above to continue to
provide the appropriate performance incentives to those affected.
In September 2000, the Board of Directors approved modifications to certain
stock options granted to employees in November 1999 through May 2000. Options to
purchase an aggregate of approximately 16.5 million shares of NTL Incorporated
common stock with a weighted average exercise price of $64.39 per share were
modified such that the exercise price was reduced to $44.50 per share and the
vesting schedule was delayed and/or lengthened. NTL Incorporated is accounting
for these options as a variable plan beginning in September 2000. The Company
will recognize its share of non-cash compensation expense for the difference
between the quoted market price of the common stock and the exercise price of
the vested options while the options remain outstanding.
22
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NTL Communications Corp. and Subsidiaries
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations," and No. 142,
"Goodwill and Other Intangible Assets," effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill and intangible assets
deemed to have indefinite lives will no longer be amortized but will be subject
to annual impairment tests in accordance with the Statements. Other intangible
assets will continue to be amortized over their useful lives. The Company will
apply the new rules on accounting for goodwill and other intangible assets
beginning in the first quarter of 2002. During 2002, the Company will perform
the first of the required impairment tests of goodwill and indefinite lived
intangible assets as of January 1, 2002. The Company has not yet determined what
the effect of these tests will be on its results of operations and financial
position.
LIQUIDITY AND CAPITAL RESOURCES
The Company will continue to require significant amounts of capital to finance
construction of its local and national networks, for connection of telephone,
telecommunications, Internet and cable television 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 pound sterling 876.0 million ($1,233.1 million) from July 1, 2001
to June 30, 2002. The Company's commitments at June 30, 2001 for equipment and
services are included in the anticipated requirements. The Company had
approximately $763.6 million in cash and securities on hand at June 30, 2001.
The Company expects to utilize the proceeds from the proposed additional GE
Capital financing and a portion of its bank credit facilities to fund the
balance of these requirements.
On April 27, 2001, NTL Incorporated received a financing commitment from a unit
of GE Capital. Subject to definitive documentation and customary closing
conditions, GE Capital will provide an additional pound sterling 200.0 million
($281.5 million) through an increase to the pound sterling 2,500.0 million
credit agreement of NTL Communications Limited ("NTLCL"). This increase is also
subject to the consent of the existing lenders under the credit agreement.
NTLCL entered into a pound sterling 1,300.0 million ($1,830.0 million) credit
agreement with a group of banks dated May 30, 2000. Pursuant to the credit
agreement, in connection with the issuance of notes by the Company beginning in
October 2000, the commitment was reduced by pound sterling 711.1 million
($1,001.0 million). As of June 30, 2001, there were no amounts borrowed under
this agreement. NTLCL and other members of the U.K. Group may utilize the
proceeds under this credit agreement to finance the working capital requirements
of the U.K. Group, provided that in no event shall the proceeds be used for a
purpose other than to finance the construction, capital expenditure and working
capital needs of a cable television or telephone or telecommunications business,
or a related business, in the United Kingdom or Ireland. For purposes of this
credit agreement, Diamond Cable Communications Limited and subsidiaries, NTL
(Triangle) LLC and subsidiaries and certain other entities are excluded from the
U.K. Group. Interest is payable at least every six months at LIBOR plus a margin
rate of 4.5% per annum. The margin rate shall increase by 0.5% on the three
month anniversary of the initial advance and by an additional 0.5% on each
subsequent three month anniversary, up to a maximum total interest rate of 16%
per annum. The unused portion of the commitment is subject to a commitment fee
of 0.75% payable quarterly. Principal is due in full on March 31, 2006.
23
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NTL Communications Corp. and Subsidiaries
Regarding the Company's estimated cash requirements described above, there can
be no assurance that: (a) actual construction costs will not exceed the amounts
estimated or that additional funding substantially in excess of the amounts
estimated will not be required, (b) conditions precedent to advances under
credit facilities will be satisfied when funds are required, (c) 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, (d)
the Company will be able to access such cash flow or (e) the Company will not
incur losses from its exposure to exchange rate fluctuations or be adversely
affected by interest rate fluctuations.
The accreted value at June 30, 2001 of the Company's consolidated long-term
indebtedness is $13,200.0 million, representing approximately 64.0% of total
capitalization. The following summarizes the terms of the significant credit
facilities and 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 $277.8 million, interest payable semiannually from 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 $1,050.0 million, interest payable semiannually
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 at maturity of
$400.0 million, interest payable semiannually from August 15, 1997,
redeemable at the Company's option on or after February 15, 2002;
(4) 9-1/2% Senior Sterling Notes due April 1, 2008, principal amount at
maturity of pound sterling 125.0 million ($176.0 million), interest
payable semiannually 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 pound sterling 300.0 million ($422.3
million), interest payable semiannually beginning on 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 $1,300.0 million, interest payable semiannually beginning
on 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 pound sterling 330.0 million ($464.5
million), interest payable semiannually beginning on 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 at maturity of
$625.0 million, interest payable semiannually from April 1, 1999,
redeemable at the Company's option on or after October 1, 2003;
24
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NTL Communications Corp. and Subsidiaries
(9) 12-3/8% Senior Deferred Coupon Notes due October 1, 2008, principal
amount at maturity of $450.0 million, interest payable semiannually
beginning on 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
at maturity of $489.8 million, interest payable semiannually from June
15, 1999, convertible into shares of NTL Incorporated common stock at a
conversion price of $39.20 per share, redeemable at the Company's option
on or after December 15, 2001;
(11) 9-1/4% Senior Euro Notes due November 15, 2006, principal amount at
maturity of euro 250.0 million ($211.9 million), interest payable
semiannually from May 15, 2000;
(12) 9-7/8% Senior Euro Notes due November 15, 2009, principal amount at
maturity of euro 350.0 million ($296.6 million), interest payable
semiannually from May 15, 2000, redeemable at the Company's option on or
after November 15, 2004;
(13) 11-1/2% Senior Deferred Coupon Euro Notes due November 15, 2009,
principal amount at maturity of euro 210.0 million ($178.0 million),
interest payable semiannually beginning on May 15, 2005, redeemable at
the Company's option on or after November 15, 2004;
(14) 11-7/8% Senior Notes due October 1, 2010, principal amount at maturity of
$500.0 million, interest payable semiannually from April 1, 2001,
redeemable at the Company's option on or after October 1, 2005;
(15) 12-3/8% Senior Euro Notes due February 1, 2008, principal amount at
maturity of euro 300.0 million ($254.2 million), interest payable
semiannually beginning on August 1, 2001;
(16) 6-3/4% Convertible Senior Notes due May 15, 2008, principal amount at
maturity of $1,150.0 million, interest payable semiannually beginning on
November 15, 2001, convertible into shares of NTL Incorporated common
stock at a conversion price of $32.728 per share, redeemable at the
Company's option on or after May 21, 2004;
NTLCL:
(17) Credit Agreement of pound sterling 1,300.0 million ($1,830.0 million), no
amounts were outstanding as of June 30, 2001, interest payable at least
every six months at LIBOR plus a margin rate of 4.5% per annum, which is
subject to adjustment, the unused portion of the commitment is subject to
a commitment fee of 0.75% payable quarterly, principal is due in full on
March 31, 2006, pursuant to the credit agreement, following the issuance
of the Company's notes beginning in October 2000, the commitment was
reduced by pound sterling 711.1 ($1,001.0 million);
(18) Credit Agreement of pound sterling 2,500.0 million ($3,519.3 million), of
which pound sterling 2,425.0 million ($3,413.7 million) was outstanding
as of June 30, 2001, interest payable at least every six months at LIBOR
plus a margin rate of 2.00% per annum, which is subject to adjustment,
effective interest rate of 7.38% at June 30, 2001, the unused portion of
the commitment is subject to a commitment fee of 0.75% payable quarterly,
which is reduced to 0.50% when over 50% of the commitment is utilized,
principal is due in six quarterly installments beginning on June 30,
2004;
25
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NTL Communications Corp. and Subsidiaries
NTL Triangle:
(19) 11.2% Senior Discount Debentures due November 15, 2007, principal amount
at maturity of $517.3 million, interest payable semiannually from May 15,
2001, redeemable at NTL Triangle's option after November 15, 2000;
Diamond:
(20) 13-1/4% Senior Discount Notes due September 30, 2004, principal amount at
maturity of $285.1 million, interest payable semiannually from March 31,
2000, redeemable at Diamond's option on or after September 30, 1999;
(21) 11-3/4% Senior Discount Notes due December 15, 2005, principal amount at
maturity of $531.0 million, interest payable semiannually from June 15,
2001, redeemable at Diamond's option on or after December 15, 2000;
(22) 10-3/4% Senior Discount Notes due February 15, 2007, principal amount at
maturity of $420.5 million, interest payable semiannually beginning on
August 15, 2002, redeemable at Diamond's option on or after December 15,
2002;
(23) 10% Senior Sterling Notes due February 1, 2008, issued by Diamond
Holdings plc, a wholly- owned subsidiary of Diamond, principal amount at
maturity of pound sterling 135.0 million ($190.0 million), interest
payable semiannually from August 1, 1998, redeemable at Diamond's option
on or after February 1, 2003; and
(24) 9-1/8% Senior Notes due February 1, 2008, issued by Diamond Holdings plc,
principal amount at maturity of $110.0 million, interest payable
semiannually from August 1, 1998, redeemable at Diamond's option on or
after February 1, 2003.
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: (a) refinancing all or a portion of such indebtedness, (b)
seeking modifications to the terms of such indebtedness, (c) seeking additional
debt financing, which may be subject to obtaining necessary lender consents, (d)
seeking additional equity financing, or (e) a combination of the foregoing.
There can be no assurance that financing will be available on acceptable terms
or at all.
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.
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NTL Communications Corp. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash (used in) operating activities was $(296.4) million and $(156.8) million
in the six months ended June 30, 2001 and 2000, respectively. This change is
primarily due to an increase in cash paid for interest exclusive of amounts
capitalized. Cash paid for interest exclusive of amounts capitalized in the
six months ended June 30, 2001 and 2000 was $350.3 million and $135.5 million,
respectively.
Purchases of fixed assets were $926.8 million in 2001 and $728.6 million in 2000
as a result of the continuing fixed asset purchases and construction, including
purchases and construction by ConsumerCo.
Proceeds from borrowings, net of financing costs of $1,994.5 million in 2001
include $320.4 million borrowed under the pound sterling 2,500.0 million NTLCL
credit agreement, $287.7 million borrowed under the pound sterling 1,300.0
million NTLCL credit agreement (all of which was repaid by June 30, 2001),
$1,150.0 million from the issuance of NTL Communications 6-3/4% Convertible
Senior Notes and $278.4 million from the issuance of NTL Communications 12-3/8%
Senior Euro Notes, net of aggregate financing costs of $42.0 million.
Principal payments of $418.0 million in 2001 include optional repayments of
$395.6 million under the NTLCL credit agreements and repayments of an aggregate
of $22.4 million of other debt.
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, technological developments, 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 restructuring and integration
actions, the impact of new business opportunities requiring significant up-front
investment, interest rate and currency exchange rate fluctuations, and
availability, terms and deployment of capital. The Company assumes no obligation
to update the forward-looking statements contained herein to reflect actual
results, changes in assumptions or changes in factors affecting such statements.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K.
During the quarter ended June 30, 2001, the Company filed the
following current reports on Form 8-K:
(i) Report dated February 24, 2001 (filed May 7, 2001)
reporting under Item 2, Acquisition or Disposition of
Assets, that NTL Communications Corp. amends its Current
Report on Form 8-K, dated March 7, 2001, by filing certain
financial statements and financial information.
(ii) Report dated May 8, 2001 (filed May 8, 2001) reporting
under Item 5, Other Events, that NTL Communications Corp.
intended to undertake a private placement to sell
approximately $500 million of Convertible Senior Notes.
(iii) Report dated May 10, 2001 (filed May 10, 2001) reporting
under Item 5, Other Events, that NTL Communications Corp.,
had priced an issue of $1 billion of 6-3/4% Convertible
Senior Notes Due 2008.
(iv) Report dated May 24, 2001 (filed May 24, 2001) reporting
under Item 5, Other Events, that NTL Incorporated, the
public parent company of NTL Communications, announced that
it had signed a Strategic Outsourcing Deal with IBM which
covers the provision of Information Technology (IT)
Services for NTL across the UK and Ireland.
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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: August 9, 2001 By: /s/ Barclay Knapp
-------------------------
Barclay Knapp
President and Chief Executive Officer
Date: August 9, 2001 By: /s/ Gregg N. Gorelick
--------------------------
Gregg N. Gorelick
Vice President-Controller
(Principal Accounting Officer)
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