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. 0-25691
-------------------------------------------------------------
NTL (DELAWARE), INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-4051921
------------------------------- ------------------------------------
(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 11. 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.
2
NTL (Delaware), Inc. and Subsidiaries
Index
PART I. FINANCIAL INFORMATION Page
------------------------------ ----
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 ............................. 18
PART II. OTHER INFORMATION
--------------------------
Item 6. Exhibits and Reports on Form 8-K ............................... 32
SIGNATURES .............................................................. 33
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NTL (Delaware), Inc. 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 $ 803.1 $ 509.9
Marketable securities 9.9 --
Accounts receivable - trade, less allowance for doubtful
accounts of $158.5 (2001) and $141.4 (2000) 547.7 729.1
Due from affiliates 84.8 95.8
Other 444.3 431.5
--------- ---------
Total current assets 1,889.8 1,766.3
Fixed assets, net 12,219.7 12,693.0
Intangible assets, net 12,121.1 13,060.8
Other assets, net of accumulated amortization
of $111.0 (2001) and $91.9 (2000) 777.6 807.1
--------- ---------
Total assets $27,008.2 $28,327.2
========= =========
2
4
NTL (Delaware), Inc. 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 $ 447.0 $ 504.9
Accrued expenses and other 1,034.3 1,258.0
Accrued construction costs 108.4 196.9
Interest payable 246.2 151.3
Deferred revenue 459.6 492.8
Due to affiliates -- 25.8
Current portion of long-term debt 5.7 12.6
---------- ----------
Total current liabilities 2,301.2 2,642.3
Long-term debt 16,294.6 15,044.1
Other 43.8 43.1
Commitments and contingent liabilities
Deferred income taxes 150.9 205.4
Shareholder's equity:
Common stock - $.01 par value; authorized 100 shares;
issued and outstanding 11 (2001) and 11 (2000) shares -- --
Additional paid-in capital 16,017.2 15,795.7
Accumulated other comprehensive (loss) (794.9) (449.0)
(Deficit) (7,004.6) (4,954.4)
---------- ----------
8,217.7 10,392.3
---------- ----------
Total liabilities and shareholder's equity $ 27,008.2 $ 28,327.2
========== ==========
Note: The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date.
See accompanying notes.
3
5
NTL (Delaware), Inc. 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 $ 618.4 $ 419.3 $ 1,229.3 $ 672.8
Business telecommunications 196.6 168.2 396.8 326.2
Broadcast transmission and other 83.2 78.8 165.9 158.2
---------- ---------- ---------- ----------
898.2 666.3 1,792.0 1,157.2
COSTS AND EXPENSES
Operating expenses 405.9 315.9 840.9 543.1
Selling, general and administrative expenses 326.9 260.2 660.2 455.2
Other charges 17.9 13.7 25.3 13.7
Corporate expenses 10.1 9.9 17.1 20.1
Depreciation and amortization 809.5 395.9 1,572.7 645.5
---------- ---------- ---------- ----------
1,570.3 995.6 3,116.2 1,677.6
---------- ---------- ---------- ----------
Operating (loss) (672.1) (329.3) (1,324.2) (520.4)
OTHER INCOME (EXPENSE)
Interest income and other, net (47.7) 23.7 (81.0) 46.1
Interest expense (331.0) (242.2) (686.1) (448.2)
Foreign currency transaction gains (losses) 22.6 (86.7) 9.4 (115.0)
---------- ---------- ---------- ----------
(Loss) before income tax benefit (1,028.2) (634.5) (2,081.9) (1,037.5)
Income tax benefit 14.2 13.3 31.7 18.6
---------- ---------- ---------- ----------
Net (loss) $ (1,014.0) $ (621.2) $ (2,050.2) $ (1,018.9)
========== ========== ========== ==========
See accompanying notes.
4
6
NTL (Delaware), Inc. and Subsidiaries
Condensed Consolidated Statement of Shareholder's Equity
(Unaudited)
(dollars in millions)
COMMON STOCK
$.01 PAR VALUE ADDITIONAL
SHARES PAR PAID-IN CAPITAL
------ ----- ---------------
Balance, December 31, 2000 11 $ -- $ 15,795.7
Contribution from NTL Incorporated 221.5
Comprehensive loss:
Net loss for the six months ended June 30, 2001
Currency translation adjustment
Unrealized net losses on investments
Unrealized net losses on derivatives
Total
------ ----- -----------
Balance, June 30, 2001 11 $ -- $ 16,017.2
====== ===== ===========
5
7
NTL (Delaware), Inc. and Subsidiaries
Condensed Consolidated Statement of Shareholder's Equity
(Unaudited) - continued
(dollars in millions)
ACCUMULATED OTHER
COMPREHENSIVE LOSS
---------------------------------------
UNREALIZED UNREALIZED
FOREIGN NET NET
COMPREHENSIVE CURRENCY LOSSES ON LOSSES ON
LOSS TRANSLATION INVESTMENTS DERIVATIVES DEFICIT
------------- ----------- ----------- ----------- ---------
Balance, December 31, 2000 $ (434.8) $ (14.2) $(4,954.4)
Contribution from NTL Incorporated
Comprehensive loss:
Net loss for six months ended June 30, 2001 $(2,050.2) (2,050.2)
Currency translation adjustment (343.3) (343.3)
Unrealized net losses on investments (1.4) (1.4)
Unrealized net losses on derivatives (1.2) $ (1.2)
---------
Total $(2,396.1)
--------- -------- -------- ------- ---------
Balance, June 30, 2001 $ (778.1) $ (15.6) $ (1.2) $(7,004.6)
========= ======== ======== ======= =========
See accompanying notes.
6
8
NTL (Delaware), Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(dollars in millions)
SIX MONTHS ENDED
JUNE 30,
---------------------------
2001 2000
---------- ----------
Net cash (used in) operating activities $ (268.1) $ (434.4)
INVESTING ACTIVITIES
Acquisitions, net of cash acquired -- (11,015.6)
Payment of deferred purchase price -- (3.1)
Purchase of fixed assets (1,075.7) (795.8)
Increase in other assets (93.6) (326.6)
Purchase of marketable securities (9.9) (61.6)
Proceeds from sales of marketable securities -- 250.1
---------- ----------
Net cash (used in) investing activities (1,179.2) (11,952.6)
FINANCING ACTIVITIES
Proceeds from borrowings, net of financing costs 2,153.1 5,298.3
Proceeds from issuance of redeemable preferred stock -- 1,850.0
Principal payments (484.4) (1,025.5)
Contribution from NTL Incorporated 163.0 4,169.1
Distribution to NTL Incorporated (72.7) --
Cash released from escrow -- 77.5
Proceeds from exercise of stock options and warrants -- 37.3
---------- ----------
Net cash provided by financing activities 1,759.0 10,406.7
Effect of exchange rate changes on cash (18.5) (29.4)
---------- ----------
Increase (decrease) in cash and cash equivalents 293.2 (2,009.7)
Cash and cash equivalents at beginning of period 509.9 2,597.2
---------- ----------
Cash and cash equivalents at end of period $ 803.1 $ 587.5
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest exclusive of
amounts capitalized $ 428.3 $ 188.9
Income taxes paid 3.7 --
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Accretion of dividends and discount on preferred stock $ -- $ 20.1
Contribution from NTL Incorporated 131.2 --
See accompanying notes.
7
9
NTL (Delaware), Inc. 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 (Delaware), Inc.
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. The formation of the holding company was part of
NTL Incorporated's 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. The "Company" refers to
NTL Incorporated and subsidiaries up to and including May 17, 2000, and to NTL
(Delaware), Inc. and subsidiaries beginning May 18, 2000.
On February 21, 2001, NTL Communications Corp. ("NTL Communications"), a
wholly-owned subsidiary of 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. As a result of this
transaction, ConsumerCo became an indirect 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 May
30, 2000, the date of NTL Incorporated's acquisition of ConsumerCo.
8
10
NTL (Delaware), Inc. 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 $ 12,008.7 $ 11,753.2
Other equipment 1,267.0 1,145.2
Construction-in-progress 1,322.5 1,611.1
----------- -----------
14,598.2 14,509.5
Accumulated depreciation (2,378.5) (1,816.5)
----------- -----------
$ 12,219.7 $ 12,693.0
=========== ===========
Depreciation expense for the six months ended June 30, 2001 and 2000 was $700.1
million and $354.6 million, respectively. Depreciation expense for the three
months ended June 30, 2001 and 2000 was $364.2 million and $203.4 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 $1,791.5 (2001) and $1,103.6 (2000) $ 11,700.2 $ 12,522.8
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 $148.0 (2001) and $110.7 (2000) 247.8 318.2
Other intangibles, net of accumulated amortization
of $19.7 (2001) and $13.8 (2000) 67.8 80.6
----------- -----------
$ 12,121.1 $ 13,060.8
=========== ===========
On March 28, 2000, the Company acquired the cable assets of the Cablecom Group
("Cablecom") in Switzerland. The acquisition was accounted for as a purchase,
and accordingly, the net assets and results of operations of Cablecom have been
included in the consolidated financial statements from the date of acquisition.
9
11
NTL (Delaware), Inc. 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, NTL
Incorporated contributed the assets of ConsumerCo to NTL Communications. The
Company accounted for the contribution 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 May 30, 2000.
The pro forma unaudited consolidated results of operations for the six months
ended June 30, 2000 assuming consummation of these transactions as of January 1,
2000 is as follows (in millions). A significant component of the pro forma
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 pro forma results below are not reflective of results on a
going forward basis.
Total revenue $ 1,719.7
Net (loss) (1,760.7)
Amortization of intangible and other assets charged to expense for the six
months ended June 30, 2001 and 2000 was $872.6 million and $290.9 million,
respectively. Amortization of intangible and other assets charged to expense for
the three months ended June 30, 2001 and 2000 was $445.3 million and $192.5
million, respectively.
10
12
NTL (Delaware), Inc. 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 Delaware:
5-3/4% Convertible Subordinated Notes $ 1,200.0 $ 1,200.0
ConsumerCo:
Term Loan Facility and other -- 21.7
NTL Business:
Credit Agreement -- 3,030.3
Cablecom:
Term Loan Facility 1,502.6 1,666.4
Revolving Facility 311.6 320.9
Other 7.1 15.3
NTL Australia:
Credit Agreement 76.5 --
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 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
----------- -----------
16,300.3 15,056.7
Less current portion 5.7 12.6
----------- -----------
$ 16,294.6 $ 15,044.1
=========== ===========
11
13
NTL (Delaware), Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
NOTE E - LONG-TERM DEBT (CONTINUED)
In May 2000, NTL Business Limited ("NTL Business") and NTL Communications
Limited ("NTLCL"), wholly-owned indirect subsidiaries 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 March 2000, a subsidiary of the Company borrowed CHF 2,700.0 million
($1,502.6 million) under its term loan facility in connection with the
acquisition of Cablecom. The effective interest rate at June 30, 2001 was 5.78%.
Cablecom has the option to draw on a revolving loan facility up to an additional
CHF 1,400.0 million ($779.1 million). As of June 30, 2001, Cablecom had borrowed
CHF 560.0 million ($311.6 million) under the revolving loan facility with an
effective interest rate of 5.71%.
In January 2001, NTL Communications Corp. ("NTL Communications"), a wholly-owned
subsidiary of 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, NTL Communications 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). NTL Communications 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 NTL Communications except in limited
circumstances.
In February 2001, $109.5 million principal amount of NTL Communications 7%
Convertible Subordinated Notes due December 15, 2008 were converted into 2.8
million shares of NTL Incorporated's 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, NTL Communications 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
NTL Communications and NTL Business' rights and obligations under the pound
sterling 2,500.0 million credit agreement were assigned to a subsidiary of
NTLCL.
On March 30, 2001, NTL Australia, a wholly-owned subsidiary of the Company,
entered into a A$350.0 million ($178.5 million) credit agreement with a group of
banks. As of June 30, 2001, NTL Australia had borrowed A$150.0 million ($76.5
million) under this credit agreement. NTL Australia may use the
12
14
NTL (Delaware), Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
NOTE E - LONG-TERM DEBT (CONTINUED)
proceeds under this credit agreement to repay the Company for part of its
original investment as well as funding general capital expenditures, working
capital and corporate purposes. As of June 30, 2001, NTL Australia repaid
A$150.0 million ($76.5 million) to the Company. Interest is payable at least
every six months at the A$ Bank Bill Bid Rate plus a margin of 1.85% per annum,
which is subject to adjustment based on the ratio of senior debt to EBITDA of
NTL Australia. The effective interest rate at June 30, 2001 was 6.89%. The
unused portion of the commitment is subject to a commitment fee of 0.6%, which
is subject to adjustment based on the ratio of senior debt to EBITDA of NTL
Australia. Principal is due in four semiannual installments beginning on June
30, 2004 of a maximum of A$7.5 million, A$7.5 million, A$12.5 million and A$12.5
million. The balance is due in full on March 30, 2006. The credit agreement
contains various financial and other covenants with respect to NTL Australia and
restrictions on dividends and distributions by NTL Australia.
On April 27, 2001, NTL Incorporated received a financing commitment from a unit
of GE Capital. In June 2001, NTL Incorporated issued $100.0 million aggregate
principal amount of 5-3/4% Convertible Subordinated Notes due June 22, 2011 to
GE Capital and received proceeds of approximately $95.9 million. The Company is
a co-issuer of the notes. Interest is payable quarterly in cash at a rate of
5-3/4% per annum beginning on October 15, 2001. These notes are convertible
into shares of NTL Incorporated common stock at the option of the holder at a
conversion price of $35.00 per share. After June 22, 2006, the notes are
redeemable, in whole or from time to time in part, at the option of NTL
Incorporated or the Company. 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.
In May 2001, NTL Communications issued $1,150.0 million aggregate principal
amount of 6-3/4% Convertible Senior Notes due May 15, 2008. NTL Communications
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 NTL Incorporated or NTL Communications. 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, following the issuance of NTL Communications
notes 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.
13
15
NTL (Delaware), Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
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, and a number of zero cost collars to hedge
exposure to floating interest rates on certain of its debt. The aggregate fair
value on January 1, 2001 was a liability of $9.0 million, of which $6.8 million
was recorded as an expense and $2.2 million 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 income of $2.3 million and other
comprehensive income of $1.0 million as a result of changes in the fair values.
The aggregate fair value at June 30, 2001 was a net liability of $5.7 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.
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 $1,068.4 million and $771.3 million, respectively. The Company's
comprehensive loss for the six months ended June 30, 2001 and 2000 was $2,396.1
million and $1,279.3 million, respectively.
14
16
NTL (Delaware), Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
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.
NOTE K - SEGMENT DATA
BROADCAST CONSUMER BUSINESS SHARED TOTAL
--------- --------- --------- --------- ---------
(in millions)
Six months ended June 30, 2001
Revenues $ 165.9 $ 1,229.3 $ 396.8 $ -- $ 1,792.0
EBITDA(1) 81.9 369.7 143.2 (303.9) 290.9
Six months ended June 30, 2000
Revenues $ 158.2 $ 672.8 $ 326.2 $ -- $ 1,157.2
EBITDA(1) 77.1 192.5 101.2 (211.9) 158.9
Total assets
June 30, 2001(2) $ 1,028.8 $21,982.0 $ 1,547.9 $ 2,449.5 $27,008.2
December 31, 2000(3) 1,051.1 23,582.5 1,753.3 1,940.3 28,327.2
(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 $711.4 million of cash, cash
equivalents and marketable securities, $472.6 million of goodwill and
$1,265.5 million of other assets.
(3) At December 31, 2000, shared assets included $357.5 million of cash, cash
equivalents and marketable securities, $422.0 million of goodwill and
$1,160.8 million of other assets.
15
17
NTL (Delaware), Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
NOTE K - SEGMENT DATA (CONTINUED)
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 $ 290.9 $ 158.9
(Add) Deduct:
Other charges 25.3 13.7
Corporate expenses 17.1 20.1
Depreciation and amortization 1,572.7 645.5
Interest income and other, net 81.0 (46.1)
Interest expense 686.1 448.2
Foreign currency transaction (gains) losses (9.4) 115.0
---------- ----------
2,372.8 1,196.4
---------- ----------
(Loss) before income tax benefit $ (2,081.9) $ (1,037.5)
========== ==========
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.
16
18
NTL (Delaware), Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
NOTE M - COMMITMENTS AND CONTINGENT LIABILITIES
At June 30, 2001, the Company was committed to pay approximately $1,300.0
million for equipment and services, which includes approximately $1,000.0
million for operations and maintenance and other contracts through 2006.
A wholly-owned subsidiary of the Company, Premium TV Limited, has entered into
media partnerships with various United Kingdom football clubs whereby Premium TV
Limited will receive certain marketing and sponsorship rights. Premium TV
Limited will provide loan facilities to the clubs, repayable through the issue
of shares in the football clubs, as well as provide funding to joint ventures
with the clubs. At June 30, 2001, the aggregate commitment was pound sterling
20.3 million ($28.6 million). In addition, Premium TV Limited expects to pay
fees of up to pound sterling 50.0 million ($70.4 million) over five years for
the right to enter into a joint venture with the Football League to set-up an
Internet portal for all 72 Football League clubs who wish to participate. In
June 2001, Premium TV Limited entered into an agreement for rights to broadcast
the Premiere Football League on a pay-per-view basis. Premium TV Limited expects
to pay fees of approximately pound sterling 11.2 million ($15.8 million) per
year over the next three years in accordance with this agreement.
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.
17
19
NTL (Delaware), Inc. 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)
(continued on next page)
-----------------------------------------------------------------
(UK) (IRELAND) (SWISS) (FRANCE) NTL DIRECT
NTL CABLELINK CABLECOM 1G NETWORKS SUBTOTAL
-----------------------------------------------------------------
Ownership Interest 100% 100% 100%(1) 100%
Homes in Franchise 11,411.2 420.0 1,900.7 287.0 14,018.9
Homes passed 8,404.1 419.4 1,900.7 266.2 10,990.4
Homes marketed (Telco) 7,477.6 20.0 -- -- 7,497.6
Homes marketed (CATV) 7,701.0 419.4 1,728.0 214.9 10,063.3
Homes marketed (Ethernet) -- -- -- -- --
Customers 2,868.5 374.1 1,569.1 75.7 4,887.4
Single RGU 825.6 370.6 1,522.8 75.5 2,794.5
Dual / Triple RGU 2,042.9 3.5 46.3 0.2 2,092.9
CATV 2,316.2 374.1 1,569.1 75.7 4,335.1
Digital 951.3 -- 37.7 1.6 990.6
Analog 1,364.9 374.1 1,531.4 74.1 3,344.5
Telephone (Direct) 2,595.2 3.5 -- -- 2,598.7
Broadband Internet 45.8 -- 46.3 0.2 92.3
RGUs 4,957.2 377.6 1,615.4 75.9 7,026.1
Internet Subscribers 2,060.3 -- 200.9 0.2 2,261.4
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 1,569.1 75.7 6,417.0
Residential Services 7,368.3 377.6 1,770.0 75.9 9,591.8
Business Customers 76.0 1.0 3.4 -- 80.4
PENETRATION
CATV 30.1% 89.2% 90.8% 35.2% 43.1%
Telephone 34.7% nm na na 34.7%
Customer 37.2% 89.2% 90.8% 35.2% 48.6%
RGU 64.4% 90.0% 93.5% 35.3% 69.8%
Dual / Triple 71.2% 0.9% 3.0% 0.3% 42.8%
(1) Cablecom owns portions of 28 cable systems in Switzerland. The following
statistics reflect the proportional operating data in which Cablecom does not
maintain an equity interest: 190,600 homes passed, 162,600 homes marketed,
153,300 subscribers and 700 broadband Internet subscribers.
18
20
NTL (Delaware), Inc. and Subsidiaries
Operating Statistics as of June 30, 2001 (in 000s)
(continued from prior page)
-----------------------------------------------------------
(PARIS) (FRANKFURT) (STOCKHOLM) EQUITY GROSS
NOOS eKABEL(2) B2 TOTAL TOTAL
-----------------------------------------------------------
Ownership Interest 27% 32.5% 25%
Homes in Franchise 3,179.0 2,800.0 303.1 15,672.4 20,301.0
Homes passed 2,563.0 1,828.0 184.0 12,131.9 15,565.4
Homes marketed (Telco) 1.0 -- -- 7,497.9 7,498.6
Homes marketed (CATV) 2,563.0 1,828.0 -- 11,186.8 14,454.3
Homes marketed (Ethernet) -- -- 136.0 34.0 136.0
Customers 806.1 1,294.0 32.1 5,380.3 7,019.6
Single RGU 745.1 1,294.0 32.1 3,271.7 4,865.7
Dual / Triple RGU 61.0 -- -- 2,108.7 2,153.9
CATV 784.4 1,294.0 -- 4,814.1 6,413.5
Digital 279.8 -- -- 1,064.4 1,270.4
Analog 504.6 1,294.0 -- 3,749.7 5,143.1
Telephone (Direct) 2.5 -- -- 2,599.4 2,601.2
Broadband Internet 81.8 -- 32.1 121.7 206.2
RGUs 868.7 1,294.0 32.1 7,535.2 9,220.9
Internet Subscribers 81.8 -- 32.1 2,290.8 2,375.3
Wholesale -- -- -- 1,133.0 1,133.0
ntlworld -- -- -- 622.6 622.6
Telephone (Indirect) -- -- -- 396.6 396.6
Residential Customers 806.1 1,294.0 32.1 6,909.9 8,549.2
Residential Services 868.7 1,294.0 32.1 10,100.9 11,786.6
Business Customers 37.3 -- -- 90.5 117.7
PENETRATION
CATV 30.6% 70.8% na 43.0% 44.4%
Telephone na na na 34.7% 34.7%
Customer 31.5% 70.8% 23.6% 48.1% 48.6%
RGU 33.9% 70.8% 23.6% 67.4% 63.8%
Dual / Triple 7.6% 0.0% 0.0% 39.2% 30.7%
(2) Data as of December 31, 2000.
19
21
NTL (Delaware), Inc. and Subsidiaries
RESULTS OF OPERATIONS
As a result of the completion of the acquisitions of the cable assets of the
Cablecom Group ("Cablecom") in March 2000 and 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 these businesses from the dates of acquisition. The results of operations of
Cablecom from the date of acquisition to March 31, 2000 were not significant.
Cablecom consumer revenue and operating expenses have been reclassified in the
first quarter of 2001 to conform to the presentation in the current quarter. In
addition, 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 $618.4 million
from $419.3 million as a result of acquisitions, price increases, upselling
customers to new services and from growth in the Company's customer base. The
2001 and 2000 revenue includes $333.9 million and $170.2 million, respectively,
from acquired companies. 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 increases. 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. Increases 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 acquisitions, 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 $83.2 million from $78.8
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
20
22
NTL (Delaware), Inc. and Subsidiaries
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 $405.9 million from
$315.9 million as a result of acquisitions and increases in interconnection and
programming costs due to customer growth. The 2001 and 2000 expense includes
$144.7 million and $70.1 million, respectively, from acquired companies.
Operating expenses as a percentage of revenues decreased to 45.2% in 2001 from
47.4% 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 $326.9 million from
$260.2 million as a result of acquisitions. The 2001 and 2000 expense includes
$135.7 million and $63.1 million, respectively, from acquired companies.
Selling, general and administrative expenses as a percentage of revenues
decreased to 36.4% in 2001 from 39.1% 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 $10.1 million from $9.9 million primarily due to
write-downs of certain investments of $1.7 million, offset in part by a
reduction in various overhead costs.
Depreciation and amortization expense increased to $809.5 million from $395.9
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 $539.0 million and $153.3 million,
respectively, from acquired companies, including amortization of acquisition
related intangibles.
Interest income and other, net decreased to expense of $47.7 million from income
of $23.7 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 $52.0
million in 2001 and $0.6 million in 2000.
Interest expense increased to $331.0 million from $242.2 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 $84.2
million and $45.0 million, respectively, in interest expense related to acquired
companies. Interest of $243.7 million and $120.4 million was paid in cash in the
three months ended June 30, 2001 and 2000, respectively.
21
23
NTL (Delaware), Inc. and Subsidiaries
Foreign currency transaction gains (losses) were gains of $22.6 million in 2001
and losses of $86.7 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 $1,229.3
million from $672.8 million as a result of acquisitions, price increases,
upselling customers to new services and from growth in the Company's customer
base. The 2001 and 2000 revenue includes $672.9 million and $170.2 million,
respectively, from acquired companies. 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. Increases 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 acquisitions, 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 $165.9 million from
$158.2 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.
Operating expenses (including network expenses) increased to $840.9 million from
$543.1 million as a result of acquisitions and increases in interconnection and
programming costs due to customer growth. The 2001 and 200 expense includes
$297.2 million and $70.1 million, respectively, from acquired companies.
22
24
NTL (Delaware), Inc. and Subsidiaries
Selling, general and administrative expenses increased to $660.2 million from
$455.2 million primarily as a result of acquisitions. The 2001 and 2000 expense
includes $258.0 million and $63.1 million, respectively, from acquired
companies. Selling, general and administrative expenses as a percentage of
revenues decreased to 36.8% in 2001 from 39.3% 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 $17.1 million from $20.1 million due to a
reduction in various overhead costs.
Depreciation and amortization expense increased to $1,572.7 million from $645.5
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 $1,061.3 million and $156.3
million, respectively, from acquired companies, including amortization of
acquisition related intangibles.
Interest income and other, net decreased to expense of $81.0 million from income
of $46.1 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 $94.9
million in 2001 and $6.0 million in 2000.
Interest expense increased to $686.1 million from $448.2 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 $172.1
million and $45.0 million, respectively, in interest expense related to acquired
companies. Interest of $468.9 million and $224.0 million was paid in cash in the
six months ended June 30, 2001 and 2000, respectively.
Foreign currency transaction gains (losses) were gains of $9.4 million in 2001
and losses of $115.0 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.
23
25
NTL (Delaware), Inc. 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 million 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.
24
26
NTL (Delaware), Inc. 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 1,099.0 million ($1,547.1 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 $813.0 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 facilities to fund
the balance of these requirements.
On March 30, 2001, NTL Australia, a wholly-owned subsidiary of the Company,
entered into a A$350.0 million ($178.5 million) credit agreement with a group of
banks. As of June 30, 2001, NTL Australia had borrowed A$150.0 million ($76.5
million) under the credit agreement with an effective interest rate of 6.89%.
NTL Australia may use the proceeds under this credit agreement to repay the
Company for part of its original investment in NTL Australia as well as funding
general capital expenditures, working capital and corporate purposes. As of June
30, 2001, NTL Australia repaid A$150.0 million ($76.5 million) to the Company.
Interest is payable at least every six months at the A$ Bank Bill Bid Rate plus
a margin of 1.85% per annum, which is subject to adjustment based on the ratio
of senior debt to EBITDA of NTL Australia. The unused portion of the commitment
is subject to a commitment fee of 0.6%, which is subject to adjustment based on
the ratio of senior debt to EBITDA of NTL Australia. Principal is due in four
semiannual installments beginning on June 30, 2004 of a maximum of A$7.5
million, A$7.5 million, A$12.5 million and A$12.5 million. The balance is due in
full on March 30, 2006. The credit agreement contains various financial and
other covenants with respect to NTL Australia and restrictions on dividends and
distributions by NTL Australia.
On April 27, 2001, NTL Incorporated received a financing commitment from GE
Capital. In June 2001, NTL Incorporated issued $100.0 million aggregate
principal amount of 5-3/4% Convertible Subordinated Notes due June 22, 2011 to
GE Capital. The Company is a co-issuer of the notes. 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.
25
27
NTL (Delaware), Inc. and Subsidiaries
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, following the issuance of NTL Communications notes 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.
Cablecom has the option to draw on a revolving loan facility of up to CHF
1,400.0 million ($779.1 million). The revolving facility is intended to finance
operating expenses, working capital and other capital expenditures of Cablecom
and subsidiaries and for their general corporate financing requirements. As of
June 30, 2001, Cablecom had borrowed CHF 560.0 million ($311.6 million) under
the revolving loan facility with an effective interest rate of 5.71%. The
revolving facility is available until May 2003. The interest rate, interest
payment requirements and principal payments for the revolving facility are the
same as for the term loan facility (see below). The revolving facility includes
a commitment fee of 0.75% payable quarterly on the unused portion of the
revolving facility commitment, which is reduced to 0.50% when over 50% of the
commitment is utilized.
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.
A wholly-owned subsidiary of the Company, Premium TV Limited, has entered into
media partnerships with U.K. football clubs whereby Premium TV Limited will
receive certain marketing and sponsorship rights. Premium TV Limited will
provide loan facilities to the clubs, repayable through the issue of shares in
the football clubs, as well as provide funding to joint ventures with the clubs.
At June 30, 2001, the aggregate commitment was pound sterling 20.3 million
($28.6 million). In addition, Premium TV Limited expects to pay fees of up to
pound sterling 50.0 million ($70.4 million) over five years for the right to
enter into a joint venture with the Football League to set-up an Internet portal
for all 72 Football League clubs who wish to participate. In June 2001,
26
28
NTL (Delaware), Inc. and Subsidiaries
Premium TV Limited entered into an agreement for rights to broadcast the
Premiere Football League on a pay-per-view basis. Premium TV Limited expects to
pay fees of approximately pound sterling 11.2 million ($15.8 million) per year
over the next three years in accordance with this agreement.
The accreted value at June 30, 2001 of the Company's consolidated long-term
indebtedness is $16,294.6 million, representing approximately 66.5% of total
capitalization. The following summarizes the terms of the significant notes and
credit facilities issued by the Company and its subsidiaries.
NTL Delaware:
(1) 5-3/4% Convertible Subordinated Notes due December 15, 2009, principal
amount at maturity of $1,200.0 million, interest payable semiannually from
June 15, 2000, redeemable at the Company's option on or after December 18,
2002, convertible into shares of NTL Incorporated common stock at a
conversion price of $108.18 per share;
NTLCL:
(2) 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
NTL Communications notes beginning in October 2000, the commitment was
reduced by pound sterling 711.1 million ($1,001.0 million);
(3) 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;
Cablecom:
(4) Term Loan Facility of CHF 2,700.0 million ($1,502.6 million), interest
payable at least every six months at Swiss LIBOR plus a margin rate of 2.5%
per annum, which is subject to adjustment after March 2001, effective
interest rate of 5.78% at June 30, 2001, principal is due over six years in
quarterly installments beginning on March 31, 2004;
(5) Revolving Facility of CHF 1,400.0 million ($779.1 million), of which CHF
560.0 million ($311.6 million) was outstanding as of June 30, 2001,
interest payable at least every six months at Swiss LIBOR plus a margin
rate of 2.5% per annum, which is subject to adjustment, effective interest
rate of 5.71% 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 over
six years in quarterly installments beginning on March 31, 2004;
27
29
NTL (Delaware), Inc. and Subsidiaries
NTL Australia:
(6) Credit Agreement of A$350.0 million ($178.5 million), of which A$150.0
million ($76.5 million) was outstanding as of June 30, 2001, interest is
payable at least every six months at the A$ Bank Bill Bid Rate plus a
margin of 1.85% per annum, which is subject to adjustment, effective
interest rate of 6.89% at June 30, 2001, the unused portion of the
commitment is subject to a commitment fee of 0.6%, which is subject to
adjustment, principal is due in four semiannual installments beginning on
June 30, 2004, the balance is due in full on March 30, 2006;
NTL Communications:
(7) 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;
(8) 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;
(9) 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;
(10) 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;
(11) 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;
(12) 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;
(13) 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;
(14) 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;
28
30
NTL (Delaware), Inc. and Subsidiaries
(15) 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;
(16) 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;
(17) 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;
(18) 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;
(19) 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;
(20) 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;
(21) 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 from August 1, 2001;
(22) 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;
NTL Triangle:
(23) 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:
(24) 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 after September 30, 1999;
29
31
NTL (Delaware), Inc. and Subsidiaries
(25) 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;
(26) 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;
(27) 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
(28) 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. 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. In addition, NTL
Communications is a holding company that conducts its operations through its
subsidiaries. Accordingly, the ability of NTL Communications 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.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash used in operating activities was $268.1 million and $434.4 million in the
six months ended June 30, 2001 and 2000, respectively. Cash paid for interest
exclusive of amounts capitalized in the six months ended June 30, 2001 and 2000
was $428.3 million and $188.9 million, respectively. The remainder of this
change is primarily due to the increase in the net loss and changes in working
capital as a result of the timing of receipts and disbursements. A significant
30
32
NTL (Delaware), Inc. and Subsidiaries
component of the working capital change in the six months ended June 30, 2001
was the collection of annual amounts billed by Cablecom in December 2000. The
$134.6 million reduction in Cablecom's accounts receivable since December 31,
2000 was principally due to these collections.
Purchases of fixed assets were $1,075.7 million in 2001 and $795.8 million in
2000 as a result of the continuing fixed asset purchases and construction,
including purchases and construction by acquired companies.
The cash used for other assets of $93.6 million in 2001 and $326.6 million in
2000 was primarily for investments in and loans to unconsolidated entities.
Proceeds from borrowings, net of financing costs of $2,153.1 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, $278.4 million from the issuance of NTL Communications 12-3/8%
Senior Euro Notes, $82.0 million borrowed under the Cablecom revolving facility
and $78.3 million borrowed under the NTL Australia credit agreement, net of
aggregate financing costs of $43.7 million.
Principal payments of $484.4 million in 2001 include optional repayments of
$454.2 million under the NTLCL credit agreements and Cablecom revolving facility
and repayments of an aggregate of $30.2 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.
31
33
NTL (Delaware), Inc. and Subsidiaries
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 21, 2001 (filed May 7, 2001) reporting
under Item 2, Acquisition or Disposition of Assets, that NTL
(Delaware), Inc. amends its Current Report on Form 8-K, dated
March 7, 2001, by filing certain financial statements and
financial information.
(ii) Report dated May 24, 2001 (filed May 24, 2001) reporting under
Item 5, Other Events, that NTL Incorporated, the public parent
company of NTL (Delaware), Inc., 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.
32
34
NTL (Delaware), Inc. and Subsidiaries
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 (DELAWARE), INC.
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)
33