FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-22616
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INTERNATIONAL CABLETEL INCORPORATED
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1822078
- ---------------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 East 59th Street, New York, New York 10022
- ---------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
(212) 371-3714
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the issuer's common stock as of
September 30, 1996 was 32,006,800.
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE
- ------------------------------- ----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets--
September 30, 1996 and December 31, 1995 2
Condensed Consolidated Statements of Operations--
Three and nine months ended September 30, 1996 and 1995 4
Condensed Consolidated Statement of Shareholders' Equity--
Nine months ended September 30, 1996 5
Condensed Consolidated Statements of Cash Flows--
Nine months ended September 30, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 13
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
- ----------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1996 1995
--------------- --------------
(Unaudited) (See Note)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 639,082,000 $175,283,000
Accounts receivable-trade,
less allowance for doubtful
accounts of $2,527,000 (1996)
and $767,000 (1995) 41,675,000 7,340,000
Other 28,554,000 22,514,000
-------------- --------------
TOTAL CURRENT ASSETS 709,311,000 205,137,000
CASH HELD IN ESCROW - 1,598,000
FIXED ASSETS, net 1,176,421,000 639,674,000
INTANGIBLE ASSETS, net 325,736,000 137,578,000
OTHER ASSETS, net of accumulated
amortization of $19,399,000 (1996)
and $9,537,000 (1995) 60,359,000 26,682,000
-------------- --------------
$2,271,827,000 $1,010,669,000
============== ==============
2
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS -- CONTINUED
September 30, December 31,
1996 1995
--------------- ---------------
(Unaudited) (See Note)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 37,843,000 $ 50,848,000
Accrued expenses and other 120,748,000 37,102,000
Accrued construction costs 51,628,000 14,543,000
Deferred purchase price 82,084,000 -
Current portion of long-term debt 56,653,000 26,516,000
-------------- --------------
TOTAL CURRENT LIABILITIES 348,956,000 129,009,000
LONG-TERM DEBT 1,682,956,000 513,026,000
REGIONAL DEVELOPMENT GRANT, net 605,000 661,000
COMMITMENTS AND CONTINGENT LIABILITIES
MINORITY INTERESTS 11,245,000 28,716,000
SHAREHOLDERS' EQUITY
Series preferred stock - $.01
par value; authorized
2,500,000 shares;
none outstanding - -
Common stock - $.01 par value;
authorized 100,000,000 shares;
issued and outstanding
32,007,000 (1996) and
30,202,000 (1995) shares 320,000 302,000
Additional paid-in capital 499,315,000 462,223,000
Cumulative translation adjustment 33,923,000 6,273,000
(Deficit) (305,493,000) (129,541,000)
-------------- --------------
228,065,000 339,257,000
-------------- --------------
$2,271,827,000 $1,010,669,000
============== ==============
Note: The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date.
See notes to condensed consolidated financial statements.
3
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- -----------------------------
1996 1995 1996 1995
------------ ------------ ------------- -------------
Revenues:
Network services $ 40,102,000 $ - $ 63,641,000 $ -
Telecommunications 20,140,000 5,185,000 45,297,000 11,511,000
Cable television 10,769,000 3,370,000 28,053,000 7,542,000
Other 6,245,000 - 6,482,000 -
------------ ------------ ------------- -------------
77,256,000 8,555,000 143,473,000 19,053,000
Costs and expenses:
Operating expenses 49,702,000 7,478,000 91,567,000 14,289,000
Selling, general and
administrative expenses 34,105,000 14,678,000 80,673,000 35,138,000
Franchise acquisition fees 5,541,000 - 7,374,000 -
Corporate expenses 4,135,000 2,248,000 9,419,000 6,545,000
Depreciation and amortization 28,163,000 7,307,000 60,764,000 19,320,000
------------ ------------ ------------- -------------
121,646,000 31,711,000 249,797,000 75,292,000
------------ ------------ ------------- -------------
OPERATING LOSS (44,390,000) (23,156,000) (106,324,000) (56,239,000)
Other income (expense):
Interest and other income 11,150,000 5,998,000 28,669,000 16,055,000
Interest expense (43,962,000) (11,259,000) (105,368,000) (24,322,000)
Foreign currency transaction gains
(losses) 261,000 (62,000) 432,000 567,000
------------ ------------ ------------- -------------
LOSS BEFORE INCOME TAXES AND
MINORITY INTERESTS (76,941,000) (28,479,000) (182,591,000) (63,939,000)
Income tax benefit (provision) (1,702,000) 748,000 (5,183,000) 1,824,000
------------ ------------ ------------- -------------
LOSS BEFORE MINORITY INTERESTS (78,643,000) (27,731,000) (187,774,000) (62,115,000)
Minority interests 4,573,000 1,938,000 11,822,000 4,637,000
------------ ------------ ------------- -------------
NET LOSS $(74,070,000) $(25,793,000) $(175,952,000) $ (57,478,000)
============ ============ ============= =============
Net loss per common share $ (2.35) $ (.85) $ (5.73) $ (1.90)
============ ============ ============= =============
Weighted average number of common shares
used in computation of net
loss per share 31,561,000 30,191,000 30,717,000 30,186,000
============ ============ ============= =============
See notes to condensed consolidated financial statements.
4
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
Common Stock
$.01 Par Value Additional Cumulative
-------------------- Paid-In Translation
Shares Par Capital Adjustment (Deficit)
----------- -------- ------------ ----------- -------------
Balance,
December 31, 1995 30,202,000 $302,000 $462,223,000 $ 6,273,000 $(129,541,000)
Exercise of stock
options 339,000 4,000 1,041,000
Exercise of warrants 51,000 287,000
Issuance of warrants in
connection with consent
solicitations 1,641,000
Shares issued for
acquisition 1,415,000 14,000 34,123,000
Net loss for the
nine months ended
September 30, 1996 (175,952,000)
Currency translation
adjustment 27,650,000
----------- -------- ------------ ----------- -------------
Balance,
September 30, 1996 32,007,000 $320,000 $499,315,000 $33,923,000 $(305,493,000)
=========== ======== ============ =========== =============
See notes to condensed consolidated financial statements.
5
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
September 30,
----------------------------------
1996 1995
------------------ --------------
NET CASH (USED IN) OPERATING ACTIVITIES $ (13,237,000) $ (656,000)
INVESTING ACTIVITIES
Purchase of fixed assets (315,768,000) (296,934,000)
Proceeds from sale of fixed assets 1,000 23,000
Acquisition of subsidiaries, net of
cash acquired (300,994,000) -
License acquisition costs - (1,894,000)
Increase in other assets (1,819,000) (3,309,000)
-------------- -------------
NET CASH (USED IN) INVESTING ACTIVITIES (618,580,000) (302,114,000)
FINANCING ACTIVITIES
Principal payments (93,739,000) (9,232,000)
Proceeds from borrowings, net of
financing costs 1,141,085,000 328,753,000
Cash released from escrow 1,594,000 -
Capital contribution from minority partner - 12,673,000
Proceeds from borrowings from minority
partner 30,726,000 13,306,000
Proceeds from exercise of stock options
and warrants 1,332,000 102,000
-------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,080,998,000 345,602,000
EFFECT OF EXCHANGE RATE CHANGES ON CASH 14,618,000 4,451,000
-------------- -------------
INCREASE IN CASH AND CASH
EQUIVALENTS 463,799,000 47,283,000
Cash and cash equivalents at beginning of
period 175,283,000 294,602,000
-------------- -------------
Cash and cash equivalents at end of period $ 639,082,000 $ 341,885,000
============== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for interest
exclusive of amounts capitalized $ 12,009,000 $ 1,494,000
Income taxes paid 367,000 1,175,000
SUPPLEMENTAL SCHEDULE OF NON-CASH
FINANCING ACTIVITIES
Warrants issued in connection with
consent solicitations $ 1,641,000 $ -
Common stock issued for acquisition 34,137,000 -
Liabilities incurred in connection
with acquisitions 80,117,000 -
See notes to condensed consolidated financial statements.
6
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine months ended September
30, 1996 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1996. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1995.
Net loss per share is computed based on the weighted average number of
common shares outstanding during the periods. Common stock equivalents are
excluded from the net loss per share computations because they are antidilutive.
NOTE B--ACCOUNTING CHANGE
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 defines a fair value based method of
accounting for stock-based employee compensation plans (including stock option
plans). As permitted by SFAS No. 123, the Company expects to continue to measure
compensation costs for its plans as prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees."
NOTE C--FIXED ASSETS
Fixed assets consists of:
September 30, December 31,
1996 1995
-------------- ------------
(Unaudited)
Operating equipment $ 839,052,000 $424,019,000
Other equipment 103,902,000 39,717,000
Construction-in-progress 321,881,000 218,044,000
-------------- ------------
1,264,835,000 681,780,000
Allowance for depreciation (88,414,000) (42,106,000)
-------------- ------------
$1,176,421,000 $639,674,000
============== ============
7
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
NOTE D--INTANGIBLE ASSETS
Intangible assets consists of:
September 30, December 31,
1996 1995
-------------- ------------
(Unaudited)
License acquisition costs,
net of accumulated
amortization of
$31,348,000 (1996) and
$22,789,000 (1995) $157,657,000 $137,578,000
Goodwill, net of accumulated
amortization of
$3,064,000 168,079,000 -
------------ ------------
$325,736,000 $137,578,000
============ ============
In September 1996, the Company acquired the remaining 30% minority interest
of English Cable Enterprises, Inc. ("ECE") that the Company did not own, in
exchange for 1,415,000 shares of its common stock. ECE owns four telephone and
cable television licenses in the northern suburbs of London. The aggregate
purchase price of $34,137,000 plus costs incurred of $193,000 exceeded the fair
value of the net tangible assets acquired by $28,638,000, which is classified as
license acquisition costs.
In May 1996, an indirect wholly-owned subsidiary of the Company
(the"Purchaser") acquired NTL Group Limited ("NTL"), an English limited
liability company, for payments of approximately (Pounds)204 million at
closing,(Pounds)35 million, subject to adjustments, on the first anniversary of
closing and (Pounds)17.1 million in October 1996. NTL provides television and
radio transmission services and a range of other services in the broadcasting
and telecommunications industries. The Company used (Pounds)200 million from its
1996 bank facilities to finance the acquisition. This acquisition has been
accounted for as a purchase, and, accordingly, the net assets and results of
operations of NTL have been included in the consolidated financial statements
from the date of acquisition. The aggregate purchase price of (Pounds)256.1
million ($396.5 million) plus costs incurred of $3.5 million exceeded the fair
value of the net tangible assets acquired by $170.2 million, which is classified
as goodwill, and is being amortized over a period of 30 years. Under the
purchase method of accounting, the purchase price is allocated to the assets
acquired and liabilities assumed based on their estimated fair values at
acquisition. However, changes to the allocations of the purchase price are
expected as valuations or appraisals of assets and liabilities are completed.
Although the Company cannot ascertain what the changes will be, such changes
could be material.
8
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
NOTE D--INTANGIBLE ASSETS-CONTINUED
The pro forma unaudited consolidated results of operations for the nine months
ended September 30, 1996 and 1995 assuming consummation of the ECE and NTL
acquisitions as of the beginning of the periods are as follows:
Nine Months Ended
September 30,
----------------------------
1996 1995
------------- ------------
Total revenue $ 204,768,000 $141,827,000
Net loss (183,285,000) (55,169,000)
Net loss per share (5.70) (1.75)
NOTE E--LONG-TERM DEBT
Long-term debt consists of:
September 30, December 31,
1996 1995
-------------- ------------
(Unaudited)
10-7/8% Senior Deferred Coupon Notes $ 170,747,000 $157,748,000
12-3/4% Series A Senior Deferred
Coupon Notes 179,354,000 163,528,000
11-1/2% Series B Senior Deferred
Coupon Notes 647,005,000 -
7-1/4% Convertible Subordinated Notes 191,750,000 191,750,000
7% Convertible Subordinated Notes 275,000,000 -
Term Loan Facility 219,100,000 -
Subsidiary bank loan - 1,576,000
Subsidiary notes payable 56,653,000 24,940,000
-------------- ------------
1,739,609,000 539,542,000
Less current portion 56,653,000 26,516,000
-------------- ------------
$1,682,956,000 $513,026,000
============== =============
9
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
NOTE E--LONG-TERM DEBT-CONTINUED
In January 1996, the Company issued $1,050,000,000 aggregate principal
amount of 11-1/2% Series B Senior Deferred Coupon Notes due 2006. The 11-1/2%
Senior Deferred Coupon Notes were issued at a price to investors of 57.155% of
the aggregate principal amount at maturity or $600,127,500. The Company received
net proceeds of $582,000,000 after discounts and commissions from the issuance
of the 11-1/2% Senior Deferred Coupon Notes. The original issue discount
accretes at a rate of 11-1/2%, compounded semiannually, to an aggregate
principal amount of $1,050,000,000 by February 1, 2001. Interest will thereafter
accrue at 11-1/2% per annum, payable semiannually beginning on August 1, 2001.
The 11-1/2% Senior Deferred Coupon Notes may be redeemed at the Company's
option, in whole or in part, at any time on or after February 1, 2001 at 105.75%
the first year, 102.875% the second year and 100% thereafter, plus accrued and
unpaid interest to the date of redemption.
The 11-1/2% Senior Deferred Coupon Notes are effectively subordinated to all
existing and future indebtedness and other liabilities and commitments of the
Company's subsidiaries. The indenture governing the 11-1/2% Senior Deferred
Coupon Notes contains restrictions relating to, among other things: (i)
incurrence of additional indebtedness and issuance of preferred stock; (ii)
dividend and other payment restrictions and (iii) mergers, consolidations and
sales of assets.
Pursuant to the terms of the consent solicitations to the holders of the
10-7/8% Senior Deferred Coupon Notes and to the holders of the 12-3/4% Series A
Senior Deferred Coupon Notes to gain consent to modify certain indenture
provisions, the Company paid an aggregate of $3,592,000 in consent payments and
issued warrants to purchase 164,000 shares of common stock at an exercise price
of $23.78 per share in lieu of additional consent payments of $1,641,000. The
warrants expire in 2006.
In June 1996, the Company issued $275,000,000 aggregate principal amount of
7% Convertible Subordinated Notes due 2008. Interest on the Convertible Notes is
payable semiannually beginning December 15, 1996. The Convertible Notes mature
on June 15, 2008. The Convertible Notes are unsecured obligations convertible
into shares of common stock prior to maturity at a conversion price of $37.875
per share, subject to adjustment. There are approximately 7,261,000 shares of
common stock reserved for issuance upon conversion of the Convertible Notes. The
Convertible Notes are redeemable, in whole or in part, at the option of the
Company at any time on or after June 15, 1999, at a redemption price of 104.9%
that declines annually to 100% in 2006, in each case together with accrued and
unpaid interest to the redemption date. The Company incurred $8,464,000 in fees
and expenses in connection with the issuance of the Convertible Notes, which is
included in deferred financing costs.
To finance the acquisition of NTL, the Purchaser entered into an agreement
dated March 28, 1996 with a syndicate of lenders (the "Lenders") pursuant to
which the Lenders made available to the Purchaser senior secured loan
facilities (the "A Facilities") of a maximum principal amount of (Pounds)165
million comprised of: (i) a long term loan facility of (Pounds)140 million (the
"Term Loan Facility") and (ii) a revolving credit facility of (Pounds)25 million
(the "Revolving Facility"). One of the Lenders also agreed to make available to
the Purchaser a secured loan facility of (Pounds)60 million (the "Bridge
Facility") to finance the remainder of the payment due at closing and
acquisition costs and expenses due at closing. The Term Loan Facility and the
Bridge Facility were used to finance the acquisition of NTL including related
acquisition expenses (an aggregate of (Pounds)200 million or $310,100,000). The
Bridge Facility was repaid in full in August 1996.
10
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
NOTE E--LONG-TERM DEBT-CONTINUED
The Revolving Facility is available until December 31, 1997 for capital
expenditure and working capital purposes of NTL's group. At the end of the
availability period, any amount outstanding under the Revolving Facility will be
converted to term debt and be aggregated with the Term Loan Facility. All
amounts outstanding under the Term Loan Facility are scheduled to be repaid in
quarterly installments from 1998 to 2002 inclusive. The amount of the
installments will be based upon an agreed percentage of the loan and will
increase year to year. Final repayment of the Term Loan Facility is due on
December 31, 2002.
Loans under the A Facilities bear interest at an annual rate equal to LIBOR
plus a margin that varies from 0.75% per annum to 1.75% per annum, based on
certain financial ratios of the Purchaser and certain of its subsidiaries.
Interest is payable either monthly, quarterly or semiannually, at the option of
the Purchaser.
The A Facilities are secured by guarantees from NTL and each of its
subsidiaries and by first ranking fixed and floating charges over all the
present and future assets of the Purchaser, NTL and its subsidiaries. The A
Facilities do not, therefore, provide for the Lenders to have recourse to assets
of the Company other than to the assets of the Purchaser and its subsidiaries.
The A Facilities contain various financial and other covenants, including
covenants with respect to the Purchaser and certain of its subsidiaries relating
to minimum total debt to operating cash flow (as defined in the "A Facilities"),
fixed charge coverage, net worth and pro-forma debt service ratios. The A
Facilities also include restrictions on dividends and distributions by the
Purchaser to its shareholders.
NOTE F--COMMITMENTS AND CONTINGENT LIABILITIES
As of September 30, 1996, the Company was committed to pay approximately
$62,400,000 for equipment and services.
The Company has licenses issued by the United Kingdom Department of Trade
and Industry ("DTI") and the United Kingdom Independent Television
Commission("ITC") for its cable television, telephone and telecommunications
business and the Federal Communications Commission ("FCC") for its microwave
transmission business. The initial terms of the Company's licenses was 23 years
for the DTI licenses, 15 years for the ITC licenses and 10 years for the FCC
licenses. The Company's licenses expire in 2008 to 2017 for the DTI licenses,
1999 to 2005 for the ITC licenses and 2001 for the FCC licenses. The DTI
requires a fixed annual renewal fee of (Pounds)2,500 ($4,000) per license. The
ITC requires an annual license fee ranging from (Pounds)1,300 ($2,000) to
(Pounds)7,900 ($12,000) per license based on the number of homes in the licensed
area, which is subject to adjustment annually. The FCC requires an annual
license fee of $140 per license, which is subject to adjustment annually. The
Company's license fees in 1996 were $40,000.
In addition, the Company was awarded certain newly issued licenses by the
ITC in 1995. Pursuant to the terms of the local delivery license ("LDL") for
Northern Ireland granted to a wholly-owned subsidiary of the Company, the
Company is required to make annual cash payments to the ITC for fifteen years
commencing in January 1997 in the amount of approximately (Pounds)14,400,000
($22,500,000) (subject to adjustments for inflation). Such payments are in
addition to the percentages of qualifying revenue already set by the ITC of 0%
for the first ten years and 2% for the last five years of the fifteen-year
license.
Pursuant to the terms of the LDL for Glamorgan and Gwent, Wales granted to a
wholly-owned subsidiary of the Company, the Company is required to make annual
cash payments to the ITC for fifteen years, commencing in the first full
calendar year after the start of operations, in the amount of (Pounds)104,188
($163,000). Such payments are in addition to the percentages of qualifying
revenue already set by the ITC of 0% for the first five years, 2% for the second
five years and 4% for the last five years of the fifteen-year license.
11
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
NOTE F--COMMITMENTS AND CONTINGENT LIABILITIES-CONTINUED
A significant portion of NTL's revenues is attributable to the provision of
television and radio transmission and distribution services and the provision of
telecommunications services. In the United Kingdom, the provision of such
services is governed by the Telecommunications Act and the Wireless Telegraphy
Act 1949. NTL holds four licenses under the Telecommunications Act. The initial
terms of these licenses were 10 or 25 years. These licenses expire in 2002 to
2016. The current annual fees for these licenses is an aggregate of
(Pounds)37,000 ($58,000) which has been paid in 1996. NTL holds a number of
Wireless Telegraphy Act licenses which continue in force primarily from year to
year unless revoked or unless any of the license fees are not paid. The current
annual fees for these licenses is an aggregate of (Pounds)1,478,000 ($2,300,000)
of which (Pounds)1,157,000 ($1,800,000) has been paid in 1996 and
(Pounds)321,000 ($500,000) is payable through December 1996.
NOTE G--SUBSEQUENT EVENT
In October 1996, the Company acquired the remaining 40% interest it did not
already own in CableTel Newport in exchange for 780 shares of the Company's
Series A Preferred Stock. CableTel Newport owns and operates telephone and cable
television franchises in South Wales.
In October 1996, the Board of Directors created and authorized for issuance
2,000 shares of 5% Non-Voting Convertible Preferred Stock, Series A, of which
780 shares were issued in connection with the CableTel Newport acquisition. Each
share of Series A Preferred Stock has a stated value of $100,000, subject to
certain exceptions. The holders of Series A Preferred Stock are entitled to
receive cumulative dividends beginning in October 2001 at the rate of 5% of the
stated value, payable semi-annually in arrears, subject to certain exceptions.
Dividends may be paid, in the sole discretion of the Board of Directors, in
cash, in common stock or in additional shares of Series A Preferred Stock. The
Company has the right, exercisable at any time, to redeem all or some of the
Series A Preferred Stock at a price equal to the aggregate stated value of the
shares to be redeemed, together with all accrued and unpaid dividends, in cash
or in shares of common stock (based on the average market price of the common
stock, as defined). The holder of Series A Preferred Stock has the right to
convert shares of Series A Preferred Stock into common stock equal to the
aggregate stated value of Series A Preferred Stock divided by the greater of (a)
$40.00 or (b) the average market price of the common stock, as defined. The
Series A Preferred Stock has a liquidation preference equal to the stated value
per share plus accrued and unpaid dividends.
12
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.
The following table illustrates the number of homes passed, the number of
homes released to marketing and the total number of customers as of September
30, 1996 and December 31, 1995, for the full-service dual network constructed by
the Company since 1993 and, as of September 30, 1996, for the network
constructed as cable-only and inherited by the Company through prior
acquisitions:
Newly Constructed Dual Network and Inherited Cable-Only Network
- ---------------------------------------------------------------------------------------------------
NEWLY CONSTRUCTED NEWLY CONSTRUCTED INHERITED CABLE-
DUAL NETWORK DUAL NETWORK ONLY NETWORK
SEPTEMBER 30, 1996 DECEMBER 31, 1995 SEPTEMBER 30, 1996
- ---------------------------------------------------------------------------------------------------
Homes passed 694,400 463,000 263,200
- ---------------------------------------------------------------------------------------------------
Homes marketed* 390,800 176,200 263,200
- ---------------------------------------------------------------------------------------------------
Total customers 135,300 57,700 48,000
- ---------------------------------------------------------------------------------------------------
Dual 105,155 44,630 -
- ---------------------------------------------------------------------------------------------------
Cable-only 15,600 6,620 48,000
- ---------------------------------------------------------------------------------------------------
Telephone-only 14,545 6,450 -
- ---------------------------------------------------------------------------------------------------
Total RGU's** 240,455 102,330 48,000
- ---------------------------------------------------------------------------------------------------
RGU penetration 61.5% 58.1% 18.2%
- ---------------------------------------------------------------------------------------------------
Cable penetration 30.9% 29.1% 18.2%
- ---------------------------------------------------------------------------------------------------
Telephone penetration 30.6% 29.0% -
- ---------------------------------------------------------------------------------------------------
* At September 30, 1996, homes for which the sales process has begun. At
December 31, 1995, homes for which the initial sales process was completed.
** An RGU (revenue generating unit) is one cable television account or one
telephone account; thus, a dual customer counts as two RGU's.
13
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
CONTINUED
RESULTS OF OPERATIONS
---------------------
As a result of the acquisition of NTL Group Limited ("NTL") in May 1996, the
Company consolidated the results of operations of NTL from the date of
acquisition. The results of NTL are not included in the 1995 consolidated
results.
Three Months Ended September 30, 1996 and 1995
- ----------------------------------------------
Network services revenues increased to $40,102,000 from none as a result of
the acquisition of NTL.
Telecommunications revenues increased to $20,140,000 from $5,185,000. NTL
telecommunications revenues in the third quarter of 1996 were $4,285,000. The
remainder of the increase was the result of customer growth that increased the
Company's current revenue stream.
Cable television revenues increased to $10,769,000 from $3,370,000 as a
result of customer growth that increased the Company's current revenue stream.
Other revenue increased to $6,245,000 from none as a result of the
acquisition of NTL.
Operating expenses increased to $49,702,000 from $7,478,000. NTL operating
expenses in the third quarter of 1996 were $29,989,000. The remainder of the
increase was the result of increases in telecommunications and cable television
programming costs, interconnection costs and costs of operating the network.
Selling, general and administrative expenses increased to $34,105,000 from
$14,678,000. NTL selling, general and administrative expenses in the third
quarter of 1996 were $4,759,000. The remainder of the increase was the result of
increases in telecommunications and cable television sales and marketing costs
and in additional personnel and overhead to service the increasing customer
base.
Franchise acquisition fees of $5,541,000 in 1996 are for the Northern
Ireland license and are payable to the ITC beginning in January 1997.
Corporate expenses increased to $4,135,000 from $2,248,000 due to an
increase in personnel and related costs. The 1996 and 1995 amounts include
$814,000 of non-cash expense related to non-compete agreements and current
period expenses include $391,000 of expenses related to a proposed acquisition.
Depreciation and amortization expense increased to $28,163,000 from
$7,307,000. Depreciation and amortization expense of NTL and amortization of
goodwill as a result of the acquisition was $8,274,000 in the third quarter of
1996. The remainder of the increase was primarily due to an increase in
depreciation of telecommunications and cable television equipment.
Interest and other income increased to $11,150,000 from $5,998,000 due to an
increase in funds available for short term investment.
Interest expense increased to $43,962,000 from $11,259,000 due to interest
on the bank loan in connection with the NTL acquisition in 1996 plus the
issuance of the 11-1/2% Notes and the 7% Convertible Subordinated Notes in 1996.
Interest of $2,386,000 was paid in the third quarter of 1996.
Foreign currency transaction gains of $261,000 in 1996 and losses of $62,000
in 1995 are the result of changes in the exchange rate.
14
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
CONTINUED
Nine Months Ended September 30, 1996 and 1995
- ---------------------------------------------
Network services revenues increased to $63,641,000 from none as a result of
the acquisition of NTL.
Telecommunications revenues increased to $45,297,000 from $11,511,000. NTL
telecommunications revenues from May 9, 1996, the date of acquisition, through
September 30, 1996 were $6,746,000. The remainder of the increase was the result
of customer growth that increased the Company's current revenue stream.
Cable television revenues increased to $28,053,000 from $7,542,000 as a
result of customer growth that increased the Company's current revenue stream.
Other revenue increased to $6,482,000 from none as a result of the
acquisition of NTL.
Operating expenses increased to $91,567,000 from $14,289,000. NTL operating
expenses from May 9, 1996, the date of acquisition, through September 30, 1996
were $43,993,000. The remainder of the increase was the result of increases in
telecommunications and cable television programming costs, interconnection costs
and costs of operating the network.
Selling, general and administrative expenses increased to $80,673,000 from
$35,138,000. NTL selling, general and administrative expenses from May 9, 1996,
the date of acquisition, through September 30, 1996 were $7,281,000. The
remainder of increase was the result of increases in telecommunications and
cable television sales and marketing costs and in additional personnel and
overhead to service the increasing customer base.
Franchise acquisition fees of $7,374,000 in 1996 are for the Northern
Ireland license and are payable to the ITC beginning in January 1997.
Corporate expenses increased to $9,419,000 from $6,545,000 due to an
increase in personnel and related costs. The 1996 and 1995 amounts include
$2,443,000 of non-cash expense related to non-compete agreements and current
period expenses include $391,000 of expenses related to a proposed acquisition.
Depreciation and amortization expense increased to $60,764,000 from
$19,320,000. Depreciation and amortization expense of NTL and amortization of
goodwill as a result of the acquisition was $11,977,000 from May 9, 1996, the
date of acquisition, through September 30, 1996. The remainder of the increase
was primarily due to an increase in depreciation of telecommunications and cable
television equipment.
Interest and other income increased to $28,669,000 from $16,055,000 due to
an increase in funds available for short term investment.
Interest expense increased to $105,368,000 from $24,322,000 due to the
interest on the bank loan in connection with the NTL acquisition in 1996 plus
the issuance of the 11-1/2% Notes and the 7% Convertible Subordinated Notes in
1996. Interest of $12,009,000 was paid during the nine months ended September
30, 1996.
Foreign currency transaction gains of $432,000 in 1996 and $567,000 in 1995
are the result of changes in the exchange rate.
In October 1995, the FASB issued SFAB No. 123, "Accounting for Stock-Based
Compensation." Although all entities are encouraged to adopt this method of
accounting for all stock-based employee compensation plans (including stock
option plans), SFAS No. 123 allows an entity to continue to measure compensation
costs for its plans as prescribed by APB Opinion No. 25, "Accounting for Stock
Issued to Employees." At this time, management expects to continue its
accounting in accordance with APB Opinion No. 25.
15
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
CONTINUED
LIQUIDITY AND CAPITAL RESOURCES
The Company will require significant amounts of capital to finance
construction of its system network, for connection of telephone,
telecommunications and cable television customers to the network, for working
capital and for debt service. The Company also requires substantial capital for
the deferred payment in connection with the acquisition of NTL, to repay the NTL
bank facilities and to fund the capital expenditure requirements of NTL's
existing operations and to finance the expansion of those operations.
The Company expects that the capital required to build its telephone,
telecommunications and cable television networks and connect residential and
business subscribers will be approximately $950 per home in its franchise areas,
of which approximately $600 represents the cost of the network itself and the
remainder represents the capital cost of connecting customers to its network.
Certain locations may require more or less capital depending upon household
density, business density and penetration rates. In addition, certain costs such
as the establishment of telephone switches, cable headends and facilities are
incurred during the initial phases of network construction, leading to average
capital expenditures per home which are higher in the initial years. The
construction and development of the systems will depend on, among other things,
the Company's ability to design network routes, 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.
Pursuant to the terms of the Northern Ireland LDL, CableTel Northern Ireland
Limited is required to make annual cash payments to the ITC for fifteen years
commencing in January 1997 in the amount of approximately (Pounds)14.4 million
(subject to adjustments for inflation). Such payments are in addition to the
percentages of qualifying revenue already set by the ITC of 0% for the first ten
years and 2% for the last five years of the fifteen-year license. Pursuant to
the terms of the Glamorgan and Gwent LDL, CableTel South Wales Limited is
required to make annual cash payments to the ITC for fifteen years, commencing
in the first full calendar year after the start of operations, in the amount of
approximately (Pounds)104,188 (subject to adjustment for inflation). Such
payments are in addition to the percentages of qualifying revenue already set by
the ITC of 0% for the first five years, 2% for the second five years and 4% for
the last five years of the fifteen-year license.
The Company believes that the aggregate cost of network construction from
September 30, 1996 through passing 2,090,000 of the total 2,292,000 homes in its
franchises in accordance with its regulatory build schedules (including the
license payments in respect of the Northern Ireland LDL and the Gwent and
Glamorgan LDL) will be approximately (Pounds)915 million ($1.4 billion) which
includes the commitments for equipment and services at September 30, 1996 of
approximately $62,400,000. The exact amounts and timing of these expenditures
could vary significantly with the actual number of subscribers and are subject
to a variety of factors which may vary greatly by market and may be beyond the
control of the Company. In addition, this amount includes various estimated
inflation factors on certain components. The substantial costs will result in a
negative cash flow until an adequate customer base is established.
In June 1996, the Company issued $275,000,000 aggregate principal amount of
7% Convertible Subordinated Notes due 2008 and received proceeds of
$267,437,000. Interest on the Convertible Notes is payable semiannually
beginning December 15, 1996. The Convertible Notes mature on June 15, 2008. The
Convertible Notes are unsecured obligations convertible into shares of common
stock prior to maturity at a conversion price of $37.875 per share, subject to
adjustment. The Convertible Subordinated Notes are redeemable, in whole or in
part, at the option of the Company at any time on or after June 15, 1999, at a
redemption price of 104.9% that declines annually to 100% in 2006, in each case
together with accrued and unpaid interest to the redemption date.
16
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
CONTINUED
In 1996, the Company issued $1,050,000,000 aggregate principal amount of its
11-1/2% Series B Senior Deferred Coupon Notes due 2006. The 11-1/2% Notes were
issued at a price to investors of 57.155% of the aggregate principal amount at
maturity, or $600,127,500. The Company received net proceeds of approximately
$582,000,000 from the issuance of the 11-1/2% Notes. The original issue discount
of the 11-1/2% Notes accretes at a rate of 11-1/2%, compounded semiannually, to
an aggregate principal amount of $1,050,000,000 by February 1, 2001. Interest
will thereafter accrue at 11-1/2% per annum, payable semiannually beginning on
August 1, 2001. The 11-1/2% Notes may be redeemed at the Company's option, in
whole or in part, at any time on or after February 1, 2001 at 105.75% the first
year, 102.875% the second year and 100% thereafter, plus accrued and unpaid
interest to the date of redemption.
In 1995, the Company issued $277,803,500 aggregate principal amount at
maturity of its 12-3/4% Senior Deferred Coupon Notes due 2005. The 12-3/4% Notes
were issued at a price to investors of 53.995% of the aggregate principal amount
at maturity, or $150,000,000. The Company received proceeds of $145,125,000 from
the issuance of the 12-3/4% Notes. The original issue discount of the 12-3/4%
Notes accretes at a rate of 12-3/4%, compounded semiannually, to an aggregate
principal amount of $277,803,500 by April 15, 2000. Interest will thereafter
accrue at 12-3/4% per annum, payable semiannually beginning on October 15, 2000.
The 12-3/4% Notes may be redeemed at the Company's option, in whole or in part,
at any time on or after April 15, 2000 at 103.64% the first year, 101.82% the
second year and 100% thereafter, plus accrued and unpaid interest on the date of
redemption.
In 1995, the Company issued $191,750,000 aggregate principal amount of its
7-1/4% Convertible Subordinated Notes due 2005 and received proceeds of
$186,065,000. Interest on the 7-1/4% Convertible Subordinated Notes is payable
semiannually. The 7-1/4% Convertible Subordinated Notes are convertible into
shares of common stock prior to maturity at a conversion price of $27.56 per
share, subject to adjustment in certain events. The 7-1/4% Convertible
Subordinated Notes are redeemable, in whole or in part, at the option of the
Company, at any time on or after April 15, 1998, the redemption price of 105.08%
that declines annually to 100.73% in 2004, in each case together with accrued
and unpaid interest to the redemption date.
In 1993, the Company issued $212,000,000 aggregate principal amount of its
10-7/8% Senior Deferred Coupon Notes due 2003. The 10-7/8% Notes were issued at
a price to investors of 58.873% of the aggregate principal amount at maturity,
or $124,811,000. The Company received proceeds of $119,797,000 from the issuance
of the 10-7/8% Notes. The original issue discount of the 10-7/8% Notes accretes
at a rate of 10-7/8%, compounded semiannually, to an aggregate principal amount
of $212,000,000 by October 15, 1998. Interest will there after accrue at 10-7/8%
per annum, payable semiannually beginning on April 15, 1999. The 10-7/8% Notes
may be redeemed at the Company's option, in whole or in part, at any time on or
after October 15, 1998 at 103.107% the first year, 101.554% the second year and
100% thereafter, plus accrued and unpaid interest to the date of redemption.
Cash and cash equivalents as of September 30, 1996 are expected to be
sufficient to meet the capital requirements of the Company's franchises into the
third quarter of 1997 in accordance with the build schedules contained in the
existing licenses. The Company intends to resume discussions with commercial
banks regarding the arrangement of certain proposed credit facilities (the
"Proposed Credit Facilities") to further fund construction costs and working
capital requirements. Based on the information currently available to the
Company it is currently anticipated that cash on hand, cash flow from operations
(which is expected by early 1997) and expected sources of funds (including, but
not limited to, the Proposed Credit Facilities or other financings, if obtained)
will be sufficient to fund the estimated costs required to complete planned
construction in its existing franchise past 2,090,000 homes in accordance with
the construction milestones set forth in its licenses. To the extent that either
the Company is unable to obtain the Proposed Credit Facilities or such other
financing or does not meet its projections, the Company will require additional
debt and/or equity financings. There can be no assurance that (i) the Proposed
Credit Facilities will be obtained (or be available on acceptable terms), (ii)
any other financings will be consummated or available on acceptable terms, (iii)
actual construction costs will not exceed the
17
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
CONTINUED
Company's expectations or that additional funding substantially in excess of the
amounts estimated above will not be required, (iv) conditions precedent to
advances under any such credit facility will be satisfied when funds are
required, (v) the Company will not acquire additional franchises or businesses
that would require additional capital or (vi) the Company will be able to
generate sufficient cash from operations to meet any of its capital requirements
when required. The Company does not have any firm additional financing plans to
address any of the foregoing situation at this time.
The inability of the Company to obtain the Proposed Credit Facilities or
alternative financing could result in a failure to comply with the minimum build
milestones set forth in its licenses for certain of its franchises and could
ultimately lead to the revocation of such licenses, which would have a material
adverse effect on the Company.
The Company also incurs capital expenditures for the establishment of its
business facilities and fixtures, office and computer equipment, its billing and
subscriber management systems and vehicles. These costs also vary by location
and size of franchise, but are substantially less than the capital costs of the
network itself.
The exact amounts and timing of all of these expenditures are subject to a
variety of factors which may vary greatly by market and be beyond the control of
the Company. Accordingly, there can be no assurance that the amount of the
funding actually required will not exceed the estimated amounts described above
or that additional funding substantially in excess of the amounts estimated
above will not be required. Furthermore, if the Company were to make additional
investments or acquire additional franchises, funding would be needed in
addition to the anticipated funding requirements described above.
In addition to its capital expenditures, the Company incurs direct operating
costs for such items as salaries and office rent. As network installation
progresses, the Company will incur increased sales and marketing expenses
(including sales commissions). Since the Company does not intend initially to
produce its own programming, it purchases programming from suppliers whose
charges may reach 65% of cable television revenues in the early years. The
Company also incurs charges from other telecommunications systems in order to
interconnect with the worldwide telephone network.
The Company's operations are conducted through its direct and indirect
wholly-owned subsidiaries. As a holding company, the Company holds no
significant assets other than its investments in and advances to its
subsidiaries. The Company is therefore dependent upon the receipt of sufficient
funds from its subsidiaries to meet its own obligations. Accordingly, the
Company's ability to make scheduled interest and principal payments (or any
other payments that may become payable) when due to holders of indebtedness of
the Company and the Company's ability to pay cash dividends to its stockholders
is dependent upon the receipt of sufficient funds from its subsidiaries, which
may be restricted in the manner described in the next paragraph.
Each of the Company's subsidiaries which are Delaware incorporated
corporations may pay dividends, under the Delaware General Corporation Law (the
"DGCL") only out of its surplus or, in the circumstances prescribed by the DGCL,
out of its net profits for the fiscal year in which the dividend is declared
and/or the preceding fiscal year. Each of the Company's subsidiaries which are
United Kingdom companies are, under applicable United Kingdom law, prohibited
from paying dividends unless such payments are made out of profits available for
distribution (which consist of accumulated, realized profits, so far as not
previously utilized by distribution or capitalization, less accumulated realized
losses, so far as not previously written off in a reduction or reorganization of
capital duly made). The Company's United Kingdom subsidiaries (excluding NTL and
its subsidiaries) do not currently have such profits and are not expected to
have any such profits for the foreseeable future. In addition, the United
Kingdom may impose a withholding tax on payments of interest and advance
corporation tax on distributions (dividends or otherwise) by United Kingdom
subsidiaries to the Company. In light of the Company's strategy of continued
growth, in part through
18
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
CONTINUED
acquisitions, the Company and its subsidiaries may incur substantial
indebtedness in the future. A substantial portion of such future indebtedness
and, in particular, indebtedness incurred by the Company's subsidiaries under
the Proposed Credit Facilities, is expected to be secured and, consequently,
will have priority to the extent of such security over unsecured indebtedness.
In addition, the NTL Facilities effectively restrict, and the lenders under the
Proposed Credit Facilities may impose restrictions on the rights of the Company
to receive from its subsidiaries repayment of or interest in respect of
intercompany loans or restrictions on the ability of the Company's subsidiaries
to pay dividends or make other distributions. Therefore, for the reasons
referred to in this paragraph and under "The NTL Acquisition" below, there can
be no assurance that the Company will be able to receive any cash flow from its
subsidiaries in a timely manner or at all.
In addition, the Company will encounter currency exchange rate risks which
could be material relative to funding United Kingdom operations and to revenues.
To the extent that the Company obtains financing in United States dollars and
incurs costs in the construction and operation of the Company's regional systems
in the United Kingdom in British pounds sterling, it will encounter currency
exchange rate risks. Furthermore, the Company's revenue are generated primarily
in British pounds sterling while its interest and principal obligations with
respect to most of the Company's existing indebtedness is, and will be, payable
in dollars. At September 30, 1996, the Company had invested approximately
$515,000,000 in pounds sterling money market instruments and cash accounts to
reduce this risk. While the Company may consider entering into transactions to
hedge the risk of exchange rate fluctuations, there can be no assurances that
the provisions governing the indebtedness of the Company and its subsidiaries
would permit such transactions, and, if such provisions do permit such
transactions, that they will successfully prevent shifts in the currency
exchange rates from having a material adverse effect on the Company.
THE NTL ACQUISITION
- -------------------
In May 1996, an indirect wholly-owned subsidiary of the Company (the
"Purchaser") acquired NTL, an English limited liability company, for payments of
approximately (Pounds)204 million (the "Initial Payment") at closing,
(Pounds)17.1 million in October 1996 and (Pounds)35 million (subject to
adjustments, the "Further Payment") on the first anniversary of closing. NTL
provides television and radio transmission services and a range of other
services in the broadcasting and telecommunications industries. To finance a
substantial portion of the purchase price for NTL, a syndicate of lenders made
available senior secured loan facilities (the "A Facilities") of a maximum
principal amount of (Pounds)165 million comprised of (i) the Term Loan Facility
of (Pounds)140 million and (ii) the Revolving Facility of (Pounds)25 million.
The Term Loan Facility was fully drawn to finance a portion of the Initial
Payment or refinance monies used to pay a portion of the Initial Payment
including related acquisition expenses.
The Revolving Facility is available until December 31, 1997 for capital
expenditure and working capital purposes of NTL's group. Up to (Pounds)2 million
of the Revolving Facility is available by way of standby letters of credit to
guarantee overdraft and other working capital facilities made available by any
clearing banks to the Purchaser. At the end of the availability period, any
amount outstanding under the Revolving Facility will be converted to term debt
and be aggregated with the Term Loan Facility.
19
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
CONTINUED
All amounts outstanding under the Term Loan Facility are scheduled to be
repaid in quarterly installments from 1998 to 2002 inclusive. The amount of the
installments will be based upon an agreed percentage of the loans and will
increase year to year. Final repayment of the Term Loan Facility is due on
December 31, 2002.
Loans under the A Facilities bear interest at an annual rate equal to LIBOR
plus a margin that varies from 75% per annum to 1.75% per annum, based on
certain financial ratios of the Purchaser and certain of its subsidiaries. As of
September 30, 1996, the effective rate was 7.6875%. Interest is payable either
monthly, quarterly or semiannually, at the option of the Purchaser.
The A Facilities are secured by guarantees from NTL and certain of its
subsidiaries and by first ranking fixed and floating charges over the present
and future assets (subject to certain exceptions) of the Purchaser, NTL and
certain of its subsidiaries.
One of the lenders also made available to the Purchaser a secured loan
facility of (Pounds)60 million ("the Bridge Facility") to finance most of the
remainder of the Initial Payment and acquisition costs and expenses due at
closing. The Bridge Facility was repaid in full in August 1996.
The NTL Facilities contain various covenants and conditions including, among
other things, a covenant prohibiting dividends and distributions by the
Purchaser to the Company unless certain cash flow targets are met and, if such
targets are met, requiring 50% of all Excess Cash Flow to be applied to repay
amounts outstanding under the A Facilities.
The Company anticipates that substantial amounts of capital will be required
in the future in order to, among other things, expand NTL's existing
telecommunications network in England to other regions in the United Kingdom.
The Company estimates that, based on the information currently available to it,
through December 31, 1997, NTL may require approximately (Pounds)50 to 75
million in capital beyond that which NTL is capable of generating from its
current operations for interest expense under the NTL Facilities, capital
expenditures (including substantial amounts of discretionary expenditure to
develop and expand NTL's business) and working capital. Up to (Pounds)25 million
is expected to be available under the Revolving Facility for capital expenditure
and working capital purposes of NTL, subject to satisfaction of a number of
significant conditions, including the receipt of subordinated debt or equity
from the Company. The Company believes that the remainder of such capital needs
will be funded by cash on hand of the Company. To the extent that such cash on
hand is insufficient to meet NTL's actual working capital and capital
expenditure requirements, either the planned development and expansion of NTL's
network could be curtailed or additional funding will be necessary. There is no
assurance that such additional funding will be available to the Company on
acceptable terms or at all.
The information in the preceding paragraphs includes projections, in
reviewing such information it should be kept in mind that actual results may
differ materially from those in such projections. These projections were based
on various factors and were derived utilizing numerous assumptions. Important
assumptions and factors that could cause actual results to differ materially
from those in these projections include 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. Other factors and assumptions not identified above were also involved
in the derivation of these projections, and the failure of such other
assumptions to be realized as well as other factors may also cause actual
results to differ materially from those projected. The Company assumes no
obligation to update these projections to reflect actual results, changes in
assumptions or changes in other factors affecting such projections.
20
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
CONTINUED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------------
Cash used in operating activities was $13,237,000 in 1996 and $656,000 in
1995. The increase is primarily due to changes in non-cash charges and changes
in operating assets and liabilities.
Purchases of fixed assets, net of proceeds from sales, were $315,767,000 in
1996 and $296,911,000 in 1995 as a result of increased cable television,
telephone and telecommunications fixed asset purchases in 1996.
Cash provided by financing activities was $1,080,998,000 in 1996 primarily
due to the proceeds from the NTL Facilities of $307,260,000, the 11-1/2% Notes
of $600,128,000 and the 7% Convertible Subordinated Notes of $275,000,000, net
of financing costs incurred of $41,303,000. Pricipal payments in 1996 consist of
the repayment of the (Pounds)60,000,000 ($92,178,000) NTL Bridge Facility and
the repayment of the subsidiary bank loan of (Pounds)1,016,000 ($1,561,000). In
1996, one of the Company's joint ventures borrowed (Pounds)30,000,000 from the
Company and (Pounds)20,000,000 from the minority interest holder in the joint
venture. The proceeds from borrowings from minority partner of $30,726,000 are
the result of the cash received from the minority interest holder for the loan.
21
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
CONTINUED
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended September 30, 1996, the Company filed a
report on Form 8-K dated September 3, 1996, reporting under Item 5,
Other Events, the acquisition of the remaining 30% minority interest
of English Cable Enterprises, Inc. that the Company did not own.
No financial statements were filed with this report.
22
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.
INTERNATIONAL CABLETEL INCORPORATED
Date: November 12, 1996 By:/s/ J. Barclay Knapp
-----------------------------
J. Barclay Knapp
President
Date: November 12, 1996 By:/s/ Gregg Gorelick
-----------------------------
Gregg Gorelick
Vice President-Controller
(Principal Accounting Officer)
23