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, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-22616
---------------------------------------------------------
NTL INCORPORATED
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1822078
- -------------------------------- ------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
110 E. 59/th/ Street, New York, New York 10022
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(Address of principal executive offices) (Zip Code)
(212) 906-8440
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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 June 30,
1997 was 32,103,902.
NTL Incorporated and Subsidiaries
Index
PART I. FINANCIAL INFORMATION Page
- ------------------------------ ----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets-
June 30, 1997 and December 31, 1996..........................2
Condensed Consolidated Statements of Operations-
Three and six months ended June 30, 1997 and 1996............3
Condensed Consolidated Statement of Shareholders'
Equity - Six months ended June 30, 1997......................4
Condensed Consolidated Statements of Cash Flows-
Six months ended June 30, 1997 and 1996......................5
Notes to Condensed Consolidated Financial Statements.........6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition..........................11
PART II. OTHER INFORMATION
- --------------------------
Item 4. Submission of Matters to a Vote of Security Holders.........19
Item 6. Exhibits and Reports on Form 8-K............................19
SIGNATURES...........................................................20
- ----------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NTL Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets
June 30, December 31,
1997 1996
--------------------------------------
Assets (unaudited) (see note)
Current assets:
Cash and cash equivalents $ 513,065,000 $ 445,884,000
Marketable securities 87,250,000 -
Accounts receivable--trade, less
allowance for doubtful accounts of
$4,915,000 (1997) and $3,870,000 (1996) 89,997,000 57,887,000
Other 29,371,000 37,270,000
--------------------------------------
Total current assets 719,683,000 541,041,000
Fixed assets, net 1,590,649,000 1,459,528,000
Intangible assets, net 375,599,000 392,933,000
Other assets, net of accumulated amortization
of $26,280,000 (1997) and $21,789,000 (1996) 74,883,000 61,109,000
--------------------------------------
Total assets $2,760,814,000 $2,454,611,000
======================================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 47,242,000 $ 57,960,000
Accrued expenses and other 139,114,000 101,228,000
Accrued construction costs 38,434,000 62,723,000
Deferred revenue 30,622,000 16,491,000
Deferred purchase price 583,000 60,537,000
Current portion of long-term debt 6,159,000 -
--------------------------------------
Total current liabilities 262,154,000 298,939,000
Long-term debt 2,192,219,000 1,732,168,000
Other 439,000 459,000
Commitments and contingent liabilities
Deferred income taxes 87,525,000 94,931,000
Senior redeemable exchangeable preferred
stock, $.01 par value, plus accreted dividends;
liquidation preference - $1,000 per share;
issued and outstanding 103,000 shares
(1997) and none (1996) 105,039,000 -
Shareholders' equity:
Series preferred stock--$.01 par value;
authorized 2,500,000 shares;
issued and outstanding 780 shares
(1997 and 1996) - -
Common stock--$.01 par value; authorized
100,000,000 shares; issued and outstanding
32,104,000 (1997) and 32,066,000
(1996) shares 321,000 321,000
Additional paid-in capital 544,164,000 548,647,000
Cumulative translation adjustment 126,383,000 163,141,000
(Deficit) (557,430,000) (383,995,000)
--------------------------------------
113,438,000 328,114,000
--------------------------------------
Total liabilities and shareholders' equity $2,760,814,000 $2,454,611,000
======================================
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date.
See accompanying notes.
2
NTL Incorporated and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
----------------------------- ------------------------------
1997 1996 1997 1996
----------------------------- ------------------------------
Revenues
Local telecommunications and
television $ 41,969,000 $ 18,881,000 $ 77,426,000 $ 34,628,000
National and international
telecommunications 38,335,000 9,508,000 75,343,000 9,574,000
Broadcast transmission and
other 32,174,000 16,816,000 64,287,000 16,816,000
Other telecommunications 2,344,000 2,578,000 4,583,000 5,199,000
----------------------------- ------------------------------
114,822,000 47,783,000 221,639,000 66,217,000
Costs and expenses
Operating expenses 70,495,000 29,236,000 141,251,000 41,865,000
Selling, general and
administrative expenses 43,893,000 26,898,000 82,210,000 46,568,000
Franchise fees 5,888,000 1,833,000 11,760,000 1,833,000
Corporate expenses 4,944,000 3,156,000 9,042,000 5,284,000
Write-off of deferred costs 4,555,000 - 4,555,000 -
Depreciation and amortization 36,819,000 20,411,000 69,824,000 32,601,000
----------------------------- -------------------------------
166,594,000 81,534,000 318,642,000 128,151,000
----------------------------- -------------------------------
Operating (loss) (51,772,000) (33,751,000) (97,003,000) (61,934,000)
Other income (expense)
Interest and other income 10,812,000 9,756,000 18,213,000 17,519,000
Interest expense (51,508,000) (36,695,000) (99,117,000) (61,406,000)
Foreign currency transaction
gains (losses) 125,000 294,000 (197,000) 171,000
----------------------------- -------------------------------
(Loss) before income taxes
and minority interests (92,343,000) (60,396,000) (178,104,000) (105,650,000)
Income tax (provision) benefit 4,669,000 (3,439,000) 4,669,000 (3,481,000)
----------------------------- -------------------------------
(Loss) before minority
interests (87,674,000) (63,835,000) (173,435,000) (109,131,000)
Minority interests - 4,677,000 - 7,249,000
----------------------------- -------------------------------
Net (loss) $(87,674,000) $(59,158,000) $(173,435,000) $(101,882,000)
============================= ==============================
Net (loss) per common share $(2.84) $(1.95) $(5.56) $(3.36)
============================= ==============================
Weighted average number of
common shares used in
computation of net (loss)
per share 32,097,000 30,369,000 32,091,000 30,290,000
============================= ==============================
See accompanying notes.
3
NTL Incorporated and Subsidiaries
Condensed Consolidated Statement of Shareholders' Equity
(Unaudited)
Series Common Stock--
Preferred Stock $.01 Par Value Additional Cumulative
------------------------------------------ Paid-In Translation
Shares Par Shares Par Capital Adjustment (Deficit)
----------------------------------------------------------------------------------------
Balance, December 31, 1996 780 $ - 32,066,000 $321,000 $548,647,000 $163,141,000 $(383,995,000)
Exercise of stock options 36,000 545,000
Exercise of warrants 2,000 11,000
Accreted dividends on senior
redeemable exchangeable
preferred stock (5,039,000)
Net loss for the six months
ended June 30, 1997 (173,435,000)
Currency translation
adjustment (36,758,000)
----------------------------------------------------------------------------------------
Balance, June 30, 1997 780 $ - 32,104,000 $321,000 $544,164,000 $126,383,000 $(557,430,000)
========================================================================================
See accompanying notes.
4
NTL Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30
--------------------------------
1997 1996
--------------------------------
Net cash (used in) operating activities $ (34,968,000) $ (8,908,000)
Investing activities
Purchase of fixed assets (239,760,000) (200,013,000)
Acquisition of subsidiary, net of cash acquired - (298,173,000)
Payment of deferred purchase price (57,166,000) -
Increase in other assets (3,261,000) (2,410,000)
Purchase of marketable securities (130,313,000) -
Proceeds from sales of marketable securities 43,512,000 -
--------------------------------
Net cash (used in) investing activities (386,988,000) (500,596,000)
Financing activities
Principal payments - (1,552,000)
Proceeds from borrowings and preferred stock, net of
financing costs 497,542,000 1,140,765,000
Restricted cash - (95,469,000)
Cash released from escrow - 1,592,000
Proceeds from borrowings from minority partner - 30,550,000
Proceeds from exercise of stock options and warrants 556,000 1,332,000
--------------------------------
Net cash provided by financing activities 498,098,000 1,077,218,000
Effect of exchange rate changes on cash (8,961,000) (7,663,000)
--------------------------------
Increase in cash and cash equivalents 67,181,000 560,051,000
Cash and cash equivalents at beginning of period 445,884,000 175,283,000
--------------------------------
Cash and cash equivalents at end of period $ 513,065,000 $ 735,334,000
================================
Supplemental disclosure of cash flow information
Cash paid during the period for interest exclusive of
amounts capitalized $ 24,162,000 $ 9,623,000
Income taxes paid - 364,000
Supplemental schedule of noncash financing activities
Shares of senior redeemable exchangeable preferred
stock issued for accrued dividends $ 3,358,000 $ -
Warrants issued in connection with consent
solicitations - 1,641,000
Liabilities incurred in connection with acquisitions - 80,117,000
See accompanying notes.
5
NTL 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 six months ended June 30,
1997 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1997. 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, 1996.
Net loss per share is computed based on the weighted average number of common
shares outstanding during the periods after giving effect to the accreted
dividends on the Senior Redeemable Exchangeable Preferred Stock. Common stock
equivalents are excluded because they are antidilutive.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". SFAS No.
128 establishes new standards for computing and presenting earnings per share
and is effective for financial statements issued for periods ending after
December 15, 1997. The Company will adopt SFAS No. 128 effective with its 1997
year end. The adoption of SFAS No. 128 would not have changed the net loss per
share for the three and six months ended June 30, 1997 and 1996.
Note B - Fixed Assets
Fixed assets consists of:
June 30, December 31,
1997 1996
---------------------------------
(unaudited)
Operating equipment $1,324,046,000 $1,080,135,000
Other equipment 211,714,000 197,368,000
Construction-in-progress 232,189,000 305,372,000
---------------------------------
1,767,949,000 1,582,875,000
Accumulated depreciation 177,300,000 123,347,000
---------------------------------
$1,590,649,000 $1,459,528,000
=================================
6
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
Note C - Intangible Assets
Intangible assets consists of:
June 30, December 31,
1997 1996
-----------------------------
(unaudited)
License acquisition costs, net of
accumulated amortization of
$41,069,000 (1997) and $34,894,000
(1996) $128,667,000 $134,909,000
Goodwill, net of accumulated
amortization of $9,790,000
(1997) and $5,986,000 (1996) 246,932,000 258,024,000
-----------------------------
$375,599,000 $392,933,000
=============================
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 cable television
("CATV"), telephone and telecommunications franchises in South Wales. The
Series A Preferred Stock was valued at $49,000,000, based on an appraisal as of
the date of issuance. The fair value of the net tangible assets acquired of
$67,710,000 exceeded the aggregate purchase price by $18,648,000, which is
classified as a reduction to license acquisition costs.
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, through its
subsidiaries, owns four CATV, telephone and telecommunications licenses in the
northern suburbs of London. The value of the shares, based on the market price
on the date of issuance, of $34,137,000 plus costs incurred of $204,000 exceeded
the fair value of the net tangible assets acquired by $28,649,000, which is
classified as license acquisition costs.
In May 1996, an indirect wholly-owned subsidiary of the Company, NTL Investment
Holdings Limited ("NTLIH") acquired NTL Group Limited for payments of
approximately (Pounds)204,000,000 at closing, (Pounds)17,100,000 in October 1996
and (Pounds)35,000,000 in May 1997. NTL Group Limited provides television and
radio transmission services and a range of other services in the broadcasting
and telecommunications industries. This acquisition has been accounted for as a
purchase, and, accordingly, the net assets and results of operations of NTL
Group Limited have been included in the consolidated financial statements from
the date of acquisition. The aggregate purchase price of (Pounds)256,100,000
($439,000,000) plus costs incurred of $3,700,000 exceeded the fair value of the
net tangible assets acquired by $263,000,000, which is classified as goodwill.
The pro forma unaudited consolidated results of operations for the six months
ended June 30, 1996 assuming consummation of the above mentioned transactions as
of January 1, 1996 are as follows:
Total revenue $ 128,737,000
Net loss (107,732,000)
Net loss per common share (3.40)
7
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
Note D - Long-Term Debt and Redeemable Exchangeable Preferred Stock
Long-term debt consists of:
June 30, December 31,
1997 1996
---------------------------------
(unaudited)
10-7/8% Senior Deferred Coupon Notes $ 184,904,000 $ 175,368,000
12-3/4% Series A Senior Deferred Coupon Notes 196,839,000 185,043,000
11-1/2% Series B Senior Deferred Coupon Notes 703,509,000 665,257,000
10% Series B Senior Notes 400,000,000 -
7-1/4% Convertible Subordinated Notes 191,750,000 191,750,000
7% Convertible Subordinated Notes 275,000,000 275,000,000
Term Loan and Revolving Facility 246,376,000 239,750,000
---------------------------------
2,198,378,000 1,732,168,000
Less current portion 6,159,000 -
---------------------------------
$2,192,219,000 $1,732,168,000
=================================
In February 1997, the Company issued $400,000,000 aggregate principal amount of
10% Senior Notes due 2007 (the "10% Notes") and $100,000,000 of 13% Senior
Redeemable Exchangeable Preferred Stock (the "Redeemable Preferred Stock").
The Company received net proceeds of $389,000,000 and $96,625,000, after
discounts and commissions, from the issuance of the 10% Notes and the Redeemable
Preferred Stock, respectively. The aggregate of the discounts and commissions
and other fees incurred of $15,479,000 are included in deferred financing costs.
In June 1997, all of the 10% Notes were exchanged for 10% Series B Senior Notes
due 2007 and all but 5 shares of the Redeemable Preferred Stock were exchanged
for 13% Series B Senior Redeemable Exchangeable Preferred Stock. The new notes
and new preferred stock have terms substantially identical to those of the old
notes and old preferred stock.
The 10% Notes accrue interest at 10% per annum, payable semiannually beginning
on August 15, 1997. The 10% Notes are effectively subordinated to all existing
and future indebtedness and other liabilities and commitments of the Company's
subsidiaries. The 10% Notes may be redeemed at the Company's option, in whole or
in part, at any time on or after February 15, 2002 at a redemption price of 105%
that declines annually to 100% in 2005, in each case together with accrued and
unpaid interest to the date of redemption. The indenture governing the 10% Notes
contains restrictions relating to, among other things: (i) incurrence of
additional indebtedness and the issuance of preferred stock, (ii) dividend and
other payment restrictions and (iii) mergers, consolidations and sales of
assets.
Of the 2,500,000 authorized shares of Series Preferred Stock, 100,000 shares of
Redeemable Preferred Stock were issued. Dividends accrue at 13% per annum
($130 per share) and are payable quarterly in arrears commencing on May 15,
1997. Dividends, whether or not earned or declared, will accrue without
interest until declared and paid, which declaration may be for all or part of
the accrued dividends. Dividends accruing on or prior to February 15, 2004 may,
at the option of the Company, be paid in cash, by the issuance of additional
Redeemable Preferred Stock or in any combination of the foregoing. As of June
30, 1997, the Company has issued approximately 3,000 shares for $3,358,000 of
accrued dividends. The Redeemable Preferred Stock may be redeemed, at the
Company's option, in whole or in part, at any time on or after February 15, 2002
at a redemption price of 106.5% of the liquidation preference of $1,000 per
share that declines annually to 100% in 2005, in each case together with accrued
and unpaid dividends to the redemption date. The Redeemable Preferred Stock is
subject to mandatory redemption on February 15, 2009. On any scheduled dividend
payment date, the Company may, at its option, exchange all of the shares of
Redeemable Preferred Stock then outstanding for the Company's 13% Subordinated
Exchange Debentures due 2009 (the "Subordinated Debentures").
8
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
Note D - Long-Term Debt and Redeemable Exchangeable Preferred Stock (continued)
The Subordinated Debentures, if issued, will bear interest at a rate of 13% per
annum, payable semiannually in arrears on February 15 and August 15 of each year
commencing with the first such date to occur after the date of exchange.
Interest accruing on or prior to February 15, 2004 may, at the option of the
Company, be paid in cash, by the issuance of additional Subordinated Debentures
or in any combination of the foregoing. The Subordinated Debentures will be
redeemable, at the Company's option, in whole or in part, on or after February
15, 2002 at a redemption price of 106.5% that declines annually to 100% in 2005,
in each case together with accrued and unpaid interest to the redemption date.
Note E - Commitments and Contingent Liabilities
As of June 30, 1997, the Company was committed to pay approximately $72,000,000
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 2016 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 ($4,200) per license. The ITC requires an annual
license fee ranging from (Pounds)1,300 ($2,200) to (Pounds)7,900 ($13,200) 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 paid in the
six months ended June 30, 1997 were $78,000.
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 ($23,972,000)
(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. The Company
paid $11,760,000 in the six months ended June 30, 1997.
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
($173,000). 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.
A significant portion of NTL Group Limited'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 Group Limited holds four licenses under the
Telecommunications Act. The initial terms of these licenses were 10 or 25 years.
These licenses
9
NTL Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
Note E - Commitments and Contingent Liabilities (continued)
expire in 2002 to 2016. NTL Group Limited 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)1,541,000 ($2,565,000), of which
(Pounds)454,000 ($742,000) has been paid in the six months ended June 30, 1997.
The Company is involved in, or has been involved in, certain disputes and
litigation arising in the ordinary course of its business. In September 1996, a
customer of NTL Group Limited issued a writ in the United Kingdom High Court of
Justice claiming unliquidated damages for breach of contract and
misrepresentation. The Company considers the claim to be unmerited, and is
defending the action. In addition, the Company is involved in other contractual
disputes and disputes involving claims for damages to property and personal
injury resulting from construction of the Company's networks and the maintenance
and servicing of the Company's transmission masts. None of these matters are
expected to have a material adverse effect on the Company's financial position,
results of operations or cash flows.
The Company has filed a complaint in the U.S. District Court for the Southern
District of New York against Le Groupe Videotron Ltee ("GVL") and its wholly-
owned subsidiary seeking damages of not less than $84,000,000 arising out of the
Company's claim that GVL was unjustly enriched by actions it took in its
dealings with the Company in connection with GVL's recent sale of its ownership
interest in Videotron Holdings plc. GVL has moved to dismiss the complaint,
which motion is pending before the court.
10
NTL Incorporated and Subsidiaries
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.
The following table illustrates the number of homes passed, the number of homes
marketed and the total number of customers for the Company's newly constructed
dual network:
===============================================================
NEWLY CONSTRUCTED DUAL NETWORK
===============================================================
June 30, December 31, June 30,
1997 1996 1996
- ---------------------------------------------------------------
Homes passed (1) 907,000 779,100 611,300
- ---------------------------------------------------------------
Homes marketed 669,700 467,300 311,500
- ---------------------------------------------------------------
Total customers 242,700 168,200 107,100
- ---------------------------------------------------------------
Dual 209,000 133,800 80,100
- ---------------------------------------------------------------
Telephone-only 14,900 15,950 13,300
- ---------------------------------------------------------------
CATV-only 18,800 18,450 13,700
- ---------------------------------------------------------------
Total RGUs (2) 451,700 302,000 187,200
- ---------------------------------------------------------------
RGU penetration (3) 67.4% 64.6% 60.1%
- ---------------------------------------------------------------
Telephone penetration 33.4% 32.0% 30.0%
- ---------------------------------------------------------------
CATV penetration 34.0% 32.6% 30.1%
===============================================================
(1) "Homes passed" is the expression in common usage in the cable industry as
the measurement of the size of a cabled area, meaning the total number of
residential premises which have the potential to be connected to the
Company's network. This number does not include CATV-only homes which are
only included in the Company's homes passed for the purpose of its
regulatory milestones.
(2) An RGU (revenue generating unit) is one CATV account or one telephone
account; a dual customer generates two RGUs.
(3) RGU penetration is the number of RGU's per 100 homes marketed.
11
NTL Incorporated and Subsidiaries
RESULTS OF OPERATIONS
As a result of the acquisition of NTL Group Limited in May 1996, the Company
consolidated the results of operations of NTL Group Limited from the date of
acquisition.
Three Months Ended June 30, 1997 and 1996
- -----------------------------------------
Local telecommunications and television revenues increased to $41,969,000 from
$18,881,000 as a result of customer growth that increased the Company's current
revenue stream.
National and international telecommunications revenues increased to $38,335,000
from $9,508,000 as a result of new site acquisition, installation, design and
construction projects in 1997 as well as additional site sharing revenue in
1997.
Broadcast transmission and other revenues increased to $32,174,000 from
$16,816,000 because the results of operations of NTL Group Limited were
consolidated for the entire period in 1997 and only for approximately two of the
three months in the 1996 period, plus the revenues from NTL Group Limited's ten-
year contract to broadcast Channel 5 in the United Kingdom commenced in 1997.
Operating expenses increased to $70,495,000 from $29,236,000 because of costs
associated with the commencement of the Channel 5 broadcasting contract and
costs associated with the new national and international telecommunications
projects as well as increases in programming costs, interconnection costs and
costs of operating the telecommunications and CATV network.
Selling, general and administrative expenses increased to $43,893,000 from
$26,898,000 as the result of increases in telecommunications and CATV sales and
marketing costs and in additional personnel and overhead to service the
increasing customer base.
Franchise fees of $5,888,000 and $1,833,000 in 1997 and 1996, respectively, are
for the Northern Ireland license. Operations in Northern Ireland commenced in
June 1996.
Corporate expenses increased to $4,944,000 from $3,156,000 due to an increase in
personnel and related costs. The 1997 and 1996 amounts include $463,000 and
$814,000, respectively, of non-cash expense related to non-compete agreements.
Write-off of deferred costs of $4,555,000 in 1997 relate to the Company's
unsuccessful bid for Digital Terrestrial Television multiplex licenses.
Depreciation and amortization expense increased to $36,819,000 from $20,411,000.
Depreciation and amortization expense of NTL Group Limited and amortization of
goodwill as a result of the acquisition was $9,654,000 and $3,703,000 in the
three months ended June 30, 1997 and 1996, respectively. The remainder of the
increase was primarily due to an increase in depreciation of telecommunications
and CATV equipment.
Interest expense increased to $51,508,000 from $36,695,000 due to the issuance
of the 10% Senior Notes in February 1997, interest on the bank loan in
connection with the NTL Group Limited acquisition in May 1996 and the issuance
of the 7% Convertible Subordinated Notes in June 1996. Interest of $22,078,000
and $9,316,000 was paid in the three months ended June 30, 1997 and 1996,
respectively.
Foreign currency transaction gains of $125,000 in 1997 and $294,000 in 1996 are
the result of changes in the exchange rate.
12
NTL Incorporated and Subsidiaries
Six Months Ended June 30, 1997 and 1996
- ---------------------------------------
Local telecommunications and television revenues increased to $77,426,000 from
$34,628,000 as a result of customer growth that increased the Company's current
revenue stream.
National and international telecommunications revenues increased to $75,343,000
from $9,574,000 as a result of the acquisition of NTL Group Limited.
Broadcast transmission and other revenues increased to $64,287,000 from
$16,816,000 as a result of the acquisition of NTL Group Limited.
Operating expenses increased to $141,251,000 from $41,865,000. NTL Group Limited
operating expenses in the six months ended June 30, 1997 and 1996 were
$91,429,000 and $14,004,000, respectively. The remainder of the increase was
the result of increases in programming costs, interconnection costs and costs of
operating the telecommunications and CATV network.
Selling, general and administrative expenses increased to $82,210,000 from
$46,568,000. NTL Group Limited selling, general and administrative expenses in
the six months ended June 30, 1997 and 1996 were $10,701,000 and $2,522,000,
respectively. The remainder of the increase was the result of increases in
telecommunications and CATV sales and marketing costs and in additional
personnel and overhead to service the increasing customer base.
Franchise fees of $11,760,000 and $1,833,000 in 1997 and 1996, respectively, are
for the Northern Ireland license. Operations in Northern Ireland commenced in
June 1996.
Corporate expenses increased to $9,042,000 from $5,284,000 due to an increase in
personnel and related costs. The 1997 and 1996 amounts include $926,000 and
$1,628,000, respectively, of non-cash expense related to non-compete agreements.
Write-off of deferred costs of $4,555,000 in 1997 relate to the Company's
unsuccessful bid for Digital Terrestrial Television multiplex licenses.
Depreciation and amortization expense increased to $69,824,000 from $32,601,000.
Depreciation and amortization expense of NTL Group Limited and amortization of
goodwill as a result of the acquisition was $18,312,000 and $3,703,000 in the
six months ended June 30, 1997 and 1996, respectively. The remainder of the
increase was primarily due to an increase in depreciation of telecommunications
and CATV equipment.
Interest expense increased to $99,117,000 from $61,406,000 due to the issuance
of the 10% Senior Notes in February 1997, interest on the bank loan in
connection with the NTL Group Limited acquisition in May 1996 and the issuance
of the 7% Convertible Subordinated Notes in June 1996. Interest of $26,954,000
and $9,623,000 was paid in the six months ended June 30, 1997 and 1996,
respectively.
Foreign currency transaction losses of $197,000 in 1997 and gains of $171,000 in
1996 are the result of changes in the exchange rate.
13
NTL INCORPORATED AND SUBSIDIARIES
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 CATV
customers to the network, for working capital and for debt service. Based on the
information currently available to the Company, the Company currently estimates
that, from July 1, 1997 through June 30, 1998, these requirements will aggregate
(Pounds)407.5 million (approximately $678 million). The Company intends to fund
its requirements from cash, cash equivalents and marketable securities on hand
of $600 million as of June 30, 1997 and with borrowings from the Potential
Credit Facilities (as defined below). The Company's commitments for equipment
and services at June 30, 1997 of approximately $72 million are included in the
anticipated requirements.
Certain subsidiaries of the Company have entered into an agreement with The
Chase Manhattan Bank pursuant to which Chase has agreed to fully underwrite an
(Pounds)875 million, eight-year term loan facility with an initial four-year
revolving period (the "Potential Credit Facilities"). The facility will be used
to finance capital expenditures and working capital for the Company's United
Kingdom operations, including its local broadband, national telecommunications
and national digital television networks. The facility is fully underwritten by
Chase, is subject to usual and customary closing conditions, and will be
syndicated in the Euro-syndicated loan market over the next several weeks. A
portion of the facility ((Pounds)75 million) is conditional upon the execution
of contracts to provide digital television transmission services to certain
third parties. Up to (Pounds)165 million of the facility will be used to replace
Company funds which will be used to repay the NTLIH Term Loan and Revolving
Facility (as described below). As of June 30, 1997, the principal and accrued
interest outstanding under the NTLIH Facility was (Pounds)148.1 million ($246.6
million).
14
The Company is highly leveraged. At June 30, 1997, the Company's total long-
term indebtedness (including the Redeemable Preferred Stock) was approximately
$2.3 billion, representing approximately 95% of total capitalization. The
following table summarizes the terms of those notes and preferred stock issued
by the Company.
7% 7- 1/4% 11- 1/2% 12- 3/4% 10-7/8%
CONVERTIBLE CONVERTIBLE SERIES B SENIOR SERIES A SENIOR SENIOR DEFERRED
SUBORDINATED SUBORDINATED DEFERRED COUPON DEFERRED COUPON COUPON
NOTES NOTES NOTES NOTES NOTES
------------------------------------------------------------------------------------------
Net Proceeds ($)
(in 000's) 267,437 186,065 582,000 145,125 119,797
Issue Date June 12, 1996 April 20, 1995 January 30, 1996 April 20, 1995 October 7, 1993
Issue Price /(1)/ 100% 100% 57.155% 53.995% 58.873%
Aggregate Principal
Amount at Maturity ($)
(in 000's) 275,000 191,750 1,050,000 277,803 212,000
Maturity Date June 15, 2008 April 15, 2005 February 1, 2006 April 15, 2005 October 15, 2003
Yield or Interest Rate /(2)/ 7% 7- 1/4 % 11- 1/2% 12- 3/4% 10-7/8%
Interest or Dividend
Payment Dates June 15 and April 15 and February 1 and April 15 and April 15 and
December 15 October 15 August 1 October 15 October 15
from 12-15-96 from 10-15-95 from 8-1-01 from 10-15-00 from 4-15-99
Earliest Optional
Redemption Date /(4)/ June 15, 1999 April 15, 1998 February 1, 2001 April 15, 2000 October 15, 1998
Redemption Price (%) /(5)/ 104.9 (1999) 105.08 (1998) 105.75 (2001) 103.64 (2000) 103.107 (1998)
to 100 to 100.73 to 100 to 100 to 100
(2006) (2004) (2003) (2002) (2000)
Conversion Price ($)/ (6)/ 37.875 27.56 N/A N/A N/A
Senior/Subordinated Subordinated Subordinated Senior Senior Senior
10% REDEEMABLE
SERIES B PREFERRED
SENIOR NOTES STOCK
---------------------------------
Net Proceeds ($)
(in 000's) 389,000 96,625
Issue Date February 7, 1997 February 7, 1997
Issue Price /(1)/ 100% 100%
Aggregate Principal
Amount at Maturity ($)
(in 000's) 400,000 100,000
Maturity Date February 15, 2007 February 15, 2009
Yield or Interest Rate /(2)/ 10% 13%
Interest or Dividend Payment
Dates February 15 and May 15, August 15,
August 15 November 15 and
from 8-15-97 February 15
from 5-15-97 /3/
Earliest Optional
Redemption Date /(4)/ February 15, 2002 February 15, 2002
Redemption Price (%) /(5)/ 105 (2002) 106.5 (2002)
to 100 to 100
(2005) (2005)
Conversion Price ($)/ (6)/ N/A N/A
Senior/Subordinated Senior N/A
--------------------------------
1. Percent of aggregate principal amount at maturity.
2. Percent per annum.
3. Dividend payments on the Redeemable Preferred Stock are payable in cash or
additional shares of Redeemable Preferred Stock, at the Company's option.
From 5-15-04 dividend payments are payable in cash.
4. This is the first date when redeemable at the Company's option.
5. Expressed as a percentage of principal amount plus, in each case, accrued and
unpaid interest or dividends thereon to the applicable redemption date.
6. This is the conversion price per share of the Company's common stock,
adjusted for the four-for-three stock split in August 1995 and subject to
further adjustments in certain events.
15
NTL INCORPORATED AND SUBSIDIARIES
In May 1996, NTL Investment Holdings Limited ("NTLIH"), a wholly-owned
subsidiary of the Company, acquired all the issued shares of NTL Group Limited.
To finance a substantial portion of the purchase price for NTL Group Limited,
NTLIH obtained from a syndicate of lenders senior secured loan facilities (the
"NTLIH Facility") 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 in May
1996. As of June 30, 1997, NTLIH has borrowed (Pounds)8 million under the
Revolving Facility.
All amounts outstanding under the NTLIH 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 NTLIH Facility is due on December
31, 2002.
Loans under the NTLIH Facility 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 NTLIH and certain of its subsidiaries. As of June
30, 1997 and December 31, 1996, the effective rate was 8.212% and 7.972%,
respectively. Interest is payable either monthly, quarterly or semiannually, at
the option of NTLIH.
The NTLIH Facility is secured by guarantees from NTL Group Limited and certain
of its subsidiaries and by first ranking fixed and floating charges over the
present and future assets (subject to certain exceptions) of NTLIH, NTL Group
Limited and certain of its subsidiaries.
Based on the information currently available to the Company, the Company
currently estimates that, from July 1, 1998 through December 31, 2002 (the date
by which the Company currently estimates that its network will have passed the
total of 2,090,000 homes required by its regulatory build schedules), the
aggregate cost of network construction (including the license payments in
respect of the Northern Ireland LDL and the Glamorgan and Gwent LDL) will be
approximately (Pounds)798 million (approximately $1.3 billion).
Pursuant to the terms of the Northern Ireland LDL, CableTel Northern Ireland
Limited (a wholly-owned subsidiary of the Company) is required to make annual
cash payments to the ITC for fifteen years in the amount of approximately
(Pounds)14.4 million (subject to adjustments for inflation). CableTel Northern
Ireland Limited began making payments of (Pounds)1.2 million per month in
January 1997. 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 (a wholly-owned subsidiary of 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 (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.
Scheduled cash interest payments on and principal repayments of indebtedness of
the Company and its subsidiaries from July 1, 1998 through December 31, 2002
will be approximately $744 million and $240 million, respectively (assuming no
conversion of convertible debt or refinancing of existing indebtedness and no
exchange of the Redeemable Preferred Stock).
16
NTL INCORPORATED AND SUBSIDIARIES
As described above, the Company has significant capital requirements for the
completion of its telephone, telecommunications and CATV network passed the
total of 2,090,000 homes required by its regulatory build schedules, for its LDL
payments and for scheduled cash interest and principal payments, as well as
requirements for other capital expenditures. The Company expects to fund these
requirements with funds from the Potential Credit Facilities and cash from
operations. The inability of the Company to obtain the Potential Credit
Facilities or secure other financing could result in the failure to comply with
the minimum build milestones set forth in its licenses leading to the revocation
of those licenses. There can be no assurance that (i) the Potential Credit
Facilities will be obtained (ii) any other financings will be consummated or
available on acceptable terms, (iii) actual construction costs will not exceed
the amount estimated above or that additional funding substantially in excess of
the amounts estimated above will not be required, (iv) conditions precedent to
advances under the Potential Credit Facilities or any other credit facility will
be satisfied when funds are required, (v) the Company and its subsidiaries will
be able to generate sufficient cash from operations to meet capital
requirements, debt service and other obligations as they fall due when required,
(vi) the Company will be able to access such cash flow or (vii) the Company's
subsidiaries will not incur losses from their exposure to exchange rate
fluctuations or be adversely affected by interest rate fluctuations.
The Company's operations are conducted through its direct and indirect wholly-
owned subsidiaries. As a holding company, the Company holds no significant
assets other than its investments in and advances to its subsidiaries. The
Company is therefore dependent upon the receipt of sufficient funds from its
subsidiaries to meet its own obligations. Accordingly, the Company's ability to
make scheduled interest and principal payments when due to holders of
indebtedness of the Company and the Company's ability to pay cash dividends to
its stockholders is dependent upon the receipt of sufficient funds from its
subsidiaries.
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 are payable in dollars.
At June 30, 1997, the Company had invested approximately $383 million in pounds
sterling money market instruments and cash accounts to reduce this risk. The
Company may consider entering into transactions to hedge the risk of exchange
rate fluctuations.
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. The failure
of such assumptions to be realized as well as other factors may also cause
actual results to differ materially from those projected. The Company assumes
no obligations to update these projections to reflect actual results, changes in
assumptions or changes in other factors affecting such projections.
17
NTL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash used in operating activities was $34,968,000 and $8,908,000 in the six
months ended June 30, 1997 and 1996, respectively. The increase in cash used in
operating activities is primarily due to the significant increase in net loss,
which was offset by non-cash charges and changes in operating assets and
liabilities.
Purchases of fixed assets were $239,760,000 in 1997 and $200,013,000 in 1996 as
a result of increased fixed asset purchases and construction in 1997. In May
1997, the Company paid (Pounds)35,000,000 ($57,166,000) to the former
shareholders of NTL Group Limited in respect of the final payment of deferred
purchase price.
Cash provided by financing activities was $498,098,000 in 1997 primarily due to
the proceeds from the 10% Senior Notes and the 13% Redeemable Exchangeable
Preferred Stock of $500,000,000, net of financing costs incurred of $15,524,000,
plus proceeds from borrowings under NTLIH's Revolving Facility of
(Pounds)8,000,000 ($13,066,000).
18
NTL INCORPORATED AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 3, 1997, the Company held its annual meeting of stockholders.
The following management proposals were adopted: (i) the reelection of
Alan J. Patricof and Warren Potash to the Board of Directors, (ii) the
ratification of the selection of Ernst & Young LLP as the Company's
independent auditors for 1997 and (iii) an amendment to the Company's
Employee Stock Option Plan.
The stockholders approved the election of Alan J. Patricof by a vote of
27,232,771 shares in favor and 150,437 shares withheld from voting. The
stockholders approved the election of Warren Potash by a vote of
27,229,750 shares in favor and 153,058 shares withheld from voting. The
stockholders approved the second proposal by a vote of 27,366,106
shares in favor, 12,932 shares against and 4,170 shares abstaining from
voting. The stockholders approved the third proposal by a vote of
23,406,673 shares in favor, 3,924,257 shares against and 52,278 shares
abstaining from voting.
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 June 30, 1997, the Company filed the
following current reports on Form 8-K:
(i) Report dated May 8, 1997 reporting under Item 5, Other
Events, that a wholly-owned subsidiary of the Company has
entered into an agreement with United News and Media plc
relating to Digital Television Network Limited ("DTN"), an
indirect wholly-owned subsidiary of the Company which
submitted applications to the Independent Television
Commission ("ITC") for licenses to operate one or more
digital terrestrial multiplexes under the Broadcasting Act
1996.
(ii) Report dated June 24, 1997 reporting under Item 5, Other
Events, that the ITC has announced that DTN was not awarded
a license for digital terrestrial television, but that the
licenses for each of the three multiplexes were awarded to
British Digital Broadcasting.
No financial statements were filed with either of these
reports.
19
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 INCORPORATED
Date: August 13, 1997 By: /s/ J. Barclay Knapp
----------------------------------
J. Barclay Knapp
President, Chief Executive Officer
and Chief Financial Officer
Date: August 13, 1997 By: /s/ Gregg Gorelick
----------------------------------
Gregg Gorelick
Vice President-Controller
(Principal Accounting Officer)
20