<PAGE>
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 June 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-22616
-------------------------------------------
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
- --------------------------------------------------------------------------------
(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, 1996 was 30,591,800.
<PAGE>
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
- ------------------------------- ----
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets--
June 30, 1996 and December 31, 1995 2
Condensed Consolidated Statements of Operations--
Three and six months ended June 30, 1996 and 1995 4
Condensed Consolidated Statement of Shareholders' Equity--
Six months ended June 30, 1996 5
Condensed Consolidated Statements of Cash Flows--
Six months ended June 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 4. Submission of Matters to a Vote of Security Holders 24
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
- ----------
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------------- ---------------
(Unaudited) (See Note)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 735,334,000 $ 175,283,000
Restricted cash 96,906,000 -
Accounts receivable-trade,
less allowance for doubtful
accounts of $2,590,000 (1996)
and $767,000 (1995) 49,763,000 7,340,000
Other 35,749,000 22,514,000
--------------- ---------------
TOTAL CURRENT ASSETS 917,752,000 205,137,000
CASH HELD IN ESCROW - 1,598,000
FIXED ASSETS, net 952,541,000 639,674,000
INTANGIBLE ASSETS, net 397,981,000 137,578,000
OTHER ASSETS, net of accumulated
amortization of $14,772,000 (1996)
and $9,537,000 (1995) 64,439,000 26,682,000
--------------- ---------------
$2,332,713,000 $1,010,669,000
=============== ===============
</TABLE>
2
<PAGE>
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS -- CONTINUED
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------------- ---------------
(Unaudited) (See Note)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 42,215,000 $ 50,848,000
Accrued expenses and other 100,444,000 37,102,000
Accrued construction costs 28,767,000 14,543,000
Deferred purchase price 81,324,000 -
Current portion of long-term debt 226,683,000 26,516,000
--------------- ---------------
TOTAL CURRENT LIABILITIES 479,433,000 129,009,000
LONG-TERM DEBT 1,575,657,000 513,026,000
REGIONAL DEVELOPMENT GRANT, net 620,000 661,000
COMMITMENTS AND CONTINGENT LIABILITIES
MINORITY INTERESTS 21,265,000 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
30,592,000 (1996) and
30,202,000 (1995) shares 306,000 302,000
Additional paid-in capital 465,192,000 462,223,000
Cumulative translation adjustment 21,663,000 6,273,000
(Deficit) (231,423,000) (129,541,000)
--------------- ---------------
255,738,000 339,257,000
--------------- ---------------
$2,332,713,000 $1,010,669,000
=============== ===============
</TABLE>
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
<PAGE>
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
1996 1995 1996 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Network services $ 23,539,000 $ - $ 23,539,000 $ -
Telecommunications 14,774,000 3,523,000 25,157,000 6,326,000
Cable television 9,233,000 2,342,000 17,284,000 4,172,000
Other 237,000 - 237,000 -
------------- ----------- -------------- --------------
47,783,000 5,865,000 66,217,000 10,498,000
Costs and expenses:
Operating expenses 31,069,000 3,515,000 43,698,000 6,811,000
Selling, general and
administrative expenses 30,054,000 14,243,000 51,852,000 24,757,000
Depreciation and amortization 20,411,000 6,481,000 32,601,000 12,013,000
------------- ----------- -------------- --------------
81,534,000 24,239,000 128,151,000 43,581,000
------------- ----------- -------------- --------------
OPERATING LOSS (33,751,000) (18,374,000) (61,934,000) (33,083,000)
Other income (expense):
Interest and other income 9,756,000 6,343,000 17,519,000 10,057,000
Interest expense (36,695,000) (8,821,000) (61,406,000) (13,063,000)
Foreign currency transaction gains 294,000 433,000 171,000 629,000
------------- ----------- -------------- --------------
LOSS BEFORE INCOME TAXES AND
MINORITY INTERESTS (60,396,000) (20,419,000) (105,650,000) (35,460,000)
Income tax benefit (provision) (3,439,000) 628,000 (3,481,000) 1,076,000
------------- ----------- -------------- --------------
LOSS BEFORE MINORITY INTERESTS (63,835,000) (19,791,000) (109,131,000) (34,384,000)
Minority interests 4,677,000 1,572,000 7,249,000 2,699,000
------------- ----------- -------------- --------------
NET LOSS $ (59,158,000) $(18,219,000) $(101,882,000) $ (31,685,000)
============= ============ ============== ==============
Net loss per common share $ (1.95) $ (.60) $ (3.36) $ (1.05)
============= ============ ============== ==============
Weighted average number of common shares
used in computation of net
loss per share 30,369,000 30,185,000 30,290,000 30,183,000
============= ============ ============== ==============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
$.01 Par Value Additional Cumulative
---------------------- Paid-In Translation
Shares Par Capital Adjustment (Deficit)
------------ -------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
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
Net loss for the
six months ended
June 30, 1996 (101,882,000)
Currency translation
adjustment 15,390,000
------------ -------- ------------ ------------ --------------
Balance,
June 30, 1996 30,592,000 $306,000 $465,192,000 $21,663,000 $(231,423,000)
============ ======== ============ ============ ==============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------------
1996 1995
--------------- --------------
<S> <C> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ 5,110,000 $ (16,379,000)
INVESTING ACTIVITIES
Purchase of fixed assets (214,032,000) (172,680,000)
Proceeds from sale of fixed assets 1,000 23,000
Acquisition of subsidiaries, net of
cash acquired (298,173,000) -
License acquisition costs - (112,000)
Increase in other assets (2,410,000) (1,635,000)
--------------- --------------
NET CASH (USED IN) INVESTING ACTIVITIES (514,614,000) (174,404,000)
FINANCING ACTIVITIES
Principal payments (1,552,000) (9,263,000)
Proceeds from borrowings, net of
financing costs 1,140,765,000 329,696,000
Restricted cash (95,469,000) -
Cash released from escrow 1,592,000 -
Capital contribution from minority partner - 12,715,000
Proceeds from borrowings from minority
partner 30,550,000 -
Proceeds from exercise of stock options
and warrants 1,332,000 59,000
--------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,077,218,000 333,207,000
EFFECT OF EXCHANGE RATE CHANGES ON CASH (7,663,000) 6,796,000
--------------- --------------
INCREASE IN CASH AND CASH
EQUIVALENTS 560,051,000 149,220,000
Cash and cash equivalents at beginning of
period 175,283,000 294,602,000
--------------- --------------
Cash and cash equivalents at end of period $ 735,334,000 $ 443,822,000
=============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for interest
exclusive of amounts capitalized $ 9,623,000 $ 824,000
Income taxes paid 364,000 234,000
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES
Warrants issued in connection with
consent solicitations $ 1,641,000 $ -
Liabilities incurred in connection
with acquisitions 80,117,000 -
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
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 six months ended June 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:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------- -------------
(Unaudited)
<S> <C> <C>
Operating equipment $ 669,107,000 $ 424,019,000
Other equipment 91,769,000 39,717,000
Construction-in-progress 257,668,000 218,044,000
-------------- -------------
1,018,544,000 681,780,000
Allowance for depreciation (66,003,000) (42,106,000)
-------------- -------------
$ 952,541,000 $ 639,674,000
============== =============
</TABLE>
7
<PAGE>
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Continued
NOTE D--INTANGIBLE ASSETS
Intangible assets consists of:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
License acquisition costs,
net of accumulated
amortization of
$28,118,000 (1996) and
$22,789,000 (1995) $132,249,000 $137,578,000
Goodwill, net of accumulated
amortization of
$1,466,000 265,732,000 -
------------ ------------
$397,981,000 $137,578,000
============ ============
</TABLE>
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 (which corresponds to tax credits of
(Pounds)13 million expected by NTL by October 1, 1996 and tax credit carry
forwards of (Pounds)4.1 million). 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 $2.7 million exceeded the fair
value of the net tangible assets acquired by $266.2 million, which is classified
as goodwill, which 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.
The pro forma unaudited consolidated results of operations for the six
months ended June 30, 1996 and 1995 assuming consummation of the NTL acquisition
as of the beginning of the periods are as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------
1996 1995
-------------- -------------
<S> <C> <C>
Total revenue $ 127,512,000 $ 93,112,000
Net loss (100,319,000) (41,054,000)
Net loss per share (3.31) (1.36)
</TABLE>
8
<PAGE>
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT-CONTINUED
NOTE E--LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
10-7/8% Senior Deferred Coupon Notes $ 166,325,000 $ 157,748,000
12-3/4% Series A Senior Deferred
Coupon Notes 173,953,000 163,528,000
11-1/2% Series B Senior Deferred
Coupon Notes 629,085,000 -
7-1/4% Convertible Subordinated Notes 191,750,000 191,750,000
7% Convertible Subordinated Notes 275,000,000 -
Term Loan and Bridge Facilities 310,100,000 -
Subsidiary bank loan - 1,576,000
Subsidiary notes payable 56,127,000 24,940,000
-------------- -------------
1,802,340,000 539,542,000
Less current portion 226,683,000 26,516,000
-------------- -------------
$1,575,657,000 $ 513,026,000
============== =============
</TABLE>
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.
9
<PAGE>
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT-CONTINUED
NOTE E--LONG-TERM DEBT-CONTINUED
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 100.0% in 2006, in each case together with accrued and
unpaid interest to the redemption date. The Company incurred $7,850,000 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 short term loan facility of (Pounds)50 million (the "Short
Term Facility"), (ii) a long term loan facility of (Pounds)90 million (the "Long
Term Facility," and, together with the Short Term Facility, the "Term Loan
Facilities") and (iii) 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 Facilities 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 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
Long Term Facility. The Short Term Facility is repayable in full on December 31,
1996 unless certain conditions are fulfilled on or prior to that date, in which
case the amounts outstanding under the Short Term Facility will automatically be
converted into, and shall be deemed to be, amounts outstanding under the Long
Term Facility. All amounts outstanding under the Long Term 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 Long Term 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.
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.
10
<PAGE>
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
NOTE E--LONG-TERM DEBT-CONTINUED
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.
The Bridge Facility is secured by cash of (Pounds)62,500,000 ($96,906,000)
on deposit with the lender and guarantees from the Company and certain of its
subsidiaries and by second ranking fixed and floating charges over all the
present and future assets of the Purchaser, NTL and its subsidiaries, subject to
certain subordination arrangements. The Bridge Facility must be repaid in full
by December 31, 1996.
Loans under the Bridge Facility bear interest at an annual rate equal to
LIBOR plus a margin of 3%, which margin shall be increased by an additional
1.25% on each of the "Applicable Margin Step-Up Dates" falling three, four,
five, six and seven months after the advance of any loans under the Bridge
Facility. The Purchaser may repay all, but not less than all, of the amount
outstanding under the Bridge Facility at any time without penalty. The Bridge
Facility contains covenants similar to those of the A Facilities.
NOTE F--COMMITMENTS AND CONTINGENT LIABILITIES
As of June 30, 1996, the Company was committed to pay approximately
$29,700,000 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
$37,000.
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
($22,300,000) (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.
11
<PAGE>
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
NOTE F--COMMITMENTS AND CONTINGENT LIABILITIES - CONTINUED
Pursuant to the terms of the LDL for Glamorgan and Gwent, Wales granted to
one of the Company's joint ventures, the joint venture 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
($161,000). 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's revenues is attributable to the provisions
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 ($57,000) 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 ($2,292,000)
of which (Pounds)1,157,000 ($1,794,000) has been paid in 1996 and
(Pounds)321,000 ($498,000) is payable from August to December 1996.
12
<PAGE>
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 June 30,
1996 and December 31, 1995, for the full-service dual network constructed by the
Company since 1993 and, as of June 30, 1996, for the network constructed as
cable-only and inherited by the Company through prior acquisitions:
<TABLE>
<CAPTION>
Newly Constructed Dual Network and Inherited Cable-Only Network
====================================================================================
NEWLY CONSTRUCTED NEWLY CONSTRUCTED INHERITED CABLE-
DUAL NETWORK DUAL NETWORK ONLY NETWORK
JUNE 30, 1996 DECEMBER 31, 1995 JUNE 30, 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Homes passed 611,300 463,000 263,200
- ------------------------------------------------------------------------------------
Homes marketed* 311,500 176,200 263,200
- ------------------------------------------------------------------------------------
Total customers 107,100 57,700 49,800
- ------------------------------------------------------------------------------------
Dual 76,600 44,630 -
- ------------------------------------------------------------------------------------
Cable-only 13,700 6,620 49,800
- ------------------------------------------------------------------------------------
Telephone-only 16,800 6,450 -
- ------------------------------------------------------------------------------------
Total RGU's** 183,700 102,330 49,800
- ------------------------------------------------------------------------------------
RGU penetration 59% 58% 19%
- ------------------------------------------------------------------------------------
Cable penetration 29% 29% 19%
- ------------------------------------------------------------------------------------
Telephone penetration 30% 29% -
====================================================================================
</TABLE>
* At June 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
<PAGE>
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 June 30, 1996 and 1995
- -----------------------------------------
Network services revenues increased to $23,539,000 from none as a result of
the acquisition of NTL.
Telecommunications revenues increased to $14,774,000 from $3,523,000. NTL
telecommunications revenues in 1996 were $2,461,000. The remainder of the
increase was the result of customer growth that increased the Company's current
revenue stream.
Cable television revenues increased to $9,233,000 from $2,342,000 as a
result of customer growth that increased the Company's current revenue stream.
Other revenue increased to $237,000 from none as a result of the
acquisition of NTL.
Operating expenses increased to $31,069,000 from $3,515,000. NTL operating
expenses in 1996 were $14,004,000. The remainder of the increase was the
result of increases in cable television and telecommunications programming
costs, interconnection costs and costs of operating the network.
Selling, general and administrative expenses increased to $30,054,000 from
$14,243,000. NTL selling, general and administrative expenses in 1996 were
$2,522,000. The remainder of the increase was the result of increases in cable
television and telecommunications sales and marketing costs and in additional
personnel and overhead to service the increasing customer base.
Depreciation and amortization expense increased to $20,411,000 from
$6,481,000. Depreciation and amortization expense of NTL and of goodwill as a
result of the acquisition was $3,703,000 in 1996. The remainder of the increase
was primarily due to an increase in depreciation of cable television and
telecommunications equipment.
14
<PAGE>
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
CONTINUED
Interest and other income increased to $9,756,000 from $6,343,000 due to an
increase in funds available for short term investment and an increase in the
interest rate on the Company's short term investments.
Interest expense increased to $36,695,000 from $8,821,000 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
subsequent to June 1995.
Foreign currency transaction gains of $294,000 in 1996 and $433,000 in
1995 are the result of changes in the exchange rate.
In October 1995, the FASB issued SFAS 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.
Six Months Ended June 30, 1996 and 1995
- ---------------------------------------
Network services revenues increased to $23,539,000 from none as a result of
the acquisition of NTL.
Telecommunications revenues increased to $25,157,000 from $6,326,000. NTL
telecommunications revenues in 1996 were $2,461,000. The remainder of the
increase was the result of customer growth that increased the Company's current
revenue stream.
Cable television revenues increased to $17,284,000 from $4,172,000 as a
result of customer growth that increased the Company's current revenue stream.
Other revenue increased to $237,000 from none as a result of the
acquisition of NTL.
Operating expenses increased to $43,698,000 from $6,811,000. NTL operating
expenses in 1996 were $14,004,000. The remainder of the increase was the result
of increases in cable television and telecommunications programming costs,
interconnection costs and costs of operating the network.
Selling, general and administrative expenses increased to $51,852,000 from
$24,757,000. NTL selling, general and administrative expenses in 1996 were
$2,522,000. The remainder of increase was the result of increases in cable
television and telecommunications sales and marketing costs and in additional
personnel and overhead to service the increasing customer base.
15
<PAGE>
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
CONTINUED
Depreciation and amortization expense increased to $32,601,000 from
$12,013,000. Depreciation and amortization expense of NTL and of goodwill as a
result of the acquisition was $3,703,000 in 1996. The remainder of the increase
was primarily due to an increase in depreciation of cable television, telephone
and telecommunications equipment.
Interest and other income increased to $17,519,000 from $10,057,000 due to
an increase in funds available for short term investment and an increase in the
interest rate on the Company's short term investments.
Interest expense increased to $61,406,000 from $13,063,000 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
subsequent to June 1995.
Foreign currency transaction gains of $171,000 in 1996 and $629,000 in
1995 are the result of changes in the exchange rate.
LIQUIDITY AND CAPITAL RESOURCES
The Company will require significant amounts of capital to finance
construction of its system network, connection of cable television, telephone
and telecommunications customers to the network, working capital and debt
service. The Company also requires substantial capital for the deferred payments
in connection with the acquisition of NTL, to repay certain of the NTL
Facilities and 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 cable
television, telephone and telecommunications 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
16
<PAGE>
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
CONTINUED
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, after taking into account its proportional
ownership of its franchises, the aggregate cost of network construction from
June 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)1.0 billion ($1.5 billion) which
includes the commitments for equipment and services at June 30, 1996 of
approximately $29,700,000. 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 100.0% in 2006,
in each case together with accrued and unpaid interest to the redemption date.
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.
17
<PAGE>
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
CONTINUED
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 thereafter
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 June 30, 1996 are expected to be sufficient
to meet the capital requirements of the Company's franchises to the second
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 and
taking into account the Company's proportional ownership of its franchises, it
is currently anticipated that expected sources of funds (including, but not
limited to, the Proposed Credit Facilities or other financings, if obtained),
cash on hand and cash flow from operations (which is expected by early 1997)
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
18
<PAGE>
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
CONTINUED
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 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 unfunded portion of its capital requirements when required. The
Company does not have any firm additional financing plans to address any of the
foregoing situations 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
ability to generate positive operating cash flow depends upon its ability to
increase penetration and revenues at a faster rate than the growth of these
costs.
The Company's operations are conducted through its direct and indirect
wholly-owned subsidiaries and joint ventures. As a holding company, the Company
holds no significant assets other than its investments in and advances to its
subsidiaries and joint ventures. The Company is therefore dependent upon the
receipt of sufficient funds from its subsidiaries and joint ventures to meet its
own obligations. Accordingly, the Company's ability to make scheduled interest
and principal payments
19
<PAGE>
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
CONTINUED
(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 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 June 30, 1996, the Company had invested approximately
$692,000,000 (including restricted cash of $96,906,000) 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
20
<PAGE>
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
CONTINUED
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 (which corresponds to tax credits of (Pounds)13
million expected by NTL by October 1, 1996 and tax credit carry forwards of
(Pounds)4.1 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 Short Term Facility
of (Pounds)50 million, (ii) the Long Term Facility of (Pounds)90 million
(together with the Short Term Facility, the "Term Loan Facilities") and (iii)
the Revolving Facility of (Pounds)25 million. The Term Loan Facilities were
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 Short Term Facility is repayable in full on December 31, 1996 unless certain
conditions are fulfilled on or prior to that date in which case the amounts
outstanding under the Short Term Facility will automatically be converted into,
and shall be deemed amounts outstanding under the Long Term Facility. The
Company anticipates that such conditions will be met and that the amounts
outstanding under the Short Term Facility will be so converted.
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 Long Term Facility.
All amounts outstanding under the Long Term 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 Long Term 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. As of
June 30, 1996, the effective rate was 7.656%.
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.
21
<PAGE>
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
CONTINUED
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 is secured by cash of (Pounds)62,500,000
($96,906,000) on deposit with the lender and by guarantees from the Company and
certain of its subsidiaries and by second ranking fixed and floating charges
over (subject to certain exceptions) all the present and future assets of the
Purchaser, NTL and certain of its subsidiaries, subject to certain subordination
arrangements. The Bridge Facility must be repaid in full by December 31, 1996.
Loans under the Bridge Facility bear interest at an annual rate equal to
LIBOR plus a margin of 3%, which margin shall be increased by an additional
1.25% on each of the "Applicable Margin Step-Up Dates" falling three, four,
five, six and seven months after the advance of any loans under the Bridge
Facility. As of June 30, 1996, the effective rate was 9.25%. The Purchaser may
repay all, but not less than all, of the amount outstanding under the Bridge
Facility at any time without penalty. The Bridge Facility contains covenants
similar to those of the A Facilities.
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 requires approximately (Pounds)95 million ($147 million) to (i)
repay the borrowings under the Bridge Facility on or before December 31, 1996
and (ii) pay the Further Payment in May 1997. The Company anticipates that such
additional funding should be available from cash on hand available for such
purposes. In addition, the Company may be required to finance the repayment of
(Pounds)50 million Short Term Facility if certain conditions are not met,
although the Company expects that such conditions will be met.
The Company anticipates that substantial amounts of capital will be
required in the future in order to, among other things (i) expand NTL's existing
telecommunications network in England to other regions in the United Kingdom,
(ii) meet the rapid build schedule of the Channel 5 contract and (iii) install
NTL's third teleport for its satellite uplinking business. The Company estimates
that, based on the information currently available to it, through December 31,
1997, NTL may require approximately (Pounds)50 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, in particular,
the receipt of subordinated debt or equity from the Company and the repayment of
the Bridge Facility. 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
22
<PAGE>
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
CONTINUED
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.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
- ----------------------------------------------
Cash provided by operating activities was $5,110,000 in 1996 and cash used
in operating activities was $16,379,000 in 1995. The change is primarily due to
changes in non-cash charges and in operating assets and liabilities.
Purchases of fixed assets, net of proceeds from sales, were $214,031,000 in
1996 and $172,657,000 in 1995 as a result of increased cable television,
telephone and telecommunications fixed asset purchases in 1996.
Cash provided by financing activities was $1,077,218,000 in 1996 primarily
due to the proceeds from the NTL Facilities of $305,500,000, 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 $39,863,000. In 1996, one of the Company's joint
ventures borrowed (Pounds)24,000,000 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 $30,550,000 are the result of the cash
received from the minority interest holder for the loan.
23
<PAGE>
INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
CONTINUED
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 4, 1996, the Company held its annual meeting of stockholders.
The following management proposals were adopted: (i) the ratification
of the selection of Ernst & Young LLP as the Company's independent
auditors for 1996, (ii) the reelection of George S. Blumenthal, J.
Barclay Knapp and Michael S. Willner to the Board of Directors, (iii)
the amendment of the Company's Restated Certificate of Incorporation
to increase the number of authorized shares of Common Stock from
50,000,000 to 100,000,000 and (iv) an amendment to the Company's
Employee Stock Option Plan.
The stockholders approved the first proposal by a vote of 27,443,932
shares in favor, 154,077 shares against and 30,740 shares abstaining
from voting. The stockholders approved the election of George S.
Blumenthal by a vote of 27,366,619 shares in favor and 262,130 shares
withheld from voting. The stockholders approved the election of J.
Barclay Knapp by a vote of 27,366,619 shares in favor and 262,130
shares withheld from voting. The stockholders approved the election
of Michael S. Willner by a vote of 27,366,619 shares in favor and
262,130 shares withheld from voting. The stockholders approved the
third proposal by a vote of 25,644,559 shares in favor, 1,506,120
shares against and 48,230 shares abstaining from voting. The
stockholders approved the fourth proposal by a vote of 22,195,052
shares in favor, 4,778,154 shares against and 83,968 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, 1996, the Company filed the
following reports on Form 8-K: (i) report dated May 9, 1996 reporting
under Item 2, Acquisitions and Dispositions of Assets, that an
indirect wholly-owned English subsidiary of the Company purchased all
the issued shares of NTL Group Limited, (ii) report dated May 9, 1996
on Form 8-K/A-1, reporting under Item 7, Financial Statements,
Proforma Financial Information and Exhibits, the financial statements
of NTL Group Limited and the proforma financial information, and (iii)
report dated June 11, 1996 reporting under Item 5, Other Events, the
announcement that the Company commenced the commercial provision of
cable telephone and entertainment services in a portion of its
Northern Ireland franchise.
24
<PAGE>
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: August 13, 1996 By:/s/ J. Barclay Knapp
-----------------------------
J. Barclay Knapp
President
Date: August 13, 1996 By:/s/ Gregg Gorelick
-----------------------------
Gregg Gorelick
Vice President-Controller
(Principal Accounting Officer)
25
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<PERIOD-START> JAN-01-1996
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<SECURITIES> 0
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