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FORM 10-Q/A-1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-22616
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INTERNATIONAL CABLETEL INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 52-1822078
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
110 EAST 59TH STREET, NEW YORK, NEW YORK 10022
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(212) 906-8440
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
--- ---
The number of shares outstanding of the issuer's common stock as of
September 30, 1996 was 32,006,800.
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INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION--LIQUIDITY AND CAPITAL RESOURCES.
The "Liquidity and Capital Resources" section of "Management's Discussion
and Analysis of Results of Operations and Financial Condition" provided
pursuant to Item 2 of the Company's Quarterly Report for the period ended
September 30, 1996, dated November 12, 1996 is hereby amended and replaced by
the pages that follow in this Form 10-Q/A-1.
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LIQUIDITY AND CAPITAL RESOURCES
The Company will require significant amounts of capital to finance
construction of its system network, for connection of telephone,
telecommunications and cable television customers to the network, for working
capital and for debt service. Based on the information currently available to
the Company, the Company currently estimates that, from September 30, 1996
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)915 million
(approximately $1.432 billion), which includes the commitments for equipment
and services at September 30, 1996 of approximately $62,400,000, and that
scheduled cash interest payments on and principal repayments of indebtedness
of the Company and its subsidiaries (assuming no conversion of convertible
debt or refinancing of existing indebtedness) will be approximately $639
million and $217 million, respectively. The Company expects that NTL will
require significant amounts of capital beyond that which NTL is capable of
generating from its current operations for capital expenditures (including
substantial amounts of discretionary expenditure to expand NTL's existing
telecommunications network in England to other regions in the United Kingdom
and otherwise develop and expand NTL's business) and working capital. In
addition, the Company will require significant amounts of capital to finance
other capital expenditures and the cost of operations of the Company and its
subsidiaries and meet all their other obligations as they fall due.
The Company intends to fund the requirements referred to in the preceding
paragraph from cash on hand ($639 million as of September 30, 1996), further
equity and/or debt financings (including, but not limited to, the proposed
Offering (as defined below) and the Proposed Credit Facilities (as defined
below)) and funds internally generated by the operations of the Company's
subsidiaries (including from the revenues receivable by NTL under contracts).
The Company expects that the capital required to build its telephone,
telecommunications and cable television networks and connect residential and
business subscribers will be approximately (Pounds)640 to (Pounds)670 per home
in its franchise areas. Certain locations may require more or less capital
depending upon household density, business density and penetration rates. 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. 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. 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. In addition,
this amount includes various estimated inflation factors on certain
components.
Pursuant to the terms of the Northern Ireland LDL, CableTel Northern Ireland
Limited is required to make annual cash payments to the ITC for fifteen years
commencing in January 1997 in the amount of approximately (Pounds)14.4 million
(subject to adjustments for inflation). Such payments are in addition to the
percentages of qualifying revenue already set by the ITC of 0% for the first
ten years and 2% for the last five years of the fifteen-year license. Pursuant
to the terms of the Glamorgan and Gwent LDL, CableTel South Wales Limited is
required to make annual cash payments to the ITC for fifteen years, commencing
in the first full calendar year after the start of operations, in the amount
of approximately (Pounds)104,188 (subject to adjustment for inflation). Such
payments are in addition to the percentages of qualifying revenue already set
by the ITC of 0% for the first five years, 2% for the second five years and 4%
for the last five years of the fifteen-year license. Furthermore, if the
Company were to make additional investments or acquire additional franchises
or licenses, funding would be needed in addition to the anticipated funding
requirements described above. The Company anticipates that it will be bidding
for one or more digital terrestrial television ("DTT") multiplex licenses. If
the Company's bid for one or more DTT multiplex licenses is successful,
significant capital expenditures will be required to develop
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and implement DTT technology and equipment and to supply DTT services by July
1, 1998 or within one year of the grant of the licenses.
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.
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 exceed 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.
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 7% Convertible Subordinated Notes is payable
semiannually beginning December 15, 1996. The 7% Convertible Subordinated
Notes mature on June 15, 2008. The 7% Convertible Subordinated 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 7% Convertible Subordinated Notes are redeemable, in whole or in part, at
the option of the Company at any time on or after June 15, 1999, at a
redemption price of 104.9% that declines annually to 100% in 2006, in each
case together with accrued and unpaid interest to the redemption date.
In 1996, the Company issued $1,050,000,000 aggregate principal amount at
maturity of its 11 1/2% Series B Senior Deferred Coupon Notes due 2006. The 11
1/2% Notes were issued at a price to investors of 57.155% of the aggregate
principal amount at maturity, or $600,127,500. The Company received net
proceeds of approximately $582,000,000 from the issuance of the 11 1/2% Notes.
The original issue discount of the 11 1/2% Notes accretes at a rate of 11
1/2%, compounded semiannually, to an aggregate principal amount of
$1,050,000,000 by February 1, 2001. Interest will thereafter accrue at 11 1/2%
per annum, payable semiannually beginning on August 1, 2001. The 11 1/2 Notes
may be redeemed at the Company's option, in whole or in part, at any time on
or after February 1, 2001 at 105.75% the first year, 102.875% the second year
and 100% thereafter, plus accrued and unpaid interest to the date of
redemption.
In 1995, the Company issued $277,803,500 aggregate principal amount at
maturity of its 12 3/4% Senior Deferred Coupon Notes due 2005. The 12 3/4%
Notes were issued at a price to investors of 53.995% of the aggregate
principal amount at maturity, or $150,000,000. The Company received proceeds
of $145,125,000 from the issuance of the 12 3/4% Notes. The original issue
discount of the 12 3/4% Notes accretes at a rate of 12 3/4%, compounded
semiannually, to an aggregate principal amount of $277,803,500 by April 15,
2000. Interest will thereafter accrue at 12 3/4% per annum, payable
semiannually beginning on October 15, 2000. The 12 3/4% Notes may be redeemed
at the Company's option, in whole or in part, at any time on or after April
15, 2000 at 103.64% the first year, 101.82% the second year and 100%
thereafter, plus accrued and unpaid interest on the date of redemption.
In 1995, the Company issued $191,750,000 aggregate principal amount of its 7
1/4% Convertible Subordinated Notes due 2005 and received proceeds of
$186,065,000. Interest on the 7 1/4% Convertible Subordinated Notes is payable
semiannually. The 7 1/4% Convertible Subordinated Notes are convertible into
shares of common stock prior to maturity at a conversion price of $27.56 per
share, subject to adjustment in certain events. The 7 1/4% Convertible
Subordinated Notes are redeemable, in whole or in part, at the option of the
Company, at any time on or after April 15, 1998, the redemption price of
105.08% that declines annually to 100.73% in 2004, in each case together with
accrued and unpaid interest to the redemption date.
In 1993, the Company issued $212,000,000 aggregate principal amount at
maturity 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
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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.
On January 27, 1997, the Company announced that it proposes to make a
concurrent offering (the "Offering") of Senior Notes Due 2007 and Senior
Redeemable Exchangeable Preferred Stock with a maturity in 2009. The Company
intends to raise approximately $400 million of gross proceeds from the
Offering for the construction, working capital requirements and other
corporate purposes of the Company. The securities offered in the Offering will
not have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), or any state securities laws, and may not be offered or
sold in the United States absent registration or applicable exemption from the
registration requirements of the Securities Act and applicable state
securities laws.
The Company currently expects that cash on hand and cash equivalents as of
September 30, 1996 of approximately $639 million and the anticipated net
proceeds of the Offering should be sufficient to meet those obligations of the
Company and its subsidiaries falling due in 1997 (including the costs of
network construction, development and expansion of NTL's business, debt
service, joint venture obligations and the payment of up to (Pounds)35 million
deferred consideration in respect of NTL due in May 1997). 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.
In January 1997, the Company resumed discussions with commercial banks
regarding the arrangement of certain proposed credit facilities in varying
amounts up to an aggregate amount of (Pounds)500 million (approximately $782
million) (the "Proposed Credit Facilities") to further fund the anticipated
construction and working capital needs of the Company's subsidiaries.
The Company estimates that, even if the Offering is consummated and whether
or not the Proposed Credit Facilities are obtained and fully drawn,
significant amounts of additional funding will be required to meet obligations
of the Company and its subsidiaries falling due after 1997. The Company
currently intends to obtain such additional funding from further debt and/or
equity financings and funds internally generated by the operations of the
Company's subsidiaries. The Company does not have any firm plans for any such
further financings at this time. The substantial costs of network construction
and debt service will result in a negative cash flow until an adequate
customer base is established.
There can be no assurance that (i) the Proposed Credit Facilities will be
obtained (or be available on acceptable terms), (ii) the Offering or 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 NTL Revolving
Facility (see below under "The NTL Acquisition"), the Proposed Credit
Facilities or any other credit facility will be satisfied when funds are
required, (v) the Company will not acquire additional franchises or businesses
that would require additional capital, (vi) 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, (vii) the Company will be able to access such cash flow or (viii)
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 does not have any firm additional financing plans to
address any of the foregoing situation at this time.
The inability of the Company to consummate the Offering, obtain the Proposed
Credit Facilities or secure additional financings could result in the Company
and/or its subsidiaries defaulting on their respective obligations, all the
indebtedness of the Company and its subsidiaries becoming immediately due and
repayable and failure to comply with the minimum build milestones set forth in
its licenses leading to the revocation of those licenses.
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The Company's operations are conducted through its direct and indirect
wholly-owned subsidiaries. As a holding company, the Company holds no
significant assets other than its investments in and advances to its
subsidiaries. The Company is therefore dependent upon the receipt of
sufficient funds from its subsidiaries to meet its own obligations.
Accordingly, the Company's ability to make scheduled interest and principal
payments (or any other payments that may become payable) when due to holders
of indebtedness of the Company and the Company's ability to pay cash dividends
to its stockholders is dependent upon the receipt of sufficient funds from its
subsidiaries, which may be restricted in the manner described in the next
paragraph.
Each of the Company's subsidiaries which is a Delaware corporation 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 is a United
Kingdom company is, 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 (of
interest, dividends or otherwise) by the Company's 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.
The terms of existing and future indebtedness of the Company's subsidiaries
(including the Proposed Credit Facilities) may limit the payment of dividends,
loans or other distributions to the Company. In particular, the loan
facilities (the "NTL Facilities") arranged to finance approximately
(Pounds)200 million of the purchase price of NTL prohibit NTL Investment
Holdings Limited ("NTLIH"), the wholly-owned subsidiary of the Company which
purchased NTL and its subsidiaries, from paying dividends to the Company
unless certain cash flow targets are met and, if such targets are met, require
that 50% of all Excess Cash Flow of NTLIH and its subsidiaries (including the
NTL group) must be applied to prepay amounts outstanding under the long term
facility of (Pounds)140 million (the "Long Term Facility") comprised in the
NTL Facilities. See "The NTL Acquisition" below.
As a result of the restrictions referred to in the preceding paragraphs,
there can be no assurance that the Company will be able to gain access to the
cash flow of its subsidiaries in a timely manner or in amounts sufficient to
pay interest on and to repay the principal of the Company's indebtedness when
due or to meet the other obligations of the Company and its subsidiaries as
they fall due.
Even if the Company is able to gain access to the cash flow of its
subsidiaries, its ability to meet cash debt service and repayment obligations
of the Company and its subsidiaries will depend on the future operating
performance and financial results of those subsidiaries, which will be
subject, in part, to factors beyond the control of such subsidiaries, such as
prevailing economic conditions and financial, business and other factors. In
any event, management does not anticipate that the Company and its
subsidiaries will generate sufficient cash flow from operations to repay the
entire principal amount of the indebtedness of the Company and its
subsidiaries as it falls due at maturity. Accordingly, the Company will be
required to consider a number of measures, including (i) refinancing all or a
portion of such indebtedness, (ii) seeking modifications of the terms of such
indebtedness or (iii) seeking additional debt financing, each of which would
be subject to obtaining necessary lender consents, (iv) additional equity
financing, or (v) a combination of the foregoing. The particular measures the
Company may undertake and the ability of the Company to accomplish those
measures will depend on the financial condition of the Company and its
subsidiaries at the time, as well as a number of factors beyond the control of
the Company and subsidiaries, including prevailing economic and market
conditions and financial, business and other factors. No assurance can be
given that any of the foregoing measures can be accomplished, or can be
accomplished in sufficient time to make timely payments of cash interest and
principal on the
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Company's indebtedness. In addition, there can be no assurance that any such
measures can be accomplished on terms which are favorable to the Company and
its subsidiaries.
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, revenues of the Company's
subsidiaries are generated primarily in British pounds sterling while interest
and principal obligations with respect to most of the Company's existing
indebtedness are payable in dollars. At September 30, 1996, the Company had
invested approximately $515,000,000 in pounds sterling money market
instruments and cash accounts to reduce this risk. While the Company may
consider entering into transactions to hedge the risk of exchange rate
fluctuations, there can be no assurances that the provisions governing the
indebtedness of the Company and its subsidiaries would permit such
transactions, and, if such provisions do permit such transactions, that they
will be successful in preventing shifts in the currency exchange rates from
having a material adverse effect on the Company.
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.
The NTL Acquisition
In May 1996, NTLIH acquired all the issued shares of NTL for payments of
approximately (Pounds)204 million (the "Initial Payment") at closing,
(Pounds)17.1 million in October 1996 and (Pounds)35 million (subject to
reduction, the "Further Payment") in May 1997. NTL provides television and
radio transmission services and a range of other services in the broadcasting
and telecommunications industries. To finance a substantial portion of the
purchase price for NTL, a syndicate of lenders made available senior secured
loan facilities (the "A Facilities") of a maximum principal amount of
(Pounds)165 million comprised of (i) the Term Loan Facility of (Pounds)140
million and (ii) the Revolving Facility of (Pounds)25 million. The Term Loan
Facility was fully drawn to finance a portion of the Initial Payment or
refinance monies used to pay a portion of the Initial Payment including
related acquisition expenses.
Up to (Pounds)25 million is expected to be available under the Revolving
Facility for capital expenditure and working capital purposes of NTLIH's
group, subject to satisfaction of a number of significant conditions,
including the receipt of subordinated debt or equity from the Company. 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 NTLIH. At the end of the availability
period, any amount outstanding under the Revolving Facility will be converted
to term debt and be aggregated with the Term Loan Facility.
All amounts outstanding under the Term Loan Facility are scheduled to be
repaid in quarterly installments from 1998 to 2002 inclusive. The amount of
the installments will be based upon an agreed percentage of the loans and will
increase year to year. Final repayment of the Term Loan Facility is due on
December 31, 2002.
Loans under the A Facilities bear interest at an annual rate equal to LIBOR
plus a margin that varies from 0.75% per annum to 1.75% per annum, based on
certain financial ratios of the Purchaser and certain of its subsidiaries. As
of September 30, 1996, the effective rate was 7.6875%. Interest is payable
either monthly, quarterly or semiannually, at the option of NTLIH.
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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 NTLIH, NTL and certain of
its subsidiaries.
One of the lenders also made available to NTLIH a secured loan facility of
(Pounds)60 million ("the Bridge Facility") to finance most of the remainder of
the Initial Payment and acquisition costs and expenses due at closing. The
Bridge Facility was repaid in full in August 1996.
The NTL Facilities contain various covenants and conditions including, among
other things, a covenant prohibiting dividends and distributions by NTLIH 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.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash used in operating activities was $13,237,000 during the nine months
ended September 30, 1996 and $656,000 during the nine months ended September
30, 1995. The increase is primarily due to changes in non-cash charges and
changes in operating assets and liabilities.
Purchases of fixed assets, net of proceeds from sales, were $315,767,000
during the nine months ended September 30, 1996 and $296,911,000 during the
nine months ended September 30, 1995 as a result of increased cable
television, telephone and telecommunications fixed asset purchases in 1996.
Cash provided by financing activities was $1,080,998,000 during the nine
months ended September 30, 1996 primarily due to the proceeds from the NTL
Facilities of $307,260,000, the 11 1/2% Notes of $600,128,000 and the 7%
Convertible Subordinated Notes of $275,000,000, net of financing costs
incurred of $41,303,000. Principal payments during the nine months ended
September 30, 1996 consist of the repayment of the (Pounds)60,000,000
($92,178,000) NTL Bridge Facility and the repayment of the subsidiary bank
loan of (Pounds)1,016,000 ($1,561,000). During the nine months ended September
30, 1996, one of the Company's joint ventures borrowed (Pounds)30,000,000 from
the Company and (Pounds)20,000,000 from the minority interest holder in the
joint venture. The proceeds from borrowings from minority partner of
$30,726,000 are the result of the cash received from the minority interest
holder for the loan.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERNATIONAL CABLETEL INCORPORATED
Date: January 30, 1997 /s/ J. Barclay Knapp
By: _________________________________
J. BARCLAY KNAPP
PRESIDENT
Date: January 30, 1997
/s/ Gregg Gorelick
By: _________________________________
GREGG GORELICK
VICE PRESIDENT-CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
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