<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBERS: 0-25638 (NYNEX CABLECOMMS GROUP PLC)
0-25690 (NYNEX CABLECOMMS GROUP INC.)
NYNEX CABLECOMMS GROUP PLC
INCORPORATED UNDER THE I.R.S. EMPLOYER IDENTIFICATION NO.
LAWS OF ENGLAND AND WALES 98-0151138
NYNEX CABLECOMMS GROUP INC.
INCORPORATED UNDER THE I.R.S. EMPLOYER IDENTIFICATION NO.
LAWS OF DELAWARE 98-0151139
THE TOLWORTH TOWER
EWELL ROAD
SURBITON
SURREY KT6 7ED
UNITED KINGDOM
(44)-181-873-2000
(Telephone number)
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 / /
Number of shares outstanding of each of the classes of common stock, as of
April 30, 1996:
925,068,775 Ordinary Shares of NYNEX CableComms Group PLC,
pound sterling 0.10 par value
925,068,775 shares of Common Stock of NYNEX CableComms Group Inc.,
$.01 par value
(Ordinary Shares and shares of Common Stock are "stapled"
and trade together as Units.)
<PAGE> 2
FORM 10-Q
NYNEX CABLECOMMS GROUP PLC AND
NYNEX CABLECOMMS GROUP INC.
PART 1 - FINANCIAL INFORMATION
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER ADS AMOUNTS) (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
1996 1995 1996
pound pound $
sterling sterling [NOTE B]
<S> <C> <C> <C>
Operating Revenue:
Cable television 14,290 7,964 21,809
Telecommunications - residential 14,807 7,329 22,599
Telecommunications - business 2,371 927 3,619
Installation 1,053 684 1,606
---------- --------- ---------
TOTAL OPERATING REVENUES 32,521 16,904 49,633
---------- --------- ---------
Operating Expenses:
Programming 7,790 3,727 11,889
Telecommunications 6,986 3,414 10,662
Depreciation and amortization 12,254 7,550 18,702
Staff costs 12,928 9,195 19,731
Selling, general and administrative 11,783 15,099 17,983
---------- --------- ---------
TOTAL OPERATING EXPENSES 51,741 38,985 78,967
---------- --------- ---------
Operating loss (19,220) (22,081) (29,334)
---------- --------- ---------
Other Income (Expense):
Interest income 86 331 132
Interest expense (5,422) (2,244) (8,275)
Minority interests 15,203 11,987 23,202
---------- --------- ---------
TOTAL OTHER INCOME 9,867 10,074 15,059
---------- --------- ---------
Loss before income taxes (9,353) (12,007) (14,275)
Income taxes - 8,389 -
---------- --------- ---------
NET LOSS (9,353) (3,618) (14,275)
========== ========= =========
LOSS PER ADS (0.101) (0.039) (0.154)
========== ========= =========
ACCUMULATED DEFICIT
Beginning of period (88,336) (87,897) (134,818)
Net loss (9,353) (3,618) (14,275)
---------- --------- ---------
End of period (97,869) (91,515) (149,093)
========== ========= =========
</TABLE>
See accompanying notes to the combined financial statements.
1
<PAGE> 3
FORM 10-Q
NYNEX CABLECOMMS GROUP PLC AND
NYNEX CABLECOMMS GROUP INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995 MARCH 31, 1996
pound pound $
sterling sterling [NOTE B]
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments 7,688 9,807 11,733
Receivables (net of allowance of pound sterling 1,880 and
pound sterling 1,492,respectively) 33,824 43,551 51,622
Deferred charges and other current assets 2,447 2,653 3,735
----------- ------------ -----------
TOTAL CURRENT ASSETS 43,959 56,011 67,090
Property, plant and equipment, (net of accumulated
depreciation of pound sterling 74,693 and pound sterling
62,270, respectively) 930,703 859,024 1,420,439
Goodwill, net of accumulated amortization of pound sterling
2,315 and pound sterling 2,138, respectively 26,026 26,203 39,720
Deferred finance costs, net 60,876 59,140 92,909
Other assets 1,283 1,401 1,959
----------- ------------ -----------
TOTAL ASSETS 1,062,847 1,001,779 1,622,117
=========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 64,876 69,038 99,014
Other current liabilities 43,154 46,834 65,861
----------- ------------ -----------
TOTAL CURRENT LIABILITIES 108,030 115,872 164,875
Long-term debt [Note D] 215,380 125,350 328,713
Other long-term liabilities 8,312 4,970 12,686
Minority interest [Note E] 116,918 132,121 178,440
----------- ------------ -----------
TOTAL LIABILITIES 448,640 378,313 684,714
----------- ------------ -----------
Commitments and contingencies [Note G]
STOCKHOLDERS' EQUITY [NOTE H]
Ordinary shares - par value pound sterling 0.10
per share (1,500 million authorized, 925.1
million issued and outstanding) 92,507 92,500 141,184
Shares of common stock - par value $0.01 per share
(1,500 million authorized, 925.1 million issued and
outstanding) 5,763 5,763 8,796
Additional paid-in capital 613,626 613,539 936,516
Accumulated deficit (97,689) (88,336) (149,093)
----------- ------------ -----------
TOTAL STOCKHOLDERS' EQUITY 614,207 623,466 937,403
----------- ------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 1,062,847 1,001,779 1,622,117
=========== ============ ===========
</TABLE>
See accompanying notes to the combined financial statements.
2
<PAGE> 4
FORM 10-Q
NYNEX CABLECOMMS GROUP PLC AND
NYNEX CABLECOMMS GROUP INC.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
1996 1995 1996
pound pound $
sterling sterling [NOTE B]
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss (9,353) (3,618) (14,275)
----------- ----------- -----------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 12,254 7,550 18,702
Amortization of deferred finance costs 1,625 1,050 2,480
Provision for bad debts 1,257 614 1,918
Minority interest (15,203) (11,987) (23,202)
Deferred income taxes - (3,099) -
Non cash compensation costs 95 - 145
Changes in operating assets and liabilities:
Receivables 8,470 (11,615) 12,927
Deferred charges and other current assets 206 (1,880) 314
Accounts payable 394 8,635 601
Other current liabilities (3,538) 2,058 (5,399)
----------- ----------- -----------
Total adjustments 5,560 (8,674) 8,486
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (3,793) (12,292) (5,789)
----------- ----------- -----------
Cash Flows From Investing Activities:
Capital expenditures (88,356) (95,459) (134,849)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (88,356) (95,459) (134,849)
----------- ----------- -----------
Cash Flows From Financing Activities:
Capital contributions - 5,320 -
Activity with minority joint venture partners - (118) -
Proceeds from borrowings 90,030 96,329 137,404
Change in other long-term liabilities - 233 -
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 90,030 101,764 137,404
----------- ----------- -----------
Net decrease in cash and temporary cash investments (2,119) (5,987) (3,234)
Cash and temporary cash investments at beginning of period 9,807 41,687 14,967
----------- ----------- -----------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD 7,688 35,700 11,733
=========== =========== ===========
</TABLE>
See accompanying notes to the combined financial statements.
3
<PAGE> 5
FORM 10-Q
NYNEX CABLECOMMS GROUP PLC AND
NYNEX CABLECOMMS GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
A ORGANIZATION OF NYNEX CABLECOMMS
In February 1995, two indirect wholly owned subsidiaries of NYNEX
Corporation ("NYNEX") were incorporated: NYNEX CableComms Group PLC ("UK
CableComms"), a public limited company incorporated under the laws of
England and Wales, and NYNEX CableComms Group Inc. ("US CableComms"), a
Delaware corporation (together "the Companies"). The ordinary shares of
UK CableComms and the common stock of US CableComms may not be traded
separately and may only be traded together as Units in the form of ADSs
on the Nasdaq National Market and as Units on the London Stock Exchange.
UK CableComms and US CableComms hold 90% and 10%, respectively, of the
shares in NYNEX UK CableComms Holdings, Inc. ("UK Holdings").
UK CableComms and US CableComms collectively, and the subsidiaries and
partnerships in which they have the entire or a majority ownership
interest, are hereinafter referred to as "NYNEX CableComms".
B BASIS OF PRESENTATION
The unaudited combined financial statements have been prepared by UK
CableComms and US CableComms pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC") and, in the opinion of
management, include all adjustments necessary for a fair presentation of
the financial information for each period shown in accordance with
accounting principles generally accepted in the United States. Certain
information and footnote disclosures normally included in combined
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such SEC
rules and regulations. Management believes that the disclosures made are
adequate to make the information presented not misleading. The results
for interim periods are not necessarily indicative of the results for the
full year.
The unaudited combined financial statements should be read in conjunction
with the audited combined financial statements and the notes thereto
included in the Companies' latest Annual Report.
The unaudited combined financial statements are presented in pounds
sterling ("pound sterling"). Solely for the convenience of the reader,
the unaudited combined financial statements as at and for the period
ended March 31, 1996 have been presented in US dollars ("$") at the rate
of pound sterling 1.00 = $1.5262, the Noon Buying Rate of the Federal
Reserve Bank of New York on March 29, 1996. The presentation of the US
dollar amounts should not be construed as US GAAP, or as a representation
that the pounds sterling amounts shown could be so converted into US
dollars at the rate indicated or at any other rate.
Certain defined terms used herein are defined in the Glossary to the
Companies' latest Annual Report.
4
<PAGE> 6
FORM 10-Q
NYNEX CABLECOMMS GROUP PLC AND
NYNEX CABLECOMMS GROUP INC.
C PRINCIPLES OF COMBINATION
The unaudited combined financial statements present the financial
position, results of operations, and cash flows of NYNEX CableComms as if
the ownership structure, established on June 14, 1995, had been in
existence throughout the periods covered by these unaudited combined
financial statements.
Transactions between entities which are now part of NYNEX CableComms and
all significant intercompany accounts and transactions have been
eliminated in combination. Certain costs incurred by NYNEX have been
charged to NYNEX CableComms on a direct basis or, prior to completion of
the Combined Offering, on an allocated basis. Such costs are not
substantially different than those which NYNEX CableComms would have
incurred on a stand-alone basis.
D FINANCING OF NYNEX CABLECOMMS
At March 31, 1996, NYNEX CableComms was party to two broadly similar
financing arrangements, one for the Northern Operating Companies and one
for the Southern Operating Companies.
Under the arrangements, two entities related to NYNEX (the "North limited
partner" and the "South limited partner") provide credit facilities to
the operating companies and invest capital, through limited partnership
interests, in partnerships controlled by NYNEX CableComms. Deferred
finance costs of pound sterling 42.0 million for the Northern arrangement
and pound sterling 23.0 million for the Southern arrangement were
incurred in December 1994 and December 1993, respectively.
Credit Facilities
The credit facilities are for a maximum of pound sterling 542.5 million
in the case of the Northern Operating Companies and pound sterling 274.0
million in the case of the Southern Operating Companies. An additional
pound sterling 157.5 million is available under the North facility to
expand the network into additional franchise areas if such franchises are
acquired prior to December 31, 1998.
NYNEX CableComms has entered into two forward starting interest rate
swaps with NYNEX to reduce potential exposure to interest rate risk on
floating rate financing arrangements.
5
<PAGE> 7
FORM 10-Q
NYNEX CABLECOMMS GROUP PLC AND
NYNEX CABLECOMMS GROUP INC.
E MINORITY INTEREST
The North limited partner and the South limited partner also have limited
partnership interests in partnerships (the "North Partnership" and the
"South Partnership") controlled by NYNEX CableComms. Minority interest
reflects the limited partners' interest in the North and South
Partnerships.
The limited partners have contributed pound sterling 131.3 million and
pound sterling 80.4 million, respectively, as of March 31, 1996. The
Minority interest in the North Partnership and South Partnership was
pound sterling 59.8 million and pound sterling 57.1 million at March 31,
1996, respectively.
Under the Agreements, NYNEX CableComms generally has an 85% interest, and
the limited partners generally have a 15% interest, in all items of
income, gain, loss, deduction or credit, except in respect of the initial
losses and profits (being specified amounts of profits or losses
calculated in accordance with US tax principles) of the relevant
Partnership.
Initial losses up to a maximum cumulative amount of pound sterling 200.0
million for the North Partnership and pound sterling 40.0 million for the
South Partnership will be allocated to the limited partners. Subsequent
losses will be wholly allocated to NYNEX CableComms until its share of
the cumulative losses of the relevant Partnership is equal to 85% of such
cumulative losses. Losses thereafter, if any, will be allocated 85% to
NYNEX CableComms and 15% to the limited partners. Initial profits will be
allocated between NYNEX CableComms and the limited partners in proportion
to the cumulative losses allocated to each partner until such losses have
been fully offset by profits. Thereafter, all profits are to be allocated
85% to NYNEX CableComms and 15% to the limited partners.
For the purposes of preparing the combined financial statements, the
profit or loss of the relevant Partnership is allocated between NYNEX
CableComms and the limited partners in accordance with the profit and
loss allocations set out in the relevant Agreement. Initial losses for
the South Partnership reached pound sterling 40.0 million in the first
quarter of 1996.
F SUPPLEMENTAL CASH FLOW INFORMATION
The following information is provided in accordance with Statement of
Financial Accounting Standards No. 95, "Statement of Cash Flows":
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
(In thousands) MARCH 31,
1996 1995
pound pound
sterling sterling
<S> <C> <C>
Non cash items excluded from the Combined Statements
of Cash Flows:
Property, plant and equipment acquired by
incurring directly related liabilities 59,397 20,619
========== ==========
Accrued transaction and finance costs - 2,431
========== ==========
</TABLE>
6
<PAGE> 8
FORM 10-Q
NYNEX CABLECOMMS GROUP PLC AND
NYNEX CABLECOMMS GROUP INC.
G LITIGATION AND OTHER CONTINGENCIES
Various legal actions and proceedings are pending that may affect NYNEX
CableComms. While counsel cannot give assurance as to the outcome of any
of these matters, in the opinion of the management of NYNEX CableComms,
based upon the advice of counsel, the ultimate resolution of these
matters in future periods is not expected to have a material effect on
NYNEX CableComms' financial position, operating results or cash flows.
H STOCKHOLDERS' EQUITY
The authorized capital of UK CableComms is 1.5 billion ordinary shares
with a par value of pound sterling 0.10 per share, of which 925.1 million
shares are issued, fully paid and outstanding. The authorized capital of
US CableComms is 1.5 billion shares of common stock with a par value of
$.01 per share, of which 925.1 million shares are issued, fully paid and
outstanding.
Following the completion of the Combined Offering in 1995, a former
employee of NYNEX CableComms was awarded 68,775 Units, having an
aggregate value of pound sterling 94,221 for no payment on the vesting
date. These shares became fully vested during the first quarter of 1996.
Loss per ADS for the three months ended March 31, 1995 has been
calculated as if the ADSs issued on June 14, 1995 had been in existence
at that time.
I SUBSEQUENT EVENTS
On April 22, 1996, NYNEX and Bell Atlantic Corporation ("Bell Atlantic")
announced a merger of equals by entering into a definitive merger
agreement on April 21, 1996 that provides for the formation of a new
company to be named Bell Atlantic Corporation. Under the terms of the
agreement, NYNEX shareholders will receive one share in the new company
for each NYNEX share owned, and the Bell Atlantic shareholders will
receive 1.302 shares in the new company for each Bell Atlantic share
owned. The merger, which is expected to qualify as a pooling of interests
for accounting purposes, is subject to a number of conditions, including
regulatory approval, receipt of opinions that the merger will be tax
free, and the approval of the shareholders of both NYNEX and Bell
Atlantic. The transaction is expected to close within twelve months.
7
<PAGE> 9
FORM 10-Q
NYNEX CABLECOMMS GROUP PLC AND
NYNEX CABLECOMMS GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER OF 1996 AS COMPARED WITH FIRST QUARTER OF 1995
RESULTS OF OPERATIONS
REVENUE
Operating revenue increased to pound sterling 32.5 million for the first
quarter of 1996 from pound sterling 16.9 million for the first quarter of 1995.
The increase is attributable primarily to an increased customer base, due to
further marketing in NYNEX CableComms' existing operational franchises and
continued construction of the network.
CABLE TELEVISION. Cable television revenue increased to pound sterling 14.3
million for the first quarter of 1996 from pound sterling 8.0 million for the
first quarter of 1995. This increase was primarily the result of an increase
in the number of basic customers and an increase in the average revenue per
basic customer. The number of basic customers increased to 211,611 at March 31,
1996 from 130,377 at March 31, 1995, while the average monthly cable television
revenue per basic customer increased to pound sterling 23.44 for the first
quarter of 1996 from pound sterling 21.28 for the first quarter of 1995. The
overall increase in average monthly cable television revenue per basic customer
is primarily attributable to a favorable increase in the pay to basic ratio.
The number of homes passed and marketed in NYNEX CableComms' operating
franchises increased to 1,072,256 at March 31, 1996 from 687,923 at March 31,
1995. Penetration rates increased to 19.7% at March 31, 1996 from 19.0% at
March 31, 1995, as a higher proportion of NYNEX CableComms' potential customers
chose to purchase television services, in part reflecting the reduction in
NYNEX CableComms' churn rate to 30.1% at March 31, 1996 from 32.1% at March 31,
1995. The pay to basic ratio increased to 202.3% at March 31, 1996 from 148.0%
at March 31, 1995, due primarily to the change in the packaging and pricing
structure of the premium channels in June 1995, designed to influence customers
to take additional channels.
During the first quarter of 1996, NYNEX CableComms transmitted its first
Pay-Per-View event. 35,287 of NYNEX CableComms' customers subscribed to the
program (representing approximately 17.9% of the customer base at December 31,
1995), which generated revenue of pound sterling 0.3 million.
RESIDENTIAL TELECOMMUNICATIONS. Residential telecommunications revenue
increased to pound sterling 14.8 million for the first quarter of 1996 from
pound sterling 7.3 million for the first quarter of 1995. This increase was
primarily the result of an increase in the number of residential
telecommunications lines which was partially offset by a decrease in the
average revenue per line resulting from NYNEX CableComms' introduction of an
aggressive pricing strategy in March 1995. The number of residential
telecommunications lines increased to 268,235 at March 31, 1996 from 116,614 at
March 31, 1995, while the average monthly residential telecommunications
revenue per line decreased to pound sterling 19.70 for the first quarter of
1996 from pound sterling 22.94 for the first quarter of 1995. This decrease
reflects NYNEX CableComms' adoption of a pricing strategy from March 17, 1995
which provides its average residential telecommunications customer with savings
of 25% on monthly bills for line rental and call charges combined over British
Telecommunication plc's ("BT's") standard prices, before discounts and
promotions. When introducing these reductions, NYNEX CableComms believed that
the
8
<PAGE> 10
FORM 10-Q
NYNEX CABLECOMMS GROUP PLC AND
NYNEX CABLECOMMS GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER OF 1996 AS COMPARED WITH FIRST QUARTER OF 1995
immediate reduction in revenue resulting from offering these enhanced savings
would be more than offset over time by additional revenue resulting from
increased telecommunications penetration rates and greater usage attributable
to this strategy. Both the increase in penetration and an upward trend in usage
supports this belief.
The increase in the number of residential telecommunications lines reflects the
increase in the number of homes passed and marketed for residential
telecommunications services, which increased to 1,033,944 at March 31, 1996
from 560,689 at March 31, 1995. Penetration rates increased to 25.9% at March
31, 1996 from 20.8% at March 31, 1995. NYNEX CableComms believes that the
increase in penetration rates is primarily attributable to its pricing strategy
and broader acceptance of its telecommunications' service as an alternative to
BT's. The residential telecommunications churn rate increased to 17.8% at March
31, 1996 from 16.2% at March 31, 1995.
BUSINESS TELECOMMUNICATIONS. Business telecommunications revenue increased
to pound sterling 2.4 million for the first quarter of 1996 from pound sterling
0.9 million for the first quarter of 1995. This increase was primarily
attributable to an increase in the number of lines which was partially offset
by a decrease in the average revenue per line. The number of business
telecommunications lines increased to 18,166 at March 31, 1996 from 6,478 at
March 31, 1995, while the average monthly business telecommunications revenue
per line decreased to pound sterling 48.25 for the first quarter of 1996 from
pound sterling 52.73 for the first quarter of 1995. This decrease is primarily
due to the adoption of an aggressive pricing strategy and the increased number
of CENTREX lines, which tend to generate less revenue per line than single
business lines. On March 17, 1995, NYNEX CableComms introduced a pricing
strategy whereby its business customers enjoy savings, on average, of 25% over
BT's standard call charges before discounts and promotions. As with residential
telecommunications, NYNEX CableComms believed that the immediate reduction in
revenue resulting from offering these enhanced savings would be more than
offset over time by additional revenue generated from increased take-up of
business telecommunications services and greater usage attributable to this
strategy. The upward trend in usage and the increased average number of lines
per business customer to 3.5 at March 31, 1996 from 1.5 at March 31, 1995,
supports this belief.
The increase in the number of business telecommunications lines also resulted
from an increase in the number of businesses passed and marketed for
telecommunications services. NYNEX CableComms estimates that the number of
businesses passed and marketed for telecommunications services increased to
32,991 at March 31, 1996 from 23,532 at March 31, 1995. The business
telecommunications churn rate increased slightly to 12.4% at March 31, 1996
from 12.3% at March 31, 1995.
INSTALLATION. NYNEX CableComms' combined installation revenues for cable
television and residential and business telecommunications increased to pound
sterling 1.0 million for the first quarter of 1996 from pound sterling 0.7
million for the first quarter of 1995. This growth in revenue reflects the
ongoing construction of NYNEX CableComms' network and the corresponding
expansion of its customer base. While the number of residential
telecommunications and cable television installations doubled during the first
quarter of 1996, compared with the first quarter of 1995, there was no
corresponding
9
<PAGE> 11
FORM 10-Q
NYNEX CABLECOMMS GROUP PLC AND
NYNEX CABLECOMMS GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER OF 1996 AS COMPARED WITH FIRST QUARTER OF 1995
increase in installation revenue generated during the period. This was
primarily the result of a marketing campaign that NYNEX CableComms ran during
January and February of 1996, offering residential telecommunications and cable
television customers combined installations at a half price installation
charge.
OPERATING EXPENSES. Operating expenses increased to pound sterling 51.7
million for the first quarter of 1996 from pound sterling 39.0 million for the
first quarter of 1995 as a result of the continued growth in NYNEX CableComms'
network and customer base. The components of total operating expenses are
cable television programming costs, telecommunications expenses, depreciation
and amortization, staff costs and selling, general and administrative expenses.
Total programming costs increased to pound sterling 7.8 million for the first
quarter of 1996 from pound sterling 3.7 million for the first quarter of 1995.
Total programming costs as a percentage of cable television revenue were 54%
for the first quarter of 1996 compared with 47% for the first quarter of 1995.
The increased costs are a result of introducing new channels over the last
twelve months and increased rates charged by programming providers, the costs
of which have not been passed on to NYNEX CableComms' customers. In addition,
the change in the packaging and pricing structure of the premium channels in
June 1995 resulted in a reduced gross profit margin being achieved on premium
channels. Cable television programming margin will benefit in the second
quarter of 1996, from the fixed term programming agreement with BSkyB signed in
the second quarter of 1995 (see "Other Matters - Contract with BSkyB" below).
NYNEX CableComms believes that passing an element of these cost savings to
cable television customers will stimulate demand for premium channels,
resulting in an increase in the pay to basic ratio, average monthly revenue per
customer and penetration rates, as demonstrated this quarter.
Telecommunications expenses for the first quarter of 1996 were pound sterling
7.0 million compared with pound sterling 3.4 million for the first quarter of
1995. Telecommunications expenses principally represent interconnect charges
paid to national and international carriers for NYNEX CableComms' traffic over
their respective networks. As a result of the completion of installation of
digital switches in all its franchises in 1995, NYNEX CableComms has eliminated
the need to pay third parties for switching calls to other telecommunications
operators. Telecommunications expenses for the first quarter of 1996 remained
41% of telecommunications revenue as for the first quarter of 1995, despite
reductions in the average revenue per line following the adoption of the
pricing strategy on March 17, 1995.
Depreciation and amortization increased to pound sterling 12.3 million for the
first quarter of 1996 from pound sterling 7.6 million for the first quarter of
1995. This increase is primarily related to the increase in the cost of
depreciable property, plant and equipment to pound sterling 918.9 million at
March 31, 1996 from pound sterling 595.6 million at March 31, 1995.
Depreciation will continue to rise as the network is built out.
Staff costs, which include salaries, wages, benefits and sales commissions,
increased to pound sterling 12.9 million for the first quarter of 1996 from
pound sterling 9.2 million for the first quarter of 1995. The increased staff
costs have primarily occurred due to rising sales commissions as more customers
take up NYNEX CableComms' cable services, basic pay increases over the last 12
months and one-time payments
10
<PAGE> 12
FORM 10-Q
NYNEX CABLECOMMS GROUP PLC AND
NYNEX CABLECOMMS GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER OF 1996 AS COMPARED WITH FIRST QUARTER OF 1995
made to employees leaving NYNEX CableComms in the first quarter of 1996 as a
result of the cost-management program undertaken towards the end of 1995. Until
February 1996, the number of employees was 3,114. Following the cost-management
program undertaken towards the end of 1995, the number of employees, including
subcontract installers, was 2,857 full time equivalents at March 31, 1996,
compared with 2,961 at March 31, 1995.
Selling, general and administrative expenses decreased to pound sterling 11.8
million for the first quarter of 1996 from pound sterling 15.1 million for the
first quarter of 1995 as the scale of NYNEX CableComms' operations matured.
Following the cost-management program undertaken towards the end of 1995, NYNEX
CableComms continues to make business efficiencies. Cost improvements have been
made in most areas during the first quarter of 1996, in particular billing,
data processing and software enhancement costs, which increased significantly
during the first quarter of 1995 as the customer base continued to grow and the
implementation of NYNEX CableComms' Integrated Customer Management System
("ICMS") continued. In the final quarter of 1995, revisions to the agreement
associated with the cost of development of ICMS were negotiated; the benefits
of which have been seen in the first quarter of 1996. In addition, recruitment,
training and consultant costs have reduced following the cost-management
program.
Total operating expenses directly attributable to the design, construction and
installation of the network are capitalized within the network and not charged
to income. These capitalized costs were pound sterling 10.9 million for the
first quarter of 1996 and pound sterling 10.7 million for the first quarter of
1995.
OTHER INCOME (EXPENSE)
Interest income, which primarily represents interest on bank deposits decreased
to pound sterling 0.1 million for the first quarter of 1996 from pound sterling
0.3 million for the first quarter of 1995. Interest income arises primarily
from the investment of borrowings and capital contributions in advance of
capital expenditures and operating cash flow requirements. NYNEX CableComms did
not receive any capital contributions in the first quarter of 1996, compared
to pound sterling 5.3 million in the first quarter of 1995.
In the first quarter of 1996, interest expense increased to pound sterling 5.4
million, net of pound sterling 0.5 million which was capitalized, from pound
sterling 2.2 million, net of pound sterling 0.3 million which was capitalized,
for the first quarter of 1995. Of the increase, pound sterling 1.6 million is
attributable to the amortization of deferred finance costs and substantially
all of the balance was interest paid to the North and South limited partners in
respect of relevant financing arrangements. The remaining increase in the first
quarter of 1996 is primarily due to the increased level of funding during the
period from the financing arrangements for the Northern Operating Companies and
the Southern Operating Companies.
The Minority interest portion of the loss for the first quarter of 1996 was
pound sterling 15.2 million compared with pound sterling 12.0 million for the
first quarter of 1995. (See Note E to the unaudited Combined Financial
Statements describing the Minority Interest in NYNEX CableComms).
11
<PAGE> 13
FORM 10-Q
NYNEX CABLECOMMS GROUP PLC AND
NYNEX CABLECOMMS GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER OF 1996 AS COMPARED WITH FIRST QUARTER OF 1995
INCOME TAXES
Prior to June 14, 1995, NYNEX CableComms' US corporations were included in the
NYNEX consolidated tax return and in New York State and New York City combined
income tax filings. While included in the NYNEX tax filings, NYNEX CableComms
was allocated payments in accordance with the effect its losses had on reducing
the consolidated group's taxable income. As a result of the reorganization,
which occurred immediately prior to the completion of the Combined Offering on
June 14, 1995, NYNEX CableComms and its US corporations no longer qualify to be
included in the NYNEX consolidated US federal tax return or in any state or
local combined tax returns. As such, any equivalent payments will no longer be
made to NYNEX CableComms by NYNEX for any future losses generated. For periods
after June 14, 1995, NYNEX UK CableComms Holdings Inc. and its US subsidiaries
will be treated as a consolidated group of corporations for US tax return
purposes. However, neither UK CableComms nor US CableComms will be consolidated
with UK Holdings or its subsidiaries for US tax purposes. As a result, UK
CableComms and US CableComms will file US federal tax returns. Therefore no tax
benefit arose in the first quarter of 1996. Of the pound sterling 8.4 million
tax benefit for the first quarter of 1995, pound sterling 5.3 million was
attributable to losses in the quarter and pound sterling 3.1 million was
attributable to a deferred tax credit in the quarter.
FOREIGN EXCHANGE
All of NYNEX CableComms' revenues are denominated in pounds sterling. Although
the majority of NYNEX CableComms' operating expenses are incurred in pounds
sterling, NYNEX CableComms purchases certain of its network materials,
equipment and the services of seconded NYNEX employees in US dollars. During
the first quarters of 1996 and 1995, NYNEX CableComms did not experience
significant gains or losses as a result of fluctuations in the exchange rate of
currencies. To date, NYNEX CableComms has not used foreign currency hedging
instruments to reduce its exposure to foreign exchange fluctuations.
CAPITAL RESOURCES, CASH FLOWS AND LIQUIDITY
Significant additional capital expenditures are required to construct the
remaining portions of NYNEX CableComms' network. Under the terms of current
licenses, NYNEX CableComms is required to construct cable television systems
passing an additional 1.3 million premises by the end of 2000, in accordance
with a series of prescribed intermediate milestones for each of its franchises.
NYNEX CableComms expects to have significant capital requirements for the
foreseeable future, expecting to make capital expenditures of approximately
pound sterling 1.0 billion over the three-year period beginning January 1,
1996. By the end of this three year period, NYNEX CableComms intends to have
largely completed network construction in its existing franchises. During the
first quarter of 1996, capital expenditures were pound sterling 88.4 million.
12
<PAGE> 14
FORM 10-Q
NYNEX CABLECOMMS GROUP PLC AND
NYNEX CABLECOMMS GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER OF 1996 AS COMPARED WITH FIRST QUARTER OF 1995
FINANCING OF NYNEX CABLECOMMS
At March 31, 1996, NYNEX CableComms had available pound sterling 601.1 million
of undrawn debt facilities, which are available subject to NYNEX CableComms
passing a certain number of homes.
The financing of NYNEX CableComms is described fully in Notes D and E to the
unaudited Combined Financial Statements. The North limited partner has
contributed pound sterling 131.3 million and pound sterling 53.0 million to the
North Partnership at March 31, 1996 and 1995, respectively, and has provided a
further pound sterling 163.5 million and pound sterling 136.5 million in
financing to the Northern Operating Companies under the North Credit Facility
at those dates, respectively. The South limited partner has contributed pound
sterling 80.4 million to the South Partnership at March 31, 1996 and has
provided a further pound sterling 51.9 million in financing to the Southern
Operating Companies under the South Credit Facility at that date.
CASH FLOWS AND LIQUIDITY
NYNEX CableComms had net cash used in operating activities of pound sterling
3.8 million and pound sterling 12.3 million for the first quarters of 1996 and
1995, respectively.
Net cash used in investing activities was pound sterling 88.4 million and pound
sterling 95.5 million for the first quarter of 1996 and 1995, respectively, for
expenditures on constructing the network and associated capital expenditures.
Net cash provided by financing activities was pound sterling 90.0 million and
pound sterling 101.8 million for the first quarter of 1996 and 1995,
respectively. In the first quarter of 1995, NYNEX made capital contributions of
pound sterling 5.3 million to NYNEX CableComms. Capital contributions by NYNEX
to NYNEX CableComms ceased on March 31, 1995 when the financing arrangements
for the South were reorganized. After this date, all funding by NYNEX has been
through the North and the South limited partners. No capital contributions were
made by the North and South limited partners during the first quarter of 1996.
During the first quarter of 1996, the Northern Operating Companies and Southern
Operating Companies borrowed pound sterling 90.0 million under the credit
facilities which are detailed in Note D to the unaudited Combined Financial
Statements.
13
<PAGE> 15
FORM 10-Q
NYNEX CABLECOMMS GROUP PLC AND
NYNEX CABLECOMMS GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER OF 1996 AS COMPARED WITH FIRST QUARTER OF 1995
OTHER MATTERS
REGULATORY ISSUES
(i) INTERNATIONAL CONSULTATION
In March 1996, the Department of Trade and Industry ("DTI") released a
consultative document that proposed the licensing of additional
facilities-based operators in the international market. Currently only BT and
Mercury are licensed to operate international facilities in the UK. The
consultation period ended in April 1996 and a government announcement is
expected in May 1996. This initiative has largely overtaken a recent OFTEL
consultation on proposals for changes in international interconnection
regulation.
(ii) PRICE CONTROL REVIEW
In December 1995, OFTEL published a consultation document on the BT retail
price control to replace the current retail price index minus 7.5% regime that
will expire on July 31, 1997. The paper also put forward proposals for a new
interconnect regime based on long run incremental costs. In March 1996, OFTEL
published its second consultation document on BT Price Controls. The document
proposed a retail price control in the range of RPI-5% to RPI-9% covering all
major services and consumer segments. OFTEL is also consulting on the
possibility of reducing either the duration or the scope of the control. In
particular the possibility of a two year control is raised, along with a
control covering only small business and residential customers. The latter
would result in a reduction in the RPI-x% value. In terms of network controls,
OFTEL proposes a long run incremental cost base to which price caps in the
range of RPI-3% to RPI-6% would be applied. The second consultation runs until
April 26, 1996. Final proposals on the controls are planned for publication at
the end of May 1996. NYNEX CableComms continues to believe that the period
between 1997 and 2002 (OFTEL's proposed duration of the retail control) will
see the establishment of significant competition to BT that will remove the
need for continued BT retail price controls. Modifications to BT's license to
implement OFTEL's decisions are expected to be finalized in the third quarter
of 1996.
(iii) BT REBALANCING
In December 1995, OFTEL published a consultation document outlining proposed
modifications to BT's license that would remove the current restriction on BT
raising its retail line rental charges by more than the retail price index plus
2% per annum and wholesale charges by the retail price index plus 5% per annum.
BT accepted OFTEL's license modifications in February 1996. BT therefore now
has the ability to raise its line rental charges. The access deficit regime has
been removed which, in turn, removes the potential for payment of access
deficit charges to BT by cable operators including NYNEX CableComms. BT's
prices overall would still remain subject to the retail price index minus 7.5%
control. The license amendments have now been presented to BT and are under
consideration.
14
<PAGE> 16
FORM 10-Q
NYNEX CABLECOMMS GROUP PLC AND
NYNEX CABLECOMMS GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER OF 1996 AS COMPARED WITH FIRST QUARTER OF 1995
(iv) COMPETITION IN TELECOMMUNICATIONS SERVICES
In February 1996, OFTEL introduced a consultation document outlining proposals
for the encouragement of the provision of enhanced services across
telecommunications networks. The consultation process continued during the
first quarter of 1996, and modifications to BT's license are expected to be
proposed in the second quarter 1996.
(v) BROADCASTING BILL
The UK parliament currently has under consideration legislation that introduces
changes in UK Broadcasting Policy. In particular, these include the licensing
of digital terrestrial broadcasters, modifications to cross-media ownership
rules and the merging of the Broadcasting Standards Council and the
Broadcasting Complaints Commission. The parliamentary process is also a
platform for general debate of broadcasting issues that may lead to proposals
over and above those outlined by Government. One such example has been the
identification of a list of events that are prevented from exclusive
broadcasting by pay-TV operators. The legislation is not expected, however, to
present any significant issues for the business and should be adopted by the
summer of 1996.
SUBSEQUENT EVENTS
On April 22, 1996, NYNEX and Bell Atlantic Corporation ("Bell Atlantic")
announced a merger of equals by entering into a definitive merger agreement on
April 21, 1996 that provides for the formation of a new company to be named
Bell Atlantic Corporation. Under the terms of the agreement, NYNEX shareholders
will receive one share in the new company for each NYNEX share owned, and the
Bell Atlantic shareholders will receive 1.302 shares in the new company for
each Bell Atlantic share owned. The merger, which is expected to qualify as a
pooling of interests for accounting purposes, is subject to a number of
conditions, including regulatory approval, receipt of opinions that the merger
will be tax free, and the approval of the shareholders of both NYNEX and Bell
Atlantic. The transaction is expected to close within twelve months.
15
<PAGE> 17
FORM 10-Q
NYNEX CABLECOMMS GROUP PLC AND
NYNEX CABLECOMMS GROUP INC.
OPERATING STATISTICS - FIRST QUARTER 1996
(UNAUDITED)
THE FOLLOWING TABLE SUMMARIZES INFORMATION SET OUT IN MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
<TABLE>
<CAPTION>
NET ADDITIONS
3 MONTHS TO 3 MONTHS TO
MARCH 31, MARCH 31,
1996 1995
<S> <C> <C>
CABLE TELEVISION
Homes passed and marketed 77,339 63,832
Cable television customers 14,607 8,409
RESIDENTIAL TELECOMMUNICATIONS
Homes passed and marketed 88,142 59,658
Residential lines connected 35,684 17,660
RESIDENTIAL TELECOMMUNICATIONS
Business lines connected 3,906 1,167
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
1996 1995 1995
TOTAL TOTAL TOTAL
<S> <C> <C> <C>
Homes passed 1,360,238 767,640 1,201,471
Businesses passed 60,648 27,719 51,761
-------------- -------------- ---------------
TOTAL PREMISES PASSED 1,420,886 795,359 1,253,232
============== ============== ===============
CABLE TELEVISION
Homes passed & marketed 1,072,256 687,923 994,917
Basic customers 211,611 130,377 197,004
Penetration rate 19.7% 19.0% 19.8%
Premium units 428,009 192,988 412,408
Pay to basic ratio 202.3% 148.0% 209.3%
Additional outlets 80,463 48,125 71,985
Additional outlets to basic ratio 38.0% 36.9% 36.5%
Churn rate 30.1% 32.1% 29.4%
Average monthly revenue per customer 23.44 pound sterling 21.28 pound sterling 21.59
Total revenue for period pound sterling 14.3m pound sterling 8.0m pound sterling 38.7m
RESIDENTIAL TELECOMMUNICATIONS
Homes passed & marketed 1,033,944 560,689 945,802
Residential lines connected 268,235 116,614 232,551
Penetration rate 25.9% 20.8% 24.6%
Churn rate 17.8% 16.2% 17.5%
Average monthly revenue per line pound sterling 19.70 pound sterling 22.94 pound sterling 19.52
Total revenue for period pound sterling 14.8m pound sterling 7.3m pound sterling 36.4m
BUSINESS TELECOMMUNICATIONS
Businesses passed and marketed 32,991 23,532 30,450
Business customers 5,241 4,271 5,133
Business lines connected 18,166 6,478 14,260
Average number of lines per customer 3.5 1.5 2.8
Churn rate 12.4% 12.3% 11.9%
Average monthly revenue per line pound sterling 48.25 pound sterling 52.73 pound sterling 46.82
Total revenue for period pound sterling 2.4m pound sterling 0.9m pound sterling 5.3m
INSTALLATION
Total revenue for period pound sterling 1.0m pound sterling 0.7m pound sterling 4.6m
</TABLE>
16
<PAGE> 18
FORM 10-Q
NYNEX CABLECOMMS GROUP PLC AND
NYNEX CABLECOMMS GROUP INC.
PART II - OTHER INFORMATION
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT
NUMBER
(27) Financial Data Schedule
(b) REPORTS ON FORM 8-K
No report on Form 8-K was filed by the registrant during the
quarter for which this report is filed.
17
<PAGE> 19
FORM 10-Q
NYNEX CABLECOMMS GROUP PLC AND
NYNEX CABLECOMMS GROUP INC.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused this report to be signed on their behalf by the
undersigned officers thereunto duly authorized.
NYNEX CABLECOMMS GROUP PLC
------------------------------
(Registrant)
Nicholas Mearing-Smith
Date: May 10, 1996 Principal Financial Officer
NYNEX CABLECOMMS GROUP INC.
------------------------------
(Registrant)
Nicholas Mearing-Smith
Date: May 10, 1996 Principal Financial Officer
18
<PAGE> 20
EXHIBIT INDEX
-------------
Exhibit 27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000939915
<NAME> NYNEX CABLECOMM GROUP PLC
<MULTIPLIER> 1000
<CURRENCY> POUNDS STERLING
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1.5262
<CASH> 7,688
<SECURITIES> 0
<RECEIVABLES> 35,704
<ALLOWANCES> 1,880
<INVENTORY> 0
<CURRENT-ASSETS> 43,959
<PP&E> 1,005,396
<DEPRECIATION> 74,693
<TOTAL-ASSETS> 1,062,847
<CURRENT-LIABILITIES> 108,030
<BONDS> 215,380
0
0
<COMMON> 98,270
<OTHER-SE> 515,937
<TOTAL-LIABILITY-AND-EQUITY> 1,062,847
<SALES> 0
<TOTAL-REVENUES> 32,521
<CGS> 0
<TOTAL-COSTS> 51,741
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,422
<INCOME-PRETAX> (9,353)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,353)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,353)
<EPS-PRIMARY> (0.101)
<EPS-DILUTED> (0.101)
</TABLE>
