-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J4mxlDNdYPdSL5XIjcVnrWjzV7CeJGPVWi2FMZPqg8SbEyYI90+qGnADgJ7RqLV7 go2hunfqIvKfz0XmNFX54A== 0000940180-96-000593.txt : 19961118 0000940180-96-000593.hdr.sgml : 19961118 ACCESSION NUMBER: 0000940180-96-000593 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL CABLETEL INC CENTRAL INDEX KEY: 0000906347 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 521822078 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22616 FILM NUMBER: 96664958 BUSINESS ADDRESS: STREET 1: 110 E 59TH ST STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 MAIL ADDRESS: STREET 1: 110 EAST 59TH STREET STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-22616 ------------------------------------------- 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 September 30, 1996 was 32,006,800. INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES INDEX
PART I. FINANCIAL INFORMATION PAGE - ------------------------------- ---- Item 1. Financial Statements Condensed Consolidated Balance Sheets-- September 30, 1996 and December 31, 1995 2 Condensed Consolidated Statements of Operations-- Three and nine months ended September 30, 1996 and 1995 4 Condensed Consolidated Statement of Shareholders' Equity-- Nine months ended September 30, 1996 5 Condensed Consolidated Statements of Cash Flows-- Nine months ended September 30, 1996 and 1995 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 13 PART II. OTHER INFORMATION - --------------------------- Item 6. Exhibits and Reports on Form 8-K 22 SIGNATURES 23 - ----------
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1996 1995 --------------- -------------- (Unaudited) (See Note) ASSETS CURRENT ASSETS Cash and cash equivalents $ 639,082,000 $175,283,000 Accounts receivable-trade, less allowance for doubtful accounts of $2,527,000 (1996) and $767,000 (1995) 41,675,000 7,340,000 Other 28,554,000 22,514,000 -------------- -------------- TOTAL CURRENT ASSETS 709,311,000 205,137,000 CASH HELD IN ESCROW - 1,598,000 FIXED ASSETS, net 1,176,421,000 639,674,000 INTANGIBLE ASSETS, net 325,736,000 137,578,000 OTHER ASSETS, net of accumulated amortization of $19,399,000 (1996) and $9,537,000 (1995) 60,359,000 26,682,000 -------------- -------------- $2,271,827,000 $1,010,669,000 ============== ==============
2 INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS -- CONTINUED
September 30, December 31, 1996 1995 --------------- --------------- (Unaudited) (See Note) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 37,843,000 $ 50,848,000 Accrued expenses and other 120,748,000 37,102,000 Accrued construction costs 51,628,000 14,543,000 Deferred purchase price 82,084,000 - Current portion of long-term debt 56,653,000 26,516,000 -------------- -------------- TOTAL CURRENT LIABILITIES 348,956,000 129,009,000 LONG-TERM DEBT 1,682,956,000 513,026,000 REGIONAL DEVELOPMENT GRANT, net 605,000 661,000 COMMITMENTS AND CONTINGENT LIABILITIES MINORITY INTERESTS 11,245,000 28,716,000 SHAREHOLDERS' EQUITY Series preferred stock - $.01 par value; authorized 2,500,000 shares; none outstanding - - Common stock - $.01 par value; authorized 100,000,000 shares; issued and outstanding 32,007,000 (1996) and 30,202,000 (1995) shares 320,000 302,000 Additional paid-in capital 499,315,000 462,223,000 Cumulative translation adjustment 33,923,000 6,273,000 (Deficit) (305,493,000) (129,541,000) -------------- -------------- 228,065,000 339,257,000 -------------- -------------- $2,271,827,000 $1,010,669,000 ============== ==============
Note: The balance sheet at December 31, 1995 has been derived from the audited financial statements at that date. See notes to condensed consolidated financial statements. 3 INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, --------------------------- ----------------------------- 1996 1995 1996 1995 ------------ ------------ ------------- ------------- Revenues: Network services $ 40,102,000 $ - $ 63,641,000 $ - Telecommunications 20,140,000 5,185,000 45,297,000 11,511,000 Cable television 10,769,000 3,370,000 28,053,000 7,542,000 Other 6,245,000 - 6,482,000 - ------------ ------------ ------------- ------------- 77,256,000 8,555,000 143,473,000 19,053,000 Costs and expenses: Operating expenses 49,702,000 7,478,000 91,567,000 14,289,000 Selling, general and administrative expenses 34,105,000 14,678,000 80,673,000 35,138,000 Franchise acquisition fees 5,541,000 - 7,374,000 - Corporate expenses 4,135,000 2,248,000 9,419,000 6,545,000 Depreciation and amortization 28,163,000 7,307,000 60,764,000 19,320,000 ------------ ------------ ------------- ------------- 121,646,000 31,711,000 249,797,000 75,292,000 ------------ ------------ ------------- ------------- OPERATING LOSS (44,390,000) (23,156,000) (106,324,000) (56,239,000) Other income (expense): Interest and other income 11,150,000 5,998,000 28,669,000 16,055,000 Interest expense (43,962,000) (11,259,000) (105,368,000) (24,322,000) Foreign currency transaction gains (losses) 261,000 (62,000) 432,000 567,000 ------------ ------------ ------------- ------------- LOSS BEFORE INCOME TAXES AND MINORITY INTERESTS (76,941,000) (28,479,000) (182,591,000) (63,939,000) Income tax benefit (provision) (1,702,000) 748,000 (5,183,000) 1,824,000 ------------ ------------ ------------- ------------- LOSS BEFORE MINORITY INTERESTS (78,643,000) (27,731,000) (187,774,000) (62,115,000) Minority interests 4,573,000 1,938,000 11,822,000 4,637,000 ------------ ------------ ------------- ------------- NET LOSS $(74,070,000) $(25,793,000) $(175,952,000) $ (57,478,000) ============ ============ ============= ============= Net loss per common share $ (2.35) $ (.85) $ (5.73) $ (1.90) ============ ============ ============= ============= Weighted average number of common shares used in computation of net loss per share 31,561,000 30,191,000 30,717,000 30,186,000 ============ ============ ============= =============
See notes to condensed consolidated financial statements. 4 INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
Common Stock $.01 Par Value Additional Cumulative -------------------- Paid-In Translation Shares Par Capital Adjustment (Deficit) ----------- -------- ------------ ----------- ------------- Balance, December 31, 1995 30,202,000 $302,000 $462,223,000 $ 6,273,000 $(129,541,000) Exercise of stock options 339,000 4,000 1,041,000 Exercise of warrants 51,000 287,000 Issuance of warrants in connection with consent solicitations 1,641,000 Shares issued for acquisition 1,415,000 14,000 34,123,000 Net loss for the nine months ended September 30, 1996 (175,952,000) Currency translation adjustment 27,650,000 ----------- -------- ------------ ----------- ------------- Balance, September 30, 1996 32,007,000 $320,000 $499,315,000 $33,923,000 $(305,493,000) =========== ======== ============ =========== =============
See notes to condensed consolidated financial statements. 5 INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, ---------------------------------- 1996 1995 ------------------ -------------- NET CASH (USED IN) OPERATING ACTIVITIES $ (13,237,000) $ (656,000) INVESTING ACTIVITIES Purchase of fixed assets (315,768,000) (296,934,000) Proceeds from sale of fixed assets 1,000 23,000 Acquisition of subsidiaries, net of cash acquired (300,994,000) - License acquisition costs - (1,894,000) Increase in other assets (1,819,000) (3,309,000) -------------- ------------- NET CASH (USED IN) INVESTING ACTIVITIES (618,580,000) (302,114,000) FINANCING ACTIVITIES Principal payments (93,739,000) (9,232,000) Proceeds from borrowings, net of financing costs 1,141,085,000 328,753,000 Cash released from escrow 1,594,000 - Capital contribution from minority partner - 12,673,000 Proceeds from borrowings from minority partner 30,726,000 13,306,000 Proceeds from exercise of stock options and warrants 1,332,000 102,000 -------------- ------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 1,080,998,000 345,602,000 EFFECT OF EXCHANGE RATE CHANGES ON CASH 14,618,000 4,451,000 -------------- ------------- INCREASE IN CASH AND CASH EQUIVALENTS 463,799,000 47,283,000 Cash and cash equivalents at beginning of period 175,283,000 294,602,000 -------------- ------------- Cash and cash equivalents at end of period $ 639,082,000 $ 341,885,000 ============== ============= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for interest exclusive of amounts capitalized $ 12,009,000 $ 1,494,000 Income taxes paid 367,000 1,175,000 SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES Warrants issued in connection with consent solicitations $ 1,641,000 $ - Common stock issued for acquisition 34,137,000 - Liabilities incurred in connection with acquisitions 80,117,000 -
See notes to condensed consolidated financial statements. 6 INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE A--BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1995. Net loss per share is computed based on the weighted average number of common shares outstanding during the periods. Common stock equivalents are excluded from the net loss per share computations because they are antidilutive. NOTE B--ACCOUNTING CHANGE In October 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 defines a fair value based method of accounting for stock-based employee compensation plans (including stock option plans). As permitted by SFAS No. 123, the Company expects to continue to measure compensation costs for its plans as prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees." NOTE C--FIXED ASSETS Fixed assets consists of:
September 30, December 31, 1996 1995 -------------- ------------ (Unaudited) Operating equipment $ 839,052,000 $424,019,000 Other equipment 103,902,000 39,717,000 Construction-in-progress 321,881,000 218,044,000 -------------- ------------ 1,264,835,000 681,780,000 Allowance for depreciation (88,414,000) (42,106,000) -------------- ------------ $1,176,421,000 $639,674,000 ============== ============
7 INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED NOTE D--INTANGIBLE ASSETS Intangible assets consists of:
September 30, December 31, 1996 1995 -------------- ------------ (Unaudited) License acquisition costs, net of accumulated amortization of $31,348,000 (1996) and $22,789,000 (1995) $157,657,000 $137,578,000 Goodwill, net of accumulated amortization of $3,064,000 168,079,000 - ------------ ------------ $325,736,000 $137,578,000 ============ ============
In September 1996, the Company acquired the remaining 30% minority interest of English Cable Enterprises, Inc. ("ECE") that the Company did not own, in exchange for 1,415,000 shares of its common stock. ECE owns four telephone and cable television licenses in the northern suburbs of London. The aggregate purchase price of $34,137,000 plus costs incurred of $193,000 exceeded the fair value of the net tangible assets acquired by $28,638,000, which is classified as license acquisition costs. In May 1996, an indirect wholly-owned subsidiary of the Company (the"Purchaser") acquired NTL Group Limited ("NTL"), an English limited liability company, for payments of approximately (Pounds)204 million at closing,(Pounds)35 million, subject to adjustments, on the first anniversary of closing and (Pounds)17.1 million in October 1996. NTL provides television and radio transmission services and a range of other services in the broadcasting and telecommunications industries. The Company used (Pounds)200 million from its 1996 bank facilities to finance the acquisition. This acquisition has been accounted for as a purchase, and, accordingly, the net assets and results of operations of NTL have been included in the consolidated financial statements from the date of acquisition. The aggregate purchase price of (Pounds)256.1 million ($396.5 million) plus costs incurred of $3.5 million exceeded the fair value of the net tangible assets acquired by $170.2 million, which is classified as goodwill, and is being amortized over a period of 30 years. Under the purchase method of accounting, the purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair values at acquisition. However, changes to the allocations of the purchase price are expected as valuations or appraisals of assets and liabilities are completed. Although the Company cannot ascertain what the changes will be, such changes could be material. 8 INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED NOTE D--INTANGIBLE ASSETS-CONTINUED The pro forma unaudited consolidated results of operations for the nine months ended September 30, 1996 and 1995 assuming consummation of the ECE and NTL acquisitions as of the beginning of the periods are as follows:
Nine Months Ended September 30, ---------------------------- 1996 1995 ------------- ------------ Total revenue $ 204,768,000 $141,827,000 Net loss (183,285,000) (55,169,000) Net loss per share (5.70) (1.75)
NOTE E--LONG-TERM DEBT Long-term debt consists of:
September 30, December 31, 1996 1995 -------------- ------------ (Unaudited) 10-7/8% Senior Deferred Coupon Notes $ 170,747,000 $157,748,000 12-3/4% Series A Senior Deferred Coupon Notes 179,354,000 163,528,000 11-1/2% Series B Senior Deferred Coupon Notes 647,005,000 - 7-1/4% Convertible Subordinated Notes 191,750,000 191,750,000 7% Convertible Subordinated Notes 275,000,000 - Term Loan Facility 219,100,000 - Subsidiary bank loan - 1,576,000 Subsidiary notes payable 56,653,000 24,940,000 -------------- ------------ 1,739,609,000 539,542,000 Less current portion 56,653,000 26,516,000 -------------- ------------ $1,682,956,000 $513,026,000 ============== =============
9 INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED NOTE E--LONG-TERM DEBT-CONTINUED In January 1996, the Company issued $1,050,000,000 aggregate principal amount of 11-1/2% Series B Senior Deferred Coupon Notes due 2006. The 11-1/2% Senior Deferred Coupon Notes were issued at a price to investors of 57.155% of the aggregate principal amount at maturity or $600,127,500. The Company received net proceeds of $582,000,000 after discounts and commissions from the issuance of the 11-1/2% Senior Deferred Coupon Notes. The original issue discount accretes at a rate of 11-1/2%, compounded semiannually, to an aggregate principal amount of $1,050,000,000 by February 1, 2001. Interest will thereafter accrue at 11-1/2% per annum, payable semiannually beginning on August 1, 2001. The 11-1/2% Senior Deferred Coupon Notes may be redeemed at the Company's option, in whole or in part, at any time on or after February 1, 2001 at 105.75% the first year, 102.875% the second year and 100% thereafter, plus accrued and unpaid interest to the date of redemption. The 11-1/2% Senior Deferred Coupon Notes are effectively subordinated to all existing and future indebtedness and other liabilities and commitments of the Company's subsidiaries. The indenture governing the 11-1/2% Senior Deferred Coupon Notes contains restrictions relating to, among other things: (i) incurrence of additional indebtedness and issuance of preferred stock; (ii) dividend and other payment restrictions and (iii) mergers, consolidations and sales of assets. Pursuant to the terms of the consent solicitations to the holders of the 10-7/8% Senior Deferred Coupon Notes and to the holders of the 12-3/4% Series A Senior Deferred Coupon Notes to gain consent to modify certain indenture provisions, the Company paid an aggregate of $3,592,000 in consent payments and issued warrants to purchase 164,000 shares of common stock at an exercise price of $23.78 per share in lieu of additional consent payments of $1,641,000. The warrants expire in 2006. In June 1996, the Company issued $275,000,000 aggregate principal amount of 7% Convertible Subordinated Notes due 2008. Interest on the Convertible Notes is payable semiannually beginning December 15, 1996. The Convertible Notes mature on June 15, 2008. The Convertible Notes are unsecured obligations convertible into shares of common stock prior to maturity at a conversion price of $37.875 per share, subject to adjustment. There are approximately 7,261,000 shares of common stock reserved for issuance upon conversion of the Convertible Notes. The Convertible Notes are redeemable, in whole or in part, at the option of the Company at any time on or after June 15, 1999, at a redemption price of 104.9% that declines annually to 100% in 2006, in each case together with accrued and unpaid interest to the redemption date. The Company incurred $8,464,000 in fees and expenses in connection with the issuance of the Convertible Notes, which is included in deferred financing costs. To finance the acquisition of NTL, the Purchaser entered into an agreement dated March 28, 1996 with a syndicate of lenders (the "Lenders") pursuant to which the Lenders made available to the Purchaser senior secured loan facilities (the "A Facilities") of a maximum principal amount of (Pounds)165 million comprised of: (i) a long term loan facility of (Pounds)140 million (the "Term Loan Facility") and (ii) a revolving credit facility of (Pounds)25 million (the "Revolving Facility"). One of the Lenders also agreed to make available to the Purchaser a secured loan facility of (Pounds)60 million (the "Bridge Facility") to finance the remainder of the payment due at closing and acquisition costs and expenses due at closing. The Term Loan Facility and the Bridge Facility were used to finance the acquisition of NTL including related acquisition expenses (an aggregate of (Pounds)200 million or $310,100,000). The Bridge Facility was repaid in full in August 1996. 10 INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED NOTE E--LONG-TERM DEBT-CONTINUED The Revolving Facility is available until December 31, 1997 for capital expenditure and working capital purposes of NTL's group. At the end of the availability period, any amount outstanding under the Revolving Facility will be converted to term debt and be aggregated with the Term Loan Facility. All amounts outstanding under the Term Loan Facility are scheduled to be repaid in quarterly installments from 1998 to 2002 inclusive. The amount of the installments will be based upon an agreed percentage of the loan and will increase year to year. Final repayment of the Term Loan Facility is due on December 31, 2002. Loans under the A Facilities bear interest at an annual rate equal to LIBOR plus a margin that varies from 0.75% per annum to 1.75% per annum, based on certain financial ratios of the Purchaser and certain of its subsidiaries. Interest is payable either monthly, quarterly or semiannually, at the option of the Purchaser. The A Facilities are secured by guarantees from NTL and each of its subsidiaries and by first ranking fixed and floating charges over all the present and future assets of the Purchaser, NTL and its subsidiaries. The A Facilities do not, therefore, provide for the Lenders to have recourse to assets of the Company other than to the assets of the Purchaser and its subsidiaries. The A Facilities contain various financial and other covenants, including covenants with respect to the Purchaser and certain of its subsidiaries relating to minimum total debt to operating cash flow (as defined in the "A Facilities"), fixed charge coverage, net worth and pro-forma debt service ratios. The A Facilities also include restrictions on dividends and distributions by the Purchaser to its shareholders. NOTE F--COMMITMENTS AND CONTINGENT LIABILITIES As of September 30, 1996, the Company was committed to pay approximately $62,400,000 for equipment and services. The Company has licenses issued by the United Kingdom Department of Trade and Industry ("DTI") and the United Kingdom Independent Television Commission("ITC") for its cable television, telephone and telecommunications business and the Federal Communications Commission ("FCC") for its microwave transmission business. The initial terms of the Company's licenses was 23 years for the DTI licenses, 15 years for the ITC licenses and 10 years for the FCC licenses. The Company's licenses expire in 2008 to 2017 for the DTI licenses, 1999 to 2005 for the ITC licenses and 2001 for the FCC licenses. The DTI requires a fixed annual renewal fee of (Pounds)2,500 ($4,000) per license. The ITC requires an annual license fee ranging from (Pounds)1,300 ($2,000) to (Pounds)7,900 ($12,000) per license based on the number of homes in the licensed area, which is subject to adjustment annually. The FCC requires an annual license fee of $140 per license, which is subject to adjustment annually. The Company's license fees in 1996 were $40,000. In addition, the Company was awarded certain newly issued licenses by the ITC in 1995. Pursuant to the terms of the local delivery license ("LDL") for Northern Ireland granted to a wholly-owned subsidiary of the Company, the Company is required to make annual cash payments to the ITC for fifteen years commencing in January 1997 in the amount of approximately (Pounds)14,400,000 ($22,500,000) (subject to adjustments for inflation). Such payments are in addition to the percentages of qualifying revenue already set by the ITC of 0% for the first ten years and 2% for the last five years of the fifteen-year license. Pursuant to the terms of the LDL for Glamorgan and Gwent, Wales granted to a wholly-owned subsidiary of the Company, the Company is required to make annual cash payments to the ITC for fifteen years, commencing in the first full calendar year after the start of operations, in the amount of (Pounds)104,188 ($163,000). Such payments are in addition to the percentages of qualifying revenue already set by the ITC of 0% for the first five years, 2% for the second five years and 4% for the last five years of the fifteen-year license. 11 INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED NOTE F--COMMITMENTS AND CONTINGENT LIABILITIES-CONTINUED A significant portion of NTL's revenues is attributable to the provision of television and radio transmission and distribution services and the provision of telecommunications services. In the United Kingdom, the provision of such services is governed by the Telecommunications Act and the Wireless Telegraphy Act 1949. NTL holds four licenses under the Telecommunications Act. The initial terms of these licenses were 10 or 25 years. These licenses expire in 2002 to 2016. The current annual fees for these licenses is an aggregate of (Pounds)37,000 ($58,000) which has been paid in 1996. NTL holds a number of Wireless Telegraphy Act licenses which continue in force primarily from year to year unless revoked or unless any of the license fees are not paid. The current annual fees for these licenses is an aggregate of (Pounds)1,478,000 ($2,300,000) of which (Pounds)1,157,000 ($1,800,000) has been paid in 1996 and (Pounds)321,000 ($500,000) is payable through December 1996. NOTE G--SUBSEQUENT EVENT In October 1996, the Company acquired the remaining 40% interest it did not already own in CableTel Newport in exchange for 780 shares of the Company's Series A Preferred Stock. CableTel Newport owns and operates telephone and cable television franchises in South Wales. In October 1996, the Board of Directors created and authorized for issuance 2,000 shares of 5% Non-Voting Convertible Preferred Stock, Series A, of which 780 shares were issued in connection with the CableTel Newport acquisition. Each share of Series A Preferred Stock has a stated value of $100,000, subject to certain exceptions. The holders of Series A Preferred Stock are entitled to receive cumulative dividends beginning in October 2001 at the rate of 5% of the stated value, payable semi-annually in arrears, subject to certain exceptions. Dividends may be paid, in the sole discretion of the Board of Directors, in cash, in common stock or in additional shares of Series A Preferred Stock. The Company has the right, exercisable at any time, to redeem all or some of the Series A Preferred Stock at a price equal to the aggregate stated value of the shares to be redeemed, together with all accrued and unpaid dividends, in cash or in shares of common stock (based on the average market price of the common stock, as defined). The holder of Series A Preferred Stock has the right to convert shares of Series A Preferred Stock into common stock equal to the aggregate stated value of Series A Preferred Stock divided by the greater of (a) $40.00 or (b) the average market price of the common stock, as defined. The Series A Preferred Stock has a liquidation preference equal to the stated value per share plus accrued and unpaid dividends. 12 INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION. The following table illustrates the number of homes passed, the number of homes released to marketing and the total number of customers as of September 30, 1996 and December 31, 1995, for the full-service dual network constructed by the Company since 1993 and, as of September 30, 1996, for the network constructed as cable-only and inherited by the Company through prior acquisitions:
Newly Constructed Dual Network and Inherited Cable-Only Network - --------------------------------------------------------------------------------------------------- NEWLY CONSTRUCTED NEWLY CONSTRUCTED INHERITED CABLE- DUAL NETWORK DUAL NETWORK ONLY NETWORK SEPTEMBER 30, 1996 DECEMBER 31, 1995 SEPTEMBER 30, 1996 - --------------------------------------------------------------------------------------------------- Homes passed 694,400 463,000 263,200 - --------------------------------------------------------------------------------------------------- Homes marketed* 390,800 176,200 263,200 - --------------------------------------------------------------------------------------------------- Total customers 135,300 57,700 48,000 - --------------------------------------------------------------------------------------------------- Dual 105,155 44,630 - - --------------------------------------------------------------------------------------------------- Cable-only 15,600 6,620 48,000 - --------------------------------------------------------------------------------------------------- Telephone-only 14,545 6,450 - - --------------------------------------------------------------------------------------------------- Total RGU's** 240,455 102,330 48,000 - --------------------------------------------------------------------------------------------------- RGU penetration 61.5% 58.1% 18.2% - --------------------------------------------------------------------------------------------------- Cable penetration 30.9% 29.1% 18.2% - --------------------------------------------------------------------------------------------------- Telephone penetration 30.6% 29.0% - - ---------------------------------------------------------------------------------------------------
* At September 30, 1996, homes for which the sales process has begun. At December 31, 1995, homes for which the initial sales process was completed. ** An RGU (revenue generating unit) is one cable television account or one telephone account; thus, a dual customer counts as two RGU's. 13 INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES CONTINUED RESULTS OF OPERATIONS --------------------- As a result of the acquisition of NTL Group Limited ("NTL") in May 1996, the Company consolidated the results of operations of NTL from the date of acquisition. The results of NTL are not included in the 1995 consolidated results. Three Months Ended September 30, 1996 and 1995 - ---------------------------------------------- Network services revenues increased to $40,102,000 from none as a result of the acquisition of NTL. Telecommunications revenues increased to $20,140,000 from $5,185,000. NTL telecommunications revenues in the third quarter of 1996 were $4,285,000. The remainder of the increase was the result of customer growth that increased the Company's current revenue stream. Cable television revenues increased to $10,769,000 from $3,370,000 as a result of customer growth that increased the Company's current revenue stream. Other revenue increased to $6,245,000 from none as a result of the acquisition of NTL. Operating expenses increased to $49,702,000 from $7,478,000. NTL operating expenses in the third quarter of 1996 were $29,989,000. The remainder of the increase was the result of increases in telecommunications and cable television programming costs, interconnection costs and costs of operating the network. Selling, general and administrative expenses increased to $34,105,000 from $14,678,000. NTL selling, general and administrative expenses in the third quarter of 1996 were $4,759,000. The remainder of the increase was the result of increases in telecommunications and cable television sales and marketing costs and in additional personnel and overhead to service the increasing customer base. Franchise acquisition fees of $5,541,000 in 1996 are for the Northern Ireland license and are payable to the ITC beginning in January 1997. Corporate expenses increased to $4,135,000 from $2,248,000 due to an increase in personnel and related costs. The 1996 and 1995 amounts include $814,000 of non-cash expense related to non-compete agreements and current period expenses include $391,000 of expenses related to a proposed acquisition. Depreciation and amortization expense increased to $28,163,000 from $7,307,000. Depreciation and amortization expense of NTL and amortization of goodwill as a result of the acquisition was $8,274,000 in the third quarter of 1996. The remainder of the increase was primarily due to an increase in depreciation of telecommunications and cable television equipment. Interest and other income increased to $11,150,000 from $5,998,000 due to an increase in funds available for short term investment. Interest expense increased to $43,962,000 from $11,259,000 due to interest on the bank loan in connection with the NTL acquisition in 1996 plus the issuance of the 11-1/2% Notes and the 7% Convertible Subordinated Notes in 1996. Interest of $2,386,000 was paid in the third quarter of 1996. Foreign currency transaction gains of $261,000 in 1996 and losses of $62,000 in 1995 are the result of changes in the exchange rate. 14 INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES CONTINUED Nine Months Ended September 30, 1996 and 1995 - --------------------------------------------- Network services revenues increased to $63,641,000 from none as a result of the acquisition of NTL. Telecommunications revenues increased to $45,297,000 from $11,511,000. NTL telecommunications revenues from May 9, 1996, the date of acquisition, through September 30, 1996 were $6,746,000. The remainder of the increase was the result of customer growth that increased the Company's current revenue stream. Cable television revenues increased to $28,053,000 from $7,542,000 as a result of customer growth that increased the Company's current revenue stream. Other revenue increased to $6,482,000 from none as a result of the acquisition of NTL. Operating expenses increased to $91,567,000 from $14,289,000. NTL operating expenses from May 9, 1996, the date of acquisition, through September 30, 1996 were $43,993,000. The remainder of the increase was the result of increases in telecommunications and cable television programming costs, interconnection costs and costs of operating the network. Selling, general and administrative expenses increased to $80,673,000 from $35,138,000. NTL selling, general and administrative expenses from May 9, 1996, the date of acquisition, through September 30, 1996 were $7,281,000. The remainder of increase was the result of increases in telecommunications and cable television sales and marketing costs and in additional personnel and overhead to service the increasing customer base. Franchise acquisition fees of $7,374,000 in 1996 are for the Northern Ireland license and are payable to the ITC beginning in January 1997. Corporate expenses increased to $9,419,000 from $6,545,000 due to an increase in personnel and related costs. The 1996 and 1995 amounts include $2,443,000 of non-cash expense related to non-compete agreements and current period expenses include $391,000 of expenses related to a proposed acquisition. Depreciation and amortization expense increased to $60,764,000 from $19,320,000. Depreciation and amortization expense of NTL and amortization of goodwill as a result of the acquisition was $11,977,000 from May 9, 1996, the date of acquisition, through September 30, 1996. The remainder of the increase was primarily due to an increase in depreciation of telecommunications and cable television equipment. Interest and other income increased to $28,669,000 from $16,055,000 due to an increase in funds available for short term investment. Interest expense increased to $105,368,000 from $24,322,000 due to the interest on the bank loan in connection with the NTL acquisition in 1996 plus the issuance of the 11-1/2% Notes and the 7% Convertible Subordinated Notes in 1996. Interest of $12,009,000 was paid during the nine months ended September 30, 1996. Foreign currency transaction gains of $432,000 in 1996 and $567,000 in 1995 are the result of changes in the exchange rate. In October 1995, the FASB issued SFAB No. 123, "Accounting for Stock-Based Compensation." Although all entities are encouraged to adopt this method of accounting for all stock-based employee compensation plans (including stock option plans), SFAS No. 123 allows an entity to continue to measure compensation costs for its plans as prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees." At this time, management expects to continue its accounting in accordance with APB Opinion No. 25. 15 INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES CONTINUED LIQUIDITY AND CAPITAL RESOURCES The Company will require significant amounts of capital to finance construction of its system network, for connection of telephone, telecommunications and cable television customers to the network, for working capital and for debt service. The Company also requires substantial capital for the deferred payment in connection with the acquisition of NTL, to repay the NTL bank facilities and to fund the capital expenditure requirements of NTL's existing operations and to finance the expansion of those operations. The Company expects that the capital required to build its telephone, telecommunications and cable television networks and connect residential and business subscribers will be approximately $950 per home in its franchise areas, of which approximately $600 represents the cost of the network itself and the remainder represents the capital cost of connecting customers to its network. Certain locations may require more or less capital depending upon household density, business density and penetration rates. In addition, certain costs such as the establishment of telephone switches, cable headends and facilities are incurred during the initial phases of network construction, leading to average capital expenditures per home which are higher in the initial years. The construction and development of the systems will depend on, among other things, the Company's ability to design network routes, install facilities, obtain and maintain any required governmental licenses or approvals and finance construction and development, all in a timely manner, at reasonable costs and on satisfactory terms and conditions. Pursuant to the terms of the Northern Ireland LDL, CableTel Northern Ireland Limited is required to make annual cash payments to the ITC for fifteen years commencing in January 1997 in the amount of approximately (Pounds)14.4 million (subject to adjustments for inflation). Such payments are in addition to the percentages of qualifying revenue already set by the ITC of 0% for the first ten years and 2% for the last five years of the fifteen-year license. Pursuant to the terms of the Glamorgan and Gwent LDL, CableTel South Wales Limited is required to make annual cash payments to the ITC for fifteen years, commencing in the first full calendar year after the start of operations, in the amount of approximately (Pounds)104,188 (subject to adjustment for inflation). Such payments are in addition to the percentages of qualifying revenue already set by the ITC of 0% for the first five years, 2% for the second five years and 4% for the last five years of the fifteen-year license. The Company believes that the aggregate cost of network construction from September 30, 1996 through passing 2,090,000 of the total 2,292,000 homes in its franchises in accordance with its regulatory build schedules (including the license payments in respect of the Northern Ireland LDL and the Gwent and Glamorgan LDL) will be approximately (Pounds)915 million ($1.4 billion) which includes the commitments for equipment and services at September 30, 1996 of approximately $62,400,000. The exact amounts and timing of these expenditures could vary significantly with the actual number of subscribers and are subject to a variety of factors which may vary greatly by market and may be beyond the control of the Company. In addition, this amount includes various estimated inflation factors on certain components. The substantial costs will result in a negative cash flow until an adequate customer base is established. In June 1996, the Company issued $275,000,000 aggregate principal amount of 7% Convertible Subordinated Notes due 2008 and received proceeds of $267,437,000. Interest on the Convertible Notes is payable semiannually beginning December 15, 1996. The Convertible Notes mature on June 15, 2008. The Convertible Notes are unsecured obligations convertible into shares of common stock prior to maturity at a conversion price of $37.875 per share, subject to adjustment. The Convertible Subordinated Notes are redeemable, in whole or in part, at the option of the Company at any time on or after June 15, 1999, at a redemption price of 104.9% that declines annually to 100% in 2006, in each case together with accrued and unpaid interest to the redemption date. 16 INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES CONTINUED In 1996, the Company issued $1,050,000,000 aggregate principal amount of its 11-1/2% Series B Senior Deferred Coupon Notes due 2006. The 11-1/2% Notes were issued at a price to investors of 57.155% of the aggregate principal amount at maturity, or $600,127,500. The Company received net proceeds of approximately $582,000,000 from the issuance of the 11-1/2% Notes. The original issue discount of the 11-1/2% Notes accretes at a rate of 11-1/2%, compounded semiannually, to an aggregate principal amount of $1,050,000,000 by February 1, 2001. Interest will thereafter accrue at 11-1/2% per annum, payable semiannually beginning on August 1, 2001. The 11-1/2% Notes may be redeemed at the Company's option, in whole or in part, at any time on or after February 1, 2001 at 105.75% the first year, 102.875% the second year and 100% thereafter, plus accrued and unpaid interest to the date of redemption. In 1995, the Company issued $277,803,500 aggregate principal amount at maturity of its 12-3/4% Senior Deferred Coupon Notes due 2005. The 12-3/4% Notes were issued at a price to investors of 53.995% of the aggregate principal amount at maturity, or $150,000,000. The Company received proceeds of $145,125,000 from the issuance of the 12-3/4% Notes. The original issue discount of the 12-3/4% Notes accretes at a rate of 12-3/4%, compounded semiannually, to an aggregate principal amount of $277,803,500 by April 15, 2000. Interest will thereafter accrue at 12-3/4% per annum, payable semiannually beginning on October 15, 2000. The 12-3/4% Notes may be redeemed at the Company's option, in whole or in part, at any time on or after April 15, 2000 at 103.64% the first year, 101.82% the second year and 100% thereafter, plus accrued and unpaid interest on the date of redemption. In 1995, the Company issued $191,750,000 aggregate principal amount of its 7-1/4% Convertible Subordinated Notes due 2005 and received proceeds of $186,065,000. Interest on the 7-1/4% Convertible Subordinated Notes is payable semiannually. The 7-1/4% Convertible Subordinated Notes are convertible into shares of common stock prior to maturity at a conversion price of $27.56 per share, subject to adjustment in certain events. The 7-1/4% Convertible Subordinated Notes are redeemable, in whole or in part, at the option of the Company, at any time on or after April 15, 1998, the redemption price of 105.08% that declines annually to 100.73% in 2004, in each case together with accrued and unpaid interest to the redemption date. In 1993, the Company issued $212,000,000 aggregate principal amount of its 10-7/8% Senior Deferred Coupon Notes due 2003. The 10-7/8% Notes were issued at a price to investors of 58.873% of the aggregate principal amount at maturity, or $124,811,000. The Company received proceeds of $119,797,000 from the issuance of the 10-7/8% Notes. The original issue discount of the 10-7/8% Notes accretes at a rate of 10-7/8%, compounded semiannually, to an aggregate principal amount of $212,000,000 by October 15, 1998. Interest will there after accrue at 10-7/8% per annum, payable semiannually beginning on April 15, 1999. The 10-7/8% Notes may be redeemed at the Company's option, in whole or in part, at any time on or after October 15, 1998 at 103.107% the first year, 101.554% the second year and 100% thereafter, plus accrued and unpaid interest to the date of redemption. Cash and cash equivalents as of September 30, 1996 are expected to be sufficient to meet the capital requirements of the Company's franchises into the third quarter of 1997 in accordance with the build schedules contained in the existing licenses. The Company intends to resume discussions with commercial banks regarding the arrangement of certain proposed credit facilities (the "Proposed Credit Facilities") to further fund construction costs and working capital requirements. Based on the information currently available to the Company it is currently anticipated that cash on hand, cash flow from operations (which is expected by early 1997) and expected sources of funds (including, but not limited to, the Proposed Credit Facilities or other financings, if obtained) will be sufficient to fund the estimated costs required to complete planned construction in its existing franchise past 2,090,000 homes in accordance with the construction milestones set forth in its licenses. To the extent that either the Company is unable to obtain the Proposed Credit Facilities or such other financing or does not meet its projections, the Company will require additional debt and/or equity financings. There can be no assurance that (i) the Proposed Credit Facilities will be obtained (or be available on acceptable terms), (ii) any other financings will be consummated or available on acceptable terms, (iii) actual construction costs will not exceed the 17 INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES CONTINUED Company's expectations or that additional funding substantially in excess of the amounts estimated above will not be required, (iv) conditions precedent to advances under any such credit facility will be satisfied when funds are required, (v) the Company will not acquire additional franchises or businesses that would require additional capital or (vi) the Company will be able to generate sufficient cash from operations to meet any of its capital requirements when required. The Company does not have any firm additional financing plans to address any of the foregoing situation at this time. The inability of the Company to obtain the Proposed Credit Facilities or alternative financing could result in a failure to comply with the minimum build milestones set forth in its licenses for certain of its franchises and could ultimately lead to the revocation of such licenses, which would have a material adverse effect on the Company. The Company also incurs capital expenditures for the establishment of its business facilities and fixtures, office and computer equipment, its billing and subscriber management systems and vehicles. These costs also vary by location and size of franchise, but are substantially less than the capital costs of the network itself. The exact amounts and timing of all of these expenditures are subject to a variety of factors which may vary greatly by market and be beyond the control of the Company. Accordingly, there can be no assurance that the amount of the funding actually required will not exceed the estimated amounts described above or that additional funding substantially in excess of the amounts estimated above will not be required. Furthermore, if the Company were to make additional investments or acquire additional franchises, funding would be needed in addition to the anticipated funding requirements described above. In addition to its capital expenditures, the Company incurs direct operating costs for such items as salaries and office rent. As network installation progresses, the Company will incur increased sales and marketing expenses (including sales commissions). Since the Company does not intend initially to produce its own programming, it purchases programming from suppliers whose charges may reach 65% of cable television revenues in the early years. The Company also incurs charges from other telecommunications systems in order to interconnect with the worldwide telephone network. The Company's operations are conducted through its direct and indirect wholly-owned subsidiaries. As a holding company, the Company holds no significant assets other than its investments in and advances to its subsidiaries. The Company is therefore dependent upon the receipt of sufficient funds from its subsidiaries to meet its own obligations. Accordingly, the Company's ability to make scheduled interest and principal payments (or any other payments that may become payable) when due to holders of indebtedness of the Company and the Company's ability to pay cash dividends to its stockholders is dependent upon the receipt of sufficient funds from its subsidiaries, which may be restricted in the manner described in the next paragraph. Each of the Company's subsidiaries which are Delaware incorporated corporations may pay dividends, under the Delaware General Corporation Law (the "DGCL") only out of its surplus or, in the circumstances prescribed by the DGCL, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. Each of the Company's subsidiaries which are United Kingdom companies are, under applicable United Kingdom law, prohibited from paying dividends unless such payments are made out of profits available for distribution (which consist of accumulated, realized profits, so far as not previously utilized by distribution or capitalization, less accumulated realized losses, so far as not previously written off in a reduction or reorganization of capital duly made). The Company's United Kingdom subsidiaries (excluding NTL and its subsidiaries) do not currently have such profits and are not expected to have any such profits for the foreseeable future. In addition, the United Kingdom may impose a withholding tax on payments of interest and advance corporation tax on distributions (dividends or otherwise) by United Kingdom subsidiaries to the Company. In light of the Company's strategy of continued growth, in part through 18 INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES CONTINUED acquisitions, the Company and its subsidiaries may incur substantial indebtedness in the future. A substantial portion of such future indebtedness and, in particular, indebtedness incurred by the Company's subsidiaries under the Proposed Credit Facilities, is expected to be secured and, consequently, will have priority to the extent of such security over unsecured indebtedness. In addition, the NTL Facilities effectively restrict, and the lenders under the Proposed Credit Facilities may impose restrictions on the rights of the Company to receive from its subsidiaries repayment of or interest in respect of intercompany loans or restrictions on the ability of the Company's subsidiaries to pay dividends or make other distributions. Therefore, for the reasons referred to in this paragraph and under "The NTL Acquisition" below, there can be no assurance that the Company will be able to receive any cash flow from its subsidiaries in a timely manner or at all. In addition, the Company will encounter currency exchange rate risks which could be material relative to funding United Kingdom operations and to revenues. To the extent that the Company obtains financing in United States dollars and incurs costs in the construction and operation of the Company's regional systems in the United Kingdom in British pounds sterling, it will encounter currency exchange rate risks. Furthermore, the Company's revenue are generated primarily in British pounds sterling while its interest and principal obligations with respect to most of the Company's existing indebtedness is, and will be, payable in dollars. At September 30, 1996, the Company had invested approximately $515,000,000 in pounds sterling money market instruments and cash accounts to reduce this risk. While the Company may consider entering into transactions to hedge the risk of exchange rate fluctuations, there can be no assurances that the provisions governing the indebtedness of the Company and its subsidiaries would permit such transactions, and, if such provisions do permit such transactions, that they will successfully prevent shifts in the currency exchange rates from having a material adverse effect on the Company. THE NTL ACQUISITION - ------------------- In May 1996, an indirect wholly-owned subsidiary of the Company (the "Purchaser") acquired NTL, an English limited liability company, for payments of approximately (Pounds)204 million (the "Initial Payment") at closing, (Pounds)17.1 million in October 1996 and (Pounds)35 million (subject to adjustments, the "Further Payment") on the first anniversary of closing. NTL provides television and radio transmission services and a range of other services in the broadcasting and telecommunications industries. To finance a substantial portion of the purchase price for NTL, a syndicate of lenders made available senior secured loan facilities (the "A Facilities") of a maximum principal amount of (Pounds)165 million comprised of (i) the Term Loan Facility of (Pounds)140 million and (ii) the Revolving Facility of (Pounds)25 million. The Term Loan Facility was fully drawn to finance a portion of the Initial Payment or refinance monies used to pay a portion of the Initial Payment including related acquisition expenses. The Revolving Facility is available until December 31, 1997 for capital expenditure and working capital purposes of NTL's group. Up to (Pounds)2 million of the Revolving Facility is available by way of standby letters of credit to guarantee overdraft and other working capital facilities made available by any clearing banks to the Purchaser. At the end of the availability period, any amount outstanding under the Revolving Facility will be converted to term debt and be aggregated with the Term Loan Facility. 19 INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES CONTINUED All amounts outstanding under the Term Loan Facility are scheduled to be repaid in quarterly installments from 1998 to 2002 inclusive. The amount of the installments will be based upon an agreed percentage of the loans and will increase year to year. Final repayment of the Term Loan Facility is due on December 31, 2002. Loans under the A Facilities bear interest at an annual rate equal to LIBOR plus a margin that varies from 75% per annum to 1.75% per annum, based on certain financial ratios of the Purchaser and certain of its subsidiaries. As of September 30, 1996, the effective rate was 7.6875%. Interest is payable either monthly, quarterly or semiannually, at the option of the Purchaser. The A Facilities are secured by guarantees from NTL and certain of its subsidiaries and by first ranking fixed and floating charges over the present and future assets (subject to certain exceptions) of the Purchaser, NTL and certain of its subsidiaries. One of the lenders also made available to the Purchaser a secured loan facility of (Pounds)60 million ("the Bridge Facility") to finance most of the remainder of the Initial Payment and acquisition costs and expenses due at closing. The Bridge Facility was repaid in full in August 1996. The NTL Facilities contain various covenants and conditions including, among other things, a covenant prohibiting dividends and distributions by the Purchaser to the Company unless certain cash flow targets are met and, if such targets are met, requiring 50% of all Excess Cash Flow to be applied to repay amounts outstanding under the A Facilities. The Company anticipates that substantial amounts of capital will be required in the future in order to, among other things, expand NTL's existing telecommunications network in England to other regions in the United Kingdom. The Company estimates that, based on the information currently available to it, through December 31, 1997, NTL may require approximately (Pounds)50 to 75 million in capital beyond that which NTL is capable of generating from its current operations for interest expense under the NTL Facilities, capital expenditures (including substantial amounts of discretionary expenditure to develop and expand NTL's business) and working capital. Up to (Pounds)25 million is expected to be available under the Revolving Facility for capital expenditure and working capital purposes of NTL, subject to satisfaction of a number of significant conditions, including the receipt of subordinated debt or equity from the Company. The Company believes that the remainder of such capital needs will be funded by cash on hand of the Company. To the extent that such cash on hand is insufficient to meet NTL's actual working capital and capital expenditure requirements, either the planned development and expansion of NTL's network could be curtailed or additional funding will be necessary. There is no assurance that such additional funding will be available to the Company on acceptable terms or at all. The information in the preceding paragraphs includes projections, in reviewing such information it should be kept in mind that actual results may differ materially from those in such projections. These projections were based on various factors and were derived utilizing numerous assumptions. Important assumptions and factors that could cause actual results to differ materially from those in these projections include the Company's ability to continue to design networks, install facilities, obtain and maintain any required governmental licenses or approvals and finance construction and development, all in a timely manner, at reasonable costs and on satisfactory terms and conditions, as well as assumptions about customer acceptance, churn rates, overall market penetration and competition from providers of alternative services. Other factors and assumptions not identified above were also involved in the derivation of these projections, and the failure of such other assumptions to be realized as well as other factors may also cause actual results to differ materially from those projected. The Company assumes no obligation to update these projections to reflect actual results, changes in assumptions or changes in other factors affecting such projections. 20 INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES CONTINUED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - ----------------------------------------------- Cash used in operating activities was $13,237,000 in 1996 and $656,000 in 1995. The increase is primarily due to changes in non-cash charges and changes in operating assets and liabilities. Purchases of fixed assets, net of proceeds from sales, were $315,767,000 in 1996 and $296,911,000 in 1995 as a result of increased cable television, telephone and telecommunications fixed asset purchases in 1996. Cash provided by financing activities was $1,080,998,000 in 1996 primarily due to the proceeds from the NTL Facilities of $307,260,000, the 11-1/2% Notes of $600,128,000 and the 7% Convertible Subordinated Notes of $275,000,000, net of financing costs incurred of $41,303,000. Pricipal payments in 1996 consist of the repayment of the (Pounds)60,000,000 ($92,178,000) NTL Bridge Facility and the repayment of the subsidiary bank loan of (Pounds)1,016,000 ($1,561,000). In 1996, one of the Company's joint ventures borrowed (Pounds)30,000,000 from the Company and (Pounds)20,000,000 from the minority interest holder in the joint venture. The proceeds from borrowings from minority partner of $30,726,000 are the result of the cash received from the minority interest holder for the loan. 21 INTERNATIONAL CABLETEL INCORPORATED AND SUBSIDIARIES CONTINUED PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27. Financial Data Schedule (b) Reports on Form 8-K During the quarter ended September 30, 1996, the Company filed a report on Form 8-K dated September 3, 1996, reporting under Item 5, Other Events, the acquisition of the remaining 30% minority interest of English Cable Enterprises, Inc. that the Company did not own. No financial statements were filed with this report. 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INTERNATIONAL CABLETEL INCORPORATED Date: November 12, 1996 By:/s/ J. Barclay Knapp ----------------------------- J. Barclay Knapp President Date: November 12, 1996 By:/s/ Gregg Gorelick ----------------------------- Gregg Gorelick Vice President-Controller (Principal Accounting Officer) 23 EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1996 SEP-30-1996 JAN-01-1996 639,082,000 0 44,202,000 (2,527,000) 0 28,554,000 1,264,835,000 (88,414,000) 2,271,827,000 348,956,000 1,682,956,000 0 0 320,000 227,745,000 2,271,827,000 0 143,473,000 0 0 91,567,000 0 105,368,000 (170,769,000) 5,183,000 (175,952,000) 0 0 0 (175,952,000) (5.73) 0
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