-----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, OUOPQSQFEUpFHnnukSQtEX2udvxjGk3M7GuAArUHJG69gM0BuSbzrmIL50UWrdHz +N+ui0mwa7XHPxb8Q9Of+g== 0000940180-97-000464.txt : 19970515 0000940180-97-000464.hdr.sgml : 19970515 ACCESSION NUMBER: 0000940180-97-000464 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NTL INC /DE/ 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: 97605706 BUSINESS ADDRESS: STREET 1: 110 E 59TH ST STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2129048440 MAIL ADDRESS: STREET 1: 110 EAST 59TH STREET STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL CABLETEL INC DATE OF NAME CHANGE: 19930601 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-22616 ------------------------------------------------------------ NTL INCORPORATED - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 52-1822078 - --------------------------------------------- ------------------ (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 110 E. 59th Street, New York, New York 10022 - ------------------------------------------- ------------------ (Address of principal executive offices) (Zip Code) (212) 906-8440 - ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------ The number of shares outstanding of the issuer's common stock as of March 31, 1997 was 32,096,667. NTL Incorporated and Subsidiaries Index
PART I. FINANCIAL INFORMATION Page - ------------------------------ ---- Item 1. Financial Statements Condensed Consolidated Balance Sheets- March 31, 1997 and December 31, 1996................................................................ 2 Condensed Consolidated Statements of Operations- Three months ended March 31, 1997 and 1996.......................................................... 3 Condensed Consolidated Statement of Shareholders' Equity - Three months ended March 31, 1997.......................................................... 4 Condensed Consolidated Statements of Cash Flows- Three months ended March 31, 1997 and 1996.......................................................... 5 Notes to Condensed Consolidated Financial Statements................................................ 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition.................................................................. 11 PART II. OTHER INFORMATION - --------------------------- Item 6. Exhibits and Reports on Form 8-K.................................................................... 20 SIGNATURES.................................................................................................... 21 - ----------
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NTL Incorporated and Subsidiaries Condensed Consolidated Balance Sheets
MARCH 31, DECEMBER 31, 1997 1996 -------------- --------------- ASSETS (unaudited) (see note) Current assets: Cash and cash equivalents $ 706,378,000 $ 445,884,000 Marketable securities 81,255,000 -- Accounts receivable-trade, less allowance for doubtful accounts of $4,289,000 (1997) and $3,870,000 (1996) 95,029,000 57,887,000 VAT receivable 7,382,000 16,992,000 Other 18,566,000 20,278,000 --------------- --------------- Total current assets 908,610,000 541,041,000 Fixed assets, net 1,481,537,000 1,459,528,000 Intangible assets, net 376,973,000 392,933,000 Other assets, net of accumulated amortization of $23,785,000 (1997) and $21,789,000 (1996) 74,354,000 61,109,000 --------------- --------------- Total Assets $2,841,474,000 $2,454,611,000 =============== =============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 51,707,000 $ 57,960,000 Accrued expenses and other 138,721,000 101,228,000 Accrued construction costs 42,865,000 62,723,000 Deferred revenue 19,540,000 16,491,000 Deferred purchase price 57,956,000 60,537,000 Current portion of long-term debt 3,169,000 -- -------------- -------------- Total current liabilities 313,958,000 298,939,000 Long-term debt 2,156,532,000 1,732,168,000 Other 436,000 459,000 Commitments and contingent liabilities Deferred income taxes 90,884,000 94,931,000 Senior redeemable exchangeable preferred stock, $.01 par value, plus accreted dividends; liquidation preference - $1,000 per share; issued and outstanding 100,000 shares (1997) and none (1996) 101,697,000 -- Shareholders' equity: Series preferred stocks - $.01 par value; authorized 2,500,000 shares; issued and outstanding 780 shares (1997 and 1996) -- -- Common stocks - $.01 par value; authorized 100,000,000 shares; issued and outstanding 32,097,000 (1997) and 32,066,000 (1996) shares 321,000 321,000 Additional paid-in capital 547,398,000 548,647,000 Cumulative translation adjustment 100,004,000 163,141,000 (Deficit) (469,756,000) (383,995,000) -------------- -------------- 177,967,000 328,114,000 -------------- -------------- Total liabilities and shareholders' equity $2,841,474,000 $2,454,611,000 ============== ==============
Note: The balance sheet at December 31, 1996 has been derived from the audited financial statements at that date. See accompanying notes. 2 NTL Incorporated and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited)
THREE MONTHS ENDED MARCH 31 ----------------------------- 1997 1996 ------------- ------------ REVENUES Local telecommunications and television $ 35,457,000 $ 15,747,000 National and international telecommunications 37,008,000 66,000 Broadcast transmission and other 32,113,000 -- Other telecommunications 2,239,000 2,621,000 ----------- ------------ 106,817,000 18,434,000 COSTS AND EXPENSES Operating expenses 70,756,000 12,629,000 Selling, general and administrative expenses 38,317,000 19,670,000 Franchise fees 5,872,000 -- Corporate expenses 4,098,000 2,128,000 Depreciation and amortization 33,005,000 12,190,000 ----------- ------------ 152,048,000 46,617,000 ----------- ------------ Operating (loss) (45,231,000) (28,183,000) OTHER INCOME (EXPENSE) Interest and other income 7,401,000 7,763,000 Interest expense (47,609,000) (24,711,000) Foreign currency transaction losses (322,000) (123,000) ----------- ------------ (Loss) before income taxes and minority interests (85,761,000) (45,254,000) Income tax provision -- (42,000) ----------- ------------ (Loss) before minority interests (85,761,000) (45,296,000) Minority interests -- 2,572,000 ------------ ------------ Net (loss) $(85,761,000) $(42,724,000) ============ ============ Net (loss) per common share $(2.73) $(1.41) ============ ============ Weighted average number of common shares used in computation of net (loss) per share 32,084,000 30,211,000 ============ =============
See accompanying notes. 3 NTL Incorporated and Subsidiaries Condensed Consolidated Statement of Shareholders' Equity (Unaudited)
COMMON STOCK-- SERIES $.01 PAR VALUE PREFERRED STOCK ADDITIONAL CUMULATIVE ---------------------- ------------------ PAID-IN TRANSLATION SHARES PAR SHARES PAR CAPITAL ADJUSTMENT (DEFICIT) ---------------------------------------------------------------------------------------- Balance, December 31, 1996 32,066,000 $321,000 780 $ -- $548,647,000 $163,141,000 $(383,995,000) Exercise of stock options 31,000 448,000 Accreted dividends on senior redeemable exchangeable preferred stock (1,697,000) Net loss for the three months ended March 31, 1997 (85,761,000) Currency translation adjustment (63,137,000) ---------------------------------------------------------------------------------------- Balance, March 31, 1997 32,097,000 $321,000 780 $ -- $547,398,000 $100,004,000 $(469,756,000) ========================================================================================
See accompanying notes. 4 NTL Incorporated and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited)
THREE MONTHS ENDED MARCH 31 ------------------------------- 1997 1996 --------------- ------------- Net cash (used in) operating activities $ (13,435,000) $ (7,875,000) INVESTING ACTIVITIES Purchase of fixed assets (120,585,000) (102,794,000) Increase in other assets (1,299,000) (231,000) Purchase of marketable securities (101,234,000) -- Proceeds from sales of marketable securities 20,000,000 -- ------------- ------------- Net cash (used in) investing activities (203,118,000) (103,025,000) FINANCING ACTIVITIES Proceeds from issuance of Notes and Preferred Stock, net of financing costs 484,987,000 577,484,000 Proceeds from borrowings 8,156,000 -- Cash held in escrow -- 367,000 Proceeds from borrowings from minority partner -- 18,367,000 Proceeds from exercise of stock options and warrants 448,000 263,000 ------------- ------------- Net cash provided by financing activities 493,591,000 596,481,000 Effect of exchange rate changes on cash (16,544,000) 1,081,000 ------------- ------------- Increase in cash and cash equivalents 260,494,000 486,662,000 Cash and cash equivalents at beginning of period 445,884,000 175,283,000 ------------- ------------- Cash and cash equivalents at end of period $ 706,378,000 $ 661,945,000 ============= ============= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for interest exclusive of amounts capitalized $ 4,516,000 $ 307,000 Income taxes paid -- -- SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES Warrants issued in connection with consent solicitations $ -- $ 1,641,000
See accompanying notes. 5 NTL Incorporated and Subsidiaries Notes to Condensed Consolidated Financial Statements NOTE A - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1996. Net loss per share is computed based on the weighted average number of common shares outstanding during the periods after giving effect to the accreted dividends on the Senior Redeemable Exchangeable Preferred Stock. Common stock equivalents are excluded because they are antidilutive. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earning Per Share". SFAS No. 128 establishes new standards for computing and presenting earnings per share and is effective for financial statements issued for periods ending after December 15, 1997. The Company will adopt SFAS No. 128 effective with its 1997 year end. The adoption of SFAS No. 128 would not have changed the net loss per share for the three months ended March 31, 1997 and 1996. NOTE B - FIXED ASSETS Fixed assets consists of:
MARCH 31, DECEMBER 31, 1997 1996 -------------- -------------- (unaudited) Operating equipment $1,178,905,000 $1,080,135,000 Other equipment 197,724,000 197,368,000 Construction-in-progress 250,460,000 305,372,000 -------------- -------------- 1,627,089,000 1,582,875,000 Accumulated depreciation 145,552,000 123,347,000 -------------- -------------- $1,481,537,000 $1,459,528,000 ============== ==============
6 NTL Incorporated and Subsidiaries Notes to Condensed Consolidated Financial Statements (continued) NOTE C - INTANGIBLE ASSETS Intangible assets consists of:
MARCH 31, DECEMBER 31 1997 1996 --------------------------------- (unaudited) License acquisition costs, net of accumulated amortization of $37,951,000 (1997) and $34,894,000 (1996) $ 131,785,000 $ 134,909,000 Goodwill, net of accumulated amortization of $7,691,000 (1997) and $5,986,000 (1996) 245,188,000 258,024,000 -------------- -------------- $ 376,973,000 $ 392,933,000 ============== ==============
In October 1996, the Company acquired the remaining 40% interest it did not already own in CableTel Newport in exchange for 780 shares of the Company's Series A Preferred Stock. CableTel Newport owns and operates cable television ("CATV"), telephone and telecommunications franchises in South Wales. The Series A Preferred Stock was valued at $49,000,000, based on an appraisal as of the date of issuance. The fair value of the net tangible assets acquired of $67,710,000 exceeded the aggregate purchase price by $18,648,000, which is classified as a reduction to license acquisition costs. In September 1996, the Company acquired the remaining 30% minority interest of English Cable Enterprises, Inc. ("ECE") that the Company did not own, in exchange for 1,415,000 shares of its common stock. ECE, through its subsidiaries, owns four CATV, telephone and telecommunications licenses in the northern suburbs of London. The value of the shares, based on the market price on the date of issuance, of $34,137,000 plus costs incurred of $204,000 exceeded the fair value of the net tangible assets acquired by $28,649,000, which is classified as license acquisition costs. In May 1996, an indirect wholly-owned subsidiary of the Company, NTL Investment Holdings Limited ("NTLIH") acquired NTL Group Limited for payments of approximately (Pounds)204,000,000 at closing, (Pounds)35,000,000, subject to adjustments, on the first anniversary of closing and (Pounds)17,100,000 in October 1996. NTL Group Limited provides television and radio transmission services and a range of other services in the broadcasting and telecommunications industries. NTLIH used (Pounds)200,000,000 from its 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 Group Limited have been included in the consolidated financial statements from the date of acquisition. The aggregate purchase price of (Pounds)256,100,000 ($439,000,000) plus costs incurred of $3,700,000 exceeded the fair value of the net tangible assets acquired by $263,000,000, which is classified as goodwill. The pro forma unaudited consolidated results of operations for the three months ended March 31, 1996 assuming consummation of the above mentioned transactions as of January 1, 1996 are as follows:
Total revenue $ 62,533,000 Net loss (48,019,000) Net loss per common share (1.52)
7 NTL Incorporated and Subsidiaries Notes to Condensed Consolidated Financial Statements (continued) NOTE D - LONG-TERM DEBT AND REDEEMABLE EXCHANGEABLE PREFERRED STOCK Long-term debt consists of:
MARCH 31, DECEMBER 31, 1997 1996 -------------- -------------- (unaudited) 10-7/8% Senior Deferred Coupon Notes $ 180,031,000 $ 175,368,000 12-3/4% Series A Senior Deferred Coupon Notes 190,788,000 185,043,000 11-1/2% Series B Senior Deferred Coupon Notes 684,208,000 665,257,000 10% Senior Notes 400,000,000 -- 7-1/4% Convertible Subordinated Notes 191,750,000 191,750,000 7% Convertible Subordinated Notes 275,000,000 275,000,000 Term Loan and Revolving Facility 237,924,000 239,750,000 -------------- -------------- 2,159,701,000 1,732,168,000 Less current portion 3,169,000 -- -------------- -------------- $2,156,532,000 $1,732,168,000 ============== ==============
In February 1997, the Company issued $400,000,000 aggregate principal amount of 10% Senior Notes due 2007 (the "10% Notes") and $100,000,000 of 13% Senior Redeemable Exchangeable Preferred Stock (the "Redeemable Preferred Stock"). The Company received net proceeds of $389,000,000 and $96,625,000, after discounts and commissions, from the issuance of the 10% Notes and the Redeemable Preferred Stock, respectively. The aggregate of the discounts and commissions and other fees incurred of $14,968,000 are included in deferred financing costs. The 10% Notes accrue interest at 10% per annum, payable semiannually beginning on August 15, 1997. The 10% Notes are effectively subordinated to all existing and future indebtedness and other liabilities and commitments of the Company's subsidiaries. The 10% Notes may be redeemed at the Company's option, in whole or in part, at any time on or after February 15, 2002 at a redemption price of 105% that declines annually to 100% in 2005, in each case together with accrued and unpaid interest to the date of redemption. The indenture governing the 10% Notes contains restrictions relating to, among other things: (i) incurrence of additional indebtedness and the issuance of preferred stock, (ii) dividend and other payment restrictions and (iii) mergers, consolidations and sales of assets. Of the 2,500,000 authorized shares of Series Preferred Stock, 100,000 shares of Redeemable Preferred Stock were issued. Dividends accrue at 13% per annum ($130 per share) and are payable quarterly in arrears commencing on May 15, 1997. Dividends, whether or not earned or declared, will accrue without interest until declared and paid, which declaration may be for all or part of the accrued dividends. Dividends accruing on or prior to February 15, 2004 may, at the option of the Company, be paid in cash, by the issuance of additional Redeemable Preferred Stock or in any combination of the foregoing. The Redeemable Preferred Stock may be redeemed, at the Company's option, in whole or in part, at any time on or after February 15, 2002 at a redemption price of 106.5% of the liquidation preference of $1,000 per share that declines annually to 100% in 2005, in each case together with accrued and unpaid dividends to the redemption date. The Redeemable Preferred Stock is subject to mandatory redemption on February 15, 2009. On any scheduled dividend payment date, the Company may, at its option, exchange all of the shares of Redeemable Preferred Stock then outstanding for the Company's 13% Subordinated Exchange Debentures due 2009 (the "Subordinated Debentures"). 8 NTL Incorporated and Subsidiaries Notes to Condensed Consolidated Financial Statements (continued) NOTE D - LONG-TERM DEBT AND REDEEMABLE EXCHANGEABLE PREFERRED STOCK (CONTINUED) The Subordinated Debentures will bear interest at a rate of 13% per annum, payable semiannually in arrears on February 15 and August 15 of each year commencing with the first such date to occur after the date of exchange. Interest accruing on or prior to February 15, 2004 may, at the option of the Company, be paid in cash, by the issuance of additional Subordinated Debentures or in any combination of the foregoing. The Subordinated Debentures will be redeemable, at the Company's option, in whole or in part, on or after February 15, 2002 at a redemption price of 106.5% that declines annually to 100% in 2005, in each case together with accrued and unpaid interest to the redemption date. NOTE E - COMMITMENTS AND CONTINGENT LIABILITIES As of March 31, 1997, the Company was committed to pay approximately $59,000,000 for equipment and services. The Company has licenses issued by the United Kingdom Department of Trade and Industry ("DTI") and the United Kingdom Independent Television Commission ("ITC") for its cable television, telephone and telecommunications business and the Federal Communications Commission ("FCC") for its microwave transmission business. The initial terms of the Company's licenses was 23 years for the DTI licenses, 15 years for the ITC licenses and 10 years for the FCC licenses. The Company's licenses expire in 2008 to 2016 for the DTI licenses, 1999 to 2005 for the ITC licenses and 2001 for the FCC licenses. The DTI requires a fixed annual renewal fee of (Pounds)2,500 ($4,100) per license. The ITC requires an annual license fee ranging from (Pounds)1,300 ($2,100) to (Pounds)7,900 ($12,900) per license based on the number of homes in the licensed area, which is subject to adjustment annually. The FCC requires an annual license fee of $140 per license, which is subject to adjustment annually. The Company's license fees paid in the three months ended March 31, 1997 were $62,000. In addition, the Company was awarded certain newly issued licenses by the ITC in 1995. Pursuant to the terms of the local delivery license ("LDL") for Northern Ireland granted to a wholly-owned subsidiary of the Company, the Company is required to make annual cash payments to the ITC for fifteen years commencing in January 1997 in the amount of approximately (Pounds)14,400,000 ($23,489,000) (subject to adjustments for inflation). Such payments are in addition to the percentages of qualifying revenue already set by the ITC of 0% for the first ten years and 2% for the last five years of the fifteen year license. The Company paid $5,872,000 in the three months ended March 31, 1997. Pursuant to the terms of the LDL for Glamorgan and Gwent, Wales granted to a wholly-owned subsidiary of the Company, the Company is required to make annual cash payments to the ITC for fifteen years, commencing in the first full calendar year after the start of operations, in the amount of (Pounds)104,188 ($170,000). Such payments are in addition to the percentages of qualifying revenue already set by the ITC of 0% for the first five years, 2% for the second five years and 4% for the last five years of the fifteen year license. A significant portion of NTL Group Limited's revenues is attributable to the provision of television and radio transmission and distribution services and the provision of telecommunications services. In the United Kingdom, the provision of such services is governed by the Telecommunications Act and the Wireless Telegraphy Act 1949. NTL Group Limited holds four licenses under the Telecommunications Act. The initial terms of these licenses were 10 or 25 years. These licenses 9 NTL Incorporated and Subsidiaries Notes to Condensed Consolidated Financial Statements (continued) NOTE E - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED) expire in 2002 to 2016. NTL Group Limited holds a number of Wireless Telegraphy Act licenses which continue in force primarily from year to year unless revoked or unless any of the license fees are not paid. The current annual fees for these licenses is an aggregate of (Pounds)1,541,000 ($2,514,000), of which (Pounds)411,000 ($670,000) has been paid in the three months ended March 31, 1997. The Company is involved in, or has been involved in, certain disputes and litigation arising in the ordinary course of its business. The Company is involved in a court proceeding with one of its programming suppliers regarding the Company's flexibility in choosing which programming to offer in its service packages. In September 1996, a customer of NTL Group Limited issued a writ in the United Kingdom High Court of Justice claiming unliquidated damages for breach of contract and misrepresentation. The Company considers the claim to be unmerited, and is defending the action. In addition, the Company is involved in other contractual disputes and disputes involving claims for damages to property and personal injury resulting from construction of the Company's networks and the maintenance and servicing of the Company's transmission masts. None of these matters are expected to have a material adverse effect on the Company's financial position, results of operations or cash flows. The Company has filed a complaint in the U.S. District Court for the Southern District of New York against Le Groupe Videotron Ltee ("GVL") and its wholly- owned subsidiary seeking damages of not less than $84,000,000 arising out of the Company's claim that GVL was unjustly enriched by actions it took in its dealings with the Company in connection with GVL's recent sale of its ownership interest in Videotron Holdings plc. GVL has moved to dismiss the complaint, which motion is pending before the court. 10 NTL Incorporated and Subsidiaries ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION. The following table illustrates the number of homes passed, the number of homes marketed and the total number of customers for the Company's newly constructed dual network:
================================================================ NEWLY CONSTRUCTED DUAL NETWORK - ---------------------------------------------------------------- MARCH 31, DECEMBER 31, MARCH 31, 1997 1996 1996 - ---------------------------------------------------------------- Homes passed (1) 853,900 779,100 516,000 - ---------------------------------------------------------------- Homes marketed 555,600 467,300 249,500 - ---------------------------------------------------------------- Total customers 201,450 168,200 81,860 - ---------------------------------------------------------------- Dual 166,750 133,800 62,440 - ---------------------------------------------------------------- Telephone-only 15,900 15,950 9,670 - ---------------------------------------------------------------- CATV-only 18,800 18,450 9,750 - ---------------------------------------------------------------- Total RGUs (2) 368,200 302,000 144,300 - ---------------------------------------------------------------- RGU penetration (3) 66.3% 64.6% 57.8% - ---------------------------------------------------------------- Telephone penetration 32.9% 32.0% 28.9% - ---------------------------------------------------------------- CATV penetration 33.4% 32.6% 28.9% ================================================================
(1) "Homes passed" is the expression in common usage in the cable industry as the measurement of the size of a cabled area, meaning the total number of residential premises which have the potential to be connected to the Company's network. This number does not include CATV-only homes which are only included in the Company's homes passed for the purpose of its regulatory milestones. (2) An RGU (revenue generating unit) is one CATV account or one telephone account; a dual customer generates two RGU's. (3) RGU penetration is the number of RGU's per 100 homes marketed. 11 NTL Incorporated and Subsidiaries (continued) RESULTS OF OPERATIONS As a result of the acquisition of NTL Group Limited in May 1996, the Company consolidated the results of operations of NTL Group Limited from the date of acquisition. Three Months Ended March 31, 1997 and 1996 - ------------------------------------------- Local telecommunications and television revenues increased to $35,457,000 from $15,747,000 as a result of customer growth that increased the Company's current revenue stream. National and international telecommunications revenues increased to $37,008,000 from $66,000 as a result of the acquisition of NTL Group Limited. Broadcast transmission and other revenues increased to $32,113,000 from none as a result of the acquisition of NTL Group Limited. Operating expenses increased to $70,756,000 from $12,629,000. NTL Group Limited operating expenses in the three months ended March 31, 1997 were $47,248,000. The remainder of the increase was the result of increases in programming costs, interconnection costs and costs of operating the telecommunications and CATV network. Selling, general and administrative expenses increased to $38,317,000 from $19,670,000. NTL Group Limited selling, general and administrative expenses in the three months ended March 31, 1997 were $5,669,000. The remainder of the increase was the result of increases in telecommunications and CATV sales and marketing costs and in additional personnel and overhead to service the increasing customer base. Franchise fees of $5,872,000 in 1997 are for the Northern Ireland license. Operations in Northern Ireland commenced in June 1996. Corporate expenses increased to $4,098,000 from $2,128,000 due to an increase in personnel and related costs. The 1997 and 1996 amounts include $463,000 and $814,000, respectively, of non-cash expense related to non-compete agreements. Depreciation and amortization expense increased to $33,005,000 from $12,190,000. Depreciation and amortization expense of NTL Group Limited and amortization of goodwill as a result of the acquisition was $8,658,000 in the three months ended March 31, 1997. The remainder of the increase was primarily due to an increase in depreciation of telecommunications and CATV equipment. Interest expense increased to $47,609,000 from $24,711,000 due to the issuance of the 10% Senior Notes in February 1997, interest on the bank loan in connection with the NTL Group Limited acquisition in May 1996 and the issuance of the 7% Convertible Subordinated Notes in June 1996. Interest of $4,876,000 and $307,000 was paid in the three months ended March 31, 1997 and 1996, respectively. Foreign currency transaction losses of $322,000 in 1997 and $123,000 in 1996 are the result of changes in the exchange rate. 12 NTL 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 CATV customers to the network, for working capital and for debt service. Based on the information currently available to the Company, the Company currently estimates that, from January 1, 1997 through December 31, 2002 (the date by which the Company currently estimates that its network will have passed the total of 2,090,000 homes required by its regulatory build schedules), the aggregate cost of network construction (including the license payments in respect of the Northern Ireland LDL and the Glamorgan and Gwent LDL) will be approximately (Pounds)860 million (approximately $1.410 billion), which includes the commitments for equipment and services at March 31, 1997 of approximately $59,000,000. Scheduled cash interest payments on and principal repayments of indebtedness of the Company and its subsidiaries (assuming no conversion of convertible debt or refinancing of existing indebtedness and no exchange of the Redeemable Preferred Stock) from April 1, 1997 through December 31, 2002 will be approximately $873 million and $238 million, respectively. In addition, the Company will require significant amounts of capital to finance other capital expenditures and the cost of operations of the Company and its subsidiaries and meet all their other obligations as they fall due. The Company intends to fund the requirements referred to in the preceding paragraph from cash, cash equivalents and marketable securities on hand of $788 million as of March 31, 1997, further equity and/or debt financings (including, but not limited to, the Potential Credit Facilities (as defined below)) and funds internally generated by the operations of the Company's subsidiaries (including from the revenues receivable by NTL Group Limited under contracts, which have a projected total value of approximately (Pounds)573 million). The Company expects that the capital required to build its telephone, telecommunications and CATV networks and connect residential and business subscribers will be approximately (Pounds)640-(Pounds)670 per home in its franchise areas. Certain locations may require more or less capital depending upon household density, business density and penetration rates. The construction and development of the systems will depend on, among other things, the Company's ability to design network routes, install facilities, obtain and maintain any required governmental licenses or approvals and finance construction and development, all in a timely manner, at reasonable costs and on satisfactory terms and conditions. The exact amounts and timing of these expenditures could vary significantly with the actual number of subscribers and are subject to a variety of factors which may vary greatly by market and may be beyond the control of the Company. Accordingly, there can be no assurance that the amount of the funding actually required will not exceed the estimated amounts described above or that additional funding substantially in excess of the amounts estimated above will not be required. In addition, this amount includes various estimated inflation factors on certain components. Pursuant to the terms of the Northern Ireland LDL, CableTel Northern Ireland Limited (a wholly-owned subsidiary of the Company) is required to make annual cash payments to the ITC for fifteen years in the amount of approximately (Pounds)14.4 million (subject to adjustments for inflation). CableTel Northern Ireland Limited began making payments of (Pounds)1.2 million per month in January 1997. Such payments are in addition to the percentages of qualifying revenue already set by the ITC of 0% for the first ten years and 2% for the last five years of the fifteen year license. Pursuant to the terms of the Glamorgan and Gwent LDL, CableTel South Wales Limited (a wholly-owned subsidiary of the Company) is required to make annual cash payments to the ITC 13 NTL Incorporated and Subsidiaries (continued) for fifteen years, commencing in the first full calendar year after the start of operations, in the amount of approximately (Pounds)104,188 (subject to adjustment for inflation). Such payments are in addition to the percentages of qualifying revenue already set by the ITC of 0% for the first five years, 2% for the second five years and 4% for the last five years of the fifteen year license. Furthermore, if the Company were to make additional investments or acquire additional franchises, funding would be needed in addition to the anticipated funding requirements described above. If the Company's bid for one or more of the Digital Terrestrial Television ("DTT") multiplex licenses is successful, significant capital expenditures will be required to develop and implement DTT technology and equipment and to supply DTT services by July 1, 1998 or within one year of the grant of the license. The Company also incurs capital expenditures for the establishment of its business facilities and fixtures, office and computer equipment, its billing and subscriber management systems and vehicles. These costs also vary by location and size of franchise, but are substantially less than the capital costs of the network itself. The exact amounts and timing of all of these expenditures are subject to a variety of factors which may vary greatly by market and be beyond the control of the Company. In addition to its capital expenditures, the Company incurs direct operating costs for such items as salaries and office rent. As network installation progresses, the Company will incur increased sales and marketing expenses (including sales commissions). Since the Company does not produce most of its own programming, it purchases programming from suppliers whose charges may exceed 65% of CATV revenues in the early years. The Company also incurs charges from other telecommunications systems in order to interconnect with the worldwide telephone network. 14 NTL Incorporated and Subsidiaries (continued) The Company is highly leveraged. At March 31, 1997, the Company's total long- term indebtedness (including the Redeemable Preferred Stock) was approximately $2.3 billion, representing approximately 93% of total capitalization. The following table summarizes the terms of those notes and preferred stock issued by the Company.
12-3/4% 11-1/2% SERIES A 10-7/8% 7% 7-1/4% SERIES B SENIOR SENIOR REDEEM- CONVERTIBLE CONVERTIBLE SENIOR DEFERRED DEFERRED 10% ABLE SUBORDINATED SUBORDINATED DEFERRED COUPON COUPON SENIOR PREFERRED NOTES NOTES COUPON NOTES NOTES NOTES NOTES STOCK - --------------------------------------------------------------------------------------------------------------------------------- Net Proceeds ($)(in 000's) 267,437 186,065 582,000 145,125 119,797 389,000 96,625 Issue Date June 12, April 20, January 30, April 20, October 7, February 7, February 7, 1996 1995 1996 1995 1993 1997 1997 Issue Price (1) 100% 100% 57.155% 53.995% 58.873% 100% 100% Aggregate Principal Amount at Maturity ($)(in 000's) 275,000 191,750 1,050,000 277,803 212,000 400,000 100,000 Maturity Date June 15, April 15, February 1, April 15, October 15, February 15, February 15, 2008 2005 2006 2005 2003 2007 2009 Yield or Interest Rate (2) 7% 7-1/4% 11-1/2% 12-3/4% 10-7/8% 10% 13% Interest or Dividend Payment Dates June 15 and April 15 and February 1 April 15 April 15 February 15 May 15, December 15 October 15 and August 1 and and and August 15 August 15, from 12-15-96 from 10-15-95 from 8-1-01 October 15 October 15 from 8-15-97 November 15 from from and 10-15-00 4-15-99 February 15 from 5-15-97(3) Earliest Optional Redemption Date (4) June 15, April 15, February 1, April 15, October 15, February 15, February 15, 1999 1998 2001 2000 1998 2002 2002 Redemption Price (%) (5) 104.9 (1999) 105.08 105.75 (2001) 103.64 103.107 105 (2002) 106.5 to 100 (2006) (1998) to to 100 (2003) (2000) to (1998) to to (2002) to 100.73 (2004) 100 (2002) 100 (2000) 100 (2005) 100 (2005) Conversion Price ($) (6) 37.875 27.56 N/A N/A N/A N/A N/A Senior/Subordinated Subordinated Subordinated Senior Senior Senior Senior N/A
1. Percent of aggregate principal amount at maturity. 2. Percent per annum. 3. Dividend payments on the Redeemable Preferred Stock are payable in cash or additional shares of Redeemable Preferred Stock, at the Company's option. From 5-15-04 dividend payments are payable in cash. 4. This is the first date when redeemable at the Company's option. 5. Expressed as a percentage of principal amount plus, in each case, accrued and unpaid interest or dividends thereon to the applicable redemption date. 6. This is the conversion price per share of the Company's common stock, adjusted for the four-for-three stock split in August 1995 and subject to further adjustments in certain events. 15 NTL Incorporated and Subsidiaries (continued) In May 1996, NTL Investment Holdings Limited ("NTLIH"), a wholly-owned subsidiary of the Company, acquired all the issued shares of NTL Group Limited. To finance a substantial portion of the purchase price for NTL Group Limited, NTLIH obtained from a syndicate of lenders senior secured loan facilities (the "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 in May 1996. Up to (Pounds)25 million is expected to be available under the Revolving Facility for capital expenditure and working capital purposes of NTLIH's group, subject to satisfaction of a number of significant conditions, including the receipt of subordinated debt or equity from the Company. Up to (Pounds)2 million of the Revolving Facility is available by way of standby letters of credit to guarantee overdraft and other working capital facilities made available by any clearing banks to NTLIH. At the end of the availability period, any amount outstanding under the Revolving Facility will be converted to term debt and be aggregated with the Term Loan Facility. As of March 31, 1997, NTLIH has borrowed (Pounds)5 million under the Revolving Facility. All amounts outstanding under the Term Loan Facility are scheduled to be repaid in quarterly installments from 1998 to 2002 inclusive. The amount of the installments will be based upon an agreed percentage of the loans and will increase year to year. Final repayment of the Term Loan Facility is due on December 31, 2002. Loans under the A Facilities bear interest at an annual rate equal to LIBOR plus a margin that varies from 0.75% per annum to 1.75% per annum, based on certain financial ratios of NTLIH and certain of its subsidiaries. As of March 31, 1997 and December 31, 1996, the effective rate was 7.906% and 7.972%, respectively. Interest is payable either monthly, quarterly or semiannually, at the option of NTLIH. The A Facilities are secured by guarantees from NTL Group Limited and certain of its subsidiaries and by first ranking fixed and floating charges over the present and future assets (subject to certain exceptions) of NTLIH, NTL Group Limited and certain of its subsidiaries. The Company currently expects that cash, cash equivalents and marketable securities on hand as of March 31, 1997 of approximately $788 million should be sufficient to meet those obligations of the Company and its subsidiaries falling due in 1997 (including the costs of network construction, development and expansion of NTL Group Limited business, debt service, joint venture obligations and the payment of up to (Pounds)35 million deferred consideration in respect of NTL Group Limited due in May 1997). The Company has recently resumed discussions with commercial banks regarding the arrangement of certain potential credit facilities in varying amounts up to an aggregate of (Pounds)500 million to be used for the completion of the network passed the 2,090,000 homes and for debt service (the "Potential Credit Facilities"). The arrangement of the Potential Credit Facilities is subject to the satisfaction of a number of significant conditions, including, among other things: (i) reaching an agreement in principle regarding the terms of the Potential Credit Facilities, (ii) the banks' credit committee approval, (iii) the negotiation and execution of definitive credit agreements and related documents satisfactory to the Company and the banks, (iv) the completion of due diligence satisfactory to the banks and (v) nothing occurring or arising which 16 NTL Incorporated and Subsidiaries (continued) might adversely affect the banks' ability to syndicate the Potential Credit Facilities. The Company can give no assurance that any such conditions will be satisfied or that the Potential Credit Facilities will be entered into on acceptable commercial terms or at all. The Company expects that the Potential Credit Facilities will contain various covenants, including financial covenants restricting changes of control (or making such an event of default) and limiting various other activities that the borrowing group may otherwise engage in, in particular, restricting the payment of dividends or distributions by the borrowing group to the Company and its other subsidiaries if an event of default under the Potential Credit Facilities has occurred and is continuing and restricting the payments of such dividends to a portion of excess cash flow. The Company estimates that, whether or not the Potential Credit Facilities are obtained and fully drawn, significant amounts of additional funding will be required to meet obligations of the Company and its subsidiaries falling due after 1997. The Company currently intends to obtain such additional funding from further debt and/or equity financings and funds internally generated by the operations of the Company's subsidiaries. The Company does not have any firm plans for any such financings at this time. The Company is in discussions with the same commercial banks that are discussing the Potential Credit Facilities regarding the arrangement of additional financing to be used for DTT equipment, the completion of the national telecommunications network in the United Kingdom and for other corporate purposes. The substantial costs of network construction and debt service will result in a negative cash flow until an adequate customer base is established. There can be no assurance that (i) the Potential 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 amount estimated above or that additional funding substantially in excess of the amounts estimated above will not be required, (iv) conditions precedent to advances under the NTLIH Revolving Facility, the Potential Credit Facilities or any other credit facility will be satisfied when funds are required, (v) the Company will not acquire additional franchises or businesses that would require additional capital, (vi) the Company and its subsidiaries will be able to generate sufficient cash from operations to meet capital requirements, debt service and other obligations as they fall due when required, (vii) the Company will be able to access such cash flow or (viii) the Company's subsidiaries will not incur losses from their exposure to exchange rate fluctuations or be adversely affected by interest rate fluctuations. The Company does not have any firm additional financing plans to address any of the foregoing situation at this time. The inability of the Company to obtain the Potential Credit Facilities or secure additional financing could result in the Company and/or its subsidiaries defaulting on their respective obligations, all the indebtedness of the Company and its subsidiaries becoming immediately due and repayable and failure to comply with the minimum build milestones set forth in its licenses leading to the revocation of those licenses. 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 two paragraphs. 17 NTL Incorporated and Subsidiaries (continued) Each of the Company's subsidiaries which is a Delaware corporation is permitted to pay dividends on its capital stock, under the Delaware General Corporation Law (the "DGCL") only out of its surplus or, in the event it has no surplus, out of its net profits for the fiscal year in which the dividend is declared or the immediately preceding fiscal year. Each of the Company's subsidiaries which is a United Kingdom company is, under applicable United Kingdom law, prohibited from paying dividends unless such payments are made out of profits available for distribution (which consist of accumulated, realized profits, so far as not previously utilized by distribution or capitalization, less accumulated realized losses, so far as not previously written off in a reduction or reorganization of capital duly made). The Company's United Kingdom subsidiaries (excluding NTL Group Limited and its subsidiaries) do not currently have such profits and are not expected to have any such profits for the foreseeable future. In addition, the United Kingdom may impose a withholding tax on payments of interest and advance corporation tax on distributions of interest, dividends or otherwise by United Kingdom subsidiaries of the Company. In light of the Company's strategy of continued growth, in part through acquisitions, the Company and its subsidiaries may incur substantial indebtedness in the future. The terms of existing and future indebtedness of the Company's subsidiaries (including the Potential Credit Facilities) may limit the payment of dividends, loans or other distributions to the Company. In particular, the loan facilities arranged to finance the purchase price of NTL Group Limited prohibit NTLIH from paying dividends to the Company unless certain cash flow targets are met and, if such targets are met, require that 50% of all Excess Cash Flow of NTLIH and its subsidiaries must be applied to prepay amounts outstanding under the long term facility of (Pounds)140 million. As a result of the restrictions referred to in the preceding paragraphs, there can be no assurance that the Company will be able to gain access to the cash flow of its subsidiaries in a timely manner or in amounts sufficient to pay interest on and to repay the principal of the Company's indebtedness when due or to meet the other obligations of the Company and its subsidiaries as they fall due. Even if the Company is able to gain access to the cash flow of its subsidiaries, its ability to meet cash debt service and repayment obligations of the Company and its subsidiaries will depend on the future operating performance and financial results of those subsidiaries, which will be subject, in part, to factors beyond the control of such subsidiaries, such as prevailing economic conditions and financial, business and other factors. In any event, management does not anticipate that the Company and its subsidiaries will generate sufficient cash flow from operations to repay the entire principal amount of the indebtedness of the Company and its subsidiaries as it falls due at maturity. Accordingly, the Company will be required to consider a number of measures, including (i) refinancing all or a portion of such indebtedness, (ii) seeking modifications of the terms of such indebtedness or (iii) seeking additional debt financing, each of which would be subject to obtaining necessary lender consents, (iv) additional equity financing, or (v) a combination of the foregoing. The particular measures the Company may undertake and the ability of the Company to accomplish those measures will depend on the financial condition of the Company and its subsidiaries at the time, as well as a number of factors beyond the control of the Company and subsidiaries, including prevailing economic and market conditions and financial, business and other factors. No assurance can be given that any of the foregoing measures can be accomplished, or can be accomplished in sufficient time to make timely payments of cash interest and principal on the Company's indebtedness. In addition, there can be no assurance that any such measures can be accomplished on terms which are favorable to the Company and its subsidiaries. 18 NTL Incorporated and Subsidiaries (continued) 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 are payable in dollars. At March 31, 1997, the Company had invested approximately $538 million in pounds sterling money market instruments and cash accounts to reduce this risk. While the Company may consider entering into transactions to hedge the risk of exchange rate fluctuations, there can be no assurances that the provisions governing the indebtedness of the Company and its subsidiaries would permit such transactions, and, if such provisions do permit such transactions, that they will be successful in preventing shifts in the currency exchange rates from having a material adverse effect on the Company. The information in the preceding paragraphs includes projections; in reviewing such information it should be kept in mind that actual results may differ materially from those in such projections. These projections were based on various factors and were derived utilizing numerous assumptions. Important assumptions and factors that could cause actual results to differ materially from those in these projections include the Company's ability to continue to design networks, install facilities, obtain and maintain any required governmental licenses or approvals and finance construction and development, all in a timely manner at reasonable costs and on satisfactory terms and conditions, as well as assumptions about customer acceptance, churn rates, overall market penetration and competition from providers of alternative services. The failure of such assumptions to be realized as well as other factors may also cause actual results to differ materially from those projected. The Company assumes no obligations to update these projections to reflect actual results, changes in assumptions or changes in other factors affecting such projections. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Cash used in operating activities was $13,435,000 in 1997 and $7,875,000 in 1996. The increase in cash used in operating activities is primarily due to the significant increase in net loss, which was offset by non-cash charges and changes in operating assets and liabilities. Purchases of fixed assets were $120,585,000 in 1997 and $102,794,000 in 1996 as a result of increased fixed asset purchases and construction in 1997. Cash provided by financing activities was $493,591,000 in 1997 primarily due to the proceeds from the 10% Senior Notes and the 13% Redeemable Exchangeable Preferred Stock of $500,000,000, net of financing costs incurred of $15,013,000, plus proceeds from borrowings under NTLIH's Revolving Facility of $8,156,000. 19 NTL Incorporated and Subsidiaries 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 March 31, 1997, the Company filed the following reports on Form 8-K: (i) Report dated January 16, 1997, reporting under Item 7, Financial Statements, Pro Forma Financial Information and Exhibits, amending the Company's Current Report on Form 8-K/A-1 dated May 9, 1996 and filed with the Commission on May 30, 1996. (ii) Report dated January 23, 1997, reporting under Item 5, Other Events, the announcement of the Company's preliminary operating statistics for the year ended December 31, 1996. (iii) Report dated January 28, 1997, reporting under Item 5, Other Events, the announcement that the Company intends to complete a concurrent offering of Senior Notes due 2007 and Preferred Stock with a maturity in 2009. (iv) Report dated February 13, 1997, reporting under Item 5, Other Events, the announcement that the Company completed a concurrent offering of $400 million Senior Notes due 2007 and $100 million Preferred Stock with a maturity in 2009. (v) Report dated March 26, 1997, reporting under Item 5, Other Events, the announcement that effective March 26, 1997, International CableTel Incorporated changed its corporate name to "NTL Incorporated". No financial statements were filed with the reports in (ii) through (v) above. 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NTL INCORPORATED Date: May 13, 1997 By: /s/ J. Barclay Knapp ------------------------- J. Barclay Knapp President, Chief Executive Officer and Chief Financial Officer Date: May 13, 1997 By: /s/ Gregg Gorelick -------------------------- Gregg Gorelick Vice President-Controller (Principal Accounting Officer) 21 EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 706,378,000 81,255,000 99,318,000 (4,289,000) 0 25,948,000 1,627,089,000 (145,552,000) 2,841,474,000 313,958,000 2,156,532,000 101,697,000 0 321,000 177,646,000 2,841,474,000 0 106,817,000 0 0 70,756,000 0 47,609,000 (85,761,000) 0 (85,761,000) 0 0 0 (85,761,000) (2.73) 0
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