-----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, N6VO5npVUrS/8Qjfn/d23yFT+MK+hBwnwx7zNRyFoOBTvupCotWBkDPAb67RjUwD tfTxY5eP6hjQvLF+ju/9KA== 0000940180-97-000706.txt : 19970814 0000940180-97-000706.hdr.sgml : 19970814 ACCESSION NUMBER: 0000940180-97-000706 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 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: 97659517 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 June 30, 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 (I.R.S. Employer Identification No.) of incorporation or organization) 110 E. 59/th/ 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 June 30, 1997 was 32,103,902. NTL Incorporated and Subsidiaries Index
PART I. FINANCIAL INFORMATION Page - ------------------------------ ---- Item 1. Financial Statements Condensed Consolidated Balance Sheets- June 30, 1997 and December 31, 1996..........................2 Condensed Consolidated Statements of Operations- Three and six months ended June 30, 1997 and 1996............3 Condensed Consolidated Statement of Shareholders' Equity - Six months ended June 30, 1997......................4 Condensed Consolidated Statements of Cash Flows- Six months ended June 30, 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 4. Submission of Matters to a Vote of Security Holders.........19 Item 6. Exhibits and Reports on Form 8-K............................19 SIGNATURES...........................................................20 - ----------
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NTL Incorporated and Subsidiaries Condensed Consolidated Balance Sheets
June 30, December 31, 1997 1996 -------------------------------------- Assets (unaudited) (see note) Current assets: Cash and cash equivalents $ 513,065,000 $ 445,884,000 Marketable securities 87,250,000 - Accounts receivable--trade, less allowance for doubtful accounts of $4,915,000 (1997) and $3,870,000 (1996) 89,997,000 57,887,000 Other 29,371,000 37,270,000 -------------------------------------- Total current assets 719,683,000 541,041,000 Fixed assets, net 1,590,649,000 1,459,528,000 Intangible assets, net 375,599,000 392,933,000 Other assets, net of accumulated amortization of $26,280,000 (1997) and $21,789,000 (1996) 74,883,000 61,109,000 -------------------------------------- Total assets $2,760,814,000 $2,454,611,000 ====================================== Liabilities and shareholders' equity Current liabilities: Accounts payable $ 47,242,000 $ 57,960,000 Accrued expenses and other 139,114,000 101,228,000 Accrued construction costs 38,434,000 62,723,000 Deferred revenue 30,622,000 16,491,000 Deferred purchase price 583,000 60,537,000 Current portion of long-term debt 6,159,000 - -------------------------------------- Total current liabilities 262,154,000 298,939,000 Long-term debt 2,192,219,000 1,732,168,000 Other 439,000 459,000 Commitments and contingent liabilities Deferred income taxes 87,525,000 94,931,000 Senior redeemable exchangeable preferred stock, $.01 par value, plus accreted dividends; liquidation preference - $1,000 per share; issued and outstanding 103,000 shares (1997) and none (1996) 105,039,000 - Shareholders' equity: Series preferred stock--$.01 par value; authorized 2,500,000 shares; issued and outstanding 780 shares (1997 and 1996) - - Common stock--$.01 par value; authorized 100,000,000 shares; issued and outstanding 32,104,000 (1997) and 32,066,000 (1996) shares 321,000 321,000 Additional paid-in capital 544,164,000 548,647,000 Cumulative translation adjustment 126,383,000 163,141,000 (Deficit) (557,430,000) (383,995,000) -------------------------------------- 113,438,000 328,114,000 -------------------------------------- Total liabilities and shareholders' equity $2,760,814,000 $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 Six Months Ended June 30 June 30 ----------------------------- ------------------------------ 1997 1996 1997 1996 ----------------------------- ------------------------------ Revenues Local telecommunications and television $ 41,969,000 $ 18,881,000 $ 77,426,000 $ 34,628,000 National and international telecommunications 38,335,000 9,508,000 75,343,000 9,574,000 Broadcast transmission and other 32,174,000 16,816,000 64,287,000 16,816,000 Other telecommunications 2,344,000 2,578,000 4,583,000 5,199,000 ----------------------------- ------------------------------ 114,822,000 47,783,000 221,639,000 66,217,000 Costs and expenses Operating expenses 70,495,000 29,236,000 141,251,000 41,865,000 Selling, general and administrative expenses 43,893,000 26,898,000 82,210,000 46,568,000 Franchise fees 5,888,000 1,833,000 11,760,000 1,833,000 Corporate expenses 4,944,000 3,156,000 9,042,000 5,284,000 Write-off of deferred costs 4,555,000 - 4,555,000 - Depreciation and amortization 36,819,000 20,411,000 69,824,000 32,601,000 ----------------------------- ------------------------------- 166,594,000 81,534,000 318,642,000 128,151,000 ----------------------------- ------------------------------- Operating (loss) (51,772,000) (33,751,000) (97,003,000) (61,934,000) Other income (expense) Interest and other income 10,812,000 9,756,000 18,213,000 17,519,000 Interest expense (51,508,000) (36,695,000) (99,117,000) (61,406,000) Foreign currency transaction gains (losses) 125,000 294,000 (197,000) 171,000 ----------------------------- ------------------------------- (Loss) before income taxes and minority interests (92,343,000) (60,396,000) (178,104,000) (105,650,000) Income tax (provision) benefit 4,669,000 (3,439,000) 4,669,000 (3,481,000) ----------------------------- ------------------------------- (Loss) before minority interests (87,674,000) (63,835,000) (173,435,000) (109,131,000) Minority interests - 4,677,000 - 7,249,000 ----------------------------- ------------------------------- Net (loss) $(87,674,000) $(59,158,000) $(173,435,000) $(101,882,000) ============================= ============================== Net (loss) per common share $(2.84) $(1.95) $(5.56) $(3.36) ============================= ============================== Weighted average number of common shares used in computation of net (loss) per share 32,097,000 30,369,000 32,091,000 30,290,000 ============================= ==============================
See accompanying notes. 3 NTL Incorporated and Subsidiaries Condensed Consolidated Statement of Shareholders' Equity (Unaudited)
Series Common Stock-- Preferred Stock $.01 Par Value Additional Cumulative ------------------------------------------ Paid-In Translation Shares Par Shares Par Capital Adjustment (Deficit) ---------------------------------------------------------------------------------------- Balance, December 31, 1996 780 $ - 32,066,000 $321,000 $548,647,000 $163,141,000 $(383,995,000) Exercise of stock options 36,000 545,000 Exercise of warrants 2,000 11,000 Accreted dividends on senior redeemable exchangeable preferred stock (5,039,000) Net loss for the six months ended June 30, 1997 (173,435,000) Currency translation adjustment (36,758,000) ---------------------------------------------------------------------------------------- Balance, June 30, 1997 780 $ - 32,104,000 $321,000 $544,164,000 $126,383,000 $(557,430,000) ========================================================================================
See accompanying notes. 4 NTL Incorporated and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30 -------------------------------- 1997 1996 -------------------------------- Net cash (used in) operating activities $ (34,968,000) $ (8,908,000) Investing activities Purchase of fixed assets (239,760,000) (200,013,000) Acquisition of subsidiary, net of cash acquired - (298,173,000) Payment of deferred purchase price (57,166,000) - Increase in other assets (3,261,000) (2,410,000) Purchase of marketable securities (130,313,000) - Proceeds from sales of marketable securities 43,512,000 - -------------------------------- Net cash (used in) investing activities (386,988,000) (500,596,000) Financing activities Principal payments - (1,552,000) Proceeds from borrowings and preferred stock, net of financing costs 497,542,000 1,140,765,000 Restricted cash - (95,469,000) Cash released from escrow - 1,592,000 Proceeds from borrowings from minority partner - 30,550,000 Proceeds from exercise of stock options and warrants 556,000 1,332,000 -------------------------------- Net cash provided by financing activities 498,098,000 1,077,218,000 Effect of exchange rate changes on cash (8,961,000) (7,663,000) -------------------------------- Increase in cash and cash equivalents 67,181,000 560,051,000 Cash and cash equivalents at beginning of period 445,884,000 175,283,000 -------------------------------- Cash and cash equivalents at end of period $ 513,065,000 $ 735,334,000 ================================ Supplemental disclosure of cash flow information Cash paid during the period for interest exclusive of amounts capitalized $ 24,162,000 $ 9,623,000 Income taxes paid - 364,000 Supplemental schedule of noncash financing activities Shares of senior redeemable exchangeable preferred stock issued for accrued dividends $ 3,358,000 $ - Warrants issued in connection with consent solicitations - 1,641,000 Liabilities incurred in connection with acquisitions - 80,117,000
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 and six months ended June 30, 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, "Earnings 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 and six months ended June 30, 1997 and 1996. Note B - Fixed Assets Fixed assets consists of:
June 30, December 31, 1997 1996 --------------------------------- (unaudited) Operating equipment $1,324,046,000 $1,080,135,000 Other equipment 211,714,000 197,368,000 Construction-in-progress 232,189,000 305,372,000 --------------------------------- 1,767,949,000 1,582,875,000 Accumulated depreciation 177,300,000 123,347,000 --------------------------------- $1,590,649,000 $1,459,528,000 =================================
6 NTL Incorporated and Subsidiaries Notes to Condensed Consolidated Financial Statements (continued)
Note C - Intangible Assets Intangible assets consists of: June 30, December 31, 1997 1996 ----------------------------- (unaudited) License acquisition costs, net of accumulated amortization of $41,069,000 (1997) and $34,894,000 (1996) $128,667,000 $134,909,000 Goodwill, net of accumulated amortization of $9,790,000 (1997) and $5,986,000 (1996) 246,932,000 258,024,000 ----------------------------- $375,599,000 $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)17,100,000 in October 1996 and (Pounds)35,000,000 in May 1997. NTL Group Limited provides television and radio transmission services and a range of other services in the broadcasting and telecommunications industries. 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 six months ended June 30, 1996 assuming consummation of the above mentioned transactions as of January 1, 1996 are as follows: Total revenue $ 128,737,000 Net loss (107,732,000) Net loss per common share (3.40)
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: June 30, December 31, 1997 1996 --------------------------------- (unaudited) 10-7/8% Senior Deferred Coupon Notes $ 184,904,000 $ 175,368,000 12-3/4% Series A Senior Deferred Coupon Notes 196,839,000 185,043,000 11-1/2% Series B Senior Deferred Coupon Notes 703,509,000 665,257,000 10% Series B 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 246,376,000 239,750,000 --------------------------------- 2,198,378,000 1,732,168,000 Less current portion 6,159,000 - --------------------------------- $2,192,219,000 $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 $15,479,000 are included in deferred financing costs. In June 1997, all of the 10% Notes were exchanged for 10% Series B Senior Notes due 2007 and all but 5 shares of the Redeemable Preferred Stock were exchanged for 13% Series B Senior Redeemable Exchangeable Preferred Stock. The new notes and new preferred stock have terms substantially identical to those of the old notes and old preferred stock. 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. As of June 30, 1997, the Company has issued approximately 3,000 shares for $3,358,000 of accrued dividends. 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, if issued, 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 June 30, 1997, the Company was committed to pay approximately $72,000,000 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 ($4,200) per license. The ITC requires an annual license fee ranging from (Pounds)1,300 ($2,200) to (Pounds)7,900 ($13,200) 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 six months ended June 30, 1997 were $78,000. 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 ($23,972,000) (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 $11,760,000 in the six months ended June 30, 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 ($173,000). 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 ($2,565,000), of which (Pounds)454,000 ($742,000) has been paid in the six months ended June 30, 1997. The Company is involved in, or has been involved in, certain disputes and litigation arising in the ordinary course of its business. 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 =============================================================== June 30, December 31, June 30, 1997 1996 1996 - --------------------------------------------------------------- Homes passed (1) 907,000 779,100 611,300 - --------------------------------------------------------------- Homes marketed 669,700 467,300 311,500 - --------------------------------------------------------------- Total customers 242,700 168,200 107,100 - --------------------------------------------------------------- Dual 209,000 133,800 80,100 - --------------------------------------------------------------- Telephone-only 14,900 15,950 13,300 - --------------------------------------------------------------- CATV-only 18,800 18,450 13,700 - --------------------------------------------------------------- Total RGUs (2) 451,700 302,000 187,200 - --------------------------------------------------------------- RGU penetration (3) 67.4% 64.6% 60.1% - --------------------------------------------------------------- Telephone penetration 33.4% 32.0% 30.0% - --------------------------------------------------------------- CATV penetration 34.0% 32.6% 30.1% ===============================================================
(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 RGUs. (3) RGU penetration is the number of RGU's per 100 homes marketed. 11 NTL Incorporated and Subsidiaries 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 June 30, 1997 and 1996 - ----------------------------------------- Local telecommunications and television revenues increased to $41,969,000 from $18,881,000 as a result of customer growth that increased the Company's current revenue stream. National and international telecommunications revenues increased to $38,335,000 from $9,508,000 as a result of new site acquisition, installation, design and construction projects in 1997 as well as additional site sharing revenue in 1997. Broadcast transmission and other revenues increased to $32,174,000 from $16,816,000 because the results of operations of NTL Group Limited were consolidated for the entire period in 1997 and only for approximately two of the three months in the 1996 period, plus the revenues from NTL Group Limited's ten- year contract to broadcast Channel 5 in the United Kingdom commenced in 1997. Operating expenses increased to $70,495,000 from $29,236,000 because of costs associated with the commencement of the Channel 5 broadcasting contract and costs associated with the new national and international telecommunications projects as well as increases in programming costs, interconnection costs and costs of operating the telecommunications and CATV network. Selling, general and administrative expenses increased to $43,893,000 from $26,898,000 as 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 $5,888,000 and $1,833,000 in 1997 and 1996, respectively, are for the Northern Ireland license. Operations in Northern Ireland commenced in June 1996. Corporate expenses increased to $4,944,000 from $3,156,000 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. Write-off of deferred costs of $4,555,000 in 1997 relate to the Company's unsuccessful bid for Digital Terrestrial Television multiplex licenses. Depreciation and amortization expense increased to $36,819,000 from $20,411,000. Depreciation and amortization expense of NTL Group Limited and amortization of goodwill as a result of the acquisition was $9,654,000 and $3,703,000 in the three months ended June 30, 1997 and 1996, respectively. The remainder of the increase was primarily due to an increase in depreciation of telecommunications and CATV equipment. Interest expense increased to $51,508,000 from $36,695,000 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 $22,078,000 and $9,316,000 was paid in the three months ended June 30, 1997 and 1996, respectively. Foreign currency transaction gains of $125,000 in 1997 and $294,000 in 1996 are the result of changes in the exchange rate. 12 NTL Incorporated and Subsidiaries Six Months Ended June 30, 1997 and 1996 - --------------------------------------- Local telecommunications and television revenues increased to $77,426,000 from $34,628,000 as a result of customer growth that increased the Company's current revenue stream. National and international telecommunications revenues increased to $75,343,000 from $9,574,000 as a result of the acquisition of NTL Group Limited. Broadcast transmission and other revenues increased to $64,287,000 from $16,816,000 as a result of the acquisition of NTL Group Limited. Operating expenses increased to $141,251,000 from $41,865,000. NTL Group Limited operating expenses in the six months ended June 30, 1997 and 1996 were $91,429,000 and $14,004,000, respectively. 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 $82,210,000 from $46,568,000. NTL Group Limited selling, general and administrative expenses in the six months ended June 30, 1997 and 1996 were $10,701,000 and $2,522,000, respectively. 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 $11,760,000 and $1,833,000 in 1997 and 1996, respectively, are for the Northern Ireland license. Operations in Northern Ireland commenced in June 1996. Corporate expenses increased to $9,042,000 from $5,284,000 due to an increase in personnel and related costs. The 1997 and 1996 amounts include $926,000 and $1,628,000, respectively, of non-cash expense related to non-compete agreements. Write-off of deferred costs of $4,555,000 in 1997 relate to the Company's unsuccessful bid for Digital Terrestrial Television multiplex licenses. Depreciation and amortization expense increased to $69,824,000 from $32,601,000. Depreciation and amortization expense of NTL Group Limited and amortization of goodwill as a result of the acquisition was $18,312,000 and $3,703,000 in the six months ended June 30, 1997 and 1996, respectively. The remainder of the increase was primarily due to an increase in depreciation of telecommunications and CATV equipment. Interest expense increased to $99,117,000 from $61,406,000 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 $26,954,000 and $9,623,000 was paid in the six months ended June 30, 1997 and 1996, respectively. Foreign currency transaction losses of $197,000 in 1997 and gains of $171,000 in 1996 are the result of changes in the exchange rate. 13 NTL INCORPORATED AND SUBSIDIARIES 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 July 1, 1997 through June 30, 1998, these requirements will aggregate (Pounds)407.5 million (approximately $678 million). The Company intends to fund its requirements from cash, cash equivalents and marketable securities on hand of $600 million as of June 30, 1997 and with borrowings from the Potential Credit Facilities (as defined below). The Company's commitments for equipment and services at June 30, 1997 of approximately $72 million are included in the anticipated requirements. Certain subsidiaries of the Company have entered into an agreement with The Chase Manhattan Bank pursuant to which Chase has agreed to fully underwrite an (Pounds)875 million, eight-year term loan facility with an initial four-year revolving period (the "Potential Credit Facilities"). The facility will be used to finance capital expenditures and working capital for the Company's United Kingdom operations, including its local broadband, national telecommunications and national digital television networks. The facility is fully underwritten by Chase, is subject to usual and customary closing conditions, and will be syndicated in the Euro-syndicated loan market over the next several weeks. A portion of the facility ((Pounds)75 million) is conditional upon the execution of contracts to provide digital television transmission services to certain third parties. Up to (Pounds)165 million of the facility will be used to replace Company funds which will be used to repay the NTLIH Term Loan and Revolving Facility (as described below). As of June 30, 1997, the principal and accrued interest outstanding under the NTLIH Facility was (Pounds)148.1 million ($246.6 million). 14 The Company is highly leveraged. At June 30, 1997, the Company's total long- term indebtedness (including the Redeemable Preferred Stock) was approximately $2.3 billion, representing approximately 95% of total capitalization. The following table summarizes the terms of those notes and preferred stock issued by the Company.
7% 7- 1/4% 11- 1/2% 12- 3/4% 10-7/8% CONVERTIBLE CONVERTIBLE SERIES B SENIOR SERIES A SENIOR SENIOR DEFERRED SUBORDINATED SUBORDINATED DEFERRED COUPON DEFERRED COUPON COUPON NOTES NOTES NOTES NOTES NOTES ------------------------------------------------------------------------------------------ Net Proceeds ($) (in 000's) 267,437 186,065 582,000 145,125 119,797 Issue Date June 12, 1996 April 20, 1995 January 30, 1996 April 20, 1995 October 7, 1993 Issue Price /(1)/ 100% 100% 57.155% 53.995% 58.873% Aggregate Principal Amount at Maturity ($) (in 000's) 275,000 191,750 1,050,000 277,803 212,000 Maturity Date June 15, 2008 April 15, 2005 February 1, 2006 April 15, 2005 October 15, 2003 Yield or Interest Rate /(2)/ 7% 7- 1/4 % 11- 1/2% 12- 3/4% 10-7/8% Interest or Dividend Payment Dates June 15 and April 15 and February 1 and April 15 and April 15 and December 15 October 15 August 1 October 15 October 15 from 12-15-96 from 10-15-95 from 8-1-01 from 10-15-00 from 4-15-99 Earliest Optional Redemption Date /(4)/ June 15, 1999 April 15, 1998 February 1, 2001 April 15, 2000 October 15, 1998 Redemption Price (%) /(5)/ 104.9 (1999) 105.08 (1998) 105.75 (2001) 103.64 (2000) 103.107 (1998) to 100 to 100.73 to 100 to 100 to 100 (2006) (2004) (2003) (2002) (2000) Conversion Price ($)/ (6)/ 37.875 27.56 N/A N/A N/A Senior/Subordinated Subordinated Subordinated Senior Senior Senior
10% REDEEMABLE SERIES B PREFERRED SENIOR NOTES STOCK --------------------------------- Net Proceeds ($) (in 000's) 389,000 96,625 Issue Date February 7, 1997 February 7, 1997 Issue Price /(1)/ 100% 100% Aggregate Principal Amount at Maturity ($) (in 000's) 400,000 100,000 Maturity Date February 15, 2007 February 15, 2009 Yield or Interest Rate /(2)/ 10% 13% Interest or Dividend Payment Dates February 15 and May 15, August 15, August 15 November 15 and from 8-15-97 February 15 from 5-15-97 /3/ Earliest Optional Redemption Date /(4)/ February 15, 2002 February 15, 2002 Redemption Price (%) /(5)/ 105 (2002) 106.5 (2002) to 100 to 100 (2005) (2005) Conversion Price ($)/ (6)/ N/A N/A Senior/Subordinated 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 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 "NTLIH Facility") 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. As of June 30, 1997, NTLIH has borrowed (Pounds)8 million under the Revolving Facility. All amounts outstanding under the NTLIH 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 NTLIH Facility is due on December 31, 2002. Loans under the NTLIH Facility 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 June 30, 1997 and December 31, 1996, the effective rate was 8.212% and 7.972%, respectively. Interest is payable either monthly, quarterly or semiannually, at the option of NTLIH. The NTLIH Facility is 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. Based on the information currently available to the Company, the Company currently estimates that, from July 1, 1998 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)798 million (approximately $1.3 billion). 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 for fifteen years, commencing in the first full calendar year after the start of operations, in the amount of (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. Scheduled cash interest payments on and principal repayments of indebtedness of the Company and its subsidiaries from July 1, 1998 through December 31, 2002 will be approximately $744 million and $240 million, respectively (assuming no conversion of convertible debt or refinancing of existing indebtedness and no exchange of the Redeemable Preferred Stock). 16 NTL INCORPORATED AND SUBSIDIARIES As described above, the Company has significant capital requirements for the completion of its telephone, telecommunications and CATV network passed the total of 2,090,000 homes required by its regulatory build schedules, for its LDL payments and for scheduled cash interest and principal payments, as well as requirements for other capital expenditures. The Company expects to fund these requirements with funds from the Potential Credit Facilities and cash from operations. The inability of the Company to obtain the Potential Credit Facilities or secure other financing could result in the failure to comply with the minimum build milestones set forth in its licenses leading to the revocation of those licenses. There can be no assurance that (i) the Potential Credit Facilities will be obtained (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 Potential Credit Facilities or any other credit facility will be satisfied when funds are required, (v) 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, (vi) the Company will be able to access such cash flow or (vii) 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'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 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. 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 June 30, 1997, the Company had invested approximately $383 million in pounds sterling money market instruments and cash accounts to reduce this risk. The Company may consider entering into transactions to hedge the risk of exchange rate fluctuations. 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. 17 NTL INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Cash used in operating activities was $34,968,000 and $8,908,000 in the six months ended June 30, 1997 and 1996, respectively. 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 $239,760,000 in 1997 and $200,013,000 in 1996 as a result of increased fixed asset purchases and construction in 1997. In May 1997, the Company paid (Pounds)35,000,000 ($57,166,000) to the former shareholders of NTL Group Limited in respect of the final payment of deferred purchase price. Cash provided by financing activities was $498,098,000 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 $15,524,000, plus proceeds from borrowings under NTLIH's Revolving Facility of (Pounds)8,000,000 ($13,066,000). 18 NTL INCORPORATED AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On June 3, 1997, the Company held its annual meeting of stockholders. The following management proposals were adopted: (i) the reelection of Alan J. Patricof and Warren Potash to the Board of Directors, (ii) the ratification of the selection of Ernst & Young LLP as the Company's independent auditors for 1997 and (iii) an amendment to the Company's Employee Stock Option Plan. The stockholders approved the election of Alan J. Patricof by a vote of 27,232,771 shares in favor and 150,437 shares withheld from voting. The stockholders approved the election of Warren Potash by a vote of 27,229,750 shares in favor and 153,058 shares withheld from voting. The stockholders approved the second proposal by a vote of 27,366,106 shares in favor, 12,932 shares against and 4,170 shares abstaining from voting. The stockholders approved the third proposal by a vote of 23,406,673 shares in favor, 3,924,257 shares against and 52,278 shares abstaining from voting. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27. Financial Data Schedule (b) Reports on Form 8-K During the quarter ended June 30, 1997, the Company filed the following current reports on Form 8-K: (i) Report dated May 8, 1997 reporting under Item 5, Other Events, that a wholly-owned subsidiary of the Company has entered into an agreement with United News and Media plc relating to Digital Television Network Limited ("DTN"), an indirect wholly-owned subsidiary of the Company which submitted applications to the Independent Television Commission ("ITC") for licenses to operate one or more digital terrestrial multiplexes under the Broadcasting Act 1996. (ii) Report dated June 24, 1997 reporting under Item 5, Other Events, that the ITC has announced that DTN was not awarded a license for digital terrestrial television, but that the licenses for each of the three multiplexes were awarded to British Digital Broadcasting. No financial statements were filed with either of these reports. 19 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: August 13, 1997 By: /s/ J. Barclay Knapp ---------------------------------- J. Barclay Knapp President, Chief Executive Officer and Chief Financial Officer Date: August 13, 1997 By: /s/ Gregg Gorelick ---------------------------------- Gregg Gorelick Vice President-Controller (Principal Accounting Officer) 20 EX-27 2 EXHIBIT 27
5 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 513,065,000 87,250,000 94,912,000 (4,915,000) 0 29,371,000 1,767,949,000 (177,300,000) 2,760,814,000 262,154,000 2,192,219,000 105,039,000 0 321,000 113,117,000 2,760,814,000 0 221,639,000 0 141,251,000 82,210,000 0 99,117,000 (178,104,000) 4,669,000 (173,435,000) 0 0 0 (173,435,000) (5.56) 0
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