UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Quarterly Period Ended:
MARCH 31, 1997
OR
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from ________ to ________.
Commission File Number 0-24792
COMCAST UK CABLE PARTNERS LIMITED
(Exact name of registrant as specified in its charter)
Bermuda Not Applicable
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Clarendon House Comcast Corporation
2 Church Street West 1500 Market Street, 35th Floor
Hamilton, HM 11, Bermuda Philadelphia, PA 19102-2148
(809) 295-5950 (215) 665-1700
- --------------------------------------------------------------------------------
(Address, including zip code, and (Name, address, including zip code,
telephone number, and telephone number,
including area code, including area code,
of Registrant's principal of agent for service)
executive offices)
--------------------------
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 twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days.
Yes __X__ No ____
--------------------------
As of March 31, 1997, there were 37,231,997 Class A Common Shares and 12,872,605
Class B Common Shares outstanding.
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance
Sheet as of March 31, 1997 and December 31,
1996 (Unaudited)..........................................2
Condensed Consolidated Statement of
Operations and Accumulated Deficit for
the Three Months Ended March 31,
1997 and 1996 (Unaudited).................................3
Condensed Consolidated Statement of Cash
Flows for the Three Months Ended March 31,
1997 and 1996 (Unaudited).................................4
Notes to Condensed Consolidated
Financial Statements (Unaudited)......................5 - 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations...........................................9 - 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................16
Item 6. Exhibits and Reports on Form 8-K.........................16
SIGNATURE .........................................................17
-----------------------------------
This Quarterly Report on Form 10-Q contains forward looking statements made
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Readers are cautioned that such forward looking statements
involve risks and uncertainties which could significantly affect expected
results in the future from those expressed in any such forward looking
statements made by, or on behalf of the Company. Certain factors that could
cause actual results to differ materially include, without limitation, the
effects of legislative and regulatory changes; the potential for increased
competition; technological changes; the need to generate substantial growth in
the subscriber base by successfully launching, marketing and providing services
in identified markets; pricing pressures which could affect demand for the
Company's services; the Company's ability to expand its distribution; changes in
labor, programming, equipment and capital costs; the Company's continued ability
to create or acquire programming and products that customers will find
attractive; future acquisitions, strategic partnerships and divestitures;
general business and economic conditions; and other risks detailed from time to
time in the Company's periodic reports filed with the Securities and Exchange
Commission.
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31, December 31,
1997 1996
(in (UK Pound)000's, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................................... (UK Pound)67,134 (UK Pound)63,314
Short-term investments...................................................... 33,957 61,466
Accounts receivable, less allowance for doubtful accounts of
(UK Pound)1,643 and (UK Pound)1,338....................................... 3,146 2,922
Other current assets........................................................ 4,892 5,359
----------------- -----------------
Total current assets.................................................... 109,129 133,061
----------------- -----------------
INVESTMENTS IN AFFILIATES...................................................... 73,341 69,472
----------------- -----------------
PROPERTY AND EQUIPMENT......................................................... 250,513 232,112
Accumulated depreciation ................................................... (18,006) (13,765)
----------------- -----------------
Property and equipment, net................................................. 232,507 218,347
----------------- -----------------
DEFERRED CHARGES............................................................... 61,102 60,867
Accumulated amortization.................................................... (9,788) (8,379)
----------------- -----------------
Deferred charges, net....................................................... 51,314 52,488
----------------- -----------------
FOREIGN EXCHANGE PUT OPTIONS AND OTHER, net.................................... 10,319 11,002
----------------- -----------------
(UK Pound)476,610 (UK Pound)484,370
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses....................................... (UK Pound)24,671 (UK Pound)23,086
Current portion of long-term debt........................................... 1,396 1,463
Foreign exchange call options............................................... 1,343 4,086
Due to affiliates........................................................... 673 676
----------------- -----------------
Total current liabilities............................................... 28,083 29,311
----------------- -----------------
LONG-TERM DEBT, less current portion........................................... 216,835 202,626
----------------- -----------------
FOREIGN EXCHANGE CALL OPTIONS AND OTHER........................................ 2,653 3,079
----------------- -----------------
LONG-TERM DEBT, due to shareholder............................................. 10,547 10,322
----------------- -----------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred shares, (UK Pound).01 par value - authorized, 10,000,000
shares; issued, none.......................................................
Class A common shares, (UK Pound).01 par value - authorized, 50,000,000
shares; issued, 37,231,997................................................ 372 372
Class B common shares, (UK Pound).01 par value - authorized, 50,000,000
shares; issued, 12,872,605................................................ 129 129
Additional capital.......................................................... 358,548 358,548
Accumulated deficit......................................................... (140,557) (120,017)
----------------- -----------------
Total shareholders' equity.............................................. 218,492 239,032
----------------- -----------------
(UK Pound)476,610 (UK Pound)484,370
================= =================
See notes to condensed consolidated financial statements.
2
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
Three Months Ended March 31,
1997 1996
(in (UK Pound)000's, except per share data)
REVENUES
Service income.............................................................. (UK Pound)12,118 (UK Pound)1,947
Consulting fee income....................................................... 233 387
------------------ ----------------
12,351 2,334
------------------ ----------------
COSTS AND EXPENSES
Operating................................................................... 4,729 793
Selling, general and administrative......................................... 7,399 3,211
Management fees............................................................. 843 606
Depreciation and amortization............................................... 5,923 1,489
------------------ ----------------
18,894 6,099
------------------ ----------------
OPERATING LOSS................................................................. (6,543) (3,765)
OTHER (INCOME) EXPENSE
Interest expense............................................................ 6,051 5,693
Investment income........................................................... (2,101) (4,720)
Equity in net losses of affiliates.......................................... 5,152 5,698
Exchange losses and other, net.............................................. 4,895 1,551
------------------ ----------------
13,997 8,222
------------------ ----------------
NET LOSS ...................................................................... (20,540) (11,987)
ACCUMULATED DEFICIT
Beginning of period ....................................................... (120,017) (79,442)
------------------ ----------------
End of period..............................................................((UK Pound)140,557) (UK Pound)91,429)
================== ================
NET LOSS PER SHARE............................................................. ((UK Pound).41) ((UK Pound).28)
================== ================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING DURING THE PERIOD....................................... 50,105 42,511
================== ================
See notes to condensed consolidated financial statements.
3
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
1997 1996
(UK Pound)000 (UK Pound)000
OPERATING ACTIVITIES
Net loss.................................................................... ((UK Pound)20,540)((UK Pound)11,987)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization............................................. 5,923 1,489
Amortization on foreign exchange contracts................................ 683 665
Non-cash interest expense................................................. 5,916 5,693
Non-cash investment income................................................ (529) (1,604)
Exchange losses........................................................... 5,673 1,456
Equity in net losses of affiliates........................................ 5,152 5,698
Increase in foreign exchange contracts and other, net..................... 19
----------------- -----------------
2,278 1,429
(Increase) decrease in accounts receivable and other assets............... (328) 1,624
Increase in accounts payable and accrued expenses......................... 1,585 1,935
Decrease in due to affiliates............................................. (3) (519)
----------------- -----------------
Net cash provided by operating activities............................. 3,532 4,469
----------------- -----------------
FINANCING ACTIVITIES
Repayment of debt........................................................... (10)
----------------- -----------------
Net cash used in financing activities................................. (10)
----------------- -----------------
INVESTING ACTIVITIES
Acquisition, net of cash acquired........................................... (10,203)
Proceeds from sales of short-term investments, net.......................... 27,509 20,212
Capital contributions and loans to affiliates............................... (7,925) (7,505)
Capital expenditures and other.............................................. (19,286) (13,145)
----------------- -----------------
Net cash provided by (used in) investing activities................... 298 (10,641)
----------------- -----------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................... 3,820 (6,172)
CASH AND CASH EQUIVALENTS, beginning of period................................. 63,314 162,231
----------------- -----------------
CASH AND CASH EQUIVALENTS, end of period....................................... (UK Pound)67,134 (UK Pound)156,059
================= =================
See notes to condensed consolidated financial statements.
4
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The condensed consolidated balance sheet as of December 31, 1996 has been
condensed from the audited balance sheet as of that date. The condensed
consolidated balance sheet as of March 31, 1997 and the condensed
consolidated statements of operations and accumulated deficit and of cash
flows for the three months ended March 31, 1997 and 1996 have been prepared
by Comcast UK Cable Partners Limited (the "Company") and have not been
audited by the Company's independent auditors. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows as of March 31, 1997 and for all period presented
have been made.
Certain information and note disclosures normally included in the Company's
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's December
31, 1996 Annual Report on Form 10-K filed with the Securities and Exchange
Commission. The results of operations for the period ended March 31, 1997
are not necessarily indicative of operating results for the full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
New Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share." This
standard, which clarifies and supersedes the current authoritative
accounting literature regarding the computation and disclosure of earnings
per share, is applicable to interim and annual periods ending after
December 15, 1997 and may not be applied earlier. The Company does not
expect adoption of this standard to result in significant changes to the
Company's calculation or presentation of net loss per share.
Reclassifications
Certain reclassifications have been made to the prior year condensed
consolidated financial statements to conform to those classifications used
in 1997.
3. SINGTEL TRANSACTION
In March 1996, the Company completed the acquisition (the "Singtel
Transaction") of Singapore Telecom International Pte. Limited's ("Singapore
Telecom") 50% interest in Cambridge Holding Company Limited ("Cambridge
Cable"), pursuant to the terms of a Share Exchange Agreement executed by
the parties in December 1995. In exchange for Singapore Telecom's 50%
interest in Cambridge Cable and certain loans made to Cambridge Cable, with
accrued interest thereon, the Company issued approximately 8.9 million of
its Class A Common Shares and paid approximately (UK Pound)11.8 million to
Singapore Telecom. The Company accounted for the Singtel Transaction under
the purchase method. As a result of the Singtel Transaction, the Company
owns 100% of Cambridge Cable and Cambridge Cable was consolidated with the
Company effective March 31, 1996.
The following unaudited pro forma information has been presented as if the
Singtel Transaction had occurred on January 1, 1996. This unaudited pro
forma information is based on historical results of operations adjusted for
acquisition costs and, in the opinion of management, is not necessarily
indicative of what results would have been had the Company owned 100% of
Cambridge Cable since January 1, 1996 (in thousands, except per share
data).
5
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Three Months Ended
March 31, 1996
Revenues........................................... (UK Pound)8,557
Net loss........................................... (13,612)
Net loss per share................................. (.27)
4. INVESTMENTS IN AFFILIATES
The Company has historically invested in three affiliates (the "Equity
Investees," which term excludes Cambridge Cable as of and subsequent to
March 31, 1996 - see Note 3): Birmingham Cable Corporation Limited
("Birmingham Cable"), Cable London PLC ("Cable London") and Cambridge
Cable. The Equity Investees operate integrated cable communications,
residential telephony and business telecommunications systems in their
respective major metropolitan areas under exclusive cable television
licenses and non-exclusive telecommunications licenses. As of March 31,
1997, the Company's ownership interest in the Equity Investees is as
follows:
Birmingham Cable................................27.5%
Cable London (1)................................50.0%
---------------
(1) Increased in September 1996 from 49.0% due to the buyout of certain
minority shareholders.
Included in investments in affiliates as of March 31, 1997 and December 31,
1996, are loans to Cable London of (UK Pound)28.5 million and (UK
Pound)22.5 million and accrued interest of (UK Pound)4.1 million and (UK
Pound)3.6 million, respectively. The loans accrue interest at a rate of 2%
above the published base lending rate of Barclays Bank plc (8.00% effective
rate as of March 31, 1997) and are subordinate to Cable London's revolving
bank credit facility and the London Revolver (see below). Of these loans,
(UK Pound)21.0 million as of March 31, 1997 and December 31, 1996 are
convertible into ordinary shares of Cable London at a per share conversion
price of (UK Pound)2.00. Also included in investments in affiliates as of
March 31, 1997 are loans to Birmingham Cable of (UK Pound)1.9 million and
accrued interest of (UK Pound)20,000. The Birmingham Cable loans accrue
interest at a rate of 2% above the London Interbank Offered Rate ("LIBOR")
(8.00% effective rate as of March 31, 1997) and are subordinate to
Birmingham Cable's credit facility.
In May 1997, Cable London entered into a (UK Pound)170.0 million revolving
credit facility (the "London Revolver") with various banks, which converts
into a five year term loan on June 30, 2001. Interest rates on the London
Revolver are at LIBOR plus 1/2% to 2-3/8%. The London Revolver will be used
by Cable London, subject to certain restrictions, for capital expenditures
and working capital requirements relating to the build-out of its systems
and the repayment of outstanding indebtedness under Cable London's existing
credit facility.
The London Revolver contains restrictive covenants which limit Cable
London's ability to enter into arrangements for the acquisition and sale of
property and equipment, investments, mergers and the incurrence of
additional debt. Certain of these covenants require that certain financial
ratios and cash flow levels be maintained and contain certain restrictions
on dividend payments. The Company's right to receive consulting fee
payments from Cable London has been subordinated to the banks under the
London Revolver. The payment of consulting fees is restricted until Cable
London meets certain financial ratio tests under the London Revolver. In
addition, the Company's shares in Cable London have been pledged to secure
the London Revolver.
6
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Summarized financial information for affiliates accounted for under the
equity method is as follows:
Birmingham Cable Cambridge
Cable London Cable Combined
(UK Pound)000 (UK Pound)000 (UK Pound)000 (UK Pound)000
THREE MONTHS ENDED MARCH 31, 1997
Results of operations
Service income................................... (UK Pound)15,394 (UK Pound)11,671 (UK Pound) (UK Pound)27,065
Operating, selling, general and
administrative expenses........................ (13,454) (11,036) (24,490)
Depreciation and amortization.................... (6,293) (4,258) (10,551)
Operating loss................................... (4,353) (3,623) (7,976)
Net loss......................................... (7,355) (6,109) (13,464)
Company's equity in net loss..................... (2,058) (3,094) (5,152)
AT MARCH 31, 1997
Financial position
Current assets................................... 63,437 10,348 73,785
Noncurrent assets................................ 259,517 170,056 429,573
Current liabilities.............................. 27,864 24,839 52,703
Noncurrent liabilities........................... 199,290 137,565 336,855
THREE MONTHS ENDED MARCH 31, 1996
Results of operations
Service income................................... 12,312 9,121 6,401 27,834
Operating, selling, general and
administrative expenses........................ (10,552) (8,941) (6,366) (25,859)
Depreciation and amortization.................... (4,554) (3,329) (2,168) (10,051)
Operating loss................................... (2,794) (3,149) (2,133) (8,076)
Net loss......................................... (4,434) (4,633) (4,419) (13,486)
Company's equity in net loss..................... (1,218) (2,270) (2,210) (5,698)
5. LONG-TERM DEBT
The accreted value of the Company's 11.20% Senior Discount Debentures due
2007 (the "2007 Discount Debentures") was (UK Pound)212.6 million and (UK
Pound)198.1 million as of March 31, 1997 and December 31, 1996,
respectively. The 2007 Discount Debentures contain restrictive covenants
which limit the Company's ability to pay dividends.
6. RELATED PARTY TRANSACTIONS
Comcast U.K. Consulting, Inc., a wholly owned subsidiary of the Company,
earns consulting fee income under consulting agreements with the Equity
Investees. The consulting fee income is generally based on a percentage of
gross revenues or a fixed amount per dwelling unit in the Equity Investees'
franchise areas.
The Company's right to receive certain consulting fee payments from
Birmingham Cable and Cable London has been subordinated to the banks under
their credit facilities. Accordingly, a portion of these fees have been
classified as long-term receivables and are included in investments in
affiliates in the Company's condensed consolidated balance sheet. In
addition, the Company's shares in Cable London have been pledged to secure
amounts outstanding under the Cable London credit facility and the London
Revolver (see Note 4).
7
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
(Unaudited)
Management fee expense is incurred under agreements between the Company on
the one hand, and Comcast Corporation ("Comcast"), the Company's
controlling shareholder, and Comcast UK Cable Partners Consulting, Inc.
("Comcast Consulting"), an indirect wholly owned subsidiary of Comcast, on
the other, whereby Comcast and Comcast Consulting provide consulting
services to the Equity Investees on behalf of the Company and management
services to the Company. Such management fees are based on Comcast's and
Comcast Consulting's cost of providing such services. As of March 31, 1997
and December 31, 1996, due to affiliates consists primarily of this
management fee and operating expenses paid by Comcast and its affiliates on
behalf of the Company.
For the three months ended March 31, 1997 and 1996, investment income
includes (UK Pound)529,000 and (UK Pound)430,000 of interest income,
respectively, relating to the loans to Birmingham Cable and Cable London
described in Note 4. In addition, investment income for the three months
ended March 31, 1996 includes (UK Pound)1.2 million of interest income
relating to loans to Cambridge Cable which were eliminated in consolidation
effective March 31, 1996 (see Note 3).
Long-term debt due to shareholder consists of 9% Subordinated Notes payable
to Comcast UK Holdings, Inc. which are due in 1999. For the three months
ended March 31, 1997 and 1996, the Company recorded (UK Pound)224,000 and
(UK Pound)207,000, respectively, of interest expense relating to such
notes.
In management's opinion, the foregoing transactions were entered into on
terms no more favorable than those with non-affiliated parties.
7. CONTINGENCIES
The Company is subject to claims which arise in the ordinary course of its
business and other legal proceedings. In the opinion of management, the
amount of ultimate liability with respect to these actions will not
materially affect the financial position, results of operations or
liquidity of the Company.
8
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Comcast UK Cable Partners Limited and its subsidiaries (the "Company"), an
indirect controlled subsidiary of Comcast Corporation ("Comcast"), was
incorporated in 1992 to develop, construct, manage and operate the interests of
Comcast in the United Kingdom ("UK") cable and telecommunications industry. As
of March 31, 1997, the Company has interests in four operations (the "Operating
Companies"): Birmingham Cable Corporation Limited ("Birmingham Cable"), in which
the Company owns a 27.5% interest, Cable London PLC ("Cable London"), in which
the Company owns a 50.0% interest, Cambridge Holding Company Limited ("Cambridge
Cable"), in which the Company owns a 100% interest and two companies holding the
franchises for Darlington and Teesside, England ("Teesside"), in which the
Company owns a 100% interest.
When build-out of the Operating Companies' systems is complete, these systems
will have the potential to serve approximately 1.6 million homes and the
businesses within their franchise areas. As of March 31, 1997, the Operating
Companies' systems passed more than 1,029,000 homes or approximately 64% of the
homes in their franchise areas and served more than 266,000 cable subscribers,
290,000 residential telephony subscribers and 8,900 business telephony
subscribers.
The Company accounts for its interests in Birmingham Cable and Cable London
under the equity method. Through March 31, 1996, the Company also accounted for
its interest in Cambridge Cable under the equity method (see below).
Collectively, Birmingham Cable, Cable London and Cambridge Cable are referred to
herein as the "Equity Investees" (which term excludes Cambridge Cable as of and
subsequent to March 31, 1996).
General Development of Business
Singtel Transaction
In March 1996, the Company completed the acquisition (the "Singtel Transaction")
of Singapore Telecom International Pte. Limited's ("Singapore Telecom") 50%
interest in Cambridge Cable, pursuant to the terms of a Share Exchange Agreement
executed by the parties in December 1995. In exchange for Singapore Telecom's
50% interest in Cambridge Cable and certain loans made to Cambridge Cable, with
accrued interest thereon, the Company issued approximately 8.9 million of its
Class A Common Shares and paid approximately (UK Pound)11.8 million to Singapore
Telecom. The Company accounted for the Singtel Transaction under the purchase
method. As a result of the Singtel Transaction, the Company now owns 100% of
Cambridge Cable and Cambridge Cable was consolidated with the Company effective
March 31, 1996.
Liquidity and Capital Resources
The Company
Historically, the Company has financed its cash requirements, including its
investments in the Equity Investees, through capital contributions from its
shareholders, as well as proceeds from the Company's initial public offering of
15.0 million of its Class A Common Shares (net proceeds of $209.4 million or (UK
Pound)132.6 million) in September 1994 and from the Company's offering of its
$517.3 million principal amount at maturity 11.20% Senior Discount Debentures
due 2007 (the "2007 Discount Debentures") (net proceeds of $291.1 million or (UK
Pound)186.9 million) in November 1995. Interest accretes on the 2007 Discount
Debentures at 11.20% per annum compounded semi-annually from November 15, 1995
to November 15, 2000, after which date interest will be paid in cash on each May
15 and
9
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
November 15 through November 15, 2007. The 2007 Discount Debentures contain
restrictive covenants which limit the Company's ability to pay dividends. The
Operating Companies have not paid any dividends or advances to the Company and
are not expected to pay any dividends or advances in the foreseeable future.
Except for its working capital requirements, the Company's cash needs will
depend on management's investment decisions. Investment considerations include
(i) whether further capital contributions will be made to the Equity Investees,
(ii) whether the Operating Companies can obtain debt financing, (iii) whether
the Operating Companies will be able to generate positive operating cash flow,
(iv) the timing of the build-out of the Operating Companies' systems, and (v)
whether there may be future acquisitions and trades funded in cash or the
Company's shares. There are no agreements or negotiations for specific
significant acquisitions currently pending.
Historically, the Company has made investments in the Equity Investees in
conjunction with proportionate investments by its strategic and financial
partners. The Company made capital contributions and loans to the Operating
Companies in the aggregate of (UK Pound)31.3 million and (UK Pound)22.1 million
during the three months ended March 31, 1997 and 1996, respectively. Of these
amounts, (UK Pound)7.9 million and (UK Pound)7.5 million relate to capital
contributions and loans to the Equity Investees during the three months ended
March 31, 1997 and 1996, respectively. Although the Company is not contractually
committed to make any additional capital contributions or loans to any of the
Equity Investees, it currently intends to fund its share of the amounts
necessary for capital expenditures and to finance operating deficits. Failure to
do so could dilute the Company's ownership interest in the Equity Investees.
The Company estimates that the Operating Companies will require an aggregate of
approximately (UK Pound)370 million to (UK Pound)470 million after March 31,
1997 to complete the build-out of their systems. Although the Company expects
that its strategic and financial partners in the Equity Investees will provide
their share of such funds, they are not contractually obligated to do so, and
thus no assurance of such funding can be given. If the Company's strategic and
financial partners fail to provide such financing, the Equity Investees will be
required to seek additional funds elsewhere. Such additional funds may come from
the Company, from new strategic and financial partners, from borrowings under
existing or new credit facilities or from other sources, although there can be
no assurance that any such financing would be available on acceptable terms and
conditions. The Company and its strategic and financial partners generally have
veto rights over the Equity Investees' debt financing decisions. Failure of any
Operating Company to obtain financing necessary to complete the build-out of its
system could result in the loss of its cable franchises and licenses.
The Company is exposed to market risk including changes in foreign currency
exchange rates. To manage the volatility relating to these exposures, the
Company enters into various derivative transactions pursuant to the Company's
policies in areas such as counterparty exposure and hedging practices. Positions
are monitored using techniques including market value and sensitivity analysis.
The Company does not hold or issue any derivative financial instruments for
trading purposes and is not a party to leveraged instruments. The credit risks
associated with the Company's derivative financial instruments are controlled
through the evaluation and monitoring of the creditworthiness of the
counterparties. Although the Company may be exposed to losses in the event of
nonperformance by the counterparties, the Company does not expect such losses,
if any, to be significant.
The Company has entered into certain foreign exchange option contracts ("FX
Options") as a normal part of its foreign currency risk management efforts.
During 1995, the Company entered into certain foreign exchange put option
contracts ("FX Puts") which may be settled only on November 16, 2000. These FX
Puts are used to limit the Company's exposure to the risk that the eventual cash
outflows related to net monetary liabilities denominated in currencies other
than its functional currency (the UK Pound Sterling or "UK Pound") (principally
the 2007 Discount Debentures) are adversely affected by changes in exchange
rates. As of March 31, 1997 and December 31, 1996, the Company has (UK
Pound)250.0 million notional amount of FX Puts to purchase United States ("US")
dollars at an exchange ratio of $1.35 per (UK Pound)1.00 (the "Ratio"). The FX
Puts provide a hedge, to the extent the exchange ratio falls below the
10
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
Ratio, against the Company's net monetary liabilities denominated in US dollars
since gains and losses realized on the FX Puts are offset against foreign
exchange gains or losses realized on the underlying net liabilities. Premiums
paid for the FX Puts of (UK Pound)13.9 million are included in foreign exchange
put options and other in the Company's condensed consolidated balance sheet, net
of related amortization. These premiums are being amortized over the terms of
the related contracts of five years.
During 1995, in order to reduce hedging costs, the Company sold foreign exchange
call option contracts ("FX Calls") to exchange (UK Pound)250.0 million notional
amount and received (UK Pound)3.4 million. These contracts may only be settled
on their expiration dates. Of these contracts, (UK Pound)200.0 million notional
amount, with an exchange ratio of $1.70 per (UK Pound)1.00, expired unexercised
in November 1996 while the remaining contract, with a (UK Pound)50.0 million
notional amount and an exchange ratio of $1.62 per (UK Pound)1.00, has a
settlement date in November 2000. In the fourth quarter of 1996, in order to
continue to reduce hedging costs, the Company sold additional FX Calls, for (UK
Pound)2.1 million, to exchange (UK Pound)200.0 million notional amount at
average exchange ratio of $1.75 per (UK Pound)1.00. These contracts may only be
settled on their expiration dates during the fourth quarter of 1997. The FX
Calls are marked-to-market on a current basis in the Company's condensed
consolidated statement of operations and accumulated deficit.
Changes in fair value between measurement dates relating to the FX Calls
resulted in exchange gains of (UK Pound)3.2 million and (UK Pound)1.8 million
during the three months ended March 31, 1997 and 1996, respectively.
The Company's ability to meet its long-term liquidity and capital requirements
is contingent upon the Operating Companies' ability to generate positive
operating cash flow and to obtain external financing, although there can be no
assurance that any such financing will be available on acceptable terms and
conditions. The Company believes that its existing cash, cash equivalents and
short-term investments will be sufficient to fund the Company's expected capital
contributions and loans Birmingham Cable and Cable London and to fund
development and construction costs for Cambridge Cable and Teesside through
April 1998.
The Operating Companies
The following is a discussion of the liquidity and capital resources of each of
the Operating Companies. Such financial information has not been adjusted for
the Company's proportionate ownership percentages in the Operating Companies.
Birmingham Cable. Historically, Birmingham Cable's primary sources of funding
have been capital contributions and loans from the Company and the Company's
strategic and financial partners and cash from the issuance of Birmingham
Cable's preference shares. The Company estimates that approximately (UK
Pound)42.0 million will be required between April 1, 1997 and December 31, 1997
to continue development and construction of Birmingham Cable's cable/telephony
network. An additional (UK Pound)20.0 million to (UK Pound)40.0 million is
expected to be required to complete the build-out in subsequent years. The
Company expects that the majority of such funds will be provided by cash from
the issuance of Birmingham Cable's preference shares. Any additional funding may
come from the Company or its strategic and financial partners, borrowings under
new credit facilities or from other sources, although there can be no assurance
that any such financing will be available on acceptable terms and conditions.
Cable London. Historically, Cable London's primary sources of funding have been
capital contributions and loans from the Company and the Company's strategic and
financial partner and borrowings under its existing credit facility.
In May 1997, Cable London entered into a (UK Pound)170.0 million revolving
credit facility (the "London Revolver") with various banks, which converts into
a five year term loan on June 30, 2001. Interest rates on the London Revolver
11
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
are at the London Interbank Offered Rate ("LIBOR") plus 1/2% to 2-3/8%. The
London Revolver will be used by Cable London, subject to certain restrictions,
for capital expenditures and working capital requirements relating to the
build-out of its systems and the repayment of outstanding indebtedness under
Cable London's existing credit facility.
The London Revolver contains restrictive covenants which limit Cable London's
ability to enter into arrangements for the acquisition and sale of property and
equipment, investments, mergers and the incurrence of additional debt. Certain
of these covenants require that certain financial ratios and cash flow levels be
maintained and contain certain restrictions on dividend payments. The Company's
right to receive consulting fee payments from Cable London has been subordinated
to the banks under the London Revolver. The payment of consulting fees is
restricted until Cable London meets certain financial ratio tests under the
London Revolver. In addition, the Company's shares in Cable London have been
pledged to secure the London Revolver.
The Company estimates that approximately (UK Pound)30.0 million will be required
between April 1, 1997 and December 31, 1997 to continue development and
construction of Cable London's cable/telephony network. An additional (UK
Pound)80.0 million to (UK Pound)100.0 million is expected to be required to
complete the build-out in subsequent years. The Company expects that the
majority of such funds and Cable London's 1997 debt maturity requirements will
be provided by the London Revolver. Any additional funding may come from the
Company or its strategic and financial partner, borrowings under new credit
facilities or from other sources, although there can be no assurance that any
such financing will be available on acceptable terms and conditions.
Cambridge Cable. Prior to the Singtel Transaction, Cambridge Cable's primary
source of funding had been capital contributions and loans from the Company and
Singapore Telecom. The Company estimates that approximately (UK Pound)24.0
million will be required between April 1, 1997 and December 31, 1997 to continue
development and construction of Cambridge Cable's cable/telephony network. An
additional (UK Pound)90.0 million to (UK Pound)120.0 million is expected to be
required to complete the build-out in subsequent years. The Company expects that
such funds will be provided by the Company, borrowings under new credit
facilities or from other sources, although there can be no assurance that any
such financing will be available on acceptable terms and conditions.
Teesside. Historically, Teesside's primary source of funding has been capital
contributions from the Company. The Company estimates that approximately (UK
Pound)38.0 million will be required between April 1, 1997 and December 31, 1997
to continue development and construction of Teesside's cable/telephony network.
An additional (UK Pound)50.0 million to (UK Pound)70.0 million is expected to be
required to complete the build-out in subsequent years. The Company expects that
such funds will be provided by the Company, borrowings under new credit
facilities or from other sources, although there can be no assurance that any
such financing will be available on acceptable terms and conditions.
Statement of Cash Flows
Cash and cash equivalents increased (UK Pound)3.8 million as of March 31, 1997
from December 31, 1996 and decreased (UK Pound)6.2 million as of March 31, 1996
from December 31, 1995. Changes in cash and cash equivalents primarily resulted
from cash flows from operating and investing activities which are explained
below.
Net cash provided by operating activities amounted to (UK Pound)3.5 million and
(UK Pound)4.5 million for the three months ended March 31, 1997 and 1996,
respectively. The changes in net cash provided by operating activities for the
respective periods are primarily due to changes in working capital as a result
of the timing of receipts and disbursements.
Net cash provided by (used in) investing activities was (UK Pound)298,000 and
((UK Pound)10.6) million for the three months ended March 31, 1997 and 1996,
respectively. During the three months ended March 31, 1997, net cash provided by
12
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
investing activities includes proceeds from the sales of short-term investments
of (UK Pound)27.5 million, offset by capital expenditures and other of (UK
Pound)19.3 million and capital contributions and loans to affiliates of (UK
Pound)7.9 million. During the three months ended March 31, 1996, net cash used
in investing activities includes the acquisition of Cambridge Cable of (UK
Pound)10.2 million, net of cash acquired, capital expenditures and other of (UK
Pound)13.1 million and capital contributions and loans to affiliates of (UK
Pound)7.5 million, offset by proceeds from the sales of short-term investments
of (UK Pound)20.2 million.
Results of Operations
The Company
The Company recognized net losses of (UK Pound)20.5 million and (UK Pound)12.0
million for the three months ended March 31, 1997 and 1996, respectively,
representing an increase of (UK Pound)8.5 million or 71% from 1996 as compared
to the same period in 1997. The increase in the Company's net loss is due to the
impact of fluctuations in the valuation of the UK Pound on the 2007 Discount
Debentures, which are denominated in US Dollars, and on the Company's FX Calls,
the effects of the Singtel Transaction and the Company recognizing its
proportionate share of the Equity Investees' net losses.
Substantially all of the increases in service income, operating expenses,
selling, general and administrative expenses and depreciation and amortization
expense for the three months ended March 31, 1997, as compared to the same
period in 1996, are attributable to the effects of the Singtel Transaction and
the effects of the continuing construction of Teesside's cable/telephony
network. Cambridge Cable's service income, operating expenses, selling, general
and administrative expenses and depreciation and amortization expense were (UK
Pound)7.8 million, (UK Pound)3.2 million, (UK Pound)4.2 million and (UK
Pound)3.5 million, respectively, for the three months ended March 31, 1997.
Comcast U.K. Consulting, Inc., a wholly owned subsidiary of the Company, earns
consulting fee income under consulting agreements with the Equity Investees. The
consulting fee income is generally based on a percentage of gross revenues or a
fixed amount per dwelling unit in the Equity Investees' franchise areas.
Management fee expense is incurred under agreements between the Company on the
one hand, and Comcast and Comcast UK Cable Partners Consulting, Inc. ("Comcast
Consulting"), an indirect wholly owned subsidiary of Comcast, on the other,
whereby Comcast and Comcast Consulting provide consulting services to the Equity
Investees on behalf of the Company and management services to the Company. Such
management fees are based on Comcast's and Comcast Consulting's cost of
providing such services.
Interest expense for the three months ended March 31, 1997 and 1996 was (UK
Pound)6.1 million and (UK Pound)5.7 million, respectively, representing an
increase of (UK Pound)400,000 or 7% from 1996 as compared to the same period in
1997. The increase is primarily attributable to the compounding of interest on
the 2007 Discount Debentures.
Investment income for the three months ended March 31, 1997 and 1996 was (UK
Pound)2.1 million and (UK Pound)4.7 million, respectively, representing a
decrease of (UK Pound)2.6 million or 55% from 1996 as compared to the same
period in 1997. The decrease is primarily attributable to the decrease in the
average balance of cash, cash equivalents and short-term investments held by the
Company during 1997 as compared to the same period in 1996 and the effects of
the Singtel Transaction.
Equity in net losses of affiliates for the three months ended March 31, 1997 and
1996 was (UK Pound)5.2 million and (UK Pound)5.7 million, respectively,
representing a decrease of (UK Pound)500,000 or 9% from 1996 as compared to the
same period in 1997. The decrease is attributable to the effects of the Singtel
Transaction, partially offset by the effects of increases in the net losses of
Birmingham Cable and Cable London.
13
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
Net exchange losses and other expenses for the three months ended March 31, 1997
and 1996 were (UK Pound)4.9 million and (UK Pound)1.6 million, respectively,
representing an increase of (UK Pound)3.3 million from 1996 as compared to the
same period in 1997. This increase primarily results from the impact of
fluctuations in the valuation of the UK Pound on the 2007 Discount Debentures,
which are denominated in US Dollars, and on the Company's FX Calls. The
Company's results of operations will continue to be affected by exchange rate
fluctuations.
The Operating Companies
Due to the similar nature of their operations, the following discussion with
respect to the Operating Companies' results of operations for the three months
ended March 31, 1997 and 1996 is based on their proportionate combined results
of operations. Such proportionate combined results of operations have been
derived from the financial statements of the Company and the Equity Investees,
after giving effect to the Company's ownership interests in each of the
Operating Companies as of March 31, 1997. The Company believes that presentation
of proportionate combined financial data, although not in accordance with
generally accepted accounting principles, facilitates the understanding and
assessment of its operating performance since the Company accounts for its
interests in Birmingham Cable, Cable London and Cambridge Cable (through March
31, 1996) under the equity method. The results of operations of Teesside and
Cambridge Cable (subsequent to March 31, 1996) are consolidated with those of
the Company.
The Operating Companies account for costs and expenses applicable to the
construction and operation of their cable telecommunications systems under the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 51,
"Financial Reporting by Cable Television Companies." Under SFAS No. 51, during
the period while a system is partially under construction and partially in
service (the "Prematurity Period"), costs of telecommunications plant, including
materials, direct labor and construction overhead are capitalized.
Subscriber-related costs and general and administrative costs are expensed as
incurred. Costs incurred in anticipation of servicing a fully operating system
that will not vary regardless of the number of subscribers are partially
expensed and partially capitalized based upon the percentage of average actual
or estimated subscribers, whichever is greater, to the total number of
subscribers expected at the end of the Prematurity Period (the "Fraction").
During the Prematurity Period, depreciation and amortization of system assets is
determined by multiplying the depreciation and amortization of the total
capitalized system assets expected at the end of the Prematurity Period by the
Fraction. At the end of the Prematurity Period, depreciation and amortization of
system assets is based on the remaining undepreciated cost at that date.
Proportionate combined service income was (UK Pound)22.2 million and (UK
Pound)16.3 million for the three months ended March 31, 1997 and 1996,
respectively, representing an increase of (UK Pound)5.9 million or 36% from 1996
as compared to the same period in 1997. Substantially all of the growth in
service income was due to increases in the number of cable communications and
telephony subscribers, primarily as a result of additional homes passed.
Approximately one-half of the Operating Companies' service income for the three
months ended March 31, 1997 and 1996 is derived from monthly subscription
charges relating primarily to cable communications services and approximately
one-half of their service income for these periods is derived primarily from
usage charges relating to telephony services.
Proportionate combined operating, selling, general and administrative expenses
were (UK Pound)21.4 million and (UK Pound)17.2 million for the three months
ended March 31, 1997 and 1996, respectively, representing an increase of (UK
Pound)4.2 million or 24% from 1996 as compared to the same period in 1997.
Substantially all of the increase was attributable to the continued development
of Teesside's operations and increased business activity resulting from the
growth in the number of subscribers and development of the Operating Companies'
franchise areas.
Proportionate combined depreciation and amortization expense was (UK Pound)9.5
million and (UK Pound)6.3 million for the three months ended March 31, 1997 and
1996, respectively, representing an increase of (UK Pound)3.2 million or 51%
from 1996 as compared to the same period in 1997. This increase was due to
certain of the Operating Companies' discrete build
14
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
areas ending their Prematurity Periods as set out under SFAS No. 51, as well as
an increase in the percentage used to calculate depreciation expense as a result
of an increased number of subscribers in those discrete franchise areas
remaining in their Prematurity Period.
Proportionate combined interest expense was (UK Pound)4.9 million and (UK
Pound)4.3 million for the three months ended March 31, 1997 and 1996,
respectively, representing an increase of (UK Pound)600,000 or 14% from 1996 as
compared to the same period in 1997. The increase was primarily attributable to
additional loans from shareholders and borrowings under credit facilities.
Proportionate combined investment income was (UK Pound)536,000 and (UK
Pound)844,000 for the three months ended March 31, 1997 and 1996, respectively,
representing a decrease of (UK Pound)308,000 or 36% from 1996 as compared to the
same period in 1997. The decrease was attributable to a decrease in the average
balance of cash, cash equivalents and restricted cash held by the Operating
Companies during the three months ended March 31, 1997, as compared to the same
period in 1996.
15
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and the Operating Companies are not party to litigation which, in
the opinion of the Company's management, will have a material adverse effect on
the Company's financial position, results of operations or liquidity.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K:
27.1 Financial Data Schedule.
(b) Reports on Form 8-K - none.
16
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
COMCAST UK CABLE PARTNERS LIMITED
-----------------------------------------
/s/ John R. Alchin
-----------------------------------------
John R. Alchin
Senior Vice President and
Treasurer (Principal Financial Officer)
Date: May 15, 1997
17