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: SEPTEMBER 30, 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, including area code, and telephone number, including of Registrant's principal executive offices) area code, of agent for service) -------------------------- 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 September 30, 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 SEPTEMBER 30, 1997 TABLE OF CONTENTS Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheet as of September 30, 1997 and December 31, 1996 (Unaudited)...........................................2 Condensed Consolidated Statement of Operations and Accumulated Deficit for the Nine and Three Months Ended September 30, 1997 and 1996 (Unaudited)..................................3 Condensed Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 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 SEPTEMBER 30, 1997 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited) September 30, December 31, 1997 1996 (in (UK Pound)000's, except share data) ASSETS CURRENT ASSETS Cash and cash equivalents.....................................................(UK Pound)46,424 (UK Pound)63,314 Short-term investments........................................................ 15,661 61,466 Accounts receivable, less allowance for doubtful accounts of (UK Pound)2,067 and (UK Pound)1,338......................................... 3,442 2,922 Other current assets.......................................................... 4,689 5,359 --------------- --------------- Total current assets...................................................... 70,216 133,061 --------------- --------------- INVESTMENTS IN AFFILIATES........................................................ 66,189 69,472 --------------- --------------- PROPERTY AND EQUIPMENT........................................................... 292,895 232,112 Accumulated depreciation ..................................................... (27,958) (13,765) --------------- --------------- Property and equipment, net................................................... 264,937 218,347 --------------- --------------- DEFERRED CHARGES................................................................. 61,554 60,867 Accumulated amortization...................................................... (12,609) (8,379) --------------- --------------- Deferred charges, net......................................................... 48,945 52,488 --------------- --------------- FOREIGN EXCHANGE PUT OPTIONS AND OTHER, net...................................... 8,930 11,002 --------------- --------------- (UK Pound)459,217 (UK Pound)484,370 ================ ================ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses.........................................(UK Pound)26,263 (UK Pound)23,086 Current portion of long-term debt............................................. 1,664 1,463 Foreign exchange call options................................................. 81 4,086 Due to affiliates............................................................. 912 676 --------------- --------------- Total current liabilities................................................. 28,920 29,311 --------------- --------------- LONG-TERM DEBT, less current portion............................................. 232,126 202,626 --------------- --------------- FOREIGN EXCHANGE CALL OPTIONS.................................................... 2,447 3,079 --------------- --------------- LONG-TERM DEBT, due to shareholder............................................... 11,022 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........................................................... (174,347) (120,017) --------------- --------------- Total shareholders' equity................................................ 184,702 239,032 --------------- --------------- (UK Pound)459,217 (UK Pound)484,370 ================ ================ See notes to condensed consolidated financial statements. 2 COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1997 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT (Unaudited) Nine Months Ended Three Months Ended September 30, September 30, 1997 1996 1997 1996 (in (UK Pound)000's, except per share data) REVENUES Service income................................. (UK Pound)39,166 (UK Pound)21,042 (UK Pound)13,961 (UK Pound)9,866 Consulting fee income.......................... 776 834 280 224 ----------------- ----------------- ----------------- ----------------- 39,942 21,876 14,241 10,090 ----------------- ----------------- ----------------- ----------------- COSTS AND EXPENSES Operating...................................... 14,484 8,303 4,590 3,898 Selling, general and administrative............ 22,720 17,340 7,902 7,735 Management fees................................ 2,494 2,144 787 812 Depreciation and amortization.................. 18,830 11,380 6,641 5,043 ----------------- ----------------- ----------------- ----------------- 58,528 39,167 19,920 17,488 ----------------- ----------------- ----------------- ----------------- OPERATING LOSS.................................... (18,586) (17,291) (5,679) (7,398) INVESTMENT (INCOME) EXPENSE Interest expense............................... 18,706 17,674 6,421 6,029 Investment income.............................. (5,807) (10,208) (1,781) (2,606) Equity in net losses of affiliates............. 15,509 13,806 5,195 4,166 Exchange losses (gains) and other.............. 7,336 (713) 5,168 (416) ----------------- ----------------- ----------------- ----------------- 35,744 20,559 15,003 7,173 ----------------- ----------------- ----------------- ----------------- NET LOSS.......................................... (54,330) (37,850) (20,682) (14,571) ACCUMULATED DEFICIT Beginning of period .......................... (120,017) (79,442) (153,665) (102,721) ----------------- ----------------- ----------------- ----------------- End of period.................................((UK Pound)174,347) ((UK Pound)117,292) ((UK Pound)174,347) ((UK Pound)117,292) ================= ================= ================= ================= NET LOSS PER SHARE................................ ((UK Pound)1.08) ((UK Pound).80) ((UK Pound).41) ((UK Pound).30) ================= ================= ================= ================= WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING DURING THE PERIOD.......... 50,105 47,583 50,105 50,105 ================= ================= ================= ================= See notes to condensed consolidated financial statements. 3 COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1997 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Nine Months Ended September 30, 1997 1996 (UK Pound)000 (UK Pound)000 OPERATING ACTIVITIES Net loss......................................................((UK Pound)54,330) ((UK Pound)37,850) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization.............................. 18,830 11,380 Amortization on foreign exchange contracts................. 2,072 2,054 Non-cash interest expense.................................. 18,300 17,416 Non-cash investment income................................. (1,825) (2,429) Exchange losses (gains).................................... 7,116 (2,998) Equity in net losses of affiliates......................... 15,509 13,806 Increase in foreign exchange contracts, net................ 19 --------------- ---------------- 5,672 1,398 (Decrease) increase in accounts receivable, other current assets and other.......................... (1,603) 25 Increase in accounts payable and accrued expenses.......... 3,177 809 Increase (decrease) in due to affiliates................... 236 (1,295) --------------- ---------------- Net cash provided by operating activities........... 7,482 937 --------------- ---------------- FINANCING ACTIVITIES Repayment of debt............................................. (23) (28) --------------- ---------------- Net cash used in financing activities............... (23) (28) --------------- ---------------- INVESTING ACTIVITIES Acquisition, net of cash acquired............................. (10,373) Proceeds from sales of short-term investments, net............ 45,805 18,217 Capital contributions and loans to affiliates................. (8,670) (9,164) Capital expenditures and other................................ (60,797) (51,675) Additions to deferred charges................................. (687) (274) --------------- ---------------- Net cash used in investing activities............... (24,349) (53,269) --------------- ---------------- DECREASE IN CASH AND CASH EQUIVALENTS............................. (16,890) (52,360) CASH AND CASH EQUIVALENTS, beginning of period.................... 63,314 162,231 --------------- ---------------- CASH AND CASH EQUIVALENTS, end of period.......................... (UK Pound)46,424 (UK Pound)109,871 =============== ================ See notes to condensed consolidated financial statements. 4 COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 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 consolidated balance sheet as of that date. The condensed consolidated balance sheet as of September 30, 1997, the condensed consolidated statement of operations and accumulated deficit for the nine and three months ended September 30, 1997 and 1996 and the condensed consolidated statement of cash flows for the nine months ended September 30, 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 September 30, 1997 and for all periods 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 periods ended September 30, 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 statement, which clarifies and supersedes the current authoritative accounting literature regarding the computation and disclosure of earnings per share, is effective for interim and annual periods ending after December 15, 1997 and may not be applied earlier. The Company does not expect adoption of this statement 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 SEPTEMBER 30, 1997 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) Nine Months Ended September 30, 1996 Revenues...................................... (UK Pound)28,099 Net loss...................................... (39,575) Net loss per share............................ (.79) 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 September 30, 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 September 30, 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)5.3 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 (9.00% effective rate as of September 30, 1997) and are subordinate to the London Revolver (see below). Of these loans, (UK Pound)21.0 million as of September 30, 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 September 30, 1997 are loans to Birmingham Cable of (UK Pound)1.9 million and accrued interest of (UK Pound)95,000. The Birmingham Cable loans accrue interest at a rate of 2% above the London Interbank Offered Rate ("LIBOR") (7.80% effective rate as of September 30, 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%. In May 1997, Cable London repaid all amounts outstanding under its existing credit facility with the proceeds from borrowings under the London Revolver. The balance of the London Revolver will be used, subject to certain restrictions, for capital expenditures and working capital requirements relating to the build-out of its systems. 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 SEPTEMBER 30, 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 NINE MONTHS ENDED SEPTEMBER 30, 1997 Results of operations Service income................................... (UK Pound)49,146 (UK Pound)38,162 (UK Pound) (UK Pound)87,308 Operating, selling, general and administrative expenses........................ (42,411) (34,007) (76,418) Depreciation and amortization.................... (18,031) (13,930) (31,961) Operating loss................................... (11,296) (9,775) (21,071) Net loss......................................... (21,715) (18,625) (40,340) Company's equity in net loss..................... (6,077) (9,432) (15,509) THREE MONTHS ENDED SEPTEMBER 30, 1997 Results of operations Service income................................... 17,346 13,469 30,815 Operating, selling, general and administrative expenses........................ (14,766) (11,713) (26,479) Depreciation and amortization.................... (4,996) (5,040) (10,036) Operating loss................................... (2,416) (3,284) (5,700) Net loss......................................... (6,351) (6,746) (13,097) Company's equity in net loss..................... (1,782) (3,413) (5,195) AT SEPTEMBER 30, 1997 Financial position Current assets................................... 17,768 9,900 27,668 Noncurrent assets................................ 250,222 180,592 430,814 Current liabilities.............................. 27,943 20,815 48,758 Noncurrent liabilities........................... 158,607 163,402 322,009 NINE MONTHS ENDED SEPTEMBER 30, 1996 Results of operations Service income................................... 38,708 28,812 6,401 73,921 Operating, selling, general and administrative expenses........................ (32,862) (28,706) (6,366) (67,934) Depreciation and amortization.................... (14,127) (10,721) (2,168) (27,016) Operating loss................................... (8,281) (10,615) (2,133) (21,029) Net loss......................................... (14,282) (15,647) (4,419) (34,348) Company's equity in net loss..................... (3,922) (7,674) (2,210) (13,806) THREE MONTHS ENDED SEPTEMBER 30, 1996 Results of operations Service income................................... 13,478 10,168 23,646 Operating, selling, general and administrative expenses........................ (11,421) (10,058) (21,479) Depreciation and amortization.................... (4,793) (3,828) (8,621) Operating loss................................... (2,736) (3,718) (6,454) Net loss......................................... (5,121) (5,618) (10,739) Company's equity in net loss..................... (1,406) (2,760) (4,166) 7 COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1997 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED (Unaudited) 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)227.4 million and (UK Pound)198.1 million as of September 30, 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. 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 September 30, 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 nine and three months ended September 30, 1997 and 1996, investment income includes (UK Pound)1.8 million, (UK Pound)2.4 million, (UK Pound)676,000 and (UK Pound)409,000 of interest income, respectively, relating to the loans to Birmingham Cable and Cable London described in Note 4. In addition, investment income for the nine months ended September 30, 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., an indirect wholly owned subsidiary of Comcast, which are due in 1999. For the nine and three months ended September 30, 1997 and 1996, the Company recorded (UK Pound)700,000, (UK Pound)641,000, (UK Pound)239,000 and (UK Pound)218,000, 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 legal proceedings and claims which arise in the ordinary course of its business. 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 SEPTEMBER 30, 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"), is principally engaged in the development, construction, management and operation of the interests of Comcast in the United Kingdom ("UK") cable and telecommunications industry. As of September 30, 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 September 30, 1997, the Operating Companies' systems passed more than 1,147,000 homes or approximately 72% of the homes in their franchise areas and served more than 285,000 cable subscribers, 335,000 residential telephony subscribers and 10,500 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 Developments 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 SEPTEMBER 30, 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)66.4 million, (UK Pound)67.0 million, (UK Pound)16.7 million and (UK Pound)21.2 million during the nine and three months ended September 30, 1997 and 1996, respectively. Of these amounts, (UK Pound)8.7 million, (UK Pound)9.2 million, (UK Pound)9,000 and (UK Pound)1.7 million relate to capital contributions and loans to the Equity Investees during the nine and three months ended September 30, 1997 and 1996, respectively. Although the Company is not contractually committed to make any additional capital contributions or loans to 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)280 million to (UK Pound)370 million after September 30, 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 systems 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 September 30, 1997 and December 31, 1996, the Company had (UK Pound)250.0 million notional amount of FX Puts to purchase United States ("US") dollars at an exchange 10 COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1997 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 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 classified as current or long-term foreign exchange call options based on their maturity date and 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) losses of ((UK Pound)4.6) million, ((UK Pound)1.2) million, ((UK Pound)845,000) and (UK Pound)351,000 during the nine months and three months ended September 30, 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 to Birmingham Cable and Cable London and to fund development and construction costs for Cambridge Cable and Teesside (see discussion of the Operating Companies' financing assumptions below). 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. In July 1997, the preference shareholder exercised its option to require Birmingham Cable to purchase its shareholding. The Company funded the redemption of the preference shares with the proceeds from its (UK Pound)175.0 million revolving credit facility (the "Birmingham Facility") and restricted cash and settled its five year (UK Pound)175.0 million interest rate exchange agreement with Barclays Bank PLC. The Company estimates that approximately (UK Pound)7.0 million will be required between October 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 borrowings under the Birmingham Facility. 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. 11 COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1997 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 credit facilities. 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 the London Interbank Offered Rate ("LIBOR") plus 1/2% to 2-3/8%. In May 1997, Cable London repaid all amounts outstanding under its existing credit facility with the proceeds from borrowings under the London Revolver. The balance of 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. 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)8.0 million will be required between October 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 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)12.0 million will be required between October 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, which Cambridge Cable is currently seeking, 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)13.0 million will be required between October 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, which Teesside is currently seeking, 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 decreased (UK Pound)16.9 million as of September 30, 1997 from December 31, 1996 and decreased (UK Pound)52.4 million as of September 30, 1996 from December 31, 1995. Decreases 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)7.5 million and (UK Pound)937,000 for the nine months ended September 30, 1997 and 1996, respectively. The increase in net cash provided by operating activities as compared 12 COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1997 to the prior year period is principally due to the increase in the Company's operating income before depreciation and amortization and changes in working capital as a result of the timing of receipts and disbursements. Net cash used in investing activities was (UK Pound)24.3 million and (UK Pound)53.3 million for the nine months ended September 30, 1997 and 1996, respectively. During the nine months ended September 30, 1997, net cash used in investing activities includes capital expenditures and other of (UK Pound)60.8 million and capital contributions and loans to affiliates of (UK Pound)8.7 million, offset by proceeds from the sales of short-term investments of (UK Pound)45.8 million. During the nine months ended September 30, 1996, net cash used in investing activities includes the acquisition of Cambridge Cable, net of cash acquired of $10.4 million, capital expenditures and other of (UK Pound)51.7 million and capital contributions and loans to affiliates of (UK Pound)9.2 million, offset by proceeds from the sales of short-term investments of (UK Pound)18.2 million. Results of Operations The Company The Company recognized net losses of (UK Pound)54.3 million, (UK Pound)37.9 million, (UK Pound)20.7 million and (UK Pound)14.6 million for the nine and three months ended September 30, 1997 and 1996, respectively, representing increases of (UK Pound)16.4 million or 43% and (UK Pound)6.1 million or 42% from 1996 as compared to the same periods in 1997. The increases in the Company's net loss are due to the effects of the Singtel Transaction, decreases in investment income due to the effects of lower average cash, cash equivalents and short-term investment balances, 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, 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 nine and three months ended September 30, 1997, as compared to the same periods in 1996, are attributable to the effects of the Singtel Transaction and the effects of the continued development of Teesside's and Cambridge Cable's operations and increased business activity resulting from the growth in the number of subscribers in their respective franchise areas. 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 nine and three months ended September 30, 1997 and 1996 was (UK Pound)18.7 million, (UK Pound)17.7 million, (UK Pound)6.4 million and (UK Pound)6.0 million, respectively, representing increases of (UK Pound)1.0 or 6% and (UK Pound)400,000 or 7% from 1996 as compared to the same periods in 1997. The increases are primarily attributable to the compounding of interest on the 2007 Discount Debentures and the effects of foreign currency exchange rate fluctuations. Investment income for the nine and three months ended September 30, 1997 and 1996 was (UK Pound)5.8 million, (UK Pound)10.2 million, (UK Pound)1.8 million and (UK Pound)2.6 million, respectively, representing decreases of (UK Pound)4.4 million or 43% and (UK Pound)800,000 or 31% from 1996 as compared to the same periods in 1997. The decreases are primarily attributable to the decreases in the average balance of cash, cash equivalents and short-term investments held by the Company during 1997 as compared to the same periods in 1996 and the effects of the Singtel Transaction. 13 COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1997 Equity in net losses of affiliates for the nine and three months ended September 30, 1997 and 1996 was (UK Pound)15.5 million, (UK Pound)13.8 million, (UK Pound)5.2 million and (UK Pound)4.2 million, respectively, representing increases of (UK Pound)1.7 million or 12% and (UK Pound)1.0 million or 24% from 1996 as compared to the same periods in 1997. The increases are attributable to increases in the net losses of Birmingham Cable and Cable London, offset by the effects of the Singtel Transaction. Net exchange losses (gains) and other expenses for the nine and three months ended September 30, 1997 and 1996 were (UK Pound)7.3 million, ((UK Pound)713,000), (UK Pound)5.2 million and ((UK Pound)416,000), respectively, representing changes of (UK Pound)8.0 million and (UK Pound)5.6 million from 1996 as compared to the same periods in 1997. These changes primarily result 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 and on cash held in US Dollars. 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 nine and three months ended September 30, 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 September 30, 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)71.7 million, (UK Pound)52.5 million, (UK Pound)25.4 million and (UK Pound)18.7 million for the nine and three months ended September 30, 1997 and 1996, respectively, representing increases of (UK Pound)19.2 million or 37% and (UK Pound)6.7 million or 36% from 1996 as compared to the same periods 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 nine and three months ended September 30, 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)65.9 million, (UK Pound)54.9 million, (UK Pound)22.3 million and (UK Pound)19.8 million for the nine and three months ended September 30, 1997 and 1996, respectively, 14 COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1997 representing increases of (UK Pound)11.0 million or 20% and (UK Pound)2.5 million or 13% from 1996 as compared to the same periods in 1997. Substantially all of the increases were attributable to the continued development of Teesside's and Cambridge Cable'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)29.9 million, (UK Pound)21.9 million, (UK Pound)10.3 million and (UK Pound)8.0 million for the nine and three months ended September 30, 1997 and 1996, respectively, representing increases of (UK Pound)8.0 million or 37% and (UK Pound)2.3 million or 29% from 1996 as compared to the same periods in 1997. These increases were due to certain of the Operating Companies' discrete build 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)15.7 million, (UK Pound)13.2 million, (UK Pound)5.5 million and (UK Pound)4.6 million for the nine and three months ended September 30, 1997 and 1996, respectively, representing increases of (UK Pound)2.5 million or 19% and (UK Pound)900,000 or 20% from 1996 as compared to the same periods in 1997. The increases were primarily attributable to additional loans from shareholders and borrowings under credit facilities. Proportionate combined investment income was (UK Pound)1.1 million, (UK Pound)2.3 million, (UK Pound)100,000 and (UK Pound)655,000 for the nine and three months ended September 30, 1997 and 1996, respectively, representing decreases of (UK Pound)1.2 million or 52% and (UK Pound)555,000 or 85% from 1996 as compared to the same periods in 1997. The decreases were attributable to a decrease in the average balance of cash, cash equivalents and restricted cash held by the Operating Companies during the nine and three months ended September 30, 1997, as compared to the same periods in 1996. 15 COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 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 SEPTEMBER 30, 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: November 11, 1997 17