-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AsmLytWdyvFhV1Om5qCxYJHQiifHhJyxkVBdmc9lNSplOOnkpJdmOF0F+x8an/9S tmOigcuaHIYpTa13wTEfHQ== 0000950159-96-000217.txt : 19961115 0000950159-96-000217.hdr.sgml : 19961115 ACCESSION NUMBER: 0000950159-96-000217 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMCAST UK CABLE PARTNERS LTD CENTRAL INDEX KEY: 0000919957 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] STATE OF INCORPORATION: D0 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24792 FILM NUMBER: 96662453 BUSINESS ADDRESS: STREET 1: 2 CHURCH ST WEST STREET 2: CLARENDON HOUSE CITY: HAMILTON HM 11 BERMU STATE: D0 BUSINESS PHONE: 8092955950 MAIL ADDRESS: STREET 1: 1500 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19102 10-Q 1 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, 1996 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, 1996, 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, 1996 TABLE OF CONTENTS Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheet as of September 30, 1996 and December 31, 1995 (Unaudited).........................................2 Condensed Consolidated Statement of Operations and Accumulated Deficit for the Nine and Three Months Ended September 30, 1996 and 1995 (Unaudited)................................3 Condensed Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 1996 and 1995 (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 - 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings.......................................15 Item 6. Exhibits and Reports on Form 8-K........................15 ----------------------------------- The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this Quarterly Report is forward-looking, such as information relating to future capital expenditures and future contributions and advances to the Operating Companies. Such forward-looking information involves important risks and uncertainties that could significantly affect expected results in the future from those expressed in any forward-looking statements made by, or on behalf of, the Company. These risks and uncertainties include, but are not limited to, uncertainties relating to economic conditions, acquisitions and divestitures, government and regulatory policies, the pricing and availability of equipment, materials, inventories and programming, technological developments and changes in the competitive environment in which the Company operates. COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1996 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
September 30, December 31, 1996 1995 (UK Pound)000 (UK Pound)000 ASSETS CURRENT ASSETS Cash and cash equivalents ............................................. (UK Pound)109,871 (UK Pound)162,231 Short-term investments, at cost which approximates fair value ......... 39,023 57,240 Accounts receivable, less allowance for doubtful accounts of (UK Pound)1,531 and (UK Pound)40 ................................. 2,262 135 Prepaid charges and other ............................................. 4,857 4,585 ----------------- ----------------- Total current assets ............................................... 156,013 224,191 ----------------- ----------------- INVESTMENTS IN AFFILIATES ................................................. 72,018 127,858 ----------------- ----------------- PROPERTY AND EQUIPMENT .................................................... 210,942 47,750 Accumulated depreciation .............................................. (9,078) (1,271) ----------------- ----------------- Property and equipment, net ........................................... 201,864 46,479 ----------------- ----------------- DEFERRED CHARGES .......................................................... 60,617 23,162 Accumulated amortization .............................................. (6,968) (3,600) ----------------- ----------------- Deferred charges, net ................................................. 53,649 19,562 ----------------- ----------------- FOREIGN EXCHANGE PUT OPTIONS AND OTHER, net ............................... 11,700 13,799 ----------------- ----------------- (UK Pound)495,244 (UK Pound)431,889 ================= ================= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses ................................. (UK Pound)23,849 (UK Pound)12,174 Current portion of long-term debt ..................................... 1,191 Foreign exchange call options ......................................... 1,577 Due to affiliates ..................................................... 929 2,224 ----------------- ----------------- Total current liabilities .......................................... 25,969 15,975 ----------------- ----------------- LONG-TERM DEBT, less current portion ...................................... 214,933 195,909 ----------------- ----------------- FOREIGN EXCHANGE CALL OPTIONS AND OTHER ................................... 2,491 2,184 ----------------- ----------------- LONG-TERM DEBT, due to shareholder ........................................ 10,094 9,453 ----------------- ----------------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Class A common shares, (UK Pound).01 par value - authorized, 50,000,000 shares; issued, 37,231,997 and 28,372,334 ............... 372 284 Class B common shares, (UK Pound).01 par value - authorized, 50,000,000 shares; issued, 12,872,605 .............................. 129 129 Additional capital .................................................... 358,548 287,397 Accumulated deficit ................................................... (117,292) (79,442) ----------------- ----------------- Total shareholders' equity ....................................... 241,757 208,368 ----------------- ----------------- (UK Pound)495,244 (UK Pound)431,889 ================= =================
See notes to condensed consolidated financial statements. 2 COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1996 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT (Unaudited)
Nine Months Ended Three Months Ended September 30, September 30, 1996 1995 1996 1995 (in (UK Pound)000's, except per share data) REVENUES Service income ...................... (UK Pound)21,042 (UK Pound)371 (UK Pound)9,866 (UK Pound)354 Consulting fee income ............... 834 949 224 313 ---------------- ------------- --------------- ------------- 21,876 1,320 10,090 667 ---------------- ------------- --------------- ------------- COSTS AND EXPENSES Operating ........................... 8,303 161 3,898 153 Selling, general and administrative . 17,340 5,303 7,735 2,453 Management fees ..................... 2,144 2,248 812 860 Depreciation and amortization ....... 11,380 1,906 5,043 779 ---------------- ------------- --------------- ------------- 39,167 9,618 17,488 4,245 ---------------- ------------- --------------- ------------- OPERATING LOSS ......................... (17,291) (8,298) (7,398) (3,578) INVESTMENT (INCOME) EXPENSE Interest expense .................... 17,674 581 6,029 195 Investment income ................... (10,208) (7,774) (2,606) (2,539) Equity in net losses of affiliates .. 13,806 17,246 4,166 6,571 Exchange (gains) losses and other ... (713) 594 (416) (63) ---------------- ------------- --------------- ------------- 20,559 10,647 7,173 4,164 ---------------- ------------- --------------- ------------- NET LOSS ............................... (37,850) (18,945) (14,571) (7,742) ACCUMULATED DEFICIT Beginning of period ................ (79,442) (50,480) (102,721) (61,683) ---------------- ------------- --------------- ------------- End of period ...................... ((UK Pound)117,292) ((UK Pound)69,425) ((UK Pound)117,292) ((UK Pound)69,425) ================== ================= ================== ================= NET LOSS PER SHARE ..................... ((UK Pound).80) ((UK Pound).46) ((UK Pound).30) ((UK Pound).19) ================== ================= ================== ================= WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING DURING THE PERIOD 47,583 41,245 50,105 41,245 ================== ================= ================== =================
See notes to condensed consolidated financial statements. 3 COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1996 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, 1996 1995 (UK Pound)000 (UK Pound)000 OPERATING ACTIVITIES Net loss ........................................................ ((UK Pound)37,850) ((UK Pound)18,945) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization ................................ 11,380 1,906 Amortization on foreign exchange contracts ................... 2,054 (359) Non-cash interest expense .................................... 17,416 581 Non-cash investment income ................................... (2,429) (3,535) Exchange gains ............................................... (2,998) Equity in net losses of affiliates ........................... 13,806 17,246 Increase in foreign exchange contracts, net .................. 19 (431) Loss on investment in affiliate .............................. 605 ----------------- ----------------- 1,398 (2,932) Decrease (increase) in accounts receivable and prepaid charges and other ................................................. 25 (525) Increase in accounts payable and accrued expenses ............ 952 12,205 Decrease in due to affiliates ................................ (1,295) (3,203) ----------------- ----------------- Net cash provided by operating activities ............. 1,080 5,545 ----------------- ----------------- FINANCING ACTIVITIES Issuance of shares, net ......................................... (53) Proceeds from borrowings ........................................ 354 Repayment of debt ............................................... (1,104) ----------------- ----------------- Net cash used in financing activities ................. (750) (53) ----------------- ----------------- INVESTING ACTIVITIES Acquisition, net of cash acquired ............................... (10,373) Sales of short-term investments, net ............................ 18,217 1,639 Capital contributions and advances to affiliates ................ (9,164) (22,286) Additions to property and equipment ............................. (51,096) (32,607) Deferred charges and other ...................................... (274) (91) ----------------- ----------------- Net cash used in investing activities ................. (52,690) (53,345) ----------------- ----------------- DECREASE IN CASH AND CASH EQUIVALENTS ............................... (52,360) (47,853) CASH AND CASH EQUIVALENTS, beginning of period ...................... 162,231 100,117 ----------------- ----------------- CASH AND CASH EQUIVALENTS, end of period ............................ (UK Pound)109,871 (UK Pound)52,264 ================= =================
See notes to condensed consolidated financial statements. 4 COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1996 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Basis of Presentation The condensed consolidated balance sheet as of December 31, 1995 has been condensed from the audited balance sheet as of that date. The condensed consolidated balance sheet as of September 30, 1996, the condensed consolidated statement of operations and accumulated deficit for the nine and three months ended September 30, 1996 and 1995 and the condensed consolidated statement of cash flows for the nine months ended September 30, 1996 and 1995 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, 1996 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, 1995 Annual Report on Form 10-K filed with the Securities and Exchange Commission. The results of operations for the periods ended September 30, 1996 are not necessarily indicative of operating results for the full year. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES New Accounting Pronouncement Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." The Company has elected to continue to measure such compensation expense using the method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," as permitted by SFAS No. 123. Accordingly, there was no impact of the adoption of SFAS No. 123 on the Company's financial position or results of operations. Reclassifications Certain reclassifications have been made to the prior year condensed consolidated financial statements to conform to those classifications used in 1996. 3. SINGTEL TRANSACTION On March 19, 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 has accounted for the Singtel Transaction under the purchase method. As a result of the Singtel Transaction, the Company owns 100% of Cambridge Cable and has consolidated the financial position and results of operations of Cambridge Cable beginning on March 31, 1996. 5 COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1996 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) The following pro forma information has been presented as if the Singtel Transaction had occurred at the beginning of each period. This 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 such dates.
Three Months Nine Months Ended Ended September 30, September 30, 1996 1995 1995 (in (UK Pound)000's, except per share data) Revenues ................... (UK Pound)28,099 (UK Pound)15,564 (UK Pound)5,641 Net loss ................... (39,575) (25,370) (10,301) Net loss per share.......... (.79) (.51) (.21)
4. INVESTMENTS IN AFFILIATES The Company has historically invested in three affiliates (the "Equity Investees," which term excludes Cambridge Cable as of 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, 1996, the Company's ownership interest in these affiliates is as follows: Birmingham Cable................... 27.5% Cable London (1)................... 50.0% Cambridge Cable (2)................ 100.0% --------------- (1) Increased in September 1996 from 49.0% due to the buyout of certain minority shareholders. (2) Increased in March 1996 from 50.0% due to the acquisition of Singapore Telecom's interest (see Note 3). The Company also has a 16.7% interest in Cable Programme Partners-1 Limited Partnership ("CPP-1") which previously developed and distributed cable programming in the United Kingdom. During 1995, CPP-1 sold its only channel and is in the process of winding down its operations. As a result, the Company recorded a one-time charge of (UK Pound)605,000, which is included in exchange (gains) losses and other in the Company's condensed consolidated statement of operations and accumulated deficit for the nine months ended September 30, 1995, relating to the recoverability of the Company's investment in CPP-1. This one-time charge included a (UK Pound)560,000 reserve for the Company's proportionate share of CPP-1's future funding commitments. To date, (UK Pound)342,000 of these commitments have been funded by the Company. Included in investments in affiliates as of September 30, 1996 and December 31, 1995 are loans to Cable London of (UK Pound)21.0 million and accrued interest of (UK Pound)3.2 million and (UK Pound)1.9 million, respectively. The loans accrue interest at a rate of 2% above the published base lending rate of Barclays Bank plc (7.75% effective rate as of September 30, 1996) and are subordinate to Cable London's revolving bank credit facility. These loans 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 December 31, 1995 are loans to Cambridge Cable of (UK Pound)47.4 million and accrued interest of (UK Pound)5.1 million. The Cambridge Cable loans and related accrued interest have been eliminated in consolidation subsequent to the Singtel Transaction (see Note 3). 6 COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1996 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 (1) CPP-1 (2) Combined (UK Pound)000 (UK Pound)000 (UK Pound)000 (UK Pound)000 (UK Pound)000 NINE MONTHS ENDED SEPTEMBER 30, 1996 Results of operations Service income................................... (UK Pound)38,708 (UK Pound)28,812 (UK Pound)6,401 (UK Pound)73,921 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 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) AS OF SEPTEMBER 30, 1996 Financial position Current assets................................... 72,372 7,316 79,688 Noncurrent assets................................ 253,386 149,111 402,497 Current liabilities.............................. 27,625 69,761 97,386 Noncurrent liabilities........................... 188,882 56,963 245,845 NINE MONTHS ENDED SEPTEMBER 30, 1995 Results of operations Service income................................... 28,033 21,956 14,647 1,088 65,724 Depreciation and amortization.................... (10,508) (7,507) (5,163) (34) (23,212) Operating loss................................... (9,215) (9,413) (9,780) (4,619) (33,027) Net loss......................................... (11,331) (11,889) (14,827) (5,388) (43,435) Company's equity in net loss..................... (3,113) (5,822) (7,413) (898) (17,246) THREE MONTHS ENDED SEPTEMBER 30, 1995 Results of operations Service income................................... 9,718 7,761 5,101 22,580 Depreciation and amortization.................... (3,777) (2,767) (1,874) (8,418) Operating loss................................... (3,260) (3,550) (3,958) (10,768) Net loss......................................... (4,506) (4,694) (6,069) (15,269) Company's equity in net loss..................... (1,238) (2,299) (3,034) (6,571) - --------------- (1) As a result of the Singtel Transaction, the Company owns 100% of Cambridge Cable and has consolidated the financial position and results of operations of Cambridge Cable beginning on March 31, 1996 (see Note 3). 1996 results of operations information for Cambridge Cable is for the three months ended March 31, 1996. (2) 1995 results of operations information for CPP-1 is for the six months ended June 30, 1995.
5. LONG-TERM DEBT In November 1995, the Company received net proceeds of approximately $291.1 million ((UK Pound)186.9 million) from the sale of approximately $517.3 million principal amount at maturity of its 11.20% Senior Discount Debentures 7 COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1996 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED (Unaudited) due 2007 (the "2007 Discount Debentures") in a public offering. 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 November 15 through November 15, 2007. The 2007 Discount Debentures contain restrictive covenants which limit the Company's ability to pay dividends. As of September 30, 1996, long-term debt includes (UK Pound)4.7 million of Cambridge Cable's capitalized lease obligations, of which (UK Pound)1.2 million is classified as current. 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. 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, 1996 and December 31, 1995, 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, 1996 and 1995, investment income includes (UK Pound)2.4 million, (UK Pound)3.5 million, (UK Pound)409,000 and (UK Pound)1.3 million, respectively, relating to the loans to Cambridge Cable and Cable London described in Note 4. Long-term debt due to shareholder consists of 9% Subordinated Notes payable to Comcast UK Holdings, Inc. which are due in 1999. For the nine and three months ended September 30, 1996 and 1995, the Company recorded (UK Pound)641,000, (UK Pound)581,000, (UK Pound)218,000 and (UK Pound)195,000, 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 nonaffiliated parties. 8 COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1996 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 September 30, 1996, 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 100.0% interest (see below), and the franchises for Darlington and Teesside, England ("Teesside"), in which the Company owns a 100.0% interest. The Operating Companies hold exclusive cable television licenses and non-exclusive telecommunications licenses in ten franchise areas. 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, 1996, the Operating Companies' systems passed more than 902,000 homes or approximately 56% of the homes in their franchise areas and served more than 228,000 cable subscribers, 239,000 residential telephony subscribers and 7,600 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 March 31, 1996). General Developments of Business Singtel Transaction On March 19, 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 has 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 has consolidated the financial position and results of operations of Cambridge Cable beginning on 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, 1996 November 15 through November 15, 2007. The 2007 Discount Debentures contain restrictive covenants which limit the Company's ability to pay dividends. The Equity Investees have not paid any dividends to the Company and are not expected to pay any dividends 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 Company shares. There are no agreements or negotiations for specific material 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 advances to the Operating Companies in the aggregate of (UK Pound)67.0 million, (UK Pound)51.9 million, (UK Pound)21.2 million and (UK Pound)18.0 million during the nine and three months ended September 30, 1996 and 1995, respectively. Although the Company is not contractually committed to make any additional capital contributions or advances 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)430 million to (UK Pound)530 million after September 30, 1996 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 loss of its cable franchises and licenses. The Company has entered into foreign exchange forward contracts and foreign exchange option contracts as a normal part of its risk management efforts. During 1995, the Company entered into foreign exchange put option contracts which may be settled only on November 16, 2000. These put option contracts 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, 1996, the Company has (UK Pound)250.0 million notional amount of foreign exchange put option contracts to purchase United States ("US") dollars at an exchange rate of $1.35 per (UK Pound)1.00 (the "Ratio"). Foreign exchange put option contracts provide a hedge, to the extent the exchange rate falls below the Ratio, against the Company's net monetary liabilities denominated in US dollars since gains and losses realized on the put option contracts are offset against gains or losses realized on the underlying net liabilities. Premiums paid for such put option contracts 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. In order to reduce hedging costs, the Company has sold (UK Pound)250.0 million notional amount of foreign exchange call option contracts. These call option contracts may only be settled on their expiration dates. Of these call option contracts, (UK Pound)200.0 million notional amount settle on November 16, 1996 at an exchange rate of $1.70 per (UK Pound)1.00 and 10 COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1996 (UK Pound)50.0 million notional amount settle on November 16, 2000 at an exchange rate of $1.62 per (UK Pound)1.00. Changes in fair value between measurement dates relating to these call option contracts resulted in the recording of exchange (gains) losses of ((UK Pound)1.2 million) and (UK Pound)351,000 in the Company's condensed consolidated statement of operations and accumulated deficit for the nine and three months ended September 30, 1996, respectively. 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's ability to meet its long-term liquidity and capital requirements is contingent upon the Operating Companies' ability to obtain external financing and generate positive operating cash flow. The Company believes that the net proceeds from the sale of the 2007 Discount Debentures will be sufficient to fund the Company's expected capital contributions and advances to Birmingham Cable and Cable London and to fund development and construction costs for Cambridge Cable and Teesside through the end of 1997. 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 its preference shares. Birmingham Cable estimates that approximately (UK Pound)13.0 million will be required between October 1, 1996 and December 31, 1996 to continue development and construction of its 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 after 1996. The Company expects that the majority of such funds will be provided by cash from the issuance of its preference shares, however, the future availability of this cash is subject to Birmingham Cable's ability to continue to meet certain restrictive covenants. Any additional funding may come from the Company or its strategic and financial partners, borrowings under new credit facilities, refinancings of existing 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. Cable London estimates that approximately (UK Pound)14.0 million will be required between October 1, 1996 and December 31, 1996 to continue development and construction of its cable/telephony network. An additional (UK Pound)90.0 million to (UK Pound)110.0 million is expected to be required to complete the build-out after 1996. The Company expects that a portion of such funds will be provided by borrowings under Cable London's existing credit facility. 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. Historically, Cambridge Cable's primary source of funding has been capital contributions and loans from the Company and Singapore Telecom. The Company estimates that approximately (UK Pound)10.0 million will be required between October 1, 1996 and December 31, 1996 to continue development and construction of its cable/telephony network. An additional (UK Pound)150.0 million to (UK Pound)180.0 million is expected to be required to complete the build-out after 1996. 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. 11 COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1996 Teesside. Historically, Teesside's primary source of funding has been capital contributions from the Company. The Company estimates that approximately (UK Pound)14.0 million will be required between October 1, 1996 and December 31, 1996 to continue development and construction of its cable/telephony network. An additional (UK Pound)100.0 million to (UK Pound)120.0 million is expected to be required to complete the build-out after 1996. 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 decreased (UK Pound)52.4 million as of September 30, 1996 from December 31, 1995 and decreased (UK Pound)47.9 million as of September 30, 1995 from December 31, 1994. Changes in cash and cash equivalents resulted from cash flows from operating, financing and investing activities. Net cash provided by operating activities amounted to (UK Pound)1.1 million and (UK Pound)5.5 million for the nine months ended September 30, 1996 and 1995, respectively. The decrease of (UK Pound)4.4 million is primarily due to changes in working capital as a result of the timing of receipts and disbursements. Net cash used in investing activities was (UK Pound)52.7 million and (UK Pound)53.3 million for the nine months ended September 30, 1996 and 1995, respectively. During the nine months ended September 30, 1996, net cash used in investing activities includes additions to property and equipment of (UK Pound)51.1 million, cash paid in the Singtel Transaction, net of cash acquired, of (UK Pound)10.4 million and capital contributions and advances to affiliates of (UK Pound)9.2 million, offset by proceeds from the sales of short-term investments of (UK Pound)18.2 million. During the nine months ended September 30, 1995, net cash used in investing activities includes additions to property and equipment of (UK Pound)32.6 million and capital contributions and advances to affiliates of (UK Pound)22.3 million. Results of Operations The Company The Company recognized net losses of (UK Pound)37.9 million, (UK Pound)18.9 million, (UK Pound)14.6 million and (UK Pound)7.7 million for the nine and three months ended September 30, 1996 and 1995, respectively, representing increases of (UK Pound)19.0 million or 101% and (UK Pound)6.9 million or 90% from 1995 as compared to the same periods in 1996. The increases in the Company's losses are due to interest expense on the 2007 Discount Debentures, the effects of the continuing construction of Teesside's cable/telephony network and the effects of the Singtel Transaction. 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, 1996, as compared to the same periods in 1995, are attributable to the effects of the continuing construction of Teesside's cable/telephony network and the consolidation of the results of operations of Cambridge Cable beginning on March 31, 1996. Cambridge Cable's service income, operating expenses, selling, general and administrative expenses and depreciation and amortization expense were (UK Pound)13.8 million, (UK Pound)5.5 million, (UK Pound)8.7 million and (UK Pound)6.2 million, respectively, for the six months ended September 30, 1996, and (UK Pound)7.0 million, (UK Pound)2.8 million, (UK Pound)4.9 million and (UK Pound)3.1 million, respectively, for the three months ended September 30, 1996. 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 12 COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1996 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, 1996 and 1995 was (UK Pound)17.7 million, (UK Pound)581,000, (UK Pound)6.0 million and (UK Pound)195,000, respectively, representing increases of (UK Pound)17.1 million and (UK Pound)5.8 million from 1995 as compared to the same periods in 1996. The increases are primarily attributable to interest expense on the 2007 Discount Debentures incurred during 1996. Investment income for the nine and three months ended September 30, 1996 and 1995 was (UK Pound)10.2 million, (UK Pound)7.8 million, (UK Pound)2.6 million and (UK Pound)2.5 million, respectively, representing increases of (UK Pound)2.4 million or 31% and (UK Pound)100,000 or 4% from 1995 as compared to the same periods in 1996. The increases are primarily attributable to the increase in the average balance of cash, cash equivalents and short-term investments held by the Company during 1996 over the same periods in 1995, primarily as a result of the proceeds from the offering of the 2007 Discount Debentures in November 1995. Equity in net losses of affiliates for the nine and three months ended September 30, 1996 and 1995 was (UK Pound)13.8 million, (UK Pound)17.2 million, (UK Pound)4.2 million and (UK Pound)6.6 million, respectively, representing decreases of (UK Pound)3.4 million or 20% and (UK Pound)2.4 million or 36% from 1995 as compared to the same periods in 1996. The decreases are attributable to the consolidation of the results of operations of Cambridge Cable beginning on March 31, 1996, partially offset by the effects of increases in the net losses of Birmingham Cable and Cable London. Exchange (gains) losses and other for the nine and three months ended September 30, 1996 and 1995 were ((UK Pound)713,000), (UK Pound)594,000, ((UK Pound)416,000) and ((UK Pound)63,000), respectively, representing changes of (UK Pound)1.3 million and (UK Pound)353,000 from 1995 as compared to the same periods in 1996. 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 foreign exchange call option contracts. The Company's results of operations will continue to be affected by exchange rate fluctuations. In addition, exchange (gains) losses and other for the nine months ended September 30, 1995 includes a one-time charge of (UK Pound)605,000 relating to the recoverability of the Company's investment in Cable Programme Partners-1 Limited Partnership. 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, 1996 and 1995 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, 1996. 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 13 COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1996 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)52.5 million, (UK Pound)33.7 million, (UK Pound)18.7 million and (UK Pound)12.0 million for the nine and three months ended September 30, 1996 and 1995, respectively, representing increases of (UK Pound)18.8 million or 56% and (UK Pound)6.7 million or 56% from 1995 as compared to the same periods in 1996. Substantially all of the revenue growth 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, 1996 and 1995 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)54.9 million, (UK Pound)43.6 million, (UK Pound)19.8 million and (UK Pound)16.5 million for the nine and three months ended September 30, 1996 and 1995, respectively, representing increases of (UK Pound)11.3 million or 26% and (UK Pound)3.3 million or 20% from 1995 as compared to the same periods in 1996. Substantially all of the increases were 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)21.9 million, (UK Pound)13.3 million, (UK Pound)8.0 million and (UK Pound)4.9 million for the nine and three months ended September 30, 1996 and 1995, respectively, representing increases of (UK Pound)8.6 million or 65% and (UK Pound)3.1 million or 63% from 1995 as compared to the same periods in 1996. 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)13.2 million, (UK Pound)9.5 million, (UK Pound)4.6 million and (UK Pound)4.0 million for the nine and three months ended September 30, 1996 and 1995, respectively, representing increases of (UK Pound)3.7 million or 39% and (UK Pound)600,000 or 15% from 1995 as compared to the same periods in 1996. The increases were primarily attributable to additional loans from shareholders and borrowings under credit facilities. Proportionate combined investment income was (UK Pound)2.3 million, (UK Pound)2.7 million, (UK Pound)655,000 and (UK Pound)1.0 million for the nine and three months ended September 30, 1996 and 1995, respectively, representing decreases of (UK Pound)400,000 or 15% and (UK Pound)345,000 or 35% from 1995 as compared to the same periods in 1996. 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, 1996 as compared to the same periods in 1995. 14 COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1996 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings Neither the Company nor the Operating Companies are party to any material litigation. 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. 15 COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1996 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 13, 1996 16 EX-27.1 2
5 This schedule contains summary financial information extracted from the consolidated statement of operations and consolidated balance sheet and is qualified in its entirety by reference to such financial statements. 0000919957 COMCAST UK CABLE PARTNERS LTD 1,000 U. K. POUNDS 9-MOS DEC-31-1996 SEP-30-1996 1.5650 109,871 39,023 3,793 (1,531) 0 156,013 210,942 (9,078) 495,244 25,969 214,933 0 0 501 241,256 495,244 21,042 21,876 0 (39,167) (13,806) 0 (17,674) (37,850) 0 (37,850) 0 0 0 (37,850) (.80) (.80)
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