UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Quarterly Period Ended:
MARCH 31, 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
telephone number, including area code, zip code, telephone number,
of Registrant's principal executive offices) including 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 March 31, 1996, there were 37,231,997 Class A Common Shares and 12,872,605
Class B Common Shares outstanding.
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1996
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance
Sheet as of March 31, 1996 and December 31,
1995 (Unaudited).........................................2
Condensed Consolidated Statement of
Operations and Accumulated Deficit for
the Three Months Ended March 31, 1996
and 1995 (Unaudited).....................................3
Condensed Consolidated Statement of Cash
Flows for the Three Months Ended March 31,
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.......................................14
Item 4. Submission of Matters to a Vote of
Security Holders........................................14
Item 6. Exhibits and Reports on Form 8-K........................14
-----------------------------------
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.
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1996
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
(UK Pound)000 (UK Pound)000
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.....................................(UK Pound)156,059 (UK Pound)162,231
Short-term investments, at cost which approximates fair value 37,028 57,240
Accounts receivable, less allowance for doubtful accounts
of (UK Pound)790 and (UK Pound)40........................... 928 56
Prepaid charges and other..................................... 4,643 4,664
---------------- ----------------
Total current assets....................................... 198,658 224,191
---------------- ----------------
INVESTMENTS IN AFFILIATES......................................... 77,561 127,818
---------------- ----------------
PROPERTY AND EQUIPMENT............................................ 173,059 47,750
Accumulated depreciation ..................................... (2,191) (1,271)
---------------- ----------------
Property and equipment, net................................... 170,868 46,479
---------------- ----------------
DEFERRED CHARGES.................................................. 60,524 23,162
Accumulated amortization...................................... (4,167) (3,600)
---------------- ----------------
Deferred charges, net......................................... 56,357 19,562
---------------- ----------------
FOREIGN EXCHANGE PUT OPTIONS AND OTHER, net....................... 13,089 13,799
---------------- ----------------
(UK Pound)516,533 (UK Pound)431,849
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses......................... (UK Pound)24,848 (UK Pound)12,134
Current portion of long-term debt............................. 1,258
Foreign exchange call options................................. 264 1,577
Due to affiliates............................................. 1,705 2,224
---------------- ----------------
Total current liabilities.................................. 28,075 15,935
---------------- ----------------
LONG-TERM DEBT, less current portion.............................. 209,337 195,909
---------------- ----------------
FOREIGN EXCHANGE CALL OPTIONS AND OTHER........................... 1,671 2,184
---------------- ----------------
LONG-TERM DEBT, due to shareholder................................ 9,660 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............................................ 358,718 287,397
Accumulated deficit........................................... (91,429) (79,442)
---------------- ----------------
Total shareholders' equity............................... 267,790 208,368
---------------- ----------------
(UK Pound)516,533 (UK Pound)431,849
================ ================
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1996
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
(in (UK Pound)000's, except per share data)
<S> <C> <C>
REVENUES
Service income................................................ (UK Pound)1,947 (UK Pound)
Consulting fee income......................................... 387 335
-------------- --------------
2,334 335
-------------- --------------
COSTS AND EXPENSES
Operating..................................................... 793
Selling, general and administrative........................... 3,211 984
Management fees............................................... 606 677
Depreciation and amortization................................. 1,489 507
-------------- --------------
6,099 2,168
-------------- --------------
OPERATING LOSS.................................................... (3,765) (1,833)
INVESTMENT (INCOME) EXPENSE
Interest expense.............................................. 5,693 188
Investment income............................................. (4,720) (2,619)
Equity in net losses of affiliates............................ 5,698 4,738
Exchange losses and other..................................... 1,551 68
-------------- --------------
8,222 2,375
-------------- --------------
NET LOSS.......................................................... (11,987) (4,208)
ACCUMULATED DEFICIT
Beginning of period .......................................... (79,442) (50,480)
-------------- --------------
End of period.................................................((UK Pound)91,429) ((UK Pound)54,688)
=============== ===============
NET LOSS PER SHARE................................................ ((UK Pound).28) ((UK Pound).10)
=============== ===============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING DURING THE PERIOD.......................... 42,511 41,245
=============== ===============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1996
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
(UK Pound)000 (UK Pound)000
<S> <C> <C>
OPERATING ACTIVITIES
Net loss......................................................((UK Pound)11,987) ((UK Pound)4,208)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization.............................. 1,489 507
Amortization on foreign exchange contracts................. 665 (137)
Non-cash interest expense.................................. 5,693 188
Non-cash investment income................................. (1,604) (993)
Exchange losses............................................ 1,456
Equity in net losses of affiliates......................... 5,698 4,738
Increase in foreign exchange contracts, net................ 19 (1,854)
--------------- --------------
1,429 (1,759)
Decrease (increase) in accounts receivable and
prepaid charges and other............................... 1,624 (1,188)
Increase in accounts payable and accrued expenses.......... 1,991 1,972
Decrease in due to affiliates.............................. (519) (3,986)
--------------- --------------
Net cash provided by (used in) operating
activities ...................................... 4,525 (4,961)
--------------- --------------
FINANCING ACTIVITIES
Issuance of shares, net....................................... (53)
--------------- --------------
Net cash used in financing activities............... (53)
--------------- --------------
INVESTING ACTIVITIES
Acquisition, net of cash acquired............................. (10,203)
Sales of short-term investments, net.......................... 20,212 5,094
Capital contributions and advances to affiliates.............. (7,505) (6,400)
Additions to property and equipment........................... (13,021) (4,313)
Deferred charges and other.................................... (180) (8)
--------------- --------------
Net cash used in investing activities............... (10,697) (5,627)
--------------- --------------
DECREASE IN CASH AND CASH EQUIVALENTS............................. (6,172) (10,641)
CASH AND CASH EQUIVALENTS, beginning of period.................... 162,231 100,117
--------------- --------------
CASH AND CASH EQUIVALENTS, end of period..........................(UK Pound)156,059 (UK Pound)89,476
================ ===============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 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 March 31, 1996 and the condensed
consolidated statements of operations and accumulated deficit and of cash
flows for the three months ended March 31, 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 March 31, 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 period ended March 31, 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 now owns 100% of Cambridge Cable and has consolidated the financial
position of Cambridge Cable effective March 31, 1996. The Company will
begin consolidating the results of operations of Cambridge Cable effective
April 1, 1996.
5
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 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.
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
(in (UK Pound)000's, except per share data)
<S> <C> <C>
Revenues.....................................................(UK Pound)8,557 (UK Pound)4,837
Net loss..................................................... (13,612) (5,931)
Net loss per share........................................... (.27) (.12)
</TABLE>
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 March 31, 1996, the Company's ownership
interest in these affiliates is as follows:
Birmingham Cable................................27.5%
Cable London....................................49.0%
Cambridge Cable (1)............................100.0%
---------------
(1) Increased in March 1996 from 50.0% due to the acquisition of Singapore
Telecom's interest (see Note 3).
Included in investments in affiliates as of March 31, 1996 and December 31,
1995 are loans to Cable London of (UK Pound)21.0 million and accrued
interest of (UK Pound)2.4 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 (8.0% effective rate as of March 31, 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 as of March 31, 1996 (see Note 3).
6
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1996
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Summarized financial information for affiliates accounted for under the
equity method is as follows:
<TABLE>
<CAPTION>
Birmingham Cable Cambridge
Cable London Cable (1) Other Combined
(UK Pound)000 (UK Pound)000 (UK Pound)000 (UK Pound)000 (UK Pound)000
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 1996
Results of operations
Service income................................... 12,312 9,121 6,401 27,834
Depreciation and amortization.................... (4,554) (3,329) (2,168) (10,051)
Operating loss................................... (2,794) (3,149) (2,133) (8,076)
Net loss......................................... (4,434) (4,633) (4,419) (13,486)
Company's equity in net loss..................... (1,218) (2,270) (2,210) (5,698)
AT MARCH 31, 1996
Financial position
Current assets................................... 81,719 7,429 89,148
Noncurrent assets................................ 251,609 133,064 384,673
Current liabilities.............................. 26,168 17,968 44,136
Noncurrent liabilities........................... 188,061 81,808 269,869
THREE MONTHS ENDED MARCH 31, 1995
Results of operations
Service income................................... 8,999 6,917 4,617 601 21,134
Depreciation and amortization.................... (3,127) (2,233) (1,552) (13) (6,925)
Operating loss................................... (2,706) (2,693) (2,535) (2,340) (10,274)
Net loss......................................... (3,081) (3,221) (3,870) (2,290) (12,462)
Company's equity in net loss..................... (846) (1,575) (1,935) (382) (4,738)
---------------
<FN>
(1) As a result of the Singtel Transaction, the Company owns 100% of
Cambridge Cable and has consolidated the financial position of
Cambridge Cable effective March 31, 1996 (see Note 3).
</FN>
</TABLE>
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 due 2007 (the "2007 Discount Debentures") in a public offering.
Interest will accrete 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 March 31, 1996, long-term debt includes (UK Pound)5.4 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. ("UK Consulting"), 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, these fees have been classified as
long-term receivables and are included in investments in affiliates in the
Company's condensed consolidated balance
7
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1996
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
(Unaudited)
sheet. In addition, the Company's shares in Cable London have been pledged
to secure 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 March 31, 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 three months ended March 31, 1996 and 1995, investment income
includes interest income of (UK Pound)1.6 million and (UK Pound)993,000,
respectively, relating to the loans to affiliates 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 three months
ended March 31, 1996 and 1995, the Company recognized (UK Pound)207,000 and
(UK Pound)188,000, 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
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 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 March 31, 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 49.0% 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% interest. The Operating Companies hold exclusive cable
television licenses and non-exclusive telecommunications licenses in ten
franchise areas. Teesside commenced construction of a cable telecommunications
network to serve its franchises in the third quarter of 1994 and added its
initial cable and telephony subscribers in June 1995.
When build-out of the Operating Companies' systems is complete, these systems
will have the potential to serve approximately 1.6 million homes and the
businesses within their franchise areas. As of March 31, 1996, the Operating
Companies' systems passed more than 784,000 homes or approximately 49% of the
homes in their franchise areas and served more than 204,000 cable subscribers,
201,000 residential telephony subscribers and 6,300 business telephony
subscribers.
The Company accounts for its interests in Birmingham Cable, Cable London and
Cambridge Cable (collectively, the "Equity Investees," which term excludes
Cambridge Cable as of March 31, 1996 - see below) under the equity method.
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 of Cambridge Cable effective March 31, 1996. The Company will begin
consolidating the results of operations of Cambridge Cable effective April 1,
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
9
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1996
November 1995. Interest will accrete 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. 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 are 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)22.1 million and (UK Pound)10.9 million
during the three months ended March 31, 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)550 million to (UK Pound)650 million after March 31,
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
March 31, 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.
10
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1996
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 (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 of (UK Pound)1.8 million for the three months ended March
31, 1996 have been recorded in the Company's condensed consolidated statement of
operations.
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 and the continued funding by the
Company's strategic and financial partners. 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)47.0 million
will be required between April 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. Any
additional funding may come from the Company or its strategic and financial
partners, borrowings under new credit facilities or from other sources, although
there can be no assurance that any such financing will be available on
acceptable terms and conditions.
Cable London. Historically, Cable London's primary sources of funding have been
capital contributions and loans from the Company and the Company's strategic and
financial partner and borrowings under its existing credit facility. Cable
London estimates that approximately (UK Pound)43.0 million will be required
between April 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
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.
Cambridge Cable. Historically, Cambridge Cable's primary source of funding has
been capital contributions and loans from the Company and the Company's
strategic and financial partner. Cambridge Cable estimates that approximately
(UK Pound)30.0 million will be required between April 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 a
portion of such funds will be provided
11
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1996
by the Company, borrowings under credit facilities, or from other sources,
although there can be no assurance that any such financing will be available on
acceptable terms and conditions.
Teesside. Historically, Teesside's primary source of funding has been capital
contributions and loans from the Company. Teesside estimates that approximately
(UK Pound)44.0 million will be required between April 1, 1996 and December 31,
1996 to continue development and construction of its cable/telephony network. An
additional (UK Pound)110.0 million to (UK Pound)130.0 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 the Company, borrowings under credit
facilities, or from other sources, although there can be no assurance that any
such financing will be available on acceptable terms and conditions.
Results of Operations
The Company
The Company recognized net losses of (UK Pound)12.0 million and (UK Pound)4.2
million for the three months ended March 31, 1996 and 1995, respectively,
representing an increase of (UK Pound)7.8 million or 186% from 1995 as compared
to the same period in 1996. The Company's losses are due to the Company
recognizing its proportionate share of the Equity Investees' net losses and the
effects of the continuing construction of Teesside's cable/telephony network.
Substantially all of the increases in service income, operating expenses,
selling, general and administrative expenses, and depreciation and amortization
expense for the three months ended March 31, 1996, as compared to the same
period in 1995, are attributable to the effects of the continuing construction
of Teesside's cable/telephony network.
Interest expense for the three months ended March 31, 1996 and 1995 was (UK
Pound)5.7 million and (UK Pound)188,000, respectively, representing an increase
of (UK Pound)5.5 million from 1995 as compared to the same period in 1996. The
increase is attributable to interest expense on the 2007 Discount Debentures
incurred during the first quarter of 1996.
Investment income for the three months ended March 31, 1996 and 1995 was (UK
Pound)4.7 million and (UK Pound)2.6 million, respectively, representing an
increase of (UK Pound)2.1 million or 81% from 1995 as compared to the same
period in 1996. The increase is attributable to the increase in the average
balance of cash, cash equivalents and short-term investments held by the Company
during the first quarter of 1996 over the same period in 1995.
Equity in net losses of affiliates for the three months ended March 31, 1996 and
1995 were (UK Pound)5.7 million and (UK Pound)4.7 million, respectively,
representing an increase of approximately (UK Pound)1.0 million or 21% from 1995
as compared to the same period in 1996. The increase is attributable to the
increases in net losses of the Equity Investees from 1995 as compared to the
same period in 1996.
Exchange losses and other was (UK Pound)1.6 million and (UK Pound)68,000 for the
three months ended March 31, 1996 and 1995, respectively, representing an
increase of (UK Pound)1.5 million from 1995 as compared to the same period in
1996. The increase is attributable to the Company's losses on the 2007 Discount
Debentures, a liability denominated in US dollars, resulting from the
devaluation of the UK Pound against the US dollar during the three months ended
March 31, 1996, partially offset by foreign currency exchange gains recognized
on the call option contracts sold by the Company during 1995.
Comcast U.K. Consulting, Inc. ("UK Consulting"), 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. Consulting fee income for the three months ended March 31, 1996
and 1995 was (UK Pound)387,000 and (UK Pound)335,000, respectively, representing
an increase of (UK Pound)52,000 or 16% from 1995 as compared to the same period
in 1996. Such increase is a result of an increase in the service income
recognized by the Equity Investees (see below).
12
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1996
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. Total management fees for the three months ended March
31, 1996 and 1995 were (UK Pound)606,000 and (UK Pound)677,000, respectively,
representing a decrease of (UK Pound)71,000 or 10% from 1995 as compared to the
same period in 1996.
The Operating Companies
Due to the similar nature of their operations, the following discussion with
respect to the Operating Companies' results of operations for the three months
ended March 31, 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 March 31, 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 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)16.2 million and (UK
Pound)10.5 million for the three months ended March 31, 1996 and 1995,
respectively, representing an increase of (UK Pound)5.7 million or 54% from 1995
as compared to the same period 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 49%
and 51% of the Operating Companies' revenues for the three months ended March
31, 1996 and 1995, respectively, are derived from monthly subscription charges
relating primarily to cable communications services and approximately 51% and
49% of their revenues for these periods are derived primarily from usage charges
relating to telephony services.
Proportionate combined operating, selling, general and administrative expenses
were (UK Pound)17.1 million and (UK Pound)12.4 million for the three months
ended March 31, 1996 and 1995, respectively, representing an increase of (UK
Pound)4.7 million or 38% from 1995 as compared to the same period in 1996.
Substantially all of the increase was attributable to the continued development
of Teesside's operations and increased business activity resulting from the
growth in the number of subscribers and development of the Operating Companies'
franchise areas.
Proportionate combined depreciation and amortization expense was (UK Pound)6.3
million and (UK Pound)3.9 million for the three months ended March 31, 1996 and
1995, respectively, representing an increase of (UK Pound)2.4 million or 62%
from 1995 as compared to the same period in 1996. This increase was due to
certain of the Operating Companies' discrete build
13
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1996
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 increased number of subscribers in those discrete franchise areas remaining
in their Prematurity Period.
Proportionate combined interest expense was (UK Pound)4.3 million and (UK
Pound)2.3 million for the three months ended March 31, 1996 and 1995,
respectively, representing an increase of (UK Pound)2.0 million or 87% from 1995
as compared to the same period in 1996. The increase was primarily attributable
to additional loans from shareholders and borrowings under credit facilities.
Proportionate combined interest income was (UK Pound)844,000 and (UK
Pound)623,000 for the three months ended March 31, 1996 and 1995, respectively,
representing an increase of (UK Pound)221,000 or 35% from 1995 as compared to
the same period in 1996. The increase was attributable to an increase in the
average balance of cash, cash equivalents and restricted cash held by the
Operating Companies during the three months ended March 31, 1996 as compared to
the same period in 1995.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Neither the Company nor the Operating Companies are party to any
material litigation.
ITEM 4. Submission of Matters to a Vote of Security Holders
At a Special General Meeting of Shareholders on March 14, 1996, the
shareholders approved the following proposals:
1. To approve an agreement to acquire all of the outstanding shares
not currently held by the Company of Cambridge Holding Company
Limited.
Class of Stock For Against Abstain No Vote
Class A 21,799,588 1,000 4,400 2,068,312
Class B 128,726,050
2. To approve shareholder resolution that the maximum number of
directors of the Company shall be twenty.
Class of Stock For Against Abstain
Class A 22,820,420 1,027,730 25,150
Class B 128,726,050
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:
1. The Company filed a Current Report on Form 8-K under Items 5
and 7 on January 22, 1996 relating to its agreement to
exchange its Class A Common Shares and cash for Singapore
Telecom International Pte. Limited's 50% interest in
Cambridge Holding Company Limited, which included the
Company's Unaudited Pro Forma Condensed Consolidated
Financial Statements and the Unaudited Condensed
14
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1996
Consolidated Financial Statements of Cambridge Holding
Company Limited, each as of and for the nine months ended
September 30, 1995 and for the year ended December 31, 1994.
2. The Company filed a Current Report on Form 8-K under Items 2
and 7 on March 22, 1996 relating to the completion of its
acquisition of Singapore Telecom International Pte.
Limited's 50% interest in Cambridge Holding Company Limited
in exchange for the Company's Class A Common Shares and
cash, which included the Company's Unaudited Pro Forma
Condensed Consolidated Financial Statements as of and for
the year ended December 31, 1995.
15
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 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/ LAWRENCE S. SMITH
------------------------------------
Lawrence S. Smith
Senior Vice President
Accounting and Administration
(Chief Accounting Officer)
Date: May 15, 1996
16
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<LEGEND>
This schedule contains summary financial information extracted from the
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