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, 1998
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
(441) 295-5950 (215) 665-1700
- --------------------------------------------------------------------------------
(Address, including zip code, and (Name, address, including zip code,
telephone number, and telephone number,
including area code, including area code,
of Registrant's principal of agent for service)
executive offices)
--------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days.
Yes __X__ No ____
--------------------------
As of March 31, 1998, 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, 1998
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance
Sheet as of March 31, 1998 and December 31,
1997 (Unaudited)...........................................2
Condensed Consolidated Statement of
Operations and Accumulated Deficit for
the Three Months Ended March 31,
1998 and 1997 (Unaudited)..................................3
Condensed Consolidated Statement of Cash
Flows for the Three Months Ended March 31,
1998 and 1997 (Unaudited)..................................4
Notes to Condensed Consolidated
Financial Statements (Unaudited).......................5 - 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations............................................9 - 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.........................................16
Item 6. Exhibits and Reports on Form 8-K..........................16
SIGNATURE..........................................................17
-----------------------------------
This Quarterly Report on Form 10-Q contains forward looking statements made
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Readers are cautioned that such forward looking statements
involve risks and uncertainties which could significantly affect expected
results in the future from those expressed in any such forward looking
statements made by, or on behalf of, the Company. Certain factors that could
cause actual results to differ materially include, without limitation, the
effects of legislative and regulatory changes; the potential for increased
competition; technological changes; the need to generate substantial growth in
the subscriber base by successfully launching, marketing and providing services
in identified markets; pricing pressures which could affect demand for the
Company's services; the Company's ability to expand its distribution; changes in
labor, programming, equipment and capital costs; the Company's continued ability
to create or acquire programming and products that customers will find
attractive; future acquisitions; the NTL Transaction (see Note 2 to Condensed
Consolidated Financial Statements); strategic partnerships and divestitures;
general business and economic conditions; and other risks detailed from time to
time in the Company's periodic reports filed with the Securities and Exchange
Commission.
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1998
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(in (UK Pound)000's, except share data)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.....................................................(UK Pound)98,201 (UK Pound)37,372
Accounts receivable, less allowance for doubtful accounts of
(UK Pound)2,599 and (UK Pound)2,598......................................... 3,887 4,255
Other current assets.......................................................... 4,634 5,419
---------------- ----------------
Total current assets...................................................... 106,722 47,046
---------------- ----------------
INVESTMENTS IN AFFILIATES........................................................ 57,704 61,363
---------------- ----------------
PROPERTY AND EQUIPMENT........................................................... 333,053 315,702
Accumulated depreciation ..................................................... (38,637) (33,000)
---------------- ----------------
Property and equipment, net................................................... 294,416 282,702
---------------- ----------------
DEFERRED CHARGES................................................................. 62,455 60,770
Accumulated amortization...................................................... (15,519) (13,985)
---------------- ----------------
Deferred charges, net......................................................... 46,936 46,785
---------------- ----------------
FOREIGN EXCHANGE PUT OPTIONS, net................................................ 7,275 7,958
---------------- ----------------
(UK Pound)513,053 (UK Pound)445,854
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses.........................................(UK Pound)26,424 (UK Pound)23,605
Accrued interest.............................................................. 332
Current portion of long-term debt............................................. 1,955 1,683
Due to affiliates............................................................. 1,073 920
---------------- ----------------
Total current liabilities................................................. 29,784 26,208
---------------- ----------------
LONG-TERM DEBT, less current portion............................................. 312,842 234,010
---------------- ----------------
FOREIGN EXCHANGE CALL OPTION..................................................... 2,725 2,688
---------------- ----------------
LONG-TERM DEBT, due to shareholder............................................... 11,517 11,272
---------------- ----------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred shares, (UK Pound).01 par value - authorized, 10,000,000
shares; issued, none........................................................
Class A common shares, (UK Pound).01 par value - authorized, 50,000,000
shares; issued, 37,231,997.................................................. 372 372
Class B common shares, (UK Pound).01 par value - authorized, 50,000,000
shares; issued, 12,872,605.................................................. 129 129
Additional capital............................................................ 358,548 358,548
Accumulated deficit........................................................... (202,864) (187,373)
---------------- ----------------
Total shareholders' equity................................................ 156,185 171,676
---------------- ----------------
(UK Pound)513,053 (UK Pound)445,854
================= =================
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1998
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
(in (UK Pound)000's, except per share data)
<S> <C> <C>
REVENUES
Service income.............................................................. (UK Pound)17,302 (UK Pound)12,118
Consulting fee income....................................................... 274 233
------------------ ------------------
17,576 12,351
------------------ ------------------
COSTS AND EXPENSES
Operating................................................................... 5,661 4,729
Selling, general and administrative......................................... 8,489 7,399
Management fees............................................................. 755 843
Depreciation and amortization............................................... 7,254 5,923
------------------ ------------------
22,159 18,894
------------------ ------------------
OPERATING LOSS................................................................. (4,583) (6,543)
OTHER (INCOME) EXPENSE
Interest expense............................................................ 8,470 6,051
Investment income........................................................... (2,229) (2,101)
Equity in net losses of affiliates.......................................... 6,415 5,152
Exchange (gains) losses and other........................................... (1,748) 4,895
------------------ ------------------
10,908 13,997
------------------ ------------------
NET LOSS....................................................................... (15,491) (20,540)
ACCUMULATED DEFICIT
Beginning of period ....................................................... (187,373) (120,017)
------------------ ------------------
End of period..............................................................((UK Pound)202,864) ((UK Pound)140,557)
================== ==================
NET LOSS PER SHARE............................................................. ((UK Pound).31) ((UK Pound).41)
================== ==================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING DURING THE PERIOD....................................... 50,105 50,105
================== ==================
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1998
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
(UK Pound)000 (UK Pound)000
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.....................................................................((UK Pound)15,491) ((UK Pound)20,540)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization.............................................. 7,254 5,923
Amortization on foreign exchange contracts................................. 683 683
Non-cash interest expense.................................................. 6,576 5,916
Non-cash investment income................................................. (694) (529)
Exchange (gains) losses.................................................... (2,854) 5,673
Equity in net losses of affiliates......................................... 6,415 5,152
---------------- ----------------
1,889 2,278
Decrease in accounts receivable and other current assets................... 1,153 243
Increase in accounts payable and accrued expenses and accrued interest..... 3,151 1,585
---------------- ----------------
Net cash provided by operating activities.............................. 6,193 4,106
---------------- ----------------
FINANCING ACTIVITIES
Repayments of debt........................................................... (598) (391)
Proceeds from borrowing...................................................... 75,000
Deferred financing costs..................................................... (1,627)
Net transactions with affiliates............................................. (141) (574)
---------------- ----------------
Net cash provided by (used in) financing activities.................... 72,634 (965)
---------------- ----------------
INVESTING ACTIVITIES
Proceeds from sales of short-term investments, net........................... 27,509
Capital contributions and loans to affiliates................................ (1,768) (7,925)
Capital expenditures......................................................... (16,172) (18,670)
Deferred charges............................................................. (58) (235)
---------------- ----------------
Net cash (used in) provided by investing activities.................... (17,998) 679
---------------- ----------------
INCREASE IN CASH AND CASH EQUIVALENTS........................................... 60,829 3,820
CASH AND CASH EQUIVALENTS, beginning of period.................................. 37,372 63,314
---------------- ----------------
CASH AND CASH EQUIVALENTS, end of period........................................ (UK Pound)98,201 (UK Pound)67,134
================ ================
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1998
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The condensed consolidated balance sheet as of December 31, 1997 has been
condensed from the audited consolidated balance sheet as of that date. The
condensed consolidated balance sheet as of March 31, 1998 and the condensed
consolidated statements of operations and accumulated deficit and of cash
flows for the three months ended March 31, 1998 and 1997 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, 1998 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, 1997 Annual Report on Form 10-K filed with the Securities and Exchange
Commission. The results of operations for the period ended March 31, 1998
are not necessarily indicative of operating results for the full year.
Reclassifications
Certain reclassifications have been made to the prior year condensed
consolidated financial statements to conform to those classifications used
in 1998.
2. AMALGAMATION WITH NTL
On February 4, 1998, the Company entered into a definitive agreement to
amalgamate (the "NTL Transaction") with a wholly owned Bermuda subsidiary
of NTL Incorporated ("NTL"). NTL is an alternative telecommunications
company in the United Kingdom ("UK") and is listed on Nasdaq. The NTL
Transaction is expected to close in 1998, subject to, among other things,
the receipt of required Bermuda and UK regulatory approvals, the approval
of the Company's and NTL's shareholders, the consent of the Company's and
NTL's bondholders, the consent of certain NTL bank lenders and other
customary closing matters. Comcast Corporation ("Comcast"), through its
indirect wholly owned subsidiary, Comcast U.K. Holdings, Inc. ("Holdings"),
is the sole holder of the multiple-voting Class B Common Shares of the
Company and has agreed to vote for the transaction, assuring its approval
by the Company's shareholders. Upon consummation of the NTL Transaction,
the Company would become a wholly owned subsidiary of NTL.
Except in the circumstances described below, the Company's shareholders
will receive 0.3745 shares of NTL common stock for each of the Company's
Class A Common Shares or Class B Common Shares. If the average closing
price of the NTL common stock for a specified period of time prior to the
Company's shareholders meeting to approve the NTL Transaction (the "Average
Price") is less than $26.70, the Company will have the option to terminate
the NTL Transaction, subject to the right of NTL to adjust the exchange
ratio such that one share of the Company's Class A Common Shares or Class B
Common Shares will be exchanged for a number of shares of NTL common stock
equal to $10.00 (based on the Average Price).
Pursuant to existing arrangements between the Company and Telewest
Communications plc ("Telewest"), a co-owner of interests in Cable London
PLC ("Cable London") and Birmingham Cable Corporation Limited ("Birmingham
Cable"), Telewest has certain rights (the "Telewest Rights") to acquire
either or both of the Company's interests in these systems (see Note 3) as
a result of the NTL Transaction. However, as described in the following
paragraphs, the consummation of the NTL Transaction is not dependent on the
resolution of the Telewest Rights.
5
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1998
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
If the Telewest Rights have been exercised prior to the closing of the NTL
Transaction, the Company's shareholders may receive (at the option of NTL),
in lieu of a portion of the consideration allocable to the interest subject
to the exercised Telewest Rights, the per share proceeds from the sale of
the interest to Telewest (net of taxes on gain on sale), payable in cash or
shares of NTL common stock valued at the greater of $30.00 per share or the
Average Price at closing (the "Exercise Consideration").
Similarly, if at closing either of the Telewest Rights have not been
exercised and have not been waived or otherwise expired, the Company's
shareholders may receive (at the option of NTL), shares of a new class of
NTL preferred stock equal to a portion of the consideration allocable to
the interest subject to the unexercised Telewest Rights. Any shares of NTL
preferred stock would have the same voting and dividend rights as shares of
NTL common stock, would be subject to redemption as described below, and
would be expected to be listed for trading on Nasdaq. If following closing
the Telewest Rights are exercised, the NTL preferred stock will be redeemed
for the Exercise Consideration (based on the Average Price at the time of
exercise). If the Telewest Rights are resolved without being exercised, the
NTL preferred stock will be redeemed for NTL common stock on a one-for-one
basis.
Of the consideration to be received by the Company's shareholders in the
NTL Transaction, the parties have allocated 31% to the Company's interest
in Cable London and 17% to the Company's interest in Birmingham Cable.
However, if either or both of the Telewest Rights are exercised, the actual
consideration to be received by the Company's shareholders may be
materially different from the portion of the consideration (the "allocable
portion") which has been allocated by the parties to the Company's
respective interests in Cable London and Birmingham Cable, depending on,
among other things, the value of these interests, as finally determined,
whether NTL exercises its option to deliver the Exercise Consideration in
lieu of the allocable portion and, the amount of any taxes payable by the
Company on the sale of these interests.
3. INVESTMENTS IN AFFILIATES
The Company has invested in two affiliates: Birmingham Cable and Cable
London (together, the "Equity Investees"). 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, 1998, the Company's ownership
interest in the Equity Investees is as follows:
Birmingham Cable................................27.5%
Cable London....................................50.0%
Included in investments in affiliates as of March 31, 1998 and December 31,
1997, are loans to Cable London of (UK Pound)28.5 million and accrued
interest of (UK Pound)6.7 million and (UK Pound)6.0 million, respectively.
The loans accrue interest at a rate of 2% above the published base lending
rate of Barclays Bank plc (9.25% effective rate as of March 31, 1998) and
are subordinate to Cable London's credit facility. Of these loans, (UK
Pound)21.0 million as of March 31, 1998 and December 31, 1997, are
convertible into ordinary shares of Cable London at a per share conversion
price of (UK Pound)2.00. Also included in investments in affiliates as of
March 31, 1998 and December 31, 1997, are loans to Birmingham Cable of (UK
Pound)3.7 million and (UK Pound)1.9 million and accrued interest of (UK
Pound)177,000 and (UK Pound)133,000, respectively. The Birmingham Cable
loans accrue interest at a fixed rate of 7.8% and are subordinate to
Birmingham Cable's credit facility.
Although the Company is not contractually committed to make any additional
capital contributions or advances to the Equity Investees, it currently
intends to fund its share of the amounts necessary for capital expenditures
6
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1998
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
and to finance operating deficits. Failure to do so could dilute the Company's
ownership interests in the Equity Investees.
Summarized financial information for affiliates accounted for under the equity
method is as follows:
<TABLE>
<CAPTION>
Birmingham Cable
Cable London Combined
(UK Pound)000 (UK Pound)000 (UK Pound)000
<S> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 1998
Results of operations
Service income............................................(UK Pound)18,779 (UK Pound)15,935 (UK Pound)34,714
Operating, selling, general and
administrative expenses................................. (14,582) (12,663) (27,245)
Depreciation and amortization............................. (6,486) (5,456) (11,942)
Operating loss............................................ (2,289) (2,184) (4,473)
Net loss.................................................. (12,345) (5,870) (18,215)
Company's equity in net loss.............................. (3,432) (2,983) (6,415)
AT MARCH 31, 1998
Financial position
Current assets............................................ 8,888 10,664 19,552
Noncurrent assets......................................... 248,703 187,023 435,726
Current liabilities....................................... 21,256 23,344 44,600
Noncurrent liabilities.................................... 176,350 180,461 356,811
THREE MONTHS ENDED MARCH 31, 1997
Results of operations
Service income............................................ 15,394 11,671 27,065
Operating, selling, general and
administrative expenses................................. (13,454) (11,036) (24,490)
Depreciation and amortization............................. (6,293) (4,258) (10,551)
Operating loss............................................ (4,353) (3,623) (7,976)
Net loss.................................................. (7,355) (6,109) (13,464)
Company's equity in net loss.............................. (2,058) (3,094) (5,152)
</TABLE>
4. LONG-TERM DEBT
UK Holdings Credit Facility
In December 1997, Comcast UK Holdings Limited ("UK Holdings"), a wholly
owned subsidiary of the Company, entered into a loan agreement (the "UK
Holdings Agreement") with a consortium of banks to provide financing under
a credit facility (the "UK Holdings Credit Facility") up to a maximum of
(UK Pound)200.0 million. Under the terms of the UK Holdings Agreement,
borrowings under the UK Holdings Credit Facility are guaranteed by
Cambridge Holding Company Limited ("Cambridge Cable") and two companies
holding the franchises for Darlington and Teesside, England ("Teesside").
Cambridge Cable and Teesside are wholly owned subsidiaries of the Company.
In January 1998, UK Holdings borrowed (UK Pound)75.0 million under the UK
Holdings Credit Facility. Of this initial borrowing, (UK Pound)50.4 million
was paid to the Company as a dividend and (UK Pound)17.8 million was used
to fund capital expenditures and working capital requirements at Cambridge
Cable and Teesside. Final maturity of the UK Holdings Credit Facility is
January 31, 2001. The UK Holdings Credit Facility bears interest at a rate
per annum
7
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1998
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
equal to the London Interbank Offered Rate ("LIBOR") plus 1/2% to 2 1/4%.
As of March 31, 1998 the Company's effective weighted average interest rate
on the UK Holdings Credit Facility was 9.47%.
The consummation of the NTL Transaction will result in a change in control,
as defined in the UK Holdings Credit Facility. Upon a change in control,
all amounts outstanding under the UK Holdings Credit Facility will become
immediately due and payable.
5. 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 consulting fee payments from the Equity
Investees 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 sheet. In addition, the Company's shares in Cable
London have been pledged to secure amounts outstanding under Cable London's
revolving credit facility.
Management fee expense is incurred under agreements between the Company on
the one hand, and 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, 1998 and December 31, 1997, 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, 1998 and 1997, investment income
includes (UK Pound)694,000 and (UK Pound)529,000 of interest income,
respectively, relating to the loans to the Equity Investees.
Long-term debt due to shareholder consists of 9% Subordinated Notes payable
to Holdings which are due in September 1999. For the three months ended
March 31, 1998 and 1997, the Company recorded (UK Pound)245,000 and (UK
Pound)224,000, respectively, of interest expense relating to such notes.
In management's opinion, the foregoing transactions were entered into on
terms no more or less favorable than those with non-affiliated parties.
6. CONTINGENCIES
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to these actions will not materially
affect the financial position, results of operations or liquidity of the
Company.
7. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The Company made cash payments for interest of (UK Pound)1.6 million and
(UK Pound)135,000 during the three months ended March 31, 1998 and 1997,
respectively.
The Company's wholly owned subsidiaries incurred capital lease obligations
of (UK Pound)1.3 million during the three months ended March 31, 1998.
8
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1998
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"), are
principally engaged in the development, construction, management and operation
of the interests of Comcast in the United Kingdom ("UK") cable and
telecommunications industry. As of March 31, 1998, the Company has interests in
four operations (the "Operating Companies"): Birmingham Cable Corporation
Limited ("Birmingham Cable"), in which the Company owns a 27.5% interest, Cable
London PLC ("Cable London"), in which the Company owns a 50.0% interest,
Cambridge Holding Company Limited ("Cambridge Cable"), in which the Company owns
a 100% interest and two companies holding the franchises for Darlington and
Teesside, England ("Teesside"), in which the Company owns a 100% interest. The
Company accounts for its interests in Birmingham Cable and Cable London
(together, the "Equity Investees") under the equity method.
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, 1998, the Operating
Companies' systems passed more than 1,219,000 homes or approximately 76% of the
homes in their franchise areas and served more than 306,000 cable subscribers,
380,000 residential telephony subscribers and 12,000 business telephony
subscribers.
General Developments of Business
Amalgamation with NTL
See Note 2 to the Company's Condensed Consolidated Financial Statements included
in Item 1.
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 November 15 through November 15, 2007. The 2007 Discount Debentures
contain restrictive covenants which limit the Company's ability to pay
dividends. The Operating Companies are not expected to pay any dividends or
advances in the foreseeable future.
In December 1997, Comcast UK Holdings Limited ("UK Holdings"), a wholly owned
subsidiary of the Company, entered into a loan agreement (the "UK Holdings
Agreement") with a consortium of banks to provide financing under a credit
facility (the "UK Holdings Credit Facility") up to a maximum of (UK Pound)200.0
million. Under the terms of the UK Holdings Agreement, borrowings under the UK
Holdings Credit Facility are guaranteed by Teesside and Cambridge Cable.
9
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1998
In January 1998, UK Holdings borrowed (UK Pound)75.0 million under the UK
Holdings Credit Facility. Of this initial borrowing, (UK Pound)50.4 million was
paid to the Company as a dividend and (UK Pound)17.8 million was used to fund
capital expenditures and working capital requirements at Cambridge Cable and
Teesside.
Final maturity of the UK Holdings Credit Facility is January 31, 2001. The UK
Holdings Credit Facility bears interest at a rate per annum equal to the London
Interbank Offered Rate ("LIBOR") plus 1/2% to 2 1/4%. As of March 31, 1998, the
Company's effective weighted average interest rate on the UK Holdings Credit
Facility was 9.47%.
The UK Holdings Credit Facility contains restrictive covenants which limit UK
Holdings' ability to enter into arrangements for the acquisition and sale of
property and equipment, investments, mergers and the incurrence of additional
debt. Certain of these covenants require that certain financial ratios and cash
flow levels be maintained and contain certain restrictions on dividend payments.
The Company's right to receive consulting fee payments from Cambridge Cable and
Teesside has been subordinated to the banks under the UK Holdings Credit
Facility. In addition, the Company's shares in UK Holdings have been pledged to
secure the UK Holdings Credit Facility.
The consummation of the NTL Transaction will result in a change in control, as
defined in the UK Holdings Credit Facility. Upon a change in control, all
amounts outstanding under the UK Holdings Credit Facility will become
immediately due and payable.
Except for its working capital requirements, the Company's cash needs will
depend on management's investment decisions. Investment considerations include
(i) whether further capital contributions will be made to the Equity Investees,
(ii) whether the Operating Companies can obtain debt financing, (iii) whether
the Operating Companies will be able to generate positive operating cash flow,
(iv) the timing of the build-out of the Operating Companies' systems, and (v)
whether there may be future acquisitions and trades funded in cash or the
Company's shares. There are no agreements or negotiations for specific 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 loans to the Operating
Companies in the aggregate of (UK Pound)1.8 million and (UK Pound)31.3 million
during the three months ended March 31, 1998 and 1997, respectively. Of these
amounts, (UK Pound)1.8 million and (UK Pound)7.9 million relate to loans to the
Equity Investees during the three months ended March 31, 1998 and 1997,
respectively. Although the Company is not contractually committed to make any
additional capital contributions or loans to the Equity Investees, it currently
intends to fund its share of the amounts necessary for capital expenditures and
to finance operating deficits. Failure to do so could dilute the Company's
ownership interests in the Equity Investees.
The Company estimates that the Operating Companies will require approximately
(UK Pound)116.0 million from April 1, 1998 through December 31, 1998, to
continue the build-out of their systems. Management believes that the entire (UK
Pound)116.0 million required will be funded through drawdowns under currently
existing credit facilities (subject to compliance with certain financial and
operating covenants). If such credit facilities are not available for drawdown,
the Company expects that its strategic and financial partners in the Equity
Investees will provide their pro-rata share of any required fundings, although
they are not contractually obligated to do so. 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 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.
10
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1998
The Company's ability to meet its long-term liquidity and capital requirements
is contingent upon the Operating Companies' ability to generate positive
operating cash flow and obtain external financing, although there can be no
assurance that any such financing will be obtained on acceptable terms and
conditions. The Company believes that its existing cash and cash equivalents
will be sufficient to fund the Company's required capital contributions and
advances to the Equity Investees and borrowings under the UK Holdings Credit
Facility will be sufficient to fund development and construction costs for
Cambridge Cable and Teesside throughout 1998.
The Operating Companies
The following is a discussion of the liquidity and capital resources of each of
the Operating Companies. Such financial information has not been adjusted for
the Company's proportionate ownership percentages in the Operating Companies.
Birmingham Cable. Historically, Birmingham Cable's primary sources of funding
have been capital contributions and loans from the Company and the Company's
strategic and financial partners, cash from the issuance of Birmingham Cable's
preference shares and borrowings under Birmingham Cable's credit facility.
The Company estimates that approximately (UK Pound)16.0 million will be required
from April 1, 1998 through December 31, 1998 to continue development and
construction of Birmingham Cable's cable/telephony network. The Company expects
that such funds will be provided by borrowings under the Birmingham Cable credit
facility.
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 Cable London's previous and current
credit facilities.
The Company estimates that approximately (UK Pound)31.0 million will be required
from April 1, 1998 through December 31, 1998 to continue development and
construction of Cable London's cable/telephony network. The Company expects that
such funds will be provided by borrowings under the Cable London credit
facility.
Cambridge Cable. Historically, Cambridge Cable's primary sources of funding have
been capital contributions and loans from the Company and the Company's former
strategic and financial partner. The Company estimates that approximately (UK
Pound)36.0 million will be required from April 1, 1998 through December 31, 1998
to continue development and construction of Cambridge Cable's cable/telephony
network. The Company expects that such funds will be provided by borrowings
under the UK Holdings Credit Facility.
Teesside. Historically, Teesside's primary source of funding has been capital
contributions from the Company. The Company estimates that approximately (UK
Pound)33.0 million will be required from April 1, 1998 through December 31, 1998
to continue development and construction of Teesside's cable/telephony network.
The Company expects that such funds will be provided by borrowings under the UK
Holdings Credit Facility.
Statement of Cash Flows
Cash and cash equivalents increased (UK Pound)60.8 million as of March 31, 1998
from December 31, 1997 and increased (UK Pound)3.8 million as of March 31, 1997
from December 31, 1996. Increases in cash and cash equivalents resulted from
cash flows from operating, financing and investing activities which are
explained below.
Net cash provided by operating activities amounted to (UK Pound)6.2 million and
(UK Pound)4.1 million for the three months ended March 31, 1998 and 1997,
respectively. The increase in net cash provided by operating activities as
compared to the prior period is principally due to the increase in the Company's
operating income before depreciation and amortization and changes in working
capital as a result of the timing of receipts and disbursements.
11
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1998
Net cash provided by (used in) financing activities amounted to (UK Pound)72.6
million and ((UK Pound)965,000) for the three months ended March 31, 1998 and
1997, respectively. During the three months ended March 31, 1998, net cash
provided by financing activities includes (UK Pound)75.0 million of borrowings
under the UK Holdings Credit Facility.
Net cash (used in) provided by investing activities was ((UK Pound)18.0) million
and (UK Pound)679,000 for the three months ended March 31, 1998 and 1997,
respectively. During the three months ended March 31, 1998, net cash used in
investing activities includes capital expenditures of (UK Pound)16.2 million and
capital contributions and loans to affiliates of (UK Pound)1.8 million. During
the three months ended March 31, 1997, net cash provided by investing activities
includes proceeds from the sales of short-term investments of (UK Pound)27.5
million, offset principally by capital expenditures of (UK Pound)18.7 million,
and capital contributions and loans to affiliates of (UK Pound)7.9 million.
Results of Operations
The Company
Summarized consolidated financial information for the Company for the three
months ended March 31, 1998 and 1997 is as follows (in thousands, "NM" denotes
percentage is not meaningful):
<TABLE>
<CAPTION>
Three Months Ended
March 31, Increase/(Decrease)
1998 1997 (UK Pound) %
<S> <C> <C> <C> <C>
Revenues (UK Pound)17,576 (UK Pound)12,351 (UK Pound)5,225 42.3%
Operating, selling, general and administrative expenses 14,150 12,128 2,022 16.7
Management fees 755 843 (88) (10.4)
----------------- -----------------
Operating income (loss) before depreciation and
amortization (1) 2,671 (620) 3,291 NM
Depreciation and amortization 7,254 5,923 1,331 22.5
----------------- -----------------
Operating loss (4,583) (6,543) (1,960) (30.0)
----------------- -----------------
Interest expense 8,470 6,051 2,419 40.0
Investment income (2,229) (2,101) 128 6.1
Equity in net losses of affiliates 6,415 5,152 1,263 24.5
Exchange (gains) losses and other (1,748) 4,895 (6,643) NM
----------------- -----------------
Net loss ((UK Pound)15,491) ((UK Pound)20,540) ((UK Pound)5,049) (24.6%)
================= =================
<FN>
- ------------
(1) Operating income (loss) before depreciation and amortization is commonly
referred to in the Company's businesses as "operating cash flow (deficit)."
Operating cash flow (deficit) is a measure of a company's ability to
generate cash to service its obligations, including debt service
obligations, and to finance capital and other expenditures. In part due to
the capital intensive nature of the Company's businesses and the resulting
significant level of non-cash depreciation expense and amortization
expense, operating cash flow (deficit) is frequently used as one of the
bases for comparing businesses in the Company's industries, although the
Company's measure of operating cash flow (deficit) may not be comparable to
similarly titled measures of other companies. Operating cash flow (deficit)
does not purport to represent net income or net cash provided by operating
activities, as those terms are defined under generally accepted accounting
principles, and should not be considered as an alternative to such
measurements as an indicator of the Company's performance. See "Statement
of Cash Flows" above for a discussion of net cash provided by operating
activities.
</FN>
</TABLE>
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, 1998, as compared to the same
period in 1997, are attributable to the effects of the continued development of
Teesside's and Cambridge Cable's
12
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1998
operations and increased business activity resulting from the growth in the
number of subscribers in their respective franchise areas.
Comcast U.K. Consulting, Inc., a wholly owned subsidiary of the Company, earns
consulting fee income under consulting agreements with the Equity Investees. The
consulting fee income is generally based on a percentage of gross revenues or a
fixed amount per dwelling unit in the Equity Investees' franchise areas.
Consulting fee income for the three months ended March 31, 1998 and 1997 was (UK
Pound)274,000 and (UK Pound)233,000, respectively.
Management fee expense is incurred under agreements between the Company on the
one hand, and Comcast and Comcast UK Cable Partners Consulting, Inc. ("Comcast
Consulting"), an indirect wholly owned subsidiary of Comcast, on the other,
whereby Comcast and Comcast Consulting provide consulting services to the Equity
Investees on behalf of the Company and management services to the Company. Such
management fees are based on Comcast's and Comcast Consulting's cost of
providing such services.
Interest expense for the three months ended March 31, 1998 and 1997 was (UK
Pound)8.5 million and (UK Pound)6.1 million, respectively, representing an
increase of (UK Pound)2.4 million from 1997 as compared to the same period in
1998. The increase is primarily attributable to interest on borrowings under the
UK Holdings Credit Facility and the compounding of interest on the 2007 Discount
Debentures.
Investment income for the three months ended March 31, 1998 and 1997 was (UK
Pound)2.2 million and (UK Pound)2.1 million, respectively, representing an
increase of (UK Pound)100,000 from 1997 as compared to the same period in 1998.
The increase is primarily due to increases in the average loan balances to the
Equity Investees in 1998 as compared to the same period in 1997.
Equity in net losses of affiliates for the three months ended March 31, 1998 and
1997 was (UK Pound)6.4 million and (UK Pound)5.2 million, respectively,
representing an increase of (UK Pound)1.2 million from 1997 as compared to the
same period in 1998. The increase is attributable to increases in the net losses
of Birmingham Cable, partially offset by reduced losses of Cable London.
Exchange (gains) losses and other for the three months ended March 31, 1998 and
1997 were ((UK Pound)1.7) million and (UK Pound)4.9 million, respectively,
representing a change of (UK Pound)6.6 million from 1997 as compared to the same
period in 1998. This change primarily results from the impact of fluctuations in
the valuation of the UK Pound Sterling on the 2007 Discount Debentures, which
are denominated in United States ("US") dollars, on the Company's foreign
exchange call option contracts and on cash held in US dollars. The Company's
results of operations will continue to be affected by exchange rate
fluctuations.
13
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1998
The Operating Companies
Summarized proportionate combined financial information for the Operating
Companies for the three months ended March 31, 1998 and 1997 is as follows (in
thousands, "NM" denotes percentage is not meaningful):
<TABLE>
<CAPTION>
Three Months Ended
March 31, Increase/(Decrease)
1998 1997 (UK Pound) %
<S> <C> <C> <C> <C>
Service income (UK Pound)30,428 (UK Pound)22,182 (UK Pound)8,246 37.2%
Operating, selling, general and administrative expenses 24,625 21,417 3,208 15.0
----------------- -----------------
Operating income before depreciation and
amortization (a) 5,803 765 5,038 NM
Depreciation and amortization 11,498 9,496 2,002 21.1
----------------- -----------------
Operating loss (5,695) (8,731) (3,036) (34.8)
----------------- -----------------
Interest expense 7,694 4,921 2,773 56.4
Investment income (333) (536) (203) (37.9)
----------------- -----------------
Net loss ((UK Pound)13,056) ((UK Pound)13,116) ((UK Pound)60) (0.5%)
================= =================
<FN>
- ------------
(a) See Note (1) on page 12.
</FN>
</TABLE>
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, 1998 and 1997 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, 1998. 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 and Cable London under the equity method. The
results of operations of Teesside and Cambridge Cable are consolidated with
those of the Company.
Proportionate combined service income was (UK Pound)30.4 million and (UK
Pound)22.2 million for the three months ended March 31, 1998 and 1997,
respectively, representing an increase of (UK Pound)8.2 million from 1997 as
compared to the same period in 1998. Substantially all of the growth in service
income was due to increases in the number of cable communications and telephony
subscribers, primarily as a result of additional homes passed. Approximately
one-half of the Operating Companies' service income for the three months ended
March 31, 1998 and 1997 is derived from monthly subscription charges and
approximately one-half of their service income for these periods is derived
primarily from usage charges.
Proportionate combined operating, selling, general and administrative expenses
were (UK Pound)24.6 million and (UK Pound)21.4 million for the three months
ended March 31, 1998 and 1997, respectively, representing an increase of (UK
Pound)3.2 million from 1997 as compared to the same period in 1998.
Substantially all of the increase was attributable to the continued development
of Teesside's and Cambridge Cable's operations and increased business activity
resulting from the growth in the number of subscribers and development of the
Operating Companies' franchise areas.
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
14
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1998
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 depreciation and amortization expense was (UK Pound)11.5
million and (UK Pound)9.5 million for the three months ended March 31, 1998 and
1997, respectively, representing an increase of (UK Pound)2.0 million from 1997
as compared to the same period in 1998. This increase was 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)7.7 million and (UK
Pound)4.9 million for the three months ended March 31, 1998 and 1997,
respectively, representing an increase of (UK Pound)2.8 million from 1997 as
compared to the same period in 1998. The increase was primarily attributable to
additional borrowings under credit facilities and loans from shareholders.
Proportionate combined investment income was (UK Pound)333,000 and (UK
Pound)536,000 for the three months ended March 31, 1998 and 1997, respectively,
representing a decrease of (UK Pound)203,000 from 1997 as compared to the same
period in 1998. The decrease was attributable to a decrease in the average
balance of cash, cash equivalents and restricted cash held by the Operating
Companies during the three months ended March 31, 1998, as compared to the same
period in 1997.
15
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1998
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and the Operating Companies are not party to litigation which, in
the opinion of the Company's management, will have a material adverse effect on
the Company's financial position, results of operations or liquidity.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K:
2.1 Agreement and Plan of Amalgamation dated as of February 4,
1998 among NTL Incorporated, NTL (Bermuda) Limited and
Comcast UK Cable Partners Limited (incorporated by reference
to Exhibit 2.1 to the Company's Current Report on Form 8-K
filed on February 10, 1998).
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
(i) Comcast UK Cable Partners Limited filed a Current Report on
Form 8-K under Item 5 on February 10, 1998 relating to its
announcement of its Agreement and Plan of Amalgamation with
NTL Incorporated and NTL (Bermuda) Limited.
16
<PAGE>
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1998
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMCAST UK CABLE PARTNERS LIMITED
------------------------------------
/s/ John R. Alchin
------------------------------------
John R. Alchin
Senior Vice President and
Treasurer
(Principal Financial Officer)
Date: May 14, 1998
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<CIK> 0000919957
<NAME> COMCAST UK CABLE PARTNERS LTD
<MULTIPLIER> 1,000
<CURRENCY> U. K. POUNDS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1.6713
<CASH> 98,201
<SECURITIES> 0
<RECEIVABLES> 6,486
<ALLOWANCES> (2,599)
<INVENTORY> 0
<CURRENT-ASSETS> 106,722
<PP&E> 333,053
<DEPRECIATION> (38,637)
<TOTAL-ASSETS> 513,053
<CURRENT-LIABILITIES> 29,784
<BONDS> 312,842
0
0
<COMMON> 501
<OTHER-SE> 155,684
<TOTAL-LIABILITY-AND-EQUITY> 513,053
<SALES> 17,302
<TOTAL-REVENUES> 17,576
<CGS> 0
<TOTAL-COSTS> (22,159)
<OTHER-EXPENSES> (4,667)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (8,470)
<INCOME-PRETAX> (15,491)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,491)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,491)
<EPS-PRIMARY> (.31)
<EPS-DILUTED> (.31)
</TABLE>
