SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 0-26840
Telewest Communications plc
(Exact Name of Registrant as Specified in its Charter)
England and Wales N.A.
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
Genesis Business Park
Albert Drive, Woking
Surrey, GU21 5RW
United Kingdom
Telephone number: 001 44 1483 750 900
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 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes [X] No [_].
At September 30, 1996, 927,563,971 ordinary shares of 10p each were outstanding.
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TELEWEST COMMUNICATIONS PLC
US GAAP
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------------------
3 months 3 months 3 months 9 months 9 months 9 months
ended ended ended ended ended ended
September 30, September 30, September 30, September 30, September 30, September 30,
1996 1996 1995 1996 1996 1995
(note 1) (note 1)
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REVENUE
Cable television $ 45,802 (pound) 29,261 (pound) 14,281 $ 134,824 (pound) 86,133 (pound) 40,154
Telephony - residential 51,425 32,853 12,173 141,154 90,177 32,378
Telephony - business 13,405 8,564 4,149 37,248 23,796 11,286
Other ((pound)1,201 and(pound)1,053
in 1996 and 1995 from related parties) 3,827 2,445 1,637 10,170 6,497 3,822
----------- ------------- ------------ ----------- ------------ ------------
114,459 73,123 32,240 323,396 206,603 87,640
----------- ------------- ------------ ----------- ------------ ------------
OPERATING COSTS AND EXPENSES
Programming (25,705) (16,422) (7,104) (73,854) (47,182) (19,079)
Telephony (17,268) (11,032) (7,196) (56,897) (36,349) (16,711)
Selling, general, and administrative
(including(pound)4,058 and(pound)1,558
in 1996 and 1995 from related parties) (69,152) (44,178) (24,371) (201,434) (128,687) (70,571)
Depreciation (46,072) (29,433) (13,179) (131,651) (84,106) (36,438)
Amortization of goodwill (10,284) (6,570) (525) (30,655) (19,584) (1,574)
----------- ------------- ------------ ----------- ------------ ------------
(168,481) (107,635) (52,375) (494,491) (315,908) (144,373)
----------- ------------- ------------ ----------- ------------ ------------
OPERATING LOSS (54,022) (34,512) (20,135) (171,095) (109,305) (56,733)
OTHER INCOME/(EXPENSE)
Interest income((pound)1,255 and(pound)
1,123 in 1996 and 1995 from
related parties) 4,568 2,918 1,431 22,540 14,400 7,496
Interest expense and similar charges (40,753) (26,035) (1,734) (122,573) (78,307) (4,187)
Unrealized loss on interest rate swaps - - (3,360) - - (8,609)
Foreign exchange losses, net (11,857) (7,575) - (86,472) (55,243) -
Share of net losses of affiliates (6,195) (3,958) (3,525) (17,921) (11,449) (9,163)
Gain on disposal of assets (28) (18) 1 219 140 37
Minority interests in profits of
consolidated subsidiaries, net (97) (62) (5) (182) (116) (19)
Other, net - - (3) - - (3)
----------- ------------- ------------ ----------- ------------ ------------
LOSS BEFORE INCOME TAXES (108,384) (69,242) (27,330) (375,484) (239,880) (71,181)
Income tax expense (95) (61) 5 (235) (150) (4)
----------- ------------- ------------ ----------- ------------ ------------
NET LOSS $(108,479) (pound) (69,303) (pound)(27,325) $(375,719)(pound)(240,030) (pound)(71,185)
=========== ============= ============ =========== ============ ============
LOSS PER ORDINARY SHARE
(DOLLARS/POUND) (NOTE 5) $ (0.12) (pound) (0.07) (pound) (0.03) $ (0.41)(pound) (0.26) (pound) (0.08)
=========== ============= ============ =========== ============ ============
</TABLE>
See accompanying notes to the unaudited condensed consolidated
financial statements
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<TABLE>
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TELEWEST COMMUNICATIONS PLC
US GAAP
UNAUDITED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, September 30, December 31,
1996 1996 1995
(note 1)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 156,782 (pound) 100,161 (pound) 464,818
Trade receivables (net of allowance for doubtful accounts
of(pound)5,465 and(pound)4,695) 48,679 31,099 23,123
Other receivables 46,447 29,673 25,657
Prepaid expenses 5,009 3,200 6,133
Investments in affiliates, accounted for under the equity
method, and related receivables 116,181 74,223 80,703
Other investments, at cost 40,175 25,666 20,666
Property and equipment (less accumulated depreciation of
(pound)268,058 and(pound)182,142) 2,091,565 1,336,207 1,063,808
Goodwill (less accumulated amortization of(pound)31,342
and(pound)11,758) 776,343 495,971 495,881
Other assets (less accumulated amortization of(pound)3,098
and(pound)742) 108,202 69,125 108,931
------------- ------------- ---------------
TOTAL ASSETS $ 3,389,383 (pound)2,165,325 (pound) 2,289,720
============= ============= ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 59,945 (pound) 38,296 (pound) 40,402
Other liabilities 240,149 153,421 103,824
Debt 1,306,218 834,484 792,265
Capital lease obligations 70,606 45,107 30,314
------------- ------------- ---------------
TOTAL LIABILITIES 1,676,918 1,071,308 966,805
------------- ------------- ---------------
Minority interests 443 283 167
------------- ------------- ---------------
Shareholders' equity
Convertible preference shares, 10 pence par value;
661,000,000 shares authorized in 1996 and 1995;
496,066,708 shares issued and outstanding in 1996 and 1995 77,650 49,607 49,607
Ordinary shares, 10 pence par value;
2,010,000,000 shares authorized in 1996 and 1995;
927,563,971 and 919,963,400 shares issued and outstanding
in 1996 and 1995, respectively 145,191 92,756 91,996
Additional paid-in capital 2,086,360 1,332,882 1,322,971
Accumulated deficit (594,418) (379,747) (139,717)
------------- ------------- ---------------
1,714,783 1,095,498 1,324,857
Ordinary shares held in trust for the Telewest Restricted Share Scheme (2,761) (1,764) (2,109)
------------- ------------- ---------------
TOTAL SHAREHOLDERS' EQUITY 1,712,022 1,093,734 1,322,748
------------- ------------- ---------------
Commitments and contingencies (note 6)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,389,383 (pound)2,165,325 (pound) 2,289,720
============= ============= ===============
</TABLE>
See accompanying notes to the unaudited condensed consolidated
financial statements
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<TABLE>
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TELEWEST COMMUNICATIONS PLC
US GAAP
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------------
9 months 9 months 9 months
ended ended ended
September 30, September 30, September 30,
1996 1996 1995
(note 1)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (375,719) (pound)(240,030) (pound)(71,185)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 131,651 84,106 36,438
Amortization of goodwill 30,655 19,584 1,574
Amortization of deferred financing costs and issue
discount on senior discount debentures 88,264 56,388 -
Unrealized loss on foreign currency translation 86,472 55,243 -
Unrealized loss on interest rate swap - - 8,609
Share of losses of affiliates 17,921 11,449 9,163
Gain on disposals of assets (219) (140) (37)
Minority interests in profits 182 116 19
Changes in operating assets and liabilities, net of effect of
acquisition of subsidiaries:
Change in receivables (23,440) (14,975) (4,352)
Change in prepaid expenses 4,571 2,920 (2,132)
Change in accounts payable (16,879) (10,783) (6,621)
Change in other liabilities 23,654 15,112 11,387
---------- ---------- ---------
NET CASH USED IN OPERATING ACTIVITIES (32,887) (21,010) (17,137)
---------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for property and equipment (475,469) (303,756) (178,886)
Cash paid for acquisition of subsidiaries (22,068) (14,098) -
Additional investments in and loans to affiliates (1,855) (1,185) -
Additions to other investments (7,827) (5,000) (9,289)
Proceeds from disposals of assets 1,407 899 229
---------- ---------- ---------
NET CASH USED IN INVESTING ACTIVITIES (505,812) (323,140) (187,946)
---------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash paid for credit facility arrangement costs (28,164) (17,993) -
Cash paid for debenture issue costs (1,074) (686) -
Repayment of borrowings (1,467) (937) -
Cash paid for share issue costs - - (6,141)
Capital element of finance lease repayments (1,845) (1,179) (959)
---------- ---------- ---------
NET CASH USED IN FINANCING ACTIVITIES (32,550) (20,795) (7,100)
---------- ---------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (571,249) (364,945) (212,183)
Effect of exchange rate changes on cash and
cash equivalents 451 288 -
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 727,580 464,818 248,002
---------- ---------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 156,782 (pound) 100,161 (pound) 35,819
========== ========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION :
Cash paid for interest during the period $ 23,217 (pound) 14,832 (pound) 4,176
========== ========== =========
</TABLE>
See accompanying notes to the unaudited condensed consolidated
financial statements
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<TABLE>
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TELEWEST COMMUNICATIONS PLC
US GAAP
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE ADDITIONAL
PREFERENCE ORDINARY SHARES HELD PAID-IN ACCUMULATED
SHARES SHARES IN TRUST CAPITAL DEFICIT TOTAL
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 (pound)49,607 (pound)91,996 (pound)(2,109) (pound)1,322,971 (pound)(139,717) (POUND)1,322,748
Issue of shares - 760 - 9,911 - 10,671
Accrued employee compensation
relating to the Telewest
Restricted Share Scheme - - 345 - - 345
Net loss for the period to
September 30, 1996 - - - - (240,030) (240,030)
-------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1996 (pound)49,607 (pound)92,756 (pound)(1,764) (pound)1,332,882 (pound)(379,747) (POUND)1,093,734
===========================================================================================
</TABLE>
See accompanying notes to the unaudited condensed consolidated
financial statements
<PAGE>
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
Telewest Communications plc (the "Company") was incorporated on October
20,1994 under the laws of England and Wales. On October 2, 1995, the
Company acquired the whole of the issued share capital of Telewest
Communications Cable Limited, then called TeleWest Communications plc,
("Old Telewest"), in exchange for the issue of fully paid up shares of
the Company pursuant to a court-approved scheme of arrangement (the
"Scheme of Arrangement") made between Old Telewest, the Company and the
shareholders of Old Telewest. Details regarding the organization and
history of Old Telewest and the Scheme of Arrangement can be found in
the Company's Annual Report on Form 10-K for the year ended December
31, 1995 filed with the Securities and Exchange Commission (the "1995
Annual Report").
On October 3, 1995, immediately following the completion of the Scheme
of Arrangement, the Company acquired the entire issued share
capital of SBC CableComms (UK) ("SBCC"), a company that holds cable
television and telephony interests in the United Kingdom ("UK"), from
its former shareholders in exchange for fully paid up shares of the
Company. Details regarding the acquisition can be found in the 1995
Annual Report.
The unaudited condensed consolidated financial statements of the
Company and its majority owned subsidiaries (and, where appropriate,
their predecessor companies, collectively, the "Telewest Group") have
been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in annual financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to those rules and regulations.
As the currency in which the Company operates is UK pounds sterling and
the economic environment in which the Company operates is the UK, the
financial statements are stated in pounds sterling ((pound)). Merely
for convenience, the financial statements contain translations of
certain pounds sterling amounts into US dollars at $1.5653 per
(pound)1.00, the Noon Buying Rate of the Federal Reserve Bank of New
York on September 30, 1996.
2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS
The condensed consolidated financial statements as of and for the
periods ended September 30, 1995 and 1996 are unaudited; however, in
the opinion of the management, such statements include all adjustments
(consisting only of normal recurring accruals) necessary for a fair
presentation of the results of operations for the interim periods
presented. The results of operations for any interim period are not
necessarily indicative of the results of the full year. The unaudited
condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and
notes thereto included in the 1995 Annual Report.
3. ACCOUNTING POLICIES - FINANCIAL INSTRUMENTS
The Company uses foreign currency option contracts which permit, but do
not require, the Company to exchange foreign currencies at a future
date with another party at a contracted exchange rate. The Company also
enters into combined foreign currency and interest rate swap contracts
("Foreign Currency Swaps") under which the Company exchanges principal
amounts of foreign currencies with another party at an agreed exchange
rate and agrees, at maturity, to re-exchange the principal amounts at
an exchange rate agreed at the outset of the transaction. Over the term
of the Foreign Currency Swaps, the Company and the swap counterparty
also exchange interest payments in different currencies in respect of
the principal amounts exchanged. The foreign currency options and
Foreign Currency Swaps are used to hedge against adverse changes in
foreign currency exchange rates associated with certain obligations
denominated in
5
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TELEWEST COMMINICATIONS PLC
US GAAP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACCOUNTING POLICIES - FINANCIAL INSTRUMENTS (CONTINUED)
foreign currency.
The foreign currency option and the Foreign Currency Swaps are recorded
on the balance sheet in "other assets" or "other liabilities" at their
fair value at the end of each reporting period, with changes in their
fair value during the reporting period being reported as part of the
foreign exchange gain or loss in the statement of operations. Such
gains and losses are offset against foreign exchange gains and losses
on the obligations denominated in foreign currencies which have been
hedged.
4. DEPRECIATION
The estimated useful lives of certain assets within system electronics
and cable and ducting were re-assessed with effect from January 1, 1996
and changed from 10 years and 30 years to 8 years and 25 years,
respectively. These assets will be written off over their revised
estimated remaining lives. The change in asset lives does not have a
material effect on the current period financial statements.
5. LOSS PER ORDINARY SHARE
Loss per ordinary share is based on the weighted average number of
ordinary shares outstanding for the period of 924,706,630 shares.
6. COMMITMENTS AND CONTINGENCIES
The Company is party to various legal proceedings in the ordinary
course of business which it does not believe will result, in aggregate,
in a material adverse effect on its balance sheet position and its
results.
7. BANK FINANCING
A subsidiary of the Company is party to a senior secured credit
facility which is available for future drawdowns. The facility is
available to finance the capital expenditure, working capital, and
other related requirements for the construction and operation of all
the Company's owned and operated franchises, to pay cash interest on
the Company's unsecured debentures, to fund the repayment of existing
secured borrowings in respect of the London South and Avon Regional
Franchise Areas, to fund loans to or investments in affiliated
companies, to bid for or purchase, and subsequently construct, licences
or franchises which may become available and to refinance advances and
the payment of interest, fees and expenses in respect of the senior
secured credit facility.
The facility is divided into two tranches: the first portion (Tranche
A) is available on a revolving basis for up to (pound)300 million,
reducing to (pound)100 million by June 30, 1998 with full repayment by
December 31, 1998; the second portion (Tranche B) is available on a
revolving basis concurrently with Tranche A for an amount up to 6.5
times the trailing, rolling six month annualized consolidated net
operating cash flow, gradually reducing throughout the period of the
facility to 4 times by January 1, 2000. Thereafter, the amount
outstanding under the facility converts to a term loan amortising over
5 years. The aggregate drawing at any time under both tranches cannot
exceed (pound)1.2 billion.
Borrowings under the facility are secured by the assets of the Company,
including the partnership
6
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TELEWEST COMMINICATIONS PLC
US GAAP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. BANK FINANCING (CONTINUED)
interests and shares of subsidiaries, and bear interest at 2.25% above
LIBOR for Tranche A and between 0.5% and 1.875% above LIBOR (depending
on the ratio of borrowings to the trailing, rolling six month
annualized consolidated net operating cash flow) for Tranche B. The
Company's ability to borrow under the facility is subject to, among
other things, its compliance with the financial and other covenants and
conditions contained therein.
In September 1996, the Company entered into certain delayed starting
interest rate swap agreements in order to manage interest rate risk on
the Senior Secured Facility. The effective dates of the interest rate
swap agreements are January 2, 1997 and March 31, 1997 and the
agreements mature on December 31, 2001 and March 28, 2002. The
aggregate notional principal amount of the swaps adjusts upward on a
semi-annual basis to a maximum of (pound)750 million. In accordance
with the swap agreements, the Company receives interest at the six
month LIBOR and pays a fixed interest rate in the range of 7.835% -
7.975%.
7
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ITEM 2----MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The financial information contained in this Report on Form 10-Q is prepared in
accordance with US GAAP. In accordance with UK securities regulations, the
Company also prepares financial statements in accordance with UK GAAP. The UK
GAAP financial statements for the period covered by this Report are contained in
Exhibit 99 to this Report.
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the management discussion and
analysis contained in the 1995 Annual Report.
SAFE HARBOR STATEMENT UNDER THE US PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: The discussion and analysis below includes certain forward looking
statements that involve risks and uncertainties that could lead to actual
results that are significantly different from those anticipated by the Company.
These risks and uncertainties relate to, among other things, the extent consumer
preference develops for cable television over other methods of providing in-home
entertainment and for the Company as a viable alternative to British
Telecommunications plc ("BT") and Mercury Communications Limited ("Mercury") as
a provider of telephony service; the ability of the Company to manage growth and
expansion; the ability of the Company to construct its network in a cost
efficient and timely manner; the ability of the Company to raise additional
financing if there is a material adverse change in the Company's anticipated
revenues or expenses; the ability of the Company to respond to changes or
increases in competition and adverse changes in government regulation; the
extent programming is available at reasonable costs; adverse changes in the
pricing of telephony interconnection; disruptions in supply of services and
equipment, and the performance of the Affiliated Companies (which are not
controlled by the Company).
LIQUIDITY AND CAPITAL RESOURCES
On May 22, 1996, the Company (through a directly wholly owned subsidiary)
entered into a (pound)1.2 billion senior secured credit facility with a
syndicate of banks (the "Senior Secured Facility"). The Senior Secured Facility
will be used to finance the capital expenditure, working capital requirements
and other permitted related activities for the construction and operation of
directly or indirectly wholly owned telephony and television franchises of the
Company; to fund the payment of cash interest on the Senior Debentures and
Senior Discount Debentures (as defined below); to fund the repayment of existing
secured borrowings of the Company in respect of the London South and Avon
Regional Franchise Areas; to fund loans to or investments in Affiliated
Companies; to fund the acquisition, and subsequent construction, of local
delivery operators/franchises; and to refinance advances and the payment of
interest, fees and expenses in respect of the Senior Secured Facility.
The Senior Secured Facility is divided into two tranches, the first will be
available on a revolving basis for up to (pound)300 million, reducing to
(pound)100 million by June 30, 1998, with full repayment by December 31, 1998.
The second tranche will be available on a revolving basis concurrently with the
first tranche for an amount up to 6.5 times the trailing, rolling six month
annualized consolidated net operating cash flow, gradually reducing throughout
the period of the facility to 4 times by January 1, 2000. Thereafter, the amount
outstanding under the facility converts to a term loan amortizing over 5 years.
The aggregate drawing at any time under both tranches cannot exceed (pound)1.2
billion. Borrowings under the Senior Secured Facility are secured by assets
including the partnership interests and shares of subsidiaries of the Company
and bear interest at 2.25% above LIBOR for the first tranche and between 0.5%
and 1.875% above LIBOR (depending on the ratio of borrowings to the trailing,
rolling six month annualized consolidated net operating cash flow) for the
second tranche. The Company's ability to borrow under the Senior Secured
Facility is subject to, among other things, its compliance with the financial
and other covenants and borrowing conditions contained therein, and the failure
to comply with such covenants could result in all such amounts outstanding under
the facility becoming due and payable. The first drawdown under the Senior
Secured Facility was made in October 1996.
In September 1996, the Company (through a directly wholly owned subsidiary)
entered into certain
8
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delayed starting interest rate swap agreements in order to manage interest rate
risk on the Senior Secured Facility. The effective dates of the interest rate
swap agreements are January 2, 1997 and March 31, 1997 and the agreements mature
on December 31, 2001 and March 28, 2002. The aggregate notional principal amount
of the swaps adjusts upward on a semi-annual basis to a maximum of (pound)750
million. In accordance with the swap agreements, the Company receives interest
at the six month LIBOR and pays a fixed interest rate in the range of 7.835% -
7.975%.
On October 3, 1995, the Company raised (pound)734 million through the issue of
$300 million principal amount of 9 5/8% Senior Debentures due 2006 (the "Senior
Debentures") and $1,536 million principal amount at maturity of 11% Senior
Discount Debentures due 2007 (the "Senior Discount Debentures"). Interest on the
Senior Debentures is payable semi-annually; interest on the Senior Discount
Debentures will be payable semi-annually commencing on April 1, 2001. On October
2, 1995, the Company entered into certain currency hedge arrangements to reduce
its exposure to exchange rate fluctuations on the debentures between pounds
sterling and US dollars through October 1, 2000. The aggregate cost of such
arrangements was (pound)88 million. The proceeds of the issue have been and will
be used by the Company to fund general working capital, capital expenditures,
additional investments, if any, in Affiliated Companies or other companies
engaged in the cable/telecommunications business, any television or licensing
business and any programming guide or telephony directory business. The proceeds
of the issue were also used to purchase the currency hedge arrangements
described above and to repay a credit facility entered into by SBCC.
The Company's principal hedge instrument, a foreign currency option, provides
protection against exchange rate fluctuations on the Senior Discount Debentures
up to the early redemption date of October 1, 2000, down to a rate of
$1.452:(pound)1, and allows the Company to benefit from positive exchange rate
movements. The Company has also entered into a Foreign Currency Swap to hedge
its exposure to adverse changes in exchange rates associated with the Senior
Debentures up to the early redemption date of October 1, 2000. Under the terms
of the Foreign Currency Swap, the Company has exchanged, with the swap
counterparty, an amount equal to the US dollar principal amount of the Senior
Debentures in return for pounds sterling, and agrees, at maturity, to
re-exchange the currency amounts. The Company and the swap counterparty also
exchange interest payments in respect of the currency amounts exchanged. Both
hedging instruments are marked to their market value at the end of each
reporting period and exchange gains and losses on the debentures are recorded at
such time. As a result, the Company's results may be materially influenced by
future exchange rate movements.
Cash and deposit balances at September 30, 1996 were (pound)100.2 million.
The Company incurred a net cash outflow from operating activities of (pound)17.1
million and (pound)21.0 million in the nine month period ended September 30,
1995 and 1996, respectively.
The Company incurred net cash outflow from investing activities of (pound)187.9
million and (pound)323.1 million in the nine month period ended September 30,
1995 and 1996, respectively. The Company's principal investing activities
continue to be the construction of the network, and in the nine month period
ended September 30, 1996, the acquisition of a franchise covering the Worcester
area from Bell Cablemedia plc for (pound)9.8 million to continue the expansion
of the network. The Company expects to continue to have significant capital
requirements to fund the cost of constructing the network for the foreseeable
future.
Cash used in financing activities was (pound)7.1 million and (pound)20.8 million
in the nine month period ended September 30, 1995 and 1996, respectively. Cash
used in financing activities consisted principally of professional fees relating
to share issue costs outstanding from 1994 which were paid in the nine month
period ended September 30, 1995 and loan arrangement and agency fees of
(pound)18.0 million relating to the (pound)1.2 billion Senior Secured Facility
which were paid in the nine month period ended September 30, 1996.
At September 30, 1996, the network had passed approximately 61% of the homes in
its owned and operated franchise areas as compared to 48% of homes in its owned
and operated franchises at September 30, 1995. Total capital expenditure in the
nine month period ended September 30, 1996 was (pound)361.3 million as compared
with
9
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(pound)180.7 million in the nine month period ended September 30, 1995. The
increase in expenditure during 1996 was largely a result of the construction of
the network in the former SBCC franchises which were acquired in October 1995.
The Company is obligated under the terms of its telecommunications licences to
construct its network to pass a specified number of premises by prescribed
dates. The Company expects to exceed milestone obligations under its
telecommunications licences (as originally specified or as modified subsequent
thereto). If such milestones are not met, the Company may be subject to
enforcement action from regulatory authorities which, if not complied with,
could result in revocation of the Company's telecommunications licences.
Although the Company from time to time has not met certain milestones, it has
sought and received appropriate milestone modifications from the Director
General, and currently is negotiating for modifications of the milestones for a
limited number of licenses.
The Company expects to make capital expenditures of an aggregate of
approximately (pound)500 million during 1996.
The Company currently expects that the anticipated funding requirements to
substantially complete the construction of the owned and operated network
(including the recently acquired franchises of Worcester and Southport), to fund
the Company's operations, to upgrade older portions of the network, and to pay
interest on the Company's debt will be approximately (pound)1 billion. The
Company expects that such funding will be provided by the Senior Secured
Facility although there can be no assurance that the Company will not elect to
use alternative funding sources or that the Company's current anticipated
funding requirements will be in line with expectations. The Company is
continually evaluating investment opportunities as the market for cable services
in the United Kingdom develops and such opportunities may require additional
funding.
SUMMARY OF OPERATIONS (THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND
1996)
The Company's consolidated revenue increased by (pound)40.9 million or 127% from
(pound)32.2 million in the three month period ended September 30, 1995 to
(pound)73.1 million in the three month period ended September 30, 1996 and by
(pound)119.0 million or 136% from (pound)87.6 million in the nine month period
ended September 30, 1995 to (pound)206.6 million in the nine month period ended
September 30, 1996 . The results of the Company for the first nine months of
1996 include the results of the former SBCC franchises which were acquired in
October 1995; the inclusion of the results of the SBCC franchises accounted for
64% of the (pound)40.9 million increase and 62% of the (pound)119.0 million
increase in revenue for the three and nine month period, respectively, ended
September 30, 1996, over the corresponding periods in 1995. The remainder of the
increase in revenue over the corresponding periods in 1995 was principally
attributable to the larger subscriber base created by the Company's continuing
network construction in the Old Telewest franchises.
CABLE TELEVISION REVENUE
Cable television revenue increased by 105% from (pound)14.3 million in the three
month period ended September 30, 1995 to (pound)29.3 million in the three month
period ended September 30, 1996 and by 115% from (pound)40.2 million in the nine
month period ended September 30, 1995 to (pound)86.1 million in the nine month
period ended September 30, 1996. The increase was primarily attributable to a
104% increase (from 215,627 to 440,861) and a 109% increase (from 202,229 to
421,770) in the average number of customers in the three and nine month periods,
respectively, ended September 30, 1996 compared to the corresponding periods
ended September 30, 1995. The increase in the average number of customers
results from an increase in the number of homes passed and marketed in the Old
Telewest franchises (from 1,057,734 at September 30, 1995 to 1,368,981 at
September 30, 1996) and from the inclusion in 1996 of the former SBCC franchises
which contributed 174,199 customers at September 30, 1996.
Penetration increased slightly from 21.1% as at June 30, 1996 to 21.2% as at
September 30, 1996 and from 21.2% as at June 30, 1995 to 21.4% as at September
30, 1995. Penetration decreased from 21.9%
10
<PAGE>
at December 31, 1995 to 21.2% at September 30, 1996 and from 22.2% at December
31, 1994 to 21.4% at September 30, 1995. Annualized quarterly churn in the three
month period ended September 30, 1996 was 35.6% and churn in the twelve month
period ended September 30, 1996 was 36.2%.
Prior to April 1, 1996, the Company had calculated churn by including in the
total of those customers who disconnect within the period, those who transfer
their cable television/residential telephony service from one premise to another
within an owned and operated Company franchise. While this had no effect on the
calculation of penetration, which is based on period end figures, it has meant
that churn has been overstated. Like other companies within the UK cable
industry, and with effect from April 1, 1996, the Company has calculated churn
to exclude those customers who so transfer their service. It is not possible to
recalculate 1995 churn rates on the revised basis and hence no comparative
figures for 1995 can be given. The 1996 and 1995 churn rates calculated on the
old basis (ie to include in churn those customers who transfer) are as follows:
annualized quarterly churn decreased from 40.6% in the three month period ended
September 30, 1995 to 39.3% in the three month period ended September 30, 1996
and churn decreased from 43.6% in the twelve month period ended September 30,
1995 to 39.5% in the twelve month period ended September 30, 1996.
Average monthly revenue per cable television customer increased from
(pound)22.05 in the three month period ended September 30, 1995 to (pound)22.12
in the three month period ended September 30, 1996 and from (pound)22.07 in the
nine month period ended September 30, 1995 to (pound)22.69 in the nine month
period ended September 30, 1996. This is a result of an increase in the basic
channel charge implemented in the fourth quarter 1995 and the additional
revenues generated from the UK's first national pay-per-view programming aired
in March 1996 which were partially offset by a decrease in the average premium
channels purchased per customer due to the inclusion in 1996 of the results of
the former SBCC franchises. The introduction of Teleplus, a new cable television
and residential telephony packaging strategy, also reduced the average premium
channels purchased per customer in the three month period ended September 30,
1996 compared to the corresponding period in 1995.
TELEPHONY REVENUE
Telephony revenue increased by 154% from (pound)16.3 million in the three month
period ended September 30, 1995 to (pound)41.4 million in the three month period
ended September 30, 1996 and by 161% from (pound)43.7 million in the nine month
period ended September 30, 1995 to (pound)114.0 million in the nine month period
ended September 30, 1996.
Residential telephony revenue increased by 170% from (pound)12.2 million in the
three month period ended September 30, 1995 to (pound)32.9 million in the three
month period ended September 30, 1996 and by 179% from (pound)32.4 million in
the nine month period ended September 30, 1995 to (pound)90.2 million in the
nine month period ended September 30, 1996. Business telephony revenue increased
by 106% from (pound)4.1 million in the three month period ended September 30,
1995 to (pound)8.6 million in the three month period ended September 30, 1996
and by 111% from (pound)11.3 million in the nine month period ended September
30, 1995 to (pound)23.8 million in the nine month period ended September 30,
1996.
The increase in residential telephony revenue in the three and nine month
periods ended September 30, 1996 compared to the corresponding periods ended
September 30, 1995 was primarily due to a 179% increase (from 189,532 to
529,571) and a 196% increase (from 164,456 to 487,541) in the average number of
residential lines. The increase in the average number of residential lines
results from an increase in the number of homes passed and marketed in the Old
Telewest franchises (from 874,283 at September 30, 1995 to 1,267,255 at
September 30, 1996) and from the inclusion in 1996 of the former SBCC
franchises, which represented 248,228 lines at September 30, 1996. The increase
in the average number of residential telephony lines was partially offset by a
decrease in the average monthly revenue per residential line, which decreased by
3% from (pound)21.38 in the three month period ended September 30, 1995 to
(pound)20.68 in the three month period ended September 30, 1996, and decreased
by 6% from (pound)21.85 in the nine month period ended September 30, 1995 to
(pound)20.55 in the nine month period ended September 30, 1996. The decrease in
the average monthly revenue per line was mainly attributable to price
11
<PAGE>
reductions in per minute call charges in response to price cutting by BT, the
Company's main competitor in residential telephony. The Company intends to
continue reducing per minute call tariffs and to seek to mitigate the revenue
impact of these reductions through higher line rentals and increased call
volumes resulting from increased marketing.
Residential telephony penetration increased from 26.4% at June 30, 1996 to 26.8%
at September 30, 1996 and increased from 22.8% at June 30, 1995 to 23.1% at
September 30, 1995. Penetration increased from 26.0% at December 31, 1995 to
26.8% at September 30, 1996 and from 22.1% at 31 December 1994 to 23.1% at
September 30, 1995. Annualized quarterly churn per line was 19.1% in the three
month period ended September 30, 1996 and churn per line for the twelve month
period ended September 30, 1996 was 20.0%.
As set out under the discussion of cable television revenue, the Company has
modified its calculation of churn to exclude those customers who transfer their
service within an owned and operated Company franchise. The 1996 and 1995 churn
rates calculated on the old basis (ie to include in churn customers who
transfer) are as follows: annualized quarterly churn per line increased from
23.4% in the three month period ended September 30, 1995 to 25.0% in the three
month period ended September 30, 1996 and churn per line also increased from
21.4% in the twelve month period ended September 30, 1995 to 23.9% in the twelve
month period ended September 30, 1996.
The increase in business telephony revenue in the three and nine month periods
ended September 30, 1996 compared to the corresponding periods ended September
30, 1995 was primarily attributable to a 140% increase (from 23,229 to 55,684)
and a 147% increase (from 19,906 to 49,150) in the average number of business
telephony lines in the three and nine month periods, respectively, ended
September 30, 1996, which was partially offset by a decrease in the average
monthly revenue per business line, which decreased by 14% from (pound)59.50 in
the three month period ended September 30, 1995 to (pound)51.27 in the three
month period ended September 30, 1996, and decreased by 15% from (pound)62.97 in
the nine month period ended September 30, 1995 to (pound)53.79 in the nine month
period ended September 30, 1996. The decrease in the average monthly revenue per
line was attributable to price reductions in per minute call charges in response
to competition and increased sales of Centrex, a new business telecommunications
product, which has a lower average monthly revenue per line.
Other revenue increased by 49% and 70% in the three and nine month periods,
respectively, ended September 30, 1996 compared to the same periods in 1995, and
is derived primarily from management services provided to Affiliated Companies,
cable publications and network management services provided to other operators,
and advertising sales.
OPERATING COSTS AND EXPENSES
The Company's consolidated operating costs and expenses increased by 106% from
(pound)52.4 million in the three month period ended September 30, 1995 to
(pound)107.6 million in the three month period ended September 30, 1996 and
increased by 119% from (pound)144.4 million in the nine month period ended
September 30, 1995 to (pound)315.9 million in the nine month period ended
September 30, 1996.
Programming fees are the largest component of the Company's operating costs in
providing cable television services. The Company obtains most of its programming
under contracts which provide for payments based upon the number of customers.
As a percentage of cable television revenues, programming costs increased from
50% and 48% in the three month period and the nine month period ended September
30, 1995, respectively, to 56% and 55% for the corresponding periods in 1996, as
a result of programming fee increases, providing more channels such as European
Business News and the Sci-Fi Channel to customers in the basic cable television
package and the inclusion, in the results for 1996, of the former SBCC
franchises which have higher per channel programming costs.
As a percentage of telephony revenue, telephony operating costs decreased from
44% in the three month period ended September 30, 1995 and 38% in the nine month
period ended September 30, 1995 to 27%
12
<PAGE>
in the three month period ended September 30, 1996 and 32% for the nine month
period ended September 30,1996. Interconnection charges are the largest
component of the Company's telephony operating costs in providing telephony
services. Interconnection charges for the periods ended September 30, 1996 were
reduced by credits relating to interconnection charges of earlier periods;
credits of such magnitude were not received in the corresponding periods ending
September 30, 1995.
Selling, general and administrative expenses, which include, among other items,
salary and marketing costs, decreased as a percentage of revenue from 76% and
81% in the three and nine month periods ended September 30, 1995 to 60% and 62%
for the corresponding periods in 1996. The decrease is due to reductions in
support costs as the Company capitalizes on the efficiency gains of its enlarged
operations which have been partially offset by higher customer acquisition costs
as the Company increases its marketing expenditure. The Company expects that its
selling, general and administrative expenses will remain significant as a
percentage of revenue until the Company completes construction of a substantial
proportion of its network at which time the significance of these costs as a
percentage of revenue will reduce. A portion of labour and overhead costs are
capitalised as they relate to the construction of the network. Total labour and
overhead costs capitalised in the three month period ended September 30, 1996
were (pound)9.7 million, compared to (pound)5.9 million in the three month
period ended September 30, 1995 and (pound)28.3 million in the nine month period
ended September 30, 1996, compared to (pound)15.6 million in the nine month
period ended September 30, 1995.
Depreciation expense increased 123% from (pound)13.2 million in the three month
period ended September 30, 1995 to (pound)29.4 million in the three month period
ended September 30, 1996 and by 131% from (pound)36.4 million in the nine month
period ended September 30, 1995 to (pound)84.1 million in the nine month period
ended September 30, 1996. This increase was principally attributable to capital
expenditure associated with the Company's continuing construction activities,
depreciation recorded by the former SBCC franchises, and a reduction in the
estimated useful lives of certain network assets. Amortization expense increased
from (pound)0.5 million in the three month period to September 30, 1995 to
(pound)6.6 million in the three month period to September 30, 1996 and from
(pound)1.6 million in the nine month period to September 30, 1995 to (pound)19.6
million in the nine month period ended September 30, 1996, primarily due to the
amortization of goodwill arising on the acquisition of SBCC.
OTHER INCOME (EXPENSE)
The Company's share of the net losses of its Affiliated Companies accounted for
under the equity method, principally Birmingham Cable Corporation Limited and
Cable London plc, was (pound)3.5 million and (pound)4.0 million for the three
month periods ended September 30, 1995 and 1996, respectively and (pound)9.2
million and (pound)11.4 million for the nine month periods ended September 30,
1995 and 1996, respectively.
For the three month periods ended September 30, 1995 and 1996, financial
expenses consist primarily of interest expense of (pound)26.0 million for the
three month period ended September 30, 1996 ((pound)1.7 million for the three
month period ended September 30, 1995), and foreign exchange losses of
(pound)7.6 million for the three month period ended September 30, 1996 (nil for
the three month period ended September 30, 1995) offset in part by interest
income earned on short-term investments and loans to Affiliated Companies of
(pound)2.9 million for the three month period ended September 30, 1996
((pound)1.4 million in the three month period ended September 30, 1995).
For the nine month periods ended September 30, 1995 and 1996, financial expenses
consist primarily of interest expense of (pound)78.3 million for the nine month
period ended September 30, 1996 ((pound)4.2 million for the nine month period
ended September 30, 1995), and foreign exchange losses of (pound)55.2 million
for the nine month period ended September 30, 1996 (nil for the nine month
period ended September 30, 1995) offset by interest income earned on short-term
investments and loans to Affiliated Companies of (pound)14.4 million for the
nine month period ended September 30, 1996 ((pound)7.5 million in the nine month
period ended September 30, 1995).
Interest expense increased by (pound)24.3 million in the three month period and
by (pound)74.1 million in the nine month period ended September 30, 1996
compared to the equivalent periods of the preceding year
13
<PAGE>
primarily as a result of the accrued interest expense on the Senior Debentures
and the Senior Discount Debentures issued by the Company in October 1995. The
foreign exchange losses in the nine months ended September 30, 1996 arose
principally from the re-translation of the US dollar denominated debentures to
pounds sterling using the September 30, 1996 exchange rate and marking the
associated hedging instruments to their market value at September 30, 1996.
14
<PAGE>
PART II ---- OTHER INFORMATION
ITEM 1 ----LEGAL PROCEEDINGS
None
ITEM 2 ---- CHANGES IN SECURITIES
None
ITEM 3 ---- DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 ---- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 ---- OTHER MATTERS
None
ITEM 6 ---- EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
27 ---- Telewest Communications plc financial data schedule
99 ---- Telewest Communications plc Press Release issued on
November 4, 1996 with respect to results of operations for the
nine month period ended September 30, 1996 (including
unaudited consolidated financial statements prepared in
accordance with UK GAAP).
b. Reports on Form 8-K
None
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TELEWEST COMMUNICATIONS PLC
By: /S/ STEPHEN J. DAVIDSON
Name: Stephen J. Davidson
Title: Acting Chief Executive Officer
(duly authorized signatory
and principal financial officer)
November 14, 1996
16
<PAGE>
EXHIBITS
EXHIBIT
27---Telewest Communications plc Financial Data Schedule
99---Telewest Communications plc Press Release issued on November 4, 1996 with
respect to results of operations for the nine month period ended September
30, 1996 (including unaudited consolidated financial statements prepared in
accordance with UK GAAP)
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial
information extracted from the financial
statements contained in the body of the
accompanying Form 10-Q and is qualified in
its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<CURRENCY> POUNDS STERLING
<EXCHANGE-RATE> 1.5653
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 100,161
<SECURITIES> 0
<RECEIVABLES> 60,772
<ALLOWANCES> 5,465
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,604,265
<DEPRECIATION> 268,058
<TOTAL-ASSETS> 2,165,325
<CURRENT-LIABILITIES> 0
<BONDS> 834,484
0
49,607
<COMMON> 92,756
<OTHER-SE> 951,371
<TOTAL-LIABILITY-AND-EQUITY> 2,165,325
<SALES> 0
<TOTAL-REVENUES> 206,603
<CGS> 0
<TOTAL-COSTS> 83,531
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,307
<INCOME-PRETAX> (239,880)
<INCOME-TAX> 150
<INCOME-CONTINUING> (240,030)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (240,030)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> 0
</TABLE>
EXHIBIT 99
Telewest Communications plc Press Release issued on November 4, 1996 with
respect to results of operations for the nine month period ended September 30,
1996 (including unaudited consolidated financial statements prepared in
accordance with UK GAAP).
<PAGE>
FOR IMMEDIATE RELEASE 4 NOVEMBER 1996
TELEWEST COMMUNICATIONS PLC
RESULTS FOR THE NINE MONTHS TO 30 SEPTEMBER 1996
Telewest Communications plc ("Telewest"), today announced its unaudited
financial results for the third quarter and the nine months ended 30 September
1996.
o EBITDA POSITIVE, (POUND)1.5M, FOR THE FIRST TIME
o NETWORK 61% BUILT
o 687,297 RESIDENTIAL CUSTOMERS, 18,997 BUSINESS CUSTOMERS AND 59,706
BUSINESS LINES
o TOTAL REVENUE OF (POUND)73.1 MILLION FOR THE QUARTER, (POUND)206.6
MILLION FOR THE YEAR TO DATE
o SUCCESSFUL TRIAL AND LAUNCH OF TELEPLUS - PACKAGING OF CABLE
TELEVISION AND TELEPHONY
o INTRODUCTION OF NUMBER PORTABILITY
FINANCIAL HIGHLIGHTS
Pro forma information is included to demonstrate the comparative effect of
including the results of SBC CableComms UK ("SBCC"), acquired by Telewest on
3 October 1995, for the equivalent period last year.
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
YEAR ON YEAR YEAR ON YEAR
<S> <C> <C> <C>
TOTAL REVENUE 3RD QTR UP 127% TO(POUND)73.1M UP 45%
YTD UP 136% TO(POUND)206.6M UP 54%
CABLE TELEVISION REVENUE 3RD QTR UP 105% TO(POUND)29.3M UP 40%
YTD UP 115% TO(POUND)86.1M UP 46%
RESIDENTIAL TELEPHONY REVENUE 3RD QTR UP 170% TO(POUND)32.9M UP 53%
YTD UP 179% TO(POUND)90.2M UP 61%
BUSINESS TELEPHONY REVENUE 3RD QTR UP 106% TO(POUND)8.6M UP 51%
YTD UP 111% TO(POUND)23.8M UP 65%
GROSS CONTRIBUTION 3RD QTR UP 155% TO(POUND)45.7M UP 60%
(total revenue less direct YTD UP 137% TO(POUND)123.1M UP 57%
programming and telephony costs)
EBITDA PROFIT/ (LOSS) 3RD QTR IMPROVED 123% TO IMPROVED 117%
(Profit/(loss) before interest, YTD (POUND) 1.5M
tax, depreciation, and amortisation) IMPROVED 70% TO ((POUND)5.6M) IMPROVED 77%
NET LOSS 3RD QTR UP 101% TO(POUND)59.2M
YTD UP 160% TO(POUND)176.9M
CAPITAL EXPENDITURE 3RD QTR UP 138% TO(POUND)131.1M
YTD UP 100% TO (POUND)361.3M
1
<PAGE>
<CAPTION>
OPERATING HIGHLIGHTS
ACTUAL PRO FORMA
YEAR ON YEAR YEAR ON YEAR
<S> <C> <C>
CABLE TELEVISION CUSTOMERS
- Owned and operated UP 102% TO 458,505 UP 28%
- Equity basis UP 88% TO 523,003 UP 27%
CABLE TELEVISION PENETRATION STABLE AT 21.2% ( 21.4% Q3 1995 AND 21.3% PRO-FORMA Q3 1995)
ROLLING 12 MONTH CHURN* DOWN TO 36.2% (SEE NOTE BELOW)
RESIDENTIAL TELEPHONY LINES
- Owned and operated UP 173% TO 557,482 UP 51%
- Equity basis UP 149% TO 617,951 UP 50%
RESIDENTIAL TELEPHONY PENETRATION INCREASED TO 26.8%( 23.1% Q3 1995 AND
24.9% PRO-FORMA Q3 1995)
ROLLING 12 MONTH CHURN* DOWN TO 20.0% (SEE NOTE BELOW)
BUSINESS TELEPHONY LINES
- Owned and operated UP 137% TO 59,706 UP 78%
- Equity basis UP 117% TO 69,540 UP 72%
</TABLE>
Commenting on the results, Stephen Davidson, Acting Chief Executive of Telewest,
said:
"Telewest is now 61% built and has nearly 700,000 residential customers, half of
which take both telephony and television services. These results are broadly in
line with our expectations and show continued, consistent growth across each of
our product areas. We have successfully trialled combined residential telephony
and cable television packages (Teleplus), which offer better value to our
customers than unbundled services. The results have been positive, leading to
the launch of the product in all of our franchises which, we believe, will help
to improve penetration and further reduce churn.
"A variety of new products have become reality; number portability began rolling
out in our franchises in September 1996 and we are confident of the benefits we
shall see accruing from this value added service. Our business customers now
include a number of large county councils using Centrex. Moreover we have
recently won an order to link three sites for a major clearing bank and a
national brewer is using us for CATV distribution throughout the UK.
"We have posted a positive EBITDA balance of (pound)1.5m for the first time in
our history and we are delighted with this result.
"We believe that the steps we have taken will ensure that Telewest remains at
the forefront of the UK cable industry at a time when it is seeing exciting and
fundamental consolidation from which we are extremely well positioned to
benefit."
Enquiries to: Telewest Communications
Stephen Davidson, Acting Chief Executive
Tel: 01483 750900
Anna Miller, VP Investor Relations
Tel: 01483 251881
Dewe Rogerson
Anthony Carlisle
Tel: 0171 638 9571
* In calculating churn rates "transfers" are now excluded as explained below on
page 4.
2
<PAGE>
Note: All comparatives given in the text below are on a pro forma basis
including SBCC's results as if Telewest had acquired SBCC on 1 January 1995.
OPERATIONAL REVIEW
Telewest remains in an intense build out phase and 145,187 homes were activated
in the 3rd quarter. Telewest has now passed 2,361,189 homes making the network
61% built and is on target to complete 64% by the year end. At the end of Q3
there were 458,505 cable television customers, 557,482 residential telephony
lines and 59,706 business lines, making a total number of 1,075,693
customers/lines, representing growth of 41.3% on the year.
CATV: The number of CATV net additions in the quarter is 32,495 compared to
33,490 in the same period last year and only 14,172 in the previous quarter. For
the next quarter, Telewest expects the usual seasonal uplift, coupled with the
cross selling benefits arising from packaged services and number portability.
Telewest now has 458,505 CATV customers compared to 358,850 last year and
426,010 last quarter. Year on year, penetration is static at 21.2% (21.3% Q3 95
and 21.1% Q2 96) whilst rolling 12 month churn* was down at 36.2%. The rolling
12 month churn* at the end of the second quarter was 36.4%.
RESTEL: Telewest now has 552,074 residential telephony customers and this has
been achieved against an extremely competitive background. Year on year,
penetration is improving and now stands at 26.8% (24.9% Q3 95) with rolling 12
month churn* at 20.0%. The previous quarter figures were 26.4% for penetration
and 20.2% for churn*.
BUSTEL: The number of business telephone lines has increased by 78% since the
same quarter last year (59,706 versus 33,592) reflecting customers' increased
perception of quality and value for money. In the quarter, 7,834 net lines were
added compared to 6,299 in the previous quarter. The average number of lines per
customer is up from 2.7 last year to 3.1 and the rolling 12 month churn* rate
has fallen from 14% to 13.5% in the same period.
MARKETING INITIATIVES
The successful launch in September of Teleplus, a combined residential and cable
telephony package which offers better value than unbundled services, is expected
by Telewest to improve penetration and reduce churn.
The new tariffs introduced by BT in early October have been met with a
competitive response by Telewest to maintain customer savings - Telewest aims to
continue to offer a lower bill than BT whatever the nature of the calls.
Telewest began to implement number portability on 22 September and expects to be
able to offer this service in most areas by this time next year.
REGULATORY UPDATE
The OFTEL price control proposals for 1997 to 2001 were published in June 1996.
As a result BT has begun reducing prices for residential calls, focusing on
international tariffs and discount schemes. A further (pound)190m cut in BT
prices is expected by July 1997 to meet the RPI-7.5 cap. Telewest aims to
continue to offer a competitive service for customers and was able to respond
with price reductions to the new tariffs. The customer is benefiting from
OFTEL's latest price control proposal as competition becomes a reality and
Telewest is in favour of these developments. The OFTEL consultation on network
charge cap starts this month and some 50% of BT's call conveyance interconnect
services are to be de-regulated. Call termination charges are to be moved to
incremental from fully allocated. This is a welcome reduction to Telewest's cost
base. From December 1996 the fair trading condition will be imposed on all
operators, effectively giving OFTEL more power to protect the customer from anti
competitive practices.
FINANCIAL REVIEW
Turnover increased by 45% quarter on quarter to (pound)73.1m and 54% year on
year to (pound)206.6m. Comparatively, operating costs, excluding depreciation
and amortisation, increased by 21% and 34% in the same periods. SG&A expenses as
a percentage of turnover fell from 74% to 60% on a quarterly comparison and from
77% to 62% on a year to date basis. One area where costs are increasing
significantly is programming; up 51% quarterly and 59% YTD as a result of having
more customers, programming fee increases and the provision of additional
channels in the basic programming tier. This is clearly a cost which Telewest is
looking to manage very closely.
Capital expenditure increased 138% to (pound)131m (Q3 to Q3) and up 100% YTD to
(pound)361m, due principally to the increase in the amount of the network build
(to 61%).
3
<PAGE>
AFFILIATED COMPANIES
Telewest's share of the net losses of its Affiliated Companies, principally
Cable London and Birmingham Cable Corporation, accounted for under the equity
method, was (pound)11.4m. In October, jointly with Comcast, Telewest bought the
outstanding 2% interest in Cable London from private investors, thereby
increasing its interest and that of Comcast from 49% to 50%.
LIQUIDITY AND CAPITAL RESOURCES
The Senior Secured Facility for (pound)1.2billion which Telewest secured in May
1996 will be used to finance capital expenditure, working capital requirements
and other permitted related activities involving the construction and operation
of all Telewest's owned and operated franchises; to pay cash interest on
Telewest's unsecured debentures; to fund the repayment of existing secured
borrowings in respect of London South and Avon franchise areas, to fund loans to
or investments in Affiliated Companies, to fund the acquisition, and subsequent
construction, of local delivery operators/franchises and to refinance advances
and the payment of interest, fees and expenses in respect of the Senior Secured
Facility. The company's ability to borrow under the Senior Secured Facility is
subject to, among other things, its compliance with financial and other
covenants and borrowing conditions contained therein.
The (pound)1.2 billion Senior Secured Facility is divided into two tranches, the
first available on a revolving basis for up to (pound)300 million, reducing to
(pound)100 million by 30 June 1998, with full repayment by 31 December 1998. The
second tranche is available on a revolving basis concurrently with the first
tranche of an amount up to 6.5 times the trailing, rolling six month annualised
consolidated net operating cash flow, gradually reducing throughout the period
of the facility to 4 times by 1 January 2000. Thereafter, the amount outstanding
under the facility converts to a term loan amortising over five years. The
aggregate drawing at any time under both tranches will not exceed (pound)1.2
billion.
Net proceeds of (pound)734 million were raised in October 1995 through the issue
of $300 million principal amount of 9 5/8% Senior Debentures due 2006 and $1,536
million principal amount at maturity of 11% Senior Discount Debentures due 2007.
The aggregate cost of the currency hedge arrangements associated with the
debentures was (pound)88 million.
Cash and deposit balances at 30 September 1996 were (pound)100.2 million.
Telewest currently expects its funding requirements to complete substantially
the construction of the owned and operated network, to fund the company's
operations, to upgrade older portions of the network, and to pay interest on its
debt to be approximately (pound)1 billion. Telewest expects such funding to be
provided by the Senior Secured Facility for (pound)1.2 billion but there can be
no assurance that Telewest will not elect to use alternative funding sources or
that Telewest's current anticipated funding requirements will be in line with
expectations. Telewest is continually evaluating investment opportunities as the
market for cable services in the UK develops and such opportunities may require
additional funding.
*CHURN
Until the first quarter of 1996, Telewest had calculated churn by including in
the total of those who disconnect within the period those who move premises and
reconnect elsewhere. Whilst this has had no effect on the calculation of
penetration, which is based on period end figures, it has meant that the churn
figures have been overstated. In common with other companies within the UK cable
industry, Telewest has moved to stating its churn figures excluding those
customers who transfer (customers who move their cable television/ residential
telephony service from one premise to another within a Telewest franchise).
Unfortunately it is not possible to rebase the figures for 1995 on the same
basis and so no comparatives are given in the Operating Highlights.
For the purposes of comparison, the 1996 and 1995 figures calculated on the old
basis (i.e. including in churn those who transfer their services and therefore
remain customers) are as follows. For cable television, the rolling twelve month
churn has decreased to 39.5% in Q3 96 from 46.0% in Q3 95 (43.6% excluding SBCC)
and for residential telephony the rolling twelve month churn rate has increased
to 23.9% in Q3 96 from 21.4% in Q3 95 (21.4% excluding SBCC).
The following is included in connection with new legislation recently introduced
in the United States of America. Safe Harbour Statement under the US Private
Securities Litigation Reform Act of 1995. The foregoing includes certain forward
looking statements that involve various risks and uncertainties which could lead
to actual results significantly different than those anticipated by Telewest.
4
<PAGE>
[THIS PAGE LEFT INTENTIONALLY BLANK]
5
<PAGE>
<TABLE>
<CAPTION>
TELEWEST COMMUNICATIONS PLC
OPERATING STATISTICS - OWNED AND OPERATED
3RD QUARTER NET ADDITIONS
ACTUAL* ACTUAL* PRO FORMA* PRO FORMA*
NET ADDITIONS NET ADDITIONS NET ADDITIONS NET ADDITIONS NET ADDITIONS NET ADDITIONS
Q3 1996 YEAR TO DATE 1996 Q3 1995 YEAR TO DATE 1995 Q3 1995 YEAR TO DATE 1995
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CABLE TELEVISION
- ----------------
HOMES MARKETED 142,653 332,818 83,728 252,259 138,610 387,881
CATV CUSTOMERS 32,495 57,036 20,621 47,543 33,490 62,825
RESIDENTIAL TELEPHONY
- ---------------------
HOMES MARKETED 173,624 408,306 101,848 293,575 179,219 482,983
RESIDENTIAL TELEPHONY CUSTOMERS 53,428 122,669 26,226 74,009 42,455 129,174
RESIDENTIAL TELEPHONY LINES 55,704 126,566 27,275 75,322 43,504 130,487
BUSINESS TELEPHONY
- ------------------
BUSINESS TELEPHONY CUSTOMERS 1,632 4,772 1,110 2,935 1,465 4,418
BUSINESS TELEPHONY LINES 7,834 19,685 3,691 9,607 5,219 13,541
<CAPTION>
ACTUAL* PRO FORMA*
AS AT 30 SEPTEMBER AS AT 30 SEPTEMBER AS AT 30 SEPTEMBER
1996 1995 1995
-----------------------------------------------------------------------------
<S> <C> <C> <C>
CABLE TELEVISION
- ----------------
HOMES MARKETED 2,164,276 1,057,734 1,686,884
CATV CUSTOMERS 458,505 226,639 358,850
CATV PENETRATION 21.2% 21.4% 21.3%
QUARTERLY CHURN RATE (ANNUALISED)** 35.6% 40.6% 38.3%
ROLLING 12 MONTH CHURN RATE** 36.2% 43.6% 46.0%
RESIDENTIAL TELEPHONY
- ---------------------
HOMES MARKETED 2,060,910 874,283 1,471,036
RESIDENTIAL TELEPHONY CUSTOMERS 552,074 202,158 366,892
RESIDENTIAL TELEPHONY PENETRATION 26.8% 23.1% 24.9%
RESIDENTIAL TELEPHONY LINES 557,482 203,852 368,586
QUARTERLY CHURN RATE PER LINE (ANNUALISED) ** 19.1% 23.4% 23.7%
ROLLING 12 MONTH CHURN RATE** 20.0% 21.4% 21.4%
BUSINESS TELEPHONY
- ------------------
BUSINESS TELEPHONY CUSTOMERS 18,997 8,018 12,425
BUSINESS TELEPHONY LINES 59,706 25,168 33,592
AVERAGE NUMBER OF LINES PER CUSTOMER 3.1 3.1 2.7
QUARTERLY CHURN RATE PER LINE (ANNUALISED)** 14.4% 9.7% 9.7%
ROLLING 12 MONTH CHURN RATE** 13.5% 12.3% 14.0%
<FN>
Notes: * Actual refers to comparative figures for the Group as constituted
during the first nine months of 1995 (excluding the results of
the former SBCC franchises). Pro forma refers to comparative
figures for the Group during the first nine months of 1995
including the results of the former SBCC franchises.
** The calculation of the quarterly churn rate and the rolling
twelve month churn rate at 30 September 1996 has been modified
from the calculation at 30 September 1995 to exclude the effect
of transfers (those people who move premises and take their cable
television and residential telephony service with them). The
effect of this is to reduce the rates from 39.3% and 39.5% for
cable television and from 25.0% and 23.9% for residential
telephony, respectively.
</FN>
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
TELEWEST COMMUNICATIONS PLC
OPERATING STATISTICS - OWNED AND OPERATED AND AFFILIATED FRANCHISES ** ON AN EQUITY BASIS
3RD QUARTER NET ADDITIONS
ACTUAL* ACTUAL* PRO FORMA* PRO FORMA*
NET ADDITIONS NET ADDITIONS NET ADDITIONS NET ADDITIONS NET ADDITIONS NET ADDITIONS
Q3 1996 YEAR TO DATE 1996 Q3 1995 YEAR TO DATE 1995 Q3 1995 YEAR TO DATE 1995
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CABLE TELEVISION
- ----------------
HOMES MARKETED 165,026 374,164 109,144 302,478 164,026 438,100
CATV CUSTOMERS 35,924 65,531 23,327 53,425 36,196 68,707
RESIDENTIAL TELEPHONY
- ---------------------
HOMES MARKETED 196,774 451,999 128,060 364,564 207,180 539,327
RESIDENTIAL TELEPHONY CUSTOMERS 57,228 134,243 29,727 84,292 45,956 139,457
RESIDENTIAL TELEPHONY LINES 59,648 138,486 30,818 85,638 47,047 140,803
BUSINESS TELEPHONY
- ------------------
BUSINESS TELEPHONY CUSTOMERS 1,819 5,251 1,226 3,251 1,581 4,734
BUSINESS TELEPHONY LINES 8,601 22,022 4,186 11,164 5,714 15,098
<CAPTION>
ACTUAL* PRO FORMA*
AS AT 30 SEPTEMBER AS AT 30 SEPTEMBER AS AT 30 SEPTEMBER
1996 1995 1995
------------------------------------------------------------------------------------
<S> <C> <C> <C>
CABLE TELEVISION
- ----------------
HOMES MARKETED 2,440,819 1,275,346 1,904,496
CATV CUSTOMERS 523,003 277,998 410,209
RESIDENTIAL TELEPHONY
- ---------------------
HOMES MARKETED 2,334,558 1,100,645 1,682,753
RESIDENTIAL TELEPHONY CUSTOMERS 611,898 246,664 411,398
RESIDENTIAL TELEPHONY LINES 617,951 248,611 413,345
BUSINESS TELEPHONY
- ------------------
BUSINESS TELEPHONY CUSTOMERS 21,237 9,644 14,051
BUSINESS TELEPHONY LINES 69,540 32,081 40,505
AVERAGE NUMBER OF LINES PER CUSTOMER 3.3 3.3 2.9
<FN>
Notes: * Actual refers to comparative figures for the Group as constituted
during the first nine months of 1995 (excluding the results of
the former SBCC franchises). Pro forma refers to comparative
figures for the Group during the first nine months of 1995
including the results of the former SBCC franchises.
** The affiliated franchises include Telewest's interests in Cable
London plc (50% interest), Birmingham Cable Corporation Ltd
(27.47% interest) and the Cable Corporation (16.54% interest).
</FN>
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
TELEWEST COMMUNICATIONS PLC
OPERATING STATISTICS - OWNED AND OPERATED FRANCHISES
AS AT 30 SEPTEMBER 1996
LONDON SOUTH AVON NORTH EAST SCOTLAND SOUTH EAST COTSWOLDS NORTH WEST MIDLANDS TOTAL
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CABLE TELEVISION
- ----------------
HOMES MARKETED 361,738 259,787 144,325 418,306 135,599 49,226 468,895 326,400 2,164,276
CATV CUSTOMERS 76,673 49,864 28,202 83,694 34,782 11,091 103,579 70,620 458,505
CATV PENETRATION 21.2% 19.2% 19.5% 20.0% 25.7% 22.5% 22.1% 21.6% 21.2%
RESIDENTIAL TELEPHONY
- ---------------------
HOMES MARKETED 330,805 259,848 141,164 350,613 135,599 49,226 467,255 326,400 2,060,910
RESIDENTIAL TELEPHONY CUSTOMERS 57,777 67,999 43,028 83,037 39,004 13,001 141,176 107,052 552,074
RESIDENTIAL TELEPHONY PENETRATION 17.5% 26.2% 30.5% 23.7% 28.8% 26.4% 30.2% 32.8% 26.8%
RESIDENTIAL TELEPHONY LINES 59,771 68,994 43,031 84,885 39,359 13,214 141,176 107,052 557,482
BUSINESS TELEPHONY
- ------------------
BUSINESS TELEPHONY CUSTOMERS 3,854 3,516 1,134 2,604 802 377 4,584 2,126 18,997
BUSINESS TELEPHONY LINES 17,478 11,586 2,187 7,087 2,758 843 10,726 7,041 59,706
AVERAGE NUMBER OF LINES PER 4.5 3.3 1.9 2.7 3.4 2.2 2.3 3.3 3.1
CUSTOMER
</TABLE>
8
<PAGE>
TELEWEST COMMUNICATIONS PLC
UK GAAP
UNAUDITED PRO FORMA CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the nine month period ended 30 September 1996
This supplemental information is included to demonstrate the comparative effect
of including the former SBCC franchises in the results of the nine month period
ended 30 September 1995 on a pro forma basis.
<TABLE>
<CAPTION>
ACTUAL PRO FORMA ACTUAL PRO FORMA
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER
1996 1995 1996 1995
(POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
TURNOVER
Cable television 29,261 20,835 86,133 59,149
Telephony - residential 32,853 21,517 90,177 56,003
Telephony - business 8,564 5,671 23,796 14,408
Other 2,445 2,306 6,497 4,491
---------------- --------------- --------------- ---------------
73,123 50,329 206,603 134,051
OPERATING COSTS
Programming expenses (16,422) (10,885) (47,182) (29,744)
Telephony expenses (11,032) (10,886) (36,349) (25,926)
Selling, general and administrative expenses (44,158) (37,321) (128,629) (102,940)
---------------- --------------- --------------- ---------------
EARNINGS/(LOSS) BEFORE INTEREST, TAX,
DEPRECIATION, AND AMORTISATION ("EBITDA") 1,511 (8,763) (5,557) (24,559)
Depreciation and amortisation (29,433) (21,328) (84,106) (58,763)
---------------- --------------- --------------- ---------------
OPERATING LOSS (27,922) (30,091) (89,663) (83,322)
================ =============== =============== ===============
</TABLE>
9
<PAGE>
TELEWEST COMMUNICATIONS PLC
UK GAAP
Unaudited consolidated profit and loss account
for the nine month period ended 30 September 1996
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
30 SEPT. 30 SEPT 30 SEPT. 30 SEPT.
NOTE 1996 1995 1996 1995
(POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TURNOVER
Continuing operations 4 73,123 32,240 206,603 87,640
Operating costs 5 (101,045) (52,352) (296,266) (144,305)
----------------- ------------------- ----------------- ----------------
OPERATING LOSS
Continuing operations (27,922) (20,112) (89,663) (56,665)
Share of results of associated (3,958) (3,525) (11,449) (9,163)
undertakings
Other interest receivable and similar 2,900 1,432 14,540 7,533
income
Interest payable and similar charges 6 (30,143) (1,737) (90,060) (4,190)
Amounts written off interest rate swaps - (5,467) - (5,467)
----------------- ------------------- ----------------- ----------------
LOSS ON ORDINARY ACTIVITIES
BEFORE TAXATION (59,123) (29,409) (176,632) (67,952)
Tax on loss on ordinary activities (61) 5 (150) (4)
----------------- ------------------- ----------------- ----------------
LOSS ON ORDINARY ACTIVITIES
AFTER TAXATION (59,184) (29,404) (176,782) (67,956)
Minority interests (62) (5) (116) (19)
----------------- ------------------- ----------------- ----------------
LOSS FOR THE FINANCIAL PERIOD (59,246) (29,409) (176,898) (67,975)
================= =================== ================= ================
Loss per ordinary share (pence) (6.4) (3.5) (19.1) (8.0)
================= =================== ================= ================
Loss per equity share (pence) (4.2) (2.9) (12.5) (6.8)
================= =================== ================= ================
</TABLE>
The Group had no recognised gains or losses other than those reflected in the
profit and loss account.
The comparative figures for the financial year ended 31 December 1995 are not
the company's statutory accounts for that financial year. Those accounts have
been reported on by the company's auditors and delivered to the registrar of
companies. The report of the auditors was unqualified and did not contain a
statement under section 237(2) or (3) of the Companies Act 1985.
10
<PAGE>
<TABLE>
<CAPTION>
TELEWEST COMMUNICATIONS PLC
UK GAAP
Unaudited consolidated balance sheet
as at 30 September 1996
30 SEPTEMBER 31 DECEMBER
1996 1995
(POUND)'000 (POUND)'000
-----------------------------------------------
<S> <C> <C>
FIXED ASSETS
Tangible assets 1,336,207 1,063,808
Investments 178,779 191,028
-------------------- --------------------
1,514,986 1,254,836
CURRENT ASSETS
Stocks 54 40
Debtors 82,002 54,980
Cash and deposits 100,161 464,818
-------------------- --------------------
182,217 519,838
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR (181,011) (137,744)
-------------------- --------------------
NET CURRENT ASSETS 1,206 382,094
-------------------- --------------------
TOTAL ASSETS LESS CURRENT LIABILITIES 1,516,192 1,636,930
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR (860,113) (795,066)
MINORITY INTERESTS (283) (167)
-------------------- --------------------
NET ASSETS 655,796 841,697
==================== ====================
CAPITAL AND RESERVES
Called up share capital 142,363 141,603
Share premium 9,182 -
Merger reserve 537,150 556,095
Other reserves 270,237 270,237
Profit and loss account (303,136) (126,238)
-------------------- --------------------
TOTAL EQUITY SHAREHOLDERS' FUNDS 655,796 841,697
==================== ====================
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
TELEWEST COMMUNICATIONS PLC
UK GAAP
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
for the nine month period ended 30 September 1996
NINE MONTHS NINE MONTHS
ENDED ENDED
30 SEPTEMBER 30 SEPTEMBER
NOTE 1996 1995
(POUND)'000 (POUND)'000
-------------------------------------------------------
<S> <C> <C> <C>
NET CASH OUTFLOW FROM OPERATING ACTIVITIES 7 (22,478) (20,306)
---------------------- ---------------------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received 16,300 7,226
Interest paid (13,164) (2,829)
Interest element of finance lease rentals (1,668) (1,347)
---------------------- ---------------------
NET CASH INFLOW FROM RETURNS ON
INVESTMENTS AND SERVICING OF FINANCE 1,468 3,050
---------------------- ---------------------
INVESTING ACTIVITIES
Purchase of tangible fixed assets (303,756) (178,886)
Sale of tangible fixed assets 899 229
Purchase of subsidiary undertakings (14,098) -
Investment in associated undertakings and other
participating interests (6,185) (9,289)
---------------------- ---------------------
NET CASH OUTFLOW FROM INVESTING ACTIVITIES (323,140) (187,946)
---------------------- ---------------------
NET CASH OUTFLOW BEFORE FINANCING (344,150) (205,202)
---------------------- ---------------------
FINANCING
Cash paid for senior credit facility costs (17,993) -
Cash paid for debenture issue costs (686) -
Payment of share issue costs - (6,141)
Repayment of borrowings (937) -
Capital element of finance lease rental payments (1,179) (959)
---------------------- ---------------------
NET CASH OUTFLOW FROM FINANCING (20,795) (7,100)
---------------------- ---------------------
DECREASE IN CASH AND CASH EQUIVALENTS 8/9 (364,945) (212,302)
====================== =====================
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
TELEWEST COMMUNICATIONS PLC
UK GAAP
UNAUDITED RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS
for the nine month period ended 30 September 1996
NINE MONTHS NINE MONTHS
ENDED ENDED
30 SEPTEMBER 30 SEPTEMBER
1996 1995
(POUND)'000 (POUND)'000
-------------------------------------------------------------
<S> <C> <C>
OPENING EQUITY SHAREHOLDERS' FUNDS 841,697 743,716
Loss for the period (176,898) (67,975)
Issue of shares 10,671 -
Goodwill written off (19,674) -
-------------------------- -------------------------
CLOSING EQUITY SHAREHOLDERS' FUNDS 655,796 675,741
========================== =========================
</TABLE>
13
<PAGE>
TELEWEST COMMUNICATIONS PLC
Reconciliation of loss for the financial period under UK GAAP to net loss under
US GAAP for the nine month period ended 30 September 1996
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER
1996 1995 1996 1995
(POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LOSS FOR THE FINANCIAL PERIOD UNDER UK GAAP (59,246) (29,409) (176,898) (67,975)
Adjustments:
Reversal of amortisation of interest rate swaps - 502 - 1,506
Amortisation of goodwill (6,570) (525) (19,584) (1,574)
Foreign exchange loss on financial instruments (1,318) - (36,225) -
Finance charges on Senior Discount Debentures (2,149) - (7,265) -
Reduction in fair value of interest rate swaps - (3,360) - (8,609)
Amounts written off interest rate swaps - 5,467 - 5,467
Other (20) - (58) -
------------------- ------------------ ----------------- -----------------
NET LOSS UNDER US GAAP (69,303) (27,325) (240,030) (71,185)
=================== ================== ================= =================
</TABLE>
14
<PAGE>
TELEWEST COMMUNICATIONS PLC
UK GAAP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
Telewest Communications plc (the "Company") was incorporated on 20
October 1994 under the laws of England and Wales. On 2 October 1995, the
Company acquired the whole of the issued share capital of Telewest
Communications Cable Limited, then called TeleWest Communications plc,
("Old Telewest"), in exchange for the issue of fully paid up shares of
the Company pursuant to a court-approved scheme of arrangement (the
"Scheme of Arrangement") made between Old Telewest, the Company, and the
shareholders of Old Telewest. The Company thereby became the new holding
company for the Group. On 3 October 1995, the Company acquired the entire
issued share capital of SBC CableComms (UK) ("SBCC") by the issue of
fully paid up shares of the Company ("the SBCC Share Exchange
Agreement"). Prior to these transactions, the Company did not trade and
hence did not incur any income or expenditure on its own account. Full
details regarding the organisation and history of Old Telewest, the
Scheme of Arrangement, and the SBCC Share Exchange Agreement can be found
in the 1995 Annual Report.
The Group financial statements consolidate the financial statements of
the Company and its subsidiary undertakings, together with associated
undertakings to the extent of the Group's interests in those
undertakings. The principles of merger accounting have been adopted in
respect of the effective acquisition of Old Telewest. The consolidated
results are presented as if Old Telewest had been owned by the Company
throughout the comparative accounting period. The acquisition method of
accounting has been adopted in respect of all other acquisitions and
therefore the consolidated profit and loss account reflects the results
of the acquired subsidiary undertakings and the Group's share of the
results of associated undertakings for the period.
The consolidated financial statements, which are unaudited, have been
prepared on the basis of the accounting policies set out in the Group's
1995 Annual Report. The balance sheet at 31 December 1995 is derived from
the statutory accounts for 1995 which have been delivered to the
Registrar of Companies. The auditors have reported on those accounts;
their report was unqualified and did not contain a statement under
section 237(2) or (3) of the Companies Act 1985.
2. ACCOUNTING POLICIES - FINANCIAL INSTRUMENTS
The Group uses foreign currency options which permit, but do not require,
the Group to exchange foreign currencies at a future date with another
party at a contracted exchange rate (the "Forward Rate"). Such contracts
are used to hedge against adverse changes in foreign currency exchange
rates associated with obligations denominated in foreign currency. The
premium paid to enter into these options is included on the balance sheet
as a fixed asset investment and is amortised to the profit and loss
account over the life of the option at a constant rate to the carrying
value of the obligation it hedges. The difference between the contracted
amount to be exchanged under the option translated at the Forward Rate
and the contracted amount translated at the spot rate at the inception of
the contract is also amortised to the profit and loss account over the
life of the option at a constant rate to the carrying value of the
obligation. The carrying value of the obligation is increased for the
amortised portion of the difference.
The Group also enters into combined foreign currency and interest rate
swap contracts ("Foreign Currency Swaps") under which the Company
exchanges principal amounts of foreign currencies with another party at
an agreed exchange rate and, agrees at maturity, to re-exchange the
principal amounts at an exchange rate agreed at the outset of the
transaction. Over the term of the Foreign Currency Swaps, the Company and
the swap counterparty also exchange interest payments in different
currencies in respect of the principal amounts exchanged. Such contracts
are used to hedge against adverse changes in foreign currency exchange
rates associated with certain obligations denominated in foreign
currency. The principal element of Foreign Currency Swaps is translated
at the spot rate at the reporting date with any gain or loss on
translation recognised in the profit and loss account. Such gains and
losses are offset against gains and losses arising on the translation of
the obligations which have been hedged.
15
<PAGE>
TELEWEST COMMUNICATIONS PLC
UK GAAP
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACCOUNTING POLICIES - FINANCIAL INSTRUMENTS (CONTINUED)
The interest element of Foreign Currency Swaps is accounted for on an
accruals basis with the net interest income or expense recognised in the
profit and loss account as it is earned or payable.
3. DEPRECIATION
The estimated useful lives of certain assets within system electronics
and cable and ducting were re-assessed with effect from 1 January 1996
and have been changed from 10 years and 30 years to 8 years and 25 years,
respectively. These assets will be written off over their revised
estimated remaining lives. The change in asset lives does not have a
material effect on the current period financial statements.
4. TURNOVER
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER
1996 1995 1996 1995
(POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000
-------------------- -------------------- -------------------- ------------------
<S> <C> <C> <C> <C>
Cable television 29,261 14,281 86,133 40,154
Telephony - residential 32,853 12,173 90,177 32,378
Telephony - business 8,564 4,149 23,796 11,286
Other 2,445 1,637 6,497 3,822
-------------------- -------------------- -------------------- ------------------
73,123 32,240 206,603 87,640
==================== ==================== ==================== ==================
</TABLE>
5. OPERATING COSTS
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER
1996 1995 1996 1995
(POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000
-------------------- -------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Programming expenses 16,422 7,104 47,182 19,079
Telephony expenses 11,032 7,196 36,349 16,711
Selling, general and
administrative 44,158 24,371 128,629 70,571
Depreciation and amortisation 29,433 13,681 84,106 37,944
-------------------- -------------------- -------------------- ===================
101,045 52,352 296,266 144,305
==================== ==================== ==================== ===================
</TABLE>
16
<PAGE>
TELEWEST COMMUNICATIONS PLC
UK GAAP
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INTEREST PAYABLE AND SIMILAR CHARGES
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER
1996 1995 1996 1995
(POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000
-------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
On bank loans and overdrafts
and other loans wholly repayable
within 5 years 383 1,171 1,642 2,840
Prior loan arrangement fee
written off - - 4,067 -
Finance costs of Senior Discount
Debentures 15,475 - 44,564 -
Finance costs of Senior
Debentures 5,541 - 16,819 -
Finance charges payable in
respect of finance leases and
hire purchase contracts 1,054 563 2,517 1,347
Exchange losses on foreign
currency translation, net 6,257 - 19,018 -
Other, net 1,433 3 1,433 3
-------------------- -------------------- ------------------- -------------------
30,143 1,737 90,060 4,190
==================== ==================== =================== ===================
</TABLE>
The accounting treatment of the hedging instruments associated with the
Senior Discount Debentures and the Senior Debentures is described in note
2 to the unaudited consolidated financial statements.
7. RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATING
ACTIVITIES
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
30 SEPTEMBER 30 SEPTEMBER
1996 1995
(POUND)'000 (POUND)'000
----------------------- ----------------------
<S> <C> <C>
Operating loss (89,663) (56,665)
Depreciation and amortisation 84,106 37,944
Increase in stocks (14) (12)
Increase in debtors (13,937) (6,201)
(Decrease)/increase in other creditors (2,970) 4,628
----------------------- ----------------------
NET CASH OUTFLOW FROM OPERATING ACTIVITIES (22,478) (20,306)
======================= ======================
</TABLE>
17
<PAGE>
TELEWEST COMMUNICATIONS PLC
UK GAAP
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. ANALYSIS OF CHANGES IN CASH AND CASH EQUIVALENTS FOR THE NINE MONTHS TO 30
SEPTEMBER 1996
<TABLE>
<CAPTION>
CASH
(POUND)'000
-----------------
<S> <C>
Balance at 1 January 1996 464,818
Net cash outflow before foreign exchange (364,945)
Foreign exchange movement on cash 288
-----------------
Balance at 30 September 1996 100,161
=================
</TABLE>
9. ANALYSIS OF CHANGES IN CASH AND CASH EQUIVALENTS FOR THE NINE MONTHS TO 30
SEPTEMBER 1995
<TABLE>
<CAPTION>
CASH OVERDRAFT NET
(POUND)'000 (POUND)'000 (POUND)'000
-------------------- ------------------ ----------------
<S> <C> <C> <C>
Balance at 1 January 1995 248,002 - 248,002
Net cash outflow (212,183) (119) (212,302)
-------------------- ------------------ ----------------
Balance at 30 September 1995 35,819 (119) 35,700
==================== ================== ================
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
The Company is party to various legal proceedings in the ordinary course
of business which it does not believe will result, in aggregate, in a
material adverse effect on its financial condition.
11. BANK FINANCING
A subsidiary of the Company is party to a senior secured credit facility
which is available for future drawdowns. The facility is available to
finance the capital expenditure, working capital requirements, and other
permitted related activities involving the construction and operation of
all the Company's owned and operated franchises, to pay cash interest on
the Company's unsecured debentures, to fund the repayment of existing
secured borrowing in respect of the London South and Avon Regional
Franchise Areas, to fund loans to or investments in Affiliated Companies,
to bid for or purchase, and subsequently construct, licences or
franchises which may become available and to refinance advances and the
payment of interest, fees and expenses in respect of the senior secured
credit facility.
The facility is divided into two tranches: the first portion (Tranche A)
is available on a revolving basis for up to (pound)300 million, reducing
to (pound)100 million by 30 June 1998 with full repayment by 31 December
1998; the second portion (Tranche B) is available on a revolving basis
concurrently with Tranche A for an amount up to 6.5 times the trailing,
rolling six month annualised consolidated net operating cash flow,
gradually reducing throughout the period of the facility to 4 times by 1
January 2000. Thereafter, the amount outstanding under the facility
converts to a term loan amortising over 5 years. The aggregate drawing at
any time under both tranches cannot exceed (pound)1.2 billion.
18
<PAGE>
TELEWEST COMMUNICATIONS PLC
UK GAAP
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. BANK FINANCING (CONTINUED)
Borrowings under the facility are secured by the assets of the Company,
including the partnership interests and shares of subsidiaries, and bear
interest at 2.25% above LIBOR for Tranche A and between 0.5% and 1.875%
above LIBOR (depending on the ratio of borrowings to the trailing,
rolling six month annualised consolidated net operating cash flow) for
Tranche B. The Company's ability to borrow under the facility is subject
to, among other things, its compliance with the financial and other
covenants and borrowing conditions contained therein.
In September 1996, the Company entered into certain delayed starting
interest rate swap agreements in order to manage interest rate risk on
the Senior Secured Facility. The effective dates of the interest rate
swap agreements are 2 January 1997 and 31 March 1997 and the agreements
mature on 31 December 2001 and 28 March 2002. The aggregate notional
principal amount of the swaps adjusts upward on a semi-annual basis to a
maximum of (pound)750 million. In accordance with the swap agreements,
the Company receives interest at the six month LIBOR and pays a fixed
interest rate in the range of 7.835% - 7.975%.
19
<PAGE>
<TABLE>
<CAPTION>
TELEWEST COMMUNICATIONS PLC
US GAAP
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------------------
3 MONTHS 3 MONTHS 3 MONTHS 9 MONTHS 9 MONTHS 9 MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1995 1996 1996 1995
(NOTE 1) (NOTE 1)
<S> <C> <C> <C> <C> <C> <C>
REVENUE
Cable television $ 45,802 (pound) 29,261 (pound) 14,281 $ 134,824 (pound) 86,133 (pound) 40,154
Telephony - residential 51,425 32,853 12,173 141,154 90,177 32,378
Telephony - business 13,405 8,564 4,149 37,248 23,796 11,286
Other ((pound)1,201 and
(pound)1,053 in 1996 and
1995 from related parties) 3,827 2,445 1,637 10,170 6,497 3,822
-------------- -------------- -------------- -------------- -------------- --------------
114,459 73,123 32,240 323,396 206,603 87,640
------------- -------------- -------------- -------------- -------------- --------------
OPERATING COSTS AND EXPENSES
Programming (25,705) (16,422) (7,104) (73,854) (47,182) (19,079)
Telephony (17,268) (11,032) (7,196) (56,897) (36,349) (16,711)
Selling, general, and
administrative (including
(pound)4,058 and (pound)1,558
in 1996 and 1995
from related parties) (69,152) (44,178) (24,371) (201,434) (128,687) (70,571)
Depreciation (46,072) (29,433) (13,179) (131,651) (84,106) (36,438)
Amortization of goodwill (10,284) (6,570) (525) (30,655) (19,584) (1,574)
-------------- -------------- -------------- -------------- -------------- --------------
(168,481) (107,635) (52,375) (494,491) (315,908) (144,373)
-------------- -------------- -------------- -------------- -------------- --------------
OPERATING LOSS (54,022) (34,512) (20,135) (171,095) (109,305) (56,733)
OTHER INCOME/(EXPENSE)
Interest income((pound)1,255 and
(pound)1,123 in 1996 and 1995
from related parties) 4,568 2,918 1,431 22,540 14,400 7,496
Interest expense and
similar charges (40,753) (26,035) (1,734) (122,573) (78,307) (4,187)
Unrealized loss on interest
rate swaps - - (3,360) - - (8,609)
Foreign exchange losses, net (11,857) (7,575) - (86,472) (55,243) -
Share of net losses of
affiliates (6,195) (3,958) (3,525) (17,921) (11,449) (9,163)
Gain on disposal of assets (28) (18) 1 219 140 37
Minority interests in
profits of consolidated
subsidiaries, net (97) (62) (5) (182) (116) (19)
Other, net - - (3) - - (3)
-------------- -------------- -------------- -------------- -------------- --------------
LOSS BEFORE INCOME TAXES (108,384) (69,242) (27,330) (375,484) (239,880) (71,181)
Income tax expense (95) (61) 5 (235) (150) (4)
-------------- -------------- -------------- -------------- -------------- --------------
NET LOSS $ (108,479) (pound)(69,303) (pound)(27,325) $ (375,719)(pound)(240,030) (pound)(71,185)
============== ============== ============== ============== ============== ==============
LOSS PER ORDINARY SHARE
(DOLLARS/POUND) (NOTE 5) $ (0.12) (pound) (0.07) (pound) (0.03) $ (0.41) (pound) (0.26) (pound) (0.08)
============== ============== ============== ============== ============== ==============
</TABLE>
See accompanying notes to the unaudited condensed consolidated financial
statements
20
<PAGE>
<TABLE>
<CAPTION>
TELEWEST COMMUNICATIONS PLC
US GAAP
UNAUDITED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1995
(NOTE 1)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 156,782 (pound) 100,161 (pound) 464,818
Trade receivables (net of allowance for doubtful accounts of
(pound)5,465 and (pound)4,695) 48,679 31,099 23,123
Other receivables 46,447 29,673 25,657
Prepaid expenses 5,009 3,200 6,133
Investments in affiliates, accounted for under the equity
method, and related receivables 116,181 74,223 80,703
Other investments, at cost 40,175 25,666 20,666
Property and equipment (less accumulated depreciation of
(pound)268,058 and(pound)182,142) 2,091,565 1,336,207 1,063,808
Goodwill (less accumulated amortization of
(pound)31,342 and(pound)11,758) 776,343 495,971 495,881
Other assets (less accumulated amortization of
(pound)3,098 and(pound)742) 108,202 69,125 108,931
-------------- ---------------- --------------
TOTAL ASSETS $ 3,389,383 (pound)2,165,325 (pound)2,289,720
============== ================ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 59,945 (pound) 38,296 (pound) 40,402
Other liabilities 240,149 153,421 103,824
Debt 1,306,218 834,484 792,265
Capital lease obligations 70,606 45,107 30,314
-------------- ---------------- --------------
TOTAL LIABILITIES 1,676,918 1,071,308 966,805
-------------- ---------------- --------------
Minority interests 443 283 167
-------------- ---------------- --------------
Shareholders' equity
Convertible preference shares, 10 pence par value;
661,000,000 shares authorised in 1996 and 1995;
496,066,708 shares issued and outstanding in 1996 and 1995 77,650 49,607 49,607
Ordinary shares, 10 pence par value;
2,010,000,000 shares authorised in 1996 and 1995;
927,563,971 and 919,963,400 shares issued and outstanding
in 1996 and 1995, respectively 145,191 92,756 91,996
Additional paid-in capital 2,086,360 1,332,882 1,322,971
Accumulated deficit (594,418) (379,747) (139,717)
-------------- ---------------- --------------
1,714,783 1,095,498 1,324,857
Ordinary shares held in trust for the Telewest Restricted Share
Scheme (2,761) (1,764) (2,109)
-------------- ---------------- --------------
TOTAL SHAREHOLDERS' EQUITY 1,712,022 1,093,734 1,322,748
-------------- ---------------- --------------
Commitments and contingencies (note 6)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,389,383 (pound)2,165,325 (pound)2,289,720
============== ================ ==============
</TABLE>
See accompanying notes to the unaudited condensed consolidated financial
statements
21
<PAGE>
<TABLE>
<CAPTION>
TELEWEST COMMUNICATIONS PLC
US GAAP
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
9 MONTHS 9 MONTHS 9 MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1995
(NOTE 1)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (375,719)(pound)(240,030) (pound)(71,185)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 131,651 84,106 36,438
Amortization of goodwill 30,655 19,584 1,574
Amortization of deferred financing costs and issue
discount on senior discount debentures 88,264 56,388 -
Unrealized loss on foreign currency translation 86,472 55,243 -
Unrealized loss on interest rate swap - - 8,609
Share of losses of affiliates 17,921 11,449 9,163
Gain on disposals of assets (219) (140) (37)
Minority interests in profits 182 116 19
Changes in operating assets and liabilities,
net of effect of acquisition of
subsidiaries:
Change in receivables (23,440) (14,975) (4,352)
Change in prepaid expenses 4,571 2,920 (2,132)
Change in accounts payable (16,879) (10,783) (6,621)
Change in other liabilities 23,654 15,112 11,387
------------------ -------------- ----------------
NET CASH USED IN OPERATING ACTIVITIES (32,887) (21,010) (17,137)
------------------ -------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for property and equipment (475,469) (303,756) (178,886)
Cash paid for acquisition of subsidiaries (22,068) (14,098) -
Additional investments in and loans to affiliates (1,855) (1,185) -
Additions to other investments (7,827) (5,000) (9,289)
Proceeds from disposals of assets 1,407 899 229
------------------ -------------- ----------------
NET CASH USED IN INVESTING ACTIVITIES (505,812) (323,140) (187,946)
------------------ -------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash paid for credit facility arrangement costs (28,164) (17,993) -
Cash paid for debenture issue costs (1,074) (686) -
Repayment of borrowings (1,467) (937) -
Cash paid for share issue costs - - (6,141)
Capital element of finance lease repayments (1,845) (1,179) (959)
------------------ -------------- ----------------
NET CASH USED IN FINANCING ACTIVITIES (32,550) (20,795) (7,100)
------------------ -------------- ----------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (571,249) (364,945) (212,183)
Effect of exchange rate changes on cash and cash
equivalents 451 288 -
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 727,580 464,818 248,002
------------------ -------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 156,782 (pound) 100,161 (pound) 35,819
=================== ============== =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION :
Cash paid for interest during the period $ 23,217 (pound) 14,832 (pound) 4,176
=================== ============== =================
</TABLE>
See accompanying notes to the unaudited condensed consolidated financial
statements
22
<PAGE>
<TABLE>
<CAPTION>
TELEWEST COMMUNICATIONS PLC
US GAAP
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE SHARES ADDITIONAL
PREFERENCE ORDINARY HELD PAID-IN ACCUMULATED
SHARES SHARES IN TRUST CAPITAL DEFICIT TOTAL
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 (pound) 49,607 (pound)91,996 (pound)(2,109) (pound)1,322,971 (pound)(139,717) (POUND)1,322,748
Issue of shares - 760 - 9,911 - 10,671
Accrued employee compensation
relating to the Telewest
Restricted Share Scheme - - 345 - - 345
Net loss for the period to
September 30, 1996 - - - - (240,030) (240,030)
------------ ---------- ----------- ----------- ------------- ------------
BALANCE AT SEPTEMBER 30, 1996 (pound) 49,607 (pound)92,756 (pound)(1,764) (pound)1,332,882 (pound)(379,747) (POUND)1,093,734
============ ========== =========== =========== ============= ============
</TABLE>
See accompanying notes to the unaudited condensed consolidated financial
statements
23
<PAGE>
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
Telewest Communications plc (the "Company") was incorporated on October
20,1994 under the laws of England and Wales. On October 2, 1995, the
Company acquired the whole of the issued share capital of Telewest
Communications Cable Limited, then called TeleWest Communications plc,
("Old Telewest"), in exchange for the issue of fully paid up shares of
the Company pursuant to a court-approved scheme of arrangement (the
"Scheme of Arrangement") made between Old Telewest, the Company and the
shareholders of Old Telewest. Details regarding the organisation and
history of Old Telewest and the Scheme of Arrangement can be found in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995
filed with the Securities and Exchange Commission (the "1995 Annual
Report").
On October 3, 1995, immediately following the completion of the Scheme of
the Arrangement, the Company acquired the entire issued share capital of
SBC CableComms (UK) ("SBCC"), a company that holds cable television and
telephony interests in the United Kingdom ( "UK"), from its former
shareholders in exchange for fully paid up shares of the Company. Details
regarding the acquisition can be found in the 1995 Annual Report.
The unaudited condensed consolidated financial statements of the Company
and its majority owned subsidiaries (and, where appropriate, their
predecessor companies, collectively, the "Telewest Group") have been
prepared in accordance with the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures
normally included in annual financial statements prepared in accordance
with generally accepted accounting principles have been condensed or
omitted pursuant to those rules and regulations.
As the currency in which the Company operates is UK pounds sterling and
the economic environment in which the Company operates is the UK, the
financial statements are stated in pounds sterling ((pound)). Merely for
convenience, the financial statements contain translations of certain
pounds sterling amounts into US dollars at $1.5653 per (pound)1.00, the
Noon Buying Rate of the Federal Reserve Bank of New York on September 30,
1996.
2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS
The condensed consolidated financial statements as of and for the periods
ended September 30, 1995 and 1996 are unaudited; however, in the opinion
of the management, such statements include all adjustments (consisting
only of normal recurring accruals) necessary for a fair presentation of
the results of operations for the interim periods presented. The results
of operations for any interim period are not necessarily indicative of
the results of the full year. The unaudited condensed consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the 1995
Annual Report.
3. ACCOUNTING POLICIES - FINANCIAL INSTRUMENTS
The Company uses foreign currency option contracts which permit, but do
not require, the Company to exchange foreign currencies at a future date
with another party at a contracted exchange rate. The Company also enters
into combined foreign currency and interest rate swap contracts ("Foreign
Currency Swaps") under which the Company exchanges principal amounts of
foreign currencies with another party at an agreed exchange rate and,
agrees at maturity, to re-exchange the principal amounts at an exchange
rate agreed at the outset of the transaction. Over the term of the
Foreign Currency Swaps, the Company and the swap counterparty also
exchange interest payments in different currencies in respect of the
principal amounts exchanged. The foreign currency options and Foreign
Currency Swaps are used to hedge against adverse changes in foreign
currency exchange rates associated with certain obligations denominated
in foreign currency.
The foreign currency option and the Foreign Currency Swaps are recorded
on the balance sheet in "other assets" or "other liabilities" at their
fair value at the end of each reporting period with changes in their fair
value during the reporting period being reported as part of the foreign
exchange gain or loss in the statement of operations. Such gains and
losses are offset against foreign exchange gains and losses on the
obligations denominated in foreign currencies which have been hedged.
24
<PAGE>
TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. DEPRECIATION
The estimated useful lives of certain assets within system electronics
and cable and ducting were re-assessed with effect from January 1, 1996
and changed from 10 years and 30 years to 8 years and 25 years,
respectively. These assets will be written off over their revised
estimated remaining lives. The change in asset lives does not have a
material effect on the current period financial statements.
5. LOSS PER ORDINARY SHARE
Loss per ordinary share is based on the weighted average number of
ordinary shares outstanding for the period of 924,706,630 shares.
6. COMMITMENTS AND CONTINGENCIES
The Company is party to various legal proceedings in the ordinary course
of business which it does not believe will result, in aggregate, in a
material adverse effect on its balance sheet position and its results.
7. BANK FINANCING
A subsidiary of the Company is party to a senior secured credit facility
which is available for future drawdowns. The facility is available to
finance the capital expenditure, working capital requirements and other
permitted related activities involving the construction and operation of
all the Company's owned and operated franchises, to pay cash interest on
the Company's unsecured debentures, to fund the repayment of existing
secured borrowing in respect of the London South and Avon Regional
Franchise Areas, to fund loans to or investments in affiliated companies,
to bid for or purchase, and subsequently construct, licences or
franchises which may become available and to refinance advances and the
payment of interest, fees and expenses in respect of the senior secured
credit facility.
The facility is divided into two tranches: the first portion (Tranche A)
is available on a revolving basis for up to (pound)300 million, reducing
to (pound)100 million by June 30, 1998 with full repayment by December
31, 1998; the second portion (Tranche B) is available on a revolving
basis concurrently with Tranche A for an amount up to 6.5 times the
trailing, rolling six month annualised consolidated net operating cash
flow, gradually reducing throughout the period of the facility to 4 times
by January 1, 2000. Thereafter, the amount outstanding under the facility
converts to a term loan amortising over 5 years. The aggregate drawing at
any time under both tranches cannot exceed (pound)1.2 billion. Borrowings
under the facility are secured by the assets of the Company, including
the partnership interests and shares of subsidiaries, and bear interest
at 2.25% above LIBOR for Tranche A and between 0.5% and 1.875% above
LIBOR (depending on the ratio of borrowings to the trailing, rolling six
month annualized consolidated net operating cash flow) for Tranche B. The
Company's ability to borrow under the facility is subject to, among other
things, its compliance with the financial and other covenants and
borrowing conditions contained therein.
In September 1996, the Company entered into certain delayed starting
interest rate swap agreements in order to manage interest rate risk on
the Senior Secured Facility. The effective dates of the interest rate
swap agreements are January 2 1997 and March 3 1997 and the agreements
mature on December 31 2001 and March 28 2002. The aggregate notional
principal amount of the swaps adjusts upward on a semi-annual basis to a
maximum of (pound)750 million. In accordance with the swap agreements,
the Company receives interest at the six month LIBOR and pays a fixed
interest rate in the range of 7.835% - 7.975%.
28
