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 March 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number 0-26840
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 May 12, 1997, 927,567,600 ordinary shares of 10p each were outstanding.
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PART 1 ------ FINANCIAL INFORMATION
ITEM 1 ------ FINANCIAL STATEMENTS
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TELEWEST COMMUNICATIONS PLC
US GAAP
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
- ------------------------------------------------------------------------------------------------------------------------------------
3 months 3 months 3 months
ended ended ended
March 31, March 31, March 31,
1997 1997 1996
(note 1)
<S> <C> <C> <C>
REVENUE
Cable television $ 62,669 (pound) 38,101 (pound) 28,073
Telephony - residential 65,256 39,674 27,975
Telephony - business 15,275 9,287 7,178
Other ((pound)377 and(pound)407 in 1997 and 1996,
respectively, from related parties) 5,474 3,328 1,934
----------- ----------- ----------
148,674 90,390 65,160
----------- ----------- ----------
OPERATING COSTS AND EXPENSES
Programming (38,156) (23,198) (15,294)
Telephony (23,651) (14,379) (12,233)
Selling, general, and administrative (including
(pound)341 and (pound)710 in 1997
and 1996, respectively, to related parties) (74,886) (45,529) (41,381)
Depreciation (61,608) (37,456) (26,064)
Amortization of goodwill (10,846) (6,594) (6,445)
----------- ----------- ----------
(209,147) (127,156) (101,417)
----------- ----------- ----------
OPERATING LOSS (60,473) (36,766) (36,257)
OTHER INCOME/(EXPENSE)
Interest income((pound)415 and(pound)432 in 1997 and 1996, respectively,
from related parties) 3,885 2,362 6,816
Interest expense (49,860) (30,314) (23,986)
Foreign exchange losses, net (39,684) (24,127) (16,666)
Share of net losses of affiliates (8,188) (4,978) (3,557)
Gain on disposal of assets 199 121 39
Minority interests in profits of consolidated subsidiaries, net (192) (117) (17)
----------- ----------- ----------
LOSS BEFORE INCOME TAXES (154,313) (93,819) (73,628)
Income tax expense (105) (64) (19)
----------- ----------- ----------
NET LOSS $ (154,418) (pound) (93,883) (pound) (73,647)
=========== =========== ==========
LOSS PER ORDINARY SHARE (DOLLARS/POUNDS) (NOTE 6) $ (0.17) (pound) (0.10) (pound) (0.08)
=========== =========== ==========
</TABLE>
See accompanying notes to the unaudited condensed consolidated financial
statements.
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TELEWEST COMMUNICATIONS PLC
US GAAP
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES)
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March 31, March 31, December 31,
1997 1997 1996
(note 1)
ASSETS
<S> <C> <C> <C>
Cash and cash equivalents $ 175,668 (pound) 106,802 (pound) 79,116
Trade receivables (net of allowance for doubtful accounts of
(pound)6,292 and(pound)5,405) 65,098 39,578 29,305
Other receivables 57,881 35,190 32,394
Prepaid expenses 8,209 4,991 5,168
Investments in affiliates, accounted for under the equity method, and
related receivables 116,738 70,974 69,420
Other investments, at cost 42,967 26,123 25,666
Property and equipment (less accumulated depreciation of
(pound)347,693 and(pound)308,240) 2,500,634 1,520,327 1,447,194
Goodwill (less accumulated amortization of(pound)44,501 and(pound)37,907) 797,228 484,696 491,290
Other assets (less accumulated amortization of(pound)5,362 and(pound)4,162) 102,307 62,200 62,387
------------ ----------- -------------
TOTAL ASSETS $ 3,866,730 (pound) 2,350,881 (pound) 2,241,940
============ =========== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 59,404 (pound) 36,116 (pound) 46,855
Other liabilities 330,026 200,648 190,200
Debt 1,773,336 1,078,147 879,351
Capital lease obligations 95,780 58,232 54,390
------------ ----------- -------------
TOTAL LIABILITIES 2,258,546 1,373,143 1,170,796
------------ ----------- -------------
Minority interests 763 464 347
------------ ----------- -------------
SHAREHOLDERS' EQUITY
Convertible preference shares, 10 pence par value;
661,000,000 shares authorized, and
496,066,708 shares issued and outstanding 81,594 49,607 49,607
Ordinary shares, 10 pence par value;
2,010,000,000 shares authorized, and
927,567,600 shares issued and outstanding 152,567 92,757 92,757
Additional paid-in capital 2,192,333 1,332,887 1,332,887
Accumulated deficit (815,806) (495,991) (402,108)
------------ ----------- -------------
1,610,688 979,260 1,073,143
Ordinary shares held in trust for the Telewest Restricted Share Scheme (3,267) (1,986) (2,346)
------------ ----------- -------------
TOTAL SHAREHOLDERS' EQUITY 1,607,421 977,274 1,070,797
------------ ----------- -------------
Commitments and contingencies (note 7)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,866,730 (pound) 2,350,881 (pound) 2,241,940
============ =========== =============
</TABLE>
See accompanying notes to the unaudited condensed consolidated financial
statements.
2
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TELEWEST COMMUNICATIONS PLC
US GAAP
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
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Three months Three months Three months
ended ended ended
March 31, March 31, March 31,
1997 1997 1996
(note 1)
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (154,419) (pound) (93,883) (pound) (73,647)
Adjustments to reconcile net loss to net cash
(used in)/provided by operating activities:
Depreciation 61,608 37,456 26,064
Amortization of goodwill 10,846 6,594 6,445
Amortization of deferred financing costs and issue
discount on senior discount debentures 30,060 18,276 16,899
Unrealized loss on foreign currency translation 39,136 23,794 16,666
Share of losses of affiliates 8,188 4,978 3,557
Gain on disposals of assets (199) (121) (39)
Minority interests in profits 192 117 17
Changes in operating assets and liabilities, net of effect of
acquisition of subsidiaries:
Change in receivables (19,002) (11,553) (5,812)
Change in prepaid expenses 275 167 (237)
Change in accounts payable (24,728) (15,034) (6,406)
Change in other liabilities 13,119 7,976 19,718
------------- ------------ -------------
NET CASH (USED IN)/PROVIDED BY OPERATING ACTIVITIES (34,924) (21,233) 3,225
------------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for property and equipment (152,340) (92,619) (74,714)
Cash paid for acquisition of subsidiaries - - (14,098)
Additional investments in and loans to affiliates (13,989) (8,505) -
Proceeds from disposals of assets 1,643 999 559
------------- ------------ -------------
NET CASH USED IN INVESTING ACTIVITIES (164,686) (100,125) (88,253)
------------- ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 246,720 150,000 -
Cash paid for debenture issue costs - - (549)
Capital element of finance lease repayments (1,678) (1,020) (618)
------------- ------------ -------------
NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES 245,042 148,980 (1,167)
------------- ------------ -------------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 45,432 27,622 (86,195)
Effect of exchange rate changes on cash and 105 64 877
cash equivalents
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 130,130 79,116 464,818
------------- ------------ -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 175,667 (pound) 106,802 (pound) 379,500
============= ============ =============
</TABLE>
See accompanying notes to the unaudited condensed consolidated financial
statements.
3
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TELEWEST COMMUNICATIONS PLC
US GAAP
UNAUDITED CONDENSED 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, 1996 (pound) 49,607 (pound)92,757 (pound)(2,346) (pound)1,332,887 (pound)(402,108) (POUND)1,070,797
Accrued employee compensation
relating to the Telewest
Restricted Share Scheme - - 360 - - 360
Net loss for the period to
March 31, 1997 - - - - (93,883) (93,883)
--------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1997 (pound) 49,607 (pound)92,757 (pound)(1,986) (pound)1,332,887 (pound)(495,991) (POUND) 977,274
============================================================================================
</TABLE>
See accompanying notes to the unaudited condensed consolidated financial
statements.
4
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TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
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.
The economic environment in which the Company operates is the United
Kingdom ("UK") and hence its reporting currency is Pounds Sterling
("(pound)"). Merely for convenience, the financial statements contain
translations of certain pounds sterling amounts into US dollars at $1.6448
per (pound)1.00, the Noon Buying Rate of the Federal Reserve Bank of New
York on March 31, 1997. The presentation of the US Dollar amounts should
not be construed as a representation that the Pounds Sterling amounts
could be so converted into US Dollars at the rate indicated or at any
other rate.
2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS
The condensed consolidated financial statements as of and for the periods
ended March 31, 1996 and 1997 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 Company's Annual
Report on Form 10-K for the year ended December 31, 1996 filed with the
Securities and Exchange Commission (the "1996 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"). Such contracts 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 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.
Interest rate swap agreements which are used to manage interest rate risk
on the Company's borrowings are accounted for using the accruals method.
Net income or expense resulting from the differential between exchanging
floating and fixed rate interest payments is recorded on an accruals
basis.
5
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TELEWEST COMMUNICATIONS PLC
US GAAP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. DEPRECIATION
The Company regularly reviews the estimated useful lives of its property
and equipment. In 1996, the estimated useful lives of cable and ducting
and system electronics assets were reassessed and, with effect from
January 1, 1996, were changed from 25-30 years and 10 years to 20 years
and 8 years, respectively. The net book value of these assets is being
written-off over their revised estimated remaining lives.
The impact of the change in estimated useful lives of these assets for the
year ended 31 December 1996 was to increase the depreciation charge for
the year from (pound)110,233,000 to (pound)129,716,000. A large proportion
of this increase in the depreciation charge was accounted for in the
fourth quarter 1996, however, had the change been accounted for with
effect from the beginning of the first quarter 1996, depreciation expense
for the first quarter would have increased by (pound)2,100,000.
5. CAPITALIZATION OF LABOR AND OVERHEADS
The Company regularly reviews the estimates used in calculating the
capitalizable labor and overhead costs which relate to the construction of
its cable network. In 1996, the Company revised these estimates and the
impact of this revision was to increase the capitalization of labor and
overhead costs during the year from (pound)38,812,000 to
(pound)54,019,000. The impact of the revision was accounted for entirely
in the fourth quarter of 1996, however, had the revision been accounted
for with effect from the first quarter 1996, selling, general, and
administrative expenses for the first quarter would have decreased by
(pound)3,400,000.
6. LOSS PER ORDINARY SHARE
Loss per ordinary share is based on the weighted average number of
ordinary shares outstanding of 927,567,600 and 919,963,400 for the three
month periods ended March 31, 1997 and 1996, respectively.
7. 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.
6
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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 financial review contained in
the 1996 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 others 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
Birmingham Cable Corporation Limited, Cable London plc, and The Cable
Corporation Limited (together "the Affiliated Companies"), which are not
controlled by the Company.
SUMMARY OF OPERATIONS (THREE MONTH PERIODS ENDED MARCH 31, 1996 AND 1997)
The Company's consolidated revenue increased by (pound)25.2 million or 39% from
(pound)65.2 million in the first quarter 1996 to (pound)90.4 million in the
first quarter 1997 primarily due to the larger customer base created by the
Company's continuing network construction.
CABLE TELEVISION REVENUE
Cable television revenue increased by 36% from (pound)28.1 million in the first
quarter ended 1996 to (pound)38.1 million in the first quarter 1997. The
increase was primarily attributable to a 32% increase (from 404,403 to 533,648)
in the average number of customers in the first quarter 1997 compared to the
corresponding period in 1996. The increase in the average number of customers
results from primarily an increase in the number of homes passed and marketed
from 1,905,593 at March 31, 1996 to 2,439,377 at March 31, 1997.
Penetration decreased slightly from 22.6% as at December 31, 1996 to 22.2% as at
March 31, 1997 and from 21.9% as at December 31, 1995 to 21.6% as at March 31,
1996. Churn decreased from 38.7% in the first quarter 1996 to 34.3% in the first
quarter 1997 and from 38.0% in the twelve-month period ended March 31, 1996 to
32.6% in the twelve month period ended March 31, 1997.
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. For the purposes of
comparison, the churn rates above for the period ended March 31, 1996 have been
restated to exclude transfers.
Average monthly revenue per cable television customer increased by 2% from
(pound)23.12 in the first quarter 1996 to (pound)23.57 in the first quarter 1997
primarily due to a decrease in the first quarter 1997 in promotional discounts
offered by the Company.
7
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TELEPHONY REVENUE
Telephony revenue increased by 39% from (pound)35.2 million in the first quarter
1996 to (pound)49.0 million in the first quarter 1997.
Residential telephony revenue increased by 42% from (pound)28.0 million in the
first quarter 1996 to (pound)39.7 million in the first quarter 1997. Business
telephony revenue increased by 29% from (pound)7.2 million in the first quarter
1996 to (pound)9.3 million in the first quarter 1997.
The increase in residential telephony revenue in the first quarter 1997 compared
to the first quarter 1996 was primarily due to a 45% increase (from 448,285 to
651,035) in the average number of residential lines, which was partially offset
by a 2% decrease in the average monthly revenue per residential line from
(pound)20.78 in the first quarter 1996 to (pound)20.31 in the first quarter
1997. The increase in the average number of residential lines results from
primarily an increase in the number of homes passed and marketed (from 1,742,632
at March 31, 1996 to 2,377,511 at March 31, 1997) and from increased
penetration. The decrease in the average monthly revenue per line was mainly
attributable to price 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 expects the
revenue impact of these reductions to be mitigated through higher line rentals,
increased call volumes, and sales of value added services such as call waiting
and voice messaging.
Residential telephony penetration increased from 27.5% at December 31, 1996 to
28.2% at March 31, 1997 and from 26.0% at December 31, 1995 to 26.7% at March
31, 1996. Churn per line decreased from 20.7% in the first quarter 1996 to 19.8%
in the first quarter 1997. Churn per line remained stable at 19.5% for both
twelve-month periods ended March 31, 1997 and March 31, 1996.
As set out above in the discussion of cable television revenue, the Company has
modified its calculation of churn to exclude from such calculation those
customers who transfer their service within an owned and operated Company
franchise. For the purposes of comparison, the churn rates above for the period
ended March 31, 1996 have been restated to exclude transfers.
The increase in business telephony revenue in the first quarter 1997 compared to
the first quarter 1996 was attributable to a 66% increase (from 42,575 to
70,871) in the average number of business telephony lines, which was partially
offset by a 22% decrease (from (pound)56.16 to (pound)43.68) in the average
monthly revenue per business line. The increase in the average number of
business telephony lines was attributable to a 27% increase in the number of
business premises passed and marketed (from 84,252 at March 31, 1996 to 107,491
at March 31, 1997) and to an increased focus on marketing services to larger
businesses which generally purchase more lines. The decrease in the average
monthly revenue per line was mainly attributable to price reductions in per
minute call charges and increased sales of Centrex, a new business
telecommunications product which provides more lines to customers but which has
a lower average monthly revenue per line.
Other revenue increased by 72% from (pound)1.9 million in the first quarter 1996
to (pound)3.3 million in the first quarter 1997, and is derived primarily from
management services provided to Affiliated Companies, internet sales, 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 (which include direct
costs of programming and interconnection; selling, general and administrative
expenses; depreciation expense and amortization expense) increased by 25% from
(pound)101.4 million in the first quarter 1996 to (pound)127.2 million in the
first quarter 1997.
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
54% in the first quarter 1996 to 61% in the first quarter 1997, principally as a
result of increases in programming costs for certain channels and an increase in
the number of channels included in the basic cable televsion package, with no
increase in the price charged to customers.
8
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Interconnection charges are the largest component of the Company's telephony
operating costs in providing telephony services. As a percentage of telephony
revenue, telephony operating costs decreased from 35% in the first quarter 1996
to 29% in the first quarter ended 1997 as line rental income, which incurs no
third party cost, represented a larger proportion of total average revenue per
line in 1997 than in 1996. Interconnection charges in 1997 also were reduced by
the continuing reduction in interconnection charges by BT and by credits
relating to interconnection charges of earlier periods which have been
calculated based on revised estimates of prevailing interconnection charges in
the UK.
Selling, general and administrative expenses, which include, among other items,
salary and marketing costs, decreased as a percentage of revenue from 64% in the
first quarter 1996 to 50% for the corresponding period in 1997. The decrease is
largely due to reductions in support costs as the Company benefits from the
economies of scale resulting from its enlarged operations. The remainder of the
decrease is the result of revising, with effect from January 1, 1996, the
estimates used in calculating the proportion of labor and overhead costs which
is capitalized as a network asset. The impact of the revision was accounted for
entirely in the fourth quarter 1996, however, had the revision been accounted
for with effect from the beginning of the first quarter 1996, selling, general
and administrative expenses for the first quarter 1996 would have been reduced
by approximately (pound)3.4 million. Total labor and overhead costs capitalized
in the first quarter 1997 were (pound)19.5 million compared to (pound)9.1
million in the first quarter 1996. The Company expects that its selling, general
and administrative expenses will continue to decline as a percentage of revenue
as revenues increase and the efficiency gains of its fixed cost base are
increasingly exploited.
Depreciation expense increased 44% from (pound)26.1 million in the first quarter
1996 to (pound)37.5 million in the first quarter 1997. This increase was
attributable to capital expenditure associated with the Company's continuing
construction activities and, with effect from January 1, 1996, the revision of
the estimated useful lives of cable and ducting assets from 25 years to 20
years. The effect of this revision on depreciation expense was accounted for
entirely in the fourth quarter 1996, however, had the revision been accounted
for with effect from the beginning of the first quarter 1996, depreciation
expense for the first quarter 1996 would have increased by approximately
(pound)2.1 million.
Amortization expense increased slightly from (pound)6.4 million in the first
quarter 1996 to (pound)6.6 million in the first quarter 1997.
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, increased from (pound)3.6 million in the first quarter 1996 to
(pound)5.0 million for the first quarter 1997.
Financial expenses, net, consist primarily of interest expense of (pound)30.3
million ((pound)24.0 million in the first quarter 1996) and foreign exchange
losses of (pound)24.1 million in the first quarter 1997 ((pound)16.7 million in
the first quarter 1996) offset in part by interest income earned on short-term
investments and loans to Affiliated Companies of (pound)2.4 million ((pound)6.8
million in the first quarter 1996). Interest expense increased by (pound)6.3
million in the first quarter 1997 primarily as a result of the interest expense
relating to the Senior Secured Facility (as defined below) entered into in May
1996 and higher accrued interest expense on the Senior Discount Debentures (as
defined below) issued by the Company in October 1995. The foreign exchange
losses arise principally from the re-translation of the US Dollar denominated
debentures to Pounds Sterling using the March 31, 1997 exchange rate and marking
the associated hedging instruments to their market value at March 31, 1997. It
is the Company's policy to hedge non-Sterling denominated borrowings to reduce
or eliminate exchange rate exposure.
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
is being used to finance the capital expenditure, working capital requirements
and other permitted
9
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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 South West 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, 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 tranche, 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 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 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 Senior Secured Facility is subject to,
among other things, its compliance with the financial and other covenants and
borrowing conditions contained therein. The failure to comply with such
covenants could result, in extremis, in all such amounts outstanding under the
facility becoming due and payable. As at March 31, 1997, the Company has drawn
down (pound)150 million and (pound)100 million under Tranche A and Tranche B,
respectively.
The Company (through a directly wholly owned subsidiary) entered into certain
delayed starting interest rate swap agreements in order to manage interest rate
risk on the Senior Secured Facility. The interest rate swaps convert floating
rate interest payable on drawdowns under the facility to fixed interest rate
payments in the range of 7.835% - 7.975%. The swap agreements, which commenced
in early 1997, have a five-year maturity and a notional principal amount which
adjusts upwards on a semi-annual basis to a maximum of (pound)750 million. As at
March 31, 1997, the aggregate notional principal amount of the swaps was
(pound)200 million.
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 and commenced on April 1, 1996.
Interest on the Senior Discount Debentures will be payable semi-annually
commencing on April 1, 2001. The proceeds of the issue were used by the Company
to fund general working capital, capital expenditures, additional investments in
Affiliated Companies to repay a credit facility entered into by a directly
wholly owned subsidiary and to purchase the currency hedge arrangements
described below.
The Company's principal hedge instruments are a combined foreign currency and
interest rate swap ("Foreign Currency Swap") and a foreign currency option. The
Foreign Currency Swap fully hedges against adverse exchange rate fluctuations on
the principal amount of the Senior Debentures and the associated interest
payments. The foreign currency option provides protection against exchange rate
fluctuations on the Senior Discount Debentures below a rate of $1.452:(pound)1,
and allows the Company to benefit from positive exchange rate movements. Both
hedging instruments provide protection up to October 1, 2000, the early
redemption date of the Senior Debentures and the Senior Discount Debentures.
The Company's results may be materially influenced by future exchange rate
movements, particularly in the US GAAP financial statements, due to the
requirement that the hedge instruments are marked to their market value at the
end of the financial period and the US Dollar denominated debentures are
re-translated to Pounds Sterling using the period end exchange rate.
The Company incurred a net cash outflow from operating activities of (pound)21.2
million in the first quarter 1997 compared with a net cash inflow of (pound)3.2
million in the first quarter 1996.
The Company incurred a net cash outflow from investing activities of (pound)88.3
million and (pound)100.1 million in the first quarter 1996 and 1997,
respectively. The Company's principal investing activities continue to be the
construction of the network and the provision of funding to the Affiliated
Companies. The Company
10
<PAGE>
expects to continue to have significant capital requirements to fund the cost of
constructing the network for the foreseeable future.
Cash (used in)/provided by financing activities amounted to (pound)1.2 million
and (pound)149.0 million in the first quarter 1996 and 1997, respectively. Cash
(used in)/provided by financing activities principally related to debenture
issues costs outstanding from 1995 which were paid in the first quarter 1996 and
to the drawdown of (pound)150 million under the Senior Secured Facility in the
first quarter 1997.
At March 31, 1997, the construction of the Company's broadband network had
passed approximately 68% of the homes in its owned and operated franchise areas
as compared to 55% of homes in its owned and operated franchises at March 31,
1996. Total capital expenditure in the first quarter 1997 was (pound)111.5
million as compared with (pound)96.1 million in the first quarter 1996.
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.
Cash and deposit balances at March 31, 1997 were (pound)106.8 million.
The Company currently expects that the anticipated funding requirements (after
taking into account current cash and deposit balances and anticipated revenues)
required to substantially complete the construction of the owned and operated
network (including the recently acquired franchise of East Lothian), to fund the
Company's operations, to upgrade older portions of the network, and to pay
interest on the Company's debt will be provided by the Senior Secured Facility.
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 of cable services in the UK develops and
such opportunities may require additional funding. The Company has announced its
intention to develop an interfranchise network and to launch digital services
and in this context is evaluating the funding requirements and considering debt
financing opportunities.
ITEM 3 ----QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
11
<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 INFORMATION
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 May 8, 1997
with respect to results of operations for the three month period ended
March 31, 1997 (including unaudited consolidated financial statements
prepared in accordance with UK GAAP).
b. Reports on Form 8-K
None
12
<PAGE>
SIGNATURES
Pursuant to the requirements 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/ CHARLES J BURDICK
--------------------------------
Name: Charles J Burdick
Title: Chief Financial Officer
(duly authorized signatory
and principal financial officer)
May 15, 1997
13
<PAGE>
EXHIBITS
EXHIBIT
27 --- Telewest Communications plc Financial Data Schedule
99 --- Telewest Communications plc Press Release issued on May 8, 1997 with
respect to results of operations for the three month period ended March
31, 1997 (including unaudited consolidated financial statements prepared
in accordance with UK GAAP)
14
<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
<CURRENCY> POUNDS STERLING
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1.6448
<CASH> 106,802
<SECURITIES> 0
<RECEIVABLES> 74,768
<ALLOWANCES> 6,292
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,868,020
<DEPRECIATION> 347,693
<TOTAL-ASSETS> 2,350,881
<CURRENT-LIABILITIES> 0
<BONDS> 1,078,147
0
49,607
<COMMON> 92,757
<OTHER-SE> 834,910
<TOTAL-LIABILITY-AND-EQUITY> 2,350,881
<SALES> 0
<TOTAL-REVENUES> 90,930
<CGS> 0
<TOTAL-COSTS> 37,577
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,314
<INCOME-PRETAX> (93,819)
<INCOME-TAX> 64
<INCOME-CONTINUING> (93,883)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (93,883)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> 0
</TABLE>
EXHIBIT 99
Telewest Communications plc Press Release issued on May 8, 1997 with respect to
results of operations for the three month period ended March 31, 1997 (including
unaudited consolidated financial statements prepared in accordance with UK
GAAP).
<PAGE>
FOR IMMEDIATE RELEASE 8 MAY 1997
TELEWEST COMMUNICATIONS PLC
RESULTS FOR THE THREE MONTHS TO 31 MARCH 1997
Telewest Communications plc ("Telewest") today announced its first quarter
results for the three months to 31 March 1997.
o EBITDA INCREASING - (POUND)7.3 M
o CATV PENETRATION UP TO 22.2% (YEAR ON YEAR)
CHURN DOWN TO 32.6% (YEAR ON YEAR)
o RESTEL PENETRATION UP TO 28.2% (YEAR ON YEAR)
CHURN STABLE AT 19.5% (YEAR ON YEAR)
o BUSINESS LINES UP 64% TO 74,540
o NETWORK 68% BUILT
o FIRST LINK OF INTERFRANCHISE NETWORK GOES LIVE IN JUNE
o DIGITAL LAUNCH ON TRACK
FINANCIAL HIGHLIGHTS
Q1 1997 VS. Q1 1996
TOTAL REVENUE UP 39% TO(POUND)90.4M
CABLE TELEVISION REVENUE UP 36% TO(POUND)38.1M
RESIDENTIAL TELEPHONY REVENUE UP 42% TO(POUND)39.7M
BUSINESS TELEPHONY REVENUE UP 29% TO(POUND)9.3M
GROSS CONTRIBUTION UP 40% TO(POUND)52.8M
(total revenue less direct
programming and telephony costs)
EBITDA UP TO (POUND)7.3M
(Earnings before interest, tax,
depreciation, and amortisation)
NET LOSS UP 31% TO (POUND)69.7M
CAPITAL EXPENDITURE UP 16% TO (POUND)111.5M
<PAGE>
OPERATING HIGHLIGHTS
<TABLE>
<S> <C> <C>
YEAR ON YEAR Q4 1996
TOTAL RESIDENTIAL CUSTOMER BASE
Total Customers up 34% to 813,567 768,755
% Customers taking both services up 4.6% points to 48.9% 50%
Household Penetration up 0.5% points to 33.8% 33.5%
CABLE TELEVISION CUSTOMERS
Equity basis up 31% to 617,007 599,599
Owned and operated up 32% to 541,728 528,142
Penetration up 0.6% pts to 22.2% 22.6%
Churn down 5.4% pts to 32.6% 33.4%
Average monthly revenue per customer up 2% to(pound)23.57 (pound)22.95
RESIDENTIAL TELEPHONY LINES
Equity basis up 45% to 751,227 693,521
Owned and operated up 46% to 679,895 627,009
Penetration up 1.5% pts to 28.2% 27.5%
Churn unchanged at 19.5% 19.6%
Average monthly revenue per line down 2% to(pound)20.31 (pound)20.26
BUSINESS TELEPHONY LINES
Equity basis up 61% to 86,116 78,569
Owned and operated up 64% to 74,540 67,823
Average number of lines per customer up 20.7% to 3.5 3.2
Average monthly revenue per line down 22% to(pound)43.68 (pound)54.48
</TABLE>
Commenting on the results, Stephen Davidson, Chief Executive of Telewest, said:
"The first quarter has seen a steady performance from Telewest, continuing the
improvements seen in the last quarter of 1996.
"The packaging of cable television and telecoms services in our Teleplus offer
is clearly attractive. On a year on year basis, penetration and customer
revenues continue to grow, and churn continues to fall. In Q4 1996 cable
television penetration was 22.6%, churn 33.4%. In the first quarter of 1997
churn has fallen to 32.6% and penetration is 22.2%. For residential telephony,
Q4 penetration was 27.5%, churn 19.6% and in Q1 it was 28.2% penetration with
19.5% churn.
"Our plan to launch digital services remains on schedule, and we look forward
both to this and to the cumulative beneficial effect of current marketing,
customer service and promotional plans. We are working closely with our industry
partners on content, marketing, customer research and network developments.
Creating the interfranchise network is progressing well, with the first link
from Bristol to Preston now complete and due to begin carrying interconnect
traffic from June.
"As forecast, earnings before interest, tax, depreciation and amortisation
(EBITDA) continues to strengthen. Looking forward, we anticipate that new
service offerings, especially digital, will have a positive impact on customer
growth and revenues."
Enquiries to: Telewest Communications plc
Stephen Davidson, Chief Executive
Tel: 01483 750900
Anna Miller, VP Investor Relations
Tel: 01483 251881
Issued by: Dewe Rogerson
Anthony Carlisle
Tel: 0171 638 9571
2
<PAGE>
FINANCIAL REVIEW
Turnover is up 39% on the comparative Q1 1996, to (pound)90 m. Operational
expenses rose 27% to (pound)121 m. This was mainly due to programming expenses
being up 52% to (pound)23 m and Depreciation and Amortisation increasing by 44%
to (pound)37 m. Rising programming expenses are a function of increased customer
numbers, programming fees and the provision of more basic tier channels.
Depreciation and Amortisation increased by nearly 44% due to the larger asset
base and the reduction of the estimated useful life of certain network assets.
Cable television turnover rose 36% to (pound)38 m and total telephony turnover
was up 39% to (pound)49 m. Programming expenses, as previously highlighted, rose
52% - telephony expenses also rose; up 18%. Interconnection charges are the
largest component of the Group's telephony operating costs and they are
declining through increased competition and the carriage of greater volumes of
traffic over the extended Telewest network.
Selling, General and Administrative expenses rose by 10% compared to last year.
As a percentage of turnover, SG&A was 50% compared to 63% last year.
Capital expenditure was up 16% from (pound)96.1 m to (pound)111.5 m in Q1 1996 -
the network is now 68% built. The Group's principal investing activities
continue to be the construction of the broadband network. This year is an
important year for the company in terms of its capital requirements; involving
the construction of the interfranchise network, the launch of digital and the
completion of 75% of the network by the year end.
ANNUAL GENERAL MEETING
The Annual General Meeting of Telewest Communications plc will take place at
10am in the Grocers' Hall, Princes Street, London, EC2R 8AD on Friday 9 May
1997.
NOTE:
In calculating churn rates, "transfers" are now excluded. Until the end of 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 owned and operated
franchise). The comparative churn rates for Q1 1996 have been modified to
reflect the exclusion of transfers.
The following is included in connection with legislation in the United States of
America, the 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.
3
<PAGE>
<TABLE>
<CAPTION>
TELEWEST COMMUNICATIONS PLC
OPERATING STATISTICS - OWNED AND OPERATED
1st Quarter 1997 Net Additions
NET ADDITIONS NET ADDITIONS
Q1 1997 Q1 1996
-------------------- -------------------
<S> <C> <C>
CABLE TELEVISION
Homes marketed 103,424 74,134
CATV customers 13,586 10,369
RESIDENTIAL TELEPHONY
Homes marketed 122,777 90,027
Residential telephony customers 49,200 35,756
Residential telephony lines 52,886 36,120
BUSINESS TELEPHONY
Business telephony customers 623 1,520
Business telephony lines 6,717 5,552
<CAPTION>
AS AT 31 MARCH AS AT 31 MARCH
1997 1996
-------------------- -------------------
<S> <C> <C>
CABLE TELEVISION
Homes marketed 2,439,377 1,905,593
CATV customers 541,728 411,838
RESIDENTIAL TELEPHONY
Homes marketed 2,377,511 1,742,632
Residential telephony customers 669,577 465,161
Residential telephony penetration 28.2% 26.7%
Residential telephony lines 679,895 467,036
BUSINESS TELEPHONY
Business telephony customers 21,505 15,746
Business telephony lines 74,540 45,573
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
TELEWEST COMMUNICATIONS PLC
OPERATING STATISTICS - OWNED AND OPERATED AND AFFILIATED FRANCHISES
* ON AN EQUITY BASIS
1st Quarter 1997 Net Additions
NET ADDITIONS NET ADDITIONS
Q1 1997 Q1 1996
--------------------- --------------------
<S> <C> <C>
CABLE TELEVISION
Homes marketed 118,874 80,143
CATV customers 17,409 12,694
RESIDENTIAL TELEPHONY
Homes marketed 138,287 97,316
Residential telephony customers 53,812 38,971
Residential telephony lines 57,706 39,432
BUSINESS TELEPHONY
Business telephony customers 744 1,691
Business telephony lines 7,547 6,156
<CAPTION>
AS AT 31 MARCH AS AT 31 MARCH
1997 1996
--------------------- --------------------
<S> <C> <C>
CABLE TELEVISION
Homes marketed 2,745,103 2,146,291
CATV customers 617,007 470,085
CATV penetration 22.5% 21.9%
RESIDENTIAL TELEPHONY
Homes marketed 2,680,722 1,979,434
Residential telephony customers 739,913 516,511
Residential telephony penetration 27.6% 26.1%
Residential telephony lines 751,227 518,783
BUSINESS TELEPHONY
Business telephony customers 24,042 17,672
Business telephony lines 86,116 53,630
Average number of lines per business 3.6 3.0
</TABLE>
NOTE:
* The affiliated franchises include Telewest's interests in Cable London plc
(50.0% interest), Birmingham Cable Corporation (27.5% interest) and The Cable
Corporation (16.5% interest).
5
<PAGE>
<TABLE>
<CAPTION>
TELEWEST COMMUNICATIONS PLC
UK GAAP
Unaudited consolidated profit and loss account
for the three month period ended 31 March 1997
- ------------------------------------------------------------------------------------------------
THREE MONTHS Three months
ENDED ended
31 MARCH 31 March
Note 1997 1996
(POUND)'000 (pound)'000
<S> <C> <C> <C>
TURNOVER
Cable television 38,101 28,073
Telephony - residential 39,674 27,975
Telephony - business 9,287 7,178
Other 3,328 1,934
----------------- ----------------
90,390 65,160
----------------- ----------------
OPERATING COSTS
Programming expenses (23,198) (15,294)
Telephony expenses (14,379) (12,233)
Selling, general, and administrative expenses (45,529) (41,362)
Depreciation (37,456) (26,064)
----------------- ----------------
(120,562) (94,953)
----------------- ----------------
OPERATING LOSS (30,172) (29,793)
Share of results of associated undertakings (4,978) (3,557)
Other interest receivable and similar income 2,483 6,855
Interest payable and similar charges 2 (36,878) (26,874)
----------------- ----------------
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (69,545) (53,369)
Tax on loss on ordinary activities (64) (19)
----------------- ----------------
LOSS ON ORDINARY ACTIVITIES AFTER TAXATION (69,609) (53,388)
Minority interests (117) (17)
----------------- ----------------
LOSS FOR THE FINANCIAL PERIOD (69,726) (53,405)
================= ================
LOSS PER EQUITY SHARE (PENCE) (4.9) (3.8)
================= ================
</TABLE>
The Group has no recognised gains or losses other than those reflected in the
profit and loss account. The above results are in respect of continuing
operations of the Group.
See notes to the unaudited consolidated financial statements.
The consolidated financial statements set out on pages 6 to 11, which are
unaudited, have been prepared on the basis of the accounting policies set out in
the Group's 1996 Annual Report. The balance sheet at 31 December 1996 is derived
from the statutory accounts for 1996 which will be delivered to the Registrar of
Companies following the Company's annual general meeting. 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.
6
<PAGE>
<TABLE>
<CAPTION>
TELEWEST COMMUNICATIONS PLC
UK GAAP
Unaudited consolidated balance sheet
as at 31 March 1997
- --------------------------------------------------------------------------------------------------
31 MARCH 31 December
1997 1996
(POUND)'000 (pound)'000
<S> <C> <C>
FIXED ASSETS
Tangible assets 1,520,327 1,447,194
Investments 137,423 117,410
------------------ ------------------
1,657,750 1,564,604
CURRENT ASSETS
Stocks 62 53
Debtors 79,821 66,929
Cash at bank and in hand 106,802 79,116
------------------ ------------------
186,685 146,098
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR (220,425) (212,434)
------------------ ------------------
NET CURRENT LIABILITIES (33,740) (66,336)
------------------ ------------------
TOTAL ASSETS LESS CURRENT LIABILITIES 1,624,010 1,498,268
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE (1,113,359) (918,008)
YEAR
Minority interests (464) (347)
------------------ ------------------
NET ASSETS 510,187 579,913
================== ==================
CAPITAL AND RESERVES
Called up share capital 142,363 142,363
Share premium 9,187 9,187
Merger reserve 535,267 535,267
Other reserves 270,237 270,237
Profit and loss account (446,867) (377,141)
------------------ ------------------
EQUITY SHAREHOLDERS' FUNDS 510,187 579,913
================== ==================
</TABLE>
See notes to the unaudited consolidated financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
TELEWEST COMMUNICATIONS PLC
UK GAAP
Unaudited consolidated cash flow statement for the three month period ended 31
March 1997
- --------------------------------------------------------------------------------------------------
THREE MONTHS Three months
Note ENDED ended
31 MARCH 31 March
1997 1996
(POUND)'000 (pound)'000
<S> <C> <C> <C>
NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES 3 (18,706) 335
---------------- -------------------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received 1,045 4,653
Interest paid (3,421) (1,076)
Interest element of finance lease payments (151) (687)
---------------- -------------------
NET CASH (OUTFLOW)/INFLOW FROM RETURNS ON
INVESTMENTS AND SERVICING OF FINANCE (2,527) 2,890
---------------- -------------------
CAPITAL EXPENDITURE
Purchase of tangible fixed assets (92,619) (74,714)
Sale of tangible fixed assets 999 559
---------------- -------------------
NET CASH OUTFLOW FROM CAPITAL EXPENDITURE (91,620) (74,155)
---------------- -------------------
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary undertakings - (14,098)
Investment in associated undertakings (8,505) -
---------------- -------------------
NET CASH OUTFLOW FROM ACQUISITIONS AND DISPOSALS (8,505) (14,098)
---------------- -------------------
NET CASH OUTFLOW BEFORE MANAGEMENT OF LIQUID
RESOURCES AND FINANCING (121,358) (85,028)
---------------- -------------------
MANAGEMENT OF LIQUID RESOURCES
Cash on short-term deposit (16,052) 89,125
---------------- -------------------
NET CASH (OUTFLOW)/INFLOW FROM MANAGEMENT OF LIQUID
RESOURCES (16,052) 89,125
---------------- -------------------
FINANCING
Cash paid for debenture issue costs - (549)
Debt due beyond a year:
New borrowings under the Senior Secured Facility 150,000 -
Capital element of finance lease payments (1,020) (618)
---------------- -------------------
NET CASH INFLOW/(OUTFLOW) FROM FINANCING 148,980 (1,167)
---------------- -------------------
INCREASE/(DECREASE) IN CASH 11,570 2,930
================ ===================
</TABLE>
See notes to the unaudited consolidated financial statements.
8
<PAGE>
TELEWEST COMMUNICATIONS PLC
UK GAAP
Notes to the unaudited consolidated financial statements
1. EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTISATION ("EBITDA")
<TABLE>
<CAPTION>
THREE MONTHS Three months
ENDED ended 31
31 MARCH 1997 March 1996
(POUND)'000 (pound)'000
<S> <C> <C>
Turnover 90,390 65,160
Less:
Programming expenses (23,198) (15,294)
Telephony expenses (14,379) (12,233)
Selling, general, and administrative (45,529) (41,362)
---------------- ---------------
EBITDA 7,284 (3,729)
================ ===============
</TABLE>
2. INTEREST PAYABLE AND SIMILAR CHARGES
<TABLE>
<CAPTION>
THREE MONTHS Three months
ENDED ended
31 MARCH 31 March
1997 1996
(POUND)'000 (pound)'000
<S> <C> <C>
On bank loans and overdrafts and other loans:
Wholly repayable within five years 369 950
Wholly or partly repayable in more than five years 5,411 -
Finance costs of Senior Discount Debentures 16,815 14,242
Finance costs of Senior Debentures 5,657 5,637
Finance charges payable in respect of finance leases and
hire purchase contracts 1,109 687
Exchange losses on foreign currency translation, net 7,517 5,358
----------------- ----------------
36,878 26,874
================= ================
</TABLE>
9
<PAGE>
TELEWEST COMMUNICATIONS PLC
UK GAAP
Notes to the unaudited consolidated financial statements (continued)
3. RECONCILIATION OF OPERATING LOSS TO NET CASH (OUTFLOW)/INFLOW FROM
OPERATING ACTIVITIES
<TABLE>
<CAPTION>
THREE MONTHS Three months
ENDED ended
31 MARCH 31 March
1997 1996
(POUND)'000 (pound)'000
<S> <C> <C>
Operating loss (30,172) (29,793)
Depreciation 37,456 26,064
(Increase)/decrease in stocks (9) 3
Increase in debtors (10,059) (3,888)
(Decrease)/increase in creditors (15,922) 7,949
---------------- ----------------
NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES (18,706) 335
================ ================
</TABLE>
4. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
THREE MONTHS
ENDED
31 MARCH
1997
(POUND)'000
INCREASE IN CASH IN THE PERIOD 11,570
Cash outflow from management of liquid resources 16,052
Cash inflow from increase in net debt and leasing (148,980)
----------------
Change in net debt resulting from cash flows (121,358)
Non-cash movement in debt (22,185)
Exchange movement (25,405)
----------------
Movement in net debt in the period (168,948)
Net debt at 31 December 1996 (839,804)
----------------
NET DEBT AT 31 MARCH 1997 (1,008,752)
================
Liquid resources are composed principally of term deposits of less than one year
but in excess of one working day.
10
<PAGE>
TELEWEST COMMUNICATIONS PLC
UK GAAP
Notes to the unaudited consolidated financial statements (continued)
5. ANALYSIS OF NET DEBT
<TABLE>
<CAPTION>
31 DECEMBER CASH OTHER EXCHANGE 31 MARCH
1996 FLOW NON-CASH MOVEMENT 1997
(POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000
<S> <C> <C> <C> <C> <C>
Cash at bank and in hand 79,116 27,622 - 64 106,802
Less short-term deposits
treated as liquid resources (74,723) (16,052) - - (90,775)
-------------- ------------- -------------- -------------- -------------
4,393 11,570 - 64 16,027
-------------- ------------- -------------- -------------- -------------
LIQUID RESOURCES
Short-term deposits
included in cash 74,723 16,052 - - 90,775
-------------- ------------- -------------- -------------- -------------
DEBT
Senior Discount Debentures (586,993) - (16,815) (25,469) (629,277)
Senior Debentures (171,499) - (206) (7,190) (178,895)
Senior Credit Facility (81,814) (150,000) (302) - (232,116)
Currency Swap (20,875) - - 7,190 (13,685)
Finance leases (54,390) 1,020 (4,862) - (58,232)
Other (3,349) - - - (3,349)
-------------- ------------- -------------- -------------- -------------
(918,920) (148,980) (22,185) (25,469) (1,115,554)
-------------- ------------- -------------- -------------- -------------
NET DEBT (839,804) (121,358) (22,185) (25,405) (1,008,752)
============== ============= ============== ============== =============
</TABLE>
11
<PAGE>
TELEWEST COMMUNICATIONS PLC
Reconciliation of loss for the financial period under UK GAAP to net loss under
US GAAP for the three month period ended 31 March 1997
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
THREE MONTHS Three months
ENDED ended
31 MARCH 31 March
1997 1996
(POUND)'000 (pound)'000
<S> <C> <C>
LOSS FOR THE FINANCIAL PERIOD UNDER UK GAAP (69,726) (53,405)
Adjustments:
Amortisation of goodwill (6,594) (6,445)
Foreign exchange loss on debentures and financial instruments (16,610) (11,308)
Finance charges on Senior Discount Debentures (953) (2,470)
Other - (19)
---------------- -----------------
NET LOSS UNDER US GAAP (93,883) (73,647)
================ =================
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
TELEWEST COMMUNICATIONS PLC
US GAAP
Unaudited consolidated statements of operations
- -----------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31
------------------------------------------
1997 1997 1996
$'000 (POUND)'000 (pound)'000
(SEE NOTE)
<S> <C> <C> <C>
REVENUE
Cable television 62,669 38,101 28,073
Telephony - residential 65,256 39,674 27,975
Telephony - business 15,275 9,287 7,178
Other ((pound)377 and (pound)407 in 1997 and 1996,
respectively, from related parties) 5,474 3,328 1,934
-------------- -------------- ------------
148,674 90,390 65,160
-------------- -------------- ------------
OPERATING COSTS AND EXPENSES:
Programming (38,156) (23,198) (15,294)
Telephony (23,651) (14,379) (12,233)
Selling, general, and administrative (including
(pound)341 and(pound)710 in 1997 and 1996,
respectively, to related parties) (74,886) (45,529) (41,381)
Depreciation (61,608) (37,456) (26,064)
Amortisation of goodwill (10,846) (6,594) (6,445)
-------------- -------------- ------------
(209,147) (127,156) (101,417)
-------------- -------------- ------------
OPERATING LOSS (60,473) (36,766) (36,257)
OTHER INCOME/(EXPENSE):
Interest income (including (pound)415 and (pound)432
in 1997 and 1996 respectively, from related parties) 3,885 2,362 6,816
Interest expense (49,860) (30,314) (23,986)
Foreign exchange losses, net (39,684) (24,127) (16,666)
Share of net losses of affiliates (8,188) (4,978) (3,557)
Gain on disposal of assets 199 121 39
Minority interests in profits of consolidated
subsidiaries, net (192) (117) (17)
-------------- -------------- ------------
LOSS BEFORE INCOME TAXES (154,313) (93,819) (73,628)
Income tax expense (105) (64) (19)
-------------- -------------- ------------
NET LOSS (154,418) (93,883) (73,647)
============== ============== ============
LOSS PER ORDINARY SHARE (DOLLARS/POUNDS) $(0.17) (POUND)(0.10) (pound)(0.08)
============== ============== ============
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
TELEWEST COMMUNICATIONS PLC
US GAAP
Unaudited consolidated balance sheets
- ---------------------------------------------------------------------------------------------------
MARCH 31, MARCH 31, December 31,
1997 1997 1996
$'000 (POUND)'000 (pound)'000
(SEE NOTE)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents 175,668 106,802 79,116
Trade receivables (net of allowance for doubtful accounts
of (pound)6,292 and(pound)5,405) 65,098 39,578 29,305
Other receivables 57,881 35,190 32,394
Prepaid expenses 8,209 4,991 5,168
Investments in affiliates, accounted for under the equity
method, and related receivables 116,738 70,974 69,420
Other investments, at cost 42,967 26,123 25,666
Property and equipment (less accumulated depreciation of
(pound)347,693 and(pound)308,240) 2,500,634 1,520,327 1,447,194
Goodwill (less accumulated amortisation of(pound)44,501 and
(pound)37,907) 797,228 484,696 491,290
Other assets (less accumulated amortisation of(pound)5,362 and
(pound)4,162) 102,307 62,200 62,387
--------- ---------- ----------
TOTAL ASSETS 3,866,730 2,350,881 2,241,940
========= ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable 59,404 36,116 46,855
Other liabilities 330,026 200,648 190,200
Debt 1,773,336 1,078,147 879,351
Capital lease obligations 95,780 58,232 54,390
--------- ---------- ----------
TOTAL LIABILITIES 2,258,546 1,373,143 1,170,796
--------- ---------- ----------
MINORITY INTERESTS 763 464 347
--------- ---------- ----------
SHAREHOLDERS' EQUITY
Convertible preference shares, 10p par value; 661,000,000
shares authorised and 496,066,708 shares issued and
outstanding 81,594 49,607 49,607
Ordinary shares, 10p par value; 2,010,000,000 shares
authorised; and 927,567,600 shares issued and outstanding 152,567 92,757 92,757
Additional paid-in capital 2,192,333 1,332,887 1,332,887
Accumulated deficit (815,806) (495,991) (402,108)
--------- ---------- ----------
1,610,688 979,260 1,073,143
Ordinary shares held in trust for the Telewest Restricted
Share Scheme (3,267) (1,986) (2,346)
--------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY 1,607,421 977,274 1,070,797
--------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 3,866,730 2,350,881 2,241,940
========= ========== ==========
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
TELEWEST COMMUNICATIONS PLC
US GAAP
Unaudited consolidated statements of cash flows
- -----------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31
1997 1997 1996
$'000 (POUND)'000 (pound)'000
(SEE NOTE)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (154,419) (93,883) (73,647)
Adjustments to reconcile net loss to net (cash used in)/provided by
operating activities:
Depreciation 61,608 37,456 26,064
Amortisation of goodwill 10,846 6,594 6,445
Amortisation of deferred financing costs and issue discount on Senior
Discount Debentures 30,060 18,276 16,899
Unrealised loss on foreign currency translation 39,136 23,794 16,666
Share of losses of affiliates 8,188 4,978 3,557
Gain on disposals of assets (199) (121) (39)
Minority interests in profit 192 117 17
Changes in operating assets and liabilities, net of effect of acquisition of
subsidiaries:
Change in receivables (19,002) (11,553) (5,812)
Change in prepaid expenses 275 167 (237)
Change in accounts payable (24,728) (15,034) (6,406)
Change in other liabilities 13,119 7,976 19,718
--------------- ------------- -----------
NET CASH (USED IN)/PROVIDED BY OPERATING ACTIVITIES (34,924) (21,233) 3,225
--------------- ------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for property and equipment (152,340) (92,619) (74,714)
Cash paid for acquisition of subsidiaries - - (14,098)
Additional investments in and loans to affiliates (13,989) (8,505) -
Proceeds from disposals of assets 1,643 999 559
--------------- ------------- -----------
NET CASH USED IN INVESTING ACTIVITIES (164,686) (100,125) (88,253)
--------------- ------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash paid for debenture issue costs - - (549)
Proceeds from borrowings 246,720 150,000 -
Capital element of finance lease repayments (1,678) (1,020) (618)
--------------- ------------- -----------
NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES 245,042 148,980 (1,167)
--------------- ------------- -----------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 45,432 27,622 (86,195)
Effect of exchange rate changes on cash and cash equivalents 105 64 877
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 130,130 79,116 464,818
--------------- ------------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 175,667 106,802 379,500
=============== ============= ===========
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
TELEWEST COMMUNICATIONS PLC
US GAAP
Unaudited consolidated statement of shareholders' equity
- -------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE SHARES ADDITIONAL
PREFERENCE ORDINARY HELD PAID-IN ACCUMULATED
SHARES SHARES IN TRUST CAPITAL DEFICIT TOTAL
(POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 49,607 92,757 (2,346) 1,332,887 (402,108) 1,070,797
Accrued employee compensation
relating to the Telewest
Restricted Share Scheme - - 360 - - 360
Net loss for the period to
March 31, 1997 - - - - (93,883) (93,883)
-------------- ------------ --------- ------------- ---------------- -----------
BALANCE AT MARCH 31, 1997 49,607 92,757 (1,986) 1,332,887 (495,991) 977,274
============== ============ ========= ============= ================ ===========
</TABLE>
NOTE TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PREPARATION
The economic environment in which the Company operates is the United Kingdom and
hence its reporting currency is Pounds Sterling ((pound)). Certain financial
information for the three months ended March 31, 1997 also has been translated
into US Dollars, with such US Dollar amounts being unaudited and presented
solely for the convenience of the reader, at $1.6448 = (pound)1.00, the Noon
Buying Rate of the Federal Reserve Bank of New York on March 31, 1997. The
presentation of the US Dollar amounts should not be construed as a
representation that the Pounds Sterling amounts could be so converted into US
Dollars at the rate indicated or any other rate.
16
