<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-83740
---------
Diamond Cable 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
incorporation or organization) Identification No.)
Diamond Plaza, Daleside Road
Nottingham NG2 3GG, England N/A
- --------------------------------------- --------------------
(Address of principal executive offices) (Zip code)
44-115-912-2217
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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
-- --
The number of shares outstanding of the Registrant's Ordinary Shares of
2.5 pence each outstanding as of March 31, 1996 was 43,754,175.
<PAGE> 2
DIAMOND CABLE COMMUNICATIONS PLC
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
PART I. FINANCIAL INFORMATION
- ------- ---------------------
Item 1. Financial Statements
Unaudited condensed consolidated statements of
operations--Three months ended
March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . 5
Unaudited condensed consolidated balance sheets--
March 31, 1996 and December 31, 1995 . . . . . . . . . . . 6
Unaudited condensed consolidated statement of
shareholders' equity -- Three months
ended March 31, 1996 . . . . . . . . . . . . . . . . . . . 7
Unaudited condensed consolidated statements of cash
flows -- Three months ended March 31, 1996
and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . 8
Notes to the unaudited condensed consolidated
financial statements . . . . . . . . . . . . . . . . . . . 9
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition . . . . . . . . . . . 11
Part II. OTHER INFORMATION
- -------- -----------------
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 18
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- ----------
</TABLE>
<PAGE> 3
INTRODUCTION
Diamond Cable Communications Plc (the "Company") is a public limited
company (with registered number 2965241) incorporated under the laws of England
and Wales. The Company is a holding company which holds all of the shares of
(i) Diamond Cable (Nottingham) Limited ("DCL") and its subsidiaries and (ii) a
group of companies acquired by the Company (collectively referred to herein as
"LCL"), in both cases through an intermediate holding company, Jewel Holdings
Limited. References herein to the "Group" refer to the Company and its
subsidiaries, including, since September 27, 1995, LCL. References herein to
"Diamond" refer to the Company and its subsidiaries, excluding LCL.
The Group operates a telecommunications and cable television business
focused on the East Midlands area of England. The Group is currently
constructing a broadband fiber-optic network to serve the approximately
1,113,900 homes and an estimated 56,700 businesses within its thirteen
contiguous franchise areas. The above totals do not include the area covered
by the proposed Chesterfield local delivery license ("LDL"), for which the
Group was the highest bidder when bids were accepted by the ITC on February 12,
1996. The proposed Chesterfield franchise area encompasses approximately
107,000 homes. As of March 31, 1996, the Group's cable television and
telecommunications network had passed approximately 318,500 homes and an
estimated 17,600 businesses. As of that date, the Group also had approximately
64,000 residential telephone lines, 36,500 cable television subscribers and
11,000 business telephone lines. Through that date, pound sterling 219.6
million had been invested (at original cost) in the construction of the network
and related systems.
On September 27, 1995, the Group acquired substantially all of the
share capital of East Midlands Cable Group Limited ("EMCG"), East Midlands
Cable Communications Limited ("EMCC") and East Midlands Cable Holdings Limited
("EMCH" and, together with EMCC and EMCG, "LCL"), which includes three
franchises covering an aggregate of 342,000 homes and an estimated 20,100
businesses. On October 4, 1995 the Group acquired the remaining share capital
(less than 1%) of LCL not already acquired by it in the September 27
transaction. For financial accounting purposes, the acquisition was given
effect as of September 30, 1995.
This document contains certain forward-looking statements, identified
as such, with respect to which the Company is seeking to utilize the safe
harbor provided by the Private Securities Litigation Reform Act of 1995. These
statements are accompanied by, and should be read in conjunction with, an
explanation of important factors that could cause actual results to differ
materially from those in the forward-looking statements.
-3-
<PAGE> 4
The Company operates only in the United Kingdom and, accordingly,
publishes its financial statements in pounds sterling. In this Report,
references to "pounds sterling," "pound sterling " "pence" or "p" are to the
lawful currency of the United Kingdom and references to "U.S. dollars," "$" or
"c." are to the lawful currency of the United States. Merely for convenience,
this Report contains translations of certain pound sterling amounts into U.S.
dollars at specified rates. These translations should not be construed as
representations that the pound sterling amounts actually represent such U.S.
dollar amounts or could have been or could be converted into U.S. dollars at
the rate indicated or at any other rate. Unless otherwise indicated, the
translations of pounds sterling into U.S. dollars have been made at $1.5262 per
pound sterling 1.00, the noon buying rate in The City of New York for cable
transfers in pounds sterling as certified for customs purposes by the Federal
Reserve Bank of New York (the "Noon Buying Rate") on March 29, 1996.
-4-
<PAGE> 5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DIAMOND CABLE COMMUNICATIONS PLC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------------------------------------
1995 1996 1996
-------------------- ----------------------- ------------
(NOTE 1)
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUE
Business telecommunications . . . . . . . . . . . . . . . . pound sterling 1,153 pound sterling 2,371 $3,619
Residential telephone . . . . . . . . . . . . . . . . . . . 862 3,551 5,419
Cable television . . . . . . . . . . . . . . . . . . . . . 492 1,961 2,993
-------------------- ---------------------- ------------
2,507 7,883 12,031
-------------------- ---------------------- ------------
OPERATING COSTS AND EXPENSES
Telephone . . . . . . . . . . . . . . . . . . . . . . . . . (943) (2,680) (4,090)
Programming . . . . . . . . . . . . . . . . . . . . . . . . (266) (1,175) (1,793)
Selling, general, and
administrative . . . . . . . . . . . . . . . . . . . . . (1,773) (4,865) (7,425)
Depreciation and amortization . . . . . . . . . . . . . . . (1,324) (4,633) (7,071)
-------------------- ---------------------- ------------
(4,306) (13,353) (20,379)
-------------------- ---------------------- ------------
OPERATING LOSS . . . . . . . . . . . . . . . . . . . . . . (1,799) (5,470) (8,348)
Unrealized gain on interest rate swap . . . . . . . . . . . -- 689 1,052
Interest income . . . . . . . . . . . . . . . . . . . . . . 1,307 1,164 1,776
Interest expense and
amortization of debt discount
and expenses, net . . . . . . . . . . . . . . . . . . . . (3,222) (9,961) (15,203)
Foreign exchange gains/
(losses), net . . . . . . . . . . . . . . . . . . . . . . 3,772 (5,398) (8,238)
-------------------- ---------------------- ------------
PROFIT/(LOSS) BEFORE INCOME TAXES . . . . . . . . . . . . . 58 (18,976) (28,961)
Income taxes . . . . . . . . . . . . . . . . . . . . . . . -- -- --
NET PROFIT/(LOSS) . . . . . . . . . . . . . . . . . . . . . pound sterling 58 pound sterling (18,976) $(28,961)
==================== ====================== ============
</TABLE>
See the accompanying notes to the Unaudited Condensed Consolidated Financial
Statements.
-5-
<PAGE> 6
DIAMOND CABLE COMMUNICATIONS PLC
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AT
DECEMBER
31,
1995
----------------------
(IN THOUSANDS)
<S> <C>
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . pound sterling 93,308
Trade receivables (net of allowance
for doubtful accounts of pound sterling 773 at
December 31, 1995 and pound sterling 1,051 at
March 31, 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . 3,583
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,358
Deferred financing costs (less
accumulated amortization of
pound sterling 382 in 1995 and pound sterling 591 in 1996) . . . . 12,016
Property and equipment, net (note 3) . . . . . . . . . . . . . . . . 163,721
Goodwill (less accumulated amortization of pound sterling 1,212 in 95,748
1995 and pound sterling 2,424 in 1996) . . . . . . . . . . . . . . .
Franchise costs (less accumulated
amortization of pound sterling 69 in 1995 and 438
pound sterling 77 in 1996) . . . . . . . . . . . . . . . . . . . . ----------------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . pound sterling 374,172
======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . pound sterling 18,627
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 10,920
Senior discount notes . . . . . . . . . . . . . . . . . . . . . . . . 307,729
Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . 9,263
Mortgage loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500
Shareholders' equity
Ordinary shares (70,000,000 authorized;
43,754,175 issued at December 31, 1995 and
at March 31, 1996) . . . . . . . . . . . . . . . . . . . . . . . 1,094
Additional paid-in-capital . . . . . . . . . . . . . . . . . . . . 70,186
Unrealized (loss)/gain on securities . . . . . . . . . . . . . . . (330)
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . (45,817)
----------------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pound sterling 374,172
======================
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31,
--------------------------------------
1996 1996
---------------------- ---------
(NOTE 1)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . pound sterling 55,937 $85,371
Trade receivables (net of allowance
for doubtful accounts of pound sterling 773 at
December 31, 1995 and pound sterling 1,051 at
March 31, 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . 4,232 6,459
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,668 7,124
Deferred financing costs (less
accumulated amortization of
pound sterling 382 in 1995 and pound sterling 591 in 1996) . . . . 11,807 18,020
Property and equipment, net (note 3) . . . . . . . . . . . . . . . . 192,422 293,675
Goodwill (less accumulated amortization of pound sterling 1,212 in 94,536 144,281
1995 and pound sterling 2,424 in 1996) . . . . . . . . . . . . . . .
Franchise costs (less accumulated
amortization of pound sterling 69 in 1995 and 430 656
pound sterling 77 in 1996) . . . . . . . . . . . . . . . . . . . . ---------------------- ---------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . pound sterling 364,032 $555,586
====================== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . pound sterling 13,097 $19,989
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 10,073 15,373
Senior discount notes . . . . . . . . . . . . . . . . . . . . . . . . 322,530 492,245
Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . 9,046 13,806
Mortgage loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500 3,816
Shareholders' equity
Ordinary shares (70,000,000 authorized;
43,754,175 issued at December 31, 1995 and
at March 31, 1996) . . . . . . . . . . . . . . . . . . . . . . . 1,094 1,670
Additional paid-in-capital . . . . . . . . . . . . . . . . . . . . 70,186 107,118
Unrealized (loss)/gain on securities . . . . . . . . . . . . . . . 299 456
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . (64,793) (98,887)
---------------------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pound sterling 364,032 $555,586
====================== =========
</TABLE>
See the accompanying notes to the Unaudited Condensed Consolidated Financial
Statements.
-6-
<PAGE> 7
DIAMOND CABLE COMMUNICATIONS PLC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
NON-VOTING PAID-
ORDINARY SHARES DEFERRED SHARES (1) IN-CAPITAL
--------------------------------- ----------------------- --------------------
(IN THOUSANDS EXCEPT SHARE DATA)
Number Number
------ ------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1996 . 43,754,175 pound sterling 1,094 6 -- pound sterling 70,186
Unrealized gain on securities
Net loss . . . . . . . . . .
----------- -------------------- ------ ------ ---------------------
BALANCE AT MARCH 31, 1996 . . 43,754,175 pound sterling 1,094 6 -- pound sterling 70,186
=========== ==================== ====== ====== =====================
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
GAIN/(LOSS) TOTAL
ON BONUS ACCUMULATED SHAREHOLDERS'
SECURITIES DEFICIT EQUITY
-------------------- ---------------------- --------------------
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C>
BALANCE AT JANUARY 1, 1996 . pound sterling (330) pound sterling (45,817) $25,133
Unrealized gain on securities 629 -- 629
Net loss . . . . . . . . . . (--) (18,976) (18,976)
-------------------- ----------------------- --------------------
BALANCE AT MARCH 31, 1996 . . pound sterling 299 pound sterling (64,793) pound sterling 6,786
==================== ======================= ====================
</TABLE>
- ---------------
(1) On September 4, 1995, the six A shares were automatically converted
into six non-voting deferred shares in accordance with the Articles of
Association of the Company.
See the accompanying notes to the Unaudited Condensed Consolidated Financial
Statements.
-7-
<PAGE> 8
DIAMOND CABLE COMMUNICATIONS PLC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------------
1995 1996 1996
---------------------- ----------------------- -----------
(NOTE 1)
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net profit/(loss) . . . . . . . . . . . . . . . . . . . . . pound sterling 58 pound sterling (18,976) $(28,961)
Adjustments to reconcile net loss to net cash provided
by/(used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . . 1,324 4,633 7,071
Unrealized foreign exchange (gains)/losses . . . . . . . (3,750) 5,296 8,083
Provision for losses on accounts receivable . . . . . . . 62 278 424
Accretion of Senior Note discount . . . . . . . . . . . . 3,058 9,478 14,465
Amortization of deferred financing costs . . . . . . . . 68 209 319
Accretion of investment income . . . . . . . . . . . . . (721) -- --
Change in operating assets and liabilities:
Change in trade receivables . . . . . . . . . . . . . . (266) (927) (1,415)
Change in other assets . . . . . . . . . . . . . . . . (255) 690 1,053
Change in accounts payable . . . . . . . . . . . . . . 396 (1,595) (2,434)
Change in other liabilities . . . . . . . . . . . . . . 1,519 (995) (1,519)
---------------------- ----------------------- -----------
Net cash provided by/(used in) operating activities . . . . 1,493 (1,909) (2,914)
---------------------- ----------------------- -----------
Cash flows from investing activities:
Cash invested in property and equipment . . . . . . . . . (13,914) (36,051) (55,021)
Cash invested in marketable securities . . . . . . . . . (991) -- --
Proceeds from disposition of assets . . . . . . . . . . . -- 2 3
Proceeds from disposition of securities . . . . . . . . . 1,159 -- --
---------------------- ----------------------- -----------
Net cash used in investing activities . . . . . . . . . . . (13,746) (36,049) (55,018)
---------------------- ----------------------- -----------
Cash flows from financing activities:
Capital element of capital lease repayments . . . . . . . (128) (217) (331)
Issue of shares and capital contribution (net of
expenses) . . . . . . . . . . . . . . . . . . . . . . . 6,576 -- --
Net increase in short-term borrowings . . . . . . . . . . (739) -- --
---------------------- ----------------------- -----------
Net cash provided by/(used in) financing activities . . . . 5,709 (217) (331)
---------------------- ----------------------- -----------
Net decrease in cash and cash equivalents . . . . . . . . . (6,544) (38,175) (58,263)
Cash and cash equivalents at beginning of period . . . . . 41,066 93,308 142,407
Effect of exchange rate changes on cash equivalents . . . . -- 804 1,227
---------------------- ----------------------- -----------
Cash and cash equivalents at end of period . . . . . . . . pound sterling 34,522 pound sterling 55,937 $85,371
====================== ======================= ===========
</TABLE>
See the accompanying notes to the Unaudited Condensed Consolidated Financial
Statements.
-8-
<PAGE> 9
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
Diamond Cable Communications Plc (the "Company") owns and operates
cable television and telecommunications systems through its subsidiaries. The
unaudited consolidated financial statements of the Company and its subsidiaries
(the "Group") have been prepared in accordance with U.S. generally accepted
accounting principles and the rules and regulations of the Securities and
Exchange Commission (the "SEC"). Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
The financial statements are stated in pounds sterling (pound sterling ).
Merely for convenience the financial statements contain translations of certain
pound sterling amounts into U.S. dollars at $1.5262 per pound sterling 1.00,
the noon buying rate in the City of New York for cable transfers in pounds
sterling as certified for customs purposes by the Federal Reserve Bank of New
York on March 29, 1996.
2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS
The financial statements as of and for the periods ended March 31,
1996 and 1995 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 for the periods
presented. The results of operations for any interim period are not
necessarily indicative of the results for the full year. The interim financial
statements should be read in conjunction with the financial information
included in the Company's 1995 Annual Report on Form 10-K filed with the SEC.
-9-
<PAGE> 10
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
LAND AND CABLE OFFICE
BUILDINGS NETWORK EQUIPMENT
-------------------- ---------------------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C>
ACQUISITION COSTS
Balance at January 1, 1996 . . . . . pound sterling 3,863 pound sterling 170,660 pound sterling 4,701
Additions . . . . . . . . . . . . . . 55 31,589 472
Dispositions . . . . . . . . . . . . -- (2) (154)
-------------------- ---------------------- --------------------
Balance at March 31, 1996 . . . . . . 3,918 202,247 5,019
-------------------- ---------------------- --------------------
ACCUMULATED DEPRECIATION
Balance at January 1, 1996 . . . . . 74 14,295 1,450
Charge for period . . . . . . . . . . 26 3,072 293
Dispositions . . . . . . . . . . . . -- (1) (154)
-------------------- ---------------------- --------------------
Balance at March 31, 1996 . . . . . . 100 17,366 1,589
-------------------- ---------------------- --------------------
MARCH 31, 1996 NET BOOK VALUE . . . . pound sterling 3,818 pound sterling 184,881 pound sterling 3,430
-------------------- ---------------------- --------------------
DECEMBER 31, 1995 NET BOOK VALUE . . pound sterling 3,789 pound sterling 156,365 pound sterling 3,251
==================== ====================== ====================
</TABLE>
<TABLE>
<CAPTION>
MOTOR
VEHICLES TOTAL
------------------ ----------------------
(IN THOUSANDS)
<S> <C> <C>
ACQUISITION COSTS
Balance at January 1, 1996 . . . . . pound sterling 644 pound sterling 179,868
Additions . . . . . . . . . . . . . . -- 32,116
Dispositions . . . . . . . . . . . . (9) (165)
------------------ ----------------------
Balance at March 31, 1996 . . . . . . 635 211,819
------------------ ----------------------
ACCUMULATED DEPRECIATION
Balance at January 1, 1996 . . . . . 328 16,147
Charge for period . . . . . . . . . . 22 3,413
Dispositions . . . . . . . . . . . . (8) (163)
------------------ ----------------------
Balance at March 31, 1996 . . . . . . 342 19,397
------------------ ----------------------
MARCH 31, 1996 NET BOOK VALUE . . . . pound sterling 293 pound sterling 192,422
------------------ ----------------------
DECEMBER 31, 1995 NET BOOK VALUE . . pound sterling 316 pound sterling 163,721
================== ======================
</TABLE>
-10-
<PAGE> 11
DIAMOND CABLE COMMUNICATIONS PLC
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
The Company expended cash to fund investing activities of pound
sterling 155.5 million and pound sterling 36.0 million in the year ended
December 31, 1995 and the first three months of 1996, respectively. In 1995,
net proceeds of pound sterling 56.2 million were received from the sale of
marketable securities, and net cash of pound sterling 108.8 million was
invested in the LCL acquisition. Net cash provided by financing activities in
the year ended December 31, 1995 was pound sterling 212.2 million and net cash
used in financing activities was pound sterling 217,000 in the first three
months of 1996. The Company's investing activities consisted of the ongoing
construction of the network (pound sterling 36.0 million in the first three
months of 1996 and pound sterling 102.9 million in 1995). In 1995 and the
first three months of 1996, the Company generated negative operating cash flows
of pound sterling 4.1 million and pound sterling 1.9 million, respectively.
The Company expects that it will record operating cash flow deficits over the
near term as it incurs costs associated with the accelerated expansion of its
cable network. Diamond's cash and funding requirements historically have been
met principally through equity capital, advances from its shareholders, the
issuances of Senior Notes in September 1994 and December 1995 and from bank and
lease financing.
The Company is currently negotiating a senior syndicated bank loan,
(the "Proposed Senior Bank Facility") of pound sterling 330 million to help
meet the Group's funding requirements. The Company anticipates that the
facility will be made available to one or more Group subsidiaries, which will
be able to draw on only a portion of such facility until the Group begins to
generate specified levels of operating cash flow.
The Group is obligated by the milestones in its telecommunications
licenses and the new LDLs to construct a network to pass an aggregate of
935,301 premises within prescribed time periods. In addition, if the Group is
awarded the Chesterfield LDL, it is expected that the Group will be required to
pass an additional 92,587 homes. Due to financing constraints previously faced
by the Company, the build out of the Company's network did not meet the
Company's original regulatory milestones. LCL also had failed to meet its
original regulatory milestones. In the past, both Diamond and LCL requested
and received appropriate milestone modifications or waivers from the Director
General. The Company does not anticipate that it will meet all of its December
31, 1995 individual franchise milestones until May 1996, except for the Lincoln
franchise milestones which
-11-
<PAGE> 12
the Company does not anticipate meeting until July 1996 at the earliest,
following a request from Lincoln City Council that the Group slow the pace of
construction.
The Company estimates that the total further cost required for its
current construction plan for its network in the Group's franchise areas
(including for these purposes the Chesterfield LDL) will be approximately pound
sterling 620 million prior to January 1, 2001, although the amount could vary
significantly. The Company believes that the proceeds of the offering in
December 1995 of Senior Notes, proceeds from the subscriptions for new equity
that the Company's shareholders are committed to subscribe for (as described
below), the initial tranche available for borrowing under the Proposed Senior
Bank Facility, existing cash and cash flows from operations will be sufficient
to complete the planned construction through the first quarter of 1997.
Thereafter, the Company expects to be able to utilize (through its
subsidiaries) the remaining amounts under the Proposed Senior Bank Facility or,
if such remaining amounts are not available, to obtain further debt or equity
financing.
The statements in the preceding paragraph are forward-looking in nature.
To the extent that (i) the Company is unable to obtain the Proposed Senior Bank
Facility or to borrow amounts thereunder, (ii) the Company is unable to issue
new equity, (iii) the amounts required to complete the Group's planned build
out exceed its estimates or (iv) the Group's operating cash flow does not meet
expectations, the Company will require additional debt or other financing.
There can be no assurance that any such debt financing will be permitted under
the terms of the Group's current and anticipated debt instruments limiting the
incurrence of additional debt, or that any such financing will be available on
acceptable commercial terms or at all. Further, the amount of funding required
by the Group may vary significantly depending on many factors, including the
ability of the Group to meet its construction schedule, variations in
construction costs, the number of customers and the services they subscribe
for, the nature and penetration of new services that may be offered by the
Group in the future and changes in technology. The Group may also make
franchise acquisitions or investments, including investments in LDLs, or
investments in programming, as a result of which additional funds would be
required to complete construction of the network.
Under the terms of the New Senior Notes and, it is expected, under the
Proposed Senior Bank Facility, an event of default will occur if the Company
has not issued new equity for gross cash proceeds of an aggregate of $100
million or more prior to June 30, 1996. The Company's principal existing
shareholders have agreed with the Company to contribute, pro rata to their
existing shareholdings, sufficient capital to permit the Company to
-12-
<PAGE> 13
satisfy this requirement. The failure by the Company to satisfy this
requirement could lead to the acceleration of maturity of the Senior Notes
issued in December 1995 and to defaults under the terms of the Group's other
existing indebtedness, including the Initial Senior Notes. There can be no
assurance that the Company would have sufficient financial resources to repay
such indebtedness in these circumstances.
The Group's revenues are denominated in pounds sterling, while its
obligations to pay interest and principal on the Initial Senior Notes and the
New Senior Notes are denominated in U.S. dollars. Therefore, the Group is
subject to currency exchange risks that may adversely affect the Group's
ability to meet its obligations under its outstanding debt instruments as they
become due.
SELECTED OPERATING DATA
The following table sets forth certain data concerning the Group's
franchises at and for the years ended December 31, 1994 and 1995 and at and for
the three-month period ended March 31, 1996. The combined operating data at
and for the year ended December 31, 1995 reflects the acquisition of LCL on a
pro forma basis as if it had been completed at the beginning of 1995.
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995
--------------------- ------------------------------------------------
DIAMOND LCL
-------------------- --------------------
<S> <C> <C> <C>
Homes passed(1) . . . . . . . . . . . . . . 55,919 222,335 58,976
Homes marketed(1) . . . . . . . . . . . . . 31,330 77,657 48,950
CABLE TELEVISION
Basic service subscribers . . . . . . . . . 8,936 20,261 10,488
Penetration rate of homes marketed(2) . . . 28.5% 26.1% 21.4
Average monthly revenue per subscriber(3) . pound sterling 14.71 pound sterling 16.80 pound sterling 18.89
Churn(4) . . . . . . . . . . . . . . . . . 28.5% 35.5% 31.0
RESIDENTIAL TELEPHONE
Residential lines connected . . . . . . . . 14,150 36,122 16,576
Penetration rate of homes marketed(2) . . . 45.2% 46.5% 33.9
Average monthly revenue per line(5) . . . . pound sterling 18.83 pound sterling 18.68 pound sterling 22.19
Churn(4) . . . . . . . . . . . . . . . . . 13.8% 13.9% 17.2
BUSINESS TELECOMMUNICATIONS
Business customers . . . . . . . . . . . . 979 1,627 772
Business lines connected . . . . . . . . . 3,928 7,036 2,843
Private circuits(6) . . . . . . . . . . . . 70 151 10
Average lines per business(7) . . . . . . . 4.0 4.3 3.7
Average monthly revenue per line(8) . . . . pound sterling 88.68 pound sterling 74.60 pound sterling 59.60
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1995
-------------------- MARCH 31
COMBINED 1996
-------------------- --------------------
<S> <C> <C>
Homes passed(1) . . . . . . . . . . . . . . 281,311 318,541
Homes marketed(1) . . . . . . . . . . . . . 126,607 152,914
CABLE TELEVISION
Basic service subscribers . . . . . . . . . 30,749 36,574
Penetration rate of homes marketed(2) . . . 24.3% 23.9%
Average monthly revenue per subscriber(3) . pound sterling 17.62 pound sterling 18.99
Churn(4) . . . . . . . . . . . . . . . . . 33.8% 36.6%
RESIDENTIAL TELEPHONE
Residential lines connected . . . . . . . . 52,698 64,095
Penetration rate of homes marketed(2) . . . 41.6% 41.9%
Average monthly revenue per line(5) . . . . pound sterling 19.88 pound sterling 19.88
Churn(4) . . . . . . . . . . . . . . . . . 15.0% 16.0%
BUSINESS TELECOMMUNICATIONS
Business customers . . . . . . . . . . . . 2,399 2,714
Business lines connected . . . . . . . . . 9,879 11,054
Private circuits(6) . . . . . . . . . . . . 161 175
Average lines per business(7) . . . . . . . 4.1 4.1
Average monthly revenue per line(8) . . . . pound sterling 70.23 pound sterling 70.70
</TABLE>
- --------------------
(1) Homes marketed is the number of homes passed for which the initial
marketing phase has been completed. Homes marketed in Diamond's franchise
areas were substantially (65% and 61%) below homes passed at December 31,
1995 and March 31, 1996 respectively due principally to the significant
acceleration in construction by the Company and the lead times associated
with activating additional remote hub and switch sites. Homes passed in
Diamonds franchise areas increased by 199,932 homes (357%) from December
31, 1994 to March 31, 1996.
-13-
<PAGE> 14
(2) Penetration rate of homes marketed is calculated by dividing the number of
homes receiving basic cable television or the number of residential lines
connected, as the case may be, on the given date by the total number of
homes marketed for the given service as of such date, expressed as a
percentage.
(3) The average monthly revenue per cable television subscriber is calculated
by dividing total cable television subscriber revenues (excluding
installation revenues) for the period by the average number of cable
television subscribers (calculated as a simple average of the number of
basic service subscribers at the end of each month during the period) and
dividing that amount by 12 (for the years ended December 31, 1994 and
1995), or by three (for the three months ended March 31, 1996).
(4) Churn is calculated by dividing net disconnections (total disconnections
less the number of disconnected accounts for which service is later
restored) in a period by the average number of subscribers in the period
(calculated as a simple average of the number of subscribers at the end of
each month during the period). Churn for the three months ended March 31,
1996 is annualized by multiplying the amount as calculated above by 4.
(5) The average monthly revenue per residential telephone line is calculated
by dividing (i) line and equipment rental, outgoing call charges and
incoming call charges for the period by (ii) the average number of
residential telephone lines (calculated as a simple average of the number
of subscribed lines at the end of each month during the period) and
dividing that amount by 12 (for the years ended December 31, 1994 and
1995) or by three (for the three months ended March 31, 1996).
(6) Private circuits are point-to-point customer specific connections for
which a fixed annual rental charge is made.
(7) Average lines per business is calculated by dividing the number of
business lines connected on the given date by the number of business
customers on such date.
(8) The average monthly business telecommunications revenue per line is
calculated by dividing (i) business telecommunications line and equipment
rental, outgoing call charges and incoming call charges (including revenue
from private circuits) for the period by (ii) the average number of
business telecommunications lines and private circuits (calculated as a
simple average of the number of subscribed lines and private circuits at
the end of each month during the period) and dividing that amount by 12
(for the years ended December 31, 1994 and 1995), or by three (for the
three months ended March 31, 1996).
RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIODS ENDED MARCH 31,
1995 AND 1996
The Group continued to experience significant increases in its
subscribers, revenues and expenses during the three-month period ended March
31, 1996. In general, such increases were attributable to the Group's
continued network construction and marketing of new homes and businesses.
Homes passed by the network increased by 37,230 homes (13%) from December 31,
1995 to March 31, 1996. The number of homes that had been passed by
construction at March 31, 1996 exceeded homes marketed by 165,627 compared to a
difference of 154,704 homes at December 31, 1995. The accelerated pace of
construction coupled with the lead times between construction, activation and
marketing and the time required to construct and activate additional remote hub
and switch sites for the larger network resulted in the increase in homes
passed but not yet marketed.
REVENUE
For the three months ended March 31, 1996, total revenues were pound
sterling 7.8 million, a 214% increase over total revenues of pound sterling 2.5
million for the comparable period in 1995. This growth is attributable to
increases in revenues in all three of Diamond's primary lines of business and
additional revenues of pound sterling 2.5 million resulting from the inclusion
of LCL's results for the three months ended March 31, 1996.
-14-
<PAGE> 15
Business Telecommunications. Business telecommunications revenue was
pound sterling 2.3 million for the three-month period ended March 31, 1996,
compared to pound sterling 1.1 million for the comparable period in 1995,
representing an increase of 105%. This growth was due primarily to an increase
in the number of Diamond's business lines installed from 4,456 at March 31,
1995 to 7,940 at March 31, 1996 and the inclusion of pound sterling 594,000 of
revenue attributable to LCL in the three months to March 31, 1996. There were
3,114 business lines for the LCL operation at March 31, 1996. The growth in
the number of business lines for Diamond is partially offset by lower monthly
revenue per line. The monthly revenue per line for Diamond decreased to pound
sterling 73.04 in the three months ended March 31, 1996 from pound sterling
83.00 in the comparable period in 1995. This decline continued the trend over
the past several quarters and was due to a combination of (i) Diamond's success
in marketing Centrex services which has the effect of increasing the average
number of lines held by existing and new customers taking those services
(Diamond operated 667 Centrex lines at March 31, 1995 compared to 1,849 Centrex
lines at March 31, 1996.), (ii) the installation for existing customers of an
increasing number of lines dedicated to incoming calls in addition to existing
lines dedicated solely to outgoing calls and (iii) a reduction in certain
tariffs in response to price reductions by the competition.
Residential Telephone. Residential telephone revenue increased 312%
in the three months ended March 31, 1996 over the amount for the corresponding
period in 1995. The growth in residential telephone revenue resulted from an
increase in the number of Diamond's residential telephone lines from 16,812 at
March 31, 1995 to 45,033 at March 31, 1996 and the inclusion of pound sterling
1,273,000 of residential telephone revenue for LCL for the three months to
March 31, 1996. Monthly revenue per line for Diamond increased from pound
sterling 18.36 for the three-month period ended March 31, 1995 to pound
sterling 18.44 in the three-month period ended March 31, 1996. At the same
time, Diamond's line penetration rate of homes marketed of 45.6% at March 31,
1996 remained relatively stable as compared to the 45.8% at March 31, 1995.
Cable Television. Cable television revenues increased 298% from
pound sterling 492,000 in the three months ended March 31, 1995 to pound
sterling 1.9 million in the comparable period in 1996. This growth in cable
television revenue was primarily due to a combination of (i) an increase in the
number of Diamond's cable television subscribers which rose from 9,481 at March
31, 1995 to 24,847 at March 31, 1996, (ii) an increase in the average monthly
revenue per subscriber from pound sterling 17.25 in the three months ended
March 31, 1995 to pound sterling 18.89 in the three months ended March 31, 1996
and (iii) the inclusion of cable television revenue for LCL for the three
months to March 31, 1996 of pound sterling 647,000. The increase in average
revenue per subscriber is primarily due to increases in cable television
pricing.
-15-
<PAGE> 16
Penetration of homes marketed can be affected by churn. The Group's
churn rate (annualized) for the first three months of 1996 was 36.6% as
compared to 33.8% for the 1995 full year and 46.9% for the first three months
of 1995. Diamond's churn rate was 40.2% during the first quarter of 1996, as
compared to 56.5% during the first quarter of 1995 and 35.5% for the year ended
December 31, 1995. Cable television churn tends to be subject to seasonal
variations with the highest churn experienced in the early months of each year.
OPERATING COSTS AND EXPENSES
Telephone expenses, consisting principally of interconnect charges
payable to British Telecommunications PLC ("BT") and Mercury Communications
Limited ("Mercury"), increased from pound sterling 943,000 for the three-month
period ended March 31, 1995 to pound sterling 2,680,000 for the comparable
period in 1996, an increase of 184%. These increases reflect the substantially
larger volume of telephone business generated by the Group. As a percentage of
combined business telecommunications and residential telephone revenues, these
direct costs decreased from 46.8% for the three-month period ended March 31,
1995 to 45.2% for the comparable period in 1996 due in part to reduced
interconnect charges from BT and Mercury.
Direct costs for cable television programming, which generally depend
on the number of subscribers and per-subscriber rates charged by programming
suppliers, increased from pound sterling 266,000 for the three-month period
ended March 31, 1995 to pound sterling 1,175,000 for the comparable period in
1996, a 342% increase. As a percentage of cable television revenues, these
direct costs were 54% for the three-month period ended March 31, 1995 and 60%
for the same period in 1996. The percentage increase in the first quarter of
1996 compared to the first quarter of 1995 stemmed from an increase in rates
charged by certain programming suppliers and increases in the number of
channels provided as part of program packages, which were not fully offset by
increases in the subscriber rate charged by Diamond.
Selling, general and administrative expenses increased by 174% from
pound sterling 1.8 million for the three-month period ended March 31, 1995 to
pound sterling 4.8 million for the comparable period in 1996. The increases
were due to a combination of increased sales commissions and higher
administration costs associated with the expansion of the Group's business and
the inclusion of expenses of pound sterling 687,000 related to LCL during the
first three months of 1996.
Depreciation and amortization expenses increased by 250% when
comparing the three-month period ended March 31, 1995 to the comparable period
in 1996. These increases were attributable to the increasing size of the
Company's network as well as the LCL acquisition.
-16-
<PAGE> 17
INTEREST AND OTHER INCOME/EXPENSES
Net interest expense was pound sterling 1.9 million and pound
sterling 8.8 million during the first three months of 1995 and 1996,
respectively. The 1996 increase is due primarily to the accretion of the
discount on the Senior Notes of pound sterling 9.4 million, and other interest
expense of pound sterling 0.5 million, which was partially offset by interest
received of pound sterling 1.1 million through temporary investment of the
proceeds of the Senior Notes.
Other expenses during 1996 included an unrealized gain of pound sterling
689,000 on the mark-to-market valuation of an interest rate swap commitment.
FOREIGN EXCHANGE
A substantial portion of the Group's existing debt obligations are
denominated in dollars, while the Group's revenues and accounts are generated
and stated in pounds sterling. Foreign currency translation gains and losses,
except for unrealized gains and losses on available-for-sale securities are
reported as part of the profit or loss of the Group. For the three months
ended March 31, 1996, the Group has recognized an unrealized foreign exchange
loss on the translation of its Senior Note liability of pound sterling 5.3
million and a net realized foreign exchange loss of pound sterling 75,000
relating to its operations.
The Company does not expect to enter into transactions to hedge the
risk of exchange rate fluctuations but keeps its position under review.
Therefore, changes in currency exchange rates may continue to have a material
effect on the results of operations of the Group and may materially affect the
Group's ability to satisfy its debt obligations.
NET PROFIT/LOSS
As a result of the foregoing factors, Diamond had net losses of pound
sterling 19.0 million in the three-month period ended March 31, 1996, compared
to a net profit of pound sterling 58,000 recorded in the comparable period of
1995.
-17-
<PAGE> 18
DIAMOND CABLE COMMUNICATIONS PLC
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
None.
(b) Reports on Form 8-K -
None.
-18-
<PAGE> 19
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.
DIAMOND CABLE COMMUNICATIONS PLC
Date: May 9, 1996 By: /s/ ROBERT GOAD
------------------------
Robert Goad
(Chief Executive Officer)
Date: May 9, 1996 By: /s/ NICHOLAS MILLARD
------------------------
Nicholas Millard
(Chief Financial Officer)
Date: May 9, 1996 By: /s/ DUNCAN CRAIG
------------------------
Duncan Craig
(Chief Accounting Officer)
<PAGE> 20
EXHIBIT INDEX
- -------------
Exhibit No. Description
- ---------- -----------
EX-27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-Q DATED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> MAR-31-1996
<CASH> 55,937
<SECURITIES> 0
<RECEIVABLES> 5,283
<ALLOWANCES> 1,051
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 211,819
<DEPRECIATION> 19,397
<TOTAL-ASSETS> 364,032
<CURRENT-LIABILITIES> 0
<BONDS> 322,530
0
0
<COMMON> 1,094
<OTHER-SE> 5,692
<TOTAL-LIABILITY-AND-EQUITY> 364,032
<SALES> 0
<TOTAL-REVENUES> 7,883
<CGS> 0
<TOTAL-COSTS> 13,353
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 278
<INTEREST-EXPENSE> 9,961
<INCOME-PRETAX> (18,976)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18,976)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,976)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
