<PAGE> 1
Filed pursuant to Rule 424(b)(3)
Registration Statement No. 333-25193
PROSPECTUS SUPPLEMENT NO. 1 TO PROSPECTUS DATED AUGUST 13,1997
DIAMOND CABLE COMMUNICATIONS PLC
13 1/4% SENIOR DISCOUNT NOTES DUE SEPTEMBER 30, 2004
11 3/4% SENIOR DISCOUNT NOTES DUE DECEMBER 15, 2005
--------------
Interest will not accrue on the Senior Notes prior to February 15, 2002.
Interest on the Senior Notes will be payable on February 15 and August 15 of
each year, commencing August 15, 2002 at a rate of 10 3/4% per annum. See at any
time on or after February 15, 2002, at the redemption prices set forth herein
plus accrued and unpaid interest, if any, to the date of redemption. The Senior
Notes will also be redeemable in whole, but not in part, at the option of the
Company at any time at 100% of the principal amount at maturity (or, prior to
February 15, 2002 at 100% of Accreted Value) plus accrued and unpaid interest,
if any, to the date of redemption in the event of certain tax law changes
requiring the payment of additional amounts as described herein. See
"Description of the Senior Notes -- Redemption". Upon the occurrence of a Change
of Control, the Company is required to offer to repurchase all outstanding
Senior Notes at 101% of principal amount at maturity (or, prior to February 15,
2002, at 101% of Accreted Value on the date of repurchase), plus accrued and
unpaid interest , if any, to the date of repurchase. See "Description of Senior
Notes -- Certain Comments -- Change of Control". There can be no assurance that
the Company would have the financial resources necessary or otherwise be able to
repurchase the Senior Notes under such circumstances.
The Senior Notes constitute unsecured senior indebtedness of the Company.
In April 1997, certain of the Company's subsidiaries entered into an amended
senior bank lending facility which will permit, subject to certain conditions
and covenants, borrowing of up to pound sterling 175 million. Indebtedness under
the senior bank lending facility will be effectively senior to the Senior Notes,
as such indebtedness will be incurred by a subsidiary of the Company, guaranteed
by certain of the Company's other subsidiaries and secured by liens on the
assets of certain of the Company's subsidiaries and a pledge of the issued
shares of certain of the Company's subsidiaries other than Jewel Holdings
Limited. The Company is a holding company which conducts substantially all of
its business through subsidiaries, all of which are wholly-owned. The Senior
Notes effectively rank junior to any indebtedness of the Company's subsidiaries
to the extent of the assets of such subsidiaries and to any secured indebtedness
of the Company to the extent of the assets securing such indebtedness. At March
31, 1997, the Group had approximately pound sterling 501 million of indebtedness
outstanding, including approximately pound sterling 126 million and pound
sterling 211 million in accreted value of the 1994 Notes and the 1995 Notes,
respectively, and approximately pound sterling 153 million in accreted value of
the Old Notes. The Company has not issued, and does not have any current plans
to issue, any significant indebtedness that will be subordinated to the Senior
Notes. The Senior Notes rank pari passu with the 1994 Notes and the 1995 Notes.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
This prospectus Supplement, together with the Prospectus date August 13,
1997 is to be used by Goldman, Sachs & Co. in connection with offers and sales
of the of the Senior Notes related to market-making transactions at negotiated
prices related to prevailing market prices at the time of sale. The Company will
not receive any of the proceeds of such transactions. Goldman, Sachs & Co. may
act as a principal or agent in such transactions. See "Plan of Distribution"
in the Prospectus.
GOLDMAN, SACHS & CO.
--------------
The date of this Prospectus Supplement is August 13, 1997.
25
<PAGE> 2
GENERAL
This Prospectus Supplement should be read in conjunction with the
Prospectus dated August 13, 1997. This Prospectus Supplement, together with the
Prospectus, is to be used by Goldman, Sachs & Co. in connection with offers and
sales related to market making transactions and unsolicited purchases and sales.
Capitalized terms used in this prospectus Supplement and not otherwise
defined have the same meanings as in the Prospectus.
RECENT DEVELOPMENTS
Operating Results. Attached hereto is the Company's Quarterly Report on
Form 10-Q filed on August 13, 1997, which includes, among other things, the
Company's unaudited interim financial statements as of, and for the three and
six months periods ended June 30, 1997, and Management's Discussion and Analysis
of Financial Condition and Results of Operations for the three and six months
periods ended June 30, 1997.
26
<PAGE> 3
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 June 30, 1997
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 June 30, 1997 was 59,138,791.
<PAGE> 4
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 and six months ended
June 30, 1997 and 1996.......................... 5
Unaudited condensed consolidated balance sheets--
June 30, 1997 and December 31, 1996............. 6
Unaudited condensed consolidated statements of
shareholders' equity -- Three and six months
ended June 30, 1997............................. 7
Unaudited condensed consolidated statements of cash
flows -- Six months ended June 30, 1997
and 1996........................................ 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................... 23
SIGNATURES.................................................. 24
- ----------
</TABLE>
2
<PAGE> 5
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 Communications (UK) Limited (formerly Diamond Cable
(Nottingham) Limited) ("DCL") and its subsidiaries and (ii) a group of
companies comprising East Midlands Cable Group Limited ("EMCG"), East Midlands
Cable Communications Limited and East Midlands Cable Holdings Limited
(collectively "LCL"), in both cases through an intermediate holding company,
Jewel Holdings Limited ("Jewel"). References herein to the "Group" refer to
the Company and its subsidiaries, including, since September 27, 1995, LCL, and
references 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 1.2
million homes and an estimated 60,600 businesses within its contiguous
franchise areas. As of June 30, 1997, the Group's cable television and
telecommunications network had passed by civils construction approximately
490,700 homes and an estimated 25,100 businesses, of which portions of the
network passing approximately 424,500 homes and an estimated 20,600 businesses
had been activated. As of that date, the Group also had approximately 122,900
residential telephone lines, 63,600 cable television subscribers and 23,000
business telephone lines. Through that date, Pounds Sterling 367 million had
been invested (at original cost) in the construction of the network and related
systems.
____________________
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> 6
The Company operates only in the United Kingdom and, accordingly,
publishes its financial statements in pounds sterling. In this Report,
references to "pounds sterling," "Pounds Sterling " "pence" or "p" are to the
lawful currency of the United Kingdom and references to "U.S. dollars," "$" or
"cents" 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 $1.6650 per Pounds 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 June 30,
1997. On August 11, 1997, the Noon Buying Rate was $1.5902 per Pounds Sterling
1.00.
4
<PAGE> 7
Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DIAMOND CABLE COMMUNICATIONS PLC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------------ ------------------------------------------
1996 1997 1997 1996 1997 1997
------------ ------------ ------------ ------------ ------------ ------------
(NOTE 1) (NOTE 1)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
REVENUE
Business telecommunications............... L 2,682 L 3,347 $5,573 L 5,053 L 6,520 $10,856
Residential telephone..................... 4,331 6,761 11,257 7,882 12,932 21,532
Cable television.......................... 2,327 3,879 6,458 4,288 7,697 12,815
----------- ----------- ----------- ----------- ----------- -----------
9,340 13,987 23,288 17,223 27,149 45,203
----------- ----------- ----------- ----------- ----------- -----------
OPERATING COSTS AND EXPENSES
Telephone................................. ( 3,193) ( 2,941) ( 4,897) ( 5,873) ( 5,537) ( 9,219)
Programming............................... ( 1,388) ( 2,258) ( 3,760) ( 2,563) ( 4,550) ( 7,576)
Selling, general, and
administrative............................ ( 5,688) ( 6,367) (10,601) (10,553) (12,568) (20,926)
Depreciation and amortization............. ( 5,102) ( 6,635) (11,047) ( 9,735) (13,015) (21,670)
----------- ----------- ----------- ----------- ----------- -----------
(15,371) (18,201) (30,305) (28,724) (35,670) (59,391)
----------- ----------- ----------- ----------- ----------- -----------
OPERATING LOSS............................ ( 6,031) ( 4,214) ( 7,017) (11,501) ( 8,521) (14,188)
Interest income........................... 704 2,026 3,373 1,868 2,969 4,943
Interest expense and amortization of
debt discount and expenses................ (10,168) (15,019) (25,006) (20,129) (27,200) (45,288)
Foreign exchange gains/(losses) net....... 5,539 6,271 10,441 141 (5,723) (9,528)
Unrealized (loss)/gain on derivative
financial instruments..................... (370) 168 280 319 244 406
Realized gain on derivative financial
instrument................................ -- -- -- -- 11,553 19,236
----------- ----------- ----------- ----------- ----------- -----------
Loss before income taxes.................. (10,326) (10,768) (17,929) (29,302) (26,678) (44,419)
Income taxes.............................. -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
NET LOSS.................................. L(10,326) L(10,768) $(17,929) L(29,302) L(26,678) $(44,419)
=========== =========== =========== =========== =========== ===========
</TABLE>
See the accompanying notes to the Unaudited Condensed Consolidated
Financial Statements.
5
<PAGE> 8
DIAMOND CABLE COMMUNICATIONS PLC
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AT JUNE 30,
AT DECEMBER ----------------------------
31, 1996 1997 1997
------------ ------------ -----------
(NOTE 1)
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents...................... L 18,311 L 125,589 $209,106
Trade receivables (net of allowance for
doubtful accounts of Pounds Sterling 1,691 at
December 31, 1996 and Pounds Sterling 2,176 at
June 30, 1997)................................ 6,389 6,639 11,054
Other assets................................... 3,904 5,887 9,802
Deferred financing costs (less
accumulated amortization of Pounds
Sterling 1,325 at December 31, 1996
and Pounds Sterling 2,523 at
June 30, 1997)................................ 19,573 23,959 39,892
Property and equipment, net (note 3)........... 277,301 317,133 528,026
Goodwill (less accumulated amortization of
Pounds Sterling 6,064 at December 31,
1996 and Pounds Sterling 8,492 at June 30,
1997)......................................... 90,896 88,468 147,299
Franchise costs (less accumulated
amortization of Pounds Sterling 91 at
December 31, 1996 and
Pounds Sterling 106 at June 30, 1997)......... 445 430 716
----------- ----------- ----------
TOTAL ASSETS................................... L 416,819 L 568,105 $945,895
=========== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable............................... L 18,528 L 19,208 $31,981
Other liabilities.............................. 19,150 13,489 22,459
Senior discount notes.......................... 314,418 498,409 829,851
Capital lease obligations...................... 8,146 7,881 13,122
Mortgage loan.................................. 2,477 2,442 4,066
Shareholders' equity
Ordinary shares (70,000,000 authorized;
59,138,791 issued at December 31, 1996 and
at June 30, 1997)............................ 1,478 1,478 2,461
Non-voting deferred shares.................... -- -- --
Additional paid-in-capital.................... 134,466 134,466 223,886
Unrealized loss on securities................. (197) (943) (1,570)
Accumulated deficit........................... (81,647) (108,325) (180,361)
----------- ----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY........................................ L 416,819 L 568,105 $945,895
=========== =========== ==========
</TABLE>
See the accompanying notes to the Unaudited Condensed Consolidated
Financial Statements.
6
<PAGE> 9
DIAMOND CABLE COMMUNICATIONS PLC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL UNREALIZED TOTAL
NON-VOTING PAID- LOSS ON ACCUMULATED SHAREHOLDERS'
ORDINARY SHARES DEFERRED SHARES IN-CAPITAL SECURITIES DEFICIT EQUITY
------------------- --------------- ---------- ---------- ----------- -------------
(IN THOUSANDS EXCEPT SHARE DATA)
NUMBER NUMBER
---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997... 59,138,791 L 1,478 6 -- L 134,466 L (197) L (81,647) L 54,100
Unrealized loss on securities -- -- -- -- -- (746) -- (746)
Net loss..................... -- -- -- -- -- -- (26,678) (26,678)
---------- ------- --- --- --------- ------- ----------- --------
BALANCE AT JUNE 30, 1997..... 59,138,791 L 1,478 6 -- L 134,466 L (943) L (108,325) L 26,676
========== ======= === === ========= ======= =========== ========
BALANCE AT APRIL 1, 1997..... 59,138,791 L 1,478 6 -- L 134,466 L (339) L (97,557) L 38,048
Unrealized loss on securities -- -- -- -- -- (604) -- (604)
Net loss..................... -- -- -- -- -- -- (10,768) (10,768)
---------- ------- --- --- --------- ------- ----------- --------
BALANCE AT JUNE 30, 1997..... 59,138,791 L 1,478 6 -- L 134,466 L (943) L (108,325) L 26,676
========== ======= === === ========= ======= =========== ========
</TABLE>
See the accompanying notes to the Unaudited Condensed Consolidated Financial
Statements.
7
<PAGE> 10
DIAMOND CABLE COMMUNICATIONS PLC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------------------
1996 1997 1997
------------ ----------- ----------
(NOTE 1)
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................... L (29,302) L (26,678) $(44,419)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................. 9,735 13,015 21,670
Unrealized foreign exchange (gains)/losses................ (237) 5,242 8,728
Loss on disposition of assets............................. 11 78 130
Accretion of Senior Note discount......................... 19,090 25,057 41,720
Provision for losses on accounts receivables.............. 363 485 808
Amortization of deferred financing costs.................. 458 1,198 1,994
Change in operating assets and liabilities:
Change in trade receivables............................. (2,432) (735) (1,224)
Change in other assets.................................. (532) (1,983) (3,302)
Change in accounts payable.............................. 3,841 2,163 3,602
Change in other liabilities............................. 659 (5,795) (9,649)
------------ ------------ -----------
Net cash provided by operating activities................... 1,654 12,047 20,058
------------ ------------ -----------
Cash flows from investing activities:
Cash invested in property and equipment................... (65,119) (51,741) (86,149)
Proceeds from disposition of assets....................... 18 39 65
Cash paid for franchises.................................. (7) -- --
------------ ------------ -----------
Net cash used in investing activities....................... (65,108) (51,702) (86,084)
------------ ------------ -----------
Cash flows from financing activities:
Proceeds of issue of debt................................. -- 153,692 255,897
Debt financing costs...................................... (1,153) (5,246) (8,734)
Repayment of mortgage loan................................ -- (35) (58)
Capital element of capital lease repayments............... (510) (732) (1,219)
Issue of shares and capital contributions (net of expenses). 64,664 -- --
------------ ------------ -----------
Net cash provided by financing activities................... 63,001 147,679 245,886
------------ ------------ -----------
Net (decrease)/increase in cash and cash equivalents........ (453) 108,024 179,860
Cash and cash equivalents at beginning of period............ 93,308 18,311 30,488
Effect of exchange rate changes on cash and cash equivalents 165 (746) (1,242)
------------ ------------ -----------
Cash and cash equivalents at end of period.................. L 93,020 L 125,589 $209,106
============ ============ ===========
</TABLE>
See the accompanying notes to the Unaudited Condensed Consolidated
Financial Statements.
8
<PAGE> 11
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 consolidated financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. The consolidated financial statements are stated in pounds sterling
(Pounds Sterling). Merely for convenience the financial statements contain
translations of certain pound sterling amounts into U.S. dollars at $1.6650 per
Pounds 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 June 30, 1997.
2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS
The consolidated financial statements as of and for the periods ended June
30, 1997 and 1996 are unaudited. However, in the opinion of the management,
such statements include all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the results 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 consolidated financial
statements should be read in conjunction with the financial information included
in the Company's 1996 Annual Report on Form 10-K filed with the SEC.
9
<PAGE> 12
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
LAND AND CABLE OFFICE MOTOR
BUILDINGS NETWORK EQUIPMENT VEHICLES TOTAL
--------- --------- --------- -------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ACQUISITION COSTS
Balance at January 1, 1997...... L 5,018 L 298,062 L 6,069 L 435 L 309,584
Additions....................... 35 49,738 749 -- 50,522
Dispositions.................... -- (174) -- (148) (322)
----------- ------------- ---------- ---------- ------------
Balance at June 30, 1997........ 5,053 347,626 6,818 287 359,784
----------- ------------- ---------- ---------- ------------
ACCUMULATED DEPRECIATION
Balance at January 1, 1997...... 314 28,941 2,780 248 32,283
Charge for period............... 83 9,680 775 35 10,573
Dispositions.................... -- (101) -- (104) (205)
----------- ------------- ---------- ---------- ------------
Balance at June 30, 1997........ 397 38,520 3,555 179 42,651
----------- ------------- ---------- ---------- ------------
JUNE 30, 1997 NET BOOK VALUE.... 4,656 309,106 3,263 108 317,133
=========== ============= ========== ========== ============
DECEMBER 31, 1996 NET BOOK VALUE L 4,704 L 269,121 L 3,289 L 187 L 277,301
=========== ============= ========== ========== ============
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
The Company is obligated under the terms of its existing licenses, and
under the milestone requirements of its local delivery licenses ("LDLs"), to
construct cable systems passing a predetermined number of premises. Should the
Company fail to achieve these milestones, without license modifications, the
Director General could commence proceedings to require compliance. Similarly,
the Independent Television Commission ("ITC") may commence proceedings to
require compliance with the build milestones in the LDLs. If the Company is
unable to comply, its licenses in respect of which milestones have not been met
could be revoked, which could have a material adverse effect on the Company.
5. 1997 SENIOR NOTES
On February 21, 1997 the Company issued $420,500,000 of 103/4% Senior
Discount Notes due February 15, 2007 ("the 1997 Senior Notes") at an issue
price of $594.48 per $1,000 principal amount at maturity. Total proceeds
received by the Company amounted to approximately Pounds Sterling 148 million
($240 million) after issuance costs of approximately Pounds Sterling 5 million.
Interest on the 1997 Senior Notes will be payable on February 15 and August 15
of each year commencing August 15, 2002.
10
<PAGE> 13
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 net cash to fund investing activities of Pounds
Sterling 128.2 million and Pounds Sterling 51.7 million in the year ended
December 31, 1996 and the six months ended June 30, 1997, respectively. Net
cash provided by financing activities was Pounds Sterling 54.4 million in the
year ended December 31, 1996 and Pounds Sterling 147.7 million in the six
months ended June 30, 1997. The Company's investing activities consisted
exclusively of the ongoing construction of the network (Pounds Sterling 51.7
million in the first six months of 1997 and Pounds Sterling 128.2 million in
1996). In 1996 the Company's net cash used in operating activities was Pounds
Sterling 1.3 million and in the six months to June 30, 1997 the Company's net
cash provided by operating activities was Pounds Sterling 12.0 million. The
Group's cash and funding requirements historically have been met principally
through the issuance of senior discount notes ("Senior Notes") in September
1994, December 1995 and February 1997 as well as from equity capital, advances
from its shareholders, and from bank and lease financing.
In August 1996, certain of the Company's subsidiaries entered into a
senior bank lending agreement that permitted borrowing up to an aggregate
amount of Pounds Sterling 340 million. In February 1997, the senior bank
facility was amended, and the Company has subsequently negotiated further
amendments to the senior bank facility (as amended, the "Senior Bank
Facility"). These amendments included a reduction in the amount to be
available for borrowing under the facility to Pounds Sterling 175 million to
reflect the additional proceeds available to the Company through its issue of
Senior Notes for proceeds of approximately Pounds Sterling 148 million in
February 1997. DCL will be able to draw on the Senior Bank Facility if certain
conditions are met, including conditions related to the operating cash flow of,
equity contributions to and certain financial ratios of Jewel and its
subsidiaries (together, the "Borrower Group"). To date, no funds have been
drawn under the facility. The facility does allow for the provision of
guarantees and the Company has drawn a bond of Pounds Sterling 1.2 million in
order to meet its obligations under certain of the Group's telecommunications
licenses. Indebtedness under the Senior Bank Facility would be incurred by DCL,
guaranteed by the Borrower Group and secured by a lien on the assets of the
Borrower Group and a pledge of the issued shares of the Borrower Group other
than Jewel but including DCL and LCL.
The further development and construction of the Group's cable television
and telecommunications network will require substantial capital investment. The
Group is obligated by the milestones in its telecommunications licenses and
LDLs to construct and activate a network passing an aggregate of 1,021,894
premises
11
<PAGE> 14
within prescribed time periods. Failure by the Group to meet its milestones
could potentially subject the Group to enforcement orders from OFTEL or the ITC,
which could lead to revocation of the relevant licenses or a shortening of an
LDL period or fines. In addition, under the Senior Bank Facility, failure to
meet the Group's milestone obligations could under certain circumstances prevent
borrowing or result in an event of default. The Group met the required
quarterly milestone obligations under each of its telecommunications licenses as
at June 30, 1997. Principally because of delays by the Department of Trade and
Industry in granting the Group a national telecommunications license, and
consequent delays in the commencement of construction, the Group does not expect
to meet all of its current LDL milestones at the end of 1997. The Group plans to
negotiate with the Independent Television Commission to modify its milestone
obligations.
The Company expects that the Group's residential cable network will extend
approximately 14,300 kilometers (plus 920 kilometers to interconnect the
residential build) and pass approximately 1.2 million homes once completed. The
Company expects the network to be substantially completed by the end of 2001.
The Company currently estimates that the additional capital expenditures
required for the Group to substantially complete the network (including
estimated subscriber connection expenses) will be approximately Pounds Sterling
525 million (of which Pounds Sterling 475 million relates to capital
expenditures occurring from June 30, 1997 through January 1, 2001), although
these amounts could vary significantly.
The Company believes that existing cash and cash equivalents and future
cash flows from operations will be sufficient to complete the planned
construction through the third quarter of 1998, at which time the Group
estimates that approximately 64% of the aggregate final milestones will have
been constructed and activated. Thereafter, the Company will be required to
utilize additional funds, which may include amounts under the Senior Bank
Facility, the availability of which will depend upon the Group's ability to meet
certain covenants, including operating cash flow covenants which the Company
currently believes it will not meet at that time. The Company is currently
renegotiating the Senior Bank Facility; however, to the extent that the Senior
Bank Facility is not available or amounts available thereunder are insufficient,
the Group will be required to obtain further debt and/or equity financing.
DCL will be able to draw on the Senior Bank Facility if it is able in the
future to meet certain conditions, including conditions related to the
operating cash flow of, equity contributions to and certain financial ratios of
the Borrower Group which are not currently met. However, the Group may not be
able to borrow sufficient funds under the Senior Bank Facility to meet its
remaining funding requirements. In particular, even after the initial
conditions to borrowing have been met the amount of funds that may be borrowed
will be limited to a specified multiple of the Borrower Group's reported
annualized cash flow (as defined in the
12
<PAGE> 15
Senior Bank Facility). This reported annualized cash flow will depend on a
number of variables, including revenue generated from business
telecommunications, residential telephone and cable television services, churn,
expenses such as programming costs and interconnect charges, network
construction and development expenditures and financing costs. Adverse
developments in any of these or other areas could adversely affect the Borrower
Group's reported annualized cash flow and reduce amounts available under the
Senior Bank Facility. In particular, the reorganization of the Company's
residential sales force, which has resulted in some delays in the progress of
marketing during the transitional phase, may be expected to both reduce revenue
growth in the short term as the new sales force develops and increase marketing
costs.
To the extent that (i) the Group is unable to utilize fully the Senior
Bank Facility, (ii) the amounts required to complete the Group's planned build
out exceed its estimates or (iii) the Borrower Group's reported annualized cash
flow (as defined in the Senior Bank Facility) does not meet expectations, the
Group will require additional debt and/or equity financing. There can be no
assurance that any such debt financing will be permitted under the terms of the
Group's debt instruments, which limit the incurrence of additional debt by the
Group, or that any such debt or equity financing will be available on
acceptable commercial terms or at all.
The foregoing information with regard to expected completion times, future
capital expenditures and the sufficiency of funding is forward-looking in
nature. Due to factors identified in the preceding two paragraphs and below,
actual results may differ materially from the expected results. There can be no
assurance that (i) conditions precedent to advances or the availability of
funds under any of the Group's existing and anticipated debt instruments will
be satisfied when funds are required; (ii) the Group will be able to generate
sufficient cash from operations to meet any unfunded portion of its capital
requirements when required; (iii) the cost of constructing and activating the
network will not increase significantly; (iv) the Group will not acquire
additional franchise areas, which would require additional capital
expenditures; or (v) the Group will not incur losses from foreign currency
transactions or its exposure to foreign currency exchange rate fluctuations.
The inability of the Group to secure additional financing could result in
a failure to comply with the minimum build milestones set forth in its licenses
and could ultimately lead to the revocation of such licenses.
The Group's revenues are denominated in pounds sterling, while its
obligations to pay interest and principal on the three series of Senior Notes
are denominated in U.S. dollars. Therefore,
13
<PAGE> 16
the Company and the Group are subject to currency exchange risks that may
adversely affect their ability to meet their obligations, including obligations
under 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, 1995 and 1996 and at and for
the three-month period ended March 31, 1997 and the six month period ended June
30, 1997. 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, March 31, JUNE 30,
----------------------------------------------------- ----------- -----------
1995 1996 1997 1997
----------------------------------------- --------- ----------- -----------
DIAMOND LCL COMBINED
----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Homes passed by civils construction(1)....... 222,335 58,976 281,311 453,496 473,741 490,781
Homes activated(2)........................... 105,951 51,955 157,906 347,246 366,513 424,593
Homes marketed(3)............................ 77,657 48,950 126,607 252,601 280,990 313,994
CABLE TELEVISION
Basic service subscribers.................... 20,261 10,488 30,749 59,242 60,008 63,642
Penetration rate of homes marketed(4)........ 26.1% 21.4% 24.3% 23.5% 21.4% 20.3%
Average monthly revenue per subscriber(5).... L 16.80 L 18.89 L 17.62 L 18.03 L 20.35 L 20.07
Churn(6)..................................... 35.5% 31.0% 33.8% 40.9% 46.8%(7) 42.2%(7)
RESIDENTIAL TELEPHONE
Residential lines connected.................. 36,122 16,576 52,698 104,460 111,881 122,953
Penetration rate of homes marketed(4)........ 46.5% 33.9% 41.6% 41.4% 39.8% 39.2%
Average monthly revenue per line(8)(9)....... L 18.68 L 22.19 L 19.88 L 18.40 L 18.62 L 18.70
Pro-forma average monthly revenue per line(9) L 18.11 L 21.35 L 19.22 L 18.64 L 18.62 L 18.70
Churn(6)..................................... 13.9% 17.2% 15.0% 20.6% 18.1%(7) 17.8%(7)
BUSINESS TELECOMMUNICATIONS
Business customers accounts.................. 1,627 772 2,399 3,935 4,339 4,777
Business lines connected..................... 7,036 2,843 9,879 18,932 20,874 23,073
Private circuits(10)......................... 151 10 161 226 232 239
Average lines per business(11)............... 4.3 3.7 4.1 4.8 4.8 4.8
Average monthly revenue per line(9)(12)...... L 74.60 L 59.60 L 70.23 L 50.17 L 47.14 L 47.05
Pro-forma average monthly revenue per line(9) L 72.02 L 56.88 L 67.70 L 51.25 L 47.14 L 47.05
</TABLE>
(1) Homes passed by civils is the number of homes that have had ducting
buried outside.
(2) Homes activated is the number of homes that are capable of receiving
cable service without further extension of transmission lines, apart from
the final connection to the home.
(3) Homes marketed is the number of homes activated for which the initial
marketing phase has been completed.
(4) 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.
(5) 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 twelve (for the years ended December 31, 1995 and
1996) by three (for the three months ended March 31, 1997), or by six (for
the six months ended June 30, 1997).
14
<PAGE> 17
(6) 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,
1997 is annualized by multiplying the amount as calculated above by four.
Churn for the six months ended June 30, 1997 is annualized by multiplying
the amount as calculated above by two.
(7) The Company changed the method of calculating churn from the quarter
ended March 31, 1997 to eliminate from the number of net disconnected
accounts those subscribers who disconnect from the service when moving
residence and reconnect to the service in their new residence. These
subscribers could not be identified under the Company's information
systems prior to the first quarter of 1997 and were therefore included in
the churn calculation as disconnected accounts. If churn for the quarter
to March 31, 1997 were calculated on a basis consistent with prior periods
churn would have been (annualized) 49.7% and 21.9% for cable television
and residential telephone, respectively. If churn for the six months to
June 30, 1997 were calculated on a basis consistent with prior periods
churn would have been (annualized) 45.6% and 21.8% for cable television
and residential telephone, respectively. The difference between churn on
the new and prior bases is not necessarily indicative of the adjustment
that would arise if it were possible to recalculate the churn for prior
periods.
(8) 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 twelve (for the years ended December 31, 1995 and
1996), by three (for the three months ended March 31, 1997), or by six
(for the six months ended June 30, 1997). .
(9) The calculation of the average monthly revenue per line (for both
residential telephone and business telecommunication revenues) for the
year to December 31, 1996 reflects the reduction in revenues stemming from
rebates to BT on incoming termination revenues relating in part to 1995
but recorded in full against revenues in 1996. The rebates were
calculated in accordance with recently revised interconnect agreements
with BT that were made effective retroactively from April 1995. The
pro-forma average monthly revenue per line (for both residential telephone
and business telecommunications revenues) gives effect to the revised
interconnect agreements as if they had been in effect from April 1995 and
allocates to each period the portion of the rebates that relates to such
period.
(10) Private circuits are point-to-point customer specific connections for
which a fixed annual rental charge is made.
(11) Average lines per business account is calculated by dividing the number
of business lines connected on the given date by the number of business
customer accounts on such date.
(12) 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
twelve (for the years ended December 31, 1995 and 1996) , by three (for
the three months ended March 31, 1997), or by six (for the six months
ended June 30, 1997).
RESULTS OF OPERATIONS FOR THE THREE AND SIX-MONTH PERIODS ENDED JUNE 30,
1996 AND 1997
The Group continued to experience increases in its subscribers, revenues
and expenses during the six month period ended June 30, 1997. In general,
these increases were attributable to the Group's continued network
construction, activation and marketing of new homes and businesses. Homes
passed by civils construction increased by 37,285 homes (8.2%) and homes
activated increased by 77,347 (22.3%) from December 31, 1996 to June 30, 1997.
During the six months to June 30, 1997 the Company's pace of civils
construction slowed due in part to the Company's efforts to reduce the gap
between homes passed by civils construction and homes activated and in part to
the phase out during the period of one of the Company's largest civils
contractors, which went into liquidation. The pace of activation increased in
the three month period to June 30, 1997 as compared to the three months to
March 31, 1997 as the Group continued to focus on its milestone obligations,
which are measured in terms of homes activated. The
15
<PAGE> 18
Group met the required quarterly milestone obligations under each of its
telecommunications licenses as at June 30, 1997. Principally because of delays
by the Department of Trade and Industry in granting the Group a national
telecommunications license, and consequent delays in the commencement of
construction, the Group does not expect to meet all of its current LDL
milestones at the end of 1997. The Group plans to negotiate with the
Independent Television Commission to modify its milestone obligations.
In addition, in order to improve the management and quality of the
residential sales force, in February 1997 the Company terminated arrangements
with its independent sales contractors and began to develop its own internal
sales force through direct hiring of residential sales people. Prior to this
reorganization, the sales force comprised approximately 150 residential sales
people who were employed by the independent contractors that the Group paid on
a full commission basis. The Group now employs residential sales people
directly and pays them on the basis of a salary plus sales commission. At June
30, 1997, the Company employed approximately 110 residential sales people,
including some former contracted sales people who were hired by the Company in
accordance with its employment criteria following interviews. All of these
sales people will undergo a training process which is intended to promote their
long-term effectiveness but which may delay their productivity in the short
term. The Company is planning to increase the number of residential sales
people further. The reorganization has delayed the progress of marketing and
affected penetration in the areas being marketed during this transitional
period. At June 30, 1997, residential telephone line penetration was 39.2% and
cable television penetration was 20.3% from 41.4% and 23.5%, respectively, at
December 31, 1996. Penetration rates for residential telephone and cable
television were 41.2% and 23.3% at June 30, 1996.
REVENUE
For the three months ended June 30, 1997, total revenues were Pounds
Sterling 14.0 million, a 50% increase over total revenues of Pounds Sterling
9.3 million for the comparable period in 1996. For the six months ended June
30, 1997 total revenues were Pounds Sterling 27.1 million, a 58% increase over
total revenues of Pounds Sterling 17.2 million for the comparable period in
1996. This growth is attributable to increases in revenues in all three of the
Group's primary lines of business.
As a result of entering into revised interconnect agreements with BT which
will apply retroactively, the Company will receive outgoing interconnect charge
rebates relating to all periods prior to December 31, 1996 and must pay
incoming termination rebates relating to the period from April 1, 1995 to
December 31, 1996. Based on interim rates for the period from January 1, 1997,
no rebates will be payable to or due from BT for the six month period to June
30, 1997. The rebates that will be
16
<PAGE> 19
paid to BT relating to the incoming termination element amount to an estimated
Pounds Sterling 1,351,000 based on final rates for the twelve month period from
April 1, 1995 and interim rates for the nine month period from April 1, 1996.
This amount has been provided by reducing residential telephone and business
telecommunications revenues in 1996 by Pounds Sterling 776,000 and Pounds
Sterling 575,000, respectively, of which Pounds Sterling 224,000 and Pounds
Sterling 150,000, respectively, relates to the three month period ended June
30, 1996 and Pounds Sterling 374,000 and Pounds Sterling 272,000, respectively,
relates to the six month period ended June 30, 1996. The total amount of
rebates to be received by the Company will be determined by the parties once BT
has furnished to the Company a proposed calculation and supporting data and
OFTEL has determined the final rates applicable for the period from April 1,
1996. The Company has estimated that the amount of the rebate due to the
Company from BT will exceed the amount of the rebates to be provided by the
Company to BT. Pending final determination of rebates, the Company has
recognized a reduction in interconnect charges in the same period during which
the related reduction in revenues is being recognized. Accordingly, a
reduction in telephone expenses of Pounds Sterling 1,351,000 has been recorded
in 1996 of which Pounds Sterling 374,000 relates to the three month period
ended June 30, 1996 and Pounds Sterling 646,000 relates to the six month period
ended June 30, 1996.
The analysis of revenue and average revenue per line is provided below on
the basis of revenues as reported as well as on a pro-forma basis for periods
up to December 31, 1996 adjusting for the incoming termination rebates in the
appropriate periods as if the revised interconnect agreements and the final
rates for the year to March 31, 1996 and interim rates for the nine months to
December 31, 1996 had been in effect.
Business Telecommunications. Business telecommunications revenues were
Pounds Sterling 3.3 million and Pounds Sterling 6.5 million for the three and
six month periods ended June 30, 1997 compared to Pounds Sterling 2.7 million
and Pounds Sterling 5.1 million, respectively(pro-forma Pounds Sterling 2.5
million and Pounds Sterling 4.7 million, respectively) for the comparable
period in 1996, representing increases of 25% and 29%, respectively (34% and
37%, respectively, on a pro-forma basis). The growth in reported revenues is
due primarily to an increase in the number of business lines installed from
15,273 at June 30, 1996 to 23,073 at June 30, 1997, an increase of 51%. The
growth in the number of business lines was partially offset by lower monthly
revenue per line. The monthly revenue per line decreased from Pounds Sterling
60.95 in the six months to June 30, 1996 (Pounds Sterling 57.28 on a pro-forma
basis) to Pounds Sterling 47.05 in the comparable period in 1997. This decline
was due to a combination of (i) the Group'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 (the Company operated 9,737
Centrex lines at June 30, 1997 compared to 6,340 Centrex lines at June 30, 1996
and 2,832 Centrex lines at March 31, 1996, representing 42.2%, 41.5% and 25.6%
of the total number of business lines at each of those dates, respectively),
(ii) a reduction in certain tariffs in response to price reductions by
competitors, including BT, the Group's principal competitor for business
telecommunications
17
<PAGE> 20
services which reduced in June 1996 and May 1997 its prices by an average of
about 10% for most of its business customers and made smaller price reductions
at other times during 1996 and 1997, and (iii) the installation for existing
customers of an increasing number of lines utilized for incoming calls in
addition to existing lines dedicated solely to outgoing calls. Monthly revenue
per line has remained relatively stable over the past 12 months. The Company
may lower prices in the future if considered appropriate for competitive
reasons.
Residential Telephone. Residential telephone revenues were Pounds
Sterling 6.8 million and Pounds Sterling 12.9 million in the three and six
month periods, respectively, to June 30, 1997 compared to Pounds Sterling 4.3
million and Pounds Sterling 7.9 million, respectively, (Pounds Sterling 4.2
million and Pounds Sterling 7.6 million, respectively, on a pro-forma basis)
for the comparable period in 1996, an increase of 56% and 64%, respectively,
(62% and 70%, respectively, on a pro-forma basis). The growth in residential
telephone revenue is due primarily to an increase in the number of residential
telephone lines from 78,429 at June 30, 1996 to 122,953 at June 30, 1997,
representing an increase of 57%. The number of residential telephone lines
increased by 11,072 during the three months to June 30, 1997, as compared to an
increase of 7,421 during the three months to March 31, 1997. Monthly revenue
per line was Pounds Sterling 19.44 and Pounds Sterling 19.63 (pro-forma Pounds
Sterling 18.65 and Pounds Sterling 18.91) in the three and six month periods,
respectively, to June 30, 1996 and Pounds Sterling 18.78 and Pounds Sterling
18.70 in the comparable periods, respectively, in 1997. Overall tariffs were
reduced for subscribers in the Leicester franchise in July 1996 to conform
tariffs for all the Group's subscribers together with additional call tariff
reductions in late 1996 and during the six months to June 30, 1997. These call
tariff reductions were partly offset by increases in line rental charges in
January 1997. The Company will continue to review and adjust its tariffs to
maintain price competitiveness. The churn rate (annualized) was 17.5% for the
three months to June 30, 1997 compared to 18.1% for the three months to March
31, 1997. The churn rate (annualized) was 17.8% for the first six months of
1997 (21.8% before taking into account the new adjustments described above in
Note 7 to the Selected Operating Data) as compared to 17.9% in the comparable
period in 1996. The increase in churn in 1997 is attributable in part to a
stricter disconnect policy for certain customers and ongoing efforts by BT
aimed at regaining former customers.
Cable Television. Cable television revenues increased from Pounds
Sterling 2.3 million and Pounds Sterling 4.3 million in the three and six month
periods to June 30, 1996, respectively, to Pounds Sterling 3.9 million and
Pounds Sterling 7.7 million in the comparable periods in 1997, representing
increases of 67% and 79%, respectively. This growth in cable television
revenue was primarily due to a combination of increases in the number of cable
television subscribers and average revenue per subscriber. The number of cable
television subscribers rose from 44,402 at June 30, 1996 to 63,642 at June 30,
1997, an increase of 43%. In the three months to June 30, 1997, the Group
gained 3,634
18
<PAGE> 21
net new subscribers, as compared to 766 net new subscribers in the three
months to March 31, 1997. Average monthly revenue per subscriber increased
from Pounds Sterling 18.18 and Pounds Sterling 18.54, respectively, for the
three and six month periods ended June 30, 1996 to Pounds Sterling 19.80 and
Pounds Sterling 20.07, respectively, for the comparable periods in 1997. The
increase in average revenue per subscriber was primarily due to increases in
cable television pricing offset in part by lower premium pay channel
penetration in the six months to June 30, 1997 compared to the same period in
1996.
The Group's annualized churn was 37.8% in the three months to June 30, 1997
compared to 46.8% in the three months to March 31, 1997 (41.5% and 49.7%,
respectively, before taking into account the new adjustments described above in
Note 7 to the Selected Operating Data), as compared to 38.1% and 36.6% in the
three months to June 30, 1996 and the three months to March 31, 1996,
respectively. The Group's annualized churn was 42.2% for the six months to June
30, 1997 (45.6% before taking into account the new adjustments described above
in Note 7 to the Selected Operating Data) as compared to 37.4% in the comparable
period in 1996. The Company believes that the increase in churn was due in part
to the continuing effect of increases in the fourth quarter of 1996 in premium
channel subscription rates which led certain longer-term customers who had
previously benefitted from grandfathered rates, to disconnect service, the
effect of an increase in the basic subscription rate, additional price increases
resulting from the Company passing on to its customers a new BSkyB charge for
Sky Sports 3 (which BSkyB provided to its own sports subscribers at no
additional charge) and other aggressive promotional activity of BSkyB, as well
as to the application of a stricter disconnect policy relating to non-payment.
With the aim of reducing churn among new subscribers, the Company has begun to
require payment of an installation fee in connection with the subscription for
new residential services and is evaluating other means to reduce its churn in
the future.
OPERATING COSTS AND EXPENSES
Telephone expenses, consisting principally of interconnect charges payable
to BT, Mercury, Energis, and Global One decreased from Pounds Sterling 3.2
million for the three month period ended June 30, 1996 to Pounds Sterling 2.9
million in the comparable period in 1997, and from Pounds Sterling 5.9 million
in the six month period ended June 30, 1996 to Pounds Sterling 5.5 million in
the comparable period in 1997. On a pro-forma basis reflecting the apportioned
reduction in interconnect charges resulting from the revised interconnect
agreements in the appropriate periods to which they relate, telephone expenses
would have been Pounds Sterling 2.8 million and Pounds Sterling 5.2 million in
the three and six month periods, respectively, to June 30, 1996. As a
percentage of combined business telecommunications and residential telephone
revenues, these direct costs decreased from 46% and 45% (40% and 41% on a
pro-forma basis) in the three and six month periods, respectively, to June 30,
1996 to 29% and 28% in the comparable
19
<PAGE> 22
periods in 1997 due primarily to reduced interconnect charges paid to
these operators.
Direct costs for cable television programming, which generally depend on
the number of subscribers and per-subscriber rates charged by programming
suppliers, increased from Pounds Sterling 1.4 million in the three months to
June 30, 1996 to Pounds Sterling 2.3 million in the comparable period in 1997,
a 63% increase, and from Pounds Sterling 2.6 million for the six month period
to June 30, 1996 to Pounds Sterling 4.6 million in the comparable period in
1997, a 78% increase.
As a percentage of cable television revenues, these direct costs were 60%
for both the three and six month periods to June 30, 1996, and were 58% and 59%
for the three and six month periods to June 30, 1997, respectively.
Selling, general and administrative expenses increased by 12% from the
three months to June 30, 1996 to the comparable period in 1997 and by 19% from
the six months to June 30, 1996 to the comparable period in 1997. The
increases were due to higher administration costs associated with the expansion
of the Company's business.
Depreciation and amortization expenses increased by 30% from the three
month period to June 30, 1996 to the comparable period in 1997 and by 34% from
the six month period to June 30, 1996 to the comparable period in 1997. This
increase was attributable to the increasing size of the Company's network.
INTEREST INCOME/EXPENSE
Interest expense was Pounds Sterling 10.2 million and Pounds Sterling 15.0
million for the three months to June 30, 1996 and three months to June 30,
1997, respectively, and Pounds Sterling 20.1 million and Pounds Sterling 27.2
million for the six months to June 30, 1996 and six months to June 30, 1997,
respectively. The increase from 1996 to 1997 is due primarily to the accretion
of the discount on the Senior Notes of Pounds Sterling 13.9 million during the
second quarter of 1997 and Pounds Sterling 25.1 million during the first half
of 1997 compared to Pounds Sterling 9.6 million and Pounds Sterling 19.1
million, respectively, in the comparable periods in 1996 as well as other
interest expense of Pounds Sterling 0.5 million in the three-month period ended
June 30, 1997 and Pounds Sterling 1.0 million in the first six months of 1997.
In addition, amortization of debt financing costs was Pounds Sterling 0.7
million in the three-month period ended June 30, 1997 and Pounds Sterling 1.2
million in the first six months of 1997. Interest received in the three month
period ended June 30, 1997 was Pounds Sterling 2.0 million and Pounds Sterling
3.0 million in the six-month period ended June 30, 1997, through temporary
investment of the proceeds of the 1997 Senior Notes.
20
<PAGE> 23
FOREIGN EXCHANGE
A substantial portion of the Group's existing debt obligations are
denominated in U.S. 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. In the
year ended December 31, 1996, the Group recognized an unrealized foreign
exchange gain on the translation of its liability on the Senior Notes issued in
1994 and 1995 of Pounds Sterling 31.5 million, an unrealized gain on its
short-term securities of Pounds Sterling 0.1 million and a net realized foreign
exchange loss of Pounds Sterling 0.4 million relating to its operations. During
the six months ended June 30, 1997, the Group recorded a net foreign exchange
loss of Pounds Sterling 5.7 million primarily due to the unrealized loss on
translation of its liability on the Senior Notes.
GAINS ON DERIVATIVE FINANCIAL INSTRUMENTS
Unrealized gains on derivative financial instruments of Pounds Sterling
0.2 million in the six months to June 30, 1997 consist of a gain of Pounds
Sterling 0.3 million on the mark-to-market valuation of two foreign exchange
forward contracts (referred to below), partly offset by a loss of Pounds
Sterling 0.1 million on the mark-to-market valuation of an interest rate swap
commitment.
The Company entered into a foreign exchange forward contract on November
1, 1996 for settlement on May 6, 1997 to sell Pounds Sterling 200 million at a
rate of $1.6289 to Pounds Sterling 1. On January 31, 1997 an offsetting
agreement was entered into at a rate of $1.6014 to Pounds Sterling 1. The
offsetting contracts were settled on February 6, 1997 with a payment of
approximately Pounds Sterling 3.4 million to the Company. Because of changes in
prevailing rates, the Company recorded for the year ended December 31, 1996, an
unrealized loss of approximately Pounds Sterling 8.1 million on the pounds
sterling sell forward contract which partially offset the gain that was
recorded on the translation of the U.S. dollar denominated obligations on the
1994 Senior Notes and 1995 Senior Notes during the same period. During the
first quarter of 1997, the Company has recorded a gain of approximately Pounds
Sterling 11.5 million on the two offsetting forward contracts, reflecting the
reversal of an Pounds Sterling 8.1 million loss referred to above and the
approximately Pounds Sterling 3.4 million cash payment on settlement of the
contracts. The realized gain on the foreign exchange forward contract in the
first quarter of 1997 largely offset the unrealized loss that was recorded in
the same period on the translation of the U.S. dollar denominated obligations
on the Senior Notes. The Company entered into a foreign exchange forward
contract on June 23, 1997 for settlement on June 25, 1998 to sell Pounds
Sterling 50 million at a rate of $1.6505 to Pounds Sterling 1. The Company
also entered into a foreign exchange forward contract on June 27, 1997 for
settlement on July 1, 1998 to sell Pounds Sterling 50 million at a rate of
$1.6515 to Pounds Sterling 1. The
21
<PAGE> 24
Company has the opportunity to roll forward these contracts in order to
cover specific dollar liabilities when they arise or to crystallize a profit at
any stage thought appropriate. Therefore the accounting treatment of these
contracts, which are not designated to an asset or liability, are recorded on
the balance sheet in other assets or other liabilities at their market value.
Any gains or losses are recognized in the statement of operations. The Company
may from time to time in the future enter into similar foreign currency
contracts based on its assessment of foreign currency market conditions and
their effect on the Group's operations and financial condition. 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 Company
and the Group's ability to satisfy their obligations, including obligations
under outstanding debt instruments, as they become due.
NET LOSS
As a result of the foregoing factors, Diamond had net losses of Pounds
Sterling 10.8 million in the three-month period ended June 30, 1997, compared
to a net loss of Pounds Sterling 10.3 million recorded in the comparable period
of 1996, and a loss of Pounds Sterling 26.7 million for the six-month period
ended June 30, 1997 compared to a loss of Pounds Sterling 29.3 million in the
comparable period of 1996.
22
<PAGE> 25
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.
23
<PAGE> 26
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
<TABLE>
<S> <C>
Date: August 12, 1997 By: /s/ Robert Goad
--------------------------
Robert Goad
(Chief Executive Officer)
Date: August 12, 1997 By: /s/ Nicholas Millard
___________________________
Nicholas Millard
(Chief Financial Officer)
Date: August 12, 1997 By: /s/ Duncan Craig
___________________________
Duncan Craig
(Chief Accounting Officer)
</TABLE>
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