UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Quarterly Period Ended:
JUNE 30, 1999
OR
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from ________ to ________.
Commission File Number 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)
44-115-952-2222
- --------------------------------------------------------------------------------
(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, 1999 was 59,138,791. The Registrant is an
indirect, wholly owned subsidiary of NTL Incorporated and there is no market for
the Registrant's shares.
<PAGE>
DIAMOND CABLE COMMUNICATIONS PLC
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of
Operations for the Six and Three months ended
June 30, 1999 and 1998 (Unaudited).......................2
Condensed Consolidated Balance Sheets as of
June 30, 1999 (Unaudited) and December 31, 1998..........3
Condensed Consolidated Statement of
Shareholders' Deficiency for the Six months
ended June 30, 1999 and 1998 (Unaudited).................4
Condensed Consolidated Statements of Cash Flows for
the Six months ended June 30, 1999 and 1998 (Unaudited)..5
Notes to the Condensed Consolidated
Financial Statements (Unaudited).....................6 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................9 - 13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.............................................14
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................14
SIGNATURES........................................................15
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DIAMOND CABLE COMMUNICATIONS PLC
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
1999 1998 1999 1998
-------------------- -------------------- ------------------- --------------------
(in (UK Pound)000's)
<S> <C> <C> <C> <C>
Revenues
Business telecommunications....... (UK Pound)11,393 (UK Pound)8,999 (UK Pound)5,660 (UK Pound)4,667
Residential telephone............. 29,581 20,831 15,175 10,991
Cable television.................. 14,895 11,356 7,731 5,897
-------------------- -------------------- ------------------- --------------------
55,869 41,186 28,566 21,555
-------------------- -------------------- ------------------- --------------------
Operating costs and expenses
Telephone......................... (11,480) (7,921) (5,899) (4,183)
Programming....................... (8,026) (6,191) (4,094) (3,166)
Selling, general and (21,338) (17,924) (10,315) (9,195)
administrative..................
Depreciation and amortization..... (27,768) (19,650) (15,200) (10,330)
Other expenses (Note 3)........... (8,893) (360)
-------------------- -------------------- ------------------- --------------------
(77,505) (51,686) (35,868) (26,874)
-------------------- -------------------- ------------------- --------------------
Operating loss....................... (21,636) (10,500) (7,302) (5,319)
Interest income...................... 5,388 6,881 3,027 3,875
Interest expense and amortization of
debt discount and expenses........ (47,954) (40,415) (24,509) (21,456)
Foreign exchange gains/(losses), (34,864) 10,165 (14,868) (2,332)
net...............................
Unrealized gain on derivative
financial instruments.............
Realized gain on derivative 412 2,302
financial instruments.............
-------------------- -------------------- ------------------- --------------------
Net loss............................. ((UK Pound)99,066) ((UK Pound)33,457) ((UK Pound)43,652) ((UK Pound)22,930)
==================== ==================== =================== ====================
</TABLE>
See accompanying notes.
2
<PAGE>
DIAMOND CABLE COMMUNICATIONS PLC
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31, 1998
1999
-------------------- -----------------------
(in (UK Pound)000's, except share data)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents..................................... (UK Pound)212,940 (UK Pound)164,738
Trade receivables - less allowance for doubtful accounts of
(UK Pound)4,079 (1999) and (UK Pound)4,775 (1998) 11,458 9,873
Other assets.................................................. 4,582 2,229
-------------------- ----------------------
Total current assets.............................................. 228,980 176,840
Deferred financing costs (less accumulated amortization of
(UK Pound)6,032 at June 30, 1999 and (UK Pound)4,830 19,120 20,322
at December 31, 1998).........................................
Property and equipment (note 4)................................... 494,332 465,866
Goodwill (less accumulated amortization of (UK Pound)18,188
at June 30, 1999 and (UK Pound)15,764 at 78,771 81,196
December 31, 1998.............................................
Franchise costs (less accumulated amortization of (UK Pound)234
at June 30, 1999 and (UK Pound)219 at December 31, 1998 382 397
-------------------- ----------------------
Total assets............................................... (UK Pound)821,585 (UK Pound)744,621
==================== -=====================
Liabilities and shareholders' (deficiency)
Current liabilities
Accounts payable.............................................. (UK Pound)26,719 (UK Pound)28,514
Accounts payable deposit (note 5)............................. 101,709
Current portion of long-term debt............................. 2,455 2,135
Other liabilities............................................. 23,285 20,411
-------------------- ----------------------
Total current liabilities.................................. 154,168 51,060
Senior discount notes............................................. 662,217 592,763
Senior notes...................................................... 204,711 201,154
Capital lease obligations......................................... 3,639 5,002
Mortgage loan..................................................... 2,245 2,338
Shareholders' (deficiency):
Ordinary shares (70,000,000 authorized; 59,138,791 issued) 1,478 1,478
Non-voting deferred shares (6 shares authorized and issued)
Additional paid-in capital.................................... 134,466 134,466
Accumulated other comprehensive (loss)........................ (1,367)
Accumulated deficit........................................... (341,339) (242,273)
-------------------- ----------------------
(205,395) (107,696)
-------------------- ----------------------
Total liabilities and shareholders' (deficiency).................. (UK Pound)821,585 (UK Pound)744,621
==================== -=====================
</TABLE>
Note: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date.
See accompanying notes.
3
<PAGE>
DIAMOND CABLE COMMUNICATIONS PLC
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' (DEFICIENCY)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional other
Non-voting Paid comprehensive
Ordinary Shares deferred shares in-capital (loss)/gain
--------------- --------------- ---------- -----------
(in 000's except share data)
Number Number
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999. 59,138,791 (UK Pound)1,478 6 -- (UK Pound)134,466 ((UK Pound)1,367)
Unrealized gain on
securities............... -- -- -- -- -- 1,367
Net loss................... -- -- -- -- -- --
---------- --------------- --- --- ----------------- ----------------
Balance at June 30, 1999... 59,138,791 (UK Pound)1,478 6 -- (UK Pound)134,466 (UK Pound)
========== =============== === === ================= ================
</TABLE>
<TABLE>
<CAPTION>
Total
Accumulated Shareholders'
Deficit Deficit
------- -------
<S> <C> <C>
Balance at January 1, 1999. ((UK Pound)242,273) ((UK Pound)107,696)
Unrealized gain on
securities............... -- 1,367
Net loss................... (99,066) (99,066)
------------------ ------------------
Balance at June 30, 1999... ((UK Pound)341,339) ((UK Pound)205,395)
================== ==================
</TABLE>
See accompanying notes.
4
<PAGE>
DIAMOND CABLE COMMUNICATIONS PLC
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
--------------------- ---------------------
(in 000's)
<S> <C> <C>
Net cash provided by operating activities................................ (UK Pound)107,116 (UK Pound)15,637
--------------------- ---------------------
Investing Activities
Purchase of property and equipment.................................... (57,469) (64,973)
Proceeds from disposition of assets................................... 12 65
--------------------- ---------------------
Net cash used in investing activities............................. (57,457) (64,908)
--------------------- ---------------------
Financing Activities
Proceeds of issue of debt............................................. 202,381
Debt financing costs.................................................. (6,527)
Repayment of debt..................................................... (108) (21)
Capital element of capital lease repayments........................... (1,349) (1,122)
--------------------- ---------------------
Net cash (used in) provided by financing activities............... (1,457) 194,711
--------------------- ---------------------
Net increase in cash and cash equivalents................................ 48,202 145,440
Cash and cash equivalents at beginning of period......................... 164,738 75,680
--------------------- ---------------------
Cash and cash equivalents at end of period............................... (UK Pound)212,940 (UK Pound)221,120
===================== =====================
</TABLE>
See accompanying notes.
5
<PAGE>
DIAMOND CABLE COMMUNICATIONS PLC
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
Diamond Cable Communications Plc (the "Company") owns and operates cable
television and telecommunications systems through its subsidiaries. The
accompanying unaudited condensed consolidated financial statements of the
Company and its subsidiaries (the "Group") have been prepared in accordance
with U.S. generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The consolidated financial statements are stated in
pounds sterling ((UK Pound)). In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six and three
months ended June 30, 1999 and 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted by the
Company effective January 1, 2001. The Company is evaluating the impact the
adoption of SFAS No. 133 will have on its earnings and financial position.
2. Comprehensive loss
Comprehensive loss for the six and three-month periods to June 30, 1999 and
1998 was (UK Pound)(97,699), (UK Pound)(44,253), (UK Pound)(35,158) and (UK
Pound)(22,590), respectively.
3. NTL Incorporated Acquisition
On March 8, 1999, the share exchange whereby all of the holders of the
Company's ordinary and deferred shares exchanged their shares for newly
issued common stock of NTL Incorporated ("NTL") was completed. As a result,
the Company became a wholly-owned subsidiary of NTL. Other expenses of (UK
Pound)8.9 million consist of costs incurred in connection with the Share
Exchange Agreement, including fees paid to Goldman, Sachs & Co. and
Columbia Management for their role as joint financial advisors to the
Company in examining potential business opportunities and other strategic
alternatives leading up to the share exchange.
In connection with the provisions of the indentures pursuant to which the
Company's debt securities were issued, the Company was required to make an
offer to repurchase such debt securities at a price of 101% of their
accreted value or principal amount following a "change of control." The
Company commenced offers to repurchase its outstanding debt securities on
April 1, 1999. The offers expired on April 30, 1999. The Company paid (UK
Pound)66,000 to repurchase the tendered debt securities.
6
<PAGE>
DIAMOND CABLE COMMUNICATIONS PLC
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
4. Property and Equipment
Property and equipment consists of:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------------- --------------------
(unaudited)
<S> <C> <C>
Land and Buildings................................... (UK Pound)7,963 (UK Pound)7,483
Cable Network........................................ 589,411 538,472
Office Equipment..................................... 13,795 11,637
Motor Vehicles....................................... 1,157 961
-------------------- --------------------
612,326 558,553
Accumulated depreciation............................. (117,994) (92,687)
-------------------- --------------------
(UK Pound)494,332 (UK Pound)465,866
==================== ====================
</TABLE>
5. Joint Purchasing Alliance Agreement
The Company and NTL entered into a Joint Purchasing Alliance Agreement (the
"Alliance Agreement") on March 5, 1999, pursuant to which the Company acts
as purchasing agent on behalf of a number of subsidiaries of NTL. Under the
terms of the Alliance Agreement, on March 8, 1999, the Company received a
deposit of (UK Pound)137 million from various subsidiaries of NTL. Funds
held by the Company under the Alliance Agreement are recorded on the
balance sheet as Cash and Cash Equivalents and Accounts Payable-Deposits.
6. Summarized Financial Information
On February 6, 1998, Diamond Holdings plc ("Diamond Holdings"), a
subsidiary of the Company, issued (UK Pound)135,000,000 principal amount of
its 10% Senior Notes due February 1, 2008 and $110,000,000 principal amount
of its 9 1/8% Senior Notes due February 1, 2008 (together, the "1998
Notes".) The 1998 Notes have been fully and unconditionally guaranteed by
the Company as to principal, interest and other amounts due. Net proceeds
received by Diamond Holdings amounted to approximately (UK Pound)195.0
million after issuance costs of approximately (UK Pound)7.0 million.
The following table presents summarized consolidated financial information
for Diamond Holdings as of and for the six months ended June 30, 1999. This
summarized financial information is being provided pursuant to Section G of
Topic 1 of Staff Accounting Bulletin No. 53--"Financial Statement
Requirements in Filings Involving the Guarantee of Securities by a Parent".
The Company will continue to provide such summarized financial information
for Diamond Holdings for as long as the 1998 Notes remain outstanding and
guaranteed by the Company.
7
<PAGE>
DIAMOND CABLE COMMUNICATIONS PLC
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
(Unaudited)
<TABLE>
<CAPTION>
Diamond Holdings plc (note a)
--------------------------------------------------
Six months
ended Year ended
June 30, December 31,
1999 1998
------------------------- ---------------------
(in thousands)
<S> <C> <C>
Summarized Consolidated Income
Statement Information
Revenue..................................... (UK Pound)55,869 (UK Pound)88,756
Operating costs and expenses................ 69,120 105,914
Net loss for the period..................... ((UK Pound)94,115) ((UK Pound)87,556)
========================= =====================
June 30, December 31,
1999 1998
------------------------- ---------------------
(in thousands)
Summarized Consolidated Balance Sheet
Information
Fixed and noncurrent assets................. (UK Pound)579,421 (UK Pound)553,740
Current assets.............................. 19,956 148,415
------------------------- ---------------------
Total assets................................ (UK Pound)599,377 (UK Pound)702,155
========================= =====================
Current liabilities......................... (UK Pound)51,352 (UK Pound)48,030
Noncurrent liabilities...................... 836,718 849,750
Shareholders deficit........................ (288,693) (195,625)
------------------------- ---------------------
Total liabilities and shareholders interest. (UK Pound)599,377 (UK Pound)702,155
========================= =====================
<FN>
(a) Diamond Holdings was incorporated on December 15, 1997 and is a
wholly-owned, direct subsidiary of Diamond Cable Communications Plc. On
January 16, 1998 Diamond Holdings became the intermediate holding company
which holds all of the shares of all Group companies. The Summarized
Financial Information shows operating results as if Diamond Holdings became
the intermediate holding company on January 1, 1998.
</FN>
</TABLE>
8
<PAGE>
DIAMOND CABLE COMMUNICATIONS PLC
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Liquidity and Capital Resources
The Group's cash and funding requirements historically have been met principally
through the issuance of the Company's senior discount notes in September 1994,
December 1995 and February 1997 (collectively, the "Discount Notes"), as well as
from equity capital, advances from its shareholders, and from bank and lease
financing. In February 1998, a subsidiary of the Company, Diamond Holdings,
issued the 1998 Notes, raising net proceeds of approximately (UK Pound)195
million. The 1998 Notes are guaranteed by the Company as to payment of
principal, interest and any other amounts due. In connection with the issuance
of the 1998 Notes, the Group terminated its existing bank facility. The further
development and construction of the Group's cable television and
telecommunications network will require substantial capital investment. The
Group expects the network to be substantially completed by the end of 2004. The
Company currently estimates that the additional capital expenditures from July
1, 1999 required for the Group to substantially complete construction sufficient
to satisfy its aggregate milestone obligations of approximately 1.02 million
premises (including estimated subscriber connection expenses) will be
approximately (UK Pound)265 million, although further capital expenditures would
be required to substantially complete the network. These expenditures could vary
significantly depending on the number of customers actually connected to the
network, the availability of construction resources, the impact of competition
from other cable or telecommunications operators or television delivery
platforms, the pace of the Group's construction program and other factors,
including those described below.
At June 30, 1999, the Group had constructed and activated a network consisting
approximately 74% of its aggregate milestones. The Group estimates that existing
cash resources and estimated future cash flows from operations will be
sufficient to complete the construction and activation of its network to almost
85% of its aggregate final milestones, which level the Group estimates it will
achieve in the 3rd quarter of 2000. Thereafter, the Group will be required to
obtain further debt and/or equity financing to complete construction sufficient
to satisfy its aggregate milestones. To the extent that (i) the amounts required
to construct the Group's network to meet its milestones exceed its estimates,
(ii) the Group's cash flow does not meet expectations or (iii) the Group
continues its construction of the network beyond its milestone obligations, the
amount of further debt and/or equity financing required will increase. There can
be no assurance that any such debt or equity financing will be available to the
Group on acceptable commercial terms or at all.
Results of Operations for the Six and Three Month Periods Ended June 30, 1999
and 1998
Revenues
Total revenues were (UK Pound)55.9 million and (UK Pound)28.6 million for the
six and three month periods respectively to June 30, 1999 compared to (UK
Pound)41.2 million and (UK Pound)21.6 million, respectively, for the comparable
periods in 1998, representing increases of 36% and 32% respectively. This growth
is attributable to increases in revenues in all three of the group's primary
lines of business.
Business Telecommunications. Business telecommunications revenues were (UK
Pound)11.4 million and (UK Pound)5.7 million for the six and three month periods
respectively to June 30, 1999 compared to (UK Pound)9.0 million and (UK
Pound)4.7 million for the comparable periods in 1998, representing increases of
27% and 21%, respectively. The growth in reported revenues is due primarily to
an increase in the number of business lines installed to 45,097 at June 30, 1999
from 33,947 at June 30, 1998, an increase of 33%. The average monthly revenue
per line decreased to (UK Pound)40.67 in the six months to June 30, 1999 from
(UK Pound)44.50 in the comparable period in 1998. The decrease was due to a
combination of, (i) continued increases in centrex lines which have a lower
average revenue per line than other business customer lines and (ii) reductions
in certain tariffs in response to price reductions by competitors, offset in
part by increased call usage per line. The Company may lower prices in the
future if necessary for competitive reasons.
Residential Telephone. Residential telephone revenues were (UK Pound)29.6
million and (UK Pound)15.2 million for the six and three month periods,
respectively to June 30, 1999 compared to (UK Pound)20.8 million and (UK
Pound)11.0 million for the comparable periods in 1998,
9
<PAGE>
DIAMOND CABLE COMMUNICATIONS PLC
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
representing increases of 42% and 38%, respectively. The growth in residential
telephone revenue is due primarily to an increase in the number of residential
telephone lines to 261,265 at June 30, 1999 from 197,369 at June 30, 1998,
representing an increase of 32%. Average monthly revenue per line was (UK
Pound)19.46 and (UK Pound)19.38 in the six and three month periods, respectively
to June 30, 1999 and (UK Pound)18.77 and (UK Pound)18.76, respectively for the
comparable periods in 1998. The increase in average revenues was largely due to
increased call usage (particularly in calls to mobile telephones and internet
service providers) which outweighed reductions in incoming termination tariffs
during 1998 and the first six months of 1999.
Cable Television. Cable television revenues were (UK Pound)14.9 million and (UK
Pound)7.7 million for the six and three month periods respectively to June 30,
1999, compared to (UK Pound)11.4 million and (UK Pound)5.9 million for the
comparable periods in 1998, representing increases of 31% in both periods. This
growth in cable television revenue was primarily due to an increase in the
number of the Company's cable television subscribers which rose to 147,332 at
June 30, 1999 from 98,694 at June 30 1998, an increase of 49%. The Company's
average monthly revenue per subscriber has been reduced during 1999, being (UK
Pound)17.90 and (UK Pound)17.16 for the six and three months to June 30, 1999
respectively, compared to (UK Pound)19.88 and (UK Pound)19.81 for the comparable
periods in 1998. This is due to the availability of lower priced entry level
packages for new subscribers and a reduction in the number of subscribers taking
premium channels.
Operating Costs and Expenses
Telephone expenses, consisting principally of interconnect charges payable to
BT, Mercury, Energis and Global One were (UK Pound)11.5 million and (UK
Pound)5.9 million for the six and three month periods, respectively to June 30,
1999, and (UK Pound)7.9 million and (UK Pound)4.2 million for the six and three
month periods, respectively to June 30, 1998. As a percentage of combined
business telecommunications and residential telephone revenues, these direct
costs increased to 28% in the six and three-month periods to June 30, 1999 from
27% for the comparable periods in 1998 due primarily to volume increases in
lower margin tariff streams such as mobile communications and internet access.
Direct costs for cable television programming, which generally depend on the
number of subscribers and per-subscriber rates charged by programming suppliers,
were (UK Pound)8.0 million and (UK Pound)4.1 million for the six and three month
periods, respectively to June 30, 1999 compared to (UK Pound)6.2 million and (UK
Pound)3.2 million for the comparable periods in 1998. As a percentage of cable
television revenues, these direct costs decreased to 54% from 55% in the six
month periods to June 30, 1999 and 1998, respectively and to 53% from 54% in the
three month periods ended June 30, 1999 and 1998 respectively. The decrease was
in large part due to an increased proportion of subscribers on high margin basic
entry level packages and a reduction in the number of subscribers taking premium
channels.
Selling, general and administrative expenses were (UK Pound)21.3 million and (UK
Pound)10.3 million, respectively for the six and three month periods to June 30,
1999 and (UK Pound)17.9 million and (UK Pound)9.2 million for the comparable
periods in 1998. The increase was due to higher administration and sales force
costs associated with the expansion of the Company's business together with
additional LDL costs which commenced in 1999. As a percentage of total revenues
however, these costs decreased to 38% and 36%, respectively for the six and
three month periods to June 30, 1999 from 44% and 43% in the comparable periods
in 1998.
Depreciation and amortization expenses increased by 41% and 47% respectively for
the six and three month periods to June 30, 1999 from the comparable periods in
1998. This increase was attributable to the increasing cost of the Company's
network and the related additional depreciation.
Other expenses of (UK Pound)8.9 million and (UK Pound)0.4 million in the six and
three month periods to June 30, 1999 relate to costs incurred in connection with
the Share Exchange Agreement, including fees paid to Goldman, Sachs & Co. and
Columbia Management for their role as joint financial advisors to the Company in
examining potential business opportunities and other strategic alternatives
leading up to the share exchange.
10
<PAGE>
DIAMOND CABLE COMMUNICATIONS PLC
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
Interest Expense
Interest expense was (UK Pound)48.0 million and (UK Pound)24.5 million in the
six and three-month periods ended June 30, 1999, respectively, compared to (UK
Pound)40.4 million and (UK Pound)21.5 million in the comparable periods in 1998.
The increase is due primarily to the accretion on the Discount Notes of (UK
Pound)36.6 million and (UK Pound)18.8 million in the six and three-month periods
to June 30, 1999 compared to (UK Pound)31.1 million and (UK Pound)15.9 million
respectively in the comparable periods in 1998 and interest on the 1998 notes of
(UK Pound)9.9 million and (UK Pound)5.0 million in the six and three-month
periods ended June 30, 1999 respectively, compared to (UK Pound)7.9 million and
(UK Pound)4.9 million in the comparable periods in 1998. In addition,
amortization of debt financing costs was (UK Pound)1.2 million and (UK
Pound)600,000 in the six and three month periods ended June 30, 1999,
respectively, compared to (UK Pound)1.0 million and (UK Pound)600,000, in the
comparable period in 1998.
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. During the six and three months ended June 30, 1999,
the Group recorded a net foreign exchange loss of (UK Pound)34.9 million and (UK
Pound)14.9 million, respectively, primarily due to the unrealized losses on
translation of its liability on the Discount Notes and 1998 Notes. During the
six and three months ended June 30, 1998, the Group recognized a net foreign
exchange gain of (UK Pound)10.2 million and a net foreign exchange loss of (UK
Pound)2.3 million, respectively, primarily due to the unrealized losses and
gains on translation of its liability on the Discount Notes and 1998 Notes.
Derivative Financial Instruments
The Company entered into a foreign exchange forward contract on June 23, 1997
for settlement on June 25, 1998 to sell (UK Pound)50 million at a rate of
$1.6505 to (UK Pound)1. The Company also entered into a foreign exchange forward
contract on June 27, 1997 for settlement on July 1, 1998 to sell (UK Pound)50
million at a rate of $1.6515 to (UK Pound)1. On June 16, 1998 two offsetting
agreements were entered into at rates of $1.6326 and $1.6322 to (UK Pound)1. The
offsetting contracts were settled on June 17, 1998 with a payment of (UK
Pound)1.1 million to the Company. Realized gains on derivative financial
instruments of (UK Pound)400,000 in the six months to June 30, 1998 and (UK
Pound)2.3 million in the three months to June 30, 1998 consist primarily of the
settlement on these two contracts. The Company continues to monitor conditions
in the foreign exchange market and may from time to time enter into foreign
currency contracts based on its assessment of foreign currency market conditions
and their effect on the Company's operations and financial condition. Therefore,
changes in currency exchange rates may continue to have an effect on the results
of operations of the Group and may affect the Company's ability to satisfy its
obligations, including obligations under outstanding debt instruments, as they
become due.
Condensed Consolidated Statement of Cash Flows
Net cash provided by operating activities amounted to (UK Pound)107.1 million
and (UK Pound)15.6 million for the six months ended June 30, 1999 and 1998,
respectively. During the six months ended June 30, 1999, net cash provided by
operating activities includes the Joint Purchasing Alliance Agreement deposit of
(UK Pound)137 million from various subsidiaries of NTL, exchange losses of (UK
Pound)36.5 million compared to gains of ((UK Pound)10.0) million in the prior
period and changes in working capital as a result of the timing of receipts and
disbursements.
Net cash used in investing activities amounted to (UK Pound)57.5 million and (UK
Pound)64.9 million for the six months ended June 30, 1999 and 1998,
respectively. During the six months ended June 30, 1999 and June 30, 1998 net
cash used in investing activities includes purchases of fixed assets of (UK
Pound)57.5 million and (UK Pound)64.9 million as a result of continuing fixed
asset purchases in 1999.
Net cash (used in) provided by financing activities was ((UK Pound)1.5) million
and (UK Pound)194.7 million for the six months ended June 30, 1999 and 1998,
respectively. During the six months ended June 30, 1998, net cash provided by
financing activities includes (UK Pound)202.4 million relating to the proceeds
of debt offset by financing costs of (UK Pound)6.5 million.
11
<PAGE>
DIAMOND CABLE COMMUNICATIONS PLC
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
Information Systems - Year 2000
The future operations of the Group depend on its network infrastructure and
certain other systems performing correctly over the change of millennium and on
subsequent dates. The correct handling of date information is therefore
essential and detailed test programs are underway for all crucial
telecommunications and cable television network and systems infrastructure.
The Group has had an overall program in place since 1997. The Group has split
its business into the following areas, which encompass IT systems and non-IT
systems containing embedded technology:
o Network and switches
o MIS
o Network construction
o Facilities
o Suppliers
o CATV network
o Customer equipment
o Internet
A project leader has been nominated in each business area with overall
responsibility for the Year 2000 computer problem for that area. Each Business
unit's plan addresses the specific phases to be undertaken, including
identification and awareness, evaluation/impact analysis, strategy development,
implementation, and testing. Every project leader is a member of the Year 2000
Compliance Committee, sponsored by the Managing Director and chaired by the IT
Director. Additionally, to ensure a rigorous and cohesive approach, a Program
Manager is responsible for coordinating and monitoring the entire program
against defined plans to completion.
The Group has installed Year 2000 compliant software for the telecommunications
switches and network control systems. The cable television infrastructure has
been upgraded and is currently undergoing functionality tests with tested and
compliant Y2K operating systems and applications.
Other systems critical to business operations, such as the subscriber management
systems and the financial and accounting systems, are maintained by the vendors.
With the exception of the subscriber management system, the vendors have
supplied versions of these critical systems which are designed to be Year 2000
compliant and were subject to a through testing program that was completed in
1998. The vendors have expressed confidence that any problems that may currently
exist can be rectified in a timely manner. The most recent upgrade to the
subscriber management system has been satisfactorily tested for Year 2000
compliance. The personal computer and Local Area Network (LAN) infrastructures
have been surveyed and tested. Non-compliant elements are expected to be
replaced by the end of September 1999, together with a wider functionality
upgrade to increase LAN bandwidth.
The Group depends, to some extent, on third party suppliers for the supply of
telecommunications, cable television, systems for customer service and billing,
as well as building facilities and supples, Maintenance contracts exist for
critical elements and assurance has been sought from all suppliers of critical
services that they will continue to supply the services without interruption. To
date, it has not been necessary to obtain alternate suppliers.
Costs incurred in connection with Year 2000 compliance are not material. Costs
incurred to date are (UK Pound)100,000, and it is estimated that a further (UK
Pound)100,000 will be required for replacement of personal computer elements,
program management and associated costs. Software upgrades to the network, cable
television and systems infrastructure are supplied as part of the normal
maintenance contracts. Other components being replaced are otherwise due for
replacement through obsolescence.
Should the telecommunications network fail to operate correctly over the date
change, the business of the Group would be materially adversely affected.
Similarly, should the cable television network, the subscriber management system
or the personal computer network fail to operate correctly, this could also have
materially adverse consequences to the
12
<PAGE>
DIAMOND CABLE COMMUNICATIONS PLC
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
Group. The impact of failure of the critical network, cable television and
system components could be significant. Therefore, significant effort is being
devoted to rigorous testing programs to ensure that any potential problems are
identified and rectified in a timely manner. Despite the efforts being expended
by the Group, there can be no assurance that Year 2000 compliance issues will
not have a material adverse effect on the Group's operations.
Preparatory contingency planning has been performed to address critical issues
of customer support, technical support, and management representation. A
Group-wide review has been completed to assess the suitability of current
arrangements and modify enhance as required. Detailed contingency plans for each
business area have been defined and are currently being embodied into a
Group-wide business continuity plan which will address preventative as well as
corrective measures to deal with potential disasters. Risks and uncertainties
relate to systems, software, equipment, and all services, which the Group has
assessed as being critical to business operations, financial impact, customer
service, and safety. Significant effort has also been devoted to verify and
assist in the Year 2000 remediation efforts of the Group's trading partners and
suppliers where they could have an effect on the Group's operations.
Additionally, business continuity and contingency arrangements across the Group
are being analyzed to assess the effect of possible interdependencies and
inter-relationships, and identify opportunities for mutual aid. Appropriate
training will be given to people where new or modified processes are in place to
deal with millennium issues, and increased levels of support are being assigned
as required.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
Certain statements contained herein constitute "forward-looking statements" as
that term is defined under the Private Securities Litigation Reform Act of 1995.
When used herein, the words, "believe," "anticipate," "should," "intend,"
"plan," "will," "expects," "estimates," "projects," "positioned," "strategy,"
and similar expressions identify such forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from those
contemplated, projected, forecasted, estimated or budgeted, whether expressed or
implied, by such forward-looking statements. Such factors include the following:
general economic and business conditions in the United Kingdom, the Company's
ability to continue to design networks, install facilities, obtain and maintain
any required governmental licenses or approvals and finance construction and
development, all in a timely manner at reasonable costs and on satisfactory
terms and conditions, as well as assumptions about customer acceptance, churn
rates, overall market penetration and competition from providers of alternative
services, the impact of new business opportunities requiring significant
up-front investment, Year 2000 readiness, and availability, terms and deployment
of capital.
13
<PAGE>
DIAMOND CABLE COMMUNICATIONS PLC
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There have been no material changes in the reported market risks since
the end of the most recent fiscal year.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K
27.0 Financial Data Schedule.
(b) Reports on Form 8-K -
During the quarter ended June 30, 1999, the Company filed the
following report on Form 8-K Report dated March 8, 1999 (filed
May 20, 1999), reporting under Item 1, Changes in Control of
Registrant, that effective March 8, 1999, NTL Incorporated
acquired all of the ordinary and deferred shares of the
Registrant, and under Item 4, Changes in Registrant's Certifying
Accountant, that on May 17, 1999, KPMG resigned as independent
accountants of the Registrant, and under Item 5, Other Events,
that on May 4, 1999, the Company announced the expiration of the
debt tender offers.
No financial statements were filed with this report.
14
<PAGE>
DIAMOND CABLE COMMUNICATIONS PLC
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
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: August 12, 1999 By: /s/ Leigh C. Wood
---------------------------
Leigh C. Wood
(Chief Operating Officer)
Date: August 12, 1999 By: /s/ Ronald McKellar
----------------------------
Ronald McKellar
(Principal Financial Officer)
15
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC
FORM 10-Q DATED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> POUNDS STERLING
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<PERIOD-TYPE> 6-MOS
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<CASH> 212,940
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