1
Pursuant to Rule 424(b)(3)
Registration No. 33-83740
PROSPECTUS SUPPLEMENT NO. 4 TO PROSPECTUS DATED DECEMBER 18, 1995
DIAMOND CABLE COMMUNICATIONS PLC
13 1/4% SENIOR DISCOUNT NOTES DUE SEPTEMBER 30, 2004
________________________
Interest will not accrue on the Initial Senior Notes prior to September
30, 1999. Interest on the Initial Senior Notes will be payable on March 31 and
September 30 of each year, commencing March 31, 2000, at a rate of 13 1/4% per
annum. See "Description of the Initial Senior Notes" in the accompanying
Prospectus. The Initial Senior Notes are redeemable, in whole or in part, at
the option of the Company at any time on or after September 30, 1999, at the
redemption prices set forth in the accompanying Prospectus plus accrued
interest to the date of redemption. The Initial Senior Notes are also
redeemable in whole, but not in part, at the option of the Company at any time
at 100% of the principal amount plus accrued interest to the date of redemption
(or, prior to September 30, 1999, at 100% of Accreted Value) in the event of
certain tax law changes requiring the payment of additional amounts as
described herein. In addition, in the event that the Company (i) sells certain
Equity Securities in a Public Offering or (ii) consummates a Trade Sale, prior
to March 31, 1997, the Company may, at its option, redeem up to a maximum of
$71,275,250 in aggregate principal amount at maturity of the Initial Senior
Notes at a redemption price of 113.25% of Accreted Value. The Company is
required to offer to repurchase all outstanding Initial Senior Notes at 101% of
principal amount plus accrued interest to the date of repurchase (or, prior to
September 30, 1999, at 101% of Accreted Value on the date of repurchase) after
the occurrence of a Change of Control. See "Description of the Initial Senior
Notes - Redemption" in the accompanying Prospectus. There can be no
assurance that the Company will have the financial resources necessary or
otherwise be able to repurchase the Initial Senior Notes under such
circumstances.
The Initial Senior Notes constitute unsecured senior indebtedness of the
Company. In August 1996, certain of the Company's subsidiaries entered into a
senior syndicated bank lending facility of pounds sterling 340 million.
Indebtedness under the senior bank lending facility will be effectively senior
to the Initial Senior Notes as such indebtedness will be incurred by a
subsidiary of the Company, guaranteed by the Company's other subsidiaries and
secured by liens on the assets of the Company's subsidiaries and a pledge of
the issued shares of certain of the Company's subsidiaries. The Company has
not issued, and does not have any current plans to issue, any significant
indebtedness that will be subordinated to the Initial Senior Notes. The
Company is a holding company which conducts substantially all of its business
through subsidiaries, all of which are wholly-owned. The Initial 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. On
December 15, 1995, the Company issued $530,955,000 principal amount at maturity
of its 11 3/4% Senior Discount Notes due December 15, 2005, which rank pari
passu with the Initial Senior 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 dated December
18, 1995 as supplemented by Prospectus Supplement No. 1 dated April 11, 1996 is
to be used by Goldman, Sachs & Co. in connection with offers and sales of the
Initial 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 sale. Goldman, Sachs & Co. may act as a
principal or agent in such transactions. See "Plan of Distribution" in the
accompanying Prospectus.
GOLDMAN, SACHS & CO.
________________________
The date of this Prospectus Supplement is August 14, 1996.
2
GENERAL
This Prospectus Supplement should be read in conjunction with the
Prospectus dated December 18, 1995, as supplemented by Prospectus Supplement
No. 1 thereto, dated April 11, 1996 (the "Prospectus"). The Prospectus has
been used by Goldman, Sachs & Co. in connection with offers and sales related
to market-making transactions in the Initial Senior Notes. This Prospectus
Supplement, together with the Prospectus, is to be used by Goldman, Sachs & Co.
in connection with such 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 14, 1996, which includes, among other things, the
Company's unaudited interim financial statements as of, and for the three and
six month periods ended, June 30, 1996, and Management's Discussion and
Analysis of Financial Condition and Results of Operations for the three and six
month periods ended June 30, 1996.
Amendments to the Initial Senior Notes Indenture. The Company has
obtained the consent of the Holders of 66-2/3% in principal amount of the
Outstanding Initial Senior Notes pursuant to Section 902 of the Initial Senior
Notes Indenture to certain amendments to the Initial Senior Notes Indenture to
conform the covenant limiting additional indebtedness to that contained in the
Indenture for the Company's recently issued 11 3/4% Senior Discount Notes due
December 15, 2005.
The amendments to the Initial Senior Notes Indenture have amended Section
1008, "Limitation on Consolidated Debt and Disqualified Equity" so that it is
consistent with the similar covenant in the Indenture, dated December 15, 1995
between the Company and The Bank of New York, as Trustee, under which the
Company issued $530,955,000 in aggregate principal amount at maturity of its 11
3/4% Senior Discount Notes due December 15, 2005. In particular, a new
subclause (iii) has been added to the second paragraph of Section 1008 to read
as follows:
"(iii) Debt or Disqualified Equity to the extent that
the proceeds are used to finance working capital for,
or the construction or the acquisition of, property or
assets in each case to be used in, a Cable Business,"
In addition, Section 1011 "Limitation on Liens" and Section 1010
"Limitations concerning Distributions by and Transfers to Restricted Group"
have been amended so that Debt Incurred pursuant to new subclause (iii) would
be entitled to the same exceptions as are applied to current clauses (iii) and
(iv) of the second paragraph of Section 1008. The amendments to the Initial
Senior Notes Indenture also reflects additional changes, including renumbering
of the other clauses of Section 1008 and conforming cross references, in each
case, consequential to the amendments described above.
Consent to Tax Lease. The Company has also obtained the consent of the
Holders of the Initial Senior Notes to permit the Company to engage (indirectly
through its subsidiaries) in a proposed tax leasing transaction pursuant to
which the Company will lease property and equipment as part of the build out of
its cable television and telecommunications network, including through a sale
and leaseback of property and equipment previously acquired by the Company and
its subsidiaries.
1
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, 1996
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-83740
Diamond Cable Communications Plc
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
England and Wales N/A
- ----------------------------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Diamond Plaza, Daleside Road
Nottingham NG2 3GG, England N/A
- ----------------------------------------------------- -----------------------------
(Address of principal executive offices) (Zip code)
44-115-912-2217
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ___
The number of shares outstanding of the Registrant's Ordinary Shares of 2.5
pence each outstanding as of June 30, 1996 was 59,138,791.
2
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DIAMOND CABLE COMMUNICATIONS PLC
INDEX
PAGE
-----
INTRODUCTION.......................................................................... 4
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited condensed consolidated statements of operations -- Three and six
months ended June 30, 1996 and 1995....................................... 5
Unaudited condensed consolidated balance sheets -- June 30, 1996 and
December 31, 1995......................................................... 6
Unaudited condensed consolidated statements of shareholders' equity -- Three
and six months ended June 30, 1996........................................ 7
Unaudited condensed consolidated statements of cash flows -- Six months
ended June 30, 1996 and 1995.............................................. 8
Notes to the unaudited condensed consolidated financial statements.......... 9
Item 2. Management's Discussion and Analysis of Results of Operations and Financial
Condition................................................................. 10
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................ 16
SIGNATURES............................................................................ 17
3
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 (Nottingham) Limited ("DCL") and its subsidiaries and (ii) a group
of companies acquired by the Company (collectively referred to herein as "LCL"),
in both cases through an intermediate holding company, Jewel Holdings Limited.
References herein to the "Group" refer to the Company and its subsidiaries,
including, since September 27, 1995, LCL. References herein to "Diamond" refer
to the Company and its subsidiaries, excluding LCL.
The Group operates a telecommunications and cable television business
focused on the East Midlands area of England. The Group is currently
constructing a broadband fiber-optic network to serve the approximately
1,229,900 homes and an estimated 60,600 businesses within its fifteen contiguous
franchise areas. The above totals include the areas covered by the Chesterfield,
Lincolnshire and South Humberside and Vale of Belvoir local delivery licences
which the Group has been awarded but which have not yet been formally granted.
As of June 30, 1996, the Group's cable television and telecommunications network
had passed by civils approximately 369,000 homes and an estimated 19,700
businesses, of which approximately 242,800 homes and an estimated 14,200
businesses had been activated. As of that date, the Group also had approximately
78,400 residential telephone lines, 44,400 cable television subscribers and
15,270 business telephone lines. Through that date, L252 million had been
invested (at original cost) in the construction of the network and related
systems.
On September 27, 1995, the Group acquired substantially all of the share
capital of East Midlands Cable Group Limited ("EMCG"), East Midlands Cable
Communications Limited ("EMCC") and East Midlands Cable Holdings Limited ("EMCH"
and, together with EMCC and EMCG, "LCL"), which includes three franchises
covering an aggregate of approximately 342,000 homes and an estimated 20,100
businesses. On October 4, 1995 the Group acquired the remaining share capital
(less than 1%) of LCL not already acquired by it in the September 27
transaction. For financial accounting purposes, the acquisition was given effect
as of September 30, 1995.
This document contains certain forward-looking statements, identified as
such, with respect to which the Company is seeking to utilize the safe harbor
provided by the Private Securities Litigation Reform Act of 1995. These
statements are accompanied by, and should be read in conjunction with, an
explanation of important factors that could cause actual results to differ
materially from those in the forward-looking statements.
The Company operates only in the United Kingdom and, accordingly, publishes
its financial statements in pounds sterling. In this Report, references to
"pounds sterling," "L" "pence" or "p" are to the lawful currency of the United
Kingdom and references to "U.S. dollars," "$" or "c" are to the lawful currency
of the United States. Merely for convenience, this Report contains translations
of certain pound sterling amounts into U.S. dollars at specified rates. These
translations should not be construed as representations that the pound sterling
amounts actually represent such U.S. dollar amounts or could have been or could
be converted into U.S. dollars at the rate indicated or at any other rate.
Unless otherwise indicated, the translations of pounds sterling into U.S.
dollars have been made at $1.5529 per L1.00, 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 28, 1996.
4
6
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DIAMOND CABLE COMMUNICATIONS PLC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------------- --------------------------------
1995 1996 1996 1995 1996 1996
-------- -------- -------- -------- -------- --------
(NOTE 1) (NOTE 1)
(IN THOUSANDS)
Revenue
Business
telecommunications........ L 1,247 L 2,682 $ 4,165 L 2,400 L 5,053 $ 7,847
Residential telephone....... 1,158 4,331 6,726 2,020 7,882 12,240
Cable television............ 592 2,327 3,613 1,084 4,288 6,659
-------- -------- -------- -------- -------- --------
2,997 9,340 14,504 5,504 17,223 26,746
Operating costs and expenses
Telephone................... (1,118) (3,193) (4,958) (2,061) (5,873) (9,120)
Programming................. (316) (1,388) (2,155) (582) (2,563) (3,980)
Selling, general and
administrative............ (2,237) (5,688) (8,833) (4,010) (10,553) (16,388)
Depreciation and
amortization.............. (1,528) (5,102) (7,923) (2,852) (9,735) (15,118)
-------- -------- -------- -------- -------- --------
(5,199) (15,371) (23,869) (9,505) (28,724) (44,606)
-------- -------- -------- -------- -------- --------
Operating loss.............. (2,202) (6,031) (9,365) (4,001) (11,501) (17,860)
Unrealised gain/(loss) on
interest rate swap........ -- (370) (575) -- 319 495
Interest income............. 1,144 704 1,093 2,355 1,868 2,901
Interest expense and
amortization of debt
discount and expenses..... (3,408) (10,168) (15,790) (6,534) (20,129) (31,258)
Foreign exchange
gains/(losses), net....... (3,296) 5,539) 8,602 476 141 219
-------- -------- -------- -------- -------- --------
Loss before income taxes.... (7,762) (10,326) (16,035) (7,704) (29,302) (45,503)
Income taxes................ -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net loss.................... L (7,762) L(10,326) $(16,035) L (7,704) L(29,302) $(45,503)
======== ======== ======== ======== ======== ========
See the accompanying notes to the Unaudited Condensed Consolidated Financial
Statements.
5
7
DIAMOND CABLE COMMUNICATIONS PLC
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31, AT JUNE 30,
--------------- ----------------------
1995 1996 1996
--------------- -------- ---------
(NOTE 1)
(IN THOUSANDS)
ASSETS
Cash and cash equivalents............................. L 93,308 L 93,020 $ 144,451
Trade receivables (net of allowance for doubtful
accounts of L773 at December 31, 1995 and L1,136 at
June 30, 1996)...................................... 3,583 5,652 8,777
Other assets.......................................... 5,358 5,890 9,146
Deferred financing costs (less accumulated
amortization of L382 in 1995 and L840 in 1996)...... 12,016 12,444 19,324
Property and equipment, net (note 3).................. 163,721 220,911 343,053
Goodwill (less accumulated amortization of L1,212 in
1995 and L3,638 in 1996)............................ 95,748 93,322 144,920
Franchise costs (less accumulated amortization of L69
in 1995 and L86 in 1996)............................ 438 428 665
-------- -------- --------
TOTAL ASSETS.......................................... L 374,172 L431,667 $ 670,336
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable...................................... L 18,627 L 21,860 $ 33,946
Other liabilities..................................... 10,920 11,312 17,566
Senior discount notes................................. 307,729 326,597 507,172
Capital lease obligations............................. 9,263 8,753 13,593
Mortgage loan......................................... 2,500 2,500 3,882
Shareholders' equity
Ordinary shares (70,000,000 authorized;
43,754,175 issued at December 31, 1995
and 59,138,791 issued at June 30, 1996).......... 1,094 1,479 2,297
Non-voting deferred shares.......................... -- -- --
Additional paid-in-capital.......................... 70,186 134,465 208,811
Unrealized loss on securities....................... (330) (180) (279)
Accumulated deficit................................. (45,817) (75,119) (116,652)
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............ L 374,172 L431,667 $ 670,336
======== ======== ========
See the accompanying notes to the Unaudited Condensed Consolidated Financial
Statements.
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8
DIAMOND CABLE COMMUNICATIONS PLC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF SHAREHOLDERS' EQUITY
UNREALIZED TOTAL
NON-VOTING ADDITIONAL GAIN/(LOSS) ACCUMULATED SHAREHOLDERS'
ORDINARY SHARES DEFERRED SHARES PAID-IN-CAPITAL ON SECURITIES DEFICIT EQUITY
------------------ --------------- --------------- ------------- ----------- -------------
NUMBER NUMBER
--------- ------
(IN THOUSANDS EXCEPT SHARE DATA)
BALANCE AT JANUARY 1,
1996..................... 43,754,175 L1,094 6 -- L 70,186 L(330) L (45,817) L 25,133
Shares issued and capital
contributions (net of
expenses)................ 15,384,616 385 -- -- 64,279 64,664
Unrealized gain on
securities............... 150 150
Net loss................... (29,302) (29,302)
-
--------- ------ ------ -------- ----- -------- -------
BALANCE AT JUNE 30, 1996... 59,138,791 L1,479 6 -- L 134,465 L(180) L (75,119) L 60,645
========= ====== = ====== ======== ===== ======== =======
BALANCE AT APRIL 1, 1996... 43,754,175 L1,094 6 -- L 70,186 L 299 L (64,793) L 6,786
Shares issued and capital
contributions (net of
expenses)................ 15,384,616 385 -- -- 64,279 64,664
Unrealized loss on
securities............... (479) (479)
Net loss................... (10,326) (10,326)
-
--------- ------ ------ -------- ----- -------- -------
BALANCE AT JUNE 30, 1996... 59,138,791 L1,479 6 -- L 134,465 L(180) L (75,119) L 60,645
========= ====== = ====== ======== ===== ======== =======
See the accompanying notes to the Unaudited Condensed Consolidated Financial
Statements.
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9
DIAMOND CABLE COMMUNICATIONS PLC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30,
---------------------------------
1995 1996 1996
------- -------- --------
(NOTE 1)
(IN THOUSANDS)
Cash flows from operating activities:
Net loss.................................................. L(7,704) L(29,302) $(45,503)
Adjustments to reconcile net profit/loss to net cash
provided by/(used in) operating activities:
Depreciation and amortization........................... 2,852 9,735 15,117
Unrealized foreign exchange gains....................... (826) (237) (368)
Loss on disposition of assets........................... -- 11 17
Provision for losses on accounts receivable............. 140 363 564
Accretion of Senior Note discount....................... 6,392 19,090 29,645
Amortization of deferred financing costs................ 142 458 711
Accretion of investment income.......................... (80) -- --
Profit on sale of investments........................... (1,505) -- --
Change in operating assets and liabilities:
Change in trade receivables.......................... (964) (2,432) (3,777)
Change in other assets............................... (3,533) (532) (826)
Change in accounts payable........................... 559 3,841 5,965
Change in other liabilities.......................... 3,381 659 1,024
------- -------- --------
Net cash provided by/(used in) operating activities....... (1,146) 1,654 2,569
------- -------- --------
Cash flows from investing activities:
Cash invested in property and equipment................. (39,288) (65,119) (101,123)
Cash invested in marketable securities.................. (17,445) -- --
Proceeds from disposition of assets..................... -- 18 28
Proceeds from disposition of securities................. 42,856 -- --
Cash paid for franchises................................ -- (7) (11)
------- -------- --------
Net cash used in investing activities..................... (13,877) (65,108) (101,106)
------- -------- --------
Cash flows from financing activities:
Capital element of capital lease repayments............. (494) (510) (792)
Issue of shares and capital contributions (net of
expenses)............................................ 6,561 64,664 100,416
Net increase in short-term borrowings................... 503 -- --
Debt financing costs (note 4)........................... -- (1,153) (1,790)
------- -------- --------
Net cash provided by financing activities................. 6,570 63,001 97,834
------- -------- --------
Net decrease in cash and cash equivalents................. (8,453) (453) (703)
Cash and cash equivalents at beginning of period.......... 41,066 93,308 144,898
Effect of exchange rate changes on cash and cash
equivalents............................................. -- 165 256
------- -------- --------
Cash and cash equivalents at end of period................ L32,613 L 93,020 $144,451
======= ======== ========
See the accompanying notes to the Unaudited Condensed Consolidated Financial
Statements.
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10
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
Diamond Cable Communications Plc (the "Company") owns and operates cable
television and telecommunications systems through its subsidiaries. The
unaudited consolidated financial statements of the Company and its subsidiaries
(the "Group") have been prepared in accordance with U.S. generally accepted
accounting principles and the rules and regulations of the Securities and
Exchange Commission (the "SEC"). Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
The financial statements are stated in pounds sterling (L). Merely for
convenience the financial statements contain translations of certain pound
sterling amounts into U.S. dollars at $1.5529 per L1.00, 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 28, 1996.
2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS
The financial statements as of and for the periods ended June 30, 1996 and
1995 are unaudited. However, in the opinion of the management, such statements
include all adjustments (consisting only of normal recurring accruals) necessary
for a fair presentation of the results for the periods presented. The results of
operations for any interim period are not necessarily indicative of the results
for the full year. The interim financial statements should be read in
conjunction with the financial information included in the Company's 1995 Annual
Report on Form 10-K filed with the SEC.
3. PROPERTY AND EQUIPMENT
LAND AND CABLE OFFICE MOTOR
BUILDINGS NETWORK EQUIPMENT VEHICLES TOTAL
-------- -------- --------- -------- --------
(IN THOUSANDS)
Acquisition costs
Balance at January 1, 1996.......... L 3,863 L170,660 L 4,701 L 644 L179,868
Additions........................... 505 62,546 1,448 12 64,511
Dispositions........................ -- (2) (154) (136) (292)
Reclassification.................... 467 (10) (457) -- --
-------- -------- -------- -------- --------
Balance at June 30, 1996............ 4,835 233,194 5,538 520 244,087
-------- -------- -------- -------- --------
Accumulated depreciation
Balance at January 1, 1996.......... 74 14,295 1,450 328 16,147
Charge for period................... 63 6,518 665 46 7,292
Dispositions........................ -- (1) (154) (108) (263)
Reclassification.................... 90 (50) (40) -- --
-------- -------- -------- -------- --------
Balance at June 30, 1996............ 227 20,762 1,921 266 23,176
-------- -------- -------- -------- --------
June 30, 1996 net book value........ L 4,608 L212,432 L 3,617 L 254 L220,911
-------- -------- -------- -------- --------
December 31, 1995 net book value.... L 3,789 L156,365 L 3,251 L 316 L163,721
======== ======== ======== ======== ========
The reclassification to land and buildings more appropriately allocates
expenditure on leasehold properties.
4. DEBT FINANCING COSTS
Debt financing costs consist of payments to holders of the Initial Senior
Notes in connection with their consent to certain amendments to the Initial
Senior Notes indenture which were made to conform certain provisions thereof to
provisions of the New Senior Notes indenture.
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5. 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 license in respect of which milestones have not been met
could be revoked, which could have a material adverse effect on the Company.
DIAMOND CABLE COMMUNICATIONS PLC
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
The Company expended cash to fund investing activities of L155.5 million
and L65.1 million in the year ended December 31, 1995 and the first six months
of 1996, respectively. Net cash provided by financing activities in the year
ended December 31, 1995 was L212.2 million and net cash provided by financing
activities was L63.0 million in the first six months of 1996 of which L64.6
million was provided by the issue of equity referred to below. The Company's
investing activities consisted of the ongoing construction of the network (L65.1
million in the first six months of 1996 and L102.9 million in 1995). In 1995 the
Company's net cash used in operating activities was L4.1 million and in the six
months to June 30, 1996 the Company's net cash provided by operating activities
was L1.6 million. Diamond's cash and funding requirements historically have been
met principally through equity capital, advances from its shareholders, the
issuances of Senior Notes in September 1994 and December 1995 and from bank and
lease financing.
In August 1996, certain of the Company's subsidiaries entered into a senior
syndicated bank loan (the "Senior Bank Facility") of L340 million to help meet
the Group's funding requirements. Indebtedness under the Senior Bank Facility
will be incurred by a subsidiary of the Company, guaranteed by the Company's
other subsidiaries and secured by a lien on the assets of Jewel and its
subsidiaries and a pledge of the issued shares of the Company's subsidiaries
other than Jewel but including DCL and LCL.
The Senior Bank Facility is divided into two tranches. The aggregate amount
that may be drawn down under both tranches at any time is no more than L340
million. These drawings are subject to the satisfaction of certain conditions at
the time of each drawing. The Tranche A draw downs bear interest at adjusted
sterling LIBOR plus a margin. All Tranche A borrowings are expected to be
capable of being refinanced with borrowings under Tranche B (if available).
Tranche B borrowings up to a stated amount are subject to additional conditions,
including conditions relating to operating cash flow of Jewel's subsidiaries
which are not currently met. Tranche B borrowings bear interest at adjusted
sterling LIBOR plus a margin that is lower than the margin on Trance A
borrowings and varies depending upon the leverage ratio of Jewel and its
subsidiaries. The loan will require quarterly repayment of outstanding principal
amounts beginning in 2001, with final repayment in 2004. The Senior Bank
Facility contains various covenants, including financial covenants restricting
the leverage of Jewel and its subsidiaries and requiring the maintenance of
specified interest and fixed charge coverage ratios and operating cash flow,
restricting a change of control of the Company or Jewel and restricting the
payment of dividends.
As required by the terms of the New Senior Notes, the Company issued
additional ordinary shares for proceeds of $100 million (L64.6 million net of
issue costs) in June 1996. These shares were issued to the Company's existing
investors.
The Group is obligated by the milestones in its telecommunications licenses
and the new LDLs to construct a network to pass an aggregate of 1,032,463
premises within prescribed time periods. Due to financing constraints previously
faced by the Company, the build-out of the Company's network did not meet the
Company's original regulatory milestones. LCL also failed to meet its original
regulatory milestones. In
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12
the past, both Diamond and LCL requested and received appropriate milestone
modifications or waivers from the Director General of the Office of
Telecommunications ("OFTEL").
At December 31, 1995, the Group was obligated to meet specified milestones
in eight of the Group's franchise areas where building was due to have
commenced. Compliance with the milestones in these areas is in each case
monitored by OFTEL. During June 1996, OFTEL informed the Company that it did not
agree with the Company's historical method for calculating compliance with its
milestone obligations and that the number of premises passed should be based
only on the number of premises activated (the number of premises that can be
connected to the cable network without further extension of transmission lines,
apart from the final drop to the home). In calculating premises passed, the
Company had historically included premises passed by civils construction
(premises with ducting buried outside) but not yet activated. Based on OFTEL's
method of calculating premises passed, at June 30, 1996 the Group failed to meet
its year-end 1995 milestones in six of its eight franchise areas. In three of
these franchise areas -- Grantham, Newark-on-Trent and Melton Mowbray, the 1995
year-end milestones represented the final milestones required under each
license.
The Company has renegotiated its milestone obligations with OFTEL. In the
five franchise areas where the final milestone has not yet fallen due, the
Director General of OFTEL has formally modified the interim but not the final
milestone obligations under the licenses to provide new quarterly milestones. In
the other three franchise areas, OFTEL has not made any formal modification to
the existing licenses but has indicated that it does not currently intend to
take immediate action to enforce the licenses, on the condition that the Group
meet the final milestones in November 1996 or, in the case of Melton Mowbray,
October 1996.
In the seven franchise areas in which the Group has been granted or awarded
LDLs by the Independent Television Commission (the "ITC"), the Group is formally
required under the LDLs to meet its first milestone obligations by year-end 1996
or, in the case of two LDLs recently awarded, year-end 1997. However, due to
delays by the Department of Trade and Industry in the granting of
telecommunications licenses, which are required before construction can
commence, the ITC's Director of Cable & Satellite has indicated that, in the
case of five franchises where there is a year-end 1996 milestone, he will
recommend to the ITC (subject to its formal approval at its September 1996
meeting) that the ITC formally modify the Group's licenses to remove milestones
that fall due at year-end 1996 and otherwise shift the annual milestones back by
12 months.
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 Banking Facility failure to meet the Group's
milestone obligations could under certain circumstances prevent further
borrowing or result in an event of default.
The Company estimates that the total further cost required for its current
construction plan for its network in the Group's franchise areas will be
approximately L585 million prior to January 1, 2001, although the amount could
vary significantly. The Company believes that available cash resources, the
initial tranche available for borrowing under the Senior Bank Facility and cash
flows from operations will be sufficient to complete the planned construction
through the first quarter of 1997. Thereafter, the Company expects to be able to
utilize (through its subsidiaries) the remaining amounts under the Senior Bank
Facility or, if such remaining amounts are not available, to obtain further debt
or equity financing.
The statements in the preceding paragraph are forward-looking in nature. To
the extent that (i) the Company is unable to borrow amounts under the Senior
Bank Facility, (ii) the amounts required to complete the Group's planned build
out exceed its estimates or (iii) the Group's operating cash flow does not meet
expectations, the Company will require additional debt or other financing. There
can be no assurance that any such debt financing will be permitted under the
terms of the Group's current debt instruments limiting the incurrence of
additional debt, or that any such financing will be available on acceptable
commercial terms or at all. Further, the amount of funding required by the Group
may vary significantly depending on many factors, including the ability of the
Group to meet its construction schedule, variations in construction costs, the
number of customers and the services they subscribe for, the nature and
penetration of new services that may be offered by the Group in the future and
changes in technology. The Group may also make franchise
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acquisitions or investments, including investments in LDLs, or investments in
programming, as a result of which additional funds would be required to complete
construction of the network.
The Group's revenues are denominated in pounds sterling, while its
obligations to pay interest and principal on the Initial Senior Notes and the
New Senior Notes are denominated in U.S. dollars. Therefore, the Group is
subject to currency exchange risks that may adversely affect the Group's ability
to meet its obligations under its outstanding debt instruments as they become
due.
SELECTED OPERATING DATA
The following table sets forth certain data concerning the Group's
franchises at and for the years ended December 31, 1994 and 1995 and at and for
the three month period ended March 31, 1996 and the six-month period ended June
30, 1996. The combined operating data at and for the year ended December 31,
1995 reflects the acquisition of LCL on a pro forma basis as if it had been
completed at the beginning of 1995.
DECEMBER 31,
-------------------------------------
MARCH 31, JUNE 30,
1994 1995 1996 1996
------ ---------------------------- --------- --------
DIAMOND LCL COMBINED
------- ------ -------
Homes passed by civils(1)......... 55,919 222,335 58,976 281,311 318,541 369,194
Homes activated(2)................ 32,033 105,951 51,955 157,906 193,497 242,827
Homes marketed(3)................. 31,330 77,657 48,950 126,607 152,914 190,551
CABLE TELEVISION
Basic service subscribers......... 8,936 20,261 10,488 30,749 36,574 44,402
Penetration rate of homes
marketed(4)..................... 28.5% 26.1% 21.4% 24.3% 23.9% 23.3%
Average monthly revenu per
subscriber(5)................... L14.71 L16.80 L18.89 L17.62 L18.99 L18.54
Churn(6).......................... 28.5% 35.5% 31.0% 33.8% 36.6% 37.4%
RESIDENTIAL TELEPHONE
Residential lines connected....... 14,150 36,122 16,576 52,698 64,095 78,429
Penetration rate of homes
marketed(4)..................... 45.2% 46.5% 33.9% 41.6% 41.9% 41.2%
Average monthly revenue per
line(7)......................... L18.83 L18.68 L22.19 L19.88 L19.88 L19.63
Churn(6).......................... 13.8% 13.9% 17.2% 15.0% 16.0% 17.9%
Business telecommunications
Business customers................ 979 1,627 772 2,399 2,714 3,156
Business lines connected.......... 3,928 7,036 2,843 9,879 11,054 15,273
Private circuits(8)............... 70 151 10 161 175 194
Average lines per business(9)..... 4.0 4.3 3.7 4.1 4.1 4.8
Average monthly revenue per
line(10)........................ L88.68 L74.60 L59.60 L70.23 L70.70 L60.95
(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 can be connected to the cable
network without further extension of transmission lines, apart from the
final drop 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 12 (for the years ended
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14
December 31, 1994 and 1995), by three (for the three months ended March 31,
1996) or by six (for the six months ended June 30, 1996).
(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,
1996 is annualized by multiplying the amount calculated above by four.
Churn for the six months ended June 30, 1996 is annualized by multiplying
the amount as calculated above by 2.
(7) The average monthly revenue per residential telephone line is calculated by
dividing (i) line and equipment rental, outgoing call charges and incoming
call charges for the period by (ii) the average number of residential
telephone lines (calculated as a simple average of the number of subscribed
lines at the end of each month during the period) and dividing that amount
by 12 (for the years ended December 31, 1994 and 1995), by 3 (for the three
months ended March 31, 1996) or by six (for the six months ended June 30,
1996).
(8) Private circuits are point-to-point customer specific connections for which
a fixed annual rental charge is made.
(9) Average lines per business is calculated by dividing the number of business
lines connected on the given date by the number of business customers on
such date.
(10)The average monthly business telecommunications revenue per line is
calculated by dividing (i) business telecommunications line and equipment
rental, outgoing call charges and incoming call charges (including revenue
from private circuits) for the period by (ii) the average number of
business telecommunications lines and private circuits (calculated as a
simple average of the number of subscribed lines and private circuits at
the end of each month during the period) and dividing that amount by 12
(for the years ended December 31, 1994 and 1995), by three (for the three
months ended March 31, 1996) or by six (for the six months ended June 30,
1996).
RESULTS OF OPERATIONS FOR THE THREE AND SIX-MONTH PERIODS ENDED JUNE 30, 1995
AND 1996
The Group continued to experience significant increases in its subscribers,
revenues and expenses during the six-month period ended June 30, 1996. In
general, such increases were attributable to the Group's continued network
construction and marketing of new homes and businesses. Homes passed by the
civils network increased by 87,883 homes (31%) from December 31, 1995 to June
30, 1996. The number of homes that had been passed by civils construction at
June 30, 1996 exceeded homes activated by 126,367 compared to a difference of
123,405 homes at December 31, 1995. The difference between homes passed by
civils construction and homes activated is a result of the accelerated pace of
civils construction coupled with the lead time between civils construction and
activation and the time required to construct and activate additional remote hub
and switch sites for the larger network.
REVENUE
For the three months ended June 30, 1996, total revenues were L9.34
million, a 211% increase over total revenues of L2.99 million for the comparable
period in 1995. For the six months ended June 30, 1996, total revenues were
L17.22 million, a 212% increase over total revenues of L5.50 million for the
comparable period in 1995. This growth is attributable to increases in revenues
in all three of Diamond's primary lines of business and additional revenues of
L5.26 million resulting from the inclusion of LCL's results for the six months
ended June 30, 1996.
Business Telecommunications. Business telecommunication revenues were
L2.68 million and L5.05 million for the three and six-month periods ended June
30, 1996, compared to L1.24 million and L2.40 million for the comparable periods
in 1995, representing increases of 115% and 110%, respectively. This growth was
due primarily to an increase in the number of Diamond's business lines installed
from 5,122 at June 30, 1995 to 11,845 at June 30, 1996 and the inclusion of
L1.19 million of revenue attributable to LCL in the six months to June 30, 1996.
There were 3,428 business lines for the LCL operation at June 30, 1996. The
growth in the number of business lines for Diamond is partially offset by lower
monthly revenue per line. The monthly
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revenue per line for Diamond decreased to L60.57 in the six months ended June
30, 1996 from L80.75 in the comparable period in 1995. This decline continued
the trend over the past several quarters and was due to a combination of (i)
Diamond's success in marketing Centrex services which has the effect of
increasing the average number of lines held by existing and new customers taking
those services (Diamond operated 729 Centrex lines at June 30, 1995 compared to
4,929 Centrex lines at June 30, 1996) (ii) 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 and (iii) a
reduction in certain tariffs in response to price reductions by the competition.
Residential Telephone. Residential telephone revenues were L4.33 million
and L7.88 million for the three and six-month periods ended June 30, 1996,
compared to L1.15 million and L2.02 million for the comparable periods in 1995,
representing increases of 274% and 290% respectively. The growth in residential
telephone revenue resulted from an increase in the number of Diamond's
residential telephone lines from 23,584 at June 30, 1995 to 56,332 at June 30,
1996 and the inclusion of L2.70 million of residential telephone revenue for LCL
for the six months ended June 30, 1996. There were 22,097 residential telephone
lines for the LCL operation at June 30, 1996. Monthly revenue per line for
Diamond increased from L18.19 for the six-month period ended June 30, 1995 to
L18.37 in the six-month period ended June 30, 1996. Monthly revenue per line
increased from L18.06 in the three months to June 30, 1995 to L18.31 in the
three months to June 30, 1996. The Group's churn rate (annualized) was 19.5% for
the second quarter and 17.9% for the first six months of 1996 as compared to
19.0% for the second quarter and 15.3% for the first six months of 1995. The
increase in churn in 1996 is attributable in part to a tightening of credit
terms for certain customers and certain efforts by BT aimed at regaining former
customers.
Cable Television. Cable television revenues were L2.32 million and L4.28
million for the three and six-month periods ended June 30, 1996, compared to
L0.59 million and L1.08 million for the comparable periods in 1995, representing
increases of 293% and 295%, respectively. This growth in cable television
revenue was primarily due to a combination of (i) an increase in the number of
Diamond's cable television subscribers which rose from 12,895 at June 30, 1995
to 30,996 at June 30, 1996, (ii) an increase in the average monthly revenue per
subscriber from L16.50 in the six months ended June 30, 1995 to L18.43 in the
six months ended June 30, 1996 and from L15.92 in the three-month period ended
June 30, 1995 to L18.07 in the comparable period in 1996 and (iii) the inclusion
of cable television revenue for LCL for the six months ended June 30, 1996 of
L1.36 million. The increase in average revenue per subscriber is primarily due
to increases in cable television pricing. The Group's churn rate (annualized)
was 38.1% for the second quarter and 37.4% for the first six months of 1996 as
compared to 39.1% for the second quarter and 42.6% for the first six months of
1995.
OPERATING COSTS AND EXPENSES
Telephone expenses, consisting principally of interconnect charges payable
to British Telecommunications PLC ("BT") and Mercury Communications Limited
("Mercury"), increased from L1.11 million for the three-month period ended June
30, 1995 to L3.19 million for the comparable period in 1996, an increase of 185%
and from L2.06 million for the six-month period ended June 30, 1995 to L5.87
million for the comparable period in 1996, an increase of 184%. These increases
reflect the substantially larger volume of telephone business generated by the
Group. As a percentage of combined business telecommunications and residential
telephone revenues, these direct costs decreased from 46.5% and 46.6%
respectively for the three and six-month periods ended June 30, 1995 to 45.5%
and 45.4%, respectively for the comparable periods in 1996, due in part to
reduced interconnect charges paid to other 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 L0.32 million for the three-month period ended June
30, 1995 to L1.38 million for the comparable period in 1996, a 339% increase,
and from L0.58 million for the six-month period ended June 30, 1995 to L2.56
million for the comparable period in 1996, a 340% increase. As a percentage of
cable television revenues, these direct costs were 53.3% and 53.7%, respectively
for the three and six-month periods ended June 30, 1995 and were 59.6% and
59.8%, respectively for the same periods in 1996. The percentage increase in the
first half of 1996 compared to the first half of 1995 stemmed from an increase
in rates charged by certain programming suppliers and increases in the
14
16
number of channels provided as part of program packages, which were not fully
offset by increases in the subscriber rate charged by Diamond.
Selling, general and administrative expenses increased by 154% from L2.23
million for the three-month period ended June 30, 1995 to L5.68 million for the
comparable period in 1996, and by 163% from L4.01 million for the six-month
period ended June 30, 1995 to L10.55 million for the comparable period in 1996.
The increases were due to a combination of increased sales commissions and
higher administration costs associated with the expansion of the Group's
business and the inclusion of expenses related to LCL during the first six
months of 1996.
Depreciation and amortization expenses increased by 234% when comparing the
three-month period ended June 30, 1995 to the comparable period in 1996 and by
241% when comparing the six-month period ended June 30, 1995 to the comparable
period in 1996. These increases were attributable to the increasing size of the
Company's network as well as the LCL acquisition.
INTEREST AND OTHER INCOME/EXPENSES
Interest expense was L3.40 million and L10.16 million during the first
three months of 1995 and 1996, respectively and L6.53 million and L20.12 million
for the first six months of 1995 and 1996, respectively. The 1996 increase is
due primarily to the accretion of the discount on the Senior Notes of L9.61
million during the second quarter of 1996 and L19.09 million during the first
half of 1996, as well as other interest expense of L0.25 million in the
three-month period ended June 30, 1996 and L0.52 million in the first six months
of 1996. In addition, amortization of debt financing costs was L0.24 million in
the three-month period ended June 30, 1996 and L0.45 million in the first six
months of 1996. Interest received in the second quarter of 1996 was L0.70
million and L1.86 million in the six-month period ended June 30, 1996, through
temporary investment of the proceeds of the Senior Notes.
Other expenses during the second quarter of 1996 included an unrealized
loss of L0.37 million on the mark-to-market valuation of an interest rate swap
commitment.
FOREIGN EXCHANGE
A substantial portion of the Group's existing debt obligations are
denominated in dollars, while the Group's revenues and accounts are generated
and stated in pounds sterling. Foreign currency translation gains and losses,
except for unrealized gains and losses on available-for-sale securities are
reported as part of the profit or loss of the Group. For the six months ended
June 30, 1996, the Group has recognized an unrealized foreign exchange gain on
the translation of its Senior Note liability of L0.22 million and a net realized
foreign exchange loss of L0.08 million relating to its operations.
The Company does not expect to enter into transactions to hedge the risk of
exchange rate fluctuations but keeps its position under review. Therefore,
changes in currency exchange rates may continue to have a material effect on the
results of operations of the Group and may materially affect the Group's ability
to satisfy its debt obligations.
NET PROFIT/LOSS
As a result of the foregoing factors, Diamond had net losses of L10.32
million in the three-month period ended June 30, 1996, compared to a net loss of
L7.76 million recorded in the comparable period of 1995 and a loss of L29.30
million for the six-month period ended June 30, 1996, compared to a loss of L7.7
million in the comparable period of 1995.
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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.
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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 14, 1996 By: _____________________________
Nicholas Millard
(Chief Financial Officer)
Date: August 14, 1996 By: _____________________________
Duncan Craig
(Chief Accounting Officer)
17