10-Q 1 dc9-01q.txt 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: SEPTEMBER 30, 2001 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 LIMITED -------------------------------------------------------------------------------- (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.) Secretary NTL Incorporated 110 East 59th Street Diamond Plaza, Daleside Road New York, NY 10022 Nottingham NG2 3GG, England (212) 906-8440 -------------------------------------------------------------------------------- (Address of Registrant's (Name, address and telephone principal executive offices) number of agent for service) __________________________ 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 --- --- __________________________ As of September 30, 2001, there were 59,138,851 shares of the Registrant's Ordinary Shares of .025 pence each outstanding. The Registrant is an indirect, wholly owned subsidiary of NTL Incorporated and there is no market for the Registrant's shares. The Registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format. DIAMOND CABLE COMMUNICATIONS LIMITED FORM 10-Q QUARTER ENDED SEPTEMBER 30, 2001 TABLE OF CONTENTS Page Number ------ PART I. FINANCIAL INFORMATION ------- --------------------- Item 1. Financial Statements Condensed Consolidated Balance Sheets as of September 30, 2001 (Unaudited) and December 31, 2000.........2 Condensed Consolidated Statements of Operations for the Nine and Three Months Ended September 30, 2001 and 2000 (Unaudited).........................................3 Condensed Consolidated Statement of Shareholder's Deficiency for the Nine Months Ended September 30, 2001 (Unaudited)..................................................4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2001 and 2000 (Unaudited)....5 Notes to the Condensed Consolidated Financial Statements (Unaudited)..................................6 - 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..........11 - 13 PART II. OTHER INFORMATION -------- ----------------- Item 6. Exhibits and Reports on Form 8-K............................14 SIGNATURES..........................................................15 DIAMOND CABLE COMMUNICATIONS LIMITED FORM 10-Q QUARTER ENDED SEPTEMBER 30, 2001 PART I FINANCIAL INFORMATION ------ --------------------- ITEM 1. FINANCIAL STATEMENTS ------- --------------------

DIAMOND CABLE COMMUNICATIONS LIMITED FORM 10-Q QUARTER ENDED SEPTEMBER 30, 2001 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation Diamond Cable Communications Limited (formerly Diamond Cable Communications Plc) (the "Company") is a holding company which holds all of the shares of various companies which operate broadband communications networks for telephone, cable television and Internet services in the United Kingdom (the "UK"). The Company holds these shares through an intermediate holding company, Diamond Holdings Limited (formerly Diamond Holdings Plc) ("Diamond Holdings"). The Company is an indirect, wholly-owned subsidiary of NTL Incorporated ("NTL"). 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. 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 nine and three months ended September 30, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. 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, 2000. Certain prior period amounts have been reclassified to conform to the current presentation. In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 142 no longer permits the amortization of goodwill and indefinite-lived intangible assets. Instead, these assets must be reviewed annually (or more frequently under certain conditions) for impairment in accordance with this statement. This impairment test uses a fair value approach rather than the undiscounted cash flow approach previously required by SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Intangible assets that do not have indefinite lives will continue to be amortized over their useful lives and reviewed for impairment in accordance with SFAS No. 121. The Company is required to adopt SFAS No. 142 as of January 1, 2002. The Company has not yet completed an analysis of whether goodwill may be impaired under SFAS No. 142; this analysis will be completed during the first six months of 2002 in accordance with the transition provisions of SFAS No. 142. The Company expects to complete an analysis for the fourth quarter of 2001 to determine whether goodwill is impaired under SFAS No. 121. The magnitude of an impairment charge, if any, under either accounting standard cannot be determined at this time. 2. Restructuring Charges The Company recorded restructuring costs in November 2000 as a result of the completion of a consolidation review. This charge consisted of employee severance and related costs of (UK Pound)5.9 million for approximately 470 employees to be terminated and lease exit costs of (UK Pound)1.0 million. As of September 30, 2001, (UK Pound)579,000 of the provision had been used for employee severance and related costs and approximately 155 employees had been terminated. The remaining restructuring reserve of (UK Pound)6.4 million includes (UK Pound)5.4 million for employees severance and related costs and (UK Pound)1.0 million for lease exit costs. 6 DIAMOND CABLE COMMUNICATIONS LIMITED FORM 10-Q QUARTER ENDED SEPTEMBER 30, 2001 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) 3. 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)137.0 million from various subsidiaries of NTL. The Accounts Payable Deposit is the funds held by the Company under the Alliance Agreement. 4. Comprehensive Loss The Company's comprehensive loss for the nine months ended September 30, 2001 and 2000 was (UK Pound)151.2 million and (UK Pound)182.9 million, respectively. The Company's comprehensive loss for the three months ended September 30, 2001 and 2000 was (UK Pound)6.1 million and (UK Pound)65.5 million, respectively. 5. Property and Equipment Property and equipment consists of (in (UK Pound)000's):

6. Notes Payable Notes payable consist of (in (UK Pound)000's):

7 DIAMOND CABLE COMMUNICATIONS LIMITED FORM 10-Q QUARTER ENDED SEPTEMBER 30, 2001 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) 7. Related Party Transactions Since the acquisition of the Company by NTL in March 1999, a subsidiary of NTL has been providing services to and assets for use by the Company. This subsidiary has been charging the Company for these services and assets since the fourth quarter of 1999. The scope of the services and assets provided has increased as the Company has become further integrated with NTL and consequently these charges have increasingly comprised a larger portion of Company's costs. These charges are made by the subsidiary primarily in respect of: a) the provision of corporate services, including finance, legal, HR and facility services, b) the provision by the subsidiary of IT services and the Company's use of the related IT equipment, and c) the use of the national backbone telephony network of the subsidiary for carriage of the Company's telephony traffic, as well as the provision of the technical infrastructure and network capacity for the Company's subscription free Internet service. The charges are made on the basis of allocation formulae appropriate to each category of charge. For the nine months ended September 30, 2001 and 2000 the Company was charged (UK Pound)53.9 million and (UK Pound)19.1 million, respectively. For the 2001 amount, (UK Pound)13.9 million was included in operating costs and (UK Pound)40.0 million was included in selling, general and administrative expense. For the 2000 amount, (UK Pound)1.5 million was included in operating costs and (UK Pound)17.6 million was included in selling, general and administrative expense. It is not practicable to determine the amounts of these expenses that would have been incurred had the Company operated as an unaffiliated entity. In the opinion of the management of the Company, these payments are fair and reasonable to the Company. In the third quarter of 2001, the Company used cash contributed by its parent, which increased additional paid-in capital, to repay all of the due to affiliates balance. 8. Stock Options In September 2000, the NTL Board of Directors approved modifications to certain stock options granted to NTL employees in November 1999 through May 2000. Options to purchase an aggregate of approximately 16.5 million shares of NTL common stock with a weighted average exercise price of $64.39 per share were modified such that the exercise price was reduced to $44.50 per share and the vesting schedule was delayed and/or lengthened. NTL is accounting for these options as a variable plan beginning in September 2000. The Company will recognize its share of non-cash compensation expense for the difference between the quoted market price of the common stock and the exercise price of the vested options while the options remain outstanding. The NTL Compensation Committee has taken this action to continue to provide the appropriate performance incentives to those affected. 9. Commitments and Contingent Liabilities The Group is involved in legal proceedings and claims, which arise in the ordinary course of its business. In the opinion of management, the amount of the ultimate liability with respect to these actions will not materially affect the financial position, results of operations or liquidity of the Group. 10. Summarized Financial Information about Diamond Holdings Limited On February 6, 1998, Diamond Holdings, a subsidiary of the Company, issued (UK Pound)135.0 million principal amount of its 10% Senior Notes due February 1, 2008 and $110.0 million 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. The Company has no independent operations and no subsidiaries other than Diamond Holdings. Diamond Holdings is restricted in its ability to make funds available to the Company except for funds to pay interest on the Discount Notes and (UK Pound)5.0 million annually. The following condensed consolidating financial information of the Company as of and for the nine and three months ended September 30, 2001 and 2000 is being provided pursuant to Article 3-10(c) of Regulation S-X. 8

10 DIAMOND CABLE COMMUNICATIONS LIMITED FORM 10-Q QUARTER ENDED SEPTEMBER 30, 2001 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND ---------------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- Overview -------- Diamond Cable Communications Limited (formerly Diamond Cable Communications Plc) (the "Company") is a holding company which holds all of the shares of various companies which operate broadband communications networks for telephone, cable television and Internet services in the United Kingdom (the "UK"). The Company holds these shares through an intermediate holding company, Diamond Holdings Limited (formerly Diamond Holdings Plc) ("Diamond Holdings"). Except as the context may otherwise require, references to the "Group" refer to the Company and its subsidiaries. Liquidity and Capital Resources ------------------------------- The Company issued senior discount notes in September 1994, December 1995 and February 1997 (collectively, the "Discount Notes"). In February 1998, Diamond Holdings issued two new series of notes (the "1998 Notes"). 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 broadband communications network will require additional capital investment. The Group currently estimates that the additional capital expenditures and debt service requirements of the Group, net of cash from operations from October 1, 2001 through September 30, 2002 will be approximately (UK Pound)114.0 million. These capital expenditures could vary significantly depending on, among other things, 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, and the pace of the Group's construction program. The Group expects to meet its cash requirements through debt or equity from NTL or other NTL subsidiaries. To the extent that the amounts required for capital expenditures exceed the estimates, or the Group's cash flow does not meet expectations, the amount of cash requirements will increase. There can be no assurance that debt or equity financing will be available to the Group on acceptable commercial terms or at all. Condensed Consolidated Statements of Cash Flows ----------------------------------------------- Net cash used in operating activities amounted to (UK Pound)107.3 million and (UK Pound)14.3 million for the nine months ended September 30, 2001 and 2000, respectively. During the nine months ended September 30, 2001, net cash used in operating activities includes (UK Pound)32.3 million used for payments to affiliates which was funded by additional equity. The Company received (UK Pound)27.9 million from affiliates in the nine months ended September 30, 2000. The remainder of the change is due to the cash paid during the period for interest and other changes in working capital as a result of the timing of receipts and disbursements. Net cash used in investing activities amounted to (UK Pound)51.1 million and (UK Pound)58.3 million for the nine months ended September 30, 2001 and 2000, respectively, primarily for continuing fixed asset purchases. Net cash provided by (used in) financing activities amounted to (UK Pound)156.5 million and ((UK Pound)2.0) for the nine months ended September 30, 2001 and 2000, respectively. During the nine months ended September 30, 2001, net cash provided by financing activities included additional equity of (UK Pound)157.6 million from NTL Communications Corp. During the nine months ended September 30, 2001 and 2000, net cash used in financing activities amounted to (UK Pound)1.1 million and (UK Pound)2.0 million, respectively, for mortgage principal payments and capital lease payments. 11 DIAMOND CABLE COMMUNICATIONS LIMITED FORM 10-Q QUARTER ENDED SEPTEMBER 30, 2001 Results of Operations for the Nine and Three Months Ended September 30, 2001 and -------------------------------------------------------------------------------- 2000 ---- Revenue for the nine and three months ended September 30, 2001 and 2000 was (UK Pound)132.5 million, (UK Pound)44.6 million, (UK Pound)110.5 million and (UK Pound)37.6 million, respectively, representing increases of 19.9% and 18.8%. These increases were primarily attributable to price increases, upselling new services to customers and growth in the Group's customer base. Revenue increases in the future are also expected to be achieved by providing new services such as digital television, cable modem and mobile telephone services. For the nine and three months ended September 30, 2000, certain costs have been reclassified from selling, general and administrative expenses to operating costs to conform to the 2001 classification. Operating costs, including network expenses, for the nine and three months ended September 30, 2001 and 2000 were (UK Pound)73.8 million, (UK Pound)23.3 million, (UK Pound)53.0 million and (UK Pound)23.6 million, respectively, representing an increase of 39.1% for the nine months ended September 30, 2001 and a decrease of 1.4% for the three months ended September 30, 2001 as compared to the same periods in 2000. The increase for the nine months ended September 30, 2001 is predominantly attributable to increases in interconnection costs and programming costs as a result of growth in telephone lines and cable television customers. Operating costs include certain costs which are charged by a subsidiary of NTL for the use of the national backbone telephony network of the subsidiary for carriage of the Company's telephony traffic, as well as the provision of the technical infrastructure and network capacity for the Company's subscription free Internet service. In the nine and three month periods ended September 30, 2001 and 2000, these charges were (UK Pound)13.9 million, (UK Pound)4.0 million, (UK Pound)1.5 million and (UK Pound)912,000, respectively. The increase in these charges is primarily due to the ongoing operating integration of the Company with the rest of NTL, as well as the introduction of the Internet service. Selling, general and administrative expenses for the nine and three months ended September 30, 2001 and 2000 were (UK Pound)60.3 million, (UK Pound)23.1 million, (UK Pound)37.0 million and (UK Pound)12.7 million, respectively. Selling, general and administrative expense includes certain costs which are charged by a subsidiary of NTL for the provision of corporate services, including finance, legal, HR and facility services, and for the provision of IT services, including the Company's use of the related IT equipment. These charges were (UK Pound)40.0 million, (UK Pound)13.0 million, (UK Pound)17.6 million and (UK Pound)10.6 million for the nine and three months ended September 30, 2001 and 2000, respectively. The increase in these charges is primarily due to the ongoing operating integration of the Company with the rest of NTL. Depreciation and amortization expense for the nine and three months ended September 30, 2001 and 2000 was (UK Pound)43.1 million, (UK Pound)14.0 million, (UK Pound)56.3 million and (UK Pound)18.6 million, respectively, representing decreases of (UK Pound)13.2 million and (UK Pound)4.6 million. Interest expense and amortization of debt discount and expenses for the nine and three months ended September 30, 2001 and 2000 was (UK Pound)91.0 million, (UK Pound)30.2 million, (UK Pound)82.0 million and (UK Pound)28.7 million, respectively, representing increases of (UK Pound)9.0 million and (UK Pound)1.5 million. For the nine and three months ended September 30, 2001, interest expense includes the accretion of the discount on the Discount Notes of (UK Pound)21.3 million and (UK Pound)7.1 million, interest on the 1994, 1995 and 1998 Notes of (UK Pound)67.6 million and (UK Pound)22.4 million and amortization of debt financing costs of (UK Pound)2.1 million and (UK Pound)700,000. For the nine and three months ended September 30, 2000, interest expense includes the accretion of the discount on the Discount Notes of (UK Pound)46.0 million and (UK Pound)16.4 million, interest on the 1994 and 1998 Notes of (UK Pound)33.5 million and (UK Pound)11.4 million, amortization of debt financing costs of (UK Pound)2.0 million and (UK Pound)700,000 and other interest expense of (UK Pound)500,000 and (UK Pound)200,000. A substantial portion of the Group's existing debt obligations are denominated in U.S. dollars, while the Group's revenues and expenses are generated and stated in UK pounds sterling. During the nine and three months ended September 30, 2001 and 2000, the Group recorded net foreign exchange losses (gains) of (UK Pound)15.5 million, (UK Pound)(39.9) million, (UK Pound)68.4 million and (UK Pound)20.5 million, respectively, primarily due to the unrealized losses on translation of its Discount Notes and 1998 Notes. Changes in foreign currency exchange rates may affect the Group's ability to satisfy its obligations under these debt instruments as they become due. The Company recorded restructuring costs in November 2000 as a result of the completion of a consolidation review. This charge consisted of employee severance and related costs of (UK Pound)5.9 million for approximately 470 employees to be terminated and lease exit costs of (UK Pound)1.0 million. As of September 30, 2001, (UK Pound)579,000 of the provision had been used for employee severance and related costs and approximately 155 employees had been terminated. The remaining restructuring reserve of (UK Pound)6.4 million includes (UK Pound)5.4 million for employees severance and related costs and (UK Pound)1.0 million for lease exit costs. 12 DIAMOND CABLE COMMUNICATIONS LIMITED FORM 10-Q QUARTER ENDED SEPTEMBER 30, 2001 In September 2000, the NTL Board of Directors approved modifications to certain stock options granted to NTL employees in November 1999 through May 2000. Options to purchase an aggregate of approximately 16.5 million shares of NTL common stock with a weighted average exercise price of $64.39 per share were modified such that the exercise price was reduced to $44.50 per share and the vesting schedule was delayed and/or lengthened. NTL is accounting for these options as a variable plan beginning in September 2000. The Company will recognize its share of non-cash compensation expense for the difference between the quoted market price of the common stock and the exercise price of the vested options while the options remain outstanding. The NTL Compensation Committee has taken this action to continue to provide the appropriate performance incentives to those affected. Recent Accounting Pronouncements -------------------------------- In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 142 ends the amortization of goodwill and indefinite-lived intangible assets. Instead, these assets must be reviewed annually (or more frequently under certain conditions) for impairment in accordance with this statement. This impairment test uses a fair value approach rather than the undiscounted cash flow approach previously required by SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Intangible assets that do not have indefinite lives will continue to be amortized over their useful lives and reviewed for impairment in accordance with SFAS No. 121. The Company is required to adopt SFAS No. 142 as of January 1, 2002. The Company has not yet completed an analysis of whether goodwill may be impaired under SFAS No. 142; this analysis will be completed during the first six months of 2002 in accordance with the transition provisions of SFAS No. 142. The Company expects to complete an analysis for the fourth quarter of 2001 to determine whether goodwill is impaired under SFAS No. 121. The magnitude of an impairment charge, if any, under either accounting standard cannot be determined at this time. 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 Group, 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, technological developments, the Group'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 restructuring and integration actions, the impact of new business opportunities requiring significant up-front investment, interest rate and currency exchange rate fluctuations and availability, terms and deployment of capital. The Company assumes no obligation to update the forward-looking statements contained herein to reflect actual results, changes in assumptions or changes in factors affecting such statements. 13 DIAMOND CABLE COMMUNICATIONS LIMITED FORM 10-Q QUARTER ENDED SEPTEMBER 30, 2001 PART II. OTHER INFORMATION -------- ----------------- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ------- -------------------------------- (a) Exhibits: None. (b) Reports on Form 8-K: No reports on Form 8-K were filed by the Company during the quarter ended September 30, 2001. 14 DIAMOND CABLE COMMUNICATIONS LIMITED FORM 10-Q QUARTER ENDED SEPTEMBER 30, 2001 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 LIMITED ----------------------------------------- Date: November 12, 2001 By: /s/ Stephen A. Carter ------------------------------------ Stephen A. Carter Director and Chief Operating Officer Date: November 12, 2001 By: /s/ Stuart Ross ------------------------------------ Stuart Ross Director and Chief Financial Officer 15

DIAMOND CABLE COMMUNICATIONS LTD 10-Q