<PAGE> 1
================================================================================
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO RULE 13a - 16 OR 15(d) - 16
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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 X-XXXXX
KABELMEDIA HOLDING GMBH
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
FEDERAL REPUBLIC OF GERMANY NOT APPLICABLE
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
KOLNER STRASSE 6, 65760 ESCHBORN, GERMANY
(Address of principal executive offices)
Registrant's telephone number, including area code: 011-49-6196-926360
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.
X
Yes ________ No _______
Included in this filing are xx pages, sequentially numbered in the bottom center
of each page.
================================================================================
<PAGE> 2
KABELMEDIA HOLDING GMBH
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed consolidated statements of operations -- Three months ended
March 31, 1997 and 1996................................................... 3
Condensed consolidated balance sheets -- March 31, 1997 and
December 31, 1996....................................................... 4
Condensed consolidated statements of cash flows -- Three months ended
March 31, 1997 and 1996................................................. 5
Notes to condensed consolidated financial statements...................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................. 8
Part II. Other Information......................................................... 11
Signatures.......................................................................... 12
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, 1997
----------------------------
1996 1997 1997
------- ------- ------
DM DM U.S.$
<S> <C> <C> <C>
Revenues........................................................ 15,327 17,432 10,452
Operating costs and expenses:
Operations.................................................... 2,919 3,006 1,802
Selling, general and administrative........................... 3,010 3,327 1,995
Corporate expenses............................................ 1,360 1,728 1,036
Depreciation and amortization................................. 10,731 11,888 7,128
------- ------- ------
Total........................................................... 18,020 19,949 11,961
------- ------- ------
Operating loss.................................................. (2,693) (2,517) (1,509)
Interest expense
Bank debt and other........................................... (4,106) (2,847) (1,707)
Senior Discount Notes......................................... 0 (5,938) (3,560)
Subordinated Shareholder Loans................................ (4,495) 0 0
Unrealized foreign currency loss................................ -- (787) (472)
Minority interest in net loss of subsidiaries................... 27 2 1
------- ------- ------
Loss before income taxes........................................ (11,267) (12,087) (7,247)
Income tax benefit (expense).................................... 599 21 13
------- ------- ------
Net loss........................................................ (10,668) (12,066) (7,234)
======= ======= ======
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE> 4
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, ---------------------------
1996 1997 1997
------------ ----------- -----------
DM DM U.S.$
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash.................................................. 951 3,573 2,142
Accounts receivable -- net............................ 2,815 3,033 1,819
Inventory............................................. 1,811 2,133 1,279
Property, plant and equipment -- net.................. 230,341 228,315 136,896
Goodwill -- net....................................... 147,747 161,151 96,625
Foreign currency forward contracts.................... 9,062 23,329 13,988
Other assets.......................................... 29,305 28,754 17,240
------------ ----------- -----------
TOTAL ASSETS.......................................... 422,032 450,288 269,989
========== ========= =========
Accounts payable...................................... 6,290 4,349 2,608
Accrued expenses and other liabilities................ 10,048 11,715 7,024
Deferred gain on foreign currency forward contracts... 7,606 8,942 5,362
Deferred revenue...................................... 8,703 9,323 5,590
Deferred purchase obligations......................... 7,875 10,597 6,354
Bank debt............................................. 111,175 127,522 76,461
Senior Discount Notes................................. 163,131 182,785 109,596
------------ ----------- -----------
TOTAL LIABILITIES..................................... 314,828 355,233 212,995
Minority interest in subsidiaries..................... 92 9 5
SHAREHOLDERS' EQUITY (DEFICIENCY)
Registered capital.................................... 10,000 10,000 5,996
Capital contributions................................. 200,192 200,192 120,034
Accumulated deficit................................... (103,080) (115,146) (69,041)
------------ ----------- -----------
TOTAL SHAREHOLDERS' EQUITY............................ 107,112 95,046 56,989
------------ ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............ 422,032 450,288 269,989
========== ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE> 5
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH
31,
---------------------------------
1996 1997 1997
------- -------- --------
DM DM U.S. $
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net cash provided by operating activities................. 3,248 4,510 2,704
INVESTING ACTIVITIES
Net purchases of property, plant equipment................ (2,891) (1,507) (904)
Acquisition of businesses................................. (11,951) (19,230) (11,530)
Acquisition of other assets............................... (105) -- --
------- ------- -------
Net cash used in investing activities..................... (14,947) (20,737) (12,434)
FINANCING ACTIVITIES
Proceeds from bank debt................................... 15,000 20,300 12,172
Proceeds from deferred purchase obligations............... -- 2,500 1,499
Payments of acquired debt................................. (4,625) 0 0
Repayment of bank debt.................................... -- (2,300) (1,379)
Proceeds from (payments of) bank overdrafts............... (245) (1,651) (990)
------- ------- -------
Net cash provided by financing activities................. 10,130 18,849 11,302
Net increase (decrease) in cash and cash equivalents...... (1,569) 2,622 1,572
Cash and cash equivalents at beginning of period.......... 7,866 951 570
------- ------- -------
Cash and cash equivalents at end of period................ 6,297 3,573 2,142
======= ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Kabelmedia Holding GmbH (the "Company") 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 Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by U.S. 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 three month period ended March 31, 1997 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto for the year ended December 31, 1996
included in the Company's Annual Report on Form 10-K.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with United States generally accepted accounting
principles ("U.S. GAAP") including those principles specific to the cable
television industry. The Company maintains its financial records in accordance
with the German Commercial Code, which represents generally accepted accounting
principles in Germany ("German GAAP"). Generally accepted accounting principles
in Germany vary in certain significant respects from U.S. GAAP. Accordingly, the
Company has recorded certain adjustments in order that these unaudited condensed
financial statements be in accordance with U.S. GAAP for interim financial
information.
Solely for the convenience of the reader, the accompanying unaudited
consolidated financial statements as of and for the three months ended March 31,
1997 have been translated into United States dollars ("U.S. $") at the rate of
DM 1.6678 per $1.00 the Noon Buying Rate of the Federal Reserve Bank of New York
on March 31, 1997. The translations should not be construed as a representation
that the amounts shown could have been, or could be, converted into U.S. dollars
at that or any other rate.
2. BUSINESS ACQUISITIONS
On January 31, 1997, Kabelmedia acquired the shares of Antennen-Lindemann
for a total consideration of DM 20,000,000 plus closing costs and expenses of DM
550,000. The purchase price consisted of cash payments of DM 16,730,000, the
assumption of liabilities of DM 895,000 and a deferred purchase obligation of DM
2,500,000. DM 500,000 of the deferred purchase obligation is due on the first
anniversary date of the acquisition. The remainder of the deferred purchase
obligation plus accrued interest of 4% per annum is due on the third anniversary
date. The Company borrowed DM 20,300,00 on January 31, 1997 to fund the
acquisition and pay all related costs and expenses. On March 27, 1997 the
Company repaid DM 2,300,000 of the Bank Debt. The acquisition resulted in
goodwill of DM 18,443,000.
3. FOREIGN EXCHANGE
Through March 31, 1997 the company has entered into foreign currency
forward contracts to hedge against the effect of exchange rate fluctuations on
the Senior Discount Notes. The U.S. dollar denominated Senior Discount Notes are
recorded in Deutsche Marks at the applicable exchange rate. The foreign currency
forward contracts require the Company to exchange Deutsche Marks for U.S.
dollars and generally mature in four to five years. The premium on the foreign
currency forward contracts, representing the difference between the contracted
forward rate and the spot rate at the date of the contracts, in an initial
amount of DM 9,810,000 has been recorded in assets and liabilities. The asset is
adjusted to the period-end exchange rate which offsets the related unrealized
gain or loss on the Senior Discount Notes. The liability representing the
unamortized premium on the foreign currency forward contracts amounted to DM
8,942,000 which is being amortized over the life of the contracts. The Company
recorded an unrealized foreign exchange loss of DM 787,000 related to
6
<PAGE> 7
a portion of the Senior Discount Notes which were not hedged during the three
months ended March 31, 1997. At March 31, 1997 the Senior Discount Notes were
completely hedged.
4. RESERVE FOR CORPORATE RESTRUCTURING
During the first quarter of 1997, the Company applied approximately DM
244,000 of costs and expenses against the DM 1,611,000 restructuring accrual
which was established in 1996 to allow for the move of the
Company's corporate office from Plauen to Frankfurt. The expenses incurred in
the first quarter of 1997 primarily relate to the rehabilitation of leasehold
improvements in Plauen and severance payments.
5. RECLASSIFICATION
The Company has made the decision to report its corporate expenses as a
separate line item in its Condensed Consolidated Statements of Operations.
Corporate expenses is primarily comprised of the salaries of senior management
and the administrative, accounting and MIS staffs, the lease of office space for
corporate activities and fees and expenses paid to the Company's legal and
accounting consultants. The three month period ended March 31, 1996 has been
restated to reflect this change in accounting presentation by allocating DM
1,360,000 from selling, general and administrative expenses to corporate
expenses.
The Company has made the decision to report the difference between the
contracted forward rate and the period end exchange rate as a separate line item
in the balance sheet entitled "Foreign currency forward contracts". The item had
been included in "Other assets". In addition, the Company will report the
"Deferred gain on foreign currency contracts" as a separate line item.
Previously this item had been included in "Accrued expenses and other
liabilities".
The Company has made the decision to report Deferred purchase obligations
on a separate line item. Previously deferred purchase obligations were included
in "Accrued expenses and other liabilities".
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE-MONTH PERIODS ENDED MARCH 31, 1996 AND 1997
REVENUES. Revenues increased 13.7% from DM 15,327,000 in the first quarter
of 1996 to DM 17,432,000 in the first quarter of 1997. The increase was
primarily attributable to a 5.4% increase (from 357,352 to 376,518) in the
average monthly number of customers and a 7.9% increase (from DM 14.30 to DM
15.43) in the average monthly revenue per customer from the first quarter of
1996 to the first quarter of 1997. The increase in the Company's average monthly
number of customers was primarily related to the acquisitions of cable
television companies subsequent to December 31, 1995 and as of the respective
dates of the acquisitions, collectively served approximately 34,000 customers
(14,700 acquired in the first quarter of 1996 and 19,300 acquired in the first
quarter of 1997). In addition the Company acquired approximately 10,400 (5,400
in 1996 and 5,000 in 1997) additional customers by building out its existing
cable systems during this same time period. All of the increase in the average
monthly revenue per customer is attributable to rate increases implemented since
December 31, 1995 as both acquisitions had lower monthly revenue per customer
than the Company's average at the time of acquisition.
OPERATING EXPENSES. Operating expenses increased 3.0% from DM 2,919,000 in
the first quarter of 1996 to DM 3,006,000 in the first quarter of 1997,
principally as a result of increased costs associated with the maintenance of a
larger customer base, increased costs associated with updating and maintaining a
larger customer base in the billing subscriber system, increased costs
associated with a system audit which is currently being conducted and increased
costs under the Company's signal delivery contracts with Deutsche Telekom AG,
under which programming is procured for a portion of the Company's cable
systems.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by 10.5% from DM 3,010,000 in the first quarter of 1996 to DM
3,327,000 in the first quarter of 1997, principally as a result of the increased
costs associated with the cable television companies acquired subsequent to
December 31, 1995 and increased costs associated with a more aggressive
marketing plan. As a percent of revenue selling, general and administrative
expenses declined from 19.6% in the first quarter of 1996 to 19.1% in the first
quarter of 1997, reflecting higher revenue per subscriber and increased
efficiencies.
CORPORATE EXPENSES. Corporate expenses increased by 27.1% from DM 1,360,000
in the first quarter of 1996 to DM 1,728,000 in the first quarter of 1997. The
increase was primarily attributable to increased costs associated with the
addition of the management, accounting, administrative and MIS corporate
personnel required to manage a larger customer base.
DEPRECIATION AND AMORITIZATION. Depreciation and amortization increased by
DM 1,157,000 from DM 10,731,000 in the first quarter of 1996 to DM 11,888,000 in
the first quarter of 1997, principally as a result of increased assets and
goodwill associated with acquisitions of cable television companies.
INTEREST EXPENSE. Interest expense increased 2.1% from DM 8,601,000 in the
first quarter of 1996 to DM 8,785,000 in the first quarter of 1997 even though
the average indebtedness decreased from DM 346,287,000 to DM 292,476,000. The
primary reason for the decline in average indebtedness resulted from the
conversion of the Subordinated Shareholder Loans to Shareholder Capital. The
increase in interest expense was primarily associated with the amortization of
the capitalized costs and expenses associated with the 1996 Bank Facility and
the Senior Discount Notes, increased unused commitment fees associated with the
1996 Bank Facility and a higher interest rate on the Senior Discount Notes. Of
the total interest accrued in the first quarter of 1997 DM 5,938,000 related to
non-cash interest on the Senior Discount Notes.
UNREALIZED FOREIGN CURRENCY TRANSACTION LOSS. The Company recorded an
unrealized foreign exchange loss of DM 787,000 in the first quarter of 1997. The
loss related to a portion of the Senior Discount Notes which was not hedged
during the three months ended March 31, 1997. At March 31, 1997, the Senior
Discount Notes were completely hedged.
8
<PAGE> 9
NET LOSS. Net loss increased DM 1,398,000 from DM 10,668,000 in the first
quarter of 1996 to DM 12,066,000 in the first quarter of 1997 as a result of the
factors discussed above.
EBITDA. In addition to other items, some of which are reflected in its
statement of operations data, the Company measures its financial performance by
EBITDA. The Company defines EBITDA as earnings (loss) before extraordinary
items, minority interests, net interest expense, income taxes and depreciation
and amortization. The Company believes that EBITDA is a meaningful measure of
performance because it is commonly used in the cable television industry to
analyze and compare cable television companies on the basis of operating
performance, leverage and liquidity. EBITDA is not a U.S. GAAP measure of income
(loss) or cash flow from operations and should not be considered as an
alternative to net income as an indication of the Company's financial
performance or as an alternative to cash flow from operating activities as a
measure of liquidity. EBITDA increased from DM 8,038,000 for the three months
March 31, 1996 to DM 9,371,000 for the three months ended March 31, 1997
primarily as a result of revenues increasing at a faster rate than operating,
selling, general and administrative costs and expenses. The Company's EBITDA
margin improved from 52.4% in the first quarter of 1996 to 53.8% in the first
quarter in 1997. EBITDA per average subscriber increased by 10.7% from DM 7.50
per subscriber in the first quarter of 1996 to DM 8.30 per subscriber in the
first quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically relied on three sources for necessary funding:
(i) borrowings under its bank facilities
(ii) loans and contributions from its equity investors and
(iii) cash flow from operations.
At March 31, 1997, the Company's aggregate consolidated indebtedness was
approximately DM 310,307,000, comprised of DM 125,000,000 of debt outstanding
under its 1996 Bank Facility, DM 2,522,000 of other bank debt, and DM
182,785,000 of Senior Discount Notes. The Senior Discount Notes are denominated
in dollars and converted to Deutsche Marks at the rate of DM 1.6678, the Noon
Buying Rate of the Federal Reserve Bank of New York on March 31, 1997. Recorded
in assets and liabilities is DM 23,329,000 and DM 8,942,000, respectively. The
asset represents the difference between the contracted forward rate and the
period end exchange rate. The liability represents the unamortized premium on
foreign exchange contracts entered into to hedge against the effect of exchange
rate fluctuations on the Senior Discount Notes.
For the three months ended March 31, 1997 the Company generated net cash
from operating activities of DM 4,510,000.
For the three months ended March 31, 1997, the Company used cash in
investing activities of DM 20,737,000. Such cash uses were primarily related to
the acquisition of a cable television company and capital expenditures. Net cash
provided by financing activities amounted to DM 18,849,000. Such net cash was
primarily provided by DM 18,000,000 net borrowings under the 1996 Bank
Facilities and a deferred purchase obligation of DM 2,500,000. The Company
repaid approximately DM 1,651,000 of loans outstanding under its overdraft
facility.
Net capital expenditures of DM 1,507,000 for the three month period ended
March 31, 1997 were related to the continued construction, expansion and
upgrading of existing systems (DM 2,257,000) and the sale of the Company's
airplane (DM 750,000). Over the three month period ended March 31, 1997 the
Company added 5,000 customers by building out and marketing its existing
systems. The Company has only minimal commitments to make capital expenditures
under the terms of concession or franchise agreements or otherwise, but
anticipates that it will continue to increase its capital expenditures in the
near future to further upgrade existing cable systems once they have been
acquired. To the extent cash flow is not sufficient to fund its capital
expenditures, the Company expects to borrow the necessary funds under the 1996
Bank Facility.
9
<PAGE> 10
Substantial amounts of depreciation and amortization expense and non-cash
interest which accrued on Senior Discount Notes continued to contribute to the
net losses experienced by the Company. These expenses, however, do not result in
a current outflow of cash.
The Company believes that EBITDA provides a more meaningful measure of
fixed cost coverage than does a deficiency of earnings to fixed charges. EBITDA
amounts in each period are not solely available to satisfy cash interest expense
payable by the Company and may also be required for other corporate purposes,
including increases in working capital, principal payments on debt and capital
expenditures. EBITDA for the three month period ended March 31, 1997 was DM
9,371,000. Total interest expense for the same period was DM 8,785,000. Of the
total interest expense in the three month period, DM 5,938,000 related to
non-cash interest on the Senior Discount Notes.
10
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 -- Financial Data Schedule.
(b) Reports on Form 8-K
None.
11
<PAGE> 12
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.
KABELMEDIA HOLDING GMBH
/s/ BEN BARTEL
Chief Executive Officer and
Managing Director
/s/ PAUL THOMASON
Chief Financial Officer and Controller
Dated: May 15, 1997
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) SEC FORM
10-Q RATED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
(B) FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> DEUTSCHE MARK
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1.6678
<CASH> 3,573
<SECURITIES> 0
<RECEIVABLES> 3,033
<ALLOWANCES> 0
<INVENTORY> 2,133
<CURRENT-ASSETS> 0
<PP&E> 228,315
<DEPRECIATION> 0
<TOTAL-ASSETS> 450,288
<CURRENT-LIABILITIES> 44,926
<BONDS> 310,307
<COMMON> 10,000
0
0
<OTHER-SE> 84,854
<TOTAL-LIABILITY-AND-EQUITY> 450,288
<SALES> 17,432
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 8,061
<OTHER-EXPENSES> 11,888
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,785
<INCOME-PRETAX> (12,087)
<INCOME-TAX> 21
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,066)
<EPS-PRIMARY> 0
<EPS-DILUTED> 00
</TABLE>
