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Form 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO RULE 13a - 16 OR 15(d) - 16
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1996
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)
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FEDERAL REPUBLIC OF GERMANY NOT APPLICABLE
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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OBERER STEINWEG 10, 08523 PLAUEN, GERMANY
(Address of principal executive offices)
Registrant's telephone number, including area code: 011-49-3741-26060
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 pages, sequentially numbered in the bottom center
of each page.
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KABELMEDIA HOLDING GMBH
FORM 10-K
INDEX
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PAGE
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Part I.
Item 1. Business................................................................ 3
Item 2. Properties.............................................................. 11
Item 3. Legal Proceedings....................................................... 11
Item 4. Submission of Matters to a Vote of Security-Holders..................... 11
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters... 11
Part II.
Item 6. Selected Consolidated Financial Data.................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 14
Item 8. Financial Statements.................................................... 19
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................... 34
Item 10. Directors and Executive Officers of Registrant......................... 34
Part III.
Item 11. Executive Compensation................................................. 37
Item 12. Security Ownership of Certain Beneficial Owners and Management......... 38
Item 13. Certain Relationships and Related Transactions......................... 40
Part IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........ 44
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PART I
ITEM 1. BUSINESS
The Company acquires, owns and operates cable television systems that serve
primarily medium- and small-sized communities in Germany. Principally as a
result of completing 14 acquisitions since its inception in 1992, the Company
owned and operated cable systems passing approximately 495,311 homes and serving
approximately 362,940 customers as of December 31, 1996. In addition, on January
31, 1997 the Company acquired the shares of Antenna-Lindemann GmbH ("Magdeburg")
for a total consideration of DM20,000,000. Magdeburg operates a cable system
which passed 20,110 homes and served approximately 19,300 customers at the date
of the acquisition.
The Company has followed a systematic approach in acquiring, consolidating
and operating cable television systems, based on the goal of increasing
operating cash flow while maintaining or improving service standards. A key
element of the Company's strategy is to expand its existing regional clusters of
cable television systems and to establish new regional clusters of systems large
enough to serve as cores for new operating regions. In addition, the Company
aggressively consolidates cable systems following their acquisition to improve
operating performance by eliminating duplicative personnel and office locations,
creating regional customer service centers and signal distribution facilities
and centralizing corporate support functions, including accounting, billing,
marketing and technical and administration services.
The Company's cable television systems are organized into six operating
regions: the Plauen Region, the Leipzig Region, the Berlin Region and the
Dresden Region, all of which are located within the New German States, and the
Stuttgart Region and the Osnabruck Region, both of which are located within the
Old German States. The following table sets forth certain information relating
to the Company's cable television systems within each of these regions as of
December 31, 1996.
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PLAUEN LEIPZIG(2) BERLIN DRESDEN STUTTGART OSNABRUCK
REGION REGION REGION REGION REGION REGION TOTAL
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<S> <C> <C> <C> <C> <C> <C> <C>
Homes passed.................. 36,526 200,778 45,959 50,260 80,823 80,965 495,311
Customers..................... 32,102 168,971 37,595 42,787 42,196 39,289 362,940
Penetration (1)............... 87.9% 84.2% 81.8% 85.1% 52.2% 48.5% 73.3%
</TABLE>
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(1) Customers as a percentage of homes passed.
(2) Magdeburg passes 20,110 homes and serves 19,300 subscribers and will be
included as part of the Leipzig Region in 1997.
RECENT DEVELOPMENTS
In 1996, the Company acquired shares of Kabelcom Osnabruck Gesellschaft fur
Breibandkabelkommunikation mbH & Co. KG (Kabelcom), increasing its ownership in
this entity to 99% at December 31, 1996. The Company acquired the shares for
total consideration of DM1,740,000, including brokerage commissions of
DM554,000. The remaining 1% of Kabelcom is owned by Kabelcom Osnabruck
Gesellschaft fur Breitbandkabelkommunikation mbH of which the Company owns 66%.
At December 31, 1996 Kabelcom had 27,447 subscribers.
On June 30, 1996, the Company acquired the cable television networks of two
companies known as IHACO and UML. The total consideration paid for these
networks was DM3,485,000. Prior to the acquisition Kabelmedia leased these
networks from IHACO and UML. The acquisition resulted in a net decrease in
monthly operating lease expense of approximately DM67,000.
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On December 12, 1996, the Board of Directors approved a reorganization plan
providing for the relocation of the Company's headquarters to Frankfurt,
Germany. A special reserve of DM1,611,000 was taken on December 31, 1996 to
provide for the costs and expenses associated with this reorganization.
On December 30, 1996, Kabelmedia entered into a ten year software license
agreement for a new subscriber management system with a major provider of
billing subscriber services. The Company will transition from its existing
billing subscriber system to the new system over the next twelve months. Annual
consideration amounts to approximately 2% of annual revenues, subject to a
minimum of $1,000,000 in each year.
On January 31, 1997, the Company acquired the shares of Antenna Lindemann
for a total consideration of DM20,000,000. Antenna Lindemann passed
approximately 20,110 homes and served 19,300 subscribers at the date of the
acquisition.
NETWORK CONFIGURATION
The Company emphasizes high technological standards in its cable television
systems and considers the application of new technology on the basis of
cost-effectiveness, enhancement of product quality and service delivery and
industry-wide acceptance.
As of December 31, 1996, substantially all of the Company cable systems had
bandwidths of at least 450MHz and were capable of distributing over 40 channels,
and virtually all of the Company's cable systems utilized star architecture.
The Company monitors and evaluates new technological developments on the
basis of its ability to make optimal use of its existing assets and to
anticipate the introduction of new services and program delivery capabilities.
The use of fiber optic as an enhancement to coaxial cable is playing a
significant role in expanding channel capacity and improving the performance of
cable television systems. Fiber optic cable is capable of carrying hundreds of
video, data and voice channels. To date, the Company has chosen not to implement
fiber optic technology in its systems, primarily because virtually all of its
systems have substantial unused channel capacity, so that the Company does not
believe the cost of implementing fiber optic technology, which at present would
be underutilized, to be warranted. Based on discussions with suppliers of
equipment required to implement these technologies, the Company believes that
private cable systems operators with which it competes have not implemented
fiber optic technology, except to a limited extent. Similarly, the Company
generally does not use addressable technology in its cable systems and, based on
discussions with relevant equipment suppliers, does not believe that its
competitors have introduced such technology other than on a modest basis. The
principal benefits of addressable or two-way technology include remote
monitoring and extension of access to selected programming and termination of
service for non-payment. Due to the low churn rate and limited amount of
multiple premium programming tiers and pay-per-view programming offered in
Germany, the Company does not believe that the cost of addressable technology is
currently justified. The Company intends to continue to assess the potential
benefits of fiber optic and addressable technologies.
New technological advances that are anticipated to become commercially
viable in the foreseeable future include digital compression and expanded
bandwidth amplifiers, which offer cable operators the potential for a dramatic
expansion of channel capacity, along with alternative communications delivery
systems. As these new technologies and related services become available, the
Company intends to assess their economic return and market demand, with the goal
of implementing additional services in a cost-effective manner.
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PROGRAMMING
The Company's systems typically offer a choice of at least two tiers of
basic cable television programming service: a "lifeline" or " ground" tier
(consisting generally of network and public terrestrial television signals
available over the air in the franchise area) and a "standard package" or basic
satellite programming tier (consisting primarily of satellite-delivered
programming). Additionally, in certain markets, the Company offers either one or
two additional tiers of basic cable television programming service.
Approximately 90% of the Company's customers subscribed to at least the
"standard package" tier of service as of December 31, 1996.
The Company obtains its programming either directly from program
broadcasters via a Company-owned head-end or indirectly through a signal
delivery contract with Deutsche Telekom. As of December 31, 1996, approximately
52% of the Company's customers were served by systems that acquired their
programming directly from broadcasters via a Company-owned head-end, and
approximately 48% of the Company's customers were served by systems that
obtained their programming indirectly through signal delivery agreements with
Deutsche Telekom.
In those cases where the Company acquires its programming indirectly
through Deutsche Telekom, it does so pursuant to signal delivery contracts with
Deutsche Telekom. The Deutsche Telekom contracts are generally for a fixed
period of time and are subject to negotiated renewal. Under these agreements,
the Company typically pays Deutsche Telekom either a flat fee or a fee per
customer that is determined by reference to a published fee schedule based on
the number of homes connected to one connection point. As of December 31, 1996,
fees payable by the Company to Deutsche Telekom under its existing contracts
ranged from DM0.57 to DM22.50 per month for each customer connected to a
Deutsche Telekom connection point, with a weighted average of approximately
DM3.82 per month for each such customer. These costs are offset by obviating the
need for a Company-owned head-end.
In those cases where the Company acquires its programming directly from
broadcast via a Company-owned head-end, historically the Company has been able,
and believes that all other German cable system operators have been able, to
acquire such programming at no cost and without any formal agreements or contact
with or approval or authorization from such broadcasters. The Company's beliefs
are based on discussion with its competitors and German copyright royalty
collecting societies, which act as royalty processing and clearing agencies for
those entitled to copyright protection. The Company further believes, based on
those discussions, that with the exception of possible claims for copyright fees
which may be assessed for the retransmission by the Company of programs received
by the Company on its own head-ends, the Company does not have any potential
liability arising from its acquisition of programming in this manner. The
Company has no present plans to enter into formal agreements with broadcasters
for the acquisition of programming via its own head-ends.
Other than any portion of the fees paid by the Company to Deutsche Telekom
under signal delivery contracts which may be allocable to copyright license
fees, the Company has not to date paid any copyright license fees in respect of
programming carried on its cable systems. The Company believes, based on
discussion with its competitors and copyright royalty collecting societies,
that, with the exception of one small cable system operator, its competitors
similarly have paid no copyright license fees in respect of programming carried
on their cable systems. The Company expects that copyright license fees will be
imposed in the future in respect of the retransmission of programming on cable
systems in Germany, but the possible imposition of such fees is uncertain. The
complexity of the debate in this area is increased due to the differing
approaches which apply to the retransmission of terrestrial broadcasting, on the
one hand, and satellite broadcasting, on the other. The applicable legal
framework is in the course of being modified by legislation and the judicial
interpretations of that framework include inconsistent decisions. Discussions
within the cable television industry in Germany in respect of retransmission
rights and license fees, in particular between broadcasters and copyright
royalty collecting societies, are ongoing and the Company's information on the
status of those discussions is based solely on informal discussions with
representatives of its competitors, including Deutsche
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Telekom, broadcasters and German copyright royalty collecting societies. The
Company is unable to assess the accuracy and completeness of information given
by those sources and believes that some of such information may reflect current
negotiating positions of the sources and is subject to change.
While the Company expects in the foreseeable future to be required to pay
some copyright license fees in respect of programming carried on its cable
systems, it is unable at present to predict when such license fees might become
payable, what programming might attract such fees, the basis and level of the
assessment of such fees or the possible impact on the Company and its financial
position. The Company believes that if it becomes liable for copyright license
fees, such liability will extend generally to cable system operators in Germany
and that the Company and such other operators are likely to be able to increase
the cost of their future cable services in order to recover the amount of any
such license fees from their cable customers. The Company is generally permitted
under the terms of its concession and franchise agreements to increase fees to
cover increased programming costs, and the terms and conditions governing its
provision of cable services to customers either permit increased fees, or
generally could be modified unilaterally by the Company to permit fees to be
increased, subject to the giving of notice by the Company to such customers
conditioning the Company's future provision of cable services on the application
of such modified terms and conditions. However, the Company's ability to recover
future license fees from customers cannot be assured in all instances; it may be
unable to pass on to its customers any copyright license fees which may be
assessed with reference to past periods, and any need to revise applicable
customer terms and conditions would delay the increase in the Company's fees
reflecting such increased costs.
CONCESSION AND FRANCHISE AGREEMENTS
The Company's cable television systems are generally operated pursuant to
long-term concession agreements with local governmental authorities and
franchise agreements with housing authorities that administer large housing
blocks. Concession agreements with local governmental authorities provide the
Company with the right to use public rights-of-way, while franchise agreements
with housing authorities provide the Company with access to potential customers
living in the housing blocks. Each individual franchise agreement typically
provides access to a relatively small number of homes. As of December, 31, 1996,
the Company's cable systems operated pursuant to 106 concession agreements with
local governmental authorities and 165 franchise agreements with housing
authorities, providing access to approximately 495,000 homes.
The Company's concession and franchise agreements typically contain
standardized conditions, such as conditions of service and limitations on
commencement and completion of construction. Additionally, most of the Company's
concession and franchise agreements contain provisions that permit the Company
to raise the prices for its existing level of cable services with reference to
general inflation indices and to raise prices to cover increased costs of
programming. However, by timing rate increases to published cost of living
increases or the introduction of new or improved programming, the Company has
generally been able to increase the rates for its cable services without the
objection of the respective housing authority.
Most of the Company's franchise agreements with housing authorities provide
that the Company is the exclusive provider of cable services in the franchise
area. Although the Company generally does not pay concession/franchise fees on
any of its cable systems, in certain cases it pays housing authorities for
billing and collecting subscription fees from homes within the applicable
apartment blocks pursuant to agreements entered into prior to the Company's
acquisition of the related cable system. In addition, certain governmental
authorities have attempted to extract concession fees from the Company, and
there can be no assurance that the Company will not be required to pay
concession fees in the future in connection with the acquisition, establishment
or renewal of concessions.
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The table below illustrates the groupings of the concession and franchise
agreements of the Company's cable systems by date of expiration (inclusive of
any period for which the Company can unilaterally extend the term by the giving
or withholding of notice if it is not in breach of the terms thereof) as of
December 31, 1996:
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TOTAL NUMBER
OF
CONCESSION
NUMBER OF NUMBER OF AND
CONCESSION FRANCHISE FRANCHISE
YEAR OF EXPIRATION AGREEMENTS AGREEMENTS AGREEMENTS
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Prior to 2000......................................... 24 2 26
2001 to 2005.......................................... 3 18 21
2006 and after........................................ 79 145 224
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Total................................................. 106 165 271
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Because its concession and franchise agreements have the remaining terms
reflected in the above table, the Company has addressed the possible extension
of concession and franchise agreements in only limited circumstances. Such
limited extensions to date have been and are in the future expected by the
Company to be negotiated on a case-by-case basis, principally with reference to
the services to be provided and the costs of such services. Any cable system
operator would be required, if awarded such concession or franchise, to build
out its cable system in the concession or franchise area, which the Company
believes will give existing system operators a competitive advantage when
negotiating extensions.
CABLE TELEVISION LICENSES
On August 1, 1996, the new German Telecommunications Act ("the Act")
entered into force. The purpose of the Act is, by means of regulation in the
telecommunications sector, to foster competition and to ensure nation-wide
adequate and sufficient services and to establish a frequency administration
system. The Act ends the network monopoly of Deutsche Telekom AG ("DT"). The
network monopoly was previously established in the Telecommunications
Installations Act of 1989. Telecommunications services, including the provision
of transmission capacity, may now be provided by anybody subject to the
requirements established in the Act. The Act sets forth licensing requirements
for, among others, the operation of transmission paths which exceed the limits
of a piece of property and which are used to offer telecommunications services
to the public. The establishment and operation of cable television networks
falls into the scope of the licensing requirements set forth in the
Telecommunication Act.
The Act establishes 4 different license categories:
- - licenses for the operation of transmission paths
-- for mobile radio services to the public by the licensee or another
entity (license category 1: mobile radio license),
-- for satellite radio services to the public by the licensee or another
entity (license category 2: satellite radio license),
-- for telecommunications services to the public by the licensee or another
entity, to which provision the license category 1 and 2 are not
applicable (license category 3).
- - licenses for voice telephony services to the public (license category 4).
The Federal Ministry of Posts and Telecommunications has published an
administrative order setting forth in detail the application procedure with
regard to future licenses for the establishment and operation of
telecommunications networks ("Amtsblattverfugung 116/1996"). The administrative
order establishes, inter
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alia, requirements with regard to the technical expertise, financial capacity
and personal reliability of the applicant.
The establishment and operation of transmission paths for the purpose of
receipt and distribution of broadcasting signals ("Empfangs- und Verteilanlagen
fur Rundfunksignale" -- "EVA"), i.e. the establishment of operation of cable
television systems, would require a license category 3.
Licenses for the establishment and operation of cable television systems
which have been issued to the Company prior to the entry into force of the
Telecommunications Act, i.e. under the "Ordinance on the Opening of the Market
for Services and on the Regulation of Content, Scope and Procedures for Licenses
in the Telecommunications Sector" of October 19, 1995, or under Rule 3/1994
remain valid under the Act until the expiration date set forth in such license.
This has been confirmed in a letter from the Federal Office of Posts and
Telecommunications (the BAPT), dated February 24, 1997, by which holders of
licenses for the establishment and operation of cable television systems issued
prior to the entry into force of the Act were informed with regard to the
effects of the new Act on existing licenses. According to the BAPT, existing
licenses remain valid until their expiration date, provided the installations
remain unchanged and there is no change of the operator's name. "Old
installations" which are changed as well as newly established installations are
subject to the provisions of the Act and require a new license pursuant to the
Act.
For the operation of transmission paths for installations for the receipt
and distribution of broadcasting signals, such as cable television systems,
there will be two types of licenses category 3, according to the BAPT:
(1) a so-called "limited" license category 3 for the operation of
transmission paths which serve the purpose to receive and distribute
broadcasting signals only, i.e. which do not serve the purpose of any
other data transmission,
(2) a so-called "unlimited" license category 3 which allows the operation
of transmission paths for the provision of any telecommunications
service with the exception of voice telephony, mobile and satellite
communication services.
Licensing fees will be regulated in an ordinance which is still under
discussion within the Federal Ministry of Posts and Telecommunications (the
BMPT). The BMPT has published a Draft Ordinance on License and Frequency Fees of
October 23, 1996. This Draft Ordinance has been substantially revised and has
been circulated for public comment in the version of 16 January, 1997. The
relevant provision regarding the license fee for a category 3 license sets forth
a fee structure relative to the size of the particular market with a minimum fee
of DM 2,000 and a maximum fee of DM 40,000,000. It is unclear when the Ordinance
will be adopted, since it remains subject to discussions with regard to the
maximum amounts established in the Draft.
The current Draft Ordinance on licensing fees provides that the
above-mentioned "limited" license would incur 1/40 of the fee for the
above-mentioned unlimited license. In case of a "limited" license, the Draft
Ordinance provides for a fee of DM 250 per 20,000 inhabitants in the license
area, the minimum fee being DM 250, the maximum fee DM 1,000,000.
Furthermore, the Act subjects market-dominating telecommunications
enterprises to special provisions in particular with regard to the regulation of
tariffs, business terms and conditions as well as granting of open network
access, including interconnection obligations. Tariffs for telecommunications
services of market-dominating enterprises are subject to the control of the
regulatory authority in cases of abuse of the market-dominating position.
Details are regulated in the "Ordinance on Telecommunications Tariff Regulation"
of October 1, 1996. The business terms and conditions of market-dominating
enterprises are subject to the regulatory authority's control as well. The
regulatory authority has the right to object to business terms and conditions
which are not in conformance with relevant provisions of European Union law.
With regard to open network access and interconnection, the Act establishes an
obligation of market-dominating operators of public telecommunications networks
to provide for interconnection between their networks and public
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telecommunications networks of other operators and to grant free access to other
users to their networks. Details are regulated in the "Ordinance on Special
Network Access" of October 23, 1996.
Should the Company be considered as being a market-dominating enterprise,
it would be subject to the above-mentioned provisions of the Act. It cannot be
excluded that the Company would be considered as a market-dominating service
provider and/or market-dominating network operator, since the relevant market
may also be a regional market. Thus, no assurance can be given that the
above-mentioned provisions for market-dominating enterprises will be deemed not
to apply to the Company and its business or that they will not have a material
adverse effect on the Company's ability to make certain independent business
decisions with respect to the customers serviced and the rates charged for such
services as well as other matters.
CONSTRUCTION PERMITS
The Act also regulates the right of network operators to use public ways.
According to the Act, public ways may be used by licensees free of charge. This
right is granted, however, only to licensees under the Act. However, the consent
of public authorities is required in case new telecommunications lines are laid
and/or existing telecommunications lines are changed. The Act establishes a
number of obligations related to this free-of-charge use of public ways.
For existing concession and franchise agreements concluded by the Company
on the basis of the licenses issued prior to the entry into force of the Act,
see "Business -- Concession and Franchise Agreements."
DEUTSCHE TELEKOM SIGNAL DELIVERY AGREEMENT
Deutsche Telekom has entered into signal delivery contracts with private
cable television operators in certain designated expansion areas in which
Deutsche Telekom's broadband distribution networks have not been completed.
Private operators may apply for a license to establish and operate a private
cable television system, which may include a head-end station, until Deutsche
Telekom has provided a connection or "interface", including a head-end station
operated by Deutsche Telekom, between the private cable television system and
Deutsche Telekom's broadband distribution network. Under the signal delivery
contracts, when the interface is established, the private operators are required
to connect their EVA to Deutsche Telekom's broadband distribution network and
receive the broadcast signal provided by Deutsche Telekom. Licenses granted for
the operation of a head-end station in instances where a signal delivery
contract has been entered into with Deutsche Telekom are granted subject to
expiration or revocation by the BAPT when the interface becomes available. The
Company is not party to any signal delivery contracts with Deutsche Telekom of
the type described in this paragraph. See "Business -- Programming."
RETRANSMISSION AND CHANNEL LINE-UP PROVISIONS; MEDIA SERVICES
The retransmission of cable television programs within Germany through
private cable television systems is regulated at the federal level pursuant to
The State Treaty on Broadcasting within the United Germany of 1994 (the "State
Broadcasting Treaty") and at the state level pursuant to the media laws of the
various states. The State Broadcasting Treaty authorizes the various states to
make decisions with respect to the assignment and use of transmission
capacities. The State Broadcasting Treaty also provides that the retransmission
of cable television programs which may be received nationwide and which have
been produced in accordance with applicable European legal provisions must be
permitted by the federal states within the framework of existing technical
capabilities. State laws generally provide that the simultaneous retransmission
of an unchanged and complete cable television program is not subject to any
licensing requirement, but does subject the operator to reporting the
retransmission to the relevant state media institution. Broadcasting activity
(which is defined to exclude the simultaneous and unchanged retransmission of
programming), such as the insertion of local commercials, subjects the cable
television operator to a different regulatory regime.
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Private broadcasting companies require a broadcasting license issued in
accordance with the provisions of the State Broadcasting Treaty and the media
laws of the federal states. While the State Broadcasting Treaty sets forth the
framework for the admissibility of private broadcasting, the state media laws
set forth the detailed requirements with respect to diversity of opinion,
observation of constitutional principles, professional ethics and restrictions
on advertisement.
Private cable television operators are required to observe channel line-up
priorities established by the states with reference to the technical
capabilities of the cable television systems in connection with the
retransmission of cable television programs. These requirements have not to date
affected the Company's programming decisions, because its systems have excess
channel capacity, so that all program priorities can be met without limiting the
Company's ability to offer non-prioritized programs. Generally, the
retransmission priority has been established as follows: (i) programs which have
been legally prescribed by the state, (ii) local programs (i.e., those programs
which may otherwise be received without additional antennae), (iii) programs
which may be received locally with the use of additional antennae, and (iv) all
other programs. In addition, certain state media laws have established
priorities for programs falling within category (iv) for programming produced
within European Union.
Certain states within Germany, including states where the Company maintains
cable television operations, have adopted channel line-up statues, which
establish line-up priorities in situations where the technical capacities of a
licensed cable television system are limited. The Sachsen Channel Line-Up
Statute, for example, provides that when the number of available channels is
insufficient to carry all programs in the same priority category, the German
language programs will be given priority. In addition, the statute requires
cable network operators to report their proposed channel line-up to the state
media authority, which has the right to reconfigure nonconforming proposed
channel line-ups or to exempt certain proposed channel line-ups from the
statutory requirements.
The German federal states have recently signed a State Treaty on new media
services which is scheduled to come into force on 1 August 1997 jointly with a
new Federal statute on "tele-services". Whereas a draft of the proposed State
Treaty included an obligation of cable system operators to grant
non-discriminatory network access to providers of so-called "media services",
the State Treaty which was signed does not contain such obligation. The State
Treaty, however, imposes various obligations on providers of "media services".
"Media services" are defined as information and communication services which are
addressed to the general public as opposed to "tele-services" which are --
according to the new Federal statute on "tele-services" -- information and
communication services for individual uses on the basis of telecommunication
transmission. Media services include distribution services offering directly the
sale or lease of objects or services (teleshopping), distribution services in
the form of television text, radio text or similar text services and certain
"call-services" which offer text, sound or pictures in electronically stored
form. Providers of such media services include persons who offer their own or
third party media services for use or who provide access to the use of media
services. To the extent that the Company is considered a provider of media
services, it is subject to obligations under the State Treaty. The State Treaty
includes, inter alia, rules on responsibility for content, advertising, data
protection and protection of minors. Similar rules apply for the provision of
"tele-services" under the applicable new Federal statute.
If the State Treaty and the new Federal statute on "tele-services" come
into force on 1 August 1997 as planned, there can be no assurance that such
legislation would have a material adverse effect on the Company's ability to
make certain independent business decisions with respect to the rates charged
for such services as well as other matters.
TELEPHONY DEREGULATION
The Telecommunications Act establishes licensing requirements for the
provision of voice telephony services to the public on the basis of own or third
parties operated transmission paths. The regulation of
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licenses for voice telephony services will not enter into force before January
1, 1998. The voice telephony sector remains the only monopoly sector of DT until
January 1, 1998.
ITEM 2. PROPERTIES
The Company currently operates systems in approximately 275 communities in
Germany. In connection with the operation of its systems, the Company owns or
leases real property for signal reception sights (antennae towers and
head-ends), microwave facilities and business offices. As of December 31, 1996
the Company's central operation center was located in 12,000 square feet of
leased space in Plauen, Germany. The Company has announced plans to restructure
its business and move its central operation center to Frankfurt during 1997. A
restructuring charge of DM 1,611,000 was recorded on December 31, 1996 to
provide for the costs associated with this restructuring. The Company believes
that its properties, both owned and leased, are in good condition and are
suitable and adequate for the Company's business operations.
Cable television systems generally consist of four principal operating
components. The first component is program generation and transmission (referred
to as "level 1" in Germany). The Company does not operate at level 1. The second
component, known as the head-end facility (referred to as "level 2" in Germany),
receives television and radio signals and other programming and information by
means of terrestrial and satellite antennae and microwave relays. The third
component, the principal transmission line from the head-end to the "front door"
or trunk-distribution network (referred to as "level 3" in Germany), extends
throughout the system service area and in the Company's systems consists
primarily of coaxial and to a lesser extent fiber optic cables buried
underground and associated electronic equipment. The fourth component of the
system (referred to as "level 4" in Germany) is a drop cable, which extends from
the end of the distribution network at the "front door" to the in-house
connections in each customer's home, where the distribution system is connected
to the customer's television set.
The Company's cables generally are buried in underground ducts or trenches.
The physical components of the Company's systems require maintenance and
periodic upgrading to keep pace with technological advances.
German law generally provides that where an element, such as a cable
network, is built into real property, ownership of that element automatically
passes on to the owner of the real property. However, where it can be
demonstrated that the parties only intended that the network be on-site
"temporarily", title will remain with the party building network, rather than
the owner of the real property. It is in each case a question of fact whether
elements of a cable network have been built into real property and whether it is
the intention of the parties that the network will remain there temporarily. The
Company has indicated in many of its concession and franchise agreements an
intention that its network remain on real property only temporarily, and
believes that in such instance title to the cable network should be retained by
the Company. If a court were to determine under these legal principles that
legal title to the network has been transferred to the owner of the real
property, the Company would be entitled under German law to payment of the value
of its cable network.
ITEM 3. LEGAL PROCEEDINGS
The Company from time to time is involved in litigation incidental to the
conduct of its business. The Company is not a party to any lawsuit or legal
proceeding that, in the opinion of management, is likely to have a material
adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
None.
11
<PAGE> 12
PART II
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated balance sheet data set forth below as at December
31, 1994, 1995 and 1996 and the selected consolidated statement of operations
data set forth below for the four years ended December 31, 1993, 1994, 1995 and
1996 have been derived from the financial statements of the Company, which have
been audited by Ernst & Young GmbH, independent auditors. Acquisitions of cable
television systems during the periods for which the selected financial data are
presented below materially affect the comparability of such data from one period
to another. The selected consolidated financial data should be read in
conjunction with the Company's consolidated financial statements and notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this document.
<TABLE>
<CAPTION>
HISTORICAL(1)
--------------------------------------------------
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1993 1994 1995 1996 1996(2)
------- ------ -------- --------- --------
DM'000 DM'000 DM'000 DM'000 $'000
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ 2,220 4,551 33,510 64,422 41,868
Operating costs and expenses:
Operations............................ 219 1,275 6,663 12,334 8,016
Selling, general and administrative... 987 2,504 14,465 18,735 12,176
Depreciation and amortization......... 1,460 3,028 23,685 48,103 31,262
Restructuring charge.................. -- -- -- 1,611 1,047
------- ------ -------- --------- --------
Total.............................. 2,666 6,807 44,813 80,783 52,501
------- ------ -------- --------- --------
Operating loss.......................... (446) (2,256) (11,303) (16,361) (10,633)
Interest expense
Cash interest expense................. 312 812 11,166 12,469 8,104
Non-cash interest expense............. 743 3,048 14,177 18,665 12,130
------- ------ -------- --------- --------
Total.............................. 1,055 3,860 25,343 31,134 20,234
Unrealized foreign exchange loss........ -- -- -- 3,824 2,485
Minority interest in net loss of
subsidiaries.......................... -- -- 118 6 4
------- ------ -------- --------- --------
Net loss before income tax benefit
(expense) and extraordinary item...... (1,501) (6,116) (36,528) (51,313) (33,348)
Income tax benefit (expense)............ -- -- 916 (546) (355)
------- ------ -------- --------- --------
Net loss before extraordinary items..... (1,501) (6,116) (35,612) (51,859) (33,703)
======== ======= ========= ========== ========
OTHER FINANCIAL DATA:
Capital expenditures (excluding
acquisitions)......................... 6,635 5,617 10,955 17,423 11,323
Deficiency of earnings to fixed
charges(3)............................ (1,501) (6,116) (39,316) (56,641) (36,811)
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets............................ 14,761 128,229 420,865 422,032 274,278
Total debt less Subordinated Shareholder
Loans................................. 7,267 47,178 228,812 274,306 178,271
Subordinated Shareholder Loans.......... 4,833 63,584 172,638 -- --
Total debt............................ 12,100 110,762 401,450 274,306 178,271
Total liabilities and minority
interest.............................. 15,812 120,559 448,477 314,920 204,666
Shareholders' equity (deficiency)....... (1,051) 7,670 (27,612) 107,112 69,612
OPERATIONS DATA:
Homes passed(4)......................... 23,890 71,032 452,948 495,311 --
Customers(4)............................ 22,655 58,613 342,752 362,940 --
Penetration(4)(5)....................... 94.8% 82.5% 75.7% 73.3% --
Average monthly revenue per
customer(6)........................... 9.24 9.37 12.44 14.91 9.69
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
HISTORICAL(1)
--------------------------------------------------
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1993 1994 1995 1996 1996(2)
------- ------ -------- --------- --------
DM'000 DM'000 DM'000 DM'000 $'000
<S> <C> <C> <C> <C> <C>
EBITDA DATA:
EBITDA before restructuring charge(7)... -- -- -- 33,353 21,676
EBITDA(7)............................... 1,014 772 12,382 31,742 20,629
Average monthly EBITDA per
customer(6)........................... 4.22 1.59 4.60 7.35 5.00
EBITDA margin(8)........................ 45.7% 17.0% 37.0% 49.3% --
</TABLE>
- ---------------
(1) Reflects acquisitions completed by the Company from inception through
December 31, 1996 as of their acquisition dates. See "Business -- Systems."
(2) For convenience, the financial data have been translated at the rate of
DM1.5387 = $1.00, the Noon Buying Rate on December 31, 1996.
(3) For purposes of these computations, earnings consist of historical loss
before income taxes and minority interest, plus fixed charges (excluding
capitalized interest). Fixed charges consist of interest on indebtedness
(including capitalized interest and amortization of debt issuance costs).
Fixed charges include non-cash fixed charges of DM743,000, DM3,048,000,
DM16,847,000 and DM27,811,000 for the years ended December 31, 1993, 1994,
1995 and 1996, respectively.
(4) At end of period.
(5) Customers as a percentage of homes passed.
(6) Equals (a)(i) revenues for the period divided by (ii) twelve divided by (b)
the average monthly number of customers for such period. Equals (a)(i)
EBITDA for the period divided by (ii) twelve divided by (b) the average
monthly number of customers for such period.
(7) The Company believes that EBITDA and related measures of cash flow serve as
important financial indicators in measuring and comparing cable television
companies in several areas, including liquidity, operating performance and
leverage. 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.
(8) Represents EBITDA as a percentage of revenues.
13
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the Company's financial condition and results
of operations should be read in conjunction with the Company's consolidated
financial statements and the notes thereto.
YEARS ENDED DECEMBER 31, 1995 AND 1996
REVENUES. Revenues increased 92.2% from DM33,510,000 in 1995 to
DM64,422,000 in 1996. The increase was primarily attributable to an increase
(from 224,516 to 359,946) in the average monthly number of customers and a 19.9%
increase (from DM12.44 to DM14.91) in the average monthly revenue per customer
from 1995 to 1996. The increase in the Company's average monthly number of
customers was primarily related to acquisitions of cable television companies
subsequent to December 31, 1994, substantially all of which were owned for the
entirety of 1996 but only for varying portions of 1995, and as of the respective
dates of the acquisitions, collectively served approximately 284,700 customers
(270,000 acquired at various dates during 1995 and 14,700 acquired in 1996). In
addition the Company acquired approximately 19,600 additional customers by
building out its existing cable systems (14,200 in 1995 and 5,400 in 1996).
Approximately 67% of the increase in the average monthly revenue per customer in
1996 is attributable to higher average monthly revenue per customer in the cable
television companies acquired subsequent to December 31, 1994. The remaining 33%
of the increase in average monthly revenue per customer in 1996 is attributable
to rate increases implemented since December 31, 1994.
OPERATING EXPENSES. Operating expenses increased 85.1% from DM6,663,000 in
1995 to DM12,334,000 in 1996, principally as a result of the increased number of
personnel related to the cable television companies acquired subsequent to
December 31, 1994, 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 and increased costs under the
Company's signal delivery contracts with Deutsche Telekom. The increase in costs
associated with the signal delivery contracts with Deutsche Telekom primarily
relates to a system in Osnabruck, a Level 4 or B-I Model. The total increase in
Deutsche Telekom signal delivery fees attributable to the Osnabruck system in
1996 was approximately DM3,120,000 over such fees in 1995. Signal delivery fees
for Level 4 or B-I systems represent a higher percentage of revenues than
applies to the Company's remaining systems, which are predominantly Level 2 or
Level 3 Systems, because the signal delivery fees for such Level 4 or B-1 Model
Systems include a fee for the rental of Deutsche Telekoms principal transmission
lines to the home.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by 29.5% from DM14,465,000 in 1995 to DM18,735,000 in 1996,
principally as a result of increases in legal and financial consulting costs
related to due diligence on acquisitions, the development of accounting and
other in-house functions and the increased cost of personnel associated with the
cable television companies acquired subsequent to December 31, 1994. As a
percent of revenue, selling, general and administrative expenses declined from
43.2% in 1995 to 29.1% in 1996, reflecting higher revenue per subscriber and
improved efficiencies.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased by
112% from DM22,685,000 in 1995 to DM48,103,000 in 1996, principally as a result
of increased depreciation and amortization associated with the cable television
companies acquired subsequent to December 31, 1994.
RESTRUCTURING CHARGE. On December 12, 1996, the Company adopted a plan of
reorganization to allow for the move of its corporate offices from Plauen to
Frankfurt and recorded a restructuring charge of DM1,611,000. The restructuring
charge is principally comprised of lease termination costs, the writedown of
leasehold improvements and severance and termination benefits for 17 employees
primarily engaged in corporate administrative functions.
INTEREST EXPENSE. Interest expense increased 22.9% from DM25,343,000 in
1995 to DM31,134,000 in 1996 as a result of a 53% increase in average
indebtedness outstanding from DM234,264,000 to DM357,581,000. Of the total
interest accrued in 1996, DM8,968,000 and DM8,843,000 related to non-cash
interest on subordinated loans to the Company by its shareholders and the
Company's
14
<PAGE> 15
13 5/8% Senior Discount Notes due 2006, respectively. The accrued interest on
the subordinated shareholder loans was contributed to the Company's capital
surplus on June 19, 1996. The accrued interest on the Senior Discount Notes was
added to the principal of the Notes. Also included in interest on indebtedness
to banks was DM854,000, representing a non-cash expense associated with the
amortization of loan origination fees.
UNREALIZED FOREIGN EXCHANGE LOSS. Unrealized foreign exchange loss of
DM3,824,000 in 1996 related to the period when the dollar denominated Senior
Discount Notes, which were issued on July 29, 1996, were not hedged against
currency fluctuations. Subsequent to September 30, 1996, the Company entered
into foreign currency forward contracts to hedge against the effect of exchange
rate fluctuations in the future. See Note 9 to the consolidated financial
statements of the Company found elsewhere in this document.
NET LOSS BEFORE EXTRAORDINARY ITEM. Net loss before extraordinary item
increased from DM35,612,000 in 1995 to DM51,859,000 in 1996 as a result of the
items discussed above.
EXTRAORDINARY ITEM. Extraordinary item for 1996 consists of the write-off
of the unamortized portion of the loan origination fees paid to the Company's
banks in connection with the Company's bank facilities entered into in 1995. The
facilities were refinanced and replaced by a new facility in 1996 (the "1996
Facility") and the unamortized portion of the loan origination fees on the 1995
facilities in the amount of DM5,322,000, were written off.
NET LOSS. Net loss increased DM18,899,000, from DM38,282,000 in 1995 to
DM57,181,000 in 1996, 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 before the restructuring charge increased
significantly from DM12,382,000 for 1995 to DM33,353,000 for 1996, 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
before the restructuring charge improved from 37.0% in 1995 to 51.8% in 1996.
EBITDA per average monthly subscriber before the restructuring charge increased
from DM4.60 per subscriber in 1995 to DM7.72 per subscriber in 1996. EBITDA
after the restructuring charge of DM1,611,000 was DM31,742,000.
YEARS ENDED DECEMBER 31, 1994 AND 1995
REVENUES. Revenues increased 636.3% from DM4,551,000 in 1994 to
DM33,510,000 in 1995. This increase was primarily attributable to a 454.4%
increase (from 40,494 to 224,516) in the average monthly number of customers
between 1994 and 1995 and a 32.8% increase (from DM9.37 to DM12.44) in the
average monthly revenue per customer. The increase in the average monthly number
of customers was principally related to the acquisition by the Company of six
cable television companies and the assets of one additional cable television
company (the "1995 Acquisitions"), including systems which, as of the respective
dates of acquisition, collectively served approximately 270,000 customers,
representing approximately 95.0% of such subscriber growth in 1995. In addition,
the Company acquired approximately 14,200 additional customers by building out
its existing systems and increasing the penetration of such systems, which
represented approximately 5.0% of such subscriber growth. The increase in the
average monthly revenue per customer is principally related to the higher
average monthly revenue per customer of systems acquired in the 1995
Acquisitions and to a lesser extent selective rate increases implemented in the
Company's cable operations acquired in 1993 and 1994.
OPERATING EXPENSES. Operating expenses increased 422.6% from DM1,275,000 in
1994 to DM6,663,000 in 1995, principally as a result of the inclusion of these
costs related to companies acquired in
15
<PAGE> 16
the 1995 Acquisitions. Operations expenses of companies acquired in the 1995
Acquisitions were DM5,344,000.
Signal delivery fees paid to Deutsche Telekom increased significantly from
DM180,000 in 1994 to DM2,250,000 in 1995. DM732,500 of the Deutsche Telekom
signal delivery fees relate to three months' ownership of Level 4 or B1-Model
Systems in Osnabruck (acquired at the end of September 1995). Signal delivery
fees for these systems represent a higher percentage of revenues than applies to
the Company's remaining systems, which are predominantly Level 2 or 3 Systems,
because the signal delivery fees for such Level 4 or B1-Model Systems include a
fee for the rental of Deutsche Telekoms principal transmission lines to the
home.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 477.7% from DM2,504,000 in 1994 to DM14,465,000 in 1995
principally as a result of the inclusion of the companies acquired in the 1995
Acquisitions.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased 682.2% from DM3,028,000 in 1994 to DM23,685,000 in 1995 as a result of
the increase in amortization of goodwill associated with the 1995 Acquisitions,
a full year of amortization associated with the acquisitions made in 1994,
increases in depreciation related to such acquisitions and capital expenditures
associated with construction activities.
INTEREST EXPENSE. Interest expense increased form DM3,860,000 in 1994 to
DM25,343,000 in 1995, primarily as a result of the Company drawing down
additional bank debt and incurring additional subordinated indebtedness to its
shareholders (which increased from DM63,584,000 to DM172,638,000) to finance the
1995 Acquisitions. Of the interest incurred in 1995, DM13,652,000 related to
non-cash interest on such subordinated shareholder loans, which was subsequently
contributed to the equity in Kabelmedia in 1996. Also included in interest was
DM515,000, representing a non-cash expense associated with the amortization of
loan origination fees.
NET LOSS BEFORE EXTRAORDINARY ITEM. Net loss before extraordinary item
increased from DM6,116,000 in 1994 to DM35,612,000 in 1995 as a result of the
factors discussed above.
EXTRAORDINARY ITEM. Extraordinary item consists of the write-off of a
portion of the loan origination fees paid in 1994 to the Company's banks in
connection with the Company's bank facility entered into in 1994. This facility
was refinanced and replaced by its 1995 bank facilities, and the unamortized
portion of such loan origination fees, in the amount of DM2,670,000, was written
off.
NET LOSS. Net loss increased from DM6,116,000 in 1994 to DM38,282,000 in
1995 as a result of the factors discussed above.
EBITDA. EBITDA increased from DM772,000 in 1994 to DM12,382,000 in 1995.
This increase was principally due to the 636.3% increase in revenues in 1995
compared 1994, primarily as a result of the 1995 Acquisitions and the reduction
in the percentage of revenue of operations expenses (from 28.0% to 19.9%) and
selling, general and administrative expenses (from 55.0% to 43.1%). The
reduction in these expense categories as a percentage of revenues were primarily
attributable to the elimination by the Company of duplicative personnel and
office locations and administrative functions in furtherance of the Company's
consolidation strategy. The Company's EBITDA margin improved substantially from
17.0% to 37.0%.
INCOME TAXES
The Company had insignificant income taxes in 1995 or 1996 as a result of
the losses it incurred. At December 31, 1996 the Company had net operating loss
carryforwards for German corporate and trade tax purposes of approximately
DM109,774,000 and DM75,992,000, respectively, which have no time limitation in
respect of their usage. See Note 10 to the consolidated financial statements of
the Company included elsewhere in this document.
16
<PAGE> 17
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 December 31, 1996, the Company's aggregate consolidated indebtedness was
approximately DM274,306,000 comprised of DM107,000,000 of debt outstanding under
its 1996 Facility, DM4,175,000 of other bank debt, and DM163,131,000 of Senior
Discount Notes. The Senior Discount Notes, which have been hedged with forward
contracts, are recorded in Deutsche Marks at the applicable year end rate. At
December 31, 1996 the unamoritized premium on the foreign currency forward
contracts amounted to DM8,027,000, which is being amoritized over the life of
the contracts. See Note 9 to the consolidated notes to the Company's financial
statements found elsewhere in this document.
The Company generated cash flow from operating activities of DM778 for 1996. For
year ended December 31, 1996 the Company used cash in investing activities of
DM33,323,000. Such cash uses were primarily related to the acquisition of a
cable television company and capital expenditures and to a lesser extent the
purchase of additional shares in a majority owned subsidiary and the acquisition
of certain cable networks which were previously leased. Net cash provided by
financing activities amounted to DM25,630,000. Such cash was primarily provided
by proceeds from subordinated shareholder loans of DM10,199,000 which were later
converted to the Company's capital in 1996 and the net proceeds derived from the
issuance of the Senior Discount Notes and 1996 Facility, after costs, expenses
and repayment of the 1995 facilities.
Capital expenditures of DM17,423,000 for the year ended December 31, 1996,
were related to the continued construction, expansion and upgrading of existing
systems and the acquisition for DM3,485,000 of certain cable networks which were
previously leased. Over the year ended December 31, 1996 the Company added 5,400
customers by building out its existing systems and increasing penetration of
such 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
Facility.
Substantial amounts of depreciation and amortization expense and noncash
interest on Subordinated Shareholder Loans and the Senior Discount Notes
continued to contribute to the net losses experienced by the Company. These
expenses, however, do not result in an 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
amounts 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 before the restructuring charge for year ended
December 31, 1996 was DM33,353,000. EBITDA for the year ended December 31, 1996
was DM31,742,000. Cash interest on bank debt for the same period was
DM12,469,000.
On July 23, 1996 the Company raised approximately DM143,700,000, which
represented the net proceeds from the sale of $100,179,600 of its Senior
Discount Notes. These funds coupled with an initial draw down of DM112,000,000
on the 1996 Facility provided the funds necessary to pay all fees and expenses
related to the issuance of the Senior Discount Notes and the origination of the
1996 Facility, to repay the 1995 Facilities and approximately DM3,500,000 of
other Bank Debt and provided a substantial increase in working capital. On
August 30, 1996 the Company repaid DM5,000,000 of the initial draw down on the
1996 Bank Facility.
17
<PAGE> 18
At December 31, 1996 the Company had borrowed DM1,528,000 under its 1996
Overdraft Facility. This loan was repaid shortly thereafter. The Company uses
its Overdraft Facility from time to time to meet short term cash needs.
On January 31, 1997, the Company borrowed an additional DM20,300,000 under
its 1996 Facility to fund the acquisition of Magdeburg and pay all related costs
and fees. On March 27, 1997 the Company repaid DM2,300,000 of its loans
outstanding under its 1996 Facility.
TREASURY POLICIES
The Senior Discount Notes, are denominated in U.S. dollars, and therefore
the Company will encounter currency exchange rate risk. Subsequent to the
quarter ended September 30, 1996 the Company entered into forward contracts for
delivery of $100,000,000 at the end of five years, at prices ranging from
DM1.4385 to DM1.48 per US$1.00. See Note 9 to the consolidated financial
statements of the Company included elsewhere in this document.
18
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS
19
<PAGE> 20
INDEPENDENT AUDITORS REPORT
To the Board of Directors,
Kabelmedia Holding GmbH
We have audited the accompanying consolidated balance sheets of Kabelmedia
Holding GmbH and subsidiaries as of December 31, 1996 and 1995 and the related
consolidated statements of operations, shareholders' equity (deficiency) and
cash flows for each of the three years in the period ended December 31, 1996.
Our audits also included the financial statement schedules listed in the Index
at Item 14(a). These financial statements and schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Kabelmedia
Holding GmbH and subsidiaries at December 31,1996 and 1995 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, the
related financial statements schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
Ernst & Young GmbH
Frankfurt, Germany
March 14, 1997
20
<PAGE> 21
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1994 1995 1996 1996
------- ------- ------- -------
DM DM DM U.S.$
<S> <C> <C> <C> <C>
Revenues.............................................. 4,551 33,510 64,422 41,868
Operating costs and expenses
Operations.......................................... 1,275 6,663 12,334 8,016
Selling, general and administrative................. 2,504 14,465 18,735 12,176
Depreciation and amortization....................... 3,028 23,685 48,103 31,262
Restructuring charge (Note 15)...................... -- -- 1,611 1,047
------- ------- ------- -------
Total................................................. 6,807 44,813 80,783 52,501
------- ------- ------- -------
Operating loss........................................ (2,256) (11,303) (16,361) (10,633)
Interest expense:
Bank debt........................................... 1,671 11,691 13,323 8,659
Senior Discount Notes............................... -- -- 8,843 5,747
Subordinated Shareholder Loans...................... 2,189 13,652 8,968 5,828
Unrealized foreign exchange loss...................... -- -- 3,824 2,485
------- ------- ------- -------
Minority interest in net loss of subsidiaries......... -- 118 6 4
------- ------- ------- -------
Loss before income taxes.............................. (6,116) (36,528) (51,313) (33,348)
Income tax benefit (expense).......................... -- 916 (546) (355)
------- ------- ------- -------
Net loss before extraordinary item.................... (6,116) (35,612) (51,859) (33,703)
Extraordinary item (Note 6)........................... -- 2,670 5,322 3,459
------- ------- ------- -------
Net loss.............................................. (6,116) (38,282) (57,181) (37,162)
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
21
<PAGE> 22
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1995 1996 1996
------------ -------- --------
DM DM U.S.$
<S> <C> <C> <C>
Cash (Note 6).......................................... 7,866 951 618
Trade accounts receivable -- net....................... 1,343 3,246 2,110
Inventory.............................................. 1,185 1,811 1,176
Property, plant and equipment -- net (Note 5).......... 235,327 230,341 149,698
Goodwill -- net (Note 2)............................... 153,155 147,747 96,021
Other assets........................................... 21,989 37,936 24,655
------- ------- -------
TOTAL ASSETS........................................... 420,865 422,032 274,278
======= ======= =======
Accounts payable....................................... 13,930 6,290 4,088
Accrued expenses and other liabilities................. 21,540 25,529 16,591
Deferred revenue (Note 2).............................. 9,830 8,703 5,656
Bank debt (Note 6)..................................... 228,812 111,175 72,252
Senior Discount Notes (Note 7)......................... -- 163,131 106,019
Subordinated Shareholder Loans (Note 8)................ 172,638 -- --
------- ------- -------
TOTAL LIABILITIES...................................... 446,750 314,828 204,606
Minority interest in subsidiaries...................... 1,727 92 60
SHAREHOLDERS' EQUITY (DEFICIENCY)
Registered capital (Note 13)........................... 100 10,000 6,499
Capital contributions.................................. 18,187 200,192 130,105
Accumulated deficit.................................... (45,899) (103,080) (66,992)
------- ------- -------
TOTAL SHAREHOLDERS' EQUITY (DEFICIENCY)................ (27,612) 107,112 69,612
------- ------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIENCY)......................................... 420,865 422,032 274,278
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
22
<PAGE> 23
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
SHAREHOLDERS'
REGISTERED CAPITAL ACCUMULATED EQUITY
CAPITAL CONTRIBUTIONS DEFICIT (DEFICIENCY)
---------- ------------- ----------- -------------
DM DM DM DM
<S> <C> <C> <C> <C>
Balance at December 31, 1993............ 50 400 (1,501) (1,051)
Net loss................................ -- -- (6,116) (6,116)
Additional shareholder contribution..... 50 14,787 -- 14,837
------ ------- -------- -------
Balance at December 31, 1994............ 100 15,187 (7,617) 7,670
Net loss................................ -- -- (38,282) (38,282)
Additional shareholder contribution..... -- 3,000 -- 3,000
------ ------- -------- -------
Balance at December 31, 1995............ 100 18,187 (45,899) (27,612)
Conversion of debt to capital (Note
8).................................... -- 191,805 -- 191,805
Cash contribution to registered
capital............................... 100 -- -- 100
Capital contribution to registered
capital............................... 9,800 (9,800) -- --
Net loss................................ -- -- (57,181) (57,181)
------ ------- -------- -------
Balance at December 31, 1996............ 10,000 200,192 (103,080) 107,112
====== ======= ======== =======
</TABLE>
See accompanying notes to consolidated financial statements
23
<PAGE> 24
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1994 1995 1996 1996
-------- -------- -------- --------
DM DM DM U.S.$
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss...................................... (6,116) (38,282) (57,181) (37,162)
Adjustments to reconcile net loss to net cash
provided by
(used in) operating activities:
Extraordinary loss on extinguishment of
debt........................................ -- 2,670 5,322 3,459
Restructuring charge.......................... -- -- 1,611 1,047
Depreciation and amortization................. 3,028 23,685 48,103 31,262
Accrued interest on Senior Discount Notes..... -- -- 8,843 5,747
Accrued interest on Subordinated Shareholder
Loans....................................... 2,189 13,652 8,968 5,828
Unrealized foreign exchange loss.............. -- -- 3,824 2,485
Amortization of loan financing fees........... 316 515 1,089 709
Deferred income taxes......................... -- (1,020) (375) (244)
Amortization of purchased deferred revenues... (128) (1,004) (1,648) (1,071)
Minority interest in net loss of
subsidiaries................................ -- (118) (6) (4)
Changes in assets and liabilities, net of
effects of business acquisitions:
Trade accounts receivable..................... (53) 2,781 (1,480) (962)
Inventories................................... 105 615 (483) (314)
Other assets.................................. (517) 3,445 (7,031) (4,569)
Accounts payable.............................. (333) 72 (7,867) (5,113)
Accrued expenses and other liabilities........ 2,359... (9,099) (1,854) (1,205)
Deferred revenue.............................. 228 (36) 943 613
------- -------- ------ -------
Net cash provided by (used in) operating
activities.................................. 1,078 (2,124) 778 506
INVESTING ACTIVITIES
Purchases of property, plant and equipment.... (5,617) (10,955) (17,423) (11,323)
Prepayments for investment advance............ (66,783) -- -- --
Acquisition of businesses, less cash
acquired.................................... (16,047) (118,445) (15,795) (10,265)
Acquisition of other assets................... (433) (593) (105) (68)
------- -------- ------ -------
Net cash used in investing activities......... (88,880) (129,993) (33,323) (21,656)
FINANCING ACTIVITIES
Proceeds from bank debt....................... 40,322 177,311 127,000 82,537
Repayment of bank debt........................ -- -- (246,247) (160,036)
Increase in registered capital................ 50 -- -- --
Contributions to capital...................... 14,787 3,000 100 65
Payments of acquired debt..................... (17,116) (132,804) (4,625) (3,006)
Payments of capitalized bank financing
costs....................................... (3,079) (6,047) (11,415) (7,419)
Proceeds from (payments of) bank overdrafts... (1,324) 638 1,610 1,046
Proceeds from Senior Discount Notes........... -- -- 149,008 96,841
Proceeds from Subordinated Shareholder
Loans....................................... 56,561 95,407 10,199 6,628
------- -------- ------ -------
Net cash provided by financing activities..... 90,201 137,505 25,630 16,656
Net increase (decrease) in cash and cash
equivalents................................. 2,399 5,388 (6,915) (4,494)
Cash and cash equivalents at beginning of
period...................................... 79 2,478 7,866 5,112
------- -------- ------ -------
Cash and cash equivalents at end of period.... 2,478 7,866 951 618
======= ======== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements
24
<PAGE> 25
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. FORMATION OF BUSINESS AND BASIS OF PRESENTATION
Kabelmedia Holding GmbH, formerly Kabelmedia Beteiligungs GmbH (the
"Company" or "Kabelmedia"), was formed in December 1994 to acquire, own and
operate cable television systems serving communities throughout Germany. On June
19, 1996 Kabelvision Beteiligungs GmbH ("Kabelvision"), a company controlled by
certain shareholders of Kabelmedia, was merged with and into the Company.
Furthermore, the outstanding Subordinated Shareholder Loans of DM191,805,000
(including accrued interest) at the time of the merger were contributed to the
capital of Kabelmedia. Kabelvision was founded in 1992 to acquire, own and
operate cable television systems serving communities throughout Germany.
Kabelvision began operations in 1993 when their first cable system was acquired.
The accompanying financial statements have been prepared using historical costs
of each entity as if the merger were a pooling of interests.
The accompanying 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 financial statements be in accordance
with U.S. GAAP.
Solely for the convenience of the reader, the accompanying consolidated
financial statements as of and for the year ended December 31, 1996 have been
translated into United States dollars. ("U.S. $") at the rate of DM1.5387 per
U.S. $1.00 the Noon Buying Rate of the Federal Reserve Bank of New York on
December 31, 1996. 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
CASH EQUIVALENTS
All highly liquid investments purchased with an original maturity of three
months or less are considered cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrated
credit risks consist primarily of cash and trade receivables. Credit risk on
trade receivables is minimized as a result of the large and diverse nature of
the Company's customer base. The Company maintains cash and equivalents, with
various financial institutions located throughout Germany. The Company policy is
designed to limit exposure to any one institution.
REVENUE RECOGNITION
Revenue is comprised of revenue earned from subscription fees and charges
for installation and connections. Revenue is recognized at the time services are
provided to customers.
Deferred revenue consists principally of one time installation fees.
Installation fees are recorded as income to the extent of direct costs in the
period service is rendered with the remainder deferred. The deferred
25
<PAGE> 26
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
portion of installation fees are amortized on a straight-line basis into income
over a period of eight to ten years based upon the related service agreements.
INVENTORIES
Inventories, consisting primarily of supplies used in the construction of
cable television systems, are valued using the first in, first out (FIFO)
method.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost and are comprised
principally of assets used in the development and operation of cable television
systems. These assets are depreciated or amortized in accordance with Statement
of Financial Accounting Standards No. 51 "Financial Reporting by Cable
Television Companies".
Depreciation is provided using the straight-line method over estimated
useful lives as follows: cable television systems: 12 to 20 years; equipment and
fixtures: 3 to 5 years.
GOODWILL
Goodwill consists of the excess purchase price over the fair value of
assets acquired in various acquisitions. Such amounts are generally amortized
using the straight-line method over 12 years. Accumulated amortization for
goodwill at December 31, 1996 and 1995 was DM30,622,000 and DM10,925,000,
respectively.
IMPAIRMENT OF LONG LIVED AND IDENTIFIABLE INTANGIBLE ASSETS
The Company evaluates the carrying value of long lived assets and
identifiable intangible assets for potential impairment on an ongoing basis.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No 109. "Accounting for Income Taxes", which has
been applied for all periods presented. Under this method, deferred tax assets
and liabilities are based on differences between financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse. The
effect of a change in tax rates on deferred tax assets and liabilities is
recognized in the period that includes the enactment date.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments such as cash, accounts
receivable and accounts payable approximate their fair value based on the
short-term maturities of these instruments. The carrying value of bank debt and
the Senior Discount Notes approximate fair value based on quoted market prices
for the same or similar issues as well as the current rates offered to the
Company. The fair value of Subordinated Shareholders Loans is not determinable.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
26
<PAGE> 27
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECLASSIFICATION
Certain amounts in the prior year have been reclassified to conform with
the 1996 consolidated financial statement presentation.
3. BUSINESS ACQUISITIONS
Kabelmedia and Kabelvision have made a series of acquisitions of cable
television systems and operations. The following table summarizes these
acquisitions through December 31, 1996:
<TABLE>
<CAPTION>
TRANSACTION
DATE COMPANY TYPE
- --------------------- ------------------------------------------------------------ -----------
<S> <C> <C>
1995 ACQUISITIONS
January 1995......... APA Basic Beteiligungsgesellschaft mbH Share
PKG Holding GmbH Share
PKG Kabelbetriebsgesellschaft mbH ("PKG Mature Networks") Share
May 1995............. Kabel Plus Gesellschaft fur Kabel und Share
Satellitenfernsehen mbH and
Wiedmann-Dettwiler St. Georgen GmbH Asset
August 1995.......... TELECable Betriebsgesellschaft Halle mbH Share
September 1995....... BFR Beteiligungsgesellschaft mbH, Kabelcom GmbH and ISIT Share
GmbH ("BFR Group")
October 1995......... TKB Telekabel Betriebsgesellschaft mbH Share
October 1995......... ERKA II Erfurt Asset
October 1995......... KSW GmbH & Co. KG Kabel- und Satellitenempfangsanlagen fur Share
Wohngebiete und Kommunen
1996 ACQUISITION
January 1996......... Info-Sat Elektro- und Kommunikationstechnik GmbH Share
</TABLE>
The acquisitions referred to above have been accounted for using the
purchase method of accounting and accordingly the accompanying financial
statements reflect the results of operation commencing on the acquisition dates.
The aggregate purchase price of the 1995 Acquisitions, including
acquisition costs, consisted of cash of DM183,071,000, the assumption of bank
indebtedness and other liabilities of DM133,746,000 and deferred payments of
DM12,583,000. These transaction resulted in goodwill of DM143,181,000. The
deferred payments are classified as other liabilities and represent the
remaining purchase price to be paid to the respective sellers for two separate
acquisitions amounting to DM10,000,000 and DM2,583,000. The purchase price of
DM10,000,000 is due on December 31, 1998 and is non-interest bearing. It is
included in other liabilities at its present value of DM7,875,000 discounted at
12%. The purchase price payable of DM2,583,000 plus accrued interest of
DM182,000 was paid on June 30, 1996.
The aggregate purchase price of the 1996 Acquisition, including acquisition
costs, consisted of cash of DM14.795.000, the assumption of bank indebtedness
and other liabilities of DM694,000 and deferred payments of DM1,234,000. This
transaction resulted in goodwill of DM11,803,000. The purchase price payable was
paid in full on July 8, 1996.
In 1996, Kabelmedia acquired additional ownership interest of Kabelcom
increasing its effective ownership interest to 99% for total consideration of
DM1,740,000, including transaction charges of DM554,000. At December 31, 1996
Kabelcom had 27,447 subscribers.
27
<PAGE> 28
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INVESTMENT GRANTS
Investment grants from the government for certain acquisitions of property,
plant and equipment are recognized by the Company when estimable and realizable.
The basis of property, plant and equipment is reduced by investment grants
recognized, and depreciated over the useful life of the acquired property.
During 1995 and 1996 fixed assets were reduced by investment grants received of
DM1,603,000 and DM739,000, respectively.
Investment grants received are subject to government review. Management
does not anticipate any significant adjustments to the amount of investment
grants recorded.
5. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- -------
(DM IN THOUSANDS)
<S> <C> <C>
Cable television systems................................................. 250,461 269,333
Equipment and fixtures................................................... 4,036 7,895
------- -------
Total.................................................................... 254,497 277,228
Less accumulated depreciation............................................ (19,170) (46,887)
------- -------
Property, plant and equipment -- net..................................... 235,327 230,341
======= =======
</TABLE>
Depreciation expense was DM25,954,000, DM13,556,000 and DM2,232,000 for
1996, 1995 and 1994, respectively.
6. BANK DEBT
Bank debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- -------
(DM IN THOUSANDS)
<S> <C> <C>
Revolver and Term Loan................................................... 222,500 107,000
Bank overdrafts.......................................................... 3,912 3,470
Bank notes............................................................... 2,400 705
------- -------
Total bank debt.......................................................... 228,812 111,175
======= =======
Current portion thereof.................................................. 5,663 306
</TABLE>
Prior to 1996 Kabelvision and Kabelmedia (collectively the "Borrowers")
entered into two revolving credit facilities (hereafter the "1995 facilities")
with a number of banks effective June 28, 1995 and August 18, 1995,
respectively. The total aggregate amount of both 1995 facilities was
DM293,250,000 plus secured overdraft facilities of DM1,750,000. A portion of the
proceeds received under the 1995 facilities was used to pay off previous credit
facilities. An extraordinary loss of DM2,670,000 resulting from the full
amortization of unamortized bank financing fees relating to the previous
facilities was recorded in 1995 upon the payment of amounts outstanding under
those facilities.
Effective July 23, 1996 eight subsidiaries (the Borrowers) of Kabelmedia
Holding Hanover GmbH and Kabelvision Management GmbH (the Guarantors) entered
into a new credit facility (hereafter the 1996 facilities) with a number of
banks. The total aggregate amount of the 1996 facilities is DM400,000,000
28
<PAGE> 29
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
comprised of a DM375,000,000 Revolver and Term Loan and a DM20,000,000 Revolving
Facility. In addition, an overdraft facility of DM5,000,000 is available to the
Guarantors.
Under the terms of the 1996 facilities, the Borrowers may borrow, repay and
reborrow under the Revolver and Term Loan until December 31, 1997 ("Conversion
Date").
Upon the Conversion Date the outstanding balance will convert into a six
and one half year Term Loan and will amortize in equal quarterly installments
such that the annual reductions will be equal to the following percentages:
<TABLE>
<CAPTION>
% ANNUAL REDUCTION
------------------
<S> <C>
1997................................................................ 0.0%
1998................................................................ 5.0%
1999................................................................ 10.0%
2000................................................................ 15.0%
2001................................................................ 17.5%
Thereafter.......................................................... 52.5%
----------
100.0%
</TABLE>
At December 31, 1996 the Borrowers had unused commitments under the
Revolver and Term Loan of DM268,000,000.
The Borrowers may borrow, repay and reborrow under the Revolving Facility
until June 30, 2004 when all outstandings will become due and payable. At
December 31, 1996 DM20,000,000 of the Revolving facility was unused.
The Guarantors may borrow, repay and reborrow under the Overdraft Facility
until June 30, 2004 when all outstanding amounts will become due and payable. At
December 31, 1996, DM3,472,000 of the Overdraft Facility was unused. The
interest rate on the Overdraft Facility was 9.0% at December 31, 1996.
The interest rates under the 1996 facilities are determined at the time of
borrowing and are based on LIBOR plus a margin of between 1.25% and 2.0% per
annum depending on the ratio of Senior Indebtedness to the Company's annualized
operating cash flows. At December 31, 1996 the effective margin was 1.25%. and
LIBOR was 3.31%.
The 1996 facilities are secured through first ranking security interests on
substantially all assets and revenues of the Borrowers and their subsidiaries, a
pledge of the shares of the Borrowers and their subsidiaries, as well as
guarantees from all subsidiaries. In addition, the 1996 facilities contain
certain covenants which, among other things, require the Company to maintain
specified ratios relating to cash flow and total debt to contributed equity.
Bank financing fees of DM6,200,000 relating to the procurement of the 1996
facilities have been capitalized in other assets. They are being amortized and
recorded as bank interest over a period of 8 years representing the term of the
1996 facilities. Commitment fees of 0.5% per year are charged on the unused
portion of the respective facilities. A portion of the proceeds received under
the 1996 facilities was used to pay off the 1995 facility existing as of
December 31, 1995.
An extraordinary loss of DM5,322,000 resulting from the full amortization
of unamortized bank financing fees relating to the 1995 facility was recorded in
1996 upon the repayment of the amounts outstanding under the 1995 facility.
Bank notes as of December 31, 1995 include short term notes of DM1,500,000
and long term notes amounting to DM900,000. Bank notes as of December 31, 1996
represent a long term note amounting to
29
<PAGE> 30
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DM705,000. The long term note is collateralized with certain fixed assets and
accounts receivable at one of the Company's subsidiaries, and carries an
interest rate of 7.3%.
The aggregate principal payments of these notes for the three years
subsequent to December 31, 1996 are as follows:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
<S> <C>
1997................................................................ 306
1998................................................................ 316
1999................................................................ 83
</TABLE>
Bank overdrafts represent a short term financing method commonly used in
Germany. Interest rates ranging from 7.25 to 11.5% are charged on such balances.
The weighted average interest rate on bank notes and overdrafts outstanding
at December 31, 1996 and 1995 are approximately 7.8% and 8.1% respectively.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1995 1996
------ ------ ------
(DM IN THOUSANDS)
<S> <C> <C> <C>
Cash paid on bank debt during the period for interest.......... 812 11,166 12,469
</TABLE>
7. SENIOR DISCOUNT NOTES
On July 29, 1996 the Company issued $100,180,000 of Senior Discount Notes
at 13.625% per annum maturing August 1, 2006. Cash interest will not accrue on
the Senior Discount Notes prior to August 1, 2001. Thereafter, cash interest on
the Senior Discount Notes will be payable at 13.625% per annum, semi-annually in
arrears on each February 1 and August 1, commencing February 1, 2002. The Senior
Discount Notes are unsecured senior obligations of the Company. The Company
raised approximately DM143,792,000 in net proceeds after the payment of
underwriting discounts and commissions from the sale of the Senior Discount
Notes.
Costs and expenses of DM10,361,000 associated with the issuance of the
Senior Discount Notes have been capitalized in other assets. They are being
amortized over 10 years representing the term of the Senior Discount Notes.
8. RELATED PARTY TRANSACTIONS
Subordinated Shareholder Loans due to shareholders represented principal,
accrued interest and an arrangement fee payable due to the Company's majority
shareholder. These loans were subject to annual interest rates ranging between
12% and 20% for the periods presented and were subordinate to bank debt of the
Company and its subsidiaries. The average weighted interest rate on Subordinated
Shareholder Loans at December 31, 1995 was 13.2%. The interest accrued and was
payable with principal in one installment at various dates from March 31, 2002
through December 31, 2003. Accumulated interest of DM16,168,000 was included in
Subordinated Shareholder Loans at December 31, 1995. Interest expense on these
loans for the periods presented amounted to DM2,189,000, DM13,652,000 and
DM8,968,000 for 1994, 1995 and 1996, respectively.
On June 19, 1996 the Subordinated Shareholder Loans, including accrued
interest thereon, in the aggregate amount of DM191,805,000 were contributed to
the capital of Kabelmedia Holding GmbH by such shareholders and the Company's
contributed capital was increased by the equivalent amount.
Included in other assets are receivables due from officers of DM76,000 at
December 31, 1995.
30
<PAGE> 31
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. FOREIGN EXCHANGE
The Company 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 Mark
at the applicable year-end exchange rate. The foreign currency forward contracts
require the Company to exchange Deutsche Marks for U.S. dollars and generally
mature in 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 DM8,449,000, was
recorded in other assets and accrued liabilities. The asset is adjusted to the
year-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 DM8,027,000 which is being
amortized over the life of the contracts. The Company recorded an unrealized
foreign exchange loss of DM3,824,000 for the year ended December 31, 1996
related to the period when the Senior Discount Notes were not hedged.
The fair values of the foreign currency forward contracts are estimated by
obtaining quotes from brokers at December 31, 1996:
<TABLE>
<CAPTION>
NOTIONAL CARRYING FAIR
AMOUNT VALUE VALUE
----------- ----------- --------
<S> <C> <C> <C>
U.S. Dollar Forward Contracts..................... $100,000,000 -- $161,000
</TABLE>
10. INCOME TAXES
The Company and its consolidated subsidiaries each file separate tax
returns in accordance with German tax laws. Under German corporate tax law,
taxes on income are composed of corporate taxes and trade taxes. For financial
reporting purposes, the Company and its consolidated subsidiaries calculate
their respective tax liabilities on a separate return basis which are combined
in the accompanying consolidated financial statements.
The provisions for income tax (expense) benefit consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
------- ------- -------
(DM IN THOUSANDS)
<S> <C> <C> <C>
Current............................................... -- (104) (411)
Deferred.............................................. -- 1,020 (135)
------- ------- -------
-- 916 (546)
======= ======= =======
</TABLE>
A reconciliation between the German corporate statutory tax rate of 45% for
1994, 1995 and 1996 and the Company's effective tax rate before extraordinary
item is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- -------
(DM IN THOUSANDS)
<S> <C> <C> <C>
Computed income tax benefit at German statutory rate........ 2,753 16,438 23,091
Tax loss on which no benefit is provided.................... (3,414) (19,068) (23,799)
Trade taxes on income, net of corporate tax benefit......... 830 3,345 2,281
Amortization of goodwill.................................... (124) (2,023) (4,112)
Other....................................................... (45) 2,224 1,993
------- ------- -------
-- 916 (546)
======= ======= =======
</TABLE>
31
<PAGE> 32
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of December
31, 1995 and 1996 are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
------- -------
(DM IN THOUSANDS)
<S> <C> <C>
Deferred tax assets
Net operating loss carry forwards.................................. 31,017 56,361
Interest expense on Subordinated Shareholder Loans................. 3,672 --
Other.............................................................. 894 4,104
------- -------
35,583 60,465
less -- valuation allowance........................................ (21,576) (50,062)
------- -------
14,007 10,403
Deferred tax liabilities
Property, plant and equipment...................................... (10,865) (4,047)
Unamortized bank financing fees.................................... (3,156) (6,484)
Capitalized acquisition costs...................................... (2,757) (2,787)
Other assets....................................................... (2,567) (1,151)
------- -------
(19,345) (14,469)
------- -------
(5,338) (4,066)
======= =======
</TABLE>
Included in the valuation allowance at December 31, 1996 and 1995 are
DM9,808,000 and DM9,687,000, respectively, for which subsequently realized tax
benefits will be allocated to goodwill.
As of December 31, 1996, the Company and its subsidiaries had available
combined cumulative tax loss carry-forwards for corporate income tax of
approximately DM109,774,000 and for trade tax on income of approximately
DM75,992,000. Under current German tax laws, these loss carryforwards have an
indefinite life and may be used to offset the Company's and its consolidated
subsidiaries future taxable income.
11. COMMITMENTS
The Company obtains certain programming directly from Deutsche Telekom
through signal delivery contracts. The signal delivery contracts with Deutsche
Telekom are generally for a fixed period of time and are subject to negotiated
renewal. Under these contracts the Company typically pays Deutsche Telekom
either a flat fee or a fee per customer that is determined by reference to a
published fee schedule. As of December 31, 1996, fees payable by the Company to
Deutsche Telekom under its existing contracts ranged from DM0.57 to DM22.50 per
subscriber per month. For the year ended December 31, 1996 total fees paid to
Deutsche Telekom amounted to approximately DM7,200,000.
In December 1996, the Company entered into a ten year software license
agreement for a new subscriber management system. Under the license agreement
the Company is required to pay quarterly license fees equal to a percentage of
defined revenue. In no event shall the sum of the quarterly payments be less
than $1,000,000 in any one year. Beginning in 2000, the quarterly fee is subject
to an escalation clause based on the Consumer Price Index, Urban Consumers, All
Cities Average. In addition, the Company entered into an agreement for
installation and implementation of the system, the estimated cost of which is
approximately $1,600,000.
The Company operates primarily in leased facilities and in addition leases
certain technical and office equipment. Lease terms generally range up to 5
years with options to renew at varying terms. Rental expense was DM409,000,
DM1,527,000 and DM2,404,000 in 1994, 1995 and 1996, respectively.
32
<PAGE> 33
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum payments under noncancellable operating leases with initial
or remaining terms in excess of one year consisted of the following at December
31, 1996:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
<S> <C>
1997................................................................ 1,066
1998................................................................ 841
1999................................................................ 769
2000................................................................ 409
2001................................................................ 259
Thereafter.......................................................... 986
</TABLE>
12. CONTINGENCIES
The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. In the opinion of management, the ultimate
resolution of such legal proceedings and claims will not have a material effect
on the consolidated financial position and results of operations of the Company.
13. REGISTERED CAPITAL
The Company is a limited liability company (hereafter GmbH) under German
law. Shareholders are generally not liable for the Company's obligations, except
to the extent of their capital investment. Registered capital of a GmbH is not
in the form of shares and does not represent negotiable securities. The minimum
capital requirement for a GmbH is DM50,000.
Capital contributions represent additional contributions made by the
shareholders in the form of cash or conversion of debt. In 1996, certain
shareholders contributed additional registered capital of DM100,000 and
converted DM9,800,000 of capital contributions to registered capital, bringing
total registered capital to DM10,000,000.
14. PENSION AND EMPLOYEE BENEFIT PLANS
The Company provides no significant pension, post retirement or post
employment benefits to its employees.
15. RESERVE FOR CORPORATE RESTRUCTURING
On December 12, 1996 the Company adopted a plan of reorganization to allow
for the move of its corporate offices from Plauen to Frankfurt and recorded a
restructuring charge of DM1,611,000.
The restructuring charge is principally comprised of lease termination
costs and the writedown of leasehold improvements. The charge also includes
severance and termination benefits for 17 employees primarily engaged in
corporate administrative functions.
16. SUBSEQUENT EVENTS
On January 31, 1997 the Company acquired the shares of Antenna-Lindemann
for a total consideration of DM20,000,000 plus costs and expenses of DM550,000.
The purchase price consisted of cash of DM16,523,000, the assumption of
liabilities of DM977,000 and a deferred purchase obligation of DM2,500,000.
DM500,000 of the deferred purchase obligation is due on the first anniversary
date. The remainder plus accrued interest of 4% per annum is due on the third
anniversary date. The Company borrowed DM20,300,000 on January 31, 1997 to fund
the acquisition and pay all related costs and expenses. On March 27, 1997 the
Company repaid DM2,300,000 of its loans outstanding under its 1996 facilities.
33
<PAGE> 34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
In accordance with its Articles of Association (Gesellschaftsvertrag), the
Company may have one or more Managing Directors (Geschaftsfuhrer) appointed by
the shareholders, who are charged with carrying on the business of the Company.
In addition to its Managing Director, the Company also has an Executive
Committee of Shareholders (the "Executive Committee") comprised of nine members
appointed by the Company's shareholders. The Executive Committee is not a
statutory body under German law, but rather is constituted pursuant to the
Shareholder Agreement. Under the Shareholder Agreement, the Executive Committee
members will be appointed by seven shareholders or groups of affiliated
shareholders. Two members, Messrs. Brown and Prelz Oltramonti, have been
appointed to the Executive Committee by investment funds managed by affiliates
of Advent International Corporation ("Advent International"). Mr. Hoch was
appointed by investment funds managed by affiliates of Morgan Stanley Group Inc.
("Morgan Stanley Group"); Mr. Berylson was appointed by a shareholder affiliated
with GC Companies Inc. ("General Cinema"); Mr. Meggs was appointed by a
shareholder affiliated with The Chase Manhattan Corporation ("Chase Manhattan");
Ms. Manfrey was appointed by a shareholder affiliated with APAX Partners & Co.
Ventures Ltd.; Mr. van der Hyden was appointed by a shareholder affiliated with
Vision Networks, N.Y.; and Mr. Bartel represents his own shareholding. Finally,
Dr. van Dohnanyi is an independent member of the Executive Committee appointed
by the vote of 75% of the shareholders as a group. The shareholders of the
Company have agreed to appoint a second independent director, which will
increase the size of the Executive Committee to ten members, and are considering
appropriate candidates.
The Executive Committee has no independent policy or management function
similar to that of a board of directors, but rather is a contractually
constituted body designed to facilitate the making of decisions on certain
matters reserved to the shareholders of the Company. For this reason and because
it is not a statutory body under German law, the Executive Committee members
have no fiduciary duty to the Company arising by reason of their membership on
the Executive Committee. Rather, the members represent the interests of the
respective shareholders who appointed them or, in the case of the independent
directors, are intended to express their independent business judgment. The
authority of the Executive Committee is limited to considering matters which are
reserved pursuant to the Shareholder Agreement for decision by the shareholders
and are removed by contract from the authority of the Managing Director. Matters
requiring shareholder approval as a matter of German law must be considered by a
shareholders' meeting. The Executive Committee can approve by unanimous vote
matters reserved for shareholder approval under the Shareholder Agreement. In
the event such unanimous approval is not obtained, but three or more votes of
Executive Committee members have been cast in support of the matter, the matter
will automatically be referred to a shareholders' meeting, and in the absence of
such a vote any shareholder or shareholders holding 10% or more of the shares of
the Company can place a resolution in respect of the matter before a
shareholders' meeting.
34
<PAGE> 35
Set forth below is certain information with respect to the Company's
executive officers and members of its Executive Committee.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- --------------------------------- --- ----------------------------------------------------
<S> <C> <C>
Ben Bartel....................... 35 Chief Executive Officer, Managing Director
and Member of Executive Committee
Ernst Uhlig...................... 54 Chief Operating Officer
Paul Thomason.................... 41 Chief Financial Officer
Douglas R. Brown................. 42 Chairman of Executive Committee
Massimo Prelz Oltramonti......... 41 Member of Executive Committee
James S. Hoch.................... 36 Member of Executive Committee
John G. Berylson................. 42 Member of Executive Committee
Jonathan Meggs................... 35 Member of Executive Committee
Barbara Manfrey.................. 42 Member of Executive Committee
Jos van der Hyden................ 40 Member of Executive Committee
Klaus von Dohnanyi............... 67 Member of Executive Committee
</TABLE>
Mr. Bartel has more than ten years' experience in the cable television
industry, having spent eight years working in a variety of capacities in a
family-owned cable television business in Lodi, Ohio from 1977 to 1985. He has
been the Chief Executive Officer and Managing Director of the Company since its
inception. From July 1991 to September 1992, Mr. Bartel was an Assistant Vice
President -- Corporate Finance at First Union National Bank of North Carolina,
where he was primarily involved in the area of specialized lending to companies
in the communications industry. Prior thereto, from September 1989 to May 1991,
he attended the New York University Stern School of Business, from where he
received an M.B.A. degree. During the period from March 1991 to June 1991, Mr.
Bartel was employed by Chappo & Co., a corporate finance company.
Mr. Uhlig has more than five years' experience in the cable television
industry. He has been the Chief Operating Officer of the Company since October
1995. From March 1992 to September 1995, Mr. Uhlig held various positions at
Robert Bosch GmbH ("Bosch"), one of the largest cable television providers in
Germany, including Sales Director for its broadband communications division from
July 1994 to September 1995. From January 1990 to February 1992, he was
Technical Director of Telenorma S.A., Brussels, Belgium, a wholly-owned
subsidiary of Bosch, which was engaged in the sale and rental of telephone and
alarm system equipment. Additionally, from October 1993 to September 1995, Mr.
Uhlig was a member of the board of directors of the broadband division of the
Central Federation of the Electronic Industry (Zentral Verband der
Elektrotechnischen Industrie), headquartered in Frankfurt, Germany.
Mr. Thomason has more than nine years' experience in the communications and
media industry. He has been the Chief Financial Officer of the Company since
January 1996. Additionally, Mr. Thomason has provided financial advice to the
Company since 1993. From 1980 until January 1996, he was employed by the First
Union National Bank of North Carolina, where he served as Senior Vice President
in such bank's communications and media finance group from 1986 to January 1996.
Mr. Brown has more than five years' experience in the cable television
industry. He has served as Chairman of the Executive Committee of the Company
since May 1996. Mr. Brown has been President and Chief Executive Officer of
Advent International since 1995, prior to which and from 1994 he was Chief
Investment Officer for Advent International's worldwide investment activities.
From 1990 through 1994, he headed Advent International's European operations. He
has been employed by Advent International since 1985. Before that he worked for
Ionics, Inc., which manufactured membrane separation and water treatment
systems, where he held engineering and staff positions with responsibilities for
production, marketing and applications development. Mr. Brown has served as a
director of Aspen Technology, Inc., ChemDesign Corporation, Inspec Group plc,
Ionics Inc., and several Advent European fund management companies.
Mr. Prelz Oltramonti has more than four years' experience in the cable
television industry, having been a director of Cable Management (Ireland) Ltd.
since October 1992. He has served on the Executive Committee of the Company or
on a predecessor body carrying out comparable functions since April 1993.
35
<PAGE> 36
Mr. Prelz Oltramonti is a Senior Vice President of Advent International and a
Managing Director of its affiliate Advent International plc. He assists in the
management of Advent International's European investment activities, with a
particular focus on the media and communications sectors. Prior to joining
Advent International in February 1991, he was General Partner of Alta Berkeley
Associates. Before that he worked with the Boston Consulting Group and Ing. C.
Olivetti & Co, where he focused on mergers and acquisitions and venture capital
and where he assisted in establishing Olivetti's financial information services
business in Italy.
Mr. Hoch has served on the Executive Committee of the Company or on a
predecessor body carrying out comparable functions since September 1995. Since
1994, Mr. Hoch has been Executive Director of Morgan Stanley & Co., Ltd. Since
February 1993, Mr. Hoch has been a Principal of Morgan Stanley & Co.
Incorporated. From January 1991 to February 1993, Mr. Hoch was a Vice President
of Morgan Stanley & Co. Incorporated and prior to such time he was an Associate.
Mr. Hoch has been a director of SITA Telecommunications Holding N.V. since 1995
and a director of Silgan Corporation since 1991. Mr. Hoch has also served as
Chairman of Nokia Alumiini Oy since 1995.
Mr. Berylson has served on the Executive Committee of the Company or on a
predecessor body carrying out comparable functions since January 1995. He is the
President of GCC Investments Inc., an affiliate of General Cinema, responsible
for making equity investments with capital generated by the theater business of
the General Cinema group. He is also a director of Vision Express Group Ltd.
Prior to joining General Cinema in August 1993, he was Vice President and
Managing Director of Advent International Financial Services, Inc., which he
joined in 1989. From 1984 to 1989, he was a Partner and founder of Cowen &
Company's corporate finance department. Before that he was a Vice President at
Blyth Eastman Paine Webber in its corporate finance group.
Mr. Meggs has served on the Executive Committee of the Company or on a
predecessor body carrying out comparable functions since April 1994. Mr. Meggs
was employed by The Chase Manhattan Bank, N.A. from 1985 to 1989 and thereafter
by Chase Mezzanine Capital, later known as Chase Capital, where he became a
Principal in 1992. Chase Capital is now known as Chase Capital Partners
following the merger of Chase Manhattan with Chemical Banking Corporation in
April 1996. Mr. Meggs is also a Vice President of The Chase Manhattan Bank, N.A.
and a director of Chase Investment Bank Limited. Prior to joining Chase, Mr.
Meggs worked for Andersen Consulting.
Ms. Manfrey has served on the Executive Committee of the Company or on a
predecessor body carrying out comparable functions since January 1995. Ms.
Manfrey is a director of Apax Partners & Co. Ventures Ltd. ("Apax"), where she
specializes in media investments. Prior to joining Apax in 1992, she was a
Partner of E.M. Warburg, Pincus & Co, Inc., where she served as Managing
Director from 1988 to 1992 and was a co-founder of the firm's London office, a
Managing Director of the firm's New York office from 1985 to 1992 and an
Associate from 1976 to 1984. Ms. Manfrey currently serves on the board of
directors of Virgin Radio Ltd.
Mr. van der Hyden has served on the Executive Committee of the Company or
on a predecessor body carrying out comparable functions since January 1995. Mr.
van der Hyden has been the Business Development Director of Vision Networks,
N.V. since February 1995. He is responsible for acquiring and running cable
television networks for Vision Networks, N.V. in several European countries. He
is President of Reseaux Cables de France, President of Interkabel Polska S.P. z
o.o and STK S.P. z o.o in Poland and a Director of Intercable s.r.o. in the
Czech Republic. From 1992 to February 1995, he was employed by PTT Telecom as
Marketing Director of the Mobile Communications Services Business Unit,
responsible for the marketing of mobile telephony and paging, and as the head of
the strategy department of the International Communications Business Unit. From
1989 to 1992, Mr. van der Hyden was an Associate with McKinsey & Company in
Amsterdam and, from 1981 to 1988, he was employed by the Schlumberger Group in
New York, where his main responsibilities were in the development and
commercialization of data interpretation services for clients in the petroleum
industry.
Dr. von Dohnanyi has served on the Executive Committee of the Company or a
predecessor body carrying out comparable functions since January 1996. Between
1954 and 1960, he worked for Ford Motor Company, both in the United States and
Germany. From 1960 to 1968, Dr. von Dohnanyi was a co-owner and
36
<PAGE> 37
Managing Director of the Institut fur Marktforschung und Unternehmensberatung
Infratest, Munich (Market and Social Research, Infratest) and, between 1968 and
1969, he was Permanent Secretary at the German Ministry of Economics. Dr. von
Dohnanyi was a Member of Parliament in Bonn from 1969 to 1981, Parliamentary
Undersecretary from 1969 to 1972, and Minister for Science, Technology and
Education from 1972 to 1974. From 1976 to 1981, he was Deputy Foreign Minister
(Staatminister), Bonn (in charge of European affairs). From 1981 to 1988, he was
Governor of the City State of Hamburg. From 1990 to 1994, Dr. von Dohnanyi was
Chairman of the Board of TAKRAF Heavy Machinery, Leipzig, and since 1994 he has
been a Special Advisor to the board of directors of the Treuhandanstalt (since
January 1, 1995, Bundesanstalt fur Vereinigungsbedingte Sonderaufgaben), Berlin.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company for the
years ended December 31, 1994, 1995 and 1996 to the Company's Chief Executive
Officer and each of the other two most highly compensated executive officers of
the Company for the last three fiscal years, to the extent those officers were
in the employ of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER ANNUAL(1) ALL OTHER(2)
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION
- -------------------------------- ---- ------- ------- --------------- ---------------
DM DM DM DM
<S> <C> <C> <C> <C> <C>
Ben Bartel...................... 1996 85,100 -- 312,071
Chief Executive Officer 1995 136,730 -- 174,589 --
1994 76,930 102,710 --
Ernst Uhlig..................... 1996 271,613 -- -- --
Chief Operating Officer 1995 84,245 -- -- --
Paul Thomason................... 1996 85,100 -- 79,465 888,067
Chief Financial Officer
</TABLE>
- ---------------
(1) Represents the value of the provision of a housing allowance and tax gross
up payments.
(2) Represents a special relocation bonus.
37
<PAGE> 38
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Shareholders table sets forth certain information regarding the
beneficial ownership of the share capital of the Company as of the date hereof
by: (i) each person known by the Company to own beneficially 5% or more of the
outstanding share capital of the Company; (ii) each of the Company's Executive
Committee members; (iii) each of the executive officers of the Company; and (iv)
all Executive Committee members and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF BENEFICIAL OWNER(1)(2) OF SHARES
- ---------------------------------------------------------------------------------- ----------
<S> <C>
SHAREHOLDERS
Advent International(3)......................................................... 42.49%
Morgan Stanley Group(4)......................................................... 14.34%
General Cinema(5)............................................................... 9.56%
Chase Manhattan(6).............................................................. 8.10%
APAX Partners(7)................................................................ 7.17%
Vision Networks(8).............................................................. 7.17%
Ben Bartel(9)................................................................... 5.00%
MANAGEMENT AND EXECUTIVE COMMITTEE(11)
Ben Bartel...................................................................... 5.00%
Paul Thomason................................................................... 1.25%
Ernst Uhlig..................................................................... 1.00%
All Executive Committee members and executive officers as a group(10)........... 7.25%
</TABLE>
- ---------------
(1) Except as indicated in the footnotes to this table, the persons named in the
table have sole voting and investment power with respect to the share
capital of the Company shown as beneficially owned by them, subject to
community property laws where applicable.
(2) The total nominal share capital (Stammkapital) of the Company (or of any
other limited liability company or GmbH organized under German law) is
expressed as a particular Deutsch Mark amount. The interests held by the
shareholders are represented by individual shares in the total capital,
each of which carries a Deutsche Mark nominal value (the aggregate of which
is the nominal capital of the GmbH) and entitles the holder to participate
upon distribution in an equivalent percentage of capital other than nominal
capital, such as capital surplus and retained earnings, if any. For
convenience, interests in the nominal capital of the Company are referred
to herein as shares.
(3) Represents shares held by European Special Situations Fund Limited
Partnership, which holds 15.83% of the Company's shares, Global Private
Equity II Limited Partnership, which holds 13.98% of the Company's shares,
Kabelgate L.L.C., which holds 11.29% of the Company's shares, Advent
Partners Limited Partnership, which holds .67% of the Company's shares,
Advent Crown Fund C.V., which holds .65% of the Company's shares, Advent
International Investors II Limited Partnership, which holds .02% of the
Company's shares, and Advent International Investors III Limited
Partnership, which holds .05% of the Company's shares. The general partners
or members of the above limited partnerships and limited liability company
are affiliates of Advent International and such shares of the Company may
be deemed to be beneficially owned by Advent International. Advent
International disclaims beneficial ownership of shares held by such
investment limited partnerships and limited liability company, except to
the extent of its pecuniary interest therein. The address for each of the
above limited partnerships and limited liability company is c/o Advent
International Corporation, 101 Federal Street, Boston, Massachusetts 02110.
(4) Represents shares held by Morgan Stanley Partners III, L.P., which holds
12.68% of the Company's shares, MSCP III 892 Investors, L.P., which holds
1.30% of the Company's shares, and Morgan Stanley Capital Investors, L.P.,
which holds .36% of the Company's shares. The general partner of each of
these investment limited partnerships is an affiliate of Morgan Stanley
Group. Morgan Stanley Group disclaims beneficial ownership of shares of the
Company held by such investment limited partnerships, except to
38
<PAGE> 39
the extent of its pecuniary interest therein. The address for each of the
above limited partnerships is c/o Morgan Stanley Capital Partners, 1221
Avenue of the Americas, New York, New York 10020.
(5) Represent shares held by Chestnut Hill Media, an affiliate of General Cinema
Corporation. General Cinema disclaims beneficial ownership of the shares
held by Chestnut Hill Media Inc., except to the extent of its pecuniary
interest therein. The address for Chestnut Hill Media Inc. is 27 Boylston
Street, Chestnut Hill, Massachusetts 02167.
(6) Represents shares held by Willard Holdings Inc., which holds 4.05% of the
Company's shares, and Woodward Holdings Inc., which holds 4.05% of the
Company's shares, each of which is an affiliate of Chase Manhattan. Chase
Manhattan disclaims beneficial ownership of shares held by such companies,
except to the extent of its pecuniary interest therein. The address for
each of Willard Holdings Inc. and Woodward Holdings Inc. is c/o The Chase
Manhattan Bank, N.A., Woolgate House, Coleman Street, London EC2P 2HD,
England.
(7) Represents shares held by ECO Holdings (Cayman) Limited. APAX Partners
disclaims beneficial ownership of the shares held by ECO Holdings (Cayman)
Limited, except to the extent of its pecuniary interest therein. ECO
Holdings (Cayman) Limited is not affiliated with either ECO I or ECO II,
other than as a limited partner in ECO II and to the extent of its
pecuniary interest therein. The address of ECO Holdings (Cayman) Limited is
c/o Maples & Calder, Ugland House, George Town, Grand Cayman, Cayman
Islands, British West Indies.
(8) The address for Vision Networks, N.Y., formerly KPN Kabel BV, is
Polarisavenue 27, 2132 Hoofddorp, The Netherlands.
(9) Represents Shares held by Ben Bartel and Charlotte. The address for Ben
Bartel is Oberer Steinweg 10, 08523 Plauen, Germany.
(10)Pursuant to the Shareholder Agreement, eight members of the Executive
Committee are appointed by a designated shareholder or affiliated group of
shareholders of the Company to represent those shareholders, and one
independent member of the Executive Committee is elected by the vote of 75%
of the shareholders as a group. See "Management." Other than Ben Bartel, no
member of the Executive Committee is the registered holder of any of the
share capital of the Company. Mr. Brown and Mr. Prelz Oltramonti were
appointed to the Executive Committee by shareholders affiliated with Advent
International; Mr. Hoch by shareholders affiliated with Morgan Stanley
Group; Mr. Berylson by a shareholder affiliated with General Cinema; Mr.
Meggs by shareholders affiliated with Chase Manhattan; Ms. Manfrey by a
shareholder affiliated with APAX Partners & Co.Ventures Ltd. and Mr. der
Hyden by a shareholder affiliated with KPN Kabel BV, in each case to
represent its or their interests, and certain members of the Executive
Committee are officers of shareholders of general partners of limited
partnerships which are shareholders of the Company. None of such Executive
Committee members is a registered holder of any shares and each such person
disclaims beneficial ownership of the shares held by the shareholder whose
interest he represents on the Executive Committee, except to the extent of
his pecuniary interest therein.
39
<PAGE> 40
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 1, 1992, Plauen Cable, Inc. ("Plauen Cable"), a company owned
and controlled by Lloyd Bartel, the father of Ben Bartel, the Chief Executive
Officer of the Company, and Charlotte Cable Holdings, Inc. ("Charlotte"), a
company owned and controlled by Ben Bartel, purchased from unaffiliated parties
95% of the ownership interests in KFP Kabelfernsehen Plauen GmbH & Co. KG
("Plauen KG") and in Kabelfernsehen Plauen GmbH ("Plauen GmbH"), the general
partner (Komplementar) of Plauen KG.
On April 2, 1993, Plauen Cable, Charlotte and two other minority
shareholders (the "Minority Shareholders") exchanged their interests in Plauen
KG and Plauen GmbH for 25% of the share capital of Kabelvision Beteiligungs GmbH
("Kabelvision"), which was merged into the Company on June 19, 1996 (the
"Merger"), which at the time of such exchange had no assets other than DM50,000
of contributed capital. The Minority Shareholders held their interest indirectly
through a civil law partnership. The holder of the remaining 75% of the share
capital of Kabelvision was European Special Situations Fund Limited Partnership
("ESSF"), a limited partnership affiliated with Advent International, which
subsequently became the general partner and a limited partner in ECO Holdings
Limited Partnership ("ECO I"). Contemporaneously with this transaction, ESSF
made a loan (the "Initial Loan") to Plauen KG in the sum of DM2,500,000. An
arrangement fee of DM400,000 payable by Plauen KG to ESSF in respect of the
Initial Loan was contributed by ESSF to the capital of Kabelvision, which loaned
that amount to Plauen KG to fund its payment of that arrangement fee. The
Initial Loan bore interest at the rate of 15% per annum and was to be repaid on
December 31, 1993. In May 1994, the Minority Shareholders transferred their
indirect interest in the share capital in Kabelvision to Charlotte in
consideration for the assumption by Charlotte of all obligations of the Minority
Shareholders under the civil law partnership agreement and as former partners in
Plauen KG. In July 1994, the shareholders of Kabelvision, other than Charlotte,
exchanged their interests in the share capital of Kabelvision for limited
partnership interests of ECO I.
On July 19, 1994, the obligations of Plauen KG under the Initial Loan were
assumed by a subsidiary of Kabelvision, the amount of the loan was increased to
DM7,500,000 and the terms of the Initial Loan were amended. The amended loan
bore interest at the rate of 20% per annum until contributed to the capital of
Kabelmedia as part of the Shareholder Debt Conversion. ECO I contributed to the
capital of Kabelvision DM6,000,000 by way of assignment of a portion of the loan
and DM2,000,000 of cash. On March 31, 1994, ESSF, the general partner and a
limited partner of ECO I, made a loan to a subsidiary of Kabelvision in the
principal amount of DM13,000,000, which was subsequently assigned by ESSF to ECO
I. The proceeds of such loan were used by Kabelvision to make acquisitions of
cable television systems. The loan bore interest at the rate of 20% per annum
until contributed to the capital of Kabelmedia as part of the Shareholder Debt
Conversion. In 1994 and 1995, ECO I made loans to a subsidiary of Kabelvision in
the principal amounts of DM12,361,000 (of which DM6,787,000 was contributed to
the capital of Kabelvision), DM8,000,000 and DM12,000,000 (DM3,000,000 of which
was contributed to the capital of Kabelvision), which were utilized by
Kabelvision in connection with the acquisition of cable television systems. Each
of these contributions from ECO I to Kabelvision was made by way of assignment
of a portion of the relevant loan by ECO I to Kabelvision. Each of these loans
bore interest at the rate of 15% per annum until contributed to the capital of
Kabelmedia as part of the Shareholder Debt Conversion.
On December 28, 1994, ECO II Holdings Limited Partnership ("ECO II") and
Ben Bartel formed Kabelmedia with DM50,000 of capital and made a loan to the
Company in the principal amount of DM49,300,000, which was utilized by the
Company in connection with the acquisition of cable television systems. On
August 31, 1995, ECO II made a loan to the Company in the principal amount of
DM40,252,000, which was utilized by the Company in connection with the
acquisition of Beta Asset Management GmbH ("Beta Asset"), which then acquired
TELECable Betriebsgesellschaft mbH. The loan bore interest at the rate of 12%
per annum commencing January 1, 1996, until contributed to the capital of
Kabelmedia as part of the Shareholder Debt Conversion. The Company acquired Beta
Asset from Morgan Stanley Partners III, Inc. and certain of its affiliates for
DM58,000. Morgan Stanley Partners III, Inc. is an affiliate of Morgan Stanley
and certain of its affiliates were limited partners of ECO II. On October 6,
1995, ECO II made a loan to the Company in the principal amount of DM30,900,000,
which was utilized by the Company in connection with the acquisition of cable
television systems. The loan bore interest at the rate of
40
<PAGE> 41
12% per annum commencing January 1, 1996, until contributed to the capital of
Kabelmedia as part of the Shareholder Debt Conversion. On May 30, 1996, ECO II
made a loan to the Company of DM10,199,000, which will was used by the Company
for general corporate purposes. The loan bore interest at the rate of 12% per
annum, until contributed to the capital of Kabelmedia as part of the Shareholder
Debt Conversion.
Each of the loans described above was subordinated and was repayable in a
single installment on January 1, 2007. The interest on such loans was not
required to be currently paid, but rather was to accrue until maturity. The
total principal amount of such loans plus accrued interest thereon through June
14, 1996 were contributed to the capital of Kablemedia in the Shareholder Debt
Conversion.
ECO I and ECO II were dissolved and the capital stock of Kabelmedia was
distributed to the partners of ECO I and ECO II, who became shareholders in
Kabelmedia. As part of a capital increase on July 15, 1996, Paul Thomason and
Ernst Uhlig, the Chief Financial Officer and Chief Operating Officer of the
Company, respectively, subscribed for 1.25% and 1%, respectively, of the shares
of the Company, at a price equal to the nominal value thereof, DM2,500 and
DM2,000, respectively. The Company and its shareholders, other than Ben Bartel,
Charlotte, Paul Thomason and Ernst Uhlig, have entered into a Registration
Rights Agreement which, under certain circumstances, would permit such
shareholders to require the Company to register their shares under the
Securities Act.
CERTAIN INTERESTS OF AFFILIATES OF THE UNDERWRITERS
The MSCP Funds are affiliates of Morgan Stanley & Co., one of the
underwriters of the offering of the Senior Discount Notes, collectively own
approximately 14.34% of capital stock of Kabelmedia. Pursuant to the terms of
the Shareholder Agreement, MSCP III, L.P., as general partner of the MSCP Funds,
has the right to appoint one member of the Executive Committee of Kabelmedia. An
officer of Morgan Stanley currently serves on the Executive Committee of
Kabelmedia.
Chase Investment Bank Limited ("CIBL") and Chase Manhattan Bank AG are
affiliates of Chase Securities Inc., one of the Underwriters for the offering of
the Senior Discount Notes, and are the Arranger and the Agent, respectively, of
the 1996 Bank Facility. The loan commitments of CIBL to the Company as of
December 31, 1996 under the 1996 Facility were approximately DM34,400,000,
representing approximately 8.6% of the total loan commitments under the 1996
Facility. Certain customary fees were paid to certain affiliates of Chase
Securities Inc. in connection with the arrangement of the 1996 Facility and its
services as agent thereunder. Certain affiliates of Chase Securities Inc. also
collectively own approximately 8.10% of the capital stock of Kabelmedia.
Pursuant to the terms of the Shareholder Agreement, such affiliates of Chase
Securities Inc. have the right to appoint one member of the Executive Committee
of Kabelmedia. An officer of such affiliates of Chase Securities Inc. currently
serves on the Executive Committee of Kabelmedia.
SHAREHOLDER AGREEMENT
The Company, each of its current shareholders and each of the partners of
ECO I and ECO II entered into a Shareholders' Agreement (the "Shareholder
Agreement") pursuant to which the capital of Kabelmedia was increased effective
July 15, 1996 from DM74,600 to DM200,000 by way of a cash contribution in
amounts which, following the dissolution of ECO I and ECO II, resulted in the
respective percentage shareholdings reflected in "Item 12" found elsewhere in
this document.
In addition, the Shareholder Agreement provided for a further increase in
the nominal capital of Kabelmedia by DM9,800,000 to DM10,000,000, by the
conversion of capital surplus to nominal capital, without changing the
percentage holdings of the shareholders, which was filed with the relevant
Commercial Court on July 19, 1996, and became effective upon the recording
thereof with the Commercial Register. The parties to the Shareholder Agreement
also agreed to take all necessary steps to dissolve ECO I and ECO II, which
occured on June 19, 1996, whereupon ECO I and ECO II distributed the assets held
by them, comprised of the shares in the Company, to their partners, pro rata to
their respective partnership interests.
The Shareholder Agreement reserves certain matters for decision by the
shareholders of the Company. Certain shareholder approvals can be granted upon
the unanimous approval of the Executive Committee. The
41
<PAGE> 42
matters which are reserved to the shareholders by German law or the Shareholder
Agreement can be categorized as follows:
(i) matters which are required by law to be approved by the shareholders
by either a simple majority or a 75% majority of the shareholders
present at a meeting called to consider such resolution, which under the
Shareholder Agreement uniformly require the prior written consent of a
75% majority of the shareholders;
(ii) matters which require either a prior unanimous resolution of the
Executive Committee or a resolution passed by a 75% majority of the
shareholders present at a meeting called to consider such resolution;
and
(iii) matters which require either a prior unanimous resolution of the
Executive Committee or a resolution passed by a simple majority of the
shareholders present at a meeting called to consider such resolution.
The matters referred to in clause (i) above include any change to the share
capital of the Company, the grant of any option over or interest in, or the
issue of any instrument carrying rights of conversion into, any other security
of the Company, the redemption, purchase, reorganization, consolidation,
cancellation or conversion of any share capital or other securities issued by
the Company, a change of the Company's auditors or fiscal year, the declaration
of any dividend, the appointment or removal of any Geschaftsfuhrer or Prokurist
of the Company, a change of the Company's name, the adoption of the Company's
annual financial statements, any variation of the Company's accounting policies
and any amendment of the Company's Articles of Association.
The matters referred to in clause (ii) above include refinancings involving
over DM150,000,000 or new financings involving over DM50,000,000, acquisitions
or disposals of any assets which account for more than 10% of the operating cash
flow, net revenues or total assets of the Company, the acquisition of any
capital asset for more than DM1,000,000, entering into any joint venture or
similar arrangement, implementing any change in the nature of the business or
commencing business outside Germany, entering into any contract with a related
party, approving the annual business plan and entering into any contract
affecting more than 10% of the homes passed by the Company's cable television
systems.
The matters referred to in clause (iii) above include any financing,
acquisition or disposal involving more than DM1,000,000 in any calendar year,
any loan (subject to a de minimis exception) and any political or charitable
donation.
The Shareholder Agreement provides that shareholders may only transfer
shares (i) to a "connected person," which is defined in the Company's Articles
of Association as including a family member, a family trust or, in the case of a
transfer by a partnership, any of its partners, provided such transfer is a
distribution made in accordance with the relevant partnership agreement; or (ii)
to a third party, provided (A) such transfer takes place after June 12, 1997,
(B) the transferring shareholder complies with the right of first offer
procedure which is set out in the Articles of Association, pursuant to which
each of the other shareholders has the right to purchase all or a portion of the
shares to be sold by the shareholder at a price not greater than the price to be
paid by the proposed third party acquiror and (C) the proposed third party
acquiror, in the event that the price per DM100 of nominal capital to be paid by
the proposed third party acquiror is no greater than 110% of the price at which
such shares were offered to the other shareholders, has made an offer to acquire
on like terms the same percentage of any shares which were offered for sale by
other shareholders as part of the same first offer procedure or, in the event
that the price per DM100 of nominal capital to be paid by the proposed third
party acquiror is greater than 110% of the price at which such shares were
offered to the other shareholders, has made an offer to acquire on like terms
the same percentage of shares held by all other shareholders.
In addition, if a person makes an offer to all of the shareholders to
acquire all of their shares and such offer is accepted by shareholders holding
at least 66 2/3% of the share capital of the Company (excluding any capital held
by any offeror), the remaining shareholders can be forced by such accepting
shareholders to accept such offer.
42
<PAGE> 43
Prior to pursuing any acquisition or other business opportunity in the
cable television industry in Germany, each shareholder is required under the
Shareholder Agreement to offer such opportunity to the Company.
Pursuant to a Share Transfer and Option Agreement, which is an exhibit to
the Shareholder Agreement (the "Share Transfer and Option Agreement"), each of
ECO I and ECO II agreed to the Shareholder Debt Conversion, in return for which
Ben Bartel and Charlotte agreed that, upon the increase in the capital of the
Company from DM74,600 to DM200,000, they only subscribed for such amount of
share capital as will result in their aggregate percentage holding of such
increased share capital being 5% of the Company's share capital. In addition,
Ben Bartel and Charlotte granted options to the Company implementing the
contingent share purchase provisions applicable upon certain terminations of Mr.
Bartel's employment. Further, the Share Transfer and Option Agreement contained
provisions which the parties thereto have agreed to include in the Articles of
Association, designed to protect Ben Bartel and Charlotte from dilution of their
shareholdings by permitting Ben Bartel and Charlotte to sell their rights to
participate in future capital increases to the extent that such capital
increases are not made by unrelated third parties and are made at a subscription
price per DM100 of nominal capital which is below certain valuation thresholds.
Paul Thomason and Ernst Uhlig entered into Share Transfer and Option
Agreements, which are exhibits to their respective employment agreements and
which include comparable terms to the Share Transfer and Option Agreement,
implementing the contingent share purchase provisions applicable upon certain
terminations of their respective employment and designed to protect them from
dilution of their respective shareholdings.
The Company and its shareholders, other than Ben Bartel, Charlotte, Paul
Thomason and Ernst Uhlig, have entered into a Registration Rights Agreement
which, under certain circumstances, permits such shareholders to require the
Company to register their shares under the Securities Act.
43
<PAGE> 44
PART IV. OTHER INFORMATION
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. The following consolidated financial statements of Kabelmedia Holding
GmbH and
subsidiaries are included in Item 8:
<TABLE>
<S> <C>
Independent Auditors Report
Consolidated Statements of Operations -- Years ended December 31, 1996, 1995
and 1994.......................................................................
Consolidated Balance Sheets -- December 31, 1996 and 1995
Consolidated Statement of Shareholders' Equity (Deficiency) -- Years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows -- Years ended December 31, 1996, 1995
and 1994
Notes to Consolidated Financial Statements -- December 31, 1996
(a) 2. Financial Statement Schedules
All financial statement schedules other than the schedule listed on the
following page have been omitted because they are not required or the
information required to be set forth therein is included in the Consolidated
Financial Statements or Notes thereto.
</TABLE>
44
<PAGE> 45
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
KABELMEDIA HOLDING GMBH
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1995 1996 1996
------- -------- --------
DM DM U.S.$
<S> <C> <C> <C>
Cash........................................................ 76 3 2
Investment in and amounts due from subsidiaries (Notes 1 and
5)........................................................ 96,653 259,701 168,779
Other assets (Notes 3 and 4)................................ 2,976 24,250 15,760
------- -------- --------
TOTAL ASSETS................................................ 99,705 283,954 184,541
======= ======== ========
Subordinated Shareholder Loans (Note 2)..................... 122,403 --
Senior Discount Notes (Note 3).............................. -- 163,131 106,019
Other liabilities........................................... 4,914 13,711 8,910
------- -------- --------
TOTAL LIABILITIES........................................... 127,317 176,842 114,929
Registered capital.......................................... 100 10,000 6,499
Capital contributions....................................... 18,187 200,192 130,105
Accumulated deficit......................................... (45,899) (103,080) (66,992)
------- -------- --------
TOTAL SHAREHOLDERS' EQUITY (DEFICIENCY)..................... (27,612) 107,112 69,612
------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIENCY).................................... 99,705 283,954 184,541
======= ======== ========
</TABLE>
See accompanying notes to condensed financial statements
45
<PAGE> 46
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- CONTINUED
KABELMEDIA HOLDING GMBH
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1994 1995 1996 1996
------ ------- ------- -------
DM DM DM U.S.$
<S> <C> <C> <C> <C>
Revenues............................................. 33 6 12 8
Operating costs and expenses
Operations......................................... 32 6 11 7
Selling, general and administrative................ 288 831 953 620
Depreciation and amortization...................... 74 -- -- --
------ ------ ------- -------
Total................................................ 394 837 964 627
------ ------ ------- -------
Operating loss....................................... (361) (831) (952) (619)
Dividend income...................................... -- -- 600 390
Interest income from
subsidiaries....................................... 181 2,850 12,167 7,907
Interest expense from Subordinated Shareholder
Loans.............................................. -- (6,872) (8,968) (5,828)
Interest expense from Senior Discount Notes.......... -- -- (8,842) (5,747)
Other interest expense............................... -- -- (1,853) (1,204)
Unrealized foreign exchange loss..................... -- -- (3,824) (2,485)
Loss before income taxes and equity in net loss of
subsidiaries....................................... (180) (4,853) (11,672) (7,586)
Income tax expense
Current............................................ -- -- -- --
Deferred........................................... -- -- (4,577) (2,975)
------ ------ ------- -------
-- -- (4,577) (2,975)
------ ------ ------- -------
Loss before equity in net loss of subsidiaries....... (180) (4,853) (16,249) (10,561)
Equity in net loss of subsidiaries................... (5,936) (33,429) (40,932) (26,601)
------ ------ ------- -------
Net loss............................................. (6,116) (38,282) (57,181) (37,162)
====== ====== ======= =======
</TABLE>
See accompanying notes to condensed financial statements
46
<PAGE> 47
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- CONTINUED
KABELMEDIA HOLDING GMBH
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1995 1996 1996
------- -------- --------
1994 DM DM U.S.$
-------
DM
<S> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities...................................... (50) 16,313 (5,157) (3,351)
INVESTING ACTIVITIES
Acquisitions of shares in subsidiaries............ (1,200) (7,509) -- --
Issuance of loans to subsidiaries................. -- (90,318) (149,008) (96,840)
Prepayments for investment advance................ (34,000) -- -- --
Purchases of property, plant and equipment........ (800) -- -- --
------- ------- ------- --------
Net cash used for investing activities............ (36,000) (97,827) (149,008) (96,840)
FINANCING ACTIVITIES
Contributions to capital.......................... 2,050 -- 100 65
Proceeds from Subordinated Shareholder Loans...... 34,000 81,532 10,199 6,628
Proceeds from Senior Discount Notes............... -- -- 149,008 96,840
Payment of capitalized financing costs............ -- -- (5,215) (3,389)
------- ------- ------- --------
Net cash provided by financing activities......... 36,050 81,532 154,092 100,144
------- ------- ------- --------
Net increase (decrease) in cash................... -- 18 (73) (47)
Cash at beginning of year......................... 58 58 76 49
------- ------- ------- --------
Cash at end of year............................... 58 76 3 2
======= ======= ======= ========
</TABLE>
See accompanying notes to condensed financial statements
47
<PAGE> 48
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- CONTINUED
KABELMEDIA HOLDING GMBH
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. FORMATION OF BUSINESS AND BASIS OF PRESENTATION
Kabelmedia Holding GmbH, formerly Kabelmedia Beteiligungs GmbH (the
"Company" or "Kabelmedia"), was formed in December 1994 to acquire, own and
operate cable television systems serving communities throughout Germany. On June
19, 1996 Kabelvision Beteiligungs GmbH ("Kabelvision"), a company controlled by
certain shareholders of Kabelmedia, was merged with and into the Company.
Furthermore, the outstanding Subordinated Shareholder Loans (including accrued
interest) at the time of the merger were contributed to the capital of
Kabelmedia. Kabelvision was founded in 1992 to acquire, own and operate cable
television systems serving communities throughout Germany. Kabelvision began
operations in 1993 when their first cable system was acquired. The accompanying
parent company-only condensed financial statements have been prepared using the
historical costs of each entity as if the merger were a pooling of interests.
In the parent company-only condensed financial statements, the Company's
investment in subsidiaries is stated at cost plus equity in undistributed
earnings of subsidiaries since the date of acquisition. The Company's share of
net income of its unconsolidated subsidiaries is included in consolidated income
(loss) using the equity method. The parent company-only financial statements
should be read in conjunction with the Company's consolidated financial
statements.
The condensed financial statements have been prepared in accordance with
United States generally accepted accounting principles ("U.S. GAAP"). The
Company maintains its financial records in accordance with 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 financial statements be in
accordance with U.S. GAAP.
Solely for the convenience of the reader, the accompanying condensed
financial statements as of and for the year ended December 31, 1996 have been
translated into United States dollars (U.S. $) at the rate of DM1.5387 per $1.00
the Noon Buying Rate of the Federal Reserve Bank of New York on December 31,
1996. 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. SUBORDINATED SHAREHOLDER LOANS
Subordinated Shareholder Loans represented principal and accrued interest
for separate issuances of subordinated debt to the Company from its majority
shareholder on December 28, 1994, August 31, 1995 and October 6, 1995. These
loans were subject to an annual interest rate of 12% for the periods presented.
The interest accrued and was payable with principal in one installment on
December 31, 2003.
On June 19, 1996 the Subordinated Shareholder Loans, including accrued
interest thereon, were contributed to the capital of Kabelmedia Holding GmbH by
such shareholders.
48
<PAGE> 49
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- CONTINUED
KABELMEDIA HOLDING GMBH
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
3. SENIOR DISCOUNT NOTES
On July 29, 1996 the Company issued $100,180,000 of Senior Discount Notes
at 13.625% per annum maturing August 1, 2006. Cash interest will not accrue on
the Senior Discount Notes prior to August 1, 2001. Thereafter, cash interest on
the Senior Discount Notes will be payable at 13.625% per annum, semi-annually in
arrears on each February 1 and August 1, commencing February 1, 2002. The Senior
Discount Notes are unsecured senior obligations of the Company. The Company
raised approximately DM143,792,000 in net proceeds after the payment of
underwriting discounts and commissions from the sale of the Senior Discount
Notes.
Costs and expenses of DM10,361,000 associated with the issuance of the
Senior Discount Notes have been capitalized in other assets. They are being
amortized over 10 years representing the term of the Senior Discount Notes.
4. FOREIGN EXCHANGE
The Company 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 Mark
at the applicable year-end exchange rate. The foreign currency forward contracts
require the Company to exchange Deutsche Marks for U.S. dollars and generally
mature in 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 DM8,449,000, was
recorded in other assets and other liabilities. The asset is adjusted to the
year-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 DM8,027,000 which is being
amortized over the life of the contracts. The Company recorded an unrealized
foreign exchange loss of DM3,824,000 for the year ended December 31, 1996
related to the period when the Senior Discount Notes were not hedged.
5. GUARANTEES AND ASSET RESTRICTIONS
Bank obligations existing on the subsidiaries books have been guaranteed by
the Company and are secured through first ranking security interests on all
assets and revenues of the Company and its subsidiaries. The ability of the
Company to access its investment in and amounts due from subsidiaries is
restricted by the terms of these bank obligations.
49
<PAGE> 50
ITEM 14(B) REPORTS ON FORM 8-K
None.
ITEM 14(C) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement for the Senior Discount Notes (Incorporated by
reference to Exhibit 1.1 to the Company's Registration Statement on Form S-1
(File Number 333-5094) which became effective on July 23, 1996).
3.1 Articles of Association of the Registrant (English translation) (German version
included in Exhibit 3.1) (Incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1 (File Number 333-5094) which became
effective on July 23, 1996).
4.1 Form of Indenture between the Registrant and The Bank of New York, as Trustee
(Incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-1 (File Number 333-5094) which became effective on July 23,
1996).
4.3 Form of Senior Discount Note (included in Exhibit 4.3) (Incorporated by
reference to Exhibit 4.3 to the Company's Registration Statement on Form S-1
(File Number 333-5094) which became effective on July 23, 1996).
5 Opinion of Baker & McKenzie with respect to the legality of the securities being
registered (Incorporated by reference to Exhibit 5 to the Company's Registration
Statement on Form S-1 (File Number 333-5094) which became effective on July 23,
1996).
8 Form of opinion of Baker & McKenzie with respect to tax matters (Incorporated by
reference to Exhibit 8 to the Company's Registration Statement on Form S-1 (File
Number 333-5094) which became effective on July 23, 1996).
10.1 Form of Bank Credit Agreement (Incorporated by reference to Exhibit 10.1 to the
Company's Registration Statement on Form S-1 (File Number 333-5094) which became
effective on July 23, 1996).
10.2 Form of Employment Agreement for Ben Bartel (Incorporated by reference to
Exhibit 10.2 to the Company's Registration Statement on Form S-1 (File Number
333-5094) which became effective on July 23, 1996).
10.3 Form of Employment Agreement and Share Transfer and Option Agreement for Paul
Thomason (Incorporated by reference to Exhibit 10.3 to the Company's
Registration Statement on Form S-1 (File Number 333-5094) which became effective
on July 23, 1996).
10.4 Employment Agreement and Share Transfer and Option Agreement for Ernst Uhlig
(Incorporated by reference to Exhibit 10.4 to the Company's Registration
Statement on Form S-1 (File Number 333-5094) which became effective on July 23,
1996).
10.5 Shareholder Agreement (Incorporated by reference to Exhibit 10.5 to the
Company's Registration Statement on Form S-1 (File Number 333-5094) which became
effective on July 23, 1996).
10.6 Merger Agreement (English translation) (German version included in Exhibit 10.6)
(Incorporated by reference to Exhibit 10.6 to the Company's Registration
Statement on Form S-1 (File Number 333-5094) which became effective on July 23,
1996).
10.7 Registration Rights Agreement (Incorporated by reference to Exhibit 10.7 to the
Company's Registration Statement on Form S-1 (File Number 333-5094) which became
effective on July 23, 1996).
</TABLE>
50
<PAGE> 51
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------------
<C> <S>
10.8 Cooperation Agreement between Deutsche Bundespost Telekom and KABELCOM Osnabruck
Gesellschaft fur Breitbandkabel-Kommuikation mbH & Co KG dated January 29, 1993
as amended by Supplemental Agreement to B1-Cooperation Agreement between
Deutsche Telekom AG and KABELCOM Osnabruck Gesellschaft fur
Breitbandkabe-Kommuikation mbH & Co KG dated February 1, 1995 and English
translation thereof (Incorporated by reference to Exhibit 10.8 to the Company's
Registration Statement on Form S-1 (File Number 333-5094) which became effective
on July 23, 1996).
10.9 Signal Supply Agreement between Deutsche Bundespost TELEKOM and Kabelfernsehen
Plauen GmbH dated October 10, 1991 and English translation thereof (Incorporated
by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-1
(File Number 333-5094) which became effective on July 23, 1996).
10.10 Signal Supply Agreement between Deutsche Bundespost TELEKOM and PKG
Projektmanagement Kommunikationsnetze GmbH & Co KG dated August 11, 1994 and
English translation thereof (Incorporated by reference to Exhibit 10.10 to the
Company's Registration Statement on Form S-1 (File Number 333-5094) which became
effective on July 23, 1996).
10.11 Master Signal Supply Agreement between Deutsche Bundespost TELEKOM and
Projektmanagement Kommunikationsnetze Gesellschaft mbH dated August 28, 1991 and
English translation thereof (Incorporated by reference to Exhibit 10.11 to the
Company's Registration Statement on Form S-1 (File Number 333-5094) which became
effective on July 23, 1996).
10.12 Signal Supply Agreement between Deutsche Bundespost TELEKOM and Kabelfernsehen
Leipzig and Hafi GmbH dated December 20, 1994 and English translation thereof
(Incorporated by reference to Exhibit 10.12 to the Company's Registration
Statement on Form S-1 (File Number 333-5094) which became effective on July 23,
1996).
10.13 Signal Supply Agreement between Deutsche Bundespost TELEKOM and Telecable
Betriebsgesellschaft Halle dated November 4, 1992 and English translation
thereof (Incorporated by reference to Exhibit 10.13 to the Company's
Registration Statement on Form S-1 (File Number 333-5094) which became effective
on July 23, 1996).
10.14 Signal Supply Agreement (Supplement) between Deutsche Bundespost Telekom and
Telecable dated November 4, 1992 and English translation thereof (Incorporated
by reference to Exhibit 10.14 to the Company's Registration Statement on Form
S-1 (File Number 333-5094) which became effective on July 23, 1996).
10.15 Connection Agreement between Wohnungsgesellschaft Hoyerswerda and PKG
Kabelbetriebsgesellschaft mbH Hoyerswerda dated February 5, 1992 and English
translation thereof (Incorporated by reference to Exhibit 10.15 to the Company's
Registration Statement on Form S-1 (File Number 333-5094) which became effective
on July 23, 1996).
</TABLE>
51
<PAGE> 52
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) 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
Ben Bartel
Chief Executive Officer and
Managing Director
/s/PAUL THOMASON
Paul Thomason
Chief Financial Officer and
Controller
Dated: March 27, 1997
<TABLE>
<S> <C>
</TABLE>
52
<TABLE> <S> <C>
<ARTICLE> 5 <LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-K dated December 31, 1996 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> DEUTSCHE MARK
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996
<PERIOD-END> JUN-30-1996 DEC-31-1996
<EXCHANGE-RATE> 1.521 1.5387
<CASH> 10,172 951
<SECURITIES> 0 0
<RECEIVABLES> 2,855 3,246
<ALLOWANCES> 0 0
<INVENTORY> 1,497 1,811
<CURRENT-ASSETS> 0 0
<PP&E> 232,797 230,341
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 428,011 422,032
<CURRENT-LIABILITIES> 41,538 40,522
<BONDS> 246,644 274,306
0 0
0 0
<COMMON> 100 10,000
<OTHER-SE> 139,256 97,112
<TOTAL-LIABILITY-AND-EQUITY> 428,011 422,032
<SALES> 0 0
<TOTAL-REVENUES> 31,062 64,422
<CGS> 0 0
<TOTAL-COSTS> 14,828 31,069
<OTHER-EXPENSES> 22,391 49,714
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 18,563 31,134
<INCOME-PRETAX> (24,711) (51,313)
<INCOME-TAX> 126 (546)
<INCOME-CONTINUING> 0 0
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<NET-INCOME> (24,837) (57,181)
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