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Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO RULE 13a - 16 OR 15(d) - 16 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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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KOLNER STRASSE 6, 65760 ESCHBORN, GERMANY
(Address of principal executive offices)
Registrant's telephone number, including area code: 011-49-6196-926360
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ ] No [X]
Included in this filing are xx pages, sequentially numbered in the bottom
center of each page.
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KABELMEDIA HOLDING GMBH
FORM 10-Q
INDEX
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PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed consolidated statements of operations -- Three
months ended March 31, 1998 and 1997................... 3
Condensed consolidated balance sheets -- March 31, 1998
and December 31, 1997.................................. 4
Condensed consolidated statements of cash flows -- Three
months ended March 31, 1998 and 1997................... 5
Notes to condensed consolidated financial statements...... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 8
PART II. OTHER INFORMATION................................. 11
Signatures.................................................. 12
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
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<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
---------------------------
1997 1998 1998
------- ------- -------
DM DM U.S.$
<S> <C> <C> <C>
Revenues.................................................... 17,432 20,560 11,114
Operating costs and expenses:
Operations................................................ 3,006 3,854 2,084
Selling, general and administrative....................... 3,050 2,890 1,562
Corporate overhead........................................ 2,003 2,570 1,389
Depreciation and amortization............................. 11,888 12,469 6,740
------- ------- -------
Total....................................................... 19,947 21,783 11,775
------- ------- -------
Operating loss.............................................. (2,515) (1,223) (661)
Interest expense:
Bank debt and other....................................... (2,847) (2,963) (1,602)
Senior Discount Notes..................................... (5,938) (6,822) (3,687)
Unrealized foreign exchange loss............................ (787) --
Gain (loss) on sale of business............................. -- (444) (240)
------- ------- -------
Loss before income taxes and extraordinary item............. (12,087) (11,452) (6,190)
Income tax benefit (expense)................................ 21 (72) (39)
------- ------- -------
Net loss before extraordinary item.......................... (12,066) (11,524) (6,229)
Extraordinary item.......................................... -- (1,931) (1,044)
------- ------- -------
Net loss.................................................... (12,066) (13,455) (7,273)
======= ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements
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KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
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<CAPTION>
MARCH 31,
DECEMBER 31, -----------------------------------
1997 1998 1998
--------------- --------------- ---------------
DM DM U.S.$
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash....................................................... 1,568 1,105 597
Trade accounts receivable -- net........................... 1,566 1,651 892
Inventory.................................................. 2,256 2,423 1,310
Property, plant and equipment -- net....................... 225,966 220,878 119,394
Goodwill -- net............................................ 170,598 164,986 89,182
Foreign currency forward contracts......................... 39,632 45,522 24,606
Other assets............................................... 26,036 24,730 13,368
--------------- --------------- ---------------
TOTAL ASSETS............................................... 467,622 461,295 249,349
=============== =============== ===============
Accounts payable........................................... 8,256 6,786 3,668
Accrued expenses and other liabilities..................... 10,017 8,585 4,641
Unamortized discount on foreign currency forward
contracts................................................ 8,581 8,028 4,339
Deferred revenue........................................... 7,672 8,211 4,439
Deferred purchase obligations.............................. 2,729 2,729 1,475
Bank debt.................................................. 170,937 173,532 93,801
Senior Discount Notes...................................... 206,394 213,843 115,591
--------------- --------------- ---------------
TOTAL LIABILITIES.......................................... 414,586 421,714 227,954
SHAREHOLDERS' EQUITY
Registered Capital......................................... 10,000 10,000 5,405
Capital contributions...................................... 200,192 200,192 108,212
Accumulated deficit........................................ (157,156) (170,611) (92,222)
--------------- --------------- ---------------
TOTAL SHAREHOLDERS' EQUITY................................. 53,036 39,581 21,395
--------------- --------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................. 467,622 461,295 249,349
=============== =============== ===============
</TABLE>
See accompanying notes to condensed consolidated financial statements
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KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
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<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
-----------------------------------------------
1997 1998 1998
------------- ------------- -------------
DM DM U.S.$
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OPERATING ACTIVITIES
Net cash provided by operating activities................... 4,510 6,752 3,650
INVESTING ACTIVITIES
Purchases of property, plant equipment...................... (1,507) (2,939) (1,589)
Cash from sale of business.................................. -- 329 178
Acquisition of businesses................................... (19,230) -- --
------------- ------------- -------------
Net cash used in investing activities....................... (20,737) (2,610) (1,411)
FINANCING ACTIVITIES
Proceeds from bank debt..................................... 20,300 6,500 3,514
Proceeds from deferred purchase obligations................. 2,500 -- --
Repayment of bank debt...................................... (2,300) (2,000) (1,081)
Repayment of bank overdrafts................................ (1,651) (1,905) (1,030)
Repurchase of Senior Discount Notes......................... -- (7,200) (3,892)
------------- ------------- -------------
Net cash provided by (used in) financing activities......... 18,849 (4,605) (2,489)
Net increase (decrease) in cash and cash equivalents........ 2,622 (463) (250)
Cash and cash equivalents at beginning of period............ 951 1,568 847
------------- ------------- -------------
Cash and cash equivalents at end of period.................. 3,573 1,105 597
============= ============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements
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KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Kabelmedia Holding GmbH (the "Company") have been prepared in accordance with
U.S. generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by U.S. generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three month period ended March 31, 1998 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto for the year ended December 31, 1997
included in the Company's Registration Statement on Form 10-K.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with United States generally accepted accounting
principles ("U.S. GAAP") including those principles specific to the cable
television industry. The Company maintains its financial records in accordance
with the German Commercial Code, which represents generally accepted accounting
principles in Germany ("German GAAP"). Generally accepted accounting principles
in Germany vary in certain significant respects from U.S. GAAP. Accordingly, the
Company has recorded certain adjustments in order that these unaudited condensed
financial statements be in accordance with U.S. GAAP for interim financial
information.
Effective for companies with fiscal years beginning after December 15,
1997, comprehensive income and its components are required to be reported in the
financial statements in accordance with Statement of Financial Accounting
Standard No. 130, Reporting Comprehensive Income. For the periods presented, the
Company has no comprehensive income.
Solely for the convenience of the reader, the accompanying unaudited
consolidated financial statements as of and for the three months ended March 31,
1998 have been translated into United States dollars ("U.S. $") at the rate of
DM 1.85 per $1.00 the Noon Buying Rate of the Federal Reserve Bank of New York
on March 31, 1998. The translations should not be construed as a representation
that the amounts shown could have been, or could be, converted into U.S. dollars
at that or any other rate.
2. BUSINESS DISPOSITION
On January 1, 1998 Kabelmedia sold approximately 800 subscribers for total
consideration of DM 329,000 The disposition resulted in a loss on the sale of
business of DM 444,000.
3. FOREIGN EXCHANGE
The Company has entered into foreign currency forward contracts to hedge
against the effect of exchange rate fluctuations on the U.S. dollar denominated
Senior Discount Notes. At March 31, 1998 the Company had entered into foreign
currency forward contracts for delivery of $130,000,000 between October 4, 2001
and June 28, 2002, at prices ranging from DM 1.4385 to DM 1.7552 per U.S. $1.00.
See Note 9 to the December 31, 1997 financial statements included in the
Company's Registration Statement on Form 10-K.
4. SENIOR DISCOUNTS NOTES
The Company purchased and canceled a portion of its Senior Discount Notes
with a net book value of DM 5,507,000 for cash consideration of DM 7,200,000.
The purchase of the notes resulted in an extraordinary loss of DM 1,931,000,
representing the difference between the purchase price and the accreted value of
the
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Senior Discount Notes at the time of repurchase and the full amortization of the
unamortized costs and expenses related to the issuance of the cancelled notes.
5. RECLASSIFICATION
Certain amounts in the prior year have been reclassified to conform with
the 1998 consolidated condensed financial statement presentation.
6. SUBSEQUENT EVENTS
In April 1998, Kabelmedia acquired the cable television assets of MKM
Kabelfernsehen GmbH & Co. KG Projekt Magdeburg ("MKM") located in the city of
Magdeburg, Germany for total consideration of DM 1,450,000. The systems which
Kabelmedia acquired from MKM passed approximately 2,700 homes and had 2,600
customers at the acquisition date.
In April 1998, the Company and the Beteiligungsgesellschaft AGFB
Aktiengesellschaft fur Beteiligungen an Telekommunikationsunternehmen and Suweda
Elektronische Medien- und Kabelkommunikations AG ("Suweda/AGFB Group") executed
a non-binding letter of intent to merge their respective cable television
operations. The Suweda/AGFB Group was founded in 1983 and at March 31, 1998 had
approximately 360,000 cable television customers in Germany. The Company and the
Suweda/AGFB Group expect to enter into a definitive merger agreement sometime in
the second half of 1998. There can be no assurance at this time that the
proposed merger will be consummated.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1998
REVENUES. Revenues increased 17.9% from DM 17,432,000 in the first quarter
of 1997 to DM 20,560,000 in the first quarter of 1998. The increase was
primarily attributable to a 11.7% increase (from 376,518 to 420,703) in the
average monthly number of customers and a 5.6% increase (from DM 15.43 to DM
16.29) in the average monthly revenue per customer from the first quarter of
1997 to the first quarter of 1998. The increase in the Company's average monthly
number of customers was primarily related to the acquisitions of cable
television companies subsequent to March 31, 1997 and as of the respective dates
of the acquisitions, collectively served approximately 40,200 customers. In
addition the Company acquired approximately 4,600 additional customers by
building out its existing cable systems during this same time period. The entire
increase in the average monthly revenue per customer is attributable to rate
increases implemented since March 31, 1997 as the acquisitions had lower monthly
revenue per customer than the Company's average at the time of acquisition.
OPERATING EXPENSES. Operating expenses increased 28.2% from DM 3,006,000
in the first quarter of 1997 to DM 3,854,000 in the first quarter of 1998,
principally as a result of the increased costs associated with the cable
television companies acquired subsequent to March 31, 1997 and increased costs
under the Company's signal delivery contracts with Deutsche Telekom AG, under
which programming is procured for a portion of the Company's cable systems.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses decreased by 5.2% from DM 3,050,000 in the first quarter of 1997 to DM
2,890,000 in the first quarter of 1998, principally as a result of a decrease in
system audits. As a percent of revenue, selling, general and administrative
expenses declined from 17.5% in the first quarter of 1997 to 14.1% in the first
quarter of 1998, reflecting higher revenue per subscriber and increased
efficiencies.
CORPORATE OVERHEAD. Corporate overhead increased by 28.3% from DM
2,003,000 in the first quarter of 1997 to DM 2,570,000 in the first quarter of
1998. The increase was primarily attributable to increased costs associated with
the addition of accounting, administrative and MIS personnel required to manage
a larger customer base and increased legal and accounting fees.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased by
DM 581,000 from DM 11,888,000 in the first quarter of 1997 to DM 12,469,000 in
the first quarter of 1998, principally as a result of increased assets and
goodwill associated with acquisitions of cable television companies.
INTEREST EXPENSE. Interest expense increased 11.4% from DM 8,785,000 in
the first quarter of 1997 to DM 9,785,000 in the first quarter of 1998,
principally as a result of an increase in the average indebtedness related to
the acquisitions consummated since March 31, 1997 and to the interest accreted
on the Senior Discount Notes. Of the total interest accrued in the first quarter
of 1998, DM 6,822,000 related to non-cash interest and related non-cash expenses
on the Senior Discount Notes.
LOSS ON THE SALE OF BUSINESS. The Company recorded a loss on the sale of
business in the first quarter of 1998 of DM 444,000, related to the sale of
approximately 800 subscribers which did not fit into the Company's strategic
plans.
EXTRAORDINARY LOSS. In February 1998, the Company purchased and canceled a
portion of its Senior Discount Notes with a net book value of DM 5,507,000 for
cash consideration of DM 7,200,000. The extraordinary loss of DM 1,931,000
includes the full amortization of the unamortized costs and expenses related to
the issuance of the cancelled Senior Discount Notes.
NET LOSS. Net loss increased DM 1,389,000 from DM 12,066,000 in the first
quarter of 1997 to DM 13,455,000 in the first quarter of 1998 as a result of the
factors discussed above.
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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, loss on the sale of business, net interest expense, income taxes and
depreciation and amortization. The Company believes that EBITDA is a meaningful
measure of performance because it is commonly used in the cable television
industry to analyze and compare cable television companies on the basis of
operating performance, leverage and liquidity. EBITDA is not a U.S. GAAP measure
of income (loss) or cash flow from operations and should not be considered as an
alternative to net income as an indication of the Company's financial
performance or as an alternative to cash flow from operating activities as a
measure of liquidity. EBITDA increased from DM 9,373,000 for the three months
ended March 31, 1997 to DM 11,246,000 for the three months ended March 31, 1998
primarily as a result of revenues increasing at a faster rate than the sum of
operating, selling, general and administrative and corporate overhead costs and
expenses. The Company's EBITDA margin improved from 53.8% in the first quarter
of 1997 to 54.7% in the first quarter in 1998. EBITDA per average subscriber
increased by 7.2% from DM 8.30 per subscriber in the first quarter of 1997 to DM
8.91 per subscriber in the first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically relied on three sources for necessary funding:
(i) cash flow from operations,
(ii) borrowings under its bank facilities, and
(iii) issuance of the Senior Discount Notes.
At March 31, 1998, the Company's aggregate consolidated indebtedness was
approximately DM 390,104,000, comprised of DM 171,000,000 of debt outstanding
under its Amended 1996 Facilities, DM 2,532,000 of other bank debt, DM 2,729,000
of deferred purchase obligations, and DM 213,843,000 of Senior Discount Notes.
The Senior Discount Notes are denominated in dollars and converted to Deutsche
Marks at the rate of DM 1.85, the Noon Buying Rate of the Federal Reserve Bank
of New York on March 31, 1998. The Company has entered into foreign currency
forward contracts to hedge against the effect of rate fluctuations on the U.S.
dollar denominated Senior Discount Notes.
For the three months ended March 31, 1998 the Company generated net cash
from operating activities of DM 6,752,000.
For the three months ended March 31, 1998, the Company used cash in
investing activities of DM 2,610,000. Such cash uses were primarily related to
capital expenditures. Net cash used in financing activities amounted to
4,605,000. Such net cash was primarily used for the repurchase of the Senior
Discount Notes partially offset by borrowings under the Amended 1996 Facilities.
Capital expenditures of DM 2,939,000 for the three month period ended March
31, 1998 were related to the continued construction, expansion and upgrading of
existing systems. The Company has only minimal commitments to make capital
expenditures under the terms of concession or franchise agreements or otherwise,
but anticipates that it will continue to increase its capital expenditures in
the near future to further upgrade existing cable systems once they have been
acquired. To the extent cash flow is not sufficient to fund its capital
expenditures, the Company expects to borrow the necessary funds under the
Amended 1996 Facilities.
Substantial amounts of depreciation and amortization expense and non-cash
interest which accrued on Senior Discount Notes continued to contribute to the
net losses experienced by the Company. These expenses, however, do not result in
a current outflow of cash.
The Company believes that EBITDA provides a more meaningful measure of
fixed cost coverage than does a deficiency of earnings to fixed charges. EBITDA
amounts in each period are not solely available to satisfy cash interest expense
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 for the three month period ended March 31, 1998 was
DM 11,246,000. Total interest expense for
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the same period was DM 9,785,000. Of the total interest expense in the three
month period, DM 6,822,000 related to non-cash interest and related non-cash
expenses on the Senior Discount Notes.
10
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 -- Financial Data Schedule.
(b) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KABELMEDIA HOLDING GMBH
/s/ Jacques Hackenberg
------------------------------------
Jacques Hackenberg
Chief Executive Officer and
Managing Director
/s/ Paul Thomason
------------------------------------
Paul Thomason
Chief Financial Officer and
Controller
Dated: May 15, 1998
12
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) SEC FORM
10-Q DATED MARCH31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
(B) FINANCIAL STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
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