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iesy Repository GmbH - Irish Stock Exchange

iesy Repository GmbH - Irish Stock Exchange

OPERATING AND FINANCIAL

OPERATING AND FINANCIAL REVIEW AND PROSPECTS OF ISH The following discussion and analysis is based on the unaudited consolidated financial information for the three months ended March 31, 2004 and 2005 and the audited consolidated financial statements for the years ended December 31, 2003 and 2004 of ish and the unaudited financial information for the year ended December 31, 2003, including the aggregated twelve months of operating business, for the subsidiaries of ish. You should read the following discussion of ish’s results of operations and financial condition in conjunction with the sections entitled “Summary—Summary Financial and Operating Information,” “Selected Financial and Operating Information of ish” and “Risk Factors” and with the financial statements and the related notes of ish included elsewhere in this Prospectus. Historically, ish’s financial information has been prepared on the basis of German GAAP. In the future, ish may also choose to or be required to adopt IFRS. For a discussion of certain significant differences between German GAAP, U.S. GAAP and IFRS, as they apply or would apply to ish, see “Annex A: Summary of Certain Significant Differences Between German GAAP and U.S. GAAP” and “Annex B: Summary of Certain Significant Differences Between German GAAP and IFRS.” In addition, you should note that the information presented is based on the unaudited financial information for the three months ended March 31, 2004 and 2005, the audited financial information for the year ended December 31, 2004, the audited financial information for the year ended December 31, 2003 (including eleven months of operations for the subsidiaries acquired on January 31, 2003), and the unaudited financial information for the year ended December 31, 2003. The unaudited financial information for the year ended December 31, 2003 is an aggregation of unaudited information for the month ended January 31, 2003 of the operating business of ish GP, ish KG, ish KS GP, ish KS and KSG, all of which were acquired by Kabelnetz KG on January 31, 2003, and the audited consolidated financial information for the year ended December 31, 2003 of ish, including eleven months of operations for the subsidiaries acquired on January 31, 2003. Audited consolidated financial information does not exist in relation to ish’s business prior to the 2003 ish Acquisition in January 2003, and comparability of actual information would also be limited because only the non-operating subsidiaries of ish, Kabelnetz GP and Kabelnetz KG, were included in the consolidated ish financial statements prior to the 2003 ish Acquisition. We have included the unaudited financial information for the twelve months ended December 31, 2003 because it may be more useful for investors in comparing ish’s financial results in 2003 and 2004. This unaudited financial information for the year ended December 31, 2003 has not been prepared in conformity with SEC requirements, German GAAP, U.S. GAAP or any other accounting standards. Accordingly, the presentation, assumptions and adjustments of this unaudited financial information may differ from that permitted under those standards, and this unaudited financial information does not include adjustments to reflect the effects of purchase accounting or other adjustments that may be necessary under those standards to reflect the effects of the acquisition discussed above as if it occurred on January 1, 2003. The unaudited financial information may not be representative of the actual results that would have occurred had the acquisition occurred on January 1, 2003. Investors are cautioned against placing undue reliance on this unaudited information. The following discussion and analysis of ish’s financial condition and results of operations contains forward-looking statements. ish’s actual results could differ materially from those that are discussed in these forward-looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this Prospectus, particularly under “Risk Factors” and “Disclosure Regarding Forward-Looking Statements.” Factors Affecting ish’s Results of Operations ish’s results of operations have been, and will continue to be, affected by a number of events and actions, some of which are beyond ish’s control. However, there are some specific items that ish believes have impacted ish’s results of operations and, in some cases, will continue to impact ish’s results on a consolidated level and within ish’s individual business units. In this section, we discuss the ways in which ish generates revenues and the main costs associated with generating these revenues. We also discuss several additional factors that we believe have, or could have, an impact on these results, such as ish’s indebtedness, customer churn, competition and capital expenditures. Please also see “Risk Factors.” Overview of Total Revenues ish derives revenues from five business activities: • ish’s basic cable television business (including subscription and installation fees, but excluding carriage fees) which generated €87.7 million (84.8%) of ish’s total revenues in the three months ended March 31, 2005 and €359.5 million (84.8%) of ish’s total revenues for the year ended December 31, 2004; 110

• ish’s premium cable television business (including subscription and installation fees, but excluding carriage fees), which generated €1.5 million (1.4%) of ish’s total revenues in the three months ended March 31, 2005 and €2.7 million (0.6%) of ish’s total revenues for the year ended December 31, 2004; • ish’s high speed Internet business (including installation fees), which generated €1.6 million (1.6%) of ish’s total revenues in the three months ended March 31, 2005 and €5.3 million (1.2%) of ish’s total revenues for the year ended December 31, 2004; and • ish’s telephony business (including installation fees), which generated €0.5 million (0.5%) of ish’s total revenues in the three months ended March 31, 2005 and €1.1 million (0.3%) of ish’s total revenues for the year ended December 31, 2004. • Carriage fees, relating to ish’s basic and premium cable television businesses, generated €8.7 million (8.4%) of ish’s total revenues in the three months ended March 31, 2005 and €33.2 million (7.8%) of ish’s total revenues for the year ended December 31, 2004. In addition, ish recognizes other types of income, which are classified as revenues for German GAAP purposes, including own work capitalized and other operating income. Own work capitalized generated €1.3 million (1.3%) of ish’s total revenues in the three months ended March 31, 2005 and €6.0 million (1.4%) of ish’s total revenues for the year ended December 31, 2004. Other operating income mainly includes income related to previous financial years and value adjustments, which in total generated €2.1 million (2.1%) of ish’s total revenues in the three months ended March 31, 2005 and €16.4 million (3.9%) of ish’s total revenues for the year ended December 31, 2004. Basic Cable Television Sales ish generates sales in its basic cable television business from subscribers and from broadcasters. ish’s basic analog programming package consists of an average of 33—36 television channels (depending upon the region served) and up to 35 radio channels. Basic Cable Subscription and Installation Fees ish provides basic cable television to its customers through three specific market segments: residential, business and strategic accounts. ish delivers basic cable television services to residential subscribers, which represented approximately 1.2 million, or 29.7%, of ish’s total subscribers as of March 31, 2005 and approximately 1.2 million or 30.4% of ish’s total subscribers as of December 31, 2004, pursuant to customer contracts which follow ish’s standard terms and conditions and generally may be terminated by the customer upon short notice. ish provides basic cable television services to its business customers (landlords, small and medium housing associations and local Level 4 operators), which represented approximately 1.4 million, or 34.1%, of ish’s total subscribers as of March 31, 2005 and approximately 1.4 million, or 34.4% of ish’s total subscribers as of December 31, 2004 through contracts that are often at a discount to the residential price. While the majority of the housing associations in this segment subscribe to ish’s services pursuant to its standard terms and conditions, ish has multi-year framework agreements with a number of its larger customers within this segment. ish also provides basic cable services to professional and other larger Level 4 operators and larger housing associations through strategic accounts contracts, which are generally outside of ish’s standard terms and conditions. Strategic accounts subscribers represented approximately 1.4 million, or 33.9%, of ish’s total subscribers as of March 31, 2005 and approximately 1.4 million or 35.2% of ish’s total subscribers as of December 31, 2004. ish has entered into framework agreements with various business and strategic accounts customers that are housing associations. These framework agreements typically have an initial term ranging between 2 and 15 years. See “Risk Factors—Risks Relating to Our Business—Customer churn, or the threat of customer churn, may adversely affect our business.” ish has different agreements with various Level 4 operators. ish has entered into framework agreements with Tele Columbus, PrimaCom, BN and EWT which have an initial term until the end of 2015, 2009, 2009 and 2007, respectively. Level 4 operators typically enter into long-term contracts with housing associations, which limits ish’s opportunities to win these new customers and may hinder its efforts to market its services effectively to housing associations. See “Risk Factors— Risks Relating to Our Business—We operate in competitive industries, and competitive pressures could have a material adverse effect on our business.” ish also generates sales from the installation and activation of cable connections. In the three months ended March 31, 2005, ish generated €1.0 million in installation fees and activation fees and €5.6 million in installation fees and activation fees for the year ended December 31, 2004. Subscription fees, installation fees and activation fees for ish’s basic cable 111

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    PROSPECTUS iesy Repository GmbH €

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    the market price of the Notes at a

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    which the issue or the offer of sec

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    “combined entity”, and “we”

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    “Tele Columbus” refers to the c

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    Revenue generating units, or “RGU

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    CURRENCY PRESENTATION AND EXCHANGE

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    end of 2005. Our subscribers can al

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    populations, with approximately 2.7

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    In April/May 2005, iesy entered int

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    Our Corporate and Financing Structu

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    THE OFFERING The summary below desc

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    Optional Redemption We may redeem a

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    SUMMARY FINANCIAL AND OPERATING INF

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    iesy Other Financial Data (unaudite

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    iesy Operational Data (unaudited) R

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    ish Income Statement Data Audited y

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    35 Three months ended Year ended De

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    37 As of December 31, As of March 3

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    RISK FACTORS You should carefully c

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    acquiring content, purchasing servi

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    agreements—MSG”). We cannot ass

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    In addition, most of our cable netw

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    Strikes or other industrial actions

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    acquisitions. In addition, any addi

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    provision and may not be abusive. S

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    €1,050.0 million would have been

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    We depend on payments from our subs

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    • Claims against the Issuer and s

  • Page 59 and 60: Senior Credit Facilities before the
  • Page 61 and 62: court rulings did not address the p
  • Page 63 and 64: THE ISH ACQUISITION The description
  • Page 65 and 66: In addition to the warranties, spec
  • Page 67 and 68: CAPITALIZATION The following table
  • Page 69 and 70: Unaudited Pro Forma Condensed Conso
  • Page 71 and 72: NOTES TO THE UNAUDITED PRO FORMA CO
  • Page 73 and 74: (€m, except percentages) Pro form
  • Page 75 and 76: Income Statement Data 75 Audited Ye
  • Page 77 and 78: (7) Number of subscribers at the en
  • Page 79 and 80: • iesy’s premium cable televisi
  • Page 81 and 82: egulated pricing model. Fees are pa
  • Page 83 and 84: Risks Relating to Our Indebtedness
  • Page 85 and 86: Legal, Consulting and Management Fe
  • Page 87 and 88: Subscribers iesy classifies its cus
  • Page 89 and 90: 2003 to €8.20 per subscriber in t
  • Page 91 and 92: • the senior credit facilities we
  • Page 93 and 94: average installation fees from July
  • Page 95 and 96: Cash flow from investing activities
  • Page 97 and 98: In the three months ended March 31,
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  • Page 101 and 102: Cash Flow from Operating Activities
  • Page 103 and 104: oadcasters in television and radio.
  • Page 105 and 106: educed or increased by a material a
  • Page 107 and 108: Income Statement Data Audited year
  • Page 109: 109 As of December 31, As of March
  • Page 113 and 114: In addition, ish markets pay-per-vi
  • Page 115 and 116: Cost of Materials and Services Cost
  • Page 117 and 118: For accounting purposes, ish treats
  • Page 119 and 120: Subscribers ish classifies its cust
  • Page 121 and 122: Competition ish faces significant c
  • Page 123 and 124: This decrease was primarily due to
  • Page 125 and 126: Net Loss Net loss was €17.9 milli
  • Page 127 and 128: Pension Obligations As of March 31,
  • Page 129 and 130: Term Sheets with DTAG, BRN-ish agre
  • Page 131 and 132: estructuring liabilities, while 200
  • Page 133 and 134: accrual for pending losses. The exp
  • Page 135 and 136: International Financial Reporting S
  • Page 137 and 138: Content Providers Basic Television
  • Page 139 and 140: Digital Home” and PrimaCom offers
  • Page 141 and 142: [GRAPHIC] [GRAPHIC] Level 4 is the
  • Page 143 and 144: shared access basis. In this case,
  • Page 145 and 146: The following table shows several k
  • Page 147 and 148: In the domestic market, the German
  • Page 149 and 150: BUSINESS Unless otherwise indicated
  • Page 151 and 152: Germany, with approximately 30.2 mi
  • Page 153 and 154: Prudently deploying capital. Our de
  • Page 155 and 156: iesy’s Current Basic Cable Televi
  • Page 157 and 158: amounted to €8.0 million or 5.9%
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    Supply The following chart shows th

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    Term Sheet Service Duration Offer o

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    y the new fiber system. See “Oper

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    part of settling arbitration procee

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    Business of ish Products and Servic

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    ish’s Current Basic Cable Televis

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    In addition to the monthly subscrip

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    Customers who subscribe to Premiere

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    Sales ish’s sales team is divided

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    The following chart illustrates ish

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    Term Sheet Service Duration Co-use

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    Lease of space for broadband cable

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    Other Significant Supply Agreements

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    ights themselves. As an exception,

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    Competition The cable television an

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    Introduction REGULATION German law

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    We assume that we will be deemed to

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    The Amendment provides that provisi

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    • Providers who had a dominant po

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    in the Munich office of Apax Partne

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    Marketing for Germany and Austria,

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    Gerard Tyler is ish’s Treasurer.

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    CERTAIN RELATIONSHIPS AND RELATED P

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    Beneficial Ownership The following

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    DESCRIPTION OF OTHER INDEBTEDNESS T

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    period (unless the interest period

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    Subordinated Bridge Facility In con

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    • the ability of the Obligors (ot

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    owed by the Insolvent Obligor will

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    DESCRIPTION OF THE NOTES The Issuer

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    in London, the Bank of New York, Ne

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    Issuer have agreed that iesy Hessen

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    Subsidiary Guarantor outstanding wh

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    the amount of their secured claim.

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    provisions described under “—De

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    In addition, the Intercreditor Agre

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    Euro Note to and including February

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    circumstances referred to above exi

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    that it has unconditionally exercis

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    time outstanding not exceeding (i)

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    description of this covenant and no

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    Date of any Indebtedness that has b

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    (13) Investments in an aggregate am

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    supplement or other modification) t

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    (1) the assumption by the transfere

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    Reports Whether or not required by

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    of the European Union on January 1,

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    contemporaneously with any such act

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    25% in principal amount of the outs

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    (2) provide for the assumption by a

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    (6) an Officer’s Certificate stat

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    calculated based on the relevant cu

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    “Bank Indebtedness” means any a

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    Consolidated Net Income (excluding

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    (9) the impact of capitalized inter

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    “Exchange Act” means the U.S. S

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    (iii) for the avoidance of doubt, a

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    “Nationally Recognized Statistica

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    (2) Investments in another Person i

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    (15) Permitted Collateral Liens; (1

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    (5) in the case of Apollo and Golde

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    service level agreement as replaced

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    “Unrestricted Subsidiary” means

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    The Issuer and the Trustee and thei

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    Secondary Market Trading The Book-E

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    to trade tax. The taxable gain from

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    date). A U.S. Holder’s adjusted t

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    (c) for so long as the Notes are el

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    PLAN OF DISTRIBUTION We, the Subsid

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    LEGAL MATTERS Certain legal matters

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    WHERE YOU CAN FIND OTHER INFORMATIO

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    Listing LISTING AND GENERAL INFORMA

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    INDEX TO FINANCIAL STATEMENTS iesy

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    Assets iesy Hessen GmbH & Co. KG, W

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    I. Application of Legal Provisions

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    III. Explanation of Balance Sheet a

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    Last year’s extraordinary expense

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    INDEPENDENT AUDITORS’ REPORT We h

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    iesy Repository GmbH, Hamburg AMEND

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    and remaining useful life for the i

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    The movements in consolidated equit

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    iesy Repository GmbH, Hamburg AMEND

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    Assets iesy Repository GmbH, Hambur

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    I. Basis of Presentation The consol

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    V. Explanations to Material Items o

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    Network infrastructure, rental, lea

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    iesy Repository GmbH, Hamburg UNAUD

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    1. Basis of Presentation iesy Repos

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    5. Explanations to Material Items o

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    Shareholdings of iesy Repository Gm

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    iesy Hessen GmbH & Co. KG, Weiterst

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    COURTESY TRANSLATION FROM THE GERMA

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    COURTESY TRANSLATION FROM THE GERMA

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    (1) General COURTESY TRANSLATION FR

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    (3) Accounting and Valuation Princi

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    COURTESY TRANSLATION FROM THE GERMA

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    COURTESY TRANSLATION FROM THE GERMA

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    COURTESY TRANSLATION FROM THE GERMA

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    The following auditors’ report (B

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    COURTESY TRANSLATION FROM THE GERMA

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    COURTESY TRANSLATION FROM THE GERMA

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    COURTESY TRANSLATION FROM THE GERMA

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    Inventories COURTESY TRANSLATION FR

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    Goodwill COURTESY TRANSLATION FROM

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    COURTESY TRANSLATION FROM THE GERMA

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    Depreciation and Amortization COURT

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    COURTESY TRANSLATION FROM THE GERMA

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    COURTESY TRANSLATION FROM THE GERMA

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    COURTESY TRANSLATION FROM THE GERMA

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    (1) General COURTESY TRANSLATION FR

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    COURTESY TRANSLATION FROM THE GERMA

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    COURTESY TRANSLATION FROM THE GERMA

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    COURTESY TRANSLATION FROM THE GERMA

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    Cost of materials COURTESY TRANSLAT

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    [THIS PAGE INTENTIONALLY LEFT BLANK

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    Goodwill. Under German GAAP, the di

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    Under U.S. GAAP, loan origination f

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    IFRS requires a purchase price allo

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    financial liability incurred result

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    €235,000,000 10 1 /8% Senior Note

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