iesy Repository GmbH - Irish Stock Exchange

Allocations to Bad Debt Allowances and Write-offs
Bad debt allowances and write-offs were €1.3 million in the three months ended March 31, 2005 and €3.6 million for
the year ended December 31, 2004 netted against income from the recovery of receivables written off from prior years. For
more information, see “—Trade Receivables and Bad Debt.”
Income Taxes and Other Taxes
ish’s income taxes include taxes on operating profit. ish’s effective tax rate is positively affected by the tax loss carry
forwards relating to its prior and current tax losses. These tax loss carry forwards may be reduced or eliminated as a result of
the changes to the structure of the group which will occur as a result of the Financing and the ish Acquisition. For a
discussion of the impact of the ish Acquisition on ish’s tax loss carry forwards, see “Operating and Financial Review and
Prospects of iesy—Factors Affecting Results of Operations—Taxes on Income” and “The ish Acquisition—Potential Post-
Acquisition Reorganization.”
Losses
ish has a history of losses, and in the three months ended March 31, 2005 and in the year ended December 31, 2004
incurred net operating losses. ish expects to incur net losses and net operating losses in the future. A substantial portion of
these losses consists of depreciation and amortization expenses, which do not directly impact ish’s cash flow and interest
expense which are directly related to finance and advisory fees.
Capital Expenditures
ish’s capital expenditures relate primarily to upgrading its network and developing its products and services. In
addition, ish incurs a limited amount of expenditures required to sustain its current network which ish accounts for as repair
and maintenance expenditures within costs of materials on its income statement.
Capital expenditures decreased from €5.2 million in the three months ended March 31, 2004 to €4.3 million in three
months ended March 31, 2005. These amounts correspond to 5.1% and 4.0% of total revenues for each of these respective
periods. This decrease was primarily due to the lower capital expenditures in the three months ended March 31, 2005 caused
by a transfer of projects to the end of the year 2004. Capital expenditures increased from €28.1 million in the unaudited year
ended December 31, 2003 (€25.4 million in the audited year ended December 31, 2003, including eleven months of
operations) to €39.2 million (including €1.6 million of prepayments) in 2004. These amounts correspond to 4.6% and 8.9%
of total revenues for each of these respective periods. In 2003 and 2004, most of ish’s capital expenditures related to network
upgrades, including the digital platform for premium cable television services.
ish has completed the upgrade of 1.3 million homes passed from a 450MHz cable television, single direction broadcast
network to an upgraded bi-directional digital network with full bi-directional capability, enabling the provision of advanced
two-way cable services.
ish estimates that its capital expenditures in 2005 will be approximately €28.0 million, taking into account both
infrastructure and customer related spending. In the future, we expect that capital expenditures will increase significantly as
we upgrade and expand our network.
The investments required for ish’s high speed Internet services are modular, so investments can be allocated in ways
that are based on customer demand. ish has partially included in its capital expenditures budget upgrades of Level 4 or inhouse
networks for its high speed Internet services. ish has also assumed that a number of homes are already upgraded, and
that further upgrades will be undertaken by housing associations, Level 4 operators and ish in connection with new contracts.
If these assumptions are incorrect, ish may need to make additional expenditures in order to upgrade the Level 4 and in-house
networks for ish’s high speed Internet users.
The total level of capital expenditures will depend, among other things, upon ish’s success in attracting new customers,
including strategic accounts contracts particularly with housing associations, the competitive and regulatory environment,
and whether unexpected network problems develop. In the future, other products may require significant capital expenditures
if they require new technologies or if new technologies are needed to improve ish’s competitive position. In addition, ish’s
business requires capital expenditures on a continuing basis for various purposes, including the maintenance of ish’s network,
investing in new customer acquisitions, and offering new services. However, ish does not currently believe that major capital
projects are required to maintain ish’s network, other than the capital expenditures described above.
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