SecProbe.io

CORRESP
1
filename1.htm

corresp

    PrimaCom AG An der Ochsenwiese 3 D-55124

    PrimaCom AG

An der Ochsenwiese 3

D-55124 Mainz

    Mr. Larry Spirgel

Assistant Director

United States Securities and Exchange Commission

Division of Corporate Finance

Mail Stop 3561

100 F St. NE

Washington, DC 20549-3561

United States of America

    Tel.: +49 (0) 6131 944.541

Fax: +49 (0) 6131 944.549

info@primacom.de

www.primacom.de

Mainz, November 22, 2005

Dear Mr Spirgel

    Re:

    Primacom AG

Form 20-F for Fiscal Year Ended December 31, 2004

Filed April 29, 2005

File No. 0-30004

We are responding to your letter dated September 19, 2005 relating to Primacom AG’s (the “Company”)
annual report on Form 20-F for the fiscal year ended December 31, 2004 (the “2004 Form 20-F”).

For your convenience, the Staff’s comments have been retyped below in boldface type, and the
Company’s responses are provided immediately after each comment.

    1.

    Reference is made to the second and third paragraph on page 5 of your letter dated August 15,
2005. We do not understand management’s assertion that “goodwill associated with the various
components in Germany is more likely recoverable based on multiple components vs. a single
component given the necessity of a large customer base to generate cash flow”. This response
appears to suggest that the cash flow generated by certain networks may not be sufficient to
fully recover their associated goodwill. We would consider this to be a strong indicator that
goodwill impairment should be assessed at the component level. Further, we note during 2002
you assessed long-lived assets for impairment at the component level in Germany and certain of
the long-lived assets associated with specific regional locations were determined to be
impaired. This suggests to us that your German components may be sufficiently different
economically to not support aggregating them into a single reporting unit. Unless you are
able to demonstrate that the components work together in concert, and not as independent
networks as you indicate in your response, and they have similar economic characteristics such
as long-term gross margins, it would appear you should revise your goodwill impairment policy
to assess impairment at the component level.

    ...

    Vorstand:

    Aufsichtsratsvorsitzender:

    Sitz:

    Amtsgericht:

    HRB:

    Hans-Werner Klose

    Heinz Eble

    Mainz

    Mainz

    7164

    Wolfgang Preuß (Vorsitzender)

-2-

     As mentioned in our letter of August 15 the evolution of the Company’s current structure was
driven by the acquisition of several networks over the last 6 years. The discrete financial
information available for these components is used in periodic reviews performed by
financial management for tax and treasury planning purposes. Operational reviews are
performed at the German reporting unit level.

    When we included the statement “goodwill associated with the various components in Germany
is more likely recoverable based on multiple components vs. a single component given the
necessity of a large customer base to generate cash flow” in our letter of August 15, we
were intending to illustrate fact that the Company’s strategy in building the German cable
business included growing the scale of the business through strategic acquisitions that are
accretive to the cash flows of the entire group. While we agree that impairment testing
under SFAS 144 should likely occur at a level below the Germany segment level since SFAS 144
paragraph 10 requires assets to be considered for impairment at the lowest level for which
there are identifiable cash flows, we believe that this does not require that goodwill
impairment testing be performed at this level.

    We recognize that the determination of whether the components of the Germany operating
segment have similar economic characteristics is a matter of judgement, and we focused on
the Company’s business strategy to achieve scale to enhance cash flows as well as
considering the following qualitative factors in making our determination:

    •

    The products and services offered by our components are similar across the country.
A standard package is offered in all regions with only some slight differences in the
TV channels.

    •

    All decisions on the content of packages, new products and pricing are made at the
corporate level.

    •

    Products are provided in the same way across the regions; either through PrimaCom
Head Ends or by sending a purchased signal to our customers.

    •

    Major supply contracts (e.g. Kabel Deutschland for Signal supply, Content purchases,
GEMA —Artists rights, maintenance materials, automobile fleet management) are
negotiated on a group level for the entire Germany segment.

    •

    Our customers are similar across the region. i.e. individual subscribers or housing
associations which are providing services to individual customers

    •

    Customer invoicing, credit and collection and accounts payable are managed on a
common billing, accounting and cash management system all operated and supported at
group level. This consolidation of services has been accretive to cash flow at the
Germany segment level.

    After consideration of the above-noted qualitative considerations, and the fact that sharing
of costs and strategy at the Germany segment level is accretive to group cash flow, we have
concluded that while the regions within our Germany operating segment are components of the
Germany segment, these components have similar economic characteristics as contemplated in
paragraph 30 of SFAS 142 and should be aggregated and considered one reporting unit.
Therefore, we have concluded the Germany segment should be considered the reporting unit for
purposes of goodwill impairment testing under SFAS 142.

-3-

    2.

    Please explain to us the facts and circumstances concerning your plan to sell Multikabel,
including your discussions with the second secured lenders, the receipt of the necessary
consents, the timing and extent of management approval, the nature and extent of your
discussions with any potential buyers, and the anticipated timing of the sale. Tell us your
consideration, at December 31, 2004 and March 31 and June 30, 2005, of whether or not to
classify this disposal group as assets held for sale under SFAS 144. Explain to us whether
the individual criteria of paragraph 30 of SFAS 144 were met at December 31, 2004 and March
31, 2005 or thereafter, and how you determined whether or not it was necessary to recognise an
impairment loss.

    At December 31, 2004, March 31, 2005 and June 30, 2005 we examined our plans to sell our
Multikabel business under the held for sale criteria a) to f) of paragraph 30 of SFAS 144 as
follows:-

    a)

    Management, having the authority to approve the action, commits to a plan to
sell the disposal group.

    This criteria was met in September 2004 when the Company’s Management and Supervisory
Boards concluded to sell Multikabel .

    b)

    The disposal group is available for immediate sale in its present condition
subject only to terms that are usual and customary for sales of such disposal groups

    In addition to management approval it was necessary to obtain the consent of both our
Senior and Second Secured Lenders to the disposal.

    At December 31, 2004 we had received the consent of the Senior Lenders, subject to
certain conditions (eg. that the sale proceeds would be sufficient to repay the Senior
Loan) to the disposal of Multikabel. However the Second Secured Lenders indicated that
they would only give their consent based on a specific transaction which would be
acceptable to them. Subsequently, the Second Secured Lenders obtained injunctions in
the English courts prohibiting the Company from selling Multikabel without the consent
of the Second Secured lenders. This injunction remained in place as we reported on the
first and second quarters of 2005.

    See also our comment in e) below.

    Criteria not met at December 31, 2004, March 31, 2005 & June 30, 2005 due to the
uncertainty in being able to complete a transaction that would be acceptable to our
Second Secured Lenders.

    c)

    An active program to locate a buyer and other actions required to complete the
plan to sell the disposal group have been initiated.

    This criteria was met when the search for a buyer began in October 2004.

    d)

    The sale of the disposal group is probable, and transfer of the disposal group
is expected to qualify for recognition as a completed sale, within one year.

-4-

    At the above 3 reporting periods, given the position of the Senior Lenders versus the
Second Secured Lenders we were unable to conclude it was probable the sale would occur
in one year since any sale would be subject to the approval of the Second Secured
Lenders, and they had filed an injunction preventing a sale without their approval.

    e)

    The disposal group is being actively marketed for sale at a price that is
reasonable in relation to its current fair value.

    The disposal group was actively marketed. Without being able to clearly demonstrate
the Company’s ability to deliver title the Company’s negotiating position was
impaired. In addition the public announcements of the Second Secured Lenders and in
some cases their direct contact with prospective purchasers created sufficient
uncertainty so that some prospective purchasers were unwilling to commit significant
amounts on due diligence exercises while there was still a risk that the transaction
might ultimately be blocked or the subject of litigation.

    Despite the above conditions management was confident, based on discussions with the
small group of prospective purchasers who had indicated a strong interest and who had
communicated indicative offers above €500 Mio, that even in this negative and non
competitive scenario, Multikabel could ultimately be sold at a value significantly
higher than its carrying value of €358 Mio if a transaction could be completed, and
therefore there was no need to recognize an impairment loss.

    Criteria not met at December 31, 2004, March, 31, 2005
& June 30, 2005 due to the
reasons above.

    f)

    Actions required to complete the plan indicate that it is unlikely that
significant changes to the plan will be made or that the plan will be withdrawn.

    See comment in d) above. Given the need to obtain approval of the Second Secured
Lenders, it was uncertain whether changes would be made to the disposal plan or that
the plan would be withdrawn.

Events subsequent to June 30, 2005

On September 15, 2005 the Company announced, that it had reached agreement in principle with the
holders of the Second Secured Loan on the economic conditions of a settlement. The agreement
provided, subject to closing in accordance with a settlement agreement with the owners of the
Second Secured Lenders (referred to below) that they would agree to the sale of Multikabel.

On October 6, 2005 the Company gave notice that it had entered into a a purchase agreement with
Amsterdamse Beheer- en Consultingmaatschappij and B.V.Christina Beheer- en Adviesmaatschappij
B.V., companies controlled by the global private equity firm Warburg Pincus, regarding the indirect
sale of all shares in N.V. Multikabel as well as all debt of all Dutch subsidiaries vis-à-vis the
PrimaCom Group. The agreement was made under several conditions precedent, including the merger
clearance by the Dutch cartel authority NMa as well as the financing of the purchase price by the
purchaser and the approval of PrimaCom’s existing Senior Lenders and the Second Secured Lenders.
The purchase price amounts to €515 million, which exceed Multikabel’s carrying value of €358 Mio.

The supervisory board granted its consent to the transaction. It is expected that the transaction
will be consummated by November 30, 2005.

-5-

On October 13, 2005 the Company entered into a Settlement Agreement with its Second Secured Lenders
under a Facility Agreement dated 26 March 2002 (“SSFA”).

Under the Settlement Agreement PrimaCom has agreed to withdraw the litigation initiated by it in
Germany against the Second Secured Lenders and pay a lump sum in full and final settlement of all
amounts due and payable under the SSFA .The mutual withdrawal of litigation and certain other
conditions (including the disposal of Multikabel) must be completed on or before 30 November 2005

On November 4, 2005 the Company announced that the Dutch anti-monopoly authority NMa has given the
merger clearance of the contract regarding the indirect sales of all shares of N.V. Multikabel as
well as all debt of all Dutch subsidiaries vis-à-vis the PrimaCom group to the Amsterdamse Beheer-
en Consultingmaatschappij B.V. and Christine Beheer- en Adviesmaatschappij B.V., companies which
are controlled by the global private equity firm Warburg Pincus.

Accordingly, going forward, Multikabel will be reported as a discontinued operation in the
financial statements under SFAS 144 paragraphs 41- 47.

-----0-----

As requested, the Company acknowledges that:

    •

    We are responsible for the adequacy and accuracy of the disclosures in our SEC
filings;

    •

    SEC Staff comments or changes to disclosure in response to such comments in the
filings reviewed by the staff do not foreclose the SEC from taking any action with
respect to any filing; and

    •

    The Company may not assert Staff comments as a defence in any proceeding initiated
by the SEC or any person under the federal securities laws of the United States.

If you have any questions or wish to discuss any of the Company’s responses, please contact William
Cullen directly at 0049 6131 944 550.

Yours very truly,

Hans-Werner Klose

Member of the Management Board

    cc.

    Robert S. Littlepage, Accountant Branch Chief

United States Securities and Exchange Commission

Division of Corporate Finance

Mail Stop 3561

100 F St. NE

Washington, DC 20549-3561

United States of America