-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NiT6UBqxXnGiEcznGaz8b5sZlXCEmPgc3nsQzLMTkKCuaOdKebV2OravbvBArBfP rOddnE7QR/8FTjihuYWb0A== 0000921530-96-000079.txt : 19961118 0000921530-96-000079.hdr.sgml : 19961118 ACCESSION NUMBER: 0000921530-96-000079 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: KATZ MEDIA CORP CENTRAL INDEX KEY: 0000864363 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING AGENCIES [7311] IRS NUMBER: 133563605 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24214 FILM NUMBER: 96665811 BUSINESS ADDRESS: STREET 1: 125 WEST 55TH STREET CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2124246000 FORMER COMPANY: FORMER CONFORMED NAME: KATZ CORP /DE DATE OF NAME CHANGE: 19940531 10-Q 1 KATZ MEDIA CORPORATION'S FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period Commission File Number 0-24214 ended September 30, 1996 Katz Media Corporation (Exact name of registrant as specified in its charter) Delaware 13-3563605 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 125 West 55th Street, New York, New York 10019 (Address of principal executive offices - Zip Code) (212) 424-6000 (Registrant's telephone number including area code) 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]* The Registrant does not have any equity securities registered under the Securities Act of 1933, as amended. All outstanding shares of Common Stock of the Registrant are held indirectly by the Registrant's ultimate parent company, Katz Media Group, Inc. *This document is being filing voluntarily. INDEX PAGE Item 1 - Financial Statements - ------ Consolidated Balance Sheets........................................ 2 Consolidated Statements of Operations.............................. 3 Consolidated Statements of Cash Flows.............................. 4 Notes to Consolidated Financial Statements......................... 5 Item 2 - Management's Discussion and Analysis of - ------ Financial Condition and Results of Operations................. 6-9 Part II Other Information ----------------- Item 1 - Legal Proceedings............................................. 9 - ------ Signatures............................................................. 10 Financial Data Schedule................................................ 11 1 KATZ MEDIA CORPORATION CONSOLIDATED BALANCE SHEETS (000's Omitted, Except Share and Per Share Information)
September 30, December 31, ------------- ------------ 1996 1995 ------ ------ (Unaudited) (Note) Assets Current assets: Cash and cash equivalents........................................$ 3,497 $ 228 Accounts receivable, net of allowance for doubtful accounts of $1,300............................................. 59,648 61,345 Deferred costs on purchases of station representation contracts....................................................... 19,813 13,096 Prepaid expenses and other current assets ....................... 922 869 ------------ ------------ Total current assets...................................... 83,880 75,538 Fixed assets, net................................................... 16,363 12,437 Deferred income taxes............................................... 9,122 9,122 Deferred costs on purchases of station representation contracts.......................................................... 65,648 39,602 Intangible assets, net ............................................. 80,889 82,708 Other assets, net .................................................. 20,393 17,106 ------------ ------------ Total assets.............................................. $ 276,295 $ 236,513 ------------ ------------ ------------ ------------ Liabilities and Stockholder's Deficit Current liabilities: Accounts payable and accrued liabilities......................... $ 46,967 $ 38,049 Deferred income on sales of station representation.contracts .... 12,314 10,700 Income taxes payable............................................. 8,798 5,242 ------------ ------------ Total current liabilities.................................... 68,079 53,991 ------------ ------------ ------------ ------------ Deferred income on sales of station representation contracts........ 4,506 3,589 Long-term debt...................................................... 189,290 179,530 Other liabilities, principally deferred rent and representation contracts payable.................................................. 42,714 33,263 Commitments and contingencies....................................... -- -- Stockholder's deficit Common stock, $.01 par value, 100 shares authorized issued and outstanding..................................................... -- -- Paid-in-capital.................................................. 9,742 9,742 Carryover basis adjustment....................................... (14,405) (14,405) Accumulated deficit.............................................. (23,631) (29,197) ------------ ------------ Total stockholder's deficit............................... (28,294) (33,860) Total liabilities and stockholder's deficit $ 276,295 $ 236,513 ------------ ------------ ------------ ------------ Note: The consolidated balance sheet at December 31, 1995 has been derived from audited financial statements at that date. The accompanying notes are an integral part of these consolidated financial statements. 2
KATZ MEDIA CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (000's Omitted) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 1996 1995 1996 1995 ---- ---- ---- ---- Operating revenues, net.............. $ 43,492 $ 43,611 $ 129,826 $ 133,044 --------- --------- ---------- --------- Operating expenses:.................. Salaries and related costs........... 24,730 23,288 74,091 74,289 Selling, general and administrative.. 7,533 9,575 26,999 28,307 Depreciation and amortization........ (947) 1,040 2,201 5,496 --------- --------- ---------- --------- Total operating expenses........ 31,316 33,903 103,291 108,092 --------- --------- ---------- --------- Operating income................ 12,176 9,708 26,535 24,952 --------- --------- ---------- --------- Other expense (income):.............. Interest expense..................... 5,160 5,296 15,500 15,570 Interest (income).................... (33) (48) (83) (115) --------- --------- ---------- --------- Total other expense, net 5,127 5,248 15,417 15,455 --------- --------- ---------- --------- Income before income tax provision......................... 7,049 4,460 11,118 9,497 Income tax provision................. 3,497 2,408 5,552 5,128 --------- --------- ---------- --------- Net income ................... $3,552 $2,052 $5,566 $4,369 --------- --------- ---------- --------- --------- --------- ---------- --------- The accompanying notes are an integral part of these consolidated financial statements. 3
KATZ MEDIA CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (000's omitted) (Unaudited)
Nine Months Ended September 30, --------------------- 1996 1995 -------- -------- Cash flows from operating activities: Net income before adjustments..................... $5,566 $4,369 ------ ------ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ................. 2,201 5,496 Amortization of debt issuance costs............ 312 568 Deferred rent.................................. 1,118 781 Reversal of excess provision for relocation.... (1,500) -- Changes in assets and liabilities: (Increase) decrease in accounts receivable..... (59) 3,418 Increase in deferred tax asset................. -- 4,979 (Increase) in other assets..................... (1,678) (1,880) Increase (decrease) in accounts payable and accrued liabilities........................... 976 (131) Increase (decrease) in income taxes payable.... 3,556 (182) Other, net..................................... (826) 347 ------ ------ Total adjustments................................. 4,100 13,396 ------ ------ Net cash provided by operating activities........ 9,666 17,765 ------ ------ Cash flows from investing activities: Capital expenditures........................... (6,123) (3,839) Payments received on sales of station representation contracts...................... 19,976 15,200 Payments made on purchases of station representation contracts...................... (30,010) (24,628) Investment in cable joint venture.............. -- (7,029) ------ ------ Net cash (used in) investing activities............ (16,157) (20,296) ------ ------ Cash flows from financing activities: Additional Paid-in Capital........................ -- 2,800 Credit facilities borrowing....................... 48,100 49,000 Credit facilities repayments...................... (36,600) (48,500) Retirement of 12 3/4% Senior Subordinated Notes... (1,740) (840) ------ ------ Net cash provided by financing activities.. 9,760 2,460 ------ ------ Net increase (decrease) in cash and cash equivalents........................................ 3,269 (71) Cash and cash equivalents, beginning of period...... 228 109 ------ ------ Cash and cash equivalents, end of period............$ 3,497 $ 38 ------ ------ ------ ------ The accompanying notes are an integral part of these consolidated financial statements. 4
KATZ MEDIA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1996 (Unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with 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 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. Due to the seasonality of the business of Katz Media Corporation, Inc. (the "Company"), operating results for the nine month period ended September 30, 1996, are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. For further information, refer to the consolidated 1995 financial statements and footnotes thereto included in the Company's Form 10-K for the year ended December 31, 1995(File No. 0-24214). 2. EARNINGS PER COMMON SHARE Earnings per share information is not presented as the Company is a wholly owned subsidiary of its ultimate parent company, Katz Media Group, Inc. 3. RECENT DEVELOPMENTS AND OTHER During the quarter ended September 30, 1996, the Company reevaluated the economic feasibility of its plan to sublet a portion of its headquarter facilities. Upon reevaluation, the Company has determined that such a program is not economically feasible and accordingly, has reversed the related $1.5 million accrual which had been established in 1995. This reversal has been reflected as a componant of selling, general and administrative expense in the accompanying financial statements. On September 6, 1996, the Company transferred to a newly formed affiliated company, Katz Media Services, Inc. (KMSI) one of its representation contracts for cash consideration of approximately $4.9 million which was the approximate fair market value (as determined by standard industry practices) on such date. In connection therewith the Company entered into a contract management agreement with KMSI providing for, among other things, representation services related to the above contract in exchange for a stated fee. As a result of the above transaction, during the current quarter the Company recognized a gain of $3.6 million which is included in depreciation and amortization and service fee income of $0.08 million related to representation services performed for KMSI. The Company amended the terms of its existing Credit Agreement to advance the final maturity from September 30, 1999 to June 30, 1999. 5 KATZ MEDIA CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General - ------- The following discussion is based upon and should be read in conjunction with the Consolidated Financial Statements, including the notes thereto, included elsewhere herein. The net operating revenues of the Company are derived from commissions on the sale of national spot advertising air time for radio and television clients. Commission rates are negotiated and set forth in the client's individual representation contracts. The key to the Company's success is the maintenance of its current representation contracts with client stations and the acquisition of new representation contracts. The primary operating expenses of the Company are employee salaries, rents, commission-related payments to employees, data processing expenses, and depreciation and amortization. The Company's financial results have been impacted by three significant factors: (i) trends in advertising expenditures, (ii) buyouts and sales of station representation contracts, including those resulting from changes in ownership of stations and (iii) acquisitions of representation firms. The effect of these factors on the Company's financial condition and results of operations have varied from period to period. Recent changes in regulations affecting ownership of broadcast stations have led to and are likely to continue to lead to larger station groups under common ownership, which has the effect of increasing the level and frequency of buyouts of representation contracts. Most recently, this has resulted in a net increase in the number of radio station clients and a net decrease in the number of television station clients represented by the Company. The Company continues to pursue the representation of additional client stations and groups in each of the media where it provides services. This quarterly report on Form 10-Q contains forward looking statements that involve risks and uncertainties, including those associated with the effect of national and regional economic conditions, the ability of the Company to obtain new clients and retain existing clients, changes in ownership of client stations and client stations of the Company's competitors, other developments at clients of the Company, the ability of the Company to realize cost reductions from its cost containment efforts, and developments from recent changes in the regulatory environment for its clients. Business - -------- The Company operates as a single segment business and is the only full service media representation firm in the United States serving multiple types of electronic media, with leading market shares in the representation of radio and television stations and cable systems. During the third quarter of 1996 the Company's percentage composition of gross billings (representing the aggregate dollar amount of advertising placed on client stations or systems) by broadcast media was as follows: 55.2% for television; 39.2% for radio; and 5.6% for cable and international (on a 100% owned basis). Gross billings during the third quarter of 1996 compared to third quarter 1995 decreased 21.9% for television primarily reflecting the decreased national spot advertising sales, increased 14.9% for radio generally as a result of new client additions and decreased 13.6% for cable and international (on a 100% owned basis) generally as a result of lost client stations in the international market. The composition of gross billings by broadcast media during the third quarter of 1995 was 63.6% for television, 30.7% for radio, and 5.7% for cable and international (on a 100% owned basis). Results of Operations - Three Months Ended September 30, 1996 - ------------------------------------------------------------- Net operating revenues for the third quarter of 1996 totaled $43.5 million, a decrease of approximately $0.1 million, or approximately 0.3%, compared to net operating revenues of $43.6 million for the third quarter of 1995. Operating expenses, excluding depreciation and amortization, decreased $0.6 million, or approximately 1.8%, from $32.9 million for the third quarter of 1995 as compared to $32.3 million in the third quarter of 1996. Salaries and related 6 costs increased by $1.4 million, or approximately 6.2% when compared to the third quarter of 1995. Selling, general and administrative decreased by $2.0 million when compared to the third quarter of 1995, primarily related to the reversal of the $1.5 million accrual of costs (reflected in the fourth quarter of 1995) related to the Company's plan to reduce its headquarters facility requirements, which the Company has determined is no longer economically feasible. Operating expenses excluding depreciation and amortization as well as the reversal of $1.5 million in relocation reserves, as a percentage of net operating revenues, increased from 75.4% in the third quarter of 1995 to 77.6% in the third quarter of 1996. Depreciation and amortization decreased by $2.0 million, or 191.1%, for the third quarter of 1996 compared to the third quarter of 1995, primarily due to the effects of a gain of approximately $3.6 million on the transfer of a representation contract to KMSI in exchange for cash consideration of approximately $4.9 millioin and the amortization of income on contracts sold in 1995 and 1996, partially offset by higher amounts of amortization for representation contracts acquired in the second half of 1995 and early 1996. Operating income for the third quarter of 1996 increased by $2.5 million compared to the third quarter of 1995 as a result of the operating components discussed above. Interest expense, net, remained relatively constant at $5.2 million for the third quarter of 1996 and 1995. Income before income tax provision totaled $7.0 million for the third quarter of 1996, compared to income of $4.5 million for the third quarter of 1995. This result was primarily due to the components listed above. The difference between the effective tax rate of 49.6% compared to the U.S. statutory rate of 35% in the third quarter of 1996 is primarily attributable to goodwill amortization, other nondeductible expenses and state income taxes. Results of Operations - Nine Months Ended September 30, 1996 - ------------------------------------------------------------ Net operating revenues for the first nine months of 1996 totaled $129.8 million, a decrease of approximately $3.2 million, or 2.4%, compared to net operating revenues of $133.0 million for the first nine months of 1995. This decrease primarily reflects the July 1995 transfer of United Television, Inc. stations ($3.5 million of operating revenues in the first seven months of 1995) to a new representation firm in which the Company will receive a profit distribution rather than report revenue and associated expenses, partially offset by increased operating revenues for client stations acquired in the second half of 1995 and early 1996. Operating expenses, excluding depreciation and amortization, decreased from $102.6 million for the first nine months of 1995 to $101.1 million for the first nine months of 1996, a decrease of $1.5 million, or 1.3%. This decrease was primarily attributable to the one time reversal of $1.5 million relocation accrual discussed above, the decreased compensation reflecting the transfer of the United Television, Inc. stations and other items, offset by the start- up costs associated with the new Sentry Radio division and the establishment of the Company's interactive internet media representation subsidiary, Katz Millennium Marketing. Depreciation and amortization decreased by $3.3 million, or 60.0% for the first nine months of 1996 compared to the first nine months of 1995, due to the gain of $3.6 million on the transfer of a representation contract to KMSI described above, lower amounts of amortization expense related to the 1994 Acquisition non-compete agreements which became fully amortized during the first nine months of 1995, and the effects of amortization of income on contracts sold in 1995 and 1996, offset by relatively higher amounts of amortization for representation contracts acquired in the second half of 1995 and early 1996. Operating income for the first nine months of 1996 increased by $1.6 million compared to the first nine months of 1995 as a result of the components discussed above. Interest expense, net, remained relatively constant at $15.5 million for the first nine months of 1996 and 1995. 7 Income before income tax provision totaled $11.1 million for the first nine months of 1996, compared to $9.5 million for the comparable period of 1995. This result was primarily due to the components listed above. The difference between the effective tax rate of 50% compared to the U.S. statutory rate of 35% in the third quarter of 1996 is primarily attributable to permanent differences between book and taxable income related to goodwill amortization, other nondeductible expenses and state income taxes. Liquidity and Capital Resources - ------------------------------- Cash provided by operating activities in the first nine months of 1996 as compared to the first nine months of 1995 decreased $8.1 million. This decrease in cash provided by operating activities is primarily due to reduced operating results in the first nine months of 1996 compared to the first nine months of 1995 and the net change in working capital. Net cash used in investing activities during the first nine months of 1996 aggregated $16.2 million, a decrease of $4.1 million compared to net cash used in investing activities during the first nine months of 1995 of $20.3 million. This decrease in cash used in investing activities was mainly a result of the $7.0 million investment in National Cable Communications, L.P. "the Cable Joint Venture" which occured in the first quarter of 1995, offset by the net increases in purchases of station representation contracts of $0.6 million and increased capital expenditures of $2.3 million in the first nine months of 1996 as compared to the first nine months of 1995. Cash flows from financing activities provided $9.8 million during 1996 versus $2.5 million during 1995. The increase in cash provided by financing activities is primarily due to increased borrowings on the Company's Credit Agreement offset in part by the repurchase of a portion of the Company's 12 3/4% Senior Subordinated Notes due 2002. The following table reconciles operating income to EBITDA for the three and nine months periods ending September 30, 1996 and 1995: Three Months Ended Nine Months Ended September 30, September 30, ------------------ ------------------ 1996 1995 1996 1995 ---- ---- ---- ---- Operating Income......... $12,176 $ 9,708 $26,535 $24,952 Depreciation and Amortization............ (947) 1,040 2,201 5,496 Non-cash rent expense.... 328 317 1,118 917 Reversal of provision for relocation.......... (1,500) - (1,500) - -------- ------- -------- ------- EBITDA................... $10,057 $11,065 $28,354 $31,365 -------- ------- -------- ------- -------- ------- -------- ------- EBITDA for the third quarter of 1996 decreased $1.0 million or 9.1% to $10.1 million as compared to $11.1 million for the third quarter of 1995. This decrease as compared to the 25.4% increase in operating income, was primarily attributable to the $1.5 million reversal of the provision for relocation and decreased depreciation and amortization in 1996 as compared to 1995. As a result, the EBITDA margin decreased from 25.4% in the third quarter of 1995 to 23.1% in the third quarter of 1996. EBITDA for the first nine months of 1996 decreased $3.0 million or 9.6% to $28.4 million as compared to $31.4 million for the first nine months of 1995. This decrease as compared to the 6.3% increase in operating income, was primarily attributable to the non-cash reversal of $1.5 million provision for relocation in 1996, additional non-cash rent expense of $0.2 million in 1996 as compared to 1995 and $4.4 million of additional depreciation and amortization in 1996 as compared to 1995. As a result, the EBITDA margin decreased from 23.6% in the first nine months of 1995 to 21.8% in the first nine months of 1996. The Company continuously seeks opportunities to acquire additional representation contracts on attractive terms, and at the same time looks to maintain its current client roster. In addition, the recent changes in ownership of broadcast properties have fueled changes in client engagements among independent media representation firms. These changes and the Company's ability to acquire and maintain representation contracts can cause fluctuations in the Company's revenues and cash flows from period to period. 8 The Company's working capital requirements have historically been primarily provided by operations plus borrowings under the Company's Credit Agreement. As of July 24, 1996, the Company had approximately $1.4 million available under its Credit Agreement. On September 6, 1996, in connection with the establishment of a new senior secured revolving credit facility by Katz Media Services, Inc. ("KMSI"), a newly formed affiliated company, designed to increase the availability of working capital to the Company and its affiliated companies, the Company transferred one of its representation contracts to KMSI for $4.9 million in cash. KMSI is not a subsidiary of the Company. The new KMSI revolving credit agreement provides for borrowings of up to $35.0 million and matures on March 31, 1998. In connection with the new KMSI credit facility, the Company amended the terms of its existing Credit Agreement to advance the final maturity from September 30, 1999 to June 30, 1999. PART II Other Information ----------------- Item 1 - Legal Proceedings The Company, from time to time, is involved in litigation brought by former employees and other litigation incidental to the conduct of its business. The Company is not a party to any lawsuit or proceeding which, in the opinion of management, is likely to have a material adverse effect on the Company. There are no reportable items under Part II, Items 2-6. 9 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. Dated: November 14, 1996 KATZ MEDIA CORPORATION By: /S/ Thomas F. Olson By: /S/ Richard E. Vendig -------------------------- ------------------------ Thomas F. Olson Richard E. Vendig President and Senior Vice President Chief Executive Officer and Director Chief Financial & Administrative Officer, Treasurer 10 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 3,497 0 59,648 1,300 0 83,880 16,363 2,201 276,295 68,079 0 0 0 0 (28,294) 276,295 129,826 129,826 103,291 103,291 (83) 0 15,500 11,116 5,552 5,566 0 0 0 5,566 00.00 00.00
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