<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
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 33-98756
PETRACOM HOLDINGS, INC.
-----------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 59-3324165
- ----------- --------------
(State or other jurisdiction of incorporation or organization) (I.R.S. employer identification no.)
1527 N DALE MABRY HWY, SUITE 105, LUTZ, FL 33549
- ------------------------------------------ ------------------
(Address of principal executive offices) (Zip code)
</TABLE>
(813) 948-2554
--------------
(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 X No
----- ------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No Not Applicable
----- ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
240,000 shares of Class A Voting Common Stock, par value $.01 per share, and
60,000 shares of Class B Non-Voting Common Stock, par value $.01 per share,
were outstanding at November 11, 1996.
<PAGE> 2
PETRACOM HOLDINGS, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets at September 30, 1996
and December 31, 1995 3
Consolidated Statements of Operations for the
nine months ended September 30, 1996 and 1995 4
Consolidated Statements of Operations for the
three months ended September 30, 1996 and 1995 5
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7-8
Item. 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-10
PART II. - OTHER INFORMATION
Item 5. Other Information 11
Signatures 12
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PETRACOM HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (in 000's)
- --------------------------------------------------------------------------------------------------------------
(Unaudited)
DECEMBER 31, SEPTEMBER 30,
1995 1996
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 2,180 $ 683
Accounts receivable, less allowances of $537 and $442 5,401 4,989
Trade receivables 375 606
Current portion of broadcast program rights 1,907 2,262
Prepaid expenses and other current assets 688 1,191
-------- ---------
Total current assets 10,551 9,731
Property and equipment, net 13,318 12,712
Broadcast program rights 1,394 1,331
Intangible assets, net 66,833 62,491
-------- ---------
Total assets 92,096 86,265
======== =========
LIABILITIES, MANDATORILY REDEEMABLE SECURITIES
AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable $ 690 $ 909
Accrued expenses 1,144 881
Income taxes payable 105 102
Trade payables 491 965
Accrued interest 735 346
Current portion of broadcast program rights contracts payable 1,970 2,652
Current portion of long-term debt 5,873 6,643
-------- ---------
Total current liabilities 11,008 12,498
Broadcast program rights contracts payable 1,466 1,155
Long-term debt 88,423 89,152
-------- ---------
Total liabilities 100,897 102,805
-------- ---------
Mandatorily redeemable securities
Class B, non-voting, common stock 1,625 1,876
Warrants 712 712
-------- ---------
Total mandatorily redeemable securities 2,337 2,588
-------- ---------
Stockholders' deficit
Class A, voting, common stock 3 3
Accumulated deficit (11,141) (19,131)
-------- ---------
Total stockholders' deficit (11,138) (19,131)
-------- ---------
Total liabilities, mandatorily redeemable securities and
stockholders' deficit 92,096 86,265
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
<TABLE>
<CAPTION>
PETRACOM HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in 000's)
- -----------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30,
1995 1996
<S> <C> <C>
Revenues $ 9,331 $ 23,293
Less - agency and national representative commissions (1,230) (3,397)
--------- ----------
8,101 19,896
Barter and trade revenues 1,392 2,053
--------- ----------
Total net revenues 9,493 21,949
--------- ----------
Expenses
Operating 418 1,054
Selling, general and administrative 4,208 8,724
Programming 2,133 4,938
Depreciation and amortization 1,486 5,157
--------- ----------
8,245 19,873
--------- ----------
Income from operations 1,248 2,076
Other expenses
Interest expense (2,358) (9,703)
Other expenses (89) (10)
--------- ----------
Loss before income taxes (1,199) (7,637)
Provision for income taxes 273 102
--------- ----------
Net loss $ (1,472) $ (7,739)
========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
<TABLE>
<CAPTION>
PETRACOM HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in 000's)
- ------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30,
1995 1996
<S> <C> <C>
Revenues $ 5,652 $ 7,867
Less - agency and national representative commissions (831) (1,094)
--------- -------
4,821 6,773
Barter and trade revenues 768 745
--------- -------
Total net revenues 5,589 7,518
--------- -------
Expenses
Operating 255 376
Selling, general and administrative 2,171 2,931
Programming 1,214 1,657
Depreciation and amortization 1,186 1,730
--------- -------
4,826 6,694
--------- -------
Income from operations 763 824
Other expenses
Interest expense (2,133) (3,321)
Other expenses (89) (15)
--------- -------
Loss before income taxes (1,459) (2,512)
Provision for income taxes 177 102
--------- -------
Net loss $ (1,636) $(2,614)
========= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
<TABLE>
<CAPTION>
PETRACOM HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in 000's)
- --------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30,
1995 1996
<S> <C> <C>
Cash flows from operating activities
Net loss $ (1,472) $ (7,739)
Adjustments to reconcile net loss to
net cash provided by operating activities
Depreciation 701 1,307
Amortization of intangible assets 785 3,850
Amortization of deferred financing costs
included in interest 123 554
Amortization of broadcast program rights 442 1,090
Payments for broadcast program rights (385) (1,011)
Net trade position 54 (6)
Deferred federal income tax 236 -
Changes in assets and liabilities
Accounts receivable 94 412
Prepaid expenses and other current assets (306) (503)
Accounts payable and accrued expenses 1,013 (44)
Income taxes payable (134) (3)
Accrued interest, including interest
included in long-term debt 1,490 5,471
--------- ----------
Net cash provided by operating activities 2,641 3,378
--------- ----------
Cash flows provided by investing activities
Acquisition of television stations (84,005) -
Additions of property and equipment (186) (452)
Additions of intangible assets - (62)
Disposition of property and equipment 306 -
--------- ----------
Net cash used for investing activities (83,885) (514)
--------- ----------
Cash flows provided by financing activities
Proceeds from long-term debt 91,788 1,023
Payments on long-term debt and capital leases (4,378) (5,384)
Issuance of mandatorily redeemable securities 2,212 -
Purchase of Petracom, Inc. preferred stock (5,907) -
--------- ----------
Net cash provided by (used for) financing activities 83,715 (4,361)
--------- ----------
Increase (decrease) in cash and cash equivalents 2,471 (1,497)
Cash and cash equivalents, beginning of period 131 2,180
--------- ----------
Cash and cash equivalents, end of period $ 2,602 $ 683
========= ==========
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 745 $ 3,660
========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE> 7
PETRACOM HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for the interim periods pursuant to the rules and
regulations of the Securities and Exchange Commission. It is suggested that
these financial statements be read in conjunction with the consolidated
financial statements for the year ended December 31, 1995 and the notes
thereto.
The consolidated financial statements include the accounts of Petracom
Holdings, Inc. and its wholly-owned subsidiaries, collectively the "Company".
Significant intercompany accounts have been eliminated in consolidation.
The consolidated statements of operations and of cash flows for the nine months
ended September 30, 1995 include the results of Petracom, Inc. for the period
January 1, 1995 to July 31, 1995. Effective August 1, 1995, the sole common
stockholder of Petracom, Inc. exchanged all outstanding common stock of
Petracom, Inc. for 100% of the outstanding Class A voting common stock of the
Company. As a result of the exchange of shares, Petracom, Inc. became a
wholly-owned subsidiary of the Company. The acquisition of Petracom, Inc. has
been accounted for as a recapitalization with no change in the historical basis
of assets and liabilities.
On August 1, 1995, the Company acquired substantially all the assets of Banam
Broadcasting, Inc., consisting of four television stations. The acquisition
was accounted for using the purchase method of accounting and, accordingly, the
results of operations of these television stations have been included in the
consolidated financial statements from the date of the acquisition.
The results of operations for the nine months and three months ended September
30, 1995 and 1996 are not necessarily indicative of the results to be expected
for the full year.
2. COMMITMENTS
As part of the agreement between the Company and Fox Television Stations, Inc.
(FOX) to convert one of its stations to a FOX affiliate, FOX granted the
Company certain guarantees pertaining to the net revenues of the station after
it became a FOX affiliate on December 4, 1995. FOX agreed to pay the Company
$750,000 for each of the first two years after the station's switch to FOX
affiliation, subject to a reduction in such payments by which the station's net
revenues exceed certain amounts each year as defined in the agreement. At
September 30, 1996 the Company believes that it is probable that the station
will not achieve the net revenue amount for the first year and has recognized
$625,000 of revenue related to this agreement in the three months ended
September 30, 1996. The agreement with FOX also contains a provision whereby
the Company would repay FOX if net revenue exceeds certain thresholds in the
subsequent three year period. No contingent liability has been recognized by
the Company because it is not
7
<PAGE> 8
PETRACOM HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
probable that the station will exceed the future net revenue amounts that would
neccesitate repayment to FOX.
3. EARNINGS PER SHARE
As a result of the recapitalization of the Company on August 1, 1995,
historical earnings per share for the nine and three months ended September 30,
1995 and 1996 is not meaningful and therefore has not been presented.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Comparison of Nine Months Ended September 30, 1996 to
Nine Months Ended September 30, 1995
Net revenues, including trade and barter revenues, increased to $21,949,000 for
the nine months ended September 30, 1996 from $9,493,000 for the nine months
ended September 30, 1995. Total operating expenses, including expenses related
to engineering, news, production, programming, selling, general and
administrative expenses, amortization of programming rights, trade and barter
expenses and depreciation and amortization of intangibles, increased to
$19,873,000 for the nine months ended September 30, 1996 from $8,245,000 for
the nine months ended September 30, 1995. The increases in net revenues and
operating expenses resulted primarily from the operations of WTVW-TV, KDEB-TV,
KLBK-TV and KARD-TV which were acquired by the Company on August 1, 1995. The
acquired television stations generated $14,913,000 in net revenues and
$14,378,000 in operating expenses for the nine months ended September 30, 1996.
Interest expense increased to $9,703,000 for the nine months ended September
30, 1996 from $2,358,000 for the nine months ended September 30, 1995. This
increase resulted primarily from interest expense on the debt incurred on
August 1, 1995 to acquire the four television stations, repay existing debt,
repurchase outstanding preferred stock interests, provide additional working
capital and to pay all fees and expenses related to the transaction. There was
a net loss of $7,739,000 for the nine months ended September 30, 1996 compared
to a net loss of $1,472,000 for the nine months ended September 30, 1995. The
increase in the loss resulted primarily from the reasons discussed above.
Comparison of Three Months Ended September 30, 1996 to
Three Months Ended September 30, 1995
Net revenues, including trade and barter revenues, increased to $7,518,000 for
the three months ended September 30, 1996 from $5,589,000 for the three months
ended September 30, 1995. Total operating expenses, including expenses related
to engineering, news, production, programming, selling, general and
administrative expenses, amortization of programming rights, trade and barter
expenses and depreciation and amortization of intangibles, increased to
$6,694,000 for the three months ended September 30, 1996 from $4,826,000 for
the three months ended September 30, 1995. The increases in net revenues and
operating expenses resulted primarily from the operations of WTVW-TV, KDEB-TV,
KLBK-TV and KARD-TV which were acquired by the Company on August 1, 1995. The
acquired television stations generated $5,210,000 in net revenues and
$4,820,000 in operating expenses for the three months ended September 30, 1996.
Interest expense increased to $3,321,000 for the three months ended September
30, 1996 from $2,133,000 for the three months ended September 30, 1995. This
increase resulted primarily from interest expense on the debt incurred on
August 1, 1995 to acquire the four television stations, repay existing debt,
repurchase outstanding preferred stock
9
<PAGE> 10
interests, provide additional working capital and to pay all fees and expenses
related to the transaction. There was a net loss of $2,614,000 for the three
months ended September 30, 1996 compared to a net loss of $1,636,000 for the
three months ended September 30, 1995. The increase in the loss resulted
primarily from the reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of capital have been cash flow from operations
and the proceeds of borrowings on August 1, 1995 incurred in connection with
acquisitions described above. Operating cash flow increased to $7,306,000 for
the nine months ended September 30, 1996 from $2,539,000 for the nine months
ended September 30, 1995 and increased to $2,490,000 for the three months ended
September 30, 1996 from $1,702,000 for the three months ended September 30,
1995. The increases resulted primarily from the operations of the acquired
television stations. Operating cash flow for this purpose is defined as income
from operations, excluding trade and barter, plus depreciation and amortization
of intangibles and programming rights less payments for programming rights.
The Company believes that operating cash flow is useful to investors to measure
the Company's ability to service debt and as a measure of the Company's
performance under the various covenants of its borrowings.
As of September 30, 1996, the Company had $48,721,000 in outstanding
indebtedness under a $55,000,000 term and revolving bank credit facility ("Bank
Credit Facility"), $30,434,000 of indebtedness under its 17.5% Senior Discount
Notes with warrants and $16,879,000 of indebtedness under a Junior Subordinated
Note. The amounts due under the Senior Discount Notes and the Junior
Subordinated Note include $4,722,000 and $3,379,000 of accrued interest at
September 30, 1996, respectively. No interest or principal payments were
required under the Senior Discount Notes or the Junior Subordinated Note for
the nine months ended September 30, 1996. Cash interest payments on the Senior
Discount Notes may begin after August 1,1998 and must begin after August 1,
2000, but the Company expects to issue promissory notes in lieu of cash
interest payments during the period from August 1998 through August 2000. The
Senior Discount Notes mature on February 1, 2003. Interest on the Junior
Subordinated Note will accrue and be added to the unpaid balance until maturity
on August 1, 2003. During the nine months and three months ended September 30,
1996, the Company made interest payments of $3,625,000 and $1,010,000 under its
Bank Credit Facility. Scheduled principal payments of $3,679,000 and
$2,029,000 were made under the term bank credit facility for the nine months
and three months ended September 30, 1996, respectively. Principal payments
under the Bank Credit Facility are scheduled quarterly with final payment due
June 30, 2002.
On March 31, 1996 the Company completed an exchange of its outstanding 17.5%
Senior Discount Notes for an identical amount of publicly-tradeable 17.5%
Senior Discount Notes which had been registered with the Securities and
Exchange Commission pursuant to a registered Exchange Offer which became
effective January 30, 1996.
During the nine months and three months ended September 30, 1996 the Company
purchased $452,000 and $326,000 of capital equipment and made payments for
broadcast program rights of $1,011,000 and $295,000, respectively.
10
<PAGE> 11
PART II - OTHER INFORMATION
The Company anticipates a default in certain financial covenants under the Bank
Credit Facility at December 31, 1996, but expects to obtain waivers of default
or modifications to the Credit Agreement.
The Company has engaged an investment banking firm to provide assistance and
advice related to the restructuring or recapitalization of the Company's
existing debt and equity, and to the feasibility of selling the Company's
assets.
11
<PAGE> 12
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.
PETRACOM HOLDINGS, INC.
By /s/ HENRY A. ASH
------------------------------
Henry A. Ash
President
Date: November 12, 1996
By /s/ HENRY A. ASH President and Director (principal executive
- ------------------------------- officer and sole director)
Henry A. Ash
Date: November 12, 1996
By /s/ JOSEPH M. FRY Vice President, Chief Financial Officer,
- ------------------------------- Treasurer and Assistant Secretary
Joseph M. Fry (principal financial officer and principal
Date: November 12, 1996 accounting officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PETRACOM HOLDINGS, INC. FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 683
<SECURITIES> 0
<RECEIVABLES> 5,431
<ALLOWANCES> 442
<INVENTORY> 0
<CURRENT-ASSETS> 9,731
<PP&E> 17,238
<DEPRECIATION> 4,526
<TOTAL-ASSETS> 86,265
<CURRENT-LIABILITIES> 0
<BONDS> 89,152
1,876
0
<COMMON> 3
<OTHER-SE> (19,131)
<TOTAL-LIABILITY-AND-EQUITY> 86,265
<SALES> 0
<TOTAL-REVENUES> 21,949
<CGS> 0
<TOTAL-COSTS> 19,873
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 269
<INTEREST-EXPENSE> 9,703
<INCOME-PRETAX> (7,637)
<INCOME-TAX> 102
<INCOME-CONTINUING> (7,739)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,739)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
