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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
JUNE 30, 1997 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
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PETRACOM HOLDINGS, INC.
-----------------------
(Exact name of registrant as specified in its charter)
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DELAWARE 59-3324165
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(State or other jurisdiction of incorporation or organization) (I.R.S. employer identification no.)
1527 N DALE MABRY HWY, SUITE 105, LUTZ, FL 33549
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(Address of principal executive offices) (Zip code)
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(813) 948-2554
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(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 August 11, 1997.
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PETRACOM HOLDINGS, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 1997
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Page
Number
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PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets at June 30, 1997
and December 31, 1996 3
Consolidated Statements of Operations for the
six months ended June 30, 1997 and 1996 4
Consolidated Statements of Operations for the
three months ended June 30, 1997 and 1996 5
Consolidated Statements of Cash Flows for the
six months ended June 30, 1997 and 1996 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
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
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PETRACOM HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (in 000's)
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<CAPTION>
(Unaudited)
DECEMBER 31, JUNE 30,
1996 1997
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<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,831 $ 1,051
Accounts receivable, less allowances of $602 and $615 5,861 5,384
Trade receivables 375 403
Current portion of broadcast program rights 1,825 1,378
Prepaid expenses and other current assets 884 1,442
--------- ---------
Total current assets 10,776 9,658
Property and equipment, net 12,351 11,745
Broadcast program rights 1,341 1,182
Intangible assets, net 61,023 58,085
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Total assets $ 85,491 $ 80,670
========= =========
LIABILITIES, MANDATORILY REDEEMABLE SECURITIES
AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued expenses $ 1,907 $ 1,786
Income taxes payable -- 8
Trade payables 710 779
Accrued interest 179 375
Current portion of broadcast program rights contracts payable 2,041 1,519
Current portion of long-term debt 1,603 3,537
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Total current liabilities 6,440 8,004
Broadcast program rights contracts payable 1,247 1,071
Long-term debt 97,198 97,541
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Total liabilities 104,885 106,616
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Mandatorily redeemable securities
Class B, non-voting, common stock 1,966 2,163
Warrants 827 827
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Total mandatorily redeemable securities 2,793 2,990
--------- ---------
Stockholders' deficit
Class A, voting, common stock 3 3
Accumulated deficit (22,190) (28,939)
--------- ---------
Total stockholders' deficit (22,187) (28,936)
--------- ---------
Total liabilities, mandatorily redeemable securities and
stockholders' deficit $ 85,491 $ 80,670
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
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PETRACOM HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in 000's)
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SIX MONTHS ENDED JUNE 30,
1996 1997
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Revenues $ 15,426 $ 15,321
Less - agency and national representative commissions (2,303) (2,189)
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13,123 13,132
Barter and trade revenues 1,308 1,194
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Total net revenues 14,431 14,326
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Expenses
Operating 678 796
Selling, general and administrative 5,793 6,092
Programming 3,281 3,364
Depreciation and amortization 3,427 3,531
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13,179 13,783
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Income from operations 1,252 543
Other (expense) income
Interest expense (6,382) (6,979)
Other(expense) income 5 (26)
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Loss before income taxes (5,125) (6,462)
Provision for income taxes -- 90
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Net loss $ (5,125) $ (6,552)
======== ========
Net loss per Class A Common Voting Shares outstanding $ (21) $ (27)
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
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PETRACOM HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in 000's)
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THREE MONTHS ENDED JUNE 30,
1996 1997
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Revenues $ 8,092 $ 8,382
Less - agency and national representative commissions (1,215) (1,184)
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6,877 7,198
Barter and trade revenues 716 693
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Total net revenues 7,593 7,891
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Expenses
Operating 339 412
Selling, general and administrative 2,894 3,169
Programming 1,645 1,839
Depreciation and amortization 1,724 1,768
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6,602 7,188
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Income from operations 991 703
Other (expense) income
Interest expense (3,196) (3,524)
Other(expense) income (1) 17
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Loss before income taxes (2,206) (2,804)
Provision for income taxes -- 50
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Net loss $(2,206) $(2,854)
======= =======
Net loss per Class A Common Voting Shares outstanding $ (9) $ (12)
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
5
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PETRACOM HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in 000's)
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SIX MONTHS ENDED JUNE 30,
1996 1997
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Cash flows from operating activities
Net loss $(5,125) $(6,552)
Adjustments to reconcile net loss to
net cash provided by operating activities
Depreciation 877 952
Amortization of intangible assets 2,550 2,578
Amortization of deferred financing costs
included in interest 369 360
Amortization of broadcast program rights 733 646
Payments for broadcast program rights (716) (737)
Net trade position 15 11
Loss on disposal of property and equipment -- 20
Changes in assets and liabilities
Accounts receivable (153) 477
Prepaid expenses and other current (7) (558)
assets
Accounts payable and accrued expenses 89 (121)
Income taxes payable (105) 8
Accrued interest, including interest
included in long-term debt 3,371 4,742
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Net cash provided by operating 1,898 1,826
activities ------- -------
Cash flows from investing activities
Additions of property and equipment (126) (337)
Additions of intangible assets (87) --
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Net cash used for investing (213) (337)
activities ------- -------
Cash flows from financing activities
Payments on long-term debt and capital leases (3,315) (2,269)
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Net cash used for financing (3,315) (2,269)
activities ------- -------
Decrease in cash and cash equivalents (1,630) (780)
Cash and cash equivalents, beginning of period 2,180 1,831
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Cash and cash equivalents, end of period $ 550 $ 1,051
======= =======
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 2,638 $ 1,885
======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
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PETRACOM HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
Petracom Holdings, Inc., a Delaware corporation ("Petracom" or the "Company"),
is a holding company that through its subsidiaries owns and operates five
television stations and four radio stations. The Company's predecessor,
Petracom, Inc., was formed in January 1990 for the purpose of acquiring and
operating television and radio broadcast properties. The Company has owned and
operated WQRF-TV in Rockford, Illinois and KAYD-AM/KAYD-FM in Beaumont, Texas
since 1990 and KQHN-AM/KQXY-FM in Beaumont, Texas since 1994. On August 1, 1995,
the Company acquired KDEB-TV in Springfield, Missouri, WTVW-TV in Evansville,
Indiana, KARD-TV in Monroe, Louisiana, and KLBK-TV in Lubbock, Texas.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. Significant intercompany accounts have been
eliminated in consolidation. Certain prior year amounts have been reclassified
for comparative purposes.
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.
The results of operations for the six months ended June 30, 1997 are not
necessarily indicative of the results to be expected for the full year.
2. CASH AND CASH EQUIVALENTS
The Company has defined cash and cash equivalents as cash and investments with a
maturity when purchased of three months or less.
3. BARTER AND TRADE TRANSACTIONS
The Company barters advertising time for certain programming and for various
goods and services. These transactions are recorded at the fair value of the
services involved as determined by management. The related revenue is recognized
when the advertisements are broadcast while expenses are recognized when the
goods or services are utilized.
4. BROADCAST PROGRAM RIGHTS AND CONTRACTS PAYABLE
Broadcast program rights, primarily in the form of syndicated programs and
feature films, represent amounts paid or payable to program suppliers for the
limited right to broadcast the suppliers' programming and are recorded when
available for use. Broadcast program rights are stated at the lower of
unamortized cost or net realizable value. Broadcast program rights are amortized
over the lives of the underlying contracts on the greater of straight-line over
the license
7
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PETRACOM HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
term or on a per-play basis. Amounts expected to be amortized within one year
are classified as current assets. Broadcast program rights contracts payable
represent the gross amounts to be paid to program suppliers over the life of the
contracts. The portion of broadcast program rights contracts payable within one
year are classified as current liabilities.
5. PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is computed over the
estimated useful lives of the assets which range from 5 to 31 years on a
straight-line basis. Expenditures for maintenance and repairs are charged to
operations as incurred, whereas expenditures for renewals and betterment are
capitalized.
6. INTANGIBLE ASSETS
Intangible assets have been recorded based on their fair values at the date of
acquisition. Such amounts are being amortized on a straight-line basis over
their estimated useful lives, which range from 5 to 15 years. The Company
annually evaluates whether there has been a permanent impairment in the value of
recorded intangible assets.
7. INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Deferred income
taxes are provided for differences in the treatment of income and expense items
for financial reporting and income tax purposes. A valuation allowance is
provided for deferred income taxes for which the future utilization is not
assured.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments approximate their
fair value.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of Six Months Ended June 30, 1997 to Six Months Ended June 30, 1996
Net revenues, including trade and barter revenues, decreased to $14,326,000 for
the six months ended June 30, 1997 from $14,431,000 for the six months ended
June 30, 1996, a decrease of $105,000 and less than 1%. The decrease resulted
primarily from lower trade and barter revenue, reduced advertising revenues at
WTVW-TV and a soft market for national advertising revenues in the Company's
television and radio markets. These decreases were offset by increased local
advertising revenues at the other television stations and the revenue related to
a revenue guaranty agreement at WTVW, as described below. The decrease in
advertising revenues at WTVW-TV resulted from the affiliation switch from ABC to
FOX on December 4, 1995. Subsequent ratings books from Nielsen reported
decreases in audience ratings for time periods programmed by the network. Since
audience ratings are used to set advertising rates and to attract advertising
expenditures, the station's advertising revenues decreased accordingly. Net
revenues for the six months ended June 30, 1997 include $375,000 relating to a
FOX Revenue Guaranty Agreement. No amounts were recorded under the agreement for
the six months ended June 30, 1996 because it was not likely at the time that
any payment would have been required. 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
$13,783,000 for the six months ended June 30, 1997 from $13,179,000 for the six
months ended June 30, 1996, an increase of $604,000 and 5%. The increase
resulted primarily from an increase in cash operating expenses which was offset
by a decrease in trade and barter expenses. The increase in cash operating
expenses resulted primarily from the additional selling, promotion, news and
repair expenses related to improvements to the television and radio stations'
operations. Interest expense increased to $6,979,000 for the six months ended
June 30, 1997 from $6,382,000 for the six months ended June 30, 1996, an
increase of $597,000 and 9%. The increase resulted primarily from the effects of
compounding on the Senior Discount Notes and the Junior Subordinated Note. There
was a net loss of $6,552,000 for the six months ended June 30, 1997 compared to
a net loss of $5,125,000 for the six months ended June 30, 1996. The increase in
the loss resulted primarily from the reasons discussed above.
Comparison of Three Months Ended June 30, 1997 to Three Months Ended June 30,
1996
Net revenues, including trade and barter revenues, increased to $7,891,000 for
the three months ended June 30, 1997 from $7,593,000 for the three months ended
June 30, 1996, an increase of $298,000 and 4%. The increase resulted primarily
from increased local advertising revenues at the television stations and the
revenue related to the revenue guaranty agreement at WTVW, as described above.
These revenue increases were offset by the decrease in advertising revenues at
WTVW and a continued soft market for national advertising revenues in the other
television and radio markets. 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,
9
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increased to $7,188,000 for the three months ended June 30, 1997 from $6,602,000
for the three months ended June 30, 1996, an increase of $586,000 and 9%. The
increase in operating expenses resulted primarily from the additional selling,
promotion, news and repair expenses related to improvements to the television
and radio stations' operations. Interest expense increased to $3,524,000 for the
three months ended June 30, 1997 from $3,196,000 for the three months ended June
30, 1996, an increase of $328,000 and 10%. The increase resulted primarily from
the effects of compounding on the Senior Discount Notes and the Junior
Subordinated Note. There was a net loss of $2,854,000 for the three months ended
June 30, 1997 compared to a net loss of $2,206,000 for the three months ended
June 30, 1996. The increase in the loss resulted primarily from the reasons
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of capital is cash flow from operations. Operating
cash flow (as defined below) decreased to $3,999,000 for the six months ended
June 30, 1997 from $4,817,000 for the six months ended June 30, 1996 and
decreased to $2,512,000 for the three months ended June 30, 1997 from $2,747,000
for the three months ended June 30, 1996. 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 June 30, 1997, the Company had $47,471,000 in outstanding indebtedness
under a $55,000,000 term and revolving bank credit facility ("Bank Credit
Facility"), $34,503,000 of indebtedness under its 17.5% Senior Discount Notes
with warrants and $19,466,000 of indebtedness under a Junior Subordinated Note.
The amounts due under the Senior Discount Notes and the Junior Subordinated Note
include $9,503,000 and $5,966,000 of accrued interest at June 30, 1997,
respectively. Additionally, the company had $1,051,000 in cash on hand at June
30, 1997 and $2,200,000 available under its revolving bank credit facility.
During the six months ended June 30, 1997, the Company made interest payments of
$1,866,000 under the bank credit facility and made voluntary payments totalling
$2,200,000 on its revolving credit facility. No scheduled principal payments
were required under these borrowings for the period. Principal payments under
the Bank Credit Facility are scheduled to begin September 30, 1997 and continue
quarterly with final payment due September 30, 2002. 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 six months ended June 30, 1997 the Company purchased $337,000 of
capital equipment and made program payments of $737,000.
10
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PART II - OTHER INFORMATION
The sole owner of the voting common stock of the Company has entered into a
letter agreement which offers to acquire the sole owner's voting common stock of
the Company. The letter agreement is subject to various conditions including the
negotiation of a definitive stock sales agreement, the sale of the Company's
radio stations and regulatory approval. The Company and the sole owner continue
to negotiate the terms of a definitive agreement with the prospective purchaser
of the stock. The Company has reviewed offers regarding the sale the radio
stations, but has not entered into any such agreement.
Item 6 Exhibits and Reports on Form 8-K
Exhibit 27 Financial Data Schedule (for SEC use only)
11
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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: August 11, 1997
By /s/ HENRY A. ASH President and Director (principal executive
--------------------- officer and sole director)
Henry A. Ash
Date: August 11, 1997
By /s/ JOSEPH M. FRY Vice President, Chief Financial Officer,
--------------------- Treasurer and Assistant Secretary
Joseph M. Fry (principal financial officer and principal
Date: August 11, 1997 accounting officer)
12
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PETRACOM HOLDINGS FOR THE SIX MONTHS ENDED JUNE 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 1,051
<SECURITIES> 0
<RECEIVABLES> 5,999
<ALLOWANCES> 615
<INVENTORY> 0
<CURRENT-ASSETS> 9,658
<PP&E> 17,792
<DEPRECIATION> 6,047
<TOTAL-ASSETS> 80,670
<CURRENT-LIABILITIES> 8,004
<BONDS> 97,541
2,163
0
<COMMON> 3
<OTHER-SE> (28,939)
<TOTAL-LIABILITY-AND-EQUITY> 80,670
<SALES> 14,326
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 13,783
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 187
<INTEREST-EXPENSE> 6,979
<INCOME-PRETAX> (6,462)
<INCOME-TAX> 90
<INCOME-CONTINUING> (6,552)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,552)
<EPS-PRIMARY> (27)
<EPS-DILUTED> 0
</TABLE>
