<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
MARCH 31, 1997 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
to
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Commission file number 33-98756
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PETRACOM HOLDINGS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 59-3324165
- -------- ----------
(State or other jurisdiction of (I.R.S. employer identification
incorporation or organization) no.)
1527 N DALE MABRY HWY, SUITE 105, LUTZ, FL 33549
- ------------------------------------------ ----------
(Address of principal executive offices) (Zip code)
(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
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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 May 8, 1997.
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PETRACOM HOLDINGS, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
MARCH 31, 1997
Page
Number
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PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets at March 31, 1997
and December 31, 1996 3
Consolidated Statements of Operations for the
three months ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6-7
Item. 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-9
PART II. - OTHER INFORMATION
Signatures 10
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PETRACOM HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (in 000's)
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<TABLE>
(Unaudited)
DECEMBER 31, MARCH 31
1996 1997
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,831 $ 1,198
Accounts receivable, less allowances of $602 and $584 5,861 4,789
Trade receivables 375 500
Current portion of broadcast program rights 1,825 1,694
Prepaid expenses and other current assets 884 1,063
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Total current assets 10,776 9,244
Property and equipment, net 12,351 12,050
Broadcast program rights 1,341 1,294
Intangible assets, net 61,023 59,555
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Total assets $ 85,491 $ 82,143
======== ========
LIABILITIES, MANDATORILY REDEEMABLE SECURITIES
AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued expenses $ 1,907 $ 1,720
Income taxes payable - 40
Trade payables 710 829
Accrued interest 179 45
Current portion of broadcast program rights contracts payable 2,041 1,885
Current portion of long-term debt 1,603 2,567
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Total current liabilities 6,440 7,086
Broadcast program rights contracts payable 1,247 1,193
Long-term debt 97,198 96,956
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Total liabilities 104,885 105,235
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Mandatorily redeemable securities
Class B, non-voting, common stock 1,966 2,063
Warrants 827 827
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Total mandatorily redeemable securities 2,793 2,890
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Stockholders' deficit
Class A, voting, common stock 3 3
Accumulated deficit (22,190) (25,985)
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Total stockholders' deficit (22,187) (25,982)
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Total liabilities, mandatorily redeemable securities and
stockholders' deficit $ 85,491 $ 82,143
======== ========
</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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<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
1996 1997
<S> <C> <C>
Revenues $ 7,334 $ 6,939
Less - agency and national rep commissions (1,088) (1,005)
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6,246 5,934
Barter and trade revenues 592 501
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Total net revenues 6,838 6,435
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Expenses
Operating 339 384
Selling, general and administrative 2,899 2,923
Programming 1,636 1,525
Depreciation and amortization 1,703 1,763
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6,577 6,595
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Income (loss) from operations 261 (160)
Other income (expense)
Interest expense (3,186) (3,455)
Other income (expense) 6 (43)
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Loss before income taxes (2,919) (3,658)
Provision for income taxes - 40
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Net loss $ (2,919) $(3,698)
======== =======
Net loss per Class A Common Voting Shares outstanding $ (12) $ (15)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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PETRACOM HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in 000's)
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<TABLE>
QUARTER ENDED MARCH 31,
1996 1997
<S> <C> <C>
Cash flows from operating activities
Net loss $(2,919) $(3,698)
Adjustments to reconcile net loss to
net cash provided by operating activities
Depreciation 431 473
Amortization of intangible assets 1,272 1,288
Amortization of deferred financing costs
included in interest 185 180
Amortization of broadcast program rights 364 326
Payments for broadcast program rights (350) (358)
Net trade position 92 (18)
Changes in assets and liabilities, net of
the effect of acquisitions:
Accounts receivable 663 1,072
Prepaid expenses and other current assets (80) (179)
Accounts payable and accrued expenses (294) (187)
Income taxes payable (105) 40
Accrued interest, including interest
included in long-term debt 1,467 2,106
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Net cash provided by operating activities 726 1,045
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Cash flows from investing activities
Additions of property and equipment (47) (160)
Additions of intangible assets (65) -
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Net cash used for investing activities (112) (160)
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Cash flows from financing activities
Payments on long-term debt and capital leases (35) (1,518)
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Net cash used for financing activities (35) (1,518)
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Increase (decrease) in cash and cash equivalents 579 (633)
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Cash and cash equivalents, beginning of period 2,180 1,831
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Cash and cash equivalents, end of period $ 2,759 $ 1,198
======= =======
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 1,534 $ 1,176
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
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PETRACOM HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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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 three months ended March 31, 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
6
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PETRACOM HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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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.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations
Net revenues, including trade and barter revenues decreased to $6,435,000 for
the three months ended March 31, 1997 from $6,838,000 for the three months
ended March 31, 1996, a decrease of $403,000 and 6%. The decrease resulted
primarily from reduced revenues at WTVW-TV and a soft market for national
revenues in the Company's television and radio markets. 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.
Petracom expects the negative effect on revenues of the affiliation switch to
continue at least through the second quarter of 1997. Net revenues for the
three months ended March 31, 1997 include $188,000 relating to the FOX Revenue
Guaranty Agreement. No amounts were recorded under the agreement for the three
months ended March 31, 1996 because it was not likely at the time that any
payment would have been required. Total operating expenses including
engineering, news, production, programming operations, selling, general and
administrative expenses, amortization of programming rights, trade and barter
expenses and depreciation and amortization of intangibles increased to
$6,590,000 for the three months ended March 31, 1997 from $6,577,000 for the
three months ended March 31, 1996, an increase of $13,000 and less than 1%.
The slight increase resulted primarily from an increases in cash operating
expenses which was offset by a decrease in trade and barter expenses. Interest
expense increased to $3,455,000 for the three months March 31, 1997 from
$3,186,000 for the three months ended March 31, 1996, an increase of $269,000
and 8%. 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
$3,698,000 for the three months ended March 31, 1997 compared to a net loss of
$2,919,000 for the three months ended March 31, 1996. The increase in the net
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 $1,487,000 for the three months ended
March 31, 1997 from $2,084,000 for the three months ended March 31, 1996. The
decrease resulted primarily from the changes in revenues and expenses as
discussed above. 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.
Although operating cash flow is not a measure of performance calculated in
accordance with generally accepted accounting principles (GAAP), 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 March 1, 1997, the Company had $48,171,000 outstanding under a
$55,000,000 bank credit facility, $33,091,000 of indebtedness under Senior
Discount Notes and $18,567,000 of indebtedness under a Junior Subordinated
Note. The amounts due under Senior Discount Notes
8
<PAGE> 9
and the Junior Subordinated Note include $8,091,000 and $5,067,000 of accrued
interest at March 31, 1997. Additionally, the Company had $1,198,000 in cash
on hand at March 31, 1997.
During the three months ended March 31, 1997, the Company made interest
payments of $1,166,000 under the bank credit facility and made a voluntary
payment of $1,500,000 on its revolving credit facility. No scheduled principal
payments were required under the borrowings for the period. Scheduled
quarterly principal repayments began June 30, 1996 with final payment due June
30, 2002. Cash interest payments on the Senior Discount Notes may begin August
1998 and must begin August 2000, but the Company expects to issue Interest
Notes in lieu of cash interest payments during the period from August 1998
through August 2000. The 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 three months ended March 31, 1997 the
Company purchased $160,000 of capital equipment and made program payments of
$358,000
PART II - OTHER INFORMATION
Petracom has been actively seeking alternative sources of capital to replace
the Senior Discount Notes and the Junior Subordinated Note. All options
continue to be evaluated and there has not been a final decision on the capital
structure.
Item 6 Exhibits and Reports on Form 8-K
Exhibit 27 Financial Data Schedule (for SEC use only)
9
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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: May 8, 1997
By /s/ HENRY A. ASH President and Director (principal
--------------------------- executive officer and sole director)
Henry A. Ash
Date: May 8, 1997
By /s/ JOSEPH M. FRY Vice President, Chief Financial
--------------------------- Officer, Treasurer and Assistant
Joseph M. Fry Secretary (principal financial
Date: May 8, 1997 officer and principal accounting
officer)
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PETRACOM HOLDINGS, INC. FOR THE THREE MONTHS ENDED MARCH
31, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,198
<SECURITIES> 0
<RECEIVABLES> 5,373
<ALLOWANCES> 584
<INVENTORY> 0
<CURRENT-ASSETS> 9,244
<PP&E> 17,618
<DEPRECIATION> 5,568
<TOTAL-ASSETS> 82,143
<CURRENT-LIABILITIES> 7,086
<BONDS> 96,956
2,063
0
<COMMON> 3
<OTHER-SE> (25,985)
<TOTAL-LIABILITY-AND-EQUITY> 82,143
<SALES> 6,435
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 6,595
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 84
<INTEREST-EXPENSE> 3,455
<INCOME-PRETAX> (3,658)
<INCOME-TAX> 40
<INCOME-CONTINUING> (3,698)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,698)
<EPS-PRIMARY> (15)
<EPS-DILUTED> 0
</TABLE>
