<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, 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
PETRACOM HOLDINGS, INC.
-----------------------
(Exact name of registrant as specified in its charter)
DELAWARE 59-3324165
- -------- ----------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1527 N DALE MABRY HWY, SUITE 105, LUTZ, FL 33549
- ------------------------------------------ ----------
(Address of principal executive offices) (Zip code)
(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 6, 1997.
<PAGE> 2
PETRACOM HOLDINGS, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
September 30, 1997
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets at September 30, 1997
and December 31, 1996 3
Consolidated Statements of Operations for the
nine months ended September 30, 1997 and 1996 4
Consolidated Statements of Operations for the
three months ended September 30, 1997 and 1996 5
Consolidated Statements of Cash Flows for the
nine months ended September 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 6. Reports on Form 8-K 11
Signatures 12
</TABLE>
<PAGE> 3
PETRACOM HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (in 000's)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
DECEMBER 31, SEPTEMBER 30,
1996 1997
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,831 $ 947
Accounts receivable, less allowances of $602 and $601 5,861 5,096
Trade receivables 375 406
Current portion of broadcast program rights 1,825 2,393
Prepaid expenses and other current assets 884 1,452
---------- ----------
Total current assets 10,776 10,294
Property and equipment, net 12,351 11,626
Broadcast program rights 1,341 1,974
Intangible assets, net 61,023 56,615
---------- ----------
Total assets $ 85,491 $ 80,509
========== ==========
LIABILITIES, MANDATORILY REDEEMABLE SECURITIES
AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued expenses $ 1,907 $ 1,647
Income taxes payable - 41
Trade payables 710 915
Accrued interest 179 390
Current portion of broadcast program rights contracts payable 2,041 2,531
Current portion of long-term debt 1,603 4,019
---------- ----------
Total current liabilities 6,440 9,543
Broadcast program rights contracts payable 1,247 1,771
Long-term debt 97,198 98,991
---------- ----------
Total liabilities 104,885 110,305
---------- ----------
Mandatorily redeemable securities
Class B, non-voting, common stock 1,966 2,269
Warrants 827 827
---------- ----------
Total mandatorily redeemable securities 2,793 3,096
---------- ----------
Stockholders' deficit
Class A, voting, common stock 3 3
Accumulated deficit (22,190) (32,895)
---------- ----------
Total stockholders' deficit (22,187) (32,892)
---------- ----------
Total liabilities, mandatorily redeemable securities and
stockholders' deficit $ 85,491 $ 80,509
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 4
PETRACOM HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in 000's)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1996 1997
<S> <C> <C>
Revenues $ 23,293 $ 23,244
Less - agency and national representative commissions (3,397) (3,324)
--------- ---------
19,896 19,920
Barter and trade revenues 2,053 1,815
--------- ---------
Total net revenues 21,949 21,735
--------- ---------
Expenses
Operating 1,054 1,221
Selling, general and administrative 8,724 9,416
Programming 4,938 4,872
Depreciation and amortization 5,157 5,298
--------- ---------
19,873 20,807
--------- ---------
Income from operations 2,076 928
Other expenses
Interest expense 9,703 10,693
Other expenses 10 31
--------- ---------
Loss before income taxes (7,637) (9,796)
Provision for income taxes 102 137
--------- ---------
Net loss $ (7,739) $ (9,933)
========= =========
Net loss per Class A Common Voting Shares outstanding $ (32) $ (41)
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE> 5
PETRACOM HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in 000's)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1997
<S> <C> <C>
Revenues $ 7,867 $ 7,923
Less - agency and national representative commissions (1,094) (1,135)
---------- ----------
6,773 6,788
Barter and trade revenues 745 621
--------- ----------
Total net revenues 7,518 7,409
--------- ----------
Expenses
Operating 376 425
Selling, general and administrative 2,931 3,324
Programming 1,657 1,508
Depreciation and amortization 1,730 1,767
--------- ----------
6,694 7,024
--------- ----------
Income from operations 824 385
Other expenses
Interest expense 3,321 3,714
Other expenses 15 5
--------- ----------
Loss before income taxes (2,512) (3,334)
Provision for income taxes 102 47
--------- ----------
Net loss $ (2,614) $ (3,381)
========= ===========
Net loss per Class A Common Voting Shares outstanding $ (11) $ (14)
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE> 6
PETRACOM HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in 000's)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1996 1997
<S> <C> <C>
Cash flows from operating activities
Net loss $(7,739) $(9,933)
Adjustments to reconcile net loss to
net cash provided by operating activities
Depreciation 1,307 1,428
Amortization of intangible assets 3,850 3,868
Amortization of deferred financing costs
included in interest 554 540
Amortization of broadcast program rights 1,090 980
Payments for broadcast program rights (1,011) (1,167)
Net trade position (6) 119
Loss on disposal of property and equipment -- 14
Changes in assets and liabilities
Accounts receivable 412 765
Prepaid expenses and other current assets (503) (568)
Accounts payable and accrued expenses (44) (259)
Income taxes payable (3) 41
Accrued interest, including interest
included in long-term debt 5,471 7,203
------- -------
Net cash provided by operating activities 3,378 3,031
------- -------
Cash flows from investing activities
Additions of property and equipment (452) (662)
Additions of intangible assets (62) --
------- -------
Net cash used for investing activities (514) (662)
------- -------
Cash flows from financing activities
Proceeds from long-term debt and capital leases 1,023 --
Payments on long-term debt and capital leases (5,384) (2,783)
Purchase of minority shareholder's preferred stock -- (470)
------- -------
Net cash used for financing activities (4,361) (3,253)
------- -------
Decrease in cash and cash equivalents (1,497) (884)
Cash and cash equivalents, beginning of period 2,180 1,831
------- -------
Cash and cash equivalents, end of period $ 683 $ 947
------- -------
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 3,660 $ 3,291
------- -------
</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
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 nine months ended September 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
<PAGE> 8
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
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Comparison of Nine Months Ended September 30, 1997 to Nine Months Ended
September 30, 1996
Net revenues, including trade and barter revenues, decreased to $21,735,000 for
the nine months ended September 30, 1997 from $21,949,000 for the nine months
ended September 30, 1996, a decrease of $214,000 and less than 1%. The decrease
resulted primarily from lower trade and barter revenue, reduced advertising
revenues at WTVW-TV, reduced political advertising revenue and a soft market for
national advertising revenues in the Company's television and radio markets.
These revenue decreases were partially offset by increased local advertising
revenues at the Company's other television stations. 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. 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 $20,807,000 for the nine months
ended September 30, 1997 from $19,873,000 for the nine months ended September
30, 1996, an increase of $934,000 and 5%. The increase resulted primarily from
an increase in cash operating expenses which was partially 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 $10,638,000 for the nine months ended September
30, 1997 from $9,703,000 for the nine months ended September 30, 1996, an
increase of $935,000 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 $9,878,000 for the nine months ended September 30, 1997
compared to a net loss of $7,739,000 for the nine months ended September 30,
1996. The increase in the loss resulted primarily from the reasons discussed
above.
Comparison of Three Months Ended September 30, 1997 to Three Months Ended
September 30, 1996
Net revenues, including trade and barter revenues, decreased to $7,409,000 for
the three months ended September 30, 1997 from $7,518,000 for the three months
ended September 30, 1996, a decrease of $109,000 and 1%. The decrease resulted
primarily from lower advertising revenues at WTVW and a continued soft market
for national advertising revenues in the other television and radio markets.
These revenue decreases were partially offset by increased local advertising
revenues at the Company's television stations. 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 $7,024,000 for the three months ended September 30,
1997 from $6,694,000 for the three months ended September 30, 1996, an increase
of $330,000 and 5%.
9
<PAGE> 10
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
$3,659,000 for the three months ended September 30, 1997 from $3,321,000 for the
three months ended September 30, 1996, an increase of $338,000 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
$3,326,000 for the three months ended September 30, 1997 compared to a net loss
of $2,614,000 for the three months ended September 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 $6,244,000 for the nine months ended
September 30, 1997 from $7,306,000 for the nine months ended September 30, 1996
and decreased to $2,245,000 for the three months ended September 30, 1997 from
$2,490,000 for the three months ended September 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 September 30, 1997, the Company had $46,971,000 in outstanding
indebtedness under a $55,000,000 term and revolving bank credit facility ("Bank
Credit Facility"), $35,992,000 of indebtedness under its 17.5% Senior Discount
Notes with warrants and $20,424,000 of indebtedness under a Junior Subordinated
Note. The amounts due under the Senior Discount Notes and the Junior
Subordinated Note include $10,992,000 and $6,924,000 of accrued interest at
September 30, 1997, respectively. Additionally, the company had $947,000 in cash
on hand at September 30, 1997 and $2,200,000 available under its revolving bank
credit facility. During the period, the Company obtained waivers and amendments
relating to certain covenants under the Bank Credit Facility.
During the nine months ended September 30, 1997, the Company made interest
payments of $3,264,000 under its bank credit facility. A scheduled principal
payment of $500,000 was made on the term portion of the such Bank Credit
Facility and voluntary payments totalling $2,200,000 were made on the revolving
portion of the Bank Credit Facility. Principal payments under the bank credit
facility began on 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 nine months ended September 30, 1997 the Company purchased $662,000
of capital equipment and made program payments of $1,167,000.
10
<PAGE> 11
PART II - OTHER INFORMATION
(a) Exhibits
Exhibit 27 - Financial Data Schedule (for SEC use only)
Item 6. (b) Reports on Form 8-K
On October 10, 1997 the Company filed a Current Report on Form 8-K reporting
under Item 5. that the sole owner of the voting common stock of Petracom
Holdings, Inc. had entered into an agreement to sell all of its voting common
stock of the Company.
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 6, 1997
By /s/ HENRY A. ASH President and Director
-------------------------- (principal executive
Henry A. Ash officer and sole director)
Date: November 6, 1997
By /s/ JOSEPH M. FRY Vice President, Chief
-------------------------- Financial Officer,
Joseph M. Fry Treasurer and Assistant Secretary
Date: November 6, 1997 (principal financial
officer and principal
accounting officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PETRACOM HOLDINGS FOR THE NINE MONTHS ENDED SEPTEMBER
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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 947
<SECURITIES> 0
<RECEIVABLES> 5,697
<ALLOWANCES> 601
<INVENTORY> 0
<CURRENT-ASSETS> 10,294
<PP&E> 18,149
<DEPRECIATION> 6,523
<TOTAL-ASSETS> 80,509
<CURRENT-LIABILITIES> 9,543
<BONDS> 98,991
2,269
0
<COMMON> 3
<OTHER-SE> (32,895)
<TOTAL-LIABILITY-AND-EQUITY> 80,509
<SALES> 21,735
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 20,807
<OTHER-EXPENSES> 31
<LOSS-PROVISION> 284
<INTEREST-EXPENSE> 10,693
<INCOME-PRETAX> (9,796)
<INCOME-TAX> 137
<INCOME-CONTINUING> (9,933)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,933)
<EPS-PRIMARY> (41)
<EPS-DILUTED> 0
</TABLE>
