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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
MARCH 31, 1998 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)
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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)
(813) 948-2554
(Registrant's telephone number, including area code)
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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 May 5, 1998.
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PETRACOM HOLDINGS, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 1998
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Page
Number
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PART I. - FINANCIAL INFORMATION
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Item 1. Financial Statements (unaudited)
--------------------------------
Consolidated Balance Sheets at March 31, 1998
and December 31, 1997 3
Consolidated Statements of Operations for the
three months ended March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6-7
Item. 2. Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations 8
---------------------------------------------
PART II. - OTHER INFORMATION
-----------------
Item 6. Reports on Form 8-K 9
Signatures 10
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PETRACOM HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (in 000's)
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(Unaudited)
DECEMBER 31, MARCH 31,
1997 1998
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ASSETS
Current assets
Cash and cash equivalents $ 1,164 $ 1,675
Accounts receivable, less allowances of $605 and $613 5,740 4,818
Trade receivables 213 281
Current portion of broadcast program rights 2,347 2,117
Prepaid expenses and other current assets 1,503 691
--------- ---------
Total current assets 10,967 9,582
Property and equipment, net 11,452 11,434
Broadcast program rights 1,918 1,719
Intangible assets, net 55,143 53,675
--------- ---------
Total assets $ 79,480 $ 76,410
========= =========
LIABILITIES, MANDATORILY REDEEMABLE SECURITIES
AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued expenses $ 1,669 $ 1,419
Income taxes payable 52 18
Trade payables 674 704
Accrued interest -- --
Current portion of broadcast program rights contracts payable 2,320 2,124
Current portion of long-term debt 4,700 4,681
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Total current liabilities 9,415 8,946
Broadcast program rights contracts payable 1,962 1,686
Long-term debt 100,920 102,618
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Total liabilities 112,297 113,250
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Mandatorily redeemable securities
Class B, non-voting, common stock 2,379 2,496
Warrants 4,000 4,000
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Total mandatorily redeemable securities 6,379 6,496
--------- ---------
Stockholders' deficit
Class A, voting, common stock 3 3
Accumulated deficit (39,199) (43,339)
--------- ---------
Total stockholders' deficit (39,196) (43,336)
--------- ---------
Total liabilities, mandatorily redeemable securities and
stockholders' deficit $ 79,480 $ 76,410
========= =========
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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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THREE MONTHS ENDED MARCH 31,
1997 1998
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Revenues $ 6,939 $ 7,551
Less - agency and national representative commissions (1,005) (1,028)
------- -------
5,934 6,523
Barter and trade revenues 501 589
------- -------
Total net revenues 6,435 7,112
------- -------
Expenses
Operating 384 401
Selling, general and administrative 2,923 3,240
Programming 1,525 1,682
Depreciation and amortization 1,763 1,755
------- -------
6,595 7,078
------- -------
Income from operations (160) 34
Other expenses
Interest expense 3,455 3,927
Other expenses 43 92
------- -------
Loss before income taxes (3,658) (3,985)
Provision for income taxes 40 36
------- -------
Net loss $(3,698) $(4,021)
======= =======
Net loss per Class A Common Voting Shares outstanding $ (15) $ (17)
</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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THREE MONTHS ENDED MARCH 31,
1997 1998
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Cash flows from operating activities
Net loss $(3,698) $(4,021)
Adjustments to reconcile net loss to
net cash provided by operating activities
Depreciation 473 470
Amortization of intangible assets 1,288 1,285
Amortization of deferred financing costs 180 183
Amortization of debt discount -- 24
Amortization of broadcast program rights 326 374
Payments for broadcast program rights (358) (417)
Net trade position (18) (40)
Changes in assets and liabilities
Accounts receivable 1,072 922
Prepaid expenses and other current assets (179) 812
Accounts payable and accrued expenses (187) (250)
Income taxes payable 40 (34)
Accrued interest, including interest
included in long-term debt 2,106 2,673
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Net cash provided by operating activities 1,045 1,981
------- -------
Cash flows from investing activities
Additions of property and equipment (160) (452)
------- -------
Net cash used for investing activities (160) (452)
------- -------
Cash flows from financing activities
Payments on long-term debt and capital leases (1,518) (1,018)
------- -------
Net cash used for financing activities (1,518) (1,018)
------- -------
Increase (Decrease) in cash and cash equivalents (633) 511
Cash and cash equivalents, beginning of period 1,831 1,164
------- -------
Cash and cash equivalents, end of period $ 1,198 $ 1,675
======= =======
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 1,176 $ 1,046
======= =======
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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, 1998 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
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net revenues, including trade and barter revenues, increased to $7,112,000 for
the three months ended March 31, 1998 from $6,435,000 for the three months ended
March 31, 1997, an increase of $677,000 and 11%. The increase resulted primarily
from increased local advertising revenues at all of the Company's 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 $7,078,000 for the three months
ended March 31, 1998 from $6,595,000 for the three months ended March 31, 1997,
an increase of $513,000 and 8%. The increase 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
$3,903,000 for the three months ended March 31, 1998 from $3,455,000 for the
three months ended March 31, 1997, an increase of $448,000 and 13%. 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 $3,997,000 for the
three months ended March 31, 1998 compared to a net loss of $3,698,000 for the
three months ended March 31, 1997. 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) increased to $1,726,000 for the three months ended
March 31, 1998 from $1,487,000 for the three months ended March 31, 1997.
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 March 31, 1998, the Company had $45,971,000 in outstanding indebtedness
under a $55,000,000 term and revolving bank credit facility ("Bank Credit
Facility"), $38,546,000 of indebtedness under its 17.5% Senior Discount Notes
with warrants and $22,467,000 of indebtedness under a Junior Subordinated Note.
The amounts due under the Senior Discount Notes and the Junior Subordinated Note
include $14,136,000 and $8,967,000 of accrued interest at March 31, 1998,
respectively. Additionally, the company had $1,675,000 in cash on hand at March
31, 1998 and $1,200,000 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 three months ended March 31, 1998, the Company made interest payments
of $1,039,000 under its Bank Credit Facility. A scheduled principal payment of
$1,000,000 was made on the term portion of the Bank Credit Facility. Principal
payments under the Bank Credit Facility 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 three months ended March 31, 1998 the Company purchased $452,000 of
capital equipment and made program payments of $417,000.
8
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PART II - OTHER INFORMATION
Item 6. (a) Exhibits - 27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
On April 1, 1998 the Company filed a Current Report on Form 8-K reporting under
Item 5. that in connection with the sale of the voting common stock of Petracom
Holdings, Inc. by its sole owner, the Company entered into an agreement on March
6, 1998 to sell the assets of its radio stations. Consummation of the
transactions is expected in the second quarter of 1998.
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 5, 1998
By /s/ HENRY A. ASH President and Director (principal executive
---------------- officer and sole director)
Henry A. Ash
Date: May 5, 1998
By /s/ JOSEPH M. FRY Vice President, Chief Financial Officer,
----------------- Treasurer and Assistant Secretary
Joseph M. Fry (principal financial officer and principal
Date: May 5, 1998 accounting officer)
10
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PETRACOM HOLDINGS, INC. FOR THE QUARTER ENDED
MAR 31, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,675
<SECURITIES> 0
<RECEIVABLES> 5,431
<ALLOWANCES> 613
<INVENTORY> 0
<CURRENT-ASSETS> 9,582
<PP&E> 18,751
<DEPRECIATION> 7,317
<TOTAL-ASSETS> 76,410
<CURRENT-LIABILITIES> 8,946
<BONDS> 102,618
2,496
0
<COMMON> 3
<OTHER-SE> (43,339)
<TOTAL-LIABILITY-AND-EQUITY> 76,410
<SALES> 7,112
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 7,078
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 85
<INTEREST-EXPENSE> 3,927
<INCOME-PRETAX> (3,985)
<INCOME-TAX> 36
<INCOME-CONTINUING> (4,021)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,021)
<EPS-PRIMARY> (17)
<EPS-DILUTED> 0
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