<PAGE>
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 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 333-18017
PETERSEN PUBLISHING COMPANY, L.L.C.
(Exact name of Registrant as specified in its charter)
DELAWARE 95-4597937
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6420 WILSHIRE BOULEVARD 90048
LOS ANGELES, CALIFORNIA (Zip Code)
(Address of principal executive offices)
Registrant's Telephone Number, Including Area Code: (213) 782-2000
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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PETERSEN PUBLISHING COMPANY, L.L.C.
INDEX TO FORM 10-Q
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PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed balance sheets as of December 31, 1996
and June 30, 1997 (unaudited)................................ 3
Unaudited condensed statements of operations for
the three and six months ended June 30, 1996 and 1997........ 4
Unaudited condensed statements of cash flows for
the three and six months ended June 30, 1996 and 1997........ 5
Notes to unaudited condensed financial
statements................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
</TABLE>
2
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PETERSEN PUBLISHING COMPANY, L.L.C.
CONDENSED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
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<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
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ASSETS
Current assets:
Cash and cash equivalents......................... $ 7,761 $ 6,923
Accounts receivable, less allowance for doubtful
accounts of $1,604 (1996) and $1,722 (1997)...... 20,141 24,011
Inventories....................................... 4,408 3,721
Deferred direct mail advertising costs,
net of accumulated amortization of $307 (1997)... -- 2,340
Other prepaid expenses and current assets......... 730 653
-------- --------
Total current assets........................... 33,040 37,648
Property and equipment, net of accumulated
depreciation of $560 (1996) and $1,501 (1997)...... 4,152 3,360
Goodwill, net of accumulated amortization of
$5,992 (1996) and $17,979 (1997)................... 353,556 341,595
Subscriber list and established work force, net
of accumulated amortization of $3,000 (1996) and
$9,000 (1997)...................................... 117,000 111,000
Deferred financing costs, net of accumulated
amortization of $3,276 (1996) and $4,659 (1997).... 10,735 9,352
Other assets........................................ 587 631
-------- --------
TOTAL ASSETS................................... $519,070 $503,586
======== ========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.......... $ 13,288 $ 16,623
Accrued payroll and related costs................. 1,963 4,098
Accrued interest on long-term debt................ 2,041 3,628
Customer incentives payable....................... 5,785 5,735
Current portion of unearned subscription
revenues, net of deferred subscription
acquisition costs of $43,835 (1996) and
$40,711 (1997)................................... 27,328 28,806
Current portion of long-term debt................. 1,000 6,000
Other accrued expenses and current liabilities.... 119 261
-------- --------
Total current liabilities...................... 51,524 65,151
Unearned subscription revenues, net of deferred
subscription acquisition costs of $41,168 (1996)
and $44,680 (1997)................................. 6,440 7,391
Long-term debt...................................... 299,000 271,750
Other noncurrent liabilities........................ 7,652 8,664
Commitments and contingencies
Members' equity..................................... 154,454 150,630
-------- --------
TOTAL LIABILITIES AND MEMBERS' EQUITY.......... $519,070 $503,586
======== ========
</TABLE>
See accompanying notes.
3
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PETERSEN PUBLISHING COMPANY, L.L.C.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Petersen Petersen
Publishing Publishing
Predecessor Company, LLC Predecessor Company, LLC
----------- -------------- ----------- --------------
Three Months Ended June 30 Six Months Ended June 30,
-------------------------- -------------------------
1996 1997 1996 1997
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Net revenues:
Advertising............................................... $36,012 $38,934 $ 67,397 $ 73,438
Newsstand................................................. 10,308 10,706 21,281 21,249
Subscriptions............................................. 11,184 10,747 21,828 21,736
Other..................................................... 1,842 2,283 4,534 3,720
------- ------- -------- --------
Total net revenues.......................................... 59,346 62,670 115,040 120,143
Production, selling and other direct costs (including
rent paid to a related party of $1,149, and $2,298 for the
three and six months ended June 30, 1996, and $1,093 and
$2,187 for the three and six months ended June 30, 1997,
respectively)............................................. 47,300 42,413 91,971 82,440
------- ------- -------- --------
Gross profit................................................ 12,046 20,257 23,069 37,703
General and administrative expenses......................... 6,046 3,845 12,903 8,955
Amortization of goodwill and other intangible assets........ 82 9,126 196 18,151
------- ------- -------- --------
Income from operations...................................... 5,918 7,286 9,970 10,597
Other income (expense):
Interest income........................................... 147 183 238 355
Interest expense.......................................... (1) (8,188) (153) (15,853)
Gain (loss) on sale of assets............................. 42 (37) 1,554 (33)
------- ------- -------- --------
Income (loss) before provision for taxes ................... 6,106 (756) 11,609 (4,934)
Provision for taxes......................................... 61 -- 199 --
------- ------- -------- --------
Net income (loss)........................................... $ 6,045 (756) $ 11,410 (4,934)
======= ========
Preferred unit dividends.................................... -- (15,419)
------- --------
Net income (loss) attributable to common units.............. $ (756) $(20,353)
======= ========
</TABLE>
See accompanying notes.
4
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PETERSEN PUBLISHING COMPANY, L.L.C.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
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<CAPTION>
PETERSEN
PUBLISHING
COMPANY,
PREDECESSOR L.L.C.
------------ ----------
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1996 1997
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OPERATING ACTIVITIES
Net income (loss)...................................... $ 11,609 $ (4,934)
Adjustment to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization......................... 1,667 20,791
Allowance for doubtful accounts....................... 376 828
(Gain) loss on sale of assets......................... (1,554) 33
Deferred state income taxes........................... 209 --
Changes in operating assets and liabilities:
Accounts receivable.................................. (5,215) (4,698)
Inventories.......................................... 11,148 687
Deferred direct mail advertising costs............... -- (2,647)
Accounts payable and accrued liabilities............. 1,559 2,848
Accrued payroll and related costs.................... 660 2,135
Accrued interest on long-term debt................... -- 1,587
Customer incentives payable.......................... 353 (50)
Unearned subscription revenues, net.................. 3,166 2,429
Other current assets, net............................ (78) 619
Other noncurrent liabilities......................... (92) (1,514)
--------- --------
Total adjustments..................................... 12,199 23,048
--------- --------
Net cash provided by operating activities.............. 23,808 18,114
INVESTING ACTIVITIES
Purchases of property and equipment.................... (463) (228)
Purchases of magazines................................. -- (122)
Purchases of investments............................... (333) --
Proceeds from sale of assets........................... 2,500 38
Acquisition of assets of publishing division of
Petersen Publishing Company, including liabilities
assumed and net of costs associated with the
acquisition........................................... -- 2,500
--------- --------
Net cash provided by investing activities.............. 1,704 2,188
--------- --------
FINANCING ACTIVITIES
Repayment of bank borrowings........................... -- (22,250)
Proceeds from issuance of members units................ -- 910
Reduction in notes receivable, related party........... -- 200
Distribution of S corporation earnings................. (1,950) --
Net change in advances of other divisions
of the Company........................................ (475) --
--------- --------
Net cash used in financing activities.................. (2,425) (21,140)
--------- --------
Increase (decrease) in cash and cash equivalents....... 23,087 (838)
Cash and cash equivalents at beginning of period....... (13,663) 7,761
--------- --------
Cash and cash equivalents at end of period............. $ 9,424 $ 6,923
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during period for:
Interest.............................................. $ -- $ 10,842
========= ========
Taxes................................................. $ -- $ 12
========= ========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the six months ended June 30, 1997, the Company increased goodwill and
accrued liabilities by $2,526,000 representing adjustments to the allocation
of the purchase price of the Acquisition. Additionally, the Company accrued
the cumulative Preferred Unit dividend of $15,419,000 during the six months
ended June 30, 1997.
See accompanying notes.
5
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PETERSEN PUBLISHING COMPANY, L.L.C.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Petersen Holdings, L.L.C. ("Holdings") is a Delaware limited liability
company. Holdings owns 99.9% of Petersen Publishing Company, L.L.C. (the
"Company"). Holdings has no business operations other than those of the Company.
The remaining 0.1% of the Company is owned by BrightView Communications Group,
Inc. ("BrightView"). The Company was organized in 1996 for the principal purpose
of completing the acquisition (the "Acquisition") of substantially all of the
assets and assuming certain liabilities of the Publishing Division of Petersen
Publishing Company (the "Predecessor") (see Note 2). The Company is engaged in
the publishing business with revenues generated primarily from the publication
of various special interest magazines and the sale of related advertising,
principally within the United States.
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required to generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month and six-month period ended
June 30, 1997 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1997. For further information, refer to the
financial statements and notes thereto included in the Company's special
financial report on Form 10-K for the three months ended December 31, 1996.
Upon completion of the Acquisition, the Company changed its year end to
December 31. The financial statements reflect the activity of the Company from
October 1, 1996 through December 31, 1996 and the three and six months ended
June 30, 1997. All references to the three and six months ended June 30, 1997
relate to the activity of the Company. The unaudited statement of operations
for the three and six months ended June 30, 1996 reflect the activity of the
Predecessor. All references to the three and six months ended June 30, 1996
relate to activity of the Predecessor.
Certain reclassifications have been made to the balance sheet at December 31,
1996, and statements of operations for the three and six months ended June 30,
1996 to conform to the presentation for the three and six months ended June 30,
1997.
Income Taxes
As a limited liability company, the Company is not subject to U.S. federal
income taxes or state income taxes.
Advertising Expenses
The Company began a new mailing program in 1997 and correspondingly
capitalizes direct mail advertising costs. Such capitalized costs totaled
$2,647,000 at June 30, 1997 and will be amortized over twelve months, beginning
two months after mailing. No direct mail advertising costs were capitalized at
December 31, 1996. Amortization of direct mail advertising costs was $119,000
and $307,000 for the three and six months ended June 30, 1997, respectively.
2. ACQUISITION OF THE PUBLISHING DIVISION OF PETERSEN PUBLISHING COMPANY
In August 1996, BrightView entered into an Asset Purchase Agreement to
purchase substantially all of the assets of the publishing division of the
Predecessor. BrightView assigned its rights under such agreement to the Company
and the Company assumed all of BrightView's obligations thereunder. The
aggregate purchase price (including expenses) was $462,800,000 (including costs
associated with the Acquisition), plus the assumption of unearned subscription
revenues and other certain liabilities totaling approximately $49,000,000. The
Acquisition was completed on September 30, 1996. In connection with the
Acquisition, the Company recorded goodwill of approximately $360,000,000 and
other intangible assets of approximately $120,000,000. Goodwill amortization
expense for the three months and six months ended June 30, 1997 was $6,105,000
and $12,109,000, respectively. Amortization of other intangible assets was
$3,000,000 and $6,000,000 for the three and six months ended June 30, 1997,
respectively.
6
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PETERSEN PUBLISHING COMPANY, L.L.C.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
In order to finance the Acquisition, the Company entered into a Senior
Credit Facility for up to $260,000,000, issued 11 1/8% Senior Subordinated
Notes for $100,000,000 and Holdings issued equity securities for $165,000,000.
See Notes 4 and 5 for a more comprehensive discussion of the debt and equity
issuances.
3. INVENTORIES
Inventories consist of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
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<S> <C> <C>
Paper.................................................. $ 611 $ 1,562
Magazines in process................................... 3,797 2,159
------- -------
$ 4,408 $ 3,721
======= =======
</TABLE>
4. LONG-TERM DEBT
Senior Credit Facility:
On September 30, 1996, the Company entered into a Senior Credit Facility
with First Union National Bank of North Carolina and CIBC Inc. (the "Lenders")
pursuant to which the Lenders agreed to loan the Company up to $260,000,000.
Such amount was allocated among a revolving credit facility for up to
$60,000,000 (the "Revolver"), of which up to $10,000,000 can be in the form of
letters of credit; a tranche A term loan for up to $100,000,000 (the "Tranche
A Loan"); and a tranche B term loan for up to $100,000,000 (the "Tranche B
Loan").
The Revolver and the Tranche A Loan bear interest at either LIBOR (5.688% at
June 30, 1997), plus 1.375% to 2.750%, based on borrowings or the prime rate
of the agent bank (8.5% at June 30, 1997), plus .125% to 1.5%, based on
borrowings. As of December 31, 1996 and June 30, 1997, the Company had no
borrowings outstanding under the Revolver. However, a letter of credit for
$1,600,000 issued in January 1997 reduces the amount available under the
Revolver. The letter of credit expires in January 1998. Any future borrowings
under the Revolver will mature on December 31, 2002. As of December 31, 1996,
the Company had $100,000,000 outstanding under the Tranche A Loan at a
weighted average interest rate of 8.375%. As of June 30, 1997, the Company had
$89,000,000 outstanding under the Tranche A Loan at a weighted average
interest rate of 8.277%.
The Tranche B Loan bears interest at either LIBOR (5.688% at June 30, 1997),
plus 2.625% to 3.250%, based on borrowings or the prime rate of the agent bank
(8.5% at June 30, 1997), plus 1.375% to 2.0% based on borrowings. As of December
31, 1996, the Company had $100,000,000 outstanding under the Tranche B Loan at a
weighted average interest rate of 8.875%. As of June 30, 1997, the Company had
$88,750,000 outstanding under the Tranche B Loan at a weighted average interest
rate of 8.777%.
The Revolver and Tranche A Loan mature on December 31, 2002 and Tranche B
Loan matures on September 30, 2004.
7
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PETERSEN PUBLISHING COMPANY, L.L.C.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
The Senior Credit Facility contains certain restrictive covenants including
but not limited to restrictions on capital expenditures, payments of
dividends, liens, investments and disposals of assets, as well as financial
covenants including a maximum leverage ratio, minimum interest coverage ratio
and minimum fixed charge coverage ratio, all as defined in the Senior Credit
Facility. As of June 30, 1997, the Company was in compliance with the
covenants of the Senior Credit Facility.
The Senior Credit Facility is guaranteed by Holdings and BrightView.
The Company estimates that the book value of the Senior Credit Facility
approximates its fair value.
The Company incurred costs of approximately $7,000,000 in connection with
the Senior Credit Facility. These costs have been included in Deferred
Financing Costs and are being amortized over the term of the loans. During the
three months and six months ended June 30, 1997, the Company amortized
approximately $248,000 and $1,183,000, respectively, of such deferred financing
costs. As a result of the early repayments, during the three months ended June
30, 1997 the Company recorded additional amortization of deferred financing
costs of approximately $687,000.
11 1/8% Senior Subordinated Notes due 2006:
Holdings, the Company and its wholly-owned subsidiary, Petersen Capital
Corp. (together, the "Issuers"), issued $100,000,000 in 11 1/8% Senior
Subordinated Notes due 2006 (the "Notes") pursuant to an Offering Memorandum
dated November 20, 1996. The Notes bear interest at 11 1/8% per annum, payable
semi-annually on November 15 and May 15, commencing May 15, 1997. The Notes
will mature on November 15, 2006 and will not be subject to any sinking fund
requirement. The Notes are redeemable at the option of the Issuers, in whole
or in part, at any time on or after November 15, 2001, at the redemption
prices set forth in the Notes Purchase Agreement, plus accrued and unpaid
interest to the date of redemption. Under certain circumstances, prior to
November 15, 1999, the Issuers, at their option, may redeem in the aggregate up
to 25% of the original principal amount of the Notes at 111.125% of the
aggregate principal amount so redeemed, plus accrued and unpaid interest.
The Notes are general unsecured obligations of the Issuers and are
subordinated in right of payment to all existing and future senior
indebtedness of the Issuers. The Notes are guaranteed by Holdings.
The Indenture governing the Notes (the "Indenture") contains certain
restrictive covenants, including but not limited to, restrictions on
incurrence of debt, dividend payments, certain asset sales, transactions with
affiliates, liens and investments. As of June 30, 1997, the Company was in
compliance with the covenants contained in the Indenture.
The Company incurred costs of approximately $4,000,000 in connection with
the issuance of the Notes. These costs have been included in Deferred
Financing Costs and are being amortized over the term of the Notes. During the
three months and six months ended June 30, 1997 the Company amortized
approximately $100,000 and $200,000, respectively, of such deferred financing
costs.
On March 11, 1997, the Company exchanged all of the outstanding Notes for
substantially identical notes that were registered pursuant to a registration
statement on Form S-4 under the Securities Act of 1933.
8
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PETERSEN PUBLISHING COMPANY, L.L.C.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
The Company estimates that the book value of the Senior Subordinated Notes
approximates their fair value.
5. MEMBERS' EQUITY
The Company and Holdings are each limited liability companies organized
under the Delaware Limited Liability Company Act (the "LLC Act"). Holdings is
the Company's managing member and as such controls the policies and operations
of the Company. Holdings is governed by a limited liability company agreement
(the "LLC Agreement") among Willis Stein & Partners, L.P. (through Petersen
Investment Corp.), the Predecessor, certain members of the Company's management
and other investors (collectively the "Members"). As a limited liability company
organized under Delaware law, members of Holdings are not liable for debts or
other obligations of Holdings. The LLC Agreement governs the relative rights and
duties of the Members. BrightView is Holdings' managing member and as such
controls the policies and operations of Holdings and of the Company through
Holdings.
During the six months ended June 30, 1997, Holdings received $910,000 in
exchange for the issuance of additional Preferred Units and Common Units. Such
funds were contributed by Holdings to the Company. See Note 7 for a discussion
of other transactions concerning Members' Equity. Additionally, Holdings accrued
$15,419,000 for the preferred yield on the Preferred Units which represents the
cumulative compounded yield through June 30, 1997.
6. RELATED PARTY TRANSACTIONS
In connection with the Acquisition, the Company entered into employment
agreements with three officers of the Company. Pursuant to these employment
agreements, the officers purchased Common Units and Preferred Units with
promissory notes aggregating approximately $1,950,000. Of this amount,
$200,000 was paid on March 1, 1997 and the balance of each promissory note
will be due and payable on the earlier to occur of: (i) December 31, 2001;
(ii) the termination of the employment with the Company of the officers or
(iii) a sale of the Company. Such promissory notes bear interest at a rate
equal to the Company's weighted average cost of borrowings. In addition,
Holdings issued to each of the officers additional Common Units without
additional consideration. Such Common Units vest ratably over a period of five
years.
7. EVENTS SUBSEQUENT TO JUNE 30, 1997
In July 1997, Holdings' limited liability company agreement was amended to
create new classes of equity securities. The new units (collectively, the
"Class D Common Units") were issued to the holders of the Class B Common Units
and Class C Common Units pro rata according to ownership of the Class B Common
Units and Class C Common Units. In connection with the issuance of the Class D
Common Units in such exchange, Holdings recognized a non-recurring, non-cash
compensation charge of approximately $12.2 million in July 1997.
Additionally, in July 1997 Holdings established the Petersen Holdings,
L.L.C. 1997 Long-Term Equity Incentive Plan (the "Incentive Plan") pursuant to
which Holdings granted, to certain of the Company's employees, options to
purchase Class A Common Units. Such options vest on the fifth year after the
date of issuance. Should certain events occur (including an initial public
offering of the BrightView's common stock pursuant to a registration statement
filed with the Securities and Exchange Commission), the vesting period would
accelerate to an approximate three year vesting period. The exercise price for
each option is $320.685 per Class A Common Unit, which is equal to the fair
market value of each Class A Common Unit as determined by the Board of
Directors of BrightView, acting as Holdings' managing member, at the date of
grant of the options. Holdings is authorized to issue up to 10,000 Class A
Common Units under the Incentive Plan and in July 1997 granted to Company
employees, options to purchase an aggregate of 8,867 Class A Common Units.
9
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PETERSEN PUBLISHING COMPANY, L.L.C.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
In addition, on August 5, 1997, the Board of Directors of BrightView
authorized the filing with the Securities and Exchange Commission of a
registration statement for the sale by BrightView of shares of its Class A
Common Stock to the public. It is contemplated that in connection with the
offering, (i) Holdings will pay $50,000,000 to redeem Preferred Units with an
aggregate liquidation preference and accrued preferred yield of $50,000,000,
(ii) a newly formed subsidiary of BrightView will merge with and into Holdings
and (iii) all of the Holdings common units and the balance of the Preferred
Units (i.e., other than those to be redeemed) will be converted into Class A
Common Stock and Class B Common Stock.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company is a leading publisher of special-interest magazines with a
diverse portfolio of 78 publications, including 25 monthly, 11 bi-monthly and
42 single issue or annual publications. The Company operates primarily within
the expanding special-interest segment of the consumer magazine publishing
market. According to a survey by VSA of 111 general-interest and 115 special-
interest magazines, special-interest magazine publishing is the fastest
growing sector of the consumer magazine industry. The Company had net revenues
of $120.1 million for the six months ended June 30, 1997.
The Company's principal sources of revenues from the publication of its
magazines are derived from advertising and circulation. Circulation revenues
are generated from subscription, newsstand and list rental sales. Advertising
revenues of the Company, as well as those of the consumer magazine industry in
general, are cyclical and dependent upon general economic conditions. As
compared to general-interest magazines publishers, however, the Company believes
that its advertising revenues are less susceptible to changes in general
economic conditions due to the diversity of its publications and the endemic
nature of its advertiser base. The Company's revenues are generated
predominantly from U.S. sources.
PETERSEN THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO PREDECESSOR THREE MONTHS
ENDED JUNE 30, 1996
Net revenues increased $3.3 million, or 5.6%, to $62.7 million for the three
months ended June 30, 1997 from $59.4 million for the six months ended June 30,
1996. This increase is primarily the result of a $2.9 million, or 8.1%, increase
in advertising revenues. The increase in advertising revenues was due
principally to (i) an overall increase in the Company's advertising rates, (ii)
higher advertising revenues by Motor Trend, Teen and Hot Rod and (iii)
additional revenues from relatively new and start-up publications. In December
1996 and June 1997, the Company discontinued the publication of Sassy and
Petersen's Golfing, respectively. Net revenues for the three-month period ended
June 30, 1996 for those two publications were $4.7 million (comprised of $2.9
million in advertising, $1.7 million in subscription, and $.1 million other).
Net revenues, excluding these two discontinued publications, increased $5.6
million, or 9.8%, to $62.7 million for the three months ended June 30, 1997 from
$57.1 million for the three months ended June 30, 1996.
Production, selling and other direct costs decreased $4.9 million, or 10.3%,
to $42.4 million for the three months ended June 30, 1997 from $47.3 million for
the three months ended June 30, 1996. Production, selling and other direct costs
decreased as a percentage of net revenues to 67.7% from 79.7% for the same
periods. The successful implementation of the Company's operating improvements
significantly contributed to the decrease in production, selling and other
direct costs. This decrease is primarily comprised of a $3.3 million, or 27.2%,
decrease in paper costs, a $.5 million, or 9.0%, decrease in printing expenses
and a $.8 million, or 6.8%, decrease in editorial and advertising sales
expenses.
General and administrative expenses decreased $2.2 million, or 36.4%, to $3.8
million for the three months ended June 30, 1997 from $6.0 million for the three
months ended June 30, 1996. General and administrative expenses decreased as a
percentage of net revenues to 6.1% from 10.2% for the same periods. The
successful implementation of the Company's operating improvements, including
personnel and other operating expense reductions, contributed to the decrease in
general and administrative expenses. Amortization of goodwill and other
intangible assets increased to $9.1 million for the three months ended June 30,
1997 from $.1 million for the three months ended June 30, 1996. This expense
represents amortization of goodwill and the subscribers list purchased in the
Acquisition.
Operating income increased $1.4 million, or 23.1%, to $7.3 million for the
three months ended June 30, 1997 from $5.9 million for the three months ended
June 30, 1996, for the reasons stated above. Operating income increased as a
percentage of net revenues to 11.6% from 10.0% for the same periods.
11
<PAGE>
The increase in interest expense to $8.2 million for the three months ended
June 30, 1997 is the result of indebtedness incurred under the Senior Credit
Facility and the Notes in connection with the Acquisition.
The net loss was $.8 million for the three months ended June 30, 1997 as
compared to net income of $6.0 million for the three months ended June 30, 1996.
This decrease is primarily the result of the increases in interest and
amortization expenses as stated above.
PETERSEN SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO PREDECESSOR SIX MONTHS
ENDED JUNE 30, 1996
Net revenues increased $5.1 million, or 4.4%, to $120.1 million for the six
months ended June 30, 1997 from $115.0 million for the six months ended June 30,
1996. This increase is primarily the result of a $6.0 million, or 9.0%, increase
in advertising revenues, offset by a $.1 million decline in circulation
revenues, a $.5 million decline in miscellaneous revenues (mainly reprint
revenues) and a $.3 million decline in show revenues. The increase in
advertising revenues was due principally to (i) an overall increase in the
Company's advertising rates, (ii) higher advertising revenues by Motor Trend,
Teen and Hot Rod and (iii) additional revenues from relatively new and start-up
publications. In December 1996 and June 1997, the Company discontinued the
publication of Sassy and Petersen's Golfing, respectively. Net revenues for the
period ended June 30, 1996 for those two publications were $4.7 million
(comprised of $2.9 million in advertising, $1.7 million in subscription, and $.1
million other). Net revenues, excluding these two discontinued publications,
increased $9.8 million, or 8.9%, to $120.1 million for the six months ended June
30, 1997 from $110.4 million for the six months ended June 30, 1996.
Production, selling and other direct costs decreased $9.5 million, or 10.4%,
to $82.4 million for the six months ended June 30, 1997 from $91.9 million for
the six months ended June 30, 1996. Production, selling and other direct costs
decreased as a percentage of net revenues to 68.6% from 79.9% for the same
periods. The successful implementation of the Company's operating improvements
significantly contributed to the decrease in production, selling and other
direct costs. This decrease is primarily comprised of a $6.7 million, or 28.2%,
decrease in paper costs, a $1.1 million, or 10.7%, decrease in printing expenses
and a $2.5 million, or 10.0%, decrease in editorial and advertising sales
expenses.
General and administrative expenses decreased $3.9 million, or 30.6%, to $9.0
million for the six months ended June 30, 1997 from $12.9 million for the six
months ended June 30, 1996. General and administrative expenses decreased as a
percentage of net revenues to 7.5% from 11.2% for the same periods. The
successful implementation of the Company's operating improvements, including
personnel and other operating expense reductions, contributed to the decrease in
general and administrative expenses. Amortization of goodwill and other
intangible assets increased to $18.2 million for the six months ended June 30,
1997 from $.2 million for the six months ended June 30, 1996. This expense
represents amortization of goodwill and the subscribers list purchased in the
Acquisition.
Operating income increased $.6 million, or 6.3%, to $10.6 million for the six
months ended June 30, 1997 from $10.0 million for the six months ended June 30,
1996, for the reasons stated above. Operating income increased as a percentage
of net revenues to 8.8% from 8.7% for the same periods.
Interest expense increased $15.7 million to $15.9 million for the six months
ended June 30, 1997 from $.2 million for the six months ended June 30, 1996.
This increase is the result of indebtedness incurred under the Senior Credit
Facility and the Notes in connection with the Acquisition.
The net loss was $4.9 million for the six months ended June 30, 1997 as
compared to net income of $11.4 million for the six months ended June 30, 1996.
This decrease is primarily the result of the increases in interest and
amortization expenses as stated above.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $6.9 million and working capital (excluding
the current portion of unearned subscription revenue) totaled $1.3 million at
June 30, 1997. At December 31, 1996, cash and cash equivalents totaled $7.8
million and working capital (excluding the current portion of unearned
subscription revenue) totaled $8.8 million. The decrease in working capital from
December 31, 1996 to June 30, 1997 resulted primarily from a $22.3 million
repayment of bank borrowings offset by cash generated from operations.
The Company's net cash provided by operations was $18.1 million for the six
months ended June 30, 1997 compared to $23.8 million for the six months ended
June 30, 1996. Of this difference, $10.5 million relates to changes in
receivables and $16.5 million relates to decreased net income, offset by a $19.1
million increase in depreciation and amortization and an aggregate $5.8 million
increase in accrued liabilities.
The Company's net cash provided by investing activities was $2.2 million for the
six months ended June 30, 1997, as compared to $1.7 million for the six months
ended June 30, 1996, which included $2.5 million in proceeds in the sale of its
Viking Color pre-press operations. The Company's operations are not capital
intensive. The Company's capital expenditures were $.2 million and $.5 million
in the six months ended June 30, 1997 and 1996, respectively.
The Company's net cash used in financing activities for the six months ended
June 30, 1997 was comprised of $22.3 million of repayments of borrowings under
the Senior Credit Facility. Of this amount, $21.8 million represented an early
repayment.
EARNINGS BEFORE INTEREST TAXES DEPRECIATION AND AMORTIZATION
Earnings before interest expense, taxes, depreciation and amortization
("EBITDA") is a widely used and commonly reported standard measure utilized by
analysts and investors in the analysis of the media industry. The following
EBITDA information can provide additional information for determining the
ability of the Company to meet its debt service requirements and for other
comparative analyses of the Company's operating performance relative to other
publishing companies.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1996 1997 1996 1997
------- ------- ------- -------
(unaudited)
(000's)
<S> <C> <C> <C> <C>
Total net revenues $59,346 $62,670 $115,040 $120,143
Production, selling & other direct costs (excluding
depreciation of $638, $466, $1,471 and $964 for the
three months ended June 30, 1996 and 1997, and six
months ended June 30, 1996 and 1997, respectively) 46,662 41,947 90,500 81,476
------- ------- -------- --------
Gross profit 12,684 20,723 24,540 38,667
General & administrative expenses (6,046) (3,845) (12,903) (8,955)
Other adjustments 187 147 238 318
------- ------- -------- --------
EBITDA $ 6,825 $17,025 $ 11,875 $ 30,030
======= ======= ======== ========
</TABLE>
13
<PAGE>
The Company's EBITDA (excluding the impact of the sale of its Viking Color
pre-press operations in 1996) increased $18.1 million, or 152.9%, to $30.0
million for the six months ended June 30, 1997 from $11.9 million for the six
months ended June 30, 1996. EBITDA as a percentage of net revenues increased to
25.0% from 10.3% for the same periods.
The Company's EBITDA increased $10.2 million to $17.0 million for the three
months ended June 30, 1996 from $6.8 million for the three months ended June 30,
1996. EBITDA as a percentage of net revenues increased to 27.3% from 11.5% for
the same periods. The successful implementation of the Company's operating
improvements contributed to these increases in EBITDA.
14
<PAGE>
PETERSEN PUBLISHING COMPANY, L.L.C.
June 30, 1997
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27. Financial Data Schedule
(b) Reports on Form 8-K:
None
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Petersen Publishing Company, L.L.C.
Date: August 14, 1997 By: /s/ Richard S Willis
--------------- -----------------------------
Richard S Willis
Executive Vice President and Chief
Financial Officer
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q FOR
PERIOD ENDED 6/30/97 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,923
<SECURITIES> 0
<RECEIVABLES> 25,733
<ALLOWANCES> 1,722
<INVENTORY> 3,721
<CURRENT-ASSETS> 37,648
<PP&E> 4,861
<DEPRECIATION> 1,501
<TOTAL-ASSETS> 503,586
<CURRENT-LIABILITIES> 65,151
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 150,630
<TOTAL-LIABILITY-AND-EQUITY> 503,586
<SALES> 120,143
<TOTAL-REVENUES> 120,143
<CGS> 82,440
<TOTAL-COSTS> 82,440
<OTHER-EXPENSES> 27,106
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,853
<INCOME-PRETAX> (4,934)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,934)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,934)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
