<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
----------------
(Mark One)
[X] SPECIAL FINANCIAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
The registrant's Registration Statement on Form S-4 (Registration No. 333-
18017) became effective on February 11, 1997 and did not contain certified
financial statements of the registrant for the period from October 1, 1996 to
December 31, 1996. This report is filed pursuant to Rule 15d-2 and contains
only financial statements for the period ended December 31, 1996.
COMMISSION FILE NUMBER 333-18017
----------------
PETERSEN HOLDINGS, L.L.C.
(Exact name of Registrant as specified in its charter)
95-4597939
DELAWARE (I.R.S. Employer
(State or other jurisdiction of Identification No.)
incorporation or organization)
90048
6420 WILSHIRE BOULEVARD (Zip Code)
LOS ANGELES, CALIFORNIA
(Address of principal executive
offices)
Registrant's Telephone Number, Including Area Code: (213) 782-2000
Securities Registered Pursuant To Section 12(b) Of The Act: None
Securities Registered Pursuant To Section 12(g) Of The Act: None
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 No X
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
DOCUMENTS INCORPORATED BY REFERENCE
NO DOCUMENTS ARE INCORPORATED BY REFERENCE INTO PARTS I, II, OR III.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, Petersen Holdings, L.L.C. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Los Angeles, State of California on May 9, 1997.
Petersen Holdings, L.L.C.
By: /s/ Richard S. Willis
___________________________________
Richard S. Willis
Vice President
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed by the following persons on behalf of the registrant in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ James D. Dunning, Jr. Chairman and Chief Executive May 9, 1997
____________________________________ Officer of Petersen
JAMES D. DUNNING, JR. Holdings L.L.C. and
Director of BrightView*
(Principal Executive
Officer)
/s/ Laurence H. Bloch Vice Chairman of Petersen May 9, 1997
____________________________________ Holdings L.L.C. and
LAURENCE H. BLOCH Director of BrightView*
(Principal Financial
Officer)
/s/ Richard S. Willis Vice President (Principal May 9, 1997
____________________________________ Accounting Officer)
RICHARD S. WILLIS
/s/ Neal Vitale Director of BrightView* May 9, 1997
____________________________________
NEAL VITALE
/s/ D. Claeys Bahrenburg Director of BrightView* May 9, 1997
____________________________________
D. CLAEYS BAHRENBURG
/s/ Avy H. Stein Director of BrightView* May 9, 1997
____________________________________
AVY H. STEIN
/s/ Daniel H. Blumenthal Director of BrightView* May 9, 1997
____________________________________
DANIEL H. BLUMENTHAL
/s/ Stuart Karu Director of BrightView* May 9, 1997
____________________________________
STUART KARU
</TABLE>
- --------
* BrightView is the Managing Member of Petersen Holdings, L.L.C.
2
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT, SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
(A) 1. FINANCIAL STATEMENTS OF PETERSEN HOLDINGS, L.L.C.
Report of Ernst & Young LLP, Independent Auditors.................. F-1
Consolidated Balance Sheet at December 31, 1996.................... F-2
Statements of Operations of the Publishing Division of Petersen
Publishing Company for the years ended November 30, 1994 and 1995,
the ten months ended September 30, 1996 and the three months ended
December 31, 1995 and Consolidated Statement of Operations and
Members Equity for Petersen Holdings, L.L.C. for the three months
ended December 31, 1996........................................... F-3
Consolidated Statement of Cash Flows for the three months ended
December 31, 1996................................................. F-4
Notes to Financial Statements...................................... F-5
2. FINANCIAL STATEMENT SCHEDULES
Schedule II-Valuation and Qualifying Accounts...................... F-16
</TABLE>
The registrant's Registration Statement on Form S-4 (Registration No. 333-
18017) became effective on February 11, 1997 and did not contain certified
financial statements of the registrant for the period from October 1, 1996 to
December 31, 1996. This report is filed pursuant to Rule 15d-2 and contains
only financial statements for the period ended December 31, 1996.
3
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Petersen Holdings, L.L.C.
We have audited the accompanying consolidated balance sheet of Petersen
Holdings, L.L.C., as of December 31, 1996, and the related consolidated
statements of operations and cash flows for the three months ended December
31, 1996. We have also audited the statements of income of the Publishing
Division of Petersen Publishing Company for the years ended November 30, 1994
and 1995 and the ten months ended September 30, 1996. Our audits also included
the financial statement schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Petersen
Holdings, L.L.C., at December 31, 1996, and the consolidated results of its
operations and its cash flows for the three months ended December 31, 1996,
and the results of operations of the Publishing Division of Petersen
Publishing Company for the years ended November 30, 1994 and 1995 and the ten
months ended September 30, 1996, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
Ernst & Young LLP
Los Angeles, California
February 26, 1997
F-1
<PAGE>
PETERSEN HOLDINGS, L.L.C.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 7,761
Accounts receivable, less allowance for doubtful accounts of
$1,604......................................................... 20,141
Inventories..................................................... 4,408
Other prepaid expenses and current assets....................... 730
--------
Total current assets.......................................... 33,040
Property and equipment, net of accumulated depreciation of $560... 4,152
Goodwill, net of accumulated amortization of $5,992............... 353,556
Subscriber list and established work force, net of accumulated
amortization of $3,000........................................... 117,000
Deferred financing costs, net of accumulated amortization of
$3,276........................................................... 10,735
Other assets...................................................... 587
--------
TOTAL ASSETS.................................................. $519,070
========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities........................ $ 20,430
Accrued payroll and related costs............................... 1,963
Customer incentives payable..................................... 5,785
Current portion of unearned subscription revenues, net of
deferred subscription acquisition costs of $43,835............. 27,328
Current portion of long-term debt............................... 1,000
Other accrued expenses and current liabilities.................. 2,160
--------
Total current liabilities..................................... 58,666
Unearned subscription revenues, net of deferred subscription
acquisition costs of $41,168..................................... 6,440
Long-term debt.................................................... 299,000
Other noncurrent liabilities...................................... 510
Due to minority member............................................ 154
Commitments and contingencies
Members' equity:
Common units.................................................... 1,671
Preferred units................................................. 165,171
Accumulated deficit............................................. (10,594)
--------
156,248
Less: Notes receivable from related parties..................... (1,948)
--------
Total Members' equity........................................... 154,300
--------
TOTAL LIABILITIES AND MEMBERS' EQUITY......................... $519,070
========
</TABLE>
See accompanying notes.
F-2
<PAGE>
PETERSEN HOLDINGS, L.L.C.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------
PETERSEN
PUBLISHING DIVISION OF PETERSEN HOLDINGS,
PUBLISHING COMPANY L.L.C.
--------------------------------- ------------
TEN MONTHS THREE MONTHS
YEARS ENDED ENDED ENDED
NOVEMBER 30, SEPTEMBER 30, DECEMBER 31,
------------------ ------------- ------------
1994 1995 1996 1996
-------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Net revenues:
Advertising................................................................... $116,608 $123,410 $112,025 $ 31,912
Newsstand..................................................................... 40,048 39,889 34,318 10,037
Subscriptions................................................................. 40,710 41,963 35,177 10,081
Other......................................................................... 4,601 8,353 7,594 1,247
-------- -------- -------- --------
Total net revenues.......................................................... 201,967 213,615 189,114 53,277
Production, selling and other direct costs (including rent paid to a related
party of $3,939, 3,875, $3,778, $1,136 and $1,032 in 1994, 1995, the ten months
ended September 30, 1996 and the three months ended December 31, 1995 and 1996,
respectively).................................................................. 149,182 171,112 148,713 41,223
-------- -------- -------- --------
Gross profit................................................................ 52,785 42,503 40,401 12,054
General and administrative expenses............................................. 33,267 28,145 24,650 2,666
Amortization of goodwill and other intangible assets............................ -- -- -- 8,992
-------- -------- -------- --------
Income from operations...................................................... 19,518 14,358 15,751 396
Other (income) expense:
Interest income............................................................... (476) (549) (537) (113)
Interest expense.............................................................. -- -- 185 11,114
Gain on sale of assets........................................................ -- -- (1,554) --
-------- -------- -------- --------
Income (loss) before provision for taxes and minority interest.............. 19,994 14,907 17,657 (10,605)
Provision for taxes............................................................. 698 549 331 --
-------- -------- -------- --------
Income (loss) before minority interest...................................... 19,296 14,358 17,326 (10,605)
Minority member's equity in loss of subsidiary ................................. -- -- -- 11
-------- -------- -------- --------
Net income (loss)........................................................... $ 19,296 $ 14,358 $ 17,326 $(10,594)
- --------------------------------------------------
======== ======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
PETERSEN HOLDINGS, L.L.C.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
DECEMBER 31,
1996
------------
<S> <C>
OPERATING ACTIVITIES
Net loss.......................................................... $ (10,594)
Adjustment to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization................................... 12,849
Changes in operating assets and liabilities:
Accounts receivable........................................... (2,092)
Inventories................................................... 6,017
Prepaid expenses and other assets............................. 154
Accounts payable and accrued liabilities...................... 16,244
Accrued payroll and related costs............................. (3,677)
Customer incentives payable................................... 411
Unearned subscription revenues, net........................... 779
Other accrued expenses and current liabilities................ 1,922
Other noncurrent liabilities.................................. 363
---------
Total adjustments............................................... 32,970
---------
Net cash provided by operating activities......................... 22,376
INVESTING ACTIVITIES
Acquisition of assets of publishing division of Petersen
Publishing Company, including liabilities assumed and net of
costs associated with the acquisition............................ (465,652)
---------
Net cash used in investing activities............................. (465,652)
FINANCING ACTIVITIES
Proceeds from bank borrowings..................................... 200,000
Proceeds from issuance of Senior Subordinated Notes............... 100,000
Increase in deferred financing costs.............................. (14,011)
Proceeds from issuance of members units........................... 165,135
Costs associated with capital contributions....................... (241)
Cash contribution by minority member.............................. 154
---------
Net cash provided by financing activities......................... 451,037
---------
Increase in cash and cash equivalents............................. 7,761
Cash and cash equivalents at beginning of period.................. --
---------
Cash and cash equivalents at end of period........................ $ 7,761
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during period for
Interest........................................................ $ 5,576
=========
Taxes........................................................... $ --
=========
</TABLE>
See accompanying notes.
F-4
<PAGE>
PETERSEN HOLDINGS, L.L.C.
NOTES TO 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 ("Petersen") (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
Upon completion of the Acquisition, Holdings changed its year end to
December 31. The consolidated financial statements reflect the consolidated
activity of Holdings and the Company from October 1, 1996 through December 31,
1996, after elimination of intercompany transactions and segregation of
minority interest. All references to the three month period ended December 31,
1996 relate to the activity of Holdings and the Company. The audited
statements of operations of Petersen for the years ended November 30, 1994 and
1995 and for the ten months ended September 30, 1996 and the unaudited
statement of operations of Petersen for the period from October 1, 1995
through December 31, 1995 have been included for comparative purposes. All
references to the years ended November 30, 1994 and 1995, the ten months ended
September 30, 1996 and the three months ended December 31, 1995 relate to the
activity of Petersen.
Cash Equivalents
Cash equivalents consist primarily of debt instruments with maturities of
three months or less at the acquisition date. The carrying amounts of cash and
cash equivalents reported in the balance sheet approximate its fair value.
Inventories
Inventories consist of paper held at a printing company and are stated at
the lower of cost, which approximates the first-in, first-out method, or
market.
Deferred Subscription Acquisition Costs
Deferred subscription acquisition costs consist primarily of agency
commissions paid to obtain subscriptions and are amortized over the life of
the related subscriptions.
Depreciation and Amortization
Depreciation is provided on the straight-line method over the estimated
useful lives of the assets ranging from 3 to 5 years except for leasehold
improvements which are amortized over the lesser of 10 years or the life of
the lease.
Goodwill and Other Intangible Assets
Goodwill resulting from the Acquisition will be amortized using the
straight-line method over its estimated useful life of 15 years. Other
intangible assets (consisting mainly of subscriber lists and established work
force) will be amortized over their estimated useful lives of ten years.
Deferred financing costs will be amortized over the term of the Senior
Subordinated Notes of ten years.
F-5
<PAGE>
PETERSEN HOLDINGS, L.L.C.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
As a limited liability company, Holdings is not subject to U.S. federal
income taxes or state income taxes. Petersen was taxed as an S corporation and
as such was not subject to U.S. federal income taxes. Petersen reported state
income taxes to which it was subject and Holdings reports other state taxes to
which it is subject under the liability method as required by Statement No.
109, "Accounting for Income Taxes," issued by the Financial Accounting
Standards Board ("FASB"). Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse.
Revenue Recognition
Advertising revenue, net of provisions for related rebates and discounts, is
recognized at the "on sale" date of the publication containing the
advertisement. Subscription revenue is deferred and recognized pro rata as
fulfilled over the terms of such subscriptions and is recorded net of related
agency commissions. Sales of magazines intended for retail distribution on
newsstands are recorded at the time such publications are available for sale
by distributors to the public and are reduced by an estimated provision for
returns.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenues
No customer accounted for over 10% of the Company's or Petersen's revenues.
The Company's activities occur principally in the United States and revenues
from outside the United States are less than 10% of the Company's and
Petersen's revenues.
Advertising Expenses
The Company expenses the costs of advertising as incurred. Advertising
expense (in thousands) for the years ended November 30, 1994 and 1995, for the
ten months ended September 30, 1996, and for the three months ended December
31, 1995 and 1996 were $495,000, $733,000, $700,000, $21,000 and $23,000,
respectively.
2. ACQUISITION OF THE PUBLISHING DIVISION OF PETERSEN PUBLISHING COMPANY
In August 1996, the Company entered into an Asset Purchase Agreement to
purchase the majority of the assets of the publishing division of Petersen.
The aggregate purchase price was $450,000,000, plus the assumption of 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
ended December 31, 1996 was $5,992,000. Amortization of other intangible
assets was $3,000,000 for the three months ended December 31, 1996.
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 issued equity securities for $165,000,000. See
Notes 6 and 8 for a more comprehensive discussion of the debt and equity
issuances.
F-6
<PAGE>
PETERSEN HOLDINGS, L.L.C.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. INVENTORIES
Inventories consist of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Paper......................................................... $ 611
Magazines in process.......................................... 3,797
------
$4,408
======
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Leasehold improvements........................................ $ 283
Machinery and equipment....................................... 2,230
Office furniture and fixtures................................. 2,199
-------
4,712
Less accumulated depreciation and amortization................ 560
-------
$ 4,152
=======
</TABLE>
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No.
121"), which is effective for the Company in fiscal 1997. The Company does not
expect the adoption of SFAS No. 121 to have a material impact on the Company's
financial position or results of operations.
5. 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").
F-7
<PAGE>
PETERSEN HOLDINGS, L.L.C.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Revolver and the Tranche A Loan bear interest at either LIBOR (5.625% at
December 31, 1996), plus 1.375% to 2.750%, based on borrowings or the prime
rate of the agent bank (8.25% at December 31, 1996), plus .125% to 1.5%, based
on borrowings. As of December 31, 1996, the Company had no borrowings
outstanding under the Revolver. 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%.
The Tranche B Loan bears interest at either LIBOR (5.625% at December 31,
1996), plus 2.625% to 3.250%, based on borrowings or the prime rate of the
agent bank (8.25% at December 31, 1996), 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%.
The Revolver and Tranche A Loan mature on December 31, 2002 and Tranche B
Loan matures on September 30, 2004. Minimum annual repayment commitments for
the Tranche A Loan and Tranche B Loan are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31 TRANCHE A LOAN TRANCHE B LOAN
----------------------------- -------------- --------------
<S> <C> <C>
1997........................................ $ -- $ 1,000
1998........................................ 10,000 1,000
1999........................................ 15,000 1,000
2000........................................ 20,000 1,000
2001........................................ 25,000 1,000
Thereafter.................................. 30,000 95,000
-------- --------
Total....................................... $100,000 $100,000
======== ========
</TABLE>
The Revolver is required to be permanently reduced and the Tranche A Loan
and Tranche B Loan are required to be prepaid with (i) 75% of excess cash flow
(as defined in the Senior Credit Facility), (ii) proceeds from asset sales or
other dispositions of property, (iii) proceeds from the issuance of certain
debt obligations or equity securities.
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 December 31, 1996, 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 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 ended December 31, 1996, the Company amortized approximately
$250,000 of such deferred financing costs.
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
F-8
<PAGE>
PETERSEN HOLDINGS, L.L.C.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 December 31, 1996, 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 ended December 31, 1996, the Company amortized approximately
$67,000 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.
Bridge Notes:
In August 1996, the Company entered into a Bridge Commitment Agreement
whereby First Union Corporation and CIBC Inc. agreed to lend the Company up to
$100,000,000 aggregate amount of senior subordinated increasing rate notes
(the "Bridge Notes"). The Bridge Notes bore interest at the prime rate (as
announced from time to time by First Union National Bank of North Carolina)
plus 425 basis points, with a maximum of 12.5% per annum. The interest rate
would increase by an additional 50 basis points under certain circumstances.
In December 1996, with proceeds from the issuance of the Notes, the Company
repaid the Bridge Notes in full, together with accrued interest of
approximately $1,980,000. In addition to this interest expense, the Company
incurred approximately $3,000,000 in costs associated with the Bridge Notes.
This amount is included in amortization of Deferred Financing Costs for the
three months ended December 31, 1996.
6. INCOME TAXES
The liability for federal and state income taxes of a limited liability
company is the obligation of the members. Therefore, no provision or liability
for federal or state income taxes is included in the accompanying financial
statements. The difference between the tax bases and the reported amounts of
the Company's assets and liabilities is not material at December 31, 1996.
The provision for income taxes for Petersen consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED
NOVEMBER 30, TEN MONTHS ENDED
------------- SEPTEMBER 30,
1994 1995 1996
------ ------ ----------------
<S> <C> <C> <C>
State:
Current........................................ $ 282 $ 143 $158
Deferred....................................... 416 406 173
------ ------ ----
$ 698 $ 549 $331
====== ====== ====
</TABLE>
F-9
<PAGE>
PETERSEN HOLDINGS, L.L.C.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation of the provision for income taxes of Petersen computed by
applying the federal statutory rate of 34% to income before income taxes and
the reported provision for income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED TEN MONTHS
NOVEMBER 30, ENDED
---------------- SEPTEMBER 30,
1994 1995 1996
------- ------- -------------
<S> <C> <C> <C>
Income tax provision computed at statutory
federal income tax rate...................... $ 6,798 $ 5,068 $ 6,003
State income taxes............................ 698 549 331
Effect of S Corporation election.............. (6,798) (5,068) (6,003)
------- ------- -------
Total provision............................. $ 698 $ 549 $ 331
======= ======= =======
</TABLE>
The Company had no deferred tax assets and liabilities at December 31, 1996.
Both the Senior Credit Facility and the indenture governing the Notes
generally limit the Company's ability to pay cash distributions to Holdings
and BrightView other than distributions in amounts approximately equal to the
income tax liability of such members of the Company (or, in the case of
Holdings, the income tax liability it would have had if it were required to
pay income taxes) resulting from the taxable income of the Company ("Tax
Distributions"). Tax Distributions will be based on the approximate highest
combined tax rate that applies to any one of the members of the Company.
7. 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 and Partners, L.P. (through Petersen
Investment Corp.), the former sole-shareholder of the Company, 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.
The ownership interests of the Members in Holdings consist of Preferred
Units and Common Units. The Preferred Units are entitled to a preferred yield
of 12.0% per annum, compounded quarterly, and an aggregate liquidation
preference of $163.5 million (net of any prior repayments of Preferred Units)
plus any accrued and unpaid preferred yield (collectively, the "Preference
Amount") on any liquidation or other distribution by Holdings. The Common
Units represent the common equity of Holdings and consist of Class A Units,
Class B Units and Class C Units. After payment of the Preference Amount,
holders of Class A Units are entitled to share in any remaining proceeds of
any liquidation or other distribution by Holdings pro rata according to the
number of Class A Units held. After the holders of the Preferred Units and
Class A Units have received an internal rate of return of 30% on their total
investment, holders of Class B Units will be entitled to participate with the
holders of Class A Units in any subsequent distributions. Similarly, after the
holders of the Preferred Units and Class A Units have received an internal
rate of return of 35% on their total investment, holders of Class C Units will
be entitled to participate with the holders of Class A Units and the holders
of Class B Units in any subsequent distributions. The Class B Units and Class
C Units were issued to members of management to provide them with equity
incentives. The LLC Agreement grants BrightView broad authority in
establishing the magnitude and terms of management's equity participation in
the Company.
F-10
<PAGE>
PETERSEN HOLDINGS, L.L.C.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The LLC Agreement, and therefore Holdings' existence, will continue in
effect until the earlier to occur of: (i) December 3, 2026; (ii) a unanimous
vote to that effect of its Members; (iii) a resolution to that effect of the
managing member; (iv) the incapacity or expulsion of the managing member or
any other event under the LLC Act which terminates Holdings unless the Members
vote within 90 days to continue Holdings' existence or (v) the entry of a
decree of judicial dissolution under the LLC Act. Other than as described in
(iv) above, the death, retirement, resignation, expulsion, incapacity,
bankruptcy or dissolution of a Member will not cause a dissolution of
Holdings. The Company's limited liability company agreement contains similar
terms governing the Company's continued existence.
8. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Separate financial statements of Holdings are not presented because
management has determined that they would not be meaningful to investors.
However, condensed consolidating financial information as of December 31, 1996
and for the three months then ended are presented below.
PETERSEN HOLDINGS, L.L.C.
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
THE
HOLDINGS COMPANY ELIMINATIONS CONSOLIDATED
-------- -------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Total current assets.............. $ -- $ 33,040 $ -- $ 33,040
Property and equipment, net of
accumulated depreciation and
amortization of $560............. -- 4,152 -- 4,152
Equity investment in subsidiary... 154,541 -- (154,541) --
Goodwill, net of accumulated
amortization of $5,992........... -- 353,556 -- 353,556
Subscriber list and workforce, net
of accumulated amortization of
$3,000........................... -- 117,000 -- 117,000
Other, net of accumulated
amortization of $3,276........... -- 11,322 -- 11,322
-------- -------- --------- --------
Total assets.................... $154,541 $519,070 $(154,541) $519,070
-------- -------- --------- --------
LIABILITIES AND MEMBERS' EQUITY
Total current liabilities......... $ -- $ 58,666 $ -- $ 58,666
Unearned subscription revenues,
net of prepaid commissions of
$41,168,310...................... -- 6,440 -- 6,440
Long term debt.................... -- 299,000 -- 299,000
Other noncurrent liabilities...... -- 510 -- 510
Due to minority member ........... -- -- 154 154
Commitments and Contingencies
Members' Equity of the Company.... -- 154,454 (154,454) --
Members' Equity of Holdings:
Common units.................... 1,671 -- -- 1,671
Preferred units................. 165,412 -- (241) 165,171
Accumulated deficit............. (10,594) -- -- (10,594)
-------- -------- --------- --------
156,489 -- (241) 156,248
Notes receivable from
employees...................... (1,948) -- -- (1,948)
-------- -------- --------- --------
Total members' equity........... 154,541 154,454 (154,695) 154,300
-------- -------- --------- --------
Total liabilities and members'
equity....................... $154,541 $519,070 $(154,541) $519,070
======== ======== ========= ========
</TABLE>
F-11
<PAGE>
PETERSEN HOLDINGS, L.L.C.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PETERSEN HOLDINGS, L.L.C.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
THE
HOLDINGS COMPANY ELIMINATIONS CONSOLIDATED
-------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Total net revenues............... $ -- $ 53,277 $ -- $ 53,277
Production, selling and other
direct costs.................... -- 41,223 -- 41,223
-------- -------- ------- --------
Gross Profit................... -- 12,054 -- 12,054
General and administrative
expenses........................ -- 2,666 -- 2,666
Amortization of goodwill and
other intangible assets......... -- 8,992 -- 8,992
-------- -------- ------- --------
Income from operations......... -- 396 -- 396
Interest expense, net of interest
income.......................... -- 11,001 -- 11,001
-------- -------- ------- --------
Loss before provision for
income taxes and equity in
subsidiary.................... -- (10,605) -- (10,605)
Provision for taxes.............. -- -- -- --
-------- -------- ------- --------
Loss before equity in
subsidiary.................... -- (10,605) -- (10,605)
Equity in loss of subsidiary..... (10,594) -- 10,594 --
Minority member's equity in loss
of subsidiary................... -- -- 11 11
-------- -------- ------- --------
Net loss....................... $(10,594) $(10,605) $10,605 $(10,594)
======== ======== ======= ========
</TABLE>
F-12
<PAGE>
PETERSEN HOLDINGS, L.L.C.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PETERSEN HOLDINGS, L.L.C.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
THE
HOLDINGS COMPANY ELIMINATIONS CONSOLIDATED
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).............. $ (10,594) $ (10,605) $ 10,605 $ (10,594)
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Depreciation and
amortization................ -- 12,849 -- 12,849
Equity in loss of
subsidiary.................. 10,594 -- (10,594) --
Changes in operating assets
and liabilities............. -- 20,121 -- 20,121
--------- --------- -------- ---------
Net cash provided by operating
activities.................... -- 22,365 11 22,376
INVESTING ACTIVITIES
Acquisition of assets of
Petersen Publishing Company,
net of liabilities assumed.... -- (465,652) -- (465,652)
Investment in Petersen
Publishing Company............ (165,135) -- 165,135 --
--------- --------- -------- ---------
Net cash used in investing
activities.................... (165,135) (465,652) 165,135 (465,652)
FINANCING ACTIVITIES
Proceeds from bank borrowings.. -- 200,000 -- 200,000
Proceeds from issuance of
Senior Subordinated Notes..... -- 100,000 -- 100,000
Proceeds from issuance of
members' units................ 165,135 -- -- 165,135
Increase in deferred financing
costs......................... -- (14,011) -- (14,011)
Capital contributions to the
Company....................... -- 165,300 (165,300) --
Costs associated with capital
contributions................. -- (241) -- (241)
Cash contribution by minority
member........................ -- -- 154 154
--------- --------- -------- ---------
Net cash provided by financing
activities.................... 165,135 451,048 (165,146) 451,037
--------- --------- -------- ---------
Increase (decrease) in cash and
cash equivalents.............. -- 7,761 -- 7,761
Cash and cash equivalents at
beginning of period........... -- -- -- --
--------- --------- -------- ---------
Cash and cash equivalents at
end of period................. $ -- $ 7,761 $ -- $ 7,761
========= ========= ======== =========
</TABLE>
F-13
<PAGE>
PETERSEN HOLDINGS, L.L.C.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. PROFIT-SHARING RETIREMENT PLAN
Petersen had a profit-sharing retirement plan (the "Plan") for employees,
which was qualified for tax exempt status by the Internal Revenue Service.
Under the Plan, Petersen, at its discretion, made annual contributions for all
eligible employees not to exceed 15% of their aggregate annual compensation.
Petersen's contributions to the Plan for the years ended November 30, 1994 and
1995 were $3,000,000 and $1,000,000 respectively. In addition, Petersen paid
costs and expenses associated with administration of the Plan of $271,000 and
$294,000 during the years ended November 30, 1994 and 1995, respectively. In
November 1996, Petersen and the Company entered into an amendment to the Plan,
whereby the Company became a sponsor of the Plan. Both Petersen and the
Company agreed to make contributions to the Plan on behalf of their respective
employees based on compensation paid by each company. However, in connection
with the Acquisition, the Company agreed to make the contribution to the Plan
for 1996. In December 1996, the Company contributed $1,300,000 to the Plan.
10. 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 will purchase Common Units and Preferred Units with
promissory notes aggregating $1,950,000. Of this amount, $200,000 will become
due and payable 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 will bear interest at a rate equal to
the Company's weighted average cost of borrowings. In addition, the Company
and Holdings will issue to each of the officers additional Common Units
without additional consideration. Such Common Units will vest ratably over a
period of five years.
See Note 11 for additional related party transactions.
11. COMMITMENTS AND CONTINGENCIES
Leases
Rent expense for the year ended November 30, 1994 includes amounts charged
to Petersen by an affiliate for the use of various office facilities,
including its corporate headquarters, owned by the affiliate. As of that date,
the building was sold to Petersen's sole stockholder and subsequent thereto
Petersen's rent for this facility was paid to such stockholder in accordance
with a lease which had an initial term of 15 years and expires November 30,
2009. In connection with the Acquisition, the Company assumed this lease,
subject to certain reductions to the annual rental amounts and will continue
to pay rent to the former sole stockholder of Petersen. The lease provides for
lease payments of $341,951 for each monthly period ending before November 30,
1996. For each fiscal year thereafter, the monthly lease payments will be
increased at an annual rate of approximately 1.75%.
On October 1, 1996, the Company entered into another lease with the former
sole stockholder of Petersen for office space located in Chicago, Illinois.
The lease expires on September 30, 2005 and provides for monthly lease
payments of: (i) $16,500 for the period from October 1, 1996 to September 30,
1999; (ii) $17,500 for the period from October 1, 1999 to September 30, 2002
and (iii) $18,500 for October 1, 2002 through the end of the term of the
lease. The Company believes such lease provides for lease payments at a market
rate and for terms as favorable to the Company as could have been negotiated
with a third party at arm's length.
In addition to the lease for its corporate headquarters, the Company assumed
other leases for sales offices throughout the United States. In addition to
the annual rentals, certain of these leases include renewal options and
require payments of real estate taxes, insurance and other expenses.
F-14
<PAGE>
PETERSEN HOLDINGS, L.L.C.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Rent expense is as follows (in thousands):
<TABLE>
<CAPTION>
RELATED
PARTY OTHERS TOTAL
------- ------- -------
<S> <C> <C> <C>
Year ended November 30, 1994.................... $ 3,939 $ 1,130 $ 5,069
Year ended November 30, 1995.................... 3,875 1,575 5,450
Ten months ended September 30, 1996............. 3,778 1,627 5,405
Three months ended December 31, 1996............ 1,032 452 1,484
At December 31, 1996, minimum future annual rentals under long-term leases
are as follows (in thousands):
<CAPTION>
RELATED
PARTY OTHERS TOTAL
------- ------- -------
<S> <C> <C> <C>
1997............................................ $ 4,181 $ 1,533 $ 5,714
1998............................................ 4,254 1,352 5,606
1999............................................ 4,329 1,298 5,627
2000............................................ 4,404 1,308 5,712
2001............................................ 4,481 1,308 5,789
Thereafter to 2009.............................. 38,356 3,842 42,198
------- ------- -------
$60,005 $10,641 $70,646
======= ======= =======
</TABLE>
Contingencies
The Company is a party to various legal actions and disputes arising in the
ordinary course of business. Management believes, based on the advice of
counsel, that any resulting liabilities from these actions will not have a
material adverse effect on the financial position of the Company.
F-15
<PAGE>
PETERSEN HOLDINGS, L.L.C.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C--ADDITIONS COLUMN D COLUMN E
- ------------------------ ---------- ------------------- ---------- ---------
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ------------------------ ---------- ---------- -------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Reserves and allowances
deducted from
asset accounts:
Allowance for doubtful
accounts of the
Publishing Division of
Petersen Publishing
Company:
Year ended November
30, 1994 $2,340 $825 $ -- $(1,033)(a) $2,132
Year ended November
30, 1995 2,132 900 -- (812)(a) 2,220
Ten months ended Sep-
tember 30, 1996 2,220 500 -- (849)(b) 1,871
Allowance for doubtful
accounts of Petersen
Holdings, L.L.C.:
Three months ended
December 31, 1996 1,871 -- -- (267)(a) 1,604
</TABLE>
- --------
(a) Represents amounts written-off against the allowance for doubtful accounts,
net of recoveries.
(b) Represents a deduction in the allowance for doubtful accounts based on
management's estimate of collectibility as well as amounts written-off
against the allowance for doubtful accounts, net of recoveries.
F-16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10K FOR
PERIOD ENDED 12/31/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,761
<SECURITIES> 0
<RECEIVABLES> 21,745
<ALLOWANCES> 1,604
<INVENTORY> 4,408
<CURRENT-ASSETS> 33,040
<PP&E> 4,712
<DEPRECIATION> 560
<TOTAL-ASSETS> 519,070
<CURRENT-LIABILITIES> 58,666
<BONDS> 0
0
165,171
<COMMON> 1,671
<OTHER-SE> (12,542)
<TOTAL-LIABILITY-AND-EQUITY> 519,070
<SALES> 53,277
<TOTAL-REVENUES> 53,277
<CGS> 41,223
<TOTAL-COSTS> 41,223
<OTHER-EXPENSES> 11,658
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,114
<INCOME-PRETAX> (10,605)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,605)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,594)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
