<PAGE>
================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT FOR THE QUARTER ENDED MARCH 31, 1995.
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
ACT OF 1934 FOR THE TRANSACTION PERIOD FROM __________ TO _________.
COMMISSION FILE NUMBER: 1-100155
____________________
HERITAGE MEDIA CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
IOWA 42-1299303
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
13355 NOEL ROAD, SUITE 1500
DALLAS, TEXAS 75240
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code:
(214) 702-7380
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 [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MAY 5, 1995
Class A, $.01 Par Value 17,674,784
<PAGE>
PART I. SUMMARIZED FINANCIAL INFORMATION
Item 1. Financial Statements
HERITAGE MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
(UNAUDITED)
MARCH 31, DECEMBER 31,
1995 1994
__________ ___________
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,869 4,270
Trade receivables, net 46,185 51,096
Prepaid expenses and other 3,214 2,936
Inventory 6,108 5,711
Broadcast program rights 1,511 1,518
Deferred income taxes 4,621 3,369
________ ________
Total current assets 69,508 68,900
Acquisition escrow deposits 2,350 -
Property and equipment, net 55,448 54,799
Goodwill and other intangibles, net 383,713 382,288
Noncurrent broadcast program rights 1,309 1,429
Deferred finance costs, net 3,695 3,870
Other assets 2,890 2,861
________ ________
$518,913 514,147
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt
(note 2) $11,953 11,823
Accounts payable 11,123 16,906
Accrued expenses 36,022 35,826
Broadcast program rights payable 1,371 1,842
Deferred advertising revenues 16,474 13,864
________ _______
Total current liabilities 76,943 80,261
Long-term debt, excluding current portion
(note 2) 341,966 339,702
Broadcast program rights payable,
excluding current portion 763 918
Other long-term liabilities 1,369 651
Deferred income taxes 3,952 3,369
Stockholders' equity:
Common stock, $.01 par value:
Class A - 40,000,000 shares authorized.
Issued,17,703,628 shares in 1995 and
17,548,716 shares in 1994 177 175
Additional paid-in capital 222,163 219,092
Accumulated deficit (126,722) (128,214)
Accumulated foreign currency translation
adjustments (1,244) (1,353)
Class A common stock in treasury, at cost
(32,828 shares in 1995 and 1994) (454) (454)
________ ________
Total stockholders' equity 93,920 89,246
Commitments and contingencies (note 3)
________ _______
$518,913 $514,147
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
HERITAGE MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
1995 1994
_______ _______
<S> <C> <C>
Net revenues:
In-store marketing $64,324 47,910
Television 10,245 9,579
Radio 8,694 7,824
_______ _______
83,263 65,313
_______ _______
Costs and expenses:
Cost of services:
In-store marketing 42,153 29,756
Television 2,426 2,424
Radio 1,957 2,090
Selling, general and administrative 18,843 16,215
Depreciation 3,685 3,970
Amortization of goodwill and other
assets 3,337 2,951
_______ _______
72,401 57,406
_______ _______
Operating income 10,862 7,907
_______ _______
Other expense:
Interest, net (8,634) (7,105)
Other, net (184) (635)
_______ _______
(8,818) (7,740)
_______ _______
Income before income taxes 2,044 167
Income taxes (552) (771)
_______ _______
Net income (loss) $1,492 (604)
======= =======
Net income (loss) applicable to
common stock $1,492 (3,495)
======= =======
Weighted average common shares
outstanding 17,624,133 17,077,135
========== ==========
Net income (loss) per common share $0.08 (0.20)
======= =======
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
HERITAGE MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
_______ _______
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $1,492 (604)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Noncash interest and amortization of debt
issuance costs 157 180
Depreciation 3,685 3,970
Amortization:
Broadcast program rights 524 492
Goodwill and other assets 3,337 2,951
Other 88 583
Changes in certain assets and liabilities,
net of effects of acquisitions:
Accounts receivable 9,571 909
Other assets (542) 646
Payment of stock appreciation rights (3,800) -
Accounts payable and accrued expense (2,228) (2,388)
Increase (decrease) in deferred revenue 1,949 (1,948)
______ _______
Net cash provided by operating activities 14,233 4,791
______ _______
Cash flows from investing activities:
Acquisitions and investments, net (9,035) (7,522)
Capital expenditures (3,309) (2,890)
Purchase of in-store marketing rights (305) (539)
________ ________
Net cash used by investing activities (12,649) (10,951)
________ ________
Cash flows from financing activities:
Long-term borrowings 28,803 19,246
Retirements:
Long-term debt (26,563) (15,834)
Broadcast program rights payable (599) (761)
Issuance of common stock 374 7
Dividends on preferred stock - (445)
Payment of debt issuance costs - (222)
_______ _______
Net cash provided by financing activities 2,015 1,991
_______ _______
Net change during period 3,599 (4,169)
Cash and cash equivalents at beginning of period 4,270 4,416
_______ _______
Cash and cash equivalents at end of period $7,869 247
======= ========
Cash paid for interest $2,541 1,382
======= ========
Cash paid for income taxes $305 1,936
======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
HERITAGE MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
(UNAUDITED)
NOTE 1. RESULTS OF OPERATIONS.
The results of operations for the interim periods reported are not
necessarily indicative of results to be expected for the year. The
information reflects all adjustments (none of which were other than normal
recurring items) which are, in the opinion of management, necessary to
present a fair statement of the results for the interim periods. It is
suggested that this interim period financial information be read in
conjunction with the audited consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994.
NOTE 2. LONG-TERM DEBT.
Long-term debt at March 31, 1995 and December 31, 1994 is summarized as
follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
MARCH 31, DECEMBER 31,
_________ ____________
1995 1994
<S> <C> <C>
HMSI senior notes$ $150,000 150,000
HMSI credit agreement 123,400 121,000
HMC senior subordinated notes 50,000 50,000
Canadian credit agreement 19,275 19,165
Other 11,244 11,360
-------- -------
353,919 351,525
Less current installments 11,953 11,823
-------- -------
$341,966 339,702
======== =======
</TABLE>
Long-term debt increased by $2.4 million during the three month period
ended March 31, 1995 due to credit agreement borrowings primarily for the
Power Force acquisition completed during the quarter and the pending
acquisitions' escrow deposits (see note 3). An additional $3.6 million of
the term facility was reclassified to current installments at March 31, 1995
per the HMSI credit agreement. This amount was offset by the $3.6 million
principal payment made on the term facility in the first quarter.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 3. ACQUISITIONS.
In January 1995, the Company completed its acquisition of Powerforce
Services, an in-store merchandise services company, for $6.3 million and
contingent payments of up to $1 million if certain operating results are
achieved. Included in the Company's financial results for the first quarter
of 1995 were Powerforce revenues in excess of $10 million which exceeded the
comparable 1994 period by approximately 25%. The operating loss of $.2
million in 1995 was level with 1994.
In February 1995, the Company agreed to purchase KXYQ-AM/FM in Portland,
Oregon and, KKCJ-FM in Kansas City, Missouri in two separate transactions for
cash and other consideration aggregating $14 million. Escrow deposits
totaling $2.4 million have been made in relation to the acquisitions. The
Company included the financial results of KKCJ-FM from March 1995 under the
terms of a Local Marketing Agreement ("LMA"). No significant revenues or
operating expenses were recognized for the period ending March 31, 1995.
Completion of these acquisitions is subject to approval of the Federal
Communications Commission.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS: FIRST QUARTER 1995 COMPARED TO 1994
Consolidated net revenues of $83.3 million increased 27% over the 1994
revenues of $65.3 million. Operating income of $10.9 million in 1995
exceeded the comparable 1994 period by 37%. Net income of $1.5 million
improved significantly versus a $.6 million loss in 1994. The improvement in
the Company's operating results for the 1995 period primarily reflects
revenue growth from advertising print products and ActNow, additional
revenues from Actmedia Canada, and the Powerforce acquisition by the In-store
Marketing Group and increased local and national advertising revenues by the
Television and Radio Groups. The improvement in income per share of $.08 in
1995 versus a $.20 per share loss in 1994 was due to the improved results
from operations and a $.16 per share impact of settlement rights accretion
and preferred dividends in 1994. All comparisons, unless otherwise noted, are
for the three-month period ended March 31, 1995 versus the comparable 1994
period.
IN-STORE MARKETING. The In-store Marketing Group contributed $64.3
million of revenues in 1995, an increase of 34%, compared to $47.9 million in
1994. The growth of advertising and ActNow revenues, additional revenues
from Actmedia Canada and the Powerforce acquisition were the major
contributors. Advertising revenues totaled $13.1 million in 1995, an increase
of 24% compared to 1994 and ActNow revenues improved by 16% to $5.8 million.
International revenues of $6.4 million grew by 72% versus 1994, as Actmedia
Canada contributed an additional $2.6 million of revenues. The Powerforce
acquisition added over $10 million of revenues in the 1995 period.
In-store Marketing operating income of $6 million increased by 32%, from
$4.6 million in the 1994 period, due primarily to increased revenues. The
operating margin was approximately 9% in both periods as the higher margin
associated with the advertising revenues was offset by the lower Powerforce
operating margin. Excluding the operating results of Powerforce, which
operates with a higher level of variable expenses, the In-store Marketing
Group's operating margin increased to 12% in 1995 versus 9% in 1994.
TELEVISION. The Television Group generated $10.2 million of revenues in
1995, a 7% increase compared to $9.6 million in 1994. Revenues improved 14%
compared to 1994 on a same station basis excluding the South Dakota station
sold in October 1994. The Television Bureau of Advertising Time Sales Survey
reported that industry-wide gross local revenues increased by 9% and national
revenues were up 8% compared to 1994. The Television Group's local revenues
increased 9% and national revenues improved 24% compared to the 1994 period
on a same station basis. All of the Television Group's stations generated
improved revenues and operating income in 1995 compared to the 1994 period.
Operating income of $3.9 million increased by 43% compared to 1994
primarily as a result of the higher revenues and favorable mix of increased
national revenues. The operating margin improved from 30% in 1994 to 38% in
1995 on a same station basis. The Oklahoma City, Pensacola, and Plattsburgh
stations contributed 89% of the operating income improvement.
RADIO. The Radio Advertising Bureau reported that national revenues
grew 14% and local spot revenues improved 9% in the first quarter of 1995
versus the same period in 1994 for the radio industry. Net revenues of the
Radio Group increased by 11% from $7.8 million in 1994 to $8.7 million in
1995. The Radio Group's local and national revenues grew by 9% and 36%,
respectively. The significant contributors to the revenue growth were the
St. Louis and Rochester duopolies and the Portland stations. The Cincinnati
station's revenues declined due to the direct format competition previously
discussed.
7
<PAGE>
Operating income grew from $1.4 million in 1994 to $1.7 million in 1995
primarily as a result of the increased revenues as the operating margin
improved from 17% in 1994 to 20% in 1995.
CORPORATE EXPENSES. Corporate expenses of $.7 million in 1995 were
level with the 1994 period.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization of $7.0
million in 1995 increased by 1% compared to 1994.
INTEREST EXPENSE. Interest expense increased from $7.1 million in 1994
to $8.6 million in the 1995 period due to both higher interest rates and
higher debt levels.
OTHER EXPENSE. Other expense in 1994 included $.6 million of noncash
expense for accrued stock appreciation rights. The payment of the rights was
completed in January 1995.
NET INCOME (LOSS). Primarily as a result of an additional $3 million of
operating income reduced by the increased interest expense, the Company
improved its operating results from a $.6 million loss in 1994 to $1.5
million of net income in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities totaling approximately $14
million in 1995 increased compared to approximately $5 million in 1994 due
primarily to the improved operating results plus an additional $7 million
provided by lower working capital requirements. In 1995, cash flows from
operations of $14 million were principally utilized for net capital
expenditures and investments ($3.3 million), acquisitions ($9 million), and
debt principal payments ($3.6 million).
At March 31, 1995, the Company, through its Heritage Media Services,
Inc. subsidiary ("HMSI"), had a bank credit facility (the "Credit
Agreement"). HMSI is the Company's subsidiary which owns ACTMEDIA and the
Company's broadcasting properties. The credit facility was comprised of an
$80 million term loan which began to amortize on December 31, 1994, and
continues until June 1999, and a $75 million reducing revolving credit
facility. Such facilities had decreased as of March 31, 1995 to $76.4 million
and $71.6 million respectively. At March 31, 1995, $76.4 million of the term
loan facility and $47 million of the revolving credit facility were
outstanding and $24.6 million of additional borrowings were available under
the Credit Agreement. The Credit Agreement includes a number of financial and
other covenants, including the maintenance of certain operating and financial
ratios and limitations on or prohibitions of dividends, indebtedness, liens,
capital expenditures, asset sales and certain other items. Loans under the
Credit Agreement are guaranteed by the Company and HMSI's domestic
subsidiaries and are secured by a pledge of the capital stock of HMSI and its
domestic subsidiaries.
On June 22, 1992, HMSI issued $150 million of 11% Senior Secured Notes
(the "Senior Notes") due June 15, 2002. Interest on the Senior Notes is
payable semi-annually. The Senior Notes rank on a parity with the
obligations under the Credit Agreement, are guaranteed by HMC, and HMSI's
domestic subsidiaries and are secured by a pledge of capital stock of HMSI
and its domestic subsidiaries.
8
<PAGE>
On October 1, 1992 the Company issued $50 million of 11% Senior
Subordinated Notes (the "Subordinated Notes") due October 1, 2002. Interest
on the Subordinated Notes is payable semi-annually. The Subordinated Notes
are subordinate in right of payment to the prior payment in full of the
Credit Agreement and the Senior Notes.
The Company expects the major requirements for cash for the remainder in
1995 to include $12 million to acquire the Portland and Kansas City radio
stations, $7.5 million for debt principal payments, lease and contractual
obligations of $8 million, and approximately $11 million for capital
expenditures. The Company has various financial options to meet these cash
requirements including cash on hand, projected cash provided from operations,
and available liquidity under the Credit Agreement.
9
<PAGE>
================================================================
SIGNATURE
Pursuant to the requirement 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.
HERITAGE MEDIA CORPORATION
Dated: May 10, 1995 by /s/ David N. Walthall
__________________________
David N. Walthall
President and Chief Executive Officer
Dated: May 10, 1995 by /s/ James P. Lehr
__________________________
James P. Lehr
Vice President and Controller
Principal Accounting Officer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 1,064
<SECURITIES> 0
<RECEIVABLES> 64,311
<ALLOWANCES> 2,750
<INVENTORY> 6,206
<CURRENT-ASSETS> 80,296
<PP&E> 104,812
<DEPRECIATION> 49,364
<TOTAL-ASSETS> 529,808
<CURRENT-LIABILITIES> 78,123
<BONDS> 351,801
<COMMON> 177
0
0
<OTHER-SE> 93,093
<TOTAL-LIABILITY-AND-EQUITY> 529,808
<SALES> 0
<TOTAL-REVENUES> 83,263
<CGS> 0
<TOTAL-COSTS> 46,536
<OTHER-EXPENSES> 25,980
<LOSS-PROVISION> 115
<INTEREST-EXPENSE> 8,634
<INCOME-PRETAX> 2,044
<INCOME-TAX> 552
<INCOME-CONTINUING> 1,492
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,492
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.00
</TABLE>
