SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-Q/A
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR15(d)
OF THE SECURITIES EXCHANGE ACT FOR THE QUARTER ENDED
SEPTEMBER 30, 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. EmployerIdentification 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 November 3, 1995
_______ ___________________________________
Class A, $.01 Par Value 17,708,531
PART I. SUMMARIZED FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
HERITAGE MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION> ASSETS
(unaudited)
September30, December 31,
<S>
1995 1994
Current assets:
<C> <C>
Cash and cash equivalents $1,788 4,270
Short-term investments (note 4) 4,750 -
Trade receivables, net 66,308 51,096
Prepaid expenses and other 4,904 2,936
Inventory 6,201 5,711
Broadcast program rights 1,468 1,518
Deferred income taxes 5,385 3,369
_______ _______
Total current assets 90,804 68,900
Property and equipment, net 58,374 54,799
Goodwill and other intangibles, net 392,046 382,288
Noncurrent broadcast program rights 2,252 1,429
Deferred finance costs, net 3,553 3,870
Other assets 4,114 2,861
________ _______
$551,143 514,147
======== =========
LIABILITIES AND STOCKHOLDERS'EQUITY
Current liabilities:
Note payable (note 3) $5,000 -
Current installments of long-term debt (note 2) 3,278 11,823
Accounts payable 16,144 16,906
Accrued expenses 39,867 35,826
Broadcast program rights payable 2,054 1,842
Deferred advertising revenues 21,469 13,864
______ ______
Total current liabilities 87,812 80,261
Long-term debt, excluding current portion (note 2) 347,102 339,702
Broadcast program rights payable,excluding
current portion 841 918
Other long-term liabilities 1,662 651
Deferred income taxes 5,001 3,369
Stockholders' equity:
Common stock, $.01 par value:
Class A - 40,000,000 shares authorized. Issued,
17,736,359 shares in 1995 and 17,548,716 shares
in 1994 177 175
Additional paid-in capital 222,418 219,092
Unrealized gain on investments, net (note 4) 630 -
Accumulated deficit (112,610) (128,214)
Accumulated foreign currency translation
adjustments (1,436) (1,353)
Class A common stock in treasury, at cost
(32,828 shares in 1995 and 1994) (454) (454)
________ ________
Total stockholders' equity 108,725 89,246
Commitments and contingencies (note 3) ________ ________
$551,143 514,147
======== =========
</TABLE>
See accompanying notes to consolidated
financial statements.
<TABLE>
HERITAGE MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share information)
(unaudited)
<CAPTION>
Three Months Nine Months
ended September 30, ended September 30,
_____________________ _____________________
<S>
1995 1994 1995 1994
Net revenues: _________ _________ _________ _______
<C> <C> <C> <C>
In-store marketing
$86,601 53,371 235,126 149,652
Television 10,703 11,163 32,665 32,416
Radio 11,404 10,954 31,274 28,758
_______ ______ _______ ________
108,708 75,488 299,065 210,826
Costs and expenses:
_______ _______ _______ ________
Cost of services:
In-store marketing 56,044 28,342 155,378 84,603
Television 2,666 2,683 7,620 7,663
Radio 3,411 3,272 7,997 7,801
Selling, general and administrative20,180 18,630 59,391 52,124
Depreciation 3,790 3,222 11,081 10,859
Amortization of goodwill and
other assets 3,303 3,036 10,125 9,344
Other nonrecurring charges - 1,500 - 3,100
______ ______ _______ _______
89,394 60,685 251,592 175,494
______ _______ _______ _______
Operating income 19,314 14,803 47,473 35,332
_______ _______ ________ ________
Other expense:
Interest, net (8,714) (7,738) (26,190) (22,196)
Gain/(loss) on sale of assets
(note3) 757 - 757 (1,600)
Other, net (244) (52) (834) (684)
_______ _______ ________ ________
(8,201) (7,790) (26,267) (24,480)
________ _______ _________ ________
Income before income taxes 11,113 7,013 21,206 10,852
Income taxes (2,736) (700) (5,602) (2,384)
________ ________ ________ _________
Net income $8,377 6,313 15,604 8,468
======== ======== ======== =========
Net income (loss) applicable
to common stock $8,377 6,313 15,604 (11,183)
========= ======== ======== =========
Weighted average common shares
outstanding 17,695 17,472 17,666 17,339
========= ========= ======== ==========
Net income (loss) per common share
$0.47 0.36 0.88 (0.64)
========= ========= ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
HERITAGE MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1995 and 1994
<CAPTION>
(Dollars in thousands)
(unaudited)
1995 1994
<S> ______ ________
Cash flows from operating activities:
<C> <C>
Net income $15,604 8,468
Adjustments to reconcile net income to
net cash provided by operating activities:
Noncash interest and amortization of debt
issuance costs 561 574
Stock appreciation rights - 3,100
Depreciation 11,081 10,859
Amortization:
Broadcast program rights 1,534 1,532
Goodwill and other assets 10,125 9,344
Other (257) (537)
Write-off of fixed assets 348 570
(Gain)/loss on sale of assets (757) 1,600
Changes in certain assets and liabilities net of
effects of acquisitions:
Accounts receivable (10,552) 7,017
Other assets (2,956) (1,589)
Accrued stock appreciation rights (3,800) - -
Accounts payable and accrued expenses 4,668 (3,622)
Increase (decrease) in deferred revenue 6,944 (2,594)
________ ________
Net cash provided by operating activities 32,543 34,722
________ ________
Cash flows from investing activities:
Acquisitions, net (note 3) (16,562) (7,767)
Investments (note 4) (3,708) -
Capital expenditures (13,073) (8,804)
Proceeds from sale of assets (note 3) 1,500 -
Purchase of in-store marketing rights (596) (1,048)
________ ________
Net cash used by investing activities (32,439) (17,619)
________ ________
Cash flows from financing activities:
Long-term borrowings 96,647 94,607
Retirements:
Long-term debt (97,945) (69,318)
Broadcast program rights payable (1,689) (2,126)
Issuance of common stock 628 137
Dividends on preferred stock - (445)
Purchase and related costs of settlement rights - (38,541)
Payment of offering costs - (276)
Payment of debt issuance costs (227) (222)
_________ __________
Net cash used by financing activities (2,586) (16,184)
_______ __________
Net change during period (2,482) 919
Cash and cash equivalents at beginning of period 4,270 4,416
_________ ___________
Cash and cash equivalents at end of period $1,788 5,335
========== ==========
Cash paid for interest $20,553 15,988
========== ==========
Cash paid for income taxes $2,232 3,382
========== ==========
</TABLE>
See accompanying notes to consolidated financial
statements.
HERITAGE MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
(Unaudited)
Note 1. Results of Operations.
The results of operations for the 1995 interimperiods
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 September 30, 1995 and December 31,1994
is summarized as follows:
<TABLE>
(Dollars in thousands)
<CAPTION>
September 30, December 31,
1995 1994
_____________ _____________
<S> <C> <C>
HMSI senior notes $150,000 150,000
HMSI credit agreement 120,400 121,000
HMC senior subordinated notes 50,000 50,000
Canadian credit agreement 18,980 19,165
Other 11,000 11,360
________ _______
350,380 351,525
Less current installments 3,278 11,823
_______ _______
$347,102 339,702
======== ========
</TABLE>
Long-term debt decreased by $1.1 million during the nine-month
period ended September 30, 1995. The decrease was primarily due
to credit agreement payments mostly offset by borrowings for the
Powerforce Services acquisition completed during the first
quarter, the completion of the acquisition of KXYQ-AM/FM in
Portland, Oregon during the second quarter and the completion of
the KKCJ-FM acquisition in Kansas City, Missouri in the third
quarter (see note 3).
In August 1995, the Company entered into several two-
year interest rate swap agreements with a combined notional principal
amount of $50 million to more proportionately balance the mix of
floating and fixed rate debt. Of the total $50 million,$40 million
matures on June 15,1997 and the remaining $10 million matures on
August 1,1997. Under these arrangements, the Comapny will receive
an average rate of 6.13% during the term of these agreements and will
pay the respective six month LIBOR rate at each of
Notes to Consolidated Financial Statements, (continued)
the three resetperiods (every six months). The six month LIBOR rate on the date
these agreements were executed was 5.9% The differential to be paid
or received under the swap agreements is accrued as interest expense as
interest rates change over the life of the agreements. The Company
is not exposed to credit loss in the event of nonperformance by the
counterparties to the swap agreements as such counterparties are banks
which participate in the HMSI credit agreement. The impact of the swap
agreements on interest expense for the three and nine month period
ended September 30,1995 was not material.
Note 3. Acquisitions and Dispositions.
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 nine months ended September
30, 1995 were Powerforce revenues of $53 million which exceeded
the comparable 1994 period by approximately 20%. The operating
income of $.7 million in 1995 was slightly better than 1994.
In June 1995, the Company completed its acquisition of KXYQ-
AM/FM in Portland, Oregon for $7 million creating a duopoly in
the market. The station's call letters were changed to KKRH-
AM/FM. Revenues of $249,000 and an operating loss of $236,000
were recognized for the nine-month period ended September
30, 1995.
In July 1995, the Company completed its acquisition of KKCJ-
FM in Kansas City, Missouri for $2 million in cash and a $5
million note payable due January 3, 1996 creating the Company's
fifth duopoly. Subsequently the station's call letters were
changed to KCIY-FM. The Company included financial results of
KCIY-FM from March 1995 under the terms of a Local Marketing
Agreement. For the nine-month period ended September 30, 1995
revenues of $373,000 and an operating loss of $413,000
were included in the consolidated results.
The acquisitions discussed above were recognized in
the consolidated September 30, 1995 balance sheet as follows :
<TABLE>
<CAPTION> (Dollars in thousands)
<S> <C>
Working capital, net $(3,713)
Other noncurrent assets 2,338
Goodwill and other intangibles 18,572
Long-term liabilities and debt (635)
________
Total cash paid, net of cash acquired $16,562
=========
</TABLE>
Assuming the acquisitions discussed above and the
Infonet acquisition in October 1994 were consummated on January 1,
1994, consolidated revenues and net income on a proforma basis for
the nine months ended September 30, 1994 would have been
$262.2 million and $5.9 million, respectively. Loss per share
on a proforma basis for the same period would have been
$.79. Proforma results for the nine-month period ended September
30,1995 are not materially different from historical results
for the same period.
Notes to Consolidated Financial Statements, (continued)
In September 1995, the Company sold the intellectual assets
( including format, call letters, trade name etc.) of WOFX-FM,
"The Fox", in Cincinnati, Ohio for $1.5 million and recognized a
gain of $.8 million. Concurrently, "The WAVE" was launched
with a smooth jazz format and the call letters of the station
were changed to WVAE-FM.
In September 1995, the Company announced the sale of KEVN-TV
in Rapid City, South Dakota for $14 million. Upon completion of
the sale, the Company expects to recognize a gain of
approximately $6 million. The disposition is pending approval by
the Federal Communications Commission ("FCC").
In September 1995, the Company agreed to purchase radio
stations WMYV-FM and WWST-FM serving the Knoxville, Tennessee
market for $6.5 million. Completion of these acquisitions is
subject to approval by the FCC and will create the Company's
sixth duopoly within its eight operating markets.
Note 4. Short-term Investments.
Although the Company does not invest in equity securities in
the normal course of business, during the third quarter the
Company made a short-term investment in marketable equity
securities which are available for sale. The investment had a
gross unrealized gain of $1 million at September 30, 1995
and is recognized as a separate component of stockholders' equity
net of applicable taxes.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations: Third Quarter 1995 compared to 1994
Consolidated net revenues of $108.7 million represented a
44% increase over the 1994 revenues of $75.5 million. Operating
income of $19.3 million in 1995 exceeded the comparable 1994
period by 30%. Net income of $8.4 million improved significantly
versus $6.3 million in 1994. The improvement in the Company's
operating results for the 1995 period is primarily due to
increased revenues and operating income in the In-store Marketing
Group. The Television and Radio Groups, impacted by a slowdown
in the growth of advertising revenues, the absence of KDLT-TV
sold in October 1994, the decrease in political revenues in
1995 and the recent acquisition of two underperforming radio
stations, generated revenues equal to 1994 and a decrease in
operating income. Net income per share of $.47 in 1995 improved
versus $.36 per share in 1994 due to the favorable results from
operations. All comparisons, unless otherwise noted, are for
the three-month period ended September 30, 1995 versus the
comparable 1994 period.
In-store Marketing. The In-store Marketing Group
contributed $86.6 million of revenues in 1995, an increase of
62%, compared to $53.4 million in 1994. All of the group's
product revenues improved versus the 1994 period. The growth of
Instant Coupon Machine (ICM) revenues, promotion revenues and
additional revenues from Actmedia Canada and the Powerforce
acquisition were the major contributors. ICM revenues totaled
$25.1 million in 1995, an increase of 22% compared to 1994.
Promotion revenues totaling $17.9 million improved by 41% from
$12.7 million in 1994. International revenues of $7.5 million
exceeded 1994 by 42% primarily due to growth from Actmedia
Canada. The Powerforce acquisition added $20.5 million of
revenues in the 1995 period.
Operating income of $14.3 million increased by 53%, from
$9.3 million in the 1994 period, due primarily to increased
revenues and an increase in Actmedia's operating margin excluding
the Powerforce acquisition. The 1994 period included a $1.5
million nonrecurring expense. The operating margin was
approximately 17% in both 1995 and 1994. 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 21% in 1995.
Television. The Television Group revenues of $10.7 million
in 1995 declined 4% compared to 1994. Revenues increased 4% on a
same station basis excluding the Sioux Falls station (sold in
October 1994) and approximately $400,000 of political revenues
not available in 1995. The Television Bureau of Advertising Time
Sales Survey reported that industry-wide gross local revenues
increased by 5% and national revenues were up 1% during the
quarter compared to 1994. The Television Group's national
revenues increased 9%, while local revenues decreased 1% compared
to the 1994 period on a same station basis. The Group's operating
results were negatively impacted by lower results at the
Charleston, WV station.
Operating income of $3.6 million decreased by 2% compared to
1994 primarily as a result of lower revenues. The operating
margin declined from 35% in 1994 to 34% in 1995 on a same station
basis. The Plattsburgh, NY/Hanover, VT stations continued strong
operating income improvement due primarily to a significant
increase in national advertising revenues.
Radio. The Radio Advertising Bureau reported that combined
total revenues were up 7%, national revenues grew 2% and local
spot revenues improved 8% in the third quarter of 1995 versus the
same period in 1994 for the radio industry. Net revenues of the
Radio Group increased by 4% from $11 million in 1994 to $11.4
million in 1995. The Radio Group's local revenues grew by 6%,
but national revenues declined 10%. The significant contributors
to the revenue growth were the St. Louis duopolies and the Kansas
City station. The recent Portland and Kansas City acquisitions
added $.5 million of revenues. The Cincinnati station's revenues
declined due to the direct format competition discussed in
previous filings. The Cincinnati station sold the intellectual
assets of WOFX-FM and changed the format to smooth jazz and
the call letters to WVAE-FM (see note 3).
Operating income declined from $2.7 million in 1994 to $2.4
million in 1995 primarily as a result of a $.4 million operating
loss from the Portland and Kansas City acquisitions noted above.
The operating margin was 25% in both periods excluding the
acquisitions.
Corporate Expenses. Corporate expenses of $1 million in
1995 increased by 6% versus the 1994 period.
Depreciation and Amortization. Depreciation and
amortization of $7.1 million in 1995 increased by $.8 million
due primarily to additional In-store Marketing depreciation
associated with capital expenditures and higher Radio
amortization due to the acquisitions.
Other Nonrecurring. Other nonrecurring expense in 1994
included $1.5 million of noncash expense for accrued stock
appreciation rights. Payment of the rights was completed in
January 1995.
Interest Expense. Interest expense increased from $7.7
million in 1994 to $8.7 million in the 1995 period due primarily
to higher interest rates and higher debt levels.
Gain on sale of assets. The Company recognized a $.8
million gain on the sale of the Cincinnati station's
intellectual assets noted above.
Net Income. Primarily as a result of an additional $4.5
million of operating income increased by the gain on sale of
assets, reduced by higher interest expense and income taxes, the
Company improved its net income from $6.3 million in 1994 to $8.4
million in 1995.
Results of Operations: Nine Months 1995 compared to 1994
Consolidated net revenues of $299.1 million increased by 42%
over the 1994 revenues of $210.8 million. Operating income of
$47.5 million in 1995 exceeded the comparable 1994 period by 34%.
Net income of $15.6 million improved significantly versus $8.5
million in 1994. The improvement in the Company's operating
results for the 1995 period reflects advertising and promotion
revenue growth and additional revenues from Actmedia Canada and
the Powerforce acquisition by the In-store Marketing Group and
increased national and local advertising revenues by the
Television and Radio Groups. The income per share of $.88
improved in 1995 versus a $.64 per share loss in 1994 due to the
favorable results from operations and the $1.13 per share impact
of settlement rights accretion and dividends in 1994.
All comparisons, unless otherwise noted, are for the nine-
month period ended September 30, 1995 versus the comparable
1994 period.
In-store Marketing. The In-store Marketing Group
contributed $235.1 million of revenues in 1995, an increase of
57%, compared to $149.7 million in 1994. All of the group's
product revenues improved versus the 1994 period. The growth of
advertising, promotion, and ICM revenues and additional revenues
from Actmedia Canada and the Powerforce acquisition were the
major contributors. Advertising revenues totaled $41.2 million in
1995, an increase of 14% compared to 1994. Promotion revenues
totaling $54.2 million increased 36% compared to 1994, and ICM
revenues grew by 8%. International revenues of $22.3 million grew
by 59% versus 1994 as Actmedia Canada contributed an additional
$7.9 million of revenues. The Powerforce acquisition added $53.2
million of revenues in the 1995 period.
Operating income of $30.6 million increased by 48%,from
$20.7 million in the 1994 period due primarily to increased
revenues. The 1994 period included a $3.1 million nonrecurring
charge. The operating margin was approximately 13% in 1995 versus
14% in 1994 due to Powerforce. Excluding Powerforce, the
operating margin was 16% in 1995.
Television. The Television Group generated $32.7 million of
revenues in 1995, a 1% increase compared to $32.4 million in
1994. Revenues improved 6% compared to 1994 on a same station
basis. The Television Bureau of Advertising Time Sales Survey
reported that industry-wide gross local revenues increased by
7% and national revenues were up 5% compared to 1994.
The Television Group's national revenues increased by 18% and
local revenues improved 3% compared to the 1994 period on a
same station basis. The 1994 period also included $.8 million of
additional political revenues. Revenues improved 9% on a same
station basis excluding political revenues. All of the Television
Group's stations, except Charleston, WV generated improved
revenues in 1995 compared to the 1994 period.
Operating income of $12.4 million increased by 16%
compared to 1994 primarily as a result of the higher revenues
and favorable mix of increased national revenues. The operating
margin improved from 35% in 1994 to 38% in 1995 on a same station
basis. The Oklahoma City, Pensacola, and Plattsburgh/Hanover
stations contributed substantially all of the operating income
improvement.
The rate of growth of local and national advertising
expenditures in the industry softened in the third quarter and
continues to be slow entering the fourth quarter. .
Radio. The Radio Advertising Bureau reported that combined
national revenues grew 9% and local spot revenues improved 10% of
1995 versus the same period in 1994 for the radio industry.
Net revenues of the Radio Group increased by 9% from $28.8
million in 1994 to $31.3 million in 1995. The Radio Group's national
and local revenues grew by 10% and 9%, respectively. The significant
contributors to the revenue growth were the St. Louis and
Rochester duopolies and the Kansas City and Portland stations.
The Cincinnati station's revenues declined significantly as
previously discussed and the Seattle station's revenues declined
due to direct competition in its format. The Portland and
Kansas City acquisitions contributed $.6 million of revenues.
Operating income grew from $6.4 million in 1994 to $7.1
million in 1995 primarily as a result of the improved revenues.
Operating income was $7.7 million excluding the acquisitions
noted above. The operating margin improved from 22% in 1994 to
25% in 1995 excluding the acquisitions.
The Radio industry has seen a softening of national
advertising expenditures in the third quarter and continuing into
the fourth quarter.
Corporate Expenses. Corporate expenses of $2.7 million in
1995 increased by $150,000 versus the 1994 period.
Depreciation and Amortization. Depreciation and
amortization of $21.2 million in 1995 increased by 5% compared
to 1994.
Other Nonrecurring. Other nonrecurring expense in
1994included $3.1 million of noncash expense for accrued
stock appreciation rights. Payment of the rights was
completed in January 1995.
Interest Expense. Interest expense increased from $22.2
million in 1994 to $26.2 million in 1995 due primarily to higher
interest rates and higher debt levels.
Net Income. Primarily as a result of an additional $12.1
million of operating income, reduced by higher interest expense
and income taxes, the Company improved its net income from $8.5
million in 1994 to $15.6 million in 1995.
Liquidity and Capital Resources
Cash flows provided by operating activities totaling $32.5
million in 1995 decreased slightly compared to $34.7 million in
1994 as the improved operating results in 1995 were more than
offset by higher working capital requirements. In 1995, cash
flows from operations of $32.5 million and cash on hand were
principally utilized for acquisitions and investments ($20.3
million), capital expenditures ($13.1 million), and debt and
other liabilities reduction ($3 million).
At September 30, 1995, the Company, through its Heritage
Media Services, Inc. subsidiary ("HMSI"), had a $155 million
bank credit facility (the "Credit Agreement"). HMSI is the
Company's subsidiary which owns ACTMEDIA and the Company's
broadcasting properties. The Credit Agreement was comprised of an $80
million term loan which began to amortize on December 31,
1994,continuing until June 1999 and a $75 million reducing
revolving credit facility. The Company completed an amendment to the
Credit Agreement on May 24, 1995 which renewed the available funds to
$151.4 million deferring principal payments to 1997 through 1999.
At September 30, 1995, $76.4 million of the term loan facility
and $44.0 million of the revolving credit facility were
outstanding and $31 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.
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 anticipates that it will generate in excess of
$40 million of net cash provided by operations during the
remainder of 1995. The Company expects the major requirements for
cash for the remainder of 1995 to include $2 million for debt
principal payments, $13 million of interest payments, $3 million
of lease and contractual obligations and approximately $3.5
million for capital expenditures. As a result, subject to any
future investments and/or acquisitions,the Company anticipates
reducing debt outstanding under its Credit Agreement with the
remainder of the net cash generated from operations.
Recent Developments
On October 23, 1995, the Company and DIMAC Corporation
announced that they have entered into a definitive merger
agreement, pursuant to which DIMAC will become a wholly owned
subsidiary of the Company in a transaction valued at
approximately $255 million. Under the terms of the merger
agreement, each of the approximately 6.95 million fully diluted
shares of DIMAC common stock will be exchanged for merger
consideration of $28. The Company may elect to pay up to $7.00 of
the merger consideration by issuing shares of its Class A Common
Stock. The merger will be accounted for by the Company as a
purchase.
Closing of the merger is anticipated in the first quarter of
1996 and is subject to the satisfaction of various conditions,
including certain regulatory filings and the approval of the
shareholders of DIMAC. The Company entered into agreements with
certain principal stockholders who hold approximately 33% of
DIMAC's common stock to vote their shares in favor of the merger.
If consummated, the Company will require financing of
approximately $190 million to fund the purchase price of the
DIMAC common stock and related transaction expenses and
approximately $70 million to refinance DIMAC's indebtedness and
provide an acquisition credit facility for DIMAC. The Company
expects to meet these requirements through a combination of bank
borrowings, issuances of subordinated debentures or notes and use
of available internal cash flow. Under the merger agreement, the
Company also has the option to fund approximately $45 million of
the DIMAC purchase price by issuing Class A Common Stock of the
Company.
SIGNATURE
Pursuant to the requirement of the Securities Exchange
Act of 1934, the Registrant has duly cased this report to be
signed on its behalf by the undersigned thereunto duly authorized.
HERITAGE MEDIA CORPORATION
Dated: December 15, 1995 by /s/ David N. Walthall
David N. Walthall
President and Chief
Executive Officer
Dated :December 15, 1995 by /s/ James P. Lehr
James P. Lehr
Vice President and Controller
Principal Accounting Officer
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