UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period Commission File Number 0-24214
ended September 30, 1996
Katz Media Corporation
(Exact name of registrant as specified in its charter)
Delaware 13-3563605
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
125 West 55th Street, New York, New York 10019
(Address of principal executive offices - Zip Code)
(212) 424-6000
(Registrant's telephone number including area code)
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]*
The Registrant does not have any equity securities registered under the
Securities Act of 1933, as amended. All outstanding shares of Common Stock of
the Registrant are held indirectly by the Registrant's ultimate parent company,
Katz Media Group, Inc.
*This document is being filing voluntarily.
<PAGE>
INDEX
PAGE
Item 1 - Financial Statements
- ------
Consolidated Balance Sheets........................................ 2
Consolidated Statements of Operations.............................. 3
Consolidated Statements of Cash Flows.............................. 4
Notes to Consolidated Financial Statements......................... 5
Item 2 - Management's Discussion and Analysis of
- ------
Financial Condition and Results of Operations................. 6-9
Part II Other Information
-----------------
Item 1 - Legal Proceedings............................................. 9
- ------
Signatures............................................................. 10
Financial Data Schedule................................................ 11
1
<PAGE>
<TABLE>
KATZ MEDIA CORPORATION
CONSOLIDATED BALANCE SHEETS
(000's Omitted, Except Share and Per Share Information)
<CAPTION>
September 30, December 31,
------------- ------------
1996 1995
------ ------
(Unaudited) (Note)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................................$ 3,497 $ 228
Accounts receivable, net of allowance for doubtful
accounts of $1,300............................................. 59,648 61,345
Deferred costs on purchases of station representation
contracts....................................................... 19,813 13,096
Prepaid expenses and other current assets ....................... 922 869
------------ ------------
Total current assets...................................... 83,880 75,538
Fixed assets, net................................................... 16,363 12,437
Deferred income taxes............................................... 9,122 9,122
Deferred costs on purchases of station representation
contracts.......................................................... 65,648 39,602
Intangible assets, net ............................................. 80,889 82,708
Other assets, net .................................................. 20,393 17,106
------------ ------------
Total assets.............................................. $ 276,295 $ 236,513
------------ ------------
------------ ------------
Liabilities and Stockholder's Deficit
Current liabilities:
Accounts payable and accrued liabilities......................... $ 46,967 $ 38,049
Deferred income on sales of station representation.contracts .... 12,314 10,700
Income taxes payable............................................. 8,798 5,242
------------ ------------
Total current liabilities.................................... 68,079 53,991
------------ ------------
------------ ------------
Deferred income on sales of station representation contracts........ 4,506 3,589
Long-term debt...................................................... 189,290 179,530
Other liabilities, principally deferred rent and representation
contracts payable.................................................. 42,714 33,263
Commitments and contingencies....................................... -- --
Stockholder's deficit
Common stock, $.01 par value, 100 shares authorized issued and
outstanding..................................................... -- --
Paid-in-capital.................................................. 9,742 9,742
Carryover basis adjustment....................................... (14,405) (14,405)
Accumulated deficit.............................................. (23,631) (29,197)
------------ ------------
Total stockholder's deficit............................... (28,294) (33,860)
Total liabilities and stockholder's deficit $ 276,295 $ 236,513
------------ ------------
------------ ------------
Note: The consolidated balance sheet at December
31, 1995 has
been derived from audited financial
statements at that date.
The accompanying notes are an integral part of these
consolidated financial statements.
2
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</TABLE>
<TABLE>
KATZ MEDIA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(000's Omitted)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues, net.............. $ 43,492 $ 43,611 $ 129,826 $ 133,044
--------- --------- ---------- ---------
Operating expenses:..................
Salaries and related costs........... 24,730 23,288 74,091 74,289
Selling, general and administrative.. 7,533 9,575 26,999 28,307
Depreciation and amortization........ (947) 1,040 2,201 5,496
--------- --------- ---------- ---------
Total operating expenses........ 31,316 33,903 103,291 108,092
--------- --------- ---------- ---------
Operating income................ 12,176 9,708 26,535 24,952
--------- --------- ---------- ---------
Other expense (income):..............
Interest expense..................... 5,160 5,296 15,500 15,570
Interest (income).................... (33) (48) (83) (115)
--------- --------- ---------- ---------
Total other expense, net 5,127 5,248 15,417 15,455
--------- --------- ---------- ---------
Income before income tax
provision......................... 7,049 4,460 11,118 9,497
Income tax provision................. 3,497 2,408 5,552 5,128
--------- --------- ---------- ---------
Net income ................... $3,552 $2,052 $5,566 $4,369
--------- --------- ---------- ---------
--------- --------- ---------- ---------
The accompanying notes are an integral part of these
consolidated financial statements.
3
</TABLE>
<PAGE>
<TABLE>
KATZ MEDIA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's omitted)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income before adjustments..................... $5,566 $4,369
------ ------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ................. 2,201 5,496
Amortization of debt issuance costs............ 312 568
Deferred rent.................................. 1,118 781
Reversal of excess provision for relocation.... (1,500) --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable..... (59) 3,418
Increase in deferred tax asset................. -- 4,979
(Increase) in other assets..................... (1,678) (1,880)
Increase (decrease) in accounts payable and
accrued liabilities........................... 976 (131)
Increase (decrease) in income taxes payable.... 3,556 (182)
Other, net..................................... (826) 347
------ ------
Total adjustments................................. 4,100 13,396
------ ------
Net cash provided by operating activities........ 9,666 17,765
------ ------
Cash flows from investing activities:
Capital expenditures........................... (6,123) (3,839)
Payments received on sales of station
representation contracts...................... 19,976 15,200
Payments made on purchases of station
representation contracts...................... (30,010) (24,628)
Investment in cable joint venture.............. -- (7,029)
------ ------
Net cash (used in) investing activities............ (16,157) (20,296)
------ ------
Cash flows from financing activities:
Additional Paid-in Capital........................ -- 2,800
Credit facilities borrowing....................... 48,100 49,000
Credit facilities repayments...................... (36,600) (48,500)
Retirement of 12 3/4% Senior Subordinated Notes... (1,740) (840)
------ ------
Net cash provided by financing activities.. 9,760 2,460
------ ------
Net increase (decrease) in cash and cash
equivalents........................................ 3,269 (71)
Cash and cash equivalents, beginning of period...... 228 109
------ ------
Cash and cash equivalents, end of period............$ 3,497 $ 38
------ ------
------ ------
The accompanying notes are an integral part of these
consolidated financial statements.
4
</TABLE>
<PAGE>
KATZ MEDIA CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
September 30, 1996
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Due to the seasonality of the business of Katz Media Corporation,
Inc. (the "Company"), operating results for the nine month period ended
September 30, 1996, are not necessarily indicative of the results that may be
expected for the year ended December 31, 1996. For further information, refer to
the consolidated 1995 financial statements and footnotes thereto included in the
Company's Form 10-K for the year ended December 31, 1995(File No. 0-24214).
2. EARNINGS PER COMMON SHARE
Earnings per share information is not presented as the Company is a wholly
owned subsidiary of its ultimate parent company, Katz Media Group, Inc.
3. RECENT DEVELOPMENTS AND OTHER
During the quarter ended September 30, 1996, the Company reevaluated the
economic feasibility of its plan to sublet a portion of its headquarter
facilities. Upon reevaluation, the Company has determined that such a program is
not economically feasible and accordingly, has reversed the related $1.5 million
accrual which had been established in 1995. This reversal has been reflected as
a componant of selling, general and administrative expense in the accompanying
financial statements.
On September 6, 1996, the Company transferred to a newly formed affiliated
company, Katz Media Services, Inc. (KMSI) one of its representation contracts
for cash consideration of approximately $4.9 million which was the approximate
fair market value (as determined by standard industry practices) on such date.
In connection therewith the Company entered into a contract management agreement
with KMSI providing for, among other things, representation services related to
the above contract in exchange for a stated fee.
As a result of the above transaction, during the current quarter the
Company recognized a gain of $3.6 million which is included in depreciation and
amortization and service fee income of $0.08 million related to representation
services performed for KMSI.
The Company amended the terms of its existing Credit Agreement to advance
the final maturity from September 30, 1999 to June 30, 1999.
5
<PAGE>
KATZ MEDIA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
- -------
The following discussion is based upon and should be read in conjunction
with the Consolidated Financial Statements, including the notes thereto,
included elsewhere herein.
The net operating revenues of the Company are derived from commissions on
the sale of national spot advertising air time for radio and television clients.
Commission rates are negotiated and set forth in the client's individual
representation contracts. The key to the Company's success is the maintenance of
its current representation contracts with client stations and the acquisition of
new representation contracts. The primary operating expenses of the Company are
employee salaries, rents, commission-related payments to employees, data
processing expenses, and depreciation and amortization. The Company's financial
results have been impacted by three significant factors: (i) trends in
advertising expenditures, (ii) buyouts and sales of station representation
contracts, including those resulting from changes in ownership of stations and
(iii) acquisitions of representation firms. The effect of these factors on the
Company's financial condition and results of operations have varied from period
to period. Recent changes in regulations affecting ownership of broadcast
stations have led to and are likely to continue to lead to larger station groups
under common ownership, which has the effect of increasing the level and
frequency of buyouts of representation contracts. Most recently, this has
resulted in a net increase in the number of radio station clients and a net
decrease in the number of television station clients represented by the Company.
The Company continues to pursue the representation of additional client stations
and groups in each of the media where it provides services.
This quarterly report on Form 10-Q contains forward looking statements that
involve risks and uncertainties, including those associated with the effect of
national and regional economic conditions, the ability of the Company to obtain
new clients and retain existing clients, changes in ownership of client stations
and client stations of the Company's competitors, other developments at clients
of the Company, the ability of the Company to realize cost reductions from its
cost containment efforts, and developments from recent changes in the regulatory
environment for its clients.
Business
- --------
The Company operates as a single segment business and is the only full
service media representation firm in the United States serving multiple types of
electronic media, with leading market shares in the representation of radio and
television stations and cable systems. During the third quarter of 1996 the
Company's percentage composition of gross billings (representing the aggregate
dollar amount of advertising placed on client stations or systems) by broadcast
media was as follows: 55.2% for television; 39.2% for radio; and 5.6% for cable
and international (on a 100% owned basis). Gross billings during the third
quarter of 1996 compared to third quarter 1995 decreased 21.9% for television
primarily reflecting the decreased national spot advertising sales, increased
14.9% for radio generally as a result of new client additions and decreased
13.6% for cable and international (on a 100% owned basis) generally as a result
of lost client stations in the international market. The composition of gross
billings by broadcast media during the third quarter of 1995 was 63.6% for
television, 30.7% for radio, and 5.7% for cable and international (on a 100%
owned basis).
Results of Operations - Three Months Ended September 30, 1996
- -------------------------------------------------------------
Net operating revenues for the third quarter of 1996 totaled $43.5 million,
a decrease of approximately $0.1 million, or approximately 0.3%, compared to net
operating revenues of $43.6 million for the third quarter of 1995.
Operating expenses, excluding depreciation and amortization, decreased $0.6
million, or approximately 1.8%, from $32.9 million for the third quarter of 1995
as compared to $32.3 million in the third quarter of 1996. Salaries and related
6
<PAGE>
costs increased by $1.4 million, or approximately 6.2% when compared to the
third quarter of 1995. Selling, general and administrative decreased by $2.0
million when compared to the third quarter of 1995, primarily related to the
reversal of the $1.5 million accrual of costs (reflected in the fourth quarter
of 1995) related to the Company's plan to reduce its headquarters facility
requirements, which the Company has determined is no longer economically
feasible. Operating expenses excluding depreciation and amortization as well as
the reversal of $1.5 million in relocation reserves, as a percentage of net
operating revenues, increased from 75.4% in the third quarter of 1995 to 77.6%
in the third quarter of 1996.
Depreciation and amortization decreased by $2.0 million, or 191.1%, for the
third quarter of 1996 compared to the third quarter of 1995, primarily due to
the effects of a gain of approximately $3.6 million on the transfer of a
representation contract to KMSI in exchange for cash consideration of
approximately $4.9 millioin and the amortization of income on contracts sold in
1995 and 1996, partially offset by higher amounts of amortization for
representation contracts acquired in the second half of 1995 and early 1996.
Operating income for the third quarter of 1996 increased by $2.5 million
compared to the third quarter of 1995 as a result of the operating components
discussed above.
Interest expense, net, remained relatively constant at $5.2 million for the
third quarter of 1996 and 1995.
Income before income tax provision totaled $7.0 million for the third
quarter of 1996, compared to income of $4.5 million for the third quarter of
1995. This result was primarily due to the components listed above.
The difference between the effective tax rate of 49.6% compared to the U.S.
statutory rate of 35% in the third quarter of 1996 is primarily attributable to
goodwill amortization, other nondeductible expenses and state income taxes.
Results of Operations - Nine Months Ended September 30, 1996
- ------------------------------------------------------------
Net operating revenues for the first nine months of 1996 totaled $129.8
million, a decrease of approximately $3.2 million, or 2.4%, compared to net
operating revenues of $133.0 million for the first nine months of 1995. This
decrease primarily reflects the July 1995 transfer of United Television, Inc.
stations ($3.5 million of operating revenues in the first seven months of 1995)
to a new representation firm in which the Company will receive a profit
distribution rather than report revenue and associated expenses, partially
offset by increased operating revenues for client stations acquired in the
second half of 1995 and early 1996.
Operating expenses, excluding depreciation and amortization, decreased from
$102.6 million for the first nine months of 1995 to $101.1 million for the first
nine months of 1996, a decrease of $1.5 million, or 1.3%. This decrease was
primarily attributable to the one time reversal of $1.5 million relocation
accrual discussed above, the decreased compensation reflecting the transfer of
the United Television, Inc. stations and other items, offset by the start- up
costs associated with the new Sentry Radio division and the establishment of the
Company's interactive internet media representation subsidiary, Katz Millennium
Marketing.
Depreciation and amortization decreased by $3.3 million, or 60.0% for the
first nine months of 1996 compared to the first nine months of 1995, due to the
gain of $3.6 million on the transfer of a representation contract to KMSI
described above, lower amounts of amortization expense related to the 1994
Acquisition non-compete agreements which became fully amortized during the first
nine months of 1995, and the effects of amortization of income on contracts sold
in 1995 and 1996, offset by relatively higher amounts of amortization for
representation contracts acquired in the second half of 1995 and early 1996.
Operating income for the first nine months of 1996 increased by $1.6
million compared to the first nine months of 1995 as a result of the components
discussed above.
Interest expense, net, remained relatively constant at $15.5 million for
the first nine months of 1996 and 1995.
7
<PAGE>
Income before income tax provision totaled $11.1 million for the first nine
months of 1996, compared to $9.5 million for the comparable period of 1995. This
result was primarily due to the components listed above.
The difference between the effective tax rate of 50% compared to the U.S.
statutory rate of 35% in the third quarter of 1996 is primarily attributable to
permanent differences between book and taxable income related to goodwill
amortization, other nondeductible expenses and state income taxes.
Liquidity and Capital Resources
- -------------------------------
Cash provided by operating activities in the first nine months of 1996 as
compared to the first nine months of 1995 decreased $8.1 million. This decrease
in cash provided by operating activities is primarily due to reduced operating
results in the first nine months of 1996 compared to the first nine months of
1995 and the net change in working capital.
Net cash used in investing activities during the first nine months of 1996
aggregated $16.2 million, a decrease of $4.1 million compared to net cash used
in investing activities during the first nine months of 1995 of $20.3 million.
This decrease in cash used in investing activities was mainly a result of the
$7.0 million investment in National Cable Communications, L.P. "the Cable Joint
Venture" which occured in the first quarter of 1995, offset by the net increases
in purchases of station representation contracts of $0.6 million and increased
capital expenditures of $2.3 million in the first nine months of 1996 as
compared to the first nine months of 1995.
Cash flows from financing activities provided $9.8 million during 1996
versus $2.5 million during 1995. The increase in cash provided by financing
activities is primarily due to increased borrowings on the Company's Credit
Agreement offset in part by the repurchase of a portion of the Company's 12 3/4%
Senior Subordinated Notes due 2002.
The following table reconciles operating income to EBITDA for the three and
nine months periods ending September 30, 1996 and 1995:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
Operating Income......... $12,176 $ 9,708 $26,535 $24,952
Depreciation and
Amortization............ (947) 1,040 2,201 5,496
Non-cash rent expense.... 328 317 1,118 917
Reversal of provision
for relocation.......... (1,500) - (1,500) -
-------- ------- -------- -------
EBITDA................... $10,057 $11,065 $28,354 $31,365
-------- ------- -------- -------
-------- ------- -------- -------
EBITDA for the third quarter of 1996 decreased $1.0 million or 9.1% to
$10.1 million as compared to $11.1 million for the third quarter of 1995. This
decrease as compared to the 25.4% increase in operating income, was primarily
attributable to the $1.5 million reversal of the provision for relocation and
decreased depreciation and amortization in 1996 as compared to 1995. As a
result, the EBITDA margin decreased from 25.4% in the third quarter of 1995 to
23.1% in the third quarter of 1996.
EBITDA for the first nine months of 1996 decreased $3.0 million or 9.6% to
$28.4 million as compared to $31.4 million for the first nine months of 1995.
This decrease as compared to the 6.3% increase in operating income, was
primarily attributable to the non-cash reversal of $1.5 million provision for
relocation in 1996, additional non-cash rent expense of $0.2 million in 1996 as
compared to 1995 and $4.4 million of additional depreciation and amortization in
1996 as compared to 1995. As a result, the EBITDA margin decreased from 23.6% in
the first nine months of 1995 to 21.8% in the first nine months of 1996.
The Company continuously seeks opportunities to acquire additional
representation contracts on attractive terms, and at the same time looks to
maintain its current client roster. In addition, the recent changes in ownership
of broadcast properties have fueled changes in client engagements among
independent media representation firms. These changes and the Company's ability
to acquire and maintain representation contracts can cause fluctuations in the
Company's revenues and cash flows from period to period.
8
<PAGE>
The Company's working capital requirements have historically been primarily
provided by operations plus borrowings under the Company's Credit Agreement. As
of July 24, 1996, the Company had approximately $1.4 million available under its
Credit Agreement. On September 6, 1996, in connection with the establishment of
a new senior secured revolving credit facility by Katz Media Services, Inc.
("KMSI"), a newly formed affiliated company, designed to increase the
availability of working capital to the Company and its affiliated companies, the
Company transferred one of its representation contracts to KMSI for $4.9 million
in cash. KMSI is not a subsidiary of the Company. The new KMSI revolving credit
agreement provides for borrowings of up to $35.0 million and matures on March
31, 1998. In connection with the new KMSI credit facility, the Company amended
the terms of its existing Credit Agreement to advance the final maturity from
September 30, 1999 to June 30, 1999.
PART II Other Information
-----------------
Item 1 - Legal Proceedings
The Company, from time to time, is involved in litigation brought by former
employees and other litigation incidental to the conduct of its business. The
Company is not a party to any lawsuit or proceeding which, in the opinion of
management, is likely to have a material adverse effect on the Company.
There are no reportable items under Part II, Items 2-6.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 14, 1996 KATZ MEDIA CORPORATION
By: /S/ Thomas F. Olson By: /S/ Richard E. Vendig
-------------------------- ------------------------
Thomas F. Olson Richard E. Vendig
President and Senior Vice President
Chief Executive Officer and Director Chief Financial &
Administrative Officer,
Treasurer
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,497
<SECURITIES> 0
<RECEIVABLES> 59,648
<ALLOWANCES> 1,300
<INVENTORY> 0
<CURRENT-ASSETS> 83,880
<PP&E> 16,363
<DEPRECIATION> 2,201
<TOTAL-ASSETS> 276,295
<CURRENT-LIABILITIES> 68,079
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (28,294)
<TOTAL-LIABILITY-AND-EQUITY> 276,295
<SALES> 129,826
<TOTAL-REVENUES> 129,826
<CGS> 103,291
<TOTAL-COSTS> 103,291
<OTHER-EXPENSES> (83)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,500
<INCOME-PRETAX> 11,116
<INCOME-TAX> 5,552
<INCOME-CONTINUING> 5,566
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,566
<EPS-PRIMARY> 00.00
<EPS-DILUTED> 00.00
</TABLE>
