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 ended June 30, 1996 Commission File Number 0-24214
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 filed voluntarily.
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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........... 6-8
Part II Other Information
Item 1 - Legal Proceedings........................................... 9
Signatures........................................................... 9
Financial Data Schedule............................................. 10
1
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<TABLE>
<CAPTION>
KATZ MEDIA CORPORATION
CONSOLIDATED BALANCE SHEETS
(000's Omitted, Except Share and Per Share Information)
<S> <C> <C>
June 30, December 31,
-------- ------------
1996 1995
---- ----
(Unaudited) (Note)
Assets
Current assets:
Cash and cash equivalents........................................$ 2,228 $ 228
Accounts receivable, net of allowance for doubtful accounts of
$1,300........................................................... 64,015 61,345
Deferred costs on purchases of station representation contracts 16,894 13,096
Prepaid expenses and other current assets .................... 1,287 869
----------- ----------
Total current assets...................................... 84,424 75,538
----------- ----------
Fixed assets, net................................................... 15,051 12,437
Deferred income taxes............................................... 9,122 9,122
Deferred costs on purchases of station representation contracts..... 60,005 39,602
Intangible assets, net.............................................. 81,496 82,
08
Other assets, net .................................................. 15,433 17,106
---------- ----------
Total assets.............................................. $ 265,531 $ 236,513
---------- ----------
---------- ----------
Liabilities and Stockholder's Deficit
Current liabilities:
Accounts payable and accrued liabilities........................$ 44,415 $ 38,049
Deferred income on sales of station representation contracts.... 13,002 10,700
Income taxes payable.......................................... 5,729 5,242
----------- ----------
Total current liabilities................................. 63,146 53,991
----------- ----------
Deferred income on sales of station representation contracts........ 2,333 3,589
Long-term debt...................................................... 192,090 179,530
Other liabilities, principally deferred rent and representation
contracts payable................................................... 39,810 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.............................................. (27,185) (29,197)
----------- ----------
Total stockholder's deficit................................ (31,848) (33,860)
----------- ----------
Total liabilities and stockholder's deficit $ 265,531 $ 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
</TABLE>
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<TABLE>
<CAPTION>
KATZ MEDIA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(000's Omitted)
(Unaudited)
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1996 1995 1996 1995
-------- -------- -------- --------
Operating revenues, net.............. $ 47,971 $ 50,324 $ 86,334 $ 89,433
---------- --------- --------- ---------
Operating expenses:..................
Salaries and related costs........... 25,691 26,890 49,361 51,001
Selling, general and administrative.. 9,876 9,287 19,466 18,732
Depreciation and amortization........ 1,469 710 3,148 4,456
---------- --------- --------- ---------
Total operating expenses........ 37,036 36,887 71,975 74,189
---------- --------- --------- ---------
Operating income................ 10,935 13,437 14,359 15,244
---------- --------- --------- ---------
Other expense (income):..............
Interest expense..................... 5,212 5,162 10,342 10,274
Interest (income).................... (21) (28) (50) (67)
---------- --------- --------- ---------
Total other expense, net........ 5,191 5,134 10,292 10,207
---------- --------- --------- ---------
Income before income tax
provision......................... 5,744 8,303 4,067 5,037
Income tax provision................. 2,952 4,484 2,055 2,720
---------- --------- --------- ----------
Net income ................... $2,792 $3,819 $2,012 $2,317
---------- --------- --------- ----------
---------- --------- --------- ----------
The accompanying notes are an integral part of these consolidated financial statements.
3
</TABLE>
<PAGE>
KATZ MEDIA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's omitted)
(Unaudited)
Six Months Ended
June 30,
1996 1995
------------------
Cash flows from operating activities:
Net income (loss) before adjustments................. $2,012 $2,317
---------- ----------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization.................... 3,148 4,456
Amortization of debt issuance costs.............. 208 407
Deferred rent.................................... 790 601
Changes in assets and liabilities:
(Increase) decrease in accounts receivable...... (876) 4,037
Increase in deferred tax asset.................. __ 2,578
(Increase) in other assets...................... (966) (1,206)
Increase (decrease) in accounts payable
and accrued liabilities................................ 690 (3,132)
Increase (decrease) in income taxes payable...... 487 (20)
Other, net....................................... (948) (1,211)
---------- ----------
Total adjustments.................................... 2,533 6,510
---------- ----------
Net cash provided by operating activities............ 4,545 8,827
---------- ----------
Cash flows from investing activities:
Capital expenditures.............................. (4,106) (1,374)
Payments received on sales of station
representation contracts 9,677 9,686
Payments made on purchases of station
representation contracts (20,676) (14,165)
Investment in cable joint venture................. __ (7,029)
---------- ----------
Net cash (used in) investing activities......... (15,105) (12,882)
Cash flows from financing activities:
Additional Paid-in Capital........................... __ 2,800
Credit facilities borrowing.......................... 36,000 31,000
Credit facilities repayments......................... (21,700) (29,000)
Retirement of 12 3/4% Senior Subordinated Notes...... (1,740) (840)
---------- ----------
Net cash provided by financing activities........ 12,560 3,960
---------- ----------
Net increase (decrease) in cash and cash equivalents... 2,000 (95)
Cash and cash equivalents, beginning of period......... 228 109
---------- ----------
Cash and cash equivalents, end of period................$ 2,228 $ 14
---------- ----------
---------- ----------
The accompanying notes are an integral part of these consolidated financial
statements.
4
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KATZ MEDIA CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
June 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 six month period ended June 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 filed April 5, 1996 (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.
5
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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 of station representation contracts and
changes in ownership of client 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.
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 second 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: 62.1% for television; 31.9% for radio; and 6.0% for cable
and international (on a 100% owned basis). Gross billings during the second
quarter of 1996 compared to second quarter 1995 decreased 10.3% for television
primarily reflecting the July 1995 United Television stations transfer discussed
below, increased 18.6% for radio and increased 5.4% for cable and international
(on a 100% owned basis) generally as a result of new client additions. The
composition of gross billings by broadcast media during the second quarter of
1995 was 68.0% for television, 26.5% for radio, and 5.5% for cable and
international (on a 100% owned basis).
Results of Operations - Three Months Ended June 30, 1996
- --------------------------------------------------------
Net operating revenues for the second quarter of 1996 totaled $48.0
million, a decrease of approximately $2.4 million, or approximately 4.7%,
compared to net operating revenues of $50.3 million for the second quarter of
1995. This decrease reflects (i) the slower 1996 second quarter pacings as
compared to those achieved during the 1995 second quarter as well as (ii) the
July 1995 transfer of United Television, Inc. stations ($1.7 million of
operating revenues in the 1995 second quarter) to a new representation firm in
which the company will receive a profit distribution rather than report revenues
and associated expenses.
6
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Operating expenses, excluding depreciation and amortization, decreased by
approximately $.6 million to $35.6 million for the second quarter of 1996 from
$36.2 million for the second quarter of 1995. Salaries and related costs
decreased by $1.2 million when compared to the second quarter of 1995, primarily
attributable to decreased compensation resulting from decreased operating
revenues. Selling, general and administrative increased by $.6 million when
compared to the second quarter of 1995 attributed mostly to the start up of a
sixth radio company. Operating expenses excluding depreciation and amortization,
as a percentage of net operating revenues, increased from 71.9% in the second
quarter of 1995 to 74.1% in the second quarter of 1996 primarily as a result of
the slightly lower operating revenue figures described above.
Depreciation and amortization overall increased by $.8 million, or 107%,
for the second quarter of 1996 compared to the second quarter of 1995, primarily
due to the relatively higher amounts of amortization of representation contracts
acquired in 1996.
Operating income for the second quarter of 1996 decreased by $2.5 million
compared to the second quarter of 1995 as a result of the operating components
discussed above.
Interest expense, net, remained relatively constant at $5.2 million for the
second quarter of 1996 and 1995.
Income before income tax provision totaled $5.7 million for the second
quarter of 1996, compared to income of $8.3 million for the second quarter of
1995. This result was primarily due to the components listed above.
The difference between the effective tax rate of 51% compared to the U.S.
statutory rate of 35% in the second quarter of 1996 is primarily attributable to
goodwill amortization, other nondeductible expenses and state income taxes.
EBITDA for the second quarter of 1996 decreased $1.7 million or 11.8% to
$12.7 million as compared to $14.4 million for the second quarter of 1995. This
decrease is primarily attributable to the stronger revenue pacing in the second
quarter of 1995 as compared to the second quarter 1996 discussed above. The
EBITDA margin decreased from 28.6% in the second quarter of 1995 to 26.8% in the
second quarter of 1996.
Results of Operations - Six Months Ended June 30, 1996
- ------------------------------------------------------
Net operating revenues for the first six months of 1996 totaled $86.3
million, a decrease of approximately $3.1 million, or approximately 3.5%,
compared to net operating revenues of $89.4 million for the first six months of
1995. This decrease reflects (i) the slower 1996 first half pacings as compared
to those achieved during the 1995 first half and (ii) the July 1995 transfer of
United Television, Inc. stations ($3.2 million of operating revenues in the
first half of 1995) to a new representation firm in which the company will
receive a profit distribution rather than report revenue and associated
expenses.
Operating expenses, excluding depreciation and amortization, decreased from
$69.7 million for the first six months of 1995 to $68.8 million for the first
six months of 1996, a decrease of $.9 million or 1.3%. This decrease was
primarily attributable to decreased compensation, resulting from decreased
operating revenue, offset by costs associated with the start up of a sixth radio
company.
Depreciation and amortization decreased by $1.3 million, or 29.4% for the
first six months of 1996 compared to the first six months of 1995, due to the
lower amounts of amortization expense related to non-compete agreements recorded
in the first six months of 1996 as compared to the first six months of 1995,
offset by relatively higher amounts of amortization for representation contracts
acquired in 1996.
Operating income for the first six months of 1996 decreased by $.9 million
compared to the first six months of 1995 as a result of the components discussed
above.
Interest expense, net, remained relatively constant at $10.3 million for
the first half of 1996 and 1995.
7
<PAGE>
Income before income tax provision totaled $4.1 million for the first six
months of 1996, compared to $5.0 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 51% compared to the U.S.
statutory rate of 35% in the second 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.
EBITDA for the first six months of 1996 decreased $2.0 million or 9.8% to
$18.3 million as compared to $20.3 million for the first half of 1995. This
decrease is primarily attributed to the stronger revenue pacings in the first
half of 1995 as compared to the first half of 1996 as discussed above. The
EBITDA margin decreased from 22.7% in the first six months of 1995 to 21.2% in
the first half of 1996.
Liquidity and Capital Resources
- -------------------------------
The Company's working capital requirements have been primarily provided by
operations. It is expected that the Company's primary sources of financing for
its future business activities will continue to be from operations plus
borrowings under the Katz Media Corporation's Revolving Credit Agreement.
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.
Cash provided by operating activities in 1996 as compared to 1995 decreased
$4.3 million. This decrease in cash provided by operating activities is
primarily due to reduced operating results in the first six months of 1996
compared to the first six months of 1995 and the net change in working capital
accounts.
Net cash used in investing activities during 1996 aggregated $15.1 million,
an increase of $2.2 million compared to net cash used in investing activities
during 1995 of $12.9 million. This increase in cash used in investing activities
was mainly a result of the $7.0 million investment in the Cable Joint Venture
which occured in the first quarter of 1995, offset by the net increase of
purchases of station representation contracts of $6.5 million and capital
expenditures over the first six months of 1995 of $2.7 million.
Overall cash flows from financing activities provided $12.6 million during
1996 versus $4.0 million during 1995. The increase in cash provided by financing
activities is primarily due to increased borrowings under the Credit Agreement
to satisfy current working capital requirements, partially offset by $1.7
million spent in the first quarter of 1996 to repurchase a portion of the 12
3/4% Senior Subordinated Notes due 2002. The Company has approximately $1.4
million available on its revolving credit facility as of July 24, 1996.
8
<PAGE>
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.
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: August 13, 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 Chief Financial &
and Director Administrative
Officer, Treasurer
9
EXHIBIT 27
FINANCIAL DATA SCHEDULE
The schedule contains summary financial information extracted from the
consolidated financial statements and is qualified in its entirety by reference
to such financial statements.
(Multiplier of 1,000)
Period Type 6 months
Fiscal Year end December 31, 1996
Period Start January 1, 1996
Period End June 30, 1996
Cash 2,228
Securities 0
Receivables 64,015
Allowances 1,300
Inventory 0
Current Assets 84,424
PP&E 15,051
Depreciation 3,148
Total Assets 265,531
Current Liabilities 63,146
Bonds 0
Preferred Mandatory 0
Preferred 0
Common 0
Other-Stockholder's Deficit (31,848)
Total Liabilities and Deficit 265,531
Sales 86,334
Total Revenues 86,334
CGS 71,975
Total Costs 71,975
Other Expense (Income) (50)
Loss Provision 0
Interest Expense 10,342
Pretax Income 4,067
Income Tax Provision (Benefit) 2,055
Continuing Income 2,012
Discontinued 0
Extraordinary 0
Changes 0
Net Income 2,012
EPS Primary N/A
EPS Diluted N/A
10
