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, 1997 Commission File Number 0-24214
Katz Media Corporation
(Formerly Katz Capital Corporation)
(Exact name of registrant as specified in its charter)
Delaware 13-3779266
(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 [X] No [_]
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.
<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............................ 5-11
Item 2 - Management's Discussion and Analysis of
- ------
Financial Condition and Results of Operations....................12-15
Part II Other Information
-----------------
Item 1 - Legal Proceedings................................................ 15
- ------
Signatures................................................................ 16
Financial Data Schedule................................................... 17
1
<PAGE>
KATZ MEDIA CORPORATION
CONSOLIDATED BALANCE SHEETS
(000's Omitted, Except Share and Per Share Information)
<TABLE>
<CAPTION>
June 30, December 31,
-------- ------------
1997 1996
---- ----
(Unaudited) (Note)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents...................................................... $ 2,842 $ 3,027
Accounts receivable, net of allowance for doubtful accounts of $1,300......... 62,825 68,884
Deferred costs on purchases of station representation contracts............. 22,015 21,428
Prepaid expenses and other current assets .................................. 1,386 1,293
--------- ---------
Total current assets.................................................... 89,068 94,632
--------- ---------
Fixed assets, net................................................................. 15,711 15,740
Deferred income taxes............................................................. 1,057 --
Deferred costs on purchases of station representation contracts................... 89,084 74,399
Intangible assets, net ........................................................... 215,000 218,808
Other assets, net ................................................................ 34,323 34,121
--------- ---------
Total assets............................................................ $ 444,243 $ 437,700
--------- ---------
--------- ---------
Liabilities and Stockholder's Equity Current liabilities:
Accounts payable and accrued liabilities...................................... $ 58,310 $ 45,447
Deferred income on sales of station representation contracts.................. 12,868 14,548
Income taxes payable........................................................ -- 1,811
--------- ---------
Total current liabilities............................................... 71,178 61,806
--------- ---------
--------- ---------
Deferred income on sales of station representation contracts...................... 8,255 4,787
Deferred income taxes payable..................................................... 1,568 1,568
Long-term debt.................................................................... 215,622 217,622
Other liabilities, principally deferred rent and representation contracts payable 46,978 47,207
Commitments and contingencies..................................................... -- --
Stockholder's equity
Common stock, $.01 par value, 100 shares authorized issued and outstanding.... -- --
Paid-in-capital................................................................ 128,812 128,785
Carryover basis adjustment..................................................... (20,047) (20,047)
Accumulated deficit............................................................ (8,123) (4,028)
--------- ---------
Total stockholder's equity.............................................. 100,642 104,710
--------- ---------
Total liabilities and stockholders' equity............................... $ 444,243 $ 437,700
--------- ---------
--------- ---------
Note: The consolidated balance sheet at December 31, 1996 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, Except Share and Per Share Information)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues, net...................... $ 45,452 $ 48,115 $ 82,690 $ 86,397
--------- --------- --------- ---------
Operating expenses:..........................
Salaries and related costs................... 25,114 25,919 49,026 49,953
Selling, general and administrative.......... 10,103 9,876 20,149 19,466
Depreciation and amortization................ 355 2,830 2,722 5,840
Restructuring Charge......................... 7,095 -- 7,095 --
--------- --------- --------- ---------
Total operating expenses............... 42,667 38,625 78,992 75,259
--------- --------- --------- ---------
Operating income....................... 2,785 9,490 3,698 11,138
--------- --------- --------- ---------
Other expense (income):......................
Interest expense............................. 5,440 5,109 10,841 10,134
Interest income.............................. (135) (21) (227) (50)
--------- --------- --------- ---------
Total other expense, net............... 5,305 5,088 10,614 10,084
--------- --------- --------- ---------
(Loss) income before income
tax provision (benefit) ................... (2,520) 4,402 (6,916) 1,054
Income tax provision (benefit)............... 1,098 2,812 (2,821) 679
--------- --------- --------- ---------
Net income ........................... ($3,618) $1,590 ($4,095) $375
--------- --------- --------- ---------
--------- --------- --------- ---------
The accompanying notes are an integral part of these consolidated
financial statements.
3
</TABLE>
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<TABLE>
<CAPTION>
KATZ MEDIA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's Omitted, Except Share and Per Share Information)
(Unaudited)
Six Months Ended
June 30,
--------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income before adjustments......................................... ($4,095) $ 375
-------- --------
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization............................................ 2,722 5,840
Amortization of debt issuance costs...................................... 292 --
Deferred rent............................................................ 558 790
Non-cash compensation expense for stock options.......................... 55 593
Non-cash 401K contribution............................................... 786 --
Restructuring Charge..................................................... 7,095 --
Changes in assets and liabilities:
Decrease (increase) in accounts receivable.............................. 6,271 (2,987)
(Increase) in other assets............................................... (1,213) 423
(Increase) in deferred taxes............................................. (1,057) --
Increase in accounts payable and accrued liabilities.................... 1,791 848
(Decrease)in income taxes payable........................................ (1,811) (888)
(Decrease) in other liabilities.......................................... (1,064) --
Other, net.............................................................. 1,277 363
-------- --------
Total adjustments........................................................ 15,702 4,982
-------- --------
Net cash provided by operating activities............................... 11,607 5,357
-------- --------
Cash flows from investing activities:
Capital expenditures....................................................... (1,842) (4,106)
Payments received on sales of station representation contracts............. 17,363 9,677
Payments made on purchases of station representation contracts............. (23,845) (21,488)
-------- --------
Net cash (used in) investing activities......................... (8,324) (15,917)
-------- --------
Cash flows from financing activities:
Credit facilities borrowing.................................................. 39,800 36,000
Credit facilities repayments................................................. (41,800) (21,700)
Repurchase of Company Common Stock........................................... (1,468) --
Retirement of 12 3/4% Senior Subordinated Notes.............................. -- (1,740)
-------- --------
Net cash (used in) provided by financing activities..................... (3,468) 12,560
-------- --------
Net decrease in cash and cash equivalents...................................... (185) 2,000
Cash and cash equivalents, beginning of period.................................. 3,027 228
-------- --------
Cash and cash equivalents, end of period........................................$ 2,842 $ 2,228
-------- --------
-------- --------
The accompanying notes are an integral part of these consolidated
financial statements.
4
</TABLE>
<PAGE>
KATZ MEDIA CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 1997
(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
(the "Company"), operating results for the six months ended June 30, 1997 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1997. For further information, refer to the consolidated 1996
financial statements and footnotes thereto included in the Company's Form 10-K
filed March 27, 1997 (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. ("KMG").
3. RECENT DEVELOPMENTS
On July 14, 1997, KMG entered into a Merger Agreement which provides for
the acquisition of KMG by a newly formed company (Morris Acquisition
Corporation) jointly owned by Chancellor Broadcasting Company and Evergreen
Media Corporation, two clients of the Company. Also on this date, Morris
Acquisition Corporation announced a tender offer of $11.00 a share for 100% of
the outstanding shares of KMG. It is anticipated the transaction will be
completed in the third quarter of 1997, subject to regulatory clearance.
4. RESTRUCTURING CHARGE
During the second quarter of 1997, the Company completed a review of its
operations, including its real estate requirements, in an effort to promote the
effectiveness of its operations and enhance its competitive position in the
marketplace and general efficiencies. As a result of these efforts the Company
has recorded a restructuring charge of $7.1 million, representing severance and
other related costs of $3.8 million and costs associated with consolidating
certain real estate facilities totaling approximately $3.3 million. Through June
30, 1997, approximately $0.8 million of these costs have been paid by the
Company. The Company anticipates the balance of these restructuring costs to be
paid by year end 1999.
5. RECLASSIFICATION
Certain amounts in the 1996 consolidated financial statements have been
reclassified to conform to the current year presentation.
6. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following condensed consolidating financial statements for the three
and six months ended June 30, 1997 and 1996 present the financial position, the
results of operations and cash flows for the Company (carrying any investments
in guarantor and non-guarantor subsidiaries under the equity method), guarantor
subsidiaries of the Company and non-guarantor subsidiaries of the Company, and
the eliminations necessary to arrive at the information for the Company on a
consolidated basis.
The guarantor subsidiaries are wholly-owned subsidiaries of the Company and
have fully and unconditionally guaranteed the Company's 10 1/2% Senior
Subordinated Notes due 2007 (the "Notes") on a joint and several basis. The
Company believes that providing the following condensed financial information is
of material interest to investors in the Notes and has not presented separate
financial statements for each of the guarantor subsidiaries of the Company. The
Company has not presented separate financial statements and other disclosures
concerning the guarantor subsidiaries of the Company because management has
determined that such information is not material to investors.
5
<PAGE>
<TABLE>
<CAPTION>
KATZ MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000's Omitted, Except Share and Per Share Information)
June 30, 1997
-------------------------------------------------------------
The
The Non- Company
Company Guarantors Guarantors Eliminations Consolidated
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents..................... $ -- $ 2,834 $ 8 $ -- $ 2,842
Accounts receivable, net...................... -- 62,298 527 -- 62,825
Deferred costs on purchases of station
representation contracts...................... -- 22,015 -- -- 22,015
Prepaid expenses and other current assets..... -- 1,386 -- -- 1,386
--------- ---------- --------- ---------- ----------
Total current assets....................... -- 88,533 535 -- 89,068
--------- ---------- --------- ---------- ----------
Fixed assets, net.............................. -- 15,406 305 -- 15,711
Deferred income taxes.......................... -- 1,057 -- -- 1,057
Deferred costs on purchases of station
representation contracts...................... -- 89,084 -- -- 89,084
Equity investment in affiliates................ 130,965 -- -- (130,965) --
Due from affiliate............................. 175,888 -- -- (175,888) --
Intangible assets, net......................... -- 214,562 438 -- 215,000
Other assets, net.............................. 18,667 15,405 251 -- 34,323
--------- ---------- --------- ---------- ----------
Total assets............................... $ 325,520 $ 424,047 $ 1,529 ($306,853) $ 444,243
--------- ---------- --------- ---------- ----------
--------- ---------- --------- ---------- ----------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities......$ 7,663 $ 49,239 $ 1,408 $ -- $ 58,310
Deferred income on sales of station
representation contracts.................... -- 12,868 -- -- 12,868
--------- ---------- --------- ---------- ----------
Total current liabilities.................. 7,663 62,107 1,408 -- 71,178
--------- ---------- --------- ---------- ----------
Deferred income on sales of station
representation contracts...................... -- 8,255 -- -- 8,255
Deferred income taxes payable.................. 1,568 -- -- -- 1,568
Long-term debt................................. 215,622 -- -- -- 215,622
Due to affiliate............................... -- 175,888 -- (175,888) --
Other liabilities.............................. 25 45,724 1,229 -- 46,978
Stockholders' equity
Common stock.................................. -- -- 1 (1) --
Paid-in-capital............................... 128,812 96,610 989 (97,599) 128,812
Carryover basis adjustment.................... (20,047) -- -- -- (20,047)
(Accumulated deficit) retained earnings ...... (8,123) 35,463 (2,098) (33,365) (8,123)
--------- ---------- --------- ---------- ----------
Total stockholders' equity................. 100,642 132,073 (1,108) (130,965) 100,642
--------- ---------- --------- ---------- ----------
Total liabilities and stockholders' equity. $325,520 $424,047 $ 1,529 ($306,853) $444,243
--------- ---------- --------- ---------- ----------
--------- ---------- --------- ---------- ----------
6
</TABLE>
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<TABLE>
<CAPTION>
KATZ MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000's Omitted, Except Share and Per Share Information)
December 31, 1996
-------------------------------------------------------------
The
The Non- Company
Company Guarantors Guarantors Eliminations Consolidated
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents..................... $ -- $ 3,027 $ -- $ -- $ 3,027
Accounts receivable, net...................... -- 67,859 1,025 -- 68,884
Deferred costs on purchases of station
representation contracts...................... -- 21,428 -- -- 21,428
Prepaid expenses and other current assets..... -- 1,293 -- -- 1,293
-------- ---------- ---------- ---------- -----------
Total current assets....................... -- 93,607 1,025 -- 94,632
-------- ---------- ---------- ---------- -----------
Fixed assets, net.............................. -- 15,412 328 -- 15,740
Deferred income taxes.......................... -- -- -- -- --
Deferred costs on purchases of station
representation contracts...................... -- 74,399 -- -- 74,399
Equity investment in affiliates................ 131,851 -- -- (131,851) --
Due from affiliate............................. 168,356 -- -- (168,356) --
Intangible assets, net......................... -- 218,370 438 -- 218,808
Other assets, net.............................. 22,783 11,180 158 -- 34,121
-------- ---------- ---------- ---------- -----------
Total assets............................... $322,990 $412,968 $ 1,949 ($300,207) $ 437,700
-------- ---------- ---------- ---------- -----------
-------- ---------- ---------- ---------- -----------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities...... $ 658 $ 42,935 $ 1,854 $ -- $ 45,447
Deferred income on sales of station
representation contracts.................... -- 14,548 -- -- 14,548
Income taxes payable.......................... -- 1,811 -- -- 1,811
-------- ---------- ---------- ---------- -----------
Total current liabilities.................. 658 59,294 1,854 -- 61,806
-------- ---------- ---------- ---------- -----------
Deferred income on sales of station
representation contracts...................... -- 4,787 -- -- 4,787
Deferred income taxes payable.................. -- 1,568 -- -- 1,568
Long-term debt................................. 217,622 -- -- -- 217,622
Due to affiliate............................... -- 168,356 -- (168,356) --
Other liabilities.............................. -- 46,650 557 -- 47,207
Stockholders' equity
Common stock.................................. -- -- 1 (1) --
Paid-in-capital............................... 128,785 96,610 989 (97,599) 128,785
Carryover basis adjustment.................... (20,047) -- -- -- (20,047)
(Accumulated deficit) retained earnings ...... (4,028) 35,703 (1,452) (34,251) (4,028)
-------- ---------- ---------- ---------- -----------
Total stockholders' equity................. 104,710 132,313 (462) (131,851) 104,710
-------- ---------- ---------- ---------- -----------
Total liabilities and stockholders' equity. $322,990 $ 412,968 $ 1,949 ($300,207) $ 437,700
-------- ---------- ---------- ---------- -----------
-------- ---------- ---------- ---------- -----------
7
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<TABLE>
<CAPTION>
KATZ MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000's Omitted, Except Share and Per Share Information)
Three Months Ended June 30, 1997
--------------------------------------------------------------
The
The Non- Company
Company Guarantors Guarantors Eliminations Consolidated
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating revenues, net........................ $ -- $ 44,984 $ 468 $ -- $ 45,452
------- --------- ------- --------- ---------
Operating expenses:
Salaries and related costs.................... -- 24,536 578 -- 25,114
Selling, general and administrative........... -- 9,835 268 -- 10,103
Depreciation and amortization................. -- 329 26 -- 355
Restructuring charge.......................... -- 7,095 -- -- 7,095
------- --------- ------- --------- ---------
Total operating expenses................ -- 41,795 872 -- 42,667
------- --------- ------- --------- ---------
Operating income (loss)................. -- 3,189 (404) -- 2,785
Other expense (income):
Interest expense.............................. 5,440 -- -- -- 5,440
Interest (income)............................. (126) -- (9) -- (135)
------- --------- ------- --------- ---------
Total other expense, net................ 5,314 -- (9) -- 5,305
------- --------- ------- --------- ---------
(Loss) income before income tax
(benefit) provision.......................... (5,314) 3,189 (395) -- (2,520)
Income tax (benefit) provision................ (2,340) 3,438 -- -- 1,098
Equity in earnings of affiliates,
net of taxes................................. (644) -- -- 644 --
------- --------- ------- --------- ---------
Net (loss) income............................ ($3,618) ($249) ($395) $644 ($3,618)
------- --------- ------- --------- ---------
------- --------- ------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997
--------------------------------------------------------------
The
The Non- Company
Company Guarantors Guarantors Eliminations Consolidated
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating revenues, net........................ $ -- $ 81,780 $ 910 $ -- $ 82,690
-------- --------- ------- --------- ---------
Operating expenses:
Salaries and related costs.................... -- 47,982 1,044 -- 49,026
Selling, general and administrative........... -- 19,681 468 -- 20,149
Depreciation and amortization................. -- 2,669 53 -- 2,722
Restructuring charge.......................... -- 7,095 -- -- 7,095
-------- --------- ------- --------- ---------
Total operating expenses................ -- 77,427 1,565 -- 78,992
-------- --------- ------- --------- ---------
Operating income (loss)................. -- 4,353 (655) -- 3,698
Other expense (income):
Interest expense.............................. 10,841 -- -- -- 10,841
Interest (income)............................. (218) -- (9) -- (227)
-------- --------- ------- --------- ---------
Total other expense, net................ 10,623 -- (9) -- 10,614
-------- --------- ------- --------- ---------
(Loss) income before income tax
(benefit) provision.......................... (10,623) 4,353 (646) -- (6,916)
Income tax (benefit) provision................ (4,462) 1,641 -- -- (2,821)
Equity in earnings of affiliates,
net of taxes................................. 2,066 -- -- (2,066) --
-------- --------- ------- --------- ---------
Net (loss) income............................ ($4,095) $ 2,712 ($646) ($2,066) ($4,095)
-------- --------- ------- --------- ---------
-------- --------- ------- --------- ---------
8
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<CAPTION>
KATZ MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000's Omitted, Except Share and Per Share Information)
Three Months Ended June 30, 1997
--------------------------------------------------------------
The
The Non- Company
Company Guarantors Guarantors Eliminations Consolidated
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating revenues, net........................ $ -- $ 47,554 $ 561 $ -- $ 48,115
------ -------- ------ -------- --------
Operating expenses:
Salaries and related costs.................... -- 25,261 658 -- 25,919
Selling, general and administrative........... -- 9,576 300 -- 9,876
Depreciation and amortization................. -- 2,803 27 -- 2,830
------ -------- ------ -------- --------
Total operating expenses................ -- 37,640 985 -- 38,625
------ -------- ------ -------- --------
Operating income........................ -- 9,914 (424) -- 9,490
Other expense (income):
Interest expense.............................. 5,105 -- 4 -- 5,109
Interest (income)............................. (23) -- 2 -- (21)
------ -------- ------ -------- --------
Total other expense, net................ 5,082 -- 6 -- 5,088
------ -------- ------ -------- --------
(Loss) income before income tax
(benefit) provision......................... (5,082) 9,914 (430) -- (4,402)
Income tax (benefit) provision................ (1,082) 3,894 -- -- 2,812
Equity in earnings of affiliates,
net of taxes................................. 5,590 -- -- (5,590) --
------ -------- ------ -------- --------
Net (loss) income.............................. $1,590 $6,020 ($430) ($5,590) $1,590
------ -------- ------ -------- --------
------ -------- ------ -------- --------
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1996
-------------------------------------------------------------
The
The Non- Company
Company Guarantors Guarantors Eliminations Consolidated
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating revenues, net........................ $ -- $ 84,671 $1,726 $ -- $ 86,397
Operating expenses:
Salaries and related costs.................... -- 48,527 1,426 -- 49,953
Selling, general and administrative........... -- 18,828 638 -- 19,466
Depreciation and amortization................. -- 5,787 53 -- 5,840
------ -------- ------ ------- --------
Total operating expenses................ -- 73,142 2,117 -- 75,259
------ -------- ------ ------- --------
Operating income........................ -- 11,529 (391) -- 11,138
Other expense (income):
Interest expense.............................. 10,130 -- 4 -- 10,134
Interest (income)............................. (50) -- -- -- (50)
------ -------- ------ ------- --------
Total other expense, net................ 10,080 -- 4 -- 10,084
------ -------- ------ ------- --------
(Loss) income before income tax(benefit)
(benefit) provision......................... (10,080) 11,529 (395) -- 1,054
Income tax (benefit) provision................ (4,234) 4,913 -- -- 679
Equity in earnings of affiliates,
net of taxes................................. 6,221 -- -- (6,221) --
------ -------- ------ ------- --------
Net (loss) income.............................. $ 375 $6,616 ($395) ($6,221) $ 375
------ -------- ------ ------- --------
------ -------- ------ ------- --------
9
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<TABLE>
<CAPTION>
KATZ MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000's Omitted, Except Share and Per Share Information)
Six Months Ended June 30, 1997
--------------------------------------------------------------
The
The Non- Company
Company Guarantors Guarantors Eliminations Consolidated
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash (used in) provided by operating
activities.................................... ($3,761) $ 15,360 $ 8 $ -- $ 11,607
-------- ---------- ----- ----- --------
Investing Activities:
Capital expenditures.......................... -- (1,842) -- -- (1,842)
Payments received on sales of station
representation contracts...................... -- 17,363 -- -- 17,363
Payments made on purchases of station
representation contracts...................... -- (23,845) -- -- (23,845)
-------- ---------- ----- ----- --------
Net cash (used in) investing activities........ -- (8,324) -- -- (8,324)
-------- ---------- ----- ----- --------
Financing Activities:
Credit facilities borrowings.................. 39,800 -- -- -- 39,800
Credit facilities repayments.................. (41,800) -- -- -- (41,800)
(Increase) decrease in due (to) from
affiliate..................................... 7,229 (7,229) -- -- --
Purchase of Company common stock.............. (1,468) -- -- -- (1,468)
Repurchase of old notes....................... -- -- -- -- --
-------- ---------- ----- ----- --------
Net cash provided by (used in) financing
activities.................................... 3,761 (7,229) -- -- (3,468)
-------- ---------- ----- ----- --------
Net (decrease) increase in cash................ -- (193) 8 -- (185)
Cash and cash equivalents, beginning of
period........................................ -- 3,027 -- -- 3,027
-------- ---------- ----- ----- --------
Cash and cash equivalents, end of period....... $ -- $ 2,834 $ 8 $ -- $ 2,842
-------- ---------- ----- ----- --------
-------- ---------- ----- ----- --------
10
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<TABLE>
<CAPTION>
KATZ MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000's Omitted, Except Share and Per Share Information)
Six Months Ended June 30, 1996
-------------------------------------------------------------
The
The Non- Company
Company Guarantors Guarantors Eliminations Consolidated
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash (used in) provided by operating
activities.................................... ($9,642) $ 15,008 ($9) $ -- $ 5,357
------- ---------- ------- --------- ----------
Investing Activities:
Capital expenditures.......................... -- (4,106) -- -- (4,106)
Payments received on sales of station
representation contracts...................... -- 9,677 -- -- 9,677
Payments made on purchases of station
representation contracts...................... -- (21,488) -- -- (21,488)
------- ---------- ------- --------- ----------
Net cash (used in) investing activities........ -- (15,917) -- -- (15,917)
------- ---------- ------- --------- ----------
Financing Activities:
Credit facilities borrowings.................. 36,000 -- -- -- 36,000
Credit facilities repayments.................. (21,700) -- -- -- (21,700)
Increase (decrease) in due (to) from
affiliate..................................... (2,918) 2,918 -- -- --
Repurchase of old notes....................... (1,740) -- -- -- (1,740)
------- ---------- ------- --------- ----------
Net cash provided by financing activities...... 9,642 2,918 -- -- 12,560
------- ---------- ------- --------- ----------
Net increase in cash........................... -- 2,009 (9) -- 2,000
Cash and cash equivalents, beginning of
period........................................ -- 187 41 -- 228
------- ---------- ------- --------- ----------
Cash and cash equivalents, end of period....... $ -- $ 2,196 $ 32 $ -- $ 2,228
------- ---------- ------- --------- ----------
------- ---------- ------- --------- ----------
11
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<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 of station representation contracts, 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,
which represent the Company's expectations or beliefs concerning future events
that involve risks and uncertainties, including those associated with the effect
of national and regional economic conditions, the levels of advertising on the
Company's stations, 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 all types of
broadcast media, with leading market shares in the representation of radio and
television stations and through NCC (a 50% owned joint venture) cable systems.
During the second quarter of 1997, 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: 55.5% for
television; 37.4% for radio; and 7.1% for cable (on a 100% owned basis),
interactive/Internet and international. Gross billings during the second quarter
of 1997 as compared with the second quarter of 1996 decreased 11.2% for
television and increased 16.4% for radio and 19.7% for cable (on a 100% owned
basis), internet/Interactive and international. The composition of gross
billings by broadcast media during the second quarter of 1996 aggregated 62.1%
for television, 31.9% for radio, and 6.0% for cable (on a 100% owned basis),
interactive/Internet and international.
Results of Operations - Three Months Ended June 30, 1997
- --------------------------------------------------------
Net operating revenues for the second quarter of 1997 totaled $45.5
million, a decrease of approximately $2.6 million, or approximately 5.4%,
compared with net operating revenues of $48.1 million for the second quarter of
1996. This decrease primarily reflects the 1996 consolidation of station
ownerships, which led to net client losses and declines in gross billings in
television, offset in part by net client gains and increases in gross billings
in radio.
Operating expenses, excluding depreciation and amortization, increased
approximately $6.5 million, or 18.2%, from $35.8 million in the second quarter
of 1996 to $42.3 million in the second quarter of 1997. Salaries and related
costs decreased by approximately $0.8 million as compared to the second quarter
of 1996, primarily attributable to decreased sales compensation resulting from
decreased operating revenue. Selling, general and administrative expenses
12
<PAGE>
increased by approximately $0.2 million as compared with the second quarter of
1996. During the second quarter, the Company completed a review of its
operations including real estate requirements in an effort to promote the
effectiveness of its operations, enhance its competitive position in the
marketplace and promote general efficiencies. The Company has recorded a charge
of $7.1 million, of which $3.8 million relates to severance and other related
costs and $3.3 million relates to planned facility consolidations. Operating
expenses, excluding depreciation and amortization and the restructuring charge,
as a percentage of net operating revenues, increased from 74% in the second
quarter of 1996 to 77% in the second quarter of 1997.
Depreciation and amortization overall decreased by $2.5 million, or 87.5%,
for the second quarter of 1997 compared with the second quarter of 1996,
primarily due to the effect of increased amortization of income on contracts
sold over amortization on acquired contracts.
Operating income for the second quarter of 1997 decreased by $6.7 million
compared with the second quarter of 1996, reflecting primarily the restructuring
charge discussed above.
Interest expense, net, increased overall by $0.2 million for the second
quarter of 1997 as compared with the second quarter of 1996, primarily due to
increased borrowings and $0.1 million of increased amortization of debt issuance
costs associated with the Company's December 1996 refinancing.
Loss before income tax provision totaled $2.5 million for the second
quarter of 1997, compared with income of $4.4 million for the second quarter of
1996. This was primarily due to the components listed above.
The difference between the effective tax rate of (43.6%) compared with the
U.S. statutory rate of 35% is primarily attributable to goodwill amortization,
other nondeductible expenses and state income taxes. Due to the unusual and
non-recurring nature of the restructuring charge, its full income tax effect is
reflected in the second quarter effective tax rate.
Results of Operations - Six Months Ended June 30, 1997
- ------------------------------------------------------
Net operating revenues for the six months ended June 30, 1997 totaled $82.7
million, a decrease of approximately $3.7 million, or approximately 4.3%,
compared with net operating revenues of $86.4 million for the six months ended
June 30, 1996. This decrease primarily reflects the 1996 consolidation of
station ownerships, which led to net client losses and declines in gross
billings in television, offset in part by net client gains and increases in
gross billings in radio.
Operating expenses, excluding depreciation and amortization, increased
approximately $6.9 million, or 9.9%, from $69.4 million in the six months ended
13
<PAGE>
June 30, 1996 to $76.3 million for the six months ended June 30,1997. Salaries
and related costs decreased by approximately $0.9 million as compared to the
comparable 1996 period, primarily attributable to decreased sales compensation,
resulting from decreased operating revenue. Selling, general and administrative
expenses increased by approximately $0.7 million as compared with the comparable
1996 period, primarily due to increased information technology costs. In the
second quarter of 1997, the Company recorded a charge of $7.1 million, of which
$3.8 million relates to severance and other related costs and $3.3 million
relates to planned facility consolidations. Operating expenses, excluding
depreciation and amortization and the restructuring charge, as a percentage of
net operating revenues, increased from 80% in the six months ended June 30, 1996
to 84% in the comparable period of 1997.
Depreciation and amortization overall decreased by $3.1 million, or 53.4%,
from the comparable 1996 period, primarily due to the effect of increased
amortization of income on contracts sold over amortization on acquired
contracts.
Operating income for the six months ended June 30, 1997 decreased by $7.4
million compared with the comparable 1996 period, reflecting primarily the
restructuring charge discussed above.
Interest expense, net, increased overall by $0.5 million during the six
months ended June 30, 1997 as compared with the comparable 1996 period,
primarily due to increased borrowings and $0.3 million of increased amortization
of debt issuance costs associated with the Company's December 1996 refinancing.
Loss before income tax benefit totaled $6.9 million for the six months
ended June 30, 1997, compared with income of $1.1 million for the comparable
1996 period. This was primarily due to the components listed above.
The difference between the effective tax rate of 40.8% compared with the
U.S. statutory rate of 35% is primarily attributable to goodwill amortization,
other nondeductible expenses and state income taxes. Due to the unusual and
non-recurring nature of the restructuring charge, its full income tax effect is
reflected in the effective tax rate of 41.6% for the six months ended June 30,
1997.
Liquidity and Capital Resources
- -------------------------------
Cash provided by operating activities during the first six months of 1997
as compared with the first six months of 1996 increased $6.3 million. This
increase in cash provided by operating activities is primarily due to
improvements in the collection of accounts receivable and increases in accounts
payable and accrued liabilities offset by decreases in other liabilities.
Net cash used in investing activities during the first six months of 1997
aggregated $8.3 million, a decrease of $7.6 million compared with $15.9 million
during the first six months of 1996. This decrease in cash used in investing
activities results primarily from net decreases of $5.3 million of cash used for
net purchases of station representation contracts and $2.3 million of reduced
capital expenditures.
Overall cash used in financing activities during the first six months of
1997 aggregated $3.5 million compared with net cash provided by financing
activities in the first six months of 1996 totalling $12.6 million. The change
in cash used in financing activities is primarily attributable to net credit
facilities repayments of $2.0 million during the first six months of 1997
compared with net borrowings of $14.3 million during the first six months of
1996. In addition, during the six months ended June 30, 1997, the Company
purchased 191,500 shares of its common stock for $1.5 million.
14
<PAGE>
The following table reconciles operating income to EBITDA for the three and
six months periods ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating income........................................ $ 2,785 $9,490 $ 3,698 $11,138
Depreciation and amortization........................... 355 2,830 2,722 5,840
Non-cash rent expense................................... 246 355 558 790
Non-cash 401K contribution.............................. 423 -- 786 --
Stock option compensation charge........................ 55 229 55 593
Restructuring charge.................................... 7,095 -- 7,095 --
Other non-cash charges.................................. -- (51) -- --
------- ------- ------- -------
EBITDA.................................................. $10,959 $12,853 $14,914 $18,361
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
EBITDA for the second quarter of 1997 decreased approximately $1.9 million,
or 14.7%, to $11.0 million as compared with $12.9 million for the second quarter
of 1996. This decrease is primarily attributable to lower operating revenues and
relatively flat cash operating expenses, described above. The EBITDA margin for
the quarter decreased from 26.7% in the second quarter of 1996 to 24.1% in the
second quarter of 1997.
15
<PAGE>
EBITDA for the first six months of 1997 decreased approximately $3.5
million, or 19.0%, to $14.9 million as compared with $18.4 million for the first
six months of 1996. This decrease is primarily attributable to lower operating
revenues and relatively flat cash operating expenses as described above. The
EBITDA margin decreased from 21.3% in the first six months of 1996 to 18.0% in
the first six months of 1997.
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.
The Company's working capital requirements have been primarily provided by
operations and borrowings under its credit facilities. 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 Company's Credit
Agreement.
On July 14, 1997, KMG entered into a Merger Agreement providing for the
merger of KMG with a jointly owned subsidiary of Chancellor Broadcasting Company
and Evergreen Media Corporation. Upon purchase of the shares in the tender
offer, a change of control will occur which will result in the lenders' ability
under the Company's Credit Agreement to accelerate the outstanding loans and
also trigger a requirement on the part of the Company to offer to repurchase its
10 1/2% Senior Subordinated Notes due 2007. As part of the Merger Agreement,
Chancellor Broadcasting Company and Evergreen Media Corporation have agreed to
make available to KMG funds to refinance the Company's indebtedness, if
required.
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.
16
<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: August 12, 1997 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
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,842
<SECURITIES> 0
<RECEIVABLES> 62,825
<ALLOWANCES> 1,300
<INVENTORY> 0
<CURRENT-ASSETS> 89,068
<PP&E> 31,244
<DEPRECIATION> (15,533)
<TOTAL-ASSETS> 444,243
<CURRENT-LIABILITIES> 71,178
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 100,642
<TOTAL-LIABILITY-AND-EQUITY> 444,243
<SALES> 82,690
<TOTAL-REVENUES> 82,690
<CGS> 69,175
<TOTAL-COSTS> 69,175
<OTHER-EXPENSES> (227)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,841
<INCOME-PRETAX> (6,916)
<INCOME-TAX> (2,821)
<INCOME-CONTINUING> (4,095)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,095)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
