<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended April 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period ____________________ to ____________________
Commission File Number 1-10880
BET HOLDINGS, INC.
------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1742995
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
One BET Plaza
1900 W Place, N.E., Washington, D.C. 20018-1211
------------------------------------------------
(Address of principal executive offices)
(202) 608-2000
--------------
(Registrant's phone 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 [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
Shares outstanding at
May 31, 1996
---------------------
<S> <C>
Class A Common Stock 10,091,020
Class B Common Stock 1,831,600
Class C Common Stock 4,820,000
- -------------------------------------------------------------
</TABLE>
<PAGE>
BET HOLDINGS, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of April 30, 1996 and
July 31, 1995.............................................. 1
Consolidated Statements of Income for the Three and
Nine Months ended April 30, 1996 and 1995.................. 3
Consolidated Statements of Cash Flows for the Nine
Months ended April 30, 1996 and 1995....................... 4
Notes to Consolidated Financial Statements................... 5
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition......................... 7
PART II OTHER INFORMATION............................................ 12
- --------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
BET HOLDINGS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
In thousands of dollars
- ------------------------------------------------------------------------
ASSETS April 30, 1996 July 31, 1995
- ------------------------------------------------------------------------
<S> <C> <C>
Current Assets
- ------------------------------------------------------------------------
Cash and cash equivalents $ 6,797 $ 13,984
- ------------------------------------------------------------------------
Marketable securities 1,069 14,648
- ------------------------------------------------------------------------
Accounts receivable, less allowance
for doubtful accounts of $1,634 and
$1,363 at April 30, 1996 and July
31, 1995, respectively 26,535 21,789
- ------------------------------------------------------------------------
Prepaid expenses and other current
assets 7,671 7,694
- ------------------------------------------------------------------------
Current portion of programming
rights, net 3,122 1,156
- ------------------------------------------------------------------------
Deferred tax benefit 2,084 1,443
- ------------------------------------------------------------------------
Total Current Assets 47,278 60,714
- ------------------------------------------------------------------------
Property and Equipment
- ------------------------------------------------------------------------
Land 1,834 649
- ------------------------------------------------------------------------
Buildings and leasehold improvements 32,827 32,432
- ------------------------------------------------------------------------
Broadcasting and other equipment 22,483 21,964
- ------------------------------------------------------------------------
Satellite transponders 32,782 37,993
- ------------------------------------------------------------------------
Construction in progress 7,419 303
- ------------------------------------------------------------------------
Total 97,345 93,341
- ------------------------------------------------------------------------
Less: Accumulated depreciation (21,358) (16,669)
- ------------------------------------------------------------------------
Net Property and Equipment 75,987 76,672
- ------------------------------------------------------------------------
Notes receivable 6,815 2,072
- ------------------------------------------------------------------------
Investments in and advances to
unconsolidated affiliates 3,430 2,870
- ------------------------------------------------------------------------
Programming rights, less current portion 1,340 253
- ------------------------------------------------------------------------
Goodwill and other intangibles, net 13,998 14,627
- ------------------------------------------------------------------------
Other assets 773 602
- ------------------------------------------------------------------------
Total Assets $149,621 $157,810
- ------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
BET HOLDINGS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
In thousands of dollars
- ------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY April 30, 1996 July 31, 1995
- ------------------------------------------------------------------------
<S> <C> <C>
Current Liabilities
- ------------------------------------------------------------------------
Accounts payable and accrued expenses $ 5,956 $ 7,446
- ------------------------------------------------------------------------
Current portion of programming rights
payable 4,411 2,836
- ------------------------------------------------------------------------
Deferred revenue 4,015 4,171
- ------------------------------------------------------------------------
Accrued compensation 4,156 4,026
- ------------------------------------------------------------------------
Current maturities of long-term debt 2,013 1,888
- ------------------------------------------------------------------------
Total Current Liabilities 20,551 20,367
- ------------------------------------------------------------------------
Long-term debt, less current maturities 64,621 33,987
- ------------------------------------------------------------------------
Programming rights payable, less
current portion 771 -
- ------------------------------------------------------------------------
Deferred income taxes 6,902 5,819
- ------------------------------------------------------------------------
Other liabilities 1,112 953
- ------------------------------------------------------------------------
Total Liabilities 93,957 61,126
- ------------------------------------------------------------------------
Stockholders' Equity
- ------------------------------------------------------------------------
Preferred stock; $.01 par value,
15,000,000 shares authorized, no
shares issued or outstanding - -
- ------------------------------------------------------------------------
Common stock; $.02 par value:
- ------------------------------------------------------------------------
Class A; 50,000,000 shares
authorized, 12,780,620 and
12,718,705 shares issued, 10,091,020
and 11,547,405 shares outstanding at
April 30, 1996 and July 31, 1995, 256 255
respectively
- ------------------------------------------------------------------------
Class B; 15,000,000 shares
authorized, 3,349,900 shares issued,
1,831,600 and 3,349,000 shares
outstanding at April 30, 1996 and
July 31, 1995, respectively. 67 67
- ------------------------------------------------------------------------
Class C; 15,000,000 shares
authorized, 4,820,000 shares issued
and outstanding 96 96
- ------------------------------------------------------------------------
Additional paid-in capital 39,367 38,217
- ------------------------------------------------------------------------
Retained earnings 92,907 76,144
- ------------------------------------------------------------------------
Cost of 2,689,600 Class A and 1,518,300
Class B common shares held in treasury
at April 30, 1996 and 1,171,300
Class A common shares held in treasury
at July 31, 1995 (77,029) (18,095)
- ------------------------------------------------------------------------
Total Stockholders' Equity 55,664 96,684
- ------------------------------------------------------------------------
Total Liabilities and Stockholders' $149,621 $157,810
Equity
- ------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
BET HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
In thousands, except per share amounts
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Three Months Ended April 30, Nine Months Ended April 30,
---------------------------- ---------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Operating Revenues
- ---------------------------------------------------------------------------------------------------
Advertising $16,003 $13,282 $49,613 $41,494
- ---------------------------------------------------------------------------------------------------
Subscriber 15,752 14,899 45,679 41,227
- ---------------------------------------------------------------------------------------------------
Other 527 1,518 2,668 2,521
- ---------------------------------------------------------------------------------------------------
Total Operating Revenues 32,282 29,699 97,960 85,242
- ---------------------------------------------------------------------------------------------------
Operating Expenses
- ---------------------------------------------------------------------------------------------------
Production and programming 11,344 10,053 32,782 27,178
- ---------------------------------------------------------------------------------------------------
Marketing 5,552 4,733 16,307 14,223
- ---------------------------------------------------------------------------------------------------
General and administrative 3,805 3,393 11,421 10,616
- ---------------------------------------------------------------------------------------------------
Depreciation and amortization of
intangibles 1,891 1,996 5,687 5,299
- ---------------------------------------------------------------------------------------------------
Total Operating Expenses 22,592 20,175 66,197 57,316
- ---------------------------------------------------------------------------------------------------
Income From Operations 9,690 9,524 31,763 27,926
- ---------------------------------------------------------------------------------------------------
Nonoperating Income (Expense)
- ---------------------------------------------------------------------------------------------------
Interest income 485 324 1,043 951
- ---------------------------------------------------------------------------------------------------
Interest expense (869) (503) (2,966) (1,344)
- ---------------------------------------------------------------------------------------------------
Other (579) (683) (1,322) (968)
- ---------------------------------------------------------------------------------------------------
Income Before Income Taxes 8,727 8,662 28,518 26,565
- ---------------------------------------------------------------------------------------------------
Provision for income taxes (3,493) (3,730) (11,755) (11,557)
- ---------------------------------------------------------------------------------------------------
Net Income $5,234 $4,932 $16,763 $15,008
- ---------------------------------------------------------------------------------------------------
Earnings Per Common Share $.30 $.25 $.89 $.75
- ---------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
BET HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
In thousands of dollars
- -------------------------------------------------------------
Nine Months Ended April 30, 1996 1995
- -------------------------------------------------------------
Cash Flows From Operating Activities
- -------------------------------------------------------------
<S> <C> <C>
Net income $ 16,763 $ 15,008
- -------------------------------------------------------------
Adjustments to reconcile net income to
net cash provided by operating
activities:
- -------------------------------------------------------------
Depreciation and amortization of
other intangibles 5,687 5,299
- -------------------------------------------------------------
Amortization of programming rights 2,428 1,817
- -------------------------------------------------------------
Equity in losses of unconsolidated
affiliates 1,255 677
- -------------------------------------------------------------
Loss on disposition of property and
equipment 68 147
- -------------------------------------------------------------
Deferred income taxes 442 (332)
- -------------------------------------------------------------
Increase in accounts receivable (4,729) (3,620)
- -------------------------------------------------------------
Decrease in prepaid expenses and
other assets 723 302
- -------------------------------------------------------------
(Decrease) increase in deferred
revenue (156) 2,006
- -------------------------------------------------------------
Increase (decrease) in other
liabilities 966 (727)
- -------------------------------------------------------------
Net Cash Provided by Operating
Activities 23,447 20,577
- -------------------------------------------------------------
Cash Flows From Investing Activities
- -------------------------------------------------------------
Business combinations, net of cash
acquired (512) (902)
- -------------------------------------------------------------
Redemption of marketable securities 13,579 1,188
- -------------------------------------------------------------
Capital expenditures (9,330) (14,946)
- -------------------------------------------------------------
Acquisition of programming rights (5,481) (2,047)
- -------------------------------------------------------------
Additions to notes receivable (5,000) -
- -------------------------------------------------------------
Investment in and advances to (1,886) (549)
unconsolidated affiliates
- -------------------------------------------------------------
Other investing activities (191) 298
- -------------------------------------------------------------
Net Cash Used in Investing Activities (8,821) (16,958)
- -------------------------------------------------------------
Cash Flows From Financing Activities
- -------------------------------------------------------------
Borrowings 90,000 -
- -------------------------------------------------------------
Principal payments of long-term debt (54,030) (546)
- -------------------------------------------------------------
Proceeds from issuance of common stock 1,151 -
- -------------------------------------------------------------
Purchase of common stock (58,934) (4,606)
- -------------------------------------------------------------
Net Cash Used in Financing Activities (21,813) (5,152)
- -------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents (7,187) (1,533)
- -------------------------------------------------------------
Cash and cash equivalents, beginning of
period 13,984 7,004
- -------------------------------------------------------------
Cash and Cash Equivalents, End of Period $ 6,797 $ 5,471
- -------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
BET HOLDING, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Basis of Presentation
The unaudited consolidated financial statements of BET Holdings, Inc. (the
"Company") included herein have been prepared pursuant to instructions for Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted or
condensed where permitted by regulation. In management's opinion, all
adjustments, which were of a normal recurring nature, and disclosures necessary
for a fair presentation of the interim periods have been made.
These financial statements and notes should be read in conjunction with the
audited financial statements and notes thereto contained in the Company's Form
10-K for the fiscal year ended July 31, 1995. The results of operations for the
three and nine months ended April 30, 1996 are not necessarily indicative of the
results that may be expected for future interim periods or for the year ending
July 31, 1996.
Note 2: Earnings Per Common Share
The computation of earnings per common share for the three and nine months ended
April 30, 1996 is based on the weighted average number of outstanding common
shares during the periods plus common stock equivalents, consisting of common
shares subject to stock options. Prior to the three months ended April 30,
1996, common stock equivalents were not included in the computation of earnings
per common share since their inclusion was deemed to be immaterial in accordance
with APB Opinion No. 15, "Earnings per Share". The number of shares used in
computing earnings per common share for the three and nine months ended April
30, 1996 and 1995 consisted of (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Three months ended April 30, Nine months ended April 30,
---------------------------- ---------------------------
1996 1995 1996 1995
---- ---- ---- ----
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average shares
outstanding 16,734 19,734 18,199 19,918
- --------------------------------------------------------------------------------------
Common stock equivalents 829 - 583 -
- --------------------------------------------------------------------------------------
Weighted average common
and common equivalent shares
outstanding 17,563 19,734 18,782 19,918
- --------------------------------------------------------------------------------------
</TABLE>
Note 3: Property and Equipment
During December 1995, the Company purchased a satellite transponder it
previously leased under a capital lease agreement. The difference between the
purchase price of the satellite transponder and the outstanding capitalized
lease obligation at the date of purchase was recorded as a reduction to the cost
of the satellite transponder.
Note 4: Borrowings
On December 13, 1995, the Company obtained a five-year $75 million unsecured
senior revolving credit facility. Advances under the facility bear interest at
either the London Interbank Offered Rate plus margins ranging from .375% to
.75%, depending upon certain financial ratios, or the prime lending rate, at the
Company's option. A commitment fee based on the amount of the unused facility
is payable quarterly at rates ranging from .1875% to .3% per annum, based upon
certain financial ratios. At April 30, 1996 outstanding advances under the
facility aggregated $46 million.
5
<PAGE>
Note 5: Capital Stock
On December 13, 1995, the Company repurchased 1,518,300 shares of its
outstanding Class A common stock and 1,518,300 shares of its outstanding Class B
common stock beneficially owned by Time Warner, Inc. In connection with this
transaction, the Company and Time Warner, Inc. entered into an agreement
restricting for three years Time Warner, Inc.'s ability to initiate or acquire a
basic cable television network targeted to African-American viewers.
During the nine months ended April 30, 1996, options to purchase 61,915 shares
of the Company's Class A common stock were exercised at an aggregate price of
approximately $.9 million.
Note 6: Related Party Transaction
During the nine months ended April 30, 1996, the Company loaned $5 million to
R&S PCS, Inc., an entity wholly-owned by its Chairman and Chief Executive
Officer, Robert L. Johnson. The loan bears interest at the prime lending rate
plus 2% and is secured by 40,000 shares of the Company's common stock owned by
Mr. Johnson. The loan proceeds were used by R&S PCS, Inc. to establish
eligibility to participate in the Broadband PCS C Block Auction, in which R&S
PCS, Inc. was a successful bidder. The Company is currently engaged in
negotiations to acquire an equity interest in R&S PCS, Inc.
6
<PAGE>
BET HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
General
The principal operations of BET Holdings, Inc. (the Company) consist of cable
television broadcasting and magazine publishing. The Company's Entertainment
Group operates BET Cable Network, BET on Jazz: The Cable Jazz Channel (BET on
Jazz), Action Pay-Per-View (Action) and other ancillary businesses including BET
Direct, the Company's wholly-owned direct marketing subsidiary. The Company's
Publishing Group publishes Young Sisters & Brothers (YSB) and Emerge magazines.
Additionally, the Company has equity ownership interests in certain affiliated
companies, which are accounted for under the equity method, including BET Film
Productions and BET Pictures, joint ventures which produce motion pictures.
Substantially all of the Company's revenues are earned by BET Cable Network from
the sale of advertising time and subscriber fees from cable system affiliates.
Additional Entertainment Group revenues primarily relate to pay-per-view
subscriber revenues earned by Action. Publishing Group revenues primarily
consist of advertising revenues and subscription fees earned from the Company's
magazine publishing operations.
Launch of BET on Jazz
The Company launched BET on Jazz, its second basic cable network, on January 15,
1996. As discussed in the Company's analysis of its liquidity and financial
resources, BET on Jazz is expected to incur significant operating losses during
the remainder of the fiscal year ending July 31, 1996.
Consolidated Summary
The Company's consolidated results of operations were as follows (unaudited):
<TABLE>
<CAPTION>
In thousands of dollars
- ------------------------------------------------
Three months ended April 30, 1996 1995
- ------------------------------------------------
<S> <C> <C>
Operating revenues $32,282 $29,699
- ------------------------------------------------
Income from operations 9,690 9,524
- ------------------------------------------------
Income before income taxes 8,727 8,662
- ------------------------------------------------
Net income $ 5,234 $ 4,932
- ------------------------------------------------
In thousands of dollars
- ------------------------------------------------
Nine months ended April 30, 1996 1995
- ------------------------------------------------
Operating revenues $97,960 $85,242
- ------------------------------------------------
Income from operations 31,763 27,926
- ------------------------------------------------
Income before income taxes 28,518 26,565
- ------------------------------------------------
Net income $16,763 $15,008
- ------------------------------------------------
</TABLE>
A discussion of the results of operations of each of the Company's principal
business segments and other factors impacting the Company's results of
operations follows.
Entertainment Group
Entertainment Group results of operations, which include BET on Jazz, were as
follows (unaudited):
<TABLE>
<CAPTION>
In thousands of dollars
- ------------------------------------------------
Three months ended April 30, 1996 1995
- ------------------------------------------------
<S> <C> <C>
Operating revenues $30,985 $28,474
- ------------------------------------------------
Operating expenses 20,371 17,929
- ------------------------------------------------
Income from operations $10,614 $10,545
- ------------------------------------------------
In thousands of dollars
- ------------------------------------------------
Nine months ended April 30, 1996 1995
- ------------------------------------------------
Operating revenues $93,972 $81,492
- ------------------------------------------------
Operating expenses 59,486 50,854
- ------------------------------------------------
Income from operations $34,486 $30,638
- ------------------------------------------------
</TABLE>
Operating expenses related to BET on Jazz aggregated $1.4 million and $1.9
million for the three and nine months ended April 30, 1996, respectively.
7
<PAGE>
Components of Entertainment Group operating revenues were as follows
(unaudited):
<TABLE>
<CAPTION>
In thousands of dollars
- ------------------------------------------------
Three months ended April 30, 1996 1995
- ------------------------------------------------
<S> <C> <C>
Advertising $15,315 $12,653
- ------------------------------------------------
Basic cable subscriber 12,644 11,862
- ------------------------------------------------
Pay-per-view subscriber 2,502 2,482
- ------------------------------------------------
Other 524 1,477
- ------------------------------------------------
Total $30,985 $28,474
- ------------------------------------------------
In thousands of dollars
- ------------------------------------------------
Nine months ended April 30, 1996 1995
- ------------------------------------------------
Advertising $47,302 $39,304
- ------------------------------------------------
Basic cable subscriber 37,606 33,328
- ------------------------------------------------
Pay-per-view subscriber 6,434 6,402
- ------------------------------------------------
Other 2,630 2,458
- ------------------------------------------------
Total $93,972 $81,492
- ------------------------------------------------
</TABLE>
Advertising Revenues
Substantially all of the Entertainment Group's advertising revenues are earned
by BET Cable Network through the sale of national spot advertising, infomercial
advertising and direct response advertising. BET Cable Network's total
advertising revenues increased 21% and 20% during the three and nine months
ended April 30, 1996, respectively, as compared to the prior year comparable
periods.
National Spot Advertising
BET Cable Network's national spot advertising revenues increased 29% to $10.2
million and 25% to $31.2 million during the three and nine months ended April
30, 1996, respectively, as compared to the prior year comparable periods. These
increases were primarily due to an increase in the average rate charged to
advertisers and an increase in the volume of spot advertising broadcast.
Infomercial Advertising
Infomercial advertising consists of instructional, ministry, health, beauty and
other programming ranging in length from 30 to 60 minutes. BET Cable Network's
infomercial advertising revenues increased 14% to $4 million and 23% to $13
million during the three and nine months ended April 30, 1996, respectively, as
compared to the prior year comparable periods. These increases were primarily
attributable to a scheduled increase in the rate charged to the largest
purchaser of infomercial advertising time on the BET Cable Network and an
increase in the volume of infomercial advertising broadcast during the three and
nine months ended April 30, 1996, as compared to the prior year comparable
periods.
Direct Response Advertising
Direct response advertising consists of 30 and 60 second commercials which
direct consumers to dial an 800 or 900 telephone number in order to purchase
advertised products. BET Cable Network's direct response advertising revenues
decreased 15% to $1.1 million and 18% to $3.1 million during the three and nine
months ended April 30, 1996, respectively, as compared to the prior year
comparable periods. These declines were primarily due to a reduction in
broadcast time made available for direct response advertising in favor of more
profitable national spot and infomercial advertising, which was partially offset
by increases in rates charged to advertisers.
Subscriber Revenue
BET Cable Network's subscriber revenues increased 7% and 13% during the three
and nine months ended April 30, 1996, respectively, as compared to the prior
year comparable periods. These increases were due to a scheduled annual rate
card increase of 1c per subscriber per month during calendar year 1995, coupled
with continuing increases in BET Cable Network's subscriber base. The monthly
subscriber fee was 10c and 11c during calendar years 1994 and 1995,
respectively, and remains at 11c for calendar year 1996.
For the three months ended April 30, 1996, BET Cable Network's subscriber base
increased to 40.7 million from 39.8 million at January 31, 1996 and 37.5 million
at July 31, 1995. The average number of subscribers reported to BET Cable
Network by its affiliates for the three and nine months ended April 30, 1996
approximated 40.5 million and 38.8 million, respectively representing increases
of 10% and 9%, respectively, as compared to the prior year comparable periods.
Pay-Per-View Revenue
Pay-per-view revenue increased 1% for the three months ended April 30, 1996 and
remained flat for the nine months ended April 30, 1996, as compared to the prior
year comparable periods. At April 30, 1996, Action was available to
approximately 7.8 million addressable homes, representing a 11% increase as
compared to April 30, 1995. Monthly subscriber revenues resulted
8
<PAGE>
from a monthly "buy rate" of approximately 5.2% for the nine months ended April
30, 1996 as compared to a "buy rate" of 5% for the prior year comparable period.
Other Revenue
Other operating revenue decreased significantly during the three months ended
April 30, 1996, as compared to the prior year comparable period, primarily due
to the loss of sublease revenues related to the transponder utilized by BET on
Jazz. Other operating revenue increased slightly for the nine months ended
April 30, 1996, as compared to the prior year comparable period, due to revenue
related product sales by BET Direct and rental of the Company's new production
facility, partially offset by the loss of transponder sublease revenue
commencing in January 1996.
Components of Entertainment Group operating expenses were as follows
(unaudited):
<TABLE>
<CAPTION>
In thousands of dollars
- ----------------------------------------------------------
Three months ended April 30, 1996 1995
- ----------------------------------------------------------
<S> <C> <C>
Production and programming $10,101 $ 8,887
- ----------------------------------------------------------
Marketing 4,970 4,140
- ----------------------------------------------------------
General and administrative 3,509 3,001
- ----------------------------------------------------------
Depreciation and amortization of
intangibles 1,791 1,901
- ----------------------------------------------------------
Total $20,371 $17,929
- ----------------------------------------------------------
<CAPTION>
In thousands of dollars
- ----------------------------------------------------------
Nine months ended April 30, 1996 1995
- ----------------------------------------------------------
<S> <C> <C>
Production and programming $29,046 $23,949
- ----------------------------------------------------------
Marketing 14,440 12,266
- ----------------------------------------------------------
General and administrative 10,614 9,612
- ----------------------------------------------------------
Depreciation and amortization of
intangibles 5,386 5,027
- ----------------------------------------------------------
Total $59,486 $50,854
- ----------------------------------------------------------
</TABLE>
Production and Programming
Production and programming expenses increased 14% and 21% during the three and
nine months ended April 30, 1996 respectively, as compared to the prior year
comparable periods. Increased cost for the three months ended April 30, 1996
were primarily due to $.7 million of incremental costs incurred by BET on Jazz,
which was launched in January 1996. Also contributing to increased costs for the
three months ended April 30, 1996 were moderate cost increases incurred by BET
Cable Network, BET Direct product sales costs and direct costs associated with
renting the Company's new film production studio. In addition to costs related
to BET on Jazz, increased costs for the nine months ended April 30, 1996
primarily related to special event programming costs incurred by the BET Cable
Network, including costs related to the Company's interview with O.J. Simpson,
live coverage of the Million Man March, a series of town-hall meetings and
several sporting events.
Marketing
Marketing expenses increased 20% and 18% during the three and nine months ended
April 30, 1996, respectively, as compared to the prior year comparable periods.
Contributing to these increases were increased BET Cable Network variable
incentive compensation costs resulting from increased advertising revenue and
subscribership. Also contributing to these increases were incremental
promotional costs related to the launch of the BET on Jazz, which aggregated $.1
and $.3 million for the three and nine months ended April 30, 1996,
respectively. Additionally, marketing costs related to BET Direct and rental of
the Company's film production facility contributed to the cost increases.
General and Administrative
General and administrative expenses increased 17% and 10% during the three and
nine months ended April 30, 1996, respectively. Such increases primarily related
to increased employee compensation, facilities and business development costs.
Depreciation and Amortization of Intangibles
Depreciation and amortization of intangible assets decreased 6% and increased 7%
for the three and nine months ended April 30, 1996, respectively. The decrease
for the three months ended April 30, 1996 was due in part from a cost basis
reduction resulting from the purchase of a satellite transponder previously
leased by the Company. Increased depreciation and amortization for the nine
months ended April 30, 1996 was primarily due to depreciation of the Company's
new headquarters and production facilities, which were placed into service
during the third quarter of the fiscal year ended July 31, 1995.
9
<PAGE>
Publishing Group
Publishing Group results of operations were as follows (unaudited):
<TABLE>
<CAPTION>
In thousands of dollars
- ----------------------------------------------
Three months ended April 30, 1996 1995
- ----------------------------------------------
<S> <C> <C>
Operating revenues $1,297 $1,225
- ----------------------------------------------
Operating expenses 2,221 2,246
- ----------------------------------------------
Loss from operations $ 924 $1,021
- ----------------------------------------------
In thousands of dollars
- ----------------------------------------------
Nine months ended April 30, 1996 1995
- ----------------------------------------------
Operating revenues $3,988 $3,750
- ----------------------------------------------
Operating expenses 6,711 6,462
- ----------------------------------------------
Loss from operations $2,723 $2,712
- ----------------------------------------------
</TABLE>
Components of Publishing Group operating revenues during the three months and
nine months ended April 30, 1996 and 1995, were as follows (unaudited):
<TABLE>
<CAPTION>
In thousands of dollars
- ----------------------------------------------
Three months ended April 30, 1996 1995
- ----------------------------------------------
<S> <C> <C>
Advertising $688 $629
- ----------------------------------------------
Subscriber and other 609 596
- ----------------------------------------------
Total $1,297 $1,225
- ----------------------------------------------
In thousands of dollars
- ----------------------------------------------
Nine months ended April 30, 1996 1995
- ----------------------------------------------
Advertising $2,311 $2,190
- ----------------------------------------------
Subscriber and other 1,677 1,560
- ----------------------------------------------
Total $3,988 $3,750
- ----------------------------------------------
</TABLE>
Components of Publishing Group operating expenses were as follows (unaudited):
<TABLE>
<CAPTION>
In thousands of dollars
- -----------------------------------------------
Three months ended April 30, 1996 1995
- -----------------------------------------------
<S> <C> <C>
Production $1,243 $1,166
- -----------------------------------------------
Marketing 582 594
- -----------------------------------------------
General and administrative 296 391
- -----------------------------------------------
Depreciation and amortization
of intangibles 100 95
- -----------------------------------------------
Total $2,221 $2,246
- -----------------------------------------------
In thousands of dollars
- -----------------------------------------------
Nine months ended April 30, 1996 1995
- -----------------------------------------------
Production $3,736 $3,229
- -----------------------------------------------
Marketing 1867 1957
- -----------------------------------------------
General and administrative 807 1004
- -----------------------------------------------
Depreciation and amortization of
intangibles 301 272
- -----------------------------------------------
Total $6,711 $6,462
- -----------------------------------------------
</TABLE>
Operating Revenues
Operating revenue increased 6% and 6% for the three and nine months ended April
30, 1996, respectively, as compared to the prior year comparable periods.
Increased subscription revenue resulted from increased subscribership for YSB
and higher newsstand sales for Emerge.
Operating Expenses
Operating expenses decreased 1% and increased 4% for the three and nine months
ended April 30, 1996, respectively, as compared to the prior year comparable
periods. Increased production costs, which resulted from increased circulation,
were partially offset by reduced promotional and overhead costs.
Nonoperating Expenses and Income Taxes
Interest expense increased significantly during the three and nine months ended
April 30, 1996 due to interest related to the $75 million credit facility the
Company obtained in December 1995. Also contributing to the increase in interest
expense was a decrease in the amount of interest as capitalized due to the
cessation of interest capitalization related to the construction of Company's
new headquarters and production facility, which were placed into service during
the later part of the fiscal year ended July 31, 1995.
The Company's effective income tax rate was 40% and 43% for the three months
ended April 30, 1996 and 1995, respectively, and was 41.2% and 43.5% for the
nine months ended April 30, 1996 and 1995, respectively. The decreased effective
tax rates were primarily due to the Company's increased ownership interest in
Emerge Communications, Inc. (ECI), which resulted in the Company being able to
deduct operating losses incurred by ECI during the three and nine months ended
April 30, 1996 for income tax reporting purposes.
10
<PAGE>
FINANCIAL CONDITION
Liquidity and Capital Resources
The Company's principal source of working capital is internally generated cash
flow from operations. As reported in its consolidated statements of cash flow,
the Company generated net cash from operating activities of $23.4 million and
$20.6 million during the nine months ended April 30, 1996 and 1995,
respectively. As of April 30, 1996, the Company's cash and temporary investments
aggregated $7.8 million and the Company had an excess of current assets over
current liabilities of $26.7 million.
On December 13, 1995, the Company entered into a noncompetition agreement and
repurchased 1,518,300 shares of its outstanding Class A common stock and
1,518,300 shares of its outstanding Class B common stock beneficially owned by
Time Warner, Inc. for $58.9 million. The Company's noncompetition agreement with
Time Warner, Inc. restricts for three years Time Warner, Inc.'s ability to
initiate or acquire a basic cable television network targeted to African-
American viewers. These transactions were financed from a combination of
existing cash reserves and borrowings under a five-year $75 million unsecured
senior revolving credit facility obtained concurrent with these transactions.
During the nine months ended April 30, 1996, the Company's capital expenditures
aggregated $17.9 million, including the acquisition of a satellite transponder
formerly leased under a capital lease agreement and equipment necessary to
support the operations of BET on Jazz. The difference between the purchase price
of the satellite transponder and the outstanding capitalized lease obligation at
the date of purchase was recorded as a reduction in the cost of the satellite
transponder. As part of its ongoing strategic plan to invest in compatible media
and other businesses, the Company launched BET on Jazz on January 15, 1996.
Since BET on Jazz affiliates receive free carriage for two years, BET on Jazz
will require significant operational funding for several years. In this regard,
management expects BET on Jazz to incur monthly operating losses of
approximately $500,000 during the remainder of the fiscal year ending July 31,
1996.
The Company expects that cash flow from operations, as supplemented by
additional credit facilities, if necessary, will be sufficient to fund its
operations, debt service and capital expenditures for the foreseeable future.
11
<PAGE>
PART II: OTHER INFORMATION
Item 1: Legal Proceedings
See Part I, Item 3 of Form 10-K for the fiscal year ended July 31, 1995 for a
description of certain previously disclosed legal proceedings.
Civil Action No. 92-0066JHG styled Roberts v. Johnson, and Civil Action No.
-------------------
92-0052JHG styled Johnson v. Roberts was settled and dismissed with prejudice on
------------------
February 16, 1996. All claims against the companies were released, and there
are no contingent liabilities against the companies.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the three
months ended April 30, 1996.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BET Holdings, Inc.
------------------
(Registrant)
Date: June 14, 1996 ________________________________________
Debra L. Lee, Esq., President and Chief
Operating Officer
Date: June 14, 1996 ________________________________________
William T. Gordon, III, Executive Vice
President, Finance, Chief Financial Officer
and Treasurer (Chief Accounting Officer)
13
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