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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996 COMMISSION FILE NUMBER 1-13674
KATZ MEDIA GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3779269
(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 [ ]
At May 6, 1996 13,659,117 shares of the Registrant's common stock were
outstanding.
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INDEX
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<CAPTION>
PAGE
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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 ............................................ 6-7
PART II OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS ........................................... 8
ITEM 2 -- CHANGES IN SECURITIES ....................................... 8
Signatures ............................................................ 9
</TABLE>
1
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KATZ MEDIA GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000'S OMITTED, EXCEPT SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
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(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................. $ 3,457 $ 2,350
Accounts receivable, net of allowance for doubtful accounts of $1,300 . 58,879 61,405
Deferred costs on purchases of station representation contracts ....... 16,367 13,096
Prepaid expenses and other current assets ............................. 725 869
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TOTAL CURRENT ASSETS ................................................. 79,428 77,720
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Fixed assets, net ....................................................... 13,954 12,437
Deferred income taxes ................................................... 1,857 1,857
Deferred costs on purchases of station representation contracts ........ 50,838 39,602
Intangible assets, net .................................................. 225,496 227,726
Other assets, net ....................................................... 17,586 18,291
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TOTAL ASSETS ......................................................... $389,159 $377,633
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities .............................. $ 48,247 $ 38,425
Deferred income on sales of station representation contracts .......... 11,710 10,700
Income taxes payable .................................................. 168 3,178
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TOTAL CURRENT LIABILITIES ............................................ 60,125 52,303
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Deferred income on sales of station representation contracts ........... 2,546 3,589
Long-term debt .......................................................... 186,790 179,530
Other liabilities, principally deferred rent and representation
contracts payable ...................................................... 33,436 34,770
COMMITMENTS AND CONTINGENCIES ........................................... -- --
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 4,000,000 shares authorized, no shares
issued or outstanding ............................................... -- --
Common stock, $.01 par value, 26,000,000 shares authorized, 13,673,700
shares issued ....................................................... 137 137
Paid-in-capital ....................................................... 129,600 129,382
Carryover basis adjustment ............................................ (20,047) (20,047)
Accumulated deficit ................................................... (3,038) (1,831)
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106,652 107,641
Treasury Stock, at cost, 14,583 shares (1996) and 33,333 shares (1995) (88) (200)
Unearned Compensation--Restricted Stock ............................... (302) --
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TOTAL STOCKHOLDERS' EQUITY ........................................... 106,262 107,441
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................... $389,159 $377,633
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</TABLE>
Note: The consolidated balance sheet at December 31, 1995 has
been derived from audited financial statements at that
date.
The accompanying notes are an integral part of these consolidated financial
statements.
2
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KATZ MEDIA GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(000'S OMITTED, EXCEPT SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
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1996 1995
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(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING REVENUES, NET ............ $ 38,282 $ 39,109
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OPERATING EXPENSES:
Salaries and related costs ......... 24,034 24,111
Selling, general and administrative 9,590 9,445
Depreciation and amortization ..... 3,010 4,473
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TOTAL OPERATING EXPENSES .......... 36,634 38,029
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OPERATING INCOME .................. 1,648 1,080
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OTHER EXPENSE (INCOME):
Interest expense ................... 5,025 9,276
Interest (income) .................. (50) (50)
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TOTAL OTHER EXPENSE, NET .......... 4,975 9,226
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LOSS BEFORE INCOME TAX BENEFIT .... (3,327) (8,146)
Income tax benefit ................. (2,120) (6,647)
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NET LOSS .......................... $ (1,207) $ (1,499)
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NET LOSS PER COMMON SHARE .......... $ (.09) $ (.17)
WEIGHTED AVERAGE COMMON SHARES .... 13,659,005 8,786,002
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</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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KATZ MEDIA GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000'S OMITTED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
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1996 1995
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(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss before adjustments ................................. $ (1,207) $ (1,499)
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Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization ............................... 3,010 4,473
Amortization of debt issuance costs ........................ -- 1,670
Deferred rent .............................................. 435 351
Non-cash compensation expense for stock options ............ 364 --
Changes in assets and liabilities:
Decrease in accounts receivable ............................. 1,885 4,115
Decrease (increase) in other assets ....................... 462 (762)
(Increase) in deferred taxes .............................. -- (6,714)
Increase (decrease) in accounts payable and accrued
liabilities ............................................. 2,132 (659)
(Decrease) in income taxes payable ........................ (3,009) (29)
Other, net ................................................ (605) (953)
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Total adjustments .......................................... 4,674 1,492
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ........ 3,467 (7)
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Cash flows from investing activities:
Capital expenditures ........................................ (2,297) (545)
Payments received on sales of station representation
contracts ................................................... 4,788 4,305
Payments made on purchases of station representation
contracts ................................................... (12,111) (3,916)
Investment in cable joint venture ........................... -- (10,670)
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NET CASH (USED IN) INVESTING ACTIVITIES ................... (9,620) (10,826)
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Cash flows from financing activities:
Credit facilities borrowing ................................. 21,000 13,500
Credit facilities repayments ................................ (12,000) (8,000)
Proceeds from Bridge Notes .................................. -- 4,000
Repurchase of Notes ......................................... (1,740) (690)
Purchase of treasury stock .................................. -- (200)
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NET CASH PROVIDED BY FINANCING ACTIVITIES ................. 7,260 8,610
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Net increase (decrease) in cash and cash equivalents ......... 1,107 (2,223)
Cash and cash equivalents, beginning of period ................ 2,350 2,727
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Cash and cash equivalents, end of period ...................... $ 3,457 $ 504
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</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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KATZ MEDIA GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 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 Group, Inc. (the "Company"), operating results
for the three month period ended March 31, 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
March 29, 1996 (File No. 1-13674).
2. EARNINGS PER COMMON SHARE
Net loss per common share is calculated by dividing net loss by the number
of weighted average shares of Common Stock outstanding for the period January
1, 1996 through March 31, 1996. Net loss per common share for the period
January 1, 1995 through March 31, 1995 is calculated by dividing net loss by
the number of weighted average shares of Common Stock outstanding adjusted to
give effect to stock options granted in January 1995, and a 5 for 3 stock
split authorized in March 1995 as if both occurred as of January 1, 1995.
3. RESTRICTED STOCK PLAN
On December 12, 1995, the Board of Directors adopted, subject to
stockholders approval, the 1996 Restricted Stock Grant Plan (the "1996
Restricted Plan"). Currently shares held in treasury are available for grant
under this plan which may be increased from time to time at the discretion of
the Board of Directors.
Effective January 2, 1996 the Compensation Committee of the Board of
Directors awarded 18,750 shares of restricted stock under the 1996 Restricted
Plan to certain key executives, subject to stockholders approval of the 1996
Restricted Plan. The market price of the Company's Common Stock on the date
of grant was $17 5/8 . The restrictions on such shares lapse ratably over a
three year period. As such restrictions lapse, compensation expense will be
recognized representing the fair market value of the Company's Common Stock
on the date of grant. During the three months ended March 31, 1996
approximately $28,000 of related compensation expense was recognized.
5
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KATZ MEDIA GROUP, INC. AND SUBSIDIARIES
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
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 all types of
broadcast media, with leading market shares in the representation of radio
and television stations and cable systems. During the first 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: 64.7% for television; 29.2% for radio; and
6.1% for cable and international (on a 100% owned basis). Gross billings
during the first quarter of 1996 decreased .4% for television and increased
13.3% for radio and 11.2% for cable and international (on a 100% owned
basis). The composition of gross billings by broadcast media during the first
quarter of 1995 aggregated 67.8% for television, 26.6% for radio, and 5.6%
for cable and international (on a 100% owned basis).
RESULTS OF OPERATIONS -- THREE MONTHS ENDED MARCH 31, 1996
Net operating revenues for the first quarter of 1996 totaled $38.3
million, a decrease of approximately $.8 million, or approximately 2.1%,
compared to net operating revenues of $39.1 million for the first quarter of
1995. This decrease reflects (i) the anticipated slower 1996 first quarter
pacings as compared to those achieved during the 1995 first quarter and (ii)
the 1995 transfer of United Television, Inc. stations ($1.5 million of
commissions in the 1995 first quarter) to a new representation firm in which
the company will receive a profit distribution rather than report revenues
and associated expenses. On a "constant station" basis (deleting stations
acquired or lost after March 31, 1995), operating revenues remained
relatively flat during the 1996 quarter as compared to the 1995 quarter.
6
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Operating expenses, excluding depreciation and amortization, remained flat
at $33.6 million for the first quarter of 1996 and 1995. As a result of cost
and budgeting controls implemented by the Company in 1995, salaries and
related expenses decreased $.1 million while selling, general and
administrative expense increased $.1 million when compared to the first
quarter of 1995. Operating expenses excluding depreciation and amortization
as a percentage of net operating revenues increased from 86% in the first
quarter of 1995 to 88% in the first quarter of 1996 primarily as a result of
the slightly lower operating revenue figures described above.
Depreciation and amortization overall decreased by $1.5 million, or 32.7%,
for the first quarter of 1996 compared to the first quarter of 1995,
primarily due to the result of longer initial terms of acquired contracts
which determines the period for contract amortization and to a more limited
extent on amortization of income on contracts sold in late 1995.
Operating income for the first quarter of 1996 increased by $.6 million
compared to the first quarter of 1995 as a result of the operating components
discussed above.
Interest expense, net, decreased by $4.2 million for the first quarter of
1996 primarily attributable to the repayment of debt with the net proceeds of
the Company's initial public stock offering in April 1995.
Loss before income tax provision totaled $3.3 million for the first
quarter of 1996, compared to $8.1 million for the first quarter of 1995. This
result was primarily due to the components listed above.
The difference between the effective tax rate of 63.7% compared to the
U.S. statutory rate of 35% is primarily attributable to goodwill
amortization, other nondeductible expenses and state income taxes.
EBITDA for the first quarter of 1996 decreased $.4 million or 6.7% to $5.5
million as compared to $5.9 million for the first quarter of 1995. This
decrease is primarily attributable to the stronger revenue pacing in the
first quarter of 1995 as compared to the first quarter 1996 discussed above.
The EBITDA margin decreased from 15.1% in the first quarter of 1995 to 14.4%
in the first quarter 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 Credit Agreement and that these sources are sufficient
to meet the Company's working capital requirements.
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
increased $3.5 million. This increase in cash provided by operating
activities is primarily due to improvements in the Company's cash management
and stronger cost controls and other items mentioned above.
Net cash used in investing activities during 1996 aggregated $9.6 million,
a decrease of $1.2 million compared to net cash used in investing activities
during 1995 of $10.8 million. This decrease in cash used in investing
activities was mainly a result of the $10.7 million investment in the Cable
Joint Venture which occurred in the first quarter of 1995, offset by the net
increases in purchases of station representation contracts of $7.7 million
and capital expenditure over the first quarter of 1995 of $1.8 million.
Overall cash flows from financing activities provided $7.3 million during
1996 versus $8.6 million during 1995. In the first quarter of 1996, the
Company spent $1.7 million to repurchase of Katz Media Corporation 12 3/4 %
Senior Subordinated Notes due 2002. The Company has approximately $5.9
million available on its revolving credit facility as of March 31, 1996.
7
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PART II OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
The Company, from time to time, is involved in litigation 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.
8
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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: May 8, 1996 KATZ MEDIA GROUP, INC.
By: /s/ Thomas F. Olson By: /s/ Richard E. Vendig
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Thomas F. Olson Richard E. Vendig
President and Senior Vice President
Chief Executive Officer Chief Financial &
and Director Administrative
Officer, Treasurer
9
