UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996 Commission File Number 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 July 26, 1996 13,675,160 shares of the Registrant's common stock were
outstanding.
<PAGE>
INDEX
PAGE
Item 1 - Financial Statements
- ------
Consolidated Balance Sheets............................................ 2
Consolidated Statements of Operations.................................. 3
Consolidated Statements of Cash Flows.................................. 4
Notes to Consolidated Financial Statements............................. 5
Item 2 - Management's Discussion and Analysis of
- ------
Financial Condition and Results of Operations..................... 6-8
Part II Other Information
-----------------
Item 1 - Legal Proceedings................................................. 9
- ------
Item 4 - Submission of Matters to a Vote of Security Holders............... 9
- ------
Signatures................................................................. 10
Financial Data Schedule.................................................... 11
<PAGE>
KATZ MEDIA GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000's Omitted, Except Share and Per Share Information)
June 30, December 31,
-------- ------------
1996 1995
------ ------
(Unaudited) (Note)
Assets
Current assets:
Cash and cash equivalents........................$ 2,241 $ 2,350
Accounts receivable, net of allowance for doubtful
accounts of $1,300............................... 66,185 61,405
Deferred costs on purchases of station represent-
ation contracts.................................. 16,894 13,096
Prepaid expenses and other current assets ........ 1,287 869
-------- ---------
Total current assets....................... 86,607 77,720
Fixed assets, net.................................... 15,051 12,437
Deferred income taxes................................ 1,857 1,857
Deferred costs on purchases of station representation
contracts........................................... 60,005 39,602
Intangible assets, net............................... 223,267 227,726
Other assets, net ................................... 17,463 18,291
-------- ---------
Total assets..............................$ 404,250 $ 377,633
--------- ----------
--------- ----------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities.........$ 45,486 $ 38,425
Deferred income on sales of station represent-
ation contracts................................. 13,002 10,700
Income taxes payable............................. 2,330 3,178
--------- ----------
Total current liabilities 60,818 52,303
--------- ----------
<PAGE>
Deferred income on sales of station representation
contracts...........................................$ 2,333 3,589
Long-term debt...................................... 192,090 179,530
Other liabilities, principally deferred rent and
representation contracts payable................... 41,115 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................................... 129,602 129,382
Carryover basis adjustment........................ (20,047) (20,047)
Accumulated deficit............................... (1,435) (1,831)
--------- ----------
108,257 107,641
Treasury Stock, at cost, 14,583 shares (1996)
and 33,333 shares (1995) ........................ (88) (200)
Unearned Compensation-Restricted Stock............ (275) --
Total stockholders' equity.................. 107,894 107,441
-------- --------
Total liabilities and stockholders' equity..$404,250 $ 377,633
-------- ---------
-------- ---------
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.
<PAGE>
<TABLE>
<CAPTION>
KATZ MEDIA GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(000's Omitted, Except Share and Per Share Information)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Operating revenues, net.............. $ 48,115 $ 50,324 $ 86,397 $ 89,433
---------- ---------- --------- ----------
Operating expenses:..................
Salaries and related costs........... 25,919 27,617 49,953 51,728
Selling, general and administrative.. 9,876 9,287 19,466 18,732
Depreciation and amortization........ 2,830 2,516 5,840 6,989
---------- ---------- --------- ----------
Total operating expenses 38,625 39,420 75,259 77,449
---------- ---------- --------- ----------
Operating income................ 9,490 10,904 11,138 11,984
---------- ---------- --------- ----------
Other expense (income):..............
Interest expense..................... 5,109 5,682 10,134 14,958
Interest (income).................... (61) (84) (111) (134)
---------- ---------- --------- ----------
Total other expense, net 5,048 5,598 10,023 14,824
Income (loss) before income
provision tax (benefit)............. 4,442 5,306 1,115 (2,840)
Income tax provision (benefit) 2,839 4,514 719 (2,133)
---------- ---------- --------- ----------
Net income (loss) .............. 1,603 792 396 (707)
---------- ---------- --------- ----------
---------- ---------- --------- ----------
Net income (loss) per common share... $.11 $.06 $.03 ($.07)
---------- ---------- --------- ----------
---------- ---------- --------- ----------
Weighted average common shares 13,992,627 13,377,706 13,825,999 10,641,446
---------- ---------- --------- ----------
---------- ---------- --------- ----------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
KATZ MEDIA GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's omitted)
(Unaudited)
Six Months Ended
June 30,
-----------------------------
1996 1995
------ ------
Cash flows from operating activities:
Net income (loss) before adjustments............ $396 ($707)
--------- ---------
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization................ 5,841 6,989
Amortization of debt issuance costs.......... -- 1,860
Deferred rent................................ 790 601
Non-cash compensation expense for stock
options..................................... 593 727
Changes in assets and liabilities:
(Increase) decrease in accounts receivable.. (2,987) 2,601
Decrease (increase) in other assets......... (1,665) (1,206)
(Increase) in deferred taxes................ -- (2,275)
Increase (decrease) in accounts payable and
accrued liabilities......................... 848 (4,446)
(Decrease) in income taxes payable........... (847) (20)
Other, net................................... (533) (1,582)
------ -------
Total adjustments 2,040 3,249
------ -------
Net cash provided by operating activities 2,436 2,542
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Cash flows from investing activities:
Capital expenditures.......................... (4,106) (1,374)
Payments received on sales of station repre-
sentation contracts.......................... 9,677 9,686
<PAGE>
Payments made on purchases of station repre-
sentation contracts........................... (20,676) (14,165)
Investment in cable joint venture.............. -- (10,670)
------ -------
Net cash (used in) investing activities. (15,105) (16,523)
Cash flows from financing activities:
Credit facilities borrowing....................... 36,000 31,000
Credit facilities repayments...................... (21,700) (29,000)
Proceeds from Bridge Notes........................ -- 4,000
Retirement of 12 3/4% Senior Subordinated Notes... (1,740) (470)
Retirement of other notes payable................ -- (370)
Release of escrow funds........................... -- 2,000
Net proceeds from issuance of Common Stock........ -- 80,475
Retirement of Bridge Notes........................ -- (74,000)
Purchase of treasury stock ....................... -- (200)
------ -------
Net cash provided by financing activities... 12,560 13,435
------ -------
Net decrease in cash and cash equivalents.......... (109) (546)
Cash and cash equivalents, beginning of period...... 2,350 2,727
------ -------
Cash and cash equivalents, end of period............ $ 2,241 $ 2,181
------ -------
------ -------
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
KATZ MEDIA GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Due to the seasonality of the business of Katz Media Group, Inc.
(the "Company"), operating results for the six month period ended June 30, 1996,
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1996. For further information, refer to the consolidated 1995
financial statements and footnotes thereto included in the Company's Form 10-K
filed March 29, 1996 (File No. 1-13674).
2. EARNINGS PER COMMON SHARE
Net income per common share is calculated by dividing net income by the
number of weighted average shares of Common Stock outstanding for the period
January 1, 1996 through June 30, 1996. Net loss per common share for the period
January 1, 1995 through June 30, 1995 is calculated by dividing net loss by the
number of weighted average shares of Common Stock outstanding adjusted to give
effect to the 5 for 3 stock split authorized in March 1995 as if it occurred as
of January 1, 1995.
3. RESTRICTED STOCK PLAN
Shares held in treasury are available for grant under the 1996 Restricted
Stock Grant Plan (the "1996 Restricted 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. 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 six months ended June 30, 1996, approximately
$55,000 of related compensation expense was recognized.
<PAGE>
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,
changes in ownership of stations and (iii) acquisitions of representation firms.
The effect of these factors on the Company's financial condition and results of
operations have varied from period to period.
This quarterly report on Form 10-Q contains forward looking statements that
involve risks and uncertainties, including those associated with the effect of
national and regional economic conditions, the ability of the Company to obtain
new clients and retain existing clients, changes in ownership of client stations
and client stations of the Company's competitors, other developments at clients
of the Company, the ability of the Company to realize cost reductions from its
cost containment efforts, and developments from recent changes in the regulatory
environment for its clients.
Business
- --------
The Company operates as a single segment business and is the only full
service media representation firm in the United States serving multiple types of
electronic media, with leading market shares in the representation of radio and
television stations and cable systems. During the second quarter of 1996 the
Company's percentage composition of gross billings (representing the aggregate
dollar amount of advertising placed on client stations or systems) by broadcast
media was as follows: 62.1% for television; 31.9% for radio; and 6.0% for cable
and international (on a 100% owned basis). Gross billings during the second
quarter of 1996 compared to second quarter 1995 decreased 10.3% for television
primarily reflecting the July 1995 United Television stations transfer discussed
below, increased 18.6% for radio and increased 5.4% for cable and international
(on a 100% owned basis) generally as a result of new client additions. The
composition of gross billings by broadcast media during the second quarter of
1995 was 68.0% for television, 26.5% for radio, and 5.5% for cable and
international (on a 100% owned basis).
Results of Operations - Three Months Ended June 30, 1996
- --------------------------------------------------------
Net operating revenues for the second quarter of 1996 totaled $48.1
million, a decrease of approximately $2.2 million, or approximately 4.4%,
compared to net operating revenues of $50.3 million for the second quarter of
1995. This decrease reflects (i) the slower 1996 second quarter pacings as
compared to those achieved during the 1995 second quarter and (ii) the July 1995
transfer of United Television, Inc. stations ($1.7 million of operating revenues
in the 1995 second quarter) to a new representation firm in which the company
will receive a profit distribution rather than report revenues and associated
expenses.
<PAGE>
Operating expenses, excluding depreciation and amortization, decreased $1.1
million, or approximately 3.0%, from $36.9 million in the second quarter of 1995
as compared to $35.8 million in the second quarter of 1996. Salaries and related
costs decreased by $1.7 million when compared to the second quarter of 1995,
primarily attributable to decreased compensation resulting from decreased
operating revenues. Selling, general and administrative increased by $.6 million
when compared to the second quarter of 1995 attributed mostly to the start up of
a sixth radio company. Operating expenses excluding depreciation and
amortization as a percentage of net operating revenues increased from 73.3% in
the second quarter of 1995 to 74.4% in the second quarter of 1996, primarily as
a result of the lower operating revenue figures described above.
Depreciation and amortization overall increased by $.3 million, or 12.5%,
for the second quarter of 1996 compared to the second quarter of 1995, primarily
due to the relatively higher amounts of amortization of representation contracts
acquired in 1996.
Operating income for the second quarter of 1996 decreased by $1.4 million
compared to the second quarter of 1995 as a result of the operating components
discussed above.
Interest expense, net, decreased by $.6 million for the second quarter of
1996 compared to the second quarter of 1995, primarily attributable to the
repayment of debt with the net proceeds of the Company's initial public stock
offering in April 1995.
Income before income tax provision totaled $4.4 million for the second
quarter of 1996, compared to income of $5.3 million for the second quarter of
1995. This result was primarily due to the components listed above.
The difference between the effective tax rate of 63.9% compared to the U.S.
statutory rate of 35% in the second quarter of 1996 is primarily attributable to
goodwill amortization, other nondeductible expenses and state income taxes.
EBITDA for the second quarter of 1996 decreased $1.5 million or 10.7% to
$12.9 million as compared to $14.4 million for the second quarter of 1995. This
decrease is primarily attributable to the stronger revenue pacing in the second
quarter of 1995 as compared to the second quarter 1996 discussed above. The
EBITDA margin decreased from 28.6% in the second quarter of 1995 to 26.7% in the
second quarter of 1996.
Results of Operations - Six Months Ended June 30, 1996
- ------------------------------------------------------
Net operating revenues for the first six months of 1996 totaled $86.4
million, a decrease of approximately $3.0 million, or approximately 3.4%,
compared to net operating revenues of $89.4 million for the first six months of
1995. This decrease reflects (i) the slower 1996 first half pacings as compared
to those achieved during the 1995 first half and (ii) the July 1995 transfer of
United Television, Inc. stations ($3.2 million of operating revenues in the
first half of 1995) to a new representation firm in which the company will
receive a profit distribution rather than report revenues and associated
expenses.
Operating expenses, excluding depreciation and amortization, decreased from
$70.5 million for the first six months of 1995 to $69.4 million for the first
six months of 1996, a decrease of $1.1 million or 1.5%. This decrease was
primarily attributable to decreased compensation, resulting from decreased
operating revenue, offset by the start up of a sixth radio company.
Depreciation and amortization decreased by $1.1 million, or 16.4% for the
first six months of 1996 compared to the first six months of 1995, due to the
lower amounts of amortization expense related to non-compete agreements recorded
in the first six months of 1996 as compared to the first six months of 1995,
offset by relatively higher amounts of amortization for representation contracts
acquired in 1996.
<PAGE>
Operating income for the first six months of 1996 decreased by $.8 million
compared to the first six months of 1995 as a result of the components discussed
above.
Interest expense, net, aggregated $10.0 million for the first half of 1996,
compared to $14.8 million for the first half of 1995. The 1995 figure includes
$4.7 million of interest and amortized deferred financing costs related to the
debt which was reduced or satisfied with the net proceeds of the Company's
initial public stock offering.
Income before income tax provision totaled $1.1 million for the first six
months of 1996, compared to a loss of $2.8 million for the comparable period of
1995. This result was primarily due to the components listed above.
The difference between the effective tax rate of 64.5% compared to the U.S.
statutory rate of 35% in the second quarter of 1996 is primarily attributable to
permanent differences between the book and taxable income related to goodwill
amortization, other nondeductible expenses and state income taxes.
EBITDA for the first six months of 1996 decreased $1.9 million or 9.6% to
$18.4 million as compared to $20.3 million for the first half of 1995. This is
primarily attributed to the decreased levels of advertising combined with the
initial start up costs for Sentry Radio, offset in part by reduced compensation
costs for existing companies, resulting in a decrease in the EBITDA margin from
22.7% in the first six months of 1995 to 21.3% in the first half of 1996.
Liquidity and Capital Resources
- -------------------------------
The Company's working capital requirements have been primarily provided by
operations. It is expected that the Company's primary sources of financing for
its future business activities will continue to be from operations plus
borrowings under the Katz Media Corporation's Revolving Credit Agreement or
other similar agreements and that these sources will be 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 the first half of 1996 as compared
to the first half of 1995 decreased $.1 million. This decrease in cash provided
by operating activities is primarily due to the net change in working capital
accounts.
Net cash used in investing activities during the first half of 1996
aggregated $15.1 million, a decrease of $1.4 million compared to net cash used
in investing activities during the first half of 1995 of $16.5 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 $6.5 million and capital expenditures of $2.7
million in the first half of 1996 as compared to the first half of 1995.
Overall cash flows from financing activities provided $12.6 million during
1996 versus $13.4 million during 1995. Excluding the effects of the April 11,
1995 initial public offering, the cash provided by financing activities
increased by $9.6 million in the first half of 1996 as compared to the first
half of 1995 primarily as a result of increased borrowings on the credit
facility offset in part by the repurchase of a portion of Katz Media Corporation
12 3/4% Senior Subordinated Notes due 2002. As of July 24, 1996 the Company has
approximately $1.4 million available on its revolving credit facility.
<PAGE>
PART II Other Information
-----------------
Item 1 - Legal Proceedings
The Company, from time to time, is involved in litigation brought by former
employees and other litigation incidental to the conduct of its business. The
Company is not a party to any lawsuit or proceeding which, in the opinion of
management, is likely to have a material adverse effect on the Company.
Item 4 - Submission of Matters to a Vote of Security Holders
On June 11, 1996, the Annual Meeting of Shareholders of Katz Media Group,
Inc. was held to vote on proposals as follows:
(a) To elect three directors of the Company.
Stuart O. Olds Thomas J. Barry David M. Wittels
-------------- --------------- ----------------
Affirmative 12,428,668 12,428,668 12,428,668
Negative 2,260 2,260 2,260
Abstained
Withheld
Broker non-votes
Shares entitled
to vote 12,430,928 12,430,928 12,430,928
Messrs. Thomas F. Olson, James E. Beloyianis, Thompson Dean, Michael J.
Connelly, Steven J. Gilbert and Bob Marbut will continue to serve as directors
of the Company.
(b) To approve the 1996 Restricted Stock Grant Plan.
Affirmative 12,000,151
Negative 396,901
Abstained 25,308
Withheld
Broker non-votes 8,568
Shares entitled to vote 12,430,928
There are no reportable items under Part II, Items 2-3, 5-6.
<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 , 1996 KATZ MEDIA GROUP, INC.
-----
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
EXHIBIT 27
FINANCIAL DATA SCHEDULE
The schedule contains summary financial information extracted from the
consolidated financial statements and is qualified in its entirety by reference
to such financial statements.
(Multiplier of 1,000)
Period Type 6 months
Fiscal Year end December 31, 1996
Period Start January 1, 1996
Period End June 30, 1996
Cash 2,241
Securities 0
Receivables 66,185
Allowances 1,300
Inventory 0
Current Assets 86,607
PP&E 15,051
Depreciation 4,767
Total Assets 404,250
Current Liabilities 60,818
Bonds 0
Preferred Mandatory 0
Preferred 0
Common 137
Other-Stockholders' Equity 107,757
Total Liability and Equity 404,250
Sales 86,397
Total Revenues 86,397
CGS 75,259
Total Costs 75,259
Other Expense (Income) (111)
Loss Provision 0
Interest Expense 10,134
Income Pretax 1,115
Income Tax Provision 719
Continuing Income 396
Discontinued 0
Extraordinary 0
Changes 0
Net Income 396
EPS Primary $.03
EPS Diluted N/A
