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 March 31, 1997 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 7, 1997 13,682,079 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......................... 5-11
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 12-14
Part II Other Information
Item 1 - Legal Proceedings............................................. 14
- ------
Item 2 - Changes in Securities......................................... 14
- ------
Signatures............................................................. 15
Financial Data Schedule................................................ 16
1
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<CAPTION>
KATZ MEDIA GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000's Omitted, Except Share and Per Share Information)
March 31, December 31,
--------- ------------
1997 1996
---- ----
(Unaudited) (Note)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................................$ 5,801 $ 5,222
Accounts receivable, net of allowance for doubtful accounts of
$1,300.......................................................... 58,081 68,884
Deferred costs on purchases of station representation contracts.. 22,277 21,428
Prepaid expenses and other current assets ....................... 1,320 1,293
--------- ---------
Total current assets...................................... 87,479 96,827
--------- ---------
Fixed assets, net................................................... 15,289 15,740
Deferred income taxes............................................... 2,416 260
Deferred costs on purchases of station representation contracts..... 83,164 74,399
Intangible assets, net ............................................. 216,904 218,808
Other assets, net .................................................. 31,174 29,697
--------- ---------
Total assets..............................................$ 436,426 $ 435,731
--------- ---------
--------- ---------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities.........................$ 48,858 $ 46,800
Deferred income on sales of station representation contracts .... 13,020 14,548
Income taxes payable............................................. -- 1,811
--------- ---------
Total current liabilities................................. 61,878 63,159
--------- ---------
Deferred income on sales of station representation contracts........ 5,868 4,787
Long-term debt...................................................... 215,122 217,622
Other liabilities, principally deferred rent and representation
contracts payable................................................. 52,391 47,184
Commitments and contingencies....................................... -- --
Stockholders' equity
Preferred stock, $.01 par value, 4,000,000 shares authorized, no
shares issued or outstanding................................... -- --
Common stock, $.01 par value, 26,000,000 shares authorized,
13,680,879 shares issued....................................... 137 137
Paid-in-capital...................................................... 129,650 129,649
Carryover basis adjustment........................................... (20,047) (20,047)
Accumulated deficit.................................................. (6,936) (6,452)
--------- ---------
102,804 103,287
Unearned Stock Compensation.......................................... (193) (220)
Treasury Stock, at cost, 189,683 and 14,583 shares in 1997 and
1996, respectively............................................. (1,444) (88)
--------- ---------
Total stockholders' equity.................................. 101,167 102,979
--------- ---------
Total liabilities and stockholders' equity..................$ 436,426 $ 435,731
--------- ---------
--------- ---------
Note: The consolidated balance sheet at December 31, 1996 has
been derived from audited financial statements at that date.
The accompanying notes are an integral part of these consolidated financial statements.
2
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<CAPTION>
KATZ MEDIA GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(000's Omitted, Except Share and Per Share Information)
Three Months Ended
March 31,
------------------
1997 1996
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Operating revenues, net.......................................... $ 37,238 $ 38,282
-------- --------
Operating expenses:
Salaries and related costs....................................... 23,912 24,034
Selling, general and administrative.............................. 10,046 9,590
Depreciation and amortization.................................... 2,367 3,010
-------- --------
Total operating expenses.................................... 36,325 36,634
-------- --------
Operating income............................................ 913 1,648
-------- --------
Other expense (income):
Interest expense................................................. 5,401 5,025
Interest income.................................................. (21) (50)
-------- --------
Total other expense, net.................................... 5,380 4,975
-------- --------
Loss before income tax benefit................................... (4,467) (3,327)
Income tax benefit............................................... (3,983) (2,120)
-------- --------
Net loss ................................................... ($484) ($1,207)
-------- --------
-------- --------
Net loss per common share........................................ ($.04) ($.09)
-------- --------
-------- --------
Weighted average common shares................................... 13,491,729 13,659,005
-------- --------
-------- --------
The accompanying notes are an integral part of these consolidated financial statements.
3
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<CAPTION>
KATZ MEDIA GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's Omitted, Except Share and Per Share Information)
Three Months Ended
March 31,
------------------
1997 1996
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss before adjustments.................................... ($484) ($1,207)
---------- ----------
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization.................................... 2,367 3,010
Amortization of debt issuance costs.............................. 143 --
Deferred rent.................................................... 312 435
Non-cash compensation expense for stock options.................. -- 364
Non-cash 401K contribution....................................... 363 --
Changes in assets and liabilities:
Decrease in accounts receivable................................ 8,763 1,885
(Increase) in deferred taxes................................... (2,156) --
(Increase) decrease in other assets............................ (754) 462
Increase in accounts payable and accrued liabilities........... 1,058 2,132
Decrease in income taxes payable............................... (1,811) (3,009)
Decrease in other liabilities.................................. (613) (451)
Other, net..................................................... (513) (154)
---------- ----------
Total adjustments................................................ 7,159 4,674
---------- ----------
Net cash provided by operating activities..................... 6,675 3,467
---------- ----------
Cash flows from investing activities:
Capital expenditures........................................... (453) (2,297)
Payments received on sales of station representation contracts. 7,922 4,788
Payments made on purchases of station representation contracts. (9,708) (12,111)
---------- ----------
Net cash (used in) investing activities......................... (2,239) (9,620)
---------- ----------
Cash flows from financing activities:
Credit facilities borrowing.................................... 15,000 21,000
Credit facilities repayments................................... (17,500) (12,000)
Purchase of Company common stock............................... (1,357) --
Repurchase of old notes........................................ -- (1,740)
---------- ----------
Net cash (used in) provided by financing activities (3,857) 7,260
---------- ----------
Net increase in cash and cash equivalents........................ 579 1,107
Cash and cash equivalents, beginning of period................... 5,222 2,350
---------- ----------
Cash and cash equivalents, end of period......................... $ 5,801 $ 3,457
---------- ----------
---------- ----------
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, 1997
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Due to the seasonality of the business of Katz Media Group, Inc.
(the "Company"), operating results for the three month period ended March 31,
1997 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1997. For further information, refer to the consolidated
1996 financial statements and footnotes thereto included in the Company's Form
10-K filed March 27, 1997 (File No. 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 adjusted
for the incremental shares attributed to outstanding options to purchase common
stock using the treasury stock method. In February 1997, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share", which will be effective for
financial statements for both interim and annual periods after December 31,
1997. Earlier adoption is not permitted, therefore, the Company will adopt SFAS
No. 128 at December 31, 1997. Under SFAS No. 128, the Company must present basis
and diluted earnings per share. Had the Company adopted SFAS No. 128 at March
31, 1997, basic earnings per share and diluted earnings per share would have
been the same as the amount currently presented in the financial statements for
the three months ended March 31, 1997 and 1996.
3. STOCK REPURCHASE PLAN
During the three months ended March 31, 1997, the Board of Directors
approved and the Company announced a program for the repurchase of up to two
million shares of the Company's Common Stock in open market or negotiated
transactions. The repurchased shares are intended to be held as treasury stock
and be available for general corporate purposes. As of March 31, 1997,
approximately 175,100 shares had been repurchased.
4. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following condensed consolidating financial statements for the quarters
ended March 31, 1997 and 1996 present the financial position, the results of
operations and cash flows for the Company (carrying any investments in guarantor
and non-guarantor subsidiaries under the equity method), guarantor subsidiaries
of the Company and non-guarantor subsidiaries of the Company, and the
eliminations necessary to arrive at the information for the Company on a
consolidated basis.
5
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<CAPTION>
KATZ MEDIA GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000's Omitted, Except Share and Per Share Information)
March 31, 1997
----------------------------------------------------------------
The
The Non- Company
Company Guarantors Guarantors Eliminations Consolidated
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents............. $ 2,187 $ 3,614 $ -- $ -- $ 5,801
Accounts receivable, net.............. -- 57,886 195 -- 58,081
Deferred costs on purchases of station
representation contracts.............. -- 22,277 -- -- 22,277
Prepaid expenses and other current assets -- 1,320 -- -- 1,320
--------- -------- -------- -------- --------
Total current assets................ 2,187 85,097 195 -- 87,479
--------- -------- -------- -------- --------
Fixed assets, net...................... -- 15,005 284 -- 15,289
Deferred income taxes.................. -- 2,416 -- -- 2,416
Deferred costs on purchases of station
representation contracts............. -- 83,164 -- -- 83,164
Equity investment in affiliates........ 131,590 -- -- (131,590) --
Due from affiliate..................... 171,435 -- -- (171,435) --
Intangible assets, net................. -- 216,466 438 -- 216,904
Other assets, net...................... 17,626 13,392 156 -- 31,174
--------- -------- -------- -------- --------
Total assets........................$ 322,838 $415,540 $ 1,073 ($303,025) $ 436,426
--------- -------- -------- -------- --------
--------- -------- -------- -------- --------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued
liabilities.........................$ 6,549 $ 41,390 $ 919 $ -- $ 48,858
Deferred income on sales of station
representation contracts -- 13,020 -- -- 13,020
Income taxes payable -- -- -- -- --
--------- -------- -------- -------- --------
Total current liabilities 6,549 54,410 919 -- 61,878
--------- -------- -------- -------- --------
Deferred income on sales of station
representation contracts.............. -- 5,868 -- -- 5,868
Long-term debt......................... 215,122 -- -- -- 215,122
Due to affiliate....................... -- 171,435 -- (171,435) --
Other liabilities...................... -- 51,524 867 -- 52,391
Stockholders' equity:..................
Common stock.......................... 137 -- 1 (1) 137
Paid-in-capital....................... 129,650 96,610 989 (97,599) 129,650
Carryover basis adjustment............ (20,047) -- -- -- (20,047)
(Accumulated deficit) retained earnings (6,936) 35,693 (1,703) (33,990) (6,936)
--------- -------- -------- -------- --------
102,804 132,303 (713) (131,590) 102,804
Unearned stock compensation............ (193) -- -- -- (193)
Treasury stock......................... (1,444) -- -- -- (1,444)
--------- -------- -------- -------- --------
Total stockholders' equity.......... 101,167 132,303 (713) (131,590) 101,167
--------- -------- -------- -------- --------
Total liabilities and stockholders'
equity............................$ 322,838 $415,540 $ 1,073 ($303,025) $436,426
--------- -------- -------- -------- --------
--------- -------- -------- -------- --------
6
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<CAPTION>
KATZ MEDIA GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000's Omitted, Except Share and Per Share Information)
December 31, 1996
----------------------------------------------------------------
The
The Non- Company
Company Guarantors Guarantors Eliminations Consolidated
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents............. $ 2,195 $ 3,027 $ -- $ -- $ 5,222
Accounts receivable, net.............. -- 67,859 1,025 -- 68,884
Deferred costs on purchases of station
representation contracts.............. -- 21,428 -- -- 21,428
Prepaid expenses and other current assets -- 1,293 -- -- 1,293
-------- -------- -------- --------- --------
Total current assets................ 2,195 93,607 1,025 -- 96,827
-------- -------- -------- --------- --------
Fixed assets, net...................... -- 15,412 328 -- 15,740
Deferred income taxes.................. -- 260 -- -- 260
Deferred costs on purchases of station
representation contracts.............. -- 74,399 -- -- 74,399
Equity investment in affiliates........ 128,900 -- -- (128,900) --
Due from affiliate..................... 173,468 -- -- (173,468) --
Intangible assets, net................. -- 218,370 438 -- 218,808
Other assets, net...................... 18,359 11,180 158 -- 29,697
-------- -------- -------- --------- --------
Total assets........................ $322,922 $413,228 $ 1,949 ($302,368) $ 435,731
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued
liabilities......................... $ 2,154 $ 42,792 $ 1,854 $ -- $ 46,800
Deferred income on sales of station
representation contracts............. -- 14,548 -- -- 14,548
Income taxes payable.................. 167 1,644 -- -- 1,811
-------- -------- -------- --------- --------
Total current liabilities........... 2,321 58,984 1,854 -- 63,159
-------- -------- -------- --------- --------
Deferred income on sales of station
representation contracts.............. -- 4,787 -- -- 4,787
Long-term debt......................... 217,622 -- -- -- 217,622
Due to affiliate....................... -- 173,468 -- (173,468) --
Other liabilities...................... -- 46,627 557 -- 47,184
Stockholders' equity:..................
Common stock.......................... 137 -- 1 (1) 137
Paid-in-capital....................... 129,649 96,610 989 (97,599) 129,649
Carryover basis adjustment............ (20,047) -- -- -- (20,047)
(Accumulated deficit) retained earnings (6,452) 32,752 (1,452) (31,300) (6,452)
-------- -------- -------- --------- --------
103,287 129,362 (462) (128,900) 103,287
Unearned stock compensation............ (220) -- -- -- (220)
Treasury stock......................... (88) -- -- -- (88)
Total stockholders' equity.......... 102,979 129,362 (462) (128,900) 102,979
-------- -------- -------- --------- -------
Total liabilities and stockholders'
equity............................ $322,922 $413,228 $ 1,949 ($302,368) $435,731
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
7
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<CAPTION>
KATZ MEDIA GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000's Omitted, Except Share and Per Share Information)
Three Months Ended March 31, 1997
----------------------------------------------------------------
The
The Non- Company
Company Guarantors Guarantors Eliminations Consolidated
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating revenues, net................ $ -- $ 36,796 $ 442 $ -- $ 37,238
--------- --------- -------- -------- ----------
Operating expenses:
Salaries and related costs............ -- 23,446 466 -- 23,912
Selling, general and administrative... -- 9,846 200 -- 10,046
Depreciation and amortization......... -- 2,340 27 -- 2,367
--------- --------- -------- -------- ----------
Total operating expenses............... -- 35,632 693 -- 36,325
--------- --------- -------- -------- ----------
Operating income (loss)................ -- 1,164 (251) -- 913
Other expense (income):
Interest expense...................... 5,401 -- -- -- 5,401
Interest (income)..................... (21) -- -- -- (21)
--------- --------- -------- -------- ----------
Total other expense, net.............. 5,380 -- -- -- 5,380
--------- --------- -------- -------- ----------
(Loss) income before income tax (benefit) (5,380) 1,164 (251) -- (4,467)
Income tax (benefit).................. (2,206) (1,777) -- -- (3,983)
Equity in earnings of affiliates,
net of taxes......................... 2,690 -- -- (2,690) --
--------- --------- -------- -------- ----------
Net (loss) income.................... ($484) $ 2,941 ($251) ($2,690) ($484)
--------- --------- -------- -------- ----------
--------- --------- -------- -------- ----------
8
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<CAPTION>
KATZ MEDIA GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000's Omitted, Except Share and Per Share Information)
Three Months Ended March 31, 1996
----------------------------------------------------------------
The
The Non- Company
Company Guarantors Guarantors Eliminations Consolidated
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating revenues, net................ $ -- $ 37,117 $ 1,165 $ -- $ 38,282
--------- -------- --------- ------ --------
Operating expenses:
Salaries and related costs............ -- 23,266 768 -- 24,034
Selling, general and administrative... -- 9,252 338 -- 9,590
Depreciation and amortization......... -- 2,984 26 -- 3,010
--------- -------- --------- ------ --------
Total operating expenses............... -- 35,502 1,132 -- 36,634
--------- -------- --------- ------ --------
Operating income...................... -- 1,615 33 -- 1,648
Other expense (income):
Interest expense...................... 5,025 -- -- -- 5,025
Interest (income)..................... (48) -- (2) -- (50)
--------- -------- --------- ------ --------
Total other expense, net............... 4,977 -- (2) -- 4,975
--------- -------- --------- ------ --------
(Loss) income before income tax (benefit)
provision............................ (4,977) 1,615 35 -- (3,327)
Income tax (benefit) provision........ (3,149) 1,029 -- -- (2,120)
Equity in earnings of affiliates,
net of taxes......................... 621 -- -- (621) --
--------- -------- --------- ------ --------
Net (loss) income...................... ($1,207) $ 586 $ 35 ($621) ($1,207)
--------- -------- --------- ------ --------
--------- -------- --------- ------ --------
9
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<CAPTION>
KATZ MEDIA GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000's Omitted, Except Share and Per Share Information)
Three Months Ended March 31, 1997
----------------------------------------------------------------
The
The Non- Company
Company Guarantors Guarantors Eliminations Consolidated
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash (used in) provided by operating
activities............................ ($986) $ 7,661 $ -- $ -- $ 6,675
--------- -------- --------- -------- ---------
Investing Activities:
Capital expenditures.................. -- (453) -- -- (453)
Payments received on sales of station
representation contracts.............. -- 7,922 -- -- 7,922
Payments made on purchases of station
representation contracts.............. -- (9,708) -- -- (9,708)
--------- -------- --------- -------- ---------
Net cash (used in) investing activities -- (2,239) -- -- (2,239)
--------- -------- --------- -------- ---------
Financing Activities:
Credit facilities borrowings.......... 15,000 -- -- -- 15,000
Credit facilities repayments.......... (17,500) -- -- -- (17,500)
(Increase) decrease in due (to) from
affiliate............................. 4,835 (4,835) -- -- --
Purchase of Company common stock...... (1,357) -- -- -- (1,357)
Repurchase of old notes............... -- -- -- -- --
--------- -------- --------- -------- ---------
Net cash provided by (used in) financing
activities............................ 978 (4,835) -- -- (3,857)
--------- -------- --------- -------- ---------
Net (decrease) increase in cash........ (8) 587 -- -- 579
Cash and cash equivalents, beginning of
period................................ 2,195 3,027 -- -- 5,222
--------- -------- --------- -------- ---------
Cash and cash equivalents, end of period $ 2,187 $ 3,614 $ -- $ -- $ 5,801
--------- -------- --------- -------- ---------
--------- -------- --------- -------- ---------
10
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<CAPTION>
KATZ MEDIA GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000's Omitted, Except Share and Per Share Information)
Three Months Ended March 31, 1996
----------------------------------------------------------------
The
The Non- Company
Company Guarantors Guarantors Eliminations Consolidated
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash (used in) provided by operating
activities............................ ($2,108) $ 5,556 $ 19 $ -- $ 3,467
------- ------- ------- ------- --------
Investing Activities:
Capital expenditures.................. -- (2,297) -- -- (2,297)
Payments received on sales of station
representation contracts.............. -- 4,788 -- -- 4,788
Payments made on purchases of station
representation contracts.............. -- (12,111) -- -- (12,111)
------- ------- ------- ------- --------
Net cash (used in) investing activities -- (9,620) -- -- (9,620)
------- ------- ------- ------- --------
Financing Activities:
Credit facilities borrowings 21,000 -- -- -- 21,000
Credit facilities repayments (12,000) -- -- -- (12,000)
Increase (decrease) in due (to) from
affiliate............................. (5,131) 5,131 -- -- --
Repurchase of old notes............... (1,740) -- -- -- (1,740)
------- ------- ------- ------- --------
Net cash provided by financing activities 2,129 5,131 -- -- 7,260
------- ------- ------- ------- --------
Net increase in cash................... 21 1,067 19 -- 1,107
Cash and cash equivalents, beginning of
period................................ 2,122 187 41 -- 2,350
------- ------- ------- ------- --------
Cash and cash equivalents, end of period $ 2,143 $ 1,254 $ 60 $ -- $ 3,457
------- ------- ------- ------- --------
------- ------- ------- ------- --------
11
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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,
which represent the Company's expectations or beliefs concerning future events
that involve risks and uncertainties, including those associated with the effect
of national and regional economic conditions, the levels of advertising on the
Company's stations, the ability of the Company to obtain new clients and retain
existing clients, changes in ownership of client stations and client stations of
the Company's competitors, other developments at clients of the Company, the
ability of the Company to realize cost reductions from its cost containment
efforts, and developments from recent changes in the regulatory environment for
its clients.
Business
- --------
The Company operates as a single segment business and is the only full
service media representation firm in the United States serving all types of
broadcast media, with leading market shares in the representation of radio and
television stations and through NCC (a 50% owned joint venture) cable systems.
During the first quarter of 1997, the Company's percentage composition of gross
billings (representing the aggregate dollar amount of advertising placed on
client stations or systems) by broadcast media was as follows: 58.6% for
television; 34.9% for radio; and 6.5% for cable (on a 100% owned basis),
interactive/Internet and international. Gross billings during the first quarter
of 1997 as compared with the first quarter of 1996 decreased 10.7% for
television and increased 19.0% for radio and 3.6% for cable (on a 100% owned
basis), internet/Interactive and international. The composition of gross
billings by broadcast media during the first quarter of 1996 aggregated 64.7%
for television, 29.2% for radio, and 6.1% for cable (on a 100% owned basis),
interactive/Internet and international.
Results of Operations - Three Months Ended March 31, 1997
- ---------------------------------------------------------
Net operating revenues for the first quarter of 1997 totaled $37.2 million,
a decrease of approximately $1.0 million, or approximately 2.7%, compared with
net operating revenues of $38.3 million for the first quarter of 1996. This
decrease primarily reflects the consolidation of station ownership, primarily in
the second half of 1996, which led to net client losses and declines in gross
billings in television, offset in part by net client gains and increases in
gross billings in radio.
Operating expenses, excluding depreciation and amortization, increased
approximately $0.3 million, or 1.0%, from $33.6 million in the first quarter of
1996 to $33.9 million in the first quarter of 1997. Salaries and related costs
decreased by approximately $0.1 million as compared to the first quarter of
1996. Selling, general and administrative expenses increased by approximately
12
<PAGE>
$0.4 million as compared with the first quarter of 1996, primarily due to
increased information technology costs. Operating expenses, excluding
depreciation and amortization, as a percentage of net operating revenues,
increased from 88% in the first quarter of 1996 to 91% in the first quarter of
1997. The Company is exploring ways to reduce operating costs.
Depreciation and amortization overall decreased by $0.6 million, or 21.4%,
for the first quarter of 1997 compared with the first quarter of 1996, primarily
due to the effect of increased amortization of income on contracts sold over
amortization on acquired contracts and as a result of deferred non-competition
costs becoming fully amortized in 1996.
Operating income for the first quarter of 1997 decreased by $0.7 million
compared with the first quarter of 1996 as a result of the operating components
discussed above.
Interest expense, net, increased by $0.4 million for the first quarter of
1997 as compared with the first quarter of 1996, primarily due to increased
borrowings and $0.1 million in amortization of debt issuance costs recorded in
the first quarter of 1997 associated with the Company's December 1996
refinancing.
Loss before income tax benefit totaled $4.5 million for the first quarter
of 1997, compared with a loss of $3.3 million for the first quarter of 1996.
This was primarily due to the components listed above.
The difference between the effective tax rate of 89.2% compared with the
U.S. statutory rate of 35% is primarily attributable to goodwill amortization,
other nondeductible expenses and state income taxes.
Liquidity and Capital Resources
- -------------------------------
Cash provided by operating activities in the first three months of 1997 as
compared with the first three months of 1996 increased $3.2 million. This
increase in cash provided by operating activities is primarily due to
improvements in the collection of accounts receivable, offset partially by
decreases in current and deferred income tax liabilities as well as net changes
in the other operating assets and liabilities.
Net cash used in investing activities during the first three months of 1997
aggregated $2.2 million, a decrease of $7.4 million compared with $9.6 million
during the first three months of 1996. This decrease in cash used in investing
activities results primarily from net decreases of $5.5 million of cash used for
net purchases of station representation contracts and $1.8 million of reduced
capital expenditures.
Overall cash flows used in financing activities during the first three
months of 1997 aggregated $3.9 million compared with net cash provided by
financing activities in the first three months of 1996 totalling $7.3 million.
This decrease in cash used in financing activities is primarily attributable to
a net reduction in amounts outstanding under the Company's credit facilities of
$2.5 million in the first three months of 1997 compared with net borrowings of
$9.0 million in the first three months of 1996.
13
<PAGE>
The following table reconciles operating income to EBITDA for the periods
indicated:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1997 1996
---- ----
<S> <C> <C>
Operating income............................................... $ 913 $1,648
Depreciation and amortization.................................. 2,367 3,010
Non-cash rent expense.......................................... 312 435
Non-cash 401K contribution..................................... 363 --
Stock option compensation charge............................... -- 364
Other non-cash charges......................................... -- 51
-------- -------
$3,955 $5,508
-------- -------
-------- -------
</TABLE>
EBITDA for the first quarter of 1997 decreased approximately $1.5 million,
or 28.2% to $4.0 million as compared with $5.5 million for the first quarter of
1996. This decrease is primarily attributable to lower operating revenues and
increased operating expenses, excluding depreciation and amortization, described
above. As a result, the EBITDA margin decreased from 14.4% in the first quarter
of 1996 to 10.6% in the first quarter of 1997.
The Company continuously seeks opportunities to acquire additional
representation contracts on attractive terms, and at the same time looks to
maintain its current client roster. In addition, the recent changes in ownership
of broadcast properties have fueled changes in client engagements among
independent media representation firms. These changes and the Company's ability
to acquire and maintain representation contracts can cause fluctuations in the
Company's revenues and cash flows from period to period.
The Company's working capital requirements have been primarily provided by
operations and borrowings under its credit facilities. It is expected that the
Company's primary sources of financing for its future business activities will
continue to be from operations plus borrowings under the Company's New Credit
Agreement and that these sources are sufficient to meet the Company's working
capital requirements.
PART II Other Information
-----------------
Item 1 - Legal Proceedings
The Company, from time to time, is involved in litigation brought by former
employees and other litigation incidental to the conduct of its business. The
Company is not a party to any lawsuit or proceeding which, in the opinion of
management, is likely to have a material adverse effect on the Company.
There are no reportable items under Part II, Items 2-6.
14
<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: May 14, 1997 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
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,801
<SECURITIES> 0
<RECEIVABLES> 58,081
<ALLOWANCES> 1,300
<INVENTORY> 0
<CURRENT-ASSETS> 87,479
<PP&E> 15,289
<DEPRECIATION> 2,367
<TOTAL-ASSETS> 436,426
<CURRENT-LIABILITIES> 61,878
<BONDS> 0
0
0
<COMMON> 137
<OTHER-SE> 101,030
<TOTAL-LIABILITY-AND-EQUITY> 436,426
<SALES> 37,238
<TOTAL-REVENUES> 37,238
<CGS> 33,958
<TOTAL-COSTS> 33,958
<OTHER-EXPENSES> (21)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,401
<INCOME-PRETAX> (4,467)
<INCOME-TAX> (3,983)
<INCOME-CONTINUING> (484)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (484)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
