-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, rcD7RoiozISRJAmmHC84MB7meSzgdoq7K1GsSUstXaAw/6qgNMalMfsiZB3dzqNm UOII4mVEBjpkQxugoiD9nw== 0000912057-94-003899.txt : 19941117 0000912057-94-003899.hdr.sgml : 19941117 ACCESSION NUMBER: 0000912057-94-003899 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERITAGE MEDIA CORP CENTRAL INDEX KEY: 0000821020 STANDARD INDUSTRIAL CLASSIFICATION: 7310 IRS NUMBER: 421299303 STATE OF INCORPORATION: IA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10015 FILM NUMBER: 94560113 BUSINESS ADDRESS: STREET 1: 13355 NOEL RD STE 1500 STREET 2: ONE GALLERIA TWR CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2147027380 MAIL ADDRESS: STREET 1: ONE GALLERIA TWR STREET 2: 13355 NOEL RD STE 1500 CITY: DALLAS STATE: TX ZIP: 75240 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________________ FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EX CHANGE ACT FOR THE QUARTER ENDED SEPTEMBER 30, 1994. TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 FOR THE TRANSACTION PERIOD FROM __________ TO _________. Commission file number: 1-100155 ________________________ HERITAGE MEDIA CORPORATION (Exact Name of Registrant as Specified in Its Charter) IOWA 42-1299303 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 13355 Noel Road, Suite 1500 Dallas, Texas 75240 (Address of Principal Executive Office) (Zip Code) Registrant's telephone number, including area code: (214) 702-7380 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. Class Outstanding at November 4, 1994 Class A, $.01 Par Value 16,961,887 Class C, $.01 Par Value 550,375 PART I. SUMMARIZED FINANCIAL INFORMATION Item 1. Financial Statements HERITAGE MEDIA CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (Dollars in thousands) (unaudited)
September 30, December 31, Assets 1994 1993 ------ --------- --------- Current Assets: Cash and cash equivalents $5,335 4,416 Trade receivables, net 41,038 47,911 Prepaid expenses and other 4,480 3,331 Inventory 4,775 4,435 Broadcast Program Rights 2,003 1,465 Deferred income taxes 3,847 3,304 ------ ------ Total Current Assets 61,478 64,862 ------ ------ Assets held for sale (note 5) 4,000 - Property and equipment: In-store marketing equipment 45,237 39,228 Broadcasting equipment 34,590 37,134 Buildings and improvements 7,884 9,206 Other equipment 8,213 7,600 Land 2,460 2,490 ------ ------ 98,384 95,658 Less accumulated depreciation 44,857 38,236 --------- --------- Net property and equipment 53,527 57,422 --------- --------- Goodwill and other intangibles, net 365,969 363,667 Noncurrent broadcast program rights 1,746 1,859 Deferred finance costs, net 3,507 3,849 Other assets 2,240 1,190 --------- --------- $ 492,467 492,849 ========= ========= See accompanying notes to consolidated financial statements.
HERITAGE MEDIA CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (Dollars in thousands) (unaudited) September 30, Liabilities and Stockholders' Equity 1994 1993 - - - ------------------------------------ --------- --------- Current liabilities: Current installments of long-term debt (notes 2 and 4) $ 8,124 2,076 Accounts payable 11,584 14,299 Accrued expenses 35,269 32,592 Broadcast program rights payable 1,884 2,188 Deferred advertising revenues 14,812 17,338 --------- --------- Total current liabilities 71,673 68,493 --------- --------- Long-term debt (notes 2 and 4) 339,884 332,427 Broadcast program rights payable 1,588 1,460 Other long-term liabilities 586 523 Deferred income taxes 3,847 3,304 Stockholders' equity (note 3): Preferred stock, no par value, authorized 60,000,000 shares; Issued 161,945 in 1993. - 16,195 Common stock, $.01 par value: Class A - 40,000,000 shares authorized. Issued, 16,963,969 shares in 1994 and 12,236,856 shares in 1993 170 123 Class C - 10,000,000 shares authorized. Issued, 550,375 shares in 1994 and 4,136,168 shares in 1993. 5 41 Additional paid-in capital 218,788 202,743 Accumulated deficit -142,045 -130,862 Accumulated foreign currency translation adjustments -1,575 -1,144 Class A common stock in treasury, at cost (32,828 shares in 1994 and 1993) -454 -454 --------- --------- Total stockholders' equity 74,889 86,642 Commitments and contingencies (notes 5 and 6) --------- --------- $ 492,467 492,849 ========= ========= See accompanying notes to consolidated financial statements.
HERITAGE MEDIA CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations (Dollars in thousands, except share information) (unaudited) Three Months Nine Months ended September 30, ended September 30, -------------------------- -------------------------- 1994 1993 1994 1993 Net revenues: --------- --------- --------- --------- In-store marketing $ 53,371 46,801 149,652 140,679 Television 11,163 10,100 32,416 29,550 Radio 10,954 8,985 28,758 23,101 --------- --------- --------- --------- 75,488 65,886 210,826 193,330 Costs and expenses: --------- --------- --------- --------- Cost of services: In-store marketing 28,342 29,506 84,603 89,462 Television 2,683 2,538 7,663 7,446 Radio 3,272 2,534 7,801 5,974 Selling, general and administrative 18,630 16,431 52,124 47,671 Depreciation 3,222 4,062 10,859 11,205 Amortization of goodwill and other assets 3,036 2,878 9,344 8,495 Writedown of television program rights - 1,678 - 1,678 --------- --------- --------- --------- 59,185 59,627 172,394 171,931 --------- --------- --------- --------- Operating income 16,303 6,259 38,432 21,399 --------- --------- --------- --------- Other expense: Interest, net -7,738 -7,391 -22,196 -24,310 Loss on sale of asset - - -1,600 - Other, net -1,552 -180 -3,784 -285 --------- --------- --------- --------- -9,290 -7,571 -27,580 -24,595 --------- --------- --------- --------- Income (loss) before income taxes and extraordinary item 7,013 -1,312 10,852 -3,196 Income taxes -700 -606 -2,384 -1,581 --------- --------- --------- --------- Income (loss) before extraordinary item 6,313 -1,918 8,468 -4,777 Extraordinary item - gain on early extinguishment of debt - 435 - 435 --------- --------- --------- --------- Net income (loss) $ 6,313 -1,483 8,468 -4,342 ========= ========= ========= ========= Net income (loss) applicable to common stock $ 6,313 -3,128 -11,183 -8,019 ========= ========= ========= ========= Weighted average shares outstanding 17,472 16,319 17,339 16,308 =========== =========== =========== =========== Net income (loss) per common share: Before extraordinary item $ 0.36 -0.22 -0.64 -0.52 ========= ========= ========= ========= Net income (loss) $ 0.36 -0.19 -0.64 -0.49 ========= ========= ========= ========= See accompanying notes to consolidated financial statements
HERITAGE MEDIA CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Nine Months Ended September 30, 1994 and 1993 (Dollars in thousands) (unaudited) 1994 1993 --------- --------- Cash flows from operating activities: Net income (loss) $ 8,468 -4,342 Adjustments to reconcile net loss to net cash provided by operating activities: Noncash interest and amortization of deferred finance costs 574 517 Depreciation 10,859 11,205 Amortization: Broadcast program rights 1,532 1,610 Goodwill and other assets 9,344 8,495 Write-off of fixed assets 570 115 Loss on assets held for sale 1,600 - Writedown of television program rights - 1,678 Gain on debt retirement - -435 (Decrease)/increase in deferred revenue -2,594 7,534 Other 2,563 1,130 Changes in certain assets and liabilities net of effects of acquisitions: Accounts receivable 7,017 7,944 Other assets -1,589 -985 Accounts payable and accrued expenses -3,622 3,870 --------- --------- Net cash provided by operating activities 34,722 38,336 --------- --------- Cash flows from investing activities: Acquisitions net of cash acquired -7,767 -4,944 Capital expenditures -8,804 -10,578 Purchase of in-store marketing rights -1,048 - --------- --------- Net cash used by investing activities -17,619 -15,522 --------- --------- Cash flows from financing activities: Long-term borrowings 94,607 62,066 Retirements: Long-term debt -69,318 -74,032 Broadcast program rights payable -2,126 -2,315 Other long-term liabilities - -1,006 Issuance of common stock 137 128 Dividends on preferred stock -445 -1,336 Purchase and related costs of settlement rights -38,541 -2,848 Payment of offering costs -276 - Payment of deferred finance costs -222 -25 --------- --------- Net cash used by financing activities -16,184 -19,368 --------- --------- Net change during period 919 3,446 Cash and cash equivalents at beginning of period 4,416 1,218 --------- --------- Cash and cash equivalents at end of period $ 5,335 4,664 ========= ========= Cash paid for interest $ 15,988 19,642 ========= ========= Cash paid for taxes $ 3,382 2,830 ========= ========= See accompanying notes to consolidated financial statements.
HERITAGE MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1994 (Unaudited) Note 1. Results of Operations. The results of operations for the interim periods reported are not necessarily indicative of results to be expected for the year. The information reflects all adjustments (none of which were other than normal recurring items) which are, in the opinion of management, necessary to present a fair statement of the results for the interim periods. It is suggested that this interim period financial information be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993. Note 2. Long-term Debt. Long-term debt at September 30, 1994 and December 31, 1993 is summarized as follows: (Dollars in thousands) September 30,1994 December 31,1993 HMSI senior notes $ 150,000 150,000 HMSI credit agreement 136,500 110,500 HMC senior subordinated notes 50,000 50,000 Settlement rights 476 19,514 Other 11,032 4,489 ------ ------ 348,008 334,503 Less current installments 8,124 2,076 -------- ------- $ 339,884 332,427 ======== ========
Long-term debt increased by $13.5 million during the nine month period ended September 30, 1994. The increase was primarily due to $38.3 million of credit agreement borrowings used to retire the settlement rights in the third quarter, (see note 4) less approximately $12 million of net cash flows from operations that were utilized for payments against the credit agreement balance. Also $6.8 million of incremental other debt is associated with the first quarter acquisitions of the St. Louis radio station and the in-store marketing companies located in Australia and New Zealand. An additional $6 million of the term loan facility was reclassified to current installments at September 30, 1994 per the HMSI credit agreement. Notes to Consolidated Financial Statements Note 3. Stockholders' Equity. The Board of Directors of Heritage adopted a plan which provides for a distribution of one Preferred Share Purchase Right for each outstanding share of the Company's Class A and Class C Common Stock. The purchase rights were distributed August 29, 1994 to shareholders of record as of that date pursuant to the rights agreement dated as of August 15, 1994 between the Company and The Bank of New York, as rights agent. Each purchase right entitles a shareholder to buy one one-hundredth of a share of a new series of preferred stock at an exercise price of $70. The purchase rights will be exercisable only if a person or group (other than the Company and certain related entities) acquires 15% or more of the Company's common stock or announces a tender offer, the consummation of which would result in ownership by such person or group of 15% or more of the common stock. Note 4. Settlement Rights. The Company formally engaged Bear Stearns & Co. on May 4, 1994 to conduct an independent appraisal of Actmedia, Inc. pursuant to the Settlement Rights Agreement. On June 27, 1994, the Settlement Rights (the "Rights") were independently appraised at $6.55 per Right. This appraisal placed a total value on the 5.9 million then outstanding Rights at $38.8 million. The Company increased its Rights balance by $16.5 million to reflect the balance of $38.8 million as of June 30, 1994 and increased accumulated deficit by a corresponding amount plus expenses incurred of approximately $.3 million On July 28, 1994, the Company exercised its call option to retire 100% of the outstanding Rights for cash. As of September 30, 1994, the Company had retired $38.3 million of the Rights leaving an outstanding balance of $.5 million. The remaining Rights were retired in October 1994. Note 5. Sale of Television Station. On July 1, 1994 the Company announced the sale of the assets of KDLT-TV, its smallest television station, located in Sioux Falls, South Dakota to Red River Broadcasting Corp. The loss attributable to the sale approximated $1.6 million and was recorded in the second quarter of 1994. The sale was completed on October 21, 1994 and the Company received cash proceeds of approximately $4 million. Note 6. Canadian In-Store Acquisition. On August 23, 1994, Actmedia Canada, Inc. (a wholly-owned subsidiary) signed an agreement to acquire the stock of Strategium Media, Inc. (a privately owned company based in Toronto, Canada) for $14.1 million plus the retirement of debt ($4.2 million). Infonet Media, Ltd. (its primary subsidiary, "Infonet") is a leading supplier of shelf-based advertising and promotion services to Canada's food and drug store industry. The transaction closed October 26, 1994. The purchase was financed by bank credit agreements with The Bank of Montreal and National Westminster Bank. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations: Third Quarter 1994 compared to 1993 Consolidated net revenues of $75.5 million represented a 15% increase over the 1993 revenues of $65.9 million. Cost of services of $34.3 million in 1994 were level to 1993 due primarily to favorable in-store revenue mix with lower costs and expense reductions. Operating income of $16.3 million in 1994 exceeded the comparable 1993 period by 160%. Net income of $6.3 million improved significantly versus a $1.5 million loss in 1993. The improvement in the Company's operating results for the 1994 period primarily reflects revenue growth from the Instant Coupon Machine ("ICM"), favorable revenue mix, and lower ACTRADIO operating expenses by the In-store Marketing Group and increased local and national advertising revenues by the Television and Radio Groups. The income per share of $.36 increased in 1994 versus a $.19 per share loss in 1993 due to the improved results from operations and the $.10 per share impact of settlement rights accretion and dividends in 1993. Income per share (excluding settlement rights charges, dividends, and nonrecurring items) of $.36 per share improved from a $.01 per share loss in 1993. All comparisons, unless otherwise noted, are for the three-month period ended September 30, 1994 as compared to the comparable 1993 period. In-store Marketing. The In-store Marketing Group contributed $53.4 million of revenues in 1994, an increase of 14%, compared to $46.8 million in 1993. The growth of ICM revenues and increased advertising and International revenues were reduced by the decline in promotion revenues. The ICM generated $20.6 million of revenues in 1994, an increase of 46% compared to 1993. International revenues of $5.3 million grew by 19% versus 1993 and advertising revenues increased by 19% to $13.1 million. ActNow had one program approximating $2.6 million in 1994 compared to a program totaling $1.9 million in the 1993 period. Total Impact revenues decreased by 27% to $10.1 million in 1994 primarily due to customer requested rescheduling, competitive pricing pressures, and the absence of programs that were run in 1993. Net revenues of the ACTRADIO product increased to $1.7 million in 1994 from $1.5 million in 1993. As a result of the Company's actions taken in the fourth quarter of 1993 (see Annual Report on Form 10-K for fiscal year ended December 31, 1993), on-going operating costs in 1994 were reduced by approximately $1 million and depreciation was decreased by $.6 million for the 1994 period versus 1993. These actions have reduced the on-going operating costs and long-term capital requirements and increased the size and quality of the in-store audio network. In-store Marketing operating income of $10.8 million increased by 178%, from $3.9 million in the 1993 period, due primarily to increased revenues, favorable revenue mix with higher margins, reduced field expenses and reduced ACTRADIO losses. The operating margin was 20% in 1994 compared to 8% in 1993. Television. The Television Group generated $11.2 million of revenues in 1994, an 11% increase compared to $10.1 million in 1993. The Television Bureau of Advertising Time Sales Survey reported that industry-wide gross local revenues increased by 12% and national revenues were up 17% compared to 1993 aided by significant political revenues. The Television Group's local revenues increased 8% and national revenues improved 11% compared to the 1993 period including political revenues of $.5 million versus minimal political revenues in 1993. All of the Television Group's stations, excluding the station held for sale, generated improved revenues and operating income in 1994 compared to the 1993 period. Operating income of $3.7 million increased by 197% compared to 1993 primarily as a result of the higher revenues while operating expenses were held to a 6% increase. The 1993 period included a nonrecurring $1.7 million writedown of program rights. The operating margin improved from 29% in 1993 to 33% in 1994 (excluding the nonrecurring item). Radio. The Radio Advertising Bureau reported that combined national and local spot revenues improved 11% in the third quarter of 1994 over the same period in 1993 for the radio industry. Net revenues of the Radio Group increased by 22% from $9 million in 1993 to $11 million in 1994. The radio stations acquired in 1993 and 1994 contributed $1.1 million of the increase. Revenues for the stations owned for all of both periods increased 11% primarily as a result of stronger industry revenues noted above and improved station ratings. Operating income grew from $2.0 million in 1993 to $2.7 million in 1994 primarily as a result of the improved revenues by the stations owned for all of both periods as the acquired stations combined for an operating loss of $.1 million. The operating margin improved from 24% in 1993 to 30% in 1994 for the stations owned for all of both periods. Corporate Expenses. Corporate expenses of $1 million in 1994 were $.1 million unfavorable to 1993 due to increased shareholder related expenses. Depreciation and Amortization. Depreciation and amortization of $6.3 million in 1994 decreased by 10% compared to $6.9 million in 1993. The majority of the decrease was due to lower depreciation associated with ACTRADIO, lower levels of capital expenditures, and assets that have been fully depreciated. Interest Expense. Interest expense consists of the following: (in thousands) Three months Ended September 30, 1994 1993 Interest accrued and paid currently...........$ 7,541 7,212 Deferred interest............................ 197 179 ----- ----- TOTAL.........................................$ 7,738 7,391 ======= ======
The increase in current interest from 1993 to 1994 is primarily due to the higher debt levels. Other Expense. Other expense included $1.5 million of noncash expense for accrued stock appreciation rights. Net Income (Loss). Primarily as a result of an additional $10 million of operating income reduced by the higher taxes and noncash expenses, the Company improved its operating results from a $1.5 million loss in 1993 to $6.3 million of net income in 1994. Results of Operations: Nine Months 1994 compared to 1993 Consolidated net revenues of $210.8 million represented a 9% increase over the 1993 revenues of $193.3 million. Cost of services of $100.1 million decreased 3% in 1994 compared to 1993 due primarily to favorable in-store revenue mix and cost reductions. Operating income of $38.4 million in 1994 exceeded the comparable 1993 period by 80%. Net income of $8.5 million in 1994 improved compared to a $4.3 million loss in 1993. The improvement in the Company's operating results for the 1994 period primarily reflects revenue growth from the Instant Coupon Machine, favorable revenue mix, and lower ACTRADIO operating expenses by the In-store Marketing Group and increased local and national advertising revenues by the Television and Radio Groups. The loss per share of $.64 in 1994 increased compared to the $.49 in 1993 due principally to the $.95 per share impact of the second quarter Settlement Rights adjustment and $.09 per share effect of the loss on the television station sale. Income per share (excluding settlement rights charges, dividends, and nonrecurring items) of $.58 improved from a $.19 loss in 1993. All comparisons, unless otherwise noted, are for the nine month period ended September 30, 1994 as compared to the comparable 1993 period. In-store Marketing. The In-store Marketing Group contributed $150 million of revenues in 1994, an increase of 6%, compared to $140.7 million in 1993. The growth of ICM revenues was the major contributor to the improved results. The ICM generated $55.8 million of revenues in 1994, an increase of 42% compared to 1993. Also, International revenues grew by 17% to $14 million in 1994 primarily due to improvement from the Canadian business and the inclusion of $1.5 million revenues from the Australia/New Zealand acquisitions. Advertising revenues in 1994 were level with 1993. Total Impact revenues declined by 17% to $28.9 million in 1994 due to competitive pricing pressures, customer requested rescheduling of programs, and two major customers that did not run programs in 1994. ActNow had four smaller programs totaling approximately $11 million in 1994 versus the comparable four programs totaling $14.3 million in the 1993 period. Net revenues of the ACTRADIO product of $3.7 million in 1994 were level with 1993. As a result of the Company's actions noted above, the on-going operating costs in 1994 were reduced by approximately $2 million and depreciation was decreased by $1.8 million. In-store Marketing operating income of $23.8 million increased by 97%, from $12.1 million in the 1993 period, due primarily to the increased 1994 revenues, favorable revenue mix with higher margins, reduced field expenses, and reduced ACTRADIO losses. The operating margin was 16% in 1994 compared to 9% in 1993. The In-store Marketing Group contributed 71% of the Company's revenues and 62% of operating income in the 1994 period, and it is expected that this group will contribute a higher percentage of the Company's revenues and operating income for fiscal 1994. Television. The Television Group generated $32.4 million of revenues in 1994, a 10% increase compared to $29.6 million in 1993. The Television Bureau of Advertising Time Sales Survey reported that industry-wide gross local revenues increased by 11% and national revenues were up 14% compared to 1993 aided by the Winter Olympics in the first quarter and political revenues. The Television Group's local revenues increased 7% and national revenues improved 14% compared to the 1993 period. The Television Group did not benefit from the Olympics as the group has no CBS affiliates, but did receive $1.1 million political revenues which were minimal in 1993. All of the stations' operating results reflected improved revenues and operating income in 1994 versus the 1993 period. The Pensacola station, which generated 41% of the group's revenue improvement, benefited from local revenue growth of 17% primarily on the strength of automobile industry sales and $.7 million of political revenues. Operating income of $10.8 million increased by 52% compared to 1993 primarily as a result of the higher revenues as expenses were held to a 5% increase and the 1993 period included the $1.7 million nonrecurring item. The operating margin improved from 30% in 1993 to 33% in 1994 (excluding the nonrecurring item). Radio. The Radio Advertising Bureau reported that combined national and local spot revenues improved 12% in the nine months of 1994 over the same period in 1993 for the radio industry. Net revenues of the Radio Group increased by 24% from $23.1 million in 1993 to $28.8 million in 1994. The radio stations acquired in 1993 and 1994 contributed $2.8 million of the increase. Revenues for the stations owned for all of both periods increased 13% primarily as a result of stronger industry revenues noted above and improved station ratings. Operating income grew from $4.7 million in 1993 to $6.4 million in 1994 primarily as a result of the improved revenues by the stations owned for all of both periods as the acquired stations had a $.5 million loss. The operating margin improved from 21% in 1993 to 27% in 1994 for the stations owned for all of both periods. Corporate Expenses. Corporate expenses of $2.5 million in 1994 increased by 4% versus 1993. Depreciation and Amortization. Depreciation and amortization of $20.2 million in 1994 increased by 3% compared to $19.7 million in 1993. The increase was due to additional amortization associated with radio station acquisitions and ACTRADIO marketing rights. Interest Expense. Interest expense consists of the following: (in thousands) Nine months Ended September 30, 1994 1993 Interest accrued and paid currently...$ 21,622 23,793 Deferred interest.................. 574 517 ------ ------ TOTAL.................................$ 22,196 24,310 ====== =======
The decrease in current interest from 1993 to 1994 is due primarily to the expiration of interest rate swaps in June, 1993. Other Expense. Other expense included $3.1 million in noncash expense for the accrual of stock appreciation rights and $.6 million for the write-off of the remaining book balance of the retired WEAR-TV facility. Net Income (Loss). Primarily as a result of an additional $17 million of operating income and $2 million lower interest expense reduced by the loss on sale of assets, higher taxes and noncash expenses, the Company improved its operating results from a $4.3 million loss in 1993 to $8.5 million of net income in 1994. Capitalization and Liquidity At September 30, 1994, the Company, through its Heritage Media Services, Inc. subsidiary ("HMSI"), had a $155 million bank credit facility (the "Credit Agreement"). HMSI is the Company's subsidiary which owns ACTMEDIA and the Company's broadcasting properties. The Credit Agreement was comprised of an $80 million term loan which begins to amortize on December 31, 1994, and a $75 million reducing revolving credit facility which begins to decrease on December 31, 1994. Effective February 9, 1994 the revolving credit facility was increased from $50 million to $75 million. At September 30, 1994, $80 million of the term loan facility and $56.5 million of the revolving credit facility were outstanding. At September 30, 1994, $18.5 million of additional borrowings were available under the Credit Agreement. The Credit Agreement includes a number of financial and other covenants, including the maintenance of certain operating and financial ratios and limitations on or prohibitions of dividends, indebtedness, liens, capital expenditures, asset sales and certain other items. Loans under the Credit Agreement are guaranteed by the Company and HMSI's domestic subsidiaries and are secured by a pledge of the capital stock of HMSI and its domestic subsidiaries. On June 22, 1992, HMSI issued $150 million of 11% senior secured notes (the "Senior Notes") due June 15, 2002. Interest on the Senior Notes is payable semi-annually. The Senior Notes rank on a parity with the obligations under HMSI's Credit Agreement, are guaranteed by HMC, and HMSI's domestic subsidiaries and are secured by a pledge of capital stock of HMSI and its domestic subsidiaries. On October 1, 1992 the Company issued $50 million of 11% senior subordinated notes (the "Subordinated Notes") due October 1, 2002. Interest on the Subordinated Notes is payable semi-annually. The Subordinated Notes are subordinate in right of payment to the prior payment in full of the Credit Agreement and the Senior Notes. Based upon the foregoing debt, the Company is currently highly leveraged, and it is expected to continue to have a high level of debt for the foreseeable future. As of September 30, 1994, the Company had indebtedness (long-term debt, including current installments and notes payable) of approximately $348 million and stockholders' equity of approximately $75 million, and accordingly, a consolidated debt-to-equity ratio of 4.6 to 1. As a result of its leverage and in order to repay existing indebtedness, the Company will be required to generate substantial operating cash flow, refinance its indebtedness, make asset sales or effect some combination of the foregoing. The ability of the Company to meet these requirements will depend on, among other things, prevailing economic conditions and financial, business and other factors, some of which are beyond the control of the Company. Further, being primarily a holding company of operating companies through HMSI, the Company's ability to repay its indebtedness incurred at the parent company level will be limited by restrictions on the ability of HMSI under the Credit Agreement and the Senior Notes to declare and pay dividends to the Company. Under the Credit Agreement, at September 30, 1994, the total amount of dividends that could be paid by HMSI to the Company was $14.7 million. Under the Senior Note Indenture, at September 30, 1994, the total amount of dividends that could be paid by HMSI to the Company was $32.6 million. Such dividends are not permitted if, as a result of such payments, a default would occur under either the Credit Agreement or the Senior Note Indenture. As a result of the foregoing restrictions, consolidated net assets of HMSI totaling $114.7 million at September 30, 1994 were not available to the Company to pay dividends or repay debt. On February 1, 1994, the holders of all of the Company's Series B and Series C Convertible Preferred Stock converted their 161,945 preferred shares into 429,609 Class A common shares and 693,560 Class C common shares at the rate of 6.94 common shares for each preferred share thereby increasing the Company's common shares outstanding to approximately 17.5 million and eliminating the Company's annual preferred dividend obligation of $1.8 million. On April 15, 1994, the Company completed a secondary public offering of 3.7 million Class A common shares at $17 per share in simultaneous United States and international offerings for the two holders of 3.7 million Class C common shares. On August 17, 1994, the holder of 512,987 Class C common shares converted the shares to an equal number of Class A common shares. The Company has focused its growth strategy on acquiring in-store companies (both domestically and internationally), radio stations and creating radio duopolies in top forty markets, televisions stations in larger markets, and other communications-related properties it believes have the potential for long-term appreciation and aggressively managing the operations of these properties to improve their operating results. The Company has historically used cash flows from financing activities to fund its acquisitions and investments while the operations are expected to generate cash flow sufficient to fund their on-going expenditure requirements. Cash flows provided by operating activities decreased to $34.7 million in 1994 from $38.3 million in 1993. The $14 million improvement in net income (adjusted for noncash items) was more than offset by a $10 million reduction in deferred revenue and a $9 million unfavorable variance in working capital items due primarily to the timing of in-store demonstration programs. In 1994, the $35 million of cash provided by operations, and $25 million of net bank borrowings were primarily utilized for the retirement of settlement rights ($38.5 million), the cash portion of the acquisitions ($7.8 million), capital expenditures ($8.8 million) and in-store marketing rights payments ($1 million). In 1993, cash flows from operating activities were utilized for acquisitions, capital expenditures, to retire settlement rights, and to reduce other long-term liabilities. Capital expenditures decreased from $10.6 million in 1993 to $8.8 million in 1994. This decrease was due primarily to the higher purchase requirements of additional Instant Coupon Machines in 1993 versus 1994. As a part of ACTRADIO's commitment to new marketing alliances, the Company made payments totaling $1 million in the nine months ended September 30, 1994 and is expecting to make payments totaling approximately $2.5 million in 1994 representing the Company's share of the cost of the network upgrade. These payments are for exclusive marketing rights which are amortized over the term of the retail chain agreements (five years). These requirements will be provided by funds generated from operations. SIGNATURE 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. HERITAGE MEDIA CORPORATION Dated: by /s/ David N. Walthall David N. Walthall President and Chief Executive Officer Dated: by /s/ James P. Lehr James P. Lehr Vice President and Controller Principal Accounting Officer SIGNATURE 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. HERITAGE MEDIA CORPORATION Dated: by David N. Walthall President and Chief Executive Officer Dated: by James P. Lehr Vice President and Controller Principal Accounting Officer EX-27.1 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1994 SEP-30-1994 5,335 0 42,031 993 4,775 61,478 98,384 44,857 492,467 71,673 0 175 0 0 74,714 492,467 0 210,826 0 100,067 71,938 389 22,196 10,852 2,384 8,468 0 0 0 8,468 0.64 0
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