<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) August 23, 1999
Citadel Broadcasting Company
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(Exact Name of Registrant as Specified in its Charter)
Nevada
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(State or Other Jurisdiction of Incorporation)
333-36771 86-0703641
- -------------------------------- ---------------------------------
(Commission File Number) (IRS Employer Identification No.)
City Center West, Suite 400
7201 West Lake Mead Boulevard
Las Vegas, Nevada 89128
- ---------------------------------------- -------------
(Address of Principal Executive Offices) (Zip Code)
(702) 804-5200
------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
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This report includes forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements are based
largely on current expectations and projections about future events and
financial trends affecting Citadel Broadcasting Company's business. The words
"intends", "believes" and similar words are intended to identify forward-looking
statements. In addition, any statements that refer to expectations or other
characterizations of future events or circumstances are forward-looking
statements. The forward-looking statements in this report are subject to risks,
uncertainties and assumptions including, among other things:
o the realization of Citadel Broadcasting's business strategy,
o general economic and business conditions, both nationally and in Citadel
Broadcasting's radio markets,
o Citadel Broadcasting's expectations and estimates concerning future
financial performance, financing plans and the impact of competition,
o anticipated trends in Citadel Broadcasting's industry, and
o the impact of current or pending legislation and regulation and antitrust
considerations.
In light of these risks and uncertainties, the forward-looking events and
circumstances discussed in this report might not transpire. Citadel Broadcasting
undertakes no obligation to publicly update or revise any forward-looking
statements because of new information, future events or otherwise.
ITEM 5. OTHER EVENTS
Michigan Acquisition
On December 3, 1999, Citadel Broadcasting Company and its parent,
Citadel Communications Corporation, entered into an asset purchase agreement
with Liggett Broadcast, Inc. and certain of its affiliates to acquire four FM
and two AM radio stations serving the Lansing, Michigan market, two FM radio
stations serving the Saginaw, Michigan market and one FM radio station serving
the Flint, Michigan market for the aggregate purchase price of approximately
$120.5 million, consisting of 200,000 shares of common stock of Citadel
Communications valued at $50.375 per share, based on the closing share price of
the common stock on December 2, 1999, and approximately $110.4 million in cash.
However, if the value of the common stock at the time of closing, based on the
20-day average closing sale price per share prior to closing, is less than 90%
of the value on December 2, 1999, then no common stock will be issued and the
purchase price will be paid entirely in cash. Citadel Broadcasting has delivered
an irrevocable letter of credit in favor of Liggett Broadcast, issued by
BankBoston, N.A., in the amount of $6.0 million to secure Citadel
Communications' and Citadel Broadcasting's obligations under the asset purchase
agreement.
The asset purchase agreement contains customary representations and
warranties of the parties, and completion of the acquisition of the stations is
subject to conditions including (1) the receipt of FCC consent to the
assignment of the station licenses to Citadel Broadcasting, (2) the expiration
or termination of the applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and (3) the receipt of consents
to the assignment to Citadel Broadcasting of certain contracts relating to the
stations. An application seeking FCC approval has not yet been filed with the
FCC. In addition to the conditions noted, Citadel Broadcasting expects to sell
one or more of its stations serving the Saginaw market to comply with the
ownership limits of the Telecommunications Act of 1996. See the financial
statements of Liggett Broadcast, Inc. contained in Item 7 of this report.
Massachusetts Acquisition
On December 3, 1999, Citadel Broadcasting entered into two asset
purchase agreements with Montachusett Broadcasting, Inc. to acquire a total of
two FM radio stations serving the Worcester, Massachusetts market for an
aggregate purchase price of approximately $24.5 million in cash. Citadel
Broadcasting has delivered two irrevocable letters of credit in favor of
Montachusett Broadcasting, issued by BankBoston, N.A., in the aggregate amount
of $1.2 million to secure Citadel Broadcasting's obligations under the asset
purchase agreements.
The asset purchase agreements contain customary representations and
warranties of the parties, and completion of the acquisition of the stations is
subject to conditions including (1) the receipt of FCC consent to the
assignment of the station licenses to Citadel Broadcasting, (2) the receipt of
consents to the assignment to Citadel Broadcasting of certain contracts
relating to the stations and (3) with respect to one of the stations to be
acquired (which accounts for approximately $3.5 million of the aggregate
purchase price), the receipt of an FCC order reallocating an FM channel from
Spencer, Massachusetts to Webster, Massachusetts. An application seeking FCC
approval was filed with the FCC on December 9, 1999.
New York, New Jersey, Texas, Louisiana, Connecticut, Massachusetts and Maine
Acquisition
On October 27, 1999, Citadel Broadcasting entered into an asset
purchase agreement with Broadcasting Partners Holdings, L.P. to acquire 23 FM
and 13 AM radio stations in Buffalo, Syracuse and Ithaca, New York, Atlantic
City, New Jersey, Tyler-Longview, Texas, Monroe, Louisiana, New London,
Connecticut, New Bedford, Massachusetts and Augusta-Waterville, Presque
Isle-Caribou and Dennysville-Calais, Maine, as well as the right to operate an
additional FM radio station in Atlantic City under a program service and time
brokerage agreement. The aggregate purchase price is approximately $190.0
million in cash. The stations indicated include one AM radio station in Buffalo
and one FM radio station in New London which affiliates of Broadcasting Partners
Holdings have entered into agreements to purchase. If either of these two
transactions has not been completed prior to completion of Citadel
Broadcasting's acquisition, Citadel Broadcasting will be assigned the rights
under the relevant purchase agreement. Citadel Broadcasting has delivered an
irrevocable letter of credit in favor of Broadcasting Partners Holdings, issued
by BankBoston, N.A., in the amount of $12.0 million to secure Citadel
Broadcasting's obligations under the asset purchase agreement.
The asset purchase agreement contains customary representations and
warranties of the parties, and completion of the acquisition of the stations is
subject to conditions including (1) the receipt of FCC consent to the assignment
of the station licenses to Citadel Broadcasting, (2) the expiration or
termination of the applicable waiting periods under the Hart-Scott-Rodino Act,
and (3) the receipt of consents to the assignment to Citadel Broadcasting of
certain contracts relating to the stations. An application seeking FCC approval
was filed with the FCC on November 9, 1999. See the financial statements of
Broadcasting Partners Holdings Radio Group contained in Item 7 of this report.
Oklahoma Acquisition
On August 23, 1999, Citadel Broadcasting entered into a purchase
agreement with Cat Communications, Inc and Desert Communications III, Inc. to
acquire all of the equity interests of Caribou Communications Co. for the
aggregate purchase price of approximately $60.0 million in cash. This amount
includes repayment of indebtedness of the sellers that may be outstanding at the
time of closing, and is subject to adjustment for other conditions existing at
the time of the closing. Caribou Communications owns four FM radio stations and
one AM radio station in Oklahoma City, Oklahoma. Citadel Broadcasting has
delivered an irrevocable letter of credit in favor of Cat Communications and
Desert Communications, issued by BankBoston, N.A., in the amount of $3.0 million
to secure Citadel Broadcasting's obligations under the purchase agreement.
The agreement contains customary representations and warranties of the
parties, and consummation of the transaction is subject to conditions including
(1) the receipt of FCC consent to the transfer of control of the station
licenses to Citadel Broadcasting, (2) the expiration or termination of the
applicable waiting periods under the Hart-Scott-Rodino Act and (3) the receipt
of consents to
1
<PAGE> 3
the change of control under certain contracts relating to the radio stations. An
application seeking FCC approval was filed with the FCC on September 2, 1999 and
a grant of the application was received on October 28, 1999. The Company
received early termination of the applicable Hart-Scott-Rodino Act waiting
period on October 4, 1999. See the financial statements of Caribou
Communications Co. contained in Item 7 of this report.
Other Pending Transactions
In addition to the transactions described above, the following
transactions are also pending. On October 5, 1999, Citadel Broadcasting entered
into a purchase and sale agreement with Kenneth A. Rushton, as trustee of the
Chapter 7 bankruptcy estate of Venture Broadcasting, Inc., to acquire an AM
radio station serving the Salt Lake City, Utah market, including the related
tower site, for approximately $0.6 million in cash. The closing of this
transaction may be delayed as a petition to deny the transfer of the broadcast
license has been filed with the FCC. On October 8, 1999, Citadel Broadcasting
entered into an exchange agreement with Titus Broadcasting Systems, Inc. to
acquire one AM radio station in Binghamton, New York in exchange for one AM
radio station in Binghamton owned by Citadel Broadcasting and approximately $0.6
million in cash. On November 16, 1999, Citadel Broadcasting entered into a
definitive agreement with KSMB/KACY Radio Broadcasting Company, KVOL Radio
Broadcasting Company and Powell Broadcasting Company, Inc. to acquire two FM and
two AM radio stations in Lafayette, Louisiana for the purchase price of
approximately $8.5 million in cash. On November 16, 1999, Citadel Broadcasting
entered into an exchange agreement with LifeTalk Broadcasting Association to
acquire one AM radio station in Albuquerque, New Mexico in exchange for one AM
station in Albuquerque owned by Citadel Broadcasting and approximately $5.4
million in cash. The closing of each of these transactions is also subject to
various conditions.
Closing Matters
Although Citadel Broadcasting believes that the conditions to closing
for each of its pending transactions are generally customary for transactions of
this type, there can be no assurance that such conditions will be satisfied.
Citadel Broadcasting expects to finance a portion of the pending
acquisitions with amounts borrowed under a new credit facility currently being
negotiated and proceeds from the recent sale of radio stations. The new credit
facility is expected to be in the form of (i) a multiple-draw term loan
facility and (ii) a revolving credit facility which will include a letter of
credit facility.
Citadel Broadcasting expects that (a) amounts may be borrowed under the
new term loan facility to (i) repay amounts outstanding under Citadel
Broadcasting's existing credit facility, (ii) finance a portion of Citadel
Broadcasting's pending acquisitions and (iii) pay related fees and expenses, (b)
amounts may be borrowed under the new revolving credit facility for general
corporate purposes, including working capital, capital expenditures and pending
and permitted future acquisitions, and (c) letters of credit will be issued to
support Citadel Broadcasting's payment obligations incurred in the ordinary
course of business.
Citadel Communications will guaranty payment of amounts borrowed under
the new credit facility, and such amounts will be secured by a security
interest in the assets of Citadel Broadcasting and a pledge of the outstanding
common stock of Citadel Broadcasting.
Although Citadel Broadcasting anticipates finalizing the new credit
facility prior to year end, there can be no assurances that Citadel
Broadcasting will be able to replace its current credit facility on the terms
described above or at all. If a new credit facility having terms substantially
similar to those described above cannot be obtained, Citadel Communications and
Citadel Broadcasting would be required to seek other financing alternatives to
complete the pending acquisitions.
Following entry into any new credit facility, management expects that
Citadel Broadcasting's subsidiary, Citadel License, Inc., will be merged with
and into Citadel Broadcasting.
Changes in the Board of Directors
Effective as of November 24, 1999, Patricia Diaz Dennis resigned as a
director of each of Citadel Communications and Citadel Broadcasting. Effective
as of November 30, 1999, Robert F. Fuller was appointed as a director of each
of Citadel Communications and Citadel Broadcasting to serve until the next
election of directors by the respective stockholders and until his successor
has been duly elected and qualified or until his earlier death, retirement,
resignation or removal. Mr. Fuller was a principal of Fuller-Jeffrey
Broadcasting Companies, Inc., which, together with its subsidiaries, was
acquired by Citadel Broadcasting in August 1999.
Financial Statements
Certain financial information of each of Liggett Broadcast, Inc.,
Broadcasting Partners Holdings Radio Group, Wicks Radio Group (a division of
Wicks Broadcast Group Limited Partnership), Citywide Communications, Inc.,
Caribou Communications Co. and Tele-Media Broadcasting Company and its
Partnership Interests, as well as certain pro forma financial information of
Citadel Broadcasting Company and its Subsidiary, is set forth below in Item 7
and is incorporated herein by reference. Citadel Broadcasting acquired 10 FM and
six AM radio stations from Wicks Broadcast Group Limited Partnership and related
entities in June 1999, it acquired Citywide Communications, Inc. and its six FM
and three AM radio stations in March 1999 and it acquired Tele-Media
Broadcasting and the ownership or the right to operate 16 FM and 10 AM radio
stations that Tele-Media Broadcasting owned or operated in July 1997. Citadel
has since sold 11 of the stations acquired in the Tele-Media acquisition.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements. The following financial statements are included
pursuant to Item 7(a):
BROADCASTING PARTNERS HOLDINGS RADIO GROUP
Combined Balance Sheets as of December 31, 1997 and 1998 and for September 30,
1999 (unaudited)
Combined Statements of Operations for the years ended December 31, 1997 and 1998
and for the nine months ended September 30, 1998 and 1999 (unaudited)
Combined Statements of Partners' Capital for the nine months ended September 30,
1999 (unaudited)
Combined Statements of Cash Flows for the years ended December 31, 1997 and 1998
and for the nine months ended September 30, 1998 and 1999 (unaudited)
Notes to Combined Financial Statements
LIGGETT BROADCAST, INC.
Report of Independent Auditors
Combined Balance Sheet as of December 31, 1998
Combined Statement of Shareholder's Equity for the year ended December 31, 1998
Combined Statement of Operations for the year ended December 31, 1998
Combined Statement of Cash Flows for the year ended December 31, 1998
Notes to Combined Financial Statements
Combined Balance Sheet as of September 30, 1999 (unaudited)
Combined Statement of Shareholder's Equity for the nine months ended
September 30, 1999 (unaudited)
Combined Statements of Operations for the nine months ended
September 30, 1999 (unaudited)
Combined Statements of Cash Flows for the nine months ended
September 30, 1999 (unaudited)
Notes to Combined Financial Statements (unaudited)
WICKS RADIO GROUP (A DIVISION OF WICKS BROADCAST GROUP LIMITED PARTNERSHIP)
Independent Auditors' Report
Balance Sheets as of December 31, 1998 and June 30, 1999 (unaudited)
Statements of Operations and Changes in Division Equity
For the year ended December 31, 1998 and for the six months ended
June 30, 1998 and June 30, 1999 (unaudited)
Statements of Cash Flows
For the year ended December 31, 1998 and for the six months ended
June 30, 1998 and June 30, 1999 (unaudited)
Notes to financial statements
CITYWIDE COMMUNICATIONS, INC.
Independent Auditors' Report
Consolidated Balance Sheet as of December 31, 1998
Consolidated Statement of Operations and Accumulated Deficit for the year ended
December 31, 1998
Consolidated Statement of Stockholders' Deficit for the year ended December 31,
1998
Consolidated Statement of Cash Flows for the year ended December 31, 1998
2
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Notes to Consolidated financial Statements
CARIBOU COMMUNICATIONS CO.
Independent Auditors' Report
Balance Sheets as of December 31, 1997 and 1998
Statement of Operations as of December 31, 1997 and 1998
Statements of Changes in Partners' Equity for the year ended December 31, 1998
Statements of Cash Flows for the years ended December 31, 1997 and 1998
Notes to Financial Statements
TELE-MEDIA BROADCASTING COMPANY AND ITS PARTNERSHIP INTERESTS
Independent Auditors' Report
Consolidated Balance Sheet as of December 31, 1995 and 1996
Consolidated Statement of Operations for the years ended December 31, 1994, 1995
and 1996
Consolidated Statement of Deficiency in Net Assets for the years ended
December 31, 1994, 1995 and 1996
Consolidated Statement of Cash Flows for the years ended December 31, 1994, 1995
and 1996
Notes to Consolidated Financial Statement
Condensed Consolidated Balance Sheet as of June 30, 1997 (unaudited)
Condensed Consolidated Statements of Operations and Changes in Deficit for the
six months ended June 30, 1996 and 1997 (unaudited)
Condensed Consolidated Statements of Cash Flows for the six months ended June
30, 1996 and 1997 (unaudited)
Notes to Unaudited Condensed Consolidated Financial Statements
(b) Pro Forma Financial Information. The following pro forma financial
information is included herein pursuant to Item 7(b):
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30,
1999
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the nine
months ended September 30, 1999
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the
twelve months ended December 31, 1998
(c) Exhibits. The following exhibits are filed as part of this report:
2.1 Asset Purchase Agreement dated October 27, 1999 by and between Citadel
Broadcasting Company and Broadcasting Partners Holdings, L.P.
(incorporated by reference to Exhibit 2.1 to Citadel Communications
Corporation's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1999).
2.2 Stock Purchase Agreement dated April 30, 1999 by and between Robert F.
Fuller and Citadel Broadcasting Company (incorporated by reference to
Exhibit 2.1 to Citadel Broadcasting Company's Current Report on Form
8-K filed on September 14, 1999).
2.3 Stock Purchase Agreement dated April 30, 1999 by and between Joseph N.
Jeffrey, Jr. and Citadel Broadcasting Company (incorporated by
reference to Exhibit 2.2 to Citadel Broadcasting Company's Current
Report on Form 8-K filed on September 14, 1999).
2.4 Asset Purchase Agreement dated December 3, 1999 by and among Liggett
Broadcast, Inc., Rainbow Radio, LLC, New Tower, Inc., LLJ Realty, LLC,
Robert G. Liggett, Jr., Citadel Communications Corporation, Citadel
Broadcasting Company and Citadel License, Inc. (incorporated by
reference to Exhibit 2.4 to Citadel Communications Corporation's
Current Report on Form 8-K filed on December 10, 1999).
3
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INDEPENDENT AUDITORS' REPORT
The Partners
Broadcasting Partners Holdings, L.P.:
We have audited the accompanying combined balance sheets of Broadcasting
Partners Holdings Radio Group as of December 31, 1997 and 1998 and the related
combined statements of operations, cash flows and partners' capital for the
period from January 9, 1997 (inception) through December 31, 1997 and for the
year ended December 31, 1998. These financial statements are the responsibility
of the Group's management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall combined
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Broadcasting
Partners Holdings Radio Group as of December 31, 1997 and 1998 and the results
of its operations and its cash flows for the period from January 9, 1997
(inception) through December 31, 1997 and for the year ended December 31, 1998
in conformity with generally accepted accounting principles.
/s/ KPMG LLP
March 30, 1999
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BROADCASTING PARTNERS HOLDINGS RADIO GROUP
Combined Balance Sheets
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
ASSETS 1997 1998 1999
------------ ----------- -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 1,436,701 1,584,767 770,876
Receivables, less allowance for doubtful accounts of
approximately $487,000, $638,000 and $568,000, respectively 6,247,361 8,970,792 9,256,148
Other receivables 377,704 925,267 417,861
Trade receivables 798,904 863,299 1,146,714
Due from seller -- 35,477 33,286
Prepaid and other current assets 500,480 736,411 1,233,070
------------ ----------- -----------
Total current assets 9,361,150 13,116,013 12,857,955
Notes receivable 150,000 -- --
Property and equipment, net 7,144,294 9,518,274 9,407,590
Intangible assets, net 92,843,007 95,582,524 89,791,919
Due from related party 4,189 55,445 53,621
Other noncurrent assets, net 1,500,550 1,384,799 1,258,718
============ =========== ===========
$111,003,190 119,657,055 113,369,803
============ =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current installments of long-term debt $ 1,307,549 10,671,518 6,800,642
Current installments of capital lease obligations 48,052 57,232 63,218
Accounts payable 1,100,135 3,057,798 2,154,362
Trade payables 772,109 940,729 1,249,681
Due to related party 160,401 132,584 426,225
Accrued expenses 1,127,376 1,184,869 1,249,082
Accrued interest 912,407 1,057,608 541,914
Due to receiver 159,971 96,733 86,762
Other current liabilities 96,532 292,883 349,767
------------ ----------- -----------
Total current liabilities 5,684,532 17,491,954 12,921,653
Long-term debt, less current installments 61,788,358 60,323,402 58,364,881
Capital lease obligations, less current installments 148,188 87,884 39,693
Due to related party, non-current 181,944 365,278 155,677
Other noncurrent liabilities 258,937 543,194 624,717
------------ ----------- -----------
Total liabilities 68,061,959 78,811,712 72,106,621
Partners' capital 42,941,231 40,845,343 41,263,182
Commitments and contingencies
============ =========== ===========
$111,003,190 119,657,055 113,369,803
============ =========== ===========
</TABLE>
See accompanying notes to combined financial statements
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BROADCASTING PARTNERS HOLDINGS RADIO GROUP
Combined Statements of Operations
<TABLE>
<CAPTION>
JANUARY 9, 1997 (UNAUDITED) (UNAUDITED)
(INCEPTION) THROUGH YEAR ENDED NINE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1998 1999
------------------- ------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Revenue:
Broadcast revenues $ 21,920,579 37,855,506 26,386,524 30,355,319
Trade revenues 3,093,236 4,228,085 2,685,088 3,480,862
Other revenues 756,503 500,416 346,133 445,652
------------ ----------- ----------- -----------
Gross revenues 25,770,318 42,584,007 29,417,745 34,281,833
Less: agency commissions (2,377,182) (3,956,627) (2,642,053) (3,050,681)
------------ ----------- ----------- -----------
Net revenue 23,393,136 38,627,380 26,775,692 31,231,152
------------ ----------- ----------- -----------
Operating costs:
Station operating expenses 5,225,267 8,430,940 5,522,473 6,511,384
Selling expenses 4,654,221 9,337,926 6,606,509 7,678,736
General and administrative expenses 4,591,520 7,177,313 5,205,757 5,921,451
Trade expenses 3,112,187 4,220,219 2,432,924 3,537,733
LMA fees 1,842,475 353,675 314,446 106,902
Depreciation and amortization 555,273 1,400,758 1,001,789 1,236,163
Amortization of intangible assets 3,862,133 7,497,199 5,599,156 5,624,128
------------ ----------- ----------- -----------
23,843,076 38,418,030 26,683,054 30,616,497
------------ ----------- ----------- -----------
Operating income (loss) (449,940) 209,350 92,638 614,655
------------ ----------- ----------- -----------
Other income (expense):
Interest expense (3,179,183) (6,560,152) (4,675,185) (4,959,905)
Interest income 29,261 60,667 33,827 22,506
Other 38,692 (17,289) (10,251) (52,457)
------------ ----------- ----------- -----------
Loss before cumulative effect
of accounting change (3,561,170) (6,307,424) (4,558,971) (4,375,201)
Cumulative effect of accounting change:
Write-off of organization costs -- -- -- (517,416)
------------ ----------- ----------- -----------
Net loss $ (3,561,170) (6,307,424) (4,558,971) (4,892,617)
============ =========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements
6
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BROADCASTING PARTNERS HOLDINGS RADIO GROUP
Combined Statements of Partners' Capital
<TABLE>
<CAPTION>
<S> <C>
Partners' capital, January 9, 1997 (inception) $ --
Capital contributions 49,415,200
Net activity with affiliated broadcast property (2,912,799)
Net loss (3,561,170)
------------
Partners' capital, December 31, 1997 42,941,231
Capital contributions 4,201,087
Net activity with affiliated broadcast property 54,999
Distributions to members (44,550)
Net loss (6,307,424)
------------
Partners' capital, December 31, 1998 40,845,343
Capital contributions (unaudited) 876,472
Net activity with affiliated broadcast property (unaudited) 4,444,096
Distributions to members (unaudited) (10,112)
Net loss (unaudited) (4,892,617)
------------
Partners' capital, September 30, 1999 (unaudited) $ 41,263,182
============
</TABLE>
See accompanying notes to combined financial statements
7
<PAGE> 9
BROADCASTING PARTNERS HOLDINGS RADIO GROUP
Combined Statements of Cash Flows
<TABLE>
<CAPTION>
JANUARY 9, 1997 (UNAUDITED) (UNAUDITED)
(INCEPTION) THROUGH YEAR ENDED NINE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1998 1999
------------------- ------------ ----------------- -----------------
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net loss $ (3,561,170) (6,307,424) (4,558,971) (4,892,617)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Bad debt expense 469,875 451,675 319,284 390,725
Amortization of intangibles 3,862,133 7,497,199 5,599,156 5,622,378
Write-off of organization costs -- -- -- 517,416
Amortization of deferred debt costs 86,905 254,358 132,217 166,076
Depreciation and amortization 555,273 1,400,758 1,001,789 1,236,163
Net trade expense (revenue) (104,669) 104,225 (404,513) 56,871
Change in assets and liabilities, net of effects
from purchase of broadcast properties:
Increase in receivables, net (4,117,613) (3,175,106) (2,506,359) (676,081)
Decrease (increase) in prepaid and other
current assets (144,879) (1,082,513) (283,101) (28,809)
Decrease (increase) in other noncurrent assets 8,832 18,546 (464,579) (44,048)
Increase (decrease) in accounts payable, accrued
expenses and other liabilities 1,267,756 2,309,207 1,342,875 (1,299,127)
Decrease in due to receiver -- (63,238) -- (9,971)
Increase (decrease) in due to related party 28,601 415,628 (73,823) 86,440
Increase (decrease) in other
noncurrent liabilities 143,907 (149,371) 297,191 79,775
------------ ----------- ----------- -----------
Net cash provided by (used in) operating
activities (1,505,049) 1,673,944 401,166 1,205,191
------------ ----------- ----------- -----------
Cash flows from investing activities:
Costs to acquire broadcast properties, net of cash
acquired (78,769,710) (10,514,010) (7,674,850) --
Capital expenditures (475,166) (2,411,882) (2,180,117) (1,296,994)
Increase in organization costs (421,591) (213,349) (43,840) --
Distributions to Partners -- (44,550) -- (10,112)
Cash received from disposal of assets -- 27,499 15,767 86,000
Other -- (286,503) (200,928) 3,058
------------ ----------- ----------- -----------
Net cash used in investing activities (79,666,467) (13,442,795) (10,083,968) (1,218,048)
------------ ----------- ----------- -----------
Cash flows from financing activities:
Repayment of long-term debt (3,371,108) (1,386,779) (865,081) (42,188,271)
Cash received from long term debt 48,850,000 7,350,000 4,850,000 36,150,000
Cash received from loans -- 362,424 40,165 --
Net borrowings (repayments) on line of credit (433,866) 1,620,000 1,290,000 208,874
Repayments of capital lease obligations -- -- (37,047) (42,205)
Loan acquisition fees (1,177,500) (284,814) (18,932) (250,000)
Net activity with affiliated broadcast property (2,912,799) 54,999 -- 4,444,096
Proceeds from partners' capital contributions 41,415,165 4,201,087 4,200,000 876,472
------------ ----------- ----------- -----------
Net cash provided by (used in)
financing activities 82,369,892 11,916,917 9,459,105 (801,034)
------------ ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 1,198,376 148,066 (223,697) (813,891)
Cash and cash equivalents, beginning of period 238,325 1,436,701 1,436,701 1,584,767
============ =========== =========== ===========
Cash and cash equivalents, end of period $ 1,436,701 1,584,767 1,213,004 770,876
============ =========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
8
<PAGE> 10
BROADCASTING PARTNERS HOLDINGS RADIO GROUP
Notes to Combined Financial Statements
(1) BASIS OF COMBINATION AND BUSINESS DESCRIPTION
Broadcasting Partners Holdings Radio Group ("Broadcasting Partners")
represents the broadcasting properties of Broadcasting Partners Holding
Limited Partnership (the "Partnership") which are subject to an asset
purchase agreement with Citadel Communications Corporation. These
financial statements exclude broadcasting properties sold to third
parties.
The corporate overhead costs of the Partnership principally consist of
salaries and facility costs. The platform companies reimburse the salary
expenses through a management fee, which has been included in these
financial statements. Corporate facilities costs aggregating $247,000 and
$78,000 for 1997 and 1998 have been excluded from these financial
statements as they relate to the Partnership's headquarters which will
not be acquired in the acquisition.
Partners' capital represents the combined partner capital of the
individual platform companies, and includes the capital allocable to the
Partnership as well as the minority investors in the Partnership's
subsidiaries.
The Partnership operates the broadcasting properties through its
subsidiaries Spring Broadcasting, LLC, Pilot Communications, LLC, Mercury
Radio Communications, LLC, Sound Broadcasting, LLC and Gleiser
Communications, L.P. (collectively the platform companies) which operate
the following radio stations, either through direct ownership, or through
Time Brokerage Agreements, Joint Sales Agreements or Local Marketing
Agreements (collectively LMAs):
<TABLE>
<CAPTION>
Subsidiary Broadcast Properties City of License
---------- -------------------- ---------------
<S> <C> <C> <C>
Spring Broadcasting, LLC WBSM-AM New Bedford, MA
WFHN-FM New Bedford, MA
WFPG-AM/FM Atlantic City, NJ
WKOE-FM (LMA) Atlantic City, NJ
WPUR-FM Atlantic City, NJ
WQGN-FM Groton, CT
WSUB-AM Groton, CT
Pilot Communications, LLC WAQX-FM Syracuse, NY
WNTQ-FM Syracuse, NY
WLTI-FM Syracuse, NY
WNSS-AM Syracuse, NY
WMME-FM Augusta-Waterville, ME
WEZW-AM Augusta-Waterville, ME
WEBB-FM Augusta-Waterville, ME
WTVL-AM Augusta-Waterville, ME
WBPW-FM Presque Isle, ME
WQHR-FM Presque Isle, ME
WOZI-FM Presque Isle, ME
WCRQ-FM Dennysville, ME
(formerly WHRR-FM)
WIII-FM Cortland, NY
WKRT-AM Cortland, NY
Mercury Radio WGRF-FM Buffalo, NY
Communications, LLC WEDG-FM Buffalo, NY
WHTT-AM/FM Buffalo, NY
CKEY-FM (JSA) Niagara Falls, Ontario
Sound Broadcasting, LLC KYEA-FM Monroe, LA
KMYY-FM Monroe, LA
KCTO-FM Monroe, LA
Gleiser Communications, L.P. KDOK-FM Tyler-Longview, TX
Gleiser Communications, LLC KTBB-AM Tyler-Longview, TX
KGLD-AM Tyler-Longview, TX
KEES-AM Tyler-Longview, TX
KYZS-AM Tyler-Longview, TX
</TABLE>
9
(Continued)
<PAGE> 11
BROADCASTING PARTNERS HOLDINGS RADIO GROUP
Notes to Combined Financial Statements
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) CASH EQUIVALENTS
For purposes of the statement of cash flows, Broadcasting Partners
considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents. The fair market
value of such investments approximates cost.
(B) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation expense is
computed using the straight-line method, or an accelerated method,
over the estimated useful lives of the assets, which range from
three to thirty-nine years.
The costs of leasehold improvements are amortized using the
straight-line method over the lesser of their estimated useful
lives or the terms of the respective leases.
(C) INTANGIBLE ASSETS
Intangible assets consist principally of network affiliation
agreements, broadcasting licenses, covenants not to compete, and
the excess of costs over the fair value of net assets acquired.
Amortization expense is computed on a straight-line basis over the
estimated lives of the assets which range from 2-15 years.
(D) INCOME TAXES
The platform companies are pass-through entities for income tax
purposes since profits and losses and the related tax attributes
are deemed to be distributed to, and to be reportable by, the
members of the platform companies on their respective income tax
returns.
(E) LIMITED LIABILITY AGREEMENT
The allocation of Partnership profits and losses, cash
distributions, voting rights, certain equity preference and
appreciation rights, and other matters are defined in the Limited
Liability Agreement.
(F) REVENUES
Broadcast revenues are derived principally from the sale of
program time and spot announcements to local, regional, and
national advertisers. Advertising revenue is recognized in the
period during which the program time and spot announcements are
broadcast.
10
(Continued)
<PAGE> 12
BROADCASTING PARTNERS HOLDINGS RADIO GROUP
Notes to Combined Financial Statements
(G) TRANSACTIONS WITH AFFILIATED BROADCAST PROPERTIES
Broadcasting Partners previously owned additional radio properties
which were sold to a third party. The assets, liabilities and
results of operations of these properties have been excluded from
these financial statements. However, Broadcasting Partners had
certain activities with these properties, including advancing
funds and receiving excess cash from these stations' operations.
Additionally, during the nine months ended September 30, 1999, the
affiliated broadcast properties were sold. Broadcasting Partners
received the net proceeds from the sale. These activities have
been presented as capital transactions under the caption Net
activity with affiliated broadcast properties.
(H) SALES AGREEMENTS
Broadcasting Partners enters into joint sales agreements (JSA),
local marketing agreements (LMA), and time brokerage agreements
(TBA) with third party broadcast properties or in connection with
its acquisitions of broadcast properties. Under certain of these
agreements, the Company purchases all advertising time of the
stations in exchange for a monthly fee. The revenue from the sale
of such advertising time is recorded as broadcast revenues in the
accompanying statements of operations. The monthly fee is recorded
as a separate component of operating expenses captioned LMA fees.
The other expenses relating to stations operated under LMAs are
classified in the same manner as owned properties.
Other agreements call for the Partnership to act as a sales agent
for the other broadcast properties and share in the revenues
generated. These activities are included in other revenues.
(I) BARTER TRANSACTIONS (TRADE REVENUES AND EXPENSES)
Barter transactions are recorded at the estimated fair values of
the products and services received. Barter revenues are recognized
when commercials are broadcast. The assets or services received in
exchange for broadcast time are recorded when received or used.
(J) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(K) CONCENTRATION OF CREDIT RISK
A significant portion of the Broadcasting Partners accounts
receivable are due from local, regional, and national advertising
agencies.
(L) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF
Broadcasting Partners accounts for the impairment of long-lived
assets in accordance with the provisions of SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable.
11
(Continued)
<PAGE> 13
BROADCASTING PARTNERS HOLDINGS RADIO GROUP
Notes to Combined Financial Statements
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less
costs to sell.
(M) DERIVATIVE FINANCIAL INSTRUMENTS
Broadcasting Partners has purchased an interest rate ceiling and
an interest rate collar, which are amortized to interest expense
over the term of the agreements. Unamortized premiums are included
in other assets in the consolidated balance sheet. Amounts
receivable under the ceiling agreements and payable under the
floor agreement are accrued as a component of interest expense. No
amounts have been due under these arrangements (note 14).
(N) COMPREHENSIVE INCOME
As of January 1, 1998, Broadcasting Partners adopted Statement of
Financial Accounting Standard No. 130 (SFAS No. 130), Reporting
Comprehensive Income. SFAS No. 130 establishes new rules for
reporting and display of comprehensive income and its components:
however, the adoption of SFAS No. 130 had no impact on the
financial statements as the Partnership had no transactions which
would be considered Other Comprehensive Income.
(O) ACCOUNTING FOR ORGANIZATION COSTS
As of January 1, 1999, Broadcasting Partners adopted the
provisions of Statement of Position No. 98-5, Reporting on the
Costs of Start-up Activities ("SOP 98-5"), which requires costs of
start-up activities, including organization costs, to be expensed
as incurred. Broadcasting Partners has capitalized certain
organization costs associated with the set-up of some of its radio
stations and platform companies. The remaining balances of the
organization costs were written-off as of January 1, 1999 in
implementing SOP 98-5. Broadcasting Partners recognized a charge
to income of $517,416 for the nine months ended September 30, 1999
as a cumulative effect of a change in accounting principle.
(P) ADVERTISING AND PROMOTION
Advertising and promotion costs consist primarily of media
advertising and listener prizes, and are expensed as incurred.
(Q) UNAUDITED INTERIM FINANCIAL INFORMATION
The unaudited combined balance sheet, statements of operations and
changes in partners' capital, and cash flows as of September 30,
1999 and for the nine months ended September 30, 1998 and 1999
have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions of Regulation S-X. In the opinion of management,
all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the interim period are not necessarily
indicative of the results that may be expected for any future
period including the year ending December 31, 1999.
12
(Continued)
<PAGE> 14
BROADCASTING PARTNERS HOLDINGS RADIO GROUP
Notes to Combined Financial Statements
(3) ACQUISITION OF BROADCAST PROPERTIES
In January 1997, Spring acquired WBSM-AM and WFHN-FM (New Bedford, MA),
WFPG-AM/FM (Atlantic City, NJ) and the LMA rights for, and an option to
purchase, WKOE-FM (Atlantic City, NJ), WQGN-FM and WSUB-AM (Groton, CT)
and other broadcast properties, out of receivership, for $14.0 million.
$2.4 million was applicable to these other broadcast properties which
were sold during 1999 and will not be included as part of the sale to
Citadel.
Also in January 1997, the Partnership acquired a 62.5 percent interest in
Pilot for $6.25 million. At the date of acquisition Pilot operated
WAQX-FM, WNTQ-FM and WNSS-AM (Syracuse, NY) and WMME-FM, WEZW-AM, WEBB-FM
and WTVL-AM (Augusta-Waterville, ME). Pilot then purchased the assets of
WLTI-FM (Syracuse, NY) for $2.8 million.
In October 1997, the Partnership acquired a 60.3 percent interest in
Mercury Radio Communications, LLC through a leveraged buy-out
transaction. Broadcast properties include WGRF-FM, WEDG-FM, and
WHTT-AM/FM (Buffalo, NY), which had a value of $62 million.
In November 1997, Sound purchased the assets of KYEA-FM, KMYY-FM, and
KCTO-FM in three separate transactions for an aggregate purchase price of
$4.97 million. This amount includes cash paid as well as notes payable to
the seller and amounts due under noncompete agreements.
In November 1997, Gleiser purchased the assets of KDOK-FM, KTBB-AM and
KGLD-AM (Tyler, TX) for $2.3 million plus the assumption of certain
liabilities. From August 8, 1997 through the date of acquisition, Gleiser
operated the station through an LMA agreement with Gleiser
Communications, Inc.
In October 1998, Spring purchased substantially all of the assets of
WPUR-FM (Atlantic City, NJ) - (formerly WZZP-FM) for $2.9 million. From
May 1998 through the date of acquisition, Spring operated the station
through an LMA agreement.
In April 1998, Pilot purchased substantially all of the assets of
WBPW-FM, WQHR-FM, WOZI-FM (Presque Isle, ME) and WCRQ-FM (formerly
WHRR-FM) (Dennysville, ME) for $5.2 million.
In June 1998, Pilot purchased substantially all of the assets of WIII-FM
and WKRT-AM (Cortland, NY) for $1.6 million. From March 1998 through the
date of acquisition, Pilot operated the stations through a Time Brokerage
Agreement.
In July 1998, Gleiser purchased substantially all of the assets of
KEES-AM and KYZS-AM (Tyler, TX) for $950,000. From November 1997 through
the date of acquisition, Gleiser operated the stations through an LMA
agreement.
13
(Continued)
<PAGE> 15
BROADCASTING PARTNERS HOLDINGS RADIO GROUP
Notes to Combined Financial Statements
These acquisitions have been accounted for under the purchase method of
accounting and, accordingly, the assets acquired and liabilities assumed
have been recorded at their estimated fair value as of the acquisition
date, as estimated by management. The acquisitions are generally financed
through a combination of capital contributions and borrowing arrangements
with financial institutions. In instances where the former owners have
retained a minority interest, the portion of the assets and liabilities
owned by the former owners has been maintained at the predecessors'
carrying value at the date of the transaction. The allocation of the
aggregate purchase prices is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- ------
<S> <C> <C>
Land $ 640 184
Property and equipment 6,235 937
Cash and cash equivalents 183 --
Accounts receivable 3,512 --
Prepaid expenses and other current assets 394 --
Programming contract rights 103 --
Intangible assets 97,482 10,258
Accounts payable and accrued interest (2,309) --
Debt assumed (17,487) --
-------- ------
Total consideration $ 88,753 11,379
======== ======
</TABLE>
(4) PROPERTY AND EQUIPMENT
A summary of property and equipment is as follows (in thousands):
<TABLE>
<CAPTION>
(Unaudited)
December 31, December 31, September 30,
1997 1998 1999
------------ ------------ -------------
<S> <C> <C> <C>
Land $ 640 898 881
Land improvements 17 17 17
Leasehold improvements 197 453 337
Buildings and improvements 951 1,889 2,346
Office equipment, furniture, and fixtures 953 1,738 1,837
Tower and antenna equipment 2,039 1,909 1,461
Broadcast and production equipment 2,521 5,440 6,305
Tools and materials 125 125 388
Vehicles 173 466 500
Construction in progress 83 200 130
------ ------ ------
7,699 13,135 14,202
Less accumulated depreciation (555) (3,617) (4,794)
------ ------ -----
$7,144 9,518 9,408
====== ====== ======
</TABLE>
14
(Continued)
<PAGE> 16
BROADCASTING PARTNERS HOLDINGS RADIO GROUP
Notes to Combined Financial Statements
(5) INTANGIBLE ASSETS AND AMORTIZATION
Intangible assets are comprised of the following (in thousands):
<TABLE>
<CAPTION>
(UNAUDITED)
USEFUL LIFE DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
IN YEARS 1997 1998 1999
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
FCC licenses 15 $86,652 96,218 96,218
Network affiliations 15 2,681 2,681 2,681
Noncompete agreements 2 - 5 880 1,007 1,007
Goodwill 15 3,538 3,649 3,649
Other intangibles 2 - 15 2,984 3,486 3,099
--------- --------- ---------
96,735 107,041 106,654
Accumulated amortization (3,892) (11,458) (16,862)
--------- --------- ---------
$92,843 95,583 89,792
========= ========= =========
</TABLE>
The useful lives for licenses, network affiliations and goodwill are
determined to be 15 years. The useful lives of noncompete agreements and
other intangibles are based on contracted periods.
15
<PAGE> 17
(6) LONG-TERM DEBT
Details of long-term debt are as follows (in thousands):
<TABLE>
<CAPTION>
(Unaudited)
December 31, December 31, September 30,
1997 1998 1999
------------ ------------ -------------
<S> <C> <C> <C>
Spring Broadcasting Term Loans, payable in quarterly installments through
December 31, 2001, bearing interest at the Bank's base rate plus 1%, 8.75%
and 9.25% as of December 31, 1998
and September 30, 1999 (unaudited), respectively $ 8,030 7,220 6,170
Spring Broadcasting credit facility due December 31, 2001,
bearing interest at 8.75% and 9.25% as of December 31, 1998
and September 30, 1999 (unaudited), respectively -- 1,480 650
Spring Broadcasting Acquisition Loan, due March 31, 1999,
bearing interest at the Bank's base rate plus 1%,
8.75% and 9.25% as of December 31, 1998
and September 30, 1999 (unaudited), respectively -- 2,500 --
Mercury Radio Communications Term Loans, payable in quarterly installments
through June 30, 2006, bearing interest at LIBOR plus 2.75%, 8.098% as of
December 31, 1998 and
ranging from 8.52% - 9.02% as of September 30, 1999 (unaudited) 37,000 37,000 34,900
Mercury Radio Communications credit facility due June 30, 2005, bearing
interest at 8.39% as of September 30, 1999 (unaudited) -- -- 1,000
Pilot Communications Term Loans, payable quarterly in installments
through 2003, bearing interest at the Bank's base rate plus 1.75%, 9.5% and
10.0% as of December 31, 1998 and September 30, 1999
(unaudited), respectively 10,880 10,400 9,815
Pilot Communications Term Loan, payable in quarterly installments
through March 31, 2003, bearing interest at the Bank's base rate plus 1.75%,
9.5% and 10.0% as of December 31, 1998 and September 30,
1999 (unaudited), respectively -- 3,750 3,469
Pilot Communications credit facility due March 31, 2000 bearing interest
at 9.5% and 10.0% as of December 31, 1998 and September 30, 1999
(unaudited), respectively -- -- 1,039
Pilot Communications Notes Payable, Pi-Com Partners, L.P.,
due January 31, 2001, bearing interest at 12% 589 589 589
Pilot Communications Notes Payable, Pi-Com Partners, L.P.,
due January 31, 2001, bearing interest at 15% 2,061 2,061 2,061
Pilot Communications Notes Payable, Salt City Communications,
due 2002 bearing interest at the greater of 8% or prime 800 800 800
Pilot Communications payable to Cayuga Radio Partners Limited Partnership,
secured by letter of credit, payable in annual installments
through June 2002, accrues interest at 10% -- 200 100
Sound Broadcasting and Gleiser Communications Term Loans,
payable in installments beginning March 31, 1999 through December 31, 2004,
bearing interest at LIBOR plus 3%, ranging from 8.313% - 8.69% as of
December 31, 1998 and
8.18% - 8.46% as of September 30, 1999 (unaudited) 3,550 4,650 4,185
Sound Broadcasting Notes Payable, Tom Gay, due in installments
through October 2007, bearing interest at a rate of 8.5% 148 139 131
Gleiser Communications credit facility bearing interest at 8.335% and
ranging from 8.18% - 9.5% as of December 31, 1998 and September 30,
1999 (unaudited), respectively -- 140 205
Capital lease obligations 196 145 103
Other 38 66 51
-------- ------- -------
Total 63,292 71,140 65,268
Less current installments (1,355) (10,729) (6,864)
======== ======= =======
Long-term debt $ 61,937 60,411 58,404
======== ======= =======
</TABLE>
16
(Continued)
<PAGE> 18
BROADCASTING PARTNERS HOLDINGS RADIO GROUP
Notes to Combined Financial Statements
The Radio Group also has working capital and acquisition credit
facilities available for each of the platform companies.
Mercury IBJ Schroder, as agent, $2,000,000 revolving
credit facility as of December 31, 1998, expires
2000, $2,000,000 and $1,000,000 available as of
December 31, 1998 and September 30, 1999
(unaudited), respectively
During 1999, IBJ Schroder, as agent, $8,000,000
acquisition facility, expires 2000, $8,000,000
available as of September 30, 1999 (unaudited)
Spring Summit Bank $1,750,000 revolving credit facility
and $4,250,000 acquisition facility, expire 2001,
$2,020,000 and $5,350,000 available as of December
31, 1998 and September 30, 1999 (unaudited),
respectively
Pilot Summit Bank $1,500,000 revolving credit facility,
expires 2000, $1,500,000 and $461,000 available as
of December 31, 1998 and September 30, 1999
(unaudited), respectively
Sound and Gleiser IBJ Schroder, as agent, $2,000,000 revolving loans
facility as of December 31, 1998, expires 1999,
$1,860,000 available as of December 31, 1998
During 1999, the IBJ Schroder revolving
credit facility was reduced to $350,000.
$105,000 was available as of September 30, 1999
(unaudited).
The interest rate for borrowings under the Mercury, Spring, Pilot, Sound
and Gleiser facilities are based upon either LIBOR or the lender's Base
rate and have a margin ranging from 0% to 3.00% for LIBOR borrowings and
0% to 1.75% for Base rate borrowings.
The aggregate future maturities of long-term debt are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
<S> <C> <C>
1999 $10,729
2000 8,418
2001 16,024
2002 11,156
2003 14,328
Thereafter 10,485
=======
$71,140
=======
</TABLE>
17
(Continued)
<PAGE> 19
BROADCASTING PARTNERS HOLDINGS RADIO GROUP
Notes to Combined Financial Statements
In addition, each of the Term Loans require prepayments, at the lenders'
option, to the extent that certain operating or cash flow results are
obtained. Furthermore, Broadcasting Partners has the ability to prepay a
portion of the Term Loans without penalty.
Each of the Term Loans and credit facilities are secured by substantially
all of the assets and membership interests of the respective platform
companies. The credit agreements contain certain restrictive covenants
and operating requirements, including a restriction on the payment of
dividends from the platform companies to the members or partners,
including the Partnership.
Pilot is currently in default of its loan agreements; however, management
believes that it will be able to renegotiate the debt agreements and has
obtained stand-by commitments for financing with similar terms should it
be unable to satisfactorily negotiate the events of default.
In June 1998, Pilot issued irrevocable letters of credit in the amount of
$230,000 to an escrow agent for Cayuga Radio Partners Limited Partnership
in conjunction with the purchase of broadcast properties. The first
$100,000 may be fully drawn upon within one year of the above date, and
the remaining $130,000 within two years; which includes accrued interest.
The letter of credit is to be drawn against the unused credit facility
for each due date. As of December 31, 1998, no amounts had been drawn
under this letter of credit. As of September 30, 1999 $100,000 had been
drawn under this letter of credit (unaudited).
In April 1999, Sound issued an irrevocable letter of credit in the amount
of $40,000 to the current owners of KTJC in conjunction with the purchase
of broadcast property. This letter of credit reduced the amount available
under the IBJ Schroder revolving loan facility as of September 30, 1999
(unaudited).
(7) LEASES
Broadcasting Partners leases certain property and equipment under
noncancelable operating lease agreements. Rental expense charged to
earnings was approximately $271,000 for the period from January 9, 1997
(inception) through December 31, 1997, $508,951 for the year ended
December 31, 1998 and $343,883 and $370,152 for the nine months ended
September 30, 1998 and 1999 (unaudited), respectively.
Future minimum lease payments under noncancelable operating leases,
exclusive of LMAs, as of December 31, 1998 is approximately (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
<S> <C> <C>
1999 $ 467
2000 455
2001 401
2002 323
2003 225
Thereafter 448
======
$2,319
======
</TABLE>
18
(Continued)
<PAGE> 20
BROADCASTING PARTNERS HOLDINGS RADIO GROUP
Notes to Combined Financial Statements
(8) LOCAL MARKETING AGREEMENTS, TIME BROKERAGE AGREEMENTS AND JOINT
SALES AGREEMENTS
In January 1997, Spring Broadcasting, LLC assumed the rights to an LMA to
operate WKOE-FM (Atlantic City, NJ). In October 1999, Spring exercised an
option to extend the LMA through March 2003. The LMA agreement includes
monthly payments of $10,500 through March 2000 and decreases on March 27,
2000 to $9,500 per month. Spring has an additional option to extend the
LMA through 2006. Total LMA fees were $115,500 for the period January 9,
1997 (inception) through December 31, 1997, $126,000 for the year ended
December 31, 1998 and $94,500 for each nine month period ended September
30, 1998 and 1999 (unaudited).
On June 30, 1997, Broadcasting Partners Buffalo, LLC entered into an LMA
with Mercury Radio Communications, L.P. (Old Mercury) to operate WGRF-FM,
WEDG-FM and WHTT-AM/FM. Payments under this LMA totaled $1,645,000. This
LMA was terminated with the merger between Old Mercury and BT resulting
in the formation of Mercury Radio Communications, LLC.
On August 6, 1997, Gleiser Communications, LLC, entered into a Time
Brokerage Agreement with Gleiser Communications, Inc. to operate the
stations KDOK-FM, KGLD-AM and KTBB-AM, Tyler, Texas. Payments under the
agreement totaled $47,168 through contract termination during 1997.
On October 15, 1997, Mercury entered into a Joint Sales Agreement with
CKEY-FM (Niagara Falls, Ontario Canada) in which Mercury obtained
exclusive rights to sell advertising time in the U.S. on the Canadian
station. Under the terms of the agreement, Mercury and CKEY will share
all U.S. revenues, net of agency and sales commissions and national
representation fees on a 50/50 basis. The agreement extends through
November 2008, at which time it may be terminated with 90 days written
notice.
In November 1997, Gleiser entered into an LMA to operate KEES-AM and
KYZS-AM. Total LMA fees were $10,000 for the period from January 9, 1997
(inception) through December 31, 1997 and $59,743 for the year ended
December 31, 1998 and consisted of the LMA fees of $5,000 per month and
any related costs to operate the station. The LMA agreement was
terminated when these stations were purchased by Gleiser in July 1998.
In March 1998, Pilot entered into a Time Brokerage Agreement to operate
WIII-FM and WKRT-AM, Cortland, NY. Payments under the agreement totaled
$25,500 for the year ended December 31, 1998. This agreement was
terminated in June 1998 when Pilot acquired the assets of the station.
In June 1998, Spring entered into an LMA to broker all programming rights
for WZZP-FM for $23,800 per month LMA fee plus reimbursement of expenses.
The LMA agreement was terminated in October 1998 when Spring acquired the
station (currently called WPUR-FM). Total LMA fees were $142,432 for the
year ended December 31, 1998.
During April 1999, Sound entered into an LMA to broker all programming
rights for KTJC-FM for $1,750 per month LMA fees plus reimbursement of
expenses. Total LMA fees were $10,602 for the nine months ended September
30, 1999 (unaudited).
During August 1999, Mercury entered into an LMA to broker all programming
rights for WHLD-AM for $1,200 per month LMA fee plus reimbursement of
expenses. Total LMA fees were $1,800 for the nine months ended September
30, 1999 (unaudited). This agreement terminates during August 2007.
19
(Continued)
<PAGE> 21
BROADCASTING PARTNERS HOLDINGS RADIO GROUP
Notes to Combined Financial Statements
(9) SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest totaled approximately $2,229,000 for the period
January 9, 1997 (inception) through December 31, 1997, $5,512,229 for the
year ended December 31, 1998 and $4,294,419 and $4,940,731 for the nine
months ended September 30, 1998 and 1999 (unaudited).
In connection with the acquisitions during the period January 9, 1997
(inception) through December 31, 1997, the Company assumed certain
liabilities of $19,796,000. Additionally, the Company issued $950,000 in
notes payable to the sellers of broadcast properties acquired.
In connection with the acquisitions for the year ended December 31, 1998,
Broadcasting Partners committed to pay $200,000 in the future which is
supported by a $230,000 letter of credit.
(10) RELATED PARTY TRANSACTIONS
(A) FINANCIAL ADVISORY AGREEMENT
Broadcasting Partners has entered into various agreements which
require payments to Veronis Suhler & Associates (VS&A), and other
affiliates, upon the disposal or purchase of additional stations
or receipt of additional capital contributions to certain of the
platform companies. These payments are based upon a fixed
percentage of the purchase price should additional station
acquisitions or disposals occur. For the periods January 9, 1997
(inception) through December 31, 1997, the year ended December 31,
1998 and the nine months ended September 30, 1999 (unaudited),
fees for these services totaling $1,128,000, $64,000 and $43,000,
respectively, were capitalized as acquisition costs.
(B) MANAGEMENT AND MONITORING FEES
Pursuant to the platform companies' operating agreements,
Broadcasting Partners pays management fees to Broadcasting
Partners Management Corporation, an affiliate. These fees are
generally a defined percentage of net revenues. Additionally,
Broadcasting Partners pays monitoring fees to VS&A. Some of the
monitoring fee payments are deferred until the sale or rollup of
the platform company. As of December 31, 1997 and 1998 and
September 30, 1999 (unaudited), $242,345, $497,862 and $581,902,
respectively, are due to these related parties for such fees,
including deferred amounts.
In April 1999, Spring Broadcasting, LLC paid a one-percent
transaction fee of $43,000 to VS&A for the March 1999 sale of
WXLC-FM and WKRS-AM in Waukegan, IL (unaudited).
(11) EMPLOYEE BENEFITS PLAN
Broadcasting Partners maintains qualified profit-sharing plans with
trustees, which include thrift provisions qualifying under Section 401(k)
of the Internal Revenue Code, covering substantially all employees. The
provisions allow the participants to contribute up to 15 percent of their
compensation in the plan year, subject to statutory limitations. The
Partnership does not contribute to the plan.
20
(Continued)
<PAGE> 22
BROADCASTING PARTNERS HOLDINGS RADIO GROUP
Notes to Combined Financial Statements
(12) COMMITMENTS AND CONTINGENCIES
Broadcasting Partners is involved in certain litigation matters arising
in the normal course of business. In the opinion of management, these
matters are not significant and will not have a material adverse effect
on the Partnership's financial position.
(A) SPRING PURCHASE PRICE ADJUSTMENTS
Broadcasting Partners is currently negotiating the final purchase
price of the broadcast properties acquired with the receiver from
whom Spring acquired its broadcasting assets. The dispute relates
to the interpretation of the purchase agreement.
(B) EQUITY BASED COMPENSATION AND EMPLOYMENT AGREEMENTS
The Partnership maintains various equity based compensation
agreements for certain key executives of the platform companies.
Such plans are deemed to be variable plans for accounting
purposes, and as such compensation expense is determined based
upon the fair value, and is recognized over the vesting term. No
amounts were earned under these agreements for the periods January
9, 1997 (inception) through December 31, 1997, the year ended
December 31, 1998 and the nine months ended September 30, 1998 and
1999 (unaudited). The Partnership has also entered into employment
agreements in the ordinary course of business.
The pending transaction with Citadel Broadcasting Company will
trigger some of these compensation plans; however, these plans are
generally dependent upon the final allocation of the purchase
price to the various platform companies and the actual date that
the transaction closes. As a result, management can not currently
estimate the amounts to be earned under these agreements with any
accuracy, and therefore has not recognized any expense under these
plans.
(C) PENDING ACQUISITIONS
In February 1999, Sound entered into an asset purchase agreement
to acquire KTJC-FM (Monroe, LA) for $650,000. This acquisition is
pending subject to FCC approval.
In June 1999, Spring entered into an asset purchase agreement to
acquire WVVE-FM (Stonington, CT) for $3,850,000. This acquisition
has been approved by the FCC and will be completed upon the close
of the Citadel acquisition (unaudited).
In 1999, Mercury entered into an asset purchase agreement to
acquire WHLD-AM (Buffalo, NY) for $750,000. This acquisition is
pending subject to FCC approval (unaudited).
The Partnership continues to evaluate potential acquisitions and
consider other transactions to maximize the Partners' interests
however, as of September 30, 1999 the Company has not committed to
any other transaction.
(D) YEAR 2000 (UNAUDITED)
As of September 30, 1999, one of the Broadcasting Partners'
broadcasting systems is not year 2000 compliant. Broadcasting
Partners is awaiting the delivery of a piece of equipment from a
vendor and, upon installation of this equipment, expects to be
year 2000 compliant, for all mission critical systems.
21
(Continued)
<PAGE> 23
BROADCASTING PARTNERS HOLDINGS RADIO GROUP
Notes to Combined Financial Statements
(E) LITIGATION
One of the platform companies has been named in an administrative
filing alleging that certain members of management have committed
sexual harassment. Broadcasting Partners intends to vigorously
defend against this matter; however, assessment of the outcome of
the potential damages cannot be reasonably determined at this
time.
(13) SALE OF BROADCAST PROPERTIES (UNAUDITED)
In October 1999, the Partnership entered into an agreement with Citadel
Broadcasting Company to sell the broadcasting properties of the platform
companies to Citadel for $185 million, subject to approval from the
Federal Communication Commission. The purchase price may be adjusted for
the pending acquisitions or other customary adjustments.
(14) FINANCIAL INSTRUMENTS
(A) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, receivables,
accounts payable, and due to receiver approximate their fair value
due to the short duration to maturity. The carrying value and
related estimated fair value of Broadcasting Partners' remaining
financial instruments are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1998
------------------------ -----------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
-------- ---------- -------- -----------
Assets:
<S> <C> <C> <C> <C>
Note receivable $ 150 150 -- --
Liabilities:
Term loans 59,460 59,460 61,770 61,770
Other notes payable 3,598 3,731 3,589 3,722
Other long-term debt 234 234 5,781 5,781
Interest rate ceilings 48 48 36 36
Off-balance sheet:
Lines of credit -- 35 -- 20
</TABLE>
The carrying value of the Term Loans approximates fair value as
these notes are variable rate instruments. The carrying value of
the Notes Receivable, Other Notes Payable and Other Long-Term Debt
was estimated based upon the related cash flows discounted at
Broadcasting Partners current borrowing rates for similar
instruments.
Unused credit facilities and lines of credit are estimated based
upon the fees currently charged for similar agreements or on the
estimated cost to sell or terminate.
The fair value of the interest rate ceilings reflect the estimated
amounts that Broadcasting Partners would receive or pay to
terminate the contacts on the reporting date based upon quotes
from commercial banks.
22
(Continued)
<PAGE> 24
BROADCASTING PARTNERS HOLDINGS RADIO GROUP
Notes to Combined Financial Statements
(B) DERIVATIVE FINANCIAL INSTRUMENTS
The Partnership uses derivative financial instruments to hedge
interest rate risk associated with borrowing under variable rate
credit facilities. These interest rate hedges are required
pursuant to the provisions of the debt agreements and apply to the
current balance under the specified borrowing. As of December 31,
1997 and 1998 and September 30, 1999, (unaudited) the Partnership
has an interest rate ceiling with a notional principal of
$8,030,000 and an interest rate ceiling of 8.5625 percent plus the
applicable margin for LIBOR loans and 11 percent plus the
applicable margin on Base rate loans. The ceiling expires in
January 2000. The Partnership entered into interest rate collar
agreements with a notional principal of $20,000,000, an interest
rate ceiling of 9.0 percent plus the applicable margin for LIBOR
loans, and an interest rate floor of 4.0 percent plus the
applicable margin for LIBOR loans. The collar expires in February
2001.
23
<PAGE> 25
[Andrews Hooper & Pavlik P.L.C. Letterhead]
Report of Independent Auditors
Shareholder
Liggett Broadcast, Inc.
We have audited the accompanying combined balance sheet of Liggett Broadcast,
Inc. as of December 31, 1998, and the related combined statements of operations,
shareholder's equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Liggett Broadcast,
Inc. at December 31, 1998, and the combined results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Andrews Hooper & Pavlik P.L.C.
Okemos, Michigan
December 6, 1999
24
<PAGE> 26
Liggett Broadcast, Inc.
Combined Balance Sheet
December 31, 1998
<TABLE>
<S> <C>
ASSETS (Note 3)
Current assets:
Cash $ 1,299,670
Accounts receivable, less allowance of $195,000 3,020,767
Other 183,893
-----------
Total current assets 4,504,330
Property and equipment (Note 1):
Land and improvements 453,856
Buildings and improvements 1,875,355
Broadcasting equipment 3,717,854
Furniture and fixtures 972,843
Vehicles and equipment 380,066
-----------
7,399,974
Less accumulated depreciation 3,107,765
-----------
4,292,209
Other assets (Note 1):
Broadcasting rights, net of amortization 26,292,310
Note receivable from shareholder 125,000
Other 48,305
-----------
26,465,615
-----------
$35,262,154
===========
</TABLE>
See accompanying notes.
25
<PAGE> 27
<TABLE>
<S> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 766,461
Dividends payable in lieu of taxes 450,000
Employee compensation 319,573
Accrued interest 98,452
Taxes, other than income tax 179,544
Other 34,954
Current portion of long-term debt (Note 3) 1,517,085
-----------
Total current liabilities 3,366,069
Long-term debt (less current portion) (Note 3) 17,494,741
Minority interest in consolidated subsidiary 18,000
Shareholder's equity:
Common stock, par value $1 per share--authorized 50,000
shares, issued and outstanding 7,400 shares 7,400
Additional paid-in capital 1,000,000
Retained earnings (Note 3) 13,375,944
-----------
14,383,344
-----------
$35,262,154
===========
</TABLE>
See accompanying notes.
26
<PAGE> 28
Liggett Broadcast, Inc.
Combined Statement of Shareholder's Equity
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
---------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1998 $ 7,400 $ 1,000,000 $12,008,196
Net earnings 2,090,322
Dividends to shareholder in lieu of taxes and other (722,574)
---------------------------------------------
Balance at December 31, 1998 $ 7,400 $ 1,000,000 $13,375,944
=============================================
</TABLE>
See accompanying notes.
27
<PAGE> 29
Liggett Broadcast, Inc.
Combined Statement of Operations
Year ended December 31, 1998
<TABLE>
<S> <C>
Operating revenues including trade revenue of $432,000 $ 19,585,374
Less direct agency commissions 2,685,807
------------
16,899,567
Operating expenses:
Technical 375,157
Program 2,774,215
Sales 2,943,051
Promotion 1,152,152
Administrative 4,332,377
Depreciation and amortization 1,766,865
------------
13,343,817
------------
Operating earnings 3,555,750
Other revenues (expenses):
Interest expense (1,565,384)
Management fees 25,825
Loss on sale of property and equipment (79,850)
Interest income 54,192
Rent 98,511
Other 1,278
------------
(1,465,428)
------------
Net earnings $ 2,090,322
============
</TABLE>
See accompanying notes.
28
<PAGE> 30
Liggett Broadcast, Inc.
Combined Statement of Cash Flows
Year ended December 31, 1998
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net earnings $ 2,090,322
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 1,766,865
Loss on sale of property and equipment 79,850
Changes in operating assets and liabilities:
Accounts receivable (372,399)
Other current assets (67,063)
Other assets 76,763
Accounts payable 246,285
Other current liabilities (5,386)
-----------
Net cash provided by operating activities 3,815,237
INVESTING ACTIVITIES
Purchases of property and equipment (549,643)
Purchase of broadcast entity (3,779,306)
Proceeds from sale of property and equipment 26,200
-----------
Net cash used in investing activities (4,302,749)
FINANCING ACTIVITIES
Repurchase of membership interest in consolidated
subsidiary (20,000)
Cash dividends to shareholder in lieu of taxes and other (606,574)
Proceeds from long-term debt and note payable 4,200,000
Principal payments on long-term debt and notes payable (2,310,874)
-----------
Net cash provided by financing activities 1,262,552
-----------
Increase in cash 775,040
Cash at beginning of year 524,630
-----------
Cash at end of year $ 1,299,670
===========
Supplemental cash flow information:
Interest paid $ 1,575,012
</TABLE>
See accompanying notes.
29
<PAGE> 31
Liggett Broadcast, Inc.
Notes to Combined Financial Statements
December 31, 1998
1. ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF OPERATIONS
Liggett Broadcast, Inc. (the Company) is a subchapter S Corporation which
includes several divisions and Rainbow Radio LLC (a limited liability company
82% owned by Liggett Broadcast, Inc.) and certain assets and operations of
specified properties held by New Tower, Inc. (an affiliated subchapter S
Corporation under common ownership) and LLJ Realty, LLC (an affiliated limited
liability company under common management and control). The Company operates
radio stations.
In December 1999, the Company agreed to sell certain tangible personal property,
improvements and fixtures, and certain real property and leasehold interests,
certain FCC licenses and certain other assets used in operation of the radio
stations as specified in the asset purchase agreement with Citadel
Communications Corporation, Citadel Broadcasting Company and Citadel License,
Inc., (the "Asset Purchase Agreement"). The sale price for the assets sold is
$120,500,000.
The accompanying combined financial statements include the accounts of Liggett
Broadcast, Inc., Rainbow Radio LLC, and the assets and operations of those
properties held by New Tower, Inc. and LLJ Realty, LLC that are included in the
Asset Purchase Agreement. LLJ Realty, LLC had no assets or operations as of
December 31, 1998.
All intercompany accounts are eliminated upon combination. The shareholder of
the Company controls another affiliate (D&B Realty) that leases certain property
to the Company. The assets of D&B Realty are excluded from the assets to be sold
in the Asset Purchase Agreement and are not included in the accompanying
combined financial statements.
On November 2, 1998, the Company acquired the assets of WTCF in Saginaw/Bay
City, Michigan for $3,779,000 including the costs to acquire. The Company
acquired substantially all of the assets of the station including net accounts
receivable ($119,000), property and equipment ($25,000), and an FCC license and
other intangibles ($3,635,000).
30
<PAGE> 32
Liggett Broadcast, Inc.
Notes to Combined Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
Like any other company, advances and changes in available technology can
significantly affect the business and operations of the Company. For example, a
challenging problem exists as many computer systems do not have the capability
of recognizing the year 2000 or years thereafter. This "Year 2000 Computer
Problem" creates risk for the Company from unforeseen problems in its own
computer systems. The effects of the "Year 2000 Computer Problem" may be
experienced before, on or after January 1, 2000, and if not addressed, the
impact on operations and financial reporting may affect the Company's ability to
conduct normal business operations.
ACCOUNTS RECEIVABLE
Accounts receivable represent amounts due primarily from advertising agencies
and direct customers located in Michigan. Accounts receivable are not secured by
any collateral arrangements.
INCOME TAXES
As of January 1, 1987 the shareholder of the Company elected under Subchapter S
of the Internal Revenue Code to include the Company's operating results in his
own income for federal income tax purposes. Accordingly, there is no provision
for federal income taxes. At the time of the election, the Company had
approximately $315,000 of net operating losses for financial reporting purposes
and $575,000 of net operating losses for tax reporting purposes. The net
operating losses, which expire in 1999, were suspended by this election and are
not available to the shareholder to offset future income generated by the
Company as long as the Company continues to maintain its Subchapter S election.
PROPERTY AND EQUIPMENT
Property and equipment are stated on the basis of cost. Depreciation is computed
by the straight-line method for financial reporting purposes based upon the
estimated useful lives of the assets.
BROADCASTING RIGHTS AND OTHER INTANGIBLES
Broadcasting rights at December 31, 1998 include FCC licenses for all of the
stations and goodwill. Substantially all FCC licenses and goodwill are amortized
over a 25 year period. Total accumulated amortization was $3,352,491 at December
31, 1998.
31
<PAGE> 33
Liggett Broadcast, Inc.
Notes to Combined Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
ESTIMATES
Management uses estimates and assumptions in preparing financial statements in
accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts and disclosures for assets and
liabilities, including amounts for property and equipment, broadcasting rights
and other intangibles, and the reported revenues and expenses. Actual results
could vary from the estimates that were assumed in preparing the financial
statements.
CASH
Cash includes repurchase agreements and other amounts not covered by FDIC
insurance.
2. RENT EXPENSE
The Company leases, under a month to month agreement, an office facility and
studio from D & B Realty. Rent expense under this agreement approximated $25,000
in 1998. Rent expense for all operating leases including the amount above,
approximated $170,000 in 1998.
Future minimum lease payments under noncancellable operating leases are as
follows:
<TABLE>
<S> <C>
1999 $ 72,000
2000 49,000
2001 14,000
2002 14,000
2003 14,000
2004 and thereafter 757,000
---------
$ 920,000
=========
</TABLE>
The future minimum lease payments include annual payments for three tower site
leases. One of these leases terminates in December of 2085. The current lease
rate is $5,500 per year and increasing every ten years by the increase in the
producer price index but not more than 10%. Another tower site lease requires
payments of $6,000 per year plus increases each January based on the consumer
price index through 2007. A third tower site lease requires payments of $2,000
per year plus increases based on the consumer price index through 2015. This
lease agreement also has twenty year renewal options.
32
<PAGE> 34
Liggett Broadcast, Inc.
Notes to Combined Financial Statements (continued)
3. LONG-TERM DEBT AND NOTES PAYABLE TO BANK
Substantially all assets of the Company are pledged as collateral under terms of
the notes payable to bank. The bank notes are guaranteed by the Company's sole
shareholder and the Company has guaranteed payment of the shareholder's bank
debt of $546,000 at December 31, 1998. The bank loan agreements require, among
other things, that the Company maintain certain cash flow ratios and restrict
the Company from the payment of cash dividends, except for the purpose of
shareholder tax payments and other approved payments.
Aggregate maturities of long-term debt for the years following 1998 are as
follows: 1999--$1,517,085; 2000--$2,515,580; 2001--$1,838,565; 2002--$1,818,315;
2003--$1,811,565; 2004--$9,510,716.
Long-term debt at December 31 consisted of the following obligations:
<TABLE>
<CAPTION>
1998
-----------
<S> <C>
Note payable to bank at 9%. Note refinanced in February 1999.
See below. Proceeds used to acquire WMMQ and WITL $ 8,693,000
Note payable to bank at 9%. Note refinanced in February 1999
See below. Proceeds used to acquire WJIM and WJIM (AM) 1,260,000
Note payable to bank at 7.86%. Note refinanced in February 1999.
See below. Proceeds used to acquire WTCF 3,750,000
The above notes were refinanced and consolidated into one new note on February
1, 1999. The new note, for $13,609,250, is payable in quarterly installments of
$340,231 plus interest at 1/2% over the bank's prime rate and is due February 1,
2004. The current portion of debt reflects the terms of the new note
Note payable to bank refinanced on February 1, 1999. The new note is payable in
quarterly installments of $112,660 plus interest at 1/2% over the bank's prime
rate and is due February 1, 2004. The current portion of debt reflects the terms
of the refinanced note.
Proceeds used to acquire WFBE 4,506,400
Note payable to bank at 9.26%, due May 1, 2000 714,676
Note payable to bank at 9%, due January 2, 2002 87,750
-----------
19,011,826
Less current portion 1,517,085
-----------
$17,494,741
===========
</TABLE>
33
<PAGE> 35
Liggett Broadcast, Inc.
Notes to Combined Financial Statements (continued)
3. LONG-TERM DEBT AND NOTES PAYABLE TO BANK (CONTINUED)
The Company also has a $850,000 line of credit with the bank which is subject to
annual renewal each year on April 1. Interest on borrowings thereunder ($0 at
December 31, 1998) is at 9.0%.
4. DEFINED CONTRIBUTION PLAN
Effective January 1, 1997, the Company formed a 401(k) retirement plan covering
all eligible employees of the Company. Participation and deferral percentages
(maximum 15% of eligible compensation for employee's contributions) are at the
employee's discretion. The Company may make a discretionary contribution.
Employer contributions under this plan were $57,994 in 1998.
5. SUBSEQUENT EVENTS
In 1999, the Company (specifically LLJ Realty, LLC) began construction of a
building in Saginaw, Michigan with estimated total construction costs of
$1,200,000.
In 1999, the Company has an outstanding offer to purchase the assets of a radio
station for approximately $350,000 plus costs to acquire.
In December 1999, the Company agreed to sell certain assets of the Company to
Citadel Broadcasting Company and Citadel License, Inc. as described in the Asset
Purchase Agreement (see Note 1).
6. UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
The Asset Purchase Agreement (described in Note 1) specifically excludes: (1)all
cash, cash equivalents or similar type investments, (2)accounts receivable,
(3)assets not used in connection with the operations of the stations, (4)any and
all claims with respect to transactions occurring or arising prior to the
closing date, including, without limitation, claims for tax refunds, and
(5)certain personal property and real property and other assets specified in the
Asset Purchase Agreement and exhibits and schedules thereto.
34
<PAGE> 36
Liggett Broadcast, Inc.
Notes to Combined Financial Statements (continued)
6. UNAUDITED PRO FORMA CONDENSED BALANCE SHEET (CONTINUED)
<TABLE>
<CAPTION>
December 31, 1998
----------------------------------------------------------
Combined Balance Excluded Assets Pro Forma Assets
Sheet & Liabilities to be Sold
---------------- --------------- ----------------
<S> <C> <C> <C>
Assets
Cash $ 1,299,670 $ 1,299,670 --
Accounts Receivable 3,020,767 3,020,767 --
Other current assets 183,893 183,893 --
Property and equipment 4,292,209 334,348 $ 3,957,861
Broadcasting rights 26,292,310 26,292,310
Note receivable from shareholder 125,000 125,000 --
Other assets 48,305 48,305 --
----------- ----------- -----------
$35,262,154 $ 5,011,983 $30,250,171
=========== =========== ===========
Liabilities
Current liabilities $ 3,366,069 $ 3,366,069 --
Long-term debt (less current portion) 17,494,741 17,494,741 --
Minority interest in consolidated subsidiary 18,000 18,000 --
Shareholder's equity 14,383,344 14,383,344 --
----------- ----------- -----------
$35,262,154 $35,262,154 --
=========== =========== ===========
</TABLE>
35
<PAGE> 37
Liggett Broadcast, Inc.
Combined Balance Sheet
(Unaudited)
September 30, 1999
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash $ 1,917,048
Accounts receivable, less allowance of $110,000 3,114,369
Other 179,333
-----------
Total current assets 5,210,750
Property and equipment:
Land and improvements 479,763
Buildings and improvements 1,741,730
Broadcasting equipment 3,897,367
Construction in process 681,142
Furniture and fixtures 1,220,834
Vehicles and equipment 479,555
-----------
8,500,391
Less accumulated depreciation 3,611,097
-----------
4,889,294
Other assets:
Broadcasting rights, net of amortization 25,428,667
Note receivable from shareholder 175,000
Other 199,791
-----------
25,803,458
-----------
$35,903,502
===========
</TABLE>
See accompanying notes.
36
<PAGE> 38
<TABLE>
<S> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 737,796
Dividends payable in lieu of taxes 456,000
Employee compensation 463,572
Accrued interest 246,264
Accrued taxes 187,751
Other 21,207
Current portion of long-term debt 1,879,865
-----------
Total current liabilities 3,992,455
Long-term debt (less current portion) 16,598,721
Minority interest in consolidated subsidiary 18,000
Shareholder's equity:
Common stock, par value $1 per share--authorized 50,000
shares, issued and outstanding 7,400 shares 7,400
Additional paid-in capital 1,005,000
Retained earnings 14,281,926
-----------
15,294,326
-----------
$35,903,502
===========
</TABLE>
See accompanying notes.
37
<PAGE> 39
Liggett Broadcast, Inc.
Combined Statement of Shareholder's Equity
(Unaudited)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
---------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1999 $ 7,400 $ 1,000,000 $13,375,944
Net earnings 2,242,686
Dividends to shareholder in lieu of taxes and other (1,336,704)
Members equity contribution for LLJ Realty, LLC 5,000
---------------------------------------------
Balance at September 30, 1999 $ 7,400 $ 1,005,000 $14,281,926
=============================================
</TABLE>
See accompanying notes.
38
<PAGE> 40
Liggett Broadcast, Inc.
Combined Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
1999 1998
-----------------------------------
<S> <C> <C>
Operating revenues including trade revenue of $352,000
in 1999 and $288,000 in 1998 $ 16,232,441 $ 13,934,769
Less direct agency commissions 2,140,516 1,896,784
-----------------------------------
14,091,925 12,037,985
Operating expenses:
Technical 310,857 274,744
Programming 2,400,931 2,004,766
Promotion 968,517 769,156
Selling 2,253,202 2,079,294
Administrative 3,597,564 3,226,508
Depreciation and amortization 1,401,772 1,305,788
-----------------------------------
10,932,843 9,660,256
-----------------------------------
Operating earnings 3,159,082 2,377,729
Other revenues (expenses):
Interest expense (1,148,456) (1,147,772)
Management fees from affiliated entities 9,000 9,000
Gain (loss) on sale of property and equipment 32,391 (75,250)
Interest income 24,578 29,534
Rent 99,720 69,740
Other 66,371 10,476
-----------------------------------
(916,396) (1,104,272)
-----------------------------------
Net earnings $ 2,242,686 $ 1,273,457
===================================
</TABLE>
See accompanying notes.
39
<PAGE> 41
Liggett Broadcast, Inc.
Combined Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
1999 1998
----------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 2,242,686 $ 1,273,457
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 1,401,772 1,305,788
(Gain) loss on sale of property and equipment (32,391) 75,250
Changes in operating assets and liabilities:
Accounts receivable (93,602) (322,730)
Other current assets 4,560 48,836
Other assets (151,486) (464,553)
Accounts payable (28,665) 9,567
Other current liabilities 292,271 26,413
----------------------------------
Net cash provided by operating activities 3,635,145 1,952,028
INVESTING ACTIVITIES
Purchases of property and equipment (631,748) (178,805)
Construction in process (681,142) --
Proceeds from sale of property and equipment 210,067 --
Decrease (increase) in note receivable from shareholder (50,000) 25,000
----------------------------------
Net cash used in investing activities (1,152,823) (153,805)
FINANCING ACTIVITIES
Repurchase of membership interest in consolidated subsidiary -- (2,000)
Members equity contribution for LLJ Realty, LLC 5,000 --
Cash dividends to shareholder in lieu of taxes and other (1,336,704) (501,573)
Proceeds from long-term debt and note payable 513,377 450,000
Principal payments on long-term debt and notes payable (1,046,617) (1,846,382)
----------------------------------
Net cash used in financing activities (1,864,944) (1,899,955)
----------------------------------
Increase in cash 617,378 (101,732)
Cash at beginning of year 1,299,670 524,630
----------------------------------
Cash at end of year $ 1,917,048 $ 422,898
==================================
Supplemental cash flow information:
Interest paid $ 1,003,282 $ 1,155,477
</TABLE>
See accompanying notes.
40
<PAGE> 42
Liggett Broadcast, Inc.
Notes to Combined Financial Statements
(Unaudited)
(1) ORGANIZATION AND NATURE OF OPERATIONS
Liggett Broadcast, Inc. (the Company) is a subchapter S Corporation which
includes several divisions and Rainbow Radio LLC (a limited liability company
82% owned by Liggett Broadcast, Inc.) and certain assets and operations of
specified properties held by New Tower, Inc. (an affiliated subchapter S
Corporation under common ownership) and LLJ Realty, LLC (an affiliated limited
liability company under common management and control). The Company operates
radio stations.
In December 1999, the Company agreed to sell certain tangible personal property,
improvements and fixtures, and certain real property and leasehold interests,
certain FCC licenses and certain other assets used in operation of the radio
stations as specified in the asset purchase agreement with Citadel
Communications Corporation, Citadel Broadcasting Company and Citadel License,
Inc., (the "Asset Purchase Agreement"). The sale price for the assets sold is
$120,500,000.
The accompanying combined financial statements include the accounts of Liggett
Broadcast, Inc., Rainbow Radio LLC, and the assets and operations of those
properties held by New Tower, Inc. and LLJ Realty, LLC that are included in the
Asset Purchase Agreement.
All intercompany accounts are eliminated upon combination. The shareholder of
the Company controls another affiliate (D&B Realty) that leases certain property
to the Company. The assets of D&B Realty are excluded from the assets to be sold
in the Asset Purchase Agreement and are not included in the accompanying
combined financial statements.
On November 2, 1998, the Company acquired the assets of WTCF in Saginaw/Bay
City, Michigan for $3,779,000 including the costs to acquire. The Company
acquired substantially all of the assets of the station including net accounts
receivable ($119,000), property and equipment ($25,000), and an FCC license and
other intangibles ($3,635,000).
Like any other company, advances and changes in available technology can
significantly affect the business and operations of the Company. For example, a
challenging problem exists as many computer systems do not have the capability
of recognizing the year 2000 or years thereafter. This "Year 2000 Computer
Problem" creates risk for the Company from unforeseen problems in its own
computer systems. The effects of the "Year 2000 Computer Problem" may be
experienced before, on or after January 1, 2000, and if not addressed, the
impact on operations and financial reporting may affect the Company's ability to
conduct normal business operations.
41
<PAGE> 43
Liggett Broadcast, Inc.
Notes to Combined Financial Statements (continued)
(Unaudited)
(2) BASIS OF PRESENTATION
The accompanying unaudited combined financial statements of Liggett Broadcast,
Inc have been prepared in accordance with generally accepted accounting
principles for interim financial information. 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. Operating results for the nine months
ended September 30, 1999 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1999. For further information,
refer to the combined financial statements and notes thereto for the year ended
December 31, 1998.
(3) INCOME TAXES
As of January 1, 1987 the shareholder of the Company elected under Subchapter S
of the Internal Revenue Code to include the Company's operating results in his
own income for federal income tax purposes. Accordingly, there is no provision
for federal income taxes.
(4) BROADCASTING RIGHTS AND OTHER INTANGIBLES
Broadcasting rights at September 30, 1999 include FCC licenses for all of the
stations and goodwill. Substantially all FCC licenses and goodwill are amortized
over a 25 year period.
(5) COMMITMENTS AND GUARANTEES
In 1999, the Company (specifically LLJ Realty, LLC) began construction of a
building in Saginaw, Michigan with estimated total construction costs of
$1,200,000. Estimated costs to complete as of September 30, 1999 were
approximately $450,000.
In 1999, the Company has an outstanding offer to purchase the assets of a radio
station for approximately $350,000 plus costs to acquire.
(6) SUBSEQUENT EVENTS
In December 1999, the Company agreed to sell certain assets of the Company to
Citadel Broadcasting Company and Citadel License, Inc. as described in the Asset
Purchase Agreement (see Note 1).
42
<PAGE> 44
Liggett Broadcast, Inc.
Notes to Combined Financial Statements (continued)
(Unaudited)
(7) UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
The Asset Purchase Agreement (described in Note 1) specifically excludes: (1)all
cash, cash equivalents or similar type investments, (2)accounts receivable,
(3)assets not used in connection with the operations of the stations, (4)any and
all claims with respect to transactions occurring or arising prior to the
closing date, including, without limitation, claims for tax refunds, and
(5)certain personal property and real property and other assets specified in the
Asset Purchase Agreement and exhibits and schedules thereto.
<TABLE>
<CAPTION>
September 30, 1999
---------------------------------------------------------
Combined Balance Excluded Assets Pro Forma Assets
Sheet & Liabilities to be sold
---------------- --------------- ----------------
<S> <C> <C> <C>
Assets
Cash $ 1,917,048 $ 1,917,048
Accounts Receivable 3,114,369 3,114,369
Other current assets 179,333 179,333
Property and equipment 4,889,294 421,492 $ 4,467,802
Broadcasting rights 25,428,667 25,428,667
Note receivable from shareholder 175,000 175,000
Other assets 199,791 199,791
----------- ----------- -----------
$35,903,502 $ 6,007,033 $29,896,469
=========== =========== ===========
Liabilities
Current liabilities $ 3,992,455 $ 3,992,455
Long-term debt (less current portion) 16,598,721 16,598,721
Minority interest in consolidated subsidiary 18,000 18,000
Shareholder's equity 15,294,326 15,294,326
----------- -----------
$35,903,502 $35,903,502
=========== ===========
</TABLE>
43
<PAGE> 45
INDEPENDENT AUDITORS' REPORT
The Partners
Wicks Radio Group
(a division of Wicks Broadcast Group Limited Partnership)
We have audited the accompanying balance sheet of Wicks Radio Group (a division
of Wicks Broadcast Group Limited Partnership) as of December 31, 1998, and the
related statements of operations and changes in division equity, and cash flows
for the year then ended. These financial statements are the responsibility of
Wicks Radio Group's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wicks Radio Group (a division
of Wicks Broadcast Group Limited Partnership) as of December 31, 1998 and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
McLean, Virginia
May 17, 1999
44
<PAGE> 46
WICKS RADIO GROUP
(A Division of the Wicks Broadcast Group Limited Partnership)
Balance Sheets
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, 1999
ASSETS 1998 (UNAUDITED)
----------- ----------
<S> <C> <C>
Cash $ 253,206 144,823
Accounts receivable, net of allowance for doubtful accounts of
$425,854 at December 31, 1998 and $541,721 at June 30, 1999
(unaudited) 2,528,518 3,168,419
Prepaid expenses and other assets 162,347 21,245
----------- ----------
Total current assets 2,944,071 3,334,487
Property and equipment, net 6,100,272 5,588,795
Intangible assets, net 37,493,172 35,988,898
=========== ==========
Total assets 46,537,515 44,912,180
=========== ==========
LIABILITIES AND DIVISION EQUITY
Current liabilities - accounts payable and accrued expenses 637,343 623,097
Deferred income taxes 520,000 500,000
----------- ----------
Total liabilities 1,157,343 1,123,097
Division equity 45,380,172 43,789,083
=========== ==========
Total liabilities and division equity $46,537,515 44,912,180
=========== ==========
</TABLE>
See accompanying notes to financial statements.
45
<PAGE> 47
WICKS RADIO GROUP
(A Division of Wicks Broadcast Group Limited Partnership)
Statements of Operations and Changes in Division Equity
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
YEAR ENDED -------------------------------
DECEMBER 31, 1998 1999
1998 (UNAUDITED) (UNAUDITED)
------------ ----------- -----------
<S> <C> <C> <C>
Revenue:
Broadcast revenue $ 18,923,947 9,079,789 10,293,380
Other revenue 542,865 260,339 326,982
------------ ----------- -----------
Gross revenue 19,466,812 9,340,128 10,620,362
Less - agency commissions (2,045,395) (925,949) (1,077,334)
------------ ----------- -----------
Net revenue 17,421,417 8,414,179 9,543,028
Operating costs:
Station operating expenses 12,195,132 5,961,548 6,761,030
Depreciation and amortization 4,059,157 2,031,709 2,023,565
Corporate overhead 890,378 360,989 478,268
------------ ----------- -----------
17,144,667 8,354,246 9,262,863
Net income before income taxes 276,750 59,933 280,165
Income taxes (benefit) (40,000) (20,000) (20,000)
------------ ----------- -----------
Net income 316,750 79,933 300,165
Division equity, beginning of period 30,902,034 30,902,034 45,380,172
Net corporate transfers (distributions) 14,161,388 16,839,505 (1,891,254)
============ =========== ===========
Division equity, end of period $ 45,380,172 47,821,472 43,789,083
============ =========== ===========
</TABLE>
See accompanying notes to financial statements
46
<PAGE> 48
WICKS RADIO GROUP
(A Division of Wicks Broadcast Group Limited Partnership)
Statements of Cash Flows
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
YEAR ENDED ------------------------------
DECEMBER 31, 1998 1999
1998 (UNAUDITED) (UNAUDITED)
------------ ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 316,750 79,933 300,165
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 4,059,157 2,031,709 2,023,565
Deferred tax benefit (40,000) (20,000) (20,000)
Increase in receivables (404,546) (1,054,237) (639,901)
(Increase) decrease in prepaid
expenses and other current assets (104,248) (12,740) 141,102
Increase (decrease) in accounts
payable and accrued expenses 148,105 221,696 (14,246)
------------ ----------- ----------
Net cash provided by operating
activities 3,975,218 1,246,361 1,790,685
------------ ----------- ----------
Cash flows used in investing activities
Purchase of property and equipment (164,114) (71,623) (7,814)
Acquisition of broadcast properties (17,824,226) (17,824,226) --
------------ ----------- ----------
Cash flows used in investing activities (17,988,340) (17,895,849) (7,814)
------------ ----------- ----------
Cash flows provided by (used in) financing
activities - net corporate transfers
(distributions) 14,161,388 16,839,505 (1,891,254)
------------ ----------- ----------
Net increase (decrease) in cash
and cash equivalents 148,266 190,017 (108,383)
Cash and cash equivalents, beginning of period 104,940 104,940 253,206
============ =========== ==========
Cash and cash equivalents, end of period $ 253,206 294,957 144,823
============ =========== ==========
</TABLE>
See accompanying notes to financial statements.
47
<PAGE> 49
WICKS RADIO GROUP
(A Division of Wicks Broadcast Group Limited Partnership)
Notes to financial statements
(1) BUSINESS DESCRIPTION
The Wicks Radio Group (the "Broadcast Group") is a division of Wicks
Broadcast Group Limited Partnership (the "Partnership"). The Broadcast
Group consists of the sixteen radio stations (10 FMs and 6 AMs) serving
the Charleston, South Carolina, Binghamton, New York, Kokomo, Indiana,
and New Castle, Indiana markets.
(See Note 3)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) CASH AND CASH EQUIVALENTS
For the purposes of the statement of cash flows, cash equivalents
consist of highly liquid investments with original maturities of
three months or less. The fair market value of such investments
approximates cost.
(b) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation expense is
computed using the straight-line method over the estimated useful
lives of the assets, which range from three to twenty years.
(c) INTANGIBLE ASSETS AND RECOVERY OF LONG-LIVED ASSETS
Intangible assets consist principally of network affiliation
agreements, broadcasting licenses, covenants not to compete and
the excess of costs over the fair value of net assets acquired.
Amortization expense is computed on a straight-line basis over the
estimated lives of the assets which range from 2-15 years.
The Partnership's policy is to review its long-lived assets for
impairment whenever events or changes in circumstances indicated
that the carrying amount may not be recoverable. The Partnership
recognizes an impairment loss when the sum of the expected future
undiscounted cash flows is less than the carrying amount of the
asset. The measurement of the impairment losses to be recognized
is based upon the difference between the fair value and the
carrying amount of the assets.
(d) INCOME TAXES
The Broadcast Group is not an entity subject to income taxes. The
Broadcast Group's income or loss is passed through to the
Partnership and the related tax attributes are deemed to be
distributed to, and to be reportable by, the partners of the
Partnership on their respective income tax returns.
48
<PAGE> 50
WICKS RADIO GROUP
(A Division of Wicks Broadcast Group Limited Partnership)
Notes to financial statements (continued)
However, the Broadcast Group contains the Partnership's
subsidiary, Regional Group, Inc. Regional Group, Inc. and its
subsidiaries are Subchapter C corporations, and are, therefore,
responsible for the income taxes attributable to their profit and
losses.
Income taxes for Regional Group, Inc. and its subsidiaries are
accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating losses and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using the enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized into income in
the period that includes the enactment date. The income tax
benefit is a result of the amortization of the deferred tax
liability.
(e) REVENUE
Broadcasting revenue are derived principally from the sale of
program time and spot announcements to local, regional, and
national advertisers. Advertising revenue is recognized in the
period during which the program time and spot announcements are
broadcast.
(f) BARTER TRANSACTIONS
Barter transactions are recorded at the estimated fair values of
the products and services received. Barter revenues are recognized
when commercials are broadcast. The assets or services received in
exchange for broadcast time are recorded when received or used.
(g) CORPORATE OVERHEAD
A number of overhead services are maintained centrally by the
Partnership and are allocated to its business units based on the
benefits provided. These services include most of the costs
associated with the human resources function and certain general
and administrative costs of the corporate function such as
accounting and finance, treasury and legal.
In addition, the Partnership provides for the working capital
needs of the Broadcast Group. There is no borrowing arrangement
between the Partnership and the Broadcast Group. Accordingly, no
interest expense is recorded in the accompanying financial
statements. However, all of the assets of the Broadcast Group have
been pledged as collateral on the Partnership's credit facility.
(h) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of
49
<PAGE> 51
WICKS RADIO GROUP
(A Division of Wicks Broadcast Group Limited Partnership)
Notes to financial statements (continued)
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
(i) CONCENTRATION OF CREDIT RISK
A significant portion of the Broadcast's Group accounts receivable
are due from advertising agencies.
(j) UNAUDITED INTERIM FINANCIAL INFORMATION
The unaudited balance sheet as of June 30, 1999 and the statements
of operations and changes in division equity, and cash flows for
the six months ended June 30, 1998 and June 30, 1999 have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions of Regulation S-X. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for fair presentation have been included. Operating
results for the interim period are not necessarily indicative of
the results that may be expected for any future period including
the year ending December 31, 1999.
(3) ACQUISITION OF BROADCAST RADIO STATIONS
In January 1998, the Partnership acquired certain broadcasting assets of
WWKI-FM (Kokomo, Indiana) and WMDH-FM and WMDH-AM (New Castle, Indiana).
Total consideration paid for these acquisitions including costs of
acquisitions was approximately $17,824,000 in 1998. These acquisitions
have been accounted for under the purchase method of accounting and,
accordingly, the assets acquired and liabilities assumed have been
recorded at their estimated fair value as of the acquisition date, as
determined by an independent appraiser. The allocation of the purchase
price is summarized as follows:
1998
-----------
Land $ 107,000
Property and equipment 2,209,000
Intangible assets 15,508,000
===========
Total consideration paid 17,824,000
===========
50
<PAGE> 52
WICKS RADIO GROUP
(A Division of Wicks Broadcast Group Limited Partnership)
Notes to financial statements (continued)
(4) PROPERTY AND EQUIPMENT
A summary of property and equipment is as follows:
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, 1999
1998 (UNAUDITED)
----------- ----------
<S> <C> <C>
Land $ 275,318 275,318
Building and improvements 989,438 989,438
Office equipment, furniture, and fixtures 591,018 598,832
Broadcast and production equipment 6,457,025 6,457,025
Vehicles 94,660 94,660
----------- ----------
8,407,459 8,415,273
Less accumulated depreciation (2,307,187) (2,826,478)
=========== ==========
Total consideration paid $ 6,100,272 5,588,795
=========== ==========
</TABLE>
(5) INTANGIBLE ASSETS AND AMORTIZATION
Intangible assets are comprised of the following:
<TABLE>
<CAPTION>
JUNE 30,
USEFUL LIFE DECEMBER 31, 1999
IN YEARS 1998 (UNAUDITED)
------------ ----------
<S> <C> <C> <C>
FCC licenses 15 $ 23,996,860 23,996,860
Network affiliations 15 3,053,439 3,053,439
Goodwill 15 14,179,232 14,179,232
Non-compete agreements 2-5 500,000 500,000
Other intangibles 2-15 1,814,744 1,814,744
------------ ----------
43,544,275 43,544,275
Accumulated amortization (6,051,103) (7,555,377)
============ ==========
$ 37,493,172 35,988,898
============ ==========
</TABLE>
51
<PAGE> 53
WICKS RADIO GROUP
(A Division of Wicks Broadcast Group Limited Partnership)
Notes to financial statements (continued)
(6) DEFERRED INCOME TAXES
The Partnership has established a deferred tax liability arising from the
acquisition of Regional Group, Inc. of $600,000. This liability is
attributable to the difference between the book basis of Regional Group,
Inc. and the carryover basis of the former shareholders at the
acquisition date. As the liability was principally attributable to the
book/tax difference in long-term tangible and intangible assets, the
deferred tax liability was classified as a long-term liability. The
Broadcast Group recognized an income tax benefit of $40,000 in 1998 and
$20,000 (unaudited) for the six months ended June 30, 1999 as a result of
amortization of the deferred tax liability.
(7) LEASES
The Broadcast Group leases certain property and equipment under
noncancelable operating lease agreements. Rental expense was
approximately $311,000 for the year ended December 31, 1998.
Future minimum lease payments under noncancelable operating leases are
approximately:
YEAR ENDING DECEMBER 31:
1999 $ 329,000
2000 293,000
2001 231,000
2002 213,000
2003 225,000
Thereafter 1,051,000
----------
2,342,000
==========
(8) SUBSEQUENT EVENTS
In November 1998, the Partnership entered into an agreement with Citadel
Broadcasting Company ("Citadel") to sell the Wicks Radio Group to Citadel
for approximately $77 million. The transaction was closed on June 30,
1999.
52
<PAGE> 54
[FAULK & WINKLER LOGO]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Citywide Communications, Inc.
Baton Rouge, Louisiana
We have audited the accompanying consolidated balance sheet of CITYWIDE
COMMUNICATIONS, INC. as of December 31, 1998, and the related consolidated
statements of operations and accumulated deficit, stockholders' deficit and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CITYWIDE
COMMUNICATIONS, INC. as of December 31, 1998, and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Faulk & Winkler LLC
----------------------------
Certified Public Accountants
Baton Rouge, Louisiana
March 12, 1999 (except for Note 13
as to which the date is March 19, 1999)
6811 Jefferson Highway - Baton Rouge, LA 70806
Business: (225) 927-9470 - Facsimile: (225) 932-0000
706 Railroad Avenue - Donaldsonville, LA 70346 - (225) 473-7719
An independent member of BKR International
53
<PAGE> 55
CITYWIDE COMMUNICATIONS, INC.
Baton Rouge, Louisiana
CONSOLIDATED BALANCE SHEET
December 31, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT
Cash $ 33,051
Accounts receivable, less allowance for doubtful
accounts of $485,000 1,367,999
Prepaid expenses and other assets 37,064
-----------
Total current assets 1,438,114
PROPERTY AND EQUIPMENT - NET 1,829,857
INTANGIBLES - NET 10,920,009
-----------
Total assets $14,187,980
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Notes payable $15,055,940
Accounts payable 1,142,149
Accrued interest 122,128
Accrued expenses and other 117,379
Income and franchise taxes payable 258,653
-----------
Total current liabilities 16,696,249
DEFERRED OBLIGATIONS 1,654,343
-----------
Total liabilities 18,350,592
-----------
STOCKHOLDERS' DEFICIT
Common stock, no par value
Class A voting, 8,000 shares authorized,
1,028 shares issued and outstanding 1,100
Class B non-voting, 2,000 shares authorized,
254 shares issued and outstanding 3,780,000
Less treasury stock (warrants) (1,778,519)
Accumulated deficit (6,165,193)
-----------
Total stockholders' deficit (4,162,612)
-----------
Total liabilities and stockholders' deficit $14,187,980
===========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of this financial statement.
54
<PAGE> 56
CITYWIDE COMMUNICATIONS, INC.
Baton Rouge, Louisiana
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
For the year ended December 31, 1998
<TABLE>
<CAPTION>
<S> <C>
REVENUES
Broadcasting $ 8,035,132
Agency commissions (783,020)
Trade (215,809)
Other 79,131
-----------
Net revenues 7,115,434
-----------
OPERATING EXPENSES
Technical 51,616
Programming 1,811,302
Sales 1,136,512
General and administrative 2,798,932
-----------
Total operating expenses 5,798,362
-----------
Income from operations 1,317,072
OTHER EXPENSES
Depreciation and amortization 1,343,598
Interest 2,029,551
Loss on sale of fixed assets 55,017
-----------
Net loss (2,111,094)
ACCUMULATED DEFICIT
Beginning of year (4,054,099)
-----------
End of year $(6,165,193)
===========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of this financial statement.
55
<PAGE> 57
CITYWIDE COMMUNICATIONS, INC.
Baton Rouge, Louisiana
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
For the year ended December 31, 1998
<TABLE>
<CAPTION>
CAPITAL STOCK TOTAL
------------------------------- ACCUMULATED TREASURY STOCKHOLDERS'
SHARES AMOUNT DEFICIT STOCK DEFICIT
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 1,282 $3,781,100 $(4,054,099) $(1,778,519) $(2,051,518)
Net loss -- -- (2,111,094) -- (2,111,094)
--------------- --------------- --------------- --------------- ---------------
BALANCE, DECEMBER 31, 1998 1,282 $3,781,100 $(6,165,193) $(1,778,519) $(4,162,612)
=============== =============== =============== =============== ===============
</TABLE>
The accompanying notes to financial statements are
an integral part of this financial statement.
56
<PAGE> 58
CITYWIDE COMMUNICATIONS, INC.
Baton Rouge, Louisiana
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended December 31, 1998
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,111,094)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 1,343,598
Allowance for doubtful accounts 255,604
Loss on sale of fixed assets 55,017
Deferred obligations charges 701,753
Operating assets and liabilities:
Accounts receivable (476,142)
Prepaid expenses 15,230
Accounts payable 65,879
Accrued expenses and liabilities 263,636
------------
Net cash provided by operating activities 113,481
------------
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment acquisitions (23,410)
Proceeds from sale of property and equipment 200
------------
Net cash used by financing activities (23,210)
------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long term debt 80,893
Repayments of long-term debt (217,862)
Decrease in stockholder loans (21,868)
------------
Net cash used by financing activities (158,837)
------------
Net decrease in cash (68,566)
CASH
Beginning of period 101,617
------------
End of period $ 33,051
============
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of this statement.
57
<PAGE> 59
CITYWIDE COMMUNICATIONS, INC.
Baton Rouge, Louisiana
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS
Citywide Communications, Inc. (the Company) and its wholly-owned
subsidiaries, Citywide Broadcasting Corporation (CBC), Citywide
Broadcasting Corporation of Lafayette, Inc. (CBL), Southern
Communications, Inc. (SCI), and WXOK, Inc., operate nine radio stations
throughout south-central Louisiana. The Company grants credit to
qualified customers and generally requires no collateral from its
customers.
Revenues arise from the sale of advertising time. Advertising rates are
based on the estimated size of the audience during specified
broadcasting periods. Expenses of the Company include programming,
technical, selling, general and administrative, and corporate.
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of the Company and its
subsidiaries. All intercompany balances and transactions have been
eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates. Estimates are used primarily when accounting for
allowance for doubtful accounts, depreciation, amortization and income
taxes.
BASIS OF ACCOUNTING
The Company's financial statements have been prepared in accordance
with generally accepted accounting principles on a going concern basis.
These principles contemplate the realization of assets and the
satisfaction of liabilities and commitments in the normal course of
business. The Company has significant debt obligations and has
experienced shortages of cash that have prevented timely payment of
certain operating expenses. At December 31, 1998, the Company was not
in compliance with certain terms of its long-term debt agreements.
Accordingly, the Company was in default on its senior debt and certain
payments for notes payable have been deferred. See Notes 5 and 6.
58
<PAGE> 60
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIS OF ACCOUNTING (CONTINUED)
During 1998, the Company's stockholders and warrant holders approved
the sale of their interest in the Company. The effect of the sale will
be to retire obligations of the Company and redeem the interests of the
current stockholders and warrant holders. See Notes 2 and 13.
CASH AND CASH EQUIVALENTS
Cash, for purposes of the statement of cash flows, consists of cash on
hand and demand deposit accounts. The Company has no cash equivalents
at December 31, 1998. At times during the year, the Company maintains
bank accounts in excess of the FDIC insured limits. Management believes
that the risk is limited.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts is based on management's evaluation
of the collectibility of outstanding accounts receivable.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Expenditures for additions,
major renewals and betterments are capitalized; expenditures for
maintenance and repairs are charged to expenses as incurred.
Depreciation is computed on both straight-line and accelerated methods
for income tax and financial reporting purposes over the estimated
useful lives of the assets.
INTANGIBLES AND AMORTIZATION
Intangible assets have been recorded at acquisition cost and are being
amortized on the straight-line method over their estimated useful
lives.
TRADE-OUT TRANSACTIONS
The Company enters into agreements in which advertising time is traded
for various products or services. Trade-out transactions are reported
at normal advertising rates in effect.
INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, which
requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred
tax assets and liabilities are determined based on the difference
between the financial statement and tax basis of assets and liabilities
using enacted tax rates in effect for the year in which the differences
are expected to reverse.
59
<PAGE> 61
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, receivables and accounts payable
approximate fair value due to the short-term maturity of these
instruments. The carrying value of short and long-term debt
approximates fair value based on the current rates offered for debt of
comparable maturities and collateral requirements. None of the
financial instruments are held for trading purposes.
ADVERTISING
The Company incurred $71,890 in advertising costs during 1998. The
Company expenses advertising costs as incurred.
NOTE 2 - SALE OF EQUITY INTEREST
In November 1998, the stockholders and warrant holders of the Company
reached an agreement to sell their equity interest to Citadel
Broadcasting Company. Under terms of the sale, the amount received by
the equity holders was based on the fair market value of the radio
properties and other corporate assets with reduction for the retirement
of debt and certain other obligations.
Regulatory consent by the Federal Communications Commission to the
transfer of control of the broadcasting licenses has been secured. The
closing of the transaction is scheduled to occur in March 1999.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment, related service lives and accumulated
depreciation are as follows:
<TABLE>
<CAPTION>
Estimated
Service Lives
-------------
<S> <C> <C>
Used in operations:
Land -- $ 306,195
Building and improvements 5 - 39 years 825,253
Equipment - engineering 5 - 7 years 5,629,275
Equipment - office 5 - 7 years 777,216
Vehicles 5 years 73,477
-----------
7,611,416
Less accumulated depreciation (5,944,454)
-----------
1,666,962
Not used in operations:
Land and building, net of accumulated
depreciation of $14,893 162,895
-----------
$ 1,829,857
===========
</TABLE>
60
<PAGE> 62
NOTE 3 - PROPERTY AND EQUIPMENT (CONTINUED)
Depreciation expense amounted to $357,246 for 1998. The property is
pledged to secure notes payable of the Company.
Land and buildings not used in operations are available for sale;
therefore, depreciation has not been computed for such property. This
classification is the result of the duplication of office facilities
from (1) the acquisition of WXOK-AM radio station and (2) the
relocation of the Company's office to leased facilities as described in
Note 12.
Certain telephone equipment of $20,656 is accounted for under a capital
lease. Amortization of equipment under capital lease obligations of
$2,955 is included in depreciation expense.
NOTE 4 - INTANGIBLES
<TABLE>
<CAPTION>
Intangible assets consisted of the following:
Estimated Life 1998
---------------- --------------
<S> <C> <C>
Costs in excess of net assets
acquired 12-30 years $12,442,581
Organizational costs 5 years 586,905
Deferred loan fees 5 years 1,289,013
--------------
14,318,499
Less accumulated amortization (3,398,490)
--------------
$10,920,009
==============
</TABLE>
Amortization expense amounted to $986,352 for 1998.
NOTE 5 - NOTES PAYABLE
At December 31, 1998, the Company's indebtedness, in order of
subordination, is summarized as follows:
Senior note payable to Finova Capital
Corporation, in the amount of $10,450,000,
bearing interest only at Citibank prime
plus 2.5% (or 10.25% at December 31, 1998)
until January 1998, maturing October 31,
2001, secured by a first lien on all assets,
a collateral stock pledge of 100% of the
voting common stock, and the continuing
guarantees of two stockholders of the company.
Quarterly installments of $187,500 commence in
1998 and increase annually to $350,000 in 2001.
The Company deferred three payments in 1998. $10,262,500
61
<PAGE> 63
NOTE 5 - NOTES PAYABLE (CONTINUED)
Subordinated (#1) notes payable bearing
interest at 12%, payable interest only, a
balloon note due at the maturity date of
December 15, 2001, secured by a lien on all
assets, a collateral stock pledge of 100%
of the voting common stock, and the continuing
guarantees of two stockholders of the Company,
subordinate only to the senior note payable.
Interest payments have been deferred on these
obligations since March 1, 1997, which results
in an additional 2% interest and a 5% penalty
on delinquent installments. See Note 6. 2,200,000
Subordinated (#2) notes payable bearing
interest at 12-14%, payable interest only,
a balloon note due at the maturity date of
December 15, 2001, secured by a lien on all
assets, a collateral stock pledge of 100% of
the voting common stock, and the continuing
guarantees of two stockholders of the Company,
subordinate to the senior note payable and
subordinated notes payable #1. Interest payments
have been deferred on these obligations since
March 1, 1997, which results in an additional 2%
interest and a 5% penalty on delinquent
installments. See Note 6. 840,360
Purchase warrant (#1) notes payable dated
December 13, 1996, in the original amounts
totaling $1,195,449, bearing interest at a
below market rate of 8%, payable interest only
until computed principal payments commence in
1998, remaining principal balloon note due at the
maturity date of December 15, 2001, secured by
a lien on all assets, a collateral stock pledge
of 100% of the voting common stock, and the
continuing guarantees of two stockholders of the
Company, subordinate to the senior note payable
and subordinated note holders #1 and #2. The
obligation has been discounted to present value
utilizing an imputed interest rate of 12%. Interest
payments have been deferred on these obligations
since March 1, 1997. See Note 6. 1,080,605
62
<PAGE> 64
NOTE 5 - NOTES PAYABLE (CONTINUED)
Purchase warrant (#2) notes payable dated
December 13, 1996, in the original amounts
totaling $830,735, bearing interest at a below
market rate of 2.5%, no scheduled payments until
interest and principal balloon payment due at
the maturity date of December 15, 2001, subordinate
to the senior note payable, subordinated note
holders #1 and #2, and warrant note holders #1.
The obligation has been discounted to present
value utilizing an imputed interest rate of 12%.
Interest payments have been deferred on these
obligations since March 1,1997. See Note 5. 623,680
Notes payable (3) at 12% per annum, payable in
monthly installments of $1,295, including interest
maturing in April 2001, and secured by three vehicles. 31,233
Lease payable dated March 27, 1998, in the amount of
$20,686, payable in 60 monthly installments of $474.50,
imputed interest at 13.3% per annum, secured by telephone
equipment. 17,562
------------
Total $15,055,940
============
The loan agreements with Finova Capital Corporation ("Finova")
concerning the senior note payable contain various restrictive
covenants primarily preventing the Company from incurring additional
indebtedness, additional liens on property, entering into business
combinations, and disposing of any assets. Further, the Company is
required to maintain specified ratios and cash flow amounts.
At December 31, 1998, the Company was in default on certain debt
covenants primarily concerning operating, cash flow and debt service
ratio requirements. The Company did not secure waivers from Finova for
its violations; therefore all notes payable have been classified as
current.
As a result of its default on the Finova debt, debt service payments on
certain subordinated debt (subordinated #1, 2 and warrant #1) is
deferred. The terms of the subordinated debt provide for additional
compensation of interest and warrants to such creditors. See Note 7.
63
<PAGE> 65
NOTE 6 - DEFERRED OBLIGATIONS
INTEREST
Under the terms of the subordinated and warrant notes, monthly payments
are deferred while the Company is in default on its senior note
payable. While payments are deferred, an additional 2% interest charge
is computed on the outstanding principal and a 5% late payment penalty
on the delinquent payments are accrued on the subordinated notes
payable #1 and #2.
The Company has not made monthly payments since March 1, 1997, on their
subordinated and warranty notes payable. Approximately $1,089,600 is
due to the note holders as of December 31, 1998, payment of which is
deferred to December 2001.
SUCCESS FEE
The Company incurred an obligation for a "success fee" with the
origination of credits provided by Finova. The fee is considered to be
earned on the credit's closing date and payable on the earlier of the
maturity date, October 31, 2001, or the date of the prepayment, in
full, of the principal balance. The obligation amounts to $800,000 at
maturity and has been discounted to present value utilizing an imputed
interest rate of 12%.
NOTE 7 - COMMON STOCK
CLASS B COMMON STOCK
Class B common stock was issued to Finova in connection with the
purchase of Southern Communications, Inc. A stock purchase agreement
permits Finova to request the redemption of all or a portion of its
stock by the Company from December 13, 2001, through December 13, 2007.
The redemption price is to be based on the aggregate fair market value
of the Company as determined by appraisal. No provision has been made
in the financial statements for such redemption.
Furthermore, under the terms of the agreement, the relative percentage
of stock issued to Finova is to remain at its current level.
Accordingly, the Company is required to issue 182 additional shares
without consideration in connection with the sale in 1999.
In March 1999, Finova sold its stock holdings as part of the sale
agreement with Citadel Broadcasting Company. See Note 13.
64
<PAGE> 66
NOTE 7 - COMMON STOCK (CONTINUED)
COMMON STOCK WARRANTS
In connection with the terms of financing the subordinated #1, #2 and
warrant #1 notes payable as discussed in Note 5, the Company issued
stock purchase warrants. Under the terms of those agreements, the
creditors of the subordinated #1, #2 and warrant #1 notes payable are
entitled to additional stock purchase warrants for each quarter that
debt service is deferred. Accordingly, the outstanding warrants provide
for the purchase of 736.091 (33.46%) shares of stock.
The purchase price of the warrants is nominal. The warrants are
exercisable through the last day of the sixth year after the maturity
date. At maturity, the lenders have the right to put the warrants on
the underlying stock at fair market value. Concurrently, the Company
has the right to call such securities provided all indebtedness has
been paid in full.
In March 1999, the warrant holders purchased stock of the Company and
sold their interest to Citadel Broadcasting Company. See Note 13.
NOTE 8 - PROVISION FOR INCOME TAXES
The tax effects of temporary timing differences that create deferred
income tax assets are as follows:
<TABLE>
<CAPTION>
1998
---------
<S> <C>
Bad debt allowance $194,000
Depreciation 600
Amortization 215,800
---------
Deferred income tax assets 410,400
Deferred income tax assets valuation allowance (410,400)
---------
Deferred income tax assets $ --
=========
</TABLE>
65
<PAGE> 67
NOTE 8 - PROVISION FOR INCOME TAXES (CONTINUED)
The income tax benefit is different from that which would be computed
by applying the applicable income tax rates to income before taxes as
follows:
<TABLE>
<CAPTION>
1998
---------
<S> <C>
Tax benefit at statutory rate $ 667,900
Depreciation 200
Bad debt allowance (102,300)
Amortization 20,200
Net operating loss carryforward (516,200)
Recognition of deferred income tax asset --
Others - primarily non-deductible expenses (69,800)
---------
Income tax benefit $ --
=========
</TABLE>
The Company has net operating loss carryforwards ($2,490,000 on a
consolidated basis and $3,759,000 on a pre-consolidation basis for
SCI) that will expire from 2009 to 2013.
NOTE 9 - NONMONETARY TRANSACTIONS
The Company has nonmonetary transactions included in revenues and
expenses that arise from advertising time traded for goods and
services. The transactions are recorded when advertisement is aired or
when goods and services are received. Nonmonetary transactions were
$215,809 in 1998.
NOTE 10 - SUPPLEMENTAL CASH FLOW INFORMATION
The Company made cash payments for interest of $1,200,300 in 1998. No
cash payments were made for income taxes in 1998.
The Company has a non-cash financing transaction relating to the
acquisition of a lease in the amount of $20,686 in 1998.
NOTE 11 - RELATED PARTIES
Accounts receivable of $2,843 is due from a stockholder as of December
31, 1998.
The senior credit, as described in Note 5, is payable to Finova, a
non-voting stockholder of the Company.
The Company transferred two partially depreciated vehicles during 1998
to two major stockholders. The sale resulted in a loss of
approximately $55,000.
66
<PAGE> 68
NOTE 12 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES - LESSEE
The Company is committed as a lessee under several operating leases
for the office premises and certain movable property as follows:
1. Land and building for WIBR-AM. The lease is payable monthly at
$3,600 per month until July 31, 2001, at which time the lease will
run month to month. The Company is responsible for all property
taxes, insurance, reasonable repairs and maintenance, and approved
alterations.
2. Land and building for the corporate office. The lease is payable
monthly at $5,833 per month until September 30, 2001. The Company
is responsible for all property taxes, insurance, reasonable
repairs and maintenance, and approved alterations.
3. Land for the WXOK transmitter site. The lease is payable monthly at
$4,302 per month through February 1998, then adjusted annually
using the CPI until December 31, 2006. The Company is responsible
for all property taxes, insurance, reasonable repairs and
maintenance, and approved alterations.
4. Land for the KFXZ transmitter site. The lease is payable monthly at
approximately $417 per month with the rate based on the CPI
adjusted annually until June 30, 2000. The Company is responsible
for all property taxes, insurance, reasonable repairs and
maintenance, and approved alterations.
5. Land and building for an office in Lafayette at $6,841 per month
until August 31, 2007. The Company is responsible for all property
taxes, insurance, reasonable repairs and maintenance, and approved
alterations.
6. Telephone equipment for the corporate office in Baton Rouge at $956
per month until October 2000.
7. Various lease agreements (3) for tower and transmitter sites
ranging from 5 to 40 years and payable at $2,000 to $4,875 per
year.
The following is a summary of all future minimum lease payments for
the Company as of December 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 282,873
2000 283,807
2001 227,289
2002 146,800
2003 147,353
Thereafter 648,608
-----------
$1,736,730
===========
</TABLE>
Rent expense was $279,882 for the year ended December 31, 1998.
67
<PAGE> 69
NOTE 12 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
OPERATING LEASES - LESSORS
The Company is also lessor under multiple operating lease agreements
for transmitter space on its towers. The terms of these leases are
approximately three to five years, payable monthly in amounts ranging
from $300 to $900 per month. Upon maturity, the leases run month to
month. Future annual lease income from these leases is approximately
$38,700.
Rental income, under non-cancelable leases, was approximately $22,300
for the year ended December 31, 1998.
LITIGATION
The Company is involved in a lawsuit concerning copyright infringement
relating to unpaid license fees with ASCAP. The Company has offered a
settlement on the suit. At December 31, 1998, the Company recorded
approximately $323,000 as accounts payable due to ASCAP.
The Company is involved in a lawsuit arising in the normal course of
business. Management believes that any financial responsibility that
may be incurred in settlement of such lawsuit would not be material to
the Company's financial position.
ENVIRONMENTAL
The Company has an above ground fuel tank with no containment
facilities to prevent a spill. In addition, the Company has an
abandoned high voltage capacitor, which must be properly disposed of.
Management believes these compliance issues will not have a material
adverse effect on the financial condition or reported results of
operations of the Company.
NOTE 13 - SUBSEQUENT EVENT
On March 17, 1999, the stockholders, inclusive of warrant holders, of
the Company consummated the transfers of their investment in the
Company to Citadel Broadcasting Company.
68
<PAGE> 70
[COLE & REED, P.C. LETTERHEAD]
Independent Auditors' Report
Board of Managers
Caribou Communications Co.
Oklahoma City, Oklahoma
We have audited the accompanying balance sheets of Caribou Communications Co.
(an Oklahoma General Partnership) as of December 31, 1998 and 1997, and the
related statements of operations, changes in partners' equity, and cash flows
for the years then ended. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express and opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Caribou Communications Co. at
December 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted
accounting principles.
/s/ COLE & REED P.C.
--------------------
Oklahoma City, Oklahoma
February 12, 1999
69
<PAGE> 71
BALANCE SHEETS
CARIBOU COMMUNICATIONS CO.
<TABLE>
<CAPTION>
December 31
1998 1997
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 177,865 $ 20,174
Accounts receivable, net of allowance for doubtful
accounts of $47,038 for 1998 and $76,863 for 1997 1,831,835 1,293,589
Inventories 7,264 19,332
Prepaid expenses and other current assets 201,901 138,437
Deposit in escrow 350,000 500,000
----------- -----------
TOTAL CURRENT ASSETS 2,568,865 1,971,532
NET PROPERTY AND EQUIPMENT 1,446,399 1,379,265
OTHER ASSETS
Deposits 9,061 8,961
Intangible assets 13,428,710 8,837,007
----------- -----------
13,437,771 8,845,968
----------- -----------
$17,453,035 $12,196,765
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 313,471 $ 136,739
Accrued expenses 592,866 369,211
Payroll taxes payable 62,807 50,415
Current portion of long-term debt 685,000 975,000
----------- -----------
TOTAL CURRENT LIABILITIES 1,654,144 1,531,365
LONG-TERM DEBT 8,719,072 6,453,168
PARTNERS' EQUITY 7,079,819 4,212,232
----------- -----------
$17,453,035 $12,196,765
=========== ===========
</TABLE>
See notes to financial statements.
70
<PAGE> 72
STATEMENTS OF OPERATIONS
CARIBOU COMMUNICATIONS CO.
<TABLE>
<CAPTION>
Year Ended
December 31
1998 1997
---- ----
<S> <C> <C>
REVENUES
KATT-FM $ 3,705,522 $3,245,684
KYIS-FM 2,197,300 1,589,118
KTNT-FM 1,047,819 1,144,209
KNTL-FM 1,013,871 --
Other revenue 285,381 356,482
----------- ----------
TOTAL REVENUES 8,249,893 6,335,493
OPERATING EXPENSES
Program expenses 2,705,578 2,027,569
Technical expenses 323,779 274,441
Sales expenses 2,021,146 1,368,604
Advertising and promotion 245,123 296,802
KATT products 74,891 49,360
Corporate expenses 713,161 477,216
General and administrative 884,418 786,424
Loan fees 200,904 217,646
Amortization expense 1,019,607 766,740
Depreciation expense 395,455 406,256
----------- ----------
8,584,062 6,671,058
----------- ----------
LOSS FROM OPERATIONS (334,169) (335,565)
OTHER EXPENSE
Interest expense 787,732 634,221
Miscellaneous expense 10,512 25,075
----------- ----------
798,244 659,296
----------- ----------
NET LOSS $(1,132,413) $ (994,861)
=========== ==========
</TABLE>
See notes to financial statements.
71
<PAGE> 73
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
CARIBOU COMMUNICATIONS CO.
<TABLE>
<CAPTION>
CAT Desert
Communications, Communications
Inc. III, Inc. Total
--------------- -------------- -----
<S> <C> <C> <C>
Partners' equity at January 1, 1997 $3,020,114 $2,186,979 $ 5,207,093
Net loss (577,019) (417,842) (994,861)
---------- ---------- -----------
Partners' equity at December 31, 1997 2,443,095 1,769,137 4,212,232
Capital contribution 2,320,000 1,680,000 4,000,000
Net loss (656,800) (475,613) (1,132,413)
---------- ---------- -----------
Partners' equity at December 31, 1998 $4,106,295 $2,973,524 $ 7,079,819
========== ========== ===========
</TABLE>
See notes to financial statements.
72
<PAGE> 74
STATEMENTS OF CASH FLOWS
CARIBOU COMMUNICATIONS CO.
<TABLE>
<CAPTION>
Year Ended
December 31
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,132,413) $(994,861)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Bad debt expense 79,125 65,633
Depreciation 395,455 406,256
Amortization 1,019,607 766,740
Loan fees expense 200,904 217,646
Increase in accounts receivable (617,371) (135,634)
(Increase) decrease in inventories 12,068 (4,188)
Increase in prepaid expenses and other assets (63,564) (65,701)
Increase (decrease) in accounts payable
and accrued expenses 403,520 (170,144)
----------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 297,331 85,747
INVESTING ACTIVITIES
Purchases of property and equipment (154,989) (68,770)
Cash paid for the purchase of KNTL-FM
and SportsTalk net assets (5,909,651) --
Cash paid for intangible assets -- (23,195)
Net receipt (payment) of earnest money from (to) escrow agent 150,000 (500,000)
----------- ---------
NET CASH USED IN INVESTING ACTIVITIES (5,914,640) (591,965)
FINANCING ACTIVITIES
Proceeds from long-term debt 3,269,608 750,000
Payments on long-term debt (1,494,608) (280,000)
Capital contribution by partners 4,000,000 --
----------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,775,000 470,000
----------- ---------
INCREASE (DECREASE) IN CASH 157,691 (36,218)
CASH AT BEGINNING OF YEAR 20,174 56,392
----------- ---------
CASH AT END OF YEAR $ 177,865 $ 20,174
=========== =========
</TABLE>
See notes to financial statements.
73
<PAGE> 75
NOTES TO FINANCIAL STATEMENTS
CARIBOU COMMUNICATIONS CO.
December 31, 1998
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of the Company's Business: Caribou Communications Co. (the
"Partnership") is an Oklahoma General Partnership, organized to engage in the
radio broadcasting business through the control and operation of KATT-FM,
KYIS-FM, KTNT-FM, and KNTL-FM radio stations in Oklahoma City. The Partnership
was organized on December 29, 1994 and started business on January 1, 1995. The
Partnership's corporate offices are located in Denver, Colorado, and operations
facilities are located in Oklahoma City, Oklahoma.
Financial Statement Presentation: The Partnership prepares its financial
statements in accordance with generally accepted accounting principles. The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Partnership Formation: The Partnership was formed through the contributions of
substantially all of the respective properties and assets at the appraised
values, subject to substantially all of the respective liabilities and
obligations of Cat Communications, Inc. ("CAT") and Desert Communications III,
Inc. ("DCI") to the capital account of the Partnership having an aggregate net
asset value of $6,769,378 on December 29, 1994. The Partnership equity was
divided $3,926,239 (58%) to CAT and $2,843,139 (42%) to DCI. Earnings and
losses of the Partnership are divided based on the aforementioned percentages.
Inventories: Inventory is valued at lower of cost or market using the first-in,
first-out (FIFO) cost flow assumption. Inventory consists of merchandise with
the radio stations' logos. These items are sold through area record stores or
given away to the public for promotional purposes.
Property and Equipment: Property and equipment is recorded at cost and
depreciated by the straight-line method over the estimated useful life of the
assets. When assets are sold or retired, the costs and related accumulated
depreciation are removed from the accounts and any gain or loss is included in
operations.
Advertising Costs: All advertising costs of the Partnership are expensed as
incurred.
Income Taxes: No provision for income taxes is made in the financial statements
because, as a Partnership, any income or loss is included in the tax returns of
the partners. For income tax purposes, income or loss allocated to the partners
shall consider the effect of the difference in the basis of assets contributed
for income tax purposes and the amounts recorded for financial statement
purposes.
Concentration of Credit: Financial instruments which potentially subject the
Partnership to concentrations of credit risk consist primarily of trade
receivables. Such credit risk is considered by management to be limited due to
the large number of customers comprising the Partnership's customer base.
Generally, the Partnership does not require collateral or other security to
support customer accounts receivable.
74
<PAGE> 76
NOTES TO FINANCIAL STATEMENTS--Continued
CARIBOU COMMUNICATIONS CO.
December 31, 1998
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Concentration of Credit--continued: The Partnership maintains its cash in bank
deposit accounts which, at times, may exceed federally insured limits. The
Partnership does not believe there is a significant risk of loss to these
deposits.
NOTE B--PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Land $ 30,000 $ 25,000
Buildings 167,200 17,200
Automobiles 40,806 40,806
Computers and office equipment 162,432 151,643
Furniture and fixtures 342,813 302,075
Leasehold improvements 508,635 497,337
Studio and technical equipment 866,609 739,995
Tower and transmitter equipment 688,410 570,260
---------- ----------
2,806,905 2,344,316
Less accumulated depreciation 1,360,506 965,051
---------- ----------
$1,446,399 $1,379,265
========== ==========
</TABLE>
NOTE C--LONG-TERM DEBT
The following is a summary of long-term debt at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Note payable (A) to Finova Capital Corporation,
payable in monthly installments beginning June 1,
1997, bearing interest at 1% above the prime rate,
secured by all assets of the Partnership $2,430,000 $2,640,000
Note payable (B) to Finova Capital Corporation,
payable in monthly installments beginning June 1,
1997, bearing interest at 1% above the prime rate,
secured by all assets of the Partnership 2,225,000 2,490,000
</TABLE>
75
<PAGE> 77
NOTES TO FINANCIAL STATEMENTS--Continued
CARIBOU COMMUNICATIONS CO.
December 31, 1998
NOTE C--LONG-TERM DEBT--Continued)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Note payable (C) to Finova Capital Corporation,
payable upon closing of the KNTL Purchase (Note
H), bearing interest at 1% above the prime rate,
secured by all assets of the Partnership. Paid
in full in 1998 $ -- $ 500,000
Note payable (D) to Finova Capital Corporation, due
January 31, 2000, bearing interest at 1% above the
prime rate, secured by all assets of the Partnership 2,000,000 --
Note payable (E) to Finova Capital Corporation, due
January 31, 2000, bearing interest at 1% above the
prime rate, secured by all assets of the Partnership 500,000 --
Borrowing against a $1,500,000 revolving line of
credit with Finova Capital Corporation, payable in
monthly installments beginning June 1, 1997, bearing
interest at 1% above the prime rate, secured by all
assets of the Partnership 1,500,000 1,250,000
Accrued and unpaid loan fees, payable to Finova
Capital Corporation, due January 31, 2000, secured
by all assets of the Partnership 749,072 548,168
---------- ----------
9,404,072 7,428,168
Less current maturities 685,000 975,000
---------- ----------
$8,719,072 $6,453,168
========== ==========
</TABLE>
The notes payable and line of credit, except for Notes (D) and (E), are payable
in 31 consecutive monthly installments commencing on June 1, 1997. The debt
matures with a balloon payment due January 31, 2000. Currently, accrued
interest is being paid on a monthly basis. The combined monthly principal
payments on note payable (A) and the line of credit are payable as follows:
<TABLE>
<S> <C>
June 1, 1997 to March 1, 1998 $15,000
April 1, 1998 to February 1, 1999 20,000
March 1, 1999 to January 1, 2000 25,000
January 31, 2000 Full payment of remaining principal
</TABLE>
76
<PAGE> 78
NOTES TO FINANCIAL STATEMENTS--Continued
CARIBOU COMMUNICATIONS CO.
December 31, 1998
NOTE C--LONG-TERM DEBT--Continued
The monthly principal payments on note payable (B) are payable as follows:
June 1, 1997 to March 1, 1998 $20,000
April 1, 1998 to February 1, 1999 25,000
March 1, 1999 to January 1, 2000 30,000
January 31, 2000 Full payment of remaining principal
Loan fees of $950,000 are being accrued at $16,742 per month through December
1, 1999. Full payment is due January 31, 2000.
In addition, the Partnership will pay a "recapture amount" following the end of
each year upon the demand of the lender. The "recapture amount" is equal to 50%
of excess cash flows (as defined in the debt agreement) for the preceding
year, and reduces the principal payments due on the long-term debt. However,
the "recapture amount" will not be made or will be reduced to the extent
necessary so that the Partnership's cash on hand plus the outstanding amount
available on the line of credit will not be less than $300,000. There were no
excess cash flows at December 31, 1998 and 1997 and, therefore, no recapture
amount is due.
The loan agreement, dated December 29, 1994 (as amended), requires the
Partnership to maintain certain financial ratios and other covenants.
Finova Capital Corporation is a related party in that it owns 100% of Desert
Communications III, Inc., which owns a 42% interest in the Partnership.
Long-term debt of $685,000 matures in 1999, with the remaining $8,719,072 due
in 2000.
Interest payments in 1998 and 1997 totaled $716,982 and $634,221, respectively.
NOTE D--INTANGIBLE ASSETS
Goodwill consists of: (1) the difference between the appraised fair market
value of the KATT-FM and KYIS-FM radio stations under a hypothetical scenario
of the stations operating as a duopoly in the Oklahoma City radio market and
the fair market values of the stations' assets at the date of the Partnership
agreement, (2) the excess of the purchase price over the net assets of the
KTNT-FM and KNTL-FM stations, and (3) the entire purchase price of SportsTalk
Communications L.L.C. Goodwill and the FCC License are being amortized over
fifteen years using the straight-line method.
Organization costs of the Partnership have been capitalized and are being
amortized over five years using the straight-line method.
77
<PAGE> 79
NOTES TO FINANCIAL STATEMENTS--Continued
CARIBOU COMMUNICATIONS CO.
December 31, 1998
NOTE D--INTANGIBLE ASSETS--Continued
Intangible assets at December 31, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Goodwill $11,943,897 $ 6,332,587
FCC License 4,261,002 4,261,002
Organization costs 309,698 309,698
----------- -----------
16,514,597 10,903,287
Less accumulated amortization 3,085,887 2,066,280
----------- -----------
$13,428,710 $ 8,837,007
=========== ===========
</TABLE>
Total amortization provided for in 1998 and 1997 was $1,019,607 and $766,740,
respectively.
NOTE E--OPERATING LEASES
As of December 31, 1998, the Partnership is leasing office space, certain
equipment, and computer software under various noncancelable operating leases.
Rental expense for the years ended December 31, 1998 and 1997 was approximately
$341,000 and $278,000, respectively.
Approximate future minimum lease payments required under these operating leases
are as follows:
<TABLE>
<S> <C>
1999 $ 266,000
2000 231,000
2001 227,000
2002 231,000
2003 242,000
Thereafter 587,000
----------
$1,784,000
==========
</TABLE>
NOTE F--TRADE TRANSACTIONS
In accordance with accounting practices in the broadcast industry, trade
transactions (the exchange of unsold advertising time for products or services)
are recorded at the Partnership's standard rates for air time at the time the
spot is broadcast, net of expenses of the same amount representing the value of
the products or services received. Such transactions approximated $555,000 and
$487,000 for the years ended December 31, 1998 and 1997, respectively.
78
<PAGE> 80
NOTES TO FINANCIAL STATEMENTS--Continued
CARIBOU COMMUNICATIONS CO.
December 31, 1998
NOTE G--RESERVED NET PROFITS AGREEMENT
On November 28, 1995, the Board of Managers approved a Reserved Net Profits
Agreement for key employees and consultants of the Partnership. The Reserved
Net Profit Amount would equal twenty-five percent of the difference on the
termination date of the Partnership between the value of the Partnership's
business and the capital invested by the Partners, including interest at the
rate of 6.4% per annum on such capital compounded annually from January 1,
1995, up to $8 million plus twelve and one-half percent of any amounts over $8
million. The Board also authorized the President of the Partnership to allocate
the Reserved Net Profits among the key employees and consultants of the
Partnership as he, in his sole discretion, deems appropriate.
The term "value of the business" means the business sales price plus the net
current assets of the Partnership on the termination date less the legal and
brokerage expenses incurred from the sale of the assets and the Partnership's
long-term liabilities and deferred loan fees.
The Agreement also provides a means for calculating the Net Profit Amount if one
of the key employees or consultants dies, becomes permanently disabled, or
ceases to be an employee of the Partnership after December 31, 2004. In these
circumstances, the "value of the business" would be ten times the Partnership's
trailing twelve month's cash flow (as defined) less three percent for cost of
sale.
NOTE H--STATION AND OTHER ACQUISITIONS
On May 4, 1998, the Partnership acquired substantially all of the assets of the
KNTL-FM radio station ("KNTL") from Bott Communications, Inc. ("Bott"). For
financial statement purposes, the acquisition was accounted for as a purchase
and, accordingly, KNTL's results of operations are included in the financial
statements since the date of acquisition. The aggregate purchase price was
approximately $5,890,000, which includes costs of acquisition. The aggregate
purchase price, which was financed primarily through capital contributions from
the partners and note from Finova Capital Corporation (see Note C), has been
allocated to the assets of KNTL, based on their respective estimated fair
market values. The excess of the purchase price over assets acquired
approximated $5,050,000 and is being amortized over fifteen years (see Note D).
On January 14, 1998, the Partnership signed an agreement with SportsTalk
Communications L.L.C. to acquire all of its assets, including its sports talk
format, for $530,000, plus incentives. This format began broadcasting on
KNTL-FM on January 17, 1998 through a time brokerage agreement with Bott. The
transaction closed on May 4, 1998. The total cost of $560,000 is considered
goodwill for financial statement purposes, and is being amortized over fifteen
years (see Note D).
79
<PAGE> 81
NOTES TO FINANCIAL STATEMENTS--Continued
CARIBOU COMMUNICATIONS CO.
December 31, 1998
NOTE I--COMMITMENTS AND CONTINGENCIES
On July 22, 1998, the Partnership agreed to purchase WWLS-AM radio station from
Fox Broadcasting Co., Inc. ("Fox") for $3,500,000. In connection with this
purchase, the Partnership deposited earnest money with an escrow agent in the
amount of $350,000. At December 31, 1998, the purchase was awaiting approval of
the Federal Communications Commission. Approval was subsequently granted and
closing of the purchase occurred on January 7, 1999.
Concurrent with the purchase agreement, the Partnership entered into a time
brokerage agreement with Fox effective July 22, 1998. The agreement provides
that the Partnership will serve as the exclusive sales agent for WWLS-AM. As
compensation, the agreement calls for the Partnership to pay Fox $13,000 per
month. The agreement is effective through July 31, 1999, or until the terms of
the aforementioned purchase are completed.
NOTE J--OTHER RELATED PARTY TRANSACTIONS
Effective January 1, 1997, the Partnership entered into a management agreement
with Caribou Broadcasting L.P. ("Broadcasting") to manage three radio stations
in Honolulu, Hawaii. Under the five year agreement, the Partnership will earn
$100,000 each year. Desert Communications II, Inc. ("Desert II") is a 98.99%
limited partner in Broadcasting, and CAT Communications II, Inc. ("CAT II") is
a 1.01% general partner in Broadcasting. Desert II and CAT II ownership is
primarily the same as that of DCI and CAT.
Effective August 1, 1998, the management agreement discussed above was
reassigned to New Wave Broadcasting, L.P. ("New Wave"). New Wave, also a debtor
of Finova Capital Corporation, operates an otherwise unrelated group of radio
stations.
The Partnership earned $50,000 and $147,225 in management fees for 1998 and
1997, respectively. At December 31, 1998, $41,667 is due from Broadcasting and
is included in prepaid expenses and other current assets on the balance sheet.
The 1997 amount includes $47,225 as a one-time fee for agreeing to act as
manager. These fees are included in other revenue on the statement of
operations. In accordance with the management agreement, the Partnership is to
be reimbursed by Broadcasting for expenses incurred in managing these stations.
At December 31, 1998 and 1997, the Partnership is due approximately $53,000 and
$55,000, respectively, from Broadcasting for unreimbursed expenses, which is
included in prepaid expenses and other current assets on the balance sheet.
The President of the Partnership earns a bonus each year based upon attaining
certain operating results. Bonus expense reflected in the financial statements
is $100,000 for 1998 and $25,000 for 1997.
80
<PAGE> 82
Deloitte Touche LLP Logo
---------------------------------------------
2500 One PPG Place Telephone: (412)
338-7200
Pittsburgh, Pennsylvania 15222-5401
Facsimile: (412)
338-7380
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Tele-Media Broadcasting Company:
We have audited the accompanying consolidated balance sheets of Tele-Media
Broadcasting Company and its partnership interests (collectively, the
"Companies" -- see Note 1) as of December 31, 1995 and 1996, and the related
consolidated statements of operations, deficiency in net assets and cash flows
for each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Companies as of December
31, 1995 and 1996, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
As discussed in Note 4 to the consolidated financial statements, at
December 31, 1996, the Companies were not in compliance with the terms of a debt
agreement.
/s/ Deloitte & Touche LLP
March 28, 1997
Deloitte Touche Tohmatsu Logo
81
<PAGE> 83
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 1,904,258 $ 2,343,395
Accounts receivable:
Nonbarter--less allowance for doubtful accounts of
$531,000 and $612,000........................... 4,599,032 5,262,484
Barter--net.......................................... 363,394 304,244
Other current assets................................. 157,998 739,831
------------ ------------
Total current assets.............................. 7,024,682 8,649,954
------------ ------------
Property, plant and equipment:
Land................................................. 1,372,571 1,372,571
Buildings and improvements........................... 2,357,447 2,369,520
Broadcasting equipment............................... 10,653,182 11,169,533
------------ ------------
14,383,200 14,911,624
Less accumulated depreciation........................ 6,916,068 8,259,285
------------ ------------
Property, plant and equipment--net................ 7,467,132 6,652,339
------------ ------------
Intangibles--Net of accumulated amortization........... 29,036,404 26,904,288
------------ ------------
Other noncurrent assets................................ 95,641 16,331
------------ ------------
$ 43,623,859 $ 42,222,912
============ ============
LIABILITIES AND DEFICIENCY IN NET ASSETS
Current liabilities:
Accounts payable and other accrued expenses.......... $ 1,466,387 $ 2,019,269
Accrued interest..................................... 999,880 1,895,889
Accrued sales commissions............................ 330,561 358,513
Amounts due to affiliates--net....................... 2,057,456 2,818,179
Current portion of long-term debt.................... 3,106,208 37,528,396
------------ ------------
Total current liabilities......................... 7,960,492 44,620,246
------------ ------------
Long-term liabilities:
Long-term debt--less current portion................. 64,417,869 32,382,419
Other................................................ 32,772 31,266
------------ ------------
Total long-term liabilities....................... 64,450,641 32,413,685
------------ ------------
Redeemable stock warrants.............................. 750,950 1,644,000
------------ ------------
Deficiency in net assets:
Common stock, voting, $0.01 par value per share;
25,000 shares authorized, 15,000 shares
outstanding....................................... 150 150
Common stock, nonvoting, $0.01 par value per share;
10,000 shares authorized, none outstanding........ -- --
Additional paid-in capital........................... 6,924,445 6,924,445
Deficit.............................................. (36,462,819) (43,379,614)
------------ ------------
Deficiency in net assets.......................... (29,538,224) (36,455,019)
------------ ------------
$ 43,623,859 $ 42,222,912
============ ============
</TABLE>
See notes to consolidated financial statements.
82
<PAGE> 84
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
CONSOLIDATED STATEMENT OF OPERATIONS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Local advertising....................... $17,637,256 $18,539,201 $20,968,055
National advertising.................... 4,867,471 4,957,359 4,618,104
Barter.................................. 3,561,009 3,646,290 3,451,849
Other................................... 576,607 511,827 370,932
----------- ----------- -----------
26,642,343 27,654,677 29,408,940
Less agency commissions................. 2,648,183 2,811,738 2,984,574
----------- ----------- -----------
Net revenues.................... 23,994,160 24,842,939 26,424,366
----------- ----------- -----------
Selling, general and administrative,
programming, barter and technical
expenses:
Selling.............................. 4,719,103 5,154,097 5,001,176
General and administrative........... 3,552,604 4,088,306 4,674,883
Programming.......................... 3,882,737 4,391,676 4,858,386
Barter............................... 3,485,969 3,520,426 3,513,231
Technical............................ 176,459 224,975 245,524
----------- ----------- -----------
15,816,872 17,379,480 18,293,200
----------- ----------- -----------
Operating income before management fees
and depreciation and amortization....... 8,177,288 7,463,459 8,131,166
----------- ----------- -----------
Management fees and depreciation and
amortization:
Management fees--affiliates............. 844,579 741,876 804,410
Depreciation and amortization........... 4,690,730 3,708,809 3,493,509
----------- ----------- -----------
5,535,309 4,450,685 4,297,919
----------- ----------- -----------
Operating income.......................... 2,641,979 3,012,774 3,833,247
Interest expense.......................... 6,093,333 9,132,133 10,750,042
----------- ----------- -----------
Loss before extraordinary item............ (3,451,354) (6,119,359) (6,916,795)
Extraordinary item--Loss on extinguishment
of debt................................. (1,341,348) -- --
----------- ----------- -----------
Net loss........................ $(4,792,702) $(6,119,359) $(6,916,795)
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
83
<PAGE> 85
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
CONSOLIDATED STATEMENT OF DEFICIENCY IN NET ASSETS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------- PAID-IN
SHARES AMOUNT CAPITAL DEFICIT
------ ------ ---------- ------------
<S> <C> <C> <C> <C>
Balance, January 1, 1994................................. 2,000 $ 20 $7,125,383 $(25,550,758)
Stock dividend......................................... 13,000 130 (130) --
Capital contributions--cash............................ -- -- 1,000 --
Distributions.......................................... -- -- (400,000) --
Contribution of management fees--affiliates............ -- -- 198,192 --
Net loss............................................... -- -- -- (4,792,702)
------ ---- ---------- ------------
Balance, December 31, 1994............................... 15,000 150 6,924,445 (30,343,460)
Net loss............................................... -- -- -- (6,119,359)
------ ---- ---------- ------------
Balance, December 31, 1995............................... 15,000 150 6,924,445 (36,462,819)
Net loss............................................... -- -- -- (6,916,795)
------ ---- ---------- ------------
Balance, December 31, 1996............................... 15,000 $150 $6,924,445 $(43,379,614)
====== ==== ========== ============
</TABLE>
See notes to consolidated financial statements.
84
<PAGE> 86
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
1994 1995 1996
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (4,792,702) $(6,119,359) $(6,916,795)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 4,690,730 3,708,809 3,493,509
Interest deferral...................................... 1,343,351 5,114,170 4,932,565
Amortization of loan origination fees.................. -- 311,916 300,795
Management fees--affiliates............................ 198,192 741,876 804,410
Provision for losses on accounts receivable............ 376,732 367,522 387,291
Loss on write-off of intangible assets................. 159,431 -- --
Net barter transactions................................ (75,040) (125,864) 61,382
Increase in fair value of redeemable stock warrants.... -- -- 893,050
Other.................................................. 90,867 (36,420) (78,760)
Changes in operating assets and liabilities:
Accounts receivable--nonbarter....................... (437,520) (938,846) (1,050,743)
Other current assets................................. (249,489) 233,807 (581,833)
Accounts payable and other accrued expenses.......... (96,561) 281,957 552,882
Affiliates activity--net............................. 1,148,600 (407,409) (43,687)
Accrued interest..................................... 35,113 136,081 896,009
Accrued sales commissions............................ (38,885) (6,891) 27,952
------------ ----------- -----------
Net cash provided by operating activities......... 2,352,819 3,261,349 3,678,027
------------ ----------- -----------
Cash flows from investing activities:
Capital expenditures...................................... (428,423) (520,440) (468,631)
Purchase of radio stations................................ (1,900,000) (5,100,000) (65,000)
Other..................................................... (4,809) 6,124 6,000
------------ ----------- -----------
Net cash used in investing activities............. (2,333,232) (5,614,316) (527,631)
------------ ----------- -----------
Cash flows from financing activities:
Capital contributions..................................... 1,000 -- --
Borrowings................................................ 61,334,446 5,433,347 95,144
Payments of long-term debt................................ (57,323,706) (2,932,546) (2,640,971)
Loan origination fees and other intangible assets......... (2,668,295) (271,271) (163,764)
Sale of redeemable stock warrants......................... 750,950 -- --
Distributions to stockholders............................. (400,000) -- --
Other..................................................... (12,180) (2,178) (1,668)
------------ ----------- -----------
Net cash provided by (used in) financing
activities...................................... 1,682,215 2,227,352 (2,711,259)
------------ ----------- -----------
Net increase (decrease) in cash and cash equivalents........ 1,701,802 (125,615) 439,137
Cash and cash equivalents, beginning of year................ 328,071 2,029,873 1,904,258
------------ ----------- -----------
Cash and cash equivalents, end of year...................... $ 2,029,873 $ 1,904,258 $ 2,343,395
============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
85
<PAGE> 87
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
1. BASIS OF PRESENTATION AND BUSINESS
Tele-Media Broadcasting Company (the "Company" or "TMBC") was incorporated
in 1988 under the name TMZ Broadcasting Company ("TMZ"). In April 1994, TMZ
changed its name to Tele-Media Broadcasting Company. Robert E. Tudek and Everett
I. Mundy each own 50% of the outstanding shares of TMBC. TMBC operates radio
stations principally in midsize markets in the eastern United States and in
Illinois.
In May 1989, TMZ acquired all of the outstanding common stock of Eastern
Broadcasting Company ("Eastern") and its wholly-owned subsidiaries: Lehigh
Valley Broadcasting ("Lehigh"), Penn Broadcasting Corporation ("Hershey"),
Providence Broadcasting Corporation ("Providence"), Quincy Communications
Corporation ("Quincy") and State College Communications Corporation ("State
College"). TMZ retained the assets acquired from State College and contributed
the assets acquired from the remaining subsidiaries of Eastern to limited
partnerships with the same names which TMZ had formed to facilitate the
acquisition. TMZ owned between a 95% and 99% general partnership interest in
each of the limited partnerships. With the exception of Quincy, the limited
partnership interests were owned by the shareholders of TMZ and employees of the
Companies (hereinafter defined). The limited partnership interest in Quincy (1%)
was owned by Tele-Media Holding Corporation ("Holding"), which is owned by
Messrs. Tudek and Mundy.
In April 1993, Messrs. Tudek and Mundy formed Tele-Media Broadcasting
Company of America ("America Corporation"), which purchased substantially all of
the assets of two radio stations in Rhode Island, WPRO(AM) and WPRO-FM, for
approximately $6 million, and in May 1993 formed Tele-Media Broadcasting Company
of Johnstown/Altoona ("Johnstown/Altoona Corporation"), which purchased all of
the common stock of Cambria County Broadcasting Company ("CCBC"). CCBC operated
radio station WIYQ(FM). Simultaneous with the purchase, CCBC was merged into
Johnstown/Altoona Corporation with Johnstown/Altoona Corporation being the
surviving corporation. WIYQ(FM)'s call letters were subsequently changed to
WQKK-FM.
In April 1994, Tele-Media Broadcasting Company of Cambria County ("Cambria
County Corporation") was formed by the shareholders of TMBC. Cambria County
Corporation purchased substantially all of the assets of a radio station,
WGLU(FM), in the Johnstown, PA market for approximately $1.9 million.
In June 1994, the companies were restructured in order to facilitate a
refinancing (see Note 4). In order to accomplish the restructuring, Tele-Media
Broadcasting Operating Company Limited Partnership ("Tele-Media Operating") was
formed by TMBC. Holding distributed its 1% limited partnership interest in
Quincy to the shareholders of TMBC. TMBC contributed its general partnership
interests in Lehigh, Hershey, Providence and Quincy to Tele-Media Operating. The
shareholders of TMBC contributed all of their limited partnership interests in
Lehigh, Hershey and Quincy to TMBC. TMBC contributed all of its limited
partnership interest in Lehigh and all but 1% of its limited partnership
interest in Hershey and Quincy to Tele-Media Operating. These limited
partnership interests were, by
86
<PAGE> 88
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
virtue of an amendment to the respective partnership agreements, converted into
general partnership interests. Tele-Media Broadcasting Company of America
Limited Partnership ("America LP"), Tele-Media Broadcasting Company of
Johnstown/Altoona Limited Partnership ("Johnstown/Altoona LP"), Tele-Media
Broadcasting Company of State College Limited Partnership ("State College LP")
and Tele-Media Broadcasting Company of Cambria County Limited Partnership
("Cambria County LP") were formed by Tele-Media Operating, and America
Corporation, Johnstown/Altoona Corporation and Cambria County Corporation were
merged with and into TMBC and the assets were then contributed to Tele-Media
Operating which in turn conveyed them to the limited partnerships by the same
names. TMBC then transferred all of the assets acquired in the State College
acquisition to Tele-Media Operating which in turn conveyed them to State College
LP.
After the restructuring, TMBC owned a 99% general partnership interest in
Tele-Media Operating, and Tele-Media Operating owned between a 95% and 99%
general partnership interest in the following limited partnerships: Lehigh,
Hershey, Providence, Quincy, State College LP, America LP, Johnstown/Altoona LP
and Cambria County LP (collectively, the "Companies").
In March 1995, Quincy purchased substantially all of the assets of WZLZ-FM
for approximately $367,000 and the call letters were subsequently changed to
WMOS-FM. This acquisition was financed primarily with unsecured seller debt.
During 1994, Tele-Media Operating formed Tele-Media Broadcasting Company of
York Limited Partnership ("York LP"), of which Tele-Media Operating is 99%
general partner and TMBC is 1% limited partner. On May 1, 1995, the Companies
entered into Local Marketing Agreements ("LMAs") to operate WQXA-AM, WQXA-FM and
WIKN-FM. In November 1995, York LP acquired substantially all the assets of
WQXA-AM and WQXA-FM for approximately $5 million. This acquisition was financed
with additional borrowings under the Amended Loan Agreement (see Note 4).
On August 1, 1996, the Companies entered into an LMA to operate WBLF-AM. In
October 1996, State College LP acquired substantially all the assets of WBLF-AM
for approximately $215,000 (including forgiveness of a note receivable from the
seller and cash paid of $65,000).
During 1996, Tele-Media Operating formed Tele-Media Broadcasting Company of
Wilkes Barre/Scranton Limited Partnership ("Wilkes Barre LP") of which
Tele-Media Operating is 99% general partner and TMBC is 1% limited partner. On
August 1, 1996 Wilkes Barre LP entered into an asset purchase agreement to
acquire WAZL-AM and WZMT-FM and entered into an LMA to operate the stations. On
December 1, 1996, TMBC entered into an asset purchase agreement to acquire
WARM-AM and WMGS-FM along with the rights to purchase options for WBHT-FM,
WKQV-FM and WKQV-AM, all of which are located in the Wilkes-Barre market, and
which were being operated under LMAs and Joint Sales Agreements ("JSA's").
Subsequent to December 31, 1996, the Company consummated the acquisition of the
assets of WAZL-AM and WZMT-FM for approximately $3.5 million, which was financed
with borrowings under the Amended Loan Agreement. The Company expects to
consummate the acquisition of the assets of WARM-AM and WMGS-FM in 1997
87
<PAGE> 89
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for approximately $11 million to be financed through additional borrowings under
the Amended Loan Agreement. The Company has made a nonrefundable escrow deposit
of $550,000 related to this acquisition. The escrow deposit is included in other
current assets and will be a reduction of the purchase price or, in the event
the acquisition is not consummated, paid to the seller.
The accompanying consolidated financial statements include the accounts of
TMBC and its partnership interests, including the acquisition of businesses from
their respective dates of purchase. All of the aforementioned acquisitions were
accounted for under the purchase method, and as such, the purchase price is
allocated among the assets and liabilities purchased based on their relative
fair market values at the date of acquisition. All material intercompany
transactions and balances have been eliminated in the consolidated financial
statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Cash and Cash Equivalents--For purposes of the consolidated statements
of cash flows, the Companies consider highly liquid investments with original
maturities of three months or less to be cash equivalents.
b. Property, Plant and Equipment--Property, plant and equipment, carried at
cost, is depreciated over the estimated useful lives of the related assets,
principally five to ten years. Depreciation is computed on the straight-line
method for financial statement purposes and on accelerated methods for federal
income tax purposes. Depreciation expense totaled $1,446,000, $1,499,000 and
$1,358,000 for the years ended December 31, 1994, 1995 and 1996, respectively.
c. Intangibles--Broadcast licenses are amortized over 20 years. Loan
origination fees and non-compete agreements are amortized over the terms of the
related agreements, and organization costs are amortized over five years. The
Companies write-off these assets and related accumulated amortization when the
assets become fully amortized.
d. Impairment of Long-Lived Assets--Management of the Companies reviews
long-lived assets (including property, plant and equipment and intangibles) for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Management considers the
undiscounted cash flow expected to be generated by the use of the asset and its
eventual disposition to determine when, and if, an impairment has occurred. Any
write-downs due to impairment are charged to operations at the time the
impairment is identified. During the year ended December 31, 1994, the Company
wrote-off loan origination fees with a net carrying value of approximately
$159,000 due to a refinancing of the debt. There were no such write-downs
required in 1995 or 1996.
e. Income Taxes--No provision for income taxes has been made for the
taxable income of the partnerships included in the consolidated financial
statements as income taxes are the responsibility of the partners. TMBC has
Subchapter S status for federal income tax purposes and, therefore, the
shareholders, rather than the Company, have the responsibility for federal
88
<PAGE> 90
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
income taxes and for state income taxes in those states that recognize the
equivalent of Subchapter S status.
f. Revenue Recognition--Revenue is recognized as commercials are broadcast.
The Companies also enter into barter transactions in which advertising time is
traded for merchandise or services used principally for promotional and other
business purposes. Barter revenue is recorded as commercials are broadcast at
the estimated fair value of the air time. If merchandise or services are
received prior to the broadcast of commercials, recognition of the related
revenue is deferred and recognized as the commercials are broadcast.
g. Reclassifications--Certain reclassifications have been made to the 1994
and 1995 consolidated financial statements in order to conform to the 1996
presentation.
h. Use of Estimates in Preparation of the Consolidated Financial
Statements--The preparation of these consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of assets and
liabilities as of the date of the consolidated financial statements and the
reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
i. Local Marketing Agreements and Joint Sales Agreements--The Companies use
property, plant and equipment of the radio stations operated under LMAs and JSAs
in exchange for a fee. Under provisions of the Company's LMAs and JSAs, the
expenses of operating the stations (other than depreciation or amortization of
assets) are the obligations of the Companies, and they are entitled to the
revenues generated by the stations. Revenues and expenses related to these
agreements are reflected in the consolidated statements of operations. The
Companies have recorded fees in respect to these agreements of $63,750 for the
year ended December 31, 1996 within general and administrative expenses on the
consolidated statement of operations. No such costs were incurred in 1994 or
1995.
3. INTANGIBLES
Intangibles consist of the following:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Broadcast licenses...................... $36,389,881 $36,440,231
Non-compete agreements.................. 1,487,500 265,000
Loan origination fees................... 2,854,888 2,937,340
Organization costs...................... 250,387 284,633
----------- -----------
40,982,656 39,927,204
Less accumulated amortization........... 11,946,252 13,022,916
----------- -----------
$29,036,404 $26,904,288
=========== ===========
</TABLE>
89
<PAGE> 91
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT AND REDEEMABLE STOCK WARRANTS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Senior:
Borrowings under Amended Loan
Agreement........................ $36,383,700 $33,935,700
Discount Notes...................... 30,698,371 35,630,986
Other................................. 442,006 344,129
----------- -----------
67,524,077 69,910,815
Less current portion.................. 3,106,208 37,528,396
----------- -----------
$64,417,869 $32,382,419
=========== ===========
</TABLE>
The significant provisions of the Amended and Restated Loan Agreement dated
February 26, 1997 (the "Amended Loan Agreement"), Senior Discount Notes (the
"Notes"), and the Redeemable Stock Warrants (the "Warrants") are discussed
below. The debt arrangements discussed in the preceding sentence were entered
into in connection with a refinancing in June 1994 of substantially all of the
debt then outstanding, resulting in an extraordinary loss on the extinguishment
thereof of approximately $1,341,000 during the year ended December 31, 1994.
AMENDED LOAN AGREEMENT
The Amended Loan Agreement permits borrowings of up to approximately $49
million. The remaining permitted borrowings under the Amended Loan Agreement
($16 million at February 26, 1997) were provided to finance the 1997 planned
acquisitions described in Note 1. The Amended Loan Agreement modified principal
and interest payments, and certain financial covenants and requires the payment
of additional fees to the Lender of $250,000 in 1997 and 1998 in the event of a
failure to meet the leverage covenant in either year. Prior to the amendment on
February 26, 1997, and at December 31, 1996, the Companies were not in
compliance with the provisions of the loan agreement then in effect.
Principal is payable in quarterly installments with any remaining principal
due April 1999. The Lender has the option to require the Companies to make an
additional principal payment of up to approximately $8.9 million in 1997 and
$21.4 million in 1998. Prior to the date of the Amended Loan Agreement, interest
was payable quarterly at the prime rate plus 2%, or at the Companies' option,
LIBOR plus 4.75%. At December 31, 1996, the interest rate was 10.25% (prime plus
2%). The Amended Loan Agreement requires interest payments quarterly. Interest
under the Amended Loan Agreement is charged at the prime rate plus 2%, or at the
Companies' option, LIBOR plus 4.5%, on borrowings up to approximately $44
million; interest on the next $5 million borrowed will be charged at the prime
rate plus 3.75%. The Amended Loan Agreement requires the Companies to enter into
a two year interest hedge contract on or before September 30, 1997 in a notional
amount not less than $25 million, providing protection should the prime rate
exceed the prime rate at the date the
90
<PAGE> 92
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
interest hedge contract is entered into by 2.5%. A penalty of between 2% and 4%
is assessed on any principal prepayment.
Borrowings under the Amended Loan Agreement are collateralized by
substantially all of the assets and partnership interests of Tele-Media
Operating and its partnerships. The Amended Loan Agreement provides for, among
other things, limitations on distributions, indebtedness, mergers, sale and
purchase of assets, capital expenditures, payment of management fees and payment
of interest on the Notes, and requires the achievement of certain minimum cash
flow amounts.
SENIOR DISCOUNT NOTES
The Notes are due June 15, 2004 and were issued with an original issue
discount based on an interest rate of 16%. TMBC did not make interest payments
on the Notes due June 15, 1995, December 15, 1995 and June 15, 1996 and did not
consummate the Exchange Offer by the date as set forth in the original
Registration Rights Agreement (as defined below). Consequently, TMBC and the
Note holders amended the existing agreements to convert the amount of cash
interest payments then due ($2,509,000) plus penalties of approximately
$1,260,000 to notes payable and, in consideration of the conversion, the Note
holders waived TMBC's default. Under the terms of the Note Agreement, as amended
to include the notes issued in 1995 and 1996, interest of approximately $920,000
is payable semi-annually through June 15, 1999, and the remainder of the
interest is deferred and added to principal. After June 15, 1999, semi-annual
interest payments will be made at an annual rate of 16% of the accreted value of
the Notes. The accreted value of the Notes will approximate $47,811,000 at June
15, 1999.
TMBC did not make the required interest payment of $920,585 on the Notes
which was due on December 15, 1996, and consequently it is in default of the
Note Agreement. The holders of the Notes have the right to require immediate
payment of all amounts due under the Note Agreement. The total amount due under
the Note Agreement at December 31, 1996, which is classified as a current
obligation, was $35,630,986. The shareholders of TMBC have negotiated an
agreement to sell their stock in the Company. As part of the transaction, the
holders of the Notes will be paid an amount sufficient to satisfy all
outstanding claims against TMBC, including settlement of claims relating to the
redeemable stock warrants discussed below (see Note 6). In the event the sale is
not consummated, TMBC plans to enter into discussions with the Note holders to
convert the delinquent amount, plus any penalties, into a note payable. If the
Note holders refuse to agree to the conversion or another acceptable
alternative, TMBC intends to search for replacement financing.
Payment under the Notes is restricted by the Amended Loan Agreement.
Redemption of the Notes prior to their scheduled maturity is subject to
prepayment premiums. If a Qualified Public Offering is consummated by June 15,
1999, the Notes may be redeemed at TMBC's option for between 110% to 120% of the
Accreted Value of the Notes. After June 15, 1999, the Notes may be redeemed at
TMBC's option for $47,811,000 plus a premium of up to 8%, which declines ratably
through the date of maturity. In addition, if a Change of Control
91
<PAGE> 93
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
occurs, the Note holders have the option to require TMBC to repurchase the Notes
at 101% of the Accreted Value.
The Notes are unsecured and restrict, among other things, the declaration
or payment of any dividends or any other distributions to shareholders, the
incurrence of additional debt, transactions with affiliates, payment of
management fees, formation of additional subsidiaries, mergers, sales of assets
and capital expenditures. Pursuant to a Registration Rights Agreement between
TMBC and the Purchasers, TMBC filed an Exchange Offer Registration Statement
(the "Registration Statement") with the Securities and Exchange Commission on
September 19, 1994. Under the terms of the Exchange Offer the holders of the
Notes may exchange the Old Notes for New Notes with identical terms, except that
the New Notes may be offered for resale, be resold or otherwise transferred,
under certain conditions by the holders without compliance with the registration
and prospectus delivery provisions of the Securities Act of 1933. Pursuant to
the terms of the Registration Rights Agreement, as amended, if the Registration
Statement does not become effective by May 1, 1997, additional interest of 1%
per annum will be charged from May 1, 1997 through December 1, 1997 and increase
.5% each six months thereafter, not to exceed an aggregate of 5% based on the
Accreted Value of the Notes until the Registration Statement becomes effective.
REDEEMABLE STOCK WARRANTS
The Warrants are exercisable at no additional cost to the Note holders for
between 3,750 and 5,290 shares of non-voting common stock representing 20% to
26% of the equity of TMBC, based on the achievement of certain levels of
Operating Cash Flow. The Warrant agreement provides registration rights to the
holders and restricts, among other things, the incurrence of additional debt,
payment of management fees, formation of additional subsidiaries, mergers, sale
of assets and distributions to stockholders. In addition, the Warrant holders
have put rights during the period from January 1, 2000 through March 31, 2000 or
upon a Change of Control, to require TMBC to redeem the Warrants for cash at
fair value.
The Warrants expire June 9, 2004 and are exercisable at any time on or
after January 1, 2000, or upon the occurrence of any of the following: the
conversion of TMBC to a Subchapter C corporation for federal income tax
purposes; an Initial Public Offering; a merger where TMBC is not the surviving
entity; a sale, lease, transfer or other disposition of all or substantially all
of the assets of TMBC or its subsidiaries; a liquidation or dissolution of TMBC;
or if Messrs. Tudek and Mundy own less than 50% of TMBC or a successor company.
Holders of the non-voting common stock will enter into a Registration
Rights Agreement providing them with unlimited piggy-back registration rights
and the right to participate in any Initial Public Offering. The non-voting
stock is convertible into voting common stock in connection with the sale of
shares in a public offering, in a brokers' transaction pursuant to Rule 144
under the Securities Act of 1933, and if, after conversion, the shareholder
would own 4.9% or less of the common stock. TMBC has reserved 10,000 shares of
non-voting stock and 10,000 shares of voting stock for exercise of the Warrants.
92
<PAGE> 94
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TMBC estimated the redemption price of the warrants at December 31, 1995
and 1996 as $750,950 and $7,000,000, respectively. Increases in the redemption
price are accounted for prospectively as an adjustment to periodic interest
expense from the date of the increase to January 1, 2000, the earliest date the
put can be exercised. The accreted value of the Warrants at December 31, 1995
and 1996, was $750,950 and $1,644,000, respectively, resulting in a charge to
interest expense for the year ended December 31, 1996 of $893,050. There was no
adjustment to interest expense for the years ended December 31, 1994 and 1995.
Minimum scheduled maturities of long-term debt during the next five years
considering the Amended Loan Agreement and the classification of the Notes as a
current liability resulting from the default are as follows:
<TABLE>
<S> <C>
1997.................................................. $37,528,000
1998.................................................. 2,595,000
1999.................................................. 33,744,000
2000.................................................. 19,000
2001.................................................. 3,000
</TABLE>
Interest paid on all debt in 1994, 1995 and 1996 was approximately
$4,616,000, $3,570,000 and $3,750,000, respectively.
5. OPERATING AGREEMENT WITH AFFILIATE
Under terms of an operating agreement entered into in June 1994, Tele-Media
Corporation of Delaware (an affiliate) ("Tele-Media Delaware") provides certain
management and technical services to the Companies and charges a management fee
of 3.5% of revenues. Payment of the management fee is restricted by the Notes
and the Amended Loan Agreement. The operating agreement expires on June 9, 2004
and continues from year-to-year thereafter unless either party gives written
notice to the other at least 30 days in advance of an expiration date.
Prior to the June 1994 operating agreement discussed above, Tele-Media
Delaware charged a management fee ranging from 3.5% to 7% of revenues. As
required by the provisions of the debt arrangements then outstanding as
discussed in Note 4, Messrs. Tudek and Mundy assumed responsibility for the
payment of certain management fees in 1994. The liabilities assumed by Messrs.
Tudek and Mundy are treated as additional paid-in capital in the consolidated
financial statements.
6. CONTINGENCIES AND COMMITMENTS
In 1995, TMBC and its shareholders entered into a nonbinding letter of
intent to sell the stock of TMBC. TMBC terminated the letter of intent and the
proposed buyer filed suit for damages and specific performance. A motion to
dismiss the suit was heard in early 1996 and the court ruled to dismiss a
majority of the claims, including those for specific performance, as no
definitive agreement had been reached for sale of the stock. On March 28, 1997,
the shareholders of TMBC executed an agreement to sell the stock of the Company
to the plaintiff in this suit. As part of this transaction, the suit was
dismissed with prejudice, and
93
<PAGE> 95
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
upon motion of the parties, the dismissal of the suit was approved by the court.
As a result of the suit's dismissal, this action cannot again be filed by the
plaintiff.
General and administrative expenses for the year ended December 31, 1995
and 1996 include approximately $274,000 and $260,000, respectively, of legal
expenses incurred relating to the defense of the lawsuit and the proposed sale.
The shareholders have agreed to pay 5.5% of the net proceeds from a sale of
their stock to two key members of management.
* * * * * *
94
<PAGE> 96
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,708,373
Accounts receivable:
Nonbarter--less allowance for doubtful accounts of
$800,000.............................................. 5,447,842
Barter--net............................................ 303,749
Other current assets...................................... 303,620
------------
Total current assets.............................. 9,763,584
------------
Property, plant and equipment--net.......................... 8,436,165
------------
Intangibles--net............................................ 38,326,412
------------
Other noncurrent assets..................................... 16,331
------------
$ 56,542,492
============
LIABILITIES AND DEFICIENCY IN NET ASSETS
Current liabilities:
Accounts payable and other accrued expenses............... $ 1,514,622
Accrued interest.......................................... 2,969,594
Amounts due to affiliates--net............................ 4,159,152
Current portion of long-term debt......................... 39,491,064
------------
Total current liabilities......................... 48,134,432
------------
Long-term liabilities:
Long-term debt--less current portion...................... 47,306,734
Other..................................................... 31,266
------------
Total long-term liabilities....................... 47,338,000
------------
Redeemable stock warrants................................... 7,000,000
------------
Deficiency in net assets:
Common stock, voting, $0.01 par value per share; 25,000
shares authorized, 15,000 shares outstanding........... 150
Common stock, nonvoting, $0.01 par value per share; 10,000
shares authorized, none outstanding.................... --
Additional paid-in capital................................ 6,924,445
Deficit................................................... (52,854,535)
------------
Deficiency in net assets.......................... (45,929,940)
------------
$ 56,542,492
============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
95
<PAGE> 97
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS AND CHANGES IN DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Revenues:
Local advertising.................................... $ 9,323,963 $ 12,557,493
National advertising................................. 2,052,723 2,710,273
Barter............................................... 1,697,415 2,357,519
Other................................................ 222,507 339,431
------------ ------------
13,296,608 17,964,716
Less agency commissions.............................. 1,346,551 1,723,832
------------ ------------
Net revenues................................. 11,950,057 16,240,884
------------ ------------
Selling, general and administrative, programming,
barter and technical expenses:
Selling.............................................. 2,441,926 3,287,451
General and administrative........................... 2,008,273 3,366,246
Programming.......................................... 2,337,296 3,491,639
Barter............................................... 1,697,415 2,357,519
Technical............................................ 127,977 176,110
------------ ------------
8,612,887 12,678,965
------------ ------------
Operating income before management fees and
depreciation and amortization........................ 3,337,170 3,561,919
------------ ------------
Management fees and depreciation and amortization:
Management fees--affiliates.......................... 358,113 454,258
Depreciation and amortization........................ 2,092,858 2,207,660
------------ ------------
2,450,971 2,661,918
------------ ------------
Operating income....................................... 886,199 900,001
Interest expense....................................... 4,955,734 10,374,922
------------ ------------
Net loss............................................... (4,069,535) (9,474,921)
Deficit, beginning of period........................... (36,462,819) (43,379,614)
------------ ------------
Deficit, end of period................................. $(40,532,354) $(52,854,535)
============ ============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
96
<PAGE> 98
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $(4,069,535) $ (9,474,921)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization...................... 2,092,858 2,207,660
Interest deferral.................................. 3,012,406 1,975,012
Management fees--affiliates........................ 358,113 454,258
Provision for losses on accounts receivable........ 158,144 305,581
Increase in fair value of redeemable stock
warrants......................................... -- 5,356,000
----------- ------------
Other.............................................. 849 335
Changes in operating assets and liabilities:
Accounts receivable--nonbarter................... (6,589) (490,939)
Other current assets............................. (115,852) (114,795)
Accounts payable and other accrued expenses...... (587,980) (863,160)
Affiliates activity--net......................... (135,961) 886,715
Accrued interest................................. 478,336 1,073,705
----------- ------------
Net cash provided by operating activities..... 1,184,789 1,315,451
----------- ------------
Cash flows from investing activities:
Capital expenditures.................................. (255,344) (227,926)
Purchase of radio stations............................ -- (14,170,000)
Other................................................. 2,500 1,500
----------- ------------
Net cash used in investing activities......... (252,844) (14,396,426)
----------- ------------
Cash flows from financing activities:
Borrowings............................................ 79,361 16,000,000
Payments of long-term debt............................ (1,575,046) (1,408,350)
Loan origination fees and other intangible assets..... (25,000) (145,334)
Other................................................. (1,714) (363)
----------- ------------
Net cash provided by (used in) financing
activities.................................. (1,522,399) 14,445,953
----------- ------------
Net increase (decrease) in cash and cash equivalents.... (590,454) 1,364,978
Cash and cash equivalents, beginning of period.......... 1,904,258 2,343,395
----------- ------------
Cash and cash equivalents, end of period................ $ 1,313,804 $ 3,708,373
=========== ============
</TABLE>
See notes to consolidated financial statements.
97
<PAGE> 99
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
1. BASIS OF PRESENTATION
The condensed consolidated balance sheet as of June 30, 1997 and the
condensed consolidated statements of operations and changes in deficit and cash
flows for the six month periods ended June 30, 1996 and 1997 are unaudited. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation for the periods presented
have been included. These interim unaudited condensed consolidated financial
statements for 1996 and 1997 should be read in conjunction with the audited
consolidated financial statements and notes thereto. The consolidated results of
operations for the six months ended June 30, 1997 are not necessarily indicative
of the results to be expected for the full year.
2. BUSINESS ACQUISITIONS
On February 27, 1997, the Company purchased substantially all of the assets
of two radio stations in the Wilkes-Barre/Scranton, Pennsylvania market for
approximately $3,400,000. The acquisition was accounted for under the purchase
method, with approximately $500,000 allocated to property, plant and equipment
and approximately $2,900,000 allocated to intangibles.
On April 18, 1997, the Company closed the acquisition of two additional
radio stations in the Wilkes-Barre/Scranton, Pennsylvania market for
approximately $11,000,000. The acquisition was financed by $12,000,000 of
additional borrowings under the Amended Loan Agreement. The acquisition was
accounted for under the purchase method, with approximately $1,722,000 allocated
to property, plant and equipment and approximately $9,278,000 allocated to
intangibles.
On May 5, 1997, the Company closed the acquisition of a radio station in
the Quincy, Illinois market for approximately $345,000. The acquisition was
financed primarily by an unsecured seller note and assumption of capital leases.
The acquisition was accounted for under the purchase method, with approximately
$148,000 allocated to property and equipment and approximately $197,000
allocated to intangibles.
3. SUBSEQUENT EVENTS
On July 3, 1997, all of the issued and outstanding stock of the Company was
acquired by Citadel Broadcasting Company, a subsidiary of Citadel Communications
Corporation for approximately $114,400,000. In connection with the acquisition
by Citadel Broadcasting Company, a Change of Control occurred. The Change of
Control has a material effect on the financial statements due to the change in
the earliest put date of the redeemable stock warrants. The Warrant holders have
put rights as of January 1, 2000 or upon a Change of Control. TMBC estimated the
redemption price of the warrants at December 31, 1996 as $7,000,000, and the
accreted value of the warrants at December 31, 1996 was $1,644,000. Previously,
increases in the redemption price were accounted for prospectively as an
adjustment to periodic interest expense from the date of the increase to January
1, 2000, the
98
<PAGE> 100
earliest date the put could be exercised. However, due to the Change of Control
on July 3, 1997, the earliest put date is July 3, 1997 and the warrants must be
accreted to their full value by this time. The accreted value of the warrants at
December 31, 1996 was $1,644,000, thus resulting in a charge to interest expense
of $5,356,000 during the six months ended June 30, 1997 to accrete the warrants
to their $7,000,000 redemption price.
99
<PAGE> 101
CITADEL BROADCASTING COMPANY
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial
statements reflect the results of operations and balance sheet of Citadel
Broadcasting Company after giving effect to:
(1) the following completed transactions (collectively, the "Completed
Transactions"):
o the March 26, 1998 acquisition of WCTP-FM, WCTD-FM and WKJN-AM serving
the Wilkes-Barre/Scranton market for the purchase price of
approximately $6.0 million (the "Wilkes-Barre/Scranton Acquisition"),
o the February 12, 1998 acquisition of Pacific Northwest Broadcasting
Corporation which owned KQFC-FM, KKGL-FM and KBOI-AM in Boise, Idaho
for the purchase price of approximately $14.4 million and the April 21,
1998 acquisition of KIZN-FM and KZMG-FM in Boise for the purchase price
of approximately $14.5 million (collectively, the "Boise
Acquisitions"),
o the November 17, 1998 acquisition of KAAY-AM in Little Rock, Arkansas
for the purchase price of approximately $5.1 million,
o the February 9, 1999 acquisition of WKQZ-FM, WYLZ-FM, WILZ-FM, WIOG-FM,
WGER-FM and WSGW-AM in Saginaw/Bay City, Michigan for the purchase
price of approximately $35.0 million (the "Saginaw/Bay City
Acquisition"),
o the February 17, 1999 acquisition of WHYL-FM and WHYL-AM in
Harrisburg/Carlisle, Pennsylvania for the purchase price of
approximately $4.5 million (the "Carlisle Acquisition"),
o the March 17, 1999 acquisition of Citywide Communications, Inc., which
owned KQXL-FM, WEMX-FM, WCAC-FM, WXOK-AM and WIBR-AM serving the Baton
Rouge, Louisiana market and KFXZ-FM, KNEK-FM, KRRQ-FM and KNEK-AM
serving the Lafayette, Louisiana market for the purchase price of
approximately $31.5 million (the "Baton Rouge/Lafayette Acquisition"),
o the April 30, 1999 acquisition of KSPZ-FM serving the Colorado Springs,
Colorado market in exchange for KKLI-FM in Colorado Springs, the April
30, 1999 acquisition of KVOR-AM and KTWK-AM serving the Colorado
Springs, Colorado market and KEYF-FM and KEYF-AM serving the Spokane,
Washington market for the purchase price of approximately $10.0 million
and the April 30, 1999 termination of a joint sales agreement under
which Citadel Communications operated certain other radio stations in
Colorado Springs and in Spokane (collectively, the "Capstar
Transactions"),
o the June 30, 1999 acquisition of WSSX-FM, WWWZ-FM, WMGL-FM, WSUY-FM,
WNKT-FM, WTMA-AM, WTMZ-AM and WXTC-AM in Charleston, South Carolina,
WHWK-FM, WYOS-FM, WAAL-FM, WNBF-AM and WKOP-AM in Binghamton, New York,
WMDH-FM and WMDH-AM in Muncie, Indiana and WWKI-FM in Kokomo, Indiana
for the purchase price of approximately $77.0 million (the
"Charleston/Binghamton/Muncie/Kokomo Acquisition"),
o the August 31, 1999 acquisition of Fuller-Jeffrey Broadcasting
Companies, Inc. which owned WOKQ-FM, WPKQ-FM, WXBB-FM and WXBP-FM
serving the Portsmouth/Dover/Rochester, New Hampshire market and
WBLM-FM, WCYI-FM, WCYY-FM, WHOM-FM, WJBQ-FM and WCLZ-FM serving the
Portland, Maine market for the purchase price of approximately $65.3
million, which amount includes the repayment of certain indebtedness of
Fuller-Jeffrey Broadcasting and approximately $1.8 million in
consulting and noncompetition payments payable over a seven-year period
(the "Portsmouth/Dover/Rochester/Portland Acquisition"),
o the November 1, 1999 acquisition of KOOJ-FM in Baton Rouge, Louisiana
for the purchase price of approximately $9.5 million,
o the July 27, 1998 sale of WEST-AM in Allentown/Bethlehem, Pennsylvania
as a portion of the consideration for the 1997 acquisition of WLEV-FM
in Allentown/Bethlehem,
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<PAGE> 102
o the October 7, 1998 sale of WQCY-FM, WTAD-AM, WMOS-FM and WBJR-FM in
Quincy, Illinois for the sale price of approximately $2.3 million (the
"Quincy Sale"),
o the November 9, 1999 disposition of KKTT-FM, KEHK-FM and KUGN-AM in
Eugene, Oregon, KAKT-FM, KBOY-FM, KCMX-FM, KTMT-FM, KCMX-AM and KTMT-AM
in Medford, Oregon, KEYW-FM, KORD-FM, KXRX-FM, KTHT-FM and KFLD-AM in
Tri-Cities, Washington, KCTR-FM, KKBR-FM, KBBB-FM, KMHK-FM and KBUL-AM
in Billings, Montana, WQKK-AM and WGLU-FM in Johnstown, Pennsylvania
and WQWK-FM, WNCL-FM, WRSC-AM and WBLF-AM in State College,
Pennsylvania for the sale price of approximately $26.0 million (the
"Marathon Disposition"),
o the July 1998 initial public offering by Citadel Broadcasting's parent,
Citadel Communications Corporation, of shares of its common stock and
the use of net proceeds from that offering,
o the November 1998 sale by Citadel Broadcasting of $115.0 million
principal amount of its 9-1/4% Senior Subordinated Notes due 2008 and
the use of net proceeds from that offering,
o the June 1999 public offering by Citadel Communications of shares of
its common stock and the use of net proceeds from that offering (the
"1999 Offering"),
o the August 1999 redemption of a portion of Citadel Broadcasting's
outstanding 13-1/4% Exchangeable Preferred Stock (the "Preferred
Redemption"), and
(2) the following pending acquisitions (collectively, the "Pending
Acquisitions'):
o the pending acquisition of KATT-FM, KYIS-FM, KCYI-FM, KNTL-FM and
WWLS-AM in Oklahoma City for a purchase price of approximately $60.0
million (the "Oklahoma City Acquisition"),
o the pending acquisition of WGRF-FM, WEDG-FM, WHIT-FM, WMNY-AM and
WHLD-AM in Buffalo, New York, WAQX-FM, WLTI-FM, WNSS-AM, and WNTQ-FM in
Syracuse, New York, WIII-FM and WKRT-AM in Ithaca, New York, WMME-FM,
WEZW-FM, WEBB-FM and WTVL-AM in Augusta-Waterville, Maine, WBPW-FM,
WOZI-FM and WQHR-FM in Presque Isle-Caribou, Maine, WCRQ-FM in
Dennysville-Calais, Maine, KMYY-FM, KYEA-FM, KZRZ-FM and KTJC-FM in
Monroe, Louisiana, KDOK-FM, KTBB-FM, KEES-AM, KYZS-AM and KGLD-AM in
Tyler-Longview, Texas, WFPG-AM, WFPG-FM and WPUR-FM in Atlantic City,
New Jersey, WFHN-FM and WBSM-AM in New Bedford, Massachusetts, WQGN-FM,
WSUB-AM and WVVE-FM in New London, Connecticut and the right to operate
WKOE-FM in Atlantic City under a program service and time brokerage
agreement for the aggregate purchase price of approximately $190.0
million (the "BPH Acquisition"),
o the pending acquisition of KSMB-FM, KDYS-AM, KVOL-FM and KVOL-AM in
Lafayette, Louisiana for the purchase price of approximately $8.5
million (the "Lafayette Acquisition"),
o the pending acquisition of WMMQ-FM, WJIM-FM, WFMK-FM, WITL-FM, WVFN-AM
and WJIM-AM in Lansing, Michigan, WHNN-FM and WTCF-FM in Saginaw,
Michigan and WFBE-FM in Flint, Michigan for the aggregate purchase
price of approximately $120.5 million, of which, subject to certain
conditions, approximately $10.1 million would be paid in shares of
Citadel Communications' common stock valued at $50.375 per share (the
"Michigan" Acquisition"), and
o the pending acquisitions of WXLO-FM and WORC-FM in Worcester,
Massachusetts for the aggregate purchase price of approximately $24.5
million (the "Worcester Acquisition").
The unaudited pro forma condensed consolidated financial statements are
based on Citadel Broadcasting's historical consolidated financial statements,
the financial statements of those entities acquired, or from which assets were
acquired, in connection with the Completed Transactions, and the financial
statements of those entities to be acquired, or from which assets will be
acquired, in connection with the Pending Acquisitions.
In the opinion of management, all adjustments necessary to fairly present
this pro forma information have been made. The interest rate applied to
borrowings under, and repayments of, Citadel Broadcasting's credit facility in
the pro forma consolidated statements of operations was 8.4375%, which
represents the interest rate in effect under the credit facility as of January
1, 1998. Pro forma financial information has been adjusted to reflect the
following, when applicable:
o Prior to the acquisition dates, Citadel Broadcasting operated some of
the acquired stations under a joint sales agreement ("JSA") or local
marketing agreement ("LMA"). Citadel Broadcasting receives or pays
fees for such services accordingly. Net revenue and station operating
expenses for stations operated under JSAs are included to reflect
ownership of the stations as of January 1, 1998. Net revenue and
station operating expenses for stations operated under LMAs are
included in Citadel Broadcasting's historical consolidated financial
statements. For those stations operated under JSAs and LMAs and
subsequently acquired, associated fees and redundant expenses were
eliminated and estimated occupancy costs were included to adjust the
results of the operations to reflect ownership of the stations as of
January 1, 1998.
o Elimination of revenue and operating expenses from the entities
acquired, or from which assets were acquired, in connection with the
Completed Transactions, and the entities to be acquired, or from which
assets will be acquired, in connection with the Pending Acquisitions,
which would not have been incurred if the acquisition had occurred on
January 1, 1998. The eliminated items were deemed redundant and
therefore are not reflected as of January 1, 1998.
Depreciation and amortization for the acquisitions are based upon
preliminary allocations of the purchase price to property and equipment and
intangible assets. Actual depreciation and amortization may differ depending on
the final allocation of the purchase price. However, management does not believe
these differences will be material.
For pro forma purposes, Citadel Broadcasting's balance sheet as of
September 30, 1999 has been adjusted to give effect to the following
transactions as if each had occurred on September 30, 1999:
(1) the Marathon Disposition,
(2) the acquisition of KOOJ-FM, and
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<PAGE> 103
(3) the Pending Acquisitions.
The unaudited pro forma information is presented for illustrative purposes
only and does not indicate the operating results or financial position that
would have occurred if the transactions described above had been completed on
the dates indicated, nor is it indicative of future operating results or
financial position if the pending transactions described above are completed.
Citadel Broadcasting cannot predict whether the completion of the Pending
Acquisitions will conform to the assumptions used in the preparation of the
unaudited pro forma condensed consolidated financial statements. Additionally,
consummation of each of the Pending Acquisitions is subject to certain
conditions. Although Citadel Broadcasting believes these closing conditions are
generally customary for transactions of this type, there can be no assurance
that such conditions will be satisfied.
102
<PAGE> 104
CITADEL BROADCASTING COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CITADEL
ADJUSTMENTS BROADCASTING
FOR AS ADJUSTED
MARATHON FOR MARATHON ADJUSTMENTS
ACTUAL DISPOSITION DISPOSITION FOR PRO FORMA
CITADEL AND ACQUISITION AND ACQUISITION THE PENDING CITADEL
BROADCASTING OF KOOJ-FM(1) OF KOOJ-FM ACQUISITIONS(2) BROADCASTING
------------ --------------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 8,798 $ -- $ 8,798 $ 321 $ 9,119
Restricted cash -- 26,000 26,000 -- 26,000
Accounts and notes receivable, net 48,208 -- 48,208 1,906 50,114
Prepaid expenses 3,808 (110) 3,698 169 3,867
Assets held for sale 25,991 (25,991) -- -- --
-------- -------- -------- -------- ----------
Total current assets 86,805 (101) 86,704 2,396 89,100
Property and equipment, net 68,088 679 68,767 17,668 86,435
Intangible assets, net 480,431 8,572 489,003 387,082 876,085
Other assets 4,205 -- 4,205 -- 4,205
-------- -------- -------- -------- ----------
TOTAL ASSETS $639,529 $ 9,150 $648,679 $407,146 $1,055,825
======== ======== ======== ======== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable and accrued liabilities $ 15,021 $ -- $ 15,021 $ 810 $ 15,831
Current maturities of other long-term
Obligations 994 -- 994 250 1,244
-------- -------- -------- -------- ----------
Total current liabilities 16,015 -- 16,015 1,060 17,075
Notes payable, less current maturities 57,500 9,500 67,000 395,011 462,011
10-1/4% Notes 210,401 -- 210,401 -- 210,401
9-1/4% Notes
Other long-term obligations, less current
Maturities 2,685 -- 2,685 1,000 3,685
Deferred tax liability 46,964 -- 46,964 -- 46,964
Exchangeable preferred stock 82,526 -- 82,526 -- 82,526
Common stock and APIC 260,927 -- 263,514 10,075 271,002
Deferred compensation (3,329) -- (3,329) -- (3,329)
Accumulated other comprehensive loss (12) -- (12) -- (12)
Accumulated deficit/retained earnings (34,148) (350) (37,085) -- (34,498)
-------- -------- -------- -------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $639,529 $ 9,150 $648,679 $407,146 $1,055,825
======== ======== ======== ======== ==========
</TABLE>
(1) Represents the net effect of the Marathon Disposition and the acquisition
of KOOJ-FM as if each transaction had taken place on September 30, 1999.
(2) Represents the net effect of the Pending Acquisitions as if each transaction
had taken place on September 30, 1999.
103
<PAGE> 105
CITADEL BROADCASTING COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CITADEL
BROADCASTING
AS ADJUSTED ADJUSTMENTS
ACTUAL ADJUSTMENTS FOR FOR FOR PRO FORMA
CITADEL COMPLETED COMPLETED THE PENDING CITADEL
BROADCASTING TRANSACTIONS (1) TRANSACTIONS ACQUISITIONS(2) BROADCASTING
------------ ---------------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C>
Net revenue...................... 126,521 12,227 138,748 57,368 196,116
Station operating expenses....... 85,124 5,410 90,534 39,685 130,219
Depreciation and amortization.... 25,589 7,914 33,503 20,700 54,203
Corporate general and
administrative................ 4,921 (131) 4,790 -- 4,790
------- ------- ------- ------- -------
Operating expenses............ 115,634 13,193 128,827 60,385 189,212
------- ------- ------- ------- -------
Operating income (loss).......... 10,887 (966) 9,921 (3,017) 6,904
Interest expense................. 17,502 1,021 18,523 24,996 43,519
Other (income) expense, net...... (1,187) 350 (837) -- (837)
------- ------- ------- ------- -------
Income (loss) before income
taxes......................... (5,428) (2,337) (7,765) (28,013) (35,778)
Income taxes (benefit)........... (1,376) (850) (2,226) -- (2,226)
Dividend requirement for
Exchangeable Preferred Stock.. (11,322) 2,812 (8,510) -- (8,510)
------- ------- ------- ------- -------
Income (loss) from
continuing operations
applicable to common shares... (15,374) 1,325 (14,049) (28,013) (42,062)
======= ======= ======= ======= =======
</TABLE>
(1) Represents the net effect of the Completed Transactions that were
consummated after January 1, 1999 as if each transaction had taken place on
January 1, 1998. Dollars in the table below are shown in thousands.
<TABLE>
<CAPTION>
CARLISLE
ACQUISITION, ADJUSTMENTS
PORTSMOUTH/ CHARLESTON/ CAPSTAR FOR THE
DOVER/ BINGHAMTON TRANSACTIONS, 1999 OFFERING
ROCHESTER/ MUNCIE/ BATON ROUGE/ SAGINAW/ KOOJ ACQUISITION AND THE
PORTLAND KOKOMO LAFAYETTE BAY CITY AND MARATHON PREFERRED THE COMPLETED
ACQUISITION ACQUISITION ACQUISITION ACQUISITION DISPOSITION REDEMPTION TRANSACTIONS
----------- ----------- ----------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue 10,642 9,543 1,371 526 (9,855) -- 12,227
Station operating expenses 6,021 6,711 1,275 486 (9,083) -- 5,410
Depreciation and
amortization 3,628 2,685 628 202 771 -- 7,914
Corporate general and
administrative -- -- -- (131) -- (131)
------ ------ ----- ----- ------ ------ ------
Operating expenses 9,649 9,396 1,903 688 (8,443) -- 13,193
------ ------ ----- ----- ------ ------ ------
Operating income (loss) 993 147 (532) (162) (1,412) -- (966)
Interest expense 3,234 2,531 -- -- (1,044) (3,700) 1,021
Other (income) expenses,
net -- -- -- -- 350 -- 350
------ ------ ----- ----- ------ ------ ------
Income (loss) before
income taxes (2,241) (2,384) (532) (162) (718) 3,700 (2,337)
Income taxes (benefit) (724) -- (126) -- -- -- (850)
Dividend requirement for
Exchangeable Preferred
Stock -- -- -- -- -- 2,812 2,812
------ ------ ----- ----- ------ ------ ------
Income (loss) from
continuing operations (1,517) (2,384) (406) (162) (718) 6,512 1,325
====== ====== ===== ===== ====== ====== ======
</TABLE>
(2) Represents the net effect of the Pending Acquisitions as if each
transaction had taken place on January 1, 1998. Dollars in the table below
are shown in thousands.
<TABLE>
<CAPTION>
OKLAHOMA
CITY BPH LAFAYETTE MICHIGAN WORCESTER PENDING
ACQUISITION ACQUISITION ACQUISITION ACQUISITION ACQUISITION ACQUISITIONS
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue 7,155 31,231 1,749 14,092 3,141 57,368
Station operating expenses 4,831 23,328 1,331 7,851 2,344 39,685
Depreciation and amortization 3,291 9,649 474 6,039 1,247 20,700
Corporate general and administrative -- --
------ ------- ------ ------- ------ -------
Operating expenses 8,122 32,977 1,805 13,890 3,591 60,385
------ ------- ------ ------- ------ -------
Operating income (loss) (967) (1,746) (56) 202 (450) (3,017)
Interest expense 3,897 12,023 538 6,988 1,550 24,996
Other (income) expense -- --
------ ------- ------ ------- ------ -------
Income (loss) before income taxes (4,864) (13,769) (594) (6,786) (2,000) (28,013)
Income taxes (benefit) -- --
------ ------- ------ ------- ------ -------
Income (loss) from continuing
operations (4,864) (13,769) (594) (6,786) (2,000) (28,013)
====== ======= ====== ======= ====== =======
</TABLE>
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<PAGE> 106
CITADEL BROADCASTING COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CITADEL
BROADCASTING ADJUSTMENTS
ACTUAL ADJUSTMENTS FOR AS ADJUSTED FOR THE PRO FORMA
CITADEL COMPLETED FOR COMPLETED PENDING CITADEL
BROADCASTING TRANSACTIONS (1) TRANSACTIONS ACQUISITIONS(2) BROADCASTING
------------ ----------------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Net revenue....................... 135,426 32,887 168,313 69,496 237,809
Station operating expenses........ 93,485 18,816 112,301 48,929 161,230
Depreciation and amortization..... 26,414 17,201 43,615 27,601 71,216
Corporate general and
administrative.................. 4,369 (349) 4,020 -- 4,020
-------- ------ ------- ------- -------
Operating expenses.............. 124,268 35,668 159,936 76,530 236,466
-------- ------ ------- ------- -------
Operating income (loss)........... 11,158 (2,781) 8,377 (7,034) 1,343
Interest expense.................. 18,126 (1,545) 16,581 33,328 49,909
Other (income) expense, net....... (1,651) 350 (1,301) -- (1,301)
-------- ------ ------- ------- -------
Income (loss) before income
taxes........................... (5,317) (1,586) (6,903) (40,362) (47,265)
Income taxes (benefit)............ (1,386) (1,591) (2,977) -- (2,977)
Dividend requirement for --
Exchangeable Preferred Stock.... (14,586) 138 (14,448) -- (14,448)
-------- ------ ------- ------- -------
Income (loss) from continuing
operations applicable to common
shares.......................... (18,517) 143 (18,374) (40,362) (58,736)
======== ====== ======= ======= =======
</TABLE>
(1) Represents the net effect of the Completed Transactions as if each
transaction had taken place on January 1, 1998. Dollars in the table below
are shown in thousands.
<TABLE>
<CAPTION>
ADJUSTMENTS
PORTSMOUTH/ CHARLESTON/ OTHER REPAYMENT FOR THE
DOVER/ BINGHAMTON/ BATON ACQUISITIONS OF THE OFFERING 1999 OFFERING THE
ROCHESTER/ MUNCIE/ ROUGE/ SAGINAW/ AND CREDIT OF THE AND THE COMPLETED
PORTLAND KOKOMO LAFAYETTE BAY CITY DISPOSITIONS FACILITY 9-1/4% PREFERRED TRANS-
ACQUISITION ACQUISITION ACQUISITION ACQUISITION (a) (b) NOTES (c) REDEMPTION(d) ACTIONS
----------- ----------- ----------- ----------- ------------ ------- ---------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue 13,642 17,421 7,331 6,981 (12,488) -- -- -- 32,887
Station operating 8,676 12,100 5,170 4,447 (11,577) -- -- -- 18,816
expenses
Depreciation and
amortization 5,441 5,369 2,914 2,421 1,056 -- -- -- 17,201
Corporate general and
administrative -- -- -- -- (349) -- -- -- (349)
------- ------- ------ ------ ------- ------ ------ ------ -------
Operating expenses 14,117 17,469 8,084 6,868 (10,870) -- -- -- 35,668
Operating income (loss) (475) (48) (753) 113 (1,618) -- -- -- (2,781)
Interest expense 4,852 5,063 -- -- (947) (4,487) 1,374 (7,400) (1,545)
Other (income) expense,
net -- -- -- -- 350 -- -- 350
------- ------- ------ ------ ------- ------ ------ ------ -------
Income (loss) before (5,327) (5,111) (753) 113 (1,021) 4,487 (1,374) 7,400 (1,586)
income taxes
Income taxes (benefit) (1,086) -- (505) -- -- -- -- -- (1,591)
Divided requirement for
Exchangeable
Preferred Stock -- -- -- -- -- -- -- 138 138
------- ------- ------ ------ ------- ------ ------ ------ -------
Income (loss) from
continuing
Operations (4,241) (5,111) (248) 113 (1,021) 4,487 (1,374) 7,538 143
======= ======= ====== ====== ======= ====== ====== ====== =======
</TABLE>
(a) Represents the net effect of the Marathon Disposition, the Carlisle
Acquisition, the Capstar Transactions, the Boise Acquisitions, the
Wilkes-Barre/Scranton Acquisition, the acquisition of KOOJ-FM in Baton
Rouge, the disposition of WEST-AM in Allentown/Bethlehem, the acquisition
of KAAY-AM in Little Rock and the Quincy Sale.
(b) Represents the repayment of outstanding borrowings under Citadel
Broadcasting's credit facility with the proceeds from the Citadel
Communications' initial public offering.
(c) Reflects the recording of the net increase in interest expense and the
amortization of deferred financing costs of $3.5 million related to Citadel
Broadcasting's 9-1/4% Senior Subordinated Notes due 2008.
(d) Represents the use of proceeds from the 1999 Offering, including the
redemption of approximately 35% of Citadel Broadcasting's issued and
outstanding Exchangeable Preferred Stock.
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<PAGE> 107
(2) Represents the net effect of the Pending Acquisitions as if each transaction
had taken place on January 1, 1998. Dollars in the table below are shown in
thousands.
<TABLE>
<CAPTION>
OKLAHOMA
CITY BPH LAFAYETTE MICHIGAN WORCESTER PENDING
ACQUISITION ACQUISITION ACQUISITION ACQUISITION(a) ACQUISITION ACQUISITIONS
----------- ----------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue 8,250 38,627 2,383 16,900 3,336 69,496
Station operating expenses 6,240 28,842 1,984 9,322 2,541 48,929
Depreciation and amortization 4,390 12,865 631 8,052 1,663 27,601
Corporate general and administrative -- -- --
-------- ------- -------- -------- -------- --------
Operating expenses 10,630 41,707 2,615 17,374 4,204 76,530
Operating income (loss) (2,380) (3,080) (232) (474) (868) (7,034)
Interest expense 5,196 16,031 717 9,317 2,067 33,328
Other (income) expense --
-------- ------- -------- -------- -------- --------
Income (loss) before income taxes (7,576) (19,111) (949) (9,791) (2,935) (40,362)
Income taxes (benefit) --
-------- ------- -------- -------- -------- --------
Income (loss) from continuing
operations (7,576) (19,111) (949) (9,791) (2,935) (40,362)
======== ======= ======== ======== ======== ========
</TABLE>
(a) Citadel Broadcasting expects to sell one or more of its stations serving
the Saginaw market to comply with the ownership limits of the
Telecommunications Act of 1996. However, Citadel Broadcasting is unable to
include the effect of the divestiture in this pro forma financial
information until it determines the station or stations required to
be sold.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
CITADEL BROADCASTING COMPANY
Date: December 10, 1999 By: /s/ Lawrence R. Wilson
------------------ --------------------------------------
Lawrence R. Wilson
Chairman and Chief Executive Officer
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EXHIBIT INDEX
2.1 Asset Purchase Agreement dated October 27, 1999 by and between Citadel
Broadcasting Company and Broadcasting Partners Holdings, L.P.
(incorporated by reference to Exhibit 2.1 to Citadel Communications
Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1999).
2.2 Stock Purchase Agreement dated April 30, 1999 by and between Robert F.
Fuller and Citadel Broadcasting Company (incorporated by reference to
Exhibit 2.1 to Citadel Broadcasting Company's Current Report on Form 8-K,
filed on September 14, 1999).
2.3 Stock Purchase Agreement dated April 30, 1999 by and between Joseph N.
Jeffrey, Jr. and Citadel Broadcasting Company (incorporated by reference
to Exhibit 2.2 to Citadel Broadcasting Company's Current Report on Form
8-K, filed on September 14, 1999).
2.4 Asset Purchase Agreement dated December 3, 1999 by and among Liggett
Broadcast, Inc., Rainbow Radio, LLC, New Tower, Inc., LLJ Realty, LLC,
Robert G. Liggett, Jr., Citadel Communications Corporation, Citadel
Broadcasting Company and Citadel License, Inc. (incorporated by reference
to Exhibit 2.4 to Citadel Communications Corporation's Current Report on
Form 8-K filed on December 10, 1999).
108
