<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 10, 1999
REGISTRATION NO. 333-84371
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
SFX ENTERTAINMENT, INC.
(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE 7922 13-3977880
<S> <C> <C>
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
650 MADISON AVENUE, 16TH FLOOR
NEW YORK, NEW YORK 10022
(212) 838-3100
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
ROBERT F.X. SILLERMAN, EXECUTIVE CHAIRMAN
SFX ENTERTAINMENT, INC.
650 MADISON AVENUE, 16TH FLOOR
NEW YORK, NEW YORK 10022
(212) 838-3100
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
----------------
Copies to:
DANIEL A. NINIVAGGI WILLIAM F. SCHWITTER
WINSTON & STRAWN PAUL, HASTINGS,
200 PARK AVENUE JANOFSKY & WALKER LLP
NEW YORK, NEW YORK 10166 399 PARK AVENUE
(212) 294-6700 NEW YORK, NEW YORK 10022
(212) 318-6000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This registration statement contains two forms of prospectus: one to be
used in connection with an underwritten public offering in the United States
and Canada (the "U.S. prospectus") and one to be used in a concurrent
underwritten public offering outside the United States and Canada (the
"International prospectus"). The two prospectuses are identical except for the
front and back cover pages. The form of U.S. prospectus is included herein and
is followed by the alternate front and back cover pages to be used in the
International prospectus. The alternate front and back cover pages for the
International prospectus included herein are labeled "International
Prospectus--Alternate Front Cover Page" and "International
Prospectus--Alternate Back Cover Page." Final forms of each prospectus will be
filed with the Securities and Exchange Commission under Rule 424(b) under the
Securities Act of 1933.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY CHANGE. WE MAY NOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED AUGUST 10, 1999
PROSPECTUS
7,500,000 SHARES
[SFX ENTERTAINMENT LOGO]
SFX ENTERTAINMENT, INC.
CLASS A COMMON STOCK
- --------------------------------------------------------------------------------
We are selling all of the offered shares of our Class A common stock. Of the
7,500,000 shares being offered, the U.S. underwriters are initially offering
shares in the United States and Canada, and the international managers
are initially offering shares outside of the United States and Canada.
We have two classes of authorized common stock, Class A common stock and Class B
common stock. The economic rights of each class of common stock are identical,
but the voting rights differ in that the holders of Class A common stock are
entitled to one vote per share while the holders of Class B common stock are
generally entitled to ten votes per share on most matters.
Our Class A common stock is traded on the New York Stock Exchange under the
symbol "SFX." The last reported sale price of our shares on the New York Stock
Exchange on August 6, 1999 was $39 13/16 per share.
INVESTING IN THE SHARES INVOLVES RISKS. RISK FACTORS BEGIN ON PAGE 11.
<TABLE>
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PER SHARE TOTAL
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<S> <C> <C>
Public Offering Price ........................ $ $
Underwriting Discount ........................ $ $
Proceeds to SFX Entertainment, Inc. .......... $ $
</TABLE>
We have granted the underwriters the right to purchase up to 1,125,000
additional shares of Class A common stock on the same terms and conditions set
forth above within 30 days solely to cover over-allotments, if any.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE COMMISSION HAS
APPROVED OR
DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The underwriters expect to deliver the shares against payment in New York, New
York on , 1999.
- --------------------------------------------------------------------------------
Joint Global Coordinators and Book-Running Managers
BEAR, STEARNS & CO. INC. LEHMAN BROTHERS
----------------
Co-Managers
MORGAN STANLEY DEAN WITTER SG COWEN
BANCBOSTON ROBERTSON STEPHENS PRUDENTIAL SECURITIES
, 1999.
<PAGE>
MAP OF SFX VENUES AND PRESENTATION MARKETS
Edmonton Theatrical Subscription Markets
Calgary Theatrical Subscription Markets
Saskatoon Theatrical Subscription Markets
Regina Theatrical Subscription Markets
Winnipeg Theatrical Subscription Markets
Ottawa Theatrical Subscription Markets
Toronto Theatrical Subscription Markets; Denotes Markets
included in Pending Acquisitions
Seattle Venues & Theatrical Subscription Markets
Portland Venues & Theatrical Subscription Markets
Eugene Theatrical Subscription Markets
Boise Theatrical Subscription Markets
Sacramento Venues
Reno Venues
Salt Lake City Theatrical Subscription Markets
San Francisco Venues
Los Angeles Venues
Honolulu Theatrical Subscription Markets
Costa Mesa Theatrical Subscription Markets
Phoenix Venues
Tempe Theatrical Subscription Markets
Denver Venues
Colorado Springs Theatrical Subscription Markets
Albuquerque Venues & Theatrical Subscription Markets
Dallas Theatrical Subscription Markets
Austin Theatrical Subscription Markets
San Antonio Theatrical Subscription Markets
Houston Venues & Theatrical Subscription Markets
Minneapolis Theatrical Subscription Markets
Omaha Theatrical Subscription Markets
Wichita Theatrical Subscription Markets
Kansas City Venues
St. Louis Venues
Milwaukee Venues & Theatrical Subscription Markets
Chicago Denotes Markets included in Pending Acquisitions;
Venues & Theatrical Subscription Markets
Indianapolis Venues & Theatrical Subscription Markets
Louisville Venues & Theatrical Subscription Markets
Nashville Venues & Theatrical Subscription Markets
Atlanta Venues & Theatrical Subscription Markets
New Orleans Theatrical Subscription Markets
Pensacola Theatrical Subscription Markets
Detroit Venues
Columbus Venues & Theatrical Subscription Markets
Cincinnati Venues & Theatrical Subscription Markets
Charlotte Venues
Tampa Theatrical Subscription Markets
Pittsburgh Venues & Theatrical Subscription Markets
Rochester Venues
Springfield Venues
Boston Venues & Theatrical Subscription Markets
Hartford Venues
Wallingford Theatrical Subscription Markets
New York Denotes Markets included in Pending Acquisitions;
Venues & Theatrical Subscription Markets
Philadelphia Venues
Washington/Baltimore Venues & Theatrical Subscription Markets
Norfolk Venues
Raleigh/Durham Venues
No. Charleston Theatrical Subscription Markets
Jacksonville Theatrical Subscription Markets
Orlando Theatrical Subscription Markets
W. Palm Beach Venues & Theatrical Subscription Markets
Miami/Ft. Lauderdale Venues & Theatrical Subscription Markets
Dublin Denotes Markets included in Pending Acquisitions
Liverpool Denotes Markets included in Pending Acquisitions
Cardiff Denotes Markets included in Pending Acquisitions
Bristol Denotes Markets included in Pending Acquisitions
Edinburgh Denotes Markets included in Pending Acquisitions
York Denotes Markets included in Pending Acquisitions
Manchester Denotes Markets included in Pending Acquisitions
Sheffield Denotes Markets included in Pending Acquisitions
Birmingham Denotes Markets included in Pending Acquisitions
Oxford Denotes Markets included in Pending Acquisitions
London Denotes Markets included in Pending Acquisitions
<PAGE>
[Inside front cover page includes a map showing the locations of SFX's venues
and presentation markets in the United States, Canada and the United Kingdom.
The inside front cover page opens to a gatefold which includes the SFX logo and
pictures from music, theatrical, sports and family entertainment events promoted
or produced by SFX or held in venues owned or operated by SFX. There is also a
picture of a prominent professional basketball player represented by SFX.]
---------------------
<PAGE>
TABLE OF CONTENTS
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PAGE
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Forward-Looking Statements .................... i
Incorporation of Certain Documents by
Reference .................................. ii
Prospectus Summary ............................ 1
Risk Factors .................................. 11
Use of Proceeds ............................... 16
Price Range of Class A Common Stock ........... 17
Dividend Policy ............................... 17
Capitalization ................................ 18
Selected Consolidated Financial Data .......... 19
SFX Unaudited Pro Forma Condensed
Combined Financial Statements .............. 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................. 42
Overview of the Live Entertainment
Industry ................................... 64
Business ...................................... 67
</TABLE>
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PAGE
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Agreements Related to Pending
Acquisitions ............................... 91
Management .................................... 94
Principal Stockholders ........................ 98
Description of Capital Stock .................. 100
Certain Statutory, Charter and Bylaw
Provisions ................................. 102
Description of Indebtedness ................... 104
Shares Eligible for Future Sale ............... 111
Certain United States Tax Consequences
to Non-United States Holders of
Common Stock ............................... 112
Underwriting .................................. 116
Legal Matters ................................. 120
Experts ....................................... 120
Where You Can Find More Information ........... 122
Index to Financial Statements ................. F-1
</TABLE>
You should only rely on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of Class A common stock only in jurisdictions where offers and
sales are permitted. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or of any sale of Class A common stock.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of the Class A common stock or possession or
distribution of this prospectus in any such jurisdiction. Persons who come into
possession of this prospectus in jurisdictions outside the United States and
Canada are required to inform themselves about and to observe the restrictions
of that jurisdiction related to this offering and the distribution of this
prospectus.
FORWARD-LOOKING STATEMENTS
We believe that certain statements contained or incorporated by reference
in this prospectus are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 and are considered
prospective. These include statements contained under "Prospectus Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business." The following statements are or may
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995:
o statements before, after or including the words "may," "will," "could,"
"should," "believe," "expect," "future," "potential," "anticipate,"
"intend," "plan," "estimate" or "continue" or the negative or other
variations of these words; and
o other statements about matters that are not historical facts.
We may be unable to achieve future results covered by the forward-looking
statements. The statements are subject to risks, uncertainties and other
factors that could cause actual results to differ materially from the future
results that the statements express or imply. Please do not put undue reliance
on these forward-looking statements, which speak only as of the date of this
prospectus.
i
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows us to incorporate by
reference the information we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus, and information that we file later with the Securities and Exchange
Commission will automatically update and supersede the information in this
prospectus. Accordingly, we incorporate by reference the documents listed
below:
1. SFX's Annual Report on Form 10-K for the fiscal year ended December 31,
1998, filed on March 31, 1999.
2. SFX's Current Report on Form 8-K dated January 31, 1999.
3. The historical financial statements and related notes and audit reports
included on pages F-1 through F-142 in SFX's Current Report on Form 8-K
dated April 14, 1999.
4. SFX's Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1999, filed on May 14, 1999.
5. SFX's Current Report on Form 8-K dated June 1, 1999.
6. SFX's Current Report on Form 8-K dated June 22, 1999.
7. SFX's Current Report on Form 8-K dated June 23, 1999.
8. SFX's Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 1999, filed on August 3, 1999.
9. The description of SFX Class A common stock contained in the
registration statement on Form 8-A filed on May 7, 1999.
All reports and other documents we subsequently file pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus
shall be incorporated by reference into this prospectus and deemed to be part
of this prospectus from the date of the filing of such reports and documents.
We will provide without charge to each person to whom this prospectus is
delivered, upon written or oral request, a copy of any or all documents that
are incorporated into this prospectus by reference, other than exhibits to such
documents unless such exhibits are specifically incorporated by reference into
the documents that this prospectus incorporates. You should direct such
requests to: SFX Entertainment, Inc., 650 Madison Avenue, 16th Floor, New York,
New York 10022, telephone: (212) 838-3100, Attention: Director of Investor
Relations.
ii
<PAGE>
PROSPECTUS SUMMARY
The following is only a summary and does not contain all of the
information that you should consider before investing in the Class A common
stock. You should read the entire prospectus carefully, including the "Risk
Factors" section. The pro forma information contained in this prospectus
assumes that the over-allotment option is not exercised and, unless otherwise
indicated, gives effect to our acquisitions completed through June 30, 1999
described on pages 44 through 46 and related financing transactions, our
pending acquisition of Apollo, the proposed new senior credit facility referred
to below and this offering. Unless otherwise indicated, all share information
contained in this prospectus gives effect to a 3-for-2 split of our outstanding
common stock which we effected on July 27, 1999. References in this prospectus
to "SFX", "we", "us", or "our" mean SFX Entertainment, Inc. and its
subsidiaries.
SFX
We are the world's largest diversified promoter, producer and venue
operator for live entertainment events, and currently own and operate the
largest network of venues used principally for music concerts and other live
entertainment events in North America. We currently own or operate 82 live
entertainment venues in 31 of the top 50 U.S. markets, including 16
amphitheaters in the top 10 markets.
Through our large number of venues, strong presence in the markets we
serve and established operating history, we are able to provide integrated
promotion, production, venue operation and event management services for a
broad variety of live entertainment events. On a pro forma basis, we had total
revenues of $1.5 billion and EBITDA of $138.3 million for the year ended
December 31, 1998 and revenues of $763.3 million and EBITDA of $82.1 million
for the six months ended June 30, 1999.
We are organized along four principal operating divisions:
o MUSIC. We are the largest music venue owner and operator and concert
promoter in North America. In addition, our music division produced 11
national concert tours in 1998, and is currently contracted to produce
23 in 1999. Our concerts have featured artists such as The Rolling
Stones, `N Sync, Bob Dylan and Paul Simon, Rod Stewart, Cher and The
Dave Matthews Band. We also promote and produce music festivals, such
as the George Strait Country Music Festival and Ozzfest.
o THEATER. We are the largest developer and manager of touring Broadway
shows in North America. We pre-sell tickets in 44 of the largest
touring markets through the largest subscription series in the U.S.
(with 250,000 subscribers in 1999) and Canada. Representative touring
theatrical productions include Ragtime, Jekyll & Hyde, Rent and
Cabaret.
o SPORTS. We are the largest producer and promoter of specialized motor
sports shows in the U.S., having sold over 3 million tickets in 1998
to events such as the U.S. Hot Rod (Registered Trademark) Association
Monster Jam (Registered Trademark) Tour and U.S. Supercross (Trade
Mark) racing events. In addition, we are a leading fully-integrated
sports marketing and management company, representing more than 650
professional athletes and providing integrated event management,
television programming and production, marketing and consulting
services. Our clients, who include Michael Jordan, Steve Young,
Patrick Rafter, Roger Clemens and Michael Owen, have endorsed products
for companies such as Chevrolet, Coca Cola, McDonald's, Nike and
Reebok.
1
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o FAMILY ENTERTAINMENT & OTHER. We produce and promote family-oriented
entertainment shows and other events, including shows such as The Magic
of David Copperfield, Rugrats and Lord of the Dance.
During 1998, on a pro forma basis after giving effect to all completed
acquisitions through June 30, 1999, approximately 37 million people attended
over 13,200 events promoted and/or produced by us, including over 6,250 music
concerts, 5,800 theatrical shows, 350 specialized motor sport events and 800
family entertainment shows.
OPERATING STRATEGY
Our principal objective is to maximize revenue and cash flow growth
through the following specific strategies:
OWN AND OPERATE THE LEADING INTEGRATED LIVE ENTERTAINMENT NETWORK
We intend to continue to take advantage of the benefits of owning and
operating an international live entertainment network. Our integrated
production, promotion, venue operation and event management services enable us
to:
o attract leading performers and events;
o provide "one stop shopping" for performers and agents;
o increase venue utilization;
o increase ancillary revenue opportunities from concessions, merchandise,
ticket rebates and other sources;
o capture a larger percentage of overall revenues from live
entertainment events; and
o improve operating efficiencies and take advantage of economies of
scale.
MAXIMIZE SPONSORSHIP REVENUE OPPORTUNITIES
Through "SFX Live," we intend to capitalize on our leadership position in
the live entertainment industry, including our access to a large audience, to
pursue the sale of corporate sponsorships such as the naming of venues,
licensing agreements and title sponsorships.
PURSUE INTERNATIONAL CONSOLIDATION OPPORTUNITIES
The live entertainment industry outside North America is highly
fragmented, which we believe presents similar consolidation opportunities as
those that have fueled our domestic growth since our formation. Accordingly, we
intend to replicate our business model outside of North America and believe
that such expansion will, among other things:
o provide us with better access to successful foreign performers and
events;
o provide us with additional outlets for our domestic performers and
events; and
o increase the opportunities for performers and events to "cross-over"
between the U.S. and foreign countries.
CONTINUE TO PURSUE DOMESTIC CONSOLIDATION OPPORTUNITIES
Notwithstanding our strong national presence, we believe that the U.S.
live entertainment industry continues to be fragmented with attractive
acquisitions still available. Accordingly, we expect to continue to grow our
business through selective, complementary domestic acquisitions.
2
<PAGE>
LAUNCH INTERNET INITIATIVES
We are currently in the process of launching various Internet initiatives.
We believe that these initiatives will allow us to take advantage of our unique
and extensive access to performers, athletes, live events, premium tickets and
other merchandise. In addition to centralizing access to over 80 of our current
Websites, we expect "SFX.com" to provide commerce-driven services such as live
event cybercasts, merchandise sales and access to tickets and top performers
through affinity clubs, as well as tour and schedule information. We expect to
launch these initiatives during the third quarter of 1999 and, after
appropriate testing, to have SFX.com fully operational by the first quarter of
2000. In addition, as part of our Internet initiatives, we have leveraged our
ability to provide access to live entertainment events, athletes and artists to
obtain what we believe are attractive equity positions in Internet companies
possessing complementary content and technological capabilities.
INTEGRATE ACQUIRED BUSINESSES INTO CENTRALIZED BOOKING, MARKETING AND
ACCOUNTING SYSTEMS
We will continue to impose strict financial reporting and cost controls on
all of our businesses and to rapidly integrate all of our future acquisitions
into our centralized management information systems. In addition, we intend to
maintain a globally integrated marketing team and centralized booking and
accounting systems.
MANAGEMENT
With an average of over 20 years experience in the media and entertainment
industries, the seven members of our senior management team have extensive and
successful track records of selecting, negotiating and financing strategic
acquisitions and in controlling costs. In addition, our management maintains
significant relationships with performers, talent agents and advertisers, both
nationally and internationally. We believe that our extensive industry
relationships, together with the substantial local expertise of many of our
acquired businesses, provide us with a competitive advantage in securing
performers, events, advertising, sponsorships and other ancillary revenue
opportunities.
RECENT DEVELOPMENTS
PENDING ACQUISITIONS
Since our formation in December 1997, we have pursued an aggressive
acquisition strategy, completing acquisitions involving aggregate consideration
in excess of $1.5 billion. Recently, we have focused not only on opportunities
in North America, but also on attractive acquisition candidates in Europe. The
following is a brief description of our acquisitions that are currently
pending:
o APOLLO. On August 2, 1999, we entered into an agreement to acquire
Apollo Leisure Group plc, the largest live theater operator as
well as one of the largest providers of entertainment and leisure
management services in the U.K. The total purchase price for the
acquisition is approximately $253.1 million (based on the exchange
rate as of August 5, 1999), including 979,667 shares of Class A common
stock with a value of approximately $45.0 million (based on an assumed
market price of the Class A common stock of $46.00 per share). Apollo
operates, among other venues, three arenas and a network of 23
theaters, as well as a ticketing system which handled approximately
six million tickets in 1998. In addition, in connection with the
Apollo acquisition, we expect to acquire 100% of Barry Clayman
Concerts, which is a leading promoter of concert and other live
entertainment events in the U.K. We expect to close the Apollo
acquisition in the third quarter of 1999.
3
<PAGE>
o LIVENT. On May 28, 1999, we entered into an agreement to purchase
certain assets of Livent Inc. and its affiliates, including three
theaters and intellectual property rights to several current and
future Broadway productions, including Ragtime, Fosse, Phantom of the
Opera and Seussical. The purchase price for this acquisition is
approximately $114.2 million (including a $5.0 million contingent
payment). We expect to close the Livent acquisition in the third
quarter of 1999.
This offering is not conditioned on the completion of any pending
acquistion. Our pending acquisitions are subject to a number of conditions,
certain of which are beyond our control. We may waive some or all of the
conditions to our obligations under the agreements relating to the pending
acquisitions or agree to modifications of the terms of these agreements. We
cannot assure you that the pending acquisitions will be completed on the terms
anticipated or at all. We are also currently negotiating additional
acquisitions of live entertainment and related businesses in North America and
Europe. See "Risk Factors--If we are unable to complete pending or future
acquisitions, our stock price may suffer" and "If we are unable to integrate
our recent and future acquisitions, our overall business may suffer."
For further information regarding the pending acquisitions, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Pending Acquisitions" on page 47, "Business--Pending Acquisitions"
on page 72 and "Agreements Relating to Pending Acquisitions" on page 91.
PROPOSED NEW SENIOR CREDIT FACILITY
In July 1999, we received a commitment for a new multi-currency credit
facility which is expected to provide us with up to $1.1 billion of borrowing
capacity, as compared to $350 million under our existing senior credit
facility. We expect to close the new senior credit facility in the third
quarter of 1999. We believe that our increased borrowing capacity, together
with the net proceeds of this offering, will provide us with substantial
liquidity and financial flexibility to pursue our acquisition and operating
strategies.
4
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THE OFFERING
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<S> <C>
Class A common stock offered ......... 7,500,000 shares
Common stock to be outstanding after
the offering and the pending Apollo
acquisition (pro forma as of
August 5, 1999):
Class A common stock ............... 62,193,135 shares
Class B common stock ............... 2,545,557 shares
Total common stock ............... 64,738,692 shares
</TABLE>
The amount of Class A common stock described above excludes (a) 6,680,363
shares of Class A common stock issuable under outstanding options, (b)
2,545,557 shares issuable upon conversion of shares of Class B common
stock and (c) 1,125,000 shares of Class A common stock issuable upon
exercise of the over-allotment option.
<TABLE>
<S> <C>
Relative rights of shares ............... The economic rights of Class A common stock and
Class B common stock are identical, but the voting
rights differ. The holders of Class A common stock
are entitled to one vote per share while the holders
of Class B common stock are generally entitled to
ten votes per share on most matters submitted to a
vote of the stockholders. In addition, the holders of
Class A common stock, voting as a separate class, are
entitled to elect two-sevenths of SFX's directors. The
holders of Class A common stock and Class B
common stock, voting as a single class, with each
share of Class A common stock entitled to one vote
and each share of Class B common stock entitled to
ten votes, are entitled to elect the remaining
directors. As a result, holders of Class B common
stock will have substantial control over most matters
submitted to a vote of the stockholders, including the
election of directors. See "Description of Capital
Stock."
Class B common stock conversion ......... Each share of Class B common stock is convertible
at any time, at the holder's option, into one share
of Class A common stock. Each share of Class B
common stock converts automatically into one
share of Class A common stock at the time of its
sale or transfer to a party not affiliated with Mr.
Sillerman or SFX or, in the case of shares held by
Mr. Sillerman or any of his affiliates, at the time of
Mr. Sillerman's death. See "Description of Capital
Stock."
Use of proceeds ......................... To finance our future acquisitions, for general
corporate purposes and to pay fees and expenses in
connection with future acquisitions and this offering.
A portion of the net proceeds of this offering may
also be used to finance the pending Livent
acquisition, depending on the timing of this offering
and the Livent acquisition. See "Use of Proceeds."
New York Stock Exchange symbol .......... "SFX"
</TABLE>
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
We are providing the following information to aid you in your analysis of
the financial aspects of this offering. We derived this financial information
presented below from the audited and unaudited consolidated financial
statements of SFX and its predecessor. The information is only a summary and
you should read it in conjunction with our historical financial statements and
related notes appearing elsewhere or incorporated by reference in this
document. We derived the summary unaudited pro forma financial information
presented below from the SFX Unaudited Pro Forma Condensed Combined Financial
Statements included elsewhere in this prospectus.
The summary unaudited pro forma statement of operations data for the year
ended December 31, 1998 gives effect to the following transactions as if they
had occurred on January 1, 1998:
o the acquisitions we completed in 1998 and 1999,
o our February and November 1998 offerings of $350 million and $200
million of 9 1/8% Senior Subordinated Notes due 2008, respectively,
o our May 1998 and February 1999 equity offerings,
o our July 1999 consent solicitation with respect to our outstanding
9 1/8% Senior Subordinated Notes,
o the consummation of the proposed New Senior Credit Facility, and
o our pending Apollo acquisition.
The unaudited pro forma statement of operations data for the six months
ended June 30, 1999 gives effect to each of the foregoing transactions as if
they had occurred on January 1, 1998, other than the 1998 acquisitions, the
1998 note offerings and the May 1998 equity offering, which were completed
prior to the beginning of the period. The unaudited pro forma balance sheet
data as of June 30, 1999 gives effect to the pending Apollo acquisition, our
July 1999 consent solicitation and the proposed New Senior Credit Facility, as
if such transactions were completed on June 30, 1999. The pro forma as adjusted
data give effect to this offering as if it occurred on January 1, 1998 for
statement of operations data and June 30, 1999 for balance sheet data.
The pro forma information does not give effect to our pending acquisitions
other than Apollo. See "SFX Unaudited Pro Forma Condensed Combined Financial
Statements."
We expect to account for our pending acquisitions under the "purchase
method." For accounting and financial reporting purposes, we will allocate the
purchase price of the pending acquisitions to the assets acquired and
liabilities assumed based on their estimated fair values. SFX will allocate any
excess purchase consideration to goodwill and amortize such amount using the
straight-line method over a period of 15 years. This amortization will have a
negative impact on earnings.
We believe that the operating performances of entertainment companies,
such as SFX, are measured, in part, by their ability to generate EBITDA.
Further, we use EBITDA, excluding non-cash charges, as the primary indicator of
our operating performance, and secondarily as a measure of liquidity. EBITDA is
defined as earnings before interest, taxes, other income and depreciation and
amortization. Although EBITDA is not a measure of performance calculated in
accordance with GAAP, we believe that the industry accepts EBITDA as a
generally recognized measure of performance and that analysts who report
publicly on the performance of entertainment companies use EBITDA.
Nevertheless, you should not consider this measure in isolation or as a
substitute for operating income, net
6
<PAGE>
income, net cash provided by operating activities or any other measure for
determining operating performance or liquidity that is calculated in accordance
with GAAP. EBITDA, as we calculate it, may not be comparable to calculations of
similarly titled measures presented by other companies.
We believe there are adjustments that could affect our operating
performance that are not reflected in the pro forma financial information. If
we had made such adjustments, Adjusted EBITDA on a pro forma basis would have
been approximately $191.1 million for the year ended December 31, 1998 and
$85.7 million for the six months ended June 30, 1999. The adjustments for the
year ended December 31, 1998 include the elimination of non-cash and
non-recurring charges (including a $5.6 million charge related to certain fees
paid to Livent for the Ragtime and Showboat touring production and certain
related deferred expenses which, as a result of the Livent bankruptcy, will not
be recovered, and a one-time charge of $4.0 million related to the write-off of
Apollo's historical costs related to the Dr. Dolittle production) and the
expected cost savings associated with the elimination of duplicative staffing
and general and administrative expenses in connection with our 1998 and 1999
acquisitions and the pending Apollo acquisition. While management believes that
such cost savings are achievable, our ability to fully achieve such cost
savings is subject to numerous factors, certain of which may be beyond our
control.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
1996 1997 1998 1998 1998
--------------- ------------ ------------- ------------- -------------
(PREDECESSOR) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenue ................... $ 50,362 $ 96,144 $ 884,286 $1,473,032 $1,473,032
Equity income from
investments .............. 524 509 4,630 9,928 9,928
-------- ---------- ---------- ---------- ----------
Total revenue ............. 50,886 96,653 888,916 1,482,960 1,482,960
Cost of revenue ........... 41,584 73,881 678,756 1,078,873 1,078,873
Selling, general and
administrative
expenses ................. 9,102 9,536 111,748 214,400 214,400
Depreciation and
amortization ............. 747 5,431 62,197 125,781 125,781
Corporate expenses ........ -- 2,206 11,194 11,355 11,355
Non-recurring charges...... -- -- 5,600 5,600 5,600
Non cash compensation
and other non-cash
charges .................. -- -- 34,051 34,440 34,440
-------- ---------- ---------- ---------- ----------
Operating income
(loss) ................... (547) 5,599 (14,630) 12,511 12,511
Interest expense (1) ...... (60) (1,590) (50,759) (129,269) (129,269)
Other income .............. 198 295 2,455 2,472 2,472
-------- ---------- ---------- ---------- ----------
Income (loss) before
income tax provision...... (409) 4,304 (62,934) (114,286) (114,286)
Income tax (provision)
benefit................... (106) (490) (3,000) (6,116) (6,116)
-------- ---------- ---------- ---------- ----------
Net income (loss) ......... (515) 3,814 (65,934) (120,402) (120,402)
Accretion on
temporary
equity--stock subject
to redemption (2) ........ -- -- (2,750) (3,615) (3,615)
-------- ---------- ---------- ---------- ----------
Net income (loss)
applicable to
common shares ............ $ (515) $ 3,814 $ (68,684) $ (124,017) $ (124,017)
======== ========== ========== ========== ==========
Net income (loss) per
basic and dilutive
common share (3) ......... $ 0.18 $ (1.83) $ (2.21) $ (1.95)
---------- ---------- ---------- ----------
Weighted average basic
and dilutive common
shares outstanding
(3) ...................... 21,668 37,467 56,825 64,325
OTHER OPERATING
DATA (4):
Cash flow from:
Operating activities ..... $ 4,214 $ 1,005 $ 27,441
Investing activities ..... (435) (73,296) (891,920)
Financing activities ..... (1,431) 78,270 906,521
Capital expenditures ...... -- 2,083 64,773
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------------------------------
PRO FORMA
ACTUAL ACTUAL PRO FORMA AS ADJUSTED
1998 1999 1999 1999
------------- ------------- ------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenue ................... $ 292,342 $ 679,900 $ 758,904 $ 758,904
Equity income from
investments .............. 1,825 3,906 4,443 4,443
---------- ---------- --------- ---------
Total revenue ............. 294,167 683,806 763,347 763,347
Cost of revenue ........... 231,665 509,158 546,662 546,662
Selling, general and
administrative
expenses ................. 37,995 91,916 122,628 122,628
Depreciation and
amortization ............. 19,174 59,156 62,893 62,893
Corporate expenses ........ 4,350 9,772 9,772 9,772
Non-recurring charges...... -- -- -- --
Non cash compensation
and other non-cash
charges .................. 32,052 2,147 2,147 2,147
---------- ---------- --------- ---------
Operating income
(loss) ................... (31,069) 11,657 19,245 19,245
Interest expense (1) ...... (18,221) (38,809) (64,636) (64,636)
Other income .............. 2,101 1,094 641 641
---------- ---------- --------- ---------
Income (loss) before
income tax provision...... (47,189) (26,058) (44,750) (44,750)
Income tax (provision)
benefit................... (1,350) (1,619) 1,823 1,823
---------- ---------- --------- ---------
Net income (loss) ......... (48,539) (27,677) (42,927) (42,927)
Accretion on
temporary
equity--stock subject
to redemption (2) ........ (1,100) (1,737) (1,824) (1,824)
---------- ---------- --------- ---------
Net income (loss)
applicable to
common shares ............ $ (49,639) $ (29,414) $ (44,751) $ (44,751)
========== ========== ========= =========
Net income (loss) per
basic and dilutive
common share (3) ......... $ (1.71) $ (0.55) $ (0.80) $ (0.70)
---------- ---------- --------- ---------
Weighted average basic
and dilutive common
shares outstanding
(3) ...................... 29,072 53,121 56,825 64,325
OTHER OPERATING
DATA (4):
Cash flow from:
Operating activities ..... $ 71,268 $ 94,354
Investing activities ..... (551,849) (335,521)
Financing activities ..... 719,040 292,499
Capital expenditures ...... 35,956 26,588
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------
1996 1997 1998
--------------- ----------- -------------
(PREDECESSOR)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ......................... $5,253 $ 5,979 $ 48,021
Total current assets .............................. 6,191 11,220 148,733
Property and equipment, net ....................... 2,231 59,685 292,626
Intangible assets, net ............................ -- 60,306 898,433
Total assets ...................................... 8,879 146,942 1,383,452
Current liabilities ............................... 7,973 19,564 145,982
Long-term debt, including current portion ......... -- 22,417 793,610
Temporary equity--stock subject to redemption(2) -- -- 16,500
Shareholders' equity .............................. 907 102,144 378,536
<CAPTION>
AS OF JUNE 30, 1999
-----------------------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
------------ ------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ......................... $ 99,353 $ 452,183 $ 782,246
Total current assets .............................. 268,558 643,737 973,800
Property and equipment, net ....................... 352,397 470,001 470,001
Intangible assets, net ............................ 1,221,494 1,398,246 1,398,246
Total assets ...................................... 1,955,599 2,628,527 2,958,590
Current liabilities ............................... 306,538 378,219 378,219
Long-term debt, including current portion ......... 848,213 1,396,713 1,396,713
Temporary equity--stock subject to redemption(2) 19,920 19,920 19,920
Shareholders' equity .............................. 728,234 768,855 1,098,918
</TABLE>
- ----------
(1) Interest expense on a pro forma as adjusted basis does not include pro
forma interest income of approximately $30.0 million and $15.0 million for
the year ended December 31, 1998 and the six months ended June 30, 1999,
respectively, related to the excess proceeds of this offering and the
consummation of the proposed New Senior Credit Facility assuming such
funds were invested at a return of 4.5%.
(2) The PACE acquisition agreement provides that each PACE seller shall have an
option, exercisable during a period beginning on February 25, 2003 and
ending 90 days thereafter, to require SFX to purchase up to one-third of
Class A common stock received by that PACE seller, representing 750,000
shares in the aggregate, for a cash purchase price of $22.00 per share.
With certain limited exceptions, the sellers may not assign the fifth year
put option rights. We have recorded the maximum amount payable under all
fifth year put options, $16.5 million, as temporary equity. For more
information regarding the fifth year put options, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The ProServ acquisition agreement provides that SFX may be required to
repurchase up to 69,978 shares of Class A common stock. We have recorded
the maximum amount payable under the put option, $3.4 million, as temporary
equity.
(3) Includes 750,000 shares of Class A common stock issued to the PACE sellers
in connection with the fifth year put options and 69,978 shares of Class A
common stock related to the ProServ put options; these shares are not
included in calculating the net loss per basic and dilutive common share.
(4) For a calculation of EBITDA and Adjusted EBITDA, see page 10.
9
<PAGE>
SFX ENTERTAINMENT, INC.
COMPUTATION OF EBITDA AND ADJUSTED EBITDA
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
PRO FORMA
AS ADJUSTED
1996 1997 1998 1998
--------------- ----------- ------------- -------------
(PREDECESSOR) (UNAUDITED)
<S> <C> <C> <C> <C>
Net income (loss) ....................... $ (515) $ 3,814 $ (65,934) $ (120,402)
Add back:
Depreciation and amortization .......... 747 5,431 62,197 125,781
Interest expense ....................... 60 1,590 50,759 129,269
Income tax provision (benefit) ......... 106 490 3,000 6,116
Less:
Other income ........................... (198) (295) (2,455) (2,472)
------ ------- --------- ----------
EBITDA .................................. 200 11,030 47,567 138,292
Add:
Non-cash compensation and other
non-cash charges ...................... -- -- 34,051 34,440
Non-recurring charges (1) .............. -- -- 5,600 9,576
Expected acquisition related cost
savings related to the
elimination of duplicative
staffing and general and
administrative expenses ............... -- -- -- 8,778
------ ------- --------- ----------
Adjusted EBITDA ......................... $ 200 $11,030 $ 87,218 $ 191,086
====== ======= ========= ==========
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------------------
PRO FORMA
ACTUAL ACTUAL AS ADJUSTED
1998 1999 1999
------------- ------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net income (loss) ....................... $ (48,539) $ (27,677) $ (42,927)
Add back:
Depreciation and amortization .......... 19,174 59,156 62,893
Interest expense ....................... 18,221 38,809 64,636
Income tax provision (benefit) ......... 1,350 1,619 (1,823)
Less:
Other income ........................... (2,101) (1,094) (641)
--------- --------- ---------
EBITDA .................................. (11,895) 70,813 82,138
Add:
Non-cash compensation and other
non-cash charges ...................... 32,052 2,147 2,147
Non-recurring charges (1) .............. -- -- --
Expected acquisition related cost
savings related to the
elimination of duplicative
staffing and general and
administrative expenses ............... -- -- 1,376
--------- --------- ---------
Adjusted EBITDA ......................... $ 20,157 $ 72,960 $ 85,661
========= ========= =========
</TABLE>
- ----------
(1) Non-recurring charges on a pro forma as adjusted basis for the year ended
December 31, 1998 includes (i) $5.6 million related to certain fees paid
to Livent for the Ragtime and Showboat touring production and certain
related deferred expenses which, as a result of the Livent bankruptcy,
will not be recovered and (ii) $4.0 million related to the write-off of
Apollo's historical costs related to the Dr. Dolittle production.
Historical non-recurring charges for the year ended December 31, 1998
includes a charge related to Livent's bankruptcy.
10
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors, in addition to
the other information contained in this prospectus before deciding to invest in
our Class A common stock. This prospectus contains forward-looking statements
which involve risks and uncertainties. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth in the following risk
factors and elsewhere in this prospectus. See "Forward-Looking Statements."
IF WE ARE UNABLE TO COMPLETE PENDING OR FUTURE ACQUISITIONS, OUR STOCK PRICE
MAY SUFFER.
Our ability to complete our pending acquisitions and to identify and take
advantage of attractive acquisition opportunities in the future are important
components in the implementation of our overall business strategy. However, we
may be unable to complete our pending acquisitions on the terms described in
this prospectus or at all. In addition, we may be unable to identify, finance
or complete additional acquisitions in the future. If the trading price of
Class A common stock reflects the market's expectation that we will complete
pending or future acquisitions, then the price of Class A common stock may drop
if we are unable to complete these acquisitions.
Even if we are able to complete future acquisitions, they could result in
our:
o issuing more stock, which may dilute the value of our existing common
stock;
o incurring a substantial amount of additional debt; and/or
o amortizing expenses related to goodwill and other intangible assets.
Any or all of these actions could materially adversely affect our
financial position and/or stock price.
WE INTEND TO EXPAND OUR INTERNATIONAL OPERATIONS SIGNIFICANTLY, WHICH WILL
EXPOSE US TO NEW RISKS.
A key element of our business strategy is to expand our international
operations, both through acquisitions and internal growth. This expansion will
require us to understand local customs, practices and competitive conditions as
well as develop a management infrastructure to support our international
operations. International operations are also subject to certain risks inherent
in doing business abroad, including:
o exposure to local economic conditions;
o currency exchange rate fluctuations and currency controls;
o withholding and other taxes on remittances and other payments by
subsidiaries; and
o investment restrictions or requirements.
We can provide no assurances that the risks and uncertainties outlined
above, or other risks or uncertainties inherent in doing business abroad, will
not have a material adverse effect on our business, prospects, results of
operations or financial condition.
IF WE ARE UNABLE TO INTEGRATE OUR RECENT AND FUTURE ACQUISITIONS, OUR OVERALL
BUSINESS MAY SUFFER.
The acquisition and successful integration of additional live
entertainment and related businesses are key elements of our operating
strategy. As you evaluate our prospects, you should consider the many risks we
will encounter during the process of integrating recently acquired businesses
and those that may be acquired in the future, including:
o the distraction of management's attention from other business concerns;
o our entry into markets and geographic areas where we have limited or no
experience;
11
<PAGE>
o the potential loss of key employees or customers of the acquired
businesses; and
o the potential inability to integrate controls, standards, systems and
personnel.
Although our management has significant experience, we may be unable to
effectively integrate our recently acquired businesses or those businesses we
expect to acquire in the future without encountering the difficulties described
above. Failure to effectively integrate such businesses could have a material
adverse effect on our business, prospects, results of operations or financial
condition. In addition, the combined companies may not benefit as expected from
the integration.
WE HAVE A SUBSTANTIAL AMOUNT OF DEBT, WHICH MAY HARM US AND OUR STOCKHOLDERS.
We have a substantial amount of debt, and the amount of our debt could
substantially increase in the future. Our consolidated debt as of June 30, 1999
would have been approximately $1.4 billion on a pro forma basis after giving
effect to the pending Apollo acquisition, this offering and the consummation of
the New Senior Credit Facility.
The amount of our debt could harm the holders of our Class A common stock
by, among other things:
o making us more vulnerable to general adverse economic and industry
conditions;
o limiting our ability to obtain money to pay for future acquisitions,
working capital, capital expenditures and other general corporate
requirements;
o dedicating more of our cash flow to paying off our debt, which will
reduce the amount of cash available to pay for working capital, capital
expenditures or other general corporate needs;
o limiting our flexibility in planning for, or reacting to, changes in
our business and the industry; and
o placing us at a competitive disadvantage to competitors that have less
debt.
Our ability to pay principal and interest on our debt on time, to
refinance our debt, or to pay for planned expenditures will depend on various
factors, some of which we will not be able to control. These factors include
restrictions contained in our senior credit facility and the indentures
relating to our notes, which may limit our ability to, among other things,
borrow additional funds. We may be unable to generate enough money to pay our
debts because of insufficient cash flow from operations or because we are not
able to raise additional capital funds by selling securities. We may also be
required to refinance a part of our debt before the debt matures. For more
details about our financial resources, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
OUR INDENTURES AND CREDIT FACILITY RESTRICT OUR OPERATIONS.
As is customary in similar agreements, our indentures, our existing senior
credit facility and the proposed new senior credit facility will restrict our
and our subsidiaries' ability to, among other things:
o sell or transfer assets;
o incur additional debt;
o repay other debt;
o pay dividends;
o make certain investments or acquisitions;
o repurchase or redeem capital stock;
o engage in mergers or consolidations; and
o engage in certain transactions with subsidiaries and affiliates.
12
<PAGE>
The indentures, our existing senior credit facility and the proposed new
senior credit facility also require or will require us to comply with certain
financial ratios, as discussed in "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources." These restrictions may interfere with our ability to obtain
financing or to engage in other necessary or desirable business activities.
If we cannot comply with the requirements in either our existing or new
senior credit facility, then the lenders may require us to repay immediately
all of our outstanding debt under the senior credit facility. If our debt
payments were accelerated, our assets might not be sufficient to repay fully
our debt. These lenders may also require us to use all of our available cash to
repay our debt or may prevent us from making payments to other creditors on
certain portions of our outstanding debt.
We may not be able to obtain a waiver of these provisions or refinance our
debt, if needed. In such a case, our business, prospects, results of operations
and financial condition would suffer.
WE COULD BE REQUIRED TO MAKE LARGE PAYMENTS UPON A CHANGE OF CONTROL, WHICH MAY
HARM OUR FINANCIAL CONDITION.
Under the agreements relating to our existing senior credit facility, the
proposed new senior credit facility and our 9 1/8% senior subordinated notes, we
have or will have obligations to make payments upon certain change of control
events. If we make the payments, we may lose necessary operating funds. If we
cannot make the payments, we may be sued or forced into bankruptcy.
Under the existing senior credit facility, if Mr. Sillerman directly or
indirectly owns less than 30% of the combined voting power of the Class A and
Class B common stock, then a "Change in Control" will be deemed to occur. This
would require us to repay all outstanding debt under the existing senior credit
facility. Mr. Sillerman's voting power will decrease to approximately 30.9%
after giving effect to the pending Apollo acquisition and this offering.
Additionally, if anyone other than Mr. Sillerman becomes the beneficial
owner of over 35% of the voting power of our outstanding common stock, then a
"Change in Control" will occur under our indentures. This would require us to
offer to repurchase our outstanding notes at a premium. If we fail to purchase
all of the notes tendered for purchase upon the occurrence of a Change of
Control, such failure will constitute an event of default under the indentures.
It is expected that the definition of Change of Control under the new senior
credit facility will be consistent with the definition contained in the
indentures.
BECAUSE A CHANGE OF CONTROL OF SFX WOULD BE DIFFICULT TO ACHIEVE, HOLDERS OF
OUR STOCK MAY NOT HAVE THE OPPORTUNITY TO RECEIVE A PREMIUM FOR THEIR SHARES.
Holders of Class A common stock could receive a premium for their shares
upon a change of control of our company. The holders of Class A common stock
may be less likely to receive a premium for their shares, however, because a
change of control would be difficult to achieve without the cooperation of our
principal stockholders and our board of directors. There are several factors
that would make a change of control difficult, including:
o We have issued, and may issue in the future, shares of Class B common
stock, which has 10 votes per share on most matters. The holders of
these shares will likely be able to prevent a change of control of our
company. The two current holders of Class B common stock, Messrs.
Sillerman and Ferrel, will control approximately 35% of our total voting
power after the consummation of this offering and approximately 34%
after consummation of the pending Apollo acquisition and this offering.
Therefore, they likely will be able to block any potential change of
control transaction that they oppose.
o Our certificate of incorporation allows our board of directors to issue
up to 25 million shares of preferred stock. If we issue shares of
preferred stock with voting rights, this issuance could dilute the
voting rights of holders of our common stock and could delay or prevent
a change in control.
13
<PAGE>
o Section 203 of the Delaware General Corporation Law prohibits us from
engaging in a "business combination" with an "interested stockholder"
for three years after the person became an interested stockholder,
unless the business combination is approved in a particular manner.
Therefore, Section 203 could delay or prevent a change in control of our
company.
o Our board of directors has also adopted other programs, plans and
agreements that may make a change of control more expensive, such as
severance payments and immediate vesting of stock options upon a change
of control.
WE MAY BE FORCED TO SELL SOME OF OUR SUBSIDIARIES, WHICH MAY PREVENT US FROM
REALIZING THE FULL VALUE OF THESE SUBSIDIARIES.
We have granted rights to re-purchase some of our subsidiaries. These
rights may discourage potential bidders for the affected assets from
negotiating with us, and may keep us from realizing the full productive value
of these subsidiaries over time.
PACE. In connection with our acquisition of PACE Entertainment
Corporation, Brian Becker, an executive officer and director of SFX, received
an option to acquire PACE's motor sports business--or, if that business is
sold, PACE's theatrical business--at its fair market value. Mr. Becker may only
exercise this option within 15 days after February 25, 2000. Mr. Becker's
exercise of this option would result in termination of his employment
agreement. In addition, from February 25, 1999 to February 25, 2000, Mr. Becker
will also have a right of first refusal under certain circumstances to acquire
PACE's theatrical or motor sports line of business at a price equal to 95% of
any proposed purchase price by a third party. The motor sports business is a
significant component of our sports segment. Mr. Becker's exercise of either
option could damage our business, prospects, financial condition and results of
operations.
DON LAW. In connection with our acquisition of Blackstone Entertainment,
LLC, also known as "Don Law," we granted the seller a right of first offer and
refusal. The right allows the seller to purchase, with certain exceptions, the
assets we acquired in the acquisition if we elect to sell those assets before
July 2, 2000.
BGP. We have agreed that we will not sell the assets of BG Presents, Inc.
before February 24, 2001, without giving the sellers the opportunity to
purchase the assets on the same terms.
OTHER ACQUISITIONS. We have granted similar rights of first refusal to
sellers in certain other acquisitions.
OUR BUSINESS IS HIGHLY SENSITIVE TO PUBLIC TASTES AND DEPENDENT ON OUR ABILITY
TO SECURE POPULAR ARTISTS, LIVE ENTERTAINMENT EVENTS AND VENUES.
As a participant in the live entertainment industry, our ability to
generate revenues is highly sensitive to rapidly changing public tastes and
dependent on the availability of popular performers and events. Since we rely
on unrelated parties to create and perform live entertainment content, any lack
of availability of popular musical artists, touring Broadway shows, specialized
motor sports talent and other performers could limit our ability to generate
revenues. In addition, we require access to venues to generate revenues from
live entertainment events. We operate a number of our live entertainment venues
under leasing or booking agreements. Our long-term success will depend in part
on our ability to renew these agreements when they expire or end. We may be
unable to renew these agreements on acceptable terms or at all, and may be
unable to obtain favorable agreements with new venues.
WE ARE SUBJECT TO EXTENSIVE GOVERNMENTAL REGULATION, AND OUR FAILURE TO COMPLY
WITH REGULATIONS COULD ADVERSELY AFFECT OUR BUSINESS, RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
We and our properties are subject to extensive environmental laws and
regulations relating to the use, storage, disposal, emission and release of
hazardous and non-hazardous substances, as well as zoning and noise level
restrictions which may affect, among other things, the hours of operations of
14
<PAGE>
our venues. In addition, we are subject to other laws and regulations,
including those relating to antitrust, consumer protection and the operation of
public facilities, that significantly affect the conduct of our business and
the implementation of our operating strategy. For example, the Federal Trade
Commission and the Antitrust Division of the U.S. Department of Justice have
the authority to challenge our domestic acquisitions on antitrust grounds
before or after the acquisitions are completed. State agencies may also have
standing to challenge these acquisitions under state or federal antitrust law.
Our failure to comply with all applicable laws and regulations could result in,
among other things, regulatory actions or legal proceedings against us, the
imposition of fines, penalties or judgments against us or significant
limitations on our activities. In addition, the regulatory environment in which
we operate is subject to change. New or revised requirements imposed by
governmental regulatory authorities could have adverse effects on us, including
increased costs of compliance. We also may be adversely affected by changes in
the interpretation or enforcement of existing laws and regulations by these
governmental authorities.
DISCRETIONARY USE OF THE PROCEEDS OF THIS OFFERING BY US.
While we expect to use the proceeds of this offering as set forth in "Use
of Proceeds," the expectation is based on our ability to consummate our pending
acquisitions on the terms contemplated or at all, the availability of other
attractive acquisition opportunities, and certain other factors beyond our
control. Moreover, a substantial portion of the proceeds of this offering are
expected to be used for future acquisitions that may not materialize. If we do
not utilize the proceeds as set forth herein or utilize different amounts than
presently contemplated, we could use any remaining cash, subject to the terms
of our indentures and senior credit facility, to fund other development
projects or acquisitions or for general corporate purposes, including working
capital. See "Use of Proceeds."
OUR OPERATIONS MAY SUFFER FROM YEAR 2000 COMPUTER PROBLEMS.
Year 2000 issues exist when computers record dates using two digits rather
than four, and then use the dates for arithmetic operations, comparisons or
sorting. A two-digit recording may recognize a date using "00" as 1900 rather
than 2000, which could cause computer systems to perform inaccurate
computations or fail to operate. Although we do not anticipate being subject to
a material impact in this area, if we and the companies with which we do
business do not take adequate preventative action, then the Year 2000 problem
could damage our business, financial condition and results of operations. For
more information concerning our Year 2000 compliance issues. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Year 2000 Compliance."
15
<PAGE>
USE OF PROCEEDS
The net proceeds to SFX from this offering, after deducting the
underwriting discount, are expected to be $332.1 million (based on an assumed
offering price of $46.00 per share). We intend to use the net proceeds of this
offering to finance future acquisitions, for general corporate purposes and to
pay fees and expenses in connection with future acquisitions and this offering.
Depending on when the Livent acquisition and this offering are consummated, the
Livent acquisition may be financed with a portion of the net proceeds of this
offering or through SFX's existing or proposed new senior credit facility.
The foregoing represents our best estimate of the use of the net proceeds
of this offering based on the current status of our business and current
expectations (including anticipated closing dates) regarding the Livent
acquisition and other acquisition opportunities. Our estimates and current
expectations are subject to significant change, based on numerous factors,
including certain factors beyond our control. In addition, no assurances can be
given that the Livent acquisition will be consummated on the terms described
herein or at all. If we do not utilize the net proceeds of the offering as set
forth above, or if we utilize different amounts than presently contemplated, we
could use any remaining cash to fund other development projects or for other
corporate purposes, including working capital. See "Risk Factors--Discretionary
use of the proceeds of this offering by us." For information regarding the
Livent acquisition, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Pending Acquisitions," "Business--Pending
Acquisitions" and "Agreements Related to Pending Acquisitions."
16
<PAGE>
PRICE RANGE OF CLASS A COMMON STOCK
Since June 7, 1999, the Class A common stock has been quoted on the New
York Stock Exchange under the symbol "SFX." Between April 21, 1998 and June 7,
1999, the Class A common stock was quoted on the Nasdaq National Market under
the symbol "SFXE" (between April 21, 1998, and April 27, 1998, the Class A
common stock traded on a when-issued basis, in which shares can be traded
before certificates are actually issued). Between February 18, 1998, and April
20, 1998, the Class A common stock traded on a when-issued basis on the
over-the-counter market under the symbol "SFXAV." The Class B common stock is
not publicly traded.
The following table sets forth the high and the low closing bid
information for the shares of Class A common stock as reported on the
over-the-counter market through April 20, 1998 and as reported by the Nasdaq
National Market between April 21, 1998 and June 7, 1999 and the high and low
sales prices as reported by the New York Stock Exchange subsequent to June 7,
1999. Bid quotations reflect interdealer prices, without retail mark-up,
mark-down or commissions, and may not represent actual transactions. The
information has been adjusted to reflect SFX's 3-for-2 stock split of its
outstanding common stock effected on July 27, 1999.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK
-------------------------
1998 HIGH LOW
- ---- ----------- -----------
<S> <C> <C>
First Quarter, since February 18, 1998 ......... $ 16.38 $ 13.08
Second Quarter ................................. 30.58 16.67
Third Quarter .................................. 36.67 17.96
Fourth Quarter ................................. 36.58 15.08
1999
- ----
First Quarter .................................. $ 43.04 $ 35.50
Second Quarter ................................. 46.58 35.54
Third Quarter, through August 6, 1999 .......... 50.04 39.81
</TABLE>
On August 6, 1999, the last reported sales price of the Class A common
stock on the New York Stock Exchange was $39.81 per share. As of August 5,
1999, SFX had 313 holders of record of the Class A common stock and two holders
of record of the Class B common stock.
DIVIDEND POLICY
SFX has no present plans to declare any dividends on common stock. The
terms of SFX's note indentures, its existing senior credit facility and the
proposed New Senior Credit Facility restrict significantly SFX's ability to pay
dividends on common stock in the future. The decision to declare a dividend and
the amount thereof, if any, will be in the sole discretion of the board of
directors of SFX. See "Description of Indebtedness."
17
<PAGE>
CAPITALIZATION
The following table sets forth, as of June 30, 1999, the historical
capitalization of SFX and the pro forma capitalization of SFX after giving
effect to the consummation of the pending Apollo acquisition, the July 1999
consent solicitation and the consummation of the New Senior Credit Facility.
The following table also sets forth as of June 30, 1999 the pro forma as
adjusted capitalization of SFX, which gives effect to the issuance of 7,500,000
shares of SFX's Class A common stock in this offering. On July 27, 1999, SFX
effected a 3-for-2 split of its outstanding common stock. The last reported
sale price of the Class A common stock on such date was $49.00 per share. The
last reported sale price of the Class A common stock on August 6, 1999 was
$39 13/16 per share. For purposes of the pro forma information set forth below,
we have assumed a per share stock price of $46.00. This information should be
read in conjunction with the financial statements and the related notes thereto
included elsewhere or incorporated by reference herein.
<TABLE>
<CAPTION>
JUNE 30, 1999
----------------------------------------------
(IN THOUSANDS)
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------- ------------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents ..................................... $ 99,353 $ 452,183 $ 782,246
========== ========== ==========
Debt:
Existing senior credit facility ............................... $ 234,000 $ -- $ --
New senior credit facility(1) ................................. -- 782,500 782,500
9 1/8% senior subordinated notes due February 1, 2008 ......... 350,000 350,000 350,000
9 1/8% senior subordinated notes due December 1, 2008 ......... 200,000 200,000 200,000
Other long-term debt .......................................... 17,609 17,609 17,609
Capital lease obligations ..................................... 12,574 12,574 12,574
Deferred purchase consideration ............................... 34,030 34,030 34,030
---------- ---------- ----------
Total debt ................................................... 848,213 1,396,713 1,396,713
---------- ---------- ----------
Temporary equity--stock subject to redemption(2) .............. 19,920 19,920 19,920
---------- ---------- ----------
Shareholders' equity:
Preferred stock, $.01 par value, 25,000,000 shares
authorized, none outstanding as of June 30, 1999 on
an actual, pro forma and pro forma as adjusted basis ......... -- -- --
Class A common stock, $.01 par value, 100,000,000
shares authorized, 53,299,683, 54,279,350 and
61,779,350 shares issued and outstanding on an actual,
pro forma and pro forma as adjusted basis,
respectively(3) .............................................. 533 543 618
Class B common stock, $.01 par value, 10,000,000 shares
authorized, 2,545,557 shares issued and outstanding as
of June 30, 1999 on an actual, pro forma and pro
forma as adjusted basis ...................................... 26 26 26
Additional paid-in capital(3) ................................. 826,859 871,849 1,201,837
Deferred compensation ......................................... (4,900) (4,900) (4,900)
Accumulated deficit ........................................... (94,284) (98,663) (98,663)
---------- ---------- ----------
Total shareholders' equity ................................... 728,234 768,855 1,098,918
---------- ---------- ----------
Total capitalization ........................................ $1,596,367 $2,185,488 $2,515,551
========== ========== ==========
</TABLE>
- ----------
(1) Includes (i) $600.0 million under the U.S. dollar denominated term loan
portion of the New Senior Credit Facility and (ii) $182.5 million under
the multicurrency term loan portion of the New Senior Credit Facility
which is expected to be utilized in connection with the Apollo
acquisition.
(2) The PACE agreement provides that each PACE seller shall have an option,
exercisable during a period beginning on February 25, 2003 and ending 90
days thereafter, to require SFX to purchase up to one-third of the shares
of Class A common stock received by such PACE seller (representing
750,000 shares in the aggregate) for a cash purchase price of $22.00 per
share. With certain limited exceptions, the option rights are not
assignable by the PACE sellers. The maximum amount payable under the
options ($16.5 million) has been presented as temporary equity in SFX's
historical balance sheet. The ProServ acquisition agreement provides that
SFX may be required to repurchase up to 69,978 shares of Class A common
stock. We have recorded the maximum amount payable under the put option
($3.4 million) as temporary equity in SFX's historical balance sheet.
(3) Gives effect on a pro forma basis to the issuance of an aggregate of
979,667 shares of Class A common stock to be issued in the Apollo
acquisition. Gives effect on a pro forma as adjusted basis to the
issuance of an aggregate of 979,667 shares of Class A common stock to be
issued in the Apollo acquisition and an aggregate of 7,500,000 shares of
Class A common stock to be issued in this offering. All pro forma
adjustments assume a per share stock price of $46.00. Does not include
(1) shares issuable, subject to certain conditions, upon conversion of
Class B common stock or (2) shares issuable upon exercise of outstanding
options.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
We derived this historical financial information presented below from the
audited and unaudited consolidated financial statements of SFX and its
predecessor. The information consists of selected consolidated financial data
and is only a summary; therefore, you should read it in connection with the
historical financial statements and related notes appearing elsewhere or
incorporated by reference in this prospectus. The selected unaudited pro forma
statement of operations data for the year ended December 31, 1998 gives effect
to the following transactions as if they had occurred on January 1, 1998:
o the acquisitions we completed in 1998 and 1999,
o our February and November 1998 offerings of $350 million and $200
million of 9 1/8% Senior Subordinated Notes due 2008, respectively,
o our May 1998 and February 1999 equity offerings,
o our July 1999 consent solicitation with respect to our outstanding
9 1/8% Senior Subordinated Notes,
o the consummation of the proposed New Senior Credit Facility, and
o our pending Apollo acquisition.
The unaudited pro forma statement of operations data for the six months
ended June 30, 1999 gives effect to each of the foregoing transactions as if
they had occurred on January 1, 1998, other than the 1998 acquisitions, the
1998 note offerings and the May 1998 equity offering, which were completed
prior to the beginning of the period. The unaudited pro forma balance sheet
data as of June 30, 1999 gives effect to the pending Apollo acquisition, our
July 1999 consent solicitation and the proposed New Senior Credit Facility, as
if such transactions were completed on June 30, 1999. The pro forma as adjusted
data gives effect to this offering as if it occurred on January 1, 1998 for
statement of operations data and June 30, 1999 for balance sheet data. The pro
forma information does not give effect to our pending acquisitions other than
Apollo. See "SFX Unaudited Pro Forma Condensed Combined Financial Statements."
We expect to account for our pending acquisitions under the "purchase
method." For accounting and financial reporting purposes, we will allocate the
purchase price of the pending acquisitions to the assets acquired and
liabilities assumed based on their estimated fair values. SFX will allocate any
excess purchase consideration to goodwill and amortize such amount using the
straight-line method over a period of 15 years. This amortization will have a
negative impact on earnings.
We believe that the operating performances of entertainment companies,
such as SFX, are measured, in part, by their ability to generate EBITDA.
Further, we use EBITDA, excluding non-cash charges, as the primary indicator of
our operating performance, and secondarily as a measure of liquidity. EBITDA is
defined as earnings before interest, taxes, other income and depreciation and
amortization. Although EBITDA is not a measure of performance calculated in
accordance with GAAP, we believe that the industry accepts EBITDA as a
generally recognized measure of performance and that analysts who report
publicly on the performance of entertainment companies use EBITDA.
Nevertheless, you should not consider this measure in isolation or as a
substitute for operating income, net income, net cash provided by operating
activities or any other measure for determining operating performance or
liquidity that is calculated in accordance with GAAP. EBITDA, as we calculate
it, may not be comparable to calculations of similarly titled measures
presented by other companies.
We believe there are adjustments that could affect our operating
performance that are not reflected in the pro forma financial information. If
we had made such adjustments, Adjusted EBITDA on a pro forma basis would have
been approximately $191.1 million for the year ended December 31, 1998, and
$85.7 million for the six months ended June 30, 1999. The adjustments for the
year ended December 31, 1998 include the elimination of non-cash and
non-recurring charges (including a $5.6 million charge related to certain fees
paid to Livent for the Ragtime and Showboat touring production and certain
related deferred expenses which, as a result of the Livent bankruptcy, will not
be recovered, and a one-time charge of $4.0 million related to the write-off of
Apollo's historical costs related to the Dr. Dolittle production) and the
expected cost savings associated with the elimination of
19
<PAGE>
duplicative staffing and general and administrative expenses in connection with
SFX's 1998 and 1999 acquisitions and the pending Apollo acquisition. While
management believes that such cost savings are achievable, our ability to fully
achieve such cost savings is subject to numerous factors, certain of which may
be beyond our control.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------
PREDECESSOR PRO FORMA
------------------------------------ PRO FORMA AS ADJUSTED
1994 1995 1996 1997 1998 1998 1998
-------------- ---------- ---------- ------------ ------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenue .................... $92,785 $47,566 $ 50,362 $ 96,144 $ 884,286 $1,473,032 $1,473,032
Equity income (loss)
from investments .......... (9) 488 524 509 4,630 9,928 9,928
--------- ------- -------- ---------- --------- ---------- ----------
Total revenue .............. 92,776 48,054 50,886 96,653 888,916 1,482,960 1,482,960
Cost of revenue ............ 83,361 39,691 41,584 73,881 678,756 1,078,873 1,078,873
Selling, general and
administrative
expenses .................. 7,237 7,487 9,102 9,536 111,748 214,400 214,400
Depreciation &
amortization .............. 755 750 747 5,431 62,197 125,781 125,781
Corporate expenses ......... -- -- -- 2,206 11,194 11,355 11,355
Non-recurring charges ...... -- 5,600 5,600 5,600
Non-cash compensation
and other non-cash
charges ................... -- -- -- -- 34,051 34,440 34,440
-------- ------- -------- ---------- --------- ---------- ----------
Operating income (loss) 1,423 126 (547) 5,599 (14,630) 12,511 12,511
Interest expense(1) ........ (144) (144) (60) (1,590) (50,759) (129,269) (129,269)
Other income ............... 138 178 198 295 2,455 2,472 2,472
-------- ------- -------- ---------- --------- ---------- ----------
Income (loss) before
income tax provision ...... 1,417 160 (409) 4,304 (62,934) (114,286) (114,286)
Income tax (provision)
benefit ................... (5) (13) (106) (490) (3,000) (6,116) (6,116)
--------- ------- -------- ---------- --------- ---------- ----------
Net income (loss) .......... 1,412 147 (515) 3,814 (65,934) (120,402) (120,402)
Accretion on temporary
equity--stock subject
to redemption(2) .......... -- -- -- -- (2,750) (3,615) (3,615)
-------- ------- -------- ---------- --------- ---------- ----------
Net income (loss)
applicable to common
shares .................... $1,412 $ 147 $ (515) $ 3,814 $ (68,684) $ (124,017) $ (124,017)
======== ======= ======== ========== ========= ========== ==========
Net income (loss) per
basic and dilutive
common share(3) ........... $ 0.18 $ (1.83) $ (2.21) $ (1.95)
---------- --------- ---------- ----------
Weighted average basic
and dilutive common
shares outstanding (3) 21,668 37,467 56,825 64,325
OTHER OPERATING DATA(4):
Cash flow from:
Operating activities ...... $2,959 $ (453) $ 4,214 $ 1,005
Investment activities ..... -- -- (435) (73,296)
Financing activities ...... (477) (216) (1,431) 78,270
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------------------------------
PRO FORMA
ACTUAL ACTUAL PRO FORMA AS ADJUSTED
1998 1999 1999 1999
------------- ------------- ------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenue .................... $ 292,342 $ 679,900 $ 758,904 $ 758,904
Equity income (loss)
from investments .......... 1,825 3,906 4,443 4,443
---------- ---------- --------- ---------
Total revenue .............. 294,167 683,806 763,347 763,347
Cost of revenue ............ 231,665 509,158 546,662 546,662
Selling, general and
administrative
expenses .................. 37,995 91,916 122,628 122,628
Depreciation &
amortization .............. 19,174 59,156 62,893 62,893
Corporate expenses ......... 4,350 9,772 9,772 9,772
Non-recurring charges ...... -- -- -- --
Non-cash compensation
and other non-cash
charges ................... 32,052 2,147 2,147 2,147
---------- ---------- --------- ---------
Operating income (loss) (31,069) 11,657 19,245 19,245
Interest expense(1) ........ (18,221) (38,809) (64,636) (64,636)
Other income ............... 2,101 1,094 641 641
---------- ---------- --------- ---------
Income (loss) before
income tax provision ...... (47,189) (26,058) (44,750) (44,750)
Income tax (provision)
benefit ................... (1,350) (1,619) 1,823 1,823
---------- ---------- --------- ---------
Net income (loss) .......... (48,539) (27,677) (42,927) (42,927)
Accretion on temporary
equity--stock subject
to redemption(2) .......... (1,100) (1,737) (1,824) (1,824)
---------- ---------- --------- ---------
Net income (loss)
applicable to common
shares .................... $ (49,639) $ (29,414) $ (44,751) $ (44,751)
========== ========== ========= =========
Net income (loss) per
basic and dilutive
common share(3) ........... $ (1.71) $ (0.55) $ (0.80) $ (0.70)
---------- ---------- --------- ---------
Weighted average basic
and dilutive common
shares outstanding (3) 29,072 53,121 56,825 64,325
OTHER OPERATING DATA(4):
Cash flow from:
Operating activities ...... $ 71,268 $ 94,354
Investment activities ..... (551,849) (335,521)
Financing activities ...... 719,040 292,499
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------------
PREDECESSOR
---------------------------------
1994 1995 1996 1997 1998
------------- --------- --------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ...... $3,574 $2,905 $5,253 $ 5,979 $ 48,021
Total current assets ........... 4,453 3,022 6,191 11,220 148,733
Property and equipment, net..... 3,728 2,978 2,231 59,685 292,626
Intangible assets, net ......... -- -- -- 60,306 898,433
Total assets ................... 8,222 6,037 8,879 146,942 1,383,452
Current liabilities ............ 3,423 3,138 7,973 19,564 145,982
Long-term debt, including
current portion ............... 1,830 -- -- 22,417 793,610
Temporary equity--stock
subject to redemption(2) ...... -- -- -- -- 16,500
Shareholders' equity ........... 2,969 2,900 907 102,144 378,536
<CAPTION>
AS OF JUNE 30, 1999
-----------------------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ...... $ 99,353 $ 452,183 $ 782,246
Total current assets ........... 268,558 643,737 973,800
Property and equipment, net..... 352,397 470,001 470,001
Intangible assets, net ......... 1,221,494 1,398,246 1,398,246
Total assets ................... 1,955,599 2,628,527 2,958,590
Current liabilities ............ 306,538 378,219 378,219
Long-term debt, including
current portion ............... 848,213 1,396,713 1,396,713
Temporary equity--stock
subject to redemption(2) ...... 19,920 19,920 19,920
Shareholders' equity ........... 728,234 768,855 1,098,918
</TABLE>
- -------
(1) Interest expense on a pro forma as adjusted basis does not include pro
forma interest income of approximately $30.0 million and $15.0 million for
the year ended December 31, 1998 and the six months ended June 30, 1999,
respectively related to the excess proceeds of this offering and the
consummation of the New Senior Credit Facility assuming such funds were
invested at a rate of 4.5%.
(2) The PACE acquisition agreement provides that each PACE seller shall have an
option, exercisable during a period beginning on February 25, 2003 and
ending 90 days thereafter, to require SFX to purchase up to one-third of
Class A common stock received by that PACE seller (representing 750,000
shares in the aggregate) for a cash purchase price of $22.00 per share.
With certain limited exceptions, the sellers may not assign the fifth year
put option rights. We have recorded the maximum amount payable under all
fifth year put options, $16.5 million, as temporary equity. For more
information regarding the fifth year put options, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The ProServ acquisition agreement provides that SFX may be required to
repurchase up to 69,978 shares of Class A common stock. The maximum amount
payable under the put option, $3.4 million, has been recorded as temporary
equity.
(3) Includes 750,000 shares of Class A common stock issued to the PACE sellers
in connection with the fifth year put options and 69,978 shares of Class A
common stock related to the ProServ put options issued by SFX; these
shares are not included in calculating the net loss per basic and dilutive
common share.
(4) For the computation of EBITDA and Adjusted EBITDA, see page 23.
22
<PAGE>
SFX ENTERTAINMENT, INC.
COMPUTATION OF EBITDA AND ADJUSTED EBITDA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
PREDECESSOR PRO FORMA
------------------------------ AS ADJUSTED
1994 1995 1996 1997 1998 1998
--------- --------- ---------- ----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) ........ $1,412 $ 147 $ (515) $ 3,814 $ (65,934) $ (120,402)
Add back:
Depreciation and
amortization ........... 755 750 747 5,431 62,197 125,781
Interest expense ........ 144 144 60 1,590 50,759 129,269
Income tax provision
(benefit) .............. 5 13 106 490 3,000 6,116
Less:
Other income ............ (138) (178) (198) (295) (2,455) (2,472)
------ ------- ------ ------- --------- ----------
EBITDA ................... 2,178 876 200 11,030 47,567 138,292
Add:
Non-cash
compensation and
other non-cash
charges ................ -- -- -- -- 34,051 34,440
Non-recurring
charges(1) ............. -- -- -- -- 5,600 9,576
Expected acquisition
related cost savings
related to the
elimination of
duplicative staffing
and general and
administrative
expenses ............... -- -- -- -- -- 8,778
------ ------- ------ ------- --------- ----------
Adjusted EBITDA .......... $2,178 $ 876 $ 200 $11,030 $ 87,218 $ 191,086
====== ======= ====== ======= ========= ==========
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------------------
PRO FORMA
ACTUAL ACTUAL AS ADJUSTED
1998 1999 1999
------------- ------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net income (loss) ........ $ (48,539) $ (27,677) $ (42,927)
Add back:
Depreciation and
amortization ........... 19,174 59,156 62,893
Interest expense ........ 18,221 38,809 64,636
Income tax provision
(benefit) .............. 1,350 1,619 (1,823)
Less:
Other income ............ (2,101) (1,094) (641)
--------- --------- ---------
EBITDA ................... (11,895) 70,813 82,138
Add:
Non-cash
compensation and
other non-cash
charges ................ 32,052 2,147 2,147
Non-recurring
charges(1) ............. -- -- --
Expected acquisition
related cost savings
related to the
elimination of
duplicative staffing
and general and
administrative
expenses ............... -- -- 1,376
--------- --------- ---------
Adjusted EBITDA .......... $ 20,157 $ 72,960 $ 85,661
========= ========= =========
</TABLE>
- -------
(1) Non-recurring charges on a pro forma as adjusted basis for the year ended
December 31, 1998 includes (i) $5.6 million related to certain fees paid
to Livent for the Ragtime and Showboat touring productions and certain
related deferred expenses which, as a result of the Livent bankruptcy,
will not be recovered and (ii) $4.0 million related to the write-off of
Apollo's historical costs related to the Dr. Doolittle production.
Historical non-recurring charges for the year ended December 31, 1998
includes a charge related to Livent's bankruptcy.
23
<PAGE>
SFX UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following information is based on the audited and unaudited financial
statements of our company and certain of the other companies which we have
acquired as well as the audited and unaudited financial statements of Apollo.
The pro forma information set forth below does not give effect to the pending
Livent acquisition.
The SFX Unaudited Pro Forma Condensed Combined Balance Sheet at June 30,
1999, is presented as if SFX had completed the Apollo acquisition, the New
Senior Credit Facility, our July 1999 consent solicitation and this offering as
of June 30, 1999. On July 27, 1999, SFX effected a 3-for-2 stock split of its
outstanding common stock. The last reported sale price of the Class A common
stock on such date was $49.00 per share. The last reported sale price of the
Class A common stock on August 6, 1999 was $39 13/16 per share. For purposes of
the pro forma information set forth below, we have assumed a stock price of
$46.00 per share.
The SFX Unaudited Pro Forma Condensed Combined Statement of Operations for
the year ended December 31, 1998, is presented as if the following transactions
had occurred on January 1, 1998:
o the acquisitions we completed in 1998 and 1999,
o our February and November 1998 offerings of $350 million and $200
million of 9 1/8% Senior Subordinated Notes due 2008, respectively,
o our May 1998 and February 1999 equity offerings,
o our July 1999 consent solicitation with respect to our outstanding
9 1/8% Senior Subordinated Notes,
o this offering,
o the consummation of the proposed New Senior Credit Facility, and
o our pending Apollo acquisition.
The SFX Unaudited Pro Forma Condensed Combined Statement of Operations for
the six months ended June 30, 1999 give effect to the following transactions as
if they had occurred on January 1, 1998:
o the acquisitions we completed in 1999,
o our February 1999 equity offering,
o our July 1999 consent solicitation,
o this offering,
o the consummation of the proposed New Senior Credit Facility, and
o our pending Apollo acquisition.
In addition, the SFX Unaudited Pro Forma Condensed Combined Financial
Statements do not reflect certain purchase price adjustments and future
contingent payments, which may be payable pursuant to the various acquisition
agreements.
In our opinion, all adjustments necessary to fairly present this pro forma
information have been made. The SFX Unaudited Pro Forma Condensed Combined
Financial Statements are based upon, and should be read in conjunction with,
the historical financial statements of SFX and certain of the businesses
previously or to be acquired by SFX and the related notes to such financial
statements contained elsewhere or incorporated by reference in this document.
The pro forma information is based upon tentative allocations of purchase price
and does not purport to be indicative of the results that would have been
reported had such events actually occurred on the date specified, nor is it
indicative of SFX's future results. Purchase accounting is based upon
preliminary asset valuations,
24
<PAGE>
which are subject to change. Final asset valuations are not expected to differ
materially from the preliminary valuations. In addition, the operations data
include adjustments to operating expenses to reflect anticipated savings that
SFX management believes it will be able to achieve through the implementation
of its operating strategy. However, there can be no assurance that SFX will be
able to achieve such savings.
The SFX Unaudited Pro Forma Condensed Combined Financial Statements and
notes thereto contain forward-looking statements that involve risks and
uncertainties, including those described in "Risk Factors" or elsewhere herein.
Therefore, the actual results of SFX may differ materially from those discussed
herein. See "Risk Factors." SFX undertakes no obligation to publicly release
the result of any revisions to these forward-looking statements that may be
made to reflect any future events or circumstances.
25
<PAGE>
SFX ENTERTAINMENT, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA FOR THE APOLLO ACQUISITION
AND THE NEW SENIOR CREDIT FACILITY
I
---------------------------------------------
APOLLO NEW SENIOR PRO FORMA
SFX ACQUISITION CREDIT FACILITY ADJUSTMENTS
(ACTUAL) A B C
-------------- ------------- ----------------- -------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents .................... $ 99,353 $ 18,030 $ 348,500 $ (13,700)
Other current assets ......................... 169,205 22,349 -- --
Property and equipment, net of accumulated
depreciation of $29,619...................... 352,397 117,604 -- --
Intangible assets, net of accumulated
amortization of $89,571 ..................... 1,221,494 149,931 17,500 13,700
(4,379)
Other assets ................................. 113,150 3,393 --
---------- -------- ---------
Total Assets ................................. $1,955,599 $311,307 $ 361,621 $ --
========== ======== =========== =========
Liabilities and Shareholders' Equity:
Current liabilities .......................... $ 306,538 $ 71,681 $ -- $ --
Deferred income taxes ........................ 39,877 3,571 --
Existing senior credit facility .............. 234,000 -- (234,000) --
New senior credit facility ................... -- 182,500 600,000 --
Senior subordinated notes .................... 550,000 -- -- --
Other long-term debt ......................... 17,609 -- -- --
Capital lease obligations .................... 12,574 -- -- --
Deferred purchase consideration .............. 34,030 -- -- --
Other liabilities ............................ 5,005 5,459 --
Minority interest ............................ 7,812 3,096 -- --
Temporary equity--stock subject to
redemption .................................. 19,920 -- -- --
Shareholders' equity:
Class A common stock ........................ 533 10 -- --
Class B common stock ........................ 26 -- -- --
Additional paid-in capital .................. 826,859 44,990 -- --
Deferred compensation ....................... (4,900) -- -- --
Accumulated deficit ......................... (94,284) -- (4,379) --
---------- -------- ----------- ---------
Total shareholders' equity ................... 728,234 45,000 (4,379) --
---------- -------- ----------- ---------
Total Liabilities & Shareholders' Equity ..... $1,955,599 $311,307 $ 361,621 $ --
========== ======== =========== =========
<CAPTION>
PRO FORMA
PRO FORMA FOR THE APOLLO
FOR THE ACQUISITION, THE
APOLLO ACQUISITION NEW SENIOR
AND THE NEW SENIOR THIS OFFERING CREDIT FACILITY
CREDIT FACILITY (1) II AND THIS OFFERING (1)
--------------------- --------------- ----------------------
<S> <C> <C> <C>
Assets:
Cash and cash equivalents .................... $ 452,183 $330,063 $ 782,246
Other current assets ......................... 191,554 -- 191,554
Property and equipment, net of accumulated
depreciation of $29,619...................... 470,001 -- 470,001
Intangible assets, net of accumulated
amortization of $89,571 ..................... 1,398,246 -- 1,398,246
Other assets ................................. 116,543 -- 116,543
---------- -------- ----------
Total Assets ................................. $2,628,527 $330,063 $2,958,590
========== ======== ==========
Liabilities and Shareholders' Equity:
Current liabilities .......................... $ 378,219 $ -- $ 378,219
Deferred income taxes ........................ 43,448 -- 43,448
Existing senior credit facility .............. -- -- --
New senior credit facility ................... 782,500 -- 782,500
Senior subordinated notes .................... 550,000 -- 550,000
Other long-term debt ......................... 17,609 -- 17,609
Capital lease obligations .................... 12,574 12,574
Deferred purchase consideration .............. 34,030 -- 34,030
Other liabilities ............................ 10,464 -- 10,464
Minority interest ............................ 10,908 -- 10,908
Temporary equity--stock subject to
redemption .................................. 19,920 -- 19,920
Shareholders' equity:
Class A common stock ........................ 543 75 618
Class B common stock ........................ 26 -- 26
Additional paid-in capital .................. 871,849 329,988 1,201,837
Deferred compensation ....................... (4,900) -- (4,900)
Accumulated deficit ......................... (98,663) -- (98,663)
---------- -------- ----------
Total shareholders' equity ................... 768,855 330,063 1,098,918
---------- -------- ----------
Total Liabilities & Shareholders' Equity ..... $2,628,527 $330,063 $2,958,590
========== ======== ==========
</TABLE>
- -------
(1) The Pro Forma financial statements do not include the pending Livent
acquisition. If this transaction were included, we estimate that the
principal effects (excluding the $5.0 million contingent payment payable
under certain circumstances in the Livent acquisition) would be an
increase to fixed assets of $100.7 million, an increase to intangible
assets of $14.5 million, an increase to deferred revenue of $6.0 million a
decrease in cash and cash equivalents of $90.8 million and an increase to
deferred purchase consideration of $18.4 million.
26
<PAGE>
I. PRO FORMA FOR THE APOLLO ACQUISITION AND THE NEW SENIOR CREDIT FACILITY
A. APOLLO
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999 (IN THOUSANDS)*
----------------------------------------------------------
U.K. TO U.S.
AS GAAP
REPORTED ADJUSTMENTS
-------------------------- -------------------------------
<S> <C> <C>
Assets:
Cash and cash equivalents ..... (pounds sterling)10,462 (pounds sterling) --
Other current assets .......... 12,710 50 (d)
Property and equipment,
net .......................... 79,150 (10,267)(a)
(2,075)(a)
129 (b)
Intangible assets, net ........ -- 3,271 (c)
Other assets .................. 2,116
------ -----
Total Assets .................. (pounds sterling)104,438 (pounds sterling) (8,892)
========================= ============================
Liabilities & Stockholders'
Equity:
Current liabilities ........... (pounds sterling)43,840 (pounds sterling)
Deferred taxes ................ 2,227 --
Senior credit facility ........ -- --
Other long-term debt .......... 21,632
Capital lease obligations ..... 4,969
Deferred purchase
consideration ................ --
Other liabilities ............. 3,626 (221)(e)
Minority interest ............. 1,931 --
Temporary equity--stock
subject to redemption ........ -- --
Stockholders' equity .......... 26,213 (10,267)(a)
(2,075)(a)
129 (b)
3,271 (c)
50 (d)
221 (e)
------------------------- -----------------------------
Total liabilities &
stockholder's equity ......... (pounds sterling)104,438 (pounds sterling) (8,892)
========================= ============================
<CAPTION>
AS OF JUNE 30, 1999 (IN THOUSANDS)*
------------------------------------------------------------------------------------------
ADJUSTED
FOR U.K. TO CONVERSION BARRY CLAYMAN PRO FORMA APOLLO
U.S. GAAP TO U.S.$(i) CONCERTS(h) ADJUSTMENTS ACQUISITION
-------------------------- ------------- --------------- -------------------- ------------
<S> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents ..... (pounds sterling)10,462 $ 16,774 $1,974 $ (718)(g) $ 18,030
Other current assets .......... 12,760 20,458 1,173 718 (g) 22,349
Property and equipment,
net .......................... 66,937 107,320 17 10,267 (f) 117,604
Intangible assets, net ........ 3,271 5,244 -- 144,687 (f) 149,931
Other assets .................. 2,116 3,393 -- -- 3,393
------ -------- ------ ------------ --------
Total Assets .................. (pounds sterling)95,546 $153,189 $3,164 $ 154,954 $311,307
========================= ======== ====== ============ ========
Liabilities & Stockholders'
Equity:
Current liabilities ........... (pounds sterling)43,840 $ 70,288 $1,393 $ 71,681
Deferred taxes ................ 2,227 3,571 -- 3,571
Senior credit facility ........ -- -- -- 182,500 (f) 182,500
Other long-term debt .......... 21,632 34,683 -- (34,683)(f) --
Capital lease obligations ..... 4,969 7,967 -- (7,967)(f) --
Deferred purchase
consideration ................ -- -- -- -- --
Other liabilities ............. 3,405 5,459 -- -- 5,459
Minority interest ............. 1,931 3,096 -- -- 3,096
Temporary equity--stock
subject to redemption ........ -- -- -- -- --
Stockholders' equity .......... 17,542 28,125 1,771 15,104 (f) 45,000
Total liabilities &
stockholder's equity ......... (pounds sterling)95,546 $153,189 $3,164 $ 154,954 $311,307
========================= ======== ====== ============ ========
</TABLE>
- ----------
* As of May 15, 1999
PRO FORMA AND U.K. TO U.S. GAAP ADJUSTMENTS:
(a) To reverse the revaluation of property and equipment allowed under
U.K. GAAP but not permitted under U.S. GAAP and to eliminate the
reserve within equity for negative goodwill. Under U.S. GAAP, the
negative goodwill is allocated to the long-term assets obtained at
the time of the acquisition.
(b) To capitalize interest on capital projects which qualify for
capitalization under U.S. GAAP.
(c) To record the net unamortized goodwill set up by Apollo at the time
it made prior acquisitions.
(d) To record Apollo's short-term investments in marketable securities
under U.S. GAAP.
(e) To reverse the write-off goodwill during fiscal 1998 resulting from
an earn-out provision related to an acquisition, as the final amount
of the earn-out will not be estimable until the time of payment.
27
<PAGE>
(f) To reflect the Apollo acquisition purchase price of $182.5 million
in expected utilization under the New Senior Credit Facility ($208.1
million, based on the exchange rate as of August 5, 1999, less an
expected adjustment for working capital of approximately $25.6
million) and the issuance of $45.0 million of SFX Class A common
stock (based on an assumed market price of $46.00 per share),
including the repayment of $34.7 million of Apollo's debt and
$8.0 million of Apollo's capital lease obligations and to reflect
the excess of the purchase price paid over the fair value of
the net tangible assets acquired. The Apollo purchase price is based
on an estimate of applicable purchase price adjustments.
(g) To properly classify Apollo's investments in productions as other
current assets.
(h) Represents the acquisition of 100% of Barry Clayman Concerts, a
promoter of concert and other live entertainment events in the U.K.
(i) Converted from pounds sterling to U.S. dollars utilizing the May 15,
1999 exchange rate.
B. PROPOSED NEW SENIOR CREDIT FACILITY
In July 1999, SFX received a commitment for the New Senior Credit
Facility. The New Senior Credit Facility is expected to provide SFX with total
borrowing capacity of up to $1.1 billion, comprised of a $250.0 million
multi-draw, multi-currency term loan maturing on December 31, 2005, a $600.0
million single-draw, U.S. dollar loan maturing on June 30, 2006, and a $250.0
million multi-currency reducing revolver maturing on December 31, 2005.
Borrowings under the New Senior Credit Facility will be secured by
substantially all the assets of SFX and its domestic subsidiaries (and to the
extent a foreign subsidiary is a borrower, substantially all of the assets of
such foreign subsidiary), including a pledge of the outstanding stock of
substantially all of its subsidiaries and foreign subsidiaries, and will be
guaranteed by substantially all of SFX's domestic subsidiaries and, in the
event a foreign subsidiary is a borrower, SFX. A portion of the consideration
in the Apollo acquisition consists of the expected utilization under the New
Senior Credit Facility in an amount of $182.5 million ($208.1 million less an
expected working capital adjustment of approximately $25.6 million). In
connection with the consummation of the New Senior Credit Facility, SFX expects
to incur debt issuance costs of $17.5 million.
In addition, SFX has $4.4 million in unamortized costs recorded associated
with the existing senior credit facility, which will be written off as an
extraordinary charge in the third quarter of 1999. The write-off is expected to
be $2.7 million (net of taxes of $1.7 million).
C. PRO FORMA ADJUSTMENTS
To reflect costs incurred related to the consent solicitation with respect
to the 9 1/8% senior subordinated notes whereby SFX obtained approval from the
holders to modifications of certain covenants in the indentures governing the
notes. The modifications, among other things, provide SFX with more flexibility
to make investments and acquisitions internationally and permit SFX's foreign
subsidiaries to incur indebtedness, subject to certain limitations. In
connection with the solicitation, SFX paid consenting holders a fee equal to
2.5% of the principal amount of the notes for which consents were received.
II. PRO FORMA FOR THE OFFERING
On July 27, 1999, SFX effected a 3-for-2 split of its outstanding common
stock. The last reported sale price on such date was $49.00 per share. The last
reported sale price of the Class A common stock on August 6, 1999 was $39 13/16
per share. For purposes of the pro forma adjustments, SFX has assumed a per
share stock price of $46.00. The adjustments reflect the estimated gross
proceeds from this offering of $345.0 million (calculated as 7.5 million shares
of SFX's Class A common stock at $46.00 per share), net of anticipated
underwriting discount of $12.9 million and approximately $2.0 million of fees
and expenses related to this offering.
28
<PAGE>
SFX ENTERTAINMENT, INC.
SUMMARY OF DEPRECIATION AND AMORTIZATION EXPENSE
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA AMORTIZATION EXPENSE
---------------------------------
GOODWILL AND OTHER PROPERTY AND YEAR ENDED SIX MONTHS ENDED
INTANGIBLE ASSETS, AMORTIZATION EQUIPMENT, DEPRECIATION DECEMBER 31, JUNE 30,
COMPANY/ACTIVITY GROSS PERIOD GROSS PERIOD 1998 1999
- ------------------- -------------------- -------------- -------------- -------------- -------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Delsener/Slater $ 23,627 15 years $ 28,310 5-20 years 1,575 788
Meadows 3,282 15 years 27,053 5-39 years 219 110
Sunshine 38,019 15 years 30,545 5-40 years 2,535 1,268
Westbury 5,588 15 years 6,662 5-30 years 373 187
BGP 50,593 15 years 47,481 7-30 years 3,373 1,687
PACE and Pavilion 196,437 2-15 years 105,887 7-30 years 13,987 6,994
Contemporary 68,940 15 years 25,632 7-30 years 4,596 2,298
Network 72,870 15 years 4,955 7-20 years 4,858 2,429
Concert/Southern 17,110 15 years 847 7 years 1,141 571
USA Motor Sports 11,261 15 years 2,303 -- 751 376
Avalon 22,745 15 years 4,629 7-30 years 1,517 759
Oakdale 12,574 15 years 1,113 7-30 years 839 420
FAME 126,175 15 years 817 7 years 8,412 4,206
Don Law 65,742 15 years 31,412 7-30 years 4,383 2,192
Magicworks 114,431 15 years 5,802 7 years 7,629 3,815
Other 1998
acquisitions 129,229 10-15 years 1,396 7-30 years 10,634 5,317
Corporate -- 15 years 15,860 7-30 years -- --
Deferred financing
costs 53,736 10 years -- -- -- --
Cellar Door 66,883 15 years 33,614 7-30 years 4,458 2,230
Marquee 132,685 15 years 2,830 7 years 8,846 4,423
Nederlander 59,858 1,640 7-30 years 3,990 1,996
Other 1999
acquisitions 66,101 15 years 3,228 7-30 years 4,409 2,196
Apollo 149,931 15 years 117,604 7-30 years 9,994 4,997
---------- -------- ------ -----
Total $1,487,817 $499,620 $98,519 $49,259
========== ======== ======= =======
<CAPTION>
PRO FORMA
DEPRECIATION AND AMORTIZATION
PRO FORMA DEPRECIATION EXPENSE EXPENSE
--------------------------------- --------------------------------
YEAR ENDED SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30,
COMPANY/ACTIVITY 1998 1999 1998 1999
- ------------------- -------------- ------------------ -------------- -----------------
<S> <C> <C> <C> <C>
Delsener/Slater 1,829 915 3,404 1,703
Meadows 1,212 606 1,431 716
Sunshine 1,507 754 4,042 2,022
Westbury 291 146 664 333
BGP 2,188 1,094 5,561 2,781
PACE and Pavilion 5,315 2,658 19,302 9,652
Contemporary 1,239 620 5,835 2,918
Network 458 229 5,316 2,658
Concert/Southern 116 58 1,257 629
USA Motor Sports 435 218 1,186 594
Avalon 215 108 1,732 867
Oakdale 201 101 1,040 521
FAME 131 66 8,543 4,272
Don Law 2,146 1,073 6,529 3,265
Magicworks 722 361 8,351 4,176
Other 1998
acquisitions 274 139 10,908 5,456
Corporate 2,748 1,383 2,748 1,383
Deferred financing
costs -- -- -- --
Cellar Door 1,511 749 5,969 2,979
Marquee 566 276 9,412 4,699
Nederlander 68 34 4,058 2,030
Other 1999
acquisitions 170 85 4,579 2,281
Apollo 3,920 1,961 13,914 6,958
----- ----- ------ -----
Total $27,262 $13,634 $125,781 $62,893
======= ======= ======== =======
</TABLE>
- -------
29
<PAGE>
SFX ENTERTAINMENT, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999
ACQUISITIONS AND
SFX 1998 PRO FORMA FOR THE FEBRUARY 1999 APOLLO
(ACTUAL) ACQUISITIONS THE 1998 EQUITY OFFERING ACQUISITION
I II ACQUISITIONS III IV
------------ -------------- --------------- ------------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue ............................ $884,286 $ 247,061 $1,131,347 $204,028 $137,657
Equity income from investments ..... 4,630 1,435 6,065 2,634 1,229
-------- --------- ---------- -------- --------
Total revenue ...................... 888,916 248,496 1,137,412 206,662 138,886
Cost of revenue .................... 678,756 179,592 858,348 142,072 78,453
Selling, general and
administrative expenses ........... 111,748 29,194 140,942 32,135 41,323
Depreciation & amortization,
including integration and
start-up costs .................... 62,197 25,652 87,849 24,018 13,914
Corporate expenses, net of
Triathlon fees .................... 11,194 161 11,355 -- --
Non-recurring charges .............. 5,600 -- 5,600 -- --
Noncash compensation and other
non cash charges .................. 34,051 -- 34,051 389 --
-------- --------- ---------- -------- --------
Operating income (loss) ............ (14,630) 13,897 (733) 8,048 5,196
Interest expense ................... (50,759) (21,516) (72,275) (4,107) (13,755)
Other income (expenses) ............ 2,455 (2,310) 145 870 1,457
-------- --------- ---------- -------- --------
Income (loss) before income tax
expense ........................... (62,934) (9,929) (72,863) 4,811 (7,102)
Income tax (expense) benefit ....... (3,000) (280) (3,280) (1,759) (1,077)
-------- --------- ---------- -------- --------
Net income (loss) .................. $(65,934) $ (10,209) $ (76,143) $ 3,052 $(8,179)
========= ========
Accretion on put option ............ (2,750) (3,300) (315)
-------- ---------- --------
Net loss applicable to common
shares ............................ $(68,684) $ (79,443) $ 2,737
======== ========== ========
Net loss per common share .......... $ (1.83) $ (1.77)
======== ==========
Weighted average common
shares outstanding (1) (2) ........ 37,467 45,465
======== ==========
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA FOR
PRO FORMA FOR THE 1998
THE 1998 ACQUISITIONS,
ACQUISITIONS, THE 1999
THE 1999 ACQUISITIONS,
ACQUISITIONS, THE FEBRUARY 1999
THE FEBRUARY 1999 EQUITY OFFERING,
EQUITY OFFERING, THE APOLLO
THE APOLLO ACQUISITION,
ACQUISITION THE NEW
NEW SENIOR AND THE SENIOR CREDIT
CREDIT FACILITY NEW SENIOR FACILITY AND
V CREDIT FACILITY THIS OFFERING THIS OFFERING
-------------------- ------------------- --------------- ------------------
<S> <C> <C> <C> <C>
Revenue ............................ $ -- $1,473,032 $ -- $1,473,032
Equity income from investments ..... 9,928 -- 9,928
---------- ---------- ----------
Total revenue ...................... -- 1,482,960 1,482,960
Cost of revenue .................... -- 1,078,873 -- 1,078,873
Selling, general and
administrative expenses ........... -- 214,400 -- 214,400
Depreciation & amortization,
including integration and
start-up costs .................... -- 125,781 -- 125,781
Corporate expenses, net of
Triathlon fees .................... -- 11,355 -- 11,355
Non-recurring charges .............. -- 5,600 -- 5,600
Noncash compensation and other
non cash charges .................. -- 34,440 -- 34,440
------------ ---------- ---------- ----------
Operating income (loss) ............ 12,511 -- 12,511
Interest expense ................... (39,132) (a) (129,269) (129,269)
Other income (expenses) ............ 2,472 -- 2,472
---------- ---------- ----------
Income (loss) before income tax
expense ........................... (39,132) (114,286) -- (114,286)
Income tax (expense) benefit ....... -- (6,116) -- (6,116)
------------ ---------- ---------- ----------
Net income (loss) .................. $ (39,132) $ (120,402) $ -- $ (120,402)
============ ==========
Accretion on put option ............ (3,615) (3,615)
---------- ----------
Net loss applicable to common
shares ............................ $ (124,017) (124,017)
========== ==========
Net loss per common share .......... $ (2.21) $ (1.95)
========== ==========
Weighted average common
shares outstanding (1) (2) ........ 56,825 64,325
========== ==========
</TABLE>
See footnotes on following pages.
30
<PAGE>
- ----------
(1) Includes 750,000 shares of SFX Class A common stock issued to the PACE
sellers in connection with the fifth year put option and 69,978 shares of
SFX Class A common stock related to the ProServ put options issued by
Marquee. Such shares are not included in calculating the net loss per
common share.
(2) Reconciliation of historical weighted average shares outstanding to
proforma weighted average shares (in thousands):
<TABLE>
<CAPTION>
CLASS A & B
DATE SHARES WEIGHTED AVERAGE
ISSUANCE OF COMMON SHARES ISSUED OUTSTANDING SHARES
- ------------------------------------------------------------------------------ ---------- ------------- -----------------
<S> <C> <C> <C>
Class A common shares outstanding ............................................ 1/1/98 20,369 20,369
Class B common shares outstanding ............................................ 1/1/98 1,570 1,570
Class A common shares issued for Westbury, PACE, BGP, Contemporary,
and Network acquisitions .................................................... 4/27/98 6,226 4,247
Class A common shares issued to employees in connection with the Spin-Off..... 4/27/98 2,300 1,569
Class B common shares issued to employees in connection with the Spin-Off..... 4/27/98 975 665
Class A common shares issued in the 1998 equity offering ..................... 5/5/98 12,075 7,973
Class A common shares issued in the FAME acquisition ......................... 6/4/98 1,500 867
Class A common shares issued for the 1998 Other Acquisitions ................. 7/10/98 450 207
------ ------
Subtotal ..................................................................... 45,465 37,467
======
Class A common shares issued in the Cellar Door acquisition .................. 2/19/99 519
Class A common shares issued in the Marquee acquisition ...................... 3/16/99 2,103
Class A common shares issued in the Other 1999 Acquisitions .................. 2/99 143
Class A common shares issued in the February 1999 equity offering ............ 2/11/99 7,424
Class A common shares issued in connection with the SFX stock option plan..... 6/15/99 31
Class A common shares issued as deferred purchase consideration .............. 3/31/99 160
Class A common shares expected to be issued in the Apollo acquisition ........ 980
------
Subtotal ..................................................................... 56,825
Class A common shares expected to be issued in this offering ................. 7,500
------
Pro forma as Adjusted weighted average common shares outstanding ............. 64,325
======
</TABLE>
NOTES TO PRO FORMA STATEMENTS:
I. Represents SFX's actual operating results for the year ended December 31,
1998.
EBITDA for the year ended December 31, 1998, was $47.6 million and $138.3
million for SFX on an actual basis and a pro forma basis, respectively.
EBITDA is defined as earnings before interest, taxes, other income and
depreciation and amortization. Although EBITDA is not a measure of
performance calculated in accordance with GAAP, we believe that the
entertainment industry accepts EBITDA as a generally recognized measure of
performance and that analysts who report publicly on the performance of
entertainment companies use EBITDA. Nevertheless, you should not consider
this measure in isolation or as a substitute for operating income, net
income, net cash provided by operating activities or any other measure for
determining SFX's operating performance or liquidity that is calculated in
accordance with GAAP. EBITDA, as we calculate it, may not be comparable to
calculations of similarly titled measures presented by other companies.
Cash flows from operating, investing and financing activities for SFX for
the year ended December 31, 1998, were $27.4 million, ($891.9) million and
$906.5 million, respectively.
We believe there are other adjustments that could affect our operating
performance that are not reflected herein. If we had made such adjustments,
Adjusted EBITDA on a pro forma basis would have been approximately $191.1
million for the year ended December 31, 1998. The adjustments include the
elimination of non-cash compensation and other non-cash charges of $34.4
million, the expected cost savings in connection with the 1998 and 1999
acquisitions associated with the elimination of duplicative staffing and
general and administrative expenses of $8.8 million, net of additional
corporate overhead, personnel and administrative expenses of $500,000
resulting from the 1998 and 1999 acquisitions, a non-recurring charge of
$5.6 million related to certain fees paid to Livent for the Ragtime and
Showboat touring productions and certain related deferred expenses which,
as a result of the Livent bankruptcy, will not be recovered and a one-time
charge of $4.0 million related to the write-off of Apollo's historical
costs related to the Dr. Dolittle production. While management believes
that such cost savings are achievable, SFX's ability to fully achieve such
cost savings is subject to numerous factors, certain of which may be beyond
SFX's control.
31
<PAGE>
II. 1998 ACQUISITIONS
SFX acquired PACE, including USA Motor Sports, and Pavilion, Contemporary,
BGP, Network and Concert/Southern on February 25, 1998, February 27, 1998,
February 24, 1998, February 27, 1998, and March 4, 1998, respectively. In May
1998, SFX acquired Avalon. In June 1998, SFX acquired FAME and Oakdale. In July
1998, SFX acquired Don Law, and in September 1998, SFX acquired Magicworks. In
addition, in the third quarter of 1998 SFX acquired seven other companies
herein defined as the Other Acquisitions. The following represents the
historical operating results of these companies prior to their acquisition by
SFX.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
-------------------------------------------------------------------------------------
PACE & CONCERT/
PAVILION CONTEMPORARY BGP NETWORK SOUTHERN FAME
ACQUISITIONS ACQUISITION ACQUISITION ACQUISITION ACQUISITION ACQUISITION
-------------- -------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue ..................... $ 84,199 $7,882 $16,075 $4,154 $ 524 $2,144
Equity income (loss) from
investments ................ (151) -- -- -- (20) --
-------- ------ ------- ------ ------ ------
Total revenue ............... 84,048 7,882 16,075 4,154 504 2,144
Cost of revenue ............. 65,737 6,711 13,509 1,047 276 1,742
Selling, general &
administrative expenses 17,906 1,544 2,652 2,902 362 295
Depreciation &
amortization ............... 1,049 254 213 51 9 27
Corporate expenses .......... -- -- -- -- -- --
-------- ------ ------- ------ ------ ------
Operating income (loss) ..... (644) (627) (299) 154 (143) 80
Interest (expense) .......... (1,148) -- (165) (37) -- (42)
Other income (expenses)...... (19) 122 (67) 14 -- 26
Income (loss) before
income tax expense ......... (1,811) (505) (531) 131 (143) 64
Income tax expense
(benefit) .................. 475 -- -- (3) -- --
-------- ------ ------- -------- ------ ------
Net income (loss) ........... $ (1,336) $ (505) $ (531) $ 128 $ (143) $ 64
======== ====== ======= ======= ====== ======
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
------------------------------------------------------------------------------------------
OTHER PRO FORMA
AVALON OAKDALE DON LAW MAGICWORKS 1998 ADJUSTMENTS
ACQUISITION ACQUISITION ACQUISITION ACQUISITION ACQUISITIONS A
------------- ------------- ------------- ------------- -------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue ..................... $ 2,270 $5,982 $20,566 $54,547 $48,718 $ --
Equity income (loss) from
investments ................ 370 -- -- 2 958 276 (f)
-------- ------ ------- ------- ------- -----------
Total revenue ............... 2,640 5,982 20,566 54,549 49,676 276
Cost of revenue ............. 2,467 3,427 14,598 46,294 23,784 --
Selling, general &
administrative expenses 1,338 1,535 2,262 5,564 6,512 (13,941)(a)
263 (b)
Depreciation &
amortization ............... 220 28 2,661 -- 191 20,949 (c)
Corporate expenses .......... -- -- -- -- -- 161 (d)
-------- ------ ------- ------- ------- -----------
Operating income (loss) ..... (1,385) 992 1,045 2,691 19,189 (7,156)
Interest (expense) .......... -- -- -- -- (404) (19,720)(e)
Other income (expenses)...... -- -- (9) -- 272 (2,373)(g)
(276)(f)
-----------
Income (loss) before
income tax expense ......... (1,385) 992 1,036 2,691 19,057 (29,525)
Income tax expense
(benefit) .................. -- -- -- (950) -- 198 (h)
-------- ------ -------- ------- ------- -----------
Net income (loss) ........... $ (1,385) $ 992 $1,036 $ 1,741 $19,057 $ (29,327)
======== ====== ======== ======= ======= ===========
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
(IN THOUSANDS)
--------------
PRO FORMA
FOR THE
1998
ACQUISITIONS
-------------
<S> <C>
Revenue ..................... $ 247,061
Equity income (loss) from
investments ................ 1,435
---------
Total revenue ............... 248,496
Cost of revenue ............. 179,592
Selling, general &
administrative expenses 29,194
Depreciation &
amortization ............... 25,652
Corporate expenses .......... 161
---------
Operating income (loss) ..... 13,897
Interest (expense) .......... (21,516)
Other income (expenses)...... (2,310)
Income (loss) before
income tax expense ......... (9,929)
Income tax expense
(benefit) .................. (280)
---------
Net income (loss) ........... $ (10,209)
=========
</TABLE>
32
<PAGE>
- ----------
A. PRO FORMA ADJUSTMENTS:
(a) To reflect the elimination of $11.5 million of PACE's non-cash stock
and other non-recurring compensation, as well as $1.2 million and
$1.3 million of Network's and FAME's excess compensation,
respectively.
(b) Reflects salaries and officers' life insurance premiums to be paid
by SFX.
(c) Reflects the increase of $20.9 million in depreciation and
amortization resulting from the preliminary purchase accounting
treatment of the 1998 Acquisitions. SFX amortizes goodwill and other
intangibles over periods ranging for up to 15 years.
(d) To record incremental corporate overhead, personnel and
administrative expenses that management estimates will be necessary
as a result of SFX's acquisitions.
(e) Reflects the incremental interest expense associated with additional
borrowing related to the 1998 acquisitions.
(f) Reflects the elimination of PACE's equity income in certain
Magicworks tours.
(g) Reflects the elimination of interest income earned from investing
borrowings used to fund acquisitions.
(h) Represents an adjustment to the provision for state and local income
taxes and a Federal tax benefit for interest expense at Magicworks.
The calculation treats all companies to be acquired as "C"
Corporations and reflects the impact of non-deductible goodwill.
III. PRO FORMA FOR THE 1999 ACQUISITIONS AND THE FEBRUARY 1999 EQUITY OFFERING
<TABLE>
<CAPTION>
MARQUEE
CELLAR DOOR MERGER NEDERLANDER
A B C
(IN THOUSANDS) ------------- ----------- -------------
<S> <C> <C> <C>
Revenue ................................... $85,671 $ 67,807 $26,028
Equity income (loss) from investments ..... 988 -- 2,634
------- -------- -------
Total revenue ............................. 86,659 67,807 28,662
Cost of revenue ........................... 68,318 42,120 22,590
Selling, general & administrative ......... 9,292 15,417 216
Depreciation & amortization ............... 5,969 9,412 4,058
Corporate expenses ........................ -- -- --
Non recurring charges ..................... -- -- --
Non cash charges .......................... -- 389 --
------- -------- -------
Operating income (loss) ................... 3,080 469 1,798
Interest (expense) ........................ -- -- --
Other income (expenses) ................... 60 (231) --
------- -------- -------
Income (loss) before income tax
expense .................................. 3,140 238 1,798
Income tax expense ........................ -- (1,359) --
------- -------- -------
Net income (loss) ......................... $ 3,140 $ (1,121) $ 1,798
======= =======
Accretion on put option ................... (315)
--------
Net income (loss) applicable to common
shares ................................... $ (1,436)
========
<CAPTION>
PRO FORMA
FOR THE
1999
1999 PRO FORMA ACQUISITIONS AND
OTHER ADJUSTMENTS THE FEBRUARY
D E 1999 EQUITY OFFERING
(IN THOUSANDS) ---------- ------------------- ---------------------
<S> <C> <C> <C>
Revenue ................................... $24,522 $204,028
Equity income (loss) from investments ..... -- $ (988)(b) 2,634
------- ----------- --------
Total revenue ............................. 24,522 (988) 206,662
Cost of revenue ........................... 9,044 -- 142,072
Selling, general & administrative ......... 7,210 -- 32,135
Depreciation & amortization ............... 4,579 -- 24,018
Corporate expenses ........................ -- -- --
Non recurring charges ..................... -- -- --
Non cash charges .......................... -- -- 389
------- ----------- --------
Operating income (loss) ................... 3,689 (988) 8,048
Interest (expense) ........................ -- (4,107)(a) (4,107)
Other income (expenses) ................... 53 988 (b) 870
------- ----------- --------
Income (loss) before income tax
expense .................................. 3,742 (4,107) 4,811
Income tax expense ........................ -- (400) (c) (1,759)
------- ----------- --------
Net income (loss) ......................... $ 3,742 $ (4,507) $ 3,052
======= ===========
Accretion on put option ................... (315)
--------
Net income (loss) applicable to common
shares ................................... $ 2,737
========
</TABLE>
33
<PAGE>
A. CELLAR DOOR
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS)
-------------------------------------------------
PRO FORMA CELLAR DOOR
AS REPORTED ADJUSTMENTS ACQUISITION
------------- ------------------ ------------
<S> <C> <C> <C>
Revenue ............................................ $ 86,829 $ (1,158)(a) $85,671
Equity income (loss) from investments .............. 988 -- 988
-------- ---------- -------
Total revenue ...................................... 87,817 (1,158) 86,659
Cost of revenue .................................... 69,657 (1,339)(a) 68,318
Selling, general & administrative expenses ......... 14,514 (84)(a) 9,292
(5,138) (b)
Depreciation & amortization ........................ 2,200 3,769 (c) 5,969
-------- ---------- -------
Operating income ................................... 1,446 1,634 3,080
Interest (expense) ................................. (2,028) 2,028 (d) --
Other income ....................................... 60 -- 60
-------- ---------- -------
Income (loss) before income tax expense ............ (522) 3,662 3,140
Income tax expense ................................. -- -- --
-------- ---------- -------
Net income (loss) .................................. $ (522) $ 3,662 $ 3,140
======== ========== =======
</TABLE>
- ----------
PRO FORMA ADJUSTMENTS:
(a) Reflects the elimination of a Cellar Door entity that was
discontinued.
(b) Reflects the elimination of certain officers' salaries, bonuses and
other management fees which will not be paid under SFX's new
employment and other contracts.
(c) Reflects the increase of $3.8 million in depreciation and
amortization resulting from the preliminary purchase accounting
treatment of Cellar Door. SFX amortizes goodwill over 15 years.
(d) Reflects the elimination of $2.0 million of historical interest
expense related to debt which was not assumed by SFX.
B. MARQUEE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS)
---------------------------------------------------------------------
MARQUEE
1998 PRO FORMA MARQUEE
AS REPORTED ACQUISITIONS (1) ADJUSTMENT ACQUISITION
------------- ------------------ ----------------- ------------
<S> <C> <C> <C> <C>
Revenue ............................................... $ 54,429 $13,378 $ -- $ 67,807
Equity income (loss) from investments ................. -- -- -- --
-------- ------- --------- --------
Total revenue ......................................... 54,429 13,378 -- 67,807
Cost of revenue ....................................... 35,069 8,544 (1,493)(a) 42,120
Selling, general & administrative ..................... 13,006 2,826 (415)(b) 15,417
Depreciation & amortization ........................... 2,759 66 6,587 (c) 9,412
Corporate expenses .................................... -- -- -- --
Non cash charges ...................................... 389 -- -- 389
-------- ------- --------- --------
Operating income (loss) ............................... 3,206 1,942 (4,679) 469
Interest (expense) income ............................. (1,194) 17 1,177 (d) --
Other expenses ........................................ (231) -- -- (231)
-------- ------- --------- --------
Income (loss) before income tax expense ............... 1,781 1,959 (3,502) 238
Income tax expense .................................... (900) (161) (298)(e) (1,359)
-------- ------- --------- --------
Net income (loss) ..................................... $ 881 $ 1,798 $ (3,800) $ (1,121)
Accretion on put option ............................... (315) -- -- (315)
-------- ------- --------- --------
Net income (loss) applicable to common shares ......... $ 566 $ 1,798 $ (3,800) $ (1,436)
======== ======= ========= ========
</TABLE>
34
<PAGE>
PRO FORMA ADJUSTMENTS
(1) Marquee acquired Alphabet City, Cambridge, PAL, Tollin/Robbins, and Tony
Stephens during 1998 and included the results of their operations only
from their respective acquisition dates in its consolidated results of
operations for the year ended December 31, 1998. Therefore, for pro forma
purposes, the results of operations of Marquee's 1998 acquisitions for
the period prior to their acquisition dates are presented separately and
are as follows (in thousands):
<TABLE>
<CAPTION>
COMBINED
MARQUEE
ALPHABET TOLLIN/ TONY 1998
CITY CAMBRIDGE PAL ROBBINS STEPHENS ACQUISITIONS
---------- ----------- --------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues .................................. $1,476 $ 691 $2,576 $5,509 $3,126 $13,378
Equity income (loss) from investments ..... -- -- -- -- -- --
------ ----- ------ ------ ------ -------
Total revenue ............................. 1,476 691 2,576 5,509 3,126 13,378
Cost of revenue ........................... 1,186 303 1,966 2,424 2,665 8,544
Selling, general and administrative
expenses ................................. 346 156 906 1,259 159 2,826
Depreciation and amortization ............. 4 2 -- 50 10 66
------ ----- ------ ------ ------ -------
Operating income (loss) ................... (60) 230 (296) 1,776 292 1,942
Interest (expense) income ................. -- 1 8 -- 8 17
------ ----- ------ ------ ------ -------
Other (income) expense ....................
Income/(loss) before income taxes
expense .................................. (60) 231 (288) 1,776 300 1,959
Income taxes (expense) benefit ............ (20) (85) 30 (86) (161)
------ ----- ------ ------ -------
Net income (loss) ......................... $ (80) $ 146 $ (258) $1,776 $ 214 $ 1,798
====== ===== ====== ====== ====== =======
</TABLE>
(a) To adjust expenses to reflect compensation agreements entered into
in connection with Marquee's 1998 acquisitions.
(b) To reduce expenses for loss on transfer of property to former owners
of PAL and other nonrecurring costs.
(c) Reflects the increase of $6.6 million in depreciation and
amortization resulting from the preliminary purchase accounting
treatment of Marquee. SFX amortizes goodwill over 15 years.
(d) Reflects the elimination of $1.2 million of historical interest
expense for debt that was refinanced by SFX.
(e) To record the impact on income taxes of Marquee's 1998 acquisitions.
C. NEDERLANDER
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS)
--------------------------------------------
PRO FORMA NEDERLANDER
AS REPORTED ADJUSTMENTS ACQUISITION
------------- --------------- ------------
<S> <C> <C> <C>
Revenue ........................................ $26,028 $ -- $26,028
Equity income from investments ................. 2,634 -- 2,634
------- -------- -------
Total revenue .................................. 28,662 -- 28,662
Cost of revenue ................................ 23,566 (976)(a) 22,590
Selling, general & administrative expenses ..... 216 -- 216
Depreciation & amortization .................... 155 3,903 (b) 4,058
Corporate expenses ............................. -- -- --
Non cash charges ............................... -- -- --
------- -------- -------
Operating income (loss) ........................ 4,725 (2,927) 1,798
Interest (expense) income ...................... (113) 113 (c) --
Other income (expenses) ........................ -- -- --
------- -------- -------
Income (loss) before income tax expense ........ 4,612 (2,814) 1,798
Income tax expense ............................. -- -- --
------- -------- -------
Net income (loss) .............................. $ 4,612 $ (2,814) $ 1,798
======= ======== =======
</TABLE>
35
<PAGE>
- ----------
PRO FORMA ADJUSTMENTS:
(a) Reflects the elimination of management fees, booking fees and other
expenses which will not be paid under SFX's contracts.
(b) Reflects the increase of $3.9 million in depreciation and
amortization resulting from the preliminary purchase accounting
treatment of Nederlander. SFX amortizes goodwill over 15 years.
(c) Reflects the elimination of $113,000 of historical interest expense
related to debt which was not assumed by SFX.
D. OTHER 1999 ACQUISITIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS)
-----------------------------------------------
PRO FORMA
PRO FORMA OTHER 1999
AS REPORTED ADJUSTMENTS ACQUISITIONS
------------- --------------- -------------
<S> <C> <C> <C>
Revenue ............................................ $24,522 $ -- $24,522
Equity income (loss) from investments .............. -- -- --
------- -------- -------
Total revenue ...................................... 24,522 -- 24,522
Cost of revenue .................................... 9,044 -- 9,044
Selling, general & administrative expenses ......... 7,645 (435)(a) 7,210
Depreciation & amortization ........................ 264 4,315 (b) 4,579
Corporate expenses ................................. -- -- --
Non cash charges ................................... -- -- --
------- -------- -------
Operating income (loss) ............................ 7,569 (3,880) 3,689
Interest (expense) income .......................... (11) 11 (c) --
Other income (expenses) ............................ 53 -- 53
------- -------- -------
Income/(loss) before income tax expense ............ 7,611 (3,869) 3,742
Income tax expense (benefit) ....................... -- --
------- -------
Net income (loss) .................................. $ 7,611 $ (3,869) $ 3,742
======= ======== =======
</TABLE>
PRO FORMA ADJUSTMENTS:
(a) Reflects the elimination of legal fees and bonuses incurred as a
result of sale of a business to a third party.
(b) Reflects the increase of $4.3 million in depreciation and
amortization resulting from the preliminary purchase accounting
treatment of the other acquisition.
(c) Reflects the elimination of $11,000 of historical interest expense
related to debt which was not assumed by SFX.
E. PRO FORMA ADJUSTMENTS
(a) Reflects the incremental interest expenses incurred in connection
with the 1999 acquisitions and the February 1999 equity offering.
(b) To reflect the elimination of Cellar Door's equity income in certain
PACE businesses.
(c) Reflects an increase of $400,000 for state and local taxes related
to the Cellar Door and Nederlander acquisitions.
36
<PAGE>
IV. APOLLO ACQUISITION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS)
------------------------------------------------------
U.K. TO
U.S. GAAP
AS REPORTED ADJUSTMENTS
--------------------------- --------------------------
<S> <C> <C>
Revenue ......................... (pounds sterling)79,343 (pounds sterling) --
Equity income from
investments .................... -- 742 (h)
------ ----
Total revenue ................... 79,343 742
Cost of revenue ................. 46,059 --
Selling, general and
administrative expenses 24,682 --
Depreciation and
amortization ................... 4,525 (251)(a)
250 (b)
Corporate expenses .............. -- --
Non-recurring charges ........... -- --
Non-cash compensation
and other non-cash
charges ........................ -- --
------ ----
Operating income (loss) ......... 4,077 743
Interest (expense) .............. (2,368) --
Equity income from
investments .................... 742 (742)(h)
Other income (expenses) ......... 1,697 (248)(h)
65 (c)
----
Income (loss) before
income tax expenses ............ 4,148 (182)
Income tax expenses ............. (1,936) --
Minority interest ............... (248) 248 (h)
------ ----
Net income (loss) ............... (pounds sterling) 1,964 (pounds sterling)66
========================= ==========================
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS)
-----------------------------------------------------------------------------------------
ADJUSTED
FOR
U.K. TO CONVERSION TO BARRY CLAYMAN PRO FORMA APOLLO
U.S. GAAP U.S.$(i) CONCERTS(j) ADJUSTMENTS ACQUISITION
-------------------------- --------------- --------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Revenue ......................... (pounds sterling)79,343 $131,432 $5,109 $ 1,116(d) $ 137,657
Equity income from
investments .................... 742 1,229 -- -- 1,229
------ -------- ------ ---------- ---------
Total revenue ................... 80,085 132,661 5,109 $ 1,116 138,886
Cost of revenue ................. 46,059 76,297 2,156 -- 78,453
Selling, general and
administrative expenses 24,682 40,883 1,228 (788)(f) 41,323
Depreciation and
amortization ................... 4,524 7,496 -- 6,418 (e) 13,914
Corporate expenses .............. -- -- -- -- --
Non-recurring charges ........... -- -- -- -- --
Non-cash compensation
and other non-cash
charges ........................ -- -- -- -- --
------ -------- ------ ---------- ---------
Operating income (loss) ......... 4,820 7,985 1,725 (4,514) 5,196
Interest (expense) .............. (2,368) (3,923) (1) (9,831)(g) (13,755)
Equity income from
investments .................... -- -- -- -- --
Other income (expenses) ......... 1,514 2,508 65 (1,116)(d) 1,457
Income (loss) before
income tax expenses ............ 3,966 6,570 1,789 (15,461) (7,102)
Income tax expenses ............. (1,936) (3,207) (583) 2,713 (k) (1,077)
Minority interest ............... -- -- -- -- --
------ -------- ------- ---------- ---------
Net income (loss) ............... (pounds sterling) 2,030 $ 3,363 $1,206 $ (12,748) $ (8,179)
======================== ======== ======= ========== =========
</TABLE>
Apollo's statement of operations covers the twelve months ended November 30,
1998. Barry Clayman Concerts' statement of operations covers the period from
May 27, 1998 (Inception) to February 28, 1999.
- ----------
PRO FORMA AND U.K. TO U.S. GAAP ADJUSTMENTS
(a) To reverse excess depreciation taken as a result of Apollo's
revaluation of property not permitted by U.S. GAAP.
(b) To record goodwill amortization for fiscal 1998 in accordance with
U.S. GAAP.
(c) To record Apollo's short-term investments in marketable securities
under U.S. GAAP.
(d) To reclassify rental income from other income into consolidated
revenues .
(e) To reflect the increase in depreciation and amortization resulting
from the preliminary purchase accounting treatment of Apollo.
(f) Reflects the elimination of certain officers' salaries and bonuses
which will not be paid under SFX's new employment contracts.
(g) To record the incremental interest expense associated with the
Apollo acquisition.
(h) To reclassify minority interest into other income (expenses) and
equity income from investments into consolidated revenue.
(i) Converted from pounds sterling to U.S. dollars utilizing the monthly
average exchange rate for the twelve month period ended November 30,
1998.
(j) Represents the acquisition of 100% of Barry Clayman Concerts, a
promoter of concerts and other live entertainment events throughout
the U.K.
(k) Represents U.K. tax effect of the pro-forma adjustments with the
exception of additional amortization for goodwill.
V. PROPOSED NEW SENIOR CREDIT FACILITY
(a) To reflect the incremental interest expense incurred in connection
with the New Senior Credit Facility.
37
<PAGE>
SFX ENTERTAINMENT, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 PRO FORMA FOR
ACQUISITIONS THE 1999
AND THE ACQUISITIONS
FEBRUARY 1999 AND THE
SFX EQUITY FEBRUARY 1999 APOLLO
(ACTUAL) OFFERING EQUITY ACQUISITION
I II OFFERING III
------------ --------------- --------------- -------------
<S> <C> <C> <C> <C>
Revenue ........................... 679,900 $ 13,619 $ 693,519 $ 65,385
Equity income (loss) from
investments ...................... 3,906 49 3,955 488
------- -------- --------- --------
Total revenue ..................... 683,806 13,668 697,474 65,873
Cost of revenue ................... 509,158 9,935 519,093 27,569
Selling, general and
administrative expenses .......... 91,916 4,419 96,335 26,293
Depreciation & amortization,
including integration and
start-up costs ................... 59,156 (3,221) 55,935 6,958
Corporate expenses, net of
Triathlon fees ................... 9,772 -- 9,772 --
Non-recurring charges ............. -- -- -- --
Noncash compensation and other
non cash charges ................. 2,147 -- 2,147 --
------- -------- --------- --------
Operating income (loss) ........... 11,657 2,535 14,192 5,053
Interest (expense) ................ (38,809) 617 (38,192) (6,878)
Other income (loss) ............... 1,094 -- 1,094 (453)
------- -------- --------- --------
Income (loss) before income tax
expense .......................... (26,058) 3,152 (22,906) (2,278)
Income tax (expense) benefit ...... (1,619) (59) (1,678) (1,033)
------- -------- --------- --------
Net income (loss) ................. $ (27,677) 3,093 $ (24,584) $ (3,311)
========
Accretion on put option ........... (1,737) (87) (1,824)
--------- -------- ---------
Net loss applicable to common
shares ........................... $ (29,414) $ 3,006 $ (26,408)
========= ======== =========
Net loss per common share ......... $ 0.55 $ (0.48)
========= =========
Weighted average common
shares outstanding (1) (2) ....... 53,121 55,845
========= =========
<CAPTION>
PRO FORMA PRO FORMA FOR
FOR THE THE 1999
1999 ACQUISITIONS,
ACQUISITIONS, THE FEBRUARY
THE FEBRUARY 1999 1999 EQUITY
EQUITY OFFERING,
OFFERING, THE APOLLO
THE APOLLO ACQUISITION,
NEW SENIOR ACQUISITION THE NEW SENIOR
CREDIT AND THE THIS CREDIT FACILITY
FACILITY NEW SENIOR OFFERING AND THIS
IV CREDIT FACILITY V OFFERING
------------------ ------------------- ---------- ----------------
<S> <C> <C> <C> <C>
Revenue ........................... $ -- $ 758,904 $-- $ 758,904
Equity income (loss) from
investments ...................... -- 4,443 -- 4,443
----------- --------- --- ---------
Total revenue ..................... 763,347 763,347
Cost of revenue ................... -- 546,662 -- 546,662
Selling, general and
administrative expenses .......... -- 122,628 -- 122,628
Depreciation & amortization,
including integration and
start-up costs ................... -- 62,893 -- 62,893
Corporate expenses, net of
Triathlon fees ................... -- 9,772 -- 9,772
Non-recurring charges ............. -- -- -- --
Noncash compensation and other
non cash charges ................. -- 2,147 -- 2,147
----------- --------- --- ---------
Operating income (loss) ........... 19,245 -- 19,245
Interest (expense) ................ (19,566)(a) (64,636) (64,636)
Other income (loss) ............... -- 641 -- 641
----------- --------- --- ---------
Income (loss) before income tax
expense .......................... (19,566) (44,750) -- (44,750)
Income tax (expense) benefit ...... 4,534 (b) 1,823 1,823
----------- --------- ---------
Net income (loss) ................. $ (15,032) $ (42,927) $-- $ (42,927)
=========== ===
Accretion on put option ........... (1,824) (1,824)
--------- ---------
Net loss applicable to common
shares ........................... $ (44,751) $ (44,751)
========= =========
Net loss per common share ......... $ (0.80) $ (0.70)
========= =========
Weighted average common
shares outstanding (1) (2) ....... 56,825 64,325
========= =========
</TABLE>
See footnotes on following page.
38
<PAGE>
- ----------
(1) Includes 750,000 shares of SFX Class A common stock issued to the PACE
sellers in connection with the fifth year put option and 69,978 shares of
SFX Class A common stock related to the ProServ put options issued by
Marquee. Such shares are not included in calculating the net loss per
common share.
(2) Reconciliation of historical weighted average shares outstanding to
proforma weighted average shares (in thousands):
<TABLE>
<CAPTION>
CLASS A & B
DATE SHARES WEIGHTED AVERAGE
ISSUANCE OF COMMON SHARES ISSUED OUTSTANDING SHARES
- --------------------------------------------------------------------------- ---------- ------------- -----------------
<S> <C> <C> <C>
Class A common shares outstanding ......................................... 1/1/99 42,920 42,920
Class B common shares outstanding ......................................... 1/1/99 2,545 2,545
Class A common shares issued in the Cellar Door acquisition ............... 2/19/99 519 378
Class A common shares issued in the Marquee acquisition ................... 3/16/99 2,103 1,215
Class A common shares issued in the Other 1999 Acquisitions ............... 2/99 143 123
Class A common shares issued in the February 1999 equity offering ......... 2/11/99 7,424 5,859
Class A common shares issued as deferred purchase consideration ........... 3/31/99 160 80
Class A common shares issued in connection with the SFX option plan ....... 6/15/99 31 1
------ ------
Subtotal .................................................................. 55,845 53,121
======
Class A common shares expected to be issued in the Apollo acquisition ..... 980
------
Subtotal .................................................................. 56,825
Class A common shares expected to be issued in this offering .............. 7,500
------
Pro forma as adjusted weighted average common shares outstanding .......... 64,325
======
</TABLE>
NOTES TO PRO FORMA STATEMENTS:
I. Represents SFX's actual operating results for the six months ended June 30,
1999.
EBITDA for the six months ended June 30, 1999, was $70.8 million and $82.1
million for SFX on an actual basis and a pro forma basis, respectively.
EBITDA is defined as earnings before interest, taxes, other income and
depreciation and amortization. Although EBITDA is not a measure of
performance calculated in accordance with GAAP, we believe that the
entertainment industry accepts EBITDA as a generally recognized measure of
performance and that analysts who report publicly on the performance of
entertainment companies use EBITDA. Nevertheless, you should not consider
this measure in isolation or as a substitute for operating income, net
income, net cash provided by operating activities or any other measure for
determining SFX's operating performance or liquidity that is calculated in
accordance with GAAP. EBITDA, as we calculate it, may not be comparable to
calculations of similarly titled measures presented by other companies.
Cash flows from operating, investing and financing activities for SFX for
the six months ended June 30, 1999, were $94.4 million, ($335.5) million
and $292.5 million, respectively.
We believe there are other adjustments that could affect our operating
performance that are not reflected herein. If we had made such adjustments,
Adjusted EBITDA on a pro forma basis would have been approximately $85.7
million for the six months ended June 30, 1999. The adjustments include the
elimination of non-cash compensation and other non-cash charges of $2.1
million, and the expected cost savings in connection with the 1998 and 1999
Acquisitions associated with the elimination of duplicative staffing and
general and administrative expenses of $1.4 million. While management
believes that such cost saving are achievable, SFX's ability to fully
achieve such cost savings is subject to numerous factors, certain of which
may be beyond SFX's control.
39
<PAGE>
II. 1999 ACQUISITIONS
SFX acquired ISI, Nederlander and Marquee on February 18, 1999, March 16,
1999 and March 16, 1999, respectively. The following represents the historical
operating results of these companies prior to their acquisition by SFX.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999 (IN THOUSANDS)
-------------------------------------------------------------------------
PRO FORMA
PRO FORMA FOR THE
ISI NEDERLANDER MARQUEE ADJUSTMENTS 1999
ACQUISITION ACQUISITION ACQUISITION A ACQUISITIONS
------------- ------------- ------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue ............................................ $1,090 $ 893 $ 11,636 $ -- $ 13,619
Equity (income) loss from investments .............. -- 49 -- 49
------ ----- -------- --------
Total revenue ...................................... $1,090 $ 942 $ 11,636 $ -- 13,668
Cost of revenue .................................... 794 441 8,700 -- 9,935
Selling, general & administrative expenses ......... 884 926 2,609 4,419
Depreciation & amortization ........................ 13 88 1,089 (4,411)(a) (3,221)
Corporate expenses ................................. -- -- -- -- --
------ ----- -------- --------- --------
Operating income (loss) ............................ (601) (513) (762) 4,411 2,535
Interest (expense) income .......................... (2) (80) (665) 1,364 (b) 617
Other income (expenses) ............................ -- --
------- --------
Income (loss) before income tax expense ............ (603) (593) (1,427) 5,775 3,152
Income tax (expense) benefit ....................... -- (1) (58) (59)
------- -------- -------- --------
Net income (loss) .................................. $(603) $(594) $ (1,485) $ 5,775 $ 3,093
======= ======= =========
Accretion on put option ............................ (87) (87)
-------- --------
Net income applicable to common shares ............. $ (1,572) $ 3,006
======== ========
</TABLE>
- ----------
A. PRO FORMA ADJUSTMENTS:
(a) Reflects the decrease of $4.4 million in depreciation and
amortization resulting from the preliminary purchase price
accounting treatment of the 1999 acquisitions offset by the
elimination of integration costs recorded in the historical balance.
SFX amortizes goodwill and other intangibles over periods ranging
for up to 15 years.
(b) Reflects incremental interest expense associated with additional
borrowing related to the 1999 acquisitions.
40
<PAGE>
III. APOLLO ACQUISITION
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS)
-------------------------------------------------------
U.K. TO U.S.
AS GAAP
REPORTED ADJUSTMENTS
--------------------------- ---------------------------
<S> <C> <C>
Revenue ............................ (pounds sterling)36,583 (pounds sterling) --
Equity income from investments...... -- 299 (h)
------ ----
Total revenue ...................... 36,583 299
Cost of revenue .................... 15,001
Selling, general and
administrative expenses ........... 16,127
Depreciation and amortization ...... 2,301 (123)(a)
129 (b)
Corporate expenses ................. -- --
Non-recurring changes .............. -- --
Non-cash compensation and
other non-cash changes ............ -- --
------ ----
Operating income (loss) ............ 3,154 293
Equity income from investments ..... 299 (299)(h)
Interest (expense) ................. (1,016) --
Other income (expenses) ............ 405 50 (j)
(441)(h)
----
Income (loss) before income tax
expense ........................... 2,842 (397)
Income tax (expense) benefit ....... (1,171) --
Minority interest .................. (441) 441 (h)
------ ----
Net income (loss) .................. (pounds sterling)1,230 (pounds sterling) 44
========================= ===========================
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS)
---------------------------------------------------------------------------------------
ADJUSTED
FOR U.K.
TO U.S. CONVERSION BARRY CLAYMAN PRO FORMA APOLLO
GAAP TO U.S.$(I) CONCERTS(K) ADJUSTMENTS ACQUISITION
-------------------------- ------------- --------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Revenue ............................ (pounds sterling)36,583 $ 59,733 5,131 $ 521(c) $ 65,385
Equity income from investments...... 299 488 -- -- 488
------ -------- ----- ---------- --------
Total revenue ...................... 36,882 60,221 5,131 521 65,873
Cost of revenue .................... 15,001 24,494 3,075 27,569
Selling, general and
administrative expenses ........... 16,127 26,332 349 (388)(e) 26,293
Depreciation and amortization ...... 2,307 3,767 -- 3,191 (d) 6,958
Corporate expenses ................. -- -- -- -- --
Non-recurring changes .............. -- -- -- -- --
Non-cash compensation and
other non-cash changes ............ -- -- -- -- --
------ -------- ----- ---------- --------
Operating income (loss) ............ 3,447 5,628 1,707 (2,282) 5,053
Equity income from investments ..... -- -- -- -- --
Interest (expense) ................. (1,016) (1,659) (12) (5,207)(f) (6,878)
Other income (expenses) ............ 14 23 45 (521)(c) (453)
Income (loss) before income tax
expense ........................... 2,445 3,992 1,740 (8,010) (2,278)
Income tax (expense) benefit ....... (1,171) (1,912) (567) 1,446 (g) (1,033)
Minority interest .................. -- -- -- -- --
------ -------- ----- ---------- --------
Net income (loss) .................. (pounds sterling)1,274 $ 2,080 $1,173 $ (6,564) $ (3,311)
======================== ======== ====== ========== ========
</TABLE>
Apollo's statement of operations covers the six month period ended May 15,
1999. Barry Clayman Concerts' statement of operations covers the four months
ended June 30, 1999.
- ----------
PRO FORMA AND U.K. TO U.S. GAAP ADJUSTMENTS
(a) To reverse excess depreciation taken as a result of Apollo's
revaluation of property and equipment not permitted by U.S. GAAP.
(b) To record goodwill amortization for fiscal 1998 in accordance with
U.S. GAAP.
(c) To reclassify rental income from other income into consolidated
revenues.
(d) To reflect the increase in depreciation and amortization resulting
from the preliminary purchase accounting treatment of Apollo.
(e) Reflects the elimination of certain officers' salaries and bonuses
which will not be paid under SFX's new employment contracts.
(f) To record the incremental interest expense associated with the
Apollo acquisition.
(g) Represents U.K. tax effect of the pro forma adjustments with the
exception of additional amortization for goodwill.
(h) To reclassify equity income from investments into consolidated
revenue and minority interest into other income (expenses).
(i) Converted from pounds sterling to U.S. dollars utilizing the monthly
average exchange rate for the six months ended May 31, 1999.
(j) To record Apollo's short-term investments in marketable securities
under U.S. GAAP.
(k) Represents the acquisition of 100% of Barry Clayman Concerts, a
promoter of concert and other live entertainment events in the U.K.
IV. PROPOSED NEW SENIOR CREDIT FACILITY
(a) To reflect the incremental interest expense incurred in connection
with the New Senior Credit Facility.
(b) To record the incremental benefit for the pro forma adjustment based
on the U.S. effective tax rate.
41
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of SFX should be read in conjunction with the consolidated financial
statements and related notes thereto included in this prospectus. The following
discussion contains certain forward-looking statements that involve risks and
uncertainties. SFX's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to the differences are
discussed in "Risk Factors" and elsewhere in this prospectus. SFX undertakes no
obligation to publicly release the results of any revisions to these
forward-looking statements that may be made to reflect any future events or
circumstances. See "Forward-Looking Statements."
GENERAL
SFX operates primarily in four major business segments within the live
entertainment industry:
o the music segment, which includes booking and promoting music events and
tours, producing music events and tours, owning and operating concert and
other music-related entertainment venues;
o the theater segment, which includes the production and promotion of
theatrical events, particularly touring Broadway shows, and owning and
operating theaters;
o the sports segment, which includes talent representation and marketing of
professional athletes and broadcasters and the production and promotion of
motor sports events; and
o the family entertainment & other segment, which includes the production and
promotion of family-oriented events, marketing and consulting services,
publishing of music-related trade magazines and the production and
distribution of network radio special events and concert programming.
SFX sells corporate sponsorships and advertising in each of its segments.
MUSIC
SFX's concert promotion and venue operation business consists primarily of
the promotion of concerts and operation of venues primarily for use in the
presentation of musical events. SFX's primary source of revenues from its
concert promotion activities is ticket sales at events promoted by SFX. As a
venue operator, SFX's primary sources of revenue are sponsorships, concessions,
parking and other ancillary services, derived principally from events promoted
by SFX.
Revenue from ticket sales is affected primarily by the number of events
SFX promotes, the average ticket price and the number of tickets sold. The
average ticket price depends on the popularity of the artist whom SFX is
promoting, the size and type of venue and the general economic conditions and
consumer tastes in the market where the event is being held. Revenue and
margins are also affected significantly by the type of contract entered into
with the artist or the artist's representative. Generally, the promoter or
producer will agree to pay the artist the greater of a minimum guarantee or a
profit sharing payment based on ticket revenue, less certain show expenses. The
promoter or producer assumes the financial risk of ticket sales and is
responsible for local production and advertising of the event. However, in
certain instances, the promoter or producer agrees to accept a fixed fee from
the artist for its services, and the artist assumes all financial risk. When
the promoter or producer assumes the financial risk, all revenue and expenses
associated with the event are recorded. When the artist assumes the risk, only
the fee is recorded. As a result, operating margins would be significantly
greater for fee-based events as opposed to events for which SFX assumes the
risk of ticket sales, although profits per event would tend to be lower.
SFX's most significant operating expenses are talent fees, production
costs, venue operating expenses, including rent, advertising costs and
insurance expense. The booking of talent in the concert promotion business
generally involves contracts for limited engagements, often involving a small
number of performances. As a producer, SFX is generally responsible for the
booking of talent for a
42
<PAGE>
larger number of events, often an artist's entire tour. Talent fees depend
primarily on the popularity of the artist, the ticket price that the artist can
command at a particular venue and the expected level of ticket sales.
Production costs and venue operating expenses have substantial fixed cost
components and lesser variable costs primarily related to expected attendance.
THEATER
SFX's theatrical operations are directed mainly towards the production and
promotion of touring Broadway shows, which generate revenues primarily from
ticket sales and sponsorships. Touring Broadway shows are typically revivals of
previous commercial successes or reproductions of established theatrical shows
currently playing on Broadway in New York City. SFX may also participate in
ancillary revenues, such as concessions and merchandise sales, depending on its
agreement with a particular local promoter/venue operator. Revenue from ticket
sales is primarily affected by the popularity of the production and the general
economic conditions and consumer tastes in the particular market and venue
where the production is presented. To reduce its dependency on the success of
any single touring production, SFX sells advance annual subscriptions that
provide the purchaser with tickets for all of the shows that SFX intends to
promote in the particular market during the touring season. Historically,
approximately 28% of ticket sales for touring Broadway shows presented by SFX
were sold through advance annual subscriptions. Subscription related revenues
received before the event date and other advance ticket sales are initially
recorded on the balance sheet as deferred revenue; after the event occurs, they
are recorded on the statement of operations as gross revenue. Expenses are
capitalized on the balance sheet as prepaid event expenses until the event
occurs. Subscriptions for touring Broadway shows typically cover approximately
two-thirds of SFX's break-even cost point for those shows.
Principal operating expenses related to touring shows include talent,
rent, advertising and royalties. Talent costs are generally fixed once a
production is cast. Rent and advertising expense may be either fixed or
variable based on the arrangement with the particular local promoter/venue
operator. Royalties are generally paid as a percentage of gross ticket sales.
SFX also makes less than 50% equity investments in original Broadway
productions, principally as a means to obtain the touring rights for such
shows. These investments are generally accounted for using either the equity
method or the cost method of accounting, based on the percentage of ownership.
SFX monitors the recoverability of these investments on a regular basis, and
SFX may be required to take write-downs if the original production closes
sooner than expected or if SFX otherwise determines that the production will
not recoup the investment. The timing of any write-downs could adversely affect
operating results in a particular quarter.
SPORTS
SFX is a leading fully integrated sports marketing and management company
specializing in the representation of sports athletes and broadcasters,
integrated event management, television programming and production and
marketing consulting services. SFX's talent representation and marketing
activities consist principally of the representation of team sports athletes
and broadcasters in contract and endorsement negotiations. SFX also provides
certain investment advisory services to its clients. SFX typically receives a
percentage of monies earned by its clients and a percentage of the endorsement
deals negotiated by SFX. Revenue from these sources is recognized ratably over
the period of the negotiated agreement. Revenue from these sources is dependent
upon a number of variables, many of which are outside SFX's control, including
a player's skill, health, public appeal and the appeal of the sport in which
the player participates. Principal operating expenses include salaries, wages
and travel and entertainment expenses.
The owners of the teams in the NBA had locked out their players from
participation in league activities, causing cancellation of some of the games
for the 1998-99 basketball season. The suspension of the NBA season ended on
January 6, 1999, and the NBA season began February 5, 1999 with a reduced game
schedule. The cancellation of over 30 games per team for the 1998-99 NBA season
had a negative impact on the sports segment's revenues and EBITDA in the fourth
quarter of 1998 and the first quarter of 1999.
43
<PAGE>
SFX's motor sports activities consist principally of the production and
promotion of specialized motor sports, which generate revenues primarily from
ticket sales and sponsorships, as well as merchandising and video rights
associated with producing motor sports events. Ticket prices for these events
are generally lower than for theatrical or music concert events, generally
ranging from $5 to $30. Revenue from these sources is primarily affected by the
type of event and the general economic conditions and consumer tastes in the
particular markets and venues where the events are presented. Event-related
revenues received before the event date are initially recorded on the balance
sheet as deferred revenue. After the event occurs, they are recorded on the
statement of operations as gross revenue.
Operating expenses associated with motor sports activities include talent,
rent, track preparation costs, security and advertising. These operating
expenses are generally fixed costs that vary based on the type of event and
venue where the event is held. Expenses are deferred on the balance sheet as
prepaid event expenses until the event occurs.
Under certain circumstances, SFX may be required to sell either its motor
sports or theatrical lines of business. See "Forward-Looking Statements" and
"Risks Factors--We may be forced to sell some of our subsidiaries, which may
prevent us from realizing the full value of these subsidiaries."
FAMILY ENTERTAINMENT & OTHER
The family entertainment segment produces and presents family-oriented
entertainment such as children's theatrical shows, dance shows, ice-skating,
and gymnastics shows.
SFX's other principal businesses include the production and distribution
of radio industry trade magazines, the production of radio programming content
and show-prep material and the provision of radio air play and music retail
research services. The primary sources of revenues from these activities
include the sale of advertising space in its publications and the sale of
advertising time on radio stations that carry its syndicated shows,
subscription fees for its trade publications and subscription fees for access
to its database of radio play lists and audience data. Revenues generally vary
based on the overall advertising environment and competition.
SFX also provides marketing and consulting services pursuant to contracts
with individual clients for specific projects. Revenues from and costs related
to these services vary based on the type of service being provided and the
incremental associated costs.
FORMATION OF SFX
SFX's predecessor, SFX Concerts, Inc., was formed in January 1997 by SFX
Broadcasting, Inc. On April 27, 1998, SFX was spun-off from SFX Broadcasting
and became a separate publicly-traded company.
1997 ACQUISITIONS
During 1997, SFX completed the following acquisitions (financial data and
number of shares, adjusted for the July 1999 3-for-2 stock split, in
thousands):
<TABLE>
<CAPTION>
CASH
CONSIDERATION VALUE OF NUMBER
DATE AND ASSUMED STOCK OF SHARES BUSINESS
COMPANY ACQUIRED DEBT ISSUED ISSUED SEGMENT
- ----------------- ---------- --------------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Delsener/Slater 1/2/97 $ 26,815 $ -- -- Music
Meadows 3/1/97 16,354 7,500 371 Music
Sunshine 6/1/97 57,489 4,000 228 Music
-------- ------- ---
Total $100,658 $11,500 599
======== ======= ===
</TABLE>
The cash portion of the purchase price for SFX's 1997 acquisitions was
financed through capital contributions from SFX Broadcasting.
44
<PAGE>
1998 ACQUISITIONS
During 1998, SFX completed the following acquisitions (financial data and
number of shares, adjusted for the July 1999 3-for-2 stock split in thousands):
<TABLE>
<CAPTION>
CASH
CONSIDERATION VALUE OF NUMBER
DATE AND ASSUMED STOCK OF SHARES BUSINESS
COMPANY ACQUIRED DEBT ISSUED ISSUED SEGMENT
- ---------------------- ------------ --------------- ---------- ----------- -------------------------------
<S> <C> <C> <C> <C> <C>
Bill Graham Presents 2/24/98 $ 72,827 $ 7,500 845 Music, Family and
Entertainment & Other
PACE and Pavilion 2/25/98 220,683 20,000 2,250 Music, Theater and Sports
Contemporary 2/27/98 82,702 16,834 1,895 Music and Family
Entertainment & Other
Network 2/27/98 56,784 10,000 1,125 Other
Concert/Southern 3/4/98 16,908 -- -- Music
FAME 6/4/98 82,241 35,960 1,500 Sports
Don Law 7/2/98 92,195 -- -- Music
Magicworks 9/11/98 115,740 -- -- Theater and Family
Entertainment & Other
Other acquisitions Various 166,961 11,000 563 Music, Theater, Sports, Family
-------- -------- -----
Entertainment & Other
Total $907,041 $101,294 8,178
======== ======== =====
</TABLE>
The above table is a summary of the 1998 acquisitions. The funds required
to finance the 1998 acquisitions were obtained from the February 1998 note
offering, SFX's existing senior credit facility (the "Existing Senior Credit
Facility") and the 1998 equity offering.
Pursuant to the 1998 acquisition agreements and the related agreements,
SFX:
o under certain circumstances, may be required to repurchase shares of
its Class A common stock or make additional payments in connection
therewith;
o has granted certain rights of first refusal, certain of which are
exercisable at 95% of the proposed purchase price; and
o in connection with the PACE acquisition, has granted Brian Becker, an
Executive Vice President, a Member of the Office of the Chairman and a
director of SFX, the option to acquire, after February 25, 2000, SFX's
then existing motor sports line of business or, if that business has
previously been sold, SFX's then existing theatrical line of business,
in each case at its then fair market value.
1999 ACQUISITIONS
RZO ACQUISITION
On January 11, 1999, SFX acquired The RZO Companies for a total
consideration of $39.0 million. This amount includes $6.5 million in deferred
purchase consideration based on foreign tax credits SFX may become entitled to
before January 2004 and $4.0 million in deferred purchase consideration based
on the seller's EBITDA, as defined in the acquisition agreement. SFX financed
the acquisition with borrowings under the Existing Senior Credit Facility.
ENTERTAINMENT GROUP ACQUISITION
On January 11, 1999, SFX acquired The Entertainment Group, a Chicago-based
promoter, for approximately $19.4 million in cash and Class A common stock
having a value of $2.0 million. Concurrent with the transaction, SFX entered
into a ten-year agreement with the Village of Rosemont in suburban Chicago to
provide booking, group sales and marketing services for the Rosemont Horizon, a
17,500 seat arena, and the Rosemont Theater, a 4,000 seat venue. SFX financed
this acquisition with borrowings under the Existing Senior Credit Facility.
45
<PAGE>
MARQUEE ACQUISITION
On March 16, 1999, a subsidiary of SFX was merged with and into the
Marquee Group, Inc. and Marquee became a wholly owned subsidiary of SFX. In
connection with the merger, SFX issued approximately 2.1 million shares of
Class A common stock with a value of approximately $81.7 million and repaid
$33.5 million of Marquee's Debt. SFX financed this acquisition with borrowings
under the Existing Senior Credit Facility.
CELLAR DOOR ACQUISITION
On February 19, 1999, SFX completed the purchase of the Cellar Door group
of companies. Under the terms of the purchase agreement, SFX acquired all of
the issued and outstanding capital stock of Cellar Door for a purchase price
of:
o $70.0 million in cash, less an amount equal to Cellar Door's "secured
fund" indebtedness and capitalized leases;
o 519,357 shares of Class A common stock with an issue date value of
approximately $20.0 million; and
o $8.5 million payable in five equal annual installments beginning on the
first anniversary of the closing date. In addition, SFX issued to the
seller options to purchase 150,000 shares of Class A common stock.
SFX financed this acquisition with a portion of the proceeds from the February
1999 equity offering.
NEDERLANDER ACQUISITION
On March 16, 1999, SFX acquired certain interests in seven venues and
other assets of Nederlander for an aggregate purchase price of approximately
$95.6 million in cash. In addition, the agreement relating to the venues in
Cincinnati requires SFX to make a payment to the sellers in 2000 of up to $3.2
million depending on the level of earnings generated by operation of the Crown
Arena. If SFX sells or transfers any of the interests in Crown Arena within ten
years of the closing, SFX will be obligated to pay a portion of the
consideration it receives to the sellers of Nederlander. The agreement relating
to Mesa del Sol Centre for the Performing Arts provides for earn-out payments
based on the financial performance of this venue. SFX financed this acquisition
with a portion of the proceeds of the February 1999 equity offering and
borrowings under the Existing Senior Credit Facility.
ISI ACQUISITION
On February 22, 1999 SFX acquired Integrated Sports International for an
aggregate purchase price of $14.1 million in cash and 90,000 shares of Class A
common stock. In addition, under the terms of the acquisition agreement, during
the five year period following the closing of the acquisition, SFX may be
required to make additional payments of up to $7.5 million in cash and 75,000
shares of Class A common stock, based on the achievement by Integrated Sports
of certain target levels of EBITDA, as defined in the acquisition agreement,
during such period. SFX financed this acquisition with a portion of the
proceeds from the February 1999 equity offering.
AL HAYMON ACQUISITION
On June 20, 1999, SFX acquired 50% of A.H. Enterprises, an entity operated
by Al Haymon, for approximately $7.5 million in cash. SFX financed this
acquisition with borrowings under the Existing Senior Credit Facility.
HENDRICKS ACQUISITION
On June 28, 1999, SFX acquired Hendricks Management Company, Inc. for
$15.0 million in cash plus up to an additional $5.0 million in total cash
payments to be paid out over a period of five years. SFX financed this
acquisition with borrowings under the Existing Senior Credit Facility.
46
<PAGE>
PENDING ACQUISITIONS
APOLLO
On August 2, 1999, SFX entered into an agreement to acquire Apollo Leisure
Group plc, the largest live theater operator as well as one of the largest
providers of entertainment and leisure management services in the U.K.
The total purchase price for the acquisition is approximately $253.1 million
(based on the exchange rate as of August 5, 1999), including 979,667 shares of
Class A common stock with a value of approximately $45.0 million (based on an
assumed market price of the Class A common stock of $46.00 per share). The
total purchase price is subject to certain adjustments. See "Agreements Related
to Pending Acquisitions--Apollo." Apollo operates, among other venues, three
arenas and a network of 23 theaters, as well as a ticketing system which
handled approximately six million tickets in 1998. In addition, in connection
with the Apollo acquisition, SFX expects to acquire 100% of Barry Clayman
Concerts, which is a leading promoter of concert and other live entertainment
events in the U.K. SFX intends to finance this acquisition with availability
under the New Senior Credit Facility.
LIVENT
On May 28, 1999, SFX entered into an agreement to purchase certain assets
of Livent Inc., and its affiliates, including three theaters and intellectual
property rights to several current and future Broadway productions, for an
aggregate purchase price of approximately $114.2 million (including a $5.0
million contingent payment). The aggregate purchase price is subject to certain
adjustments. See "Agreements Related to Pending Acquisitions--Livent."
SFX's pending acquisitions will be accounted for using the purchase method
of accounting and intangible assets created in the purchase transaction will
generally be amortized against future earnings over a fifteen-year period. The
amount of such amortization will be substantial and will continue to affect
SFX's operating results in the future. These expenses, however, do not result
in an outflow of cash by SFX and do not impact EBITDA.
The consummation of the pending acquisitions by SFX and other future
acquisitions will result in substantial charges to earnings relating to
interest expense and the recognition and amortization of goodwill and other
intangible assets. As of June 30, 1999, SFX's goodwill and other intangibles
were approximately $1.2 billion. This balance will increase due to the pending
acquisitions.
SFX is also currently pursuing certain additional acquisitions; however,
it has not entered into any definitive agreements with respect to such
acquisitions, and there can be no assurance that it will do so. See "Risk
Factors--If we are unable to complete pending or future acquisitions, our stock
price may suffer."
AGREEMENTS WITH TICKETMASTER AND OGDEN
On November 13, 1998, SFX and Ticketmaster entered into a binding
agreement pursuant to which SFX granted Ticketmaster the exclusive right to
sell and distribute tickets for SFX's events worldwide. SFX is currently
evaluating its existing internal ticket operations, which were acquired in the
1998 acquisitions; however, SFX does not believe that its ticketing operations
are material to its financial conditions or results of operation.
On December 23, 1998, SFX and Ogden Corporation entered into a long-term
agreement pursuant to which Ogden will become the exclusive food and beverage
concessionaire at all entertainment venues owned or controlled by SFX. SFX
anticipates that revenues associated with its ticket and food and beverage
sales will increase in 1999 as a result of these agreements.
STOCK OPTION PLAN
Following a recommendation of SFX's compensation committee in the fourth
quarter of 1998, the Board of Directors of SFX adopted a new incentive stock
option plan covering options to acquire up
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to 4.5 million shares of Class A common stock and approved the grant of options
thereunder to acquire approximately 3.45 million shares of Class A common stock
at the fair market value on the date of approval. SFX may be required to take
significant non-cash compensation charges relating to certain of the options
granted under the plan over the vesting period of such options. Management
believes that it is unlikely that SFX will incur such charges.
FINANCINGS
FEBRUARY 1998 NOTE OFFERING
On February 11, 1998, SFX completed an offering of $350.0 million in
principal amount of 9 1/8% Senior Subordinated Notes due February 1, 2008.
Interest is payable on the notes on February 1 and August 1 of each year. SFX
used the proceeds from the note offering and the initial borrowings under SFX's
then-existing senior credit facility to consummate certain of SFX's 1998
acquisitions. On July 15, 1998, SFX consummated the exchange of substantially
identical publicly-registered notes for all outstanding notes issued in the
February 1998 note offering. All original notes were tendered for exchange and
were canceled upon the issuance of the same principal amount of exchange notes.
NOVEMBER 1998 NOTE OFFERING
On November 25, 1998, SFX completed an offering of $200.0 million in
principal amount of 9 1/8% Senior Subordinated Notes due December 1, 2008.
Interest is payable on the notes on June 1 and December 1 of each year. SFX
used the proceeds from the November 1998 note offering to repay substantially
all outstanding borrowings under the revolving portion of the Existing Senior
Credit Facility. In March 1999, SFX consummated the exchange of substantially
identical publicly registered notes for all outstanding notes issued in the
November 1998 note offering. All original notes were tendered for exchange and
were canceled upon the issuance of the same principal amount of exchange notes.
CONSENT SOLICITATION
In July 1999, SFX completed a consent solicitation with respect to its
outstanding 9 1/8% senior subordinated notes whereby it obtained approval from
the holders to modifications of certain covenants in the indentures governing
the notes. The modifications, among other things, provide SFX with greater
flexibility to pursue its operating strategy, including foreign acquisitions.
Fees associated with the transaction of approximately $13.7 million will be
recorded as deferred financing costs on SFX's balance sheet in the third
quarter of 1999.
EXISTING SENIOR CREDIT FACILITY
On February 26, 1998, SFX executed a Credit and Guarantee Agreement which
established a $300.0 million senior secured credit facility comprised of a
$150.0 million eight-year term loan and a $150.0 million seven-year reducing
revolving credit facility. On September 10, 1998, SFX entered into an agreement
with The Bank of New York to increase the revolving portion of the Existing
Senior Credit Facility for a total borrowing availability of $350.0 million
under the credit facility. The Company anticipates utilizing the proceeds from
the New Senior Credit Facility to refinance all outstanding amounts under the
Existing Senior Credit Facility. Accordingly, SFX expects to record an
extraordinary charge of $2.7 million (net of tax of $1.7 million) in the third
quarter of 1999 related to the unamortized costs associated with the Existing
Senior Credit Facility.
NEW SENIOR CREDIT FACILITY
In July 1999, SFX received a commitment for the New Senior Credit
Facility, which is expected to be comprised of a $250.0 million multi-draw,
multi-currency term loan maturing on December 31, 2005 (the "Term A Loan"), a
$600.0 million single-draw, U.S. dollar term loan maturing on June 30, 2006
(the "Term B Loan") and a $250.0 million reducing revolver (having a letter of
credit sub-limit of $75.0 million) maturing on December 31, 2005. No assurances
can be given that the New Senior Credit Facility will be consummated on the
terms described herein or at all. See "Description of Indebtedness--New Senior
Credit Facility."
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1998 EQUITY OFFERING
On May 27, 1998, SFX consummated an offering of 8,050,000 shares of Class
A common stock (12,075,000 on a post-split basis) at an offering price of
$43.25 per share, or $28.83 on a post-split basis (the "1998 equity offering"),
and received net proceeds of approximately $329.0 million. SFX used the
proceeds to consummate certain of its 1998 acquisitions, to fund $109.7 million
of tax indemnity payments and to pay fees and other expenses.
FEBRUARY 1999 EQUITY OFFERING
In February 1999, SFX consummated an offering of 4,949,000 shares of Class
A common stock (7,423,500 shares on a post-split basis) at an offering price of
$55.50 per share, or $37.00 on a post-split basis (the "February 1999 equity
offering"). SFX received net proceeds of approximately $260.7 million from the
offering. SFX used the net proceeds to finance certain of the 1999 acquisitions
and to repay indebtedness under the revolving portion of the Existing Senior
Credit Facility.
RESULTS OF OPERATIONS
The operating performances of entertainment companies, such as SFX, are
measured, in part, by their ability to generate EBITDA. Further, SFX uses
EBITDA, excluding non-cash charges, as its primary indicator of its operating
performance, and secondarily as a measure of liquidity. EBITDA is defined as
earnings before interest, taxes, other income and depreciation and
amortization. Although EBITDA is not a measure of performance calculated in
accordance with GAAP, SFX believes that the entertainment industry accepts
EBITDA as a generally recognized measure of performance and analysts who report
publicly on the performance of entertainment companies use EBITDA.
Nevertheless, you should not consider this measure in isolation or as a
substitute for operating income, net income, net cash provided by operating
activities or any other measure for determining our operating performance or
liquidity that is calculated in accordance with GAAP. EBITDA, as SFX calculates
it, may not be comparable to calculations of similarly titled measures
presented by other companies.
SFX's operations and revenues have been largely seasonal in nature, with
generally higher revenue generated in the second and third quarters of the
year. For example, on a pro forma basis for SFX's 1998 and 1999 acquisitions,
SFX generated approximately 60% of its revenues in the second and third
quarters for the year ended December 31, 1998. SFX's outdoor venues are
primarily used in the summer months and do not generate substantial revenue in
the late fall, winter and early spring. Similarly, the musical concerts that
SFX promotes largely occur in the second and third quarters. SFX's
entertainment marketing and consulting in connection with musical concerts also
predominantly generate revenues in the second and third quarters.
Therefore, the seasonality of SFX's business causes -- and will probably
continue to cause -- a significant variation in SFX's quarterly operating
results. These variations in demand could have a material adverse effect on the
timing of SFX's cash flows and, therefore, on its ability to service its
obligations with respect to its indebtedness. However, SFX believes that this
variation may be somewhat offset with the acquisition of typically non-summer
seasonal businesses in several of SFX's 1998 and 1999 acquisitions, such as
motor sports, which is winter-seasonal, and touring Broadway shows, which
typically tour between September and May.
HISTORICAL RESULTS
Prior to 1998, SFX did not operate in any business segment other than the
music segment. Therefore, a discussion of the results of each segment's actual
performance as compared to the prior period has not been presented. During 1998
SFX made significant acquisitions in the music segment, which was the primary
reason for the increases in revenue, EBITDA and operating income, before
corporate charges, in the segment. In addition, SFX made significant
acquisitions in all of its segments in February, May and June of 1998 and
during the three months ended March 31, 1999, which was the
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<PAGE>
primary reason for the increases in revenue, EBITDA and operating income,
before corporate charges, in all segments. The following table summarizes each
segment's operating performance for the years ended December 31, 1997 and 1998
and the six month periods ended June 30, 1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------------------------------------------------------------
REVENUE EBITDA (1) OPERATING (LOSS) INCOME
------------------------- ------------------------ ---------------------------
1999 1998 1999 1998 1999 1998
----------- ----------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Segments:
Music ...................... $353,270 $177,724 $ 39,769 $ 9,291 $ 4,462 $ (1,452)
Theater .................... 140,976 68,463 12,193 7,821 8,115 6,337
Sports ..................... 82,697 11,865 18,841 792 9,825 (227)
Family Entertainment &
Other .................... 106,863 36,115 11,929 6,603 2,419 4,261
-------- -------- -------- -------- --------- ---------
Segment Performance ......... 683,806 294,167 82,732 24,507 24,821 8,919
Corporate expenses and
non-cash charges ......... -- -- (9,772) (4,350) (13,164) (39,988)
-------- -------- -------- -------- --------- ---------
Total ....................... $683,806 $294,167 $ 72,960 $ 20,157 $ 11,657 $ (31,069)
======== ======== ======== ======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
REVENUE EBITDA (1) OPERATING (LOSS) INCOME
------------------------ ------------------------- --------------------------
1998 1997 1998 1997 1998 1997
----------- ---------- ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Segments:
Music ...................... $587,843 $96,653 $ 61,204 $ 12,727 $ 24,598 $ 7,953
Theater .................... 152,112 -- 15,576 -- 4,419 --
Sports ..................... 24,829 -- 2,466 -- (2,897) --
Family Entertainment &
Other .................... 124,132 -- 19,166 -- 10,095 --
-------- ------- --------- -------- --------- --------
Segment Performance ......... 888,916 96,653 98,412 12,727 36,215 7,953
Corporate expenses and
non-cash charges ......... -- -- (11,194) (2,206) (50,845) (2,863)
-------- ------- --------- -------- --------- --------
Total ....................... $888,916 $96,653 $ 87,218 $ 10,521 $ (14,630) $ 5,090
======== ======= ========= ======== ========= ========
</TABLE>
- ----------
(1) As used in these tables, EBITDA excludes non-cash and non-recurring
charges.
SIX MONTHS ENDED JUNE 30, 1999 AS COMPARED TO THE SIX MONTHS ENDED JUNE
30, 1998
SFX's total revenue increased by $389.6 million to $683.8 million for the
six months ended June 30, 1999, compared to $294.2 million for the six months
ended June 30, 1998, primarily as a result of $295.0 million attributable to
the 1998 acquisitions acquired subsequent to June 30, 1998 and the 1999
acquisitions. The acquisitions of Cellar Door, Don Law and Nederlander were the
primary contributors to the $108.4 million increase in revenue related to
acquisitions in the music segment. The acquisitions of Magicworks and EMI were
the primary contributors to the $69.6 million increase in revenue in the family
entertainment & other segment.
In addition, revenue increased $94.7 million at businesses owned during
both periods. The music segment, which contributed $67.2 million of this
increase, benefited from increased tour production and concert activity.
Incremental sponsorship agreements and the impact of new supplier contracts
also contributed to the increased revenue.
Cost of revenue increased by $277.5 million to $509.2 million for the six
months ended June 30, 1999, compared to $231.7 million for the six months ended
June 30, 1998, primarily as a result of $205.6 million attributable to the 1998
and 1999 acquisitions and $71.9 million related to the increase in tour
production and concert activity in the music segment.
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Selling, general and administrative expenses increased by $53.9 million to
$91.9 million for the six months ended June 30, 1999 as compared to $38.0
million for the six months ended June 30, 1998, primarily as a result of $43.4
million attributable to the 1998 and 1999 acquisitions and $10.5 million
related to the growth of the SFX's touring operations in the music segment and
costs associated with the growth of SFX's overall operations.
Corporate expenses were $9.8 million for the six months ended June 30,
1999 compared to $4.4 million for the six months ended June 30, 1998. The
increase in corporate expenses reflects the additional administrative overhead
needed to support the growth of SFX's operations and the costs incurred to
begin trading on the New York Stock Exchange.
Depreciation and amortization expense increased to $59.2 million for the
six months ended June 30, 1999, compared to $19.2 million for the six months
ended June 30, 1998, primarily as a result of the increase in the amortization
of goodwill related to the 1998 and 1999 acquisitions. In addition, SFX
recorded $2.4 million of start-up costs related to the opening of a family
entertainment project and $598,000 of costs to integrate the acquired
businesses during the six months ended June 30, 1999. SFX recorded the fixed
assets and identifiable intangible assets of its 1998 and 1999 acquisitions at
fair value and recorded goodwill equal to the excess of purchase price over the
fair value of the net tangible assets, which are being amortized over periods
ranging up to 15 years.
Non-cash compensation of $2.1 million consisted of charges related to
517,500 options which vest over six years and have an exercise price of $3.67
per share and a deferred compensation plan for each non-employee director,
adopted in January 1998, whereby each director was credited with the right to
receive 8,183 shares of Class A common stock based upon a stock price of $3.67
per share.
Non-cash charges recorded in the second quarter of 1998 of $32.1 million
consisted of (a) $23.9 million of compensation related to sale of 975,000
shares of Class B common stock and 285,000 shares of Class A common stock at a
purchase price of $1.33 per share to certain executive officers pursuant to
employment agreements (b) $7.5 million associated with the issuance of 370,766
shares of Class A common stock to Mr. Sillerman in connection with the Meadows
Repurchase and (c) $573,000 related to the issuance of stock options to certain
executive officers pursuant to employment agreements exercisable for an
aggregate of 378,750 shares of Class A common stock. These options vest over
three years and have an exercise price of $3.67 per share. SFX is recording
non-cash compensation charges of approximately $3.3 million annually over the
three-year exercise period.
Income from operations was $11.7 million for the six months ended June 30,
1999, compared to an operating loss of $31.1 million for the six months ended
June 31, 1998, due to the matters discussed above.
Interest expense, net of investment income, was $37.2 million in the six
months ended June 30, 1999, compared to $15.7 million for the six months ended
June 30, 1998, primarily as a result of the additional debt incurred to
consummate the 1998 and 1999 acquisitions.
Minority interest was $494,000 for the six months ended June 30, 1999,
compared to $398,000 for the six months ended June 30, 1998, primarily relating
to certain theatrical productions and a merchandising company which were
acquired in 1998.
SFX recorded an income tax provision of $1.6 million and $1.4 million for
the six months ended June 30, 1999 and 1998, respectively. The provision is for
federal, state and local taxes. The provision is different from the statutory
rate as a result of non-deductible goodwill amortization. The provision for
income taxes in 1998 was primarily related to state and local taxes. No federal
tax benefit was recorded in 1998 due to the uncertainty of realizing a tax
benefit for SFX's losses.
SFX's net loss decreased to $27.7 million for the six months ended June
30, 1999, as compared to net loss of $48.5 million for the six months ended
June 30, 1998, due to the factors discussed above. SFX's net loss applicable to
common shares decreased to $29.4 million for the six months ended June 30,
1999, as compared to $49.6 million for the six months ended June 30, 1998 as a
result of factors discussed above.
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<PAGE>
EBITDA, excluding non-cash compensation of $2.1 million in 1999 and $32.1
million in 1998, was $73.0 million for the six months ended June 30, 1999
compared to $20.2 million for the six months ended June 30, 1998. This increase
of $52.8 million was primarily the result of the acquisitions in each of the
segments, which contributed $40.3 million in EBITDA growth. In addition,
businesses owned for both periods contributed $17.9 million of incremental
EBITDA, partially offset by a $5.4 million in increased corporate expenses. The
increase in EBITDA for businesses owned for both periods resulted from an
increase in the music segment, principally due to increased tour production and
concert activity. In addition, incremental sponsorship agreements and new
vendor contracts enhanced operating performance.
YEAR ENDED DECEMBER 31, 1998 AS COMPARED TO THE YEAR ENDED DECEMBER 31,
1997
SFX's revenue increased by $792.2 million to $888.9 million for the year
ended December 31, 1998, compared to $96.7 million for the year ended December
31, 1997, primarily as a result of $695.7 million attributable to the 1998
acquisitions, $12.4 million attributable to the acquisitions of the Meadows in
March 1997 and Sunshine Promotions in June 1997 and $80.1 million attributable
to increased tour production and concert activity at Delsener/Slater. The 1998
acquisitions significantly increased the concert promotion and venues operation
business and expanded SFX's business to include theatrical promotion and
production, motor sports promotion and production, sports marketing and
management, family entertainment and radio magazine publishing, programming and
research.
Cost of revenue increased by $604.9 million to $678.8 million for the year
ended December 31, 1998, compared to $73.9 million for the year ended December
31, 1997, primarily as a result of $521.1 million attributable to the 1998
acquisitions and $7.1 million attributable to the acquisition of Sunshine
Promotions.
Selling, general and administrative expenses increased by $102.2 million
to $111.7 million for the year ended December 31, 1998 as compared to $9.5
million for the year ended December 31, 1997, primarily as a result of $89.2
million attributable to the 1998 acquisitions and $5.3 million attributable to
the acquisition of Sunshine Promotions.
Depreciation and amortization expense increased to $62.2 million for the
year ended December 31, 1998, compared to $5.4 million for the year ended
December 31, 1997, due to the inclusion of $47.6 million of depreciation and
amortization expense related to the 1998 acquisitions and $1.7 million related
to the acquisition of Sunshine Promotions and the Meadows. In addition, SFX
recorded a $2.7 million write down of an asset relating to the Triathlon
Broadcasting Company agreement as described below and recorded $2.4 million of
integration and start-up costs for the year ended December 31, 1998. SFX
recorded the fixed assets of its 1998 acquisitions and the Sunshine Promotions
acquisition at fair value and recorded intangible assets equal to the excess of
purchase price over the fair value of the net tangible assets, which are being
amortized over periods ranging up to 15 years.
Corporate expenses were $11.2 million for the year ended December 31,
1998, net of $530,000 in fees earned from Triathlon, compared to $2.2 million
for the year ended December 31, 1997, net of Triathlon fees of $1.8 million.
The increase in corporate expenses reflects the additional administrative
overhead needed to support the growth of SFX's operations and the formation of
SFX Live, the national marketing division of SFX. The fees earned from
Triathlon are based on consulting services provided by or on behalf of SCMC, a
private investment company in which certain officers of SFX have economic
interests, that makes investments in and provides financial consulting services
to companies engaged in the media business. These fees fluctuate above the
minimum annual fee of $500,000 based on the level of acquisition and financing
activities of Triathlon. SCMC previously assigned its rights to receive fees
payable from Triathlon to SFX Broadcasting, and SFX Broadcasting assigned its
rights to receive the fees to SFX, pursuant to the distribution agreement.
Triathlon has announced that it has agreed to be acquired by a third party.
When Triathlon is acquired, it will cease paying consulting fees.
In 1998 SFX recorded $5.6 million of non-recurring charges related to
certain fees paid to Livent for the Ragtime and Showboat touring productions
and certain related deferred expenses which, as a result of the Livent
bankruptcy, will not be recovered.
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<PAGE>
Non-cash compensation and other non-cash charges of $34.1 million consisted
of:
o $23.9 million of compensation related to the sale of 975,000 shares of
Class B common stock and 285,000 shares of Class A common stock at a
purchase price of $1.33 per share to certain executive officers pursuant
to employment agreements;
o $7.5 million associated with the issuance of 370,766 shares of Class A
common stock to Mr. Sillerman in connection with the repurchase (the
"Meadows Repurchase") of shares of SFX Broadcasting issued to the sellers
of Meadows;
o $2.4 million related to the issuance of stock options to certain
executive officers pursuant to employment agreements exercisable for an
aggregate of 528,750 shares of Class A common stock; and
o $300,000 related to a deferred compensation plan for each non-employee
director, adopted in January 1998, whereby each director was credited
with the right to receive 8,183 shares of Class A common stock based upon
a stock price of $3.67 per share.
Of these options, 517,500 vest over three years and have an exercise price
of $3.67 per share. SFX is recording non-cash compensation charges of
approximately $3.3 million annually over the three-year exercise period.
The operating loss was $14.6 million for the year ended December 31, 1998,
compared to income of $5.6 million for the year ended December 31, 1997, due to
the matters discussed above.
Interest expense, net of investment income, was $46.3 million in the year
ended December 31, 1998, compared to $1.3 for the year ended December 31, 1997,
primarily as a result of $746.5 million attributable to the incurrence of
additional debt related to the 1998 acquisitions and $16.2 million attributable
to the debt assumed in connection with the Meadows and Sunshine Promotions
acquisitions.
Minority interest was $2.0 million for the year ended December 31, 1998,
compared to no minority interest for the year ended December 31, 1997 relating
to minority interests in two amphitheaters, certain theatrical productions and
a merchandising company which were acquired in 1998.
Income tax provision was $3.0 million for the year ended December 31,
1998. The provision is primarily for state and local taxes and reflects the
impact of non-deductible goodwill amortization and other non-cash compensation
and other non-cash charges. No federal tax benefit has been recognized due to
the uncertainty of realizing a tax benefit for SFX's losses.
SFX's net loss increased to $65.9 million for the year ended December 31,
1998, as compared to net income of $3.8 million for the year ended December 31,
1997, due to the factors discussed above. SFX's net loss applicable to common
shares increased to $68.7 million for the year ended December 31, 1998, as a
result of the accretion of stock subject to redemption.
EBITDA, excluding non-cash compensation and other non-cash charges of
$34.1 million and non-recurring charges of $5.6 million was $87.2 million for
the year ended December 31, 1998, compared to $11.0 million for the year ended
December 31, 1997, primarily as a result of the 1998 acquisitions.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
SFX's concert promotion revenue increased by 90% to $96.7 million for the
year ended December 31, 1997, compared to $50.9 million for the year ended
December 31, 1996, as a result of the acquisitions of Sunshine Promotions and
Meadows, which increased concert promotion revenue by $45.5 million.
Cost of revenue increased by 78% to $73.9 million for the year ended
December 31, 1997, compared to $41.6 million for the year ended December 31,
1996, primarily as a result of the acquisitions of Sunshine Promotions and
Meadows, which increased concert operating expenses revenue by $37.1 million,
which was offset in part by $4.4 million in decreased officer salary expense
paid to the former owners of Delsener/Slater.
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Selling, general and administrative expenses increased to $9.5 million for
the year ended December 31, 1997 from $9.1 million for the year ended December
31, 1996, primarily as a result of the acquisition of Sunshine Promotions and
Meadows.
Depreciation and amortization expense increased to $5.4 million for the
year ended December 31, 1997, compared to $747,000 for the year ended December
31, 1996, due to the inclusion of $2.6 million of depreciation and amortization
expense related to the acquisitions of Sunshine Promotions and Meadows and $1.4
million in depreciation and amortization recorded in 1997 related to the
purchase of Delsener/Slater on January 2, 1997 and $657,000 of depreciation and
amortization relating to the corporate office. In 1997, SFX recorded the fixed
assets of Delsener/Slater at fair value and recorded an intangible asset equal
to the excess of purchase price over the fair value of net tangible assets of
Delsener/Slater, which was amortized over a 15-year period.
Corporate expenses were $2.2 million for the year ended December 31, 1997,
net of $1.8 million in fees received from Triathlon, compared to no corporate
expenses for the year ended December 31, 1996. These expenses represent the
incremental costs of operating SFX's corporate offices, and therefore did not
exist in 1996.
Operating income was $5.6 million for the year ended December 31, 1997,
compared to a loss of $547,000 for the year ended December 31, 1996, due to the
results discussed above.
Interest expense, net of investment income, was $1.3 million in the year
ended December 31, 1997, compared to net interest income of $138,000 for the
year ended December 31, 1996, primarily as a result of assumption of additional
debt related to the acquisitions of the Meadows and Sunshine Promotions.
Income tax provision increased to $490,000 for the year ended December 31,
1997, compared to $106,000 for the year ended December 31, 1996, primarily as a
result of higher operating income.
SFX's net income increased to $3.8 million for the year ended December 31,
1997, as compared to a net loss of $515,000 for the year ended December 31,
1996, due to the factors discussed above.
EBITDA increased to $11.0 million for the year ended December 31, 1997,
compared to a EBITDA of $200,000 for the year ended December 31, 1996, as a
result of $8.3 million attributable to SFX's 1997 acquisitions, $4.4 million
attributable to the reduction in officers' salary expense and $340,000
attributable to improved operating results.
PRO FORMA RESULTS
SIX MONTHS ENDED JUNE 30, 1999
On a pro forma basis, assuming (i) SFX's 1999 acquisitions, (ii) the
February 1999 equity offering, (iii) the pending Apollo acquisition, (iv) the
consent solicitation with respect to the outstanding 9 1/8% Senior Subordinated
Notes, (v) the proposed New Senior Credit Facility, and (vi) this offering were
completed as of January 1, 1998, total revenue for the six months ended June
30, 1999 would have been $763.3 million, as compared to the actual results of
$683.8 million. Cost of revenue would have been $546.7 million, as compared to
the actual results of $509.2 million. Selling, general and administrative
expenses would have been $122.6 million as compared to the actual results of
$91.9 million.
On a pro forma basis, assuming all the transactions described above were
completed as of January 1, 1998, depreciation and amortization would have been
$62.9 million as compared to the actual results of $59.2 million.
The increases in revenue, cost of revenue, selling, general and
administrative expenses and depreciation and amortization resulted primarily
from the inclusion of the operating results of each of the businesses acquired
in the 1999 acquisitions and the pending Apollo acquisition for the entire
period.
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On a pro forma basis, assuming all the transactions described above were
completed as of January 1, 1998, operating income would have been $19.2
million, as compared to the $11.7 million, due to the factors discussed above.
On a pro forma basis, assuming all the transactions described above were
completed as of January 1, 1998, interest expense would have been $64.6 million
for the year ended December 31, 1998, as compared to the actual results of
$38.8 million.
On a pro forma basis, assuming all the transactions described above were
completed as of January 1, 1998, income tax benefit would have been $1.8
million, as compared to the actual provision of $1.6 million.
On a pro forma basis, assuming all the transactions described above were
completed as of January 1, 1998, SFX's net loss would have been $42.9 million,
as compared to the actual results of $27.7 million, due to the results
discussed above.
On a pro forma basis for the transactions described above, EBITDA,
excluding non-cash charges of $2.1 million and expected acquisition related
cost savings related to the elimination of duplicative staffing and general and
administrative expenses of $1.4 million, would have been $85.7 million, as
compared to EBITDA, excluding non-cash charges of $2.1 million, of $73.0
million on a historical basis.
YEAR ENDED DECEMBER 31, 1998
On a pro forma basis assuming: (i) SFX's 1998 and 1999 acquisitions, (ii)
the offerings of $350 million and $200 million of 9 1/8% Senior Subordinated
Notes due 2008 completed in February and November 1998, (iii) the May 1998
equity offering, (iv) the February 1999 equity offering, (v) the pending Apollo
acquisition, (vi) the consent solicitation with respect to the outstanding
9 1/8% Senior Subordinated Notes, (vii) the proposed New Senior Credit facility,
and (viii) this offering were completed as of January 1, 1998, total revenue
for the year ended December 31, 1998 would have been $1.5 billion, as compared
to the actual results of $888.9 million. Cost of revenue would have been $1.1
billion, as compared to the actual results of $678.8 million. Selling, general
and administrative expenses would have been $214.4 million as compared to the
actual results of $111.7 million.
On a pro forma basis, assuming all the transactions described above were
completed as of January 1, 1998, depreciation and amortization would have been
$125.8 million, as compared to the actual results of $62.2 million.
The increases in revenue, cost of revenue, selling, general and
administrative expenses and depreciation and amortization resulted primarily
from the inclusion of the operating results of each of the businesses acquired
in the 1998 and 1999 acquisitions and the pending Apollo acquisition for the
entire period.
On a pro forma basis for the 1998 acquisitions, corporate expenses would
have been $11.4 million, net of Triathlon fees, as compared to the actual
results of $11.2 million, reflecting the incremental cost to the corporate
office of operating a larger enterprise.
On a pro forma basis for the 1998 and 1999 acquisitions, non-cash
compensation and other non-cash and non-recurring charges would have been $40.0
million, as compared to the actual results of $39.7 million.
On a pro forma basis, assuming all the transactions described above were
completed as of January 1, 1998, operating income would have been $12.5
million, as compared to the actual loss of $14.6 million, due to the factors
discussed above.
On a pro forma basis, assuming all the transactions described above were
completed as of January 1, 1998, interest expense would have been $129.3
million for the year ended December 31, 1998, as compared to the actual results
of $50.8 million.
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On a pro forma basis, assuming all the transactions described above were
completed as of January 1, 1998, income tax expense would have been $6.1
million, as compared to the actual provision of $3.0 million.
On a pro forma basis, assuming all the transactions described above were
completed as of January 1, 1998, SFX's net loss would have been $120.4 million,
as compared to the actual results of $65.9 million, due to the results
discussed above.
On a pro forma basis for the transactions described above, EBITDA,
excluding non-cash charges of $34.4 million, non-recurring charges of $9.6
million and expected acquisition-related cost savings related to the
elimination of duplicative staffing and general and administrative expenses of
$8.8 million, would have been $191.1 million, as compared to EBITDA, excluding
non-cash charges of $34.4 million and non-recurring charges of $5.6 million, of
$87.2 million on a historical basis.
LIQUIDITY AND CAPITAL RESOURCES
SFX's principal need for funds has been for acquisitions, interest
expense, working capital needs, certain payments in connection with the SFX
spin-off and capital expenditures. SFX's principal sources of funds has been
proceeds from two note offerings, the proceeds from two equity offerings,
borrowings under its senior credit facilities and cash flows from operations.
SFX intends to apply the proceeds from this offering to finance its pending
Livent acquisition and potential future acquisitions, for general corporate
purposes and to pay fees and expenses in connection with the Livent
acquisition, potential future acquisitions and this offering. The foregoing
represents SFX's best current estimate of the allocation of the net proceeds of
this offering. As noted elsewhere herein, such estimates and anticipated uses
could be subject to significant change.
HISTORICAL CASH FLOWS
Net cash provided by operations was $27.4 million for the year ended
December 31, 1998, as compared to $1.0 million for the year ended December 31,
1997. The increase was primarily attributable to an increase in the operating
results of SFX's business segments, partially offset by other changes in
working capital. For the six months ended June 30, 1999, net cash provided by
operations was $94.4 million, as compared to $71.3 million for the six months
ended June 30, 1998. The increase was primarily attributable to improved cash
operating results and a substantial increase in deferred revenue partially
offset by other working capital changes.
Net cash used in investing activities for the year ended December 31, 1998
was $891.9 million, as compared to $73.3 million for the year ended December
31, 1997. The increase was primarily the result of SFX's 1998 acquisitions and
capital expenditures at certain amphitheaters. Net cash used in investing
activities for the six months ended June 30, 1999 was $335.5 million, as
compared to $551.8 million for the six months ended June 30, 1998. The decrease
in the use of funds was the result of less acquisition activity in the six
months ended June 30, 1999 as compared to the comparable period in 1998.
Net cash provided by financing activities for the year ended December 31,
1998 was $906.5 million, as compared to $78.3 million for the year ended
December 31, 1997. During 1998, SFX completed the note offerings, yielding
gross proceeds of $550.0 million, had net borrowings of $196.0 million under
the Existing Senior Credit Facility and repaid other debt of $9.7 million. In
addition, SFX completed the 1998 equity offering, yielding net proceeds of
$329.0 million, offset by tax indemnification payments of $109.7, Spin-Off
related payments to SFX Broadcasting of $135.7 million and the payment of debt
issuance costs of $22.7 million. For the six months ended June 30, 1999, net
cash provided by financing activities was $292.5 million, as compared to $719.0
million for the six months ended June 30, 1998. During the recent period, SFX
completed the February 1999 equity offering, yielding net proceeds of $260.7
million, and had net borrowings of $38.0 million under the Existing Senior
Credit Facility. The proceeds from the February 1999 equity offering and
borrowings under the Existing Senior Credit Facility were used to finance the
1999 acquisitions. During the first six months of 1998, SFX completed a $350
million note offering, had net borrowings of $150.0 million under the Existing
Senior Credit Facility, completed the 1998 equity offering for $330.7 million
of net
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proceeds and repaid other net debt of $5.3 million. In addition, SFX made
Spin-Off related payments of $89.2 million and incurred debt issuance costs of
$17.5 million.
PENDING ACQUISITIONS
On August 2, 1999, SFX entered into an agreement to acquire Apollo Leisure
Group plc for a total purchase price of approximately $253.1 million (based on
the exchange rate as of August 5, 1999), including, 979,667 shares of Class A
common stock with a value of approximately $45.0 million (based on an assumed
market price of the Class A common stock of $46.00 per share). On May 28, 1999,
SFX entered into an agreement to acquire certain assets of Livent Inc., and its
affiliates for an aggregate purchase price of approximately $114.2 million
(including a $5.0 million contingent payment). The purchase price for each of
the pending Apollo and Livent acquisitions is subject to certain adjustments.
See "Agreements Related to Pending Acquisitions." SFX also expects to incur
approximately $5.5 million in fees and expenses relating to the pending
acquisitions.
The non-stock portion of the purchase price will consist of loan notes.
Under the terms of the loan notes, any one or more of the selling stockholders
may require payment of all or a portion of the principal amount of the loan
notes (together with interest accrued thereon to the date of payment) at any
time commencing nine months after the closing of the acquisition until the
maturity date of the loan notes. The loan notes will bear interest at a rate
equal to 90% of the three-month LIBOR, calculated and paid quarterly, and will
be unconditionally guaranteed by certain financial institutions. In the event
that any selling stockholder exercises its right to require repayment of the
loan notes, such repayment is expected to be made with funds drawn under the
multi-currency term loan portion of the New Senior Credit Facility.
FEBRUARY 1999 EQUITY OFFERING
In February 1999, SFX consummated an offering of 4,949,000 shares of Class
A common stock (7,423,500 shares on a post-split basis) at an offering price of
$55.50 per share, or $37.00 on a post-split basis. SFX received net proceeds of
approximately $263.7 million from the offering. SFX used the net proceeds to
finance certain of the 1999 acquisitions and to repay indebtedness under the
revolving portion of the Existing Senior Credit Facility.
NEW SENIOR CREDIT FACILITY
In June 1999, SFX received a commitment for the New Senior Credit
Facility, which is expected to be comprised of a $250.0 million multi-draw,
multi-currency term loan maturing on December 31, 2005, a $600.0 million
single-draw, U.S. dollar term loan maturing on June 30, 2006 and a $250.0
million reducing revolver (having a letter of credit sub-limit of $75.0
million) maturing on December 31, 2005. SFX anticipates utilizing the proceeds
from the New Senior Credit Facility to refinance all outstanding amounts under
the Existing Senior Credit Facility. Accordingly, SFX expects to record an
extraordinary charge of $2.7 million (net of tax of $1.7 million) in the third
quarter of 1999 related to the unamortized costs associated with the Existing
Senior Credit Facility.
CONSENT SOLICITATION
In July 1999, SFX completed a consent solicitation with respect to its
outstanding 9 1/8% senior subordinated notes whereby it obtained approval from
the holders to modifications of certain covenants in the indentures governing
the notes. The modifications, among other things, provide SFX with more
flexibility to make investments and acquisitions internationally and permit
SFX's foreign subsidiaries to incur indebtedness, subject to certain
limitations. Fees associated with the transaction of approximately $13.7
million have been recorded as deferred financing costs on SFX's balance sheets.
SFX expects to complete the pending Apollo and Livent acquisitions during
the third quarter of 1999. However, the timing and completion of SFX's pending
acquisitions are subject to a number of closing conditions, certain of which
are beyond the control of SFX. No assurance can be given that SFX will be able
to complete its pending acquisitions on the terms described herein or at all.
See "Risk Factors--If we are unable to complete pending or future acquisitions,
our stock price may suffer."
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FUTURE ACQUISITIONS
Consistent with its operating strategy, SFX is currently negotiating
additional acquisitions in the United States and Europe and expects to pursue
additional acquisitions in the live entertainment business in the future.
However, SFX has not entered into any definitive agreements with respect to
such acquisitions and there can be no assurance that it will do so. Any such
acquisitions could result in SFX:
o issuing more of its stock, which may dilute the value of existing stock
of SFX;
o incurring a substantial amount of additional debt; and/or
o amortizing expenses related to goodwill and other intangible assets.
However, there can be no assurance that SFX will be able to obtain
financing for such acquisitions on terms acceptable to SFX or at all. Any or
all of these actions could have a material adverse impact on SFX's business,
financial condition and results of operations. See "Forward-Looking Statements"
and "Risk Factors--If we are unable to complete pending or future acquisitions,
our stock price may suffer."
FUTURE CONTINGENT PAYMENTS
Certain of the agreements relating to SFX's 1998 and 1999 acquisitions
provide for purchase price adjustments and other future contingent payments
under certain circumstances, including payments based on the financial
performance of the acquired companies. As of June 30, 1999, SFX had recorded
$8.7 million related to such contingent payments. SFX will continue to accrue
additional amounts related to such contingent payments if and when it becomes
probable that the applicable financial performance target will be met.
In connection with the pending acquisition of Livent, SFX expects to incur
a contingent payment of $5.0 million based upon the ability of Livent to
deliver theatrical rights to the production Seussical in a form acceptable to
SFX.
The PACE acquisition agreement provides that each PACE seller will have an
option, exercisable for 90 days after the fifth anniversary of the closing of
the PACE acquisition, to require SFX to repurchase up to 750,000 shares of the
Class A common stock received by that seller for $22.00 in cash per share, for
an aggregate purchase price of up to $16.5 million. Pursuant to the terms of
Brian Becker's employment agreement with SFX, during the period between
December 12, 1999, and December 27, 1999, Mr. Becker, an Executive Vice
President, a director and a Member of the Office of the Chairman of SFX, will
have the option to, among other things, require SFX to pay him an amount equal
to the present value of the compensation payable during the remaining term of
his employment agreement. Exercise of such option would result in termination
of Mr. Becker's employment agreement.
SFX also incurred future payment obligations in connection with the
Contempory, Oakdale, FAME, Nederlander and certain other acquisitions.
SPIN-OFF
In connection with the SFX spin-off (the "Spin-Off"), SFX entered into the
tax sharing agreement with SFX Broadcasting. Pursuant to such agreement, SFX is
responsible for certain taxes incurred by SFX Broadcasting, including income
taxes imposed with respect to income generated by SFX for periods before the
Spin-Off and taxes resulting from gain recognized by SFX Broadcasting in the
Spin-Off. SFX has made an estimated payment of $109.7 million in taxes in
connection with the Spin-Off. Management's estimates of the amount of the
indemnity payment are based on assumptions which management believes are
reasonable. However, upon the completion of all final tax returns, including
any potential tax audits, such assumptions could be modified in a manner that
would result in a significant variance in the actual amount of the tax
indemnity.
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INTEREST ON NOTES AND BORROWINGS UNDER THE NEW SENIOR CREDIT FACILITY
SFX has incurred and will continue to incur substantial amounts of
indebtedness. On February 11, 1998, SFX issued $350 million aggregate principal
amount of 9 1/8% senior subordinated notes. Interest of approximately $16.0
million is payable on the notes on February 1 and August 1 of each year, and
the notes mature on February 1, 2008. On November 25, 1998, SFX completed the
offering of $200 million aggregate principal amount of 9 1/8% senior
subordinated notes. Interest of approximately $9.1 million is payable on the
notes on June 1 and December 1 of each year. In addition, as of August 5, 1999,
SFX had indebtedness of $319.0 million under the Existing Senior Credit
Facility.
The degree to which SFX is leveraged could have important consequences,
including, but not limited to:
o making it more difficult for SFX to satisfy its obligations with
respect to the old notes and new notes;
o increasing SFX's vulnerability to general adverse economic and industry
conditions;
o limiting SFX's ability to obtain additional financing to fund future
acquisitions, working capital, capital expenditures and other general
corporate requirements;
o requiring the dedication of a substantial portion of SFX's cash flow
from operations to the payment of principal of, and interest on, its
indebtedness, thereby reducing the availability of such cash flow to
fund working capital, capital expenditures, or other general corporate
purposes;
o limiting SFX's flexibility in planning for, or reacting to, changes in
its business and the industry; and
o placing SFX at a competitive disadvantage vis-a-vis less leveraged
competitors.
In addition, the indentures governing the 9 1/8% senior subordinated notes,
the Existing Senior Credit Facility and the proposed New Senior Credit Facility
contain financial and other restrictive covenants that will limit the ability of
SFX to, among other things, borrow additional funds for future acquisitions or
otherwise. Failure by SFX to comply with such covenants could result in an event
of default which, if not cured or waived, could have a material adverse effect
on SFX's business, financial condition and results of operations. SFX's
indebtedness under the Existing Senior Credit Facility is secured by a pledge of
the stock of substantially all of its subsidiaries and by liens on substantially
all of its and its domestic subsidiaries' assets. Most of SFX's domestic
subsidiaries have also guaranteed the 9 1/8% senior subordinated notes and
borrowings under the Existing Senior Credit Facility. The New Senior Credit
Facility is expected to be similarly secured and have the benefit of the same
subsidiary guarantees. If SFX were unable to repay any borrowings when due, the
lenders could attempt to seize SFX's and its subsidiaries' assets and the
capital stock of SFX's subsidiaries. In addition, the degree to which SFX is
leveraged could prevent it from repurchasing all of the notes tendered to it
upon the occurrence of a Change of Control. See "Risk Factors--Our indentures
and credit facility restrict our operations" and "--We could be required to make
large payments upon a change of control, which may harm our financial
condition."
SFX's ability to make scheduled payments of principal of, to pay interest
on or to refinance its debt depends on its future financial performance, which,
to a certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors beyond its control, as well as the
success of the businesses to be acquired and the integration of these
businesses into SFX's operations. There can be no assurance that SFX will be
able to make planned borrowings, that SFX's business will generate sufficient
cash flow from operations, or that future borrowings will be available in an
amount to enable SFX to service its debt and to make necessary capital or other
expenditures. SFX may be required to refinance a portion of the principal
amount of its indebtedness before its maturities. There can be no assurance
that SFX will be able to raise additional capital through the sale of
securities, the disposition of assets or otherwise for any refinancing.
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CAPITAL EXPENDITURES
Capital expenditures totaled $64.8 million and $26.6 million for the year
ended December 31, 1998 and the six months ended June 30, 1999, respectively.
Based on its current level of operations, SFX expects capital expenditures for
1999 to be approximately $50.0 million, including $28.0 million of major
projects. These capital expenditures are expected to be funded by cash flows
from operations.
YEAR 2000 COMPLIANCE
SFX is currently working to resolve the potential impact of the Year 2000
on the processing of date-sensitive information by SFX's computer systems. The
Year 2000 problem is the result of computer programs being written using two
digits, rather than four, to define the applicable year. Any of SFX's programs
that have time-sensitive software may recognize a date using "00" as the Year
1900 rather than the Year 2000, which could result in miscalculations or system
failures. The problem is not limited to computer systems. Year 2000 issues will
also potentially affect every non-information technology system that has an
embedded microchip, such as elevators.
ASSESSMENT. SFX management has been conducting a review of its exposure to
the Year 2000 problem. Based on SFX's internal review and discussions with
third parties regarding the Year 2000 problem, SFX believes that its exposure
to potential Year 2000 problems exists in two general areas: (1) technological
operations, including non-information technology systems, which are in the sole
control of SFX, and (2) technological operations which are dependent in some
way on one or more third parties. Failure to achieve high levels of Year 2000
compliance in either area could have a material adverse impact on SFX.
REMEDIATION AND IMPLEMENTATION. In the area of technological operations
which are under SFX's exclusive control, SFX is currently involved in the
identification and remediation of affected technological functions, including
non-information technology systems. SFX is addressing the risks associated with
Year 2000 compliance with respect to its accounting and financial reporting
systems and is in the process of installing new accounting and reporting
systems. These systems will provide improved reporting, allow for more detailed
analysis, handle SFX's 1998 and 1999 acquisitions and be Year 2000 compliant.
SFX expects that business segments representing 88% of SFX's pro forma revenue
for the year ended December 31, 1998 had new year 2000 compliant accounting and
financial systems installed as of January 1, 1999. SFX expects its remaining
business segments to have the new year 2000 compliant accounting and financial
systems installed before the fall of 1999. Although certain of Apollo's
information systems are not currently year 2000 compliant, we anticipate that
Apollo will take adequate preventative action by November 1999. We do not
believe any expenditures associated with Apollo's plan for addressing year 2000
problems will have a material adverse effect on the financial condition of
Apollo. SFX is in the identification and assessment phase with respect to its
non-information technology systems, which is projected to continue until the
fall of 1999.
TESTING. SFX will begin updating and testing its systems after their
installation, and expects that all testing will be complete by the fall of
1999. Upon completion, SFX will be able to identify any internal computer
systems that remain non-compliant. At present, it is anticipated that SFX's
action plan for addressing Year 2000 problems will be successfully completed in
all material respects in advance of January 1, 2000.
ESTIMATED COSTS. The total financial effect that Year 2000 issues will
have on SFX cannot be predicted with any certainty at this time. In fact, in
spite of all efforts being made to rectify these problems, the success of SFX's
efforts will not be known with certainty until the year 2000 actually arrives.
SFX anticipates that the cost of implementing the new accounting and reporting
systems will be approximately $7.2 million, of which approximately $5.4 million
has been spent through June 30, 1999. Based on its assessment to date, SFX does
not believe that expenses related to addressing the Year 2000 problem will have
a material effect on the operations and financial condition of SFX.
THIRD PARTIES. In the area of technological operations dependent in some
way on one or more third parties, including vendors, suppliers, joint venture
partners or major customers, the situation is much less in SFX's ability to
predict or control. SFX has begun to assess the level of Year 2000
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problems associated with their various vendors, suppliers, joint venture
partners and major customers. SFX's significant vendors are ticketing
companies, payroll processors, utility companies and banks. SFX is
communicating with some of these third parties to assess their compliance
efforts and SFX's exposure resulting from Year 2000 issues. SFX is in the
process of requesting written assurances of Year 2000 compliance from each of
its significant suppliers as a part of SFX's contingency planning process.
Although SFX is making these efforts to ensure that the third parties on which
it is heavily reliant are Year 2000 compliant, it cannot predict the likelihood
of such compliance occurring nor the direct or indirect costs to SFX of
non-compliance by those third parties or of securing such services from
compliant third parties. SFX has no control over these third parties'
compliance and cannot give assurances that these third parties' representations
to SFX are accurate. Therefore, there can be no guarantee that Year 2000
problems originating with a third party will not occur and no absolute
assurance that third parties will convert their systems in a timely manner.
Assuming that such third parties are not or do not become Year 2000 compliant
in a timely manner, to the extent SFX is unable to replace the goods, services
or customers with alternate sources of supply and demand on a timely and
economically equivalent basis, such failure would likely have a material
adverse effect on SFX's business and results of operations. However, SFX does
not anticipate that it will be subject to a material impact in this area.
CONTINGENCY PLAN. SFX has not completed its implementation and testing of
Year 2000 compliant systems. However, a reasonably likely worst case scenario
is that certain of SFX's material suppliers or customers will be unable to
fully become Year 2000 compliant in a timely manner, which will disrupt SFX's
ability to provide services and generate revenues in certain areas in which it
does business. For example, disruptions in ticketing operations would
significantly reduce attendance. Disruptions in transportation could affect the
provision of concessions for sale at SFX's venues. These disruptions would
continue until alternate sources of supply and demand could be located. Based
on the results of the implementation and testing of SFX's Year 2000 affected
systems and the ongoing assessment of the readiness of its vendors, suppliers,
joint venture partners and major customers, SFX will develop appropriate
contingency plans that address the most reasonably likely worst case scenarios.
SFX expects to have such contingency plans in place by the fall of 1999. A
failure to address Year 2000 issues successfully could have a material adverse
effect on SFX's business, financial condition or results of operations.
SOURCES OF LIQUIDITY
As of June 30, 1999, SFX's cash and cash equivalents totaled $99.4
million, and its working capital was a negative $55.8 million. The negative
working capital reflects SFX's policy of funding acquisitions, to the extent
possible, with available cash on hand, in order to maintain minimum borrowings
under its senior credit facility. In February 1998, SFX received the proceeds
from the $350.0 million offering of 9 1/8% senior subordinated notes and
borrowed $150.0 million under the Existing Senior Credit Facility. On May 27,
1998, SFX received approximately $329.0 million in net proceeds from the 1998
equity offering. SFX used the proceeds from the 1998 equity offering to repay
certain indebtedness, fund the tax indemnification payments and consummate the
FAME, Oakdale and certain other acquisitions. In the third quarter of 1998, SFX
used the remaining proceeds of the 1998 equity offering and borrowed an
additional $196.0 million under the Existing Senior Credit Facility to complete
the Don Law acquisition, the Magicworks acquisition and the acquisition of the
seven companies in the theatrical and music segments. On November 25, 1998, SFX
received approximately $192.5 million in net proceeds from the November 1998
note offering, which it used primarily to repay indebtedness under the
revolving portion of the Existing Senior Credit Facility. In February 1999, SFX
received approximately $260.7 million in net proceeds from the February 1999
equity offering. SFX intends to use borrowings under the proposed New Senior
Credit Facility to refinance the Existing Senior Credit Facility. As of August
5, 1999, SFX had $319.0 million of indebtedness outstanding under the Existing
Senior Credit Facility. In the event the New Senior Credit Facility is not
completed prior to the closing of this offering, SFX will require the consent
of the lenders under the Existing Senior Credit Facility to the terms of this
offering.
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SFX has incurred and will continue to incur substantial amounts of
indebtedness. As of June 30, 1999, on a pro forma basis giving effect to this
offering and the application of the net proceeds therefrom, and the
consummation of the pending Apollo acquisition, SFX's consolidated debt would
have been approximately $1.4 billion. On the same basis, SFX's consolidated
debt would consist of:
o $550.0 million of 9 1/8% senior subordinated notes;
o $782.5 million in borrowings under the New Senior Credit Facility; and
o $64.2 million in other debt.
SFX's temporary equity would have been $19.9 million, and its stockholders'
equity would have been approximately $1.1 billion.
On a pro forma basis, SFX's ratio of total debt to total capitalization as
of June 30, 1999, would have been approximately 0.56 to 1. See "SFX Unaudited
Pro Forma Condensed Combined Financial Statements." SFX may incur indebtedness
from time to time to finance future acquisitions, for capital expenditures or
for other purposes. See "Risk Factors--We have a substantial amount of debt,
which may harm us and our stockholders" and "--If we are unable to complete
pending or future acquisitions, our stock price may suffer."
The proposed New Senior Credit Facility is expected to be comprised of a
$250.0 million multi-draw, multi-currency term loan (the "Term A Loan"), a
$600.0 million single-draw, U.S. dollar term loan (the "Term B Loan") and a
$250.0 million reducing revolver having a letter of credit sub-limit of $75.0
million. Loans outstanding under the New Senior Credit Facility are expected to
bear interest, at SFX's option, at certain spreads over LIBOR for the
appropriate currency or the greater of the Federal Funds rate plus 0.50% or The
Bank of New York's prime rate. The interest rate spreads on the term loan and
revolving portions of the New Senior Credit Facility will be adjusted based on
SFX's leverage ratio. SFX will pay a per annum commitment fee on unused
availability under the revolver of 0.5% to 0.75% and a per annum letter of
credit fee equal to the Applicable LIBOR Margin, as defined in the New Senior
Credit Facility, for the revolver then in effect. SFX will also pay a
commitment fee on the unused availability under the Term A Loan. For a more
detailed summary of the terms of the proposed New Senior Credit Facility, see
"Description of Indebtedness--New Senior Credit Facility."
The Existing Senior Credit Facility contains, and the New Senior Credit
Facility will contain, usual and customary covenants, including limitations on:
o line of business;
o additional indebtedness;
o liens;
o acquisitions;
o asset sales;
o dividends, repurchases of stock and other cash distributions;
o total leverage;
o senior leverage; and
o ratios of operating cash flow to pro forma interest expense, debt
service and fixed charges.
SFX's obligations under the Existing Senior Credit Facility are secured by
substantially all of the assets of SFX and its domestic subsidiaries and by a
pledge of the stock of substantially all of SFX's subsidiaries. SFX's
obligations are guaranteed by substantially all of SFX's domestic subsidiaries.
The New Senior Credit Facility is expected to be similarly secured and have the
benefit of the same subsidiary guarantees.
The proceeds to SFX from this offering, net of the underwriting discount,
are expected to be approximately $332.1 million (based on an assumed market
price of the Class A common stock of
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$46.00 per share). SFX intends to use the net proceeds from this offering to
finance future acquisitions, for general corporate purposes and to pay fees and
expenses in connection with potential future acquisitions and this offering.
The availability of funds under the Existing Senior Credit Facility is subject
to, and the proposed New Senior Credit Facility will be subject to, compliance
with certain financial and other covenants and conditions, and there can be no
assurance that the funds required to complete SFX's pending or future
acquisitions will be available to SFX when needed. In addition, no assurances
can be given that the New Senior Credit Facility will be consummated on the
terms described herein or at all. The consummation of the New Senior Credit
Facility is material to the consummation of the Apollo acquisition and the
implementation of SFX's acquisition and growth strategy.
SFX may also be obligated to make payments relating to ongoing and future
litigation. See "Business--Litigation."
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OVERVIEW OF THE LIVE ENTERTAINMENT INDUSTRY
MUSIC
The concert promotion industry in North America and Europe consists
primarily of regional promoters focused generally in one or two major
metropolitan markets. According to Amusement Business, industry gross box
office receipts for North American concert tours totaled $1.3 billion in 1998,
compared to $321.7 million in 1985, representing a compounded annual growth
rate of approximately 11.3%. SFX believes that overall increases in ticket
sales during the last several years are in part due to the increasing
popularity of amphitheaters as live entertainment venues, as well as an
increasing number of tours that attract older audiences who did not previously
attend musical concerts.
Typically, to initiate a music concert or other live entertainment event
or tour, a booking agent contracts with a performer to arrange a venue and
date, or series of venues and dates, for the performer's event. The booking
agent in turn contacts a promoter or promoters in the locality or region of the
relevant venue or venues. The promoter markets the event, sells tickets, rents
or otherwise provides the event venue or venues and arranges for local
production services, such as stage, set, sound and lighting. In certain
instances, particularly in connection with music festivals, a promoter may also
provide limited production services. Individual industry participants, such as
SFX, often perform more than one of the booking, promotion and venue operation
functions.
The booking agent generally receives from the artist a fixed fee for its
services or, in some cases, a fee based on the success of the event or events.
The promoter typically agrees to pay the performer the greater of a guaranteed
amount and a profit-sharing payment based on gross ticket revenues, therefore
assuming the risk of an unsuccessful event. The promoter sets ticket prices and
advertises the event to cover expenses and generate profits. If the event is
unprofitable, a promoter will sometimes renegotiate a lower guarantee to lessen
the promoter's losses, in a process known as "settlement." In some instances,
the promoter agrees to accept a fee from the booking agent for the promoter's
services, and the booking agent bears the financial risk of the event.
A venue operator typically contracts with a promoter to rent its venue for
a specific event on a specific date or dates. The venue operator provides
services such as concessions, parking, security, ushers and ticket-takers, and
receives revenues from concessions, merchandise, sponsorships, parking and
premium box seats. A venue operator in North America will typically receive for
each event it hosts a fixed fee or percentage of ticket sales for use of the
venue, as well as a fee representing between 40-50% of total concession sales
from the vendors and 10-25% of total merchandise sales from the performer.
Concert venues in the U.S. and Europe generally consist of:
o stadiums, which typically have 32,000 or more seats;
o amphitheaters or arenas, which typically have 5,000 to 32,000 seats;
o clubs, which typically have less than 2,000 seats; and
o theaters, which typically have 100 to 5,000 seats.
Amphitheaters are generally outdoor venues that are used primarily in the
summer season. They are popular venues for concerts because the seating
configuration is designed specifically for concert events, often resulting in
more available seats, fewer obstructed seats, better lines of sight to the
stage and superior acoustics. In addition, because they typically cost less to
construct, maintain and operate than traditional multi-purpose stadiums and
arenas, amphitheaters often are able to host concerts and other events that
would not be profitable in a stadium or arena. In the U.S., amphitheaters are
typically the venue of choice for concerts, while, in Europe, arenas, stadiums
and festival sites are generally more popular.
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THEATER
The audience for live professional theater has increased significantly in
the last two decades. According to Variety Magazine, gross ticket sales for the
entire industry of touring Broadway shows and Broadway shows have increased
from $476.5 million during the 1987-88 season to $1.4 billion during the
1997-98 season, a compounded annual growth rate of 11.0%. During this time, the
number of touring weeks and markets where touring Broadway shows could
profitably be presented have expanded. Sales for touring Broadway shows have
grown as a percentage of total industry gross ticket sales, from approximately
47% in the 1987-88 season to approximately 59% in the 1997-98 season. The
growth of the national theatrical industry has resulted, in part, from:
o the development of local subscription series for touring Broadway
shows;
o the construction of new performing arts centers with seating capacities
of 2,500 or more in many municipalities;
o an increase in the quality of touring Broadway shows; and
o an increase in the number of multiple-week engagements produced for
presentation outside of New York City.
Touring Broadway shows are typically revivals of previous commercial successes
or reproductions of theatrical shows currently playing on Broadway in New York
City.
Live professional theater consists mainly of the production of existing
musical and dramatic works and the development of new works. In general,
musicals require more investment of time and capital than dramatic productions.
For an existing musical work which is more likely to be presented as a touring
Broadway show, a period of 12 to 24 months typically elapses between the time a
producer acquires the theatrical stage rights and the date when the musical is
first performed before the public. A longer period, typically three years, is
required before a newly-created work is first publicly performed. The
production costs in the U.S. and Europe for a major musical production is
typically in the range of $5 million to $12 million, depending on the nature of
the production. By comparison, dramatic productions typically have smaller
production budgets, shorter pre-production periods and lower operating costs,
and tend to occupy smaller theaters for shorter runs.
A producer of a Broadway show or a touring Broadway show first acquires
the rights to the work from its owners, who typically receive royalty payments
in return. The producer then assembles the cast of the show, hires a director
and arranges for the design and construction of sets and costumes. The producer
of a touring Broadway show also must arrange transportation and schedule the
show with local promoters. The local promoter of a touring Broadway show, who
generally operates or has relationships with venues in individual markets,
provides all local services, such as selling tickets, hiring local personnel,
buying advertising and paying a fixed guarantee--typically between $100,000 and
$400,000--to the producer of the show for each week that the show is presented.
The promoter then has the right to recover the amount of the guarantee plus its
local costs from ticket revenues. The promoter and the producer share any
remaining ticket revenues, with the producer typically receiving approximately
60% of the profits.
Although touring Broadway shows are generally substantially less expensive
to produce than Broadway shows, their financing may take place through a
limited partnership with third-party investors who receive a profit interest in
the production. Often, investors in touring Broadway shows will also invest in
the underlying Broadway show, in part to help secure touring rights. After
investors have received the complete return of their investment, net profits
are split between the limited partners and the show's producer. The amount of
net profits allocated to the show's producer, including fees and royalties,
varies somewhat, but is normally in the range of 50% after certain profit
participations are deducted. After certain net profits, a producer may also
receive a production fee and royalties. A typical touring Broadway show
requires 45 playing weeks with a weekly guarantee from the local promoter of
approximately $250,000 to recoup production and touring costs; more elaborate
touring productions with larger casts or sets, such as The Phantom of the Opera
or Miss Saigon, generally require significantly higher weekly revenues and
additional playing weeks to recoup production and touring costs.
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Venues often sell tickets for touring Broadway shows through "subscription
series," which are pre-sold season tickets for a defined package of shows to be
presented in a given venue.
SPORTS
Talent Representation Industry
The talent representation industry generally encompasses the negotiation
of employment agreements and the creation and evaluation of endorsement,
promotional and other business opportunities for the client. A provider in this
industry may also provide ancillary services, such as financial advisory or
management services to its clients in the course of the representation.
Motor Sports Industry
Specialized motor sports is the fastest growing spectator sport in the
U.S. and makes up a significant segment of the live entertainment industry,
serving both families and motor sports enthusiasts. This growth has resulted
from additional demand in existing markets and new demand in markets where new
arenas and stadiums have been built. The increasing popularity of specialized
motor sports over the last several years has coincided with--and, in part, been
due to--the increased popularity of other professional motor sports events,
such as professional auto racing, including NASCAR, CART and Indy Car Racing. A
number of specialized motor sports events are televised on several of the major
television networks and are also shown on television in markets outside of the
United States.
In general, most markets host one to four motor sports events each year,
with larger markets hosting more performances. Stadiums and arenas typically
work with producers and promoters to manage the scheduling of events to
maximize each event's results and each season's revenues. The cost of producing
and promoting a typical single stadium event ranges from $300,000 to $600,000,
and the cost of producing and presenting a typical single arena event ranges
from $50,000 to $150,000. Typically, third parties create and finance monster
trucks, demolition derbies, thrill acts, air shows and other motor sports
concepts and events. They may perform in an individual event or in an entire
season of events. As in other motor sports, corporate sponsorships and
television exposure are important financial components that contribute to the
success of a single event or season of events.
FAMILY ENTERTAINMENT & OTHER
SFX's family entertainment business involves multiple markets and a
diverse range of performers and events. These events include children's
theatrical shows, dance shows, ice-skating, gymnastic shows and other forms of
live entertainment that appeal directly to families with young children.
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BUSINESS
SUMMARY
SFX is the world's largest diversified promoter, producer and venue
operator for live entertainment events. SFX currently owns, partially or
entirely, and operates under lease or exclusive booking arrangements, the
largest network of venues used principally for music concerts and other live
entertainment events in the U.S., with 82 venues in 31 of the top 50 markets,
including 16 amphitheaters in the top 10 markets.
Through its large number of venues, strong presence in each market it
serves and established operating history, SFX is able to provide integrated
promotion, production and venue operation and event management services for a
broad variety of live entertainment events locally, regionally and nationally.
During 1998, giving effect to SFX's 1998 and 1999 acquisitions, approximately
37 million people attended 13,200 events promoted and/or produced by SFX,
including over 6,250 music concerts, 5,800 theatrical shows, 350 specialized
motor sports shows and 800 family entertainment shows.
SFX is organized along four principal divisions: music, theater, sports
and family entertainment & other. The following table presents each division's
percentage of SFX's total revenues for the year ended December 31, 1998, on a
pro forma basis for the 1998 and 1999 acquisitions:
<TABLE>
<CAPTION>
DIVISION ACTUAL PRO FORMA
- ----------------------------------------- -------- ----------
<S> <C> <C>
Music ................................. 66% 53%
Theater ............................... 17% 25%
Sports ................................ 3% 10%
Family Entertainment & Other .......... 14% 12%
-- --
Total ................................. 100% 100%
=== ===
</TABLE>
SFX has benefited from significant growth in the live entertainment
industry over the last several years. SFX believes that its ability to provide
integrated services as a promoter, producer, venue operator and manager of live
entertainment events will encourage wider use of its venues by performers. SFX
further believes that this ability will allow SFX to capture a greater
percentage of revenues generated by those events and may contribute to the
overall growth of the live entertainment industry.
SFX's core business is the promotion and production of live entertainment
events, most significantly for concert and other music performances in venues
owned and/or operated by SFX and in third-party venues.
As promoter, SFX typically:
o markets events and tours;
o sells tickets;
o rents or otherwise provides event venues; and
o arranges for local production services, such as stage, set, sound and
lighting.
As producer, SFX typically:
o creates tours for music concerts, theatrical events, specialized motor
sports and other events;
o develops and manages touring Broadway touring theatrical shows; and
o develops specialized motor sports and other live entertainment events.
FORMATION OF SFX
SFX's predecessor, SFX Concerts, Inc., was formed in January 1997 by SFX
Broadcasting, Inc. On April 27, 1998, SFX was spun-off from SFX Broadcasting
and became a separate publicly-traded company. Since its formation, SFX has
grown rapidly through acquisitions. The following is a summary of certain of
the material businesses that SFX acquired in 1997, 1998 and 1999. The following
descriptions are not intended to be complete descriptions of the terms of the
acquisition agreements
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and are qualified by reference to the acquisition agreements. Copies of certain
of these acquisition agreements are filed as exhibits to the registration
statement of which this prospectus is a part and are incorporated herein by
reference.
1997 ACQUISITIONS
DELSENER/ SLATER
In January 1997, SFX Concerts acquired Delsener/Slater, a leading concert
promotion company. Delsener/Slater has long-term leases or is the exclusive
promoter for several of the major concert venues in the New York City
metropolitan area, including the Jones Beach Amphitheater, which is a
14,000-seat complex located in Wantagh, New York, and the PNC Bank Arts Center,
which is a 17,500-seat complex located in Holmdel, New Jersey, and was formerly
known as the Garden State Arts Center.
MEADOWS
In March 1997, SFX Concerts acquired the stock of certain companies which
own and operate the Meadows, a 25,000-seat indoor/outdoor complex located in
Hartford, Connecticut.
SUNSHINE PROMOTIONS
In June 1997, SFX Concerts acquired the stock of Sunshine Promotions, one
of the largest concert promoters in the Midwest. Sunshine Promotions owns the
Deer Creek Music Theater, a 21,000-seat complex located in Indianapolis,
Indiana, and the Polaris Amphitheater, a 20,000-seat complex located in
Columbus, Ohio, and has a long-term lease to operate the Murat Centre, a
2,700-seat theater and 2,200-seat ballroom located in Indianapolis, Indiana.
1998 ACQUISITIONS
WESTBURY
On January 8, 1998, SFX acquired a long-term lease for Westbury Music
Fair, located in Westbury, New York.
BGP
On February 24, 1998, SFX acquired Bill Graham Presents, one of the oldest
promoters and producers of live entertainment in the United States and the
principal promoter of live entertainment in the San Francisco Bay area.
PACE AND PAVILION PARTNERS
On February 25, 1998, SFX acquired all of the outstanding capital stock of
PACE, one of the largest diversified promoters and producers of live
entertainment in the U.S. PACE has what SFX believes to be the largest
distribution network in each of its music, theater and motor sports events
business segments. In connection with the acquisition of PACE, SFX obtained
100% of Pavilion, a partnership that owns interests in venues owned by SFX, by
acquiring one-third of Pavilion through the acquisition of PACE and the
remaining two-thirds of Pavilion from Sony and Blockbuster. Under certain
circumstances, SFX may be required to sell either its motor sports or
theatrical lines of business. See "Risk Factors--We may be forced to sell some
of our subsidiaries, which may prevent us from realizing the full value of
these subsidiaries."
In connection with its acquisition of partnership interests in Lakewood
Amphitheater in Atlanta, Georgia and Starplex Amphitheater in Dallas, Texas,
PACE entered into a co-promotion agreement with its partner. The co-promotion
agreement contains a provision that purports, under certain circumstances, to
require PACE to co-promote, and share one-half of the profits and losses, with
such partnership certain concerts which are presented by PACE or any of its
affiliates in another venue located in either Atlanta, Georgia or Dallas,
Texas. However, SFX acquired an interest in Chastain Park Amphitheater, also in
Atlanta, in the Concert/Southern acquisition described below. SFX is currently
involved in litigation with its partner. See "--Litigation."
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CONTEMPORARY
On February 27, 1998, SFX acquired by merger and asset acquisition the
music concert, live entertainment, event marketing, computerized ticketing and
related businesses of Contemporary and the 50% interest in the Riverport
Amphitheater Joint Venture not owned by Contemporary. Contemporary is a
vertically-integrated live entertainment and special event promoter and
producer, venue operator and consumer marketer. Contemporary is also one of the
top special event sales promotion and marketing companies in the country.
Contemporary develops programs for national consumer product companies and for
demonstrating, sampling and selling products to consumers. Contemporary's
clients have included AT&T, CBS TV, Radio Shack, Coca Cola USA, Reebok, Nabisco
and the NBA.
NETWORK
On February 27, 1998, SFX acquired Album Network, Inc., SJS Entertainment
Corporation and the assets of The Network 40 as well as an office building and
related property. Network is engaged in music marketing, research and artist
development activities and is a publisher of trade magazines for radio
broadcasters, music retailers, performers and record industry executives.
CONCERT/SOUTHERN
On March 4, 1998, SFX acquired Concert/Southern, a promoter of live
entertainment in the Atlanta metropolitan area.
USA MOTOR SPORTS
On March 25, 1998, PACE acquired a 67% interest in certain assets and
liabilities of USA Motor Sports. The remaining 33% interest is held by
Contemporary.
AVALON
On May 14, 1998, SFX acquired Avalon, a leading music concert producer and
promoter in the Los Angeles area.
OAKDALE
On June 3, 1998, SFX acquired certain assets of Oakdale. Oakdale is a
promoter and producer of concerts in Connecticut and the owner of the Oakdale
Theater, a new 4,800 seat facility located in Wallingford, Connecticut.
FAME
On June 4, 1998, SFX acquired all of the outstanding capital stock of
FAME, a leading full-service marketing and management company which specializes
in the representation of team sports athletes, primarily in professional
basketball. FAME was founded in 1992 by David Falk and Curtis Polk and
currently represents some of the premier athletes in professional team sports,
including, among others, Michael Jordan, Patrick Ewing, Alonzo Mourning, Juwan
Howard and Allen Iverson. In addition, FAME provides specialized financial
advisory services to its clients. Mr. Falk continues to serve as the Chairman
of FAME and is a Member of the Office of the Chairman and a director of SFX.
SFX believes that, through its acquisition of FAME, it will be able to
capitalize on the cross-marketing opportunities that may arise by virtue of
representing prominent team athletes while selling corporate sponsorships and
other marketing rights at its existing venues.
DON LAW
On July 2, 1998, SFX acquired certain assets of Don Law, a concert and
theater promoter in New England. Don Law currently owns and/or operates three
venues in New England with an aggregate seating capacity of 27,400.
MAGICWORKS
On September 11, 1998, SFX purchased all of the outstanding shares of
common stock of Magicworks, a publicly-traded company. Magicworks specializes
in the production and promotion of
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live entertainment events such as theatrical shows, music concerts, ice skating
shows and other forms of live entertainment. Magicworks also provides personal
representation and sports marketing services to professional athletes in such
sports as figure skating, baseball and tennis.
OTHER 1998 ACQUISITIONS
In 1998, SFX completed the acquisition of seven additional companies in
the theatrical and music segments. The seven acquisitions included two concert
promotion companies, two theatrical presenters, a theatrical presenter and
venue owner/operator, a concert merchandising company and an equity owner of an
SFX amphitheater.
1999 ACQUISITIONS
RZO ACQUISITION
On January 11, 1999, SFX acquired The RZO Companies, a group of companies
involved in the promotion and production of international music concert tours
and music publishing.
THE ENTERTAINMENT GROUP ACQUISITION
On January 11, 1999, SFX acquired The Entertainment Group, a Chicago-based
promoter. Concurrent with the acquisition, SFX entered into a ten-year
agreement with the Village of Rosemont in suburban Chicago to provide booking,
group sales and marketing services for the Rosemont Horizon, a 17,500 seat
arena, and the Rosemont Theater, a 4,000 seat venue. The Entertainment Group
also owns a 25% equity interest in a partnership with the Village of Rosemont
and Radio City Music Hall, which holds the rights to present the Radio City
Music Hall Christmas Spectacular in the Rosemont Theater. In addition, The
Entertainment Group operates theatrical subscription series in Charleston,
South Carolina and Pensacola, Florida and promotes concerts and other
entertainment events in Mexico.
MARQUEE ACQUISITION
On March 16, 1999, a wholly owned subsidiary of SFX was merged with and
into Marquee Group, Inc. and Marquee became a wholly owned subsidiary of SFX.
Marquee provides integrated event management, television programming and
production, marketing, talent representation and consulting services in the
sports, news and other entertainment industries. Marquee's event management,
television programming and production and marketing services involve:
o producing television programs, principally sports entertainment and
children's programs;
o managing sporting events, such as the Breeder's Cup Championship, AT&T
Challenge, The Guardian Direct Cup and the Isuzu Celebrity Golf
Championship;
o marketing professional and collegiate athletic leagues and
organizations; and
o consulting clients engaged in, or seeking exposure in, sports and
entertainment-related industries.
CELLAR DOOR ACQUISITION
On February 22, 1999, SFX acquired all of the issued and outstanding
capital stock of the Cellar Door group of companies. Cellar Door is a leading
promoter and producer of live entertainment events in the Southeast and
Midwest. Based in Fort Lauderdale, Florida, Cellar Door owns and/or operates
venues from Virginia to Florida, promoting concerts in most of the major
markets in this region. Cellar Door also operates venues and promotes concerts
in Michigan, Wisconsin and Ohio.
NEDERLANDER ACQUISITION
On March 16, 1999, SFX acquired certain interests in seven venues and
other assets from entities controlled by members of the Nederlander family and
other persons. The interests in the venues acquired consist of:
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o 50% interests in long-term leases and booking and management agreements
for The World Music Theatre in Chicago and the Alpine/Valley Music
Amphitheatre in East Troy, Wisconsin, serving the Milwaukee/North
Chicago market;
o a long-term lease for the Merriweather Post Pavilion in Columbia,
Maryland, serving the Washington D.C. and Baltimore markets;
o a booking and management agreement for the Riverbend Amphitheater and
the Crown Arena;
o a one-third interest in the ownership of the Crown Arena;
o a long-term lease for the Taft Theater; and
o a short-term lease for Bogart's Club, all in Cincinnati.
In addition, SFX acquired 100% interests in entities that provide concert
performances and hold rights to construct the Mesa del Sol Centre for the
Performing Arts in Albuquerque, New Mexico.
ISI ACQUISITION
On February 22, 1999, SFX acquired Integrated Sports International.
Integrated Sports is a full-service marketing company utilizing a completely
integrated approach in the development of client programs. Integrated Sports is
involved in:
o corporate consulting and property marketing;
o athletic/celebrity marketing and representation;
o team and venue services;
o event planning and management; and
o licensing and merchandising.
AL HAYMON ACQUISITION
On June 20, 1999, SFX acquired 50% of A.H. Enterprises, an entity operated
by Al Haymon. Al Haymon is the preeminent pop urban music promoter in the U.S.,
having presented national tours for artists such as Lauryn Hill, Whitney
Houston, Janet Jackson, MC Hammer and Boyz II Men, as well as for Budweiser
Superfest.
HENDRICKS ACQUISITION
On June 28, 1999, SFX acquired Hendricks Management Company, Inc.
Hendricks is one of the leading baseball talent representation agencies,
representing approximately 10% of the major league baseball players. Clients
include Roger Clemens, Chuck Knoblauch, Al Leiter, Jay Buhner, Jose Cruz, Jr.,
Roberto Hernandez, Kerry Wood, Andy Pettitte and Bill Taylor. In addition to
player contract negotiation, Hendricks provides fee-based services such as
financial planning, budgeting and tax preparation.
CANDID PRODUCTIONS
On July 26, 1999, SFX acquired Candid Productions, Inc. from Dick Button.
Candid Production produces, among other things, the annual World Professional
Figure Skating Championship.
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PENDING ACQUISITIONS
APOLLO
On August 2, 1999, SFX entered into an agreement to acquire Apollo Leisure
Group plc, the largest live theater operator as well as one of the largest
providers of entertainment and leisure management services in the U.K. Apollo
operates, among other things, three arenas, a network of 23 theaters and 16
multiplex cinema houses. Apollo works to leverage its expertise in all types of
venue management and in many cases arranges contracts with local authorities to
manage their entire theater, sports and leisure facilities. Apollo owns Tickets
Direct, a telephone operator-based ticketing system which handled approximately
6 million tickets in 1998. Apollo also holds a 62% interest in City Center
Leisure (Holdings) Limited, which operates 26 fitness facilities for local
authorities and is currently in negotiations to operate 30 additional
facilities. Apollo also currently owns a 50% interest in Barry Clayman
Concerts, a leading promoter of concert and other live entertainment events in
the U.K., and has the exclusive European presentation rights to Riverdance. As
part of its acquisition of Apollo, SFX will acquire the remaining 50% interest
of Barry Clayman Concerts.
LIVENT
On May 28, 1999, SFX agreed to acquire certain assets of Livent Inc. and
its affiliates, including three theaters and intellectual property rights to
several current and future Broadway productions, including Ragtime, Fosse,
Phantom of the Opera and Seussical. The theaters, which Livent owns or holds
under long-term leases, include the Ford Theatre in New York, the Ford Theatre
in Chicago and the Pantages Theatre in Toronto.
The consummation of each pending acquisition is subject to the
satisfaction of a number of conditions, which, in some cases, are outside of
SFX's control. SFX may waive some or all the conditions to its obligations
under the agreements relating to these acquisitions. No assurance can be given
that the pending acquisitions will be consummated on the terms described in
this prospectus, or at all. See "Risk Factors--If we are unable to complete
pending or future acquisitions, our stock price may suffer."
SFX is also currently pursuing certain additional acquisitions; however,
it has not entered into any definitive agreements with respect to such
acquisitions and there can be no assurance that it will do so.
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BUSINESS SEGMENTS OF SFX
SFX operates in four major business segments within the live entertainment
industry: music, theater, sports and family entertainment & other.
MUSIC
SFX is the largest music venue owner and operator and concert promoter in
North America. In addition, SFX's music division produced 11 national concert
tours in 1998, and is currently contracted to produce 23 in 1999.
Within its music segment, SFX is engaged in:
o booking and promoting music events and tours;
o producing music events and tours;
o owning and/or operating concert and other entertainment venues; and
o selling corporate sponsorships and advertising.
BOOKING AND PROMOTION
Promotion of music events involves booking talent, renting or providing
the event venue, marketing the event to attract ticket buyers and providing for
local services required in the production of the event, such as security and
stage hands. As a promoter, SFX generally receives revenue from the sale of
tickets and sponsorships. When SFX promotes an event at a venue which it owns
or manages, it also generally receives a percentage of revenues from
concessions, merchandising, parking and premium box seats. See "-- Venue
Operations."
SFX books and promotes events in a number of types of venues that are
owned and/or operated by SFX or by third parties. See "--Venue Operations." SFX
primarily promotes concerts performed by newer performers having widespread
popularity--such as The Dave Matthews Band, the Spice Girls and `N Sync--and by
more established performers having relatively long-standing and more stable
bases of popularity--such as Billy Joel and Jimmy Buffett. SFX believes that
its large distribution network will enable it to set an aggregate guarantee for
a series of shows, mitigating the risk of loss associated with a single show.
SFX also believes that its market research and audience demographics database
and its audience data collection efforts will permit highly-effective, targeted
marketing, such as direct-mail and subscription series campaigns, which SFX
believes will increase ticket pre-sales and overall sales in a cost-efficient
manner.
The following table identifies artists whose events SFX recently promoted,
on a pro forma basis:
Aerosmith
Alabama
Alanis Morissette
All That
(children's music tour)*
Back Street Boys
Barry Manilow
Billy Joel
Black Sabbath*
Bob Dylan/Paul Simon*
Brandy*
Brooks & Dunn
Cher*
Chris Rock*
Clint Black
Crosby, Stills, Nash & Young*
Dave Matthews Band*
Depeche Mode
Doobie Brothers/Chicago*
Elton John
Fleetwood Mac*
George Strait*
Hanson
Helmut Lotti*
James Taylor
Janet Jackson
Jerry Seinfeld*
Jimmy Buffett
John Mellencamp
Lauryn Hill*
Lenny Kravitz*
Melissa Etheridge
Metallica
`N Sync*
Neil Young*
98 Degrees*
Ozzy Osbourne (Ozzfest)*
Pearl Jam
Phil Collins
Pink Floyd
Phish
R.E.M.
Rod Stewart*
The Rolling Stones*
Sheryl Crow
Smashing Pumpkins
Spice Girls
Stone Temple Pilots
Tim Allen*
Tina Turner
Tom Petty*
U2
Volunteer Jam*
- ----------
* SFX-produced national tour.
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PRODUCTION
Production of events involves developing the event content, hiring
artistic talent and managing the actual production of the event, with the
assistance of the local promoter. As a producer, SFX generally receives
revenues from guarantees and from profit sharing agreements with promoters, a
percentage of the promoters' ticket sales, merchandising, sponsorships,
licensing and the exploitation of intellectual property and other rights
related to the production.
SFX produces tours on a national or regional basis and, in 1998,
structured national tours for Rod Stewart and Ozzy Osbourne, among others. SFX
plans to increase its production of national music tours. SFX produced 11
national concert tours in 1998, and is currently contracted to produce 23 in
1999.
VENUE OPERATIONS
SFX derives revenues from its venue operations primarily from corporate
sponsorships and advertising, concessions, merchandise, parking and other
related items. A venue operator typically receives for each event it hosts a
fixed fee or percentage of ticket sales for use of the venue, as well as a fee
representing approximately 50% of total concession sales from the vendors and
10-25% of total merchandise sales from the performer. As a venue owner, SFX
typically receives 100% of sponsorship and advertising revenues.
SFX believes that it controls the largest network of venues used
principally for music concerts and other live entertainment events in the U.S.
SFX wholly or partially owns and/or operates 82 venues in 31 of the top 50
markets, including 16 amphitheaters in the top 10 markets. The following chart
sets forth certain information with respect to the venues that SFX wholly or
partially owns and/or operates:
<TABLE>
<CAPTION>
TOTAL AVG. NO. OF TOTAL
MARKET TYPE OF SFX'S SEATING ATTENDANCE EVENTS SEATS SOLD
MARKET AND VENUE RANK (1) VENUE INTEREST CAPACITY IN 1998 IN 1998 IN 1998
- ----------------------------- ---------- -------------- ------------- ---------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
NEW YORK--NORTHERN NEW 1
JERSEY--LONG ISLAND:
PNC Bank Arts Center amphitheater 22-year 17,500 7,605 45 342,204
(formerly Garden State lease that
Arts Center) ............... expires
October 31,
2017
Jones Beach Marine amphitheater 10-year 14,400 8,840 37 327,080
Amphitheater ............... license
agreement
that expires
December 31,
1999
Beacon Theatre .............. theater 49% 2,849 2,771 33 91,452
partnership
interest in
15-year
lease that
expires
December 31,
2006
Irving Plaza ................ theater 10-year 1,121 711 130 92,400
lease that
expires
July 30,
2007
Roseland Ballroom ........... theater exclusive 3,600 2,233 44 98,239
booking
agent
Westbury Music Fair ......... theater 43-year 2,870 1,955 160 312,761
lease that
expires
December 31,
2034
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
TOTAL AVG. NO. OF TOTAL
MARKET TYPE OF SFX'S SEATING ATTENDANCE EVENTS SEATS SOLD
MARKET AND VENUE RANK (1) VENUE INTEREST CAPACITY IN 1998 IN 1998 IN 1998
- --------------------------------- ---------- -------------- ----------------- --------------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Ford Theatre(2) ................. theater 40-year 1,812 N/A N/A N/A
ground
lease
(expires
December
31, 2028)
LOS ANGELES--RIVERSIDE-- 2
ORANGE COUNTY:
Glen Helen Blockbuster amphitheater 25-year 25,000(3) 7,770 5 38,851
Pavilion ....................... lease that
expires
July 1, 2018
Irvine Meadows amphitheater facility 15,500 7,627 30 228,804
Amphitheater ................... owned;
20-year land
lease that
expires
February
28, 2017
Thousand Oaks Civic Arts theater 5-year 1,800 1,403 17 23,853
Plaza .......................... exclusive
booking
agent for
contemporary
music
events that
expires
May 2003
CHICAGO--GARY--KENOSHA: 3
The Palace Theater(4) ........... theater 50% 2,350 N/A N/A N/A
partnership
interest in
49-year
lease that
expires
May, 2048
Rosemont Horizon ................ arena 10-year 17,500 11,178 25 279,450
consulting
agreement
that expires
January 1,
2009(5)
Rosemont Theater ................ theater 10-year 4,402 2,399 221 530,229
consulting
agreement
that expires
January 1,
2009(5)
New World Music Theater ......... amphitheater 50% interest 28,000 15,434 26 402,074
in 19-year
lease that
expires
December
31, 2013
and 19-year
booking
and
management
agreement
that expires
November,
2013
Ford Theater(2) ................. theater long-term 2,149 N/A N/A N/A
lease
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
TOTAL AVG. NO. OF TOTAL
MARKET TYPE OF SFX'S SEATING ATTENDANCE EVENTS SEATS SOLD
MARKET AND VENUE RANK (1) VENUE INTEREST CAPACITY IN 1998 IN 1998 IN 1998
- ---------------------------------- ---------- -------------- -------------- ---------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
WASHINGTON--BALTIMORE: 4
Nissan Pavilion at Stone amphitheater 20-year 25,000 12,880 32 412,147
Ridge ........................... lease that
expires
June 9,
2014
Merriweather-Post Pavilion ....... amphitheater 10-year 18,000 10,162 25 254,051
lease that
expires
December
31, 2007
SAN FRANCISCO--OAKLAND--SAN 5
JOSE:
Shoreline Amphitheater ........... amphitheater facility 22,000 12,161 35 425,654
owned; land
leased for
35 years,
expiring
November 30,
2021
Concord Pavilion ................. amphitheater 10-year 12,500 6,653 31 206,233
exclusive
outside
booking
agent until
December 31,
2005
Greek Theater .................... theater 4-year 8,500 4,610 7 32,272
promotion
agreement
that expires
October 31,
2002
Warfield Theatre ................. theater 10-year 2,250 2,263 51 115,398
lease that
expires
May 31,
2008
Fillmore Auditorium .............. theater 10-year 1,249 977 130 127,062
lease that
expires
August 31,
2007
Punch Line Comedy Club ........... club 5-year lease 175 117 416 48,686
that expires
September 15,
2001
PHILADELPHIA--WILMINGTON-- 6
ATLANTIC CITY:
Blockbuster/SONY Music amphitheater 31-year 25,000 8,244 60 494,622
Entertainment Centre on lease that
the Waterfront .................. expires
February 9,
2025
BOSTON--WORCESTER--LAWRENCE: 7
Tweeter Center for the amphitheater owned 19,500 13,430 43 577,474
Performing Arts .................
Tweeter Center (formerly amphitheater 5-year 5,000 3,270 42 137,355
Harborlights Pavilion) .......... license
agreement
that expires
January 29,
2004
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
MARKET TYPE OF SFX'S
MARKET AND VENUE RANK (1) VENUE INTEREST
- -------------------------------- ---------- -------------- --------------
<S> <C> <C> <C>
Orpheum Theatre ................ theater 4-year
operating
agreement
that expires
December 31,
2000
Avalon ......................... club 5-year
exclusive
booking
agreement
until
June 30,
2003
Charles Playhouse (main theater owned
stage) ........................
Charles Playhouse (basement) theater owned
Colonial Theatre ............... theater 8-year lease
that expires
August 31,
2001
Wilbur Theatre ................. theater 5-year lease
that expires
August 25,
2001
DETROIT--ANN ARBOR--FLINT: 8
Pine Knob Music Theatre ........ amphitheater preferred
booking
The Palace at Auburn Hills ..... arena preferred
booking
Detroit State Theatre .......... theater preferred
booking
Meadowbrook amphitheater preferred
Amphitheater .................. booking
HOUSTON--GALVESTON--BRAZORIA: 10
Cynthia Woods Mitchell amphitheater 15-year
Pavilion ...................... management
contract
that expires
December 31,
2009
Aerial Theater at Bayou theater 50%
Place ......................... partnership
interest in
10-year
lease that
expires
December 31,
2007
ATLANTA: 11
Lakewood Amphitheater .......... amphitheater 32.5%
partnership
interest in
35-year
lease that
expires
January 1,
2019
Chastain Park Amphitheater ..... amphitheater 10-year
lease that
expires
December 31,
2000
Roxy Theater ................... club 7-year lease
that expires
March 31,
2004
<CAPTION>
TOTAL AVG. NO. OF TOTAL
SEATING ATTENDANCE EVENTS SEATS SOLD
MARKET AND VENUE CAPACITY IN 1998 IN 1998 IN 1998
- -------------------------------- --------------- ------------ --------- ------------------
<S> <C> <C> <C> <C>
Orpheum Theatre ................ 2,700 2,331 20 46,618
Avalon ......................... 1,350 1,078 48 51,754
Charles Playhouse (main 525 433 464 200,981
stage) ........................
Charles Playhouse (basement) 200 134 416 55,587
Colonial Theatre ............... 1,705 1,379 139 191,767
Wilbur Theatre ................. 1,223 986 81 79,878
DETROIT--ANN ARBOR--FLINT:
Pine Knob Music Theatre ........ 16,646 12,283 31 380,762
The Palace at Auburn Hills ..... 15,000(8) 13,958 32 446,652
Detroit State Theatre .......... 3,000 2,116 35 74,075
Meadowbrook 7,619 3,770 5 18,850
Amphitheater ..................
HOUSTON--GALVESTON--BRAZORIA:
Cynthia Woods Mitchell 13,000 8,616 42 361,872
Pavilion ......................
Aerial Theater at Bayou 2,800(9) 1,022 171 174,781(10)
Place .........................
ATLANTA:
Lakewood Amphitheater .......... 19,000 14,593 27 394,021
Chastain Park Amphitheater ..... 7,000 5,490 29 159,196
Roxy Theater ................... 1,500 941 48 45,173
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
TOTAL AVG. NO. OF TOTAL
MARKET TYPE OF SFX'S SEATING ATTENDANCE EVENTS SEATS SOLD
MARKET AND VENUE RANK (1) VENUE INTEREST CAPACITY IN 1998 IN 1998 IN 1998
- ---------------------------------- ---------- -------------- --------------- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cotton Club ...................... club presently 650 315 135 42,541
month-to-month
relocating
to new
premises
under
10-year
lease that
expires July
31, 2009
MIAMI--FORT LAUDERDALE: 12
Sunrise Musical Theatre .......... theater owned 3,968 2,523 40 100,905
Parker Playhouse ................. theater 4-year 1,181 632 110 69,529
exclusive
booking
that expires
October 17,
2000
SEATTLE--TACOMA--BREMERTON: 13
White River Amphitheatre (11). amphitheater long-term 20,000 N/A N/A N/A
management
agreement
PHOENIX--MESA: 16
Desert Sky Blockbuster amphitheater 60-year 19,900 10,017 15 150,261
Pavilion ........................ lease that
expires
June 30,
2049
ST. LOUIS: 18
Riverport Amphitheater ........... amphitheater owned 21,000 10,182 34 346,173
American Theater ................. theater 10-year 2,000 1,484 19 28,192
lease that
expires
July 31,
2004
Westport Playhouse ............... theater year-to-year 1,100 1,078 9 9,703
lease, with
renewal
under
negotiation
PITTSBURGH: 19
Star Lake Amphitheater ........... amphitheater 45-year 22,500 12,352 38 469,391
lease that
expires
December 31,
2034
I.C. Light Amphitheater .......... amphitheater License 4,235 1,666 61 101,598
Agreement
that expires
December
31, 2004
DENVER--BOULDER--GREELEY: 21
The Fillmore Auditorium .......... theater owned 3,000 1,941 4 7,762
PORTLAND, OR: 22
L.B. Day Amphitheater ............ amphitheater exclusive 9,000 N/A N/A N/A
booking
CINCINNATTI: 23
Bogart's ......................... club five-year 1,450 546 184 100,483
lease that
expires
August 31,
2002
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
TOTAL AVG. NO. OF TOTAL
MARKET TYPE OF SFX'S SEATING ATTENDANCE EVENTS SEATS SOLD
MARKET AND VENUE RANK (1) VENUE INTEREST CAPACITY IN 1998 IN 1998 IN 1998
- -------------------------------- ---------- -------------- -------------- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Crown Arena .................... arena 1/3 16,200 5,264 118 621,097
ownership
interest of
arena, and
5-year
management
agreement
that expires
February
12, 2002
Riverbend Amphitheater ......... amphitheater 13-year 19,000 4,728 56 264,780
management
and
booking
agreement
that expires
after 2011
season
Taft Theater ................... theater 10-year 2,458 1,363 105 143,115
lease that
expires July
31, 2005
KANSAS CITY: 24
Sandstone Amphitheater. ........ amphitheater 10-year 18,000 9,295 27 250,964
lease that
expires
December 31,
2002
Starlight Theater .............. theater concert 9,000 3,773 11 41,498
presentation
agreement
that expires
September 30,
2000
Memorial Hall .................. theater 5-year 3,000 2,177 10 21,770
management
contract
that expires
January 1,
2004
MILWAUKEE--RACINE: 25
Marcus Amphitheater ............ amphitheater 50% 22,828 8,725 14 122,143
partnership
in lease that
expires in
2000
Modjeska Theater ............... theater exclusive 1,800 792 18 14,262
booking
agent
Alpine Valley Music Theatre..... amphitheater 50% interest 35,000 25,069 10 250,693
in 26-year
lease that
expires
August 31,
2019;
19-year
booking
and
management
agreement
that expires
November,
2013
SACRAMENTO--YOLO: 26
Punch Line Comedy Club ......... club 9-year lease 245 108 364 39,411
that expires
December
17, 1999
Yuba County amphitheater owned 18,500 N/A N/A N/A
Amphitheatre ..................
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
TOTAL AVG. NO. OF TOTAL
MARKET TYPE OF SFX'S SEATING ATTENDANCE EVENTS SEATS SOLD
MARKET AND VENUE RANK (1) VENUE INTEREST CAPACITY IN 1998 IN 1998 IN 1998
- ---------------------------------- ---------- -------------- -------------- ---------- ------------ --------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
NORFOLK--VIRGINIA BEACH-- 27
NEWPORT NEWS:
GTE Virginia Beach amphitheater 30-year 20,000 8,429 38 320,310
Amphitheater .................... lease that
expires in
2026
The Boathouse .................... concert hall lease that 2,460 1,309 41 53,651
expires 2013
The Abyss ........................ club exclusive 900 236 22 5,188
booking
INDIANAPOLIS: 28
Deer Creek Music Center .......... amphitheater owned 21,000 11,938 35 417,825
Murat Centre ..................... theater and 50-year 2,700 1,383 142 196,348
ballroom lease that
expires
August 31,
2045
COLUMBUS: 30
Polaris Amphitheater ............. amphitheater owned 20,000 9,681 28 271,063
CHARLOTTE--GASTONIA--ROCK 32
HILL:
Charlotte Blockbuster amphitheater owned 18,000 8,523 30 255,704
Pavilion ........................
HARTFORD: 37
Meadows Music Theater ............ amphitheater facility 25,000 12,202 23 280,650
owned; land
leased for
40 years
until
September 13,
2034
Oakdale Theater .................. theater facility 4,800 2,537 130 329,868
owned;
15-year land
lease that
expires
June 3,
2013 and
SFX will
purchase
land upon
expiration
NASHVILLE: 40
Starwood Amphitheater ............ amphitheater owned 17,000 10,215 25 255,383
ROCHESTER: 41
Finger Lakes Amphitheater ........ amphitheater year to year 12,700 3,912 11 43,028
co-promotion
agreement
that expires
December 31,
1999
Harro East Theatre ............... theater exclusive 1,050 1,000 13 13,000(13)
booking
agent;
expires
November 4,
2005
RALEIGH--DURHAM--CHAPEL 45
HILL:
Alltel Pavilion at Walnut amphitheater 40-year 20,000 8,759 39 341,599
Creek ........................... lease that
expires
October 31,
2030 (12)
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
TOTAL AVG. NO. OF TOTAL
MARKET TYPE OF SFX'S SEATING ATTENDANCE EVENTS SEATS SOLD
MARKET AND VENUE RANK (1) VENUE INTEREST CAPACITY IN 1998 IN 1998 IN 1998
- -------------------------------- ---------- -------------- ----------------- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
WEST PALM BEACH--BOCA 48
RATON:
SONY Music/Blockbuster amphitheater lease that 20,000 11,407 28 319,404
Coral Sky Amphitheater ........ expires
December 31,
2005 (12)
Royal Poinciana Playhouse ...... theater 6-year lease 878 371 132 48,957
that expires
October 31,
2004
LOUISVILLE: 49
Palace Theatre ................. theatre 50% 2,851 793 87 69,022
ownership
ALBUQUERQUE: 62
Mesa Del Sol Centre (7) ........ amphitheater owned 15,000 N/A N/A N/A
SPRINGFIELD: 70
Tanglewood ..................... amphitheater exclusive 13,802 5,679 7 39,753
booking
agent
RENO: 125
Reno Hilton Amphitheater ....... amphitheater 4-year 8,500 4,324 14 60,536
exclusive
promotion
agreement
that expires
December 31,
2001
TORONTO, CANADA:
Pantages Theatre (2) ........... N/A Theater Owned 2,200 N/A N/A N/A
LONDON, ENGLAND:
Apollo Victoria Theater (14).... N/A Theater Owned 1,500 N/A N/A N/A
Lyceum Theater (14) ............ N/A Theater 130-Year 2,000 N/A N/A N/A
Lease
Apollo Hammersmith N/A
Theater (14) .................. Theater 125-Year 3,200 N/A N/A N/A
Lease
Dominion Theater (14) .......... N/A Theater 125-Year 2,000 N/A N/A N/A
Lease
BRISTOL, ENGLAND:
Hippodrome Theater (14) ........ N/A Theater Owned 2,000 N/A N/A N/A
BIRMINGHAM, ENGLAND:
Alexandra Theater (14) ......... N/A Theater Lease N/A N/A N/A N/A
expires
2012-currently
closed for
renovation
OXFORD, ENGLAND:
Apollo Theater (14) ............ N/A Theater Lease 1,700 N/A N/A N/A
expires 2008
Old Fire Station (14) .......... N/A Club Lease 200 N/A N/A N/A
expires 2000
LIVERPOOL, ENGLAND:
Empire Theater (14) ............ N/A Theater 125-Year 2,300 N/A N/A N/A
Lease--currently
under
renovation
MANCHESTER, ENGLAND:
Manchester Opera N/A
House (14) .................... Theater Owned 2,000 N/A N/A N/A
Manchester Palace N/A
Theater (14) .................. Theater Owned 2,000 N/A N/A N/A
Manchester Apollo N/A
Theater (14) .................. Theater Freehold 2,600 N/A N/A N/A
</TABLE>
81
<PAGE>
<TABLE>
<CAPTION>
TOTAL AVG. NO. OF TOTAL
MARKET TYPE OF SFX'S SEATING ATTENDANCE EVENTS SEATS SOLD
MARKET AND VENUE RANK (1) VENUE INTEREST CAPACITY IN 1998 IN 1998 IN 1998
- ---------------------------------- ---------- --------- -------------- ---------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
SHEFFIELD, ENGLAND:
Sheffield Arena (14) ............. N/A Theater Management 12,000 N/A N/A N/A
Agreement
YORK, ENGLAND:
Grand Opera House (14) ........... N/A Theater N/A 1,000 N/A N/A N/A
EDINBURGH, SCOTLAND:
The Playhouse (14) ............... N/A Theater Freehold 3,300 N/A N/A N/A
DUBLIN, IRELAND:
The Point (14) ................... N/A Theater 50% interest 9,000 N/A N/A N/A
in long-term
lease
CARDIFF, WALES:
International Arena (14) ......... N/A Theater Management 6,700 N/A N/A N/A
Agreement
</TABLE>
- ----------
(1) Based on the July 1996 population of metropolitan statistical areas as
set forth in the internet Press Release, dated December 1997, by the
Population Estimates Program, Population Division, U.S. Bureau of the
Cenus. Excludes venues where SFX sells subscriptions for touring Broadway
shows.
(2) Pending acquisition of Livent.
(3) Additional seating of approximately 40,000 is available for certain
events.
(4) Venue is closed for renovation and is scheduled to re-open in Fall 1999.
(5) Consulting agreement provides for booking, group sales and marketing
consultation services. Venue is available for rental by all promoters.
(6) Most shows have standing room, which increases capacity.
(7) Venue under construction; scheduled to open in May 2000.
(8) Additional seating of approximately 5,000 is available for certain
events.
(9) Capacity varies widely depending upon type of show; average capacity is
approximately 2,100.
(10) Includes New Year's Eve Festival with the attendance of approximately
15,000.
(11) Tentatively scheduled to open in May 2001.
(12) Through the Cellar Door acquisition, currently SFX owns a 100% interest
in each of these leases.
(13) Approximate numbers based on reported sellouts of all but one show.
(14) Pending acquisition of Apollo.
Because SFX operates a number of its venues under leasing or booking
agreements, its long-term success will depend on its ability to renew these
agreements when they expire or end. There can be no assurance that it will be
able to renew these agreements on acceptable terms or at all, or that it will
be able to obtain attractive agreements with substitute venues.
SPONSORSHIPS AND ADVERTISING
In order to capitalize on its access to a national audience of over 37
million people, SFX has formed "SFX Live." SFX Live actively pursues the sale
of local, regional and national corporate sponsorships, including the naming of
venues, licensing agreements and title sponsorships, and allows marketing
partners of SFX to deal with a single dedicated representative in order to
access SFX's formidable and, what we believe to be, largely under-served
audience. SFX Live also designates "official" tour or event sponsors, such as
credit card companies, phone companies, film manufacturers and radio stations,
among others. Sponsorship arrangements can provide significant additional
revenues at negligible incremental cost, and many of SFX's venues currently
have no sponsorship arrangements in many of the available categories, including
naming rights. SFX believes that the national venue network it has assembled
will likely attract a larger number of major corporate sponsors and enable SFX
to sell national sponsorship rights at a premium over local or regional
sponsorship rights. SFX also pursues the sale of corporate advertising at its
venues, and believes that it has substantial billboard and other advertising
space available that it has not yet begun to utilize. SFX also believes that
its relationships with advertisers will enable it to better utilize available
advertising space, and that the aggregation of its audiences nationwide will
create the opportunity for advertisers to access a nationwide market. With the
addition of its pending Apollo and Livent acquisitions, SFX believes that it
will have the ability to exploit international sponsorship and marketing
opportunities.
82
<PAGE>
COMPETITION AND SEASONALITY
SFX competes with other venues in markets where SFX owns or operates a
venue, and competes with venues in markets where SFX does not own or operate a
venue for dates for popular national tours. Consequently, touring artists have
significant alternatives to SFX venues in scheduling tours. In addition, in the
markets in which SFX promotes musical concerts, it faces competition from other
local, regional or national promoters, as well as from certain artists that
promote their own concerts. SFX believes that barriers to entry into the
promotion services business are low, and that certain local promoters are
increasingly expanding the geographic scope of their operations.
SFX's outdoor venues are primarily used in the summer months and do not
generate substantial revenue in the late fall, winter and early spring.
Similarly, the musical concerts that SFX promotes largely occur in the second
and third quarters.
THEATER
SFX is the largest developer and manager of touring Broadway shows in
North America. SFX produces touring Broadway shows by acquiring the stage and
touring rights from authors or owners, hiring the creative and technical staff,
assembling the cast and arranging for the construction and design of sets and
costumes. Touring Broadway shows are typically revivals of previous commercial
successes or reproductions of theatrical shows currently playing on Broadway in
New York City. SFX invests in original Broadway productions as a lead producer
or as a limited partner in productions produced by others. Frequently, SFX
obtains favorable scheduling for the productions in order to distribute them
across its presenting network. SFX generally invests from $150,000 to $750,000
in the productions. In addition, SFX owns certain theaters in which the touring
Broadway shows are presented. See"--Music--Venue Operations."
The touring Broadway show production and promotion industry is highly
fragmented. SFX believes it is the largest multiple-market producer and
presenter of touring Broadway shows in North America. On a pro forma basis,
after giving effect to the 1998 and 1999 acquisitions, SFX would have had a
producing interest or investment in the following shows for 1998 and/or 1999,
among others:
<TABLE>
<CAPTION>
SHOW TITLE TYPE SFX'S INVOLVEMENT
- ------------------------------- -------------------- ------------------
<S> <C> <C>
Blue Man Group Boston Production
Blues Clues Touring Production
Cabaret Touring Production
The Civil War Broadway & Touring Production
Evita Touring Production
Fame Touring Production
Fiddler on the Roof Touring Production
Fosse* Broadway & Touring Production
The Gin Game Touring Production
Harmony Development Production
Havana Development Production
Jekyll & Hyde Broadway & Touring Production
The Phantom of the Opera* Touring Production
Rugrats, A Live Adventure Touring Production
Smokey Joe's Cafe Touring Production
Sunset Boulevard Touring Production
The Sound of Music Broadway Production
Tony and Tina's Wedding Touring Production
Victor, Victoria Touring Production
West Side Story Touring Production
A Chorus Line Touring Investment
Annie Touring Investment
Cirque Ingenieux Touring Investment
Chicago Broadway & Touring Investment
Death of a Salesman Broadway Investment
Fascinating Rhythm Broadway Investment
</TABLE>
83
<PAGE>
<TABLE>
<CAPTION>
SHOW TITLE TYPE SFX'S INVOLVEMENT
- ------------------------------------ -------------------- ------------------
<S> <C> <C>
Footloose Broadway & Touring Investment
Ragtime* Broadway & Touring Production
Rent Broadway & Touring Investment
Seussical* Touring Development
Steel City* Touring Investment
Swan Lake Broadway Investment
You're a Good Man, Charlie Brown Broadway Investment
</TABLE>
- ----------
* Denotes pending acquisitions.
SFX believes that there are approximately 50 domestic markets that can
provide the potential audience and gross ticket revenues for a full scale
touring Broadway show to be profitable, and additional markets where smaller
scale productions with shorter runs can be presented profitably. Most of these
cities have only a limited number of venues that can accommodate a touring
Broadway show.
SFX pre-sells tickets for its touring Broadway shows through the largest
subscription series in the U.S. (with 250,000 subscribers in 1999) and Canada.
SFX sells these subscription series in 44 of the largest touring markets:
Albuquerque, NM
Atlanta, GA
Austin, TX
Baltimore, MD
Boise, ID
Boston, MA
Chicago, IL
Cincinnati, OH
Colorado Springs, CO
Columbus, OH
Costa Mesa, CA
Dallas, TX
Eugene, OR
Fort Lauderdale, FL
Honolulu, HI
Houston, TX
Indianapolis, IN
Jacksonville, FL
Louisville, KY
Miami Beach, FL
Milwaukee, WI
Minneapolis, MN
Nashville, TN
New Orleans, LA
North Charleston, SC
Omaha, NE
Orlando, FL
Palm Beach, FL
Pensacola, FL
Pittsburgh, PA
Portland, OR
Salt Lake City, UT
San Antonio, TX
Seattle, WA
Tampa, FL
Tempe, AZ
Wallingford, CT
Wichita, KS
Calgary, Canada
Edmonton, Canada
Ottawa, Canada
Regina, Canada
Saskatoon, Canada
Winnipeg, Canada
- ----------
* Denotes pending acquisitions.
COMPETITION AND SEASONALITY
SFX competes with a number of other entities to acquire the rights to
produce and/or present Broadway and touring Broadway theatrical shows,
including such large national competitors as Walt Disney Theatrical
Productions, Really Useful Group Ltd., Cameron Mackintosh, The Nederlander
Organization and Dodger Endemol Theatricals. In addition, SFX competes with
many smaller local and regional presenters. As a producer of a Broadway show,
SFX competes with producers of other Broadway shows for box office sales,
talent and theatre space. As the producer of a touring show, SFX competes with
producers of other touring Broadway shows to book the production in desirable
presentation markets.
The Theatrical presenting season generally runs from September through
May.
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SPORTS
TALENT REPRESENTATION
We are a leading fully-integrated sports marketing and management company,
representing more than 650 professional athletes and providing integrated event
management, television programming and production, marketing and consulting
services. SFX's sports segment primarily generates revenues through the
negotiation of professional sports contracts and endorsement contracts for its
clients. SFX's clients have endorsed products for companies such as Chevrolet,
Coca Cola, McDonald's, Nike and Reebok. In addition, SFX generates a small
portion of its sports-related revenues by providing certain financial
management and planning services to its clients, through its investment
affiliate, which is a registered investment advisor. SFX's sports segment also
generates revenues from the sale of entitlements or naming rights to third
party venues. SFX believes that it is able to capitalize on the synergies which
exist between the representation of athletes in corporate marketing
opportunities and the sale of corporate sponsorships and other marketing rights
at its existing venues. Examples of current athletes and broadcasters
represented are as follows:
<TABLE>
<S> <C> <C> <C>
NBA NFL BASEBALL GOLF
Michael Jordan Steve Young Roger Clemens John Daly
Patrick Ewing Vinnie Testaverde Jay Buhner Scott Hoch
Alonzo Mourning Kordell Stewart Al Leiter Scott Verplank
Antoine Walker Ricky Williams Kerry Wood Per Ulrik Johansson
NHL HOCKEY SOCCER TENNIS BROADCASTERS
Brian Leetch Michael Owen Patrick Rafter Chris Berman
Sergei Zubov John Barnes Gabriella Sabatini Al Michaels
Adam Oates David Beckham Alex Corretja
Sergei Samsonov Alan Shearer Stefan Edberg
</TABLE>
The amount of endorsement and other revenues that SFX's clients generate
is a function of, among other things, the clients' professional performances
and public appeal. Factors beyond SFX's control, such as injuries to clients,
declining skill or labor unrest, among others, could have a material adverse
affect on SFX's operations. Representation agreements with clients are
generally for a term of one year with automatic renewal options. A significant
number of SFX's representation agreements are terminable on 15 days' notice,
although SFX would continue to be entitled to the revenue streams generated
during the remaining term of any contracts that it negotiated. The termination
or expiration of SFX's contracts with certain clients could have a material
adverse affect on SFX's operations.
The owners of the teams in the NBA locked out their players from
participation in league activities from July 1, 1998, to January 6, 1999, which
caused cancellation of some of the games for the 1998/1999 basketball season.
This NBA season began on February 5, 1999, with a reduced game schedule. The
cancellation of over 30 games for the current NBA season had a negative impact
on SFX's sport representation revenues and EBITDA during the fourth fiscal
quarter of 1998 and the first fiscal quarter of 1999.
MOTOR SPORTS
SFX is the largest producer and promoter of specialized motor sports
events in the U.S. SFX's motor sports activities consist principally of the
promotion and production of specialized motor sports, which generate revenues
primarily from ticket sales and sponsorships, as well as merchandising and
video rights associated with producing motor sports events. These events
include monster truck events, tractor pulls, mud races, demolition derbies and
motor cross races. Other events included in this division are thrill acts, air
shows and other motor sports concepts and events. In 1998, average attendance
was approximately 9,000 per event. SFX currently owns Grave Digger, one of the
most popular monster trucks on the monster truck circuit, which along with
other such names allows SFX
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to capitalize on proprietary sponsorship and merchandising opportunities. In
addition, SFX provided over 70 hours of television broadcast material related
to motor sports in 1998. Both corporate sponsorships and television contracts
tend to be negotiated before the start of the season and may last for several
years, providing additional predictability to cash flow.
SFX's PACE Motor Sports produces and promotes over 350 specialized events
annually, including PACE Supercross (Trade Mark) and the U.S. Hot Rod
(Registered Trademark) Association Monster Jam (Registered Trademark) Tour.
In particular, PACE Supercross continues to break attendance records, including
60,193 at the Seattle Kingdome in January 1999, as well as sold out events at
Edison Field in Anaheim, CA, Bank One Ballpark in Phoenix, AZ and Sam Boyd
Stadium in Las Vegas, NV. PACE Motor Sports' television ratings are
experiencing record growth, registering a record 3.6 million households on one
of its ABC Sports telecasts. PACE Motor Sports will benefit from its new
sponsorship and licensing agreement with EA SPORTS, a mainstream title sponsor,
by bringing Supercross to a mass audience through interactive electronic
products.
COMPETITION AND SEASONALITY
The marketing and athlete representation industry is highly competitive.
SFX's competitors include several large companies, such as Advantage
International and International Management Group. In addition, SFX competes
with several smaller entities. In the specialized motor sports industry, SFX
generally competes with various local and regional companies.
The sports marketing and athlete representation businesses primarily earn
revenue ratably over the year, whereas the motor sports business operates
primarily in the winter.
FAMILY ENTERTAINMENT & OTHER
SFX formed its family entertainment segment in the fourth quarter of 1998.
SFX's family entertainment segment produces and presents family-oriented
entertainment such as children's theatrical shows, dance shows, ice-skating,
and gymnastics shows. In 1998, SFX's family entertainment segment produced and
presented events such as The Magic of David Copperfield and Lord of the Dance
both domestically and internationally. The family entertainment segment also
produces ice skating and gymnastics television specials and tours such as Ice
Wars and the Reese's Rock n' Roll Gymnastics Championship. In 1999, SFX opened
a new themed attraction in Orlando, Florida named "Titanic Ship of Dreams" and
will produce and present the Radio City Christmas Spectacular in Chicago and
Mexico City.
In addition, SFX provides a variety of marketing and consulting services
derived from or complementary to its live entertainment operations, including
local, regional and national live marketing programs and subscription or fee
based radio and music industry data compilation and distribution. Live
marketing programs are generally specialized advertising campaigns designed to
promote a client's product or service by providing samples or demonstrations in
a live format, typically at malls and college campuses. Additionally, SFX
believes that it is one of the leading producers of national mall touring
events, producing over 65 events every year in the country's shopping malls.
These events, either in stores or mall congregation areas, are designed to
promote brand awareness and drive follow-up sales. SFX believes that, along
with mall events, it is one of the industry leaders in events produced on
college campuses.
SFX is also engaged in music marketing, research and artist development
activities, and is a publisher of trade magazines for radio broadcasters, music
retailers, performers and record industry executives. Each of SFX's magazines
focuses on research and insight common to a specific contemporary radio format.
SFX also provides radio airplay and music retail research services to record
labels, artist managers, retailers and radio broadcasters.
SFX, through Network, creates and distributes network radio special events
and live concert programming for over 400 music radio stations in the top 200
U.S. radio markets. Additionally, SFX produces eight daily radio "show prep"
services that stations use to supplement in-house content production. Network
also provides consulting and entertainment marketing services to corporate
clients with music business interests.
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COMPETITION AND SEASONALITY
For a description of the competition with respect to SFX's Family
Entertainment business, see "--Theater--Competition and Seasonality." SFX's
marketing and consulting business generally competes with other specialized
promotion agencies, such as Momentum, GMR, Market Source and Super Marketing.
SFX's radio trade publications and related market research business generally
competes with other such publications, including Radio & Records and Hits
Magazine.
The family entertainment & other segment generally earns revenue ratably
over the year.
AGREEMENTS WITH TICKETMASTER AND OGDEN
On November 13, 1998, SFX and Ticketmaster entered into a binding
agreement pursuant to which SFX granted Ticketmaster the exclusive right to
sell and distribute tickets for SFX's events worldwide. SFX is currently
evaluating its existing internal ticket operations, which were acquired in the
1998 Acquisitions; however, SFX does not believe that its ticketing operations
are material to its financial condition or results of operation.
On December 23, 1998, SFX and Ogden Corporation entered into a long-term
agreement pursuant to which Ogden will become the exclusive food and beverage
concessionaire at all entertainment venues owned or controlled by SFX. SFX
anticipates that the revenues associated with its ticket and food and beverage
sales will increase in 1999 as a result of these agreements.
OPERATING STRATEGY
SFX's principal objectives are to maximize revenue and cash flow growth
through the following specific strategies:
OWN AND OPERATE THE LEADING INTEGRATED LIVE ENTERTAINMENT NETWORK
A key component of SFX's operating strategy is to take advantage of the
benefits provided by owning and operating an international live entertainment
network. SFX's integrated production, promotion, venue operation and event
management services enable SFX to:
o attract leading performers and events;
o provide "one-stop shopping" for performers and agents;
o increase venue utilization;
o enhance its ability to maximize ancillary revenue from concession
sales, product merchandising and ticket rebates, among others;
o capture a larger percentage of overall revenues from live
entertainment events; and
o improve operating efficiencies and take advantage of economies of
scale.
Examples of opportunities afforded to SFX as a result of its large scale venue
operations include:
o increased percentage of concessions revenues at amphitheaters through
its agreement with concessionaire Ogden;
o increased ticket rebate revenues through its agreement with
Ticketmaster; and
o special revenue-enhancing programs such as VIP seating and valet
parking.
MAXIMIZE SPONSORSHIP REVENUE OPPORTUNITIES
To maximize revenues, SFX actively pursues the sale of local, regional and
national corporate sponsorships, including naming rights and designating
"official" event or tour sponsors and providers of concessions. Sponsorship
arrangements can provide significant additional revenues at negligible
incremental cost, and many of SFX's venues currently have no sponsorship
arrangements in many of the available categories, including naming rights.
Utilizing its leadership position in the live
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entertainment industry, including its access to a large audience, SFX, through
"SFX Live," intends to pursue the sale of local, regional and national
sponsorships to major corporations such as Ford Motor Company, Levi Strauss,
Johnson & Johnson and Smirnoff Vodka. Examples of recent successes in pursuing
this strategy include naming venues such as the BankBoston Pavilion (formerly
known as the Harborlights Pavilion), the Tweeter Home Great Woods Center for
the Performing Arts near Boston and the First American Music Center (formerly
the Starwood Amphitheater in Nashville, TN). SFX believes that SFX Live
delivers a unique promotional vehicle to corporate sponsors by offering the
ability to target specific audiences by geography and demography.
PURSUE INTERNATIONAL CONSOLIDATION OPPORTUNITIES
The live entertainment industry outside the U.S. is highly fragmented,
with little, if any, integration of services. Event promotion, production,
sponsorship and management is typically done at a local level by small
operators. SFX believes that the consolidation opportunities that have fueled
its domestic growth since its formation exist internationally as well.
Accordingly, SFX intends to replicate its business model outside of North
America and believes that such expansion will, among other things:
o provide it with better access to successful foreign performers and
events;
o provide it with additional outlets for its domestic performers and
events; and
o increase the opportunities for performers and events to "cross-over"
between the U.S. and foreign countries.
CONTINUE TO PURSUE DOMESTIC CONSOLIDATION OPPORTUNITIES
Notwithstanding our strong national presence, SFX believes that the U.S.
live entertainment industry continues to be highly fragmented with attractive
acquisition opportunities still available. The U.S. live entertainment business
remains characterized by numerous participants, including booking agents,
promoters, producers, venue owners and venue operators, many of which are
entrepreneurial, capital-constrained local or regional businesses that do not
achieve significant economies of scale from their operations. SFX believes that
the fragmented nature of the industry continues to present attractive
acquisition opportunities, and that its larger size will provide it with
improved access to the capital markets that will give it a competitive
advantage in implementing its acquisition strategy. Through consolidation, SFX
believes that it is better able to coordinate negotiations with performers and
talent agents, addressing what SFX believes is a growing desire among
performers and talent agents to deal with fewer, more sophisticated promoters.
SFX intends to selectively pursue additional strategic acquisitions that
complement its existing businesses.
LAUNCH INTERNET INITIATIVE
SFX is currently in the process of launching its various Internet
initiatives, which will take advantage of its unique and extensive access to
performers, athletes, live events, premium tickets and other merchandise. In
addition to centralizing access to over 80 of our current Websites, we expect
SFX.com to provide commerce-driven services such as live event cybercasts,
merchandise sales and access to premium tickets and top performers and athletes
through affinity clubs, as well as tour and schedule information. SFX expects
to launch these initiatives during the third quarter of 1999 and, after
appropriate testing, have SFX.com fully operational by the first quarter of
2000. In addition, as part of our Internet initiatives, we have leveraged our
ability to provide access to live entertainment events, athletes and artists to
obtain what we believe are attractive equity positions in Internet companies
possessing complementary content and technological capabilities. However, SFX
can provide no assurances that its Internet initiatives will be commercially
successful.
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INTEGRATE ACQUIRED BUSINESSES INTO CENTRALIZED BOOKING, MARKETING AND
ACCOUNTING SYSTEMS
SFX's management will continue to impose strict financial reporting and
cost controls on all of its businesses and to rapidly integrate all of its
future acquisitions into its centralized booking, marketing and accounting
systems. SFX intends to realize the benefits of integration, including
economies of scale, through:
o the implementation of a nationally coordinated booking system for
contracting and scheduling acts;
o the establishment of a centralized marketing team to exploit ancillary
revenue streams on local, regional and national levels, including from
sponsorship, advertising and merchandising opportunities; and
o the implementation of a centralized accounting system.
REGULATORY MATTERS
Because SFX relies on acquisitions of existing businesses and assets for
its growth, restrictions imposed by local, state and federal regulatory,
licensing, approval and permit requirements, including those relating to
zoning, operation of public facilities, consumer protection and antitrust, will
significantly affect its ability to acquire and operate its business. For
example, the Federal Trade Commission and the Antitrust Division of the U.S.
Department of Justice have the authority to challenge SFX's acquisitions on
antitrust grounds before or after the acquisitions are completed. Each state
where SFX operates may also challenge an acquisition under state or federal
antitrust laws. SFX may be unable to obtain the licenses, approvals and permits
it requires, including approvals under the HSR Act, from time to time to
acquire and operate live entertainment businesses in accordance with its
expansion strategy. See "Risk Factors--We are subject to extensive government
regulation, and our failure to comply with regulations could adversely affect
our business, results of operations and financial condition."
PROPERTIES
SFX's executive offices are located at 650 Madison Avenue, 16th Floor, New
York, New York 10022. SFX wholly or partially owns and/or operates 82 venues as
more fully described under "--Business Segments of SFX--Music--Venue
Operations." In addition, SFX owns or leases office space throughout the U.S.
and abroad in connection with its operations.
LITIGATION
In a complaint filed October 8, 1998 in the Superior Court of the State of
California, Los Angeles County, Universal Concerts II, Inc., a California
corporation formerly named MCA Concerts II, Inc., brought suit against PACE
Amphitheaters, Inc., PACE Entertainment Group, Inc., SFX Entertainment, Inc.,
Brian Becker and Allen Becker. The complaint alleged, among other things, that
SFX's acquisitions of PACE and Concert/Southern caused breaches of PACE's
various agreements with Universal. The complaint alleged that PACE is in breach
of a co-promotion agreement, that Brian and Allen Becker are in breach of
non-competition agreements and that SFX has intentionally interfered with
contracts between the plaintiff and certain of the defendants. The defendants
have removed the case from the State Court to the Federal Court for the Central
Division of California and have answered the complaint denying liability.
Although the lawsuit seeks damages in an unspecified amount, in SFX
management's view, the realistic amount in controversy is not material to the
business or prospects of SFX. The defendants intend to defend the case
vigorously.
On November 20, 1998, a group of plaintiffs filed a complaint against 11
talent agencies and 29 promoters, including SFX and several of its
subsidiaries. According to the complaint, the plaintiffs are five individual
African-Americans and five corporations owned by such individuals. The
complaint alleges action by the defendants to exclude African-Americans from
promoting concerts and seeks injunctive relief and damages for civil rights and
antitrust violations. The focus of the action appears to be industry-wide,
rather than specifically directed at SFX. On May 25, 1999, the complaint was
dismissed without prejudice to plaintiff right to file an amended pleading. The
plaintiffs are obligated to file an amended complaint by August 9, 1999. SFX
intends to defend the action vigorously.
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Although SFX is involved in several suits and claims in the ordinary
course of business, it is not currently a party to any legal proceeding that it
believes would have a material adverse effect on its business, financial
condition or results of operations.
EMPLOYEES
As of July 31, 1999, SFX had approximately 1,800 full-time employees. SFX
will also, from time to time, hire or contract for part-time or seasonal
employees or independent contractors, although its staffing needs will vary.
While SFX has experienced minor disputes with its employees in the past, and
disruptions involving employees of SFX or any of its significant vendors could
have an adverse effect on its business or results of operations, management
believes that its relations with its employees are generally good. A number of
the employees of SFX are covered by collective bargaining agreements. See
"Management."
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AGREEMENTS RELATED TO PENDING ACQUISITIONS
The following is a summary of the material terms of the agreements related
to SFX's pending Apollo and Livent acquisitions. This summary is not intended
to be a complete description of the terms of the agreements and is subject to,
and qualified in its entirety by reference to, the agreements, copies of which
have been filed as exhibits to the registration statement of which this
prospectus is a part. There can be no assurance that SFX will be able to
consummate its pending acquisitions on the terms described herein, or at all.
See "Risk Factors--If we are unable to complete pending or future acquisitions,
our stock price may suffer."
APOLLO
On August 2, 1999, SFX entered into a share purchase agreement with the
shareholders of Apollo Leisure Group Limited, a UK company. Under the terms of
the share purchase agreement, SFX will acquire, directly or indirectly through
a UK subsidiary, all of the authorized and issued shares of Apollo for a total
purchase price of approximately $253.1 million, consisting of:
(i) 979,667 shares of SFX Class A common stock, valued at
approximately $45.0 million (based on an assumed market price of
$46.00 per share); and
(ii) (pounds sterling)129.0 million (approximately $208.1 million
based on the exchange rate as of August 5, 1999) in guaranteed
redeemable loan notes. The loan note amount will be subject to a
working capital adjustment as well as reductions based on:
-- the outstanding debt of Apollo and its subsidiaries;
-- the amount of bonuses to be paid to certain managers or
employees of Apollo in connection with the consummation of
the proposed Apollo acquisition;
-- the amount of consideration paid in connection with Apollo's
acquisition of a 50% equity interest in Barry Clayman
Concerts; and
-- certain other adjustments.
We estimate that the aggregate amount of the working capital and other
adjustments described above will reduce the loan note principal amount
by approximately (pounds sterling)50.0 million.
Under the terms of the loan notes, any one or more of the selling
shareholders may require payment of all or a portion of the principal amount of
the loan notes (together with interest accrued thereon to the date of payment)
at any time commencing nine months after the closing of the proposed Apollo
acquisition until the maturity date of the loan notes. The loan notes will bear
interest at a rate equal to 90% of the three month LIBOR, calculated and paid
quarterly, and mature on the sixth anniversary of the Apollo closing date.
SFX's obligations under the loan notes will be unconditionally guaranteed by
certain financial institutions. In the event that any selling shareholder
exercises its right to require repayment of the loan notes, such repayment is
expected to be made with funds drawn under the Term A Loan portion of SFX's New
Senior Credit Facility.
Under the terms of the share purchase agreement, SFX will be granted an
option to repurchase up to 40% of the shares of SFX Class A common stock issued
by SFX to the selling shareholders for a price of $45.31 per share. The option
will be exercisable by SFX at any time during the two year period following the
closing of the proposed Apollo acquisition.
The shares of SFX Class A common stock issued to the selling shareholders
will not be registered under the Securities Act. In addition, the shares may
not be sold or otherwise transferred by the selling shareholders during the one
year period following the closing of the proposed Apollo acquisition (subject
to certain limited exceptions), and the shares that are subject to SFX's
repurchase option may not be sold or otherwise transferred during the two year
holding period following the closing of the proposed Apollo acquisition.
In connection with the proposed Apollo acquisition, SFX will acquire a 50%
equity interest in Point Exhibition Company Ltd., which owns and operates The
Point, an arena in Dublin, Ireland.
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Upon consummation of the proposed Apollo acquisition, SFX will retain 50% of
the ownership and operating rights in The Point, provided that the selling
shareholders will retain the ability to require Point Exhibition Company Ltd.
to sell certain property adjacent to The Point and will receive the proceeds
from such sale, less various expenses, as deferred compensation payable in loan
notes.
Under the terms of the share purchase agreement, SFX has certain
indemnification rights that may arise out of the breach of warranties by the
selling shareholders, the potential sale of certain property adjacent to The
Point, and the sale of various other interests by Apollo prior to and after the
consummation of the proposed Apollo acquisition. The selling shareholders have
various limitations on their individual liabilities with respect to such
indemnification rights. The selling shareholders generally have no liability to
SFX unless and until all indemnification claims (other than certain claims
relating to Apollo's real properties) exceed (pounds sterling)1.5 million, and
then only to the extent such losses exceed (pounds sterling)200,000. With
respect to claims relating to Apollo's real properties, the selling
shareholders generally have no liability to SFX unless and until such
indemnification claims exceed (pounds sterling)500,000, and then only to the
extent such losses exceed such amount.
The closing of the proposed Apollo acquisition is expected to occur in the
third quarter of 1999. The consummation of the Apollo acquisition is subject to
the condition that the selling shareholders receive tax clearance from the
Inland Revenue and the delivery of certain other customary closing documents.
If tax clearance is refused, the selling shareholders have agreed to negotiate
with SFX in good faith to obtain the clearance, provided that the selling
shareholders are not obligated to change the commercial terms of the proposed
Apollo acquisition or to forego the tax treatment which they were expecting had
the clearance or consent been given by the Inland Revenue. The closing of the
proposed Apollo acquisition is not a condition to this offering. No assurances
can be given that the Apollo acquisition will be consummated on the terms
described in this prospectus or at all.
LIVENT
On May 28, 1999, SFX entered into an asset purchase agreement with Livent,
Inc., Livent (U.S.) Inc., Livent Realty (New York) Inc., Livent Realty
(Chicago) Inc., and Livent International Inc. (collectively, the "Livent
Entities"), under which SFX will acquire directly or through one or more
subsidiaries, substantially all of the assets of the Livent Entities, including
the Ford Theatre in New York, New York, the Ford Theatre in Chicago, Illinois
and the Pantages Theatre in Toronto, Canada, as well as the rights to certain
theatrical productions, including Phantom of the Opera, Fosse, and Ragtime, and
certain properties in development, including Seussical. Each of the Livent
Entities has filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy
Code, and Livent, Inc., the parent Livent entity has filed an application for
an order under the Companies' Creditors Arrangement Act of Canada and the
Business Corporations Act (Ontario). The transactions under the asset purchase
agreement were subject to approval by the bankruptcy courts in the U.S. and
Canada. Applications for approval of the transaction were heard simultaneously
in the U.S. and Canadian bankruptcy courts on July 7, 1999, and were approved.
The purchase price for the assets consists of the following:
o an initial cash payment by SFX of $90.8 million;
o a deferred payment obligation having a present value under the
contract terms of approximately $18.4 million; and
o a contingent payment of $5.0 million based upon the ability of the
Livent Entities to deliver theatrical rights to the production Seussical
in a form acceptable to SFX.
Under the terms of the asset purchase agreement, the initial cash amount
to be paid at closing is subject to the following adjustments:
o a working capital adjustment based upon the working capital of the
Livent Entities as of the closing date;
o an adjustment based upon advance ticket sales by the Livent Entities
prior to the closing;
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o a $1.6 million deduction if a ticket surcharge obligation, on behalf of
the City of Toronto, in respect of the Pantages Theatre is not removed
prior to closing;
o a $3.1 million deduction if at the time of closing the New York Theatre
remains subject to a certain fixture lien obligation; and
o various other closing and post-closing adjustments as provided for in
the asset purchase agreement.
Under the terms of the asset purchase agreement, SFX has certain
indemnification rights which must be asserted within sixty (60) days following
the closing date. Indemnification claims by SFX may not exceed $10 million and
may be satisfied out of a $2 million escrow or by offsetting the payment
obligation of SFX under the deferred payment obligation. The Livent Entities
have no liability to SFX for indemnification claims unless and until such
claims exceed $250,000 and then only to the extent such losses exceed that
amount.
The consummation of the acquisition is subject to certain regulatory
approvals, the satisfaction of various closing conditions and the delivery of
various third-party consents and other closing documents. The acquisition is
scheduled to be completed on or prior to September 30, 1999, after which time
either party may invoke a right of termination. The closing of the Livent
acquisition is not a condition to this offering. No assurances can be given
that the Livent acquisition will be consummated on the terms described in the
prospectus or at all.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Pursuant to the Certificate of Incorporation and Bylaws, the Board manages
the business of SFX. The Board conducts its business through meetings of the
Board and its committees. The standing committees of the Board are described
below.
The Bylaws authorize the Board to fix the number of directors from time to
time. The number of directors of SFX is currently twelve. All directors hold
office until the next annual meeting of stockholders following their election
or until their successors are elected and qualified. Officers of SFX are to be
elected annually by the Board and serve at the Board's discretion. In the
election of directors, the holders of the Class A common stock are entitled by
class vote, exclusive of all other stockholders, to elect two-sevenths, rounded
up, of the directors to serve on the Board, with each share of the Class A
common stock entitled to one vote.
The following table sets forth information as to the directors and the
executive officers of SFX:
<TABLE>
<CAPTION>
AGE AS OF
NAME POSITION(S) HELD WITH SFX JULY 30, 1999
- ------------------------------- -------------------------------------------------- --------------
<S> <C> <C>
Robert F.X. Sillerman ......... Director, Executive Chairman and Member of 51
the Office of the Chairman
Michael G. Ferrel ............. Director, President, Chief Executive Officer and 50
Member of the Office of the Chairman
Brian E. Becker ............... Director, Executive Vice President and Member 42
of the Office of the Chairman
David Falk .................... Director and Member of the Office of the 48
Chairman
Howard J. Tytel ............... Director, Executive Vice President, General 52
Counsel, Secretary and Member of the Office of
the Chairman
Thomas P. Benson. ............. Director, Senior Vice President and Chief 37
Financial Officer
Richard A. Liese .............. Director, Senior Vice President and Associate 48
General Counsel
D. Geoffrey Armstrong ......... Director 41
James F. O'Grady, Jr. ......... Director 71
Paul Kramer ................... Director 67
Edward F. Dugan ............... Director 64
John D. Miller ................ Director 54
John J. Boyle ................. Non-voting observer to Board of Directors 64
</TABLE>
ROBERT F.X. SILLERMAN has served as the Executive Chairman, a Member of
the Office of the Chairman and a director of SFX since its formation in
December 1997. Mr. Sillerman also served as the Executive Chairman of SFX
Broadcasting from July, 1995 until the consummation of the SFX Broadcasting
merger in May 1998. From 1992 through June 30, 1995, Mr. Sillerman served as
Chairman of the board of directors and Chief Executive Officer of SFX
Broadcasting. Mr. Sillerman is Chairman of the board of directors and Chief
Executive Officer of Sillerman Communications Management Company, Inc.
("SCMC"), a private company that makes investments in and provides financial
consulting services to companies engaged in the media business. For the last
twenty years, Mr. Sillerman has been a senior executive of and principal
investor in numerous entities in the broadcasting business. In 1993, Mr.
Sillerman became the Chancellor of the Southampton campus of Long Island
University.
MICHAEL G. FERREL has served as the President, Chief Executive Officer, a
Member of the Office of the Chairman and a director of SFX since its formation
in December 1997. Mr. Ferrel also served as
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the President, Chief Executive Officer and a director of SFX Broadcasting from
November 1996 until the consummation of the SFX Broadcasting merger in May
1998. Mr. Ferrel served as President and Chief Operating Officer of
Multi-Market Radio, Inc. ("MMR"), a wholly-owned subsidiary of SFX Broadcasting
, and a member of MMR's board of directors from MMR's inception in August 1992
until November 1996 when MMR was merged into a subsidiary of SFX Broadcasting.
Mr. Ferrel also served as Co-Chief Executive Officer of MMR from January 1994
to January 1996, and Chief Executive Officer of MMR from January 1996 until
November 1996. From 1990 to 1993, Mr. Ferrel served as Vice President of
Goldenberg Broadcasting, Inc., the former owner of radio station WPKX-FM,
Springfield, Massachusetts, which was acquired by MMR in July 1993.
BRIAN E. BECKER has served as an Executive Vice President, a Member of the
Office of the Chairman and a director of SFX since the consummation of the PACE
acquisition in February 1998. Mr. Becker has served as Chief Executive Officer
of PACE since 1994 and as President of PACE in 1996. He first joined PACE as
the Vice President and General Manager of PACE's theatrical division at the
time of that division's formation in 1982, and subsequently directed PACE's
amphitheater development efforts. He served as Vice Chairman of PACE from 1992
until he was named its Chief Executive Officer in 1994.
DAVID FALK has served as a Member of the Office of the Chairman and a
director of SFX since the consummation of the FAME acquisition. Mr. Falk serves
as a director and as Chairman of SFX's sports group and several subsidiaries
within SFX's sports group, which includes FAME. Mr. Falk, who has represented
professional athletes for over twenty years, is presently a Director, Chairman
and Chief Executive Officer of FAME, positions he has held since he founded
FAME in 1992. Mr. Falk also serves as Chairman of the HTS Sports-a-Thon to
benefit the Leukemia Society of America, is a member of the Executive Committee
of the College Fund and is on the Board of Directors of the Juvenile Diabetes
Foundation and Share the Care for Children.
HOWARD J. TYTEL has served as an Executive Vice President, General
Counsel, Secretary and a director of SFX since its formation in December 1997.
In January 1999, Mr. Tytel was elected as a Member of the Office of the
Chairman. Mr. Tytel also served as a director, General Counsel, Executive Vice
President and Secretary of SFX Broadcasting from 1992 until the consummation of
the SFX Broadcasting merger. Mr. Tytel is Executive Vice President, General
Counsel and a director of SCMC. From March 1995 until March 1997, Mr. Tytel was
a Director of Interactive Flight Technologies, Inc., a publicly-traded company
providing computer-based in-flight entertainment. For the last twenty years,
Mr. Tytel has been associated with Mr. Sillerman in various capacities with
entities operating in the broadcasting business. From 1993 to 1998, Mr. Tytel
was Of Counsel to the law firm of Baker & McKenzie, which represents SFX on
certain matters.
THOMAS P. BENSON has served as a Senior Vice President since March 1999,
and as the Vice President, Chief Financial Officer and a director of SFX since
its formation in December 1997. Mr. Benson also served as the Chief Financial
Officer and a director of SFX Broadcasting, having served in such capacity from
November 1996 until the consummation of the SFX Broadcasting merger. Mr. Benson
became the Vice President of Financial Affairs of SFX Broadcasting in June
1996. He was the Vice President--External and International Reporting for
American Express Travel Related Services Company from September 1995 to June
1996. From 1984 through September 1995, Mr. Benson worked at Ernst & Young LLP.
RICHARD A. LIESE has served as a Senior Vice President since September
1998, and as a Vice President, Associate General Counsel and a director of SFX
since its formation in December 1997. Mr. Liese also served as a director, Vice
President and Associate General Counsel of SFX Broadcasting, having served in
such capacity from 1995 until the consummation of the SFX Broadcasting merger.
Mr. Liese has also been the Assistant General Counsel and Assistant Secretary
of SCMC since 1988. In addition, from 1993 until April 1995, he served as
Secretary of MMR.
D. GEOFFREY ARMSTRONG has served as a director of SFX since its formation
in December 1997. He served as an Executive Vice President of SFX from its
formation until September 1998. Mr. Armstrong currently serves as a director of
Capstar Broadcasting Corporation, a publicly-traded radio
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broadcasting company, and as Executive Vice President and Chief Financial
Officer of Chancellor Media. Mr. Armstrong also served as the Chief Operating
Officer and an Executive Vice President of SFX Broadcasting, having served in
such capacity from November 1996 until the consummation of the SFX Broadcasting
merger. Mr. Armstrong served as a director of SFX Broadcasting from 1993 until
the consummation of the SFX Broadcasting merger. Mr. Armstrong became the Chief
Operating Officer of SFX Broadcasting in June 1996 and the Chief Financial
Officer, Executive Vice President and Treasurer of SFX Broadcasting in April
1995. Mr. Armstrong was Vice President, Chief Financial Officer and Treasurer
of SFX Broadcasting from 1992 until March 1995. He had been Executive Vice
President and Chief Financial Officer of Capstar, a predecessor of SFX
Broadcasting, since 1989.
JAMES F. O'GRADY, JR. has served as a director of SFX since its formation
in December 1997. Mr. O'Grady also served as a director of SFX Broadcasting
from 1993 until the consummation of the SFX Broadcasting merger. Mr. O'Grady
has been President of O'Grady and Associates, a media brokerage and consulting
company, since 1979. Mr. O'Grady has been a director of Orange and Rockland
Utilities, Inc. and of Video for Broadcast, Inc. since 1991, respectively. Mr.
O'Grady has been the co-owner of Allcom Marketing Corp., a corporation that
provides marketing and public relations services for a variety of clients,
since 1985, and was Of Counsel to Cahill and Cahill, a law firm located in
Brooklyn, New York, from 1986 until 1998. He also served on the Board of
Trustees of St. John's University from 1984 to 1996, and has served as a
director of The Insurance Broadcast System, Inc. since 1994.
PAUL KRAMER has served as a director of SFX since its formation in
December 1997, served as a director of SFX Broadcasting from 1993 until the
consummation of the SFX Broadcasting merger and currently serves as a director
of Nations Flooring, Inc. Mr. Kramer has been a partner in Kramer & Love,
financial consultants specializing in acquisitions, reorganizations and dispute
resolution, since 1994. From 1992 to 1994, Mr. Kramer was an independent
financial consultant. Mr. Kramer was a partner in the New York office of Ernst
& Young LLP from 1968 to 1992.
EDWARD F. DUGAN has served as a director of SFX since its formation in
December 1997. Mr. Dugan also served as a director of SFX Broadcasting from
November 1996 until the consummation of the SFX Broadcasting merger. Mr. Dugan
is President of Dugan Associates Inc., a financial advisory firm to media and
entertainment companies, which he founded in 1991. Mr. Dugan was an investment
banker with Paine Webber Inc., as a Managing Director, from 1978 to 1990, with
Warburg Paribas Becker Inc., as President, from 1975 to 1978 and with Smith
Barney Harris Upham & Co., as a Managing Director, from 1961 to 1975.
JOHN D. MILLER served as Chairman of the Board of Triathlon Broadcasting
Company from June 1995 until April 1999 when Triathlon was merged with a third
party. He is founder and President of StarVest Management, Inc., a private
investment group, and is currently on the board of directors of International
Keystone Entertainment, Inc. Mr. Miller served as the President of Rothschild
Ventures, Inc., a private investment group, from July 1995 to April 1998. Prior
to that he was affiliated with Starplough, Inc. and the Clipper Group, private
equity investment groups. Mr. Miller spent 24 years with various investment
arms of The Equitable Life Assurance Society of the U.S., his last position
being Chief Executive Officer and President of Equitable Capital Management
Corp.
JOHN J. BOYLE became a non-voting observer to the board of directors of
SFX and the Chairman of SFX's Music Group upon closing of the Cellar Door
acquisition. Mr. Boyle currently serves as the Chief Executive Officer and
Chairman of the board of directors of Cellar Door. Mr. Boyle purchased Cellar
Door in 1963, and has been in the concert promotion business for over thirty
years.
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AUDIT COMMITTEE
The Audit Committee reviews and reports to the Board on various auditing
and accounting matters, including the selection, quality and performance of
SFX's internal and external accountants and auditors, the adequacy of its
financial controls and the reliability of financial information reported to the
public. The Audit Committee also reviews certain related-party transactions and
potential conflict-of-interest situations involving officers, directors or
stockholders of SFX. The members of the Audit Committee are Messrs. Kramer,
O'Grady and Dugan.
COMPENSATION COMMITTEE
The Compensation Committee reviews and makes recommendations with respect
to certain SFX compensation programs and compensation arrangements with respect
to certain officers, including Messrs. Sillerman, Ferrel, Tytel, Benson and
Liese. The members of the Compensation Committee are Messrs. Kramer, O'Grady
and Dugan, none of whom is a current or former employee or officer of SFX
Broadcasting or SFX.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board approved the issuance of shares of Class A common stock to
holders, as of the SFX spin-off record date, of stock options or SARs of SFX
Broadcasting, whether or not vested. These holders included the members of the
Compensation Committee. The issuance was approved to allow the holders of these
options and SARs to participate in the SFX spin-off in a similar manner as
holders of SFX Broadcasting's Class A common stock and as consideration for
past services to SFX. In connection with this issuance, Mr. Kramer received
13,000 shares of Class A common stock, Mr. O'Grady received 13,000 shares of
Class A common stock and Mr. Dugan received 3,000 shares of Class A common
stock.
STOCK OPTION COMMITTEE
The Stock Option Committee grants options, determines which employees and
other individuals performing substantial services to SFX may be granted options
and determines the rights and limitations of options granted under SFX's plans.
The members of the Stock Option Committee are Messrs. Kramer, O'Grady and
Dugan.
LOANS TO CERTAIN EXECUTIVE OFFICERS
In July 1999, the Compensation Committee of the Board of Directors
approved the making of loans aggregating $12.7 million to certain executive
officers of SFX and a loan in the amount of $2.0 million to another employee of
SFX. Under the loan program, Mr. Sillerman will receive a loan of $10.0
million, Mr. Ferrel will receive a loan of $900,000, and Messrs. Becker, Tytel
and Benson will each receive a loan of $600,000. The loans will bear interest
at a rate of 6.0% per annum. Under the terms of the loans, if any of the
participants in the loan program enters into a new long-term employment
agreement with SFX, effective upon termination of his existing agreement, the
participant's loan will be forgiven ratably over the term of the new employment
agreement.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding ownership of SFX's
common stock as of August 5, 1999, by each executive officer of SFX, each
director of SFX, the directors and executive officers of SFX as a group and
each person known by SFX to own beneficially more than 5% of any class of SFX's
common stock. The following information gives effect to the 3-for-2 split of
SFX's common stock effected on July 27, 1999.
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
TOTAL VOTING TOTAL VOTING
POWER BEFORE POWER AFTER THE
CLASS A CLASS B THE OFFERING OFFERING
COMMON STOCK COMMON STOCK AND THE AND THE
------------------------------- ------------------------------- PENDING PENDING
NAME AND ADDRESS OF NUMBER OF PERCENT OF NUMBER OF PERCENT OF APOLLO APOLLO
BENEFICIAL OWNER(1) SHARES CLASS SHARES CLASS ACQUISITION ACQUISITION
- ------------------------------- ------------------ ------------ ------------------ ------------ -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Directors and Executive
Officers:
Robert F.X. Sillerman ......... 4,313,555(2) 8.0% 2,286,252(2) 89.8% 34.3% 30.9%
Michael G. Ferrel ............. 270,455(3) * 259,305(3) 10.2 3.6 3.2
Brian E. Becker ............... 228,038(4) * -- -- * *
David Falk .................... 637,500(5) 1.2 -- -- * *
Howard J. Tytel ............... 729,509(6) 1.4 -- -- *
Thomas P. Benson .............. 45,501(7) * -- -- * *
Richard A. Liese .............. 7,200(8) * -- -- * *
D. Geoffrey Armstrong ......... 286,700(9) * -- -- * *
James F. O'Grady, Jr. ......... 34,091(10) * -- -- * *
John D. Miller ................ 666(11) * -- -- * *
Paul Kramer ................... 24,000(12) * -- -- * *
Edward F. Dugan ............... 12,633(13) * -- -- * *
All directors and executive
officers as a group
(12 persons) ................. 6,589,848 12.3% 2,545,557 100.0% 40.5% 36.6%
5% Stockholders:
Ark Asset Management
Co. Inc.(14) ................. 3,345,000 6.2% -- -- 4.2% 3.8%
125 Broad Street
New York, New York 10004
</TABLE>
- ----------
* Less than 1%
(1) Unless otherwise set forth above, the address of each stockholder is the
address of SFX, which is 650 Madison Avenue, 16th Floor, New York, New
York 10022. Pursuant to Rule 13d-3 of the Securities Exchange Act of
1934, as used in this table, "beneficial ownership" means the sole or
shared power to vote, or to direct the disposition of, a security, and a
person is deemed to have "beneficial ownership" of any security that the
person has the right to acquire within 60 days of August 5, 1999. Unless
noted otherwise, information as to beneficial ownership is based on
statements furnished to SFX by the beneficial owners, and stockholders
possess sole voting and dispositive power with respect to shares listed
on this table. As of August 5, 1999, there were issued and outstanding
53,713,468 shares of Class A common stock and 2,545,557 shares of Class B
common stock.
(2) Includes 59,015 shares of Class A common stock held by SCMC, warrants to
purchase an aggregate of 7,994 shares of Class A common stock and options
to purchase an aggregate of 236,936 shares of Class A common stock held
by Mr. Sillerman which are, or will become, exercisable within 60 days of
August 5, 1999. Also includes 687,320 shares of Class A common stock,
warrants to purchase 1,412 shares of Class A common stock and options to
purchase 40,778 shares of Class A common stock held by Mr. Tytel that Mr.
Sillerman has the right to vote. Excludes options to purchase an
aggregate of 2,308,590 shares of Class A common stock held by Mr.
Sillerman which are not exercisable within 60 days of August 5, 1999. If
the 2,286,252 shares of Class B common stock held by Mr. Sillerman were
included in calculating his ownership of the Class A common stock, Mr.
Sillerman would beneficially own 6,599,807 shares of Class A common
stock, representing approximately 11.7% of the class.
(3) Includes options to purchase an aggregate of 77,501 shares of Class A
common stock held by Mr. Ferrel which are, or will become, exercisable
within 60 days of August 5, 1999. Excludes options to purchase an
aggregate of 409,998 shares of Class A common stock held by Mr. Ferrel
which are not exercisable within 60 days of August 5, 1999. If the
259,304 shares of Class B common stock held by Mr. Ferrel were included
in calculating his ownership of Class A common stock, then Mr. Ferrel
would beneficially own 529,759 shares of Class A common stock,
representing less than 1% of the class.
(4) Includes options to purchase an aggregate of 22,500 shares of Class A
common stock held by Mr. Becker which will become exercisable within 60
days of August 5, 1999. Also includes 161,435 shares of Class A common
stock held by the Becker Issue Trust for which Mr. Becker serves
as trustee. Excludes options to purchase an aggregate of 172,500 shares
of Class A common stock held by Mr. Becker which are not exercisable
within 60 days of August 5, 1999.
(5) Includes options to purchase an aggregate of 150,000 shares of Class A
common stock held by Mr. Falk which will become exercisable within 60
days of August 5, 1999. Excludes options to purchase shares of Class A
common stock held by Mr. Falk which are not exercisable within 60 days of
August 5, 1999.
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(6) Includes warrants to purchase an aggregate of 1,412 shares of Class A
common stock and options to purchase an aggregate of 40,778 shares of
Class A common stock held by Mr. Tytel which are, or will become,
exercisable within 60 days of August 5, 1999. Excludes options to
purchase shares of Class A common stock held by Mr. Tytel which are not
exercisable within 60 days of August 5, 1999. Mr. Tytel also has an
economic interest in SCMC, which beneficially owns 59,015 shares of Class
A common stock, although he lacks voting or dispositive power with
respect to the shares beneficially held by SCMC. Mr. Sillerman has the
right to vote all of the shares of Class A common stock beneficially
owned by Mr. Tytel.
(7) Includes options to purchase an aggregate of 17,001 shares of Class A
common stock held by Mr. Benson which are, or will become, exercisable
within 60 days of August 5, 1999. Excludes options to purchase shares of
Class A common stock held by Mr. Benson which are not exercisable within
60 days of August 5, 1999.
(8) Includes options to purchase an aggregate of 3,500 shares of Class A
common stock held by Mr. Liese which will become exercisable within 60
days of August 5, 1999. Excludes options to purchase shares of Class A
common stock held by Mr. Liese which are not exercisable within 60 days
of August 5, 1999.
(9) Includes options to purchase an aggregate of 45,501 shares of Class A
common stock held by Mr. Armstrong which are, or will become, exercisable
within 60 days of August 5, 1999. Excludes options to purchase shares of
Class A common stock held by Mr. Armstrong which are not exercisable
within 60 days of August 5, 1999.
(10) Includes options to purchase an aggregate of 3,750 shares of Class A
common stock held by Mr. O'Grady which are currently exercisable.
Excludes 138 shares credited to Mr. O'Grady's account in the deferred
compensation plan for non-employee directors, which shares are not
deliverable to Mr. O'Grady within 60 days of August 5, 1999. Also
excludes options to purchase an aggregate of 7,500 shares of Class A
common stock granted under SFX's 1999 stock option plan which are not
exercisable within 60 days of August 5, 1999.
(11) Excludes options to purchase shares of Class A common stock held by Mr.
Miller which are not exercisable within 60 days of August 5, 1999.
(12) Excludes 138 shares credited to Mr. Kramer's account in the deferred
compensation plan for non-employee directors, which shares are not
deliverable to Mr. Kramer within 60 days of August 5, 1999. Also excludes
options to purchase shares of Class A common stock granted under SFX's
1999 stock option plan which are not exercisable within 60 days of August
5, 1999.
(13) Includes options to purchase an aggregate of 3,750 shares of Class A
common stock held by Mr. Dugan which are currently exercisable. Excludes
8,442 shares credited to Mr. Dugan's account in the deferred compensation
plan for non-employee directors which shares are not deliverable to Mr.
Dugan within 60 days of August 5, 1999. Also excludes options to purchase
shares of Class A common stock granted under SFX's 1999 stock option plan
which are not exercisable within 60 days of August 5, 1999.
(14) Based on information contained on a Schedule 13G filed with the
Securities and Exchange Commission on February 4, 1999.
POSSIBLE CHANGE IN CONTROL
Mr. Sillerman has pledged an aggregate of 1,190,102 of his shares of Class
B common stock as collateral for a line of credit, under which he currently has
no outstanding borrowings. He continues to be entitled to exercise voting and
consent rights with respect to the pledged shares, with certain restrictions.
However, if he defaults in the payment of any future loans extended to him
under the line of credit, the bank will be entitled to sell the pledged shares.
Although Class B common stock has 10 votes per share in most matters, the
pledged shares will automatically convert into shares of Class A common stock
upon such a sale. Such a sale of the pledged shares would reduce Mr.
Sillerman's share of the voting power of SFX's common stock, and would
therefore be likely to result in a change of control of SFX. See "Risk
Factors--We could be required to make large payments upon a change of control,
which may harm our financial condition."
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of SFX consists of 110,000,000 shares of
common stock (comprised of 100,000,000 shares of Class A common stock and
10,000,000 shares of Class B common stock) and 25,000,000 shares of preferred
stock, all with a par value of $.01 per share. The following descriptions of
the common stock and preferred stock are summaries, and are qualified by
reference to the detailed provisions of the SFX Certificate of Incorporation
and the Bylaws of SFX, each of which is incorporated by reference in this
prospectus. See "Business."
COMMON STOCK
SHARES OUTSTANDING
As of August 5, 1999, 53,713,468 shares of Class A common stock and
2,545,557 shares of Class B common stock were outstanding. All of these shares
are validly issued, fully paid and nonassessable. After giving pro forma effect
to the pending Apollo acquisition and this offering, 62,193,135 shares of Class
A common stock and 2,545,557 shares of Class B common stock would have been
outstanding as of August 5, 1999.
DIVIDENDS
Although SFX does not anticipate paying any dividends on the common stock
in the foreseeable future, holders of common stock will have the right to
receive any dividends that are declared thereon by the Board at any time, and
from time to time, out of funds legally available for that purpose. SFX may not
declare or pay any dividend in cash or property on either class of common
stock, unless it simultaneously declares or pays the same dividend on the other
class of common stock. If dividends are declared that are payable in shares of
common stock, then the stock dividends will be payable at the same rate on each
class of common stock and will be payable only in shares of Class A common
stock to holders of Class A common stock and in shares of Class B common stock
to holders of Class B common stock. If dividends are declared that are payable
in shares of common stock of another corporation, then the shares paid may
differ as to voting rights to the extent that voting rights differ among Class
A common stock and Class B common stock.
VOTING RIGHTS
Holders of Class A common stock and Class B common stock vote as a single
class on all matters submitted to a vote of the stockholders, with each share
of Class A common stock entitled to one vote and each share of Class B common
stock entitled to ten votes, except:
o for the election of directors;
o with respect to any "going private" transaction between SFX and Mr.
Sillerman or any of his affiliates; and
o as otherwise provided by law.
In the election of directors, the holders of shares of Class A common
stock, voting as a separate class, elect two sevenths of SFX's directors. Any
person nominated by the Board for election by the holders of Class A common
stock as a director of SFX must be qualified to be an independent director
("Independent Director") as defined in the Certificate of Incorporation of SFX.
If a Class A director dies, is removed or resigns before his term expires, then
any person appointed by a majority of the directors then in office, although
less than a quorum, may fill that director's vacancy on the Board. Any person
appointed to fill the vacancy must, however, be qualified to be an Independent
Director. The holders of Class A common stock and Class B common stock, voting
as a single class, with each share of Class A common stock entitled to one vote
and each share of Class B common stock entitled to ten votes, have the right to
elect the remaining directors. The holders of common stock do not have any
rights to cumulative votes in the election of directors. Mr. Sillerman has
agreed to abstain, and has agreed to cause each of his affiliates to abstain,
from voting in any election of Class A directors. The Class A directors are
Messrs. Dugan, Kramer, O'Grady and Miller.
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The holders of the Class A common stock and Class B common stock vote as a
single class with respect to any proposed "going private" transaction with Mr.
Sillerman or any of his affiliates, with each share of Class A common stock and
Class B common stock entitled to one vote.
Delaware law requires the affirmative vote of the holders of a majority of
the outstanding shares of any class of common stock in order to approve, among
other things, a change in the designations, preferences or limitations of that
class of common stock.
LIQUIDATION RIGHTS
Upon liquidation, dissolution or winding-up of SFX, after distribution in
full of any preferential amounts required to be distributed to holders of
preferred stock, the holders of Class A common stock will have the right to
share ratably with the holders of Class B common stock all assets available for
distribution after payment in full of creditors.
CONVERSION
Each share of Class B common stock is convertible at any time, at the
holder's option, into one share of Class A common stock. Each share of Class B
common stock converts automatically into one share of Class A common stock at
the time of its sale or transfer to a party not affiliated with SFX or at the
time of Mr. Sillerman's death, in the case of his or his affiliates' shares.
OTHER PROVISIONS
The holders of common stock do not have any preemptive or subscription
rights. In any merger, consolidation or business combination, the consideration
holders of Class A common stock receive must be identical to the consideration
per share that holders of Class B common stock receive, except that in any such
transaction in which shares of common stock are to be distributed, the
distributed shares may differ as to voting rights to the extent that voting
rights now differ among the Class A common stock and the Class B common stock.
SFX may not subdivide or combine the outstanding shares of either class of
common stock unless it proportionately subdivides or combines the outstanding
shares of both classes.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Class A and Class B common stock is
Chase Mellon Shareholder Services, L.L.C.
PREFERRED STOCK
As of the date of this prospectus, no shares of SFX's preferred stock are
outstanding, and SFX has 25,000,000 shares of preferred stock authorized.
The Board, without further vote or action by the stockholders, has the
authority to issue preferred stock in one or more series and to fix the number
of shares and the relative designations and powers, preferences and rights, and
qualifications, limitations and restrictions thereof. If SFX issues shares of
preferred stock with voting rights, then it could dilute the voting rights of
the holders of common stock by increasing the number of outstanding shares
having voting rights, and by creating class or series voting rights. If the
Board authorizes the issuance of shares of preferred stock with conversion
rights, then it could potentially increase the number of shares of common stock
outstanding up to the authorized amount. Also, the preferred stock could have
preferences over the common stock and over other series of preferred stock with
respect to dividend and liquidation rights.
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CERTAIN STATUTORY, CHARTER AND BYLAW PROVISIONS
The following descriptions of the Certificate of Incorporation and Bylaws
of SFX are summaries, and are qualified by reference to the Certificate of
Incorporation and Bylaws of SFX, each of which is filed as an exhibit to the
registration statement of which this prospectus is a part.
CHARTER AND BYLAW PROVISIONS
As allowed by Delaware law, SFX's Certificate of Incorporation states
that, to the fullest extent permitted by Delaware law, SFX's directors will not
be liable for monetary damages for breach of their fiduciary duty of care to
SFX and its stockholders. Delaware law provides that directors of a company
will not be personally liable for monetary damages for breach of their
fiduciary duties as directors, except for liability:
o for any breach of their duty of loyalty to SFX or its stockholders;
o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o under Section 174 of Delaware law, which relates to liability for
unlawful payments of dividends and stock repurchases and redemptions; or
o for any transaction from which the director derived an improper
personal benefit.
This provision also does not affect a director's responsibilities under any
other laws, such as the federal securities laws or state or federal
environmental laws.
The Bylaws and certain of SFX's employment agreements also contain
provisions that require SFX to indemnify its directors, officers, employees or
other agents to the fullest extent permitted by Delaware law, and to advance
expenses to its officers and directors as incurred.
CERTAIN ANTI-TAKEOVER PROVISIONS
The provisions of the SFX Certificate of Incorporation summarized in the
succeeding paragraphs may have an anti-takeover effect and may delay, defer or
prevent a tender offer or takeover attempt that a stockholder might consider in
such stockholder's best interest, including attempts that might result in a
premium over the market price for the shares of common stock held by
stockholders.
The SFX Certificate of Incorporation allows the Board to establish one or
more additional series of preferred stock, having such number of shares,
designation, relative voting rights, dividend rates, liquidation and other
rights, preferences and limitations as may be fixed by the Board without any
further stockholder approval. These rights, preferences, privileges and
limitations could impede or discourage the acquisition of control of SFX. See
"Description of Capital Stock--Preferred Stock."
SFX is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. The following summary of Section 203 does not
purport to be complete and is qualified in its entirety by reference thereto.
In general, Section 203 prevents an "interested stockholder" from engaging in a
"business combination" with a Delaware corporation for three years following
the date such person became an interested stockholder unless:
o before such person became an interested stockholder, the board of
directors of the corporation either approved the transaction in which
the interested stockholder became an interested stockholder or approved
the business combination;
o upon consummation of the transaction that resulted in the interested
stockholder's becoming an interested stockholder, the interested
stockholder owns at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding stock held
by directors who are also officers of the corporation and by employee
stock plans that do not provide employees with the rights to determine
confidentially whether shares held subject to the plan will be tendered
in a tender or exchange offer; or
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o following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders
by the affirmative vote of the holders of two-thirds of the outstanding
voting stock of the corporation not owned by the interested stockholder.
Under Section 203, the above restrictions also do not apply to certain
business combinations proposed by an interested stockholder after the
announcement or notification of one of certain extraordinary transactions
involving the corporation and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors, if
such extraordinary transaction is approved or not opposed by a majority of the
directors who were directors prior to any person becoming an interested
stockholder during the previous three years or were recommended for election or
elected to succeed such directors by a majority of such directors.
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DESCRIPTION OF INDEBTEDNESS
NEW SENIOR CREDIT FACILITY
The following is a summary of the anticipated material terms of the credit
agreement for the New Senior Credit Facility, which SFX expects to enter into
in the third quarter of 1999. This summary is not complete. In addition, no
assurances can be given that the New Senior Credit Facility will be completed
on the terms described in this prospectus or at all. The closing of the New
Senior Credit Facility is not a condition to the closing of this offering.
The New Senior Credit Facility is expected to provide $1.1 billion of
senior secured credit facilities. The New Senior Credit Facility is expected to
be comprised of a $250.0 million multi-draw, delayed draw, multi-currency term
loan maturing on December 31, 2005 ("Term Loan A"), a $600.0 million
single-draw, U.S. dollar term loan maturing on June 30, 2006 ("Term Loan B"),
and a $250.0 million multi-currency reducing revolver maturing on December 31,
2005. Borrowings under the New Senior Credit Facility will be secured by
substantially all the assets of SFX and its domestic subsidiaries, including a
pledge of the outstanding stock of substantially all of its subsidiaries, and
will be guaranteed by substantially all of SFX's domestic subsidiaries. In
addition, in the event a foreign subsidiary of SFX is a borrower under the New
Senior Credit Facility, borrowings under the New Senior Credit Facility by such
foreign subsidiary will be secured by substantially all of the assets of such
foreign subsidiary and will be guaranteed by SFX. As of August 5, 1999, SFX had
approximately $319.0 million of indebtedness outstanding under the Existing
Senior Credit Facility which is expected to be refinanced with borrowings under
the New Senior Credit Facility.
GENERAL
The New Senior Credit Facility is expected to provide for borrowings in a
principal amount of up to $1.1 billion, subject to certain covenants and
conditions. Borrowings under the New Senior Credit Facility may be used by SFX
to finance Permitted Acquisitions (as defined in the New Senior Credit
Facility), for working capital, for general corporate purposes and to repay
existing bank debt. Up to $75.0 million of the revolver is expected to be
available for the issuance of standby letters of credit. The Term Loan A is
expected to be available for the issuance of a standby letter of credit in
support of certain of SFX's future payment obligations in relation to the
Apollo Acquisition. Each Permitted Acquisition must be in the same line
business (or other business incidental or related thereto) as SFX and must have
the prior written consent of the Required Lenders (as defined in the New Senior
Credit Facility) if the cost of the Permitted Acquisition exceeds $75.0
million.
INTEREST RATES
In the case of U.S. dollar loans, borrowings under the New Senior Credit
Facility are expected to bear interest, at SFX's option, at certain spreads
over LIBOR or the greater of the Federal Funds Rate plus 0.50% or The Bank of
New York's prime rate. In the case of currencies other than U.S. dollars, loans
outstanding under the New Senior Credit Facility are expected to bear interest
at certain spreads over LIBOR for the appropriate currency. The interest rate
spreads on the term loans and the revolver are expected to be adjusted based on
SFX's Total Leverage Ratio, as defined below.
FEES
SFX expects to pay an annual commitment fee on unused availability under
the revolver according to the following schedule: 0.750% if SFX's Total
Leverage Ratio is greater than or equal to 5.50, 0.625% if SFX's Total Leverage
Ratio is greater than or equal to 5.00 but less than 5.50, and 0.500% if SFX's
Total Leverage Ratio is less than 5.00. SFX expects to pay an annual commitment
fee on unused availability under Term Loan A according to the following
schedule: during the first three months following the closing of the New Senior
Credit Facility, 0.750%, and thereafter 1.5625% if SFX's Total Leverage Ratio
is greater than or equal to 5.50, 1.4375% if SFX's Total Leverage Ratio is
greater than or equal to 5.00 but less than 5.50, 1.2500% if SFX's Total
Leverage Ratio is greater than
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or equal to 4.50 but less than 5.00, 1.1250% if SFX's Total Leverage Ratio is
greater than or equal to 4.00 but less than 4.50, 1.0000% if SFX's Total
Leverage Ratio is greater than or equal to 3.50 but less than 4.0, and 0.8125%
if SFX's Total Leverage Ratio is less than 3.50. SFX will also pay an annual
letter of credit fee equal to the Applicable LIBOR Margin, as defined in the
New Senior Credit Facility, for the revolver then in effect.
MANDATORY PREPAYMENTS AND COMMITMENT REDUCTIONS
Commitments to lend under the revolver are expected to be reduced in equal
quarterly installments commencing March 31, 2003 according to the following
schedule: by 25.0% in 2003; by 25.0% in 2004; and by the remaining 50.0% upon
final maturity. Term Loan A is expected to be repaid in equal quarterly
installments commencing March 31, 2001 according to the following
schedule:15.0% in 2001, 15.0% in 2002, 20.0% in 2003, 25.0% in 2004, and the
remaining balance of 25.0% upon maturity. Term Loan B is expected to be repaid
in equal quarterly installments commencing September 30, 2001 according to the
following schedule: 1.0% from September 30, 2001 to June 30, 2002, 1.0% from
September 30, 2002 to June 30, 2003, 1.0% from September 30, 2003 to June 30,
2004, 1.0% from September 30, 2004 to June 30, 2005, and the remaining balance
of 96% from September 30, 2005 to June 30, 2006. It is expected that amounts
outstanding under the New Senior Credit Facility will be subject to, among
others, the following mandatory prepayments, which will also permanently reduce
commitments:
o 100.0% of the net cash proceeds received from permitted Asset Sales (as
defined in the New Senior Credit Facility), subject to standard
reinvestment provisions;
o 50.0% of Excess Cash Flow (as defined in the New Senior Credit
Facility), calculated for each fiscal year beginning with the year ending
December 31, 2001; and
o 100.0% of the proceeds of casualty insurance or condemnation not used
to repair or replace the properties with respect to which the loss
occurred within one year from the receipt of such proceeds.
COLLATERAL AND GUARANTEES
Each of SFX's present and future direct and indirect domestic subsidiaries
and, in the case of loans made to foreign subsidiary borrowers, SFX (the
"Senior Guarantors"), is expected to be required to provide guarantees under
the New Senior Credit Facility. In order to secure their obligations under the
New Senior Credit Facility, it is expected that the Senior Guarantors will
grant to the lenders a continuing security interest in all of their assets,
(subject to certain non-material exceptions and, (a) with respect to real
property, upon the demand of the administrative agent or the Required Lenders,
and (b) with respect to non-U.S. assets, subject to local law, tax and cost
considerations), all of the capital stock of each Senior Guarantor and not less
than 66% of the capital stock of SFX's present and future foreign subsidiaries.
The New Senior Credit Facility is expected to contain various covenants
that, subject to certain specified exceptions, restrict SFX's and its
subsidiaries' ability to:
o incur additional indebtedness and other obligations;
o grant liens;
o consummate mergers, acquisitions, investments and asset dispositions;
o declare or pay Restricted Payments (as defined in the New Senior
Credit Facility);
o declare or pay dividends, distributions and other prepayments or
repurchases of other indebtedness;
o amend certain agreements, including SFX's organizational documents, and
its outstanding senior subordinated notes and indentures;
o make acquisitions and dispositions;
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o engage in transactions with affiliates;
o enter into partnership and joint ventures;
o engage in sale and leaseback transactions; and
o change lines of business.
The New Senior Credit Facility is expected to include covenants relating to
compliance with ERISA, environmental and other laws, payment of taxes,
maintenance of corporate existence and rights, maintenance of insurance and
financial reporting. In addition, the New Senior Credit Facility is expected to
require SFX to maintain compliance with certain specified financial covenants
relating to:
o a maximum ratio (the "Total Leverage Ratio") of (a) all outstanding
amounts under the New Senior Credit Facility and any other
indebtedness (including capital lease obligations) of SFX and its
subsidiaries, on a consolidated basis ("Total Debt"), less cash and
cash equivalents in excess of $5.0 million, to (b) for the most
recently completed four fiscal quarters, (i) revenues less (ii)
expenses (excluding depreciation, amortization other than amortization
of capitalized preproduction costs, interest expense and income tax
expense), plus (iii) nonrecurring expense items or noncash expense
items acceptable to the agent under the New Senior Credit Facility,
plus (iv) the lesser of (a) the equity income from Unconsolidated
Investments (as defined in the New Senior Credit Facility) and (b)
cash dividends and other cash distributions from Unconsolidated
Investments (however, the total amount determined under this clause
(iv) will not exceed 10.0% of Operating Cash Flow before overhead)
(the amount referred to in this clause (b), "Operating Cash Flow");
Operating Cash Flow is to be adjusted to reflect acquisitions and
dispositions consummated during the calculation period as if those
transactions were consummated at the beginning of the period (with
adjustment, "Adjusted Operating Cash Flow");
o a maximum ratio (the "Senior Leverage Ratio") of (a) Total Debt less
the principal amount outstanding under Subordinated Debt (as defined in
the New Senior Credit Facility), less cash and cash equivalents in excess
of $5.0 million, to (b) Adjusted Operating Cash Flow;
o minimum ratio (the "Pro Forma Interest Expense Ratio") of (a) Adjusted
Operating Cash Flow to (b) the sum of all interest expense and commitment
fees calculated for the twelve month period following the calculation
quarter, giving effect to the Total Debt outstanding and the interest
rates in effect as of the date of the determination and the commitment
reductions and debt amortization scheduled during that period;
o minimum ratio (the "Debt Service Ratio") of (a) Adjusted Operating Cash
Flow to (b) the sum of (i) the sum of all interest expense and commitment
fees calculated for the twelve month period following the calculation
quarter, giving effect to the Total Debt outstanding and the interest
rates in effect as of the date of the determination and the commitment
reductions and debt amortization scheduled during that period and (ii)
the scheduled current maturities of Total Debt and current commitment
reductions with respect to the revolver, each measured for the twelve
month period immediately succeeding the date of determination, and
o a minimum ratio (the "Fixed Charges Ratio") of: (a) the sum of
Operating Cash Flow to (b) the sum of, for the twelve month period
recently completed, the following paid during that period: (i) interest
expense, (ii) commitment fees with respect to Total Debt, (iii) the
scheduled maturities of Total Debt, (iv) cash income taxes and (v)
capital expenditures.
It is expected that the Total Leverage Ratio, for the most recently
completed twelve-month period may not at any time exceed (a) 6.00x from the
closing of the New Senior Credit Facility to September 29, 2000, (b) 5.50x from
September 30, 2000 to September 29, 2001, (c) 5.00x from September 30, 2001 to
September 29, 2002, (d) 4.50x from September 30, 2002 to September 29, 2003,
(e) 4.00x from September 30, 2003 to September 29, 2004, and (f) 3.50x on
September 30, 2004 and
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thereafter; provided, that at any time from the closing of the New Senior
Credit Facility to and including September 29, 2000 when SFX shall have
consummated one or more issuances of equity securities for aggregate net cash
proceeds in excess of $100,000,000, the Total Leverage Ratio for such period
will be reduced to 5.75x.
It is expected that the Senior Leverage Ratio for the most recently
completed twelve-month period may not at any time exceed (a) 4.00x from the
closing of the New Senior Credit Facility to September 29, 2000, (b) 3.50x from
September 30, 2000 to September 29, 2001, (c) 3.00x from September 30, 2001 to
September 29, 2002, and (d) 2.50x on September 30, 2002 and thereafter.
It is expected that the Pro Forma Interest Expense Ratio may not at the
end of any fiscal quarter be less than (a) 1.50x from the closing of the New
Senior Credit Facility to September 29, 2000, (b) 1.75x from September 30, 2000
to September 29, 2001, and (c) 2.00x on September 30, 2001 and thereafter.
It is expected that the Pro Forma Debt Service Ratio may not at any fiscal
quarter end be less than 1.50x.
It is expected that the Fixed Charges Ratio may not at any fiscal quarter
end be less than 1.05x.
It is expected that the New Senior Credit Facility will also prohibit
prepayment of any subordinated notes.
EVENTS OF DEFAULT
It is expected that the New Senior Credit Facility will contain customary
events of default, including payment defaults, the occurrence of a Change of
Control (as defined below), the invalidity of guarantees or security documents
under the New Senior Credit Facility, the breach of any representation or
warranty under the New Senior Credit Facility, any cross-default to other
material indebtedness of SFX and its subsidiaries and bankruptcy. The term
"Change of Control" is expected to be defined as the consummation of any
transaction (including, without limitation, any merger or consolidation) the
result of which is that any "person" (as such term is used in Section 13(d)(3)
of the Exchange Act), other than Robert Sillerman ("Sillerman") and his Related
Parties (as hereinafter defined), becomes the "beneficial owner" (as such term
is defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a
person shall be deemed to have "beneficial ownership" of all securities that
such person has the right to acquire, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition), directly or indirectly, of more than 35% of the combined voting
power of all classes of issued and outstanding capital stock of SFX that is
entitled to vote in the election of the Board of Directors of SFX. "Related
Parties" means (i) a spouse or immediate family member of Sillerman or (ii) any
trust, corporation, partnership or other entity, the beneficiaries,
stockholders, owners, partners, owners or Persons beneficially holding an 80%
or more controlling interest of which consist of Sillerman and or such other
Persons referred to in the immediately preceeding clause (i). It is expected
that the occurrence of any event of default could result in termination of the
commitments to extend credit under the New Senior Credit Facility and
foreclosure on the collateral securing those obligations, each of which,
individually, could have a material adverse effect on SFX.
DESCRIPTION OF THE NOTES ISSUED IN FEBRUARY 1998
The following is a summary of the material terms contained in the
indenture governing the notes issued by SFX in February 1998. This summary is
not complete. It is subject to the terms of the note indenture, which is
incorporated by reference in the registration statement of which this
prospectus is a part. See "Where You Can Find More Information."
On February 11, 1998, SFX consummated the private placement of $350.0
million in aggregate principal amount of 9 1/8% Senior Subordinated Notes due
2008 (the "February notes"). The February notes bear interest at an annual
interest rate of 9 1/8%, and interest payments are due semi-annually on
February 1 and August 1 of each year. The February notes will mature on
February 1, 2008. The February notes do not contain any sinking fund provision.
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RANKING
The February notes are general unsecured obligations of SFX, subordinate
in right to all Senior Debt (as defined in the February note indenture),
whether outstanding on the date of the February note indenture or thereafter
incurred, of SFX and senior in right of payment to or pari passu with all other
indebtedness of SFX. See "Capitalization."
SUBSIDIARY GUARANTEES
SFX's payment obligations under the February notes are jointly and
severally guaranteed on a senior subordinated basis by all of its current and
future domestic subsidiaries, with certain specified exceptions.
OPTIONAL REDEMPTION
Except as noted below, the February notes are not redeemable at SFX's
option before February 1, 2003. Thereafter, the February notes will be subject
to redemption at any time at the option of SFX, in whole or in part, at
specified redemption prices plus accrued and unpaid interest, if any, thereon
to the applicable redemption date. In addition, at any time prior to February
1, 2001, SFX may on any one or more occasions redeem up to 35.0% of the
original aggregate principal amount of the February notes at a redemption price
of 109.125% of the principal amount thereof, plus accrued and unpaid interest,
if any, thereon to the date of redemption, with the net proceeds of one or more
offerings of common equity of SFX. However, at least 65.0% of the original
aggregate principal amount of the February notes must remain outstanding
immediately after each occurrence of redemption.
CHANGE OF CONTROL
After the occurrence of a Change of Control (as defined in the February
note indenture), SFX will be required to make an offer to repurchase the
February notes at a price equal to 101% of their principal amount, together
with accrued and unpaid interest, if any, to the date of purchase.
CERTAIN COVENANTS
The February note indenture contains certain covenants that, among other
things, significantly limit the ability of SFX and its subsidiaries to (a)
incur additional Indebtedness (as defined in the February note indenture), (b)
issue preferred stock, (c) pay dividends, (d) make certain other restricted
payments, (e) create certain Liens (as defined in the February note indenture),
(f) enter into certain transactions with affiliates, (g) sell assets of SFX or
its Restricted Subsidiaries (as defined in the February note indenture), (h)
issue or sell Equity Interests (as defined in the February note indenture) of
SFX's Restricted Subsidiaries or (i) enter into certain mergers and
consolidations. In addition, under certain circumstances, SFX will be required
to offer to purchase February notes at a price equal to 100.0% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
purchase, with the proceeds of certain Asset Sales (as defined in the February
note indenture).
EXCHANGE OFFER
On July 15, 1998, SFX consummated the exchange of substantially identical
publicly registered notes for all outstanding notes originally issued in the
February 1998 note offering. All original February notes were tendered for
exchange and were cancelled upon the issuance of the same principal amount of
exchange February notes.
CONSENT SOLICITATION
On July 20, 1999, SFX completed a consent solicitation with respect to the
February notes whereby it obtained approval from the holders to modifications
of certain covenants in the indenture governing the February notes. The
modifications, among other things, provide SFX with more
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flexibility to make investments and acquisitions internationally and permit
SFX's foreign subsidiaries to incur indebtedness, subject to certain
limitations. In connection with the consent solicitation, SFX paid consenting
holders a fee equal to 2.5% of the principal amount of the February notes for
which consents were received.
DESCRIPTION OF THE NOTES ISSUED IN NOVEMBER 1998
The following is a summary of the material terms contained in the
indenture governing the notes issued by SFX in November 1998. This summary is
not complete. It is subject to the terms of the note indenture, which was
incorporated by reference in the registration statement of which this
prospectus is a part. See " Where You Can Find More Information."
On November 25, 1998, SFX consummated the private placement of $200.0
million in aggregate principal amount of 9 1/8% Senior Subordinated Notes due
2008 (the "November notes"). The November notes bear interest at an annual
interest rate of 9 1/8%, and interest payments are due semi-annually on June 1
and December 1 of each year. The November notes will mature on December 1,
2008. The November notes do not contain any sinking fund provision.
RANKING
The November notes are general unsecured obligations of SFX, subordinate
in right to all Senior Debt (as defined in the November note indenture),
whether outstanding on the date of the November note indenture or thereafter
incurred, of SFX and senior in right of payment to or pari passu with all other
indebtedness of SFX. See "Capitalization."
SUBSIDIARY GUARANTEES
SFX's payment obligations under the November notes are jointly and
severally guaranteed on a senior subordinated basis by all of its current and
future domestic subsidiaries, with certain specified exceptions.
OPTIONAL REDEMPTION
Except as noted below, the November notes are not redeemable at SFX's
option before December 1, 2003. Thereafter, the November notes will be subject
to redemption at any time at the option of SFX, in whole or in part, at
specified redemption prices plus accrued and unpaid interest, if any, thereon
to the applicable redemption date. In addition, at any time prior to December
1, 2001, SFX may on any one or more occasions redeem up to 35.0% of the
original aggregate principal amount of the November notes at a redemption price
of 109.125% of the principal amount thereof, plus accrued and unpaid interest,
if any, thereon to the date of redemption, with the net proceeds of one or more
offerings of common equity of SFX. However, at least 65.0% of the original
aggregate principal amount of the November notes must remain outstanding
immediately after each occurrence of redemption.
CHANGE OF CONTROL
After the occurrence of a Change of Control (as defined in the November
note indenture), SFX will be required to make an offer to repurchase the
November notes at a price equal to 101% of their principal amount, together
with accrued and unpaid interest, if any, to the date of purchase.
CERTAIN COVENANTS
The November note indenture contains certain covenants that, among other
things, significantly limit the ability of SFX and its subsidiaries to (a)
incur additional Indebtedness (as defined in the November note indenture), (b)
issue preferred stock, (c) pay dividends, (d) make certain other restricted
payments, (e) create certain Liens (as defined in the new note indenture), (f)
enter into certain transactions with affiliates, (g) sell assets of SFX or its
Restricted Subsidiaries (as defined in
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the November note indenture), (h) issue or sell Equity Interests (as defined in
the November note indenture) of SFX's Restricted Subsidiaries or (i) enter into
certain mergers and consolidations. In addition, under certain circumstances,
SFX will be required to offer to purchase November notes at a price equal to
100.0% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the date of purchase, with the proceeds of certain Asset Sales (as
defined in the November note indenture).
EXCHANGE OFFER
In March 1999, SFX consummated the exchange of substantially identical
publicly registered notes for all outstanding notes originally issued in the
November 1998 note offering. All original November notes were tendered for
exchange and were cancelled upon the issuance of the same principal amount of
exchange November notes.
CONSENT SOLICITATION
On July 20, 1999, SFX completed a consent solicitation with respect to the
November notes whereby it obtained approval from the holders to modifications
of certain covenants in the indenture governing the November notes. The
modifications, among other things, provide SFX with more flexibility to make
investments and acquisitions internationally and permit SFX's foreign
subsidiaries to incur indebtedness, subject to certain limitations. In
connection with the consent solicitation, SFX paid consenting holders a fee
equal to 2.5% of the principal amount of the November notes for which consents
were received.
OTHER DEBT
In addition to the amounts outstanding under the New Senior Credit
Facility, the February notes and the November notes, SFX had approximately
$64.2 million of long-term debt outstanding on a pro forma basis at June 30,
1999.
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SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Class A common stock in the public market,
or the possibility that these sales may occur, could adversely affect market
prices for Class A common stock or the future ability of SFX to raise capital
through an offering of equity securities. As of August 5, 1999, after giving
pro forma effect to this offering and the pending Apollo acquisition, SFX will
have 62,193,135 shares of Class A common stock and 2,545,557 shares of Class B
common stock outstanding, not including shares issuable upon the exercise of
outstanding options. Of those shares, a total of 55,241,797 shares will be
freely tradeable in the public market without restriction under the Securities
Act, unless the shares are held by "affiliates" of SFX (as that term is defined
in Rule 144 under the Securities Act). In addition, 6,943,316 shares are
"restricted" securities under the Securities Act, of which 2,859,216 shares are
covered by a resale shelf registration statement. SFX believes that a
substantial portion of the remaining shares that constitute restricted
securities may be sold under Rule 144 under the Securities Act.
Under the underwriting agreement and certain agreements entered into
between the representatives of the underwriters and certain of SFX's officers
and directors (the "Lock-Up Agreements"), such officers and directors will not,
subject to certain exceptions, sell any shares of SFX's common stock, without
the prior written consent of Bear, Stearns & Co. Inc. and Lehman Brothers Inc.,
during the period commencing on the date hereof and ending 60 days after the
date of this prospectus. Upon the expiration or termination of the Lock-Up
Agreements, the shares held by affiliates will be eligible for sale subject to
compliance with the provisions of Rule 144 or pursuant to an effective
registration statement filed with the SEC. See "Underwriting."
In addition, SFX has granted options and warrants to purchase up to
6,680,363 shares of Class A common stock as of July 21, 1999 and has options
with respect to approximately 1,050,000 shares of Class A common stock
available for issuance under its 1998 and 1999 stock option plans.
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CERTAIN UNITED STATES TAX CONSEQUENCES TO
NON-UNITED STATES HOLDERS OF COMMON STOCK
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and sale or other disposition of Class
A common stock by a holder that, for U.S. federal income tax purposes, is not a
"U.S. person" (a "Non-U.S. Holder"). For purposes of this discussion, a "U.S.
person" means (1) a citizen or resident (as determined for U.S. federal income
tax purposes) of the U.S.; (2) a corporation or other entity taxable as a
corporation created or organized in the U.S. or under the laws of the U.S. or
of any political subdivision thereof; (3) an estate the income of which is
subject to U.S. federal income taxation regardless of its source; or (4) a
trust if both (i) a U.S. court is able to exercise primary supervision over the
administration of the trust and (ii) one or more U.S. persons have the
authority to control all substantial decisions of the trust. In the case of a
partnership that is a holder of Class A common stock, any partner described in
any of (1) through (4) above is also a "U.S. person." Resident alien
individuals will be subject to U.S. federal income tax with respect to the
Class A common stock as if they were U.S. citizens.
THIS DISCUSSION IS BASED ON THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
(THE "CODE"), AND THE ADMINISTRATIVE INTERPRETATIONS AS OF THE DATE HEREOF, ALL
OF WHICH MAY BE CHANGED EITHER RETROACTIVELY OR PROSPECTIVELY. THIS DISCUSSION
IS FOR GENERAL INFORMATION ONLY, DOES NOT CONSIDER ANY SPECIFIC FACTS OR
CIRCUMSTANCES THAT MAY APPLY TO A PARTICULAR NON-UNITED STATES HOLDER AND DOES
NOT ADDRESS ANY TAX CONSEQUENCES ARISING UNDER ANY STATE, MUNICIPALITY, FOREIGN
COUNTRY OR OTHER TAXING JURISDICTION. PROSPECTIVE INVESTORS ARE URGED TO
CONSULT THEIR TAX ADVISORS REGARDING THE UNITED STATES FEDERAL TAX CONSEQUENCES
OF OWNING AND DISPOSING OF CLASS A COMMON STOCK (INCLUDING THE INVESTOR'S
STATUS AS A U.S. PERSON OR NON-U.S. HOLDER), AS WELL AS ANY TAX CONSEQUENCES
THAT MAY ARISE UNDER THE LAWS OF ANY STATE, MUNICIPALITY, FOREIGN COUNTRY OR
OTHER TAXING JURISDICTION.
DIVIDENDS
Dividends paid to a Non-U.S. Holder will generally be subject to
withholding tax at the rate of 30% (or such lower rate as may be provided by an
applicable income tax treaty). Non-U.S. Holders should consult their tax
advisors regarding their entitlement to benefit under a relevant income tax
treaty.
Currently, the applicable United States Treasury regulations presume,
absent actual knowledge to the contrary, that dividends paid to an address in a
foreign country are paid to a resident of such country for purposes of the 30%
withholding tax discussed above. However, the final United States Treasury
regulations (the "Final Regulations") provide that, in the case of dividends
paid after December 31, 2000, Non-U.S. Holders generally will be subject to
U.S. backup withholding tax at a 31% rate, if specified certification
procedures and requirements (or, in the case of payments outside the United
States with respect to an offshore account, specific documentary evidence
procedures) are not satisfied, directly or through an intermediary.
The Final Regulations also provide special rules for dividend payments
made to foreign intermediaries, U.S. or foreign wholly owned entities that are
disregarded for U.S. federal income tax purposes and entities that are treated
as fiscally transparent in the United States, the applicable treaty
jurisdiction, or both. In addition, recently enacted legislation, effective
August 4, 1997, denies income tax treaty benefits to foreign partners receiving
income derived through a partnership (or otherwise fiscally transparent entity)
if the foreign partner does not certify as to its Non-U.S. Holder status and
the partnership does not provide required information including a U.S. taxpayer
identification number. Prospective investors should consult with their own tax
advisers concerning the effect, if any, of these Final Regulations and the
recent legislation on an investment in the Class A common stock.
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A Non-U.S. Holder of Class A common stock that is eligible for a reduced
rate of U.S. withholding tax pursuant to an income tax treaty may obtain a
refund of any excess amounts withheld by filing an appropriate claim for refund
with the Internal Revenue Service (the "IRS").
Dividends that are effectively connected with: a Non-U.S. Holder's (1)
conduct of a trade or business, (2) permanent establishment or (3) fixed base
in the United States ("United States trade or business income"), generally are
subject to U.S. federal income tax on a net income basis at regular graduated
rates, but are not subject to the 30% withholding tax if the Non-U.S. Holder
files Form 4224 (or successor form) with the payor or, after December 31, 2000,
such holder provides its U.S. taxpayer identification number to the payor.
Any United States trade or business income received by a Non-U.S. Holder
that is a corporation also may be subject to an additional "branch profits tax"
at a rate of 30% or such lower rate as may be specified by an applicable income
tax treaty.
SFX has no present plans to declare dividends on its common stock.
GAIN ON SALE OR OTHER DISPOSITION
A Non-U.S. Holder generally will not be subject to U.S. federal income or
withholding tax in respect of gain recognized on a disposition of Class A
common stock unless:
(1) the gain is effectively connected with the conduct of a trade or
business (or, if an income tax treaty applies, is attributable to a "permanent
establishment," as defined therein) of the Non-U.S. Holder within the U.S. or
of a partnership, trust or estate in which the Non-U.S. Holder is a partner or
beneficiary within the U.S.,
(2) the Non-U.S. Holder is an individual who holds the Class A common
stock as a capital asset within the meaning of Section 1221 of the Code
(generally, property held for investment), is present in the U.S. for 183 or
more days in the taxable year of the disposition and meets other tax law
requirements,
(3) the non-U.S. Holder is a U.S. expatriate subject to tax
pursuant to the provisions of the United States tax law, or
(4) SFX has been, is or becomes a "United States real property holding
corporation" within the meaning of Section 897(c) (2) of the Code at any time
within the shorter of the five-year period preceding such sale or other
disposition or such Non-U.S. Holder's holding period for the Class A common
stock.
Generally, a corporation is a U.S. real property holding corporation if
the fair market value of its "United States real property interests" equals or
exceeds 50% of the sum of the fair market value of its worldwide real property
interests plus the fair market value of any other of its assets used or held
for use in a trade or business.
SFX believes that it has not been, is not currently and is not likely to
become a United States real property holding corporation for U.S. federal
income tax purposes. However, if SFX were to become a United States real
property holding corporation, any gain realized by a Non-U.S. Holder still
would not be subject to U.S. federal income tax if the Class A common stock of
SFX is "regularly traded" (within the meaning of applicable U.S. Treasury
regulations) on an established securities market (e.g., the New York Stock
Exchange or NASDAQ Stock Market). SFX believes that its Class A common stock is
"regularly traded on an established securities market." If, however, SFX's
Class A common stock is not so treated, on a sale or disposition by a Non-U.S.
Holder of the Class A common stock the transferee of such stock will be
required to withhold 10% of the proceeds unless SFX certifies that either it is
not (and has not been) a U.S. real property holding company or another
exemption from withholding applies.
If a Non-U.S. Holder who is an individual is subject to tax under clauses
(1) or (3) above, such individual generally will be taxed on the net gain
derived from a sale of Class A common stock under regular graduated U.S.
federal income tax rates. If an individual Non-U.S. Holder is subject to tax
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under clause (2) above, such individual generally will be subject to a flat 30%
tax on the gain derived from a sale, which may be offset by certain U.S.
capital losses (notwithstanding the fact that such individual is not considered
to be a resident alien of the U.S.). Thus, individual Non-U.S. Holders
who have spent (or expect to spend) more than a de minimis period of time in
the U.S. in the taxable year in which they contemplate a sale of Class A common
stock are urged to consult their tax advisors prior to the sale concerning the
U.S. federal income tax consequences of such sale.
If a Non-U.S. Holder that is a foreign corporation is subject to tax under
clause (1) above it generally will be taxed on its net gain under regular
graduated U.S. federal income tax rates and, in addition, will be subject to
the branch profit tax equal to 30% of its "effectively connected earnings and
profits," within the meaning of the Code for the taxable year, as adjusted for
certain items, unless it qualifies for a lower rate under an applicable tax
treaty.
FEDERAL ESTATE TAXES
Class A common stock owned or treated as owned by an individual
(regardless of whether such an individual is a citizen or a resident of the
U.S.) on the date of death will be included in such individual's estate for
U.S. federal estate tax purposes, unless an applicable estate tax treaty
provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Under U.S. Treasury regulations, SFX must report annually to the IRS and
to each Non-U.S. Holder the amount of dividends paid to such holder and the tax
withheld with respect to such dividends. These information reporting
requirements apply regardless of whether withholding is required. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the Non-U.S. Holder is
a resident under the provisions of an applicable income tax treaty or
agreement.
Currently, U.S. federal backup withholding (which generally is a
withholding tax imposed at the rate of 31%) will generally not apply to (1)
dividends paid to a Non-U.S. Holder that are subject to the 30% withholding
discussed above (or that are not so subject because a tax treaty applies that
reduces such 30% withholding) or (2) before January 1, 2001, to dividends paid
to a Non-U.S. Holder at an address outside of the U.S. unless the payor has
actual knowledge that the payee is a U.S. person. Backup withholding and
information reporting generally will apply to dividends paid to addresses
inside the U.S. on shares of Class A common stock to beneficial owners that are
not "exempt recipients" and that fail to provide, in the manner required,
identifying information.
The Final Regulations do not generally significantly alter the foregoing
substantive withholding and information reporting requirements but do alter the
procedures for claiming the benefits of an income tax treaty with respect to,
and the certification procedures relating to the recipient by intermediaries
of, dividends paid after December 31, 2000. These regulations generally presume
a Non-U.S. Holder is subject to backup withholding at the rate of 31% and
information reporting unless SFX receives certification of such holder's
Non-U.S. status. Depending on the circumstances, this certification will need
to be provided (1) directly by the Non-U.S. Holder, (2) in the case of a
Non-U.S. Holder that is treated as a partnership or other fiscally transparent
entity, by the partners, shareholders or other beneficiaries of such entity, or
(3) by qualified financial institutions or other qualified entities on behalf
of the Non-U.S. Holder.
The payment of the proceeds of the disposition of Class A common stock by
a holder to or through the United States office of a broker or through a
non-U.S. branch of a United States broker generally will be subject to
information reporting and backup withholding at a rate of 31% unless the holder
either certifies its status as a Non-U.S. Holder under penalties of perjury or
otherwise establishes an exemption. The payment of the proceeds of the
disposition by a Non-U.S. Holder of Class A common stock to or through a
non-U.S. office of a non-U.S. broker will not be subject to backup withholding
or information reporting unless the non-U.S. broker has a connection to the
United States as specified in the tax law.
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In the case of the payment of proceeds from the disposition of Class A
common stock effected by a foreign office of a broker that is a U.S. person or
a "United States related person", existing regulations require information
reporting on the payment unless (1) the broker receives a statement from the
owner, signed under penalty of perjury, certifying its non-U.S. status or the
broker has documentary evidence in its files as to the Non-U.S. Holder's
foreign status, and the broker has no actual knowledge to the contrary, and
other United States federal income tax conditions are met or (2) the beneficial
owner otherwise establishes an exemption. For this purpose, a "United States
related person" is either (1) a "controlled foreign corporation" for U.S.
federal income tax purposes; or (2) a foreign person 50% or more of whose gross
income from all sources for the three year period ending with the close of its
taxable year preceding the payment (or for such part of the period that the
broker has been in existence) is derived from activities that are effectively
connected with the conduct of a U.S. trade or business.
After December 31, 2000, the Final Regulations will impose information
reporting and backup withholding on payments of the gross proceeds from the
sales or redemptions of Class A common stock that are effected through foreign
offices of brokers having any of a broader class of specified connections with
the United States. Such information reporting and backup withholding may be
avoided, however, if the applicable IRS certification requirements are complied
with. Prospective investors should consult with their own tax advisors
regarding the Final Regulations and in particular with respect to whether the
use of a particular broker would subject the investor to these rules.
Any amounts withheld under the backup withholding rules from a payment to
a Non-U.S. Holder will be refunded (or credited against the holder's United
States federal income tax liability, if any) provided that the required
information is furnished to the IRS.
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UNDERWRITING
Under the terms of, and subject to the conditions stated in the
underwriting agreement dated August , 1999, the underwriters of the offering
of Class A common stock in the U.S. and Canada, for whom Bear, Stearns & Co.
Inc., Lehman Brothers Inc., Morgan Stanley & Co. Incorporated, SG Cowen
Securities Corporation, BancBoston Robertson Stephens Inc. and Prudential
Securities Incorporated are acting as U.S. representatives have each agreed to
purchase from SFX the respective number of shares of Class A common stock shown
opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITERS SHARES
- ----------------- ------
<S> <C>
Bear, Stearns & Co. Inc. ...................
Lehman Brothers Inc. .......................
Morgan Stanley & Co. Incorporated ..........
SG Cowen Securities Corporation ............
BancBoston Robertson Stephens Inc. .........
Prudential Securities Incorporated .........
----------
Total ....................................
==========
</TABLE>
Under the terms of, and subject to the conditions stated in the
international underwriting agreement, dated August , 1999, the managers named
below who, with the U.S. underwriters are the underwriters, of the concurrent
offering of the shares of Class A common stock outside the U.S. and Canada, for
whom Bear, Stearns International Limited, Lehman Brothers International
(Europe), Morgan Stanley & Co. International Limited, Societe Generale,
BancBoston Robertson Stephens International Ltd and Prudential-Bache Securities
(U.K.) Inc. are acting as international representatives, have each agreed to
purchase from SFX the respective number of shares of Class A common stock shown
opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL MANAGERS SHARES
- ---------------------- ------
<S> <C>
Bear, Stearns International Limited ......................
Lehman Brothers International (Europe) ...................
Morgan Stanley & Co. International Limited ...............
Societe Generale .........................................
BancBoston Robertson Stephens International Ltd ..........
Prudential-Bache Securities (U.K.) Inc. ..................
----------
Total ..................................................
==========
</TABLE>
The U.S. and international underwriting agreements provide that the
obligations of the several underwriters to purchase shares of Class A common
stock included in this offering depend on the satisfaction of the conditions
contained in the underwriting agreement, and that if any of the shares of Class
A common stock are purchased by the underwriters under the underwriting
agreements, then all of the shares of the Class A common stock which the
underwriters have agreed to purchase under the underwriting agreement must be
purchased.
The conditions contained in the underwriting agreement include the
requirement that the representations and warranties made by SFX to the
underwriters are true in all material respects, and that SFX deliver to the
underwriters customary closing documents.
The offering price and the underwriting discounts and commissions for the
U.S. offering and the international offering are identical.
The closing of the international offering is a condition to the closing of
the U.S. offering, and the closing of the U.S. offering is a condition to the
closing of the international offering.
The U.S. underwriters and the international managers have advised SFX that
the U.S. underwriters and the international managers propose to offer the Class
A common stock to the public
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initially at the public offering price set forth on the cover page of this
prospectus and to certain dealers at such price less a concession of not more
than $ per share. Additionally, the U.S. underwriters and the international
managers may allow, and such dealers may reallow, a discount of not more than
$ per share on sales to certain other dealers. After this offering, the
public offering price and other selling terms may be changed by the U.S.
underwriters and the international managers.
SFX has agreed to idemnify the several U.S. underwriters and the
international managers against certain liabilities, including liabilities under
the Securities Act, and to contribute under certain circumstances to payments
that the U.S. underwriters and the international managers may be required to
make in connection with those liabilities.
SFX has granted to the U.S. underwriters and the international managers an
option to purchase an aggregate of up to 1,125,000 additional shares of Class A
common stock at the offering price, less the underwriting discount set forth on
the cover page of this prospectus, solely to cover over-allotments, if any.
This option may be exercised in whole or in part at any time within 30 days
after the date of this prospectus. To the extent that the U.S. underwriters and
the international managers exercise this option, each U.S. underwriter and
international manager will have a firm commitment, subject to certain
conditions, to purchase a number of shares of Class A common stock
proportionate to such U.S. underwriter's or international manager's purchase
obligations set forth in the foregoing table.
The U.S. underwriters and the international managers have entered into an
agreement between U.S. underwriters and international managers according to
which each U.S. underwriter has agreed that, as part of the distribution of the
shares of Class A common stock offered in the U.S. offering,
o it is not purchasing any of the shares of Class A common stock for
the account of anyone other than a U.S. or Canadian person; and
o it has not offered or sold, and will not offer, sell, resell or
deliver, directly or indirectly, any of these shares of Class A common
stock outside the United States or Canada or to anyone other than a
U.S. or Canadian person.
In addition, under the same agreement, each international manager has
agreed that, as part of the distribution of the shares of Class A common stock,
plus any of the shares of Class A common stock to cover over-allotments,
offered in the international offering,
o it is not purchasing any of the shares of Class A common stock for
the account of any U.S. or Canadian person; and
o it has not offered or sold, and will not offer, sell, resell or
deliver, directly or indirectly, any of the shares of Class A common
stock in the United States or Canada or to any U.S. or Canadian
person.
The limitations described above do not apply to stabilization transactions
or to certain other transactions specified in the underwriting agreement and
the agreement between U.S. underwriters and international managers, including:
o certain purchases and sales between the U.S. underwriters and the
international managers;
o certain offers, sales, resales, deliveries or distributions to or
through investment advisors or other persons exercising investment
discretion;
o purchases, offers or sales by a U.S. underwriter who is also acting
as an international underwriter or by an international underwriter who
is also acting as a U.S. underwriter; and
o other transactions specifically approved by Bear, Stearns & Co. and
Lehman Brothers as representatives.
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Any offer of the shares of Class A common stock in Canada will be made
only under an exemption from the prospectus filing requirement and an exemption
from the dealer registration requirement in the relevant Canadian jurisdiction
where the offer is made. If an exemption is unavailable, offers will only be
made by a registered dealer.
As used in the paragraphs above:
o the term "United States" means the United States of America,
including the District of Columbia, and its territories, its
possessions and other areas subject to its jurisdiction;
o the term "Canada" means Canada, its provinces, territories and
possessions and other areas subject to its jurisdiction; and
o the term "U.S. or Canadian person" means any resident or entity
created or organized in or under the laws of the United States or
Canada or any of their political subdivisions or any estate or trust,
the income of which is subject to United States federal income
taxation or Canadian income taxation regardless of its source (other
than a foreign branch of any U.S. or Canadian person), and includes
any United States or Canadian branch of a person who is not otherwise
a U.S. or Canadian person.
Under the agreement between U.S. underwriters and international managers,
sales may be made between the U.S. underwriters and the international managers
of that number of shares of Class A common stock as may be mutually agreed.
Unless otherwise agreed, the price of any shares of Class A common stock so
sold shall be the public offering price as then in effect for the shares of
Class A common stock being sold by the U.S. underwriters and the international
managers, less the selling concession allocable to such shares of Class A
common stock. To the extent that there are sales between the U.S. underwriters
and the international managers under the agreement between U.S. underwriters
and international managers, the number of shares of Class A common stock
initially available for sale by the U.S. underwriters or by the international
managers may be more or less than the amount appearing on the cover page of
this prospectus.
Until the distribution of the Class A common stock is completed, rules of
the Commission may limit the ability of the underwriters to bid for and
purchase shares of common stock. As an exception to these rules, the U.S. and
international representatives are permitted to engage in certain transactions
that stabilize the price of the Class A common stock. Such transactions may
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the common stock.
If the underwriters create a short position in the common stock in
connection with this offering (i.e., if they sell more shares of common stock
than are set forth on the cover page of this prospectus), the U.S. and
international representatives may reduce that short position by purchasing
common stock in the open market. The U.S. and international representatives
also may elect to reduce any short position by exercising all or part of the
over-allotment options described herein.
The U.S. and international representatives may also impose a penalty bid
on certain underwriters. This means that, if the U.S. and international
representatives purchase shares of Class A common stock in the open market to
reduce the underwriters' short position or to stabilize the price of the common
stock, they may reclaim the amount of the selling concession from the
underwriters who sold those shares as part of this offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher that it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
this offering.
Neither SFX nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Class A common stock. In addition,
neither SFX nor any of the underwriters makes any representation that the U.S.
and international representatives will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
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Under the agreement between U.S. underwriters and international managers,
each international manager has represented and agreed that:
o it has not offered or sold and, prior to the date six months after the
closing date for the sale of the shares of Class A common stock to the
international managers, will not offer or sell, by means of any
document, any shares of Class A common stock to persons in the U.K.
except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments, as principal or agent,
for the purposes of their businesses or otherwise in circumstances which
have not resulted and will not result in an offer to the public in the
U.K. within the meaning of the Public Offers of Securities Regulations
1995;
o it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the shares of Class A common stock in, from or otherwise
involving the U.K.; and
o it has only issued or passed on and will only issue or pass on in the
U.K. any document received by it in connection with the offering of the
shares of Class A common stock to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such
document may otherwise be lawfully issued or passed on.
Certain officers and directors of SFX have agreed, subject to certain
exceptions, that they will not, without the prior written consent of Bear,
Stearns & Co. Inc. and Lehman Brothers Inc., directly or indirectly, offer,
sell, contract to sell, grant any option to purchase, pledge or otherwise
dispose of, or, in any manner, transfer all or a portion of the economic
consequences associated with the ownership of any shares of Class A common
stock or any securities convertible into or exercisable or exchangeable for
Class A common stock beneficially owned by them during the 60 day period
following the date of this prospectus. SFX has agreed that, subject to certain
exceptions, it will not offer, sell or otherwise dispose of any shares of Class
A common stock for a period of 90 days after the date of this prospectus,
without the prior written consent of Bear, Stearns & Co. Inc. and Lehman
Brothers Inc., on behalf of the U.S. underwriters and the international
managers. However, Bear, Stearns & Co. Inc. and Lehman Brothers Inc. may, in
their sole discretion acting together and at any time without notice, release
all or any portion of the securities subject to lock-up agreements.
Purchasers of the shares offered by this prospectus may be required to pay
stamp taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the offering price set forth on the cover
page hereof.
As permitted by Rule 103 of Regulation M promulgated by the Commission
under the Exchange Act, certain U.S. underwriters, if any, that are market
makers, referred to as passive market makers in the Class A common stock may
make bids for or purchases of the Class A common stock on the New York Stock
Exchange until such time, if any, when a stabilizing bid for such securities has
been made. Rule 103 generally provides that:
o a passive market maker's net daily purchases of the Class A common
stock may not exceed 30% of its average daily trading volume in such
securities for the two full consecutive calendar months (or any 60
consecutive days ending within the 10 days) immediately preceding the
filing date of the registration statement of which this prospectus forms
a part;
o a passive market maker may not effect transactions or display bids for
the Class A common stock at a price that exceeds the highest independent
bid for the Class A common stock by persons who are not passive market
makers; and
o bids made by passive market makers must be identified as such.
Certain of the U.S. underwriters and the international managers or their
affiliates have from time to time provided investment banking and financial
advisory services to SFX and its affiliates in the ordinary course of business,
for which they have received customary fees, and they may continue to
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provide such services to SFX and its affiliates in the future. In addition,
affiliates of certain of the U.S. underwriters are lenders to SFX under the
Existing Senior Credit Facility, and are expected to be lenders to SFX under the
New Senior Credit Facility for which they have received, or will receive,
customary fees.
The Class A common stock is listed for quotation on the New York Stock
Exchange under the symbol "SFX."
LEGAL MATTERS
The validity of the shares of Class A common stock offered hereby will be
passed upon for SFX by Winston & Strawn, New York, New York. Certain legal
matters relating to this offering will be passed upon for the U.S. underwriters
and the international managers by Paul, Hastings, Janofsky & Walker LLP, New
York, New York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the following
financial statements which are included or incorporated by reference herein, as
set forth in their reports:
o the consolidated financial statements of SFX as of and for the years
ended December 31, 1997 and 1998;
o the consolidated financial statements of Delsener/Slater Enterprises,
Ltd. and Affiliated Companies (Predecessor) for the year ended December
31, 1996;
o the consolidated financial statements of PACE Entertainment Corporation
and Subsidiaries as of September 30, 1996, and for the years ended
September 30, 1996 and 1995;
o the combined financial statements of Contemporary Group as of December
31, 1996 and 1997, and for the years ended December 31, 1995, 1996, and
1997;
o the combined financial statements of The Album Network, Inc. and
Affiliated Companies as of September 30, 1996 and 1997, and for the
years ended September 30, 1996 and 1997;
o the consolidated financial statements of BG Presents, Inc. and
Subsidiaries as of January 31, 1997 and 1998 and for the years ended
January 31, 1996, 1997, and 1998;
o the combined financial statements of Concert/Southern Promotions and
Affiliated Companies as of December 31, 1997, and for the year ended
December 31, 1997;
o the combined financial statements of Falk Associates Management
Enterprises, Inc. as of December 31, 1996 and 1997, and for the years
ended December 31, 1996 and 1997;
o the combined financial statements of Blackstone Entertainment LLC as of
December 31, 1996 and 1997 and for the years ended December 31, 1996 and
1997;
o the consolidated financial statements of The Marquee Group, Inc. as of
December 31, 1997 and for the years ended December 31, 1996 and 1997;
o the combined financial statements of Alphabet City Sports Records, Inc.
and Alphabet City Industries, Inc. as of December 31, 1997 and for the
period from April 11, 1996 (inception) to December 31, 1996 and for the
year ended December 31, 1997;
o the consolidated financial statements of Cambridge Holding Corporation,
Inc. and subsidiary as of December 31, 1997 and for the year ended
December 31, 1997; and
o the combined financial statements of Tollin-Robbins Entertainment as of
December 31, 1997 and 1996 and for the years ended December 31, 1997 and
1996.
These financial statements are included or incorporated herein in reliance
on their reports, given on their authority as experts in accounting and
auditing.
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Arthur Andersen LLP, independent auditors, have audited the following
financial statements which are incorporated by reference herein, as set forth
in their reports:
o the consolidated financial statements of PACE Entertainment Corporation
and Subsidiaries as of September 30, 1997, and for the year ended
September 30, 1997;
o the consolidated financial statements of Pavilion Partners as of
September 30, 1997 and for the year ended September 30, 1997;
These financial statements are incorporated herein in reliance on their
reports, given on their authority as experts in accounting and auditing.
PricewaterhouseCoopers LLP, independent accountants, have audited the
consolidated financial statements of Pavilion Partners and its subsidiaries for
the year ended October 31, 1995, for the eleven months ended September 30, 1996
and as of September 30, 1996. These financial statements are incorporated by
reference herein in reliance on their report, given on their authority as
experts in auditing and accounting.
The consolidated financial statements as of November 28, 1998 and for the
year then ended of Apollo Leisure Group plc included herein have been audited
by Deloitte & Touche and Smith Partnership, independent auditors, as stated in
their joint report appearing herein, and are included in reliance upon the
reports of such firms given upon their authority as experts in accounting and
auditing.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may inspect and
copy such material at the public reference facilities maintained by the
Securities and Exchange Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as at the Securities and Exchange Commission's
regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661 and 7 World Trade Center, Suite 1300, New York, New York 10048. You may
also obtain copies of such material from the Securities and Exchange Commission
at prescribed rates by writing to the Public Reference Section of the
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C.
20549.
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
more information on the public reference rooms. You can also find our
Securities and Exchange Commission filings at the commission's website at
http://www.sec.gov.
We have filed with the Securities and Exchange Commission a registration
statement on Form S-3 under the Securities Act with respect to our offering of
common stock. This prospectus, which constitutes a part of the registration
statement, does not contain all the information you can find in the
registration statement on Form S-3 or its exhibits. You may read and copy the
registration statement on Form S-3 and any of its supplements and amendments,
including exhibits, at the Securities and Exchange Commission's public
reference rooms, or request copies by writing or calling the Securities and
Exchange Commission or downloading it from the Securities and Exchange
Commission's website.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
SFX ENTERTAINMENT, INC.:
Consolidated Balance Sheets as of June 30, 1999 (unaudited) and December 31, 1998 ........ F-2
Consolidated Statements of Operations for the Three Months Ended June 30, 1999
and 1998 (unaudited) .................................................................... F-4
Consolidated Statements of Operations for the Six Months Ended June 30, 1999
and 1998 (unaudited) .................................................................... F-5
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999
and 1998 (unaudited) .................................................................... F-6
Consolidated Statements of Shareholders' Equity for the Six Months Ended June 30, 1999
and 1998 (unaudited) .................................................................... F-7
Notes to Consolidated Financial Statements (unaudited) ................................... F-8
Reports of Independent Auditors .......................................................... F-16
Consolidated Balance Sheets as of December 31, 1998 and 1997 ............................. F-18
Consolidated Statements of Operations for each of the Three Years in the Period Ended
December 31, 1998 ....................................................................... F-20
Consolidated Statements of Cash Flows for each of the Three Years in the Period Ended
December 31, 1998 ....................................................................... F-21
Consolidated Statements of Shareholders' Equity for each of the Three Years in the Period
Ended December 31, 1998 ................................................................. F-22
Notes to Consolidated Financial Statements ............................................... F-23
APOLLO LEISURE GROUP PLC.:
Condensed Consolidated Group Balance Sheet as at May 15, 1999 (unaudited) and
November 28, 1998 ....................................................................... F-44
Condensed Consolidated Group Profit and Loss Account for the 24 Weeks Ended
May 15, 1999 and May 16, 1998 (unaudited) ............................................... F-45
Condensed Consolidated Group Cashflow Statement for the 24 Weeks Ended
May 15, 1999 and May 16, 1998 (unaudited) ............................................... F-46
Notes to Condensed Consolidated Financial Statements (unaudited) ......................... F-47
Directors' Report for the year ended November 28, 1998 ................................... F-48
Auditor's Report to the Shareholders ..................................................... F-51
Group Profit and Loss Accounts for the Years Ended November 28, 1998 and
November 29, 1997 ....................................................................... F-52
Group Statements of Total Recognised Gains and Losses for the Years Ended
November 28, 1998 and November 29, 1997 ................................................. F-53
Group Balance Sheets as at November 28, 1998 and November 29, 1997 ....................... F-54
Group Cash Flow Statements for the Years Ended November 28, 1998 and
November 29, 1997 ....................................................................... F-56
Notes to Financial Statements ............................................................ F-57
</TABLE>
F-1
<PAGE>
SFX ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
--------------- ------------------
<S> <C> <C>
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents ............................................. $ 99,353 $ 48,021
Accounts receivable, net .............................................. 100,841 53,162
Prepaid event expenses ................................................ 40,241 23,043
Investments in and receivables from theatrical and other productions .. 6,504 12,222
Notes receivables from related parties and employees .................. 2,145 972
Other current assets .................................................. 19,474 11,313
------------ -----------
Total current assets ................................................ 268,558 148,733
Property and equipment, net of accumulated depreciation and
amortization of $29,619 and $16,988 in 1999 and 1998, respectively .... 352,397 292,626
Goodwill and other intangible assets, net of accumulated amortization of
$89,571 and $46,709 in 1999 and 1998, respectively .................... 1,221,494 898,433
Investment in and receivables from equity investees .................... 73,956 18,450
Notes receivable from related parties and employees, less current
portion ............................................................... 18,406 12,464
Other assets ........................................................... 20,788 12,746
------------ -----------
Total Assets ........................................................ $ 1,955,599 $ 1,383,452
============ ===========
</TABLE>
[continues on next page]
See accompanying notes.
F-2
<PAGE>
SFX ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
--------------- ------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY (UNAUDITED)
Current liabilities:
Accounts payable ................................................... $ 23,360 $ 17,712
Accrued expenses ................................................... 59,203 50,887
Accrued interest payable ........................................... 18,274 17,241
Deferred revenue ................................................... 205,701 60,142
Current portion of long-term debt .................................. 4,787 5,581
Current portion of deferred purchase consideration ................. 13,015 11,851
------------ ----------
Total current liabilities ........................................ 324,340 163,414
Long-term debt, less current portion ................................ 809,396 768,195
Deferred purchase consideration, less current portion ............... 21,015 7,983
Deferred income taxes ............................................... 39,877 38,826
Other liabilities ................................................... 5,005 1,940
------------ ----------
Total liabilities ................................................... 1,199,633 980,358
Minority interest ................................................... 7,812 8,058
Temporary equity -- stock subject to redemption ..................... 19,920 16,500
Shareholders' equity:
Preferred Stock, $.01 par value, 25,000,000 shares authorized, none
issued and outstanding as June 30, 1999 and December 31, 1998,
respectively ..................................................... -- --
Class A common stock, $.01 par value, 100,000,000 shares authorized,
53,299,683 and 42,919,791 shares issued and outstanding as of
June 30, 1999 and December 31, 1998, respectively ................ 533 429
Class B common stock, $.01 par value, 10,000,000 shares authorized,
2,545,557 shares issued and outstanding as of June 30, 1999 and
December 31, 1998, respectively .................................. 26 26
Additional paid in capital .......................................... 826,859 449,484
Deferred compensation ............................................... (4,900) (6,533)
Accumulated deficit ................................................. (94,284) (64,870)
------------ ----------
Total shareholders' equity .......................................... 728,234 378,536
------------ ----------
Total liabilities and shareholders' equity .......................... $ 1,955,599 $1,383,452
============ ==========
</TABLE>
See accompanying notes.
F-3
<PAGE>
SFX ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
Revenue ............................................................... $ 404,753 $ 231,348
Income from equity investments ........................................ 2,932 1,380
---------- ----------
Total revenue ........................................................ 407,685 232,728
Operating expenses:
Cost of revenues ...................................................... 298,029 182,818
Selling, general and administrative expenses .......................... 53,954 28,667
Corporate expenses .................................................... 5,531 3,036
Depreciation and amortization, including $1,594 of start-up and
integration costs in 1999 ............................................ 32,928 14,746
Non-cash charges ...................................................... 1,164 32,052
---------- ----------
391,606 261,319
---------- ----------
Income (loss) from operations ......................................... 16,079 (28,591)
Interest expense ...................................................... (20,004) (11,473)
Investment income ..................................................... 998 1,602
Minority interest ..................................................... (410) (316)
---------- ----------
Loss before provision for income taxes ................................ (3,337) (38,778)
Provision for income taxes ............................................ (6,715) (850)
---------- ----------
Net loss .............................................................. (10,052) (39,628)
Accretion on stock subject to redemption .............................. (912) (825)
---------- ----------
Net loss applicable to common shares .................................. $ (10,964) $ (40,453)
========== ==========
Basic and dilutive net loss per common share .......................... $ (0.20) $ (1.12)
========== ==========
Weighted average basic and dilutive common shares outstanding ......... 55,822,251 36,126,561
========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
SFX ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
Revenue ............................................................... $ 679,900 $ 292,342
Income from equity investments ........................................ 3,906 1,825
------------ ----------
Total revenue ........................................................ 683,806 294,167
Operating expenses:
Cost of revenues ...................................................... 509,158 231,665
Selling, general and administrative expenses .......................... 91,916 37,995
Corporate expenses .................................................... 9,772 4,350
Depreciation and amortization, including $3,022
of start-up and integration costs in 1999 ............................ 59,156 19,174
Non-cash charges ...................................................... 2,147 32,052
------------ ----------
672,149 325,236
------------ ----------
Income (loss) from operations ......................................... 11,657 (31,069)
Interest expense ...................................................... (38,809) (18,221)
Investment income ..................................................... 1,588 2,499
Minority interest ..................................................... (494) (398)
------------ ----------
Loss before provision for income taxes ................................ (26,058) (47,189)
Provision for income taxes ............................................ (1,619) (1,350)
------------ ----------
Net loss .............................................................. (27,677) (48,539)
Accretion on stock subject to redemption .............................. (1,737) (1,100)
------------ ----------
Net loss applicable to common shares .................................. $ (29,414) $ (49,639)
============ ==========
Basic and dilutive net loss per common share .......................... $ (0.55) $ (1.71)
============ ==========
Weighted average basic and dilutive common shares outstanding ......... 53,121,386 29,072,018
============= ==========
</TABLE>
See accompanying notes.
F-5
<PAGE>
SFX ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
1999 1998
------------- -------------
<S> <C> <C>
Operating activities:
Net loss ......................................................................... $ (27,677) $ (48,539)
Adjustment to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization ................................................... 56,134 19,174
Income from equity investments, net of distributions received ................... 2,932 1,219
Non-cash charges ................................................................ 2,147 32,052
Minority interest ............................................................... 494 398
Changes in operating assets and liabilities, net of amounts acquired:
Accounts receivable, net ........................................................ (20,646) (2,546)
Prepaid event expenses, other prepaid expenses and other current assets ......... (13,907) (26,691)
Other assets and notes receivable from related parties and employees ............ (6,741) 1,867
Accounts payable, accrued expenses and other liabilities ........................ (32,299) 2,001
Accrued interest payable ........................................................ 1,033 13,271
Deferred revenue ................................................................ 132,884 79,062
---------- ----------
Net cash provided by operating activities ........................................ 94,354 71,268
---------- ----------
Investing activities:
Purchases of businesses, net of cash acquired ................................... (308,933) (515,893)
Purchases of property and equipment ............................................. (26,588) (35,956)
---------- ----------
Net cash used in investing activities ............................................ (335,521) (551,849)
---------- ----------
Financing activities:
Proceeds from issuance of Senior Subordinated Notes and
borrowings under the Senior Credit Facility ................................... 199,000 527,500
Proceeds from sale of common stock .............................................. 260,697 330,683
Repayment of debt ............................................................... (166,285) (32,428)
Payments made to SFX Broadcasting pursuant to the Spin-Off ...................... -- (89,230)
Other, principally debt issuance costs .......................................... (913) (17,485)
---------- ----------
Net cash provided by financing activities ........................................ 292,499 719,040
---------- ----------
Net increase in cash and cash equivalents ........................................ 51,332 238,459
Cash and cash equivalents at beginning of period ................................. 48,021 5,979
---------- ----------
Cash and cash equivalents at end of period ....................................... $ 99,353 $ 244,438
========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest ........................................................... $ 36,299 $ 4,052
========== ==========
Cash paid for income taxes ....................................................... $ 2,715 $ 284
========== ==========
Supplemental disclosure of non-cash investing and financing activities:
</TABLE>
o Issuance of equity securities, including deferred equity security issuance
and assumption of debt in connection with certain acquisitions (see Note 2).
See accompanying notes.
F-6
<PAGE>
SFX ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL ACCUMULATED
COMMON COMMON PAID-IN DEFERRED (DEFICIT)
STOCK STOCK CAPITAL COMPENSATION EARNINGS TOTAL
--------- --------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1998 ........................ $ 204 $ 15 $ 98,111 $ -- $ 3,814 $ 102,144
Net liabilities assumed and shares issued to
employees in the Spin-Off, principally
income taxes .................................... 19 -- (128,564) -- -- (128,545)
Sale of 12,075,000 shares of Class A
common stock .................................... 121 -- 328,883 -- -- 329,004
Issuance of 7,951,046 of Class A
common stock for acquisitions ................... 79 -- 87,385 -- -- 87,464
Issuance of Class A and B common stock
pursuant to employment agreements ............... 3 10 34,608 (8,625) -- 25,996
Amortization of deferred compensation ............ -- -- -- 198 198
Accretion on stock subject to redemption ......... -- -- 1,100 -- (1,100) --
Net loss ......................................... -- -- -- -- (48,539) (48,539)
----- ---- ---------- --------- ---------- ----------
Balances, June 30, 1998 (unaudited) .............. $ 426 $ 25 $ 421,523 $ (8,427) $ (45,825) $ 367,722
===== ==== ========== ========= ========== ==========
Balances, January 1, 1999 ........................ $ 429 $ 26 $ 449,484 $ (6,533) $ (64,870) $ 378,536
Sale of 7,423,500 shares of Class A
common stock .................................... 75 -- 260,622 -- -- 260,697
Issuance of 2,925,117 shares of Class A
common stock for acquisitions ................... 29 -- 114,499 -- -- 114,528
Issuance of 31,300 shares of Class A common
stock pursuant to the exercise of employee
stock options ................................... -- -- 517 -- -- 517
Amortization of deferred compensation ............ -- -- -- 1,633 1,633
Accretion on stock subject to redemption ......... -- -- 1,737 -- (1,737) --
Net loss ......................................... -- -- -- (27,677) (27,677)
----- ---- ---------- --------- ---------- ----------
Balances, June 30, 1999 (unaudited) .............. $ 533 $ 26 $ 826,859 $ (4,900) $ (94,284) $ 728,234
===== ==== ========== ========= ========== ==========
</TABLE>
See accompanying notes.
F-7
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
SFX Entertainment, Inc. ("SFX" or the "Company") is the world's largest
diversified promoter, producer and venue operator for live entertainment
events. In addition, SFX is a leading fully integrated sports marketing and
management company specializing in the representation of sports athletes and
broadcasters, integrated event management, television programming and
production and marketing consulting services. SFX owns, partially or entirely,
and/or operates under lease or exclusive booking arrangements the largest
network of venues used principally for music concerts and other live
entertainment events in the United States, with 82 venues in 31 of the top 50
markets, including 16 amphitheaters in the top 10 markets. SFX operates in four
major business segments within the live entertainment industry: music, theater,
sports and family entertainment and other.
SFX was formed as a wholly-owned subsidiary of SFX Broadcasting, Inc.
("SFX Broadcasting") in December 1997 and as the parent company of SFX
Concerts, Inc ("Concerts"). Concerts was formed in January 1997 to acquire and
hold SFX Broadcasting's live entertainment operations.
In August 1997, SFX Broadcasting agreed to the merger among SBI Holdings,
Inc. (the "Buyer"), SBI Radio Acquisition Corporation, a wholly-owned
subsidiary of the Buyer, and SFX Broadcasting (the "Broadcasting Merger") and
to the spin-off of the Company to the shareholders of SFX Broadcasting (the
"Spin-Off"). The Spin-Off was completed on April 27, 1998 and the Broadcasting
Merger was completed on May 29, 1998. Prior to the Spin-Off, SFX Broadcasting
provided various administrative services to the Company. SFX Broadcasting
allocated these expenses on the basis of direct usage. In the opinion of
management, this method of allocation was reasonable and allocated expenses
approximated what the Company would have incurred on a stand-alone basis. The
Company recorded the Spin-Off at the historical cost of the assets and
liabilities contributed by SFX Broadcasting.
In July 1999, the Company completed a three-for-two split of SFX's Class A
and Class B Common Stock. The financial information presented herein has been
restated to reflect the effect of the stock split.
Information with respect to the three and six months ended June 30, 1999
and 1998 is unaudited. The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, the unaudited interim consolidated financial
statements contain all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the consolidated financial position,
results of operations and cash flows of the Company, for the periods presented.
2. ACQUISITIONS AND FINANCING
1999 EQUITY OFFERING
In February 1999, SFX consummated an offering of 7,423,500 shares of the
Company's Class A Common Stock at an offering price of $37.00 per share (the
"1999 Equity Offering") and received net proceeds of approximately $260.7
million. SFX used the proceeds to finance certain of the 1999 Acquisitions.
1999 ACQUISITIONS
Cellar Door
On February 19, 1999, SFX purchased all of the issued and outstanding
capital stock of the Cellar Door group of companies for a purchase price of
$70.0 million in cash, 519,357 shares of Class A
F-8
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Common Stock with an issue date value of $20.0 million, and $8.5 million
payable in five equal annual installments beginning on the first anniversary of
the closing date. In addition, SFX agreed to issue to the seller options to
purchase 150,000 shares of Class A Common Stock in equal installments over the
five-year period following the closing date. SFX financed the acquisition with
the proceeds of the 1999 Equity Offering.
Nederlander
On March 16, 1999, SFX acquired certain interests in seven venues and
other assets from entities controlled by members of the Nederlander family and
other persons for an aggregate purchase price of approximately $95.6 million in
cash. SFX may also be required to make an additional payment to the sellers in
2000 of up to $3.2 million depending on the level of earnings generated by the
operations of the Crown Arena in Cincinnati. If SFX sells or transfers any of
the interests in the Crown Arena within ten years of the closing, SFX will be
obligated to pay a portion of the consideration it receives to the sellers of
Nederlander. In addition, the agreement relating to Mesa del Sol Centre for the
Performing Arts provides for additional payments based on the financial
performance of this venue. SFX financed the acquisition with the proceeds of
the 1999 Equity Offering and borrowings under the Senior Credit Facility.
Marquee
On March 16, 1999, SFX merged with The Marquee Group, Inc. In connection
with the merger, SFX issued approximately 2.1 million shares of SFX Class A
Common Stock with a value of approximately $81.7 million on the date of the
merger and repaid $33.5 million of Marquee's debt. SFX financed the cash
portion of the acquisition with borrowings under the Senior Credit Facility.
Other Acquisitions
During the first quarter of 1999, SFX also completed the acquisitions of:
The Entertainment Group, Inc., a concert and theatrical producer and promoter
with operations in Chicago and Mexico City; Integrated Sports International,
Inc., a full-service sports marketing company; and The RZO Companies a company
involved in business management and tour production in music and the performing
arts. In addition, SFX entered into a long-term marketing and consulting
agreement with respect to the Rosemont Horizon and Rosemont Theater in the
Chicago area and purchased a theater in Denver, Colorado. The total
consideration for these acquisitions and the long-term marketing and consulting
agreement consisted of $68.6 million in cash and 142,766 shares of Class A
Common Stock. SFX financed these acquisitions with the proceeds from the 1999
Equity Offering and borrowings under the Senior Credit Facility. In addition,
SFX may be required to make additional payments of up to $13.0 million in cash
and issue 75,000 shares of Class A Common Stock based on the financial
performance of certain of these acquired companies.
During the second quarter of 1999, SFX also completed the acquisitions of
a fifty percent interest in A.H. Enterprises, a leading promoter of urban music
and Hendricks Management Company, Inc. which represents and provides financial
consulting services to team sports athletes, primarily in professional
baseball. The total consideration for these acquisitions was approximately
$23.2 million in cash and $4.1 million in deferred purchase consideration. SFX
financed these acquisitions with borrowings under the Senior Credit Facility
and cash on hand. In addition, SFX may be required to make additional payments,
in shares of SFX Class A Common Stock, based on the cumulative financial
performance of Hendricks Management Company, Inc. through December 31, 2002. In
addition, the company invested $8.7 million in certain entertainment-related
Internet companies.
1998 ACQUISITIONS
As more fully described in SFX's 1998 Annual Report on Form 10-K, the
Company completed significant acquisitions in each of its four business
segments during 1998. The total purchase price for
F-9
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
these acquisitions was approximately $1.0 billion, including $907.0 million in
cash and assumed debt and 8.25 million shares of Class A Common Stock with a
value of approximately $101.3 million. The shares of Class A Common Stock used
to consummate the 1998 Acquisitions that occurred prior to the Spin-Off date
were not issued until the Spin-Off date, which was April 27, 1999.
The 1998 Acquisitions were financed through the $350.0 million Senior
Subordinated Note Offering, the Senior Credit Facility and the 1998 Equity
Offering.
SFX's 1999 and 1998 Acquisitions were accounted for using the purchase
method of accounting. The purchase price of certain of the 1999 and 1998
Acquisitions have been preliminarily allocated to the assets acquired and
liabilities assumed and are subject to change. Operating results for the 1998
and 1999 Acquisitions are included herein from their respective acquisition
dates. The intangible assets created in the purchase transactions will
generally be amortized over periods up to 15 years. The amount of amortization
will be substantial and will continue to affect SFX's operating results in the
future.
The following unaudited pro forma summary represents the consolidated
results of operations for the six months ended June 30, 1999 and the year ended
December 31, 1998 as if the 1998 Acquisitions, the 1999 Acquisitions and
related financings had occurred as of January 1, 1998. These pro forma results
have been included for comparative purposes only and do not purport to be
indicative of what would have occurred had the acquisitions and related
financings been made as of those dates or of the results which may occur in the
future (in thousands, except per share data).
<TABLE>
<CAPTION>
PRO FORMA
---------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
------------------ ------------------
<S> <C> <C>
Revenue ............................. $ 697,474 $1,344,074
Net loss ............................ $ (24,584) $ (73,091)
Loss applicable to basic and dilutive
common shares ...................... $ (.48) $ (1.33)
</TABLE>
3. BUSINESS SEGMENTS
SFX classifies its operations into four major business segments in the
live entertainment industry: music, theater, sports and family entertainment
and other. The music segment primarily consists of the promotion and production
of live entertainment events, most significantly for concert and other music
performances in venues owned (partially or entirely) and/or operated by SFX and
in third party venues. The theater segment develops and manages touring
Broadway shows and other theatrical productions. The sports segment is as a
full-service integrated marketing and management company specializing in the
representation of team sports athletes, as well as promoting specialized motor
sports events. The family entertainment and other segment primarily consists of
the promotion and marketing of family-oriented events, marketing and consulting
of local, regional and national live marketing programs, subscription or fee
based radio and music industry data compilation and distribution, the creation
and distribution of network radio special events and live concert programming
and merchandising at live events.
SFX's operations and revenues have been largely seasonal in nature, with
generally higher revenues generated in the second and third quarters. SFX's
outdoor venues are primarily used in the summer months and do not generate
substantial revenue in the late fall, winter and early spring. SFX's
entertainment marketing and consulting in connection with musical concerts also
predominantly generate revenues in the second and third quarters. Therefore,
the seasonality of SFX's business causes, and will continue to cause, a
significant variation in SFX's quarterly operating results. However, this
variation may be somewhat offset with non-summer seasonal businesses such as
motor
F-10
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
sports, which is winter-seasonal, and touring Broadway shows, which typically
tour between September and May. In addition, the acquisition of Marquee and
Integrated Sports International in the first quarter of 1999 and FAME in the
second quarter of 1998 are expected to lessen the seasonal variations, since
these sports segment businesses generally earn revenue ratably over the year.
The Company evaluates performance based on several factors, of which the
primary financial measure is EBITDA since this measure approximates the cash
flow generated by each segment. EBITDA is defined as earnings before interest,
taxes, other income and depreciation and amortization. The Company also
excludes non-cash charges from EBITDA. The accounting policies of the segments
are the same as those described in the summary of significant accounting
policies contained in SFX's 1998 Annual Report on Form 10-K.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999 (IN THOUSANDS)
----------------------------------------------------------------------------------
FAMILY
ENTERTAINMENT
MUSIC THEATRICAL SPORTS AND OTHER CORPORATE TOTAL
------------- ------------ ------------ -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Total revenue ................... $ 243,457 $ 60,593 $ 26,809 $ 76,826 $ -- $ 407,685
========== ======== ======== ======== ========= ==========
EBITDA .......................... $ 37,933 $ 4,611 $ 4,611 $ 8,547 $ (5,531) $ 50,171
Depreciation and amortization ... 20,021 1,606 5,970 4,873 458 32,928
Non-cash charges ................ -- -- -- -- 1,164 1,164
---------- -------- -------- -------- --------- ----------
Income (loss) from operations ... $ 17,912 $ 3,005 $ (1,359) $ 3,674 $ (7,153) $ 16,079
========== ======== ======== ======== ========= ==========
Total assets as of June 30, 1999 $1,131,446 $210,651 $372,257 $176,081 $ 65,164 $1,955,599
========== ======== ======== ======== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1998 (IN THOUSANDS)
--------------------------------------------------------------------------------
FAMILY
ENTERTAINMENT
MUSIC THEATRICAL SPORTS AND OTHER CORPORATE TOTAL
----------- ------------ ------------ -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Total revenue .................. $151,281 $ 49,361 $ 6,069 $ 26,017 $ -- $ 232,728
======== ======== ======== ======== ========= ==========
EBITDA ......................... $ 11,176 $ 5,195 $ (211) $ 5,083 $ (3,036) $ 18,207
Depreciation and amortization .. 8,116 918 830 2,190 2,692 14,746
Non-cash charges ............... -- -- -- -- 32,052 32,052
-------- -------- -------- -------- --------- ----------
Income (loss) from operations .. $ 3,060 $ 4,277 $ (1,041) $ 2,893 $ (37,780) $ (28,591)
======== ======== ======== ======== ========= ==========
Total assets as of December 31,
1998 .......................... $734,043 $223,672 $188,390 $171,246 $ 66,102 $1,383,452
======== ======== ======== ======== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999 (IN THOUSANDS)
--------------------------------------------------------------------------------------
FAMILY
ENTERTAINMENT
MUSIC THEATRICAL SPORTS AND OTHER CORPORATE TOTAL
----------- ------------ ---------- -------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total revenue ......................... $353,270 $140,976 $82,697 $106,863 $ -- $683,806
======== ======== ======= ======== ========= ========
EBITDA ................................ $ 39,769 $ 12,193 $18,841 $ 11,929 $ (9,772) $ 72,960
Depreciation and amortization ......... 35,307 4,078 9,016 9,510 1,245 59,156
Non-cash charges ...................... -- -- -- -- 2,147 2,147
-------- -------- ------- -------- --------- --------
Income (loss) from operations ......... $ 4,462 $ 8,115 $ 9,825 $ 2,419 $ (13,164) $ 11,657
======== ======== ======= ======== ========= ========
</TABLE>
F-11
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998 (IN THOUSANDS)
------------------------------------------------------------------------------
FAMILY
ENTERTAINMENT
MUSIC THEATRICAL SPORTS AND OTHER CORPORATE TOTAL
----------- ------------ ---------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Total revenue ......................... $177,724 $68,463 $11,865 $36,115 $ -- $ 294,167
======== ======= ======= ======= ========= =========
EBITDA ................................ $ 9,291 $ 7,821 $ 792 $ 6,603 $ (4,350) $ 20,157
Depreciation and amortization ......... 10,743 1,484 1,019 2,342 3,586 19,174
Non-cash charges ...................... -- -- -- -- 32,052 32,052
-------- ------- ------- ------- --------- ---------
Income (loss) from operations ......... $ (1,452) $ 6,337 $ (227) $ 4,261 $ (39,988) $ (31,069)
======== ======= ======= ======= ========= =========
</TABLE>
Certain items in the three months ended March 31, 1999 and 1998 have been
reclassified to conform to the three months ended June 30, 1999 presentation.
In addition, certain reclassifications have been made to the total assets as of
December 31, 1998 to conform to the presentation of total assets as of June 30,
1999.
4. DILUTIVE EARNINGS PER SHARE
Outstanding stock options at June 30, 1999 and 1998 had no dilutive effect
on basic earnings per share during the three and six months ended June 30, 1999
and 1998 due to the Company's net loss position.
5. GUARANTEES BY SUBSIDIARIES
The Company is a holding company that has no operating assets or
operations of its own. Substantially all of the Company's subsidiaries are
wholly owned and have jointly and severally guaranteed the Company's Senior
Subordinated Notes (the "Guarantors"). A certain subsidiary which is not wholly
owned (the "Non-Wholly Owned Guarantor Subsidiary") guarantees such
indebtedness and certain subsidiaries (the "Non-Guarantor Subsidiaries") do not
guarantee such indebtedness.
Full financial statements of the Guarantors, Non-Guarantor Subsidiaries or
the Non-Wholly Owned Guarantor Subsidiary have not been included because,
pursuant to their respective guarantees, the Guarantors are jointly and
severally liable with respect to the Senior Subordinated Notes and management
believes that the Non-Guarantor Subsidiaries and Non-Wholly Owned Guarantor
Subsidiary are not material to the Company on a consolidated basis.
Accordingly, the Company does not believe that the information contained in
separate full financial statements of the Guarantors, Non-Guarantor
Subsidiaries or the Non-Wholly Owned Guarantor Subsidiary would be material to
investors. The following are summarized unaudited statements setting forth
certain financial information concerning the Guarantors, the Non-Guarantor
Subsidiaries and the Non-Wholly Owned Guarantor Subsidiary as of and for the
six months ended June 30, 1999 (in thousands).
<TABLE>
<CAPTION>
SFX NON-WHOLLY SFX
ENTERTAINMENT, NON- OWNED ENTERTAINMENT,
INC. GUARANTOR GUARANTOR INC.
(PARENT) GUARANTORS SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
---------------- ------------ -------------- ------------ ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Current assets ...................... $ 14,319 $ 231,074 $17,888 $ 5,277 $ -- $ 268,558
Property and equipment, net ......... 13,524 328,419 10,384 70 -- 352,397
Goodwill and other intangible
assets, net ........................ 23,725 1,162,775 25,138 9,856 -- 1,221,494
Investment in subsidiaries and
equity investees ................... 1,515,494 73,956 -- -- (1,515,494) 73,956
Other non-current assets ............ 5,427 31,642 2,125 -- -- 39,194
---------- ---------- ------- ------- ------------ ----------
Total assets ....................... $1,572,489 $1,827,866 $55,535 $15,203 $ (1,515,494) $1,955,599
========== ========== ======= ======= ============ ==========
Current liabilities ................. $ 48,103 $ 266,591 $11,475 $ 2,350 $ (4,179) $ 324,340
</TABLE>
F-12
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
SFX
ENTERTAINMENT,
INC.
(PARENT) GUARANTORS
---------------- --------------
<S> <C> <C>
Long-term debt, less current
portion .............................. 784,734 24,662
Other non-current liabilities ......... 50,806 15,091
Minority interest ..................... -- 5,589
Temporary equity ...................... 16,500 3,420
Shareholders' equity .................. 672,346 1,512,513
---------- ---------
Total liabilities and
shareholders' equity ............... $1,572,489 $1,827,866
========== ==========
Revenue ............................... $ -- $ 665,436
Operating expenses .................... 10,067 645,225
Interest expense, net ................. 37,417 (725)
Minority interest ..................... -- 501
Provision for income taxes ............ (760) 2,379
---------- ----------
Net (loss) income .................... $ (46,724) $ 18,056
========== ==========
Cash flows (used in) provided by
operating activities ................. $ (39,045) $ 129,780
Cash flows used in investing
activities ........................... (260,409) (74,227)
Cash flows provided by (used in)
financing activities ................. 306,203 (13,423)
Cash at the beginning of the
period ............................... 3,685 44,132
Cash at the end of the period ......... 10,434 86,262
<CAPTION>
NON-WHOLLY SFX
NON- OWNED ENTERTAINMENT,
GUARANTOR GUARANTOR INC.
SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
-------------- ------------ ---------------- ---------------
<S> <C> <C> <C> <C>
Long-term debt, less current
portion .............................. 7,574 -- (7,574) 809,396
Other non-current liabilities ......... -- -- -- 65,897
Minority interest ..................... -- 2,223 -- 7,812
Temporary equity ...................... -- -- -- 19,920
Shareholders' equity .................. 36,486 10,630 (1,503,741) 728,234
------- ------- ---------- -------
Total liabilities and
shareholders' equity ............... $55,535 $15,203 $ (1,515,494) $1,955,599
======= ======= ============ ==========
Revenue ............................... $ 7,882 $10,488 $ -- $ 683,806
Operating expenses .................... 7,077 9,780 -- 672,149
Interest expense, net ................. 994 -- (465) 37,221
Minority interest ..................... -- (7) -- 494
Provision for income taxes ............ -- -- -- 1,619
------- -------- ------------ ----------
Net (loss) income .................... $ (189) $ 715 $ 465 $ (27,677)
======= ======== ============ ==========
Cash flows (used in) provided by
operating activities ................. $ 1,105 $ 2,514 $ -- $ 94,354
Cash flows used in investing
activities ........................... (810) (75) -- (335,521)
Cash flows provided by (used in)
financing activities ................. (281) -- -- 292,499
Cash at the beginning of the
period ............................... 111 93 -- 48,021
Cash at the end of the period ......... 125 2,532 -- 99,353
</TABLE>
The following are summarized unaudited statements setting forth certain
financial information concerning the Guarantors, the Non-Guarantor Subsidiaries
and the Non-Wholly Owned Guarantor Subsidiary for the three months ended June
30, 1999 (in thousands).
<TABLE>
<CAPTION>
SFX NON-WHOLLY SFX
ENTERTAINMENT, NON- OWNED ENTERTAINMENT,
INC. GUARANTOR GUARANTOR INC.
(PARENT) GUARANTORS SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
---------------- ------------ -------------- ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Revenue ............................ $ -- $399,553 $7,077 $8,132 $ -- $ 407,685
Operating expenses ................. 5,635 378,851 3,524 7,120 -- 391,606
Interest expense, net .............. 19,408 (173) (230) -- (229) 19,006
Minority interest .................. -- 354 -- 56 -- 410
Provision for income taxes ......... 5,681 1,034 -- -- -- 6,715
--------- -------- ------ ------ ------ ---------
Net (loss) income ................. $ (30,724) $ 19,487 $3,783 $ 956 $ 229 $ (10,052)
========= ======== ====== ====== ====== =========
</TABLE>
The summarized consolidating balance sheet concerning the Guarantors, the
Non-Guarantor Subsidiaries and the Non-Wholly Owned Guarantor Subsidiaries as
of December 31, 1998 is included in the Company's 1998 Annual Report on Form
10-K.
F-13
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following are summarized unaudited statements setting forth certain
financial information concerning the Guarantors, the Non-Guarantor Subsidiaries
and the Non-Wholly Owned Guarantor Subsidiary for the six months ended June 30,
1998 (in thousands).
<TABLE>
<CAPTION>
SFX NON-WHOLLY SFX
ENTERTAINMENT, NON- OWNED ENTERTAINMENT,
INC. GUARANTOR GUARANTOR INC.
(PARENT) GUARANTORS SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
---------------- ------------ -------------- ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Revenue ............................... $ -- $ 291,205 $2,962 $-- $ -- $ 294,167
Operating expenses .................... 40,302 281,874 3,060 -- 325,236
Interest expense, net ................. 15,308 387 299 -- (272) 15,722
Minority interest ..................... -- 399 (1) -- 398
Provision for income taxes ............ 1,350 -- -- -- -- 1,350
---------- --------- ------- --- ------ ----------
Net (loss) income .................... $ (56,960) $ 8,545 $ (396) $-- $ 272 $ (48,539)
========== ========= ======= === ====== ==========
Cash flows (used in) provided by
operating activities ................. $ (74,347) $ 141,056 $4,559 $-- $ -- $ 71,268
Cash flows used in investing
activities ........................... (515,893) (35,671) (285) -- -- (551,849)
Cash flows provided by (used in)
financing activities ................. 723,968 (4,834) (94) -- -- 719,040
Cash at the beginning of the
period ............................... -- 2,915 3,064 -- 5,979
Cash at the end of the period ......... 133,728 103,466 7,244 -- -- 244,438
</TABLE>
The following are summarized unaudited statements setting forth certain
financial information concerning the Guarantors, the Non-Guarantor Subsidiaries
and the Non-Wholly Owned Guarantor Subsidiary for the three months ended June
30, 1998 (in thousands).
<TABLE>
<CAPTION>
SFX NON-WHOLLY SFX
ENTERTAINMENT, NON- OWNED ENTERTAINMENT,
INC. GUARANTOR GUARANTOR INC.
(PARENT) GUARANTORS SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
---------------- ------------ -------------- ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Revenue ............................ $ -- $229,766 $2,962 $-- $ -- $ 232,728
Operating expenses ................. 37,761 220,856 2,702 -- -- 261,319
Interest expense, net .............. 9,922 (74) 227 -- (204) 9,871
Minority interest .................. -- 218 98 -- 316
Provision for income taxes ......... 850 -- -- -- -- 850
--------- -------- ------ --- ------ ---------
Net (loss) income ................. $ (48,533) $ 8,766 $ (65) $-- $ 204 $ (39,628)
========= ======== ====== === ====== =========
</TABLE>
6. STOCK OPTIONS
Following a recommendation of SFX's compensation committee in the fourth
quarter of 1998, SFX adopted a new incentive stock option plan covering options
to acquire up to 4.5 million shares of Class A Common Stock and approved the
grant of options thereunder to acquire approximately 3.45 million shares of
Class A Common Stock at the then fair market value on the date of approval.
7. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
While the Company is involved in several lawsuits and claims arising in
the ordinary course of business, the Company is not currently a party to any
legal proceeding that management believes would have a material adverse effect
on its business, financial position or results of operations.
F-14
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. SUBSEQUENT EVENTS
PENDING ACQUISITIONS
Apollo
On August 2, 1999, the Company entered into an agreement to acquire Apollo
Leisure Group plc, the largest live theater operator as well as one of the
largest providers of entertainment and leisure management services in the U.K.
The total purchase price for the acquisition is approximately $253.1 million
(based on the exchange rate as of August 5, 1999) including 979,667 shares of
Class A common stock with a value of approximately $45.0 million (based on an
assumed market price of $46.00 per share). The total purchase price is subject
to certain adjustments. Apollo operates, among other venues, three arenas and a
network of 23 theaters. In connection with the Apollo acquisition, the Company
also expects to acquire 100% of Barry Clayman Concerts, which is a leading
promoter of concert and other live entertainment events in the U.K. The Company
expects to close the Apollo acquisition in the third quarter of 1999.
The non-stock portion of the purchase price will be funded by loan notes.
Under the terms of the loan notes, any one or more of the selling stockholders
may require payment of all or a portion of the principal amount of the loan
notes (together with interest accrued thereon to the date of payment) at any
time commencing nine months after the closing of the acquisition until the
maturity date of the loan notes. The loan notes will bear interest at a rate
equal to 90% of the three month LIBOR, calculated and paid quarterly, and
mature on the sixth anniversary of the closing of the Apollo acquisition. SFX's
obligations under the loan notes will be unconditionally guaranteed by certain
financial institutions. In the event that any selling stockholder exercises its
right to require repayment of the loan notes, such repayment is expected to be
made with funds drawn under SFX's proposed New Senior Credit Facility.
Livent
On May 28, 1999, the Company entered into an agreement to purchase certain
assets of Livent Inc. and its affiliates, including three theaters and
intellectual property rights to several current and future Broadway
productions, including Ragtime, Fosse, Phantom of the Opera and Seussical. The
purchase price for this acquisition is approximately $114.2 million (including
a $5.0 million contingent payment), subject to closing and post-closing
adjustments. This transaction has been approved by the bankruptcy courts in the
U.S. and Canada having jurisdiction over Livent's assets and is expected to
close in the third quarter of 1999.
PROPOSED NEW SENIOR CREDIT FACILITY
In July 1999, SFX received a commitment from its lenders for a new
seven-year $1.1 billion senior credit facility which would replace the existing
$350 million Senior Credit Facility and modify certain covenants. Although no
assurances can be given, SFX expects to complete the transaction in the third
quarter of 1999. At the time of completion, the Company expects to record an
extraordinary charge of $2.7 million (net of tax of $1.7 million), in the third
quarter of 1999 related to the write-off of unamortized costs of the Existing
Senior Credit Facility.
CONSENT SOLICITATION
In July 1999, SFX completed a consent solicitation with respect to its
outstanding 9 1/8% senior subordinated notes whereby it obtained approval from
the holders to modifications of certain covenants in the indentures governing
the notes. These modifications, among other things, provide the Company with
greater flexibility to pursue its operating strategy, including foreign
acquisitions. Fees associated with the transaction of approximately $13.7
million will be recorded as deferred financing costs on SFX's balance sheet in
the third quarter or 1999.
REGISTRATION STATEMENT
On August 9, 1999, SFX filed Amendment No. 1 to a Registration Statement
on Form S-3 covering an offering by SFX of approximately 8.6 million shares of
Class A Common Stock. No assurances can be given regarding the timing or
completion of this proposed offering.
F-15
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
SFX Entertainment, Inc.
We have audited the accompanying consolidated balance sheets of SFX
Entertainment, Inc. as of December 31, 1998 and 1997, and the related
consolidated statements of operations, cash flows and shareholders' equity and
cash flows for the years 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 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of SFX Entertainment, Inc. at December 31, 1998 and 1997, and the consolidated
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
February 25, 1999, except for
Note 2 as to which the date
is July 27, 1999
F-16
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
SFX Entertainment, Inc.
We have audited the accompanying statements of operations and cash flows
of Delsener/Slater Enterprises, Ltd. and Affiliated Companies for the year
ended December 31, 1996. 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 audits.
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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of
operations and cash flows of Delsener/Slater Enterprises, Ltd. and Affiliated
Companies for the year ended December 31, 1996, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
October 2, 1997
F-17
<PAGE>
SFX ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1997
-------------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................... $ 48,021 $ 5,979
Accounts receivable, net ................................................ 53,162 3,831
Prepaid event expenses .................................................. 23,043 438
Investments in and receivables from theatrical and other productions .... 12,222 --
Other prepaid expenses .................................................. 4,475 770
Noters receivables from related parties and employees ................... 972 --
Prepaid expenses and Prepaid expenses and other current assets .......... 6,838 20
----------- --------
Total current assets ..................................................... 148,733 11,220
Property and equipment, net .............................................. 292,626 59,685
Goodwill and other intangible assets, net ................................ 898,433 60,306
Deferred acquisition costs ............................................... 2,280 6,213
Investment in and receivables from equity investees unconsolidated
subsidiaries ............................................................ 18,450 937
Notes receivable from related parties and employees, less current
portion ................................................................. 12,464 900
Other assets ............................................................. 10,466 7,681
----------- --------
TOTAL ASSETS ............................................................. $ 1,383,452 $146,942
=========== ========
</TABLE>
(Continued on next page)
See accompanying notes
F-18
<PAGE>
SFX ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1997
-------------- ----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................................................... $ 17,712 $ 1,345
Accrued expenses ..................................................... 46,670 1,284
Accrued Interest Payable ............................................. 17,241 86
Deferred revenue ..................................................... 60,142 3,603
Income taxes payable ................................................. 4,217 1,707
Due to SFX Broadcasting .............................................. -- 11,539
Current portion of long-term debt .................................... 5,581 923
Current portion of deferred purchase consideration ................... 11,851 1,950
---------- --------
Total current liabilities ............................................. 163,414 22,437
Long-term debt, less current portion .................................. 768,195 15,255
Deferred purchase consideration, less current portion ................. 7,983 4,289
Deferred income taxes ................................................. 38,826 2,817
Other liabilities ..................................................... 1,940 --
---------- --------
TOTAL LIABILITIES ..................................................... 980,358 44,798
Minority interest ..................................................... 8,058 --
Temporary equity -- stock subject to redemption ....................... 16,500 --
Commitment and contingencies --
Shareholders' equity:
Preferred Stock, $.01 par value, 25,000,000 shares authorized,
none issued and outstanding as of December 31, 1998 and 1997 ......... -- --
Preferred Stock, $.01 par value, 1,000 shares authorized, none
issued and outstanding ............................................... -- --
Class A common stock, $.01 par value, 100,000,000 shares authorized,
42,919,791 and 20,368,536 shares issued and outstanding as of
December 31, 1998 and 1997, respectively ............................. 429 204
Class B common stock, $.01 par value, 10,000,000 shares authorized,
2,545,557 and 1,570,555 shares issued and outstanding as of
December 31, 1998 and 1997, respectively ............................. 26 15
Additional paid in capital ............................................ 449,484 98,111
Deferred compensation ................................................. (6,533) --
Accumulated (deficit) earnings ........................................ (64,870) 3,814
---------- --------
Total shareholders' equity ............................................ 378,536 102,144
---------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............................ $1,383,452 $146,942
========== ========
</TABLE>
See accompanying notes.
F-19
<PAGE>
SFX ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
PREDECESSOR
1998 1997 1996
-------------- -------------- ------------
<S> <C> <C> <C>
Revenue ................................................ $ 884,286 $ 96,144 $50,362
Equity income (loss) from investments .................. 4,630 509 524
----------- ----------- -------
Total Revenue ......................................... 888,916 96,653 50,886
Operating expenses:
Cost of revenues ....................................... 678,756 73,881 41,584
Selling, general and administrative expenses ........... 111,748 9,536 9,102
Depreciation and amortization, including $2,406
of integration and start-up costs in 1998
Depreciation and amortization ......................... 62,197 5,431 747
Corporate expenses, net of Triathlon fees of $530
in 1998 and $1,794 in 1997............................. 11,194 2,206 --
Non-recurring charges .................................. 5,600 -- --
Non-cash compensation and other non-cash charges ....... 34,051 -- --
----------- ----------- -------
903,546 91,054 51,433
----------- ----------- -------
Income (loss) from operations .......................... (14,630) 5,599 (547)
Interest expense ....................................... (50,759) (1,590) (60)
Investment income ...................................... 4,491 295 198
Minority interest ...................................... (2,036) -- --
----------- ----------- -------
Income (loss) before provision for income taxes ........ (62,934) 4,304 (409)
Provision for income taxes (1) ......................... 3,000 490 106
----------- ----------- -------
Net income (loss) ...................................... (65,934) 3,814 $ (515)
=======
Accretion on stock subject to redemption ............... 2,750 --
----------- -----------
Net income (loss) applicable to common shares .......... $ (68,684) $ 3,814
=========== ===========
Basic and dilutive earnings (loss) per common share..... $ (1.83) $ 0.18
=========== ===========
Weighted average basic and dilutive common shares
outstanding ........................................... 37,467,620 21,667,500
=========== ===========
</TABLE>
- ----------
(1) The provision for income taxes for the year ended December 31, 1997 would
have been $2,540 if such provision had been calculated on a stand-alone
basis (see Note 10). This increase in the provision for income taxes
would have resulted in pro forma net income of $1,764 and basic and
dilutive earnings per common share of $0.08.
See accompanying notes.
F-20
<PAGE>
SFX ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
PREDECESSOR
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ........................................................ $ (65,934) $ 3,814 $ (515)
Adjustment to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization, exincluding $2,406 of integration
and start-up costs in 1998 ............................................ 59,791 5,431 746
Income from equity investments, net of amounts received ................. 2,809 (479) 16
Non-cash compensation and other non-cash charges ........................ 34,051 -- --
Minority interest ....................................................... 2,036 -- --
Deferred income taxes ................................................... (427) --
Changes in operating assets and liabilities, net of amounts acquired:
Accounts receivable, net ................................................. 8,463 (923) (159)
Prepaid event expenses, prepaid expenses and other current assets ....... (23,496) 419 (649)
Other assets ............................................................ 882 (275) --
Notes receivable from related parties and employees ..................... (1,132) -- --
Accounts payable, and accrued expenses and other liabilities .......... (1,550) (325) 4,759
Accrued interest payable .............................................. 17,204 -- --
Income taxes payable .................................................. -- 917 --
Deferred revenue ........................................................ (5,683) (7,147) 16
---------- --------- --------
Net cash provided by operating activities ................................ 27,441 1,005 4,214
---------- --------- --------
INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired ............................ (827,147) (71,213) --
Investment in GSAC Partnership .......................................... -- -- (435)
Purchase of property and equipment ...................................... (64,773) (2,083) --
---------- --------- --------
Net cash used in investing activities .................................... (891,920) (73,296) (435)
---------- --------- --------
FINANCING ACTIVITIES:
Capital contributed by SFX Broadcasting ................................. -- 79,093 --
Payments made to SFX Broadcasting pursuant to the Spin-Off .............. (135,679) -- --
Proceeds from issuance of senior subordinated debt and
borrowings under the credit agreement ................................. 951,500 -- --
Proceeds from sale of common stock ...................................... 328,568 -- --
Repayment of debt and capital lease obligations ......................... (215,212) (823) --
Other, principally debt issuance costs .................................. (22,656) -- (1,431)
---------- --------- --------
Net cash provided by (used in) financing activities ...................... 906,521 78,270 (1,431)
---------- --------- --------
Net increase in cash and cash equivalents ................................ 42,042 5,979 2,348
Cash and cash equivalents at beginning of period ......................... 5,979 -- 2,905
---------- --------- --------
Cash and cash equivalents at end of period ............................... $ 48,021 $ 5,979 $ 5,253
========== ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ................................................... $ 33,604 $ 1,504 $ 60
========== ========= ========
Cash paid for income taxes ............................................... $ 501 $ -- $ 106
========== ========= ========
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
o Issuance of equity securities, including deferred equity security issuance
and assumption of debt in connection with certain acquisitions (see
Note 3).
o Agreements to pay future cash consideration in connection with certain
acquisitions (see Note 3).
o The balance sheet includes certain assets and liabilities which were
contributed by SFX Broadcasting (Note 1).
See accompanying notes.
F-21
<PAGE>
SFX ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL ACCUMULATED
COMMON COMMON PAID-IN DEFERRED (DEFICIT)
STOCK STOCK CAPITAL COMPENSATION EARNINGS TOTAL
--------- --------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1997 ...... $ -- $ -- $ -- $ -- $ -- $ --
Capital contributed by SFX
Broadcasting .................. 204 15 98,111 -- -- 98,330
Net income ..................... -- -- -- -- 3,814 3,814
----- ---- ---------- --------- ---------- ----------
Balances, December 31, 1997 .... 204 15 98,111 -- 3,814 102,144
Net liabilities assumed and
shares issued to employees in
the Spin-Off, principally
income taxes .................. 19 -- (109,761) -- -- (109,742)
Sale of 12,075,000 shares of
Class A common stock for
acquisition ................... 121 -- 328,447 -- -- 328,568
Issuance of 8,251,046 shares of
Class A common stock .......... 82 -- 95,516 -- -- 95,598
Issuance of Class A and Class B
common stock pursuant to
employment agreements ......... 3 11 34,421 (8,625) -- 25,810
Amortization of deferred
compensation .................. -- -- -- 2,092 -- 2,092
Accretion on stock subject to
redemption .................... -- -- 2,750 -- (2,750) --
Net loss ....................... -- -- -- -- (65,934) (65,934)
----- ---- ---------- --------- ---------- ----------
Balances, December 31, 1998 .... $ 429 $ 26 $ 449,484 $ (6,533) $ (64,870) $ 378,536
===== ==== ========== ========= ========== ==========
</TABLE>
See accompanying notes.
F-22
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
SFX Entertainment, Inc. ("SFX" or the "Company") is the world's largest
diversified promoter, producer and venue operator for live entertainment
events. In addition, SFX is a leading fully integrated sports marketing and
management company specializing in the representation of sports athletes and
broadcasters, integrated event management, television programming and
production and marketing consulting services. SFX owns, partially or entirely,
and/or operates under lease or exclusive booking arrangements, the largest
network of venues used principally for music concerts and other live
entertainment events in the United States, with 82 venues in 31 of the top 50
markets, including 16 amphitheaters in the top 10 markets. SFX operates in four
major business segments within the live entertainment industry: music, theater,
sports and family entertainment and other.
SFX was formed as a wholly-owned subsidiary of SFX Broadcasting, Inc.
("SFX Broadcasting") in December 1997 and as the parent company of SFX
Concerts, Inc ("Concerts"). Concerts was formed in January 1997 to acquire and
hold SFX Broadcasting's live entertainment operations. The Company had no
substantive operations until its acquisition of Delsener/Slater Enterprises,
Ltd. and affiliated companies ("Delsener/Slater") in January 1997.
In August 1997, SFX Broadcasting agreed to the merger among SBI Holdings,
Inc. (the "Buyer"), SBI Radio Acquisition Corporation, a wholly-owned
subsidiary of the Buyer, and SFX Broadcasting (the "Broadcasting Merger") and
to the spin-off of the Company to the shareholders of SFX Broadcasting (the
"Spin-Off") (See Note 4). The Spin-Off was completed on April 27, 1998 and the
Broadcasting Merger was completed on May 29, 1998. Prior to the Spin-Off, SFX
Broadcasting provided various administrative services to the Company. SFX
Broadcasting allocated these expenses on the basis of direct usage. In the
opinion of management, this method of allocation was reasonable and allocated
expenses approximated what the Company would have incurred on a stand-alone
basis. The Company recorded the Spin-Off at the historical cost of the assets
and liabilities contributed by SFX Broadcasting.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
SFX and its majority-owned subsidiaries. The Company accounts for its
investments in 50 percent or less owned entities, including theatrical
production partnerships, undertilizing the equity method. All intercompany
transactions and balances have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all investments purchased with a maturity of three
months or less to be cash equivalents. Included in cash and cash equivalents at
December 31, 1998 and 1997 was $0 and is $1,235,000; respectively of cash which
has been deposited in a separate account and was will be used during 1998 to
fund committed capital expenditures.
PREPAID EVENT EXPENSES
Prepaid event expenses include show advances and deposits, event
advertising costs and other costs directly related to future events. Such costs
are charged to operations upon completion of the related events. As of December
31, 1998 and 1997, prepaid event expenses included advertising costs of
$480,000 and $40,000, respectively. The Company recognized event advertising
expense of approximately $51,865,000, $7,109,000, and $4,896,000 in 1998, 1997,
and 1996, respectively.
F-23
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PROPERTY AND EQUIPMENT
Land, buildings, and improvements and furniture and equipment are stated
at cost. Depreciation is provided on a straight-line basis over the estimated
useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings and improvements ................... 4 - 40 years
Furniture and equipment ...................... 3 - 7 years
</TABLE>
Leasehold improvements primarily represent the capitalized costs to
renovate leased venues. the Jones Beach Theatre. These costs are being
amortized over the shorter of the the useful life of the improvement or the
term of their respective leases. Maintenance and repairs which do not extend
the lives of the respective assets are expensed as incurred. Depreciation of
assets under capital leases is included in depreciation and amortization
expense.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the purchase price, including contingent
purchase consideration, over the fair market value of the assets and is
amortized using the straight-line method over 10-15 years. Other intangible
assets, principally debt issuance costs, are amortized over the term of the
related debt and included in interest expense.
It is the Company's policy to account for goodwill and other intangible
assets at the lower or amortized cost or estimated realizable value. As part of
an ongoing review of the valuation and amortization of goodwill and other
intangible assets of the Company and its subsidiaries, management assesses the
carrying value of goodwill and other intangible assets if facts and
circumstances suggest that there may be impairment. If this review indicates
that goodwill and other intangible assets will not be recoverable as determined
by a non-discounted cash flow analysis of the operating results over the
remaining amortization period, the carrying value of the goodwill and other
intangible assets would be reduced to estimated realizable value.
Certain of the acquisition agreements require that the Company pay the
sellers additional amounts based upon the achievement of a certain level of
operating results as defined in the respective acquisition agreements. It is
the Company's policy to record these additional amounts when, in management's
opinion, it is probable that the results will be achieved. These amounts are
recorded as additional purchase price or as compensation expense in accordance
with EITF 95-8 "Accounting for Contingent Consideration Paid to the
Shareholders for an Acquired Enterprise in a Purchase Business Combination".
OTHER ASSETS
In 1997, other assets includes $4,928,000 of costs associated with
acquiring the right to receive fees from Triathlon Broadcasting Company
("Triathlon"), an affiliate, for certain financial consulting, marketing and
administrative services provided by the Company to Triathlon. In 1998, the
Company wrote down these assets by $2.7 million, as a charge to amortization
expense, to their net realizable value upon the expected sale of Triathlon to a
third party in the second quarter of 1999. As of December 31, 1998, of
$2,032,000 and of these costs, which the Company expects to receive in the
second quarter of 1999, were recorded as reclassified to other current assets.
REVENUE RECOGNITION
Seasonality
The Company's operations and revenues are largely seasonal in nature, with
generally higher revenue generated in the second and third quarters of the
year. The Company's outdoor venues are primarily utilized in the summer months
and do not generate substantial revenue in the late fall,
F-24
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
winter and early spring. Similarly, the musical concerts that the Company
promotes largely occur in the second and third quarters. To the extent that the
Company's entertainment marketing and consulting relate to musical concerts,
they also predominantly generate revenues in the second and third quarters.
However, this seasonality is somewhat offset by typically non-summer seasonal
businesses such as touring Broadway Shows which typically tour between
September and May and motor sports which produces revenue predominantly in the
first quarter.
Music, Theatrical and Family Entertainment
Revenue from the presentation and production of and event is are
recognized on the date of the performance. upon completion of an event. Advance
ticket sales are recorded as deferred revenue until the event occurs.
Sponsorship and other revenues that are not related to any single event are
classified as deferred revenue and are amortized on a straight-line basis over
the operating season during the term of the contract.
Sports
Revenue arises primarily from percentage fees or commissions received for
the negotiation of professional sporting contracts and marketing endorsements.
The Company recognizes revenue ratably over the period of the associated
contract. Revenue is deferred when funds are received in advance of the
performance period and is recognized over the period of performance.
Other
Revenue is recognized as services are performed or as goods are shipped.
RISKS AND UNCERTAINTIES
Accounts receivable are due principally from ticket companies and venue
box offices. These amounts are typically collected within 20 days of a
performance. Generally, management considers these accounts receivable to be
fully collectible; accordingly, no allowance for doubtful accounts is required.
Certain other accounts receivable, arising from the normal course of business,
are reviewed for collectibility and allowances for doubtful accounts are
recorded as required. The Company has recorded an allowance for doubtful
accounts of $1.7 million as of December 31, 1998 related to these accounts
receivable. Management believes that no allowance for doubtful accounts wasis
required at December 31, 1997.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INCOME (LOSS) PER COMMON SHARE
Basic income (loss) per common share is based upon the net income (loss)
applicable to common shares after the accretion of stock subject to redemption
and upon the weighted average of common shares outstanding during the period.
Diluted loss per common share adjusts for the effect of convertible securities
and stock options only in the periods presented in which such effect would have
been dilutive. As the Company incurred had there were losses in 1997 and 1998,
There were no dilutive securities during the year ended December 31, 1997. For
the periods prior to the Spin-Off, the calculation of income (loss) per common
share reflects the recapitalization of the Company (See Note 10).
Earnings per share for the year ended December 31, 1996 has not been
presented herein since the operations for that year relates to the predecessor
of the Company and such information would not be meaningful.
F-25
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
START-UP ACTIVITIES
In June 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"), which is effective for fiscal years beginning after
December 15, 1998. Under SOP 98-5, the costs of start-up activities, including
organizational costs, would be expensed as incurred. SOP 98-5 broadly defines
start-up activities as those one-time activities related to opening a new
facility, introducing a new product or service, conducting business in a new
territory, conducting business with a new class of customer or beneficiary,
initiating a new process in an existing facility or beginning a new operation.
The initial application of SOP 98-5 is to be reported as a cumulative effect of
a change in accounting principle. Management has preliminarily determined that
SOP 98-5 will not have a material effect on its consolidated financial
statements.
RECLASSIFICATION
Certain amounts in 1997 and 1996 have been reclassified to conform to the
1998 presentation.
STOCK SPLIT
On July 27, 1999, the Company completed a three-for-two split of SFX's
Class A and Class B common stock. The financial information presented herein
has been restated to reflect the effect of the stock split.
3. RECENT ACQUISITIONS
1997 ACQUISITIONS
In January 1997, SFX Broadcasting acquired Delsener/Slater, a concert
promotion company which has long-term leases or is the exclusive promoter for
seven of the major concert venues in the New York City metropolitan area. Total
aggregate consideration was approximately $27,600,000, including $2,900,000 for
working capital and the present value of deferred payments of $3,000,000 to be
paid over five years and $1,000,000 to be paid without interest over ten years.
In certain cases, Messrs. Delsener and Slater have rights to purchase the
outstanding capital stock of Delsener/Slater for fair market value as defined
in their employment agreements. In March 1997, the Company acquired the stock
of certain companies which own and operate the Meadows Music Theater (the
"Meadows") (the "Meadows"), an indoor/outdoor complex located in Hartford,
Connecticut for $900,000 in cash, 376,257 shares of SFX Broadcasting Class A
Common Stock with a value of approximately $7,500,000 and the assumption of
approximately $15,400,000 in debt. In June 1997, the Company acquired the stock
of Sunshine Promotions, Inc. ("Sunshine") and certain other related companies
("Sunshine Promotions"), an owner-operator of venues and a concert promoter in
the Midwest for $53,900,000 in cash, of which $2,000,000 is payable over five
years, 94,188 shares of SFX Broadcasting Class A Common Stock issued with a
value of approximately $2,000,000, shares of SFX Broadcasting stock issuable
over a two year period with a value of approximately $2,000,000 and the
assumption of approximately $1,600,000 in debt.
The Delsener/Slater, Meadows, and Sunshine acquisitions are collectively
referred to herein as the "1997 Acquisitions." The 1997 Acquisitions were
financed through capital contributions from SFX Broadcasting and were accounted
for under the purchase method of accounting.
1998 ACQUISITIONS
BGP
On February 24, 1998, the Company acquired all of the outstanding capital
stock of BG Presents ("BGP"), an owner-operator of venues for live
entertainment and a promoter in the San Francisco Bay area (the "BGP
Acquisition"), for total consideration of approximately $80.3 million
(including the repayment of $12.0 million in BGP debt and the issuance upon the
Spin-Off of 843,960 shares of Class A Common Stock of the Company valued by the
parties at $7.5 million).
F-26
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PACE
On February 25, 1998, the Company acquired all of the outstanding capital
stock of PACE Entertainment Corporation ("PACE"), a diversified producer and
promoter of live entertainment in the United States (the "PACE Acquisition"),
for total consideration of approximately $150.1 million (including issuance
upon the Spin-Off of 2,250,000 shares of the Company's Class A Common Stock
valued by the parties at $20.0 million and assumption of approximately $20.6
million of debt). In related transactions, the Company acquired, for total
consideration of $90.6 million comprised of $41.4 million in cash, the
repayment of approximately $43.1 million of debt and the assumption of
approximately $6.1 million of debt related to a capital lease, the 66 2/3%
ownership interests of Blockbuster Entertainment Corporation and Sony Music
Entertainment, Inc. in Amphitheater Entertainment Partnership, a partner of
PACE in the Pavilion Partners venue partnership. As a result, the Company owns
100% of Pavilion Partners.
The PACE Acquisition agreement further provides that each seller of PACE
shall have an option, exercisable during a period beginning on the fifth
anniversary of the closing of the PACE Acquisition and ending 90 days
thereafter, to require the Company to purchase up to one-third of the PACE
consideration stock received by such PACE seller for a cash purchase price of
$22.00 per share. With certain limited exceptions, these option rights are not
assignable by the PACE sellers. The stock, which is subject to redemption, has
been recorded as temporary equity on the accompanying consolidated balance
sheet and is being accreted over a five-year period.
Under the terms of an employment agreement entered into by the Company
with an officer of PACE, the officer will have the right, two years from the
date of the acquisition, to purchase PACE's motor sports division at fair
value. If the motor sports division has been sold by the Company, the officer
would be entitled to purchase PACE's theatrical division for its fair value. In
addition, on March 25, 1998, PACE paid $4.0 million to acquire a 67% interest
in certain assets and liabilities of USA Motor Sports, a producer and promoter
of motor sports events. The remaining 33% interest is owned by the Contemporary
Group.
Contemporary
On February 27, 1998, the Company acquired the Contemporary Group
("Contemporary"), a live entertainment and special event promoter and producer,
venue owner and operator and consumer marketer, for total consideration of
approximately $101.4 million comprised of $72.8 million in cash, a payment for
working capital of approximately $9.9 million and the issuance 1,894,275 shares
of Class A Common Stock of the Company valued by the parties at $16.8 million
(the "Contemporary Acquisition"). The Contemporary Acquisition involved the
merger of Contemporary International Productions Corporation with and into the
Company, the acquisition by a wholly owned subsidiary of the Company of
substantially all of the assets, excluding certain cash and receivables, of the
remaining members of Contemporary and the acquisition by Contemporary of the
50% interest in the Riverport Amphitheater Joint Venture not owned by
Contemporary. If any of the Contemporary sellers owns any shares of the
Company's Class A Common Stock received in the Contemporary Acquisition on the
second anniversary of the closing date and the average trading price of such
stock over the 20-day period ending on such anniversary date is less than $8.89
per share, then the Company will make a one-time cash payment to each
individual holding such shares that is equal to the product of (i) the quotient
of the difference between (A) the actual average trading price per share over
such 20-day period and (B) $8.89 divided by two, multiplied by (ii) the number
of shares of Class A Common Stock of the Company's received by such individual
in the Contemporary Acquisition and owned as of such anniversary date. In May
1998, the Company and the sellers placed 210,000 of the shares issued in
connection with the Contemporary Acquisition into an escrow account and reduced
the aggregate purchase price accordingly (as reflected above). The Company may,
at its sole discretion, cancel such shares at any time.
F-27
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Network
On February 27, 1998, the Company acquired the Network Magazine Group
("Network Magazine"), a publisher of trade magazines for the radio broadcasting
industry, and SJS Entertainment Corporation ("SJS"), an independent creator,
producer and distributor of music-related radio programming, services and
research (the "Network Acquisition"), for total consideration of approximately
$66.8 million comprised of $52.0 million in cash, a payment for working capital
of approximately $1.8 million, reimbursed sellers costs of $500,000, the
purchase of an office building and property for $2.5 million and the issuance
upon the Spin-Off of approximately 1,125,000 shares of Class A Common Stock of
the Company valued by the parties at $10.0 million. The $2.5 million purchase
of the office building and property is comprised of cash of approximately
$700,000 and the assumption of debt of approximately $1.8 million. The Company
is also obligated to pay the sellers an additional payment in Class A Common
Stock or, at the Company's option, cash based on future operating results, as
defined, generated on a combined basis by Network Magazine and SJS in 1998, up
to a maximum of $14.0 million. In 1998, the Company recorded $8.0 million
related to the achievement of the operating results which is included in
deferred purchase consideration in the accompanying consolidated balance sheet.
In the Network Acquisition, the Company, through a wholly owned subsidiary,
acquired all of the outstanding capital stock of each of The Album Network,
Inc. and SJS Entertainment Corporation and purchased substantially all of the
assets and properties and assumed substantially all of the liabilities and
obligations of The Network 40, Inc.
FAME
On June 4, 1998, the Company acquired Falk Associates Management
Enterprises, Inc. and Financial Advisory Management Enterprises, Inc.
(collectively, "FAME"), a full-service marketing and management company which
specializes in the representation of team sports athletes, primarily in
professional basketball. The aggregate purchase price for FAME was
approximately $82.2 million in cash (including approximately $7.9 million which
the Company paid in connection with certain taxes incurred by FAME and the FAME
sellers and excluding $4.7 million of taxes paid on behalf of the sellers which
will be refunded to the Company in 1999) and 1.5 million shares of Class A
Common Stock, valued at approximately $36.0 million (the "FAME Acquisition").
The agreement also provides for payments by the Company to the FAME sellers of
additional amounts up to an aggregate of $15.0 million over 5 years contingent
on the achievement of certain operating performance targets. In 1998, the
Company recorded $750,000 based on the achievement of the operating performance
targets which has been included in deferred purchase consideration in the
accompanying consolidated balance sheet.
F-28
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Don Law
On July 2, 1998, the Company acquired certain assets of Blackstone
Entertainment, LLC ("Don Law"), a concert and theater promoter in New England,
for an aggregate consideration of approximately $92.2 million, including the
repayment of approximately $7.0 million in debt. Don Law currently owns and/or
operates three venues in New England.
Magicworks
On September 11, 1998, the Company purchased all of the outstanding shares
of common stock of Magicworks Entertainment Incorporated ("Magicworks"), a
producer and promoter of theatrical shows, musical concerts, ice skating shows
and other live entertainment events. The total consideration was $118.9 million
in cash, including approximately $3.2 million in fees and expenses and the
repayment of $2.4 million in convertible notes which the Company is required to
repay upon presentation for conversion into Magicworks stock (the "Magicworks
Acquisition").
Other Acquisitions
During 1998, the Company completed the acquisition of thirteen other
companies in the theatrical, music and other segments, principally in the areas
of programming, touring and merchandising (collectively the "Other
Acquisitions"). The aggregate purchase price of the Other Acquisitions was
$169.5 million in cash, approximately $11.0 million in stock (562,529 shares of
the Company's Class A Common Stock), $10.0 million of deferred payments and
$5.8 million in assumed debt. The Company also made a non-recourse loan to the
one of the sellers in the amount of $11.4 million. In addition, the Company is
required to make a loan to certain sellers in an amount equal to the taxes
incurred by the sellers in connection with one of the transactions. The Company
expects that the amount of the loan will be approximately $750,000. Further,
certain of the agreements also provide for payments by the Company to the
certain of the sellers of additional amounts contingent on the achievement of
certain operating performance targets. In 1998, the Company recorded $42.7
million related to such agreements which has been included in deferred purchase
consideration in the accompanying consolidated balance sheet.
The BGP Acquisition, the PACE Acquisition, the Contemporary Acquisition,
the Network Acquisition, the FAME Acquisition, the Don Law Acquisition, the
Magicworks Acquisition and the Other Acquisitions are collectively referred to
herein as the "1998 Acquisitions." The 1998 Acquisitions were accounted for
under the purchase method of accounting and funded with the proceeds of the
$350.0 Note Offering, the 1998 Equity Offering, and the Senior Credit Facility
(each as defined herein) and available cash. The purchase prices of the 1998
Acquisitions have been preliminarily allocated to the assets acquired and
liabilities assumed and are subject to change. Operating results for the 1997
Acquisitions and the 1998 Acquisitions are included herein from their
respective acquisition dates.
The following unaudited pro forma summary represents the consolidated
results for the years ended December 31, 1998 and 1997 as if the acquisitions
completed as of December 31, 1998 had occurred as of January 1, 1997. The pro
forma summary for the year ended December 31, 1996 reflects the 1997
Acquisitions as if they had occurred as of January 1, 1996. These pro forma
results have been included for comparative purposes only and do not purport to
be indicative of what would have occurred had the acquisitions been made as of
those dates or of results which may occur in the future (in thousands).
F-29
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED DECEMBER 31,
(UNAUDITED)
----------------------------------------------
1998 1997 1996
-------------- -------------- ------------
<S> <C> <C> <C>
Total revenues ............................. $ 1,137,412 $ 883,901 $ 104,784
Net loss ................................... $ (76,143) $ (49,414) $ (2,668)
Loss applicable to basic and dilutive common
shares ................................... $ (1.77) $ (1.17) --
</TABLE>
4. SPIN-OFF
Pursuant to the terms of the Spin-Off, SFX Broadcasting contributed to the
Company all of the assets relating to its live entertainment businesses and the
Company assumed all of SFX Broadcasting's liabilities pertaining to the live
entertainment businesses, as well as certain other liabilities including the
obligation to make change of control payments to certain employees of SFX
Broadcasting of approximately $5.0 million, as well as the obligation to
indemnify one-half of certain of these employees' excise tax. At the time of
the Broadcasting Merger, the Company preliminarily received $2.0 million of net
Working Capital (as defined in the Broadcasting Merger Agreement). Any
additional payments which may be payable upon the final determination of the
Working Capital will be reflected as an increase or decrease, as the case may
be, to the Company's equity.
In connection with the Spin-Off, the Company entered into a tax sharing
agreement with SFX Broadcasting. Pursuant to the tax sharing agreement, as
amended, the Company is responsible for certain taxes incurred by SFX
Broadcasting, including income taxes imposed with respect to income generated
by the Company for periods prior to the Spin-Off and taxes resulting from gain
recognized by SFX Broadcasting in the Spin-Off. The Company paid $109.7 million
of estimated payments related to this agreement during 1998. Management's
estimates of the amount of the indemnity payments are based on assumptions
which management believes are reasonable. However, upon the completion of all
final tax returns, including any potential tax audits, such assumptions could
be modified in a manner that would result in a significant variance in the
actual amount of the tax indemnity.
5. PROPERTY AND EQUIPMENT
The Company's property and equipment as of December 31, 1998 and 1997
consisted of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
Land ............................................... $ 20,379 $ 8,752
Building and improvements .......................... 145,438 44,364
Furniture and equipment ............................ 38,416 6,027
Leasehold improvements ............................. 98,483 2,676
Assets under capital lease ......................... 6,898 476
--------- --------
309,614 62,295
Accumulated depreciation and amortization .......... (16,988) (2,610)
--------- --------
$ 292,626 $ 59,685
========= ========
</TABLE>
F-30
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. GOODWILL AND OTHER INTANGIBLE ASSETS
The Company's goodwill and other intangible assets, principally deferred
financing costs, as of the December 31, 1998 and 1997 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Goodwill .......................... $ 911,164 $ 56,758
Other intangibles ................. 33,978 6,293
--------- --------
945,142 63,051
Accumulated amortization .......... (46,709) (2,745)
--------- --------
$ 898,433 $ 60,306
========= ========
</TABLE>
7. LEASES
The Company's leases include primarily leases with respect to venues,
office space and land. The lease terms range from 3 to 11 years for operating
leases and 1 to 36 years for capital leases. A number of the leases provide for
escalating rent over the lease term. Rental expense on operating leases is
recognized on a straight-line basis over the life of such leases. The majority
of the amphitheater leases provide for contingent rentals, generally based upon
a percentage of gross revenues, as defined in the respective lease agreements.
Rental expense associated with operating leases for 1998, 1997 and 1996 was
$19,496,000, $2,753,000 and $875,000, respectively. Contingent rental expense
associated with operating leases for 1998 was $4,282,000. There was no
contingent rental expense for 1997 and 1996. Interest rates on capital leases
range form 6.0% to 9.75%.
Minimum rental commitments on long-term capital and operating leases at
December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING LEASES CAPITAL LEASES
------------------ ---------------
<S> <C> <C>
1999 ........................... $ 10,218 $ 2,067
2000 ........................... 9,321 1,892
2001 ........................... 8,374 1,566
2002 ........................... 8,018 1,256
2003 ........................... 7,488 1,256
2004 and thereafter ............ 79,668 24,123
-------- ---------
$123,087 32,160
========
Less: Interest ................. (19,380)
---------
12,780
Less: Current portion .......... (825)
---------
$ 11,955
=========
</TABLE>
F-31
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LONG-TERM DEBT
As of December 31, 1998 and 1997, the Company's long-term debt consisted
of the following (in thousands):
<TABLE>
<CAPTION>
1998
------------
<S> <C>
Senior subordinated notes due February 2008 .......... $ 350,000
Senior subordinated notes due December 2008 .......... 200,000
Senior credit facility ............................... 196,000
Other debt ........................................... 14,996
Capital lease obligations (see Note 7) ............... 12,780
---------
773,776
Less: current portion ................................ (5,581)
---------
$ 768,195
=========
</TABLE>
Senior Credit Facility
On February 26, 1998, SFX entered into a $300.0 million senior secured
credit facilities (the "Senior Credit Facility"). The Senior Credit Facility
was comprised of a $150.0 million eight-year term loan and a $150.0 million
seven-year reducing revolver. Borrowings under the Senior Credit Facility are
secured by substantially all of the assets of SFX, including a pledge of the
outstanding stock of substantially all of its subsidaries, and are guaranteed
by substantially all of SFX's subsidiaries. On September 10, 1998, SFX amended
the Senior Credit Facility to increase its borrowing availability under the
revolving portion of the facility by an additional $50.0 million to $200.0
million, which increased the aggregate amount of borrowing availability to
$350.0 million. Borrowings under the Senior Credit Facility were principally
used to fund certain of the 1998 Acquisitions.
Loans outstanding under the Senior Credit Facility bear interest, at SFX's
option, at certain spreads over LIBOR or the greater of the Federal Funds rate
plus 0.50% or the lender's prime rate. The interest rate spreads on the term
loan and the revolver are adjusted based on SFX's total leverage ratio, as
defined. SFX pays an annual commitment fee ranging from 0.375% to 0.50% on the
unused availability under the revolver. SFX also pays an annual letter of
credit fee equal to the applicable LIBOR margin, as defined, for the revolver
then in effect. Loans outstanding under the Senior Credit Facility at December
31, 1998 accrued interest at 8.36%.
Commitments to lend under the revolver will be reduced in equal quarterly
installments commencing March 31, 2000, in annual percentages of the
outstanding borrowings under the revolver as of December 31, 1999 as follows:
10.0% in 2000; 15.0% in 2001; 20.0% in 2002; 25.0% in 2004; and the remaining
5.0% together with any outstanding interest upon final maturity. The term loan
will be reduced by $1.0 million per year until final maturity, at which point
the remaining balance together with any outstanding interest will be due and
payable.
The Senior Credit Facility contains certain covenants that, among other
things, limits the ability of SFX and its subsidiaries to incur additional
indebtedness, issue certain equity interests, pay dividends and sell certain
assets. In addition, the Senior Credit Facility requires SFX to maintain
compliance with certain specified financial covenants. The Senior Credit
Facility also prohibits prepayment of any subordinated notes. SFX is currently
in discussion with the lenders under the Senior Credit Facility to increase the
total borrowing availability thereunder to $550.0 million. Although no
assurances can be given, SFX expects to enter into this amendment during the
second quarter of 1999.
Senior Subordinated Notes
On February 11, 1998, SFX completed an offering of $350.0 million in
principal amount of 9 1/8% Senior Subordinated Notes due February 1, 2008 (the
"February 1998 Notes"). Interest is payable on
F-32
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the notes on February 1 and August 1 of each year. SFX used the proceeds from
the note offering to consummate certain of the Company's 1998 Acquisitions. On
July 15, 1998, SFX exchanged all of the notes for substantially identical
publicly registered notes. All original notes were tendered for exchange and
canceled upon the issuance of the registered noted.
On November 25, 1998, SFX completed an offering of $200.0 million in
principal amount of 9 1/8% Senior Subordinated Notes due December 1, 2008 (the
"November 1998 Notes" and together with the February 1998 Notes, the "Senior
Subordinated Notes"). Interest is payable on the notes on June 1 and December 1
of each year. SFX used the proceeds from the note offering to repay
substantially all outstanding borrowings under the revolving portion of the
Senior Credit Facility. SFX has filed a registration statement with the
Securities and Exchange Commission to register substantially identical notes
that will be exchanged for the November 1998 Notes when the registration
statement becomes effective.
The Senior Subordinated Notes are general unsecured obligations of SFX,
subordinate in right to all senior debt, whether outstanding on the date of
issuance of the Senior Subordinated Nnotes or thereafter incurred, of SFX and
senior in right of payment to or with all other indebtedness of the Company.
The February 1998 Notes are not redeemable at SFX's option before February
1, 2003, and the November 1998 Notes are not redeemable at SFX's option before
December 1, 2003. Thereafter, each series of notes will be subject to
redemption at any time at the option of SFX, in whole or in part, at specified
redemption prices plus accrued and unpaid interest, and liquidated damages (as
defined), if any. In addition, at any time prior to February 1, 2001 with
respect to the February 1998 Notes and December 1, 2001 with respect to the
November 1998 Notes, SFX may on any one or more occasions redeem up to 35.0% of
the original aggregate principal amount of each series of notes at a redemption
price of 109.125% of the principal amount thereof, plus accrued and unpaid
interest and liquidated damages, if any, with the net proceeds of one or more
offerings of common equity of SFX.
The Senior Subordinated Note indentures contain certain covenants that,
among other things, significantly limit the ability of SFX and its subsidiaries
to incur additional indebtedness, issue certain equity interests, pay dividends
and sell certain assets.
Principal maturities of the long-term debt, excluding capital leases, over
the next five years as of December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
LONG-TERM DEBT
---------------
<S> <C>
1999 ....................... $ 4,756
2000 ....................... 2,359
2001 ....................... 1,768
2002 ....................... 1,513
2003 ....................... 1,576
2004 & Thereafter .......... 749,024
--------
Total ...................... $760,996
========
</TABLE>
Note Offering and Guarantees by Subsidiaries
The Company is a holding company that has no operating assets or
operations of its own. Substantially all of the Company's subsidiaries are
wholly owned and have jointly and severally guaranteed the Company's Senior
Subordinated Notes (the "Guarantors"). A certain subsidiary which is not wholly
owned (the "Non-Wholly Owned Guarantor Subsidiary") guarantees such
indebtedness and certain subsidiaries (the "Non-Guarantor Subsidiaries") do not
guarantee such indebtedness.
F-33
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Full financial statements of the Guarantors, Non-Guarantor Subsidiaries or
the Non-Wholly Owned Guarantor Subsidiary have not been included because,
pursuant to their respective guarantees, the Guarantors are jointly and
severally liable with respect to the Exchange Notes and management believes
that the Non-Guarantor Subsidiaries and Non-Wholly Owned Guarantor are not
material to the Company on a consolidated basis. Accordingly, the Company does
not believe that the information contained in separate full financial
statements of the Guarantors, or Non-Guarantor Subsidiaries or the Non-Wholly
Owned Guarantor Subsidiary would be material to investors. The following are
summarized unaudited statements setting forth certain financial information
concerning the Guarantors, the Non-Guarantor Subsidiaries and the Non-Wholly
Owned Guarantor Subsidiary as of and for the year ended December 31, 1998 (in
thousands).
<TABLE>
<CAPTION>
SFX
ENTERTAINMENT,
INC. NON-GUARANTOR
CONSOLIDATED GUARANTORS SUBSIDIARIES
---------------- -------------- ---------------
<S> <C> <C> <C>
Current assets ................ $ 19,587 $ 122,118 $ 6,836
Property and equipment,
net .......................... 10,390 272,243 9,993
Goodwill and other
intangible assets, net ....... 24,317 844,055 19,853
Investment in subsidiaries..... 1,161,103 18,450 --
Other assets .................. 4,594 18,044 2,572
----------- ---------- ---------
Total assets .................. $ 1,219,991 $1,274,910 $ 39,2524
=========== ========== =========
Current liabilities ........... $ 41,071 $ 118,766 $ 7,541
Long-term debt, less
current portion .............. 747,746 208,449 7,855
Other liabilities ............. 36,138 12,321 290
Minority interest ............. -- 5,505 428
Temporary equity .............. 16,500 -- --
Shareholders' equity .......... 378,536 1,117,869 23,140
----------- ---------- ---------
Total liabilities and
shareholders' equity ......... $ 1,219,991 $1,274,910 $ 39,254
=========== ========== =========
Revenue ....................... $ -- $ 832,606 $ 25,245
Operating expenses ............ 50,963 805,418 22,174
Interest expense, net ......... 44,626 894 1,649
Minority interest ............. -- 644 989
Income from equity
investments .................. -- (4,630) --
Provision for income taxes..... 1,350 1,650 --
----------- ---------- ---------
Net (loss) income ............. $ (96,939) $ 28,629 $ 433
=========== ========== =========
Cash flow (used in)
provided by operations ....... $ (44,932) $ 73,877 $ (962)
Cash flow used in
investing activities ......... (861,341) (30,005) (574)
Cash flow provided by
(used in) financing
activities ................... 909,958 (2,021) (1,416)
Cash at the beginning of
the period ................... -- 2,281 3,063
Cash at the end of the
period ....................... $ 3,685 $ 44,132 $ 111
<CAPTION>
SFX
NON-WHOLLY, ENTERTAINMENT,
OWNED GUARANTOR INC.
SUBSIDIARY ELIMINATIONS CONSOLIDATED
----------------- ----------------- ---------------
<S> <C> <C> <C>
Current assets ................ $ 192 $ -- $ 148,733
Property and equipment,
net .......................... -- -- 292,626
Goodwill and other
intangible assets, net ....... 10,208 -- 898,433
Investment in subsidiaries..... -- (1,161,103) 18,450
Other assets .................. -- -- 25,210
-------- ------------- -----------
Total assets .................. $ 10,400 $ (1,161,103) $ 1,383,452
======== ============= ===========
Current liabilities ........... 76 $ (4,040) $ 163,414
Long-term debt, less
current portion .............. -- (7,855) 768,195
Other liabilities ............. -- -- 480,749
Minority interest ............. 2,125 -- 8,058
Temporary equity .............. -- -- 16,500
Shareholders' equity .......... 8,199 (1,149,208) 378,536
-------- ------------- -----------
Total liabilities and
shareholders' equity ......... $ 10,400 $ (1,161,103) $ 1,383,452
======== ============= ===========
Revenue ....................... $ 26,435 $ -- $ 884,286
Operating expenses ............ 24,991 -- 903,546
Interest expense, net ......... (33) (869) 46,268
Minority interest ............. 403 -- 2,036
Income from equity
investments .................. -- -- (4,630)
Provision for income taxes..... -- -- 3,000
-------- ------------- -----------
Net (loss) income ............. $ 1,074 $ 869 $ (65,934)
======== ============= ===========
Cash flow (used in)
provided by operations ....... $ (542) $ -- $ 27,441
Cash flow used in
investing activities ......... -- -- (891,920)
Cash flow provided by
(used in) financing
activities ................... -- -- 906,521
Cash at the beginning of
the period ................... 635 -- 5,979
Cash at the end of the
period ....................... 93 $ -- $ 48,021
</TABLE>
F-34
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents and short-term,
long-term, and variable-rate debt approximate fair value. The Company estimates
the fair value of its long-term, fixed-rate debt generally by obtaining the
applicable market quotation. The estimated fair value of the Company's fixed
rate notes ($350 million and $200 million 9 1/8% senior subordinated notes) at
December 31, 1998 was $507.3 million.
10. INCOME TAXES
During the period January 1, 1998 through April 27, 1998 the Company was a
member of the SFX Broadcasting consolidated federal income tax return.
Subsequent to April 27, 1998, the date of the Spin-Off, the Company will file
separate tax returns. The Company has provided income taxes for all of 1998 the
entire period on a stand-alone basis. However, pursuant to the tax-sharing
agreement with SFX Broadcasting to the extent that the Company generated a tax
loss in the pre-Spin-Off period, that loss was utilized to reduce the tax
sharing payment required as a result of the Spin-Off. The tax benefit
associated with this loss has been recorded as an adjustment to the Company's
additional paid-in capital as all taxes associated with the Spin-Off were
accounted for through adjustments to the Company's equity.
The provisions for income taxes for the years ended December 31, 1998,
1997 and 1996 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
1998 1997 1996
--------- ------ ------------
<S> <C> <C> <C>
Current:
Federal ......... -- -- --
State ........... $3,000 $420 $106
Deferred:
Federal ......... -- -- --
State ........... -- 70 --
------ ---- ----
Total ........... $3,000 $490 $106
====== ==== ====
</TABLE>
No federal benefit was recorded in 1998 as the Company was not assured it
would realize a tax benefit from the loss. No Federal income taxes were
provided in 1997 as a result of the Company's inclusion in the consolidated
federal income tax return with SFX Broadcasting. If the Company had filed on a
stand-alone basis, its federal federal tax provision would have been
approximately $2,050,000, consisting of $1,760,000 in current taxes and
approximately $290,000 of deferred taxes. The Predecessor had no federal tax
provision in 1996 or 1995 by virtue of the status of its profitable included
companies being S Corporations. State income taxes were provided to the extent
that S Corporation status was not recognized.
F-35
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the Company's deferred tax asset and liabilities as of December
31, 1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------------- -------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Deferred compensation ................... $ 783 $ 783
Deferred revenue ........................ 6,274 --
Net operating loss carryforward ......... 16,010 --
Less: Valuation allowance ............... (2,789) --
---------- ---------
$ 20,278 $ 783
DEFERRED TAX LIABILITIES:
Assets acquired in business
combinations ........................... (59,104) (3,600)
---------- ---------
Net deferred tax liability .............. $ (38,826) $ (2,817)
========== =========
</TABLE>
The Predecessor had no deferred tax liabilities as of December 31, 1996.
At December 31, 1998, 1997, and 1996 the effective rate varies from the
statutory Federal income tax rate as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ----------- ----------
<S> <C> <C> <C>
Income taxes at the statutory rate .......... $ (21,398) $ 1,463 $ (139)
Effect of Subchapter S status ............... -- -- 139
Nondeductible Stock Compensation ............ 11,513 -- --
Nondeductible amortization .................. 3,869 800 --
Travel and entertainment .................... 175 20 --
Effect of consolidated return loss .......... -- (2,283) --
State and local income taxes (net of federal
benefit -- 1997 and 1996) ................. 3,000 490 106
Valuation allowance ......................... 2,789 -- --
Tax loss prior to Spin-Off .................. 3,052 -- --
------------ -------- ------
Total provision ............................. $ 3,000 $ 490 $ 106
============ ======== ======
</TABLE>
The Company made numerous acquisitions during 1998. As a result of the
purchase accounting for these acquisitions, the Company has recorded deferred
taxes of $59.1 million associated with the excess of financial statement basis
over the tax basis in the acquired assets. In conjunction with the Spin-Off,
the Company paid approximately $109.7 in tax of which approximately $90.2
million was recorded through equity and the remaining $19.5 million was
recorded as a deferred tax asset. The deferred tax asset relates to basis
differences in the assets received in the Spin-Off. As of December 31, 1998,
the Company has approximately $45.0 million of net operating loss ("NOL")
carryforwards. The Company's NOL carryforwards will expire in the year 2019.
11. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
While the Company is involved in several law suits and claims arising in
the ordinary course of business, the Company is not currently a party to any
legal proceeding that management believes would have a material adverse effect
on its business, financial position or results of operations.
F-36
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has entered into an agreement with Ticketmaster whereby SFX
granted Ticketmaster the exclusive right to sell and distribute tickets for
SFX's events worldwide. The Company is currently evaluating its existing
internal ticket operations, which were acquired in the 1998 Acquisitions;
however the Company does not believe that its ticketing operations are material
to its financial condition or results of operations.
The Company has employment agreements and arrangements with its executive
officers and certain management personnel. The agreements provide for various
minimum annual base compensation packages with terms varying between 1-5 years,
expiring on various dates, as well as insurance coverage and discretionary
bonus clauses. The future minimum payments for all noncancelable employee
agreements at December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
EMPLOYMENT
AGREEMENTS
-----------
<S> <C>
1999 ........................ $ 20,702
2000 ........................ 19,160
2001 ........................ 17,377
2002 ........................ 14,386
2003 ........................ 4,353
--------
2004 and thereafter ......... --
--------
Total ....................... $ 75,978
========
</TABLE>
Additionally, certain of these contracts, primarily those of the executive
officers, contain provisions for payments in the event of a termination in
employment. In the event of a change in control (as defined in the employment
agreements) the Company, as of December 31, 1998, would be obligated to make
cash payments of at least $14.7 million as well as grant $1.6 million
fully-vested stock options.
Pursuant to a real estate purchase agreement with the sellers of Oakdale
Theater, the Company has agreed to purchase the land, building and improvements
of the Oakdale Theater at the end of the Company's fifteen-year lease of the
premises in June 2013 for $15.4 million. In June 1998, the Company extended an
$11.4 million note receivable to the sellers which is secured by the property
which has been recorded in notes receivable from related parties in the
accompanying consolidated balance sheet.
The Company has committed to construct four new amphitheaters in the
Boston, Massachusetts, Seattle, Washington, Sacramento, California and the
Albuquerque, New Mexico markets. SFX expects to spend an additional $36.7
million on these projects of which approximately $19.4 million will be spent in
1999. In addition, the Company has committed to other capital projects totaling
approximately $20.6 million in 1999.
As of December 31, 1998 and 1997, outstanding letters of credit for
$2,597,000 and $1,110,000, respectively, were issued by banks on behalf of the
Company as security for loans and the rental of theaters.
In 1994, the Connecticut Development Authority ("CDA") entered into a
non-recourse assistance agreement with the Company whereby the CDA provided
grant funds of $8,863,000 for the construction and development of the Meadows
through the issuance of State of Connecticut General Fund Obligation Bonds
("GFO Bonds"). The annual tax revenues derived from the operation of the
amphitheater are utilized to satisfy the annual service requirements of the GFO
Bonds. If the annual tax revenues are less than the annual service
requirements, the Company must deposit the lesser of the operating shortfall,
as defined, or 10% of the annual service requirements under the GFO Bonds. An
operating shortfall has not existed since the inception of the CDA. The GFO
Bonds mature on October 15, 2024 and have an average coupon rate of 6.33%.
F-37
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The agreement governing the partnership through which PACE holds its
interest in the Lakewood Amphitheater in Atlanta, Georgia contains a provision
that purports to restrict PACE and its affiliates from directly or indirectly
owning or operating another amphitheater in Atlanta. In management's view, this
provision will not materially affect the business or prospects of the Company.
However, the Company acquired an interest in the Chastain Park Amphitheater,
also in Atlanta, in the Concert/Southern acquisition. SFX is currently involved
in litigation with PACE's partners.
Pursuant to certain acquisition agreements certain sellers have the right
to repurchase certain of the businesses sold to SFX (See Note 3).
12. CAPITAL STOCK
In order to facilitate the Spin-Off, the Company revised its capital
structure to increase its authorized capital stock and to effect a stock split.
The authorized capital stock of the Company consists of 110,000,000 shares of
Common Stock (comprised of 100,000,000 shares of Class A Common Stock and
10,000,000 shares of Class B Common Stock), and 25,000,000 shares of preferred
stock, par value $.01 per share.
In the Spin-Off, (a) 20,368,536 shares of Class A Common Stock were
distributed to holders on the Spin-Off record date of SFX Broadcasting's Class
A Common Stock, and Series D preferred stock, including 914,784 shares of Class
A Common Stock issued upon the exercise of certain warrants of SFX Broadcasting
and (b) 1,570,556 shares of Class B Common Stock were distributed to holders on
the Spin-Off record date of SFX Broadcasting Class B Common Stock. The
financial statements have been retroactively adjusted to reflect this
transaction.
Holders of Class A Common Stock and Class B Common Stock vote as a single
class on all matters submitted to a vote of the stockholders, with each share
of Class A Common Stock entitled to one vote and each share of Class B Common
Stock entitled to ten votes, except (a) for the election of directors, (b) with
respect to any "going private" transaction between the Company and Mr.
Sillerman or any of his affiliates and (c) as otherwise provided by law.
The Board of Directors has the authority to issue preferred stock and will
assign the designations and rights at the time of issuance.
During January 1998, in connection with the expectation of certain
executive officers entering into employment agreements with the Company, the
Board of Directors, upon recommendation of the Compensation Committee, approved
the sale of an aggregate of 975,000 shares of the Company's Class B Common
Stock and 285,000 shares of the Company's Class A Common Stock to certain
officers for a purchase price of $1.33 per share. Such shares were issued in
April 1998.
During 1998, the Board of Directors also approved the issuance of shares
of the Company's Class A Common Stock to holders of stock options or stock
appreciation rights ("SARs") of SFX Broadcasting as of the Spin-Off record
date, whether or not vested. The issuance was approved to allow such holders of
these options or SARs to participate in the Spin-Off in a similar manner to
holders of SFX Broadcasting's Class A Common Stock. Additionally, many of the
option holders were expected to become officers, directors and employees of the
Company.
On May 27, 1998, SFX consummated an offering of 12,075,000 shares of Class
A Common Stock at an offering price of $28.83 per share and received net
proceeds of approximately $329.0 million. SFX used the proceeds to consummate
certain of its 1998 acquisitions, to fund $93.7 million of tax indemnity
payments and to pay fees and other expenses.
13. NON-CASH AND OTHER NON-RECURRING CHARGES
Non-cash compensation and other non-cash charges of $34.1 million
consisted of (a) $23.9 million of compensation related to the sale of 975,000
shares of Class B Common Stock and 285,000 shares of
F-38
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Class A Common Stock at a purchase price of $1.33 per share to certain
executive officers (Note 12), (b) $7.5 million associated with the issuance of
370,766 shares of Class A Common Stock to Mr. Robert F.X. Sillerman, Executive
Chairman of the Company, in connection with the repurchase of shares of SFX
Broadcasting issued to the sellers of the Meadows (Note 15), (c) $2.4 million
related to the issuance of stock options to certain executive officers pursuant
to employment agreements exercisable for an aggregate of 528,750 shares of
Class A Common Stock and (d) $300,000 related to the deferred compensation plan
for each non-employee directors, adopted in January 1998, whereby each director
was credited with the right to receive 8,183 shares of Class A Common Stock
based upon $3.67 a stock price of per share.
The non-recurring charges of $5.6 million consisted of certain deposits
paid to Livent for the Ragtime and Showboat touring productions and certain
related deferred expenses which, as a result of the Livent bankruptcy, will not
be recovered.
14. STOCK OPTIONS
During January 1998, the Board of Directors and SFX Broadcasting, as sole
stockholder, approved and adopted a stock option and restricted stock plan
providing for the issuance of restricted shares of the Company's Class A Common
Stock and options to purchase shares of the Company's Class A Common Stock
totaling up to 3,000,000 shares. Under the stock option plan, options to
acquire Class A Common Stock have been granted to certain officers, key
employees and other key individuals who perform services for the Company.
Options granted under these plans are generally granted at option prices equal
to the fair market value of the Class A Common Stock on the date of grant.
Terms of the options, determined by the Company, provided that the maximum term
of each option shall not exceed ten years and the options become fully
exercisable within five years of continued employment with the exception of
certain options which were fully vested at the date of grant.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options, as opposed to the
fair value accounting provided for under FAS Statement No. 123, "Accounting for
Stock-Based Compensation" ("Statement 123"). Under APB 25, because the exercise
price of the Company's stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net loss and loss per basic and dilutive
common share is required by Statement 123, and has been determined as if the
Company had accounted for its employee stock options under the fair value
method of that statement. The fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1998: risk-free interest rate of 5.60%; no
dividend yield; volatility factor of the expected market price of the Company's
common stock of 63.7%; and a weighted-average expected life of the options from
5 to 7 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Therefore,
the impact on the pro forma results of operations in 1998 may not be
representative of the impact in future periods should additional options be
F-39
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
granted. The Company's pro forma information follows (in thousands except for
loss per share information):
<TABLE>
<CAPTION>
1998
--------------
<S> <C>
Pro forma net loss applicable to common shares ............... $ (74,477)
Pro forma loss per basic and dilutive common share: .......... $ (1.99)
</TABLE>
In January 1998, the Company granted options exercisable for an aggregate
of 517,500 shares of the Company's Class A Common Stock at an exercise price of
$3.67 which will vest over three years and 11,250 shares of the Company's Class
A Common Stock at an exercise price of $3.67 which vests over one year. The
Company will record non-cash compensation charges over the three-year vesting
period of approximately $3.3 million annually. In April 1998, the Company
granted options exercisable for an aggregate of 771,750 shares of the Company's
Class A Common Stock at an exercise price of $19.42 which will vest over 5
years. Between May April and November 1998, the Company granted options
exercisable for an aggregate of 1,692,999 shares of Class A Common Stock at
exercise prices ranging from $23.00 to $30.58 which will vest over 5 years. The
weighted average fair value of the options granted during the year estimated on
the date of grant using the Black-Scholes option pricing model was $14.43 for
all options. For those options granted with the stock price equal to exercise
prices, the weighted average fair value and exercise prices were $17.07 and
$25.76, respectively. For those options granted with the stock price in excess
of the exercise price, the weighted average fair value and exercise prices were
$17.87 and $3.67, respectively. During 1998, there were no options outstanding
at the beginning of the year and no options exercisable at the end of the year.
In addition there were no options that were repurchased, exercised or
cancelled.
Following a recommendation of SFX's compensation committee, SFX has,
subject to stockholder approval, adopted a new incentive stock option plan
covering options to acquire up to 4.5 million shares of Class A Common Stock
and approved the grant of options thereunder to acquire 3.45 million shares of
Class A Common Stock at their fair market value. SFX anticipates that the
proposed stock option plan will be submitted to a vote of the stockholders at
SFX's first annual meeting scheduled to be held in the spring of 1999.
15. RELATED PARTY TRANSACTIONS
Relationship between Howard J. Tytel and Baker & McKenzie
Howard J. Tytel, who is the Executive Vice President, General Counsel,
Secretary, Member of the Office of the Chairman and a director of SFX, was "Of
Counsel" to the law firm of Baker & McKenzie from the inception of the Company
to May 31, 1998. Mr. Tytel was also an executive vice president, the general
counsel and a director of SFX Broadcasting. Baker & McKenzie served as counsel
to SFX Broadcasting and Marquee and currently serves as counsel to SFX, Marquee
and certain other affiliates of Mr. Sillerman. Baker & McKenzie formerly
compensated Mr. Tytel based, in part, on the fees it received from providing
legal services to SFX Broadcasting, SFX, Marquee, other affiliates of Mr.
Sillerman and other clients introduced to the firm by Mr. Tytel. Baker &
McKenzie has agreed to a severance arrangement with Mr. Tytel, which is not
based on fees received by Baker & McKenzie. In 1997, the Company incurred fees
of approximately $2.9 million for legal services. Such fees were funded by SFX
Broadcasting on behalf of the Company. In February 1998, the Company reimbursed
SFX Broadcasting for these fees. From April 27, 1998, the date of the Spin-Off,
until May 31, 1998, SFX incurred and paid Baker & McKenzie approximately $1.5
million for legal services. Management believes that this arrangement was as
fair to SFX as any that could have been obtained from an unrelated party on an
arms-length basis.
Triathlon Fees
SCMC, a corporation controlled by Mr. Sillerman and in which Mr. Tytel has
an equity interest, has an agreement to provide consulting and marketing
services to Triathlon, a publicly-traded
F-40
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
company in which Mr. Sillerman is a significant stockholder. Under the terms of
the agreement, SCMC has agreed to provide marketing services to Triathlon until
June 1, 2005, for an annual fee of $500,000, together with a refundable advance
of $500,000 per year against fees earned in respect consulting and marketing
services to Triathlon until June 1, 2005, for an annual fee of $500,000,
together with a refundable advance of $500,000 per year against fees earned in
respect of transactional investment banking services. The Company recorded fees
of $3,000,000 for the year ended December 31, 1996, fees of $1,794,000 for the
year ended December 31, 1997 and fees of $530,000 for the year ended December
31, 1998. These fees vary above the minimum annual fee of $500,000 depending on
the level of acquisition and financing activities of Triathlon. SCMC previously
assigned its rights to receive fees payable under this agreement to SFX
Broadcasting. Pursuant to the terms of the distribution agreement, SFX
Broadcasting assigned its rights to receive these fees to SFX. All services
provided by SCMC are provided by employees of SFX. Triathlon has announced that
it has agreed to be acquired by a third party. Triathlon will pay a fee to SFX
in connection with such acquisition. When Triathlon is acquired, it will cease
paying consulting fees for SCMC's services.
Meadows Repurchase
In connection with the acquisition of the Meadows Acquisition, SFX
Broadcasting obtained an option to repurchase 370,766 shares of its Class A
Common Stock for $8.2 million. Pursuant to the terms of the Broadcasting Merger
Agreement, if the Meadows Shares were outstanding at the effective time of the
Bbroadcasting Mmerger, working capital paid to SFX would be decreased by
approximately $10.3 million. However, SFX Broadcasting was restricted from
exercising the Meadows Repurchase by certain loan covenants and other
restrictions.
In January 1998, Robert F.X. Sillerman, the Executive Chairman of SFX,
financed the $8.2 million exercise price of the Meadows Repurchase to offset
the $10.35 million reduction to working capital. In consideration, Mr.
Sillerman and received the Class A shares in the Spin-Off.
16. BUSINESS SEGMENTS
SFX classifies its operations into four major business segments in the
live entertainment industry: music, theater, sports, and family entertainment
and other. The music segment primarily consists of the promotion and production
of live entertainment events, most significantly for concert and other music
performances in venues owned (partially or entirely) and/or operated by SFX and
in third party venues. The theater segment develops and manages touring
Broadway shows and other theatrical productions. The sports segment acts as a
full-service marketing and management company specializing in the
representation of team sports athletes, as well as promoting specialized motor
sports events. The family entertainment and other segment primarily consist of
the promotion and marketing of family-oriented events, marketing and consulting
of local, regional and national live marketing programs, the subscription or
fee based radio and music industry data compilation and distribution, the
creation and distribution of network radio special events and live concert
programming and merchandising at live events.
The Company evaluates performance based on several factors, of which the
primary financial measure is Adjusted EBITDA, including the equity in earnings
of investees and excluding non-cash compensation, other non-cash charges and
non-recurring charges. Since this measure closely approximates the cash flow
generated by each segment. EBITDA is defined as earnings before interest,
taxes, other income, net equity income (loss) from investees and depreciation
and amortization. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The segment
performance for 1997 and 1996 is not presented as the Company did not have
operations other than the music segment during those periods.
F-41
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------------------------------
FAMILY
ENTERTAINMENT
MUSIC THEATRICAL SPORTS AND OTHER CORPORATE TOTAL
------------ ------------ ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenues .............................. $ 588,915 $ 150,970 $ 24,899 $ 124,132 $ -- $ 888,916
========= ========= ========= ========= ========== ===========
EBITDA, including equity in
earnings of investees ................ $ 61,204 $ 15,576 $ 2,466 $ 19,166 $ (11,194) $ 87,218
Depreciation and amortization ......... 35,534 2,280 5,293 9,071 10,019 62,197
Non-cash and non-recurring
charges .............................. -- 5,600 -- -- 34,051 39,651
--------- --------- --------- --------- ---------- -----------
Income (loss) from operations ......... $ 24,598 $ 4,419 $ (2,897) $ 10,095 $ (50,845) $ (14,630)
========= ========= ========= ========= ========== ===========
Total assets .......................... $ 841,139 $ 220,865 $ 134,810 $ 122,262 $ 64,376 $ 1,383,452
========= ========= ========= ========= ========== ===========
</TABLE>
17. DEFINED CONTRIBUTION PLAN
The Company sponsors a 401(k) defined contribution plan in which most
full-time employees are eligible to participate. The plan presently provides
for discretionary employer contributions. There were no contributions in 1997
and 1998. During 1998, each subsidiary maintained its own pension/ profit
sharing plan. The amounts changed to operations under these separate plans in
1998 was $627,870.
On January 1, 1999 the Company adopted a Profit Sharing Plan pursuant to
section 401(a) of the Internal Revenue Code, whereby participants may
contribute a percentage of compensation, but not in excess of the maximum
allowed under the code.
18. SUBSEQUENT EVENTS
1999 EQUITY OFFERING
On February 18, 1999, SFX consummated an offering of 7,423,500 shares of
the Company's Class A Common Stock at an offering price of $37.00 per share
(the "1999 Equity Offering") and received net proceeds of approximately $263.7
million. SFX used the proceeds to finance certain of the 1999 Acquisitions.
F-42
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1999 ACQUISITIONS
Cellar Door
On February 19 1999, SFX purchased all of the issued and outstanding
capital stock of the Cellar Door group of companies for a purchase price of
$70.0 million in cash payable at closing, less an amount equal to Cellar Door's
"secured fund" indebtedness and capitalized leases, shares of Class A Common
Stock with a value of $20.0 million, and $8.5 million payable in five equal
annual installments beginning on the first anniversary of the closing date. In
addition, SFX issued to the seller options to purchase 150,000 shares of Class
A Common Stock. SFX financed the acquisition with the proceeds of the 1999
Equity Offering.
Nederlander
On March 16, 1999, SFX acquired certain interests in seven venues and
other assets of Nederlander for an aggregate purchase price of approximately
$95.6 million in cash. The agreement relating to the venues in Cincinnati
requires SFX to make an earn-out payment to the sellers in 2000 of up to $3.2
million depending on the level of earnings generated by operation of the Crown
Arena. If SFX sells or transfers any of the interests in the Crown Arena within
ten years of the closing, SFX will be obligated to pay a portion of the
consideration it receives to the sellers of Nederlander. The agreement relating
to Mesa del Sol Centre for the Performing Arts provides for earn-out payments
based on the financial performance of this venue. SFX financed the acquisition
with the proceeds of the 1999 Equity Offering and borrowings under the Senior
Credit facility.
Marquee
On March 16, 1999, a wholly owned subsidiary of SFX was merged with and
into Marquee and Marquee became a wholly owned subsidiary of SFX. In connection
with the merger, SFX issued approximately 2.1 million shares of SFX Class A
Common Stock with a value of approximately $84.0 million and repaid $33.5
million of Marquee's debt. SFX financed the acquisition with borrowings under
the Credit facility.
Other Acquisitions
During the first quarter of 1999, SFX also completed the acquisitions of:
The Entertainment Group, Inc., a concert and theatrical producer and promoter
with operations in Chicago and Mexico City; Integrated Sports International,
Inc., a full-service sports marketing company; and The RZO Companies, a company
involved in business management and tour production in music and the performing
arts. In addition, SFX entered into a long-term marketing and consulting
agreement with respect to the Rosemont Horizon and Rosemont Theater. The total
consideration for these acquisitions and the long-term marketing and consulting
agreement consisted of $67.0 million in cash and 142,766 shares of Class A
Common Stock. SFX financed these acquisitions with the proceeds from its 1999
equity offering and borrowings under the Senior Credit Facility. In addition,
SFX may be required to make additional payments of up to $13.0 million in cash
and 75,000 shares of Class A Common Stock based on the financial performance of
certain of these acquired companies. SFX financed the acquisitions with the
proceeds of the 1999 Equity Offering.
F-43
<PAGE>
APOLLO LEISURE GROUP PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED GROUP BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS AT AS AT
15 MAY 1999 28 NOVEMBER 1998
----------------------- ----------------------
(UNAUDITED)
(pounds sterling)000 (pounds sterling)000
<S> <C> <C>
Fixed assets
Tangible assets ................................................ 79,150 78,270
Investments .................................................... 2,116 1,817
------ ------
81,266 80,087
------ ------
Current assets
Stocks ......................................................... 640 670
Debtors ........................................................ 10,994 12,125
Investments .................................................... 1,076 908
Cash at bank and in hand ....................................... 10,462 15,285
------ ------
23,172 28,988
Creditors: amounts falling due within one year .................. (48,809) (52,078)
Net current liabilities ......................................... (25,637) (23,090)
Total assets less current liabilities ........................... 55,629 56,997
Creditors: amounts falling due after more than one year ......... (23,752) (25,943)
Provisions for liabilities and charges
Deferred taxation .............................................. (2,227) (2,249)
Grants received ................................................ (1,506) (1,123)
------- -------
Net assets ...................................................... 28,144 27,682
======= =======
Shareholders' funds
Share capital .................................................. 3,000 3,000
Other reserves ................................................. 10,051 10,264
Revenue reserves ............................................... 13,162 12,928
------- -------
Equity shareholders' funds ...................................... 26,213 26,192
Minority interests .............................................. 1,931 1,490
------- -------
28,144 27,682
======= =======
</TABLE>
The condensed consolidated group balance sheet at 28 November, 1998 has been
derived from the audited financial statements at that date but does not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes to condensed consolidated financial statements.
F-44
<PAGE>
APOLLO LEISURE GROUP PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED GROUP PROFIT AND LOSS ACCOUNT
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
24 WEEKS ENDED
-------------------------------------------------
15 MAY 1999 16 MAY 1998
----------------------- -----------------------
(pounds sterling)000 (pounds sterling)000
<S> <C> <C>
Turnover ........................................ 36,583 36,758
Cost of sales ................................... 15,001 17,994
------ ------
Gross profit .................................... 21,582 18,764
Administration expenses ......................... 18,428 17,170
------ ------
3,154 1,594
Other operating income .......................... 619 630
------ ------
Operating profit ................................ 3,773 2,224
Interest receivable ............................. 86 26
Interest payable ................................ 1,017 1,058
------ ------
Profit before taxation .......................... 2,842 1,192
Taxation ........................................ 1,171 556
------ ------
Profit after taxation ........................... 1,671 636
Minority interests .............................. 441 12
------ ------
Profit for period ............................... 1,230 624
Dividends paid .................................. 1,000 1,000
------ ------
Retained profit / (loss) for the period ......... 230 (376)
====== ======
Earnings per share .............................. (pounds sterling)0.41 (pounds sterling)0.21
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-45
<PAGE>
APOLLO LEISURE GROUP PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED GROUP CASHFLOW STATEMENT
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
24 WEEKS ENDED
------------------------------------------------
15 MAY 1999 16 MAY 1998
----------------------- ----------------------
(pounds sterling)000 (pounds sterling)000
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES ............................... 2,462 (2,996)
Returns on investments and servicing of finance ................... (931) (1,033)
Taxation .......................................................... (107) (222)
Capital expenditure and financial investment ...................... (3,678) (1,906)
Acquisitions ...................................................... -- --
Equity dividends paid ............................................. (1,000) (1,000)
NET CASHFLOW BEFORE USE OF LIQUID RESOURCES AND FINANCING ......... (3,254) (7,157)
Management of liquid resources .................................... 8,681 10,053
Financing:
Loans and finance leases .......................................... (902) (414)
Grants received ................................................... 413 --
Net cashflow from financing ....................................... (489) (414)
------ ------
INCREASE IN CASH .................................................. 4,939 2,482
====== ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-46
<PAGE>
APOLLO LEISURE GROUP PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
15 MAY 1999
(UNAUDITED)
NOTE 1 -- ORGANISATION AND DESCRIPTION OF BUSINESS
The Apollo Leisure Group ("Group") originated in 1977 with the purchase of
the "New Theatre" in Oxford. The Group has expanded significantly since that
time through a combination of organic growth and a series of corporate
acquisitions. The Group currently owns or manages an estate of 22 theatres, 3
arenas, 16 cinemas, 6 licensed premises and 4 bingo halls in the United Kingdom
and Eire.
In 1997 the Group entered into a new business area, with the purchase of
City Centre Leisure ("CCL"), a group involved in running sports and fitness
leisure facilities on behalf of local authorities in the United Kingdom. The
Group currently owns 67.5% of the ordinary share capital of CCL and is
contracted to acquire the remaining 37.5% in three annual installments of 12.5%
under the terms of an earnout agreement.
NOTE 2 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for an interim period
are not necessarily indicative of the results that may be expected for a full
year. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Apollo Leisure Group PLC Annual Report
for the year ended November 28, 1998.
The accompanying unaudited condensed consolidated financial statements
include the accounts and transactions of the Company and its wholly-owned
subsidiaries. All significant intercompany transactions and accounts have been
eliminated.
The Company's revenues vary throughout the year. The Company's first 24
weeks generally produces the lowest revenues for the year and the last 28 weeks
generally produces the highest revenues for the year.
NOTE 3 -- INDEBTEDNESS
The Apollo Group use debt finance, in the form of term loans, to finance
specific capital development projects. The terms of these loans include a
number of covenant tests and as at 28 November 1998 the Apollo Group was in
breach of the interest cover covenant on a loan within one of its subsidiary
companies. Whilst this is an isolated breach, the default causes further
technical breaches in relation to other loans within the Apollo Group.
Management does not believe that there is a possibility of the banks
requiring repayment of all Group loans and accordingly have not reclassified
the term loans to creditors: amount falling due within one year. Management has
formed this view on the basis of the strong cash flows generated by the Group
and the quality of the asset backing available as security to these lenders.
This accounting treatment is permitted in the UK under the `true and fair
override' provisions included within section 226(5) of the Companies Act of
1985.
NOTE 4 -- EARNINGS PER SHARE
Earnings per share is based upon the net profit applicable to basic common
shares. There is only one class of share and consequently no dilution
calculations are required.
F-47
<PAGE>
APOLLO LEISURE GROUP PLC.
DIRECTORS' REPORT
FOR THE YEAR ENDED 28TH NOVEMBER 1998
The directors present their report together with the audited group
financial statements for the year ended 28th November 1998.
PRINCIPAL ACTIVITIES
The principal activities of the group are Theatre Services, Theatrical
Show Production, Sports and Fitness Centre Management and the operation of
Bingo and Social Clubs, Cinemas, Hotels and other licensed outlets.
REVIEW OF BUSINESS & FUTURE DEVELOPMENTS
The results for the year are set out in the Group profit and loss account
on page F-52 together with the attached notes.
The profit of the Group's theatre activities was affected mainly by the
establishment of the Lyceum following its reopening in 1996. The Group has now
secured the prestigious Lion King contract, to run at the Lyceum from September
1999 and anticipate a mature profit year in 2000.
An Arts Council Lottery Grant awarded in 1997 enabled the full
refurbishment and redevelopment of the Liverpool Empire Theatre to proceed at a
cost of (pounds sterling)11m. The theatre reopened in October 1998 with an
extended season of Les Miserables, and Phantom of the Opera.
In early 1998 the Group was awarded the management contract of the
Sheffield Arena, supplementing its multi-purpose arenas in Cardiff and Dublin
and also adding sports in the form of ice hockey and basketball to its range of
activities.
As reported last year, the Group extended its local authority involvement
with the acquisition of a majority holding in CCL Leisure Limited (formerly
City Centre Leisure (Holdings) Limited), which is a local authority sports and
fitness contractor. During the past twelve months CCL Leisure Limited has been
awarded further contracts for the management of leisure centres and also
enjoyed extensions to some of its existing contracts and invested considerable
capital into public facilities.
In November 1998 the Group entered into a unique agreement in Torbay to
redevelop a theatre (already operated by the Group) into a new 9-screen
multiplex, to extend the management agreement on a second theatre, and to
manage and invest in a leisure centre on behalf of the Council, through its
subsidiary CCL Leisure Limited.
Two new 6-screen multiplexes were opened, one at a new "Hollywood Park"
development in Port Talbot, and a further "Hollywood Park" at Barrow, which
opened in March 1999.
The Group continues to search for and develop 5 to 9-screen multiplexes in
secondary towns, often in partnership with local authorities, and are committed
to extending the "Hollywood Park" brand to further sites.
The directors are satisfied with the results for the year and anticipate
continued growth in its various divisions.
DIVIDENDS
Interim dividends of (pounds sterling)0.67 (1997 -- (pounds
sterling)0.49) per share were paid during the year (total dividend paid
(pounds sterling)2,000,000 1997 -- (pounds sterling)800,000).
The directors recommend that no final dividend be declared (1997 --
(pounds sterling)Nil).
F-48
<PAGE>
APOLLO LEISURE GROUP PLC.
DIRECTORS' REPORT
FOR THE YEAR ENDED 28TH NOVEMBER 1998 -- (CONTINUED)
DIRECTORS
The directors who served during the year and their interests (including
family interests) in the issued share capital of the company were:
<TABLE>
<CAPTION>
28TH NOVEMBER 1998 30TH NOVEMBER 1997
(pounds sterling)1 ORDINARY SHARES NO. NO.
- ---------------------------------------------------- -------------------- -------------------
<S> <C> <C>
P.R. Gregg ...................................... 696,480 696,480
A.K. Gregg ...................................... 1,317,840 1,317,840
J.F. Jarvis (appointed 11th March 1998) ......... -- --
D.C. Rogers, F.C.A. ............................. 321,420 321,420
S.J. Shrouder ................................... 214,260 214,260
D.C. Gregg ...................................... 225,000 270,000
</TABLE>
DISABLED EMPLOYEES
Applications for employment by disabled persons are always fully
considered, bearing in mind the aptitudes of the applicant concerned. In the
event of members of staff becoming disabled, every effort is made to ensure
that their employment with the group continues and the appropriate training is
arranged. It is the policy of the group that the training, career development
and promotion of disabled persons should, as far as possible, be identical with
that of other employees.
EMPLOYEE CONSULTATION
The group places considerable value on the involvement of its employees
and continues its practice of keeping them informed on matters affecting them
as employees and on the various factors affecting the performance of the group.
This is achieved through regular formal and informal meetings.
CHARITABLE CONTRIBUTIONS
The group contributed (pounds sterling)25,286 to charities during the
year.
POLICY FOR PAYMENT OF CREDITORS
Whenever possible the group agrees terms of payment with individual
suppliers at the point of first placing orders with the supplier. Significant
amendments to established terms are discussed with suppliers before the
amendments take place. The group always endeavours to abide by agreed terms.
The amount for trade creditors shown at the balance sheet as at the end of
the financial year represents 90 days (1997 -- 58 days) of average daily
purchases for the group.
YEAR 2000
The directors are aware of the business problems associated with the Year
2000 and are taking steps to identify all compliance pitfalls and to mitigate
their impact on the group's future operations by 31st December 1999.
The cost of achieving Year 2000 compliance will be written off directly to
the profit and loss accounts, to the extent that the expenditure does not
represent an improvement to existing assets, and this amount is not expected to
be significant.
F-49
<PAGE>
APOLLO LEISURE GROUP PLC.
DIRECTORS' REPORT
FOR THE YEAR ENDED 28TH NOVEMBER 1998 -- (CONTINUED)
DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare financial statements for
each financial year which give a true and fair view of the state of the affairs
of the company and group and of the profit or loss of the group for that year.
In preparing those financial statements, the directors are required to:
Select suitable accounting policies and then apply them consistently;
Make judgements and estimates that are reasonable and prudent;
State whether applicable accounting standards have been followed, subject
to any material departures disclosed and explained in the financial
statements;
Prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the group will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
group and to enable them to ensure that the financial statements comply with
the Companies Act 1985. They are also responsible for safeguarding the assets
of the group and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
AUDITORS
Smith Partnership and Deloitte & Touche have indicated that they are
willing to continue in office as joint auditors and a resolution proposing
their re-appointment will be submitted at the forthcoming Annual General
Meeting.
This report was approved by the board on 27th July 1999 and signed on its
behalf.
/s/ D.C. Rogers F.C.A.
D.C. Rogers F.C.A.,
Secretary.
F-50
<PAGE>
AUDITOR'S REPORT TO THE SHAREHOLDERS OF
APOLLO LEISURE GROUP PLC.
We have audited the financial statements on pages F-52 to F-74 which have
been prepared under the historical cost convention (as modified by the
revaluation of certain fixed assets) and the accounting policies as set out on
pages F-57 to F-59.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page F-50, the company's directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those financial statements and to
report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements.
It also includes an assessment of the significant estimates and judgements made
by the directors in the preparation of the financial statements, and of whether
the accounting policies are appropriate to the company's and the group's
circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the
state of the affairs of the company and the group as at 28th November 1998 and
of the group's profit for the year then ended and have been properly prepared
in accordance with the Companies Act 1985.
<TABLE>
<S> <C>
/s/ Smith Partnership /s/ Deloitte & Touche
SMITH PARTNERSHIP DELOITTE & TOUCHE
CHARTERED ACCOUNTANTS CHARTERED ACCOUNTANTS
& REGISTERED AUDITORS & REGISTERED AUDITORS
3 Ralli Courts, Columbia Centre,
West Riverside, Market Street, Bracknell,
Manchester, M3 5FT. Berkshire, RG12 1PA.
Date: 27th July 1999 Date: 27th July 1999
</TABLE>
F-51
<PAGE>
APOLLO LEISURE GROUP PLC.
GROUP PROFIT AND LOSS ACCOUNTS
FOR THE YEARS ENDED 28TH NOVEMBER 1998 AND 29TH NOVEMBER 1997
<TABLE>
<CAPTION>
1998 1997
NOTES (pounds sterling) (pounds sterling)
------------- -------------------- -------------------
<S> <C> <C> <C>
Turnover ................................................ 2 79,342,933 95,038,447
Cost of sales ........................................... 46,059,026 60,237,589
---------- ----------
GROSS PROFIT ............................................ 33,283,907 34,800,858
Administrative expenses ................................. 29,206,604 28,957,865
---------- ----------
4,077,303 5,842,993
Other operating income .................................. 3 926,352 800,032
---------- ----------
GROUP OPERATING PROFIT .................................. 4 5,003,655 6,643,025
Group Share of profit of associated undertaking ......... 12(ii) 742,282 432,018
Profit/(loss) on sale of properties ..................... 482,846 (60,351)
---------- ----------
PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST ........... 6,228,783 7,014,692
Interest receivable ..................................... 288,607 454,958
Interest payable and similar charges .................... 7 (2,368,426) (2,337,742)
---------- ----------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION ........... 2 4,148,964 5,131,908
Tax on profit on ordinary activities .................... 8 (1,936,105) (2,340,770)
---------- ----------
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION ............ 2,212,859 2,791,138
Equity minority interests ............................... (248,410) (340,528)
---------- ----------
PROFIT FOR THE FINANCIAL YEAR ........................... 1,964,449 2,450,610
Dividends paid .......................................... 9 (2,000,000) (800,000)
---------- ----------
RETAINED (LOSS)/PROFIT FOR THE FINANCIAL YEAR ........... 22 (35,551) 1,650,610
========== ==========
</TABLE>
The notes on pages F-57 to F-74 form part of these financial statements
F-52
<PAGE>
APOLLO LEISURE GROUP PLC.
GROUP STATEMENTS OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEARS ENDED 28TH NOVEMBER 1998 AND 29TH NOVEMBER 1997
<TABLE>
<CAPTION>
1998 1997
(pounds sterling) (pounds sterling)
-------------------- ---------------------
<S> <C> <C>
Profit for the financial year ................................................ 1,964,449 2,450,610
Deficit on revaluation in the year ........................................... (31,419) --
Currency translation differences on foreign currency net investments ......... 13,354 (217,091)
--------- ---------
TOTAL GAINS & LOSSES RECOGNISED SINCE LAST ANNUAL REPORT ..................... 1,964,384 2,233,519
========= =========
NOTE OF HISTORICAL COST PROFITS FOR THE YEAR ENDED 28TH NOVEMBER 1998
1998 1997
(pounds sterling) (pounds sterling)
------------------ -------------------
Reported profit on ordinary activities before taxation ....................... 4,148,964 5,131,908
Difference between historical cost profit on disposal of freehold property
and the loss on disposal calculated on the revalued amount .................. -- 584,046
Difference between historical cost depreciation charge and the actual
depreciation charge of the year calculated on the revalued amount ........... 219,436 230,914
---------- ----------
HISTORICAL COST PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION ................ 4,368,400 5,946,868
========== ==========
HISTORICAL COST PROFIT FOR THE YEAR RETAINED AFTER TAXATION, MINORITY
INTERESTS AND DIVIDENDS ..................................................... 183,885 2,465,570
========== ==========
</TABLE>
The notes on pages F-57 to F-74 form part of these financial statements
F-53
<PAGE>
APOLLO LEISURE GROUP PLC.
GROUP BALANCE SHEETS AS AT 28TH NOVEMBER 1998 AND 29TH NOVEMBER 1997
<TABLE>
<CAPTION>
1998
-----------------------------------------
NOTES (pounds sterling) (pounds sterling)
------- -------------------- --------------------
<S> <C> <C> <C>
FIXED ASSETS
Tangible assets .................................... 11 78,269,924
Investments ........................................ 12 1,816,912
80,086,836
CURRENT ASSETS
Stocks ............................................. 13 669,853
Debtors ............................................ 14 12,125,510
Investments ........................................ 15 907,631
Cash at bank & in hand ............................. 15,285,346
----------
28,988,340
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR ..... 16 52,078,471
----------
NET CURRENT LIABILITIES ............................ (23,090,131)
TOTAL ASSETS LESS CURRENT LIABILITIES .............. 56,996,705
-----------
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN
ONE YEAR .......................................... 17 25,942,693
PROVISIONS FOR LIABILITIES AND CHARGES
Deferred taxation .................................. 19 2,249,371
Grants received .................................... 20 1,122,895
-----------
NET ASSETS ......................................... 2 27,681,746
===========
CAPITAL AND RESERVES
Called up share capital ............................ 21 3,000,000
Revaluation reserve ................................ 23 8,592,671
Other reserves ..................................... 23 1,671,445
Profit & loss account .............................. 23 12,928,021
-----------
EQUITY SHAREHOLDERS' FUNDS ......................... 22 26,192,137
MINORITY INTERESTS -- EQUITY ....................... 161,020
- -- NON-EQUITY ...................................... 24 1,328,589
-----------
27,681,746
===========
<CAPTION>
1997
----------------------------------------
(pounds sterling) (pounds sterling)
-------------------- -------------------
<S> <C> <C>
FIXED ASSETS
Tangible assets .................................... 75,196,006
Investments ........................................ 1,522,293
76,718,299
CURRENT ASSETS
Stocks ............................................. 685,632
Debtors ............................................ 8,748,367
Investments ........................................ 1,292,851
Cash at bank & in hand ............................. 13,142,355
----------
23,869,205
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR ..... 42,729,915
----------
NET CURRENT LIABILITIES ............................ (18,860,710)
TOTAL ASSETS LESS CURRENT LIABILITIES .............. 57,857,589
-----------
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN
ONE YEAR .......................................... 26,591,821
PROVISIONS FOR LIABILITIES AND CHARGES
Deferred taxation .................................. 1,728,103
Grants received .................................... 1,427,932
-----------
NET ASSETS ......................................... 28,109,733
===========
CAPITAL AND RESERVES
Called up share capital ............................ 3,000,000
Revaluation reserve ................................ 8,839,957
Other reserves ..................................... 1,747,026
Profit & loss account .............................. 12,879,767
-----------
EQUITY SHAREHOLDERS' FUNDS ......................... 26,466,750
MINORITY INTERESTS -- EQUITY ....................... 37,240
- -- NON-EQUITY ...................................... 1,605,743
-----------
28,109,733
===========
</TABLE>
These financial statements were approved by the board on 27th July 1999.
/s/ P.R. Gregg /s/ D.C. Rogers F.C.A.
P.R. Gregg D.C. Rogers F.C.A.
Director Director
The notes on pages F-57 to F-74 form part of these financial statements
F-54
<PAGE>
APOLLO LEISURE GROUP PLC.
COMPANY BALANCE SHEETS AS AT 28TH NOVEMBER 1998 AND 29TH NOVEMBER 1997
<TABLE>
<CAPTION>
1998
-----------------------------------------
NOTES (pounds sterling) (pounds sterling)
------- -------------------- --------------------
<S> <C> <C> <C>
FIXED ASSETS
Investments ................................... 12 28,029,809
CURRENT ASSETS
Debtors ....................................... 14 1,000
Cash at bank & in hand ........................ 73
---------
1,073
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR. 16 1,598,051
---------
NET CURRENT LIABILITIES ....................... (1,596,978)
----------
TOTAL ASSETS LESS CURRENT LIABILITIES ......... 26,432,831
==========
CAPITAL AND RESERVES
Called up share capital ....................... 21 3,000,000
Revaluation reserve ........................... 23 23,340,005
Profit & loss account ......................... 23 92,826
----------
EQUITY SHAREHOLDERS' FUNDS .................... 26,432,831
==========
<CAPTION>
1997
----------------------------------------
(pounds sterling) (pounds sterling)
-------------------- -------------------
<S> <C> <C>
FIXED ASSETS
Investments ................................... 28,981,415
CURRENT ASSETS
Debtors ....................................... 1,000
Cash at bank & in hand ........................ 73
-----
1,073
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR. 2,000,051
---------
NET CURRENT LIABILITIES ....................... (1,998,978)
----------
TOTAL ASSETS LESS CURRENT LIABILITIES ......... 26,982,437
==========
CAPITAL AND RESERVES
Called up share capital ....................... 3,000,000
Revaluation reserve ........................... 23,951,040
Profit & loss account ......................... 31,397
----------
EQUITY SHAREHOLDERS' FUNDS .................... 26,982,437
==========
</TABLE>
These financial statements were approved by the board on 27th July 1999.
/s/ P.R. Gregg /s/ D.C. Rogers F.C.A.
P.R. Gregg D.C. Rogers F.C.A.
Director Director
The notes on pages F-57 to F-74 form part of these financial statements
F-55
<PAGE>
APOLLO LEISURE GROUP PLC.
GROUP CASH FLOW STATEMENTS
FOR THE YEARS ENDED 28TH NOVEMBER 1998 AND 29TH NOVEMBER 1997
<TABLE>
<CAPTION>
1998
-----------------------------------------
NOTES (pounds sterling) (pounds sterling)
------- -------------------- --------------------
<S> <C> <C> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES .......... 25 14,642,249
RETURNS ON INVESTMENTS & SERVICING OF FINANCE....... 26 (1,918,414)
TAXATION ........................................... (1,664,312)
CAPITAL EXPENDITURE & FINANCIAL INVESTMENT ......... 26 (6,776,992)
ACQUISITIONS ....................................... 26 (421,155)
EQUITY DIVIDENDS PAID .............................. (2,000,000)
-----------
NET CASH INFLOW BEFORE USE OF LIQUID RESOURCES
& FINANCING ....................................... 1,861,376
MANAGEMENT OF LIQUID RESOURCES ..................... 27 1,423,542
FINANCING
Loans and finance leases ........................... 28 (110,773)
Grants received .................................... 255,635
--------
NET CASH INFLOW FROM FINANCING ..................... 144,862
-----------
INCREASE/DECREASE IN CASH .......................... 29 3,429,780
===========
1998
(pounds sterling)
------------------
RECONCILIATION OF NET CASH FLOW
MOVEMENT TO MOVEMENT IN NET DEBT
Increase/Decrease in cash in the year .............. 3,429,780
Cash inflow/outflow from movement in debt and
lease financing ................................... 110,773
Cash inflow from management of liquid
resources ......................................... (1,423,542)
-------------
Decrease/Increase in net debt resulting from
cash flows ........................................ 2,117,011
Increase in net debt resulting from the
Acquisition of subsidiary undertakings ............ --
Movements in unlisted investments .................. 59,533
New finance leases ................................. (250,000)
Exchange difference ................................ (39,803)
-------------
Movement in net debt for the year .................. 1,886,741
Net debt at beginning of the year .................. (15,488,944)
-------------
Net debt at the end of the year .................... 30 (13,602,203)
=============
<CAPTION>
1997
------------------------------------------
(pounds sterling) (pounds sterling)
-------------------- ---------------------
<S> <C> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES .......... 7,208,880
RETURNS ON INVESTMENTS & SERVICING OF FINANCE....... (1,950,105)
TAXATION ........................................... (1,606,285)
CAPITAL EXPENDITURE & FINANCIAL INVESTMENT ......... (8,399,303)
ACQUISITIONS ....................................... (178,645)
EQUITY DIVIDENDS PAID .............................. (800,000)
------------
NET CASH INFLOW BEFORE USE OF LIQUID RESOURCES
& FINANCING ....................................... 5,725,458
MANAGEMENT OF LIQUID RESOURCES ..................... 2,877,436
FINANCING
Loans and finance leases ........................... 1,815,352
Grants received .................................... 367,025
---------
NET CASH INFLOW FROM FINANCING ..................... 2,182,377
------------
INCREASE/DECREASE IN CASH .......................... (665,645)
============
1997
(pounds sterling)
-------------------
RECONCILIATION OF NET CASH FLOW
MOVEMENT TO MOVEMENT IN NET DEBT
Increase/Decrease in cash in the year .............. (665,645)
Cash inflow/outflow from movement in debt and
lease financing ................................... (1,815,352)
Cash inflow from management of liquid
resources ......................................... (2,877,436)
--------------
Decrease/Increase in net debt resulting from
cash flows ........................................ (5,358,433)
Increase in net debt resulting from the
Acquisition of subsidiary undertakings ............ (8,016)
Movements in unlisted investments .................. 92,147
New finance leases ................................. (240,504)
Exchange difference ................................ 93,785
--------------
Movement in net debt for the year .................. (5,421,021)
Net debt at beginning of the year .................. (10,067,923)
--------------
Net debt at the end of the year .................... (15,488,944)
==============
</TABLE>
The notes on pages F-57 to F-74 from part of these financial statements
F-56
<PAGE>
APOLLO LEISURE GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 28TH NOVEMBER 1998
1. ACCOUNTING POLICIES
Accounting Convention
The financial statements have been prepared under the historical cost
convention modified to include the revaluation of freehold and long leasehold
land and buildings and investments in subsidiary and associated companies. The
financial statements have been prepared in accordance with applicable
accounting standards.
Basis of Preparation
The group financial statements consolidate those of the company and all
its subsidiaries made up to 28th November 1998.
The financial statements are prepared for the 52 or 53 week period
("year") ending on the Saturday nearest to 30th November.
Goodwill
Goodwill arising on consolidation and purchased goodwill is written off to
reserves.
Tangible Fixed Assets
Depreciation is calculated to write off the cost or valuation less the
estimated realisable value of tangible fixed assets over their estimated useful
lives. The rates are calculated on a straight line basis as follows:
<TABLE>
<S> <C>
Freehold and long leasehold property ......... mainly over 50 years
Short leasehold property ..................... over the term of the lease
Fixtures and fittings ........................ 3 to 10 years
Computer equipment ........................... 3 to 5 years
Motor vehicles ............................... 3 to 7 years
</TABLE>
No depreciation is charged on assets under construction.
Investments
Fixed asset investments are included at valuation. Provision is made for
any permanent diminution in value.
Current asset investments are included at the lower of cost and net
realisable value.
Interests in Associated Undertakings
The associated undertaking is an entity in which a consolidated member of
the group has a participating interest and over whose operating and financial
policies it exercises a significant influence. This investment is accounted for
by the net equity method of accounting, whereby the consolidated profit and
loss account includes the appropriate share of this company's profits less
losses (based on audited financial statements made up to the 28th November
1998) and the group's share of post acquisition retained profits and reserves
is added to the cost of investment in the consolidated balance sheet.
Turnover
Turnover represents the total amount receivable by the group for goods
sold and services provided net of V.A.T. Inter-group transactions are
eliminated on consolidation.
F-57
<PAGE>
APOLLO LEISURE GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 28TH NOVEMBER 1998 -- (CONTINUED)
1. ACCOUNTING POLICIES (CONTINUED)
Stocks
Stocks have been valued at the lower of actual cost and net realisable
value.
Deferred Taxation
Provision is made at current rates for taxation deferred in respect of all
material timing differences, except to the extent that in the opinion of the
directors, there is reasonable probability that the liability will not arise in
the foreseeable future.
Leasing and Rental Transactions
Assets held under leasing arrangements that transfer substantially all the
risks and rewards of ownership to the company are capitalised. The capital
element of the related rental obligations is included in creditors. The
interest element of the rental obligations is charged to the profit and loss
account so as to produce a constant periodic rate of charge.
Operating lease and rental transactions are charged to profit and loss
account in the period to which they relate.
Pension Benefits
Pension benefits are funded through defined contribution schemes over the
employees' periods of service. The group's contributions are charged to the
profit and loss account as incurred.
The group also operates a defined benefit scheme for certain of its
employees. The expected costs of providing these pensions, as calculated
periodically by professionally qualified actuaries, is charged to the profit
and loss account so as to spread the cost over the service lives of employees
in the scheme operated within the group in such a way that the pension cost is
a substantially level percentage of current and expected future pensionable
payroll.
Grants
Grants in respect of capital expenditure are credited to a deferred income
account and are released to the profit and loss account by equal annual
instalments over the expected useful life of the relevant assets.
Grants of a revenue nature are credited to the profit and loss account in
the same period as the related expenditure.
Foreign Currencies
Revenues and costs denominated in foreign currencies are recorded at the
rates of exchange ruling at the dates of the transactions; monetary assets and
liabilities at the balance sheet date are translated at year end rates of
exchange. Exchange differences thus arising are reported as part of the profit
for the year.
For the purposes of consolidation, the closing rate method is used under
which translation losses or gains are shown as a movement on reserves. Profit
and loss financial statements of overseas subsidiaries are translated at the
average exchange rate.
Show Productions
Expenditure on show productions is carried forward to be recovered over
the foreseeable life of the show, provided there is reasonable certainty as to
the show's profitability.
F-58
<PAGE>
APOLLO LEISURE GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 28TH NOVEMBER 1998 -- (CONTINUED)
Capitalisation of Interest
Interest costs relating to the financing of major properties in the course
of construction for trading occupation by the group are capitalised.
2. SEGMENT INFORMATION
Contributions to group turnover and profit on ordinary activities before
taxation were as follows:
<TABLE>
<CAPTION>
TURNOVER
-----------------------------------------
1998 1997
(pounds sterling) (pounds sterling)
-------------------- --------------------
<S> <C> <C>
Theatre services ............................. 52,662,891 71,480,258
Licensed premises (including Hotels) ......... 2,969,428 4,535,459
Bingo ........................................ 2,596,391 2,800,202
Cinemas ...................................... 8,260,666 7,544,144
Health and fitness centres ................... 12,853,557 8,678,384
---------- ----------
79,342,933 95,038,447
========== ==========
<CAPTION>
PROFIT BEFORE
TAXATION
----------------------------------------
1998 1997
(pounds sterling) (pounds sterling)
-------------------- -------------------
<S> <C> <C>
Theatre services ............................. 1,002,841 2,826,049
Licensed premises (including Hotels) ......... 104,714 235,488
Bingo ........................................ 751,000 636,014
Cinemas ...................................... 1,490,373 1,265,536
Health and fitness centres ................... 800,036 168,821
--------- ---------
4,148,964 5,131,908
========= =========
</TABLE>
The appropriate net assets relating to the above segments were as follows:
<TABLE>
<CAPTION>
1998 1997
(pounds sterling) (pounds sterling)
-------------------- -------------------
<S> <C> <C>
Theatre services ............................. 10,724,932 14,106,206
Licensed premises (including Hotels) ......... 1,701,711 1,739,872
Bingo ........................................ 4,572,777 3,400,191
Cinemas ...................................... 9,753,888 8,223,066
Health and fitness centres ................... 928,438 640,398
---------- ----------
27,681,746 28,109,733
========== ==========
</TABLE>
All amounts derive from activities in the United Kingdom and the Republic
of Ireland.
3. OTHER OPERATING INCOME
<TABLE>
<CAPTION>
1998 1997
(pounds sterling) (pounds sterling)
-------------------- -------------------
<S> <C> <C>
This comprises:
Rent receivable ............................ 674,022 566,527
Other income ............................... 87,004 153,577
Profit on disposal of investments .......... 165,326 --
Profit on disposal of fixed assets ......... -- 79,928
------- -------
926,352 800,032
======= =======
</TABLE>
F-59
<PAGE>
APOLLO LEISURE GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 28TH NOVEMBER 1998 -- (CONTINUED)
4. GROUP OPERATING PROFIT
<TABLE>
<CAPTION>
1998 1997
(pounds sterling) (pounds sterling)
-------------------- -------------------
<S> <C> <C>
The operating profit is stated after
charging/(crediting):
Directors' emoluments ............................... 2,108,617 2,212,423
Other staff costs ................................... 26,231,075 17,448,421
Auditors' remuneration: Audit ....................... 130,887 120,067
Other services ...................................... 16,635 35,000
Hire of plant & machinery ........................... 911,081 843,162
Other operating lease rentals ....................... 361,738 177,518
Depreciation of tangible fixed assets ............... 4,524,980 4,246,524
Profit on disposal of tangible fixed assets ......... (34,117) (76,412)
---------- ----------
(Profit)/Loss on disposal of investments ............ (86,188) 140,887
========== ==========
</TABLE>
The audit fee for the company for both years has been borne by other group
companies.
5. DIRECTORS' EMOLUMENTS
<TABLE>
<CAPTION>
1998 1997
(pounds sterling) (pounds sterling)
-------------------- -------------------
<S> <C> <C>
Salaries ............................. 1,663,384 1,620,333
Benefits in kind ..................... 295,233 434,912
Pension scheme contributions ......... 150,000 157,178
--------- ---------
2,108,617 2,212,423
========= =========
</TABLE>
Retirement benefits were accruing to directors under schemes as follows:
<TABLE>
<CAPTION>
NO. 4 NO. 4
(pounds sterling) (pounds sterling)
Defined Contribution Schemes -------------------- -------------------
<S> <C> <C>
Directors' emoluments disclosed above include
amounts paid to the highest paid director as
follows:
Emoluments ............................................. 762,555 785,714
Contributions to a defined contribution scheme ......... 75,000 62,871
------- -------
837,555 848,585
======= =======
</TABLE>
6. STAFF COSTS
<TABLE>
<CAPTION>
1998 1997
(pounds sterling) (pounds sterling)
-------------------- -------------------
<S> <C> <C>
Salaries ...................... 25,951,459 17,518,429
Social security costs ......... 1,896,112 1,660,227
Pension costs ................. 492,121 482,188
---------- ----------
28,339,692 19,660,844
========== ==========
</TABLE>
F-60
<PAGE>
APOLLO LEISURE GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 28TH NOVEMBER 1998 -- (CONTINUED)
6. STAFF COSTS (CONTINUED)
The average monthly number of employees, including directors, during the
year was:
<TABLE>
<CAPTION>
1998 1997
NO. NO.
------- --------
<S> <C> <C>
Theatre services ............................ 1,578 1,916
Licensed premises, including hotels ......... 126 227
Bingo & cinemas ............................. 433 464
Health & fitness centres .................... 659 498
----- -----
2,796 3,105
===== =====
</TABLE>
7. INTEREST PAYABLE
<TABLE>
<CAPTION>
1998 1997
(pounds sterling) (pounds sterling)
-------------------- -------------------
<S> <C> <C>
On bank loans and overdrafts ......... 2,323,933 2,301,403
On hire purchase loans ............... 44,493 36,339
--------- ---------
2,368,426 2,337,742
========= =========
</TABLE>
All loans are repayable by instalments.
8. TAX ON PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1998 1997
(pounds sterling) (pounds sterling)
-------------------- -------------------
<S> <C> <C>
U.K. Corporation Tax at 31% (1997 -- 32%) ................ 1,315,503 1,598,928
Taxation on share of profit of associated undertaking..... 294,793 132,333
Deferred taxation ........................................ 517,069 532,595
--------- ---------
2,127,365 2,263,856
Adjustments relating to prior years:
Corporation tax ......................................... (191,260) 10,247
Taxation on share of profit of associated
undertaking ............................................ -- 66,667
--------- ---------
1,936,105 2,340,770
========= =========
</TABLE>
The taxation charge for the year is distorted due to the level of
depreciation charged on assets not eligible for capital allowances.
9. DIVIDENDS
<TABLE>
<CAPTION>
1998 1997
(pounds sterling) (pounds sterling)
-------------------- -------------------
<S> <C> <C>
Interim dividends paid on equity ordinary shares
(pounds sterling)0.67 per share (1997 -- (pounds sterling)0.49) .. 2,000,000 800,000
========= =======
</TABLE>
In 1997 certain shareholders' waived their entitlement to an interim
dividend.
F-61
<PAGE>
APOLLO LEISURE GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 28TH NOVEMBER 1998 -- (CONTINUED)
10. PROFIT OF THE PARENT COMPANY
The amount of the group profit attributable to Apollo Leisure Group plc.
which has been accounted for within its own financial statements is (pounds
sterling)2,061,429 (1997 -- (pounds sterling)798,334). The company is exempt
from presenting its own profit and loss account in accordance with Section 230
Companies Act 1985.
11. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
LONG SHORT
FREEHOLD LEASEHOLD LEASEHOLD
PROPERTY PROPERTIES PROPERTIES
-------------------- -------------------- --------------------
COST/VALUATION (pounds sterling) (pounds sterling) (pounds sterling)
<S> <C> <C> <C>
At 30th November 1997 .......... 40,050,075 20,323,840 5,231,717
Additions ...................... 34,410 (25,696) (10,892)
Disposals ...................... (216,627) -- --
Exchange Adjustment ............ 62,650 -- --
Reclassifications .............. 4,156,036 (25,622) 1,309,672
---------- ---------- ---------
AT 28TH NOVEMBER 1998 .......... 44,086,544 20,272,522 6,530,497
========== ========== =========
Comprising:
At Cost ........................ 17,119,704 15,620,022 6,095,497
At Valuation: 01.12.90 ......... 8,633,000 -- 435,000
30.11.91 .................. 13,370,996 -- --
27.05.92 .................. -- 4,652,500 --
27.11.93 .................. 4,962,844 -- --
---------- ---------- ---------
44,086,544 20,272,522 6,530,497
========== ========== =========
DEPRECIATION
At 30th November 1997 .......... 5,292,492 931,239 1,546,276
Charge ......................... 874,343 479,211 440,402
Disposals ...................... (44,463) -- --
Exchange Adjustment ............ 8,155 -- --
Reclassifications .............. 43,850 -- (15,082)
---------- ---------- ---------
AT 28TH NOVEMBER 1998 .......... 6,174,377 1,410,450 1,971,596
========== ========== =========
NET BOOK VALUE
At 29th November 1997 .......... 34,757,583 19,392,601 3,685,441
========== ========== =========
AT 28TH NOVEMBER 1998 .......... 37,912,167 18,862,072 4,558,901
========== ========== =========
<CAPTION>
FIXTURES,
FITTINGS ASSETS
& MOTOR UNDER
EQUIPMENT VEHICLES CONSTRUCTION TOTAL
-------------------- -------------------- -------------------- -------------------
COST/VALUATION (pounds sterling) (pounds sterling) (pounds sterling) (pounds sterling)
<S> <C> <C> <C> <C>
At 30th November 1997 .......... 23,552,602 915,029 6,025,390 96,098,653
Additions ...................... 2,822,579 320,262 4,643,496 7,784,159
Disposals ...................... (337,924) (244,714) -- (799,265)
Exchange Adjustment ............ 25,252 366 -- 88,268
Reclassifications .............. 2,576,147 -- (8,016,233) --
---------- -------- ---------- ----------
AT 28TH NOVEMBER 1998 .......... 28,638,656 990,943 2,652,653 103,171,815
========== ======== ========== ===========
Comprising:
At Cost ........................ 28,638,656 990,943 2,652,653 71,117,475
At Valuation: 01.12.90 ......... -- -- -- 9,068,000
30.11.91 .................. -- -- -- 13,370,996
27.05.92 .................. -- -- -- 4,652,500
27.11.93 .................. -- -- -- 4,962,844
---------- -------- ---------- -----------
28,638,656 990,943 2,652,653 103,171,815
========== ======== ========== ===========
DEPRECIATION
At 30th November 1997 .......... 12,563,494 569,146 -- 20,902,647
Charge ......................... 2,476,204 254,820 -- 4,524,980
Disposals ...................... (337,851) (176,747) -- (559,061)
Exchange Adjustment ............ 24,812 358 -- 33,325
Reclassifications .............. (28,768) -- -- --
---------- -------- ---------- -----------
AT 28TH NOVEMBER 1998 .......... 14,697,891 647,577 -- 24,901,891
========== ======== ========== ===========
NET BOOK VALUE
At 29th November 1997 .......... 10,989,108 345,883 6,025,390 75,196,006
========== ======== ========== ===========
AT 28TH NOVEMBER 1998 .......... 13,940,765 343,366 2,652,653 78,269,924
========== ======== ========== ===========
</TABLE>
The total net book value includes (pounds sterling)314,747 (1997 --
(pounds sterling)416,749) in respect of assets held under hire purchase and
finance lease agreements.
The depreciation charge for the year on these assets amounted to (pounds
sterling)131,643 (1997 -- (pounds sterling)167,024).
The cumulative amount of capitalised interest included in the net book
value of fixed assets is (pounds sterling)678,185 (1997 -- (pounds
sterling)693,110). This relates to the interest capitalised during the
construction of the Lyceum Theatre.
F-62
<PAGE>
APOLLO LEISURE GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 28TH NOVEMBER 1998 -- (CONTINUED)
11. TANGIBLE FIXED ASSETS (CONTINUED)
On an historical cost basis, freehold and leasehold properties would have
been included at:
<TABLE>
<CAPTION>
1998 1997
(pounds sterling) (pounds sterling)
-------------------- -------------------
<S> <C> <C>
Cost ............................. 59,368,026 54,064,920
Accumulated depreciation ......... (8,354,358) (6,805,610)
---------- ----------
Net Book Value ................... 51,013,668 47,259,310
========== ==========
</TABLE>
12. FIXED ASSET INVESTMENTS
<TABLE>
<CAPTION>
GROUP COMPANY
----------------------------------------- ----------------------------------------
1998 1997 1998 1997
(pounds sterling) (pounds sterling) (pounds sterling) (pounds sterling)
-------------------- -------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Subsidiaries (see i) ............... -- -- 28,029,809 28,981,415
Other investments (see ii) ......... 1,816,912 1,522,293 -- --
--------- --------- ---------- ----------
1,816,912 1,522,293 28,029,809 28,981,415
========= ========= ========== ==========
</TABLE>
(i) INVESTMENTS IN SUBSIDIARIES
<TABLE>
<CAPTION>
1998 1997
(pounds sterling) (pounds sterling)
-------------------- -------------------
<S> <C> <C>
At beginning of year ...................... 28,981,415 32,644,385
Revaluation of investment in Apollo Leisure
(U.K.) Limited & Point Exhibition Company
Limited .................................. (549,606) (3,662,970)
Return of investment in Point Exhibition
Company Limited .......................... (402,000) --
---------- ----------
At end of year ............................ 28,029,809 28,981,415
========== ==========
</TABLE>
The investments in Apollo Leisure (U.K.) Limited and Point Exhibition
Company Limited have been revalued based on underlying net asset value at 28th
November 1998 of (pounds sterling)28,029,809 (1997 -- (pounds
sterling)28,981,361). The historic cost of the investments is (pounds
sterling)1,739,804 (1997 -- (pounds sterling)2,080,175).
The following are the company's principal subsidiaries:
<TABLE>
<CAPTION>
% OF
SHARES CAPITAL & PROFIT
COMPANY NATURE OF BUSINESS HELD RESERVES FOR YEAR
- ---------------------------------- ------------------------------- -------- -------------------- -------------------
(pounds sterling) (pounds sterling)
<S> <C> <C> <C> <C>
Apollo Leisure (U.K.) Ltd. Theatre Hire, Theatrical 100 26,486,258 (262,964)
and its trading subsidiaries Show Production, Sports
& Fitness Management,
Ticket Sales Agencies, Hotels,
Cinemas and Bingo Halls
Barry Clayman Concerts Ltd. Theatrical Show Production 50 (1,281,994) 205,568
and its trading subsidiaries
Point Exhibition Company Ltd. Theatre Hire 50 3,203,574 249,259
========== ========
</TABLE>
F-63
<PAGE>
APOLLO LEISURE GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 28TH NOVEMBER 1998 -- (CONTINUED)
12. FIXED ASSET INVESTMENTS (CONTINUED)
All shares held are ordinary equity shares. The percentage of shares held
also reflects the proportion of voting rights held.
The Point Exhibition Company Limited is incorporated in and operates in
the Republic of Ireland. All other companies were incorporated in and operate
wholly within the United Kingdom.
All subsidiary companies of Apollo Leisure (U.K.) Limited are wholly owned
with the exception of Tickets London Limited, where 66.67% of the equity is
held and CCL Leisure Limited (formerly City Centre Leisure (Holdings) Limited)
where 50.1% of the equity is held.
All subsidiary undertakings have been included in the consolidation.
Acquisitions
In accordance with the Shareholders' Agreement for the acquisition of the
issued share capital of CCL Leisure Limited in 1997 an estimated further
consideration of (pounds sterling)3,183,001 (1997 -- (pounds
sterling)3,112,000) is provided for at the balance sheet date.
This has been revised to reflect the directors' best estimate of the total
amount payable, and payments made during the year.
(ii) OTHER INVESTMENTS
<TABLE>
<CAPTION>
GROUP
------------------------------------------
1998 1997
(pounds sterling) (pounds sterling)
-------------------- -------------------
<S> <C> <C>
Nederlander Dominion Limited ......... 1,816,912 1,522,293
========= =========
</TABLE>
INVESTMENT IN NEDERLANDER DOMINION LIMITED
<TABLE>
<CAPTION>
SHARE OF INTEREST IN
ASSOCIATED TENANCY
UNDERTAKING IN COMMON TOTAL
-------------------- -------------------- -------------------
(pounds sterling) (pounds sterling) (pounds sterling)
<S> <C> <C> <C>
VALUATION
At 29th November 1997 ..................................... 532,825 989,468 1,522,293
Capital introduced ........................................ -- 50,000 50,000
Distribution received ..................................... (250,000) (83,362) (333,362)
Share of operating profits/rental income .................. 742,282 130,492 872,774
Share of taxation charge (See Note 8) ..................... (294,793) -- (294,793)
-------- ------- ---------
AT 28TH NOVEMBER 1998 ..................................... 730,314 1,086,598 1,816,912
======== ========= =========
COST AT 29TH NOVEMBER 1997 AND 28TH NOVEMBER 1998 ......... 127,900 638,582 766,482
======== ========= =========
</TABLE>
(a) As at 28th November 1998, the group owns 33.33% (1997 -- 33.33%) of
the issued share capital of its associated undertaking, Nederlander
Dominion Limited.
The group's share of the company's net assets is (pounds sterling)696,164.
During the year the group received a dividend of (pounds sterling)250,000
which has been credited to the value of the investment.
F-64
<PAGE>
APOLLO LEISURE GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 28TH NOVEMBER 1998 -- (CONTINUED)
12. FIXED ASSET INVESTMENTS (CONTINUED)
(b) As an integral part of the overall investment, the group holds a
33.33% interest in the tenancy in common of the Dominion Theatre,
London which is operated by Nederlander Dominion Limited.
The group's share of rental income is included within other operating
income.
During the year the group received a distribution of (pounds
sterling)83,362 which has been credited to the value of the investment.
13. STOCKS
<TABLE>
<CAPTION>
GROUP
------------------------------------------
1998 1997
(pounds sterling) (pounds sterling)
-------------------- -------------------
<S> <C> <C>
Consumables .............. 374,898 410,407
Goods for resale ......... 294,955 275,225
------- -------
669,853 685,632
======= =======
</TABLE>
The directors consider that the replacement cost of stock is not
materially different to the balance sheet value.
14. DEBTORS
<TABLE>
<CAPTION>
GROUP COMPANY
----------------------------------------- ----------------------------------------
1998 1997 1998 1997
(pounds sterling) (pounds sterling) (pounds sterling) (pounds sterling)
-------------------- -------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Trade debtors .......................... 6,321,595 6,116,142 -- --
Other debtors .......................... 1,432,692 920,988 1,000 1,000
Prepayments and accrued income ......... 4,371,223 1,711,237 -- --
--------- --------- ----- -----
12,125,510 8,748,367 1,000 1,000
========== ========= ===== =====
</TABLE>
Included within other debtors is an amount of (pounds sterling)282,906
(1997 -- (pounds sterling)Nil) which is repayable after more than one year.
15. CURRENT ASSET INVESTMENTS
<TABLE>
<CAPTION>
GROUP
------------------------------------------
1998 1997
(pounds sterling) (pounds sterling)
-------------------- -------------------
<S> <C> <C>
Listed at cost ............. 760,838 1,119,403
Unlisted at cost ........... 415,100 393,334
Provision for loss ......... (268,307) (219,886)
-------- ---------
907,631 1,292,851
======== =========
</TABLE>
The market value of the listed investments at 28th November 1998 was
(pounds sterling)655,274 (1997 -- (pounds sterling)1,076,064).
F-65
<PAGE>
APOLLO LEISURE GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 28TH NOVEMBER 1998 -- (CONTINUED)
16. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
GROUP
-----------------------------------------
1998 1997
(pounds sterling) (pounds sterling)
-------------------- --------------------
<S> <C> <C>
Bank and Mortgage Loans (Note 18) .......... 4,557,718 3,683,198
Bank overdrafts (Note 18) .................. 2,070,370 2,409,668
Hire purchase creditors (Note 18) .......... 222,708 201,463
Trade creditors ............................ 7,723,481 9,131,061
Amounts owed to subsidiaries ............... -- --
Corporation tax ............................ 915,305 1,458,811
Other taxation and social security ......... 2,857,339 3,647,303
Other creditors ............................ 25,585,783 19,107,082
Accruals and deferred income ............... 8,145,767 3,091,329
---------- ----------
52,078,471 42,729,915
========== ==========
<CAPTION>
COMPANY
----------------------------------------
1998 1997
(pounds sterling) (pounds sterling)
-------------------- -------------------
<S> <C> <C>
Bank and Mortgage Loans (Note 18) .......... -- --
Bank overdrafts (Note 18) .................. -- --
Hire purchase creditors (Note 18) .......... -- --
Trade creditors ............................ - --
Amounts owed to subsidiaries ............... 1,598,051 2,000,051
Corporation tax ............................ -- --
Other taxation and social security ......... -- --
Other creditors ............................ -- --
Accruals and deferred income ............... -- --
--------- ---------
1,598,051 2,000,051
========= =========
</TABLE>
Other creditors includes (pounds sterling)482,000 relating to deferred
consideration due on the acquisition of CCL Leisure Limited as referred to in
Note 12(i).
17. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
GROUP
------------------------------------------
1998 1997
(pounds sterling) (pounds sterling)
-------------------- -------------------
<S> <C> <C>
Bank and Mortgage Loans (Note 18) ......... 22,882,976 23,169,903
Hire purchase creditors (Note 18) ......... 61,408 94,953
Other creditors ........................... 2,998,309 3,326,965
---------- ----------
25,942,693 26,591,821
========== ==========
</TABLE>
Other creditors includes (pounds sterling)2,701,001 relating to deferred
consideration due on the acquisition of CCL Leisure Limited as referred to in
Note 12(i).
18. BORROWINGS
The bank overdrafts, loans and mortgage loans are secured by legal charges
over certain of the group's freehold and leasehold properties. The loans bear
interest at up to 1.25 percent above bank base rates.
The hire purchase creditors are secured by the related leased assets.
F-66
<PAGE>
APOLLO LEISURE GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 28TH NOVEMBER 1998 -- (CONTINUED)
18. BORROWINGS (CONTINUED)
The borrowings are repayable by instalments as follows:
<TABLE>
<CAPTION>
GROUP
------------------------------------------
1998 1997
(pounds sterling) (pounds sterling)
-------------------- -------------------
<S> <C> <C>
Within one year .................... 6,850,796 6,294,329
Between one and two years .......... 3,797,526 3,269,798
Between two and five years ......... 11,208,354 10,437,381
After five years ................... 7,938,504 9,557,677
---------- ----------
29,795,180 29,559,185
========== ==========
</TABLE>
Those bank and mortgage loans which are repayable in part after more than
five years are repayable by monthly instalments terminating in 2008.
The hire purchase creditors are all repayable within five years.
19. DEFERRED TAXATION
Provision has been made in these financial statements as follows:
Provisions calculated at 31% (1997 -- 32%)
<TABLE>
<CAPTION>
GROUP
------------------------------------------
1998 1997
(pounds sterling) (pounds sterling)
-------------------- -------------------
<S> <C> <C>
Accelerated capital allowances ......... 2,249,371 1,728,103
========= =========
At beginning of year ................... 1,728,103 1,238,645
Charged for the year ................... 517,069 532,595
Exchange difference .................... 4,199 (43,137)
--------- ---------
At end of year ......................... 2,249,371 1,728,103
========= =========
</TABLE>
No provision has been made for the potential Corporation Tax liability of
approximately (pounds sterling)1,620,000 (1997 -- (pounds sterling)2,335,000)
which would arise if land and buildings were sold at an amount equal to their
net book values. In the opinion of the directors, no provision is necessary.
There is no other unprovided deferred tax liability in the group or the
company.
20. GRANTS
<TABLE>
<CAPTION>
GROUP
------------------------------------------
1998 1997
(pounds sterling) (pounds sterling)
-------------------- -------------------
<S> <C> <C>
At beginning of year ......................... 1,427,932 1,172,484
Grants received for capital projects ......... 255,635 367,025
Release ...................................... (560,672) (111,577)
--------- ---------
At end of year ............................... 1,122,895 1,427,932
========= =========
</TABLE>
F-67
<PAGE>
APOLLO LEISURE GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 28TH NOVEMBER 1998 -- (CONTINUED)
21. CALLED UP SHARE CAPITAL
<TABLE>
<CAPTION>
GROUP & COMPANY
------------------------------------------
ALLOTTED
AUTHORISED & FULLY PAID
1998 & 1997 1998 & 1997
(pounds sterling) (pounds sterling)
-------------------- -------------------
<S> <C> <C>
Ordinary shares of (pounds sterling)1 each ......... 5,000,000 3,000,000
========= =========
</TABLE>
22. RECONCILIATION OF MOVEMENTS IN GROUP EQUITY SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1998 1997
(pounds sterling) (pounds sterling)
-------------------- -------------------
<S> <C> <C>
Profit for the financial year ...................................... 1,964,449 2,450,610
Dividend paid ...................................................... (2,000,000) (800,000)
---------- ---------
(35,551) 1,650,610
Goodwill written off ............................................... (220,997) (3,288,766)
Other recognised gains & losses relating to the year (net) ......... (18,065) (217,091)
---------- ----------
Net increase/(decrease) to shareholders' funds ..................... (274,613) (1,855,247)
Opening equity shareholders' funds ................................. 26,466,750 28,321,997
---------- ----------
Closing equity shareholders' funds ................................. 26,192,137 26,466,750
========== ==========
</TABLE>
23. RESERVES
Of the total reserves shown in the balance sheet, the following amounts
are considered distributable or otherwise:
<TABLE>
<CAPTION>
GROUP COMPANY
----------------------------------------- ----------------------------------------
1998 1997 1998 1997
(pounds sterling) (pounds sterling) (pounds sterling) (pounds sterling)
-------------------- -------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
DISTRIBUTABLE:
Profit & loss account ........................ 12,928,021 12,879,767 92,826 31,397
NON-DISTRIBUTABLE:
Revaluation reserve .......................... 8,592,671 8,839,957 23,340,005 23,951,040
Foreign currency translation reserve ......... (246,392) (275,920) -- --
Other reserves ............................... 1,917,837 2,022,946 -- --
---------- ---------- ---------- ----------
Total Reserves ............................... 23,192,137 23,466,750 23,432,831 23,982,437
========== ========== ========== ==========
</TABLE>
F-68
<PAGE>
APOLLO LEISURE GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 28TH NOVEMBER 1998 -- (CONTINUED)
23. RESERVES (CONTINUED)
Group
<TABLE>
<CAPTION>
PROFIT
& LOSS REVALUATION
ACCOUNT RESERVE
-------------------- --------------------
(pounds sterling) (pounds sterling)
<S> <C> <C>
At beginning of year ......................... 12,879,767 8,839,957
Retained loss for the financial year ......... (35,551) --
Goodwill written off ......................... (220,997) --
Transfer of realised profits ................. 324,545 (219,436)
Revaluations in the year ..................... -- (31,419)
Currency translation differences on
foreign currency net investments ............ (19,743) (5,988)
Minority interest ............................ -- 9,557
---------- ---------
At end of year ............................... 12,928,021 8,592,671
========== =========
<CAPTION>
FOREIGN
CURRENCY
TRANSLATION OTHER
RESERVE RESERVES TOTAL
-------------------- -------------------- -------------------
(pounds sterling) (pounds sterling) (pounds sterling)
<S> <C> <C> <C>
At beginning of year ......................... (275,920) 2,022,946 23,466,750
Retained loss for the financial year ......... -- -- (35,551)
Goodwill written off ......................... -- -- (220,997)
Transfer of realised profits ................. -- (105,109) --
Revaluations in the year ..................... -- -- (31,419)
Currency translation differences on
foreign currency net investments ............ 36,313 -- 10,582
Minority interest ............................ (6,785) -- 2,772
-------- --------- ----------
At end of year ............................... (246,392) 1,917,837 23,192,137
======== ========= ==========
</TABLE>
Other reserves relate to discounts on the acquisition of subsidiaries
(negative goodwill). An amount of (pounds sterling)105,109 has been
transferred to the profit and loss account during the year in respect of the
disposal of properties on which a discount on acquisition had arisen.
Company
<TABLE>
<CAPTION>
PROFIT & REVALUATION
LOSS ACCOUNT RESERVE TOTAL
-------------------- -------------------- -------------------
(pounds sterling) (pounds sterling) (pounds sterling)
<S> <C> <C> <C>
At beginning of year ..................................... 31,397 23,951,040 23,982,437
Retained profit for the financial year ................... 61,429 -- 61,429
Decrease on revaluation of investment in subsidiaries..... -- (611,035) (611,035)
------ ---------- ----------
At end of year ........................................... 92,826 23,340,005 23,432,831
====== ========== ==========
</TABLE>
24. NON-EQUITY MINORITY INTERESTS
Non-equity minority interests comprise 7% redeemable cumulative preference
shares of IR (pounds sterling)1 each in The Point Exhibition Company Limited.
The shares are redeemable on 31st March 2004.
F-69
<PAGE>
APOLLO LEISURE GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 28TH NOVEMBER 1998 -- (CONTINUED)
25. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATION
ACTIVITIES
<TABLE>
<CAPTION>
1998 1997
(pounds sterling) (pounds sterling)
-------------------- -------------------
<S> <C> <C>
Operating profit .................................. 5,003,655 6,643,025
Depreciation charges .............................. 4,524,980 4,246,524
Profit on sale of tangible fixed assets ........... (34,117) (76,412)
Decrease/(Increase) in stocks ..................... 16,216 (21,207)
(Increase)/Decrease in debtors .................... (2,665,002) 1,185,745
Increase/(Decrease) in creditors .................. 9,312,273 (4,565,071)
Grants amortised .................................. (560,672) (111,577)
(Profit)/Loss on sale of investments .............. (86,188) 350,407
Movements in investments in productions ........... (868,896) (442,550)
---------- ----------
Net Cash Inflow From Operating Activities ......... 14,642,249 7,208,880
========== ==========
</TABLE>
26. GROSS CASH FLOWS
<TABLE>
<CAPTION>
1998 1997
(pounds sterling) (pounds sterling)
RETURNS ON INVESTMENT AND SERVICING OF FINANCE -------------------- ---------------------
<S> <C> <C>
Interest received ..................................................... 288,607 454,958
Interest paid ......................................................... (2,162,528) (2,290,854)
Interest element of finance lease rentals ............................. (44,493) (36,340)
Non-equity dividends paid ............................................. -- (77,869)
-------------- --------------
(1,918,414) (1,950,105)
============== ==============
1998 1997
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT (pounds sterling) (pounds sterling)
------------------ -------------------
Purchase of tangible fixed assets ..................................... (7,534,159) (10,615,846)
Proceeds from sale of tangible fixed assets ........................... 757,167 2,216,543
-------------- ----------------
(6,776,992) (8,399,303)
============== ================
1998 1997
ACQUISITIONS (pounds sterling) (pounds sterling)
------------------ -------------------
Acquisition of subsidiary, net of cash acquired (see Note 12) ......... -- (178,645)
Purchase of minority interests ........................................ (421,155) --
-------------- ----------------
(421,155) (178,645)
============== ================
</TABLE>
F-70
<PAGE>
APOLLO LEISURE GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 28TH NOVEMBER 1998 -- (CONTINUED)
27. MANAGEMENT OF LIQUID RESOURCES
<TABLE>
<CAPTION>
1998 1997
(pounds sterling) (pounds sterling)
-------------------- -------------------
<S> <C> <C>
Purchase of investments .................................... (604,877) (1,150,356)
Proceeds from sale of investments .......................... 1,049,630 484,885
Net cash withdrawn from/(invested in) money market ......... 978,789 3,542,907
--------- ----------
1,423,542 2,877,436
========= ==========
</TABLE>
28. ANALYSIS OF CHANGES IN FINANCING DURING THE YEAR
<TABLE>
<CAPTION>
LEASE
FINANCE LOANS TOTAL
(pounds sterling) (pounds sterling) (pounds sterling)
-------------------- -------------------- -------------------
<S> <C> <C> <C>
At beginning of year
In creditors due within one year ......... 201,463 3,683,198 3,884,661
In creditors due after one year .......... 94,953 23,534,868 23,629,821
------- ---------- ----------
296,416 27,218,066 27,514,482
Exchange adjustment ...................... 99 71,002 71,101
Non Cash flow items:
New finance leases ....................... 250,000 -- 250,000
Cash flow items:
Repayments of loans/leases ............... (262,399) (3,533,486) (3,795,885)
New loans ................................ -- 3,685,112 3,685,112
-------- ---------- ----------
At end of year ........................... 284,116 27,440,694 27,724,810
======== ========== ==========
In creditors due within one year ......... 222,708 4,557,718 4,780,426
In creditors due after one year .......... 61,408 22,882,976 22,944,384
-------- ---------- ----------
284,116 27,440,694 27,724,810
======== ========== ==========
</TABLE>
29. ANALYSIS OF THE CASH BALANCES
<TABLE>
<CAPTION>
EXCHANGE CASH
1998 1997 DIFFERENCE FLOW
(pounds sterling) (pounds sterling) (pounds sterling) (pounds sterling)
-------------------- -------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Cash at bank and in hand ......... 15,285,346 13,142,355 30,148 2,112,843
Less liquid resources ............ (9,181,050) (10,159,839) -- 978,789
---------- ----------- ------ ---------
6,104,296 2,982,516 30,148 3,091,632
Bank overdraft ................... (2,070,370) (2,409,668) 1,150 (338,148)
---------- ----------- ------ ---------
4,033,926 572,848 31,298 3,429,780
========== =========== ====== =========
</TABLE>
F-71
<PAGE>
APOLLO LEISURE GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 28TH NOVEMBER 1998 -- (CONTINUED)
30. ANALYSIS OF CHANGES IN NET DEBT
<TABLE>
<CAPTION>
CASH
1997 FLOW
(pounds sterling) (pounds sterling)
-------------------- --------------------
<S> <C> <C>
Cash in hand & at bank (excluding
liquid resources) ................ 2,982,516 3,091,632
Overdrafts ........................ (2,409,668) 338,148
---------
3,429,780
=========
Debt due within one year .......... (3,683,198) (151,626)
Debt due after one year ........... (23,534,868) --
Hire purchase liabilities ......... (296,416) 262,399
---------
110,773
=========
Current asset investments ......... 1,292,851 (444,753)
Liquid resources .................. 10,159,839 (978,789)
---------
----------- (1,423,542)
==========
Total ............................. (15,488,944) 2,117,011
=========== ==========
<CAPTION>
OTHER
EXCHANGE NON-CASH
MOVEMENT CHANGES 1998
(pounds sterling) (pounds sterling) (pounds sterling)
-------------------- -------------------- -------------------
<S> <C> <C> <C>
Cash in hand & at bank (excluding
liquid resources) ................ 30,148 6,104,296
Overdrafts ........................ 1,150 (2,070,370)
Debt due within one year .......... (71,002) (651,892) (4,557,718)
Debt due after one year ........... -- 651,892 (22,882,976)
Hire purchase liabilities ......... (99) (250,000) (284,116)
Current asset investments ......... -- 59,533 907,631
Liquid resources .................. -- -- 9,181,050
------- -------- -----------
Total ............................. (39,803) (190,467) (13,602,203)
======= ======== ===========
</TABLE>
31. CAPITAL COMMITMENTS
<TABLE>
<CAPTION>
GROUP
------------------------------------------
1998 1997
(pounds sterling) (pounds sterling)
-------------------- -------------------
<S> <C> <C>
Contracted for but not provided ......... 7,315,000 3,930,000
========= =========
</TABLE>
External funding for the developments is already in place.
32. FINANCIAL COMMITMENTS
At 28th November 1998, the group had, in respect of land and buildings,
operating lease commitments under non cancellable operating leases as follows:
<TABLE>
<CAPTION>
GROUP
------------------------------------------
1998 1997
(pounds sterling) (pounds sterling)
-------------------- -------------------
<S> <C> <C>
Leases expiring:
Within one year .................... 44,854 69,750
Between one and five years ......... 82,370 59,346
Over five years .................... 190,699 162,000
------- -------
317,923 291,096
======= =======
</TABLE>
33. PENSION SCHEMES
Defined Contribution Schemes
The group operates defined contribution pension schemes for the benefit of
directors and senior employees. The assets of the schemes are administered by
trustees in funds independent from those of the group.
F-72
<PAGE>
APOLLO LEISURE GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 28TH NOVEMBER 1998 -- (CONTINUED)
33. PENSION SCHEMES (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
(pounds sterling) (pounds sterling)
The total contributions charged in the year amounted to: -------------------- -------------------
<S> <C> <C>
Directors ................................................ 150,000 157,178
Staff .................................................... 289,336 260,942
------- -------
439,336 418,120
======= =======
</TABLE>
At the balance sheet date, there were no outstanding contributions.
Defined Benefits Scheme
The group also operates a pension scheme providing benefits based on final
pensionable pay for certain of its employees. The assets of the scheme are held
separately from those of the company, being invested with an insurance company.
Contributions to the scheme are charged to the profit and loss account so as to
spread the cost of pensions over employees' working lives with the group. The
contributions are determined by a qualified actuary on the basis of triennial
valuations using the projected unit method. The most recent valuation was at
1st April 1997.
The assumptions which have the most significant effect on the results of
the valuation are those relating to the rate of return on investments and the
rates of increases in salaries and pensions. It was assumed that the investment
returns would be 8% per annum, that salary increases would average 6% per annum
and that present and future pensions would increase at the rate of 6% per
annum.
The pension charge for the year was (pounds sterling)52,785 (1997 --
(pounds sterling)64,068). At the balance sheet date, outstanding contributions
amounted to (pounds sterling)Nil (1997 -- (pounds sterling)7,918).
The most recent actuarial valuation showed that the market value of the
scheme's assets was (pounds sterling)65,000 representing a funding level of
127%. The contributions of the company and employees will remain at 17% and 6%
of earnings respectively.
34. TRANSACTIONS WITH RELATED PARTIES
In the opinion of the directors the following transactions require to be
disclosed under the definition of related parties within Financial Reporting
Standard Number 8 "Related Party Disclosures".
1) During the year, interest free loans were advanced to directors of the
company as detailed below:
<TABLE>
<CAPTION>
OUTSTANDING OUTSTANDING MAXIMUM
AT BEGINNING AT END OF OUTSTANDING
OF THE YEAR THE YEAR DURING THE YEAR
(pounds sterling) (pounds sterling) (pounds sterling)
-------------------- -------------------- -------------------
<S> <C> <C> <C>
Mr. P.R. Gregg .......... -- -- 75,594
Mrs. A.K. Gregg ......... 32,237 -- 32,237
====== == ======
</TABLE>
2) A short leasehold property used for office accommodation is leased
from a member of Mr. P.R. Gregg's family at an annual rental of (pounds
sterling)48,718.
3) The group is a tenant of Apollo Leisure Group Pension Scheme of whom
Messrs. P.R. Gregg, D.C. Rogers and S.J. Shrouder are trustees and
beneficiaries. The group pays rent of (pounds sterling)86,500 per annum to the
scheme. There were no balances outstanding at the 28th November 1998.
4) Nederlander Dominion Limited, a 33.33% associated undertaking of the
company, paid a management fee of (pounds sterling)59,952 for accountancy and
administrative services. There were no balances outstanding as at the 28th
November 1998.
F-73
<PAGE>
APOLLO LEISURE GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 28TH NOVEMBER 1998 -- (CONCLUDED)
34. TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
5) Barry Clayman Concerts Limited, a 50% subsidiary of Apollo Leisure
Group plc., produces and promotes shows at the company's theatres. The total
paid to the company for theatre hire and theatre services amounted to
approximately (pounds sterling)729,074. The balances owing to Barry Clayman
Concerts Limited in respect of future shows including advanced ticket sales is
approximately (pounds sterling)570,897 as at the 28th November 1998.
With the exception of the transactions detailed in note 1, all
transactions have been carried out on normal commercial terms.
35. CONTROLLING PARTY
In the opinion of the directors, the group is controlled jointly by Mr.
and Mrs. Gregg who own 67% of the issued ordinary share capital.
F-74
<PAGE>
[The inside back cover page includes pictures of SFX venues in Houston, Texas,
Phoenix, Arizona and San Bernadino, California]
<PAGE>
7,500,000 SHARES
[SFX ENTERTAINMENT LOGO]
CLASS A COMMON STOCK
-------------------------
PROSPECTUS
AUGUST , 1999
-------------------------
Joint Global Coordinators and Book-Running Managers
BEAR, STEARNS & CO. INC. LEHMAN BROTHERS
-------------------------
MORGAN STANLEY DEAN WITTER
SG COWEN
BANCBOSTON ROBERTSON STEPHENS
PRUDENTIAL SECURITIES
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY CHANGE. WE MAY NOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED AUGUST 10, 1999
[INTERNATIONAL PROSPECTUS--ALTERNATE FRONT COVER PAGE]
PROSPECTUS
7,500,000 SHARES
[SFX ENTERTAINMENT LOGO]
SFX ENTERTAINMENT, INC.
CLASS A COMMON STOCK
- --------------------------------------------------------------------------------
We are selling all of the offered shares of our Class A common stock. Of the
7,500,000 shares being offered, the international managers are initially
offering shares outside of the United States and Canada, and the U.S.
underwriters are initially offering shares in the United States and
Canada.
We have two classes of authorized common stock, Class A common stock and Class
B common stock. The economic rights of each class of common stock are
identical, but the voting rights differ in that the holders of Class A common
stock are entitled to one vote per share while the holders of Class B common
stock are generally entitled to ten votes per share on most matters.
Our Class A common stock is quoted on the New York Stock Exchange under the
symbol "SFX." The last reported sales price of our shares on the New York Stock
Exchange on August 6, 1999 was $39 3/16 per share.
INVESTING IN THE SHARES INVOLVES RISKS. RISK FACTORS BEGIN ON PAGE 11.
<TABLE>
<CAPTION>
Per Share Total
----------- ------
<S> <C> <C>
Public Offering Price ........................ $ $
Underwriting Discount ........................ $ $
Proceeds to SFX Entertainment, Inc. .......... $ $
</TABLE>
We have granted the underwriters the right to purchase up to 1,125,000
additional shares of Class A common stock on the same terms and conditions set
forth above within 30 days solely to cover over-allotments, if any.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE COMMISSION HAS
APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The underwriters expect to deliver the shares against payment in New York, New
York on , 1999.
- --------------------------------------------------------------------------------
Joint Global Coordinators and Book-Running Managers
BEAR, STEARNS INTERNATIONAL LIMITED LEHMAN BROTHERS
----------------
Co-Managers
MORGAN STANLEY DEAN WITTER SOCIETE GENERALE
BANCBOSTON ROBERTSON STEPHENS INTERNATIONAL LTD PRUDENTIAL-BACHE SECURITIES
, 1999.
<PAGE>
[INTERNATIONAL PROSPECTUS - ALTERNATE BACK COVER PAGE]
7,500,000 SHARES
[SFX ENTERTAINMENT LOGO]
CLASS A COMMON STOCK
-------------------------
PROSPECTUS
AUGUST , 1999
-------------------------
Joint Global Coordinators and Book-Running Managers
BEAR, STEARNS INTERNATIONAL LIMITED LEHMAN BROTHERS
-------------------------
MORGAN STANLEY DEAN WITTER
SOCIETE GENERALE
BANCBOSTON ROBERTSON STEPHENS INTERNATIONAL LTD
PRUDENTIAL-BACHE SECURITIES
<PAGE>
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
distribution of the securities being registered. All amounts shown are
estimates except for the SEC registration fee, the NYSE listing fee and the
NASD fee.
<TABLE>
<S> <C>
SEC Registration Fee ............................. $ 111,496
NYSE Listing Fee ................................. 59,000
NASD Fee ......................................... 30,500
Transfer Agent and Registrar Fees ................ 10,000
Accounting Fees and Expenses ..................... 300,000
Legal Fees and Expenses .......................... 600,000
Blue Sky Fees and Expenses ....................... 10,000
Printing, Engraving and Mailing Expenses ......... 500,000
Miscellaneous .................................... 379,004
----------
TOTAL ............................................ $2,000,000
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law empowers a Delaware
corporation to indemnify any person who is, or is threatened to be made, a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that the person is
or was an officer or director of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by the person in connection with the action, suit or
proceeding, provided that he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interest of the corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. Where an officer or director is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which he actually and
reasonably incurred in connection therewith.
SFX's Certificate of Incorporation provides that no director of SFX will
be personally liable to SFX or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability:
o for any breach of the director's duty of loyalty to SFX or its
stockholders;
o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o under Section 174 of the Delaware General Corporation Law; or
o for any transaction from which the director derived an improper
personal benefit.
In addition to the circumstances in which a director of SFX is not personally
liable as set forth above, no director will be liable to SFX or its
stockholders to such further extent as permitted by any law enacted after the
date of SFX's Certificate of Incorporation, including any amendment to the
Delaware General Corporation Law.
SFX's Certificate of Incorporation requires SFX to indemnify any person
who was, is, or is threatened to be made a party to any action, suit or
proceeding, by reason of the fact that he (a) is or was a director or officer
of SFX or (b) is or was serving at the request of SFX as a director, officer,
partner, venturer, proprietor, trustee, employee, agent, or similar functionary
of another corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan, or other enterprise. This
II-1
<PAGE>
indemnification is to be to the fullest extent permitted by Delaware law. The
right to indemnification will be a contract right and, as such, will run to the
benefit of any director or officer who is elected and accepts the position of
director or officer of SFX or elects to continue to serve as a director or
officer of SFX while this provision of SFX's Certificate of Incorporation is in
effect. The right to indemnification includes the right to be paid by SFX for
expenses incurred in defending any such action, suit or proceeding in advance
of its final disposition to the maximum extent permitted under Delaware law. If
a claim for indemnification or advancement of expenses is not paid in full by
SFX within 60 days after a written claim has been received by SFX, the claimant
may, at any time thereafter, bring suit against SFX to recover the unpaid
amount of the claim and, if successful in whole or in part, expenses of
prosecuting his claim. It will be a defense to any such action that the
requested indemnification or advancement of costs of defense are not permitted
under Delaware law, but the burden of proving this defense will be on SFX. The
rights described above do not exclude any other right that any person may have
or acquire under any statute, by-law, resolution of stockholders or directors,
agreement or otherwise.
The Bylaws of SFX require SFX to indemnify its officers, directors,
employees and agents to the full extent permitted by Delaware law. The Bylaws
also require SFX to pay expenses incurred by a director in defending a civil or
criminal action, suit or proceeding by reason of the fact that he is/was a
director (or was serving at SFX's request as a director or officer of another
corporation) in advance of the final disposition of the action, suit or
proceeding, upon receipt of an undertaking by or on behalf of the director to
repay the advance if it ultimately is determined that the director is not
entitled to be indemnified by SFX as authorized by relevant sections of
Delaware law. The indemnification and advancement of expenses provided in the
Bylaws are not to be deemed exclusive of any other rights provided by any
agreement, vote of stockholders or disinterested directors or otherwise.
ITEM 16. EXHIBITS
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --- ----------------------
<S> <C>
**1.1 Form of U.S. Underwriting Agreement
**1.2 Form of International Underwriting Agreement
2.1 Distribution Agreement between SFX Entertainment, SFX Broadcasting and SFX Buyer
(incorporated by reference to Amendment No. 1 to Form S-1 (File No. 333-50079) filed with
the SEC on May 5, 1998)
2.2 Amended and Restated Tax Sharing Agreement between SFX Entertainment, SFX
Broadcasting and SBI Holding Corporation (incorporated by reference to Amendment No. 1
to Exhibit 1.1 to Current Report on Form 8-K (File No. 000-24017) filed with the SEC on
June 3, 1998)
2.3 Employee Benefits Agreement between SFX Entertainment and SFX Broadcasting
(incorporated by reference to Amendment No. 1 to Form S-1 (File No. 333-50079) filed with
the SEC on May 5, 1998)
2.4 Amendment No. 1 to Distribution Agreement among SFX Entertainment, Inc., SFX
Broadcasting, Inc. and SBI Holding Corporation (incorporated by reference to Exhibit 2.1 to
Form 8-K (File No. 000-24017) filed with the SEC on June 3, 1998)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --- ----------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of SFX Entertainment (incorporated by
reference to Amendment No. 1 to Form S-1 (File No. 333-50079) filed with the SEC on
May 5, 1998)
3.2 Bylaws of the SFX Entertainment (incorporated by reference to Amendment No. 2 to Form
S-1 (File No. 333-43287) filed with the SEC on February 2, 1998)
4.1 Indenture, dated February 11, 1998, by and among SFX Entertainment, certain of its
subsidiaries and The Chase Manhattan Bank (incorporated by reference to Exhibit 4.1 to
Current Report on Form 8-K of SFX Broadcasting (File No. 000-22486) filed with the SEC on
February 18, 1998)
4.2 Indenture, dated November 25, 1998, by and among SFX Entertainment, certain of its
subsidiaries and The Chase Manhattan Bank (incorporated by reference to Exhibit 4.2 to
Registration Statement on Form S-4 (File No. 333-71195) filed with the SEC on January 26,
1999)
4.3 Supplemental Indenture No. 14 dated July 20, 1999, by and among SFX Entertainment,
certain of its subsidiaries and The Chase Manhattan Bank (incorporated by reference to SFX's
Form 10-Q for the quarter ended June 30, 1999).
4.4 Supplemental Indenture No. 3 dated July 20, 1999, by and among SFX Entertainment, certain
of its subsidiaries and The Chase Manhattan Bank (incorporated by reference to SFX's Form
10-Q for the quarter ended June 30, 1999).
**5.1 Opinion of Winston & Strawn
**23.1 Consent of Winston & Strawn (included in Exhibit 5.1)
*23.2 Consent of Ernst & Young LLP
*23.3 Consent of Arthur Andersen LLP
*23.4 Consent of PricewaterhouseCoopers LLP
*23.5 Consent of Deloitte & Touche
*23.6 Consent of Smith Partnership
***24.1 Power of Attorney
</TABLE>
- ----------
* Filed herewith.
** To be filed by amendment
*** Previously filed.
ITEM 17. UNDERTAKINGS
(1) The undersigned registrant hereby undertakes:
(a) That, for purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(b)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
II-3
<PAGE>
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(2) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of New
York, State of New York, on August 9, 1999.
SFX ENTERTAINMENT, INC.
By: /s/ Howard J. Tytel
------------------------------------
Howard J. Tytel
Executive Vice President, General Counsel,
Secretary and Member of the Office of the
Chairman
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- -------------------------- ---------------
<S> <C> <C>
* Executive Chairman, August 9, 1999
- ----------------------------- Member of the Office of
Robert F.X. Sillerman the Chairman and
Director (principal
executive officer)
* Director August 9, 1999
- -----------------------------
Michael G. Ferrel
* Director August 9, 1999
- -----------------------------
Brian Becker
Director
- -----------------------------
David Falk
/s/ Howard J. Tytel Director August 9, 1999
- -----------------------------
Howard J. Tytel
* Chief Financial Officer, August 9, 1999
- ----------------------------- Senior Vice President and
Thomas P. Benson Director (principal
financial and accounting
officer)
* Director August 9, 1999
- -----------------------------
Richard A. Liese
* Director August 9, 1999
- -----------------------------
D. Geoffrey Armstrong
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- ---------- ---------------
<S> <C> <C>
* Director August 9, 1999
- -----------------------------
James F. O'Grady, Jr.
* Director August 9, 1999
- -----------------------------
Paul Kramer
* Director August 9, 1999
- -----------------------------
Edward F. Dugan
* Director August 9, 1999
- -----------------------------
John D. Miller
*By: /s/ Howard J. Tytel
------------------------
Howard J. Tytel
Attorney-in-fact
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT PAGE
- --- ---------------------- ----
<S> <C> <C>
**1.1 Form of U.S. Underwriting Agreement
**1.2 Form of International Underwriting Agreement
2.1 Distribution Agreement between SFX Entertainment, SFX Broadcasting and SFX Buyer
(incorporated by reference to Amendment No. 1 to Form S-1 (File No. 333-50079) filed with the
SEC on May 5, 1998)
2.2 Amended and Restated Tax Sharing Agreement between SFX Entertainment, SFX Broadcasting
and SBI Holding Corporation (incorporated by reference to Amendment No. 1 to Exhibit 1.1 to
Current Report on Form 8-K (File No. 000-24017) filed with the SEC on June 3, 1998)
2.3 Employee Benefits Agreement between SFX Entertainment and SFX Broadcasting (incorporated
by reference to Amendment No. 1 to Form S-1 (File No. 333-50079) filed with the SEC on May 5,
1998)
2.4 Amendment No. 1 to Distribution Agreement among SFX Entertainment, Inc., SFX Broadcasting,
Inc. and SBI Holding Corporation (incorporated by reference to Exhibit 2.1 to Form 8-K (File No.
000-24017) filed with the SEC on June 3, 1998)
3.1 Amended and Restated Certificate of Incorporation of SFX Entertainment (incorporated by
reference to Amendment No. 1 to Form S-1 (File No. 333-50079) filed with the SEC on May 5,
1998)
3.2 Bylaws of the SFX Entertainment (incorporated by reference to Amendment No. 2 to Form S-1
(File No. 333-43287) filed with the SEC on February 2, 1998)
4.1 Indenture, dated February 11, 1998, by and among SFX Entertainment, certain of its subsidiaries
and The Chase Manhattan Bank (incorporated by reference to Exhibit 4.1 to Current Report on
Form 8-K of SFX Broadcasting (File No. 000-22486) filed with the SEC on February 18, 1998)
4.2 Indenture, dated November 25, 1998, by and among SFX Entertainment, certain of its subsidiaries
and The Chase Manhattan Bank (incorporated by reference to Exhibit 4.2 to Registration
Statement on Form S-4 (File No. 333-71195) filed with the SEC on January 26, 1999)
4.3 Supplemental Indenture No. 14 dated July 20, 1999, by and among SFX Entertainment, certain of
its subsidiaries and The Chase Manhattan Bank (incorporated by reference to SFX's Form 10-Q for
the quarter ended June 30, 1999).
4.4 Supplemental Indenture No. 3 dated July 20, 1999, by and among SFX Entertainment, certain of its
subsidiaries and The Chase Manhattan Bank (incorporated by reference to SFX's Form 10-Q for
the quarter ended June 30, 1999).
**5.1 Opinion of Winston & Strawn
**23.1 Consent of Winston & Strawn (included in Exhibit 5.1)
*23.2 Consent of Ernst & Young LLP
*23.3 Consent of Arthur Andersen LLP
*23.4 Consent of PricewaterhouseCoopers LLP
*23.5 Consent of Deloitte & Touche
*23.6 Consent of Smith Partnership
***24.1 Power of Attorney
</TABLE>
- ----------
* Filed herewith.
** To be filed by amendment
*** Previously filed.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated (i) February 25, 1999 with respect to the consolidated
financial statements of SFX Entertainment, Inc., (ii) October 2, 1997 with
respect to the consolidated financial statements of Delsener/Slater
Enterprises, Ltd. and Affiliated Companies, (iii) December 13, 1996 with
respect to the consolidated financial statements of PACE Entertainment
Corporation and Subsidiaries, (iv) May 22, 1998 with respect to the combined
financial statements of the Contemporary Group, (v) November 20, 1997 with
respect to the combined financial statements of The Album Network, Inc. and
Affiliated Companies, (vi) March 20, 1998 with respect to the consolidated
financial statements of BG Presents, Inc. and Subsidiaries, (vii) March 13,
1998 with respect to the combined financial statements of Concert/Southern
Promotions and Affiliated Companies, (viii) April 10, 1998 with respect to the
combined financial statements of Falk Associates Management Enterprises, Inc.,
(ix) May 1, 1998 with respect to the combined financial statements of
Blackstone Entertainment LLC, (x) March 5, 1998 with respect to the
consolidated financial statements of The Marquee Group, Inc. and Subsidiaries,
(xi) May 21, 1998 with respect to the combined financial statements of Alphabet
City Sports Records, Inc. and Alphabet City Industries, Inc., (xii) June 3,
1998 with respect to the consolidated financial statements of Cambridge Holding
Corporation, Inc. and (xiii) July 6, 1998 with respect to the combined
financial statements of Tollin-Robbins Entertainment, all as either included in
or incorporated by reference in Amendment No. 1 to the Registration Statement
(Form S-3) and related Prospectus of SFX Entertainment, Inc. for the
registration of 8,625,000 shares of its Class A Common Stock.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
New York, New York
August 6, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in Amendment No. 1 to the Registration Statement on Form S-3 (No.
333-84371) of SFX Entertainment, Inc. of our reports on the consolidated
financial statements of PACE Entertainment Corporation and subsidiaries dated
December 15, 1997 (except with respect to the matters discussed in Note 12, as
to which the date is December 22, 1997) and Pavilion Partners dated December
15, 1997 (except with respect to the matters discussed in Note 11, as to which
the date is December 22, 1997) which appears in the Current Report on Form 8-K
of SFX Entertainment, Inc. dated April 14, 1999, and to all references to our
Firm included in this registration statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Houston, Texas
August 6, 1999
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Amendment No.
1 to the Registration Statement on Form S-3 (No. 333-84371) of SFX
Entertainment, Inc. of our report dated December 12, 1996, relating to the
financial statements of Pavilion Partners, which appears in the Current Report
on Form 8-K of SFX Entertainment, Inc. dated April 14, 1999. We also consent to
the reference to us under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Houston, Texas
August 6, 1999
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement of SFX Entertainment
Inc. on Form S-3 of our joint report dated July 27, 1999, appearing in the
Prospectus, which is part of this Registration Statement, and of our joint
report dated July 27, 1999 relating to the financial statement schedules
appearing elsewhere in this Registration Statement.
We also consent to the reference to us under the heading "Selected Financial
Data" and "Experts" in such Prospectus.
/s/ Deloitte & Touche
Deloitte & Touche
Chartered Accountants
Bracknell, England
August 9, 1999
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement of SFX Entertainment
Inc. on Form S-3 of our joint report dated July 27, 1999, appearing in the
Prospectus, which is part of this Registration Statement, and of our joint
report dated July 27, 1999 relating to the financial statement schedules
appearing elsewhere in this Registration Statement.
We also consent to the reference to us under the heading "Selected Financial
Data" and "Experts" in such Prospectus.
/s/ Smith Partnership
Smith Partnership
Chartered Accountants
Manchester, England.
August 9 1999
