<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 11, 2000
REGISTRATION NO. 333-__________
===============================================================================
<TABLE>
<CAPTION>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
SIMMONS MEDIA GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------------------
<S><C> <C> <C>
UTAH 4832 87-0336015
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
515 SOUTH 700 EAST
SALT LAKE CITY, UTAH 84102
(801) 322-2500
<CAPTION>
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------------------
DAVID E. SIMMONS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SIMMONS MEDIA GROUP, INC.
515 SOUTH 700 EAST
SALT LAKE CITY, UTAH 84102
(801) 322-2500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
PLEASE ADDRESS A COPY OF ALL COMMUNICATIONS TO:
<S><C> <C>
EDWARD J. O'CONNELL, ESQ. BRYANT EDWARDS, ESQ.
LAURA S. HARPER, ESQ. STEPHEN B. RICHARDS, ESQ.
DOW, LOHNES & ALBERTSON, PLLC LATHAM & WATKINS
1200 NEW HAMPSHIRE AVENUE, NW 633 WEST FIFTH STREET, SUITE 4000
WASHINGTON, D.C. 20036-6802 LOS ANGELES, CA 90071
TEL: (202) 776-2000 TEL: (213) 485-1235
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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, 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, 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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,
check the following box. |_|
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S><C>
====================================================================================================================================
TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT
OF TO BE OFFERING PRICE AGGREGATE OF
SECURITIES TO BE REGISTERED REGISTERED (1) PER SHARE (2) OFFERING PRICE (2) REGISTRATION FEE
------------------------------------------------------------------------------------------------------------------------------------
Common Stock, no par value shares $ $ 34,500,000 $ 9,108.00
====================================================================================================================================
</TABLE>
(1) Includes the underwriter's over-allotment option.
(2) Estimated solely for the purposes of calculating the registration fee
in accordance with Rule 457.
--------------
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 WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
===============================================================================
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these shares until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer to sell
these shares and we are not soliciting offers to buy these shares in any
jurisdiction where the offer or sale is not permitted.
PROSPECTUS
SUBJECT TO COMPLETION, DATED AUGUST 11, 2000
SIMMONS MEDIA GROUP, INC.
Shares
Common Stock
-------------------------------------------------------------------------------
This is an initial public offering of shares of common stock of Simmons Media
Group, Inc. We are offering shares in this offering. No public
market currently exists for our common stock. The initial public offering price
is expected to be between $ and $ per share.
We will apply to list the shares on the Nasdaq National Market under the symbol
"SMGI."
-------------------------------------------------------------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 6.
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Per Share Total
<S> <C> <C>
Public offering price $ $
Underwriting discounts and commissions $ $
Proceeds, before expenses, to us $ $
</TABLE>
The underwriters have an option to purchase a maximum of
additional shares of common stock from us at the initial public offering price,
less underwriting discounts and commissions, to cover any over-allotment of
shares at any time until 30 days after the date of this prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------------------------------------------------------------------
THOMAS WEISEL PARTNERS LLC
The date of this prospectus is , 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE PAGE
<S> <C> <C> <C>
Prospectus Summary.............................. 1 Regulation of Radio Broadcasting and
Risk Factors.................................... 6 Outdoor Advertising........................ 40
Special Note Regarding Forward-Looking Management...................................... 48
Statements................................. 12 Certain Relationships and Related
Use of Proceeds................................. 13 Transactions............................... 57
Dividend Policy................................. 13 Principal Shareholders.......................... 59
Capitalization.................................. 14 Description of Capital Stock.................... 60
Dilution........................................ 15 Shares Eligible for Future Sale................. 62
Unaudited Pro Forma Condensed Underwriting.................................... 63
Consolidated Financial Data............... 16 Legal Matters................................... 65
Selected Historical Financial Data.............. 20 Experts......................................... 65
Management's Discussion and Analysis of Where You Can Find Additional
Financial Condition and Results of Information................................ 65
Operations................................. 22 Index to Financial Statements................... F-1
Information about Station and Market Data....... 30
Corporate Reorganization........................ 30
Business........................................ 31
</TABLE>
Simmons Media Group, Inc. is a Utah corporation. Our principal executive
offices are located at 515 South 700 East, Salt Lake City, Utah 84102. Our
telephone number is (801) 322-2500.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY ONLY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN
THIS PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL OF THE
INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU
SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY. UNLESS THE CONTEXT IN THIS
PROSPECTUS REQUIRES OTHERWISE, "SIMMONS MEDIA GROUP," "SIMMONS MEDIA," "WE,"
"US" AND SIMILAR TERMS REFER TO SIMMONS MEDIA GROUP, INC. AND ITS CONSOLIDATED
SUBSIDIARIES.
OVERVIEW
Founded in 1977, we are a radio broadcasting and outdoor advertising
company focused on operating and acquiring radio stations and outdoor
advertising displays in high-growth mid-sized markets located in the western
region of the United States. Upon completion of our reorganization described in
the "Corporate Reorganization" section of this prospectus, we will own and
operate 10 FM and 3 AM radio stations in Salt Lake City, Utah, Albuquerque, New
Mexico, and Austin, Texas. We have also been awarded construction permits for 2
FM radio stations in areas surrounding the Salt Lake City metropolitan market.
As of June 30, 2000, we also owned 181 outdoor advertising displays in the Salt
Lake City metropolitan area.
We believe that radio broadcasting and outdoor advertising offer
significant growth and revenue opportunities, due to their breadth and frequency
of audience reach. According to the Radio Advertising Bureau's RADIO MARKETING
GUIDE AND FACT BOOK FOR ADVERTISERS (1999), every week radio reaches
approximately 95% of all Americans over the age of 12, and the average listener
spends approximately 21 hours and 30 minutes per week listening to the radio. In
1999, the total domestic radio advertising market grew to $15.5 billion, or
12.9%, from 1998, reaching the highest level in the radio industry's history. In
addition, the market for domestic outdoor advertising totaled $4.8 billion in
1999, up nearly 10% from 1998.
Through the combination of strategic acquisitions, mid-sized market
clustering, operational efficiency and market research, we have achieved the
following results in the markets we have entered:
o same station net revenues excluding trade activity increased 9.2%
for the six months ended June 30, 2000, compared to the same
period in 1999;
o same station broadcast cash flow increased 46.0% for the six months
ended June 30, 2000 compared to the same period in 1999;
o same station net revenues excluding trade activity increased 6.3%
for the year ended December 31, 1999, compared to the same period
in 1998; and
o same station broadcast cash flow increased 12.7% for the year ended
December 31, 1999, compared to the same period in 1998.
BUSINESS STRATEGY
OWN AND OPERATE STRONG RADIO STATION CLUSTERS.
We believe that the ownership of multiple radio stations in a market allows
us to coordinate our programming to appeal to a broad spectrum of listeners,
expand our advertising base and enhance our stations' revenue generating
potential. The ownership of multiple radio stations within a market also allows
us to achieve substantial cost savings and other operational efficiencies
through the consolidation of facilities, management, sales and administrative
personnel, operating resources such as on-air talent, programming and music
research, and the reduction of redundant corporate expenses. Our management
focus in each of our markets is to increase net revenues and maximize broadcast
cash flow margins.
ESTABLISH STRONG LOCAL BRAND IDENTITY.
Our stations pursue a variety of programming and marketing initiatives
designed to develop a distinctive identity and to strengthen the station's local
brand. Through extensive market research we seek to
1
<PAGE>
enhance our ratings and in certain circumstances identify opportunities to
reformat a station's programming to reach a larger audience. We attempt to build
strong markets by:
o creating distinct, highly visible profiles for our on-air
personalities;
o formulating recognizable brand names for select stations; and
o actively participating in community events and charities.
ACQUIRE ADDITIONAL MEDIA PROPERTIES IN HIGH-GROWTH MARKETS.
We seek to acquire additional radio stations in our existing markets and
additional targeted markets within the western United States that are within the
nation's top 125 metropolitan areas. We also seek to acquire complementary media
outlets within these markets, including outdoor advertising companies. In
considering whether to purchase a media property, we evaluate a number of
factors, including purchase price, anticipated impact on broadcast cash flow and
after-tax cash flow, the quality of a target's infrastructure and management,
the opportunities to improve the operating margins and increase internal growth
at the target, the economic prospects of the region in which the target is
located, the potential for additional acquisitions in the region, and the
competitive landscape in the target's markets. We will only acquire properties
that provide the opportunity to aggressively grow broadcast cash flow through a
combination of market growth, ratings improvement, market revenue share growth,
and cost reductions.
STATION PORTFOLIO
The following table sets forth information about our stations and the
markets where we operate. The sources for this information are described under
"Information About Station Market Data."
<TABLE>
<CAPTION>
1999 1999
RADIO 1994-1999 SIMMONS MEDIA
MARKET RADIO MARKET MARKET SHARE
REVENUE COMPOUNDED ANNUAL ----------------------------
MARKET RANK REVENUE GROWTH AUDIENCE REVENUE RANK
-------- ------------- -------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
Salt Lake City, UT........................ 32 14.9% 21.1% 24.8% 2
Albuquerque, NM........................... 60 9.3% 19.6% 12.9% 3
Austin, TX................................ 33 16.2% 1.3% 1.5% 7
</TABLE>
2
<PAGE>
THE OFFERING
Common stock offered by
Simmons Media Group.............. shares
Common stock outstanding
after this offering.............. shares
Use of proceeds.................. We intend to use the net proceeds from
this offering as follows:
o to reduce outstanding borrowings;
o to fund working capital and general
corporate requirements; and
o to acquire or invest in additional
radio stations or radio station
groups, outdoor advertising displays
and complementary businesses,
technologiesand products. We have no
current agreements or commitments with
respect to any material business
acquisitions. See the "Use of Proceeds"
section of this prospectus.
Proposed Nasdaq National
Market Symbol......................... "SMGI"
Common stock offered and common stock to be outstanding after the
offering excludes up to shares of common stock that may be issued to
cover over-allotment of shares and shares issuable under our stock-based
incentive programs; the maximum number of shares of common stock that can be
awarded under these programs is shares. Common stock to be outstanding
after the offering is as of the closing date.
3
<PAGE>
SUMMARY PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
In the table below, we provide you with our summary unaudited pro forma
condensed consolidated financial data as of the dates and for the periods
indicated.
The pro forma consolidated balance sheets and the pro forma consolidated
statements of operations set forth reflect our capital structure and results of
operations as if our corporate reorganization had occurred as of January 1,
1998. In conjunction with this offering, management intends to reorganize
Simmons Media Group and spin-off certain small market radio and non-media assets
to our existing shareholders. Our reorganization will be accomplished by
transferring the assets and certain related liabilities to a newly formed
company, Crestwood Communications, Inc. in exchange for shares of Crestwood
capital stock. We will then distribute all of the Crestwood shares to our
existing shareholders immediately prior to the effectiveness of this offering.
For a more complete discussion of our corporate reorganization, please see the
"Corporate Reorganization" section of this prospectus.
Pro forma consolidated results of operations differ from the actual results
of operations primarily as a result of deductions in routine revenues and
expenses related to the small market radio assets, reductions in interest
expense in connection with $5,000,000 of indebtedness to be assumed by
Crestwood, reductions in dividend, and interest income earned on marketable
securities, other investments to be transferred in our corporate reorganization,
and the related income tax effects of our corporate reorganization.
As you review the information contained in the following table and
throughout this prospectus, you should note the following:
o NET REVENUES means gross revenues less agency and outside commissions
incurred for selling air time.
o BROADCAST CASH FLOW consists of net revenues less station operating
expenses, excluding barter activity and local marketing and time
brokerage agreement expenses.
o BROADCAST CASH FLOW MARGIN represents broadcast cash flow as a
percentage of net revenues.
o EBITDA consists of broadcast cash flow less corporate general and
administrative expenses.
o AFTER-TAX CASH FLOW consists of net income (loss) before extraordinary
items, excluding any gain (loss) on sales of assets, net of tax, plus
depreciation, amortization, equity appreciation rights, and deferred
tax expense.
o No expense for equity appreciation rights has been recorded for the
periods presented.
(1) Although broadcast cash flow, EBITDA and after-tax cash flow are not
measures of performance or liquidity calculated in accordance with generally
accepted accounting principles, we believe that these measures are useful to an
investor in evaluating our performance. These measures are widely used in the
broadcast industry to evaluate a radio company's operating performance. However,
you should not consider these measures in isolation or as substitutes for
operating income, cash flows from operating activities or any other measure for
determining our operating performance or liquidity that is calculated in
accordance with generally accepted accounting principles. In addition, because
broadcast cash flow, EBITDA and after-tax cash flow are not calculated in
accordance with generally accepted accounting principles, they are not
necessarily comparable to similarly titled measures employed by other companies.
We provide you with our summary unaudited pro forma condensed consolidated
financial data for illustrative purposes only and not to indicate what our
results of operations or financial position would have been if our corporate
reorganization had been consummated on the date indicated or to indicate future
results of operations or financial positions. The summary unaudited pro forma
condensed consolidated financial data are based on assumptions and adjustments
described in the notes to the unaudited pro forma condensed consolidated
financial data included elsewhere in this prospectus.
4
<PAGE>
You should read the following data in conjunction with the historical
financial statements and related notes, the unaudited pro forma condensed
consolidated financial statements and related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30
----------------------------- -----------------------------
1998 1999 1999 2000
------------- -------------- -------------- --------------
(AUDITED) (UNAUDITED)
STATEMENT OF OPERATIONS:
<S> <C> <C> <C> <C>
Net broadcasting revenue.......................... $ 20,004,671 $ 22,460,125 $ 10,318,987 $ 11,134,253
Station operating expense......................... 15,944,866 16,268,151 7,940,323 7,487,077
Depreciation and amortization..................... 2,671,996 3,226,530 1,672,797 1,701,141
Corporate general and administrative.............. 2,418,315 2,036,614 1,038,269 981,893
------------- -------------- -------------- --------------
Operating income (loss)........................... (1,030,506) 928,830 (332,402) 964,142
Interest and dividend income...................... 28,901 29,579 31,130 530
Interest expense.................................. (1,749,374) (1,830,861) (925,037) (847,293)
Gain on sale of business & fixed assets........... 10,000 1,690,623 1,690,623 --
Other income, net................................. 88,277 93,430 32,546 (31,502)
Minority share of (income) loss................... (32,387) 8,762 -- 3,089
------------- -------------- -------------- --------------
Income (loss) before income taxes................. (2,685,089) 920,363 496,860 88,966
Income tax expense (benefit)...................... (454,950) 508,993 156,261 92,936
------------- -------------- -------------- --------------
Net income (loss)................................. (2,230,139) 411,370 340,599 (3,970)
============= ============== ============== ==============
Net income (loss) applicable to common shares..... (2,230,139) 411,370 340,599 (3,970)
Basic and diluted net income (loss) per share..... (1.7089) 0.3152 0.2610 (0.0030)
Basic common shares outstanding and diluted....... 1,305,000 1,305,000 1,305,000 1,305,000
OTHER DATA:
Broadcast cash flow (1)........................... $ 4,245,703 $ 6,144,022 $ 2,414,490 $ 3,525,008
EBITDA (1)........................................ 1,827,385 4,107,408 1,376,221 2,543,116
After-tax cash flow (1)........................... 254,726 2,164,105 705,305 1,702,554
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AS OF DECEMBER 31, AS OF JUNE 30,
--------------------------- --------------------------
1998 1999 1999 2000
------------- ------------- ------------ ------------
(AUDITED) (UNAUDITED)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C>
Cash and cash equivalents.............................. $ 835,818 $ 740,719 $ 1,000,552 $ 365,187
Intangible assets, net................................. 27,360,487 29,864,912 30,911,948 30,589,747
Total assets........................................... 38,607,479 39,998,922 40,674,147 42,107,344
Long-term debt, including
current installments................................ 30,532,082 22,723,755 27,916,165 27,007,708
Shareholders' equity................................... 7,909,230 9,238,069 6,338,662 10,180,608
</TABLE>
5
<PAGE>
RISK FACTORS
INVESTING IN OUR COMMON STOCK INVOLVES RISK. YOU SHOULD CAREFULLY CONSIDER
THE FOLLOWING RISK FACTORS IN ADDITION TO THE OTHER INFORMATION CONTAINED IN
THIS PROSPECTUS BEFORE PURCHASING SHARES OF COMMON STOCK IN THIS OFFERING. EACH
OF THESE RISK FACTORS COULD ADVERSELY AFFECT OUR BUSINESS, OPERATING RESULTS AND
FINANCIAL CONDITION, AS WELL AS THE VALUE OF AN INVESTMENT IN OUR COMMON STOCK.
OUR RADIO STATIONS MAY NOT BE ABLE TO COMPETE EFFECTIVELY IN THEIR RESPECTIVE
MARKETS FOR ADVERTISING REVENUES, WHICH COULD ADVERSELY AFFECT OUR REVENUE AND
CASH FLOW.
We operate in a highly competitive business. Our radio stations compete for
audiences and advertising revenues within their respective markets directly with
other radio stations, as well as with other media. These media include
newspapers, magazines, outdoor advertising, broadcast and cable television,
direct mail and emerging media such as streaming audio delivered over the
Internet. These media commonly compete for the same customers, and advertisers
regularly shift dollars from radio to these competing media and vice versa. A
decline in our audience share or our share of advertising revenues in a
particular market may cause a decline in the revenue and cash flow of our
stations located in that market. Accordingly, there can be no assurance that any
of our stations will be able to maintain or increase their advertising revenue
share.
In addition, we compete with radio broadcasting and other media companies
that have greater financial resources and which operate in some of the same
geographic markets as we do, and additional radio broadcasting and other media
companies with greater financial resources may enter into the markets in which
we operate or may operate in the future. As a result, our radio stations may not
be able to maintain or increase their current audience ratings and advertising
revenues.
WE MAY NOT REMAIN COMPETITIVE IF WE DO NOT RESPOND TO THE RAPID CHANGES IN
TECHNOLOGY, STANDARDS AND SERVICES THAT CHARACTERIZE OUR INDUSTRY.
The radio broadcasting industry is subject to rapid technological change,
evolving industry standards and the emergence of new media technologies and
services. The Federal Communications Commission, which we refer to as the FCC,
is considering ways to introduce new technologies to the radio broadcasting
industry, including satellite and terrestrial delivery of digital audio
broadcasting and the standardization of available technologies which
significantly enhance the sound quality of AM and FM broadcasts. We may not have
the resources to acquire new technologies or to introduce new services that
could compete with these new technologies. Several new media technologies and
services are being developed or introduced, and we describe them in "Business -
Competition." Competition arising from new technologies or regulatory changes
may have a negative effect on the radio broadcasting industry as a whole or on
our business specifically, adversely impacting our ability to attract listeners
and thus sell advertising time.
A DOWNTURN IN ANY OF OUR MARKETS COULD ADVERSELY AFFECT OUR REVENUES AND
BROADCAST CASH FLOW.
Our stations are located in a limited number of markets. An audience rating
decline or other operating difficulty in the performance of our stations in any
one of these markets, and particularly in Salt Lake City and Albuquerque, our
largest markets, could have an adverse effect on our total revenues and
broadcast cash flow. For the six-month period ended June 30, 2000, approximately
68% of our net revenues and 77% of our broadcast cash flow came from our
stations operating in the Salt Lake City market. For the same period,
approximately 21.0% of our net revenues and 12.0% of our broadcast cash flow
came from our stations operating in the Albuquerque market. We have greater
exposure to adverse events or conditions affecting the economy in these markets
than would be the case if we were more geographically diverse.
6
<PAGE>
WE MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT AND MANAGE THE SYSTEMS, PROCEDURES
AND CONTROLS REQUIRED OF A NEWLY PUBLIC COMPANY.
We have recently taken steps to prepare ourselves to operate as a public
company. The transition associated with becoming a public company may place a
burden on our management, operational and financial resources. To successfully
manage this transition, we will need to improve and implement informational,
operational and financial systems, procedures and controls. This transition may
significantly increase our operating expenses and have an adverse effect on our
financial condition. Furthermore, we may not be able to integrate and implement
the necessary systems, procedures and controls to support our future growth and
to record and report required financial and management information on a timely
and accurate basis.
WE MAY NOT BE SUCCESSFUL IN CONSUMMATING FUTURE ACQUISITIONS, AN IMPORTANT
ELEMENT OF OUR BUSINESS STRATEGY, WHICH COULD SIGNIFICANTLY IMPAIR OUR FUTURE
GROWTH.
Radio broadcasting is a rapidly consolidating industry, with many companies
seeking to consummate acquisitions and increase market share. If we are unable
to identify and consummate future acquisitions in markets where we seek to
purchase additional stations, our ability to compete in those markets could be
impaired.
Our acquisition strategy is subject to a number of risks, including the
following:
o competitors may be able to outbid us for acquisitions because they
have greater financial resources;
o required regulatory approvals may result in unanticipated delays in,
or prevent us from, completing acquisitions;
o we may not be able to finance our future acquisitions if we are not
able to maintain our borrowing ability under our credit facilities;
o we may not be successful in integrating acquisitions we may make; and
o we may be required to raise additional financing to consummate future
acquisitions and that financing may not be available to us on
acceptable terms.
UPON COMPLETION OF THE OFFERING, THE SIMMONS FAMILY WILL BENEFICIALLY OWN A
SUBSTANTIAL AMOUNT OF OUR COMMON STOCK AND COULD SIGNIFICANTLY AFFECT MATTERS
REQUIRING A SHAREHOLDER VOTE.
After this offering, members of the Simmons family, including David E.
Simmons, our President and Chief Executive Officer, will together beneficially
own _____ % of our common stock, or _____ % if the underwriters exercise their
over-allotment option in full. This concentration of ownership will mean that
these shareholders will have the ability to control or significantly affect
matters that require a shareholder vote, including the election of a majority of
our directors, approval of merger transactions involving us and the sale of all
or substantially all of our assets or other business combination transactions.
The interests of the Simmons family, which holds ownership interests in
businesses in other industries, including banking and small market radio
operations in St. George, Utah, may from time to time conflict with our
interests. The Simmons family, acting together, could cause us to enter into
contracts with another entity against our interests or cause us to decline a
transaction, including a change-of-control transaction with a third party, that
is in our best interest. The Simmons family may engage in other businesses that
compete or may in the future compete with us. Accordingly, conflicts could arise
with respect to allocation of corporate opportunities between the Simmons family
and us.
Current or future agreements between us and the members of the Simmons
family or their affiliates may not be the result of arm's-length negotiations.
Consequently, such agreements may be less favorable to us than agreements that
we could otherwise have entered into with unaffiliated third parties.
7
<PAGE>
WE HAVE THE ABILITY TO INCUR A SIGNIFICANT AMOUNT OF DEBT, WHICH MAY AFFECT HOW
WE USE OUR CASH FLOW AND IMPAIR OUR ABILITY TO RESPOND TO CHANGES IN COMPETITIVE
AND ECONOMIC CONDITIONS.
We have the ability to incur indebtedness that is substantial in relation
to our shareholders' equity. If we incur a substantial amount of indebtedness,
it could have several important consequences to our shareholders, including, but
not limited to, the following:
o a substantial portion of our cash flow from operations could be
dedicated to interest expense and reduction of debt outstanding;
o our ability to obtain additional financing for working capital,
capital expenditures, acquisitions and general corporate or other
purposes could be impaired; and
o our level of indebtedness could make us more vulnerable to economic
downturns, limit our ability to withstand competitive pressures and
reduce our flexibility in responding to changing business and economic
conditions compared to less leveraged companies.
For a description of our credit facilities and our need to restructure them
in anticipation of our corporate reorganization, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
THE COVENANTS IN OUR CURRENT CREDIT FACILITIES RESTRICT OUR FINANCIAL AND
OPERATIONAL FLEXIBILITY, WHICH COULD HAVE AN ADVERSE EFFECT ON OUR RESULTS OF
OPERATIONS.
Our credit facilities contain covenants that restrict, among other things,
our ability to borrow money, make particular types of investments or other
restricted payments, swap or sell assets, issue equity or merge or consolidate.
Our credit facility also requires us to maintain specified financial ratios. A
failure to maintain these financial ratios could result in an event of default.
We also may incur future debt obligations which might subject us to restrictive
covenants that could affect our financial and operational flexibility or subject
us to other events of default. An event of default under our credit facility
could allow the lenders to declare all amounts outstanding immediately due and
payable. We have pledged substantially all of our combined assets and the stock
of our subsidiaries to secure the debt under our credit facility. If the amounts
outstanding under the credit facility were accelerated, the lenders could
proceed against that collateral. Any event of default, therefore, could have a
material adverse effect on our business. We anticipate that any future or
restructured credit facilities would contain similar restrictions.
AFTER THE CLOSING OF OUR CORPORATE REORGANIZATION, WE WILL NOT BE ABLE TO USE
OUR PORTFOLIO OF INVESTMENT SECURITIES AS COLLATERAL TO FINANCE OUR WORKING
CAPITAL AND OTHER CASH REQUIREMENTS.
In the past, we have traditionally used this portfolio of investment
securities as collateral to finance our working capital and other cash
requirements. However, because our portfolio of investment securities will be
distributed to Crestwood Communications, Inc. in the reorganization, we will no
longer be able to use this portfolio of investment securities as collateral to
fund our capital requirements. We cannot guarantee that financing, if needed,
will be available to us on terms consistent with those experienced
historically.
We believe that our capital requirements will vary greatly from quarter to
quarter, depending on, among other things, capital expenditures, fluctuations in
our operating results and financing activities. We believe, however, that the
following sources will provide sufficient capital to satisfy our cash
requirements for the foreseeable future:
o the net proceeds from this offering;
o current cash and cash equivalents;
o the credit facilities, to the extent that we are successful in
restructuring them; see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources"; and
8
<PAGE>
o cash flow from operations after our reorganization.
OUR BUSINESS DEPENDS ON THE EFFORTS OF KEY PERSONNEL AND THE LOSS OF ANY ONE OF
THEM COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
Our business depends upon the continued efforts, abilities and expertise of
our President and Chief Executive Officer, David E. Simmons and our President,
Radio Division, G. Craig Hanson. We also depend upon the continued efforts of
the general managers of our operating stations and outdoor advertising division.
The loss of any of these key employees for any period of time would likely have
a significant detrimental effect on our business.
THE RADIO BROADCASTING INDUSTRY FACES MANY UNPREDICTABLE BUSINESS RISKS THAT
COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR ADVERTISING REVENUES.
Our future operations are subject to many business risks, including those
risks that specifically influence the radio broadcasting industry, which could
have a material adverse effect on our business including:
o shifts in population, demographics or audience tastes; and
o changes in governmental regulations and policies and actions of
federal regulatory bodies.
WE ARE SUBJECT TO DISPROPORTIONATELY GREATER FINANCIAL RISKS DUE TO OUR
DEPENDENCE ON ADVERTISING REVENUES.
We believe that advertising is a discretionary business expense, meaning
that spending on advertising tends to decline disproportionately during economic
recession or downturn as compared to other types of business spending.
Consequently, a recession or downturn in the United States economy or the
economy of an individual geographic area in which we own or operate radio
stations and outdoor advertising displays would likely adversely affect our
advertising revenues and, therefore, our results of operations.
THE EXTENSIVE REGULATION OF THE RADIO BROADCASTING INDUSTRY COULD ADVERSELY
AFFECT OUR REVENUES.
LICENSES. The radio broadcasting industry is subject to extensive
regulation by the FCC, under the Communications Act of 1934. Issuance, renewal
or transfer of radio broadcast station operating licenses requires FCC approval,
and we cannot operate our radio stations without FCC licenses. The failure to
renew our licenses could prevent us from operating the affected stations and
generating revenues from them. If the FCC decides to include conditions or
qualifications in any of our licenses, we may be limited in the manner in which
we may operate the affected station. Historically, our license renewal
applications have been renewed without material conditions or qualifications.
In addition, if we or any of our officers, directors or significant
shareholders materially violate the FCC's rules and regulations or are convicted
of a felony or are found to have engaged in unlawful anticompetitive conduct or
fraud upon another government agency, the FCC may, in response to a petition
from a third party or on its own initiative, in its discretion, commence a
proceeding to impose sanctions upon us which could involve the imposition of
monetary penalties, the revocation of our broadcast licenses or other sanctions.
If the FCC were to issue an order denying a license renewal application or
revoking a license, we would be required to cease operating the radio station
only after we had exhausted all administrative and judicial review without
success. We have no reason to believe that the FCC will not continue to renew
our licenses without material conditions or qualifications, but if the FCC does
not do so, our revenues and cash flow would suffer materially.
OWNERSHIP. The Communications Act and FCC rules impose specific limits on
the number of stations and other media outlets an entity can own in a single
market. The FCC attributes interests held by, among others, an entity's
officers, directors and shareholders with 5% or greater voting power to that
entity for purposes of applying these ownership limitations. The existing
ownership rules or proposed new rules could affect our acquisition strategy
because they may prevent us from acquiring additional stations in a particular
9
<PAGE>
market. We may also be prevented from engaging in a swap transaction if the swap
would cause the other company to violate these rules. For a more detailed
discussion of these ownership limitations and their impact on our business, see
"Regulation of Radio Broadcasting and Outdoor Advertising--Ownership Matters"
and the subheading "Proposed and Recent Changes."
IF WE ARE NOT ABLE TO OBTAIN REGULATORY APPROVAL FOR OUR ACQUISITIONS, OUR
FUTURE GROWTH MAY BE IMPAIRED.
An important part of our growth strategy is the acquisition of additional
radio stations. We may not be able to complete all of the acquisitions that we
may agree to make. Radio station acquisitions are subject to the approval of the
FCC and, potentially, other regulatory authorities. FCC regulations limit the
number of radio stations that a licensee can own in a market, which could
restrict our ability to consummate future transactions and in certain
circumstances could require us to divest some radio stations. Also, the FCC
employs market-based criteria for transactions and issues a notice of
opportunity for public comment when the FCC believes a proposed combination may
result in excessive concentration of ownership in the market, even if the
proposed combinations otherwise comply with the FCC's ownership limitations. The
FCC has also announced plans to commence a rulemaking proceeding seeking
comments on revising its definition of a radio "market" and the methodology used
to calculate the number of radio stations in a market.
Additionally, since the passage of the Telecommunications Act of 1996, the
U.S. Department of Justice has become more involved in reviewing proposed
acquisitions of radio stations and radio station networks. The Justice
Department is particularly concerned when the proposed buyer already owns one or
more radio stations in the market of the station it is seeking to buy. Recently,
the Justice Department has challenged a number of radio broadcasting
transactions. Some of those challenges ultimately resulted in consent decrees
requiring, among other things, divestitures of certain stations. In general, the
Justice Department has more closely scrutinized radio broadcasting acquisitions
that result in local market shares in excess of 40% of radio advertising
revenue.
THE REGULATION OF OUTDOOR ADVERTISING COULD ADVERSELY AFFECT OUR REVENUE.
The outdoor advertising industry is subject to extensive governmental
regulation at the federal, state and local levels, which may adversely affect
our revenues. These include regulations on the construction, repair, upgrading,
height, size and location of and, in some instances, content of advertising copy
being displayed on outdoor advertising displays.
FUTURE SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT ITS MARKET PRICE.
The market price of our common stock could fall substantially if our
shareholders who hold restricted shares of common stock sell large amounts of
shares of common stock in the public market following this offering. These
sales, or the possibility that these sales may occur, could make it more
difficult for us to sell equity or equity related securities in the future. See
"Shares Eligible for Future Sale."
MANAGEMENT MAY INVEST OR SPEND THE PROCEEDS OF THIS OFFERING IN WAYS WITH WHICH
YOU MAY NOT AGREE AND IN WAYS THAT MAY NOT YIELD A RETURN.
Management will retain broad discretion over the use of proceeds from this
offering. Shareholders may not deem such uses desirable, and our use of the
proceeds may not yield a significant return or any return at all. Management
intends to use a majority of the proceeds from this offering to reduce
borrowings outstanding under our credit facility, and to use a portion of the
proceeds for working capital and other general corporate purposes and to finance
potential acquisitions or investments. There are a number of factors that will
influence our use of the net proceeds from this offering, and we cannot assure
you that these uses will not vary substantially from our current plans.
10
<PAGE>
THERE MAY NOT BE AN ACTIVE MARKET FOR OUR COMMON STOCK, MAKING IT DIFFICULT FOR
YOU TO SELL OUR STOCK.
Following our initial public offering, our stock may not be actively
traded. An illiquid market for our stock may result in price volatility and poor
execution of buy and sell orders for investors. We will determine the offering
price of our common stock through negotiation with the underwriters. The initial
public offering price may bear no relationship to the price at which the common
stock will trade upon completion of this offering.
Historically, stock prices and trading volumes for newly public companies
fluctuate widely for a number of reasons, including some reasons that may be
unrelated to their businesses or results of operations. This market volatility
could depress the price of our common stock without regard to our operating
performance. In addition, our operating results may be below the expectation of
public market analysts and investors. If this were to occur, the market price of
our common stock could decrease, perhaps significantly.
IF OUR DISTRIBUTION OF THE CAPITAL STOCK OF CRESTWOOD COMMUNICATIONS, INC. DOES
NOT QUALIFY AS A TAX-FREE DISTRIBUTION, WE WOULD BE MATERIALLY ADVERSELY
AFFECTED BY THE RESULTING TAX LIABILITY.
As part of our corporate reorganization, we would incur a substantial tax
liability if our distribution of shares of capital stock of Crestwood
Communications, Inc. to our shareholders does not qualify for tax-free
treatment. For a description of our corporate reorganization, which is being
effected immediately prior to this offering, see "Corporate Reorganization."
We have received a private letter ruling from the Internal Revenue Service
to the effect that, for United States federal income tax purposes, our
distribution of the capital stock of Crestwood to our shareholders will qualify
as a distribution that is tax-free to us under the Internal Revenue Code of
1986. However, the ruling is based upon various factual representations and
information. If any of those factual representations or that information were
untrue or incomplete in any material respect, or if the facts upon which the
ruling is based are materially different from the facts at the time of the
distribution, the distribution could become taxable to us.
In addition, our distribution of the capital stock of Crestwood would
become taxable to us if the distribution were part of a plan or series of
related transactions, within the meaning of Section 355(e) of the Internal
Revenue Code, in which one or more persons acquire, directly or indirectly,
stock representing a 50% or greater interest (by vote or value) in either us or
Crestwood.
If our distribution of the capital stock of Crestwood does not qualify for
tax-free treatment for income tax purposes, then we would be required to
recognize taxable gain as of the date of the distribution in an amount equal to
the excess of the fair market value of the stock of Crestwood distributed to our
shareholders in the transaction over our tax basis in those shares. The
resulting tax liability would be substantial and would have a material adverse
effect on our financial condition and, as such, on our business.
11
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information included in this prospectus may contain forward-looking
statements. Forward-looking statements are not statements of historical facts,
but rather reflect our current expectations concerning future results and
events. We generally use the words "believes," "expects," "intends," "plans,"
"anticipates," "likely," "will" and similar expressions to identify
forward-looking statements. These forward-looking statements are subject to
risks, uncertainties and other factors, some of which are beyond our control.
These factors could cause actual results to differ materially from those
forecast or anticipated in the forward-looking statements. These risks,
uncertainties and factors include, but are not limited to, the factors described
in the "Risk Factors" section. Except as required by law, we undertake no
obligation to update these statements or publicly release the result of any
revision to these statements to reflect events or circumstances after the date
of this prospectus.
We use market and industry data throughout this prospectus, which we have
obtained from internal surveys, market research, publicly available information
and industry publications. Industry publications generally state that the
information they provide has been obtained from sources believed to be reliable,
but that the accuracy and completeness of such information is not guaranteed.
Similarly, we believe that the surveys and market research we or others have
performed are reliable, but we have not independently verified this information.
12
<PAGE>
USE OF PROCEEDS
We estimate the net proceeds from the sale of shares of common stock in
this offering will be $ million, or $ million if the underwriters exercise
their over-allotment option in full, assuming a public offering price of $ per
share and after deducting underwriting discounts and commissions and estimated
offering expenses of $ million payable by us.
We intend to use approximately $ million of the net proceeds from this
offering to reduce outstanding borrowings. We will use a portion of the net
proceeds for working capital and general corporate purposes. Consistent with our
acquisition and growth strategy, a portion of the net proceeds may also be used
to acquire or invest in additional radio stations or radio station groups,
outdoor advertising displays and complementary businesses, technologies or
products. We have no current agreements or commitments with respect to any
material business acquisitions. We may, however, submit an offer to acquire an
outdoor advertising business. Should our offer be accepted, any transaction
would be subject to negotiation of definitive terms and would be our largest
outdoor advertising acquisition to date. A portion of the proceeds of this
offering would be used to pay part of the purchase price. Accordingly, our
management will have significant flexibility in applying the net proceeds of
this offering. Pending such uses, the net proceeds of this offering will be
invested in short-term investments. See "Risk Factors--Management may invest or
spend the proceeds of this offering in ways with which you may not agree and in
ways that may not yield a return."
As of June 30, 2000, we had an aggregate outstanding balance under our
credit facilities of approximately $25.5 million comprised of $20.0 million
under our credit facility A and $5.5 million under our credit facility B.
Immediately prior to this offering, we intend to restructure our credit
facilities to reflect our changed operating and capital structure. As a result
of our reorganization as described in the "Corporate Reorganization" section of
this prospectus, $5.0 million of our indebtedness under our credit facilities
will be assumed by Crestwood Communications, Inc. On June 30, 2000, the
effective interest rate applicable to our credit facility A was 5.73%. The
effective interest rate applicable to our credit facility B was 7.41%. The
maturity date of outstanding indebtedness under our credit facility A is May 31,
2001 and the maturity date of outstanding indebtedness under our credit facility
B is May 31, 2003.
DIVIDEND POLICY
For the foreseeable future, we intend to retain any earnings to finance the
development and expansion of our business, and we do not anticipate paying any
cash dividends on our common stock. In addition, our credit facility restricts
our ability to pay dividends. Any future determination to pay dividends will be
at the discretion of our board of directors and will be dependent upon then
existing conditions, including our financial condition and results of
operations, capital requirements, contractual restrictions, business prospects
and other factors that the board of directors considers relevant.
13
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2000 (i)
on an actual basis, (ii) after giving pro forma effect to our reorganization
planned concurrently with our proposed public offering , and (iii) on an as
adjusted basis giving effect to the closing of this offering at the initial
public offering price of $ per share and the receipt of the net proceeds from
the sale of the common stock offered hereby and our corporate reorganization.
For a discussion of our reorganization, see the "Corporate Reorganization"
section of this prospectus.
You should read this table in conjunction with our consolidated financial
statements and related notes included elsewhere in this prospectus. You should
also refer to "Use of Proceeds," and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
JUNE 30, 2000
-----------------------------------------
PRO FORMA
FOR THE
CORPORATE PRO FORMA
ACTUAL REORGANIZATION AS ADJUSTED
---------- --------------- -------------
<S> <C> <C> <C>
(IN THOUSANDS)
Current portion of long-term debt.................................... $22,644,683 $ 17,643,683
Notes payable to shareholders and affiliates......................... 766,850 608,824
Notes payable to employees........................................... 723,874 641,831
Long-term debt, excluding current portion............................ 9,364,025 9,364,025
Shareholders' equity:
Preferred stock................................................... 1,320,000 --
Common stock...................................................... 326,250 326,250
Additional paid-in capital........................................ 3,670,444 3,670,444
Partnership capital............................................... 88,463 88,463
Retained earnings................................................. 14,558,778 6,095,451
Accumulated other comprehensive income............................ 49,421,440 --
----------- --------------- -------------
Total shareholders' equity...................................... 69,385,335 10,180,608
----------- --------------- -------------
Total capitalization............................................ 102,884,767 38,438,971
=========== =============== =============
</TABLE>
14
<PAGE>
DILUTION
Purchasers of our common stock offered by this prospectus will suffer
immediate and substantial dilution in net tangible book value per share1.
Dilution is the amount by which the initial public offering price paid by
purchasers of the shares of common stock in this offering will exceed the net
tangible book value per share of common stock after the offering. The net
tangible book value per share of common stock is determined by subtracting total
liabilities from the total book value of the tangible assets and dividing the
difference by the number of shares of common stock deemed to be outstanding on
the date the book value is determined. As of June 30, 2000, we had an unaudited
pro forma negative tangible book value of $20,413,666 or $15.64 per share after
giving effect to the corporate reorganization described in the "Unaudited Pro
Forma Condensed Consolidated Financial Data" and the "Corporate Reorganization"
sections of this prospectus. Assuming the sale of _______ shares at the initial
public offering price of $ per share and deducting the underwriting discounts
and commissions and estimated offering expenses, our pro forma net tangible book
value as of June 30, 2000 would have been $ or $ per share. This represents an
immediate and substantial increase in pro forma net book value to existing
shareholders of $ per share and an immediate and substantial dilution to new
investors of $ per share. In addition, investors may experience further dilution
to the extent that shares of our common stock are issued upon the exercise of
stock options under our stock-based incentive programs. These shares may be
issued at a purchase price less than the initial public offering price per share
in this offering. We also expect to offer stock options to employees in the
future. These issuances will cause further dilution to investors. The following
table illustrates this per share dilution:
Assumed initial public offering price per share..............................$
Pro forma net tangible book value per share at June 30, 2000..............$
Increase in net tangible book value attributable to this offering.........$
Pro forma net tangible book value after this offering........................$
Dilution to new investors....................................................$
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK PURCHASED TOTAL CONSIDERATION AVERAGE PRICE PER
--------------------- --------------------- SHARE OF
NUMBER PERCENT AMOUNT PERCENT COMMON STOCK
---------- --------- ------- --------- ----------------
<S> <C> <C> <C> <C> <C>
Existing shareholders...........................
New investors...................................
Total.........................................
</TABLE>
15
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
Our historical financial statements are included elsewhere in this
prospectus. The unaudited pro forma condensed consolidated financial data
presented here should be read together with those financial statements and
related notes.
As you review the information contained in the following table and
throughout this prospectus, you should note the following:
o In conjunction with this offering, management intends to reorganize
Simmons Media Group and spin-off certain small market radio and
non-media assets to our existing shareholders. Our reorganization will
be accomplished by transferring the assets and certain related
liabilities to a newly formed company, Crestwood Communications, Inc.
in exchange for shares of Crestwood capital stock. We will then
distribute all of the Crestwood shares to our existing shareholders
immediately prior to the effectiveness of this offering.
o The small market radio assets represent the assets used in operating
five radio stations located in St. George, Utah. Three of these
stations are being operated under local marketing agreements, and
accordingly, the FCC licenses are not held by us. The non-media assets
are primarily comprised of marketable securities, notes receivable,
and other miscellaneous non-media investments. Management has
determined that approximately $5,000,000 of our indebtedness, as of
December 31, 1999, was incurred to fund the non-media assets being
transferred to Crestwood. Therefore, Crestwood will assume $5,000,000
of indebtedness in addition to assuming certain routine liabilities
incurred in the normal course of operating the St. George stations.
o The pro forma consolidated balance sheets as of December 31, 1999 and
June 30, 2000, present our capital structure, and the effect of the
net assets divested in the spin-off with resultant reductions to
retained earnings, as of the respective dates presented. The pro forma
consolidated statements of operations for the periods presented
reflect results of operations as if the reorganization had occurred as
of January 1, 1999. Pro forma consolidated results of operations
differ from the reported results of operations primarily as a result
of reductions in routine revenues and expenses related to the St.
George stations, reductions in interest expense in connection with the
$5,000,000 in indebtedness proposed to be assumed by Crestwood,
reductions in dividend and interest income earned on marketable equity
securities and other investments to be transferred, and the related
income tax effects of our reorganization.
o The pro forma balance sheet does not include any proceeds from our
initial public offering. Earnings per share for the pro forma periods
presented are based on the number of shares issued and outstanding
immediately prior to the effectiveness of our initial public offering.
16
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
ADJUSTMENTS
TO SPIN-OFF ADJUSTMENTS
SMALL MARKET TO SPIN-OFF
RADIO ASSETS NON-MEDIA
ACTUAL (A) ASSETS PRO FORMA
---------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C>
Net broadcasting revenue..................... $ 25,254,028 $ 2,793,903 -- $ 22,460,125
Station operating expense.................... 18,533,949 2,265,798 -- 16,268,151
Depreciation and amortization................ 3,400,328 164,919 $ 8,879 3,226,530
Corporate general and administrative......... 2,285,588 7,506 241,468 (b) 2,036,614
---------------- -------------- ------------- ----------------
Total operating expense............... 24,219,865 2,438,223 250,347 21,531,295
---------------- -------------- ------------- ----------------
Operating income...................... 1,034,163 355,680 (250,347) 928,830
Dividend and interest income................. 2,018,244 -- 1,988,665 (c) 29,579
Interest expense............................. (2,179,679) (1,282) (347,536)(d) (1,830,861)
Gain on disposition of business.............. 1,690,623 -- -- 1,690,623
Other income (expense), net.................. 443,730 -- 341,538 (e) 102,192
---------------- -------------- ------------- ----------------
Net income before income taxes........ 3,007,081 354,398 1,732,320 920,363
---------------- -------------- ------------- ----------------
Income tax expense........................... 895,071 127,583 258,495 508,993
---------------- -------------- ------------- ----------------
Net income............................ 2,112,010 226,815 1,473,825 411,370
================ ============== ============= ================
</TABLE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
ADJUSTMENTS
TO SPIN-OFF ADJUSTMENTS
SMALL TO SPIN-OFF
MARKET RADIO NON-MEDIA
ACTUAL ASSETS (A) ASSETS PRO FORMA
---------------- ------------- ---------------- --------------
ASSETS
<S> <C> <C> <C> <C>
Current assets.............................. $ 10,968,197 $ 667,518 $ 4,308,170(f) $ 5,992,509
Marketable equity
securities-available-for-sale............ 107,419,756 -- 107,419,756(g) --
Notes receivable from related parties....... 3,295,833 -- 3,295,833(h) --
Intangible assets, net...................... 30,064,487 199,575 -- 29,864,912
Other assets................................ 7,905,217 846,932 2,916,784(i) 4,141,501
---------------- ------------- ---------------- --------------
159,653,490 1,714,025 117,940,543 39,998,922
================ ============= ================ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities......................... $ 9,847,506 $ 329,699 $ 732,322(j) $ 8,785,485
Long-term debt, excluding
current installments..................... 25,521,890 -- 5,000,000(k) 20,521,890
Deferred income taxes....................... 40,985,512 -- 39,530,595(l) 1,454,917
Minority interest........................... 235,823 -- 237,262 (1,439)
Total shareholders' equity.................. 83,062,759 1,384,326 72,440,364(m) 9,238,069
---------------- ------------- ---------------- --------------
159,653,490 1,714,025 117,940,543 39,998,922
================ ============= ================ ==============
</TABLE>
17
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
ADJUSTMENTS
TO SPIN-OFF SMALL ADJUSTMENTS
MARKET RADIO TO SPIN-OFF
ACTUAL ASSETS (A) NONMEDIA ASSETS PRO FORMA
------------ ----------------- --------------- -------------
<S> <C> <C> <C> <C>
Net broadcasting revenue....................... $ 12,510,038 $ 1,375,785 -- $ 11,134,253
Station operating expense...................... 8,690,066 1,202,989 -- 7,487,077
Depreciation and amortization.................. 1,760,383 54,802 $ 4,440 1,701,141
Corporate general and administrative........... 1,083,283 -- 101,390(b) 981,893
------------ ----------------- --------------- -------------
Total operating expense................... 11,533,732 1,257,791 105,830 10,170,111
------------ ----------------- --------------- -------------
Operating income.......................... 976,306 117,994 (105,830 964,142
Dividend and interest income................... 1,042,661 -- 1,042,131(c) 530
Interest expense............................... (1,017,518) (3,198) (167,027(d) (847,293)
Other income (expense), net.................... 853,211 881,624(e) (28,413)
------------ ----------------- --------------- -------------
Net income before
income taxes............................ 1,854,660 114,796 1,650,898 88,966
------------ ----------------- --------------- -------------
Income tax expense............................. 567,651 41,327 433,388 92,936
------------ ----------------- --------------- -------------
Net income................................ 1,287,009 73,469 1,217,510 (3,970)
============ ================= =============== =============
</TABLE>
18
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2000
<TABLE>
<CAPTION>
ADJUSTMENTS
TO SPIN-OFF ADJUSTMENTS
SMALL MARKET TO SPIN-OFF
RADIO ASSETS NONMEDIA
ACTUAL (A) ASSETS PRO FORMA
-------------- -------------- --------------- -------------
ASSETS
<S> <C> <C> <C> <C>
Current assets................................. $ 11,493,865 $ 616,345 $ 4,235,054(f) $ 6,642,466
Marketable equity securities-
available-for-sale.......................... 83,283,573 -- 83,283,573(g) --
Notes receivable from related parties.......... 3,295,833 -- 3,295,833(h) --
Intangible assets, net......................... 30,803,430 213,683 -- 30,589,747
Other assets................................... 8,528,968 892,691 2,761,146(i) 4,875,131
-------------- -------------- --------------- -------------
137,405,669 1,722,719 93,575,606 42,107,344
============== ============== =============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities............................ $ 26,848,043 $ 211,637 $ 5,249,782(n) $ 21,386,624
Long-term debt, excluding
current installments........................ 9,364,025 -- -- 9,364,025
Deferred income taxes.......................... 31,745,542 -- 30,564,928(l) 1,180,614
Minority interest.............................. 62,724 -- 67,251 (4,527)
Total shareholders' equity..................... 69,385,335 1,511,082 57,693,645(m) 10,180,608
-------------- -------------- --------------- -------------
137,405,669 1,722,719 93,575,606 42,107,344
============== ============== =============== =============
</TABLE>
--------------
(a) Represents actual operating revenues and expenses of KDXU, KSNN, KEOT,
KTSP, and KZHK for the year ended December 31, 1999 and the six-month
period ended June 30, 2000.
(b) Represents salaries, wages, and benefits unrelated to the Media operation
and bonuses paid to the President in connection with managing nonmedia
assets.
(c) Represents dividends and interest earned on marketable equity securities
and other deposits.
(d) Represents interest expense in connection with the $5 million in
indebtedness assumed by Crestwood.
(e) Represents realized and unrealized gains on marketable equity
securities-trading.
(f) Represents trading securities and notes receivable from related parties.
(g) All marketable equity securities will be transferred to Crestwood.
(h) Represents long-term notes receivable transferred to Crestwood.
(i) Primarily represents investments in affiliated entities and deposits
related to the acquisition of additional St. George stations.
(j) Represents interest payable on debt assumed by Crestwood and dividends
payable on preferred stock transferred to Crestwood.
(k) Represents the amount of long-term debt assumed by Crestwood.
(l) Primarily represents deferred taxes related to available-for-sale
securities transferred to Crestwood.
(m) Includes net unrealized gains on marketable equity securities transferred
to Crestwood and preferred stock retired in connection with the spin-off.
(n) Represents interest payable related to and current portion of long-term
debt to be assumed by Crestwood.
19
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following sets forth our selected consolidated historical financial
data as of and for each of the years in the five-year period ended December 31,
1999 and for the six months ended June 30, 1999 and 2000. The selected
consolidated historical financial data presented below as of and for each of the
years in the five-year period ended December 31, 1999 are derived from our
consolidated financial statements, which have been audited by KPMG LLP,
independent certified public accountants.
Our selected consolidated historical financial data presented below for the
six months ended June 30, 1999 and 2000 are derived from our unaudited condensed
consolidated financial statements. In our opinion, these unaudited condensed
consolidated financial statements contain all necessary adjustments of a normal
recurring nature to present the financial statements in accordance with
generally accepted accounting principles. Our consolidated financial statements
as of December 31, 1998 and 1999 and for each of the years in the three-year
period ended December 31, 1999 and the independent auditors' reports on those
consolidated financial statements, as well as our unaudited consolidated
financial statements for the six months ended June 30, 1999 and 2000, are
included elsewhere in this prospectus.
As you review the information contained in the following table and
throughout this prospectus, you should note the following:
o NET REVENUES means gross revenues less agency and outside commissions
incurred for selling air time.
o BROADCAST CASH FLOW consists of net revenues less station operating
expenses, excluding barter activity and local marketing and time
brokerage agreement expenses.
o BROADCAST CASH FLOW MARGIN represents broadcast cash flow as a
percentage of net revenues.
o EBITDA consists of broadcast cash flow less corporate general and
administrative expenses.
o AFTER-TAX CASH FLOW consists of net income (loss) before extraordinary
items, excluding any gain (loss) on sales of assets, net of tax, plus
depreciation, amortization, equity appreciation rights, and deferred
tax expense.
o No expense for equity appreciation rights has been recorded for the
periods presented.
(1) Although broadcast cash flow, EBITDA and after-tax cash flow are not
measures of performance or liquidity calculated in accordance with generally
accepted accounting principles, we believe that these measures are useful to an
investor in evaluating our performance. These measures are widely used in the
broadcast industry to evaluate a radio company's operating performance. However,
you should not consider these measures in isolation or as substitutes for
operating income, cash flows from operating activities or any other measure for
determining our operating performance or liquidity that is calculated in
accordance with generally accepted accounting principles. In addition, because
broadcast cash flow, EBITDA and after-tax cash flow are not calculated in
accordance with generally accepted accounting principles, they are not
necessarily comparable to similarly titled measures employed by other companies.
20
<PAGE>
You should read the selected historical financial data presented below
together with our audited and unaudited consolidated financial statements and
notes thereto and the information contained in the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" section included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------------------------- -----------------------
1995 1996 1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net broadcasting
revenue.............. $11,835,474 $16,580,041 $17,667,583 $22,250,780 $25,254,028 $11,664,734 $12,510,038
Station operating
expense.............. 7,353,755 13,170,614 12,998,199 17,883,692 18,533,949 9,066,812 8,690,066
Depreciation and
amortization......... 585,379 770,041 1,596,567 2,772,355 3,400,328 1,727,526 1,760,383
Corporate general and
administrative....... 1,173,691 1,844,250 1,815,179 2,647,367 2,285,588 1,157,322 1,083,283
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss) 2,722,649 795,136 1,257,638 (1,052,634) 1,034,163 (286,926) 976,306
Interest and dividend
income............... 818,764 980,321 1,635,211 1,406,959 2,018,244 751,831 1,042,661
Interest expense....... (210,971) (530,055) (645,561) (2,042,433) (2,179,679) (1,088,883) (1,017,518)
Unrealized gain (loss)
on marketable equity
securities--trading... -- (140,164) 61,971 (444,340) 325,632 271,893 773,436
Net gain (loss) on
sale of marketable
equity
securities--trading... 194,635 (7,176) 216,828 (135,497) 133,453 (90,581) 6,758
Gain on sale of
business & fixed
assets............... (30,765) 11,296,534 -- 10,000 1,690,623 1,690,623 --
Other income, net...... 46,180 (222,480) (192,038) (40,792) (86,855) 47,436 101,430
Minority share of
(income) loss........ (5,103) 95,214 375 (32,387) 71,500 31,369 (28,413)
---------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before 3,535,389 12,267,330 2,334,424 (2,331,124) 3,007,081 1,326,762 1,854,660
income taxes ........
Income tax expense
(benefit)............ 1,157,671 4,683,571 917,412 (572,823) 895,071 436,471 567,651
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)...... 2,377,718 7,583,759 1,417,012 (1,758,301) 2,112,010 890,291 1,287,009
=========== =========== =========== =========== =========== =========== ===========
OTHER DATA:
Broadcast cash flow (1). $4,544,684 $3,409,427 $5,137,564 $4,612,835 $6,757,946 $2,652,706 $3,743,440
EBITDA (1).............. 3,370,993 1,565,177 3,322,385 1,965,468 4,472,358 1,495,384 2,660,157
After-tax cash flow (1). 3,036,799 1,278,808 3,088,932 724,274 4,087,140 1,396,659 3,387,936
Cash provided by (used in):
Operating activities. 1,876,108 8,244,629 2,359,159 2,477,236 5,781,098 641,773 (228,173)
Investing activities. (7,250,137) (5,086,001) (6,325,439) (16,420,908) (3,871,869) (2,921,691) (1,855,672)
Financing activities. 4,038,203 (2,053,299) 3,421,560 13,198,451 (1,762,403) 2,531,378 1,589,584
<CAPTION>
AS OF DECEMBER 31, AT JUNE 30,
------------------------------------------------------------- -----------------------
1995 1996 1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents,
including cash held
in escrow............ $ 941,522 $ 2,046,851 $ 1,502,131 $ 1,306,910 $ 903,736 $ 1,008,370 $ 409,475
Intangible assets, net. 2,266,058 10,743,483 12,681,360 27,484,996 30,064,487 31,045,406 30,803,430
Total assets........... 51,618,864 74,647,563 114,177,478 164,339,490 159,653,490 169,026,663 137,405,669
Long-term debt,
including current
installments......... 28,527 4,408,148 8,896,549 30,532,082 27,723,755 32,916,165 32,007,708
Shareholders' equity... 31,021,019 44,727,995 67,495,708 84,571,905 83,062,759 88,644,190 69,385,335
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION TOGETHER WITH THE FINANCIAL
STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS. THE RESULTS
DISCUSSED BELOW ARE NOT NECESSARILY INDICATIVE OF THE RESULTS TO BE EXPECTED IN
ANY FUTURE PERIOD.
GENERAL
As a regional radio broadcasting and outdoor advertising company, we
derive our revenues primarily from the sale of radio broadcasting time and
outdoor advertising space to local and national advertisers. For the six-months
ended June 30, 2000, we generated 96% of our revenues from radio advertising
sales and 4% from outdoor advertising sales.
In radio broadcasting, for the six months ended June 30, 2000, we
generated 84% of our gross broadcast revenues from local advertising, which is
sold primarily by each individual local radio station's sales staff, and 16%
from national spot advertising, which is generally sold by separate national
sales representatives.
In outdoor advertising, our separate sales force sells billboard space
primarily to local advertisers, generally on an annual contract basis. Our
outdoor advertising operation, located south of the Salt Lake City metropolitan
area, consists primarily of advertising displays that face the highway and the
advertising rates that we are able to charge are based upon our display
locations and our ability to serve local advertisers.
Our performance may be adversely affected by several factors in any given
period. In both radio and outdoor advertising, we are impacted by seasonal
revenue fluctuations that are a result of variations in advertising expenditures
by local and national advertisers. Typically, our revenues are lowest in the
first calendar quarter of the year. In our radio business, we periodically incur
advertising and promotional expenses to increase listenership and Arbitron
ratings. However, because Arbitron reports ratings quarterly in our markets, any
increased ratings, and therefore increased advertising revenues, tend to lag
behind the incurrence of advertising and promotional spending.
As with the general media industry, our operations periodically utilize
trade or barter agreements to reduce expenses by exchanging advertising time for
goods or services. However, in order to maximize cash revenue from our spot
inventory, our policy is to minimize trade and barter agreements.
We calculate "same station" net revenue and broadcast cash flow growth by
comparing the performance of radio stations and outdoor advertising displays
operated by us at the end of a relevant period to the performance of those same
assets operated by us in the prior year's corresponding period, excluding the
effect of barter revenues and expenses.
CORPORATE REORGANIZATION
Concurrently with this offering, we intend to spin-off our small market
radio stations located in St. George, Utah, and certain non-media assets,
including our portfolio of marketable securities, to a newly formed corporation,
Crestwood Communications, Inc.
The spin-off will impact several areas of our operations. Historical
results of operations include revenues and expenses related to the St. George
stations, and non-operating income, primarily from dividends and gains on
marketable securities, which as a result of our reorganization, will not be
retained by us on a going-forward basis. To assist the reader in understanding
the historical results of operations and certain cash flows of our retained
operations, we have included a discussion of our results of operations on a pro
forma basis as if the corporate reorganization occurred as of January 1, 1998.
For a further discussion of this reorganization, see the "Corporate
Reorganization" section of this prospectus.
22
<PAGE>
During the six-month period ended June 30, 2000 and the twelve-month
period ended December 31, 1999, our St. George radio stations contributed 11%
and 6%, and 11% and 9%, respectively, to our net revenues and broadcast cash
flow.
We will no longer be able to utilize dividend income and realized gains,
derived from our marketable securities, to offset operating expenses. We will
also no longer be able to use our marketable securities as collateral under our
credit facilities or other financing arrangements.
We expect corporate general and administrative expenses will likely
increase as we incur additional reporting and compliance costs of operating as a
public company, to be offset in part by a reduction in other non-media corporate
expenses.
PRO FORMA RESULTS OF OPERATIONS
The pro forma consolidated balance sheets and the pro forma consolidated
statements of operations set forth below reflect our capital structure and
results of operations as if our corporate reorganization had occurred as of
January 1, 1998.
Pro forma consolidated results of operations differ from the reported
results of operations primarily as a result of deductions in routine revenues
and expenses related to the St. George stations, reductions in interest expense
in connection with $5,000,000 of indebtedness to be assumed by Crestwood,
reductions in dividend and interest income earned on marketable securities,
other investments to be transferred in our corporate organization, and the
related income tax effects of our corporate reorganization.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------- --------------------------------
1998 1999 1999 2000
--------------- --------------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net broadcasting revenue..................... $ 20,004,671 $ 22,460,125 $ 10,318,987 $ 11,134,253
Station operating expense.................... 15,944,866 16,268,151 7,940,323 7,487,077
Depreciation and amortization................ 2,671,996 3,226,530 1,672,797 1,701,141
Corporate general and administrative......... 2,418,315 2,036,614 1,038,269 981,893
--------------- --------------- --------------- ---------------
Operating income (loss)...................... (1,030,506) 928,830 (332,402) 964,142
Interest income.............................. 28,901 29,579 31,130 530
Interest expense............................. (1,749,374) (1,830,861) (925,037) (847,293)
Gain on sale of business..................... -- 1,690,623 1,690,623 --
Other income, net............................ 98,277 93,430 32,546 (31,502)
Minority share of (income) loss.............. (32,387) 8,762 -- 3,089
--------------- --------------- --------------- ---------------
Income (loss) before income taxes ........... (2,685,089) 920,363 496,860 88,966
Income tax expense (benefit) ................ (454,950) 508,993 156,261 92,936
--------------- --------------- --------------- ---------------
Net income (loss)............................ (2,230,139) 411,370 340,599 (3,970)
=============== =============== =============== ===============
OTHER DATA:
Broadcast cash flow.......................... $ 4,245,703 $ 6,144,022 $ 2,414,490 $ 3,525,008
EBITDA....................................... 1,827,385 4,107,408 1,376,221 2,543,116
After-tax cash flow.......................... 254,726 2,164,105 705,305 1,702,554
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AS OF DECEMBER 31, AS OF JUNE 30,
-------------------------------- ---------------------------------
1998 1999 1999 2000
--------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................$ 835,818 $ 740,719 $ 1,000,552 $ 365,187
Intangible assets, net......................... 27,360,487 29,864,912 30,911,948 30,589,747
Total assets................................... 38,607,479 39,998,922 40,674,147 42,107,344
Long-term debt, including current
installments................................ 25,532,082 22,723,755 27,916,165 27,007,708
Shareholders' equity........................... 7,909,230 9,238,069 6,338,662 10,180,608
</TABLE>
23
<PAGE>
PRO FORMA SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO PRO FORMA SIX MONTHS ENDED
JUNE 30, 1999
NET BROADCASTING REVENUE. Net broadcasting revenue increased 7.9% to $11.1
million for the six months ended June 30, 2000 from $10.3 million for the
comparable 1999 period. The increase was primarily attributable to overall
market growth in our target markets, which increased revenue at our most
recently acquired radio stations in Salt Lake City, KQMB-FM and KXRK-FM, as well
as our Albuquerque radio station cluster. Our Austin radio station also
experienced market growth, while simultaneously increasing its revenue share.
Revenue from outdoor advertising operations also increased due to higher rate
cards and occupancy levels. On a same station basis, net revenues excluding
trade activity increased by 9.2%.
STATION OPERATING EXPENSES. Station operating expenses declined 5.7% to
$7.5 million for the six months ended June 30, 2000 from $7.9 million for the
comparable 1999 period. The decrease was primarily attributable to lower
acquisition related costs, cost control efforts and ongoing consolidation
benefits from previously acquired stations. The six-month period ended June 30,
1999 also included a $0.1 million non-recurring charge related to severance
costs for termination of an employee.
BROADCAST CASH FLOW. Broadcast cash flow increased 46% to $3.5 million
for the six months ended June 30, 2000 from $2.4 million for the comparable 1999
period. The increase was primarily attributable to revenue increases in our
three radio clusters, as well as revenue growth in outdoor advertising, combined
with a decline in station operating expenses. Our same radio station broadcast
cash flow increased 46%.
INTEREST EXPENSE. Interest expense decreased 8.4% to $0.85 million for
the six months ended June 30, 2000 from $0.93 million for the comparable 1999
period. The decrease was attributable to lower overall average debt levels.
NET INCOME (LOSS). Excluding gain on sale of assets of $1.7 million
in 1999, net income for the six months ended June 30, 2000 decreased by $1.4
million from the comparable 1999 period as a result of increased operating
income as discussed above.
PRO FORMA YEAR ENDED DECEMBER 31, 1999 COMPARED TO PRO FORMA YEAR ENDED
DECEMBER 31, 1998
NET BROADCAST REVENUE. Net broadcast revenue increased 12.3% to $22.5
million for 1999 from $20.0 million for 1998. The increase was mainly
attributable to revenue gains in all three of our radio markets. In particular,
our two newest Salt Lake City stations, KQMB-FM and KXRK-FM, acquired in the
first quarter of 1998, showed strong revenue gains. Our Albuquerque cluster
experienced increases in both listener levels and overall revenue share, and our
Austin station was assisted by an exceptionally strong radio market.
Additionally, our outdoor advertising group more than doubled its revenues to
$0.9 million in 1999 versus $0.4 million from the previous period partially due
to the acquisition of additional billboard displays in December 1998.
STATION OPERATING EXPENSES. Station operating expenses increased 2.0% to
$16.3 million for 1999 from $15.9 million for 1998 due to management's focus on
cost controls, but were partially offset by the termination of an employee and
the cancellation of a radio broadcasting content contract.
BROADCAST CASH FLOW. Broadcast cash flow increased 44.7% to $6.1 million
for 1999 from $4.2 million for the comparable 1998 period. The increase was
mainly attributable to revenue increases from recent acquisitions in our three
radio clusters, as well as revenue growth in outdoor advertising, combined with
flat station operating expenses. On a same station basis, broadcast cash flow
increased 12.7%.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES. Corporate general and
administrative expenses decreased 15.8% to $2.0 million for 1999 from $2.4
million for 1998. The decline was primarily attributable to a reduction in
professional services expenses incurred in 1998 related to debt and other
financing.
24
<PAGE>
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
20.8% to $3.2 million for 1999 from $2.7 million for 1998. The increase was
attributable to the impact of acquisitions of radio stations and outdoor
advertising displays completed during the periods.
INTEREST EXPENSE. Interest expense increased 4.7% to $1.8 million for
1999 from $1.7 million for the comparable 1998 period. This increase was
attributable to an increase in overall average debt levels.
GAIN ON SALE OF ASSETS. Gain on sale of assets in 1999 was $1.7 million
due to the sale of KMGR-FM in Salt Lake City.
NET INCOME (LOSS). Excluding gain on sale of assets of $1.7 million in
1997, loss decreased $1.0 million from 1998 as a result of operating income as
discussed above.
CONSOLIDATED HISTORICAL RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
NET BROADCAST REVENUE. Net broadcast revenue increased 7.2% to $12.5
million for the six months ended June 30, 2000 from $11.7 million for the
comparable 1999 period. The increase was primarily attributable to overall
market growth in our target markets which increased revenue at our most recently
acquired stations in Salt Lake City, KQMB-FM and KXRK-FM, as well as our
Albuquerque radio station cluster. Our Austin station also experienced market
growth, while simultaneously increasing its revenue share. Revenue from outdoor
advertising operations also increased due to higher rate cards and occupancy
levels.
STATION OPERATING EXPENSES. Station operating expenses declined 4.2% to
$8.7 million for the six months ended June 30, 2000 from $9.1 million for the
comparable 1999 period. The decrease was mainly attributable to lower
acquisition related costs, cost control efforts and ongoing consolidation
benefits from recently acquired stations. The six-month period ended June 30,
1999 also included a $0.1 million non-recurring charge related to severance
costs for termination of an employee.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES. Corporate general and
administrative expenses declined 6.4% to $1.1 million for the six months ended
June 30, 2000 from $1.2 million for the comparable 1999 period. The decrease was
due to benefits of overall cost control management.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
1.9% to $1.8 million for the six months ended June 30, 2000 from $1.7 million
for the comparable 1999 period.
INTEREST AND DIVIDEND INCOME. Interest and dividend income increased
38.7% to $1.0 million for the six months ended June 30, 2000 from $0.8 million
for the comparable 1999 period. The increase was a result of a higher dividend
payout from our portfolio of marketable securities. As a result of the corporate
reorganization, we will no longer derive dividend income from these marketable
securities.
GAIN ON SALE OF ASSETS. The sale of our Salt Lake City area radio station
KMGR-FM in May 1999 resulted in a gain on the sale in the amount of $1.7
million. No material asset sales were effected during the six-month period ended
June 30, 2000.
INTEREST EXPENSE. Interest expense decreased 6.6% to $1.0 million for the
six months ended June 30, 2000 from $1.1 million for the comparable 1999 period.
The decrease was attributable to lower overall average debt levels.
NET INCOME. Excluding gain on sale of assets of $1.7 million in 1999, net
income increased $2.1 million from the comparable period as a result of
operating income as discussed above. The improvement is attributable to same
station increases in net broadcast revenue while reducing station operating
expenses for the same period.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
NET BROADCAST REVENUE. Net broadcast revenue increased 13.5% to $25.3
million for 1999 from $22.3 million for 1998. The increase was mainly
attributable to revenue gains in our radio station markets.
25
<PAGE>
Our two newest Salt Lake City radio stations, KQMB-FM and KXRK-FM showed strong
revenue gains. Our Albuquerque radio station cluster experienced increases in
both listener levels and overall revenue share, while our Austin station was
assisted by an exceptionally strong radio market. Additionally, our outdoor
advertising group more than doubled its revenues to $0.9 million versus $0.4
million from the previous period due partially to the acquisition of additional
billboard displays in December 1998 and partially to increased rate card and
occupancy levels.
STATION OPERATING EXPENSES. Station operating expenses increased 3.6% to
$18.5 million for 1999 from $17.9 million for 1998. The modest increase was
primarily attributable to our focus on cost controls, offset by $0.4 million in
non-recurring charges in 1999 related to employee terminations and cancellation
of a radio broadcasting content contract.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES. Corporate general and
administrative expenses dropped 13.7% to $2.3 million for 1999 from $2.6 million
for 1998. The decrease was primarily attributable to a reduction in professional
services expenses incurred in 1998 related to debt financing and other financing
efforts.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
22.7% to $3.4 million for 1999 from $2.8 million for 1998. The increase was
attributable to the impact of acquisitions of two radio stations and several
outdoor advertising displays in the Salt Lake City area completed during the
periods.
INTEREST AND DIVIDEND INCOME. Interest and dividends increased 43.4% to
$2.0 million for 1999 from $1.4 million for 1998. The increase was due to higher
dividends from our portfolio of marketable securities. As a result of the
corporate reorganization, we will no longer derive dividend income from these
marketable securities.
GAIN ON SALE OF ASSETS. The sale of our Salt Lake City area radio station
KMGR-FM in May 1999 resulted in a gain on the sale in the amount of $1.7
million.
INTEREST EXPENSE. Interest expense increased 6.7% to $2.2 million for
1999 from $2.0 million for the comparable 1998 period. The increase was
attributable to overall higher average debt balances.
NET INCOME (LOSS). Net income increased to $2.1 million for 1999 from a
$1.8 million loss for the comparable 1998 period. This was due to a combination
of increased operating income as discussed above, the gain on the sale of radio
station KMGR-FM and higher dividend income on our portfolio of marketable
securities.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
NET BROADCAST REVENUE. Net broadcast revenue increased 25.9% to $22.3
million for 1998 from $17.7 million for 1997. The increase was primarily
attributable to the combination of 6 newly acquired stations in Salt Lake City,
Albuquerque, St. George, and Austin, and the acquisition of our first outdoor
advertising assets.
STATION OPERATING EXPENSES. Station operating expenses increased 37.6% to
$17.9 million for 1998 from $13.0 million for 1997. The increase was primarily
attributable to higher costs associated with operating newly acquired
properties.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES. Corporate general and
administrative expenses increased 45.8% to $2.6 million for 1998 from $1.8
million for 1997. The increase was mainly attributable to higher professional
service costs incurred in connection with debt refinancing and exploration of
additional sources of financing.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
73.6% to $2.8 million for 1998 from $1.6 million for 1997. The increase was
attributable to the impact of acquisitions of radio stations and outdoor
advertising displays completed during 1998.
26
<PAGE>
INTEREST EXPENSE. Interest expense increased 216.4% to $2.0 million for
1998 from $0.6 million for the comparable 1997 period. The increase was
attributable to an increase in borrowings related to our radio station and
outdoor advertising display acquisitions.
NET INCOME (LOSS). Net loss was $1.8 million for 1998 versus $1.4 million
in net income in the comparable 1997 period. The loss was attributable to
start-up costs from new acquisitions in 1998, higher amounts of depreciation,
corporate general and administrative expenses, and interest expense.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW. On an historical basis, a significant portion of our
acquisitions have been funded by a combination of our credit facility and
internally generated cash flows. Our other liquidity needs have been for debt
service, working capital, general corporate purposes, and ongoing capital
expenditures.
CASH PROVIDED BY (USED IN) OPERATIONS. For the years ended December 31,
cash provided by (used in) operations totaled $2.4 million in 1997, $2.5 million
in 1998, and $5.8 million in 1999. While net income decreased from $1.4 million
in 1997 to a ($1.8) loss in 1998, cash flows from operations remained constant
due to offsetting increases in noncash expenditures, including depreciation and
amortization resulting from 1998 acquisitions and year-end accrued expenses that
were funded in the subsequent period. The increase between 1998 and 1999 is
attributable to an approximate $2.1 million increase in operating income from
stations acquired in the first quarters of 1998 and 1999 and the efficiencies
associated with consolidation of operations, and an increase in dividend and
interest income of $0.6 million.
Cash provided by (used in) operations totaled $0.6 million during the six
months ended June 30, 1999 and ($0.2) million during the six months ended June
30, 2000. The decrease between the periods was primarily due to an increase in
operating income of $1.3 million offset by $0.7 million in tax payments and $0.7
million in deferred offering costs related to the initial public offering.
CASH USED IN INVESTING ACTIVITIES. For the years ended December 31, cash
used in investing activities was $6.3 million in 1997, $16.5 million in 1998,
and $3.9 million in 1999. This amount fluctuates significantly based on our
acquisition activities. We used approximately $3.0 million in 1997, $11.3
million in 1998, and $5.5 million in 1999 for the acquisition of new media
businesses and invested $2.0 million in 1997 and $2.5 million in 1998 to acquire
equity positions in businesses unrelated to our media and outdoor advertising
operations. Such non-media assets will be transferred to Crestwood
Communications, Inc. in connection with our corporate reorganization and will
not be part of Simmons Media Group on an ongoing basis. Cash used in 1999 was
partially offset by $2.7 in net proceeds from the sale of KMGR-FM in Salt Lake
City.
Cash used in investing activities was $2.9 million for the six-month
periods ended June 30, 1999 and $1.9 million for the six-month periods ended
June 30, 2000. The decrease was attributable to a reduced level of acquisitions.
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES. For the years ended
December 31, net cash provided by (used in) financing activities was $3.4
million in 1997, $13.2 million in 1998, and ($1.8) million in 1999. The change
between 1997 and 1998 was due to increases in the level of borrowings on our
credit facilities in 1998 as required to fund acquisitions. The decrease between
the years ended December 31, 1998 and 1999 was again due to fluctuations in
borrowings and repayments on our credit facilities associated with decreased
acquisition activity in 1999 as compared to 1998.
Net cash provided by financing activities for the six months ended June
30, 1999 and 2000 increased due to increases in borrowings in 2000 related to
capital expenditures in connection with the relocation of our Salt Lake City
operation and the continued acquisition of FCC licenses.
In connection with our corporate reorganization and this offering, we
will transfer, among other assets, all of our marketable securities totaling
$83.3 million as of June 30, 2000 to Crestwood. The transfer will significantly
reduce our liquid assets as well as impact our borrowing ability. On a
consistent basis, we have been able to use a portion of the marketable
securities as an efficient tool to raise funds at competitive
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<PAGE>
interest rates to finance our media growth. Our ability to raise capital in the
future may be limited to internally generated cash flows from our media
operations.
We intend to use approximately $ million of the net proceeds
from this offering to reduce debt under our credit facilities, increase the
availability of cash provided by operations to fund future acquisitions and
other general corporate purposes.
As of June 30, 2000, we held $0.4 million in cash and had $17.1 million
in availability under our current credit facilities based on our operating
results. We have no material pending acquisitions that we would be required to
fund. We believe that cash available from operations as well as the availability
from our credit facilities, to the extent they are successfully restructured,
should be sufficient to permit us to meet our financial obligations for the next
twelve months.
CREDIT FACILITIES. At June 30, 2000, our credit facilities allow us to
borrow up to $50 million under certain terms and conditions. Assuming other
criteria are met we may expand our facilities up to $95 million. Our credit
facility A is collateralized by our portfolio of marketable securities and
allows us to borrow up to $20.0 million. Our credit facility B is collateralized
by our media assets and allows us to borrow up to $30.0 million.
Our credit facilities prohibit us from paying cash dividends and restrict
our ability, among other things, to make other distributions. The credit
facilities also contain other customary restrictive covenants that, among other
things, limit our ability to incur additional indebtedness and liens,
consolidate, merge or effect asset sales, or change the nature of our business.
We are also required to satisfy financial covenants, which require us to
maintain specified financial ratios and to comply with certain financial tests.
Concurrently with our corporate reorganization and this offering, we will
not be able to borrow under our credit facilities without restructuring them. As
of June 30, 2000, we had $25.5 million outstanding under our credit facilities.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss arising from adverse changes in market
prices such as interest rates, foreign currency exchange and commodity prices.
Our primary exposure to market risk is interest rate risk associated with our
credit facility. Amounts borrowed under our credit facilities incur interest at
the London Interbank Offered Rate, or LIBOR, plus additional basis points
depending on the ratio of total debt to operating cash flow.
To manage interest rate risk, we entered into two $10 million notional
amount interest rate swap agreements with two separate financial institutions,
as follows:
<TABLE>
<CAPTION>
<S> <C>
AGREEMENT NOTIONAL AMOUNT SWAP EXPIRATION DATE ESTIMATED FAIR VALUE
--------------------------- ---------------- ------- ----------------- ----------------------
Interest Rate Swap $10,000,000 4.98% December 2000 $135,347
Interest Rate Swap $10,000,000 4.98% December 2000 $135,113
</TABLE>
RECENT PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 accounting and
reporting standards for derivative financial instruments, including instruments
which have been historically afforded off-balance sheet treatment. The new
standard requires entities to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at their estimated fair market value. Subsequent to 1998, the FASB extended the
effective date of SFAS No. 133 to fiscal quarters of fiscal years beginning
after June 15, 2000. Currently, our only derivative financial instruments are
routine interest rate swap agreements which effectively lock in the interest
rate we pay on $20,000,000 of variable interest debt obligations. We do not
anticipate the ultimate adoption of SFAS No. 133 to have a material impact on
our financial position or results of operations.
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In January 2000, the Emerging Issues Task Force (EITF) reached a
consensus on Issue No. 99-17, ACCOUNTING FOR ADVERTISING BARTER TRANSACTIONS, to
be effective for transactions entered into after January 20, 2000. The consensus
states that advertising barter transactions should be accounted for at fair
value and that the fair value recognized be disclosed in the financial
statements, if there is verifiable objective evidence provided by sufficient
cash transactions received by the seller of the advertising for similar
advertising. EITF No. 99-17 is not expected to have a material effect on our
financial statements.
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<PAGE>
INFORMATION ABOUT STATION AND MARKET DATA
For this prospectus:
o We derived market audience rank and audience share data from The
Arbitron Ratings Company (Fall 1999 and Winter 2000).
o We derived our 1999 market revenue share data from market reports
prepared by Miller, Kaplan, Arase & Co. for year-ending 1999.
o We derived the domestic outdoor advertising data from the Outdoor
Advertising Association of America website, August 11, 2000.
o We derived total domestic advertising market, general listener
statistics, radio market revenue rank data and domestic and
national compounded annual growth data from Duncan's Radio Market
Guide (1999 and 2000 Edition).
o We derived US population data from The US Census Bureau website,
August 11, 2000.
CORPORATE REORGANIZATION
Our board of directors has determined to spin-off certain small market
radio stations located in St. George, Utah and non-media assets, including our
portfolio of marketable securities, to our shareholders immediately prior to
this offering. We will accomplish the spin-off by transferring certain small
market radio stations and non-media assets to a newly formed corporation,
Crestwood Communications, Inc. In exchange for the transfer of the assets,
Crestwood Communications will assume all of the liabilities associated with such
assets and distribute shares of its capital stock to Simmons Media Group. We
will then distribute all of the capital stock of Crestwood Communications pro
rata to our existing shareholders immediately prior to this offering. The
spin-off will allow us to simplify our capital structure, reduce our
indebtedness, address certain regulatory issues relating to the non-media assets
and focus on our core mid-sized radio station business. After the spin-off,
Simmons Media Group and Crestwood Communications will be separate, independent
companies. We have obtained a private letter ruling from the United States
Internal Revenue Service to the effect that, based on various factual
representations and information, the spin-off will constitute a reorganization
under Sections 368(a)(1)(D) and 355 of the Internal Revenue Code and that, among
other things, we will recognize no gain or loss for United States federal income
tax purposes as a result of the transaction. See "Risk Factors--If our
distribution of the capital stock of Crestwood Communications, Inc. does not
qualify as a tax-free distribution, we would be materially adversely affected by
the resulting tax liability."
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BUSINESS
OVERVIEW
Founded in 1977, we are a radio broadcasting and outdoor advertising
company focused on acquiring and operating radio stations and outdoor
advertising displays in fast-growing mid-sized markets located in the western
region of the United States. Upon completion of our reorganization described in
the "Corporate Reorganization" section of this prospectus, we will own and
operate 10 FM and 3 AM radio stations in Salt Lake City, Utah, Albuquerque, New
Mexico, and Austin, Texas. We have also been awarded construction permits for 2
FM radio stations in areas surrounding the Salt Lake City metropolitan market.
In addition, as of June 30, 2000, we owned 181 outdoor advertising displays in
the Salt Lake City metropolitan area.
We believe that radio broadcasting and outdoor advertising offer
significant growth and revenue opportunities, due to their breadth and frequency
of audience reach. According to the Radio Advertising Bureau's RADIO MARKETING
GUIDE AND FACT BOOK FOR ADVERTISERS (1999), every week radio reaches
approximately 95% of all Americans over the age of 12, and the average listener
spends approximately 21 hours and 30 minutes per week listening to the radio. In
1999, the total domestic radio advertising market grew to $15.5 billion, or
12.9%, from 1998, reaching the highest level in the radio industry's history. In
addition, the market for domestic outdoor advertising grew to $4.8 billion in
1999, up nearly 10% from 1998.
Our primary strategy is to secure and maintain a leadership position in the
markets we serve and to expand into additional mid-sized markets with high
historical and projected advertising growth rates relative to the national
average. We generally enter a new market by purchasing under-performing stations
on favorable terms and apply our turn-around strategy to improve each station's
performance. We then seek to maximize revenues, broadcast cash flow and
after-tax cash flow by operating and acquiring additional radio stations in the
market, and to further leverage our presence in the market by acquiring and
operating outdoor advertising displays. To preserve and enhance our position in
our markets, we conduct extensive market research to improve ratings and
identify opportunities to reformat a station's programming to reach an
underserved demographic group.
CORPORATE HISTORY AND MANAGEMENT
We were founded in 1977 by members of the Simmons family, including David
E. Simmons, our President and Chief Executive Officer, and began operations with
one radio station in Salt Lake City, Utah. During the 1980s and 1990s, we
acquired our radio stations in Salt Lake City, Utah, Albuquerque, New Mexico,
Austin, Texas, and St. George, Utah. In 1998, we expanded our operations into
the outdoor advertising business through the purchase of two separate outdoor
advertising companies. Immediately prior to this offering, we will spin-off the
small market radio stations in St. George, Utah and other non-media assets to
Crestwood Communications, Inc.
Our nine senior managers have an average of 19 years of experience in the
radio and broadcasting-related industries. Mr. Simmons has 15 years of
experience managing two media-related companies, Simmons Media Group and
Keystone Communications Corporation, a satellite telecommunications company.
Simmons Media first invested in Keystone Communications in 1987 through the
purchase of a majority interest. After a series of mergers and strategic
alliances, Keystone Communications grew the total equity value from $2 million
at the time of our purchase to $60 million at the time of its sale to a
subsidiary of France Telecom in 1996.
BUSINESS STRATEGY
Our business strategy focuses on maximizing the appeal of our radio
stations and outdoor advertising displays to listeners, viewers and advertisers
and, consequently, increasing our revenues and broadcast and after-tax cash
flows. The principal components of our strategy are to:
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OWN AND OPERATE STRONG RADIO CLUSTERS
We believe that the ownership of multiple radio stations in a market allows
us to coordinate our programming to appeal to a broad spectrum of listeners,
expand our advertising base and enhance our stations' revenue generating
potential. After we have created a cluster of stations within a market, we can
provide "one-stop shopping" to advertisers attempting to reach a wide range of
demographic groups. By offering a variety of stations and programming formats
that are targeted to different listening audiences within each market, we seek
to maximize audience and advertiser market share. We believe that our strategy
of radio station clustering simplifies the process of buying advertiser time for
our customers and encourages advertisers to increase their usage of radio
advertising.
The ownership of multiple radio stations within a market also allows us to
achieve substantial cost savings and other operational efficiencies through the
consolidation of facilities, management, sales and administrative personnel,
operating resources such as on-air talent, programming and music research, and
the reduction of redundant corporate expenses. In addition, the use of digital
automation in certain markets allows us to operate radio stations at off-peak
hours with minimal personnel involvement while maintaining the quality of our
programming formats.
Our management focus in each of our markets is to increase net revenues and
maximize broadcast cash flow margins. Net revenue increases for our stations are
measured against the relevant market's performance, and broadcast cash flow
margins for each market are measured against a peer group of publicly traded
radio broadcast companies. Our managers' performance in these two areas is
evaluated quarterly. We believe our combined focus on net revenue growth and
broadcast cash flow margins produces strong growth in broadcast cash flow,
EBITDA, and after-tax cash flow.
ESTABLISH STRONG LOCAL BRAND IDENTITY
Our stations pursue a variety of programming and marketing initiatives
designed to develop a distinctive identity and to strengthen the station's local
brand. Through extensive market research we seek to enhance our ratings and in
certain circumstances identify opportunities to reformat a station's programming
to reach a larger audience. We attempt to build a strong local brand identity
by:
o creating distinct, highly visible profiles for our on-air
personalities;
o formulating recognizable brand names for select stations; and
o actively participating in community events and charities.
We believe that by creating stations with strong local brand identities we
are able to foster greater listener loyalty and thus sustain our audience share
over time.
ACQUIRE ADDITIONAL MEDIA PROPERTIES IN HIGH-GROWTH MARKETS
We seek to acquire additional radio stations and complementary media
properties in our existing markets and targeted markets within the western
Unites States that are within the nation's top 125 metropolitan areas. These
markets that we target are typically expanding faster than the national average
and have substantial growth in advertising revenues as national and regional
retailers expand into these markets.
We also seek to acquire complementary media outlets within these markets,
including outdoor advertising companies. According to the Radio Advertising
Bureau's RADIO MARKETING GUIDE AND THE FACT BOOK FOR ADVERTISERS (1999), more
than one-half of all radio advertising is done outside the home, with 81% of
adults 18 and older listening to the radio in the car each week. Given these
statistics, we believe there are significant cross-media advertising
opportunities between our radio broadcasting and outdoor advertising businesses.
In 1998, we acquired the operating assets of two separate outdoor advertising
businesses in the Salt Lake City metropolitan area with a total advertising
display inventory of 172 displays. We provide incentives to our radio station
sales staff to encourage them to effectively cross-sell outdoor advertisements.
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In considering whether to purchase a media property, we evaluate a number
of factors, including purchase price, anticipated impact on broadcast cash flow
and after-tax cash flow, the quality of a target's infrastructure and
management, the opportunities to improve the operating margins and increase
internal growth at the target, the economic prospects of the region in which the
target is located, the potential for additional acquisitions in the region, and
the competitive landscape in the target's markets. We will only acquire
properties that provide the opportunity to aggressively grow broadcast cash flow
through a combination of market growth, ratings improvement, market revenue
share growth, potential technical upgrades and cost reductions.
Our experienced management team intends to continue our disciplined program
of acquiring under-performing stations and apply proven management techniques.
Key practices commonly implemented at our acquired properties include:
o Implementing formalized sales training and review programs;
o Managing inventory levels and advertising rates to maximize revenues;
o Increasing focus on local advertising sales;
o Centralizing procurement and operating functions with other
affiliates;
o Eliminating redundant positions;
o Sharing staff between stations, including on-air personalities;
o Researching music and altering formats, if required; and
o Examining opportunities to upgrade technical facilities.
STATION PORTFOLIO
We operate radio stations in the Salt Lake City, Utah, Albuquerque, New
Mexico, and Austin, Texas markets. The following tables set forth information
about our stations and the markets where we operate as of June 30, 2000, as if
our corporate reorganization had occurred on that date. The sources for this
information are described under "Information About Station Market Data." In
reviewing these tables, you should note that a station's actual community of
license may be different from the metropolitan market served. In addition,
official call signs may not include the "AM" or "FM" suffix.
SALT LAKE CITY, UTAH
1999 RADIO MARKET REVENUE RANK: 32
<TABLE>
<CAPTION>
AUDIENCE AUDIENCE
RANK IN SHARE IN
STATION CALL YEAR TARGET POWER TARGET TARGET
LETTERS ACQUIRED STATION FORMAT DEMOGRAPHIC LICENSE DEMOGRAPHIC DEMOGRAPHIC
-------------------- ---------- ---------------------- -------------- --------- ----------- -----------
Soft Adult
<S> <C> <C> <C> <C> <C> <C>
KSFI-FM................ 1978 Contemporary Adults 25-54 Class C 1 8.3
KDYL-AM................ 1982 Adult Standards Adults 45+ Class B 3 8.7
KRSP-FM................ 1992 Classic Rock/Hits Men 25-54 Class C 2 6.2
Hot Adult
KQMB-FM................ 1998 Contemporary Adults 18-34 Class C 5 4.3
KXRK-FM................ 1998 Alternative Rock Adults 18-34 Class C 2 7.6
</TABLE>
Salt Lake City is the 32nd largest radio revenue market in the United
States based on 1999 radio advertising revenue of approximately $72 million.
During the first six months of 2000, overall radio revenue grew 14.2% compared
to the corresponding 1999 period. Over the last five years, Salt Lake City has
achieved a 14.9% compounded annual growth rate in radio advertising revenue,
well above the national average of 10.6%.
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We believe that Salt Lake City is an attractive radio station market
because of the following demographic features and advertising opportunities:
o it has been an historically high-growth radio advertising market
demonstrated by an historical population growth rate of 10.8% over the
years 1994 through 1999, well above the national average of 4.8%;
o it is surrounded by several large universities and colleges, including
the University of Utah and Brigham Young University;
o it is a growing high-technology center;
o it is the capital of Utah and the seat of state government; and
o it will host the Winter Olympic Games of 2002, which we believe will
bring greater awareness of the Salt Lake City market.
As a result of our growing complement of stations in surrounding
communities, we are one of the leading Salt Lake City broadcasting radio groups
based upon overall market share. We have been successful in targeting
demographic groups that are particularly attractive to advertisers, due to our
unique mix of formats and the ability to pair stations together for marketing
purposes. Consistent with our business strategy, we have recently changed the
format of our KDYL-AM station to a talk format to target adults between the ages
of 25 and 54. We believe the change to this format will appeal to a broader
spectrum of listeners, expand our advertising base and enhance the station's
long-term revenue generating potential.
ALBUQUERQUE, NEW MEXICO
1999 RADIO REVENUE RANK: 60
<TABLE>
<CAPTION>
AUDIENCE AUDIENCE
RANK IN SHARE IN
YEAR TARGET POWER TARGET TARGET
STATION CALL LETTERS ACQUIRED STATION FORMAT DEMOGRAPHIC LICENSE DEMOGRAPHIC DEMOGRAPHIC
----------------------- --------- ------------------------ ----------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
KIOT-FM.............. 1995 Classic Hits Men 25-34 Class C 3 6.8
KIVA-AM.............. 1996 Adult Standards Adults 45+ Class D 3 5.7
KBTK-AM.............. 1996 Talk Adults 25-54 Class B 24 0.7
KCHQ-FM.............. 1996 CHR/Mainstream Adults 18-34 Class C 14 2.8
KZKL-FM.............. 1996 Oldies Adults 25-54 Class A 14 2.4
KRQS-FM.............. 1996 Rock Men 18-34 Class A 7 4.0
KKSS-FM.............. 1999 CHR/Rhythmic Adults 18-34 Class C 6 ` 5.6
</TABLE>
Albuquerque, New Mexico is the 60th largest radio revenue market in the
United States based on 1999 radio advertising revenue of approximately $36
million. During the first six months of 2000, overall radio revenue grew 16.0%
compared to the corresponding 1999 period. Over the last five years, Albuquerque
has achieved a 9.3% compounded annual growth rate in radio advertising revenue,
well in line with the national average. We believe that Albuquerque is an
attractive radio station market because of the following demographic features
and advertising opportunities:
o it has been an historically high-growth radio advertising market
demonstrated by an historical population growth rate of 5.7% over the
years 1994 through 1999, above the national average;
o it is surrounded by several universities and colleges, including the
University of New Mexico;
o it is the home of several large technology-related facilities, such as
the Intel Corporation microprocessor chip plant; and
o it is the site of a large United States Air Force base.
In September 1995, we began assembling a cluster of 5 FM and 2 AM radio
stations to become the third largest radio broadcasting group in this
historically high-growth western U.S. market. Based on our current operating
results for these stations, we believe that our acquisition strategy enabled us
to purchase under-performing stations on very favorable terms. Through cost
control, automation technology, and
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aggressive sales and promotion, we intend to continue increasing our revenue
share and broadcast and after-tax cash flows in the Albuquerque market.
On July 1, 2000, we began a joint sales arrangement with Adult Standards
format station KKJY-AM which we purchase commercial inventory from KKJY-AM to
sell for our own account.
AUSTIN, TEXAS
1999 RADIO REVENUE RANK: 33
<TABLE>
<CAPTION>
AUDIENCE AUDIENCE
RANK IN SHARE IN
STATION CALL YEAR TARGET POWER TARGET TARGET
LETTERS ACQUIRED STATION FORMAT DEMOGRAPHIC LICENSE DEMOGRAPHIC DEMOGRAPHIC
-------------------- --------- --------------------- --------------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
KAHK-FM............ 1997 Classic Hits Men 25-54 Class C 12 2.7
</TABLE>
Austin, Texas is the 33rd largest radio revenue market in the United States
based on 1999 radio advertising revenue of approximately $75 million. During the
first six months of 2000, overall radio revenue grew 24.7% compared to the
corresponding 1999 period. Over the last five years, Austin has achieved a 16.2%
compounded annual growth rate in radio advertising revenue, well above the
national average. We believe that Austin is an attractive radio station market
because of the following demographic features and advertising opportunities:
o it has been an historically high-growth radio advertising market
demonstrated by an historical population growth rate of 18.4% over the
years 1994 through 1999, well above the national average;
o it is surrounded by several large universities and colleges, including
the University of Texas at Austin;
o it is the capital of Texas and the seat of the state government; and
o it is one of the major high-technology regions of the United States.
In 1997, we identified what we believed to be an under-performing station
in KAHK-FM, licensed in Georgetown, Texas, a suburb of Austin. The approximate
$2 million purchase price for this station allowed us to enter one of the higher
growth markets over the last five years in the western United States. We have
upgraded its signal and moved its broadcasting tower closer to Austin, resulting
in significantly broader coverage of Austin.
At the time of our purchase, KAHK-FM was simulcasting programming of
another station in the Austin market. We have since upgraded the signal and
hired a station manager, a designated sales staff and other operational
personnel. As of June 30, 2000, our Austin station had achieved a power ratio of
1.54, which is the ratio of our revenue market share divided by our audience
market share.
Our strategy in the Austin market is to grow our revenue and rating share
through extensive research, promotion, and targeted sales and marketing. We will
strive to keep operating costs to a minimum through automated technology. At the
same time, we will seek opportunities to acquire additional under-performing
stations on favorable terms in surrounding markets and to form a regional radio
cluster. If we are unable to add stations or continue to grow our revenue and
rating share, we would consider selling the Austin station to one of the larger
operators in the market.
RADIO ADVERTISING SALES
We believe that radio is one of the most efficient and cost-effective means
for advertisers to reach specific demographic groups. A station's format and
style of presentation enables it to target certain demographic groups. By
capturing a specific share of a market's radio listening audience, with
particular concentration in a targeted demographic group, we are able to market
our broadcasting time to advertisers seeking to reach a specific audience.
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As of June 30, 2000, we had a 50-person sales force that was supported by 3
full-service offices. We have recruited and trained a skilled sales force,
placing an emphasis on market research and cross-selling between our radio
station and outdoor advertising businesses. Each salesperson is compensated
under a performance-based compensation system and supervised by a local sales
manager executing a coordinated marketing plan.
Our radio station revenues are generated from the sale of local, regional
and national advertising. In 1999, approximately 81% of our net broadcasting
revenues were generated from the sale of local and regional advertising. A
station's local sales staff generates the majority of its local and regional
advertising sales through direct solicitations of local advertising agencies and
businesses. The major categories of our local advertisers include telephone
companies, restaurants, fast food outlets, automotive shops and grocery stores.
Regional sales, which we define as sales in regions surrounding our markets to
companies that advertise in our markets, are generally made by our local sales
staff. Additional broadcasting revenue is generated from the sale of national
advertising. National sales representatives obtain advertising principally from
advertising agencies located outside the station's market and receive
commissions based on the revenue from the advertising obtained. The major
categories of our national advertisers include well-recognized consumer products
companies.
The number of advertisements that can be broadcast without jeopardizing
listening levels, and the resulting ratings, is limited in part by the format of
a particular station. Depending on the programming format of a particular
station, we determine the optimal number of advertisements available for sale,
otherwise known as our on-air inventory. Each of our stations has a general
target level of on-air inventory that it makes available for advertising. This
target level of inventory for sale may be different at different times of the
day but tends to remain stable over time. Our stations strive to maximize
revenue by managing their on-air inventory of advertising time and adjusting
prices based on local market conditions and on our ability, through our
marketing efforts, to provide advertisers with an effective means of reaching a
targeted demographic group.
A station's listenership is reflected in ratings surveys that estimate the
number of listeners tuned to the station and the time they spend listening. We
use these ratings to chart audience growth, set advertising rates and adjust
programming. The radio broadcast industry's principal ratings service is The
Arbitron Company, which publishes periodic ratings surveys for significant
domestic radio markets. These surveys are our primary source of ratings data.
Advertising rates charged by radio stations are driven by the following factors:
o a station's audience share in the demographic groups targeted by
advertisers, as measured by independent ratings surveys estimating the
number of listeners tuned to the station at various times;
o the number of stations in the market competing for the same
demographic groups;
o the supply of, and demand for, radio advertising time; and
o other events, such as upcoming promotions.
OUTDOOR ADVERTISING OPERATIONS
To complement our radio business with additional media outlets, we entered
the outdoor advertising business in 1998 through the purchase of all of the
outdoor advertising assets of two separate outdoor advertising companies for
$3.8 million. As of June 30, 2000, we owned and operated 181 outdoor
advertising displays located primarily in the Salt Lake City metropolitan area.
Our bulletins face the highway and are within direct line-of-sight of Interstate
15, the primary north-south freeway in Utah. Our posters are displayed on
primary roads in the Salt Lake City metropolitan area. We pursue a competitive
pricing strategy based on local market rates.
Our most common outdoor advertising displays, known as bulletins, are
generally 14 feet high and 48 feet wide (672 square feet) and consist of panels
on which advertising copy is displayed. The advertising copy is printed with
computer-generated graphics on a single sheet of vinyl that we wrap around the
display. We
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<PAGE>
generally sell bulletin space as individually selected displays for the duration
of an advertising contract. We also sell bulletins as part of a rotary plan
where we periodically rotate advertising copy from one location to another
within a particular market. We typically sell bulletin space for 12-month
periods.
Our inventory of outdoor advertising displays also includes standardized
posters, which are generally 12 feet high by 25 feet wide as well as displays
which we refer to as 8 sheets. Our advertisers supply advertising copy for these
displays, which consist of either lithographed or silk-screened paper sheets
that we paste and apply like wallpaper to the face of the display, or single
sheets of vinyl with computer-generated advertising copy that we wrap around the
display. We concentrate standardized posters on major traffic arteries. We
generally sell poster space in packages that comprise a given number of displays
in a market area. Posters provide advertisers with access either to a specified
percentage of the general population or to a specific targeted audience. We
typically sell poster space for 30 to 90-day periods.
OUTDOOR ADVERTISING SALES
Outdoor advertising sales account for 4.5% of our total revenues. We
conduct our outdoor advertising operations with two dedicated outdoor
advertising sales professionals through our local sales office. The local sales
office functions essentially as an independent business unit. The local manager
is responsible for the day-to-day operations of the office and is compensated
according to the office's outdoor advertising financial performance. Consistent
with our business strategy, our radio advertising sales force is trained to
cross-sell outdoor advertising space to complement the sales efforts of our
dedicated outdoor advertising sales professionals.
COMPETITION
RADIO BROADCASTING
The radio broadcasting industry is highly competitive. The success of each
of our stations depends largely upon its audience ratings and its share of
overall advertising revenue within its market. Our stations compete for
listeners and advertising revenue directly with other radio broadcasters within
their respective markets, including Clear Channel Communications, Inc., Citadel
Communications Corporation and Bonneville International Corporation. Radio
stations compete for listeners primarily on the basis of program content that
appeals to a particular demographic group. By building a strong listener base
consisting of a specific demographic group in each of our markets, we are able
to attract advertisers seeking to reach those listeners. In addition, we attempt
to improve our competitive position with promotional campaigns aimed at the
demographic groups targeted by our stations and by sales efforts designed to
attract advertisers.
Our stations also compete for audiences and advertising revenues within
their respective markets directly with other media such as newspapers,
magazines, broadcast and cable television, outdoor advertising and direct mail.
As a substitute to radio advertising, potential advertisers can advertise
through broadcast television; cable television systems; daily, weekly and
free-distribution newspapers; other print media; direct mail and on-line
computer services. In addition, the radio broadcasting industry is subject to
competition from new media technologies or regulatory changes such as:
o satellite-delivered audio radio service, which could result in the
introduction of new satellite radio services with sound quality
equivalent to that of compact discs;
o audio programming by cable systems, direct broadcast satellite
systems, Internet content providers, personal communications services
and other digital audio broadcast formats;
o digital radio, which could provide multi-channel, multi-format digital
radio services in the same bandwidth currently occupied by traditional
AM and FM radio services; and
o non-commercial low-powered FM stations.
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Historically, the radio broadcasting industry has grown despite the
introduction of new technologies for the delivery of entertainment and
information, such as television broadcasting, cable television, audio tapes and
compact discs. A growing population and greater availability of radios,
particularly car and portable radios, have contributed to this growth. We cannot
assure you, however, that this historical growth will continue or that the
development or introduction in the future of any new media technology will not
have an adverse effect on the radio broadcasting industry generally or our
stations more specifically.
OUTDOOR ADVERTISING
Our outdoor advertising division competes with other outdoor advertisers as
well as other media, including broadcast and cable television, radio, print
media and direct mail marketers. In addition, we also compete with a wide
variety of out-of-home media, including advertising in shopping centers, malls,
airports, stadiums, movie theaters and supermarkets, as well as on taxis,
trains, automobiles and buses. Advertisers compare relative costs of available
media and cost-per-thousand impressions, particularly when delivering a message
to customers with distinct demographic characteristics. In competing with other
media, we rely on outdoor advertising's relative cost efficiency and its
flexibility in either reaching a broad segment of the population in a specific
market or targeting a particular geographic area or population with a particular
set of demographic characteristics within that market.
The outdoor advertising industry is highly fragmented, consisting of
several large outdoor advertising media companies with operations in multiple
markets as well as smaller and local companies operating a limited number of
displays in a small number of local markets. Although some consolidation has
occurred over the past few years, according to the Outdoor Advertising
Association of America, there are over 1,000 companies in the outdoor
advertising industry operating approximately 406,000 billboard displays. In
several of our markets, we encounter direct competition from other major outdoor
media companies, including Outdoor Systems, Inc. and Reagan Outdoor Advertising,
each of which has a larger national network and greater total resources than we
do. We believe that our strong emphasis on sales and customer service enables us
to compete effectively with the other outdoor advertising companies, as well as
with other media, within those markets.
PROPERTIES AND FACILITIES
Our corporate offices are located in Salt Lake City, Utah. The types of
properties required to support each of our radio stations include offices,
studios, transmitter sites and antenna sites. The transmitter sites and antenna
sites generally are located so as to provide maximum market coverage.
We own the transmitter and antenna site for KDYL-AM in Salt Lake City but
we generally lease transmitter and antenna sites on a long-term basis for all of
our other radio stations. We lease studio and office space for all of our Salt
Lake City, Utah and Austin, Texas stations. We own our studio and office
facilities for all of our Albuquerque, New Mexico stations. We consider each of
our facilities to be generally suitable and adequately sized for our current and
intended purposes. We do not anticipate any difficulty in renewing our facility
leases or in leasing additional space, if required.
We own substantially all of our other equipment, consisting principally of
transmitting antennae, transmitters, studio equipment and general office
equipment. Our stations' towers, antennae and other transmission equipment are
generally in good condition, although we continuously review opportunities to
upgrade our facilities. Our bulletin displays are located primarily on sites
that we lease or on which we have acquired a permanent easement.
EMPLOYEES
On June 30, 2000, we employed 164 full-time and 44 part-time employees,
none of whom are represented by unions. We believe that our relations with our
employees are good.
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We employ several on-air personalities with large audiences in their
respective markets. We enter into employment agreements with these personalities
to protect our interests in those relationships that we believe to be valuable.
We do not believe that a loss of any one of these personalities would have a
material adverse effect on our financial condition or results of operations.
ENVIRONMENTAL
As the owner, lessee or operator of various real properties and facilities,
we are subject to various federal, state and local environmental laws and
regulations. Historically, compliance with these laws and regulations has not
had a material adverse effect on our business. There can be no assurance,
however, that compliance with existing or new environmental laws and regulations
will not require us to make significant expenditures of funds.
LEGAL PROCEEDINGS
We currently, and from time to time, are involved in litigation incidental
to the conduct of our business, but we are not a party to any lawsuit or
proceeding which, in the opinion of management, is likely to have a material
adverse effect on us.
In August 1999, our President and Chief Executive Officer, David E.
Simmons, entered into a formal plea and cooperation agreement with the United
States Department of Justice relating to a federal investigation into Salt Lake
City's efforts to host the Winter Olympic Games of 2002. Mr. Simmons pleaded
guilty to a federal misdemeanor involving a disallowed expense deduction on a
1992 tax return filed by Keystone Communications Corporation. Mr. Simmons has
not yet been sentenced. At the outset of the investigations, Mr. Simmons
voluntarily contacted investigators concerning the facts that led to his plea.
Mr. Simmons has and will continue to fully cooperate in the federal
investigation.
The FCC, in connection with applications of subsidiaries of Simmons Media
Group for construction permits for two new FM stations in areas surrounding the
Salt Lake City metropolitan market, reviewed the facts and circumstances
surrounding Mr. Simmons' plea agreement and affirmed that the subsidiaries were
qualified to be FCC licensees. The Chief of the Audio Services Division of the
FCC's Mass Media Bureau, by letter to counsel dated May 10, 2000, concluded that
this non-broadcast misconduct "is not sufficient to raise a substantial and
material question about the known qualifications of a broadcast licensee with a
good record." Following this determination, the FCC placed the two applications
for construction permits on public notice as ready to be granted. On June 2,
2000, the FCC granted both applications.
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REGULATION OF RADIO BROADCASTING AND OUTDOOR ADVERTISING
REGULATION OF RADIO BROADCASTING
The ownership, operation and sale of radio stations are subject to the
jurisdiction of the FCC, which acts under authority granted by the
Communications Act of 1934. Among other things, the FCC:
o assigns frequency bands for broadcasting;
o determines the particular frequencies, locations and operating
power of stations;
o issues, renews, revokes and modifies station licenses;
o determines whether to approve changes in ownership or control of
station licenses;
o regulates equipment used by stations; and
o adopts and implements regulations and policies that directly
affect the ownership, operation and employment practices of
stations.
The FCC has the power to impose penalties for violation of its rules or
the Communications Act.
The Telecommunications Act of 1996, which amended the Communications Act
in numerous respects, significantly changed the ground rules for competition and
regulation in virtually all sectors of the communications industry, including
broadcasting, local and long-distance telephone services, cable television
services and telecommunications equipment manufacturing. The 1996 Act imposed
requirements on the FCC to launch new inquiries and rulemaking proceedings,
predominately involving telecommunications issues, but also including matters
directly affecting the broadcast industry. The 1996 Act mandated that those
rulemaking proceedings be completed within specific time frames, in some cases
as short as six months. The 1996 Act also mandated that the FCC undertake
biennial reviews of many of its rules, including its broadcast multiple
ownership requirements. In June 1999, the FCC released its first biennial review
of broadcast ownership rules in which it, with respect to radio ownership
matters, decided to retain its local radio ownership rule and the prohibition on
common ownership of a daily newspaper and a broadcast station in the same
market, but also announced plans to commence a rulemaking proceeding regarding
the methodology employed in determining compliance with the radio local
ownership rule and the criteria used in analyzing newspaper-broadcast ownership
waivers.
The following is a summary of certain provisions of the Communications
Act and of specific FCC regulations and policies. Reference should be made to
the Communications Act, FCC rules and the public notices and rulings of the FCC
for further information concerning the nature and extent of federal regulation
of radio stations.
FCC LICENSES. Radio stations operate pursuant to broadcasting licenses
that ordinarily are granted by the FCC for a maximum term of eight years and are
subject to renewal upon application to the FCC. Under the Communications Act,
interested parties, including members of the public, may file petitions to deny
a license renewal application, but competing applications for the license will
not be accepted unless the current licensee's renewal application is denied. If
a petition to deny presents information from which the FCC concludes (or if the
FCC concludes on its own) that there is a "substantial and material" question as
to whether the grant of the renewal application would be in the public interest
under applicable rules and policy, the FCC will conduct a hearing on specified
issues to determine whether renewal should be granted. The FCC is required to
hold hearings on a station's renewal application if a substantial or material
question of fact exists as to whether:
o the station has served the public interest, convenience and
necessity;
o there have been serious violations by the licensee of the
Communications Act or the FCC rules; or
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o there have been other violations by the licensee of the
Communications Act or the FCC rules that, taken together,
constitute a pattern of abuse.
The FCC may deny a license renewal application only if it finds that a
licensee has failed to meet this three-pronged test and that there are no
mitigating circumstances to warrant the grant of the license renewal for a
shorter period than the full license term or to warrant the grant of a renewal
with certain conditions attached to the grant. During the period when a renewal
application is pending (generally four months prior to expiration of the
license), the transferability of the applicant's license may be restricted. The
FCC generally has renewed broadcast licenses.
Historically, we have not experienced any material difficulty in renewing
any licenses for stations under our control. The FCC licenses for our stations
are held by certain of our subsidiaries. We have no reason to believe that our
licenses will not be renewed in the ordinary course, although there can be no
assurance to that effect. The non-renewal of one or more of our licenses could
have a material adverse effect on our business.
The FCC classifies each AM and FM station according to certain technical
parameters. An AM station operates on either a clear channel, regional channel
or local channel. A clear channel is one on which AM stations are assigned to
serve wide areas. Clear channel AM stations are classified as one of the
following: Class A stations, which operate on an unlimited time basis and are
designated to render primary and secondary service over an extended area; Class
B stations, which operate on an unlimited time basis and are designed to render
service only over a primary service area; or Class D stations, which operate
either during daytime hours only, during limited times only or on an unlimited
time basis with low nighttime power. A regional channel is one on which Class B
and Class D AM stations may operate and serve primarily a principal center of
population and the rural areas contiguous to it. A local channel is one on which
AM stations operate on an unlimited time basis and serve primarily a community
and the immediately contiguous suburban and rural areas. Class C AM stations
operate on a local channel and are designed to render service only over a
primary service area that may be reduced as a consequence of interference.
The minimum and maximum facilities requirements for an FM station are
determined by its class. FM class designations depend upon the geographic zone
in which the transmitter of the FM station is located. In general, commercial FM
stations are classified as follows, in order of increasing power and antenna
height: Class A, B1, C3, B, C2, C1 and C.
OWNERSHIP MATTERS
TRANSFERS OF CONTROL. The Communications Act prohibits the assignment of
a broadcast license or the transfer of control of a broadcast licensee without
the prior approval of the FCC. A transfer of control of a corporation
controlling a broadcast license may occur in various ways. For example, a
transfer of control occurs if an individual stockholder gains or loses
"affirmative" or "negative" control of such corporation through issuance,
redemption or conversion of stock. "Affirmative" control means control of more
than 50% of such corporation's outstanding voting power and "negative" control
means control of exactly 50% of such voting power. To obtain the FCC's prior
consent to assign or transfer a broadcast license, appropriate applications must
be filed with the FCC. Depending on whether the application involves a
"substantial change" in ownership or control--for example, the transfer of more
than 50% of the voting stock--the application may be required to go on public
notice for a period of approximately 30 days during which petitions to deny the
application may be filed by interested parties, including members of the public.
If the application does not involve a "substantial change" in ownership or
control, it is a "pro forma" application. The "pro forma" application is
nevertheless subject to having informal objections filed against it. If the FCC
grants an assignment or transfer application, interested parties have 30 days
from public notice of the grant to seek reconsideration of that grant, and the
Commission itself may reconsider its action for a period of 30 days after public
notice. Generally, parties that do not file initial petitions to deny or
informal objections against the application face a high hurdle in seeking
reconsideration of the grant. If the FCC's staff (rather than the Commissioners
themselves) acts upon the application, the FCC may reconsider or set aside the
grant on its
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own motion for a period of 40 days after public notice. When reviewing an
assignment or transfer application, the FCC is prohibited from considering
whether the public interest might be served by an assignment or transfer of the
broadcast license to any party other than the assignee or transferee specified
in the application. (FCC rules for computation of time may cause variation in
the actual time for action and response.) In determining whether to grant
approval of a transfer or assignment, the FCC considers a number of factors,
including compliance with the various rules limiting common ownership of media
properties, the "character" of the licensee and those persons holding
"attributable" interests in the licensee, and compliance with the Communications
Act's limitations on alien ownership as well as compliance with other FCC
policies.
The FCC's multiple ownership rules may limit the permissible acquisitions
and investments that we may make and may limit the extent to which persons with
other media interests may hold attributable ownership interests in us. As
detailed below, in August 1999, the FCC substantially revised its multiple
ownership and attribution rules. These rules became effective on November 16,
1999, but may be modified or reconsidered in subsequent proceedings. In three
reports and orders, the FCC revised its rules regarding restrictions on
radio-television cross-ownership, attribution of broadcast ownership interests
and local television ownership. The three orders, which resolved several
rulemaking proceedings launched in the early 1990s, take into consideration
mandates in the Telecommunications Act of 1996 that relaxed the radio ownership
rules.
The FCC generally applies its ownership limits to "attributable"
interests held by an individual, corporation, partnership or other association.
In the case of corporations holding, or through subsidiaries controlling,
broadcast licenses, the interests of officers, directors and those who, directly
or indirectly, have the right to vote 5% or more of the corporation's stock are
generally attributable, except that, in general, no minority voting stock
interest will be attributable if there is a single holder of more than 50% of
the outstanding voting power of the corporation, which we refer to as the SINGLE
MAJORITY SHAREHOLDER EXCEPTION. The FCC treats all partnership interests as
attributable, except for those limited partnership interests that are
"insulated" by the terms of the limited partnership agreement from "material
involvement" in the media related activities of the partnership. The FCC
generally uses the attribution and insulation standards that it applies to
limited partnership interests to evaluate interests in limited liability
companies and other new business forms. To assess whether a voting stock
interest in a direct or indirect parent corporation of a broadcast licensee is
attributable, the FCC uses a "multiplier" analysis in which non-controlling
voting stock interests are deemed to be proportionally reduced at each
non-controlling link in a multi-corporation ownership chain.
In its recently revised rules, the FCC decided to treat combinations of
equity and debt interests as attributable if the combined interest exceeds 33%
of a station licensee's total assets and, if the party holding the equity/debt
interest supplies more than 15% of the station's total weekly programming or has
an attributable interest in another media entity, whether TV, radio, cable or
newspaper, in the same market. Equity interests not otherwise attributable under
the FCC's rule, such as non-voting stock or interests shielded by the single
majority shareholder exception, are considered in this analysis. Under these new
rules, all non-conforming interests acquired before November 5, 1996 are
permanently grandfathered and thus do not constitute attributable ownership
interests. Any nonconforming interests acquired after that date had to be
brought into compliance by August 5, 2000.
ALIEN OWNERSHIP RULE. The Communications Act prohibits the issuance of a
broadcast license to, or the holding of a broadcast license by, any corporation
of which more than 20% of the capital stock is owned of record or voted by
non-U.S. citizens or their representatives or by a foreign government or a
representative thereof, or by any corporation organized under the laws of a
foreign country, which we refer to collectively as ALIENS. The Communications
Act also authorizes the FCC to prohibit the issuance of a broadcast license to,
or the holding of a broadcast license by, any corporation directly or indirectly
controlled by any other corporation of which more than 25% of the capital stock
is owned of record or voted by Aliens, unless the FCC finds that the public
interest would be served by granting a license under such circumstances. The FCC
generally has declined to permit the control of broadcast licensees by
corporations with foreign ownership or
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voting rights in excess of the 25% benchmark. The FCC has issued interpretations
of existing law under which these restrictions in modified form apply to other
forms of business organizations, including partnerships, and has established
policies for the calculation of indirect alien ownership and voting rights. As a
result of these provisions, no more than 25% of our capital stock may be owned
or voted by Aliens.
LOCAL RADIO OWNERSHIP RULES. In response to the Telecommunications Act of
1996, the FCC amended its local radio ownership rules to eliminate the national
limits on ownership of AM and FM stations. Thus, the FCC does not regulate the
number of radio stations that may be owned or controlled by one entity
nationally. In addition, the Telecommunications Act of 1996 established new
local ownership rules that use a sliding scale of permissible ownership,
depending on market size. For purposes of the local radio ownership ceiling,
"market" is defined based upon the composite principal service contours of the
radio broadcast stations in which a single entity will hold attributable
interests. In radio markets with 45 or more commercial radio stations, a
licensee may own up to eight stations, no more than five of which can be in a
single radio service. In radio markets with 30 to 44 commercial radio stations,
a licensee may own up to seven stations, no more than four of which can be in a
single radio service. In radio markets having 15 to 29 commercial radio
stations, a licensee may own up to six radio stations, no more than four of
which can be in a single radio service. Finally, in radio markets having 14 or
fewer commercial radio stations, a licensee may own up to five radio stations,
no more than three of which can be in the same service, provided that the
licensee may not own more than one half of the radio stations in the market.
Notwithstanding the FCC's local radio ownership rules, the FCC has the authority
to permit any person or entity to own, operate or control, or have an
attributable ownership interest in a number of radio broadcast stations in
excess of the rule's limits if the FCC determines that such ownership,
operation, control or interest will result in an increase in the number of radio
broadcast stations that are in operation. The 1996 Act, which granted the FCC
such authority, does not explain the intent or rationale for this provision.
In determining whether we are in compliance with the local ownership
limits on AM and FM stations, the FCC will consider our AM and FM holdings as
well as any attributable broadcast and daily newspaper interests of our
officers, directors and attributable shareholders. Accordingly, any attributable
broadcast and newspaper interests of our officers and directors may limit the
number of radio stations we may acquire or own in any market in which such
officers or directors hold or acquire attributable broadcast interests. In
addition, our officers and directors may from time to time hold various
nonattributable interests in other media properties.
LOCAL MARKETING AGREEMENTS. Over the past few years, a number of radio
stations have entered into what have commonly been referred to as local
marketing agreements or LMAs. These agreements may vary in form. Under a typical
LMA, separately owned and licensed radio stations agree to enter into
cooperative arrangements of various sorts, subject to compliance with the
requirements of antitrust laws and with the FCC's rules and policies. Under
these arrangements, separately-owned stations could agree to function
cooperatively in programming, advertising sales and similar matters, subject to
the requirement that the licensee of each station maintain independent control
over the programming and operations of its own station. One typical type of LMA
is a programming agreement between two separately-owned radio stations serving a
common service area, whereby the licensee of one station programs substantial
portions of the broadcast day on the other licensee's station and sells
advertising time during those program segments. In these arrangements, rules and
policies require that the program and operations of a broadcast station remain
subject to ultimate editorial and other controls exercised by the FCC-authorized
licensee. These arrangements are an extension of the concept of "time brokerage"
agreements, under which a licensee of a station sells blocks of time on its
station to an entity or entities that program the blocks of time and sell
commercial advertising announcements during the time periods in question.
The FCC's multiple ownership rules provide that a licensee or a radio
station that brokers more than 15% of the weekly broadcast time on another
station serving the same market will be considered to have an attributable
ownership interest in the brokered station for purposes of the FCC's multiple
ownership rules. As a result, we would not be permitted to enter into an LMA
with another local radio station in a market in which we could not own the
station under the revised local ownership rules, unless our programming
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constituted 15% or less of the other local station's weekly programming time.
The FCC rules also prohibit a broadcast licensee from simulcasting more than 25%
of its programming on another station in the same broadcast service through a
time brokerage or LMA arrangement where the brokered and brokering stations
serve substantially the same area. This 25% simulcasting limitation also applies
to commonly owned stations in the same broadcast service that serve
substantially the same area.
JOINT SALES AGREEMENTS. Over the past few years, a number of radio
stations have entered into cooperative arrangements commonly known as joint
sales agreements or JSAs. While these agreements may take varying forms, under
the typical JSA, a station licensee obtains, for a fee, the right to sell
substantially all of the commercial advertising on a separately-owned and
licensed station in the same market. The typical JSA also customarily involves
the provision by the selling licensee of certain sales, accounting and "back
office" services to the station the advertising of which is being sold. The
typical JSA is distinct from an LMA in that a JSA normally does not involve
programming.
The FCC has determined that issues of joint advertising sales should be
left to enforcement by antitrust authorities and therefore does not generally
regulate joint sales practices between stations. Currently, the FCC does not
treat a licensee that sells time on another licensee's station under a JSA as
having an attributable interest in that licensee. A JSA will not be attributed
if (i) the agreement deals primarily with the sale of advertising time and does
not contain terms that affect programming or other core operations of the
stations such that it would be substantially equivalent to an LMA and (ii) each
licensee retains control of its station and otherwise complies with
communications and antitrust laws. The FCC has retained discretion under its
public interest mandate to review cases involving JSAs on a case-by-case basis,
if the JSAs should pose competition or other concerns.
ONE-TO-A-MARKET RULE. The FCC's radio/television cross-ownership rule, or
"one-to-a-market rule," until recently prohibited common ownership or control of
a radio station, whether AM or FM and a television station in the same market,
subject to waivers in some circumstances. The FCC's 1999 changes to the
radio/television cross-ownership rule permit cross-ownership of stations in the
same market based on the number of independently owned media voices in the local
market. In markets with at least 20 independently owned media voices, a single
entity may own up to one television station and seven radio stations or, if
permissible under the local television ownership rule, two television stations
and six radio stations. In a market that includes at least ten other
independently owned media voices, a single entity may own a television station
and up to four radio stations and, if permitted under the local television
ownership rule, two television stations and up to four radio stations. A single
entity may own one radio station and one television station in a market or one
radio station and two television stations, if permitted under the local
television ownership rule, without regard to the number of media voices in the
market. Waivers of the new radio/television cross-ownership rule will be granted
only under a "failed station" test (I.E., the subject station has been off the
air for at least four months or is currently involved in involuntary bankruptcy
or insolvency proceedings).
RADIO/DAILY NEWSPAPER CROSS-OWNERSHIP RULE. The FCC's rules prohibit the
common ownership of a radio or television broadcast station and a daily
newspaper in the same market. In 1993, Congress authorized the FCC to grant
waivers of the radio-newspaper cross-ownership rule to permit cross-ownership of
a radio station and a daily newspaper in a top 25 market with at least 30
independent media voices, provided the FCC finds the transaction to be in the
public interest. Under current policy, the FCC will grant a permanent waiver of
the radio-newspaper cross-ownership rule only in those circumstances where the
effects of applying the rule would be "unduly harsh," which means that the
newspaper is unable to sell the commonly owned station or the sale would be at
an artificially depressed price or the local community could not support a
separately-owned newspaper and radio station. The FCC previously has granted
only two permanent waivers of this cross-ownership rule. The FCC has pending a
Notice of Inquiry requesting comment on possible changes to its policy for
waiving the rule including, among other possible changes:
o whether waivers should only be available in markets of a
particular size;
o whether any weight should be given to a newspaper's or radio
station's economic presence or market penetration; and
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o whether there should be limits on the number of radio stations or
other media outlets that could be co-owned with a newspaper in the
same market.
Because of these multiple and cross-ownership rules, a purchaser of our
common stock which acquires an attributable interest in Simmons Media may
violate and may cause us to violate the FCC's ownership rules if that purchaser
also has an attributable interest in other television or radio stations, or in
daily newspapers, depending on the number and location of those radio or
television stations or daily newspapers. That purchaser also may be restricted
in the companies in which it may invest, to the extent that those investments
give rise to an attributable interest. If a shareholder of Simmons Media which
holds an attributable interest in Simmons Media violates any of these ownership
rules, we may be unable to obtain from the FCC one or more authorizations needed
to conduct our radio station business and may be unable to obtain FCC consent
for certain future acquisitions.
BIENNIAL REVIEW OF BROADCAST OWNERSHIP RULES. In March 1998, as required
by the Telecommunications Act of 1996, the FCC initiated a proceeding to review
its broadcast ownership rules. The proceeding did not propose to revise or
repeal any existing rule, but rather to solicit comment on whether any of the
rules should be the subject of a subsequent rulemaking to modify or repeal it.
In June 2000, the FCC released a Report and Order in which it concluded the
biennial review and decided to retain the local radio ownership and the
newspaper-broadcast cross-ownership prohibition as well as several television
and television-cable ownership rules. At the same time, the Commission announced
its intention to commence a rulemaking to consider possible changes to the
methodology used to define a local radio market and to count the number of
stations serving a market. The FCC noted that it intends to convert the
definition of a radio market from a signal contour standard to Arbitron's
commercial classification. The FCC also announced that it plans to conduct a
rulemaking to consider relaxing the criteria it applies in granting waivers of
the newspaper-broadcast cross-ownership rule. We cannot predict the outcome of
these proposed proceedings. The adoption of more restrictive ownership limits
could have a material adverse effect on us.
LOW POWER FM RADIO. In January 2000, the FCC adopted rules establishing a
new noncommercial low power FM radio service that will operate on channels
throughout the commercial FM radio band. The FCC's new rules include the
requirement that stations operating in this new service not interfere with
existing commercial radio stations operating on the same or adjacent channels.
We cannot predict the ultimate impact of this new service on our radio stations.
PROGRAMMING AND OPERATION. The Communications Act requires broadcasters
to serve the "public interest." Since the late 1970s, the FCC gradually has
relaxed or eliminated many of the more formalized procedures it had developed to
promote the broadcast of certain types of programming responsive to the needs of
a station's community of license. A licensee continues to be required, however,
to present programming that is responsive to issues of the station's community
and to maintain certain records demonstrating such responsiveness. Complaints
from listeners concerning a station's programming often will be considered by
the FCC when it evaluates renewal applications of a licensee, although listener
complaints may be filed at any time and generally may be considered by the FCC
at any time. Stations also must pay regulatory and application fees and follow
various rules promulgated under the Communications Act that regulate, among
other things, political advertising, sponsorship identifications, the
advertisement of contests and lotteries, obscene and indecent broadcasts, and
technical operations, including limits on human exposure to radio frequency
radiation.
Failure to observe the FCC's rules and policies can result in the
imposition of various sanctions, including monetary forfeitures, the grant of
"short term" (I.E., less than the full term) license renewal or, for
particularly egregious violations, the denial of a license renewal application
or the revocation of a license.
EQUAL EMPLOYMENT OPPORTUNITY REQUIREMENTS. The FCC recently adopted new
equal employment opportunity rules for radio and television stations. The new
rules prohibit discrimination on the basis of race, religion, color, national
origin or gender and require broadcasters to maintain a recruitment outreach
program and prepare reports concerning such programs on an annual basis. The FCC
will review the reports and a station's compliance midway through the license
term and in connection with the station's license renewal.
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Broadcasters are also required to complete annual reports regarding their
employment profile that will be used by the FCC to monitor industry trends. The
FCC's new rules have become effective but are the subject of pending petitions
for reconsideration and court challenge. We cannot predict the ultimate impact
of these new rules on our business or our stations.
PROPOSED AND RECENT CHANGES. Congress and the FCC have under
consideration, and in the future may consider and adopt, new laws, regulations
and policies regarding a wide variety of matters that could affect, directly or
indirectly, the operation, ownership and profitability of our radio stations;
result in the loss of audience share and advertising revenues for our radio
stations; and/or affect our ability to acquire additional radio stations or to
finance those acquisitions. Such matters may include, for example,
o changes to the license renewal process;
o proposals to impose spectrum use or other governmentally-imposed
fees upon licensees;
o modifications of the FCC's equal employment opportunity rules and
other matters relating to minority and female involvement in
broadcasting;
o proposals to repeal or modify some or all of the FCC's multiple
ownership and cross-ownership rules and/or policies, such as
increasing the benchmarks or thresholds for attributing ownership
interests in broadcast media;
o proposals to change rules or policies relating to political
broadcasting or technical and frequency allocation matters,
including those relative to the implementation of digital audio
broadcasting, satellite digital audio radio service, and AM stereo
broadcasting;
o proposals to permit expanded use of FM translator stations and low
power FM stations;
o proposals to restrict or prohibit the advertising of beer, wine
and other alcoholic beverages on radio;
o changes in the FCC's alien ownership rules and policies; `
o proposals facilitating expanded delivery of audio and video
programming to homes through new or existing wire connections; and
o proposals to limit the tax deductibility of advertising expenses
by advertisers.
We cannot predict what other matters might be considered in the future by
the FCC or Congress, nor can we judge in advance what impact, if any, the
implementation of any of these proposals or changes might have on our business.
REGULATION OF OUTDOOR ADVERTISING
Outdoor advertising is subject to governmental regulation at the federal,
state and local levels. Federal law, principally the Highway Beautification Act
of 1965, regulates outdoor advertising on federally aided primary and interstate
highways. The Highway Beautification Act requires, as a condition to federal
highway assistance, states to restrict outdoor advertising displays on such
highways to commercial and industrial areas and requires certain additional
size, spacing and other limitations. All states have passed state outdoor
advertising display control statutes and regulations at least as restrictive as
the federal requirements, including removal at the owner's expense and without
compensation of any illegal signs on such highways. We do not believe that any
of our outdoor advertising displays are subject to removal as illegal. Municipal
and county governments generally also have sign controls as part of their zoning
laws. Some local governments prohibit construction of new outdoor advertising
displays and some allow new construction only to replace existing displays,
although most allow construction of outdoor advertising displays subject to
restrictions on zoning, size, spacing and height.
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Federal law does not require removal of existing lawful outdoor
advertising displays but does require payment of compensation if a state or
political subdivision compels the removal of a lawful outdoor advertising
display along a federally aided primary or interstate highway. State governments
have purchased and removed legal outdoor advertising displays for beautification
in the past, using federal funding for transportation enhancement programs, and
may do so in the future. Governmental authorities from time to time use the
power of eminent domain to remove outdoor advertising displays. Local
governments do not generally purchase outdoor advertising displays for
beautification, but some have attempted to force removal of legal but
nonconforming outdoor advertising displays (outdoor advertising which conformed
with applicable zoning regulations when built but which do not conform to
current zoning regulations) after a period of years under a concept called
"amortization," by which the governmental body asserts that just compensation is
earned by continued operation over time. Although there is some question as to
the legality of amortization under federal and many state laws, amortization has
been upheld in some instances.
The outdoor advertising industry is heavily regulated, and we can expect
to be subject to varying degrees of regulatory pressure affecting the operation
of our outdoor advertising displays. Accordingly, although our experience to
date is that the regulatory environment can be managed, no assurance can be
given that existing or future laws or regulations will not materially and
adversely affect our business.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
NAME AGE POSITION WITH SIMMONS MEDIA GROUP
------- ----- ----------------------------------------------------------
Roy W. Simmons................................ 84 Chairman of the Board of Directors
David E. Simmons.............................. 42 President and Chief Executive Officer and Director
G. Craig Hanson............................... 51 President, Radio Division
Bruce W. Thomas............................... 43 Executive Vice President and Chief Financial Officer
Alan D. Hague................................. 48 Vice President of Operations and Programming
Bret J. Leifson............................... 41 Controller and Secretary
Elizabeth E. Simmons.......................... 84 Director
Julia S. Watkins.............................. 59 Director
Matthew R. Simmons............................ 57 Director
Laurence E. Simmons........................... 53 Director
Elizabeth S. Hoke............................. 51 Director
Harris H. Simmons............................. 46 Director
</TABLE>
ROY W. SIMMONS has been a Director since 1977 and is a member of our
Executive Committee.
DAVID E. SIMMONS has served as our President and CEO since 1989 and as a
Director since 1977. He has also served on the Executive Committee of our Board
of Directors since 1985, and is the Chairman or President of all of our
subsidiaries. From 1987 to 1996, Mr. Simmons also served as Chairman and CEO of
Keystone Communications Corporation, which was acquired by a subsidiary of
France Telecom in November 1996. Mr. Simmons is a graduate of the University of
Utah and received an MBA from the Harvard Business School. Mr. Simmons serves on
the Utah State Board of Economic Development, the Board of Governors of the Salt
Lake Area Chamber of Commerce, the Board of Trustees of Westminster College, and
the boards of directors of National Bank of Layton, Oklahoma State University
Institute of Technology and Murdock Travel. Mr. Simmons is the brother of the
following members of our board of directors: Matthew R. Simmons, Laurence E.
Simmons, Elizabeth S. Hoke and Harris H. Simmons.
G. CRAIG HANSON has served as Vice President since 1990. From 1978 to
1990, he served as General Manager of Simmons Media's KSFI-FM and KDYL-AM
stations. Mr. Hanson attended the University of Utah and completed the Executive
Management Program at the University of Notre Dame. He holds a bachelors degree
from Northwestern International University. Mr. Hanson has served as President
of the Utah Broadcasters Association and the Salt Lake Radio Broadcasters
Association and as a director of the Rocky Mountain Broadcasters Association.
BRUCE W. THOMAS has served as our Executive Vice President and Chief
Financial Officer since March 1996. He also served as Chief Financial Officer of
Keystone Communications Corporation until its November 1996 sale to a subsidiary
of France Telecom. Mr. Thomas is a graduate of the University of Utah and
received a Masters of International Management from the American Graduate School
of International Management --Thunderbird. Prior to joining Simmons Media Group,
Mr. Thomas spent 14 years with Bank of America, including six years as part of
Bank of America's Entertainment & Media Group based in Los Angeles and several
years in Bank of America's European operations.
ALAN D. HAGUE has served as our Vice President of Operations and
Programming since 1995. Mr. Hague attended the University of Utah on a
communications scholarship. Prior to joining Simmons Media in 1992, he was
general manager of KRSP AM and FM for eight years, and worked concurrently as
Executive Vice President of Carlson Communications. Mr. Hague has worked in
various on-air and programming positions since 1967. He has served as the
President of the Salt Lake Market Broadcaster's Association twice, and is a
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past President of the Utah Broadcaster's Association. Mr. Hague is also a
two-time past chairman of the Greater Utah March of Dimes.
BRET J. LEIFSON has served as our Controller since 1997 and as our
Assistant Secretary since 1998. He has recently been appointed as our Secretary.
He also served as an Executive Vice President of Keystone Communications
Corporation from 1983 until 1997. Mr. Leifson is a graduate of Brigham Young
University. He is a certified public accountant and a member of the American
Institute of Certified Public Accountants and the Utah Association of Certified
Public Accountants.
ELIZABETH E. SIMMONS has been a Director since 1977.
JULIA S. WATKINS has been a Director since 1977.
MATTHEW R. SIMMONS has been a Director since 1977 and a member of the
Compensation Committee of the Board of Directors since 1998. Since 1974, Mr.
Simmons has been President of Simmons & Co., International, a Houston-based
investment banking firm specializing in the oil services industry. He is also a
director of Kerr McGee Corp. Mr. Simmons is a graduate of the Harvard Business
School and former president of the Harvard Business School's alumni association.
He is also the current President of the National Ocean Industry Association. Mr.
Simmons is the brother of the following members of our board of directors:
Elizabeth S. Hoke, Laurence E. Simmons and Harris H. Simmons, and a brother of
our President and Chief Executive Officer, David E. Simmons.
LAURENCE E. SIMMONS has been a Director since 1977 and a member of the
Compensation Committee of the Board of Directors since 1998. Since 1989, he has
been President of SCF Partners, a Houston-based buyout firm focused on the oil
services industry. He is also a director of Varco International and Zions
Bancorporation. He is a graduate of the Harvard Business School and co-founded
Simmons & Co., International. Previous work experience includes Citicorp Leasing
and the First National Bank of Chicago. Mr. Simmons is the brother of the
following members of our board of directors: Elizabeth S. Hoke, Matthew R.
Simmons and Harris H. Simmons, and a brother of our President and Chief
Executive Officer, David E. Simmons.
ELIZABETH S. HOKE has been a Director since 1977 and a member of the
Compensation Committee of the Board of Directors since 1998.
HARRIS H. SIMMONS has been a Director since 1977 and a member of the
Executive Committee of the Board of Directors since 1998. Since 1990, he has
been President and Chief Executive Officer of Zions Bancorporation. He is also a
director of Zions Bancorporation and the Chairman of both ZFNB Asset Fund, Inc.
and NSB Asset Fund, Inc., two registered investment companies. Mr. Simmons is a
graduate of the Harvard Business School and is active in community affairs in
the Salt Lake City area, including serving as Chairman of the Economic
Development Corporation of Utah and Chairman of the Utah Symphony. Mr. Simmons
is the brother of the following members of our board of directors: Matthew R.
Simmons, Elizabeth S. Hoke and Laurence E. Simmons, and a brother of our
President and Chief Executive Officer, David E. Simmons.
Each director currently holds office until the next annual meeting of
shareholders and until that director's successor has been elected and qualified.
Upon the closing of this offering, our board of directors will be divided into
three classes. Each year the directors' positions in one of the three classes
are subject to election so that it would take three years to replace the entire
board, absent resignation or premature expiration of a director's term.
BOARD OF DIRECTORS
We anticipate that three additional directors who are not affiliates of
our present or former employees will be elected to the board within 90 days
after the effective date of this offering. Roy W. Simmons and Elizabeth E.
Simmons are the parents of our other directors, and Julia S. Watkins is the
sister of David E.
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Simmons, Matthew R. Simmons, Laurence E. Simmons, Elizabeth S. Hoke and Harris
H. Simmons. Each member of the board of directors holds office until the next
annual meeting of shareholders and until his or her successor has been duly
elected and qualified.
EXECUTIVE COMPENSATION
The following table sets forth information for the fiscal years ended
December 31, 1999, 1998 and 1997 concerning the cash and non-cash compensation
paid to or earned by our Chief Executive Officer and our other most highly
compensated executive officers:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION ALL OTHER
------------------------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
---------------------------- ---------- -------------- --------------- ----------------
<S> <C> <C> <C>
David E. Simmons................................... 1999 $ 200,000 $ 231,068
President and Chief Executive Officer 1998 175,000 300,000
1997 173,000 7,640
G. Craig Hanson.................................... 1999 100,000 179,800
President, Radio Division 1998 100,000 127,632
1997 100,000 130,497
Bruce W. Thomas.................................... 1999 113,895 70,000
Executive Vice President and Chief Financial 1998 127,617 66,250
Officer 1997 127,617 35,900
Alan D. Hague...................................... 1999 87,250 48,344
Vice President of Operations and Programming 1998 84,000 37,134
1997 78,000 17,829
Bret J. Leifson.................................... 1999 96,000 6,196
Controller and Secretary 1998 85,000 25,949
1997 14,494(2) 0
</TABLE>
--------------
(1) Reflects our matching contributions to the Simmons Media Group 401(k)
plan made on behalf of our executive officers during the years 1997
through 1999, and insurance premiums paid by us during the same period
for term life insurance secured for the benefit of our executive
officers, as follows: David E. Simmons $______ and $_______,
respectively; G. Craig Hanson $____ and $_____, respectively; Bruce W.
Thomas $____ and $____, respectively; Alan D. Hague $____ and $____,
respectively; Bret J. Leifson $____ and $_____, respectively.
(2) Reflects a pro rata portion of Mr. Leifson's base salary earned for
fiscal year 1997 as of Mr. Leifson's hire date of October 15, 1997.
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The following table sets forth certain information with respect to stock
options to purchase shares of our common stock awarded concurrently with the
offering to the executive officers listed in the Summary Compensation Table.
OPTIONS GRANTED IN FISCAL 2000
INDIVIDUAL GRANTS*
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL APPRECIATION FOR OPTION TERM
SECURITIES OPTIONS POTENTIAL REALIZABLE VALUE AT
UNDERLYING GRANTED TO ASSUMED ANNUAL RATES OF STOCK PRICE
OPTIONS EMPLOYEES IN EXERCISE APPRECIATION FOR OPRION TERM
OPTIONS FISCAL PRICE EXPIRATION -------------------------------
NAME GRANTED YEAR (A) ($/SH) DATE 5% 10% 0%
--------- -------------- -------------- ------------ ------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
David E. Simmons.....
G. Craig Hanson......
Bruce W. Thomas......
Alan D. Hague........
Bret J. Leifson......
</TABLE>
--------------
* Options will be granted to the executive officers concurrently with
the offering in substitution of any prior equity-based benefits promised to
the executives.
ANNUAL BONUS INCENTIVE PLAN
We have adopted the Simmons Media Group, Inc. Annual Bonus Incentive
Plan, which is effective as of the closing of this offering. The annual bonus
incentive plan provides for the payment of bonuses to certain senior executive
officers of Simmons Media Group and its subsidiaries upon satisfaction of
certain performance targets. The bonus compensation payable under the plan is
intended to qualify as performance-based compensation within the meaning of
Section 162(m) of the Internal Revenue Code of 1986.
ADMINISTRATION. The annual bonus incentive plan will be administered by a
board-appointed committee consisting solely of two or more outside directors.
The committee has the discretion to determine which eligible individuals will
receive awards, the time or times when such awards will be made, the performance
criteria on which the awards are based, the amount of any awards payable under
the plan, and whether the award will be paid in cash, stock, or other property.
The maximum cash bonus that may be awarded to any participant under the plan
shall not exceed [three] times the employee's base salary.
PERFORMANCE TARGETS. Awards earned and payable under the Plan are based
on one or more of the following performance targets established in writing by
the committee no more than 90 days after the beginning of the performance
period:
(i) EBITDA (earnings before interest, taxes, depreciation and
amortization); (ii) broadcast cash flow; (iii) after tax cash flow (i.e., net
income, including depreciation and amortization, less non-cash net revenue,
gains on asset sales, certain capital expenditures, and certain other
adjustments determined by the committee);
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(iv) peer group comparison; (v) return on equity; (vi) return on capital; (vii)
advertising sales revenue (ads booked and/or ads run); (viii) value of the
common stock; (ix) net income; (x) return on assets; (xi) total shareholders
return; and (xii) industry-specific market ratings (e.g., Arbitron Ratings).
Each year the committee will establish one or more performance targets
that will be used under the annual bonus incentive plan to determine the amount
of an award payable to an eligible employee. A schedule of targets will be
established to calculate the amount of the awards payable to the eligible
employee. This schedule will determine the maximum bonus that is payable to the
eligible employee with respect to a performance period which may not exceed
[three] times the employee's base salary for the performance period. The
committee may reserve the right to reduce any bonus determined under the target
schedule for the year.
AMENDMENT OR TERMINATION OF PLAN/AWARD. The board of directors may amend,
suspend, or terminate the annual bonus incentive plan at any time without the
consent of the shareholders, provided that no such amendment, alteration,
suspension, discontinuation or termination of the annual bonus incentive plan
may impair the rights of the participants without such participants' consent.
The committee may waive any conditions or rights under, or amend, suspend, or
terminate any award or award agreement; provided, that, no such amendment,
suspension, or termination of any award may impair the rights of the
participants without such participants' consent.
LONG-TERM INCENTIVE PLAN
We have adopted the Simmons Media Group, Inc. Long-Term Incentive Plan,
which is effective as of [September 1, 2000]. The long-term incentive plan
provides for the issuance of stock appreciation rights, incentive stock options,
non-qualified stock options, restricted stock awards and other stock-based
awards to certain employees, consultants, directors and independent contractors
of Simmons Media Group and its subsidiaries. Under the long-term incentive plan,
shares of our common stock have been reserved for
issuance. The number of shares available under the long-term incentive plan may
be adjusted in the event of a recapitalization, reorganization, merger,
consolidation, stock dividend, stock split, or other similar corporate
transaction or event affecting our common stock. Shares subject to an option or
other award that is terminated or canceled without the issuance of common stock
are available for future grants under the long-term incentive plan. We intend to
register the shares reserved under the long-term incentive plan with the
Securities and Exchange Commission.
ADMINISTRATION. The long-term incentive plan is administered by a
board-appointed committee. The committee has the discretion to determine which
eligible individuals will receive awards, the time or times when such awards
will be made, the type of awards made, the number of shares to be covered by the
awards, the exercise date and price of the awards, and the terms and conditions
of the awards.
STOCK OPTIONS--INCENTIVE STOCK OPTIONS AND NONQUALIFIED STOCK OPTIONS.
Under the long-term incentive plan, the committee has the discretion to grant
incentive stock options qualifying for special tax treatment under Section 422
of the Internal Revenue Code as well as nonqualified stock options. The exercise
price of any incentive stock option may not be less than the fair market value
of the common stock on the date the option is granted, provided the exercise
price of any incentive stock option awarded to any person who owns stock
possessing more than 10% of the total combined voting power of all of our
classes of stock shall be not less than 110% of the fair market value of a share
of common stock on the date the option is granted. Only employees are eligible
to receive incentive stock options, and the fair market value of the common
stock, for which the incentive stock option becomes exercisable in any one
calendar year may not exceed $100,000 (determined at the time an incentive stock
option is granted). Payment of the option price may be made in cash, by delivery
of shares of common stock equivalent in value to the option price or by another
method approved by the committee.
RESTRICTED STOCK AWARDS. Under the long-term incentive plan, the
committee has the discretion to grant awards of restricted stock, which awards
are subject to certain restrictions and risks of forfeiture as determined by the
committee in its sole discretion. Except as specifically set forth in the
restricted stock agreement, the participant will have all rights and privileges
of a shareholder as to his or her restricted stock,
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including the rights to vote and to receive dividends. A participant is not
required to make any payment for shares of common stock issued under an award of
restricted stock, except to the extent required by law or the committee.
OTHER AWARDS. The committee also is authorized under the long-term
incentive plan to grant to participants restricted stock, performance awards,
dividend equivalents, stock appreciation rights and other stock-based awards on
terms and conditions determined by the committee.
PERFORMANCE AWARD means an award of the right to receive shares, cash or
other property upon the achievement of performance criteria determined by the
committee.
DIVIDEND EQUIVALENT means the award of the right to the payment of
amounts equal to the value of dividends that may be paid with respect to shares
in the future. The committee may provide that dividend equivalents will be paid
or distributed when accrued or will be deemed to have been reinvested in
additional shares or awards, or otherwise reinvested.
STOCK APPRECIATION RIGHT means a right to receive an amount measured by
the appreciation in the fair market value of shares from the date of grant of
the stock appreciation right to the date of exercise of the right. A stock
appreciation right may be exercised at such times and in such manner as is
determined by the committee and, as determined by the committee, may be settled
in cash, shares or other property.
The committee may grant other stock-based awards purely as bonuses that
are not subject to any restrictions or conditions. Such awards will be
denominated or payable in, valued by reference to, or otherwise based on or
related to, shares of common stock.
RESTRICTIONS ON PERFORMANCE-BASED AWARDS. Performance awards, restricted
stock, and certain other stock-based awards subject to performance criteria are
intended to be "qualified performance-based compensation" within the meaning of
Section 162(m) of the Internal Revenue Code, and will be paid solely on account
of the attainment of one or more preestablished, objective performance goals
within the meaning of Code Section 162(m) and the regulations thereunder. As
selected by the committee, the performance goal will be the attainment of one or
more preestablished amounts of EBITDA, advertising sales revenue (ads booked
and/or ads run), net income, after-tax cash flow, broadcast cash flow, return on
assets, return on equity, return on capital, total shareholder return, peer
group comparison or market ratings of Simmons Media Group (e.g., Arbitron
ratings). No participant may be granted any combination of performance awards,
restricted stock or other stock-based awards subject to performance criteria in
any single year, the value of which is based on more than ____________________
shares. The payout of any such award to a participant may be reduced, but not
increased, based on the degree of attainment of other performance criteria or
otherwise at the direction of the committee.
CHANGE IN CONTROL. Except to the extent the committee provides otherwise,
in the event of a change in control, all outstanding awards shall become fully
vested and exercisable immediately prior to the change in control. A change in
control will occur in the event of (i) a dissolution of Simmons Media Group,
(ii) the sale of substantially all of the assets of Simmons Media Group, (iii)
the acquisition, directly or indirectly, by any person or related group of
persons of the beneficial ownership (within the meaning of Rule 13d-3 of the
Securities Exchange Act of 1934 as amended) of securities possessing more than
fifty percent (50%) of the total combined voting power of Simmons Media Group's
outstanding securities, (iv) a change in the composition of the board of
directors of Simmons Media Group over a period of twenty-four (24) consecutive
months or less such that a majority of the board of directors members ceases, by
reason of one or more contested elections of board of directors membership, to
be comprised of individuals who either (A) have been board of directors members
continuously since the beginning of such period or (B) have been elected or
nominated for election as board of directors members during such period by at
least a majority of the board members described in clause (A) who were still in
office at the time the board of directors approved such election or nomination,
or (v) the merger or consolidation of Simmons Media Group with or into another
entity unless the shareholders of Simmons Media Group immediately prior to such
merger or
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consolidation own, directly or indirectly, more than fifty percent (50%) of the
total combined voting power of the surviving entity's outstanding securities
immediately after such merger or consolidation.
ASSIGNMENT OF INTEREST/NON-TRANSFERABILITY. Awards under the long-term
incentive plan generally are not assignable or transferable except to members of
the employees' family for estate planning purposes and by the laws of descent
and distribution; provided, that a participant may designate a beneficiary or
beneficiaries to exercise the rights of the participant and to receive any
distribution with respect to an award upon the participant's death.
AMENDMENT OR TERMINATION OF PLAN/AWARD. The board of directors may amend,
suspend, or terminate the long-term incentive plan at any time without the
consent of the shareholders, provided that no such amendment, alteration,
suspension, discontinuation or termination of the long-term incentive plan may
impair the rights of the participants without such participants' consent. The
committee may waive any conditions or rights under, or amend, suspend, or
terminate any award or award agreement; provided, that, no such amendment,
suspension, or termination of any award may impair the rights of the
participants without such participants' consent.
EMPLOYEE STOCK PURCHASE PLAN
We have adopted the Simmons Media Group, Inc. Employee Stock Purchase
Plan, which will be effective as of the consummation of this offering. The stock
purchase plan will be administered by a committee appointed by the board of
directors. The board of directors has reserved and authorized for issuance under
the stock purchase plan shares of common stock. The number of shares
available under the stock purchase plan may be adjusted in the event of a
recapitalization, reorganization, merger, consolidation, stock dividend, stock
split, or other similar corporate transaction or event affecting the common
stock. We intend to register the shares reserved under the stock purchase plan
along the underlying plan interests with the Commission.
All individuals who are employed by us as of a grant date and who
customarily work at least 20 hours per week will be eligible to participate in
the stock purchase plan, except an employee who, immediately after the grant
date, would own 5% or more of the total combined voting power or value of all
classes of our stock. Each eligible employee will be given an opportunity each
year to purchase on one or more exercise dates an aggregate number of shares of
common stock equal to a dollar amount not to exceed $25,000. The price of the
shares offered to employees under the stock purchase plan will be the lesser of
85% of the fair market value of the common stock on the grant date; or 85% of
the fair market value of the common stock on the exercise date. An eligible
employee will purchase shares through payroll deductions, and an employee's
participation in the stock purchase plan is contingent on the employee providing
Simmons Media Group with written authorization to withhold from his or her pay
an amount to be applied toward the purchase of shares of common stock. Employees
who terminate employment prior to the end of the offering period will receive a
cash refund of the deducted money without interest. An eligible employee
automatically will be deemed to have exercised his or her right to purchase
shares under the stock purchase plan as of the exercise date.
Generally, the employee does not recognize taxable income, and we are not
entitled to an income tax deduction, with respect to the purchase of shares
under the stock purchase plan. If the employee sells the shares acquired under
the plan at least one year after the exercise date and at least two years after
the grant date, then the employee will recognize ordinary income equal to the
difference between the fair market value of the common stock as of the date of
grant and the exercise price paid for the shares. Any additional appreciation
realized on the sale of the common stock will be treated as a capital gain. We
will be entitled to an income tax deduction corresponding to the amount of
ordinary income recognized by the employee. If the employee sells the shares
acquired under the plan at any time within: (i) one year after the exercise
date; or (ii) two years after the grant date, then the employee will recognize
ordinary income in an amount equal to the excess, if any, of: (x) the lesser of
the sale price or the fair market value on the exercise date, over (y) the price
paid for the shares. We are entitled to a deduction equal to the ordinary income
recognized by the employee.
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The stock purchase plan generally may be amended or terminated by the
board of directors at any time without the consent of the shareholders, provided
that no such amendment or termination of the stock purchase plan may materially
adversely affect any previously issued option without the affected employee's
written consent. The board of directors may waive any conditions or rights
under, or amend, suspend, or terminate any award or award agreement; provided,
that, no such amendment, suspension, or termination of any award may impair the
rights of the participants without such participants' consent.
COMPENSATION OF DIRECTORS
Directors are not paid any cash fees or additional compensation for
services as members of the board of directors or any committee of the board. All
directors will be reimbursed any expenses incurred, where appropriate.
Independent director nominees will be eligible to participate in our Long-Term
Incentive Plan.
BOARD COMMITTEES
We have established a compensation committee and an executive committee.
We intend to establish an audit committee of our board of directors within 90
days following the offering. In addition, we will adopt an audit committee
charter. The compensation committee reviews and recommends to our board of
directors the compensation and benefits of our executive officers and other
employees. The current members of our compensation committee are Matthew R.
Simmons, Laurence E. Simmons and Elizabeth S. Hoke. We intend to replace the
current members of the compensation committee with at least two outside
directors. The principal functions of the executive committee include exercising
the powers of the board of directors during intervals between board meetings and
acting as an advisory body of the board of directors by reviewing various
matters prior to their submission to our board. The current members of our
executive committee are Roy W. Simmons, David E. Simmons and Harris H. Simmons.
Our audit committee will be composed of at least three directors who are not our
employees. The responsibilities of our audit committee will include:
o recommending to the board of directors independent public
accountants to conduct the annual audit of our financial
statements;
o reviewing the proposed scope of the audit and approving the audit
fees to be paid;
o reviewing our accounting and financial controls with the
independent public accountants and our financial and accounting
staff; and
o reviewing and approving transactions, other than compensation
matters, between us and our directors, officers and affiliates.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
No executive officer of Simmons Media Group serves as a member of the
board of directors or compensation committee of any entity that has one or more
executive officers serving as a member of our board of directors.
EMPLOYMENT AGREEMENTS
On , 2000, we entered into employment agreements with David E.
Simmons, G. Craig Hanson, Bruce W. Thomas, Alan D. Hague and Bret J. Leifson.
The agreements provide for initial annual base salaries of (i) $ , (ii)
$ , (iii) $ , (iv) $ and (v) $ , respectively. Each of
these officers is eligible to receive an annual bonus upon the attainment of
performance targets in an amount equal to (i) 150% of base salary, (ii) 150% of
base salary, (iii) % of base salary, (iv) % of base salary and (v) % of
base salary, respectively. In the event we involuntarily terminate the
employment of these officers without cause, the officer is entitled to receive
severance pay equal to a number of months of their base compensation; each is
entitled to (i) months, (ii) months, (iii) months, (iv) months
and (v) months, respectively.
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The employment agreements permit each of these officers to participate
in all of our benefit plans, including health, dental, disability and other
benefit plans maintained by us. They are also eligible to participate in our
compensation programs, including our Long-Term Incentive Plan and our Annual
Bonus Incentive Plan. The employment agreements provide that in the event of a
change in control, all of the stock-based awards issued under our compensation
plans will become fully vested and exercisable immediately prior to the change
in control.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to the closing of this offering, Simmons Media Group and members of
the Simmons family intend to enter into a shareholders' agreement which, among
other things, would govern voting of shares of our common stock held by members
of the Simmons family or their permitted transferees and would provide these
principal shareholders with registration rights under certain circumstances.
It is anticipated that Simmons Media Group and Crestwood Communications
will enter into certain contractual agreements on an arm's-length basis under
which Simmons Media Group will provide administrative support functions to
Crestwood Communications after the closing of this offering.
During 1999, Simmons Media Group sold a portion of an interest held in a
real estate partnership to David E. Simmons, our President and Chief Executive
Officer, and Harris H. Simmons, a member of our board of directors for $308,000.
Simmons Media Group will spin-off its remaining interest in the real estate
partnership to Crestwood.
At December 31, 1999, we held 30,890 shares of common stock of Murdock
Travel, Inc. Our President and Chief Executive Officer is a member of Murdock
Travel's board of directors. In addition, we also held a $500,000 note
receivable from Murdock Travel bearing interest at 9%. The note has been paid in
full. The shares of common stock of Murdock Travel will be spun-off to Crestwood
in the corporate reorganization.
We have notes payable to David E. Simmons, our President and Chief
Executive Officer, in the amount of $575,582, G. Craig Hanson, our President,
Radio Division, in the amount of $203,000 and Kurt Horan, our Treasurer and
General Manager of our outdoor advertising division, in the amount of $99,174.
The interest rate payable on the notes is 8%. The notes relate to the
advancement of funds to Simmons Media Group.
In December 1995, Simmons Media Group sold certain securities that it
held for investment to Simmons One, L.L.C. The shareholders of Simmons One are
David E. Simmons, our President and Chief Executive Officer, and five of our
directors, Matthew R. Simmons, Laurence E. Simmons, Elizabeth S. Hoke, Julia S.
Watkins and Harris H. Simmons. As consideration, Simmons Media Group received a
note receivable for $3,955,123 bearing interest at 7%; due on the earlier of
December 31, 2000 or the sale, transfer, or exchange of the equity securities
securing payment of the note receivable. Simmons One was subsequently dissolved
and the note obligation was assumed by the above-named individuals. The note
receivable will be spun-off to Crestwood in the corporate reorganization.
We are the sole general partner of and own a 3.7% general partnership
interest in Simmons Lone Star Media, Ltd. and David E. Simmons, our President
and Chief Executive Officer, holds a 17.5% limited partnership interest and five
of our directors, Matthew R. Simmons, Laurence E. Simmons, Elizabeth S. Hoke,
Julia S. Watkins and Harris H. Simmons, each hold a 14.9% limited partnership
interest in Simmons Lone Star Media. In addition, G. Craig Hanson, our
President, Radio Division, Bret J. Leifson, our Controller and Secretary, and
Daryl O'Neal, the general manager of radio station KAHK-FM, Austin, Texas,
individually hold in the aggregate a 4.3% limited partnership interest in
Simmons Lone Star Media. As part of their compensation from Simmons Media Group
in 1999, David E. Simmons, G. Craig Hanson, Alan D. Hague, our Executive Vice
President of Operations and Programming, and Bret J. Leifson were awarded
options to purchase partnership interests at fair market value in Simmons
Lone Star Media.
In 1997, Simmons Lone Star Media and Simmons Media Group entered into an
asset purchase agreement under which Simmons Media Group sold Simmons Lone Star
Media the assets of radio station KAHK-FM. Simmons Lone Star Media financed the
purchase of radio station KAHK-FM with a promissory note in the amount of
$2,064,139, secured by the assets of the radio station.
On April 17, 2000, we formed a wholly-owned subsidiary, KAHK License
Corp., for the purposes of acquiring the assets of radio station KAHK-FM.
Simmons Lone Star Media and Simmons Media Group, on
57
<PAGE>
behalf of KAHK License Corp., have negotiated an asset purchase agreement under
which Simmons Media Group will acquire all of the assets of radio station
KAHK-FM for approximately $5,875,000.
Simmons Lone Star Media also contracted with Simmons Media Group for the
operation of the radio station pursuant to a license management agreement.
Simmons Media Group was paid a monthly fee of $2,000.
58
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of our capital stock as of June 30, 2000 and after giving effect to
the corporate reorganization and this offering by:
o persons known to us to be beneficial owners of more than 5% of a class
of our securities;
o each of our directors;
o each of our executive officers named in the Summary Compensation
Table; and
o all of our named executive officers and directors, as a group.
As of August 1, 2000, our outstanding capital stock consisted of 1,305,000
shares of voting common stock and 5,280,000 shares of preferred stock.
Immediately upon completion of our corporate reorganization, all shares of
preferred stock will be exchanged for shares of preferred stock of Crestwood
Communications, Inc. on a one-for-one basis. Accordingly, the share numbers and
percentages set forth below assume the exchange of all outstanding shares of our
preferred stock into shares of preferred stock of Crestwood Communications, Inc.
on a one-for-one basis. Additionally, immediately prior to this offering, our
common stock will be split on a for basis. Accordingly, immediately
prior to this offering, our outstanding capital stock will consist of
shares of common stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF STOCK PERCENTAGE OF
BENEFICIALLY TOTAL VOTING POWER
NAME OF BENEFICIAL OWNER COMMON STOCK OWNED(A) OF COMMON STOCK
-------------------------- ----------------- ------------------- --------------------
<S> <C> <C> <C>
Roy W. Simmons (b)(c)..................................
Elizabeth E. Simmons (b)(c)............................
Julia S. Watkins (b)(c)................................
Watkins Family Limited Partnership (b)(c)..............
Matthew R. Simmons (b)(c)..............................
Laurence E. Simmons (b)(c).............................
Elizabeth S. Hoke (b)(c)...............................
The G. Bland and Elizabeth S. Hoke Family Trust (b)(c).
Harris H. Simmons......................................
David E. Simmons (b)(c)................................
G. Craig Hanson........................................
Bruce W. Thomas........................................
Alan D. Hague..........................................
Bret J. Leifson........................................
All named executive officers and directors
as a group (12 persons)...........................
</TABLE>
--------------
* Less than 1.0%
(a) The Securities and Exchange Commission has defined "beneficial
ownership" to include sole or shared voting or investment power with
respect to a security or the right to acquire beneficial ownership
within 60 days. The number of shares indicated are owned with sole
voting investment power unless otherwise noted and includes certain
shares held in the name of affiliated companies as to which beneficial
ownership may be disclaimed.
(b) The address for each beneficial owner of more than 5% of our common
stock is c/o Simmons Media Group, Inc., 515 South 700 East, Salt Lake
City, Utah 84102.
(c) The members of the Simmons family intend to enter into a shareholders'
agreement which, among other things, will govern the voting of shares
of our common stock held by members of the Simmons family or their
permitted transferees.
(d) Includes shares of common stock held in a trust by Laurence E.
Simmons as trustee for certain members of his family.
(e) Includes shares of common stock held in a trust by Harris H.
Simmons as trustee for certain members of his family.
59
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Effective upon the filing of the restated and amended articles of
incorporation, our capital stock will consist of:
o authorized shares of common stock, having no par value per
share, of which shares will be outstanding immediately after
the offering, and shares will be outstanding assuming the
underwriter's overallotment option is exercised in full; and
o authorized shares of preferred stock, having no par value per
share, none of which is outstanding.
The following is a summary of the material provisions of our restated and
amended articles of incorporation and amended and restated bylaws, which are
filed as exhibits to the registration statement of which this prospectus is a
part. Our restated and amended articles of incorporation and restated amended
and restated bylaws will be effective upon the closing of this offering.
COMMON STOCK
As of August 1, 2000, there were 1,305,000 shares of our voting common
stock outstanding and held of record by shareholders. Immediately
prior to this offering, our common stock will be split on a for basis.
Accordingly, immediately prior to this offering, our outstanding capital stock
will consist of shares of common stock. The holders of common stock are entitled
to one vote for each share held on all matters voted upon by shareholders,
including the election of directors and any proposed amendment to the articles
of incorporation. The holders of common stock will be entitled to such dividends
as may be declared at the discretion of the board of directors out of funds
legally available for that purpose. The shares of common stock are not
convertible and are not subject to sinking fund or redemption provisions.
We will apply to list the shares on the Nasdaq National Market under the
symbol "SMGI."
PREFERRED STOCK
Our board of directors, in its sole discretion, may designate and issue one
or more series of preferred stock from the authorized and unissued shares of
preferred stock. Subject to limitations imposed by law or our articles of
incorporation, the board of directors is empowered to determine:
o the designations, preferences and limitations of each series of
preferred stock;
o the number of shares constituting a series of preferred stock;
o the dividend rate, if any, for the series;
o the terms and conditions of any voting and conversion rights and
purchase or sinking funds for the series, if any;
o the amounts payable on the series upon our liquidation, dissolution or
winding-up; and
o the redemption prices and terms applicable to the series, if any.
Such rights, preferences, privileges and limitations of preferred stock
could adversely affect the rights of holders of common stock. There will be no
shares of preferred stock outstanding as of the closing of our corporate
reorganization.
FOREIGN OWNERSHIP
Simmons Media Group's restated and amended articles of incorporation
restrict the ownership, voting and transfer of our capital stock, including the
common stock, in accordance with the Communications Act and the rules of the
FCC, which prohibit the issuance of more than 25% of our outstanding capital
stock, or
60
<PAGE>
more than 25% of the voting rights such stock represents, to or for the account
of aliens, as defined by the FCC. Our articles of incorporation prohibit
transfers of our capital stock that would cause a violation of this prohibition.
The articles of incorporation authorize the board of directors to take action to
enforce these prohibitions, including restricting the transfer of shares of
capital stock to aliens and placing a legend restricting foreign ownership on
the certificates representing the common stock. In addition, the articles of
incorporation provide for the redemption of shares of our capital stock by
action of the board of directors to the extent necessary to comply with alien
ownership restrictions.
LIMITATION ON DIRECTORS' AND OFFICERS' LIABILITY
Simmons Media Group's restated and amended articles of incorporation
contain a provision that limits the liability of directors to the maximum extent
permitted by Utah law, which specifies that a director of a corporation adopting
such a provision will not be personally liable for monetary damages for breach
of fiduciary duty as a director, except for liability for:
o the amount of a financial benefit received by a director to which he
or she is not entitled;
o an intentional infliction of harm on Simmons Media Group or its
shareholders;
o a violation of Section 16-10a-842 of the Utah Revised Business
Corporation Act, which prohibits unlawful distributions by a
corporation to its shareholders; or
o an intentional violation of criminal law.
Simmons Media Group's amended and restated bylaws provide for both
permissive and mandatory indemnification of directors, officers, employees and
agents in the manner and under the circumstances permitted by Sections
16-10a-902, 16-10a-903 and 16-10a-907 of the Utah Revised Business Corporation
Act. These provisions generally authorize indemnification as to all expenses
incurred or imposed as a result of actions, suits or proceedings if the
indemnified parties act in good faith and in a manner they reasonably believe to
be in or not opposed to the best interests of Simmons Media Group. We believe
these provisions are necessary and useful to attract and retain qualified
persons. Simmons Media Group intends to obtain directors and officers insurance
to cover liabilities under the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, for the benefit of its directors
and officers. There is no pending litigation or proceeding involving a director
or officer as to which indemnification is being sought.
CONFLICTING INTEREST TRANSACTIONS
Simmons Media Group's amended and restated bylaws contain provisions for
treatment of transactions in which a director has a conflicting interest, in
accordance with Sections 16-10a-850 to 16-10a-853 of the Utah Revised Business
Corporations Act. These provisions generally provide that our board of directors
may take action with respect to a director's conflicting interest transaction by
the affirmative vote of a majority of the non-interested directors or of a
committee of the board of directors who voted on the transaction after receipt
of the disclosure required by the Utah Revised Business Corporations Act.
TRANSFER AGENT AND REGISTRAR
The Bank of New York is our transfer agent and registrar.
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Immediately after the completion of the offering, we will have
shares of common stock outstanding, assuming no exercise of the underwriter's
over-allotment option. Of these shares, the shares of common
stock sold in this offering, plus any shares issued upon exercise of the
underwriter's over-allotment option, will be freely transferable without
restriction in the public market, except to the extent that our affiliates
acquired any of these shares. Resales of shares acquired by affiliates are
subject to restrictions under Rule 144 of the Securities Act. The remaining
shares of common stock were issued in reliance on exemptions from the
registration requirements of the Securities Act, and these shares are restricted
securities under Rule 144. The number of restricted shares available for sale in
the public market is limited by the restrictions under Rule 144, as described
below.
All of our directors, officers and each of our current shareholders have
agreed pursuant to lock-up agreements not to sell or otherwise dispose of shares
representing approximately shares of common stock for a period of 180
days after the date of this prospectus without the prior written consent of
Thomas Weisel Partners LLC. The restricted securities will generally be
available for sale in the open market, subject to the lock-up agreements and the
applicable requirements of Rule 144.
Under Rule 144, a stockholder or shareholders whose shares are aggregated
who has beneficially owned restricted securities for at least one year,
including persons who may be deemed affiliates under Rule 144, is generally
entitled to sell a number of shares within any three-month period that does not
exceed the greater of 1% of the then outstanding shares of the class of common
stock or the average weekly trading volume of such stock during the four
calendar weeks preceding such sale, subject to provisions relating to notice and
manner of sale and the availability of current public information about us. A
stockholder who is deemed not to have been an affiliate for at least three
months prior to the date of sale and who has beneficially owned restricted
securities for at least two years would be entitled to sell such shares under
Rule 144(k) without regard to the volume and other limitations described above.
Therefore, unless otherwise restricted, Rule 144(k) shares may be sold
immediately upon the completion of this offering. This summary of Rule 144 is
not intended to be a complete description.
62
<PAGE>
UNDERWRITING
GENERAL
Under the terms and subject to the conditions contained in an underwriting
agreement between the underwriter and us, we have agreed to sell to the
underwriter named below the following number of shares of our common stock.
NUMBER OF
UNDERWRITER SHARES
-------------- ------------
Thomas Weisel Partners LLC......................
The underwriting agreement provides that the underwriter is obligated to
purchase all of the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
OVER-ALLOTMENT OPTION
We have granted to the underwriter a 30-day option to purchase on a pro
rata basis up to additional shares of common stock from us at the
initial public offering price less underwriting discounts and commissions. The
options may be exercised only to cover any over-allotments of common stock.
COMMISSIONS AND DISCOUNTS
The underwriter proposes to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of per
share. The underwriter and selling group members may allow a discount
of per share on sales to other broker/dealers. After the initial public
offering the public offering price and concession and discount to broker/dealers
may be changed by the representatives.
The following table summarizes the compensation and estimated expenses
of million we will pay:
<TABLE>
<CAPTION>
TOTAL
-----------------------------------------------
PER SHARE WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT
---------- ----------------- ----------------
<S> <C> <C> <C>
Underwriting discounts and commissions paid by us.............. $ $ $
Expenses payable by us......................................... $ $ $
</TABLE>
The underwriter has informed us that it does not expect discretionary
sales to exceed % of the shares of common stock being offered.
NO SALES OF SIMILAR SECURITIES
We and our directors, officers and members of senior management and each
of our current shareholders have agreed not to offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, or file with the
Securities and Exchange Commission a registration statement under the Securities
Act relating to, any shares of our common stock or securities convertible into
or exchangeable or exercisable for any shares of our capital stock or publicly
disclose the intention to make an offer, sale, pledge, disposition or filing
without the prior written consent of Thomas Weisel Partners LLC for a period of
180 days after the date of this prospectus, subject to certain exceptions.
RESERVED SHARES
The underwriter has reserved for sale, at the initial public offering
price, shares of the common stock for employees, directors
and certain other persons associated with us who have expressed an
63
<PAGE>
interest in purchasing common stock in the offering. The number of shares
available for sale to the general public in the offering will be reduced to the
extent those persons purchase the reserved shares. Any reserved shares that are
not purchased will be offered by the underwriters to the general public on the
same terms as the other shares.
We have agreed to indemnify the underwriter against liabilities under the
Securities Act or contribute to payments which the underwriters may be required
to make in that respect.
INFORMATION REGARDING THOMAS WEISEL PARTNERS LLC
Thomas Weisel Partners LLC was organized and registered as a
broker-dealer in December 1998. Since December 1998, Thomas Weisel Partners has
been named as a lead or co-manager on 174 filed public offerings of equity
securities, of which 136 have been completed, and has acted as a syndicate
member in an additional 108 public offerings of equity securities. Thomas Weisel
Partners does not have any material relationship with us or any of our officers,
directors or other controlling persons, except with respect to its contractual
relationship with us pursuant to the underwriting agreement entered into in
connection with this offering.
NASDAQ NATIONAL MARKET LISTING
Prior to this offering, there has been no public market for our common
stock. The initial public offering price for our common stock has been
negotiated by us and the underwriter. Among the principal factors considered in
determining the initial public offering price were:
o market conditions for initial public offerings;
o the history of and prospects for our business and our past and
present operations;
o our past and present earnings and current financial position;
o an assessment of our management;
o the market of securities of companies in businesses similar to ours;
and
o the general condition of the securities markets.
There can be no assurance that the initial public offering price will correspond
to the price at which the common stock will trade in the public market
subsequent to the offering or that an active trading market will develop and
continue after the offering.
The underwriter may engage in over-allotment, stabilizing transactions
and syndicate covering transactions and penalty bids in accordance with
Regulation M under the Exchange Act.
o Over-allotment involves syndicate sales in excess of the offering
size, which creates a syndicate short position.
o Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specified
maximum.
o Syndicate coverin1g transactions involve purchases of the common
stock in the open market after the distribution has been completed
in order to cover syndicate short positions.
o Penalty bids permit the representatives to reclaim a selling
concession from a syndicate member when the shares of common stock
originally sold by that syndicate member are purchased in a
syndicate covering transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
64
<PAGE>
LEGAL MATTERS
Callister Nebeker & McCullough, Salt Lake City, Utah, will opine upon the
validity of the common stock offered by this prospectus for Simmons Media Group.
Dow, Lohnes & Albertson, PLLC, Washington, D.C., will opine on certain other
matters specified in the underwriting agreement for Simmons Media Group. Latham
& Watkins, Los Angeles, California, has represented the underwriter in
connection with this offering.
EXPERTS
The consolidated financial statements of Simmons Media Group, Inc. and
subsidiaries as of December 31, 1998 and 1999, and for each of the years in the
three-year period ended December 31, 1999, have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed a registration statement on Form S-1 with the United States
Securities and Exchange Commission regarding this offering. This prospectus,
which is part of the registration statement, does not contain all of the
information included in the registration statement, and you should refer to the
registration statement and its exhibits to read that information. You may read
and copy the registration statement, the related exhibits and the other material
we file with the Commission's regional offices in Chicago, Illinois and New
York, New York. You can also request copies of those documents, upon payment of
a duplicating fee, by writing to the Commission. Please call the Commission at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. The Commission also maintains an Internet site that contains reports,
proxy and information statements and other information regarding issuers that
file with the Commission. The site's address is www.sec.gov. You may also
request a copy of these filings, at no cost, by writing or telephoning us as
follows: 515 South 700 East, Salt Lake City, Utah 84102, (801) 322-2500,
Attention: Chief Financial Officer.
65
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
SIMMONS MEDIA GROUP, INC. AND SUBSIDIARIES
<S> <C>
Independent Auditors' Report............................................................................. F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999 and June 30, 2000 (unaudited)............... F-3
Consolidated Statements of Operations for the years ended December 31, 1997, 1998, and 1999 and the
six-month periods ended June 30, 1999 and 2000 (unaudited)............................................ F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1997, 1998, and 1999
and the six-month period ended June 30, 2000 (unaudited).............................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1998, and 1999 and the
six-month periods ended June 30, 1999 and 2000 (unaudited)............................................ F-6
Notes to Consolidated Financial Statements............................................................... F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Simmons Media Group, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Simmons
Media Group, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
related consolidated statements of operations, shareholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our 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 financial position of Simmons
Media Group, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
/S/ KPMG LLP
Salt Lake City, Utah
May 10, 2000
F-2
<PAGE>
SIMMONS MEDIA GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
--------------------------------- DECEMBER 31,
1998 1999 1999
--------------- --------------- ----------------
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash..................................................................... $ 756,910 903,736 740,719
Cash held in escrow...................................................... 550,000 -- --
Trade accounts receivable, less allowance for doubtful accounts
of $123,210 in 1998,$170,714 in 1999, and $252,853 in 2000............ 5,077,266 5,270,559 4,699,840
Income tax receivable.................................................... 490,537 -- --
Marketable equity securities - trading................................... 872,477 2,838,256 --
Notes receivable and accrued interest from related parties............... 402,264 720,690 --
Notes receivable and accrued interest from shareholders.................. 856,726 532,270 --
Prepaid expenses and other............................................... 379,909 276,495 247,453
Deferred income taxes.................................................... 391,327 426,191 304,497
--------------- --------------- ----------------
Total current assets............................................... 9,777,416 10,968,197 5,992,509
Marketable equity securities--available-for-sale............................ 113,153,291 107,419,756 --
Notes receivable from related parties....................................... 3,543,956 3,295,833 --
Property and equipment, net................................................. 4,294,925 4,014,804 3,744,308
Intangible assets, net...................................................... 27,484,996 30,064,487 29,864,912
Equity investments.......................................................... 2,486,273 1,815,142 --
Deposits for pending acquisitions........................................... 1,057,500 1,982,372 394,872
Other assets................................................................ 2,541,133 92,899 2,321
--------------- --------------- ----------------
$ 164,339,490 159,653,490 39,998,922
=============== =============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable................................................... $ 204,956 287,252 157,583
Current portion of long-term debt........................................ 1,208,327 2,201,865 2,201,865
Income taxes payable..................................................... -- 716,363 408,327
Notes payable to shareholders and affiliates............................. 267,857 2,579,724 2,194,190
Notes payable to employees............................................... 467,875 695,659 687,326
Accrued expenses and other............................................... 2,927,266 3,366,643 3,136,194
--------------- --------------- ----------------
Total current liabilities.......................................... 5,076,281 9,847,506 8,785,485
Long-term debt, excluding current installments.............................. 29,323,755 25,521,890 20,521,890
Deferred income taxes....................................................... 43,371,152 40,985,512 1,454,917
--------------- --------------- ----------------
Total liabilities.................................................. 77,771,188 76,354,908 30,762,292
--------------- --------------- ----------------
Minority interest (deficit)................................................. 35,697 235,823 (1,439)
Redeemable stock:
Preferred stock SNM, 9%, no par value.Authorized 15,000
shares; issued and outstanding 8,403 shares in 1998 and
-0- in 1999, cumulative............................................... 840,300 -- --
Common stock SNM, no par value.Authorized 1,000,000 shares;
issued and outstanding 70,025 shares in 1998 and -0- in 1999.......... 1,120,400 -- --
--------------- --------------- ----------------
Total redeemable stock............................................. 1,960,700 -- --
Shareholders' equity:
Preferred stock, $.25 par value.Authorized 15,000,000 shares;
issued and outstanding 5,280,000 in 1998, 1999 and 2000,
noncumulative, redeemable at par...................................... 1,320,000 1,320,000 --
Common stock, $.25 par value.Authorized 10,000,000 shares;
2,000,000 voting, 8,000,000 nonvoting; issued and outstanding
1,305,000 voting shares in 1998, 1999 and 2000........................ 326,250 326,250 326,250
Additional paid-in capital.................................................. 3,377,013 3,670,444 3,670,444
Partnership capital......................................................... -- 88,463 88,463
Retained earnings........................................................... 11,314,543 13,271,729 5,152,912
Accumulated other comprehensive income--net unrealized gain
on marketable equity securities--available-for-sale...................... 68,234,099 64,385,873 --
--------------- --------------- ----------------
Total shareholders' equity......................................... 84,571,905 83,062,759 9,238,069
Commitments and contingencies...............................................
--------------- --------------- ----------------
$ 164,339,490 159,653,490 39,998,922
=============== =============== ================
PRO FORMA
JUNE 30, JUNE 30,
2000 2000
--------------- ------------
(UNAUDITED) (UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash..................................................................... 409,475 365,187
Cash held in escrow...................................................... -- --
Trade accounts receivable, less allowance for doubtful accounts
of $123,210 in 1998,$170,714 in 1999, and $252,853 in 2000............ 5,855,510 5,323,561
Income tax receivable.................................................... -- --
Marketable equity securities - trading................................... 3,608,821 --
Notes receivable and accrued interest from related parties............... 128,855 --
Notes receivable and accrued interest from shareholders.................. 479,929 --
Prepaid expenses and other............................................... 993,826 953,718
Deferred income taxes.................................................... 17,449 --
--------------- ------------
Total current assets............................................... 11,493,865 6,642,466
Marketable equity securities--available-for-sale............................ 83,283,573 --
Notes receivable from related parties....................................... 3,295,833 --
Property and equipment, net................................................. 4,515,927 4,217,960
Intangible assets, net...................................................... 30,803,430 30,589,747
Equity investments.......................................................... 1,412,792 --
Deposits for pending acquisitions........................................... 1,852,500 --
Other assets................................................................ 747,749 657,171
--------------- ------------
137,405,669 42,107,344
=============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable................................................... 190,289 190,212
Current portion of long-term debt........................................ 22,643,683 17,643,683
Income taxes payable..................................................... 26,481 4,237
Notes payable to shareholders and affiliates............................. 766,850 608,824
Notes payable to employees............................................... 723,874 641,831
Accrued expenses and other............................................... 2,496,866 2,297,837
--------------- ------------
Total current liabilities.......................................... 26,848,043 21,386,624
Long-term debt, excluding current installments.............................. 9,364,025 9,364,025
Deferred income taxes....................................................... 31,745,542 1,180,614
--------------- ------------
Total liabilities.................................................. 67,957,610 31,931,263
--------------- ------------
Minority interest (deficit)................................................. 62,724 (4,527)
Redeemable stock:
Preferred stock SNM, 9%, no par value.Authorized 15,000
shares; issued and outstanding 8,403 shares in 1998 and
-0- in 1999, cumulative............................................... -- --
Common stock SNM, no par value.Authorized 1,000,000 shares;
issued and outstanding 70,025 shares in 1998 and -0- in 1999.......... -- --
--------------- ------------
Total redeemable stock............................................. -- --
Shareholders' equity:
Preferred stock, $.25 par value.Authorized 15,000,000 shares;
issued and outstanding 5,280,000 in 1998, 1999 and 2000,
noncumulative, redeemable at par...................................... 1,320,000 --
Common stock, $.25 par value.Authorized 10,000,000 shares;
2,000,000 voting, 8,000,000 nonvoting; issued and outstanding
1,305,000 voting shares in 1998, 1999 and 2000........................ 326,250 326,250
Additional paid-in capital.................................................. 3,670,444 3,670,444
Partnership capital......................................................... 88,463 88,463
Retained earnings........................................................... 14,558,738 6,095,451
Accumulated other comprehensive income--net unrealized gain
on marketable equity securities--available-for-sale...................... 49,421,440 --
--------------- ------------
Total shareholders' equity......................................... 69,385,335 10,180,608
Commitments and contingencies...............................................
--------------- ------------
137,405,669 42,107,344
=============== ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
SIMMONS MEDIA GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1997 1998 1999
------------------ ----------------- -----------------
<S> <C> <C> <C>
Gross broadcast revenue................................. $ 20,534,039 25,380,755 28,648,258
Less agency commission.................................. 2,866,456 3,129,975 3,394,230
------------------ ----------------- -----------------
Net broadcasting revenue....................... 17,667,583 22,250,780 25,254,028
------------------ ----------------- -----------------
Operating expenses:
Station operating expenses.............................. 12,998,199 17,883,692 18,533,949
Depreciation and amortization........................... 1,596,567 2,772,355 3,400,328
Corporate general and administrative.................... 1,815,179 2,647,367 2,285,588
------------------ ----------------- -----------------
Total operating expenses....................... 16,409,945 23,303,414 24,219,865
------------------ ----------------- -----------------
Operating income (loss)........................ 1,257,638 (1,052,634) 1,034,163
Nonoperating (expenses) income:
Dividend and interest income............................ 1,635,211 1,406,959 2,018,244
Interest expense........................................ (645,561) (2,042,433) (2,179,679)
Unrealized gain (loss) on marketable equity
securities--trading.................................. 61,971 (444,340) 325,632
Net gain (loss) on sale of marketable equity
securities--trading.................................. 216,828 (135,497) 133,453
Gain (loss) on equity investments....................... -- (134,471) (118,756)
Gain on sale of business................................ -- -- 1,690,623
Other................................................... (192,038) 103,679 31,901
Minority share of (income) loss......................... 375 (32,387) 71,500
------------------ ----------------- -----------------
Net income (loss) before 2,334,424 (2,331,124) 3,007,081
income taxes................................
Income tax expense (benefit)............................ 917,412 (572,823) 895,071
------------------ ----------------- -----------------
Net income (loss).............................. $ 1,417,012 (1,758,301) 2,112,010
================== ================= =================
Pro forma net income (loss) applicable to common shares
(unaudited)..........................................
Pro forma basic and diluted net income (loss) per share
(unaudited)..........................................
Pro forma basic and diluted common shares outstanding
(unaudited)..........................................
PRO FORMA
DECEMBER 31, SIX-MONTH PERIODS ENDED JUNE 30,
------------------- ---------------------------------------------
1999 1999 2000
------------------- -------------------- ---------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Gross broadcast revenue................................. 25,684,889 13,207,959 14,300,205
Less agency commission.................................. 3,224,764 1,543,225 1,790,167
------------------- -------------------- ---------------------
Net broadcasting revenue....................... 22,460,125 11,664,734 12,510,038
------------------- -------------------- ---------------------
Operating expenses:
Station operating expenses.............................. 16,268,151 9,066,812 8,690,066
Depreciation and amortization........................... 3,226,530 1,727,526 1,760,383
Corporate general and administrative.................... 2,036,614 1,157,322 1,083,283
------------------- -------------------- ---------------------
Total operating expenses....................... 21,531,295 11,951,660 11,533,732
------------------- -------------------- ---------------------
Operating income (loss)........................ 928,830 (286,926) 976,306
Nonoperating (expenses) income:
Dividend and interest income............................ 29,579 751,831 1,042,661
Interest expense........................................ (1,830,861) (1,088,883) (1,017,518)
Unrealized gain (loss) on marketable equity
securities--trading.................................. -- 271,893 773,436
Net gain (loss) on sale of marketable equity
securities--trading.................................. -- (90,581) 6,758
Gain (loss) on equity investments....................... -- 45,061 (36,874)
Gain on sale of business................................ 1,690,623 1,690,623 --
Other................................................... 93,430 2,375 138,304
Minority share of (income) loss......................... 8,762 31,369 (28,413)
------------------- -------------------- ---------------------
Net income (loss) before 920,363 1,326,762 1,854,660
income taxes................................
Income tax expense (benefit)............................ 508,993 436,471 567,651
------------------- -------------------- ---------------------
Net income (loss).............................. 411,370 890,291 1,287,009
=================== ==================== =====================
Pro forma net income (loss) applicable to common shares
(unaudited).......................................... 411,370
===================
Pro forma basic and diluted net income (loss) per share
(unaudited).......................................... 0.315
===================
Pro forma basic and diluted common shares outstanding
(unaudited).......................................... 1,305,000
===================
PRO FORMA
JUNE 30,
---------------
2000
---------------
(UNAUDITED)
<S> <C>
Gross broadcast revenue................................. 12,812,896
Less agency commission.................................. 1,678,643
---------------
Net broadcasting revenue....................... 11,134,253
---------------
Operating expenses:
Station operating expenses.............................. 7,487,077
Depreciation and amortization........................... 1,701,141
Corporate general and administrative.................... 981,893
---------------
Total operating expenses....................... 10,170,111
---------------
Operating income (loss)........................ 964,142
Nonoperating (expenses) income:
Dividend and interest income............................ 530
Interest expense........................................ (847,293)
Unrealized gain (loss) on marketable equity
securities--trading.................................. --
Net gain (loss) on sale of marketable equity
securities--trading.................................. --
Gain (loss) on equity investments....................... --
Gain on sale of business................................ --
Other................................................... (31,502)
Minority share of (income) loss......................... 3,089
---------------
Net income (loss) before 88,966
income taxes................................
Income tax expense (benefit)............................ 92,936
---------------
Net income (loss).............................. (3,970)
===============
Pro forma net income (loss) applicable to common shares
(unaudited).......................................... (3,970)
===============
Pro forma basic and diluted net income (loss) per share
(unaudited).......................................... (0.003)
===============
Pro forma basic and diluted common shares outstanding
(unaudited).......................................... 1,305,000
===============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
SIMMONS MEDIA GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------------------- ------------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1996............................ 5,280,000 $ 1,320,000 1,305,000 $ 326,250 3,377,013
Comprehensive income:
Net income.......................................... -- -- -- -- --
Other comprehensive income, net of tax:
Unrealized gain on marketable equity
securities-available-for-sale................. -- -- -- -- --
Total comprehensive income............................. -- -- -- -- --
Cash dividends:
Preferred dividends, per share $.015................ -- -- -- -- --
Redeemable dividend
Preferred stock.................................. -- -- -- -- --
Common stock..................................... -- -- -- -- --
---------- ------------ ------------ ---------- ------------
BALANCES, DECEMBER 31, 1997............................ 5,280,000 1,320,000 1,305,000 326,250 3,377,013
Comprehensive income:
Net loss............................................ -- -- -- -- --
Other comprehensive income, net of tax:
Unrealized gain on marketable equity
securities -available-for-sale................ -- -- -- -- --
Total comprehensive income............................. -- -- -- -- --
Cash dividends:
Preferred dividends, per share $.015................ -- -- -- -- --
Redeemable dividend
Preferred stock.................................. -- -- -- -- --
---------- ------------ ------------ ---------- ------------
BALANCES, DECEMBER 31, 1998............................ 5,280,000 1,320,000 1,305,000 326,250 3,377,013
Comprehensive income:
Net income.......................................... -- -- -- -- --
Other comprehensive income, net of tax:
Recognition of unrealized gain on investment
securities sold to related party.............. -- -- -- -- 293,431
Unrealized loss on marketable equity
securities-available-for-sale................. -- -- -- -- --
Total comprehensive loss............................... -- -- -- -- --
Capital contribution................................... -- -- -- -- --
Cash dividends:
Preferred dividends, per share $.015................ -- -- -- -- --
Redeemable dividend
Preferred stock.................................. -- -- -- -- --
---------- ------------ ------------ ---------- ------------
BALANCES, DECEMBER 31, 1999............................ 5,280,000 1,320,000 1,305,000 326,250 3,670,444
Comprehensive income:
Net income (unaudited).............................. -- -- -- -- --
Other comprehensive income, net of tax:
Unrealized loss on marketable equity
securities-available-for-sale (unaudited)..... -- -- -- -- --
Total comprehensive loss............................... -- -- -- -- --
---------- ------------ ------------ ---------- ------------
BALANCES, JUNE 30, 2000 (UNAUDITED).................... 5,280,000 $ 1,320,000 1,305,000 $ 326,250 3,670,444
========== ============ ============ ========== ============
ACCUMULATED
OTHER
PARTNERSHIP COMPREHENSIVE COMPREHENSIVE RETAINED
CAPITAL INCOME INCOME EARNINGS
------------ ---------------- ----------------- -------------
<S> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1996............................ -- $ -- 27,633,970 12,070,762
Comprehensive income:
Net income.......................................... -- 1,417,012 -- 1,417,012
Other comprehensive income, net of tax:
Unrealized gain on marketable equity
securities-available-for-sale................. -- 21,581,117 21,581,117 --
---------------
Total comprehensive income............................. -- $ 22,998,129 -- --
===============
Cash dividends:
Preferred dividends, per share $.015................ -- -- (79,200)
Redeemable dividend
Preferred stock.................................. -- -- (134,996)
Common stock..................................... -- -- (16,220)
------------ ----------------- -------------
BALANCES, DECEMBER 31, 1997............................ -- $ -- 49,215,087 13,257,358
Comprehensive income:
Net loss............................................ -- (1,758,301) -- (1,758,301)
Other comprehensive income, net of tax:
Unrealized gain on marketable equity
securities -available-for-sale................ -- 19,019,012 19,019,012 --
---------------
Total comprehensive income............................. -- $ 17,260,711 -- --
===============
Cash dividends:
Preferred dividends, per share $.015................ -- -- (79,200)
Redeemable dividend
Preferred stock.................................. -- -- (105,314)
------------ ----------------- -------------
BALANCES, DECEMBER 31, 1998............................ -- $ -- 68,234,099 11,314,543
Comprehensive income:
Net income.......................................... -- 2,112,010 -- 2,112,010
Other comprehensive income, net of tax:
Recognition of unrealized gain on investment
securities sold to related party.............. -- (293,431) (293,431) --
Unrealized loss on marketable equity
securities-available-for-sale................. -- (3,554,795) (3,554,795) --
---------------
Total comprehensive loss............................... -- $ (1,736,216) -- --
===============
Capital contribution................................... 88,463 -- --
Cash dividends:
Preferred dividends, per share $.015................ -- -- (79,200)
Redeemable dividend
Preferred stock.................................. -- -- (75,624)
------------ ----------------- -------------
BALANCES, DECEMBER 31, 1999............................ 88,463 $ -- 64,385,873 13,271,729
Comprehensive income:
Net income (unaudited).............................. -- 1,287,009 -- 1,287,009
Other comprehensive income, net of tax:
Unrealized loss on marketable equity
securities-available-for-sale (unaudited)..... -- (14,964,433) (14,964,433) --
---------------
Total comprehensive loss............................... -- $ (13,677,424) -- --
------------ ================ ----------------- -------------
BALANCES, JUNE 30, 2000 (UNAUDITED).................... 88,463 49,421,440 14,558,738
============ ================= =============
</TABLE>
TOTAL
SHAREHOLDERS'
EQUITY
---------------
BALANCES, DECEMBER 31, 1996............................ 44,727,995
Comprehensive income:
Net income.......................................... 1,417,012
Other comprehensive income, net of tax:
Unrealized gain on marketable equity
securities-available-for-sale................. 21,581,117
Total comprehensive income............................. --
Cash dividends:
Preferred dividends, per share $.015................ (79,200)
Redeemable dividend
Preferred stock.................................. (134,996)
Common stock..................................... (16,220)
---------------
BALANCES, DECEMBER 31, 1997............................ 67,495,708
Comprehensive income:
Net loss............................................ (1,758,301)
Other comprehensive income, net of tax:
Unrealized gain on marketable equity
securities -available-for-sale................ 19,019,012
Total comprehensive income............................. --
Cash dividends:
Preferred dividends, per share $.015................ (79,200)
Redeemable dividend
Preferred stock.................................. (105,314)
---------------
BALANCES, DECEMBER 31, 1998............................ 84,571,905
Comprehensive income:
Net income.......................................... 2,112,010
Other comprehensive income, net of tax:
Recognition of unrealized gain on investment
securities sold to related party.............. --
Unrealized loss on marketable equity
securities-available-for-sale................. (3,554,795)
Total comprehensive loss............................... --
Capital contribution................................... 88,463
Cash dividends:
Preferred dividends, per share $.015................ (79,200)
Redeemable dividend
Preferred stock.................................. (75,624)
---------------
BALANCES, DECEMBER 31, 1999............................ 83,062,759
Comprehensive income:
Net income (unaudited).............................. 1,287,009
Other comprehensive income, net of tax:
Unrealized loss on marketable equity
securities-available-for-sale (unaudited)..... (14,964,433)
Total comprehensive loss............................... --
---------------
BALANCES, JUNE 30, 2000 (UNAUDITED).................... 69,385,335
===============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
SIMMONS MEDIA GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1997 1998 1999
------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................ $ 1,417,012 (1,758,301) 2,112,010
Minority interest in income (loss) of consolidated subsidiaries.. (375) 32,387 (71,500)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................. 1,596,567 2,772,355 3,400,328
Provisions for losses on trade accounts receivable............ (272,511) 166,148 288,526
Gain on sale of business...................................... -- -- (1,690,623)
Gain on sale of property and equipment........................ -- (10,000) --
Loss on write off of investment............................... 30,000 -- --
Proceeds from sales of marketable equity
securities--trading......................................... 3,454,955 2,439,383 1,512,226
Net (gain) loss on sale of marketable equity
securities--trading......................................... (216,828) 135,497 (133,453)
Net unrealized (gain) loss on marketable equity
securities--trading......................................... (61,971) 444,340 (325,632)
(Gain) loss on equity investments............................. -- 134,471 118,756
Decrease (increase) in operating assets:
Trade accounts receivable.................................. 455,114 (891,737) (481,819)
Income tax receivable...................................... (320,419) (170,118) 490,537
Marketable equity securities--trading...................... (3,516,181) (2,440,804) (518,920)
Notes receivable and accrued interest from shareholders
and related parties..................................... (113,932) 376,328 10,294
Prepaid expenses and other................................. 57,628 (89,970) 103,414
Deferred income taxes...................................... 63,797 (284,741) (34,864)
Other assets............................................... 60,843 308,343 (51,766)
Increase (decrease) in operating liabilities:
Trade accounts payable .................................... (255,512) (1,012) 58,452
Income taxes payable....................................... (15,767) -- 716,363
Accrued interest to shareholders and affiliates............ (100,318) 92,767 (3,615)
Accrued interest to employees.............................. 33,109 35,857 41,907
Accrued expenses and other................................. 52,392 1,264,357 447,377
Deferred income taxes...................................... 11,556 (78,314) (206,900)
------------- -------------- --------------
Net cash provided by (used in) operating activities.. 2,359,159 2,477,236 5,781,098
------------- -------------- --------------
Cash flows from investing activities:
Capital expenditures............................................. (1,002,666) (847,213) (942,510)
Capitalized acquisition costs.................................... (90,080) (291,208) (280,626)
Cash paid for acquisition of businesses.......................... (2,889,139) (11,009,373) (5,500,000)
Cash paid for the acquisition of FCC licenses....................
Cash held in escrow.............................................. -- (550,000) 550,000
Deposits for pending acquisitions................................ (527,500) (530,000) (924,872)
Proceeds from sale of business................................... -- -- 2,707,469
Proceeds from the sale of property and equipment................. -- 10,000 22,436
Purchase of investments -- (2,500,000) --
Equity investments............................................... (1,950,000) (367,278) 552,375
Payments received on notes receivable............................ 173,446 659,167 459,508
Issuance of notes receivable..................................... (39,500) (995,003) (515,649)
------------- -------------- --------------
Net cash used in investing activities................ (6,325,439) (16,420,908) (3,871,869)
------------- -------------- --------------
Cash flows from financing activities:
Net borrowings (payments) on line of credit agreement............ 4,510,005 14,499,990 (2,500,000)
Principal payments on long-term debt............................. (21,604) (8,257) (308,327)
Payments for redemption of redeemable preferred stock............ -- (1,095,500) --
Proceeds from issuance of notes payable.......................... -- -- 761,459
Deferred offering costs -- -- --
Principal payments on notes payable.............................. (949,375) -- --
Preferred dividends paid......................................... (79,200) (79,200) --
Preferred and common redeemable dividends paid................... (38,266) (118,582) (75,624)
Capital contribution from partners............................... -- -- 88,463
Capital contribution from minority interest holders.............. -- -- 307,323
Distribution to minority interest partners....................... -- -- (35,697)
------------- -------------- --------------
Net cash provided by (used in) financing activities.. 3,421,560 13,198,451 (1,762,403)
------------- -------------- --------------
Net increase (decrease) in cash..................................... (544,720) (745,221) 146,826
Cash at beginning of year........................................... 2,046,851 1,502,131 756,910
------------- -------------- --------------
Cash at end of year................................................. $ 1,502,131 756,910 903,736
============= ============== ==============
SIX-MONTH PERIODS ENDED JUNE
30,
-------------------------------
1999 2000
-------------- --------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................ 890,291 1,287,009
Minority interest in income (loss) of consolidated subsidiaries.. (31,369) 28,413
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................. 1,727,526 1,760,383
Provisions for losses on trade accounts receivable............ 68,728 177,004
Gain on sale of business...................................... (1,690,623) --
Gain on sale of property and equipment........................ -- --
Loss on write off of investment............................... -- --
Proceeds from sales of marketable equity
securities--trading......................................... 232,375 61,655
Net (gain) loss on sale of marketable equity
securities--trading......................................... 90,581 (6,758)
Net unrealized (gain) loss on marketable equity
securities--trading......................................... (271,893) (773,436)
(Gain) loss on equity investments............................. (45,061) 36,874
Decrease (increase) in operating assets:
Trade accounts receivable.................................. (199,380) (761,955)
Income tax receivable...................................... 478,241 --
Marketable equity securities--trading...................... (219,696) (52,026)
Notes receivable and accrued interest from shareholders
and related parties..................................... 53,491 (5,253)
Prepaid expenses and other................................. 257,969 (717,331)
Deferred income taxes...................................... 93,828 408,742
Other assets............................................... (59,301) --
Increase (decrease) in operating liabilities:
Trade accounts payable .................................... (34,540) (96,963)
Income taxes payable....................................... -- (689,882)
Accrued interest to shareholders and affiliates............ 66,922 25,133
Accrued interest to employees.............................. 18,871 28,215
Accrued expenses and other................................. (653,636) (869,777)
Deferred income taxes...................................... (131,551) (68,220)
-------------- --------------
Net cash provided by (used in) operating activities.. 641,773 (228,173)
-------------- --------------
Cash flows from investing activities:
Capital expenditures............................................. (423,461) (1,081,167)
Capitalized acquisition costs.................................... (129,233) (22,010)
Cash paid for acquisition of businesses.......................... (5,500,000) --
Cash paid for the acquisition of FCC licenses.................... -- (1,502,400)
Cash held in escrow.............................................. 550,000 --
Deposits for pending acquisitions................................ (265,000) (265,000)
Proceeds from sale of business................................... 2,707,469 --
Proceeds from the sale of property and equipment................. -- --
Purchase of investments -- --
Equity investments............................................... (250,000) 365,476
Payments received on notes receivable............................ 400,000 650,841
Issuance of notes receivable..................................... (11,466) (1,412)
-------------- --------------
Net cash used in investing activities................ (2,921,691) (1,855,672)
-------------- --------------
Cash flows from financing activities:
Net borrowings (payments) on line of credit agreement............ 2,500,000 5,000,000
Principal payments on long-term debt............................. (115,917) (716,047)
Payments for redemption of redeemable preferred stock............ -- --
Proceeds from issuance of notes payable.......................... -- --
Deferred offering costs -- (654,850)
Principal payments on notes payable.............................. -- (1,660,700)
Preferred dividends paid......................................... (79,200) (158,400)
Preferred and common redeemable dividends paid................... (37,808) (18,907)
Capital contribution from partners............................... -- --
Capital contribution from minority interest holders.............. 300,000 --
Distribution to minority interest partners....................... (35,697) (201,512)
-------------- --------------
Net cash provided by (used in) financing activities.. 2,531,378 1,589,584
-------------- --------------
Net increase (decrease) in cash..................................... 251,460 (494,261)
Cash at beginning of year........................................... 756,910 903,736
-------------- --------------
Cash at end of year................................................. 1,008,370 409,475
============== ==============
</TABLE>
F-6
<PAGE>
SIMMONS MEDIA GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1997 1998 1999
-------------- -------------- -------------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid (refunds received) during the year for
Interest........................................................ $ 514,378 1,710,731 1,826,976
Income taxes.................................................... 1,159,781 (120,425) (105,525)
Supplemental schedule of noncash operating activity--write off of
accounts receivable................................................ $ (9,702) 145,844 241,022
Supplemental schedule of noncash investing and financing activities:
Fair value adjustment of marketable investment securities charged
to shareholders' equity, net of related tax effect of
$13,385,140 in 1997, $11,656,808 in 1998, and $(2,178,740) in
1999 and $(9,171,750) in 2000................................... $ 21,581,117 19,019,012 (3,554,795)
Recognition of unrealized gain on investment securities sold to
related party...................................................... -- -- 293,431
Reclassification of other asset to marketable equity
security--trading................................................... -- -- 2,500,000
Conversion of note receivable to marketable equity
security--available-for-sale ....................................... 168,520 -- --
Issuance of note payable for redeemable stock......................... -- 443,800 1,960,700
Offset of notes receivable against notes payable...................... -- -- 300,000
Preferred dividends accrued not paid.................................. 79,200 79,200 158,400
Preferred redeemable dividends accrued not paid....................... 33,750 18,907 18,907
Supplemental schedule of acquisition of business:
Fair value of assets acquired...................................... $ 2,889,139 18,000,581 5,500,000
Issuance of notes payable in connection with acquisition........... -- (6,700,000) --
-------------- -------------- -------------
Net cash paid for acquisition.......................... $ 2,889,139 11,300,581 5,500,000
============== ============== =============
SIX-MONTH PERIODS ENDED
JUNE 30,
------------------------------
1999 2000
------------- --------------
(UNAUDITED)
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid (refunds received) during the year for
Interest........................................................ 671,896 953,281
Income taxes.................................................... -- 1,014,782
Supplemental schedule of noncash operating activity--write off of
accounts receivable................................................ 59,658 94,865
Supplemental schedule of noncash investing and financing activities:
Fair value adjustment of marketable investment securities charged
to shareholders' equity, net of related tax effect of
$13,385,140 in 1997, $11,656,808 in 1998, and $(2,178,740) in
1999 and $(9,171,750) in 2000................................... 1,259,101 (14,964,433)
Recognition of unrealized gain on investment securities sold to
related party...................................................... -- --
Reclassification of other asset to marketable equity
security--trading................................................... 2,500,000 --
Conversion of note receivable to marketable equity
security--available-for-sale ....................................... -- --
Issuance of note payable for redeemable stock......................... -- --
Offset of notes receivable against notes payable...................... -- --
Preferred dividends accrued not paid.................................. 79,200 --
Preferred redeemable dividends accrued not paid....................... 37,808 --
Supplemental schedule of acquisition of business:
Fair value of assets acquired...................................... 5,500,000 --
Issuance of notes payable in connection with acquisition........... -- --
------------- --------------
Net cash paid for acquisition.......................... 5,500,000 --
============= ==============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
<PAGE>
SIMMONS MEDIA GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL DATA FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION
Simmons Media Group, Inc. and Subsidiaries (the Company) is a media
company which currently owns or operates eleven radio stations and holds Federal
Communications Commission ("FCC") licenses in Salt Lake City, Utah; St. George,
Utah; and Austin, Texas. The Company's subsidiary, Simmons New Mexico (SNM),
owns or operates seven additional radio stations and holds Federal
Communications Commission ("FCC") licenses in the Albuquerque, New Mexico
market. In addition, the Company's subsidiary, Simmons Outdoor Media, owns and
operates approximately 172 billboard faces located throughout the state of Utah.
(B) PRO FORMA INFORMATION
In conjunction with the Company's proposed initial public offering,
management intends to reorganize the Company and spin-off certain small market
radio and nonmedia assets to the Company's existing shareholders, hereafter
referred to as the "Reorganization or Spin-off." The Spin-off will be
accomplished by transferring the assets (and certain related liabilities) to a
newly formed company, Crestwood Communications, Inc. (Crestwood) in exchange for
shares of Crestwood capital stock. The Company will then distribute all
Crestwood shares to the Company's existing shareholders immediately prior to the
effectiveness of the public offering.
The small market radio assets represent the operating assets of five
radio stations located in St. George, Utah (the St. George Stations). Three of
these stations are being operated under Local Marketing Agreements, accordingly,
the FCC licenses are not held by the Company. The nonmedia assets are primarily
comprised of marketable securities, notes receivable, and other miscellaneous
nonmedia investments. Management has determined that approximately $5,000,000 of
the Company's indebtedness, as of December 31, 1999, was incurred to fund the
non-media assets being transferred to Crestwood. Therefore, Crestwood will
assume $5,000,000 of indebtedness in addition to assuming certain routine
liabilities incurred in the normal course of operating the St. George Stations.
The pro forma consolidated balance sheets as of December 31, 1999 and
June 30, 2000, present the capital structure of the Company, and the effect of
the net assets divested in the spin-off with resultant reductions to retained
earnings, as of the respective dates presented. The pro forma consolidated
statements of operations for the periods presented reflect results of operations
as if the spin-off had occurred as of January 1, 1999. Pro forma consolidated
results of operations differ from the reported results of operations primarily
as a result of reductions in routine revenues and expenses related to the St.
George Stations, reductions in interest expense in connection with the
$5,000,000 in indebtedness proposed to be assumed by Crestwood, reductions in
dividend and interest income earned on marketable equity securities and other
investments to be transferred, and the related income tax effects of the
Reorganization.
The pro forma balance sheet does not include any proceeds from the
initial public offering. Earnings per share for the pro forma periods presented
are based on the number of shares issued and outstanding immediately prior to
the effectiveness of the initial public offering.
F-8
<PAGE>
SIMMONS MEDIA GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL DATA FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE-MONTH PERIOD ENDED DECEMBER 31, 1999
<TABLE>
ADJUSTMENTS
TO SPIN-OFF ADJUSTMENTS
SMALL MARKET TO SPIN-OFF
ACTUAL RADIO ASSETS(A) NONMEDIA ASSETS PRO FORMA
--------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net broadcasting revenue............... $ 25,254,028 2,793,903 -- 22,460,125
Station operating expense.............. 18,533,949 2,265,798 -- 16,268,151
Depreciation and amortization.......... 3,400,328 164,919 8,879 3,226,530
Corporate general and administrative... 2,285,588 7,506 241,468 (b) 2,036,614
--------------- ---------------- ---------------- ----------------
Total operating expense......... 24,219,865 2,438,223 250,347 21,531,295
--------------- ---------------- ---------------- ----------------
Operating income................ 1,034,163 355,680 (250,347) 928,830
Dividend and interest income........... 2,018,244 -- 1,988,665 (c) 29,579
Interest expense....................... (2,179,679) (1,282) (347,536)(d) (1,830,861)
Gain on disposition of business........ 1,690,623 -- -- 1,690,623
Other income (expense), net............ 443,730 -- 341,538 (e) 102,192
--------------- ---------------- ---------------- ----------------
Net income before income taxes.. 3,007,081 354,398 1,732,320 920,363
--------------- ---------------- ---------------- ----------------
Income tax expense..................... 895,071 127,583 258,495 508,993
--------------- ---------------- ---------------- ----------------
Net income...................... $ 2,112,010 226,815 1,473,825 411,370
=============== ================ ================ ================
</TABLE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
ADJUSTMENTS
TO SPIN-OFF ADJUSTMENTS
SMALL MARKET TO SPIN-OFF
ACTUAL RADIO ASSETS(A) NONMEDIA ASSETS PRO FORMA
--------------- ---------------- ---------------- ----------------
ASSETS
<S> <C> <C> <C> <C>
Current assets................................ $ 10,968,197 667,518 4,308,170(f) 5,992,509
Marketable equity securities-
available-for-sale......................... 107,419,756 -- 107,419,756(g) --
Notes receivable from related parties......... 3,295,833 -- 3,295,833(h) --
Intangible assets, net........................ 30,064,487 199,575 -- 29,864,912
Other assets.................................. 7,905,217 846,932 2,916,784(i) 4,141,501
----------------- ------------- --------------- ---------------
$ 159,653,490 1,714,025 117,940,543 39,998,922
================= ============= =============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities........................... $ 9,847,506 329,699 732,322(j) 8,785,485
Long-term debt, excluding
current installments....................... 25,521,890 -- 5,000,000(k) 20,521,890
Deferred income taxes......................... 40,985,512 -- 39,530,595(l) 1,454,917
Minority interest............................. 235,823 -- 237,262 (1,439)
Total shareholders' equity.................... 83,062,759 1,384,326 72,440,364(m) 9,238,069
----------------- ------------- --------------- --------------
$ 159,653,490 1,714,025 117,940,543 39,998,922
================= ============= =============== ==============
</TABLE>
F-9
<PAGE>
SIMMONS MEDIA GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL DATA FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
ADJUSTMENTS
TO
SPIN-OFF SMALL ADJUSTMENTS
MARKET RADIO ASSETS TO SPIN-OFF
ACTUAL (A) NONMEDIA ASSETS PRO FORMA
--------------------- ---------------------- ------------------- -----------------
<S> <C> <C> <C> <C>
Net broadcasting revenue................ $ 12,510,038 1,375,785 -- 11,134,253
Station operating expense............... 8,690,066 1,202,989 -- 7,487,077
Depreciation and amortization........... 1,760,383 54,802 4,440 1,701,141
Corporate general and administrative.... 1,083,283 -- 101,390 (b) 981,893
--------------------- ---------------------- ------------------- -----------------
Total operating expense........... 11,533,732 1,257,791 105,830 10,170,111
--------------------- ---------------------- ------------------- -----------------
Operating income.................. 976,306 117,994 (105,830) 964,142
Dividend and interest income............ 1,042,661 -- 1,042,131 (c) 530
Interest expense........................ (1,017,518) (3,198) (167,027)(d) (847,293)
Other income (expense), net............. 853,211 881,624 (e) (28,413)
--------------------- ---------------------- ------------------- -----------------
Net income before
income taxes................... 1,854,660 114,796 1,650,898 88,966
--------------------- ---------------------- ------------------- -----------------
Income tax expense...................... 567,651 41,327 433,388 92,936
--------------------- ---------------------- ------------------- -----------------
Net income........................ $ 1,287,009 73,469 1,217,510 (3,970)
===================== ====================== =================== =================
</TABLE>
F-10
<PAGE>
SIMMONS MEDIA GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL DATA FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2000
<TABLE>
<CAPTION>
ADJUSTMENTS
TO SPIN-OFF
SMALL MARKET ADJUSTMENTS
RADIO ASSETS TO SPIN-OFF
ACTUAL (A) NONMEDIA ASSETS PRO FORMA
----------------- ------------- --------------- ---------------
ASSETS
<S> <C> <C> <C> <C>
Current assets................................ $ 11,493,865 616,345 4,235,054(f) 6,642,466
Marketable equity securities-
available-for-sale......................... 83,283,573 -- 83,283,573(g) --
Notes receivable from related parties......... 3,295,833 -- 3,295,833(h) --
Intangible assets, net........................ 30,803,430 213,683 -- 30,589,747
Other assets.................................. 8,528,968 892,691 2,761,146(i) 4,875,131
----------------- ------------- --------------- ---------------
$ 137,405,669 1,722,719 93,575,606 42,107,344
================= ============= =============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities........................... $ 26,848,043 211,637 5,249,782(n) 21,386,624
Long-term debt, excluding
current installments....................... 9,364,025 -- -- 9,364,025
Deferred income taxes......................... 31,745,542 -- 30,564,928(l) 1,180,614
Minority interest............................. 62,724 -- 67,251 (4,527)
Total shareholders' equity.................... 69,385,335 1,511,082 57,693,645(m) 10,180,608
----------------- ------------- --------------- ---------------
$ 137,405,669 1,722,719 93,575,606 42,107,344
================= ============= =============== ===============
</TABLE>
--------------
(a) Represents actual operating revenues and expenses of KDXU, KSNN, KEOT,
KTSP, and KZHK for the year ended December 31, 1999 and the six-month
period ended June 30, 2000.
(b) Represents salaries, wages, and benefits unrelated to the Media operation
and bonuses paid to the President in connection with managing nonmedia
assets.
(c) Represents dividends and interest earned on marketable equity securities
and other deposits.
(d) Represents interest expense in connection with the $5 million in
indebtedness assumed by Crestwood.
(e) Represents realized and unrealized gains on marketable equity
securities-trading.
(f) Represents trading securities and notes receivable from related parties.
(g) All marketable equity securities will be transferred to Crestwood.
(h) Represents long-term notes receivable transferred to Crestwood.
(i) Primarily represents investments in affiliated entities and deposits
related to the acquisition of additional St. George stations.
(j) Represents interest payable on debt assumed by Crestwood and dividends
payable on preferred stock transferred to Crestwood.
(k) Represents the amount of long-term debt assumed by Crestwood.
(l) Primarily represents deferred taxes related to available-for-sale
securities transferred to Crestwood.
(m) Includes net unrealized gains on marketable equity securities transferred
to Crestwood and preferred stock retired in connection with the spin-off.
(n) Represents interest payable related to and current portion of long-term
debt to be assumed by Crestwood.
(c) INTERIM INFORMATION
The accompanying unaudited consolidated financial statements for the
six-month periods ended June 30, 1999 and 2000, reflect in the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to fairly state the financial position and the results of operations
for the periods presented and the disclosures herein are adequate to make the
information presented not misleading.
F-11
<PAGE>
SIMMONS MEDIA GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDTED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL DATA FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
Operating results for the interim periods presented are not necessarily
indicative of the results that can be expected for a full year.
(d) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of the Company. and subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
(e) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash, trade receivables, inventories, accounts
payable, accrued liabilities, and the Company's lines-of-credit all approximate
fair value due to the short-term maturities of these assets and liabilities. The
carrying value of the Company's publicly traded marketable equity securities is
based on quoted market prices. The Company uses interest rate swap agreements to
specifically hedge against the potential impact of increases in interest rates
on the revolving lines-of-credit. Interest differentials are recorded as
adjustments to interest expense in the period they occur. It is not practicable
to estimate the fair value for other financial assets and certain financial
liabilities since there is no liquid market which reflects the credit and
interest rate risk inherent in the instruments.
The Company classifies its equity securities in one of two categories:
trading or available-for-sale. Trading securities are bought and held
principally for the purpose of selling them in the near term. All other equity
securities are classified as available-for-sale. Trading and available-for-sale
securities are recorded at fair value. Gains and losses on investment security
transactions are reported on the specific-identification method. Dividend and
interest income are recognized when earned. Unrealized holding gains (losses) on
trading securities are included in earnings. Unrealized holding gains (losses),
net of related tax effect, on available-for-sale securities are excluded from
earnings and are reported as a separate component of shareholders' equity until
realized. A decline in the market value of any available-for-sale security below
cost that is deemed other than temporary is charged to earnings resulting in the
establishment of a new cost basis for the security.
(f) INVESTMENTS IN UNCONSOLIDATED INVESTEE COMPANIES
The Company's investments in companies which are not majority owned or
controlled are accounted for using the equity method. Investments carried at
equity and the percentage owned consist of Murdock Travel, Inc. (20 percent),
Wimmer-Hudson Research and Development, LLC (20 percent), and Polar Bear, LLP
(16.8 percent).
(g) NOTES RECEIVABLE
Notes receivable are recorded at cost, less an allowance for impaired
notes receivable as applicable. Management, considering current information and
events regarding the borrowers ability to repay their obligations, considers a
note to be impaired when it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the agreement.
When a receivable is considered to be impaired, the amount of the impairment is
measured based on the present value of expected future cash flows discounted at
the note's effective interest rate. Impairment losses are included in the
allowance for doubtful accounts through a charge to bad debt expense. Cash
receipts on impaired notes receivable are applied to reduce the principal amount
of such notes until the principal has been recovered and are recognized as
interest income, thereafter.
F-12
<PAGE>
SIMMONS MEDIA GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL DATA FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
(h) PROPERTY AND EQUIPMENT
Assets acquired in business combinations accounted for using the purchase
method of accounting are recorded at their estimated fair value upon acquisition
as determined by management or by independent appraisal. Property and equipment
additions are recorded at cost. Depreciation on property and equipment is
calculated on the straight-line method over the estimated useful lives of the
related assets, ranging from three to ten years.
(i) INTANGIBLE ASSETS
Intangible assets with determinable lives have been allocated among
various categories of customer-based or market-based intangibles at their
estimated fair value upon acquisition as determined by management or by
independent appraisal. Goodwill represents the excess of cost over the fair
value of tangible assets and intangible assets with determinable lives.
Amortization is provided on the straight-line method over the estimated useful
lives of the related assets (see note 10). The Company's policy is to write-off
intangible assets once they have become fully amortized. The useful lives and
recoverability of intangible assets are evaluated at least annually. This
evaluation encompasses the undiscounted historical broadcast cash flow of each
station and existing broadcast cash flow multiples for sales of similar radio
properties to estimate the potential selling price for the station and,
therefore, recoverability of the assets.
(j) INCOME TAXES
The Company utilizes the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred tax assets and
deferred tax liabilities are recognized for the future tax consequences
attributable to differences between the consolidated financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
deferred tax liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and deferred tax
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
(k) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets, liabilities, revenues and expenses, and the
disclosure of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ materially from these estimates.
(l) LONG-LIVED ASSETS
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount of fair value less costs to sell.
F-13
<PAGE>
SIMMONS MEDIA GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL DATA FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
(m) RECLASSIFICATION
Certain amounts in the 1997 and 1998 consolidated financial statements
have been reclassified to conform with the 1999 presentation.
(n) CONCENTRATION OF RISKS
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts receivable.
Concentrations of credit risk with respect to accounts receivable are limited
due to the large number of customers and the geographical diversification of the
Company's customer base.
The Company owns investment securities in a financial institution which
constitutes approximately 73 percent, 69 percent, and 67 percent of consolidated
net assets as of December 31, 1997, 1998, and 1999, respectively. The president
of the financial institution is on the board of the Company. Investment
securities are recorded at fair value.
(o) REVENUE RECOGNITION POLICY
Revenues from commercial broadcasting advertisements are recognized when
the advertising airtime is broadcast. Revenues from billboard advertising are
recognized when the service is rendered.
(p) LOCAL MARKETING AGREEMENTS
The Company has entered into local marketing agreements (LMA), which
principally provide for the Company to supply specified programming to the
brokered stations and enables the sales staff of the Company to sell advertising
time on the station for a fixed fee to be paid by the Company. Fees earned or
incurred pursuant to various LMA's are recognized as gross broadcasting revenue
or station operating expenses, respectively, in the period that the services
performed or received occur. The Company's consolidated financial statements
include broadcasting revenues and station operating expenses of stations
marketed under LMA's.
(q) BARTER TRANSACTIONS
Barter transactions are reported at the estimated fair value of the
product or service received. Revenue from barter transactions (advertising
provided in exchange for goods and services) is recognized as income when
advertisements are broadcast, and merchandise or services received are charged
to expense when received or used. If merchandise or services are received prior
to the broadcast of the advertising, a liability (deferred barter revenue) is
recorded. If the advertising is broadcast before the receipt of the goods or
services, a receivable is recorded. Barter revenue included in gross
broadcasting revenue and barter expenses included in station operating expenses,
amounted to $1,021,644, $1,155,475, $1,523,582, $696,860, and $599,129, and
$1,195,324, $1,137,390, $1,406,016, $632,061, and $476,752 for the years ended
December 31, 1997, 1998, and 1999, and for the six-month periods ended June 30,
1999 and 2000, respectively.
(r) ACCOUNTING STANDARDS NOT ADOPTED
In June 1998, the FASB issued Statement No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. Statement No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The accounting for gains and losses of a derivative depends on
the intended use of the derivative and the resulting designation.
F-14
<PAGE>
SIMMONS MEDIA GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL DATA FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
Under this statement, an entity that elects to apply hedge accounting is
required to establish at the inception of the hedge the method it will use for
assessing the effectiveness of the hedging derivative and the measurement
approach for determining the ineffective aspect of the hedge. Those methods must
be consistent with the entity's approach to managing risk. The original
effective date of this statement, as amended by Statement No. 137 and 138 has
been delayed and it is now effective for the first quarter of fiscal years
beginning after June 15, 2000, and should not be applied retroactively to
financial statements of prior periods. The Company has not completed its
evaluation of Statement No. 133; however, management does not anticipate that
the adoption of Statement No. 133 will have a material impact on the Company's
earnings or financial position upon adoption.
In January 2000, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue No. 99-17, ACCOUNTING FOR ADVERTISING BARTER TRANSACTIONS, to
be effective for transactions entered into after January 20, 2000. The consensus
states that advertising barter transactions should be accounted for at fair
value and that the fair value recognized be disclosed in the financial
statements, if there is verifiable objective evidence provided by sufficient
cash transactions received by the seller of the advertising or similar
advertising. EITF No. 99-17 is not expected to have a material effect on the
Company's financial statements.
(s) SEGMENT REPORTING
As of December 31, 1999, the Company operates two reportable segments,
one comprised of eighteen separate radio stations in the Western United States
and the other comprised of investment portfolio assets valued at approximately
$118 million. The radio segment consists of operations in the radio broadcasting
industry, providing a similar product to similar customers. Net revenues,
consisting primarily of national and local advertising, are derived from
external sources. The Company does not rely on any major customers as a source
of net revenue. The investment segment consists of investment activities in
trading and available-for-sale equity securities. The Company identifies its
reportable segments based on the operating management responsibility for the
segment. The chief operating decision maker uses net revenues, broadcast cash
flows, return on investment, and net income as measures of profitability to
assess segment profit or loss and to allocate resources between the two
segments. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies.
(2) ACQUISITIONS AND DISPOSITIONS
1997 ACQUISITIONS
KTLE. On January 10, 1997, the Company acquired the assets of KTLE
(subsequently changed to KMGR) for $825,000. KTLE services the Tooele, Utah
market.
KAHK. On October 16, 1997, the Company acquired the assets of KNNC
(subsequently changed to KAHK), serving the Austin, Texas area, for $2,000,000.
The Company began operating the station under the terms of an LMA agreement in
August 1997.
1998 ACQUISITIONS
KQMB. On February 9, 1998, the Company acquired the assets of KQMB,
serving the Salt Lake City, Utah market. The purchase price was $3,553,000. The
Company began operating the radio station under the terms of an LMA in September
1995.
SPARKS OUTDOOR ADVERTISING. On March 12, 1998, the Company acquired the
assets of Sparks Outdoor Advertising. The purchase price was $3,257,000. The
acquisition added 92 billboard sign faces.
F-15
<PAGE>
SIMMONS MEDIA GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL DATA FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
KXRK. On April 1, 1998, the Company acquired the assets of KXRK, serving
the Salt Lake City, Utah market. The purchase price was $10,506,000.
ANCHOR OUTDOOR ADVERTISING. On December 30, 1998, the Company acquired
the assets of Anchor Outdoor Advertising. The purchase price was $500,000. The
acquisition added 76 billboard sign faces.
1999 ACQUISITIONS
KKSS. On February 12, 1999, the Company acquired the assets of KKSS
serving the Albuquerque, New Mexico market. The purchase price was $5,500,000.
The Company began operating the radio station under the terms of a LMA in
November 1998.
1999 DISPOSITIONS
KMGR. On May 15, 1999, the Company sold the assets of KMGR in Salt Lake
City, Utah for $3,000,000. A gain of $1,690,623 was recognized on the sale.
All acquisitions have been accounted for by the purchase method and,
accordingly, total costs were allocated to the assets based on their estimated
fair market values as of the acquisition dates. No liabilities were assumed in
connection with the acquisition of these assets. A significant portion of the
assets acquired represent FCC broadcasting licenses. These broadcasting licenses
are being amortized over a period of 15 years, using the straight-line method.
The excess of the purchase price, over the fair value of the assets acquired,
has been recorded as goodwill and is also being amortized over 15 years using
the straight-line basis.
The purchase price, including acquisition costs of $121,480, $67,233, and
$118,097 for the years ended December 31, 1997, 1998, and 1999, respectively,
was allocated as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1998 1999
-------------- -------------- ------------
<S> <C> <C> <C>
Property............................................. $ 112,380 1,439,155 122,035
FCC broadcasting licenses............................ 2,806,490 11,239,095 4,293,000
Client lists......................................... -- 3,112,900 624,574
Goodwill............................................. -- 2,086,691 578,488
Other assets......................................... 27,610 5,392 --
-------------- -------------- ------------
Total acquisition cost.............................$ 2,946,480 17,883,233 5,618,097
============== ============== ============
</TABLE>
Operations of acquired companies have been included in the consolidated
results of operations from their respective dates of acquisition or operation
under terms of LMA's.
F-16
<PAGE>
SIMMONS MEDIA GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL DATA FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
The following unaudited pro forma financial information presents the
combined results of operations of the Company for the years ended December 31,
1998 and 1999 as if the above described acquisitions had occurred as of the
beginning of the year prior to the year of acquisition, after giving effect to
certain adjustments, including reductions in LMA fees, increases in amortization
of goodwill and FCC broadcasting licenses, additional depreciation expense,
increased interest expense on debt related to the acquisition, and related
income tax effects. The pro forma financial information does not necessarily
reflect the results of operations that would have occurred had the Company and
the acquired entities constituted a single entity during such periods or of
results that may occur in the future.
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1999
---------------- -------------
(UNAUDITED)
Net broadcasting revenue............ $ 24,255,957 25,254,028
Operating income (loss)............. (1,571,900) 1,041,833
Net income (loss)................... (2,381,573) 2,094,583
(3) LOCAL MARKETING AGREEMENTS
At December 31, 1999, the Company had LMA's to market stations KZHK,
KEOT, and KTSP in St. George, Utah. The agreement with KZHK provides the Company
with the option to purchase the station, exercisable on November 1, 2001.
Additionally, the owner of KZHK has an option to require the Company to purchase
the assets of KZHK, also exercisable on November 1, 2001. The LMA calls for a
$5,000 monthly fee, $2,500 of which applies to the purchase price if either of
the options are exercised. The Company intends to exercise its option to
purchase the station, accordingly, $2,500 of the monthly fee is capitalized in
deposits for pending acquisitions.
Fees paid under LMA's amounted to $322,000, $252,304, and $188,333 for
the years ended December 31, 1997, 1998, and 1999, respectively, and $134,583
and $60,845 for the six-month periods ended June 30, 1999 and 2000,
respectively.
(4) CASH HELD IN ESCROW
Cash held in escrow at December 31, 1998, represents an escrow security
deposit for the pending acquisition of KKSS. The acquisition was consummated
during fiscal year 1999 and these funds were released to the seller.
(5) DERIVATIVE FINANCIAL INSTRUMENTS
The Company began using interest rate swap agreements to hedge against
the potential impact of increases in interest rates on its floating rate
revolving line-of-credit in December 1998. For the years ended December 31, 1998
and 1999, and the six-month period ended June 30, 2000, the Company received
additional interest of approximately $-0-, $49,236, and $120,919, respectively.
The amount paid is based on the differential between the specified rate of the
swap agreements and the variable interest rate of the revolving credit loan.
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS
Marketable equity securities classified as available-for-sale include
certificates evidencing ownership of 1,991,376 shares of Zion's Bancorporation
common stock at December 31, 1998 and 1,814,488 at December 31, 1999. It is the
intent of management to hold these securities as a long-term investment;
accordingly, they are classified as a noncurrent asset in the accompanying
consolidated balance sheets. In 1989, the Company
F-17
<PAGE>
SIMMONS MEDIA GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL DATA FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
entered into an option agreement with one of its directors, who is also a
stockholder of the Company. This option agreement provides the director the
right to purchase 186,792 shares of the Company's shares of Zions Bancorporation
common stock at $3.125 per share. During 1999, this Director exercised this
option, giving the Company 9,904 shares of Zions Bancorporation common stock as
consideration for the shares purchased under the option. Unrealized gain in the
amount of $293,431 related to the shares sold has been reflected as a
contribution of capital from the director.
Selected information with respect to marketable equity securities
available-for-sale follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST HOLDING GAINS HOLDING LOSSES FAIR VALUE
-------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
December 31, 1998.................. $ 3,098,297 110,058,253 (3,259) 113,153,291
============== ================ =============== ===============
December 31, 1999.................. $ 3,391,728 109,780,941 (5,752,913) 107,419,756
============== ================ =============== ===============
June 30, 2000 (unaudited).......... $ 3,391,728 109,780,941 (29,889,096) 83,283,573
============== ================ =============== ===============
</TABLE>
Included in dividend income is income earned on Zion's Bancorporation
common stock of $916,794, $1,058,483, and $1,661,496 at December 31, 1997, 1998,
and 1999, respectively.
The Company has entered into interest rate swap agreements with two
separate financial institutions to hedge against the potential impact of
increases in interest rates on the revolving credit loan. These agreements at
December 31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
NOTIONAL ESTIMATED
AGREEMENT AMOUNT SWAP EXPIRATION DATE FAIR VALUE
------------ --------------- -------- ------------------- ------------
<S> <C> <C> <C> <C>
Interest rate swap.................................... $ 10,000,000 4.98% December 2000 135,347
Interest rate swap.................................... 10,000,000 4.98% December 2000 135,113
</TABLE>
The Company is exposed to credit loss in the event of nonperformance by
the other parties to the agreements. The Company, however, does not anticipate
nonperformance by the counterparties. The fair value of the interest rate swap
agreements is estimated using the difference between the present value of
discounted cash flows using the base rate stated in the swap agreement and the
present value of discounted cash flows using the LIBOR rate.
(7) NOTES RECEIVABLE FROM SHAREHOLDERS
Notes receivable from shareholders are unsecured, due on demand, and bear
interest at the prime rate of Zions First National Bank (7.75 percent at
December 31, 1999). Interest income of $20,178, $29,060, and $47,746 for the
years ending December 31, 1997, 1998, and 1999, respectively, is included in net
income.
F-18
<PAGE>
SIMMONS MEDIA GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL DATA FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
(8) INCOME TAXES
Income tax expense (benefit) attributable to income (loss) before income
taxes consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------------- ----------- -----------
<S> <C> <C> <C>
Year ended December 31, 1997:
Federal...................................................... $ 715,750 67,421 783,171
State........................................................ 126,309 7,932 134,241
-------------- ----------- -----------
Total...................................................... $ 842,059 75,353 917,412
============== =========== ===========
Year ended December 31, 1998:
Federal...................................................... $ (239,862) (251,665) (491,527)
State........................................................ (50,681) (30,615) (81,296)
-------------- ----------- -----------
Total...................................................... $ (290,543) (282,280) (572,823)
============== =========== ===========
Year ended December 31, 1999:
Federal...................................................... $ 976,225 (203,207) 773,018
State........................................................ 160,608 (38,555) 122,053
-------------- ----------- -----------
Total...................................................... $ 1,136,833 (241,762) 895,071
============== =========== ===========
Quarter ended June 30, 1999 (unaudited):
Federal...................................................... $ 412,029 (33,751) 378,278
State........................................................ 62,164 (3,971) 58,193
-------------- ----------- -----------
Total...................................................... $ 474,193 (37,722) 436,471
============== =========== ===========
Quarter ended June 30, 2000 (unaudited):
Federal...................................................... $ 195,893 286,236 482,129
State........................................................ 31,214 54,308 85,522
-------------- ----------- -----------
Total...................................................... $ 227,107 340,544 567,651
============== =========== ===========
</TABLE>
The Company's income tax expense differed from the statutory federal rate of 34
percent as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------------- --------------------------
1997 1998 1999 1999 2000
------------- ------------ -------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Statutory rate applied to income
before income taxes.................. $ 793,704 (792,582) 1,022,408 451,099 630,584
Increase (decrease) in income tax
expense resulting from:
State tax expense, net of federal
tax benefit........................ 88,599 (53,655) 80,555 38,407 56,445
Dividend received deduction.......... (235,358) (257,362) (395,436) (85,155) (211,695)
Goodwill............................. 145,456 72,495 72,495 36,248 36,248
Meals and entertainment.............. -- 25,854 25,206 12,603 12,750
Loss from affiliate.................. -- 302,779 65,723 32,872 22,533
Nondeductible professional fees...... -- -- 155,771 77,886 --
Change in federal valuation
allowance.......................... -- -- (156,742) (156,742) --
Other, net........................... 125,011 129,648 25,091 29,253 20,786
------------- ------------ -------------- ------------ ------------
Income tax expense $ 917,412 (572,823) 895,071 436,471 567,651
(benefit)......................
============= ============ ============== ============ ============
</TABLE>
F-19
<PAGE>
SIMMONS MEDIA GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL DATA FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30
----------------------------------------- -------------------
1998 1999 2000
------------------- ------------------- -------------------
(UNAUDITED)
Deferred tax assets:
<S> <C> <C> <C>
Accrued interest....................................... $ 46,143 45,771 25,109
Bonus payable.......................................... 129,480 103,286 38,000
Net operating loss carryforward........................ 175,182 -- --
Deferred compensation.................................. -- 78,236 78,107
Unrealized gains/losses................................ 188,887 65,147 --
Investment in subsidiaries............................. 80,775 118,914 118,914
Other.................................................. 153,920 228,812 200,073
------------------- ------------------- -------------------
Total gross deferred tax assets.................. 774,387 640,166 460,203
Less valuation allowance.................................. 175,182 -- --
------------------- ------------------- -------------------
Net deferred tax assets.......................... 599,205 640,166 460,203
Deferred tax liabilities:
Facilities and equipment, due to differences
in depreciation...................................... (184,972) (109,166) (103,466)
Acquisition costs...................................... (99,915) (92,778) (89,210)
Unrealized gains/losses................................ -- -- (228,758)
Intangible assets...................................... (1,473,247) (1,355,389) (1,296,457)
Securities available-for-sale.......................... (41,820,895) (39,642,154) (30,470,405)
------------------- ------------------- -------------------
Total deferred tax liabilities................... (43,579,029) (41,199,487) (32,188,296)
------------------- ------------------- -------------------
Net deferred tax liabilities..................... $ (42,979,824) (40,559,321) (31,728,093)
=================== =================== ===================
Current portion........................................... $ 391,327 426,191 17,449
Noncurrent portion........................................ (43,371,151) (40,985,512) (31,745,542)
------------------- ------------------- -------------------
$ (42,979,824) (40,559,321) (31,728,093)
=================== =================== ===================
</TABLE>
F-20
<PAGE>
SIMMONS MEDIA GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL DATA FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
The valuation allowance as of January 1, 1998 and 1999 was $172,182. The
net change in the total valuation allowance for the years ended December 31,
1998 and 1999, and for the six-month period ended June 30, 2000 was a decrease
of $-0-, $172,182, and $-0-, respectively.
(9) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------ JUNE 30, ESTIMATED
1998 1999 2000 USEFUL LIFE
-------------- -------------- -------------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Land.............................................. $ 178,945 178,945 178,945 --
Technical equipment, towers, and antennas......... 5,229,777 5,822,273 6,461,389 3 to 10 years
Building.......................................... 327,476 327,476 327,476 31 years
Furniture and equipment........................... 799,539 810,205 934,385 3 to 10 years
Leasehold improvements............................ 336,792 368,257 665,346 3 to 10 years
-------------- -------------- --------------
6,872,529 7,507,156 8,567,541
Less accumulated depreciation..................... 2,577,604 3,492,352 4,051,614
-------------- -------------- --------------
$ 4,294,925 4,014,804 4,515,927
============== ============== ==============
</TABLE>
(10) INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------- JUNE 30, ESTIMATED
1998 1999 2000 USEFUL LIFE
---------------- -------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Goodwill.......................................... $ 5,481,712 6,163,796 6,185,806 15 years
Broadcast licenses................................ 20,348,319 23,833,680 25,730,952 15 years
Client lists...................................... 4,776,258 5,400,832 5,400,832 15 years
---------------- -------------- --------------
30,606,289 35,398,308 37,317,590
Less accumulated amortization..................... (3,121,293) (5,333,821) (6,514,160)
---------------- -------------- --------------
$ 27,484,996 30,064,487 30,803,430
================ ============== ==============
</TABLE>
(11) ACCRUED EXPENSES AND OTHER
Accrued expenses and other consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------ JUNE 30,
1998 1999 2000
--------------- ------------ ----------------
(UNAUDITED)
<S> <C> <C> <C>
Compensation and commissions...................................... $ 1,176,423 1,324,311 764,357
Accrued interest.................................................. 334,682 552,942 366,458
Other............................................................. 1,416,161 1,489,390 1,366,051
------------------------------- ----------------
$ 2,927,266 3,366,643 2,496,866
================================ ================
</TABLE>
F-21
<PAGE>
SIMMONS MEDIA GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL DATA FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
(12) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------------- ------------------
1998 1999 2000
---------------- ---------------- ------------------
(UNAUDITED)
<S> <C> <C> <C>
Note payable under a revolving line-of-credit to a
financial institution due May 31, 2001 (Facility A).
See below for terms of note agreement................. $ 20,000,000 20,000,000 20,000,000
Note payable under a reducing revolving line-of-credit to
a financial institution, due May 31, 2003 (Facility
B). See below for terms of note agreement............. 3,000,000 500,000 5,500,000
Note payable in annual installments of $110,950 including
quarterly interest payments at 8%, matures January 1,
2003.................................................. 443,800 332,850 221,900
Note payable in monthly installments of $2,384, including
interest at 9.75% secured by land and a building,
matures October 20, 2000.............................. 201,292 190,915 185,818
Note payable in monthly interest only payments of $1,403
at 9%, with the principal balance due October 31,
1999, secured by land and a
building.............................................. 187,000 -- --
Note payable in annual interest payments at 7%, $900,000,
$1,900,000, and $2,300,000 due on demand at December
31, 1998, December 31, 1999, and June 30, 2000,
respectively, with a principal payment of $1,000,000
due annually on April 1, matures April 1, 2003,
guaranteed by a stockholder........................... $ 4,900,000 4,900,000 4,300,000
Note payable in monthly interest only payments of $12,750
at 8.5% beginning April 1, 1998 through April 1, 2001.
Beginning April 1, 2001, interest and principal is due
in equal installments of $28,278, matures April 1,
2008, secured by real property........................ 1,799,990 1,799,990 1,799,990
---------------- ---------------- ------------------
Total long-term debt..................................... 30,532,082 27,723,755 32,007,708
Less current installments................................ 1,208,327 2,201,865 22,643,683
---------------- ---------------- ------------------
Long-term debt, excluding current installments........... $ 29,323,755 25,521,890 9,364,025
================ ================ ==================
</TABLE>
In connection with the lines-of-credit, the Company is obligated to pay
commitment fees based on a percentage of the unused portion of the available
commitments (the fee varies depending upon which lines-of-credit is affected and
the Company's leverage ratio). For the years ended December 31, 1998 and 1999,
and for the six-month period ended June 30, 2000, the Company paid commitment
fees totaling $43,671, $61,537, and $34,898, respectively. The Company also pays
an annual agency fee of $10,000. Facility A bears interest at the London
interbank offered rate (LIBOR) plus .50/.75 percent or the Alternate Base Rate
(ABR), when the outstanding loan is less/greater than 20 percent of the value of
Zions Bancorporation common stock, respectively (6.75 percent at December 31,
1999). The Company may borrow up to $20 million under facility A, expandable up
to $40 million under the agreement. The note is secured by 1,804,580 shares of
Zions Bancorporation common stock. Facility B bears interest on a sliding scale
based on other factors as defined in the agreement (7.25 percent at December 31,
1999). The Company may borrow up to $30 million expandable to $55 million under
the agreement. The note is secured by the Company's media assets. The amount
available under the facility B revolving line-of-credit will be reduced
quarterly beginning June 30, 2000 through its maturity on May 31, 2003. The
quarterly reductions in the amount available under
F-22
<PAGE>
SIMMONS MEDIA GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL DATA FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
the revolving line-of-credit may require principle repayments if the outstanding
balance at the end of each quarter exceeds the new maximum available amount. The
Company has entered into interest rate hedge agreements as discussed in note 5.
The agreements under both facility A and facility B include certain minimum
financial and operating covenants.
At December 31, 1999, the Company was in compliance with all minimum
financial and operating covenants. The fair values of the Company's notes
payable at December 31, 1999, approximate the carrying amounts.
The scheduled reductions of the maximum commitment of the facility B
revolving line-of-credit for the next five years and thereafter are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
---------------------------
<S> <C>
2000............................................... $ 3,375,000
2001............................................... 9,000,000
2002............................................... 13,875,000
2003............................................... 3,750,000
2004............................................... --
Thereafter......................................... --
--------------
$ 30,000,000
==============
</TABLE>
As of December 31, 1999, scheduled repayments of long-term debt, excluding
the reducing revolving line-of-credit disclosed above for the next five years
and thereafter are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
--------------------------
<S> <C>
2000............................................. $ 2,201,865
2001............................................. 21,254,729
2002............................................. 1,317,431
2003............................................. 1,224,729
2004............................................. 244,594
Thereafter....................................... 980,407
---------------
$ 27,223,755
===============
</TABLE>
(13) REDEEMABLE STOCK
In connection with a 1996 Merger Agreement that closed on June 30, 1996
(the closing), SNM issued 15,000 shares of nine percent redeemable preferred
stock and 125,000 shares of redeemable common stock whose redemption is outside
the control of the SNM. The redemption price is determinable at a future date
based on specified criteria below. The redeemable preferred stock accrues
dividends at the rate of $9.00 per share per year. The cumulative redeemable
preferred stock dividends are payable each quarter and must be fully paid or
declared with funds set aside for payment before any dividend can be declared or
paid on any other class of SNM's stock. The redeemable common stock accrues
dividends based on 20 percent of the taxable income (loss) of SNM, less federal,
state, and local taxes imposed on SNM, plus depreciation, amortization, and
interest with exception of depreciation and interest that may be accrued on
extraordinary capital expenditures. The redeemable common stock dividends are
payable each quarter. In the event of any liquidation, dissolution, or winding
up of SNM the holders of the redeemable preferred stock are entitled to receive,
prior and in preference to any distribution of any of the assets of SNM to the
holders of shares of any other outstanding shares of common stock, an amount
equal to $100 per share of redeemable preferred stock. The holders of redeemable
common stock will participate pro rata in the remaining net assets of SNM once
the holders of redeemable preferred stock have been paid in full. The redeemable
preferred stock is not
F-23
<PAGE>
SIMMONS MEDIA GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL DATA FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
convertible and the holders are not entitled to any voting privileges. The
redeemable common shareholders are entitled to one vote per share.
The holders of the redeemable preferred and redeemable common stock have
the right to put their redeemable common and redeemable preferred stock to SNM,
or an affiliate thereof, during the twelve-month periods following the second,
third, or fourth anniversaries of the closing of the Merger Agreement, and SNM
has the right to call the redeemable common and redeemable preferred stock at
the end of the twelve-month periods following the fourth or fifth anniversaries
of the closing of the Merger Agreement. The redemption price for the SNM
redeemable common stock is based on a formula of eight times the trailing
earnings before interest, taxes, depreciation, and amortization of SNM or two
and one-half times gross cash revenues of SNM, which ever is greater, subject to
a cap of $3.5 million (including the price for the SNM redeemable preferred
stock which is $1.5 million). The Company made dividend payments on the
redeemable preferred stock of $105,314 and $75,624 during 1998 and 1999,
respectively. Accrued dividends on the redeemable preferred stock were $18,907
at December 31, 1998 and 1999. As a result of losses incurred in SNM during 1998
and 1999 there were no dividends paid on the redeemable common stock.
During 1998, five of the holders of redeemable common and preferred stock
put their redeemable common and redeemable preferred stock to SNM. The stock was
repurchased for $1,539,300, which was based on the maximum price under the
Merger Agreement. On December 31, 1999, the remaining holders of redeemable
preferred and redeemable common stock exercised their option to put back to the
Company the remaining 8,403 shares of redeemable preferred stock and the 70,025
shares of redeemable common stock for a total purchase price of $1,960,700. The
Company offset $300,000 of this purchase price against a note receivable from
one of the remaining holders of redeemable preferred stock. The remaining amount
of $1,660,700 is reflected in notes payable to shareholders and affiliates.
(14) LEASES
The Company has operating leases for certain tower sites, transmitters and
equipment, automobiles, and office space. These operating leases generally
contain renewal options and require the Company to pay all executory costs such
as maintenance and insurance. Rental expense for operating leases during 1997,
1998, and 1999 was approximately $538,739, $795,513, and $903,153, respectively,
and $506,900 and $534,896 for the six-month periods ended June 30, 1999 and
2000, respectively. The following is a schedule by year of future minimum lease
payments required under noncancelable operating leases that have initial or
remaining lease terms in excess of one year as of December 31, 1999:
<TABLE>
<S> <C>
2000.................................................. $ 845,646
2001.................................................. 881,774
2002.................................................. 844,628
2003.................................................. 647,061
2004.................................................. 618,268
Thereafter............................................ 4,862,787
-------------
Total minimum lease payment.................... $ 8,700,164
=============
</TABLE>
(15) EMPLOYEE THRIFT PLAN
The Company has a tax-qualified employee savings and retirement plan (the
401(k) Plan) covering all employees after completion of the first year of
service. Pursuant to the 401(k) Plan, employees may elect to reduce their
current compensation by the lesser of 15 percent of eligible compensation or the
prescribed
F-24
<PAGE>
SIMMONS MEDIA GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL DATA FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
annual limit ($10,000 in 1998 and 1999) and have the amount of such reduction
contributed to the 401(k) Plan. The Company matches the employee contributions
at a rate equal to 50 percent of the employees contribution, limited to three
percent of the employees gross income. The total of such contributions was
$81,143 $102,130, and $150,214 for 1997, 1998, and 1999, respectively, and
$77,713 and $90,609 for the six-month periods ended June 30, 1999 and 2000,
respectively. The Company has no liability to this plan beyond the amounts
contributed.
(16) RELATED PARTY TRANSACTIONS
At December 31, 1997, 1998, and 1999, the Company held 30,890 shares of
Murdock Travel stock, with an aggregate cost of $303,466. The President of the
Company is a member of Murdock Travel's Board of Directors. In addition at
December 31, 1999, the Company holds a $500,000 note receivable from Murdock
Travel bearing interest at nine percent, due May 31, 2000. Accrued interest on
the note was $15,130 at December 31, 1999.
The Company has an investment in a partnership whose assets are solely
comprised of an investment portfolio. The general partner in the partnership is
a spouse of a director of the Company.
In December 1995, the Company sold certain equity securities to an
affiliated entity. Shareholders of the affiliated company are directors,
shareholders, and officers of the Company. No gain or loss was recognized on the
sale. As consideration, the Company received a note receivable for $3,955,123
bearing interest at seven percent; due on the earlier of December 31, 2000 or
the sale, transfer, or exchange of the equity securities securing payment of the
note. In November 1997, the affiliated entity exchanged the equity securities
for new equity securities. Subsequent to the exchange, the affiliated entity was
dissolved and the obligation was assumed by the six individual members of the
affiliated entity. The Company agreed to modify the terms of the note to require
payment of interest on the notes annually with the notes due in full on December
31, 2002. Accordingly, the notes have been classified as long-term. Interest
income of $593,367, $239,266, and $230,708 was recognized for the years ending
December 31, 1997, 1998, and 1999, respectively, and $115,354 and $115,354 for
the six-month periods ended June 30, 1999 and 2000, respectively, and is
included in net income. Included in accrued interest income from related party
is $593,367, $184,567 and $138,425 of accrued interest relating to these notes
as of December 31, 1997, 1998, and 1999, respectively, and $115,354 and $161,496
for the six-month periods ended June 30, 1999 and 2000, respectively.
The Company has amounts payable to shareholders of $204,900, $190,057, and
$844,839 at December 31, 1997, 1998, and 1999, respectively, and $190,057 and
$667,532 for the six-month periods ended June 30, 1999 and 2000, respectively,
which are included in notes payable to shareholders and affiliates. Related
interest payable of $64,233, $77,800, and $74,185 at December 31, 1997, 1998,
and 1999, respectively, and $65,522 and $99,318 for the six-month periods ended
June 30, 1999 and 2000, respectively, is also included in notes payable to
shareholders and affiliates. Related interest expense was $12,632, $13,567, and
$17,791 for the years ended December 31, 1997, 1998, and 1999, respectively, and
$6,629 and $33,369 for the six-month periods ended June 30, 1999 and 2000,
respectively.
During 1999, the Company sold a portion of an interest held in a real
estate partnership to certain shareholders of the Company for $308,000 in which
the Company recognized a gain of $8,000.
The Company has amounts payable to employees of $203,000, $203,000, and
$388,877 at December 31, 1997, 1998, and 1999, respectively, and $203,000 and
$388,877 for the six-month periods ended June 30, 1999 and 2000, respectively,
which are included in notes payable to employees. Related interest payable of
$229,018, $264,875, and $306,782 at December 31, 1997, 1998, and 1999,
respectively, and $283,746 and $334,997 for the six-month periods ended June 30,
1999 and 2000, respectively, is also included
F-25
<PAGE>
SIMMONS MEDIA GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL DATA FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
in notes payable to employees. Related interest expense was $33,109, $35,857,
and $41,907 for the years ended December 31, 1997, 1998, and 1999, respectively,
and $18,871 and $28,215 for the six-month periods ended June 30, 1999 and 2000,
respectively. Notes payable to employees are due on demand and bear interest at
a rate of eight percent.
(17) COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations, or liquidity.
(18) SUBSEQUENT EVENTS
On May 27, 2000, the Company merged SNM (a wholly owned subsidiary) into
Simmons Media Group, Inc. The separate legal structure had been in place due to
minority interests in SNM, which ended on December 31, 1999 with the buyout of
the minority interests by the Company (see note 13).
Immediately, prior to the completion of the contemplated initial public
offering, LoneStar, a consolidated partnership, will sell its sole asset, an FCC
radio license to the Company for approximately $5,875,000. No gain or loss
will be reported in connection therewith. Subsequent to the sale, LoneStar will
be dissolved.
(19) STOCK APPRECIATION RIGHTS AGREEMENT
The Company entered into a stock appreciation right agreement (SAR or Plan)
with a key executive officer in March 1996. The SAR provides for compensation
based on incremental increases in the value of the Company, as measured by the
value of the Company's publicly traded stock, if available, or upon a multiple
of earnings formula, as defined in the Plan. No maximum compensation limit
exists. The Plan has an incremental vesting period over the first 3.5 years, and
expires 7 years after inception. Through December 31, 1999, no compensation has
been incurred under the earnings formula. Following successful completion of an
initial public offering, compensation under the Plan will be based upon
incremental increases in the value of the Company as measured by the value of
its publicly traded stock.
(20) SEGMENT INFORMATION
The Company has adopted FASB Statement No. 131, FINANCIAL REPORTING FOR
SEGMENTS OF A BUSINESS ENTERPRISE. This statement requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments. According to the statement, operating segments
are defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance.
The operating segment defined as "other" includes smaller nonradio media
concerns, including billboard faces, internet news and newspaper operations and
eliminations of transactions between segments. Transactions between operating
segments are primarily conducted at fair value, resulting in amounts that are
eliminated for reporting consolidated net income. Expenses for centrally
provided services are allocated based on the estimated usage of those services.
F-26
<PAGE>
SIMMONS MEDIA GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL DATA FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
Segment information for the years ended December 31, 1997, 1998, and
1999, and the six-month period ended June 30, 2000 are as follows:
<TABLE>
<CAPTION>
INVESTMENT
RADIO PORTFOLIO
------------------- -------------------
<S> <C> <C>
DECEMBER 31, 1997
Net revenues.............................................. $ 17,658,273 --
Operating income (loss)................................... 1,514,441 (326,178)
Reconciliation to net income (loss):
Dividend and interest income........................... 191,601 1,629,736
Interest expense....................................... (758,927) (62,887)
Unrealized gain (loss) on marketable equity
securities--trading................................. -- 61,971
Net gain (loss) on sale of marketable equity
securities--trading................................. -- 216,828
Other nonoperating income (expense).................... -- (192,038)
Income tax benefit (expense)........................... (406,878) (505,659)
Minority interest...................................... -- --
------------------- -------------------
Net income.................................... $ 540,237 821,773
=================== ===================
Assets.................................................... $ 28,447,671 87,929,735
=================== ===================
CONSOLIDATED
OTHER COMPANY
------------------- --------------------
DECEMBER 31, 1997
Net revenues.............................................. 9,310 17,667,583
Operating income (loss)................................... 69,375 1,257,638
Reconciliation to net income (loss):
Dividend and interest income........................... (186,126) 1,635,211
Interest expense....................................... 176,253 (645,561)
Unrealized gain (loss) on marketable equity
securities--trading................................. -- 61,971
Net gain (loss) on sale of marketable equity
securities--trading................................. -- 216,828
Other nonoperating income (expense).................... -- (192,038)
Income tax benefit (expense)........................... (4,875) (917,412)
Minority interest...................................... 375 375
------------------- --------------------
Net income.................................... 55,002 1,417,012
=================== ====================
Assets.................................................... (2,199,928) 114,177,478
=================== ====================
DECEMBER 31, 1998
Net revenues.............................................. $ 21,174,424 --
Operating income (loss)................................... 405,296 (265,367)
Reconciliation to net income (loss):
Dividend and interest income........................... 413,216 1,378,058
Interest expense....................................... (2,014,039) (293,059)
Unrealized gain (loss) on marketable equity
securities--trading................................. -- (444,340)
Net gain (loss) on sale of marketable equity
securities--trading................................. -- (135,497)
Loss on equity investments............................. -- (134,471)
Other nonoperating income (expense).................... 10,000 93,679
Income tax benefit (expense)........................... 373,851 203,254
Minority interest...................................... -- --
------------------- -------------------
Net income (loss)............................. $ (811,676) 402,257
=================== ===================
Assets.................................................... $ 50,907,129 128,461,668
=================== ===================
DECEMBER 31, 1998
Net revenues.............................................. 1,076,356 22,250,780
Operating income (loss)................................... (1,192,563) (1,052,634)
Reconciliation to net income (loss):
Dividend and interest income........................... (384,315) 1,406,959
Interest expense....................................... 264,665 (2,042,433)
Unrealized gain (loss) on marketable equity
securities--trading................................. -- (444,340)
Net gain (loss) on sale of marketable equity
securities--trading................................. -- (135,497)
Loss on equity investments............................. -- (134,471)
Other nonoperating income (expense).................... -- 103,679
Income tax benefit (expense)........................... (4,282) 572,823
Minority interest...................................... (32,387) (32,387)
------------------- --------------------
Net income (loss)............................. (1,348,882) (1,758,301)
=================== ====================
Assets.................................................... (15,029,307) 164,339,490
=================== ====================
</TABLE>
F-27
<PAGE>
SIMMONS MEDIA GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL DATA FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
<TABLE>
<CAPTION>
INVESTMENT CONSOLIDATED
RADIO PORTFOLIO OTHER COMPANY
------------ ------------- ------------ --------------
DECEMBER 31, 1999
<S> <C> <C> <C> <C>
Net revenue............................................ $24,382,929 -- 871,099 25,254,028
Operating income (loss)................................ 1,301,539 (272,202) 4,826 1,034,163
Reconciliation to net income (loss):
Dividend and interest income........................ 550,736 1,988,665 (521,157) 2,018,244
Interest expense.................................... (2,197,638) (347,536) 365,495 (2,179,679)
Unrealized gain (loss) on marketable equity
securities--trading................................ -- 325,632 -- 325,632
Net gain (loss) on sale of marketable equity
securities--trading................................ -- 133,453 -- 133,453
Loss on equity investments.......................... -- (118,756) -- (118,756)
Other nonoperating income (expense)................. 30,695 1,206 -- 31,901
Gain on sale of business............................ 1,690,623 -- -- 1,690,623
Income tax benefit (expense)........................ (643,664) (251,407) -- (895,071)
Minority interest................................... -- -- 71,500 71,500
------------ ------------- ------------ --------------
Net income (loss)............................. $ 732,291 1,459,055 (79,336) 2,112,010
============ ============= ============ ==============
Assets................................................. $56,183,044 118,406,293 (14,935,847) 159,653,490
============ ============= ============ ==============
<CAPTION>
JUNE 30, 2000
<S> <C> <C> <C> <C>
Net revenue............................................ $12,026,080 -- 483,958 12,510,038
Operating income (loss)................................ 988,788 (105,974) 93,492 976,306
Reconciliation to net income (loss):
Dividend and interest income........................ 282,239 1,048,277 (287,855) 1,042,661
Interest expense.................................... (1,055,201) (167,027) 204,710 (1,017,518)
Unrealized gain (loss) on marketable equity
securities - trading.............................. -- 773,436 -- 773,436
Net gain (loss) on sale of marketable equity
securities - trading.............................. -- 6,758 -- 6,758
Loss on equity investments.......................... -- (36,874) -- (36,874)
Other nonoperating income (expense)................. -- 138,304 -- 138,304
Gain on sale of business............................ -- -- -- --
Income tax benefit (expense)........................ (136,558) (431,093) -- (567,651)
Minority interest................................... -- -- (28,413) (28,413)
------------ ------------- ------------ --------------
Net income (loss)............................. $ 79,268 1,225,807 (18,066) 1,287,009
============ ============= ============ ==============
Assets................................................. $54,350,383 92,655,684 (9,600,398) 137,405,669
============ ============= ============ ==============
</TABLE>
F-28
<PAGE>
SIMMONS MEDIA GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(ALL DATA FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
Segment information for the year ended December 31, 1999, and the six-month
period ended June 30, 2000 on an unaudited Pro Forma basis is as follows:
<TABLE>
<CAPTION>
CONSOLIDATED
RADIO OTHER COMPANY
------------ ------------- --------------
DECEMBER 31, 1999 - PROFORMA (UNAUDITED)
<S> <C> <C> <C>
Net revenue............................................ $21,589,026 871,099 22,460,125
Operating income (loss)................................ 945,859 (17,029) 928,830
Reconciliation to net income (loss):
Interest income..................................... 550,736 (521,157) 29,579
Interest expense.................................... (2,196,356) 365,495 (1,830,861)
Other nonoperating income (expense) 30,695 62,735 93,430
Gain on sale of business 1,690,623 -- 1,690,623
Income tax benefit (expense)........................ (516,081) 7,088 (508,993)
Minority interest................................... -- 8,762 8,762
------------ ------------- --------------
Net income (loss)............................. $ 505,476 (94,106) 411,370
============ ============= ==============
Assets................................................. $54,469,019 (14,470,027) 39,998,992
============ ============= ==============
<CAPTION>
JUNE 30, 2000 - PROFORMA (UNAUDITED)
<S> <C> <C> <C>
Net revenue............................................ $10,650,295 483,958 11,134.253
Operating income (loss)................................ 870,794 93,492 964,142
Reconciliation to net income (loss):
Interest income..................................... 282,239 (281,709) 530
Interest expense.................................... (1,052,003) 204,710 (847,293)
Other nonoperating income (expense)................. -- (31,502) (31,502)
Income tax benefit (expense)........................ (95,231) 2,295) (92,936)
Minority interest................................... -- 3,089) 3,089)
------------ ------------- --------------
Net income (loss)............................. $ 5,799 (9,769) (3,970)
============ ============= ==============
Assets................................................. $52,627,664 (10,520,320) 42,107,344
============ ============= ==============
</TABLE>
F-29
<PAGE>
PROSPECTUS , 2000
SIMMONS MEDIA GROUP, INC.
SHARES
COMMON STOCK
THOMAS WEISEL PARTNERS LLC
--------------------------------------------------------------------------------
Neither we nor any of the underwriters have authorized anyone to provide
information different from that contained in this prospectus. When you make a
decision about whether to invest in our common stock, you should not rely upon
any information other than the information in this prospectus. Neither the
delivery of this prospectus nor the sale of our common stock means that
information contained in this prospectus is correct after the date of this
prospectus. This prospectus is not an offer to sell or solicitation of an offer
to buy these shares of common stock in any circumstances under which the offer
of the solicitation is unlawful.
Until ___________________ (25 days after commencement of this offering), all
dealers that buy, sell, or trade these shares of common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by Simmons Media Group, Inc. in connection
with the registration of the shares of common stock, other than underwriting
discounts and commissions, are as follows:
SEC registration fee.......................................... $ 9,108.00
NASD registration fee......................................... $ *
NASD listing fee.............................................. $ *
Blue Sky fees and expenses.................................... $ *
Legal fees and expenses....................................... $ *
Accounting fees and expenses.................................. $ *
Printing and engraving expenses............................... $ *
Transfer Agent and Registrar fees............................. $ *
Miscellaneous................................................. $ *
-----------
Total......................................................... $ *
===========
---------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 16-10a-902 ("Section 902") of the Utah Revised Business
Corporation Act (the "Revised Act") provides that a corporation may indemnify
any individual who was, is, or is threatened to be made a named defendant or
respondent (a "Party") in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative and whether
formal or informal (a "Proceeding"), because he is or was a director of the
corporation or, while a director of the corporation, is or was serving at its
request as a director, officer, partner, trustee, employee, fiduciary or agent
of another corporation or other person or of an employee benefit plan (an
"Indemnifiable Director"), against any obligation incurred with respect to a
Proceeding, including any judgment, settlement, penalty, fine or reasonable
expenses (including attorneys' fees), incurred in the Proceeding if his conduct
was in good faith, he reasonably believed that his conduct was in, or not
opposed to, the best interests of the corporation, and, in the case of any
criminal Proceeding, he had no reasonable cause to believe his conduct was
unlawful; provided, however, that indemnification under Section 902 in
connection with a Proceeding by or in the right of the corporation is limited to
payment of reasonable expenses (including attorneys' fees) incurred in
connection with the Proceeding and provided further that the corporation may not
indemnify an Indemnifiable Director in connection with a Proceeding by or in the
right of the corporation in which the Indemnifiable Director was adjudged liable
to the corporation, or in connection with any other Proceeding charging that the
Indemnifiable Director derived an improper personal benefit, whether or not
involving action in his official capacity, in which Proceeding he was adjudged
liable on the basis that he derived an improper personal benefit.
Section 16-10a-903 ("Section 903") of the Revised Act provides that,
unless limited by its articles of incorporation, a corporation shall indemnify
an Indemnifiable Director who was successful, on the merits or otherwise, in the
defense of any Proceeding, or in the defense of any claim, issue or matter in
the Proceeding, to which he was a Party because he is or was an Indemnifiable
Director of the corporation, against reasonable expenses (including attorneys'
fees) incurred by him in connection with the Proceeding or claim with respect to
which he has been successful.
In addition to the indemnification provided by Sections 902 and 903,
Section 16-10a-905 ("Section 905") of the Revised Act provides that, unless
otherwise limited by a corporation's articles of incorporation, an Indemnifiable
Director may apply for indemnification to the court conducting the Proceeding or
to another court of competent jurisdiction. On receipt of an application and
after giving any
II-1
<PAGE>
notice the court considers necessary, (i) if the court determines that the
Indemnifiable Director is entitled to mandatory indemnification under Section
903, the court shall order indemnification, in which case the court shall also
order the corporation to pay the Indemnifiable Director's reasonable expenses to
obtain court-ordered indemnification, and (ii) upon the court's determination
that the Indemnifiable Director is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances and regardless of
whether the Indemnifiable Director met the applicable standard of conduct set
forth in Section 902 or was adjudged liable as described in Subsection 902(4),
the court may order indemnification as the court determines to be proper, except
that indemnification with respect to certain Proceedings resulting in a
Indemnifiable Director being found liable as described in Subsection 902(4) is
limited to reasonable expenses (including attorneys' fees) incurred by the
Indemnifiable Director.
Section 16-10a-904 ("Section 904") of the Revised Act provides that a
corporation may pay for or reimburse the reasonable expenses (including
attorneys' fees) incurred by an Indemnifiable Director who is a Party to a
Proceeding in advance of the final disposition of the Proceeding if (i) the
Indemnifiable Director furnishes the corporation a written affirmation of his
good faith belief that he has met the applicable standard of conduct described
in Section 902, (ii) the Indemnifiable Director furnishes to the corporation a
written undertaking, executed personally or on his behalf, to repay the advance
if it is ultimately determined that he did not meet the required standard of
conduct, and (iii) a determination is made that the facts then known to those
making the determination would not preclude indemnification.
Section 16-10a-907 of the Revised Act provides that, unless a
corporation's articles of incorporation provide otherwise, (i) an officer of the
corporation is entitled to mandatory indemnification under Section 903 and is
entitled to apply for court-ordered indemnification under Section 905, in each
case to the same extent as an Indemnifiable Director, (ii) the corporation may
indemnify and advance expenses to an officer, employee, fiduciary or agent of
the corporation to the same extent as to an Indemnifiable Director, and (iii) a
corporation may also indemnify and advance expenses to an officer, employee,
fiduciary or agent who is not an Indemnifiable Director to a greater extent than
the right of indemnification which may be granted to Indemnifiable Directors, if
not inconsistent with public policy, and if provided for by its articles of
incorporation, bylaws, general or specific action of its board of directors or
contract.
The Amended and Restated Bylaws ("Restated Bylaws") of Simmons Media
Group, Inc. (the "Company") provide that the Company may indemnify an individual
made party to a proceeding because that individual is or was an Indemnifiable
Director, against liability incurred in the proceeding if his conduct was in
good faith, he reasonably believed that his conduct was in, or not opposed to,
the Company's best interest, and in the case of any criminal proceeding, he had
no reasonable cause to believe his conduct was unlawful. The Restated Bylaws
also provide that the Company may not indemnify an Indemnifiable Director in
connection with a Proceeding by or in the right of the Company in which the
Indemnifiable Director was adjudged liable to the Company or in connection with
any other Proceeding charging that the Indemnifiable Director derived on
improper personal benefit, whether or not involving action in his or her
official capacity, in which Proceeding he or she was adjudged liable on the
basis that he or she derived an improper personal benefit. In addition, the
Restated Bylaws further provide that the Company shall indemnify a director who
was successful, on the merits or otherwise, in the defense of any proceeding, or
the defense of any claim, issue, or matter in the proceeding, to which he was a
party because he is or was a director of the Company, against reasonable
expenses incurred by him in connection with the proceeding or claim with respect
to which he has been successful. The Company's Restated Bylaws further provide
for the indemnification, advancement and reimbursement incurred by an
Indemnifiable Director who is a party to a proceeding in advance of final
disposition of a proceeding if: (1) the Indemnifiable Director furnishes the
Company a written affirmation of his or her good faith belief that he or she has
met the applicable standard of conduct described in Utah Code Ann. ss.
16-10a-902; (2) the Indemnifiable Director furnishes to the Company a written
undertaking, executed personally or on his or her behalf, to repay the advance
if it is ultimately determined that he or she did not meet the standard of
conduct; and (3) a determination is made that the facts then known to those
making the determination would not preclude indemnification under this section.
Finally, the Restated Bylaws provide that an officer of the Company is entitled
to mandatory indemnification in each case to the same extent as a director as
described above. The Company may indemnify and advance expenses to an officer,
employee, fiduciary or agent of the Company to the same extent as a director.
The Company may also indemnify and advance
II-2
<PAGE>
expenses to an officer, employee, fiduciary or agent who is not a director to a
greater extent, if not inconsistent with public policy.
The Company's Restated and Amended Articles of Incorporation provide that
the personal liability of any director of the Company to the Company or its
shareholders, for monetary damages for any action taken or any failure to take
any action as a director is eliminated to the fullest extent permitted by the
Revised Act. The extent to which the Revised Act permits director liability to
be eliminated is governed by Section 16-10a-841 of the Revised Act, which
provides that the liability of a director may not be eliminated or limited for
(i) the amount of financial benefit received by a director to which he is not
entitled; (ii) an intentional infliction of harm on the corporation or its
shareholders; (iii) a violation of Section 16-10a-842 of the Revised Act which
prohibits unlawful distributions by a corporation to its shareholders; or (iv)
an intentional violation of criminal law.
Indemnification may be granted pursuant to any other agreement, bylaw, or
vote of shareholders or directors. In addition to the foregoing, the Company
intends to obtain insurance from commercial carriers against certain liabilities
which may be incurred by its directors and officers. The foregoing description
is necessarily general and does not describe all details regarding the
indemnification of officers, directors or controlling persons of the Company.
Reference is made to Article VIII of the Restated Bylaws of the Company
which provides for the indemnification of officers and directors of the Company.
Reference is also made to the Underwriting Agreement filed herewith
pursuant to which the Underwriter has agreed to indemnify the Company and its
officers and directors against certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the last three years, Simmons Media Group, Inc. has not issued or
sold any unregistered securities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
*1.1 Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger between Simmons New Mexico, Inc. and Simmons Media Group, Inc., dated
as of April 7, 2000.
*2.2 Form of Agreement and Plan of Merger between Simmons St. George, Inc. and Crestwood Communications,
Inc.
*2.3 Form of Agreement and Plan of Reorganization among Simmons Media Group, Inc. and certain
shareholders thereof.
*2.4 Form of Asset Purchase Agreement by and between Simmons Lone Star Media, Ltd. and KAHK License Corp.
3.1 Articles of Incorporation of Simmons Family, Inc. (predecessor to the Registrant), dated and filed
as of June 3, 1977.
3.2 Articles of Amendment to Articles of Incorporation of Simmons Family, Inc. (First Amendment) dated
as of February 11, 1988 and filed as of February 12, 1988.
3.3 Articles of Amendment to Articles of Incorporation of Simmons Family, Inc. (Second Amendment),
dated as of June 21, 1996 and filed as of June 25, 1996.
3.4 Articles of Amendment to Articles of Incorporation of Simmons Family, Inc. (Third Amendment), dated
as of June 21, 1996 and filed as of June 26, 1996.
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
3.5 Articles of Amendment to Articles of Incorporation of Simmons Family, Inc. (Fourth Amendment),
dated as of April 30, 1998 and filed as of May 1, 1998, effecting a name change to Simmons
Media Group, Inc.
*3.6 Form of Restated and Amended Articles of Incorporation of Simmons Media Group, Inc., of the
Registrant.
3.7 Restated Bylaws of the Registrant.
*3.8 Form of Amended and Restated Bylaws of the Registrant.
*4.1 Form of Certificate of Common Stock of the Registrant.
*5.1 Opinion of Callister Nebeker and McCullough (including consent).
10.1 Credit and Guarantee Agreement by and among Simmons Media Group, Inc., certain of its subsidiaries
guarantors thereto, certain lenders party thereto, Nationsbank, N.A., as syndication agent and The
Bank of New York, as administrative agent, dated May 6, 1998.
*10.2 Long-Term Incentive Plan of the Registrant.
*10.3 Annual Bonus Incentive Plan of the Registrant.
*10.4 Employee Stock Purchase Plan of the Registrant.
10.5 Time Brokerage Agreement between Simmons Radio New Mexico, Inc. and Vanguard Media LLC, dated May
8, 2000.
10.6 Lease Agreement between Trolley Corners Partnership and Simmons Media Group, Inc., dated August 1,
1999.
10.7 Lease Agreement between KSL, a division of Bonneville International Corporation, and Simmons
Family, Inc., dated March 16, 1998.
10.8 Lease Agreement between KSL, a division of Bonneville International Corporation, and Simmons
Family, Inc., dated March 16, 1998.
10.9 Lease Agreement between KSL, a division of Bonneville International Corporation, and Simmons
Family, Inc., dated March 16, 1998.
21.1 Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP.
*23.2 Consent of Callister Nebeker and McCullough (contained in Exhibit 5.1).
24.1 Power of Attorney (see page II-6).
*27.1 Financial Data Schedule.
</TABLE>
--------------
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
AND SIX-MONTH PERIOD ENDED JUNE 30, 2000
<TABLE>
BALANCE AT PROVISION BALANCE AT
BEGINNING FOR BAD END OF
DESCRIPTION OF PERIOD DEBTS CHARGE OFFS PERIOD
---------------------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Year ended December 31, 1997--allowance for doubtful
accounts............................................... $ 365,715 (272,511) (9,702) 102,906
Year ended December 31, 1998--allowance for doubtful
accounts............................................... 102,906 166,148 145,844 123,210
Year ended December 31, 1999--allowance for doubtful
accounts...............................................
123,210 288,526 241,022 170,714
Six-month period ended June 30, 2000
(unaudited)--allowance for doubtful accounts............ 174,714 177,004 94,865 252,853
</TABLE>
II-4
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, 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 Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus 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.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "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 Securities
and Exchange Commission such indemnification is against public policy as
expressed in the 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 Act and will
be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Salt Lake
City, State of Utah, on August 11, 2000.
SIMMONS MEDIA GROUP, INC.
/s/ David E. Simmons
-------------------------
David E. Simmons
President and Chief Executive Officer
POWER OF ATTORNEY
Simmons Media Group, Inc., a Utah corporation, and each person whose
signature appears below, constitutes and appoints David E. Simmons and Bruce W.
Thomas, and each of them singly, with full power to act without the other, such
person's true and lawful attorneys-in-fact, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign this Registration Statement, any subsequent related
registration statement filed pursuant to Rule 462(b) or Rule 462(d) promulgated
under the Securities Act of 1933, as amended, and any and all pre-effective and
post-effective amendments to such registration statements and other documents in
connection therewith, and to file the same, and all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact, and each of them, full power and authority
to do and perform each and every act and thing necessary or desirable to be done
in and about the premises, as fully to all intents and purposes as he or she
might or could do in person, thereby ratifying and confirming all that said
attorneys-in-fact, or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
SIGNATURE TITLE DATE
/s/ David E. Simons President and Chief Executive Officer August 11, 2000
--------------------------- (Principal Executive Officer)
David E. Simmons
/s/ Bruce W. Thomas Executive Vice President August 11, 2000
--------------------------- and Chief Financial Officer (Principal
Bruce W. Thomas Financial and Accounting Officer)
/s/ Roy W. Simmons Chairman of the Board of Directors August 11, 2000
---------------------------
Roy W. Simmons
/s/ Elizabeth E. Simmons Director August 11, 2000
---------------------------
Elizabeth E. Simmons
/s/ Matthew R. Simmons
--------------------------- Director August 11, 2000
Matthew R. Simmons
</TABLE>
II-6
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Laurence E. Simmons
--------------------------- Director August 11, 2000
Laurence E. Simmons
/s/ Elizabeth S. Hoke
--------------------------- Director August 11, 2000
Elizabeth S. Hoke
--------------------------- Director August ___, 2000
Harris H. Simmons
--------------------------- Director August ___, 2000
Julia S. Watkins
</TABLE>
II-7
<PAGE>
<TABLE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
*1.1 Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger between Simmons New Mexico, Inc. and Simmons Media Group, Inc., dated
as of April 7, 2000.
*2.2 Form of Agreement and Plan of Merger between Simmons St. George, Inc. and Crestwood Communications,
Inc.
*2.3 Form of Agreement and Plan of Reorganization among Simmons Media Group, Inc. and certain
shareholders thereof.
*2.4 Form of Asset Purchase Agreement by and between Simmons Lone Star Media, Ltd. and KAHK License Corp.
3.1 Articles of Incorporation of Simmons Family, Inc. (predecessor to the Registrant), dated and filed
as of June 3, 1977.
3.2 Articles of Amendment to Articles of Incorporation of Simmons Family, Inc. (First Amendment) dated
as of February 11, 1988 and filed as of February 12, 1988.
3.3 Articles of Amendment to Articles of Incorporation of Simmons Family, Inc. (Second Amendment),
dated as of June 21, 1996 and filed as of June 25, 1996.
3.4 Articles of Amendment to Articles of Incorporation of Simmons Family, Inc. (Third Amendment), dated
as of June 21, 1996 and filed as of June 26, 1996.
3.5 Articles of Amendment to Articles of Incorporation of Simmons Family, Inc. (Fourth Amendment),
dated as of April 30, 1998 and filed as of May 1, 1998, effecting a name change to Simmons
Media Group, Inc.
*3.6 Form of Restated and Amended Articles of Incorporation of Simmons Media Group, Inc., of the
Registrant.
3.7 Restated Bylaws of the Registrant.
*3.8 Form of Amended and Restated Bylaws of the Registrant.
*4.1 Form of Certificate of Common Stock of the Registrant.
*5.1 Opinion of Callister Nebeker and McCullough (including consent).
10.1 Credit and Guarantee Agreement by and among Simmons Media Group, Inc., certain of its subsidiaries
guarantors thereto, certain lenders party thereto, Nationsbank, N.A., as syndication agent and The
Bank of New York, as administrative agent, dated May 6, 1998.
*10.2 Long-Term Incentive Plan of the Registrant.
*10.3 Annual Bonus Incentive Plan of the Registrant.
*10.4 Employee Stock Purchase Plan of the Registrant.
10.5 Time Brokerage Agreement between Simmons Radio New Mexico, Inc. and Vanguard Media LLC, dated May
8, 2000.
10.6 Lease Agreement between Trolley Corners Partnership and Simmons Media Group, Inc., dated August 1,
1999.
10.7 Lease Agreement between KSL, a division of Bonneville International Corporation, and Simmons
Family, Inc., dated March 16, 1998.
10.8 Lease Agreement between KSL, a division of Bonneville International Corporation, and Simmons
Family, Inc., dated March 16, 1998.
10.9 Lease Agreement between KSL, a division of Bonneville International Corporation, and Simmons
Family, Inc., dated March 16, 1998.
21.1 Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP.
*23.2 Consent of Callister Nebeker and McCullough (contained in Exhibit 5.1).
24.1 Power of Attorney (see page II-6).
*27.1 Financial Data Schedule.
</TABLE>
--------------
* To be filed by amendment.
