<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM 8-K
CURRENT REPORT PURSUANT TO
SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): June 26, 1996
EVERGREEN MEDIA CORPORATION
(Exact Name of Registrant as Specified in Charter)
Delaware
--------
(State or Other Jurisdiction of Incorporation)
75-2247099
----------
(IRS Employer Identification Number)
433 East Las Colinas Boulevard
Suite 1130
Irving, Texas 75039
-------------------
(Address of Principal Executive Offices)
(214) 869-9020
--------------
(Registrant's telephone number, including area code)
<PAGE>
ITEM 5. Other Events.
-------------
Financial Information for Pyramid Communications, Inc.
------------------------------------------------------
On January 17, 1996, Evergreen Media Corporation (the "Company")
acquired Pyramid Communications, Inc. ("Pyramid"), a radio broadcasting company
with nine FM and three AM radio stations in five radio markets (Chicago,
Philadelphia, Boston, Charlotte and Buffalo) (the "Pyramid Acquisition").
Information regarding the principal terms of the Pyramid Acquisition was
previously disclosed in the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 17, 1996 and is incorporated by
reference herein.
The Company hereby provides the following additional financial
information, not otherwise called for by this form but of importance to
securityholders, in regard to Pyramid: (1) the consolidated financial statements
of Pyramid and its subsidiaries as of December 31, 1994 and 1995 and the period
from November 22, 1993 to December 31, 1993 and the years ended December 31,
1994 and 1995 and (2) the consolidated financial statements of Pyramid's
predecessor, KISS Limited Partnership, for the year ended December 31, 1993 and
the period January 1, 1994 to March 17, 1994, included on pages A-1 through A-26
of this report and incorporated by reference herein.
In addition, the Company hereby provides the following pro forma
financial information, not otherwise called for by this form but of importance
to securityholders, in regard to Pyramid: the unaudited pro forma condensed
combined financial statements of the Company, reflecting the combination of
consolidated historical financial data of the Company, Broadcasting Partners,
Inc., and Pyramid as of December 31, 1995, included on pages B-1 through B-7 of
this report and incorporated by reference herein.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
7(c) Exhibits.
--------
(23.1) Consent of Deloitte & Touche LLP, independent auditors.
(99.1) Pyramid Communications, Inc. and Subsidiaries Consolidated
Financial Statements as of December 31, 1994 and 1995 and
each of the three years in the period ended December 31,
1995 (including the Results of Operations of Predecessor
Entities) and Independent Auditor's Report.
(99.2) Unaudited Pro Forma Condensed Combined Financial Statements
as of December 31, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Evergreen Media Corporation
By: /s/ Matthew E. Devine
--------------------------------
Matthew E. Devine
Chief Financial Officer
Date: June 21, 1996
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-04379 of Evergreen Media Corporation on Form S-8 of our report dated January
19, 1996 (relating to the December 31, 1995 financial statements of Pyramid
Communications, Inc. ("Pyramid") and containing an emphasis paragraph with
respect to Pyramid's 1995 financial statements not being comparable to Pyramid's
predecessor, KISS Limited Partnership) appearing in this Current Report on Form
8-K of Evergreen Media Corporation.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
June 20, 1996
<PAGE>
EXHIBIT 99.1
<PAGE>
PYRAMID COMMUNICATIONS, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
as of December 31, 1994 and 1995 and
Each of the Three Years in the Period
Ended December 31, 1995 (Including the
Results of Operations of Predecessor Entities)
and Independent Auditors' Report
<PAGE>
PYRAMID COMMUNICATIONS, INC.
AND SUBSIDIARIES
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT 1-2
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 31, 1994 and 1995 3-4
Consolidated Statements of Operations for the Period from
November 22, 1993 to December 31, 1993 and the Years Ended
December 31, 1994 and 1995 and KISS Limited Partnership for the
Year Ended December 31, 1993 and the Period from January 1, 1994
to March 17, 1994 5
Consolidated Statements of Changes in Partners' Deficiency for the
Year Ended December 31, 1993 and the Period from January 1, 1994
to March 17, 1994 6
Consolidated Statements of Changes in Stockholders' Equity
(Deficiency) for the Period from November 22, 1993 to December 31,
1993 and the Years Ended December 31, 1994 and 1995 7
Consolidated Statements of Cash Flows for the Period from November 22,
1993 to December 31, 1993 and the Years Ended December 31, 1994 and
1995 and KISS Limited Partnership for the Year Ended December 31,
1993 and the Period from January 1, 1994 to March 17, 1994 8-9
Notes to Consolidated Financial Statements 10-26
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Pyramid Communications, Inc.:
We have audited the consolidated balance sheets of Pyramid Communications, Inc.
and subsidiaries (the "Company") as of December 31, 1994 and 1995, and the
related consolidated statements of operations, changes in stockholders' equity
(deficiency), and cash flows for the period November 22, 1993 (date of
inception) to December 31, 1993 and the years ended December 31, 1994 and 1995.
We have also audited the accompanying consolidated statements of operations,
changes in partners' deficiency, and cash flows of KISS Limited Partnership (the
"Partnership") and subsidiaries for the year ended December 31, 1993, and for
the period from January 1, 1994 to March 17, 1994. These financial statements
are the responsibility of management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinions.
As emphasized in Note 2 to the consolidated financial statements, Pyramid
Communications, Inc. purchased the radio stations and related businesses of KISS
Limited Partnership effective March 18, 1994. The transaction was accounted for
using the purchase method of accounting. The purchase price was allocated to
the assets acquired and liabilities assumed based on their respective fair
values. Accordingly, the consolidated statements of operations, changes in
partners' deficiency, and cash flows of the Partnership for the year ended
December 31, 1993, and for the period from January 1, 1994 to March 17, 1994 are
not comparable with those presented for the Company.
<PAGE>
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Pyramid Communications, Inc. and
subsidiaries at December 31, 1994 and 1995, and the results of their operations
and their cash flows for the period November 22, 1993 (date of inception) to
December 31, 1993 and the years ended December 31, 1994 and 1995 in conformity
with generally accepted accounting principles. Also, in our opinion, the
consolidated financial statements of KISS Limited Partnership and subsidiaries
present fairly, in all material respects, the results of their operations and
their cash flows for the year ended December 31, 1993 and for the period from
January 1, 1994 to March 17, 1994 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
January 19, 1996
A-2
<PAGE>
PYRAMID COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
December 31,
ASSETS 1994 1995
CURRENT ASSETS:
Cash and cash equivalents $ 4,425,168 $ 400,941
Accounts receivable-net 15,386,082 16,545,587
Employee receivables 166,919 278,503
Prepaid expenses and other 586,723 600,678
------------ ------------
Total current assets 20,564,892 17,825,709
------------ ------------
PROPERTY AND EQUIPMENT - Net 12,086,300 9,742,768
------------ ------------
OTHER ASSETS:
Intangible assets - net 134,091,338 120,733,924
Deferred financing costs - net 5,556,976 4,455,344
Tax loans to related parties 4,573,825 4,899,843
Notes receivable - employees 1,292,395 801,558
------------ ------------
Total other assets 145,514,534 130,890,669
------------ ------------
TOTAL $178,165,726 $158,459,146
------------ ------------
(Continued)
A-3
<PAGE>
PYRAMID COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) 1994 1995
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 2,500,000 $ 11,607,139
Accounts payable 3,209,081 2,375,740
Accrued compensation and other 5,097,243 2,722,349
Accrued merger and compensatory equity plan expenses -- 10,434,635
Accrued interest 639,717 347,288
------------ ------------
Total current liabilities 11,446,041 27,487,151
------------ ------------
LONG-TERM DEBT 99,500,000 75,333,333
------------ ------------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE STOCK:
Series C Exchangeable Preferred Stock; 1,974,079 and 2,230,422
shares issued and outstanding at December 31, 1994 and
1995, respectively; liquidation preference, $56,066,094 at
December 31, 1995 48,095,142 54,768,125
------------ ------------
Junior Preferred Stock; 10,000 shares issued and outstanding at
December 31, 1994 and 1995; liquidation preference,
$7,116,353 at December 31, 1995 2,669,863 3,166,352
------------ ------------
Series D Common Stock, subject to contractual redemption rights;
111,111 shares issued and outstanding at December 31, 1994
and 1995 2,778,000 2,778,000
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Series B Common Stock; 63,009 and 64,449 shares issued and
outstanding at December 31, 1994 and 1995, respectively 630 644
Series C Common Stock; 1,000,000 shares issued and outstanding
at December 31, 1994 and 1995 10,000 10,000
Additional paid-in capital 17,703,060 10,569,572
Deficit (4,037,010) (15,654,031)
------------ ------------
Total stockholders' equity (deficiency) 13,676,680 (5,073,815)
------------ ------------
TOTAL $178,165,726 $158,459,146
============ ============
</TABLE>
See notes to consolidated financial statements. (Concluded)
A-4
<PAGE>
PYRAMID COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
KISS Limited Partnership Pyramid Communications, Inc.
(Predecessor) (Successor)
------------------------ -------------------------------------------
Period Period
from from
January 1, November 22,
Year Ended 1994 to 1993 to
December 31, March 17, December 31, Years Ended December 31,
1993 1994 1993 1994 1995
<S> <C> <C> <C> <C> <C>
REVENUES:
Gross revenues $ 52,455,912 $10,248,431 $ -- $54,830,732 $ 75,858,341
Less agency commissions 6,566,061 1,155,063 -- 6,671,744 9,135,416
------------ ----------- ---- ----------- ------------
Net revenues 45,889,851 9,093,368 -- 48,158,988 66,722,925
------------ ----------- ---- ----------- ------------
OPERATING EXPENSES:
Operating expenses excluding depreciation and
amortization and corporate general and
administrative expenses 29,226,174 6,621,752 -- 30,773,259 41,260,914
Depreciation and amortization 3,170,954 656,365 -- 14,618,574 11,038,075
Corporate general and administrative 2,311,187 429,220 -- 2,850,527 4,889,536
Merger and compensatory equity plan expenses -- -- -- -- 10,932,122
------------ ----------- ---- ----------- ------------
Total operating expenses 34,708,315 7,707,337 -- 48,242,360 68,120,647
------------ ----------- ---- ----------- ------------
OPERATING INCOME (LOSS) 11,181,536 1,386,031 -- (83,372) (1,397,722)
------------ ----------- ---- ----------- ------------
OTHER INCOME (EXPENSE):
Interest expense (15,751,266) (3,069,521) (7) (6,122,877) (9,289,138)
Interest income 99,713 31,698 -- 171,611 440,147
Other nonoperating (expense) income - net 2,633,145 (1,934) -- 173,635 (802,430)
Loss on forgiveness of notes receivables-employees -- -- -- -- (567,878)
------------ ----------- ---- ----------- ------------
Total other expense (13,018,408) (3,039,757) (7) (5,777,631) (10,219,299)
------------ ----------- ---- ----------- ------------
LOSS BEFORE INCOME TAX BENEFIT $ (1,836,872) $(1,653,726) $ (7) (5,861,003) (11,617,021)
============ =========== ====
INCOME TAX BENEFIT 1,824,000 --
----------- ------------
NET LOSS (4,037,003) (11,617,021)
DIVIDENDS AND ACCRETION ON REDEEMABLE
PREFERRED STOCK (5,040,005) (7,169,474)
----------- ------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $(9,077,008) $(18,786,495)
=========== ============
</TABLE>
See notes to consolidated financial statements.
A-5
<PAGE>
PYRAMID COMMUNICATIONS, INC.
AND SUBSIDIARIES
KISS LIMITED PARTNERSHIP - CONSOLIDATED STATEMENTS OF
CHANGES IN PARTNERS' DEFICIENCY
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
PARTNERS' DEFICIENCY, JANUARY 1, 1993 $(76,044,905)
Net loss (1,836,872)
------------
PARTNERS' DEFICIENCY, DECEMBER 31, 1993 (77,881,777)
Net loss for the period January 1, 1994 to March 17, 1994 (1,653,726)
------------
PARTNERS' DEFICIENCY, MARCH 17, 1994 $(79,535,503)
============
</TABLE>
See notes to consolidated financial statements.
A-6
<PAGE>
PYRAMID COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series B Common Series C Common Additional
Stock Stock Paid-in
Shares Amount Shares Amount Capital Deficit Total
<S> <S> <S> <S> <S> <S> <S> <S>
NET LOSS FOR THE PERIOD FROM
NOVEMBER 22, 1993 TO DECEMBER 31, 1993 -- $ -- -- $ -- $ -- $ (7) $ (7)
------ ----- --------- ------- ----------- ------------ ------------
BALANCE, DECEMBER 31, 1993 -- -- -- -- -- (7) (7)
Issuance on March 18, 1994
(net of issue costs) 63,009 630 1,000,000 10,000 22,743,065 -- 22,753,695
Dividends on preferred stock -- -- -- -- (4,918,395) -- (4,918,395)
Accretion of preferred stock -- -- -- -- (121,610) -- (121,610)
Net loss -- -- -- -- -- (4,037,003) (4,037,003)
------ ----- --------- ------- ----------- ------------ ------------
BALANCE, DECEMBER 31, 1994 63,009 630 1,000,000 10,000 17,703,060 (4,037,010) 13,676,680
Issuance, August 1995 1,440 14 -- -- 35,986 -- 36,000
Dividends on preferred stock -- -- -- -- (7,013,783) -- (7,013,783)
Accretion of preferred stock -- -- -- -- (155,691) -- (155,691)
Net loss -- -- -- -- -- (11,617,021) (11,617,021)
------ ----- --------- ------- ----------- ------------ ------------
BALANCE, DECEMBER 31, 1995 64,449 $ 644 1,000,000 $10,000 $10,569,572 $(15,654,031) $ (5,073,815)
====== ===== ========= ======= =========== ============ ============
</TABLE>
See notes to consolidated financial statements.
A-7
<PAGE>
PYRAMID COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
KISS Limited Partnership Pyramid Communications, Inc.
(Predecessor) (Successor)
------------------------ -------------------------------------------
Period Period
from from
January 1, November 22,
Year Ended 1994 to 1993 to
December 31, March 17, December 31, Years Ended December 31,
1993 1994 1993 1994 1995
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,836,872) $(1,653,726) $ (7) $(4,037,003) $(11,617,021)
------------ ----------- ---- ----------- ------------
Adjustments to reconcile net loss to cash
provided by operating activities:
Depreciation and amortization 3,170,954 656,365 -- 15,271,935 12,139,707
Deferred interest on long-term debt 7,406,455 736,134 -- -- --
Loss (gain) on disposal of assets (2,646,187) -- -- -- 944,732
Deferred income (366,666) (100,000) -- -- --
Deferred income - Broadcast Architecture -- -- -- 117,650 --
Deferred income taxes -- -- -- (2,031,000) (87,000)
Merger and compensatory equity plan expenses -- -- -- -- 10,932,122
Loss on forgiveness of notes receivable - employees -- -- -- -- 567,878
Changes in assets and liabilities, net of
acquisitions:
Accounts receivable (5,012,714) (2,732,669) -- (8,961,879) (1,159,505)
Prepaid expenses and other (115,178) 157,287 -- (220,420) (125,539)
Accounts payable and accrued expenses 5,548,533 531,242 -- 3,547,013 (3,121,235)
Accrued interest 1,372,254 4,858,648 7 639,717 (292,429)
------------ ----------- ---- ----------- ------------
Total adjustments 9,357,451 4,107,007 7 8,363,016 19,798,731
------------ ----------- ---- ----------- ------------
Cash provided by operating activities 7,520,579 2,453,281 -- 4,326,013 8,181,710
------------ ----------- ---- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of radio stations -- -- -- (160,189,790) --
Acquisition deposits and other (3,158,999) -- -- -- (158,669)
Payments for purchase of property and equipment (913,131) (338,452) -- (1,029,787) (1,649,212)
Proceeds from asset sales 6,498,462 -- -- 572,287 5,200,000
(Increase) decrease in notes receivable and other 35,000 (115,000) -- (1,283,307) (77,041)
------------ ----------- ---- ----------- ------------
Cash provided by (used for) investing
activities 2,461,332 (453,452) -- (161,930,597) 3,315,078
------------ ----------- ---- ----------- ------------
</TABLE>
(Continued)
A-8
<PAGE>
PYRAMID COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
KISS Limited Partnership Pyramid Communications, Inc.
(Predecessor) (Successor)
------------------------ -------------------------------------------
Period Period
from from
January 1, November 22,
Year Ended 1994 to 1993 to
December 31, March 17, December 31, Years Ended December 31,
1993 1994 1993 1994 1995
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt -- -- -- 109,000,000 --
Proceeds from issuance of notes payable -- -- 1,000 19,000 --
Proceeds from issuance of preferred stock -- -- -- 43,400,000 --
Proceeds from issuance of common stock -- -- -- 22,839,752 36,000
Repayment of long-term debt (9,309,515) -- -- (7,000,000) (15,059,528)
Borrowings on line of credit 1,818,055 -- -- -- --
Repayment of notes payable -- -- -- (20,000) --
Deferred financing costs -- -- -- (6,210,000) --
Merger-related payments -- -- -- -- (497,487)
------------ ----------- ----- ----------- ------------
Cash provided by (used for) financing
activities (7,491,460) -- 1,000 162,028,752 (15,521,015)
------------ ----------- ----- ----------- ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,490,451 1,999,829 1,000 4,424,168 (4,024,227)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,510,120 5,000,571 -- 1,000 4,425,168
------------ ----------- ----- ----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,000,571 $ 7,000,400 $1,000 $ 4,425,168 $ 400,941
============ =========== ====== =========== ============
</TABLE>
(Concluded)
See notes to consolidated financial statements.
A-9
<PAGE>
PYRAMID COMMUNICATIONS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Nature of Operations--Pyramid Communications, Inc. (together
with its subsidiaries, the "Company") was organized in November of 1993 for
the purpose of owning and acquiring radio stations (the "Acquired Stations")
throughout eastern United States. The Company's initial operations began
with the acquisition (the "Acquisition") of assets of KISS Limited
Partnership d/b/a Pyramid Broadcasting (the "Partnership").
Merger of the Company--On January 17, 1996, the Company, Evergreen Media
Corporation and Evergreen Media/Pyramid Corporation ("MergerCo") completed
the Agreement and Plan of Merger, dated as of July 14, 1995 (the "Merger
Agreement"), whereby the outstanding shares of the Company's $3.125 Series C
Exchangeable Preferred Stock (the "Senior Preferred Stock") were redeemed, in
accordance with the provisions of the certificate of designation for the
Senior Preferred Stock, by the Company immediately prior to the contemplated
merger of the Company and MergerCo (the "Merger") with the proceeds from the
sale by the Company to MergerCo of shares of the Company's Series D
Redeemable Preferred Stock.
In addition, at the closing (the "Closing") of the Merger, each share of
Class A Common Stock and Class B Common Stock of the Company to the extent
outstanding immediately prior to the Closing was converted into (1) the right
to receive an amount in cash determined by dividing (I) the sum of (A)
$315,500,000 minus (B) certain outstanding debt of the Company less (I) the
amounts repaid at Closing in respect of "tax loans" made to certain partners
in the Partnership and the promissory note dated November 10, 1994 made by
Richard M. Balsbaugh in favor of Pyramid Finance Corp. and all other cash and
cash equivalents of the Company immediately prior to the Closing and (ii) the
aggregate exercise price of the outstanding options (the "Options") granted
by the Company minus (C) transaction-related expenses to the extent not paid
prior to the Closing minus (D) payments due to Messrs. Balsbaugh and O'Keefe
and any other employee of the Company as a result of the Merger pursuant to
their respective employment agreements minus (E) benefits payable under the
Company's phantom equity plan minus (F) the aggregate redemption price of the
Senior Preferred Stock redeemed minus (G) the liquidation preference plus
accrued and unpaid dividends through and including the date of Closing of the
Company's 7 1/2% Series B Junior Preferred Stock (the "Junior Preferred
Stock") minus (H) $3,000,000 (as such amount may be adjusted pursuant to the
Merger Agreement) minus (I) the Estimated Total Adjustment (as defined in the
Merger Agreement), by (ii) the number of shares of Class A Common Stock
issuable upon exercise of the Options, and (2) a pro rata share (together
with holders of Options to purchase Common Stock) of $3,000,000 (as such
amount may be adjusted pursuant to the Merger Agreement).
Each share of Junior Preferred Stock outstanding immediately prior to the
Closing was converted into the right to receive an amount equal to the
liquidation preference of the Junior Preferred Stock plus accrued and unpaid
dividends thereon through and including the date of Closing.
During 1995 the Company initially provided $11,500,000 for expenses in
connection with the Merger to recognize the fees associated with the sale of
the Company, bonuses and other compensation to employees of the Company and
expenses related to compensatory equity plans resulting from the Company's
increase in value. This accrual was reduced by approximately $600,000 in the
fourth quarter of 1995 based on revisions to the Company's initial estimates.
A-10
<PAGE>
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Acquisitions--On March 18, 1994, the Company completed the acquisition of
the Partnership for an aggregate purchase price, including costs of the
transaction, of approximately $118,000,000, including assumed liabilities.
Also, during 1994, the Company acquired an additional five radio stations
(the "Duopoly Acquisitions") for purchase prices aggregating approximately
$50 million, exclusive of transaction costs. The Acquisition and Duopoly
Acquisitions have been accounted for as purchases, and, accordingly, the
purchase prices have been allocated among the assets acquired and liabilities
assumed at their respective fair values, based on independent appraisals.
The Company's principal business activities commenced concurrent with the
Acquisition. For purposes of these notes to the Company's consolidated 1994
financial statements, references to the year ended December 31, 1994
comprise, unless specifically noted, the operating activities of the Company
during the period March 18, 1994 to December 31, 1994.
Prior to the Acquisition, the Partnership, or its predecessors, owned and
operated radio stations since 1982. A wholly owned subsidiary of the Company
provides consulting and research services to the Company's radio stations and
to other companies in the broadcasting industry.
Principles of Consolidation--The accompanying consolidated financial
statements of the Company include the accounts of the Company and its various
subsidiaries. All significant intercompany accounts and transactions have
been eliminated.
Significant Estimates--In the process of preparing its consolidated financial
statements, the Company estimates the appropriate carrying value of certain
assets and liabilities which are not readily apparent from other sources.
The primary estimates underlying the Company's consolidated financial
statements include allowances for potential bad debts, the useful lives of
its assets such as property and intangibles, the realizable value of its tax
assets, and accruals for health insurance and other matters. Management
bases its estimates on certain assumptions, which they believe are reasonable
in the circumstances, and do not believe that any change in those assumptions
in the near term would have a significant effect on consolidated financial
position or the results of operations.
Revenue Recognition--Revenues are recognized from a broad spectrum of
customers as advertisements are broadcast and consulting services are
performed. Accounts receivable are not collateralized; however, the Company
reviews the creditworthiness of its customers on an ongoing basis.
Allowance for Doubtful Accounts--The allowance for doubtful accounts
receivable was $422,000 and $338,000 at December 31, 1994 and 1995,
respectively.
Barter Transactions--Revenue from the stations' exchange of advertising time
for goods and services is recorded as the advertising is broadcast at the
fair market value of goods or services received or to be received. The value
of the goods and services received in barter transactions is charged to
expense when used.
A-11
<PAGE>
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Barter Transactions (Continued)--Barter transactions were approximately as
follows:
<TABLE>
<CAPTION> KISS Limited Partnership Pyramid
------------------------ Communications
Period from Inc.
January 1, ------------------------
Year Ended 1994 to Years Ended
December 31, March 17, December 31,
1993 1994 1994 1995
<S> <C> <C> <C> <C>
Barter revenues $2,334,000 $813,000 $2,605,000 $3,641,000
Barter expenses 2,594,000 685,000 2,862,000 3,533,000
Net barter receivables -- -- 92,000 209,000
Barter fixed asset additions 1,000 -- -- --
</TABLE>
Property and Equipment--Property and equipment are recorded at cost (or at
appraised fair value, in the case of the Acquired Stations and assets
obtained through subsequent station acquisitions), and depreciation is
provided using the straight-line method over estimated useful lives ranging
from three to twenty years.
Intangible Assets--Intangible assets, consisting primarily of broadcast
licenses, goodwill and favorable and assignable leases acquired, in
connection with the Acquisition of the various radio stations, are being
amortized using the straight-line method over estimated useful lives ranging
from one to forty years. The recoverability of intangible assets are
evaluated periodically based upon the undiscounted cash flows generated from
the related intangible assets.
Deferred Financing Costs--Deferred financing costs incurred in obtaining debt
financing are being amortized over the period of the related debt.
Accumulated amortization aggregated approximately $653,000 and $1,400,000 at
December 31, 1994 and 1995, respectively. Amortization of deferred financing
costs is recorded as interest expense and approximated $653,000 and $801,000
in 1994 and 1995, respectively. Net deferred financing costs of $301,000,
associated with the permanent retirement of debt under the Company's credit
facilities, were charged to amortization expense in 1995.
Corporate General and Administrative Expense--Corporate general and
administrative expense consists of corporate overhead costs not specifically
allocable to a specific radio station or business.
A-12
<PAGE>
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Corporate Income Taxes--The income or loss derived from Partnership
activities (excluding income or loss of the Partnership's corporate
subsidiaries) was included in the income tax returns of the individual
partners, and, accordingly, the Partnership made no provision for income
taxes on Partnership-derived income in its consolidated financial statements.
Effective January 1, 1993, the Partnership's corporate subsidiaries adopted
the provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." ("SFAS No. 109"). SFAS No. 109 requires the
recognition of deferred tax liabilities and assets for the future tax
consequences of temporary differences between the financial reporting and tax
bases of existing assets and liabilities. In addition, future tax benefits,
such as net operating loss carryforwards, are recognized to the extent
realization of such benefits is more likely than not. Prior to 1993, the
Partnership's corporate subsidiaries accounted for income taxes using the
guidance contained in Accounting Principles Board Opinion No. 11, "Accounting
for Income Taxes." The adoption of SFAS No. 109 had no impact on the
Partnership's corporate subsidiaries' financial position or results of
operations.
The Company adopted SFAS No. 109 on November 22, 1993 as the basis for
accounting for income taxes.
Fair Value of Financial Instruments--In 1994 the Company adopted the
provisions of Statement of Financial Accounting Standards No. 107,
"Disclosure about Fair Value of Financial Instruments" ("SFAS No. 107"),
which requires the disclosure of fair value of most financial instruments,
both assets and liabilities, for which it is practical to estimate fair value
(see Note 10).
Derivative Financial Instruments--In 1994 the Company adopted the provisions
of Statement of Financial Accounting Standards No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments"
("SFAS No. 119") (see Note 10). This statement requires the disclosure of
the fair value of most derivative financial instruments as a means of
managing interest-rate risk associated with current debt. Derivative
financial instruments used include interest-rate swap agreements ("SWAPS").
These instruments are matched with either fixed or variable rate debt and are
recorded on a settlement basis as an adjustment to interest expense.
Premiums paid to purchase SWAPS are amortized as an adjustment of interest
expense over the life of the contract. Derivative financial instruments are
not held for trading purposes.
Long-Lived Assets--In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" ("SFAS No. 121"). SFAS No. 121 addresses the accounting for the
impairment of long-lived assets, certain identifiable intangibles and
goodwill when events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. SFAS No. 121 is required to be
adopted in 1996. The Company does not believe the adoption of SFAS No. 121
will have a material effect on the Company's consolidated financial position
or results of operations.
Stock-Based Compensation--In November 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123
addresses the financial accounting and reporting standards for stock-based
employee compensation plans. SFAS No. 123 permits an entity to either record
the effects of stock-based employee compensation plans in its financial
statements or present pro forma disclosures in the notes to the consolidated
financial statements. The Company has elected to provide the appropriate
disclosures in the notes to the consolidated financial statements; therefore,
there will be no impact on the Company's results of operations or financial
position. SFAS No. 123 is required to be adopted in 1996.
A-13
<PAGE>
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash Flow Information--For purposes of the consolidated statements of cash
flows, the Company considers all highly liquid, short-term investments
purchased with remaining maturities of three months or less at the time of
purchase to be cash equivalents.
Consolidated cash payments for interest expense are as follows:
KISS Limited Partnership Pyramid
------------------------ Communications,
Period from Inc.
January 1, ----------------------
Year Ended 1994 to Years Ended
December 31, March 17, December 31,
1993 1994 1994 1995
$6,973,000 $1,182,000 $4,770,000 $8,720,000
---------- ---------- ---------- ----------
Retirement Plan--The Company has a defined contribution plan (the "Plan"),
which covers substantially all of its employees. The Company may make
discretionary contributions to the Plan; however, none have been authorized
or made through December 31, 1995. Plan participants are allowed to
contribute to the Plan. Participant balances were fully vested at December
31, 1995.
Reclassifications--Certain prior year amounts have been reclassified to
conform with the current year presentation.
2. ACQUISITION OF THE PARTNERSHIP, DUOPOLY ACQUISITIONS AND UNAUDITED PRO FORMA
INFORMATION
On March 18, 1994, the Company completed the Acquisition, for consideration,
including costs and expenses, which aggregated approximately $118,000,000.
The Acquisition was financed through the issuance of common and preferred
stock and proceeds from the Company's credit agreement. Also, during 1994,
the Company completed the Duopoly Acquisitions for purchase prices
aggregating approximately $50,000,000. Duopoly Acquisitions were funded by
borrowings under the Company's credit agreement and existing cash reserves.
WEDJ-FM and WRFX-AM--In August 1994, the Company purchased certain assets,
including the FCC licenses, of WEDJ-FM (formerly WAQQ-FM) and WRFX-AM
(formerly WAQS-AM), located in Charlotte, North Carolina, for a purchase
price of approximately $4,000,000 ($1,000,000 in cash and $3,000,000 in the
form of a note payable over five years). The note was repaid in 1995.
WBUF-FM--In April 1994, the Company purchased certain assets, including the
FCC licenses, of WBUF-FM located in Buffalo, New York, for a purchase price
of approximately $4,000,000 in cash.
WJMN-FM--In June 1994, the Company purchased certain assets, including the
FCC licenses, of WJMN-FM located in Boston, Massachusetts, for a purchase
price of approximately $22,000,000 in cash.
WJJZ-FM--In September 1994, the Company purchased certain assets, including
the FCC licenses, of WJJZ-FM located in Philadelphia, Pennsylvania, for a
purchase price of approximately $20,000,000 in cash.
A-14
<PAGE>
2. ACQUISITION OF THE PARTNERSHIP, DUOPOLY ACQUISITIONS AND UNAUDITED PRO FORMA
INFORMATION (CONTINUED)
The aggregate purchase prices of the Acquisition, $118,000,000, and the
Duopoly Acquisitions, $50,000,000, were allocated, based on estimated fair
values using independent appraisals where appropriate, among the assets
acquired as follows:
Duopoly
Acquisition Acquisition
Property and equipment $ 8,809,000 $ 4,305,000
Intangible assets:
Broadcast licenses 65,264,000 38,794,000
Employment agreements 18,376,000 586,000
Favorable leases, service agreements and other 1,149,000 843,000
Goodwill 14,271,000 5,472,000
Duopoly Acquisitions' deposits and other 1,980,000 --
Working capital, net realizable value in
the case of receivables, prepaid expense
and present value of amounts to be paid
in the case of current liabilities 8,151,000 --
------------ -----------
Aggregate purchase price $118,000,000 $50,000,000
------------ -----------
Pro Forma Information (Unaudited)--The following table sets forth pro forma
information on the Acquisition of the Partnership and the Duopoly
Acquisitions as though each had occurred on January 1, 1994, and presents
consolidated statements of operations data for the year ended December 31,
1994.
Unaudited Pro Forma Statements of Operations Data (in thousands):
Year Ended
December 31,
1994
Net revenues $ 62,067
--------
Operating income (loss) $ (779)
--------
Net loss $ (7,859)
--------
Net loss applicable to common stockholders $(13,990)
--------
A-15
<PAGE>
3. PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS
Property and equipment consisted of the following at December 31:
<TABLE>
Life
(Years) 1994 1995
<S> <C> <C> <C>
Land -- $ 809,253 $ 809,253
Buildings and improvements 2-20 1,662,155 2,191,596
Furniture and fixtures, equipment,
and vehicles 3-5 2,139,092 2,206,072
Broadcast equipment 3-8 8,961,182 8,200,184
----------- ------------
Total 13,571,682 13,407,105
Less accumulated depreciation (1,485,382) (3,664,337)
----------- ------------
Property and equipment - net $12,086,300 $ 9,742,768
=========== ============
</TABLE>
Intangible assets consisted of the following at December 31:
<TABLE>
Life
(Years) 1994 1995
<S> <C> <C> <C>
Employment agreements 1-5 $ 18,962,680 $ 18,962,680
Favorable leases and service
agreements 1-10 1,991,868 2,170,446
Broadcast licenses 5-15 104,058,153 100,193,152
Goodwill 40 22,220,194 20,848,350
------------ ------------
Total 147,232,895 142,174,628
Less accumulated amortization (13,141,557) (21,440,704)
------------ ------------
Intangible assets - net $134,091,338 $120,733,924
============ ============
</TABLE>
On an ongoing basis, management evaluates the recoverability of the net
carrying value of property and equipment and intangible assets by reference
to the Company's anticipated future cash flows generated by the assets and
comparison of carrying value to management's estimate of fair value, computed
using certain accepted industry measures of value (principally, nondiscounted
cash flow multiple methods).
Intangible assets with a net book value of approximately $5,192,000 were sold
in 1995 in connection with the sale of station WPXY-FM (see Note 8).
A-16
<PAGE>
4. LONG-TERM DEBT
Credit Agreement--In connection with the Acquisition, the Company entered
into a Credit Agreement (the "Agreement") with a syndicate of banks. Under
the terms of the Agreement, as amended, the Company may borrow up to
$105,000,000 subject to reductions in available credit resulting from other
long-term obligations incurred by the Company. Availability under the
Agreement consists of (i) a six-year amortizing term loan facility in an
aggregate principal amount of $46 million ("Facility A"), (ii) a 7 1/2 year,
multiple draw amortizing term loan facility in an aggregate principal amount
of $29 million ("Facility B"), and (iii) a 6 1/2 year acquisition revolving
credit facility in an aggregate principal amount of up to $30 million (a
portion of which may be made available as letters of credit) ("Facility C").
Facilities A and B were permanently reduced by approximately $1,595,000 and
$1,005,000, respectively, in March 1995 on the sale of station WPXY-FM and by
approximately $460,000 in April 1995 on the payment of Excess Broadcast Cash
Flow as defined in the Agreement.
Outstanding borrowings consisted of the following at December 31:
<TABLE>
1994 1995
<S> <C> <C>
Facility A $46,000,000 $43,945,805
Facility B 29,000,000 27,994,667
Facility C 24,000,000 15,000,000
----------- -----------
$99,000,000 $86,940,472
=========== ===========
</TABLE>
Borrowings under the Agreement bear interest at various rates based on LIBOR
or prime at the Company's option. Generally, these options consist of
alternative base rates adjusted prospectively for certain margins, which are
determined by reference to the ratio of long-term debt to cash flow.
Interest is payable quarterly in arrears. At December 31, 1994 and 1995,
borrowings under Facilities A, B and C bore interest at average rates of
8.85% and 8.44%, respectively. At December 31, 1995, the Company had
approximately $15,000,000 available under the Agreement.
Borrowings are repayable in various quarterly installments commencing in
December 1995 for Facility A, and in September 2000 for Facility B. Facility
A loans mature in March 2000 and Facility B loans mature in September 2001.
Facility C loans mature on September 30, 2000, subject to certain mandatory
reductions on availability.
Borrowings are collateralized by substantially all of the assets of the
Company and its subsidiaries. The Agreement contains restrictions as to
property additions, use of proceeds, dispositions, creation of certain liens,
and additional indebtedness; prohibits the payment of cash dividends prior to
March 1999; requires the maintenance of certain minimum levels of cash flow
and interest coverage; and establishes maximum levels of debt to cash flow.
All borrowings under the Agreement were paid in full on January 17, 1996 in
connection with the Merger (see Note 1).
A-17
<PAGE>
4. LONG-TERM DEBT (CONTINUED)
Credit Agreement (Continued)--The Company currently has a SWAP pursuant to
which it pays a fixed interest rate of 6.38% on a notional amount of $25
million expiring in 1996. The Company's exposure, if the other party fails
to perform under the agreement, would be limited to the impact of variable
interest rate fluctuations and the periodic settlement of amounts due under
this agreement (approximately $415,000 at December 31, 1995).
Duopoly Acquisitions Promissory Note--In connection with the purchase of
WEDJ-FM and WRFX-AM, the Company had a promissory note payable of $3,000,000,
which was due in installments from August 1997 to August 1999. The note
accrued interest at prime (8.5% at December 31, 1995), was payable quarterly
in arrears and was collateralized by the stations' assets and stock. The
note was repaid for approximately carrying value in July 1995.
Repayment Schedule--Repayments required as of December 31, 1995 are as
follows:
<TABLE>
<S> <C>
1996 $11,607,139
1997 11,463,333
1998 11,885,667
1999 10,981,333
2000 15,807,800
Thereafter 25,195,200
-----------
Total $86,940,472
===========
</TABLE>
5. CAPITAL STRUCTURE
The Company's authorized capital consisted of two classes of redeemable
preferred stock and four classes of common stock (one of which is redeemable
under certain circumstances), each with different rights and priorities. All
of the Company's Common and Preferred Stock was redeemed on January 17, 1996
in connection with the Merger (see Note 1). The following is a description
of the rights, preferences and priorities of each class of authorized capital
stock prior to the January 17, 1996 redemption.
Preferred Stock--The Company is authorized to issue up to 15,000,000 shares
of preferred stock, $.01 par value per share, in series to be determined by
the Board of Directors. In connection with the Acquisition, the Company
issued 1,800,000 shares of Series A Exchangeable Preferred Stock (the "Series
A Preferred Stock") for proceeds of approximately $45 million.
As part of the initial issuance of the Series A Preferred Stock, the Company
issued 63,009 shares of its Class B Common Stock. The proceeds received from
the transaction of $45 million were allocated between the two classes of
stock based on their respective fair values as determined by the Company's
investment bankers as follows:
<TABLE>
<S> <C>
Series A Preferred Stock $43,425,000
Class B Common Stock 1,575,000
</TABLE>
A-18
<PAGE>
5. CAPITAL STRUCTURE (CONTINUED)
Preferred Stock (Continued)--Under the terms of a Registration Rights
Agreement between the Company and the initial purchasers of the Series A
Preferred Stock and Class B Common Stock, the Company filed a registration
statement (the "Exchange Offer Registration Statement") with respect to an
offer to exchange (the "Exchange Offer") the Series A Preferred Stock for a
new issue of preferred stock (the "Series C Preferred Stock") registered
under the Securities Act of 1933, as amended (the "Act"), with terms
substantially identical to those of the Series A Preferred Stock.
Each share of Series A and C Preferred Stock entitled the holder to
cumulative dividends at an annual rate of $3.125 per share, payable in
quarterly arrears. The Series A and C shares have preference in liquidation
over all other classes of capital stock equal to $25 per share plus accrued
and unpaid dividends. Each share of Series A and C Preferred Stock were
required to be redeemed on March 15, 2004 at a redemption price equal to its
liquidation preference. Series A and C Preferred Stock were also
exchangeable under certain circumstances into subordinated debentures of the
Company, which would be due in 2004; however, under the terms of the
Agreement, the Company is generally precluded from exchanging the Series A
and C shares for debentures. Holders of the Company's Preferred Stock do not
have general voting rights, except as required by law and certain defined
circumstances.
Junior Preferred Stock--In connection with the Acquisition, the Company
issued 10,000 shares of Junior Preferred Stock and 111,111 shares of Class D
Common Stock (see below) to the partners of the Partnership in exchange for
the contribution of certain assets to the Company. These assets had an
estimated fair value of $5.1 million, which has been allocated between the
two classes of stock.
Each share of Junior Preferred Stock (the "Junior Stock") is entitled to
cumulative dividends at an annual rate of 7.5%, compounded annually, on the
Junior Stock's initial liquidation preference of $625 per share. Because of
the restrictions on dividends placed on the Company by the Agreement,
dividends cannot be paid and therefore will be accrued. The Junior Stock
ranks prior to all classes of common stock, possessing no voting rights, and
is entitled to a liquidation preference of $625 per share plus accrued and
unpaid dividends.
Common Stock--The Company is authorized to issue up to four classes of common
stock, each with a par value of $.01 per share. Shares authorized for each
designated class are as follows:
<TABLE>
<CAPTION>
Class Authorized Shares
<S> <C>
A 2,000,000
B 5,000,000
C 1,500,000
D 150,000
</TABLE>
In connection with the Acquisition, the Company issued 1,000,000 shares of
Class C Common Stock to Vestar Equity Partners, L.P. (an affiliate of Vestar)
in exchange for proceeds of approximately $25 million. In addition, the
Company also issued 111,111 shares of Class D Common Stock to KISS in
exchange for certain assets. By agreement, KISS and certain specified
transferees possess contractual rights to require the Company to purchase
these shares (and shares received in respect of these shares) under certain
defined conditions, such as a change in control of the Company and the
achievement of certain operating results, and, accordingly, the Class D
Common Stock has been accounted for as redeemable stock. Redemption value
would be equal to the then-current liquidation preference of any Junior Stock
plus the fair market value (as defined) of the Class D shares (and shares
received in respect of these shares) covered by the Agreement. Generally, the
Company will not be obligated to repurchase the shares if the transaction
would result in a default (which is not waived) under the Agreement.
A-19
<PAGE>
5. CAPITAL STRUCTURE (CONTINUED)
Common Stock (Continued)--No Class A shares are currently outstanding.
Each share of Class A, C and D Common Stock is entitled to ten votes; each
share of Class B is entitled to one vote. Class C and D shares are
convertible into shares of Class A under certain circumstances. Each class
of common stock will share equally in any dividends declared to common
stockholders and in any residual value upon liquidation of the Company.
Stock Option Plan--The Company established, contemporaneously with the
Acquisition, a nonqualified stock option plan (the "1994 Plan"). Under the
terms of the 1994 Plan, eligible employees will be allowed to purchase up to
87,000 shares of Class B Common Stock at a price of $25 per share, increasing
from March 18, 1994 at a compounded annual rate of 32.5%. Options will
generally vest evenly over a five-year period. Compensation expense related
to these options will be measured on the date of grant by reference to the
estimated fair value of the underlying shares at that time. Options issued
and outstanding aggregated 75,537 and 85,987 at December 31, 1994 and 1995,
respectively, of which no options were vested.
Phantom Equity Plan--The Company also established a Phantom Equity Plan for
certain employees, whereby the employees were entitled to share in the
appreciation of the Company. During 1995, such appreciation approximated
$2,000,000.
6. REDEEMABLE STOCK ACTIVITY
Activity related to the three classes of redeemable stock outstanding during
1994 and 1995 follows:
<TABLE>
<CAPTION>
Preferred Stock Class D
--------------------------- Common Stock
Series C Junior (Note 2)
<S> <C> <C> <C>
Issuance on March 18, 1994 for cash or assets
(at fair value on date of issuance) $43,425,000 $2,300,000 $2,778,000
Accretion to redemption value 121,610 -- --
Dividends on preferred stock 4,548,532 369,863 --
----------- ---------- ----------
Balance, December 31, 1994 48,095,142 2,669,863 2,778,000
Accretion to redemption value 155,691 -- --
Dividends on preferred stock 6,517,292 496,489 --
----------- ---------- ----------
Balance, December 31, 1995 $54,768,125 $3,166,352 $2,778,000
=========== ========== ==========
</TABLE>
7. PARTNERSHIP LONG-TERM DEBT REPAID ON MARCH 18, 1994
On March 18, 1994, the Partnership repaid all of its existing long-term debt
obligations with proceeds obtained from the sale of the Partnership's assets.
The Partnership's outstanding long-term debt during the period January 1,
1992 through repayment on March 18, 1994 generally approximated $119,000,000.
A-20
<PAGE>
8. RADIO STATION DISPOSITIONS
WPXY-FM--On March 24, 1995, the Company sold radio station WPXY-FM in
Rochester, New York, to the Lincoln Group L.P. for a net sale price of
$5,200,000 in cash, which approximated the net book value of the assets sold.
The financial position of WPXY-FM was not significant to the consolidated
financial position of the Company at December 31, 1994, and the operations of
WPXY-FM were not significant to the consolidated operations of the Company
for the years ended December 31, 1994 and 1995.
WHTK-AM--In May 1994, the Company sold certain assets, including the FCC
licenses, of WHTK-AM located in Rochester, New York, for an aggregate sales
price of $500,000. Assets, liabilities and net revenues of WHTK-AM represent
less than 1% of the related consolidated totals for all periods presented.
WPIT-AM and WPIT-FM--In January 1993, the Partnership sold certain assets,
including the FCC licenses, of WPIT-AM and WPIT-FM. Net proceeds from the
sale approximated $6,000,000, and a gain of approximately $2,647,000 was
recorded upon disposition. The operations of WPIT-AM and WPIT-FM were not
significant to the consolidated operations of the Company for the year ended
December 31, 1993.
9. COMMITMENTS AND CONTINGENCIES
Leases--The Company leases various offices, studios, and broadcast and other
equipment under operating leases that expire over the next five years and
thereafter. Most of these leases were assumed by the Company pursuant to the
Acquisition and may be renewed for successive periods ranging from one to ten
years on terms similar to current agreements, except for specified increases
in lease payments in the event of a renewal. In most cases, management
expects that, in the normal course of business, leases will be renewed or
replaced by other leases.
Future minimum rental payments for noncancelable operating leases as of
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31
<S> <C>
1996 $1,042,000
1997 916,000
1998 549,000
1999 514,000
2000 389,000
Thereafter 2,986,000
----------
Total $6,396,000
==========
</TABLE>
A-21
<PAGE>
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Leases (Continued)--Consolidated rental expense for operating leases
incurred by the Partnership and the Company is as follows:
<TABLE>
<CAPTION>
KISS Limited Partnership Pyramid
------------------------------ Communications,
Period from Inc.
January 1, -------------------------------
Year Ended 1994 to Years Ended
December 31, March 17, December 31,
1993 1994 1994 1995
<S> <C> <C> <C>
$1,069,000 $241,000 $1,132,000 $1,882,000
========== ======== ========== ==========
</TABLE>
Other Commitments--The Company also assumed, pursuant to the Acquisition,
various noncancelable audience-rating and other service contracts with
various expiration dates. Management expects that, in the normal course of
business, these contracts will continue to be renewed or replaced by similar
contracts.
Future minimum payments required under these service contracts as of December
31, 1995 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31
<S> <C>
1996 $1,768,000
1997 1,682,000
1998 416,000
1999 260,000
2000 263,000
Thereafter 417,000
----------
Total $4,806,000
==========
</TABLE>
Expenses incurred under these agreements aggregated as follows:
<TABLE>
<CAPTION>
KISS Limited Partnership Pyramid
------------------------------ Communications,
Period from Inc.
January 1, -------------------------------
Year Ended 1994 to Years Ended
December 31, March 17, December 31,
1993 1994 1994 1995
<S> <C> <C> <C>
$1,200,000 $323,000 $1,283,000 $1,838,000
========== ======== ========== ==========
</TABLE>
A-22
<PAGE>
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Syndication and Subcarrier Agreements--The Company has various agreements to
provide syndicated programming and subcarrier rights to customers.
Noncancelable payment commitments from customers under these agreements as of
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31
<S> <C>
1996 $1,647,000
1997 1,396,000
1998 731,000
1999 233,000
2000 119,000
Thereafter 213,000
----------
Total $4,339,000
==========
</TABLE>
Revenues earned under these agreements aggregated as follows:
<TABLE>
<CAPTION>
KISS Limited Partnership Pyramid
------------------------- Communications,
Period from Inc.
January 1, ---------------
Year Ended 1994 to Years Ended
December 31, March 17, December 31,
1993 1994 1994 1995
<S> <C> <C> <C>
$ 431,809 $ 123,138 $ 661,506 $1,384,077
========== ========= ========= ==========
</TABLE>
Contingencies--The real property acquired in the Acquisition for use by
WXKS-AM/FM (the "Medford Site") consists of tidelands that were filled prior
to 1950. In 1988, the Partnership discovered that the fill contains
hydrocarbon contamination. The Partnership retained environmental consultants
to investigate the source and extent of contamination, and the consultants
concluded that the contamination presents no significant risk to the public
or the environment. In July 1991, the Partnership presented its conclusions
to the Commonwealth of Massachusetts (the "Commonwealth"). Based on its
preliminary review, the Commonwealth reported that conditions at the Medford
Site did not appear to present an immediate threat to public health, safety
or the environment. Consequently, the response stated that further review by
the Commonwealth is not likely to occur for an extended period of time. In
late 1993, the Commonwealth's cleanup regulations were revised to provide
that environmental consultants may opine on the need for cleanup of certain
sites. An environmental consultant was retained by the Partnership to
reassess the status of the Medford Site in light of the new regulations, and
the consultant has concluded that no cleanup measures will be required under
the new regulations. The Partnership has also conducted limited testing at
the property in Brighton, New York, on which the transmitter tower for WHTK-
AM is located (WHTK-AM was sold in May 1994). Certain samples taken in 1990
suggested the possibility that low levels of certain regulated substances may
be present. Testing performed in March 1994 by the Company indicated no
evidence of regulated substances in excess of New York State standards. The
Partnership and Company have not made any provision for the eventual outcome
of these matters in their consolidated financial statements, other than
accruals for the cost of the surveys and other periodic charges related to
monitoring these matters. The Company is of the opinion that it will not
incur cleanup costs and that, if any are incurred, they would not be material
to the Company's consolidated financial position or results of operations.
A-23
<PAGE>
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Litigation--From time to time, the Company becomes involved in litigation
which is incidental to its business. In the opinion of management, the
outcome of any pending litigation would not have a material effect on the
Company's consolidated financial position or results of operations.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that the
Company could realize in a current market exchange. The fair value estimates
presented herein are based on pertinent information available to management
as of December 31, 1994 and 1995. Although management is not aware of any
factors that would significantly affect the estimated fair value amounts,
such amounts have not been comprehensively revalued for purposes of these
consolidated financial statements since that date, and current estimates of
fair value may differ significantly from the amounts presented herein.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments.
Cash, Cash Equivalents, Accounts Receivable, Accounts Payable and Accrued
Expenses--These carrying amounts approximate fair value because of the short-
term nature of these investments.
Notes Receivable--The fair value of notes receivable is estimated based on
discounted cash flows using current interest rates at which similar loans to
borrowers with similar credit ratings are made or if the loan is collateral
dependent, management's estimate of the fair value of the collateral. The
fair value of notes receivable approximated carrying value at December 31,
1994 and 1995.
Long-Term Debt--The fair value of long-term debt is estimated based on
current market rates and instruments with the same risk and maturities. The
fair value of long-term debt approximated carrying value at December 31, 1994
and 1995.
Interest Rate Protection Agreements--The fair values of these agreements are
obtained from dealer quotes. These values represent the estimated amount the
Company would receive or pay to terminate the agreements taking into
consideration the current interest rates. The Company could expect to
receive $860,000 and expect to pay $415,000 if its outstanding interest rate
hedge agreements were settled at December 31, 1994 and 1995, respectively.
Such agreements have no carrying value at December 31, 1995 or 1994.
11. RELATED-PARTY TRANSACTIONS
Management Consulting Agreement--The Company has entered into a management
consulting agreement (the "Management Agreement") with Vestar. In exchange
for Vestar's provision of certain management consulting and financial
advisory services, the Company has agreed to pay Vestar an annual fee equal
to the greater of $425,000 or 2% of the Company's "broadcast cash flow" (as
defined) plus out-of-pocket costs.
A-24
<PAGE>
11. RELATED-PARTY TRANSACTIONS (CONTINUED)
Management Consulting Agreement (Continued)--In connection with the
Acquisition, the Company paid Vestar a transaction fee of $2.35 million for
services rendered in obtaining financing and structuring the transaction.
The Company also repaid the note payable to Vestar with accrued interest.
Loans to Management and Partners of KISS--At the closing of the Acquisition
and during 1994, the Company loaned the Chief Financial Officer $150,000 and
the Chief Executive Officer $350,000. These loans are unsecured and accrue
interest annually at the prime rate (8.5% at December 31, 1995). In
connection with the Merger (see Note 1), these loans, and accrued interest
of approximately $68,000, were forgiven by the Company at December 31, 1995.
In addition, at the closing, the Company placed in an escrow account the sum
of $4.5 million with a commitment to provide a further $500,000, if
necessary, which is to be lent to partners of KISS to pay certain tax
liabilities of such partners arising as a result of the Acquisition. Loans
from the escrow account bear interest at 7-1/2% and will be payable over a
twenty-year period. Loans will be collateralized by each partner's interest
in the Company. At December 31, 1995, approximately $3,861,000 of these
loans were outstanding.
At the closing, certain officers and partners of KISS owed KISS the sum of
$418,000. Concurrently with the execution of employment agreements between
the Company and said officers for future services to be rendered, $183,000
of these amounts due were forgiven by the Company and are being amortized
over the expected terms of employment.
In November 1994, the Company loaned the Chief Executive Officer $689,000.
The promissory note is secured by the officer's interest in the Partnership,
accrues interest at 7.5% annually, and is due in November 2004. On January
17, 1996, the Chief Executive Officer repaid the promissory note and
accrued interest of approximately $59,000 in connection with the Merger
(see Note 1).
12. INCOME TAXES
SFAS No. 109 requires that financial statements reflect deferred income
taxes for the future tax consequences of differences in bases of the
Company's assets and liabilities for book and tax purposes.
The income tax benefit consisted of the following for the years ended
December 31:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Current:
Federal $ 174,000 $ --
State 33,000 87,000
---------- --------
Total 207,000 87,000
---------- --------
Deferred:
Federal (1,889,000) --
State (142,000) (87,000)
---------- --------
Total (2,031,000) (87,000)
---------- --------
Income tax benefit $(1,824,000) $ --
========== ========
</TABLE>
A-25
<PAGE>
12. INCOME TAXES (CONTINUED)
A reconciliation between the U.S. statutory rate and the effective tax rate
is as follows for the years ended December 31:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Statutory rate (34)% (35)%
State taxes, net of federal benefit (4) (4)
Nondeductible expenses 2 2
Change in state tax rates during the period (2) --
Change in valuation allowances 1 37
-- --
Effective rate (37)% --%
== ==
</TABLE>
The components of the net deferred income tax asset are as follows at
December 31:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts and other $ 76,000 $ --
Property, equipment and intangible assets, principally
due to depreciation methods 2,186,000 --
Net operating loss carryforward -- 5,028,000
--------- -----------
Total 2,262,000 5,028,000
--------- ----------
Deferred tax liabilities:
Property and intangible assets, principally due to
acquisition-related basis differences and depreciation methods 1,892,000 805,000
Prepaid expenses, allowance for doubtful accounts and
accrued expenses -- 240,000
--------- -----------
Total 1,892,000 1,045,000
--------- -----------
Net deferred tax asset 370,000 3,983,000
Valuation allowance (370,000) (3,983,000)
--------- -----------
Net $ -- $ --
========= ===========
</TABLE>
The valuation allowances have been provided to reduce the total tax asset to
zero at December 31, 1994 and 1995 because it is not likely that these assets
will be realized in the foreseeable future. The valuation allowance
increased by $3,613,000 during 1995, due primarily to the generation of net
loss carryforwards for which realization is not assured.
* * * * * *
A-26
<PAGE>
EXHIBIT 99.2
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
are presented using the purchase method of accounting for all acquisitions,
including the BPI Acquisition and the Pyramid Acquisition, and reflect the
combination of consolidated historical financial data of the Company, BPI and
Pyramid, respectively. The unaudited pro forma condensed combined balance sheet
at December 31, 1995 presents data as if the Pyramid Acquisition and the related
borrowing under the Company's new Senior Credit Facility (the "Financing
Transaction") had been consummated on such date. The unaudited pro forma
condensed combined statement of operations for the year ended December 31, 1995
presents adjustments for four series of transactions as if each had occurred at
January 1, 1995: (i) the BPI Acquisition, (ii) the 1995 Offering, (iii) the
Pyramid Acquisition, and (iv) the March 25, 1995 sale of WPXY-FM in Rochester,
New York by Pyramid.
In the opinion of Company management, all adjustments have been made that
are necessary to present fairly the pro forma data.
These unaudited pro forma condensed combined financial statements should be
read in conjunction with the respective financial statements and related notes
thereto of the Company, BPI and Pyramid (and its predecessor). These unaudited
pro forma condensed combined financial statements are presented for illustrative
purposes only and are not necessarily indicative of the operating results or
financial position that would have been achieved had the transactions reflected
therein been consummated as of the dates indicated, or of the results that may
be obtained in the future. These unaudited pro forma condensed combined
financial statements should be read in conjunction with the consolidated
financial statements of the Company, Pyramid and BPI which are incorporated by
reference herein.
B-1
<PAGE>
EVERGREEN MEDIA CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AT DECEMBER 31, 1995
(in thousands)
<TABLE>
<CAPTION>
Pro forma
Adjustments The Company
Company Pyramid for Pyramid Pro Forma
Historical Historical Acquisition As Adjusted
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Current assets $ 50,989 $ 17,826 $ (401) (3) $ 68,414
Property & equipment, net 37,839 9,743 47,582
Intangible assets, net 458,787 120,734 (120,734) (3) 814,782
294,777 (3)
61,218 (4)
Other assets 4,732 10,156 (10,156) (3) 8,232
3,500 (2)
---------------------------------------------------------------------
Total assets $ 552,347 $158,459 $ 228,204 $ 939,010
=====================================================================
Liabilities & stockholders' equity:
Liabilities:
Current portion of long-term debt $ 4,000 $ 11,607 $ (11,607) (3) $ 4,000
Accrued merger expenses - 10,435 (10,435) (3) -
Other current liabilities 16,433 5,445 3,500 (2) 25,378
---------------------------------------------------------------------
Total current liabilities 20,433 27,487 (18,542) 29,378
Long-term debt, excluding current portion 197,000 75,333 (75,333) (3) 513,500
316,500 (3)
Other liabilities 1,104 - - 1,104
Deferred income taxes 29,233 - 61,218 (4) 90,451
-------------------------------------------------------------------
Total liabilities 247,770 102,820 283,843 634,433
-------------------------------------------------------------------
Redeemable stock - 60,712 (60,712) (3) -
Stockholders' equity:
Convertible preferred stock 80,500 - - 80,500
Common stock 187 11 (11) (3) 187
Additional paid-in capital 317,388 10,570 (10,570) (3) 317,388
Accumulated deficit (93,498) (15,654) 15,654 (3) (93,498)
Total stockholders' equity 304,577 (5,073) 5,073 304,577
---------------------------------------------------------------------
-
Total liabilities & stockholders'
equity $ 552,347 $ 158,459 $ 228,204 $ 939,010
=====================================================================
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements
B-2
<PAGE>
EVERGREEN MEDIA CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(In thousands, except share data)
<TABLE>
<CAPTION>
BPI Pyramid The Company
Company Historical Historical Proforma Pro Forma
Historical 1/1 - 5/12 1/1 - 12/31 Adjustments As Adjusted
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Gross revenues $ 186,365 $ 21,689 $ 75,858 (616) (5) $ 283,296
Less: agency commissions (23,434) (2,630) (9,135) 47 (5) (35,152)
----------------------------------------------------------------------------
Net revenues 162,931 19,059 66,723 (569) 248,144
Station operating expenses
excluding depreciation and
amortization 97,674 14,078 41,261 (536) (5) 152,477
Depreciation and amortization 47,005 3,087 11,038 31,079 (6) 92,209
Corporate general and
adminstrative expenses 4,475 1,465 4,890 (5,655) (7) 5,175
Merger and equity plan expenses - 10,932 (10,932) (8) -
----------------------------------------------------------------------------
Operating income (loss) 13,777 429 (1,398) (14,525) (1,717)
Interest expense, net 19,144 2,724 8,849 11,671 (9) 42,388
Other (income) expense 291 1,370 (568) (10) 1,093
----------------------------------------------------------------------------
Loss before income taxes (5,658) (2,295) (11,617) (25,628) (45,198)
Income tax expense (benefit) 192 - (10,588) (11) (10,396)
----------------------------------------------------------------------------
Net loss (5,850) (2,295) (11,617) (15,040) (34,802)
Preferred stock dividends 4,830 7,169 (7,169) (12) 4,830
----------------------------------------------------------------------------
Loss attributable to
common stockholders $ (10,680) $ (2,295) $ (18,786) $ (7,871) $ (39,632)
============================================================================
Loss per common share (0.77) $ (2.12)
============= =================
Weighted average common shares
outstanding 13,814,131 4,875,046 (13) 18,689,177
============= =====================================
Other Financial Data:
Broadcast cash flow $ $65,257 $4,981 $25,462 $ 95,667
====================================== =================
</TABLE>
B-3
<PAGE>
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
(in thousands, except share data)
(1) Basis of Presentation. The purchase method of accounting has been used
in the preparation of the unaudited pro forma condensed combined financial
statements. Under this method of accounting, the aggregate purchase price is
allocated to assets acquired and liabilities assumed based on their estimated
fair values. For purposes of the unaudited pro forma condensed combined
financial statements, the fair values of BPI and Pyramid assets and liabilities
have been determined by Company management based primarily on information
furnished by management of BPI and Pyramid, respectively. The final allocation
of the Pyramid purchase price will not be determined until a reasonable time
after consummation of such transaction and will be based on a complete
evaluation of the assets and liabilities of Pyramid. Accordingly, the
information presented herein may differ from the final purchase price
allocation. Pro forma adjustments for the April 1996 agreements to sell Buffalo
radio stations WHTT-FM, WHTT-AM and WSJZ-FM, the April 1996 agreement to acquire
KYLD-FM in San Francisco and the May 1996 acquisition of WKLB-FM in Boston are
not presented as any adjustment would be immaterial to the pro forma financial
statements.
Data on station operating income excluding depreciation and amortization, and
corporate general and administrative expense (commonly referred to as broadcast
cash flow), although not calculated in accordance with generally accepted
accounting principles, is widely used in the broadcast industry as a measure of
a company's operating performance. Nevertheless, this measure should not be
considered in isolation or as a substitute for operating income, cash flows from
operating activities or any other measures for determining operating performance
or liquidity that is calculated in accordance with generally accepted accounting
principles.
Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet Related to
the Pyramid Acquisition
The accompanying unaudited pro forma condensed combined balance sheet
assumes the Pyramid Acquisition was consummated on December 31, 1995 and
reflects the following pro forma adjustments:
(2) To record approximately $3,500 of deferred loan fees incurred in
connection with the amended and restated Senior Credit Facility required to
effect the Pyramid Acquisition.
B-4
<PAGE>
(3) To record the aggregate purchase price of the Pyramid Acquisition and
eliminate certain Pyramid historical balances as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Purchase price......................... $306,500
Additional payment related to working
capital acquired (a).................. 9,000
Legal, accounting and other
professional fees..................... 1,000
----------
Purchase price plus adjustments for
additional payments and fees.......... $316,500
----------
Less: Pyramid historical
balance Property and equipment, net... (9,743)
Pyramid working capital and
liabilities assumed, net............ (11,980)
----------
Intangible assets, net (b): 294,777
Broadcast licenses.......... 122,922
Other identifiable
intangible assets.......... 171,855
Elimination of Pyramid historical
balances:
Cash........................ (401)
Intangible assets, net...... (120,734)
Other assets (including tax
loans and deferred
financing costs)........... (10,156)
Accrued merger expenses..... 10,435
Long-term debt.............. 86,940
Redeemable stock............ 60,712
Common stock................ 11
Additional paid-in capital.. 10,570
Accumulated deficit......... (15,654)
------------
Net increase in long-term debt......... $316,500
============
.......................................
</TABLE>
(a) For the purpose of calculating the final purchase price, the Company
has assumed $9,000 for Pyramid net working capital for pro forma purposes.
(b) The Company, on a preliminary basis, has allocated the $294,800
million of intangible assets to broadcast licenses and other identifiable
intangible assets. This preliminary allocation and the estimated weighted
average eleven-year life used for pro forma amortization expense are based on
historical information from prior acquisitions. The Company expects to
definitively allocate the purchase price within a reasonable time after
consummation of the Pyramid Acquisition when a more precise evaluation of the
Pyramid assets and liabilities can be performed.
(4) To record a $61,218 deferred tax liability relating to the difference
between the financial statement carrying amount and the tax basis of Pyramid
acquired net assets.
Adjustments to Unaudited Pro Forma Condensed Combined Statements of Operations
Related to the BPI Acquisition, the 1995 Offering, and the Pyramid Acquisition.
The accompanying pro forma condensed combined statement of operations has
been prepared as if the BPI and Pyramid Acquisitions had been consummated as of
January 1, 1995 and reflects the following pro forma adjustments:
(5) Reflects the elimination of historical operating data of Pyramid
station WPXY-FM in Rochester, New York for the period of January 1, 1995 to the
date of its sale (March 25, 1995).
B-5
<PAGE>
(6) Reflects incremental amortization related to the BPI Acquisition and
the Pyramid Acquisition and is based on the allocation of the total
consideration and related expense as follows:
<TABLE>
<CAPTION>
BPI Acquisition
Period from Pyramid Acquisition
January 1, 1995 Year Ended
to May 12, 1995 December 31, 1995 Total
--------------- ----------------- -----
<S> <C> <C> <C>
Intangible assets,
excluding goodwill $234,938 $294,777
Goodwill 29,712 61,218
-------- --------
Total intangible assets $264,650 $355,995
======== ========
Pro forma amortization
expense based upon
weighted average
period of 11 years $ 9,022 $ 32,363 $41,385
Plus: Amortization expense on
$3,500 of deferred loan
fees, amortized on a
straight-line basis over a
6.5 year period - 538 538
Less: Historical amortization
expense (2,315) (8,529) (10,844)
-------- -------- --------
Adjustment for net increase in
amortization expense $ 6,707 $ 24,372 $31,079
======== ======== ========
</TABLE>
Historical depreciation expense is assumed to approximate pro forma
depreciation expense of the combined entity. Actual amortization and
depreciation may differ based upon the final allocation of the total
consideration.
(7) Reflects the elimination of BPI corporate expenses for the period from
January 1, 1995 to May 12, 1995 of $1,265 and the elimination of Pyramid
corporate expenses for the year ended December 31, 1995, of $4,390 consisting
primarily of corporate staff and duplicate overhead expense.
(8) Reflects the elimination of the expenses incurred by Pyramid in
connection with the Pyramid Acquisition.
B-6
<PAGE>
(9) Reflects the adjustment to interest expense for additional borrowings in
connection with the consummation of the BPI Acquisition and the Pyramid
Acquisition and repayment of long-term debt in connection with the consummation
of the 1995 Offering:
<TABLE>
<CAPTION>
BPI Acquisition Common Stock Offering Pyramid Acquisition
Period from Period from Year
January 1, 1995 January 1, 1995 Ended
to May 12, 1995 to July 25, 1995 December 31, 1995 Total
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in
long-term debt $184,000 $(132,734) $316,500
Assumed interest rate 7.5% 7.5% 7.5%
Increase (decrease) in
interest expense $5,175 (5,669) 23,738 23,244
Less: Historical
interest expense (2,724) - (8,849) (11,573)
------ ------- -------- --------
Adjustment to interest
expense $2,451 $(5,669) $14,889 $11,671
====== ======== ======= =======
</TABLE>
(10) Reflects the elimination of the Pyramid loss on forgiveness of employee
notes receivable of $568. The Pyramid employee notes receivable were not
assumed by the Company.
(11) Reflects income tax benefit related to pro forma adjustments. Income
tax benefit reflects the recognition of deferred tax assets to the extent such
assets can be realized through future reversals of existing taxable temporary
differences.
(12) Reflects elimination of preferred stock dividends and accretion to
redemption value of Pyramid Preferred Stock as such stock was redeemed in
connection with the Pyramid Acquisition.
(13) The pro forma combined loss per common share data is computed by
dividing pro forma loss attributable to common stockholders by the weighted
average common shares assumed to be outstanding. The calculation of pro forma
weighted average common shares outstanding for loss per common share excludes an
aggregate of 957,916 shares of the Company's Class A Common Stock issuable upon
the exercise of outstanding options due to the anti-dilutive effect of such
exercise on loss per common share.
A summary of shares used in the pro forma combined loss per common share
calculation follows:
<TABLE>
<CAPTION>
Year
Ended
December 31, 1995
-----------------
<S> <C>
The Company Historical.................................... 13,814,131
BPI Acquisition (January 1 - May 12, 1995)................ 1,361,189
1995 Offering (January 1 - July 25, 1995)................. 3,513,857
----------
The Company Pro Forma as Adjusted.................. 18,689,177
==========
</TABLE>
B-7
