<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------
FORM 8-K
CURRENT REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 30, 1997
EVERGREEN MEDIA CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<C> <C>
DELAWARE 75-2247099
(State or Other Jurisdiction of (IRS Employer
Incorporation) Identification No.)
</TABLE>
433 EAST LAS COLINAS BOULEVARD
SUITE 1130
IRVING, TEXAS 75039
(Address of Principal Executive Offices)
(972) 869-9020
(Registrant's telephone number, including area code)
================================================================================
<PAGE> 2
ITEM 5. OTHER EVENTS
On May 30, 1997, Evergreen Media Corporation (together with its
subsidiaries, the "Company") completed the acquisition of WPNT-FM in Chicago
from affiliates of Century Broadcasting Company. On a cumulative basis, the
acquisition by the Company of WPNT-FM, together with (i) the exchange by the
Company of five of its six stations in Charlotte, North Carolina to EZ
Communications in return for WUSL-FM and WIOQ-FM in Philadelphia, which was
completed on May 15, 1997, (ii) the acquisition of WDAS-FM/AM in Philadelphia
from Beasley FM Acquisition Corp. for $103.0 million in cash plus various direct
acquisition costs, which was completed on May 1, 1997, (iii) the exchange by the
Company of one station in Detroit to Greater Washington Radio in return for
WWRC-AM in Washington, D.C., which was completed on April 3, 1997, (iv) the
acquisition by the Company of WJLB-FM and WMXD-FM in Detroit from Secret
Communications, L.P. for $168.0 million in cash plus various direct acquisition
costs, which was completed on April 1, 1997, (v) the acquisition by the Company
of KKSF-FM and KDFC-FM/AM in San Francisco from The Brown Organization for
$115.0 million in cash plus various direct acquisition costs, which was
completed on January 31, 1997 and (vi) the acquisition by the Company of WWWW-FM
and WDFN-AM in Detroit from Chancellor Broadcasting Company for $30.0 million in
cash plus various direct acquisition costs, which was completed on January 31,
1997, constitutes the acquisition by the Company of unrelated, individually
insignificant businesses, the aggregate impact of which is deemed significant
for purposes of Rule 3-05 of Regulation S-X under the Securities Act of 1933, as
amended. Accordingly, audited financial statements for a substantial majority of
the businesses acquired are being filed herewith pursuant to Rule 3-05(b)(2)(i)
of Regulation S-X.
On June 3, 1997, the Company completed the sale of WEJM-FM in Chicago to
affiliates of Crawford Broadcasting for $14.75 million in cash.
The Company is also filing herewith the following audited financial
statements related to its pending acquisition of certain subsidiaries of Viacom
International, Inc. ("Viacom") for $595.0 million, plus working capital, in
cash. The Viacom subsidiaries to be acquired by the Company own and operate
radio stations WLTW-FM and WAXQ-FM in New York and WMZQ-FM, WJZW-FM, WBZS-AM and
WZHF-AM in Washington, D.C. A more detailed description of the acquisition by
the Company of the Viacom subsidiaries is contained in the Company's Annual
Report on Form 10-K for the Fiscal Year Ended December 31, 1996.
1
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA INFORMATION AND EXHIBITS
7(a) Financial Statements of Business Acquired -- KKSF-FM/KDFC-FM and AM (A
Division of The Brown Organization)
The following information called for by Item 7(a) is included on pages A-1
through A-9 of this report:
<TABLE>
<S> <C> <C>
(1) Independent Auditors' Report................................ A-1
(2) Balance Sheets of KKSF-FM/KDFC-FM and AM (A Division of The
Brown Organization) as of December 31, 1995 and 1996........ A-2
(3) Statements of Earnings and Division Equity of
KKSF-FM/KDFC-FM and AM (A Division of The Brown
Organization) for the years ended December 31, 1995 and
1996........................................................ A-3
(4) Statements of Cash Flows of KKSF-FM/KDFC-FM and AM (A
Division of The Brown Organization) for the years ended
December 31, 1995 and 1996.................................. A-4
(5) Notes to Financial Statements............................... A-5
</TABLE>
7(a) Financial Statements of Business Acquired -- WJLB/WMXD, DETROIT
The following information called for by Item 7(a) is included on pages B-1
through B-9 of this report:
<TABLE>
<S> <C> <C>
(1) Report of Independent Accountants........................... B-1
(2) Combined Balance Sheets of WJLB/WMXD, DETROIT as of December
31, 1996 and March 31, 1997 (unaudited)..................... B-2
(3) Combined Statements of Operations of WJLB/WMXD, DETROIT for
the year ended December 31, 1996 and for the three months
ended March 31, 1996 and 1997 (unaudited)................... B-3
(4) Combined Statements of Cash Flows of WJLB/WMXD, DETROIT for
the year ended December 31, 1996 and for the three months
ended March 31, 1996 and 1997 (unaudited)................... B-4
(5) Notes to Combined Financial Statements...................... B-5
</TABLE>
7(a) Financial Statements of Business Acquired -- WDAS-AM/FM (Station owned and
operated by Beasley FM Acquisition Corp.)
The following information called for by Item 7(a) is included on pages C-1
through C-8 of this report:
<TABLE>
<S> <C> <C>
(1) Independent Auditors' Report................................ C-1
(2) Balance Sheets of WDAS-AM/FM (Station owned and operated by
Beasley FM Acquisition Corp.) as of December 31, 1996 and
March 31, 1997 (unaudited).................................. C-2
(3) Statements of Earnings and Station Equity of WDAS-AM/FM
(Station owned and operated by Beasley FM Acquisition Corp.)
for the year ended December 31, 1996 and the three months
ended March 31, 1996 and 1997 (unaudited)................... C-3
(4) Statements of Cash Flows of WDAS-AM/FM (Station owned and
operated by Beasley FM Acquisition Corp.) for the year ended
December 31, 1996 and the three months ended March 31, 1996
and 1997 (unaudited)........................................ C-4
(5) Notes to Financial Statements............................... C-5
</TABLE>
2
<PAGE> 4
7(a) Financial Statements of Business Acquired -- Century Chicago Broadcasting,
L.P.
The following information called for by Item 7(a) is included on pages D-1
through D-9 of this report:
<TABLE>
<S> <C> <C>
(1) Report of Independent Accountants........................... D-1
(2) Balance Sheets of Century Chicago Broadcasting, L.P. as of
December 31, 1996 and March 31, 1997 (unaudited)............ D-2
(3) Statements of Operations and Partners' Deficit of Century
Chicago Broadcasting, L.P. for the year ended December 31,
1996 and the three months ended March 31, 1996 and 1997
(unaudited)................................................. D-3
(4) Statements of Cash Flows of Century Chicago Broadcasting,
L.P. for the year ended December 31, 1996 and the three
months ended March 31, 1996 and 1997 (unaudited)............ D-4
(5) Notes to Financial Statements............................... D-5
</TABLE>
7(a) Financial Statements of Business to Be Acquired -- Riverside Broadcasting
Co., Inc. and WAXQ Inc.
The following information called for by Item 7(a) is included on pages E-1
through E-9 of this report:
<TABLE>
<S> <C> <C>
(1) Independent Auditors' Report................................ E-1
(2) Combined Balance Sheets of Riverside Broadcasting Co., Inc.
and WAXQ Inc. as of December 31, 1996 and March 31, 1997
(unaudited)................................................. E-2
(3) Combined Statements of Earnings of Riverside Broadcasting
Co., Inc. and WAXQ Inc. for the year ended December 31, 1996
and the three months ended March 31, 1996 and 1997
(unaudited)................................................. E-3
(4) Combined Statements of Cash Flows of Riverside Broadcasting
Co., Inc. and WAXQ Inc. for the year ended December 31, 1996
and the three months ended March 31, 1996 and 1997
(unaudited)................................................. E-4
(5) Notes to Combined Financial Statements...................... E-5
</TABLE>
7(a) Financial Statements of Business to Be Acquired -- WMZQ Inc. and Viacom
Broadcasting East, Inc.:
The following information called for by Item 7(a) is included on pages F-1
through F-9 of this report:
<TABLE>
<S> <C> <C>
(1) Independent Auditors' Report................................ F-1
(2) Combined Balance Sheets of WMZQ Inc. and Viacom Broadcasting
East, Inc. as of December 31, 1996 and March 31, 1997
(unaudited)................................................. F-2
(3) Combined Statements of Earnings of WMZQ Inc. and Viacom
Broadcasting East, Inc. for the year ended December 31, 1996
and the three months ended March 31, 1996 and 1997
(unaudited)................................................. F-3
(4) Combined Statements of Cash Flows of WMZQ Inc. and Viacom
Broadcasting East Inc. for the year ended December 31, 1996
and the three months ended March 31, 1996 and 1997
(unaudited)................................................. F-4
(5) Notes to Combined Financial Statements...................... F-5
</TABLE>
7(b) Pro Forma information for the transactions described herein, as well as
certain other transactions, have been presented by the Company in its
Current Report on Form 8-K dated May 28, 1997.
3
<PAGE> 5
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- ----------------------
<C> <S>
23.1** -- Consent of KPMG Peat Marwick LLP, independent accountants
23.2** -- Consent of Arthur Andersen LLP, independent accountants
23.3** -- Consent of KPMG Peat Marwick LLP, independent accountants
23.4** -- Consent of Price Waterhouse LLP, independent accountants
</TABLE>
- ---------------
** Filed herewith
<PAGE> 6
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 3, 1997
<PAGE> 7
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The Brown Organization:
We have audited the accompanying balance sheets of KKSF-FM/KDFC-FM and AM
(A Division of The Brown Organization) as of December 31, 1996 and 1995, and the
related statements of earnings and division equity and cash flows for the years
then ended. These financial statements are the responsibility of the Division's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of KKSF-FM/KDFC-FM and AM (A
Division of The Brown Organization) as of December 31, 1996 and 1995, and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information included in
Schedule 1 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly presented in all material respects in
relation to the basic financial statements taken as a whole.
KPMG Peat Marwick LLP
Dallas, Texas
April 25, 1997
A-1
<PAGE> 8
KKSF-FM/KDFC-FM AND AM
(A DIVISION OF THE BROWN ORGANIZATION)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Current assets:
Cash...................................................... $ 53 $ 131
Accounts receivable, less allowance for doubtful accounts
of $62 in 1996 and $92 in 1995......................... 1,345 3,110
Due from Evergreen Media Corporation (note 5)............. 1,323 --
Prepaid expenses and other................................ 50 77
------- -------
Total current assets.............................. 2,771 3,318
------- -------
Property and equipment, net (note 2)........................ 1,992 2,434
Intangible assets, net (note 3)............................. 12,622 14,448
Other assets................................................ 115 106
------- -------
Total assets...................................... $17,500 $20,306
======= =======
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable.......................................... $ 69 $ 57
Accrued expenses.......................................... 625 963
------- -------
Total current liabilities......................... 694 1,020
Intercompany payable to Parent (note 4)..................... 5,000 7,700
Deferred compensation (note 5).............................. 365 198
Division equity:
Advances from Parent...................................... 10,647 11,746
Accumulated equity (deficit).............................. 794 (358)
------- -------
Total division equity............................. 11,441 11,388
Commitments and contingencies (note 5)
------- -------
Total liabilities and division equity............. $17,500 $20,306
======= =======
</TABLE>
See accompanying notes to financial statements.
A-2
<PAGE> 9
KKSF-FM/KDFC-FM AND AM
(A DIVISION OF THE BROWN ORGANIZATION)
STATEMENTS OF EARNINGS AND DIVISION EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Revenues:
Gross revenues (note 5)................................... $14,896 $13,739
Less agency commissions................................... 1,746 1,773
------- -------
Net revenues...................................... 13,150 11,966
------- -------
Operating expenses:
Station operating expenses, excluding depreciation and
amortization........................................... 6,780 7,088
Participation agreement expense (note 5).................. 2,486 1,405
Depreciation and amortization............................. 2,351 2,283
------- -------
Total operating expenses.......................... 11,617 10,776
------- -------
Operating income.................................. 1,533 1,190
Non-operating income (expenses):
Intercompany interest expense (note 4).................... (429) (796)
Other, net................................................ 48 54
------- -------
Non-operating expense, net........................ (381) (742)
------- -------
Net earnings...................................... $ 1,152 $ 448
======= =======
Pro forma information (unaudited) (note 1(h)):
Income tax expense........................................ (461) (179)
------- -------
Pro forma net earnings............................ $ 691 $ 269
======= =======
Division equity, beginning of year.......................... 11,388 8,025
Net investment by (distribution to) parent.................. (1,099) 2,915
------- -------
Division equity, end of year................................ $11,441 $11,388
======= =======
</TABLE>
See accompanying notes to financial statements.
A-3
<PAGE> 10
KKSF-FM/KDFC-FM AND AM
(A DIVISION OF THE BROWN ORGANIZATION)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net earnings.............................................. $1,152 $ 448
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 2,351 2,283
Gain on sale of assets................................. (4) (38)
Deferred compensation.................................. 167 60
Accrued intercompany interest.......................... 429 796
Participation agreement expense........................ 2,486 1,405
Changes in operating assets and liabilities:
Accounts receivable, net............................. 442 (684)
Prepaid expenses and other........................... 18 16
Accounts payable and accrued expenses................ (326) 51
------ ------
Net cash provided by operating activities......... 6,715 4,337
------ ------
Cash flows used in investing activities:
Acquisition of property and equipment..................... (83) (1,239)
Proceeds from sale of equipment........................... 4 5
------ ------
Net cash used in investing activities............. (79) (1,234)
------ ------
Cash flows used in financing activities -- distributions to
parent.................................................... (6,714) (3,300)
------ ------
Decrease in cash............................................ (78) (197)
Cash at beginning of year................................... 131 328
------ ------
Cash at end of year......................................... $ 53 $ 131
====== ======
Noncash financing activities -- intercompany note payable
principal and interest payments made by the Company....... $3,129 $5,543
====== ======
</TABLE>
See accompanying notes to financial statements.
A-4
<PAGE> 11
KKSF-FM/KDFC-FM AND AM
(A DIVISION OF THE BROWN ORGANIZATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
KKSF-FM/KDFC-FM and AM (the "Division") is a division of The Brown
Organization (the "Company"). The Division is the operator of radio stations
KKSF-FM and KDFC-FM and AM. The accompanying financial statements reflect the
assets and liabilities related to the Division's operations and do not include
corporate management and administrative expenses.
(b) Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets. Repairs and maintenance are charged to expense when
incurred.
(c) Goodwill and Intangible Assets
The excess of the purchase price of the acquired radio stations over the
fair value of the net tangible assets acquired is reflected in the accompanying
financial statements as intangible assets. Intangible assets are amortized over
the estimated useful lives ranging from 3 to 40 years.
The Division continually evaluates the propriety of the carrying amount of
goodwill as well as the amortization period to determine whether current events
or circumstances warrant adjustments to the carrying value and/or revised
estimates of useful lives. This evaluation of goodwill consists of the
projection of undiscounted operating income before depreciation, amortization,
nonrecurring charges and interest over the remaining amortization periods of the
related intangible assets. The projections are based on a historical trend line
of actual results since the acquisitions of the respective stations adjusted for
expected changes in operating results. To the extent such projections indicate
that undiscounted operating income is not expected to be adequate to recover the
carrying amounts of the related goodwill, such carrying amounts are written down
by charges to expense. At this time, the Division believes that no significant
impairment of goodwill has occurred and that no reduction of the estimated
useful lives is warranted.
(d) Barter Transactions
The Division trades commercial air time for goods and services used
principally for promotional sales and other business activities. Barter revenue
is recognized when the commercials are broadcast. Barter expense is recognized
when goods or services are received or used. Barter revenues and expenses were
approximately $123,000 and $166,000 during the years ended December 31, 1996 and
1995, respectively.
(e) Revenue Recognition
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
(f) Impairment of Long-Lived Tangible and Intangible Assets
The Division adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. 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
A-5
<PAGE> 12
KKSF-FM/KDFC-FM AND AM
(A DIVISION OF THE BROWN ORGANIZATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell. The adoption of this Statement did not have a material impact on
the Division's financial position, results of operations or liquidity.
(g) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that reflect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Because of the use of estimates inherent
in the financial reporting process, actual results could differ from those
estimates.
In the opinion of management, credit risk with respect to trade receivables
is limited due to the large number of diversified customers and the geographic
diversification of the Division's national revenue customer base. The Division
performs ongoing credit evaluations of its customers and believes that adequate
allowances for any uncollectible trade receivables are maintained. At December
31, 1996, no receivable from any customer exceeded 5% of Division equity and no
customer accounted for more than 10% of net revenues in 1996.
(h) Income Taxes
As the Company is an "S" Corporation, income taxes are the responsibility
of its individual stockholders. Accordingly, no income tax expense or deferred
income tax assets or liabilities are recognized in the accompanying financial
statements of the Division.
The pro forma information assumes the Division is subject to state and
federal income taxes computed on a separate return basis.
(i) Financial Instruments
The carrying amount of cash, accounts receivable, accounts payable and
accrued liabilities approximates fair value because of the short maturity of
these instruments. The floating interest rate on the Company's longterm bank
debt reflects current market rates and, accordingly, its carrying value
approximates fair value.
(2) PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following at December 31, 1996
and 1995 (thousands of dollars):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C> <C>
Leasehold improvements................................. 10 years $ 718 $ 709
Broadcast equipment.................................... 5-10 years 2,315 2,299
Furniture, fixtures and office equipment............... 3-10 years 797 746
Record library......................................... 7 years 148 148
Automobiles............................................ 3 years 42 42
------ ------
4,020 3,944
Less accumulated depreciation and amortization......... 2,028 1,510
------ ------
$1,992 $2,434
====== ======
</TABLE>
A-6
<PAGE> 13
KKSF-FM/KDFC-FM AND AM
(A DIVISION OF THE BROWN ORGANIZATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) INTANGIBLE ASSETS
Intangible assets is comprised of the following at December 31, 1996 and
1995 (thousands of dollars):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1996 1995
----------- ------- -------
<S> <C> <C> <C>
KKSF-FM Acquisition
FCC license......................................... 40 years $ 4,500 4,500
Residual value...................................... 40 years 533 533
Lease costs......................................... 13 years 900 900
Format and music research........................... 9 years 6,320 6,320
------- -------
12,253 12,253
Less accumulated amortization............... 7,938 7,160
------- -------
4,315 5,093
------- -------
KDFC Acquisition
Covenant not to compete............................. 5 years 3,000 3,000
Goodwill and going concern value.................... 40 years 2,245 2,245
Customer list....................................... 5 years 1,226 1,226
FCC license......................................... 40 years 5,000 5,000
Contracts........................................... 3 years 72 72
------- -------
11,543 11,543
Less accumulated amortization............... 3,236 2,188
------- -------
8,307 9,355
------- -------
Net intangibles....................................... $12,622 14,448
======= =======
</TABLE>
(4) RELATED PARTY TRANSACTIONS
The Division is provided management and administrative services by
personnel at the Company's headquarter's office located in Los Angeles,
California and by the president of the Company's radio station operations. The
cost of these services has not been charged to the Division's operations.
The Division maintains an intercompany note payable with the Company that
bears interest at a rate equivalent to the Company's rate on its bank borrowings
(7.3% and 7.6% at December 31, 1996 and 1995, respectively) (see note 5).
(5) COMMITMENTS AND CONTINGENCIES
On September 19, 1996, the Company, on behalf of the Division, entered into
an agreement to sell its radio broadcasting assets to Evergreen Media
Corporation ("Evergreen"). On November 1, 1996, the Company and Evergreen
commenced a time brokerage agreement ("the TBA") whereby substantially all of
the Company's broadcast time was sold to Evergreen. The monthly fees for
November and December 1996 amounted to $1,250,000. In addition, the TBA required
that Evergreen reimburse the Company for certain expenses that the Company
incurred during the term of the TBA. The Division incurred approximately
$422,000 in nonreimbursable station operating expenses during November and
December 1996. The TBA continued until the sale to Evergreen was consummated on
January 31, 1997. Proceeds of $115,000,000 were paid by Evergreen to the Company
which included the liquidation of the intercompany note payable (see note 4).
A-7
<PAGE> 14
KKSF-FM/KDFC-FM AND AM
(A DIVISION OF THE BROWN ORGANIZATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1996, the amounts due from the Evergreen Media Corporation
approximating $1,323,000 primarily relates to funds collected by Evergreen for
advertising revenue generated before the effective date of the brokerage
agreement.
The Company, on behalf of the Division, entered into a time brokerage
agreement whereby substantially all of the broadcast time of radio station
KDFC-FM was sold to another broadcaster ("the broadcaster") for a monthly fee of
$41,667. The agreement is for a period of three years commencing October 5,
1995. The broadcaster may extend the agreement an additional two years. The
agreement may be terminated under certain conditions.
The Company has entered into an agreement with a key Division employee
whereby said employee participates in the Division's appreciation of net assets
through participation percentages. The key employee's percentage of
participation is greater if he is employed by the Company at the time that the
station is sold than if his employment is terminated prior to sale for reasons
other than the employee's death or disability. The balance due to this employee
is payable only upon the earlier of the termination of employment or sale of the
radio station. The Company recognized approximately $2,486,000 and $1,405,000 in
compensation expense related to this agreement during 1996 and 1995,
respectively.
During 1989 the Company adopted a deferred compensation plan for the
benefit of the radio stations' general managers. Compensation expense of
$167,000 and $60,000 was recognized in the accompanying Division financial
statements in 1996 and 1995, respectively.
The Company, on behalf of the Division, was lessee under noncancelable
operating leases for studio space and transmitter sites. Rental expense
recognized in the Division financial statements was approximately $340,000 and
$298,000 during 1996 and 1995, respectively.
Future minimum lease payments under noncancelable operating leases as of
December 31, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
1997........................................................ $ 353
1998........................................................ 312
1999........................................................ 370
2000........................................................ 231
2001........................................................ 331
------
Total............................................. $1,597
======
</TABLE>
A-8
<PAGE> 15
SCHEDULE 1
KKSF-FM/KDFC-FM AND AM
(A DIVISION OF THE BROWN ORGANIZATION)
SUPPLEMENTARY SCHEDULE -- OPERATIONS INFORMATION
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
KKSF-FM/
KDFC-AM KDFC-FM TOTAL
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Gross revenues.............................................. $9,759 $5,137 $14,896
Less agency commissions................................... 1,103 643 1,746
------ ------ -------
Net revenues...................................... $8,656 $4,494 $13,150
====== ====== =======
Operating expenses:
Station operating expenses excluding depreciation......... $4,480 $2,300 $ 6,780
====== ====== =======
</TABLE>
- ---------------
Note: Certain expenses included in station operating expenses excluding
depreciation -- other corporate general and administrative were allocated
between KKSF-FM/KDFC-AM and KDFC-FM based on various factors. General and
administrative expenses were allocated 66% and 34% to KKSF-FM/KDFC-AM and
KDFC-FM, respectively. Sales commission and salaries were allocated 73%
and 23% and technical and engineering expenses were allocated 60% and 40%
to KKSF-FM/KDFC-AM and KDFC-FM, respectively, based on estimated time
spent per day by Division personnel.
See accompanying independent auditors' report.
A-9
<PAGE> 16
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Secret Communications Limited Partnership:
We have audited the accompanying combined balance sheet of WJLB/WMXD,
DETROIT, as further described in Note 1, as of December 31, 1996, and the
related combined statements of operations and cash flows for the year then
ended. These financial statements are the responsibility of the Station's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the accompanying combined financial statements referred to
above present fairly, in all material respects, the financial position of
WJLB/WMXD, DETROIT as of December 31, 1996, and the results of their operations
and their cash flows for the year then ended, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
May 8, 1997
B-1
<PAGE> 17
WJLB/WMXD, DETROIT
COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1996, AND MARCH 31, 1997 (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
UNAUDITED
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............. $ 1,194 $ 1,212
Accounts receivable (net of allowance
for doubtful accounts of $96,119).. 589,346 419,688
Trade receivables..................... 18,394 18,394
Prepaid expenses and other assets..... 3,939 3,539
----------- -----------
Total current assets.......... 612,873 442,833
----------- -----------
PROPERTY AND EQUIPMENT, net (note 3).... 1,020,324 950,086
INTANGIBLE ASSETS, net (note 4)......... 40,812,180 40,276,029
----------- -----------
TOTAL ASSETS.................. $42,445,377 $41,668,948
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable and accrued
expenses........................... $ 892,756 $ 1,320,212
Trade payables........................ 1,875 1,875
Interest payable...................... 72,732 19,652
Current maturities of long-term
debt............................... 1,252,950 1,494,617
----------- -----------
Total current liabilities..... 2,220,313 2,836,356
----------- -----------
LONG-TERM DEBT, less current maturities
(note 6).............................. 18,527,663 18,285,996
COMMITMENTS AND CONTINGENCIES (note 7)
PARTNERS' CAPITAL AND STATION EQUITY
Balance, beginning of period.......... 26,766,919 21,697,401
Net amounts transferred to central
office............................. (13,398,406) (3,296,193)
Contributed capital................... 1,526,531 2,453,168
Net income for the period............. 6,802,357 (307,780)
----------- -----------
Balance, end of period................ 21,697,401 20,546,596
----------- -----------
TOTAL LIABILITIES AND
PARTNERS' CAPITAL.......... $42,445,377 $41,668,948
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
B-2
<PAGE> 18
WJLB/WMXD, DETROIT
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
DECEMBER 31, ----------------------------
1996 1996 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES
Advertising revenues.................. $15,408,285 $4,500,863 $ --
LMA and other income.................. 4,000,000 -- 2,421,000
----------- ---------- ----------
Gross income.......................... 19,408,285 4,500,863 2,421,000
Less: agency commissions.............. 1,880,637 523,792 --
----------- ---------- ----------
Net revenues.................. 17,527,648 3,977,071 2,421,000
----------- ---------- ----------
OPERATING EXPENSES:
Station operating expenses excluding
depreciation and amortization...... 5,720,605 2,026,514 254,278
Depreciation and amortization......... 2,414,614 600,888 606,388
Central office general and
administrative (note 8)............ 1,004,379 145,558 535,522
----------- ---------- ----------
Operating expenses............ 9,139,598 2,772,960 1,396,188
----------- ---------- ----------
OPERATING INCOME........................ 8,388,050 1,204,111 1,024,812
NONOPERATING EXPENSES:
Interest expense (note 6)............. 1,405,693 1,401,785 1,312,592
----------- ---------- ----------
Non operating expenses........ 1,405,693 1,401,785 1,312,592
----------- ---------- ----------
Income before taxes..................... 6,982,357 (197,674) (287,780)
Provision for state income taxes (note
2).................................... 180,000 41,400 20,000
----------- ---------- ----------
Net income.................... $ 6,802,357 ($ 239,074) ($ 307,780)
=========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
B-3
<PAGE> 19
WJLB/WMXD, DETROIT
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
DECEMBER 31, -----------------------
1996 1996 1997
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................... $ 6,802,357 ($ 239,074) ($ 307,780)
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization...... 2,414,614 600,888 606,388
Loss on sale of equipment.......... 1,800 -- --
Changes in assets and liabilities:
Decrease in receivables, net..... 3,883,442 1,164,150 169,659
Decrease (increase) in prepaid
expenses...................... 25,952 (50,134) 400
(Decrease) increase in payables
and accrued expenses.......... (902,306) (431,298) 427,456
Increase (decrease) in interest
payable....................... 21,984 37,092 (53,080)
----------- ---------- ----------
Net cash provided by operating
activities.................. 12,247,843 1,081,624 843,043
----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................. (116,092) (12,715) --
----------- ---------- ----------
Net cash (used in) investing
activities.................. (116,092) (12,715) --
----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in amounts transferred to
central office..................... (13,398,406) (2,429,287) (3,296,193)
Net (payments) of long-term debt...... (261,417) (261,417) --
Capital contributions................. 1,526,531 1,813,070 2,453,168
----------- ---------- ----------
Net cash (used in) financing
activities.................. (12,133,292) (877,634) (843,025)
----------- ---------- ----------
NET (DECREASE)/INCREASE IN CASH AND CASH
EQUIVALENTS........................... (1,541) 191,275 18
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD............................. 2,735 2,737 1,194
----------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................ $ 1,194 $ 194,012 $ 1,212
=========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
B-4
<PAGE> 20
WJLB/WMXD, DETROIT
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) BUSINESS AND BASIS OF PRESENTATION:
Secret Communications Limited Partnership ("Secret") owns WJLB-FM and
WMXD-FM (the "Stations"). The Stations are licensed to and serve Detroit,
Michigan. The accompanying combined financial statements include the accounts of
the Stations after eliminating all significant intercompany accounts and
transactions.
Secret was formed in 1994 and on August 1, 1994, the general partners of
Secret contributed substantially all of the assets and debt of several radio
stations to Secret. The Stations were among those included in this initial
contribution.
As further described in Note 5, Secret entered into an agreement to sell
substantially all of the assets of the Stations to Evergreen Media Corporation
of Los Angeles ("Evergreen").
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Cash Equivalents
Cash equivalents include overnight repurchase agreements backed by United
States securities.
(b) Trade Agreements
The Stations have entered into trade agreements which provide for the
exchange of advertising time for merchandise or services and are recorded at the
estimated fair market value of the goods or services to be received. Trade
receivables and trade payables represent the outstanding obligations of the
parties to the trade agreements as of the end of the year. Trade revenues are
recognized as the advertisements are broadcast. Trade expenses are recognized as
the services or merchandise is used.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets. Repair and maintenance costs are charged to expense when
incurred.
(d) Intangible Assets
Intangible assets are recorded at their appraised values and are amortized
using the straight-line method over estimated periods of benefit up to 40 years.
Should events or circumstances occur subsequent to the acquisition of a station
which bring into question the realizable value or impairment of the related
goodwill and intangibles, Secret will evaluate the remaining useful life and
balance of intangibles and make appropriate adjustments. Secret's principal
considerations in determining impairment include the strategic benefit to Secret
of the particular station and the current and expected future operating income
and cash flow levels of that particular station.
(e) Revenue Recognition
Advertising revenues are recognized as advertisements are broadcast.
(g) Income Taxes
The accompanying combined financial statements do not reflect provisions
for federal income taxes which are reported by the partners of Secret.
B-5
<PAGE> 21
WJLB/WMXD, DETROIT
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(h) Statement of Cash Flows
Cash of $1,383,709 was paid for interest during the year ended December 31,
1996. Cash of $184,278 was paid for state income taxes during the year ended
December 31, 1996.
(i) Use of Estimates
The preparation of these combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
(3) PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31, 1996:
<TABLE>
<CAPTION>
ESTIMATED USEFUL
1996 LIVES
----------- ----------------
<S> <C> <C>
Land.................................... $ 25,000 --
Buildings and leasehold improvements.... 526,618 5 -- 31.5 years
Broadcasting equipment.................. 554,611 5 -- 15 years
Furniture and fixtures.................. 189,678 5 years
Business equipment...................... 290,665 5 years
Vehicles................................ 50,507 5 years
-----------
1,637,079
Less: Accumulated depreciation.......... (616,755)
-----------
$ 1,020,324
===========
</TABLE>
(4) INTANGIBLE ASSETS:
Intangible assets consisted of the following at December 31, 1996:
<TABLE>
<CAPTION>
ESTIMATED USEFUL
1996 LIVES
----------- ----------------
<S> <C> <C>
FCC Licenses............................ $42,195,591 25 years
Advertiser relationships................ 3,069,763 7 years
Goodwill................................ 729,704 40 years
-----------
45,995,058
Less: Accumulated amortization.......... (5,182,878)
-----------
$40,812,180
===========
</TABLE>
(5) SALE OF STATIONS:
On August 12, 1996, Secret entered into a definitive agreement to sell
substantially all of the assets of the Stations to Evergreen. The agreement
closed on April 1, 1997. The assets sold included fixed assets and intangible
assets. In addition, Secret entered into a noncompete agreement covering the
Detroit market for three years. In consideration for the assets of the Stations
and the noncompete agreement, Evergreen paid Secret $168,000,000 on the closing
date. While this transaction was pending, Secret entered into a time brokerage
agreement with respect to the Stations which allowed Evergreen to purchase
substantially all of the broadcast time on the Stations. The agreement commenced
September 1, 1996 and expired on April 1, 1997. The revenue related to this
agreement is reflected in the combined statement of operations as LMA Income.
B-6
<PAGE> 22
WJLB/WMXD, DETROIT
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Stations agreed to pay bonuses to certain executives and key employees
if the individuals were employed by the Stations upon the close of the sale.
These bonuses were accrued ratably from the commitment date, October 1, 1996, to
April 1, 1997. At December 31, 1996, $400,500 is accrued for these stay bonuses,
with the related expense reflected in central office general and administrative
expenses. On April 1, 1997, the Stations paid $801,000 bonuses.
(6) LONG-TERM DEBT:
Long-term debt consisted of a senior reducing revolving credit facility at
December 31, 1996, which was used to recapitalize debt and to fund working
capital for Secret at August 1, 1994. The debt was allocated to the Stations
based on the ratio of the Stations' fair market value as compared to the total
fair market value of Secret at August 1, 1994. Additional borrowings and
repayments were allocated based on the same ratio if these borrowings and
repayments were related to the general operations of all the Secret stations.
Interest expense for the year ended December 31, 1996, was allocated to the
Stations based on the same ratio.
Borrowings under the revolving loans bear interest, at the option of Secret
at LIBOR or prime, plus a margin. The margin over LIBOR or prime varies from
time to time depending on Secret's ratio of debt to cash flow as defined in the
agreement. The interest rate on the reducing revolver at December 31, 1996,
ranged from 7.00% to 8.50%, with a weighted interest rate of 7.10%.
Amounts outstanding under the reducing revolver are payable in quarterly
installments beginning as early as June 30, 1995, and ending December 31, 2001.
The amounts payable depend on the amounts then outstanding and correspondingly
reduce the amount available to be borrowed. Based on debt outstanding, there
were no amortization payments required to be made in 1996. Amounts outstanding
under the revolving credit/term loan convert on June 30, 1997, to a term loan
payable in quarterly installments ending December 31, 2001. In addition to
scheduled amortization, Secret is required to repay revolving credit borrowings
each calendar year of up to 50% of the excess cash flow for that calendar year
as defined in the agreement, commencing with the year ending December 31, 1995.
Based on financial ratios at December 31, 1996, there is no excess cash flow
repayment due in 1997.
The senior credit facility limits indebtedness, capital expenditures, and
payment of distributions and requires certain financial ratios to be maintained
among other restrictions. At December 31, 1996, Secret was in compliance with
all provisions of its credit agreement. The senior credit facility is secured by
substantially all of the assets of Secret.
The future maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1997.................................... $ 1,252,950
1998.................................... 3,532,252
1999.................................... 4,198,715
2000.................................... 4,865,178
2001.................................... 5,931,518
-----------
$19,780,613
===========
</TABLE>
The fair value of the debt is equal to its carrying value.
On April 1, 1997, Secret repaid all amounts outstanding under its senior
credit facility.
B-7
<PAGE> 23
WJLB/WMXD, DETROIT
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(7) COMMITMENTS AND CONTINGENCIES:
The Stations have entered into operating leases with initial or remaining
non-cancelable terms in excess of one year. The future minimum rental payments
required for all such leases as of December 31, 1996, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ----------------------------------------
<S> <C>
1997.................................. $221,372
1998.................................. 221,372
1999.................................. 75,237
2000.................................. 46,009
2001.................................. 46,009
Future years.......................... 251,505
--------
Total minimum payments required......... $861,504
========
</TABLE>
Rent expense was $252,013 for the year ended December 31, 1996.
(8) RELATED PARTY TRANSACTIONS:
Central office general and administrative expenses represent an allocation
of charges incurred by Secret's headquarters for various administrative and
management services, including, but not limited to, salaries, bonuses,
management fees and service fees. The charges are allocated to the Stations
based on the total number of markets in which Secret owns stations. Amounts
charged to the Stations do not necessarily represent the amounts that would have
been incurred had the Stations operated as an unaffiliated entity. However,
management believes that these charges result in a reasonable level of general
and administrative expenses for the Stations.
Included in the central office general and administrative expenses are fees
charged to Secret by the two general partners for management and consulting
services provided to Secret. In addition, Lane Industries, Inc., a related party
to the administrative general partner of Secret, provides certain tax, legal,
financial, risk management and employee benefits services for an annual fee. The
amount allocated to the Stations for all such services provided by the general
partners amounted to $180,405 for the year ended December 31, 1996.
As described in Note 6, a portion of Secret's senior debt and interest
expense has been allocated to the Stations as of December 31, 1996, and for the
year then ended.
The Partners' Capital and Station Equity section of the Balance Sheet
consists of intercompany accounts, capital contributed by the partners and
retained earnings. These accounts reflect the original acquisition of the
Stations and the activity between the Stations and Secret, such as cash
transfers and expense allocations.
(9) DEFERRED SAVINGS PLAN:
Secret maintains a 401(k) savings plan in which the employees of the
Stations participate. Employees must have reached age 21 and have completed one
year of consecutive service to participate in the plan. Employees may contribute
up to 15% of their salaries in accordance with IRS limitations. Secret matches
employee contributions at a rate of 75% (up to 6%) of the employee's salary.
Secret's contribution to the plan related to the Stations was $70,694 for the
year ended December 31, 1996.
(10) NOTE TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
The accompanying unaudited interim combined financial statements have been
prepared in accordance with generally accepted accounting practices for interim
periods. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
B-8
<PAGE> 24
WJLB/WMXD, DETROIT
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
statements. It is suggested that these interim combined financial statements be
read in conjunction with the financial statements and notes thereto included
elsewhere in this document.
In the opinion of management, the unaudited interim combined financial
statements reflect all adjustments consisting of normal recurring adjustments
necessary to present fairly the combined financial position of the Stations as
of March 31, 1997, and the interim combined results of operations and cash flows
for all periods presented.
B-9
<PAGE> 25
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Beasley FM Acquisition Corp.:
We have audited the accompanying balance sheet of WDAS-AM/FM (station owned
and operated by Beasley FM Acquisition Corp.) as of December 31, 1996, and the
related statements of earnings and station equity and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of WDAS-AM/FM as of December
31, 1996, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
St. Petersburg, Florida
March 28, 1997
C-1
<PAGE> 26
WDAS-AM/FM
(STATION OWNED AND OPERATED BY
BEASLEY FM ACQUISITION CORP.)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash...................................................... $ 2,111 $ 2,805
Accounts receivable, less allowance for doubtful accounts
of $166 and $138 in 1996 and 1997...................... 3,693 2,938
Trade sales receivable.................................... 359 29
Prepaid expense and other................................. 150 130
------- -------
Total current assets.............................. 6,313 5,902
Property and equipment, net (note 2)........................ 3,297 3,523
Notes receivable from related parties (note 5).............. 2,766 3,625
Intangibles, less accumulated amortization.................. 17,738 17,122
------- -------
$30,114 $30,172
======= =======
LIABILITIES AND STATION EQUITY
Current liabilities:
Current installments of long-term debt (note 3)........... $ 49 $ 49
Notes payable to related parties (note 5)................. 352 494
Accounts payable.......................................... 269 191
Accrued expenses.......................................... 515 313
Trade sales payable....................................... 39 12
------- -------
Total current liabilities......................... 1,224 1,059
Long-term debt, less current installments (note 3).......... 627 627
------- -------
Total liabilities................................. 1,851 1,686
Station equity.............................................. 28,263 28,486
Commitments and related party transactions (notes 4 and
5)........................................................
------- -------
$30,114 $30,172
======= =======
</TABLE>
See accompanying notes to financial statements.
C-2
<PAGE> 27
WDAS-AM/FM
(STATION OWNED AND OPERATED BY
BEASLEY FM ACQUISITION CORP.)
STATEMENTS OF EARNINGS AND STATION EQUITY
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED MARCH 31,
DECEMBER 31, ------------------
1996 1996 1997
------------ ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues............................................... $14,667 $ 2,623 $ 3,000
------- ------- -------
Costs and expenses:
Program and production................................... 2,028 445 620
Technical................................................ 212 59 50
Sales and advertising.................................... 3,514 660 802
General and administrative............................... 2,005 497 459
------- ------- -------
7,759 1,661 1,931
------- ------- -------
Operating income, excluding items shown
separately
below.......................................... 6,908 962 1,069
Management fees (note 5)................................... (620) (156) (128)
Depreciation and amortization.............................. (2,763) (651) (657)
Interest income (expense), net............................. (40) (13) 7
Other...................................................... -- -- (78)
------- ------- -------
Net income....................................... 3,485 142 213
Station equity, beginning of period........................ 25,367 25,367 28,273
Forgiveness of related party note receivable (note 5)...... (589) -- --
------- ------- -------
Station equity, end of period.............................. $28,263 $25,509 $28,486
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
C-3
<PAGE> 28
WDAS-AM/FM
(STATION OWNED AND OPERATED BY BEASLEY FM ACQUISITION CORP.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED MARCH 31,
DECEMBER 31, -------------------------------
1996 1996 1997
------------ --------------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................... $ 3,485 $ 142 $ 213
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 2,763 651 657
Allowance for doubtful accounts................... 8 (56) (28)
Decrease (increase) in receivables................ (398) 792 1,113
(Increase) decrease) in prepaid expense and other
assets.......................................... (96) (104) 20
Decrease in payables and accrued expenses......... (507) (331) (297)
------- ----- ------
Net cash provided by operating activities.... 5,255 1,094 1,678
------- ----- ------
Cash flows from investing activities -- capital
expenditures for property and equipment.............. (775) (572) (267)
------- ----- ------
Cash flows from financing activities:
Proceeds from issuance of indebtedness............... 676 - -
Principal payments on indebtedness................... (820) - -
Payment of loan fees................................. (6) - -
Net change in borrowings to/from affiliates.......... (2,647) (305) (717)
------- ----- ------
Net cash used in financing activities........ (2,797) (305) (717)
------- ----- ------
Net increase in cash................................... 1,683 217 694
Cash at beginning of period............................ 428 428 2,111
------- ----- ------
Cash at end of period.................................. $ 2,111 $ 645 $2,805
======= ===== ======
Noncash transactions:
Forgiveness of related note receivable
Release of WDAS-AM/FM's obligations under a note
payable which related to obtaining an easement.
WDAS-AM/FM is now directly responsible for the costs
necessary to obtain this easement and has included
these costs in accrued expenses in the accompanying
balance sheet........................................ $ 350
=======
</TABLE>
See accompanying notes to financial statements.
C-4
<PAGE> 29
WDAS-AM/FM
(STATION OWNED AND OPERATED BY BEASLEY FM ACQUISITION CORP.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(IN THOUSANDS)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
WDAS-AM/FM (the Station) is a radio station operating in Philadelphia,
Pennsylvania. The assets, liabilities and operations of WDAS-AM/FM are part of
Beasley FM Acquisition Corp. (BFMA). These financial statements reflect only the
assets, liabilities and operations relating to radio station WDAS-AM/FM and are
not representative of the financial statements of BFMA.
(b) Revenue Recognition
Revenue is recognized as advertising air time is broadcast and is net of
advertising agency commissions. (c) Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method over the estimated lives of the assets, which range
from 5 to 31 years.
(d) Intangibles
Intangibles consist primarily of FCC licenses, which are amortized
straight-line over ten years. Other intangibles are amortized straight-line over
5 to 10 years.
(e) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
BFMA adopted the provisions of Statement of Financial Accounting Standards
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, on January 1, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Adoption of this Statement did not have
a material impact on the Station's financial position, results of operations, or
liquidity.
(f) Barter Transactions
Trade sales are recorded at the fair value of the products or services
received and totaled approximately $676 for the year ended December 31, 1996.
Products and services received and expensed totaled approximately $449 for the
year ended December 31, 1996.
(g) Income Taxes
BFMA has elected to be treated as an "S" Corporation under provisions of
the Internal Revenue Code. Under this corporate status, the stockholders of BFMA
are individually responsible for reporting their share of taxable income or
loss. Accordingly, no provision for federal or state income taxes has been
reflected in the accompanying financial statements.
C-5
<PAGE> 30
WDAS-AM/FM
(STATION OWNED AND OPERATED BY BEASLEY FM ACQUISITION CORP.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(h) Defined Contribution Plan
BFMA has a defined contribution plan which conforms with Section 401(k) of
the Internal Revenue Code. Under this plan, employees may contribute a minimum
of 1% of their compensation (no maximum) to the Plan. The Internal Revenue Code,
however, limited contributions to $9,500 in 1996. There are no employer matching
contributions.
(i) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from these estimates. To the
extent management's estimates prove to be incorrect, financial results for
future periods may be adversely affected.
(j) Interim Financial Statements
In the opinion of management, the accompanying unaudited interim financial
statements contain all adjustments, consisting of normal recurring accruals,
necessary to present fairly the financial position, results of operations, and
cash flows of the Station for the three-month periods ended March 31, 1997 and
1996 and as of March 31, 1997.
(2) PROPERTY AND EQUIPMENT
Property and equipment, at cost, is comprised of the following at December
31, 1996:
<TABLE>
<S> <C>
Land, buildings, and improvements........................... $2,204
Broadcast equipment......................................... 1,200
Office equipment and other.................................. 477
Transportation equipment.................................... 79
------
3,960
Less accumulated depreciation..................... (663)
------
$3,297
======
</TABLE>
(3) LONG-TERM DEBT
BFMA and six affiliates (the Group) refinanced their $100,000 revolving
credit loan on June 24, 1996. Under terms of the new agreement, the Group was
provided a revolving credit loan with an initial maximum commitment of $115,000.
The credit agreement was subsequently amended and the maximum commitment was
increased to $120,000. The Group's borrowings under the revolving credit loan
totaled $115,784 at December 31, 1996, of which $676 was allocated to
WDAS-AM/FM. The loan bears interest at either the base rate or LIBOR plus a
margin which is determined by the Group's debt to cash flow ratio. The base rate
is equal to the higher of the prime rate or the overnight federal funds
effective rate plus 0.5%. At December 31, 1996, the revolving credit loan
carried interest at an average rate of 8.61%. Interest is generally payable
monthly. The Group has entered into interest rate hedge agreements as discussed
in note 6.
The amount available under the Group's revolving credit loan will be
reduced quarterly beginning September 30, 1997 through its maturity on December
31, 2003. The loan agreement includes restrictive covenants and requires the
Group to maintain certain financial ratios. The loans are secured by the common
stock and substantially all assets of the Group.
C-6
<PAGE> 31
WDAS-AM/FM
(STATION OWNED AND OPERATED BY BEASLEY FM ACQUISITION CORP.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Annual maturities on the Group's revolving credit loan for the next five
years are as follows:
<TABLE>
<CAPTION>
DEBT
MATURITIES
----------
<S> <C>
1997........................................................ $ 8,434
1998........................................................ 12,650
1999........................................................ 13,800
2000........................................................ 14,950
2001........................................................ 15,525
Thereafter.................................................. 50,425
--------
Total............................................. $115,784
========
</TABLE>
S-AM/FM paid interest of approximately $79 in 1996.
(4) COMMITMENTS
On September 19, 1996, BFMA entered into an asset purchase agreement (APA)
with Evergreen Media Corporation of Los Angeles (Evergreen) for the sale of
WDAS-AM/FM. Under the terms of the APA, BFMA will convey substantially all of
the assets used in the operation of the station to Evergreen in exchange for a
purchase price of $103,000, subject to adjustment, to be paid in cash. BFMA
expects to close on this sale before July 1, 1997.
WDAS-AM/FM leases facilities and a tower under 10-year operating leases
which expire in July 2004 and January 2007, respectively. WDAS-AM/FM also leases
certain other office equipment on a month-to-month basis. Lease expense was
approximately $215 in 1996. Future minimum lease payments by year are summarized
as follows:
<TABLE>
<S> <C>
1997........................................................ $ 236
1998........................................................ 247
1999........................................................ 258
2000........................................................ 270
2001........................................................ 283
Thereafter.................................................. 1,275
------
$2,569
======
</TABLE>
In the normal course of business, the Station is party to various legal
matters. The ultimate disposition of these matters will not, in management's
judgment, have a material adverse effect on the Station's financial position.
(5) RELATED PARTY TRANSACTIONS
The Company has a management agreement with Beasley Management Company, an
affiliate of the Company's principal stockholder. Management fee expense under
the agreement was $620 in 1996.
The notes receivable from/payable to related parties are non-interest
bearing and are due on demand. A note receivable due from a related party of
$589 was forgiven in 1996.
C-7
<PAGE> 32
WDAS-AM/FM
(STATION OWNED AND OPERATED BY BEASLEY FM ACQUISITION CORP.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) FINANCIAL INSTRUMENTS
WDAS-AM/FM's significant financial instruments and the methods used to
estimate their fair value are as follows:
Revolving credit loan -- The fair value approximates carrying value
due to the loan being refinanced on June 24, 1996 and the interest rate
being based on current market rates.
Notes receivable from/payable to related parties -- It is not
practicable to estimate the fair value of these notes payable due to their
related party nature.
Interest rate swap, cap and collar agreements -- The Group entered
into an interest rate swap agreement with a notional amount of $15,000, an
interest rate cap agreement with a notional amount of $3,100, and an
interest rate collar agreement with a notional amount of $15,000 to act as
a hedge by reducing the potential impact of increases in interest rates on
the revolving credit loan. These agreements expire on various dates in
1999. The Group is exposed to credit loss in the event of nonperformance by
the other parties to the agreements. The Group, however, does not
anticipate nonperformance by the counterparties. The fair value of the
interest rate swap agreement is estimated using the difference between the
present value of discounted cash flows using the base rate stated in the
swap agreement (5.37%) and the present value of discounted cash flows using
the LIBOR rate at December 31, 1996. The fair values of the interest rate
cap agreement, which establishes a maximum base rate of 7.50%, and the
interest rate collar agreement, which establishes a minimum base rate of
4.93% and a maximum base rate of 6%, are estimated based on the amounts the
Group would expect to receive or pay to terminate the agreement. The
estimated fair value of each of these agreements is negligible.
C-8
<PAGE> 33
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Century Chicago Broadcasting, L.P.
In our opinion, the accompanying balance sheet and the related statements
of operations and partners' deficit and of cash flows present fairly, in all
material respects, the financial position of Century Chicago Broadcasting, L.P.
at December 31, 1996, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Chicago, Illinois
May 2, 1997
D-1
<PAGE> 34
CENTURY CHICAGO BROADCASTING, L.P.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, 1997 1996
-------------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 1,707,114 $ 1,832,410
Accounts receivable, net of allowance for doubtful
accounts of $286,000 and $283,000, respectively........ 2,030,226 2,504,875
Prepaid expenses and other assets......................... 227,876 217,353
------------ ------------
Total current assets.............................. 3,965,216 4,554,638
------------ ------------
Property and equipment:
Technical equipment....................................... 1,188,953 1,188,953
Office furniture and fixtures............................. 370,442 370,075
Leasehold improvements.................................... 212,814 212,814
------------ ------------
1,772,209 1,771,842
Less -- Accumulated depreciation.......................... (1,145,799) (1,101,549)
------------ ------------
Total property and equipment...................... 626,410 670,293
------------ ------------
Intangible assets, net (Note 4)............................. 1,934,838 1,946,778
------------ ------------
Deferred financing costs, net............................... 424,860 465,360
------------ ------------
Total assets...................................... $ 6,951,324 $ 7,637,069
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities:
Promissory note (Note 6).................................. $ 6,210,342 $ 6,036,785
Accounts payable and accrued expenses (Note 5)............ 898,072 968,424
Due to Century Broadcasting Corporation (Note 3).......... 10,298,226 11,203,224
Deferred option payment (Note 2).......................... 5,000,000 5,000,000
------------ ------------
Total current liabilities......................... 22,406,640 23,208,433
------------ ------------
Commitments and contingencies (Note 7)
------------ ------------
Partners' deficit, per accompanying statement............... (15,455,316) (15,571,364)
------------ ------------
Total liabilities and partners' deficit........... $ 6,951,324 $ 7,637,069
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
D-2
<PAGE> 35
CENTURY CHICAGO BROADCASTING, L.P.
STATEMENTS OF OPERATIONS AND PARTNERS' DEFICIT
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------------- DECEMBER 31,
1997 1996 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Gross revenues................................. $ 1,973,026 $ 1,454,573 $ 8,638,346
Less -- Agency commissions..................... (262,854) (198,089) (1,163,350)
------------ ------------ ------------
Net revenues........................... 1,710,172 1,256,484 7,474,996
------------ ------------ ------------
Operating expenses:
Programming.................................... 331,673 333,289 1,386,231
Selling........................................ 572,530 549,536 2,525,100
Promotion -- Television advertising............ -- 344,000 770,473
Promotion -- Other............................. 23,561 28,802 324,305
Technical...................................... 54,241 8,802 58,135
General and administrative..................... 303,947 278,093 1,148,298
Corporate overhead allocation.................. 45,000 45,000 181,000
Depreciation and amortization.................. 56,190 56,190 222,378
------------ ------------ ------------
Total operating expenses............... 1,387,142 1,643,712 6,615,920
------------ ------------ ------------
Income (loss) from operations.................... 323,030 (387,228) 859,076
Interest income.................................. 14,848 -- 63,572
Interest expense................................. (221,830) (316,010) (1,065,825)
------------ ------------ ------------
Net income (loss)................................ 116,048 (703,238) (143,177)
------------ ------------ ------------
Partners' deficit:
Beginning of period............................ (15,571,364) (15,428,187) (15,428,187)
------------ ------------ ------------
End of period.................................. $(15,455,316) $(16,131,425) $(15,571,364)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
D-3
<PAGE> 36
CENTURY CHICAGO BROADCASTING, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------- DECEMBER 31,
1997 1996 1996
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $ 116,048 $ (703,238) $ (143,177)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization expense................ 56,190 56,190 222,378
Corporate overhead allocation........................ 45,000 45,000 181,000
Amortization of deferred financing costs............. 40,500 39,000 161,581
Changes in assets and liabilities:
Accounts receivable, prepaid expenses and other
current assets.................................. 464,126 590,997 (400,707)
Accounts payable and accrued expenses.............. (70,352) (688,764) (1,231,606)
---------- ---------- -----------
Net cash provided by (used in) operating
activities.................................... 651,512 (660,815) (1,210,531)
---------- ---------- -----------
Cash flows from investing activities:
Additions to property and equipment..................... (367) (17,684) (36,758)
Deferred option payment................................. -- -- 5,000,000
---------- ---------- -----------
Net cash provided by (used in) investing
activities.................................... (367) (17,684) 4,963,242
---------- ---------- -----------
Cash flows from financing activities:
Repayment of promissory note............................ -- -- (4,500,000)
Deferred financing costs................................ -- (76,707) (87,421)
Increase (decrease) in due to Century Broadcasting
Corporation.......................................... (949,998) (385,001) 987,635
Proceeds from issuance of promissory note............... 173,557 1,109,219 1,646,004
---------- ---------- -----------
Net cash provided by (used in) financing
activities.................................... (776,441) 647,511 (1,953,782)
---------- ---------- -----------
Net change in cash and cash equivalents................... (125,296) (30,988) 1,798,929
Cash and cash equivalents:
Beginning of period..................................... 1,832,410 33,481 33,481
---------- ---------- -----------
End of period........................................... $1,707,114 $ 2,493 $ 1,832,410
---------- ---------- -----------
Cash paid for interest.................................... -- -- $ 100,000
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
D-4
<PAGE> 37
CENTURY CHICAGO BROADCASTING, L.P.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION:
Century Chicago Broadcasting, L.P. (CCBLP) is a limited partnership and the
licensee of Chicago radio station WPNT-FM (the Station). The general partner of
CCBLP is Century Broadcasting Corporation (Century) and the two limited partners
of CCBLP are directors and controlling stockholders of Century.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim financial data (unaudited)
The interim financial data as of March 31, 1997 and for each of the three
months ended March 31, 1997 and 1996 is unaudited. The accompanying unaudited
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments necessary
for a fair presentation of results of the interim periods have been made and
such adjustments were of a normal and recurring nature. The results of
operations and cash flows for the three months ended March 31, 1997 are not
necessarily indicative of the results that can be expected for the entire fiscal
year ending December 31, 1997.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
CCBLP considers all highly liquid investments with an original maturity of
90 days or less to be cash equivalents.
Revenue recognition
Revenues for radio time sales, which are generated primarily from clients
in the greater Chicago metropolitan area, are recognized when commercials are
broadcast. Accounts receivable are unsecured.
Property and equipment
Property and equipment are stated at cost. Maintenance and repairs are
charged against operations as incurred. Improvements and renewals are
capitalized. Depreciation is computed on a straight-line basis over the
estimated useful lives of the assets, generally ten years.
Intangible assets
Intangible assets represent goodwill and a broadcasting license. Intangible
assets related to acquisitions since 1971 are being amortized on a straight-line
basis over 40 years. Intangible assets of $347,137 related to the pre-1971
license acquisition are not being amortized as CCBLP believes there has been no
diminution of value. CCBLP periodically evaluates the carrying value of
intangible assets in relation to the future undiscounted cash flows of the
Station.
D-5
<PAGE> 38
CENTURY CHICAGO BROADCASTING, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Impairment of long-lived assets
Effective January 1, 1996, CCBLP adopted the provisions of 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).
This Statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. SFAS No. 121 requires an impairment loss to be
recognized if the sum of expected future cash flows (undiscounted and without
interest charges) is less than the carrying amount of the asset. Otherwise, an
impairment loss is not recognized. This Statement requires that long-lived
assets and certain identifiable intangibles to be disposed of be reported at the
lower of carrying amount or fair value less cost to sell. The adoption of SFAS
No. 121 did not have any impact on CCBLP's financial statements.
Deferred option payment
On June 27, 1996, CCBLP granted Evergreen Media Corporation of Los Angeles
(Evergreen) an option to purchase the Station. Under the terms of the option
agreement, Evergreen paid $5,000,000 to CCBLP in exchange for CCBLP's agreement
to sell the Station to Evergreen under the terms of a July 1, 1996 letter of
intent. The option price, which is non-refundable, has been recorded as a
deferred credit in the December 31, 1996 and March 31, 1997 balance sheets. See
Note 8.
Deferred financing costs
Deferred financing costs are amortized over the term of the related
indebtedness by the interest method. Such amortization totaled $161,581 in 1996
and is included in interest expense in the accompanying statement of operations.
The original cost of deferred financing costs being amortized was $753,658 at
December 31, 1996.
Income taxes
No provision for income taxes has been provided in the accompanying
financial statements because the tax effects of CCBLP's operations accrue
directly to its partners.
Fair value of financial instruments
CCBLP's financial instruments include cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses and a promissory note.
Management believes that the fair values of these financial instruments
approximate their respective carrying values.
NOTE 3 -- RELATED PARTY TRANSACTIONS:
Cash provided by or required for CCBLP's operations is transferred between
CCBLP and Century on a periodic basis. The amount recorded as Due to Century
Broadcasting Corporation is non-interest bearing and is not subject to stated
repayment terms. Accordingly, the financial statements do not reflect any
interest costs on the Due to Century Broadcasting Corporation balance. The
average Due to Century Broadcasting balance was $11,052,000 during the year
ended December 31, 1996.
Century provides certain managerial, treasury, accounting, tax and legal
services to CCBLP. An allocation of the estimated cost of these services has
been reflected in the accompanying statements of operations based on the
estimated time spent by Century personnel providing such services. In the
opinion of management, the costs allocated to CCBLP for services provided by
Century are reasonable.
D-6
<PAGE> 39
CENTURY CHICAGO BROADCASTING, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- INTANGIBLE ASSETS:
Intangible assets as of December 31 consist of the following:
<TABLE>
<CAPTION>
1996
----------
<S> <C>
Broadcasting license........................................ $2,035,081
Goodwill.................................................... 222,137
----------
2,257,218
Less -- Accumulated amortization............................ (310,440)
----------
$1,946,778
==========
</TABLE>
Amortization expense related to these intangibles was $47,760 for the year
ended December 31, 1996.
NOTE 5 -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses at December 31 consist of the
following:
<TABLE>
<CAPTION>
1996
--------
<S> <C>
Accounts payable............................................ $ 31,098
Accrued interest and loan fees.............................. 473,558
Accrued employee compensation............................... 188,520
Other accrued expenses...................................... 275,248
--------
$968,424
========
</TABLE>
NOTE 6 -- PROMISSORY NOTE:
On March 15, 1991, CCBLP entered into a Loan Agreement with a financial
institution. This Loan Agreement was amended and supplemented at various times
since its inception.
As of January 31, 1996, an amendment was executed to provide CCBLP the
ability to borrow an additional $1,000,000 ($845,000 for working capital
purposes and $155,000 for the payment of interest). Additionally, the amendment
provided that upon the consummation of Century's sale of its Denver radio
stations CCBLP would prepay $4,500,000 of the promissory note. The sale and
prepayment were completed in June 1996. Following the prepayment, the lender
made an additional $1,000,000 available to CCBLP to fund future debt service and
interest payments to the lender. During 1996, interest payments of $901,100 were
made by CCBLP of which $100,000 was paid in cash and the remaining balance was
paid through additional borrowings under the amended agreement. At December 31,
1996 and March 31, 1997, CCBLP had additional available line of credit totaling
$463,000 and $289,000, respectively, subject to the terms and conditions of the
agreement.
Interest, payable quarterly, accrues at a Formula Rate which varies based
upon certain financial measures. Such Formula Rate generally ranges from the
prime lending rate (8.25% at December 31, 1996) plus 2% to the prime lending
rate plus 3%. As of December 31, 1996, the Formula Rate in effect for CCBLP was
11.25%.
Principal payments on the promissory note are due in twelve consecutive,
quarterly installments beginning on April 1, 1997 with aggregate annual
principal payments of $450,000 in 1997, $750,000 in 1998, $950,000 in 1999 and
any remaining amounts (including principal, interest and the remaining $300,000
of Loan Fees) due on January 1, 2000.
The Loan Agreement contains various restrictive covenants that, among other
things, require CCBLP, an affiliated limited partnership and Century to
individually (and on a consolidated basis with respect to
D-7
<PAGE> 40
CENTURY CHICAGO BROADCASTING, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Century) maintain minimum levels of operating cash flow, limit distributions
from CCBLP and/or an affiliated limited partnership to their respective partners
and place restrictions on the assumption and payment of Century expenses by
CCBLP or the affiliated limited partnership.
Upon notification from the lender, a prepayment equal to 50% of the
adjusted cash flow, as defined in the Loan Agreement, may be required provided
that such payment does not reduce cash on hand to a level below $1,000,000. The
promissory note evidencing CCBLP's obligation to the lender is secured by
substantially all of the assets of CCBLP and Century (including, but not limited
to, its partnership interests in CCBLP and an affiliated limited partnership)
and is guaranteed by Century and one of CCBLP's limited partners. Additionally,
both of CCBLP's limited partners have pledged their respective interests in
CCBLP as well as an affiliated limited partnership.
As more fully discussed in Note 8, CCBLP has entered into an agreement to
sell the Station and intends to use a portion of the proceeds to prepay the
promissory note in full. Additionally, certain technical covenant violations
have not been waived and there is uncertainty as to whether CCBLP and Century
will be able to meet such covenants prospectively. As such, the amounts
outstanding under the promissory note have been classified as current
liabilities in the accompanying balance sheets.
In the event that the promissory note is not prepaid in conjunction with
the aforementioned sale of the Station, management believes that operating cash
flows together with funds obtained from the additional borrowings as well as
from the option payment discussed above will provide sufficient working capital
to fund CCBLP's current operations. Additionally, management believes that the
lender will continue to forbear and not require CCBLP to repay the obligations
under the promissory note in advance of the stated maturities. Furthermore,
management believes in the event that operating cash flows were not sufficient
to support the Station's current operations and the sale of the Station were not
to be completed that additional financing would be available either from its
current lender or from other sources.
NOTE 7 -- COMMITMENTS:
CCBLP leases certain office space and equipment under various operating
leases. Rent expense included in the accompanying statement of operations for
the year ended December 31, 1996 in connection with these various operating
leases totaled $388,000. Future minimum rentals under noncancelable operating
leases in existence at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ---------
<S> <C>
1997........................................................ $ 375,000
1998........................................................ 370,000
1999........................................................ 339,000
2000........................................................ 248,000
2001........................................................ 288,000
Thereafter.................................................. 1,151,000
</TABLE>
CCBLP has entered into certain noncancelable agreements for ratings and
news services that require aggregate payments of approximately $358,000 in 1997,
$355,000 in 1998 and $172,000 in 1999.
D-8
<PAGE> 41
CENTURY CHICAGO BROADCASTING, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- STATION SALE:
On July 15, 1996, CCBLP entered into an Asset Purchase Agreement with
Evergreen Media Corporation of Chicago (Evergreen of Chicago) to sell
substantially all of the assets of the Station to Evergreen of Chicago for
approximately $68,750,000 in cash plus 96% of the accounts receivable balance at
the time of closing, as detailed in the Purchase Agreement, subject to certain
closing adjustments. In April 1997, the Federal Communications Commission
approved the transfer of the Station's broadcasting license to Evergreen of
Chicago. The sale of the Station is expected to close in the second quarter of
1997. On April 10, 1997, Evergreen of Chicago announced that it had entered into
an agreement with Bonneville International Corp. (Bonneville) to sell the assets
of the Station to Bonneville.
D-9
<PAGE> 42
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Evergreen Media Corporation:
We have audited the accompanying combined balance sheets of Riverside
Broadcasting Co., Inc. and WAXQ Inc. as of December 31, 1995 and 1996, and the
related combined statements of earnings and cash flows for each of the years in
the three-year period ended December 31, 1996. These combined financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these combined 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 audits 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Riverside
Broadcasting Inc. and WAXQ Inc. as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
March 14, 1997
E-1
<PAGE> 43
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Accounts receivable, less allowance
for doubtful accounts of $99 in
1995, $208 in 1996 and $168 in
1997............................... $ 5,507 $ 9,713 $8,810
Prepaid expenses and other current
assets............................. 178 381 523
Deferred income taxes................. 45 829 829
------- ------- -------
Total current assets.......... 5,730 10,923 10,162
Property and equipment, net (note 4).... 1,075 4,177 4,474
Intangible assets, net (note 5)......... 47,422 66,626 66,114
------- ------- -------
$54,227 $81,726 $80,750
======= ======= =======
LIABILITIES AND EQUITY
Current liabilities -- accounts payable
and accrued expenses.................. $ 1,167 $ 3,669 $1,977
Deferred income taxes................... 222 4,373 4,373
Equity (note 9)......................... 52,838 73,684 74,400
Commitments and contingencies (note
10)...................................
------- ------- -------
$54,227 $81,726 $80,750
======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
E-2
<PAGE> 44
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
COMBINED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross revenues.......................... $28,254 $25,862 $37,321 $ 6,224 $11,072
Less agency commissions and national
rep fees........................... 4,700 4,342 5,892 1,013 1,799
------- ------- ------- ------- -------
Net revenues.................. 23,554 21,520 31,429 5,211 9,273
------- ------- ------- ------- -------
Operating expenses:
Station operating expenses excluding
depreciation and amortization...... 9,212 9,069 12,447 2,238 4,179
Depreciation and amortization......... 1,662 1,676 4,528 419 632
Corporate general and
administrative..................... 945 980 943 255 221
------- ------- ------- ------- -------
Operating expenses................. 11,819 11,725 17,918 2,912 5,032
------- ------- ------- ------- -------
Operating income................... 11,735 9,795 13,511 2,299 4,241
Other expense (note 3).................. -- -- 459 -- --
------- ------- ------- ------- -------
Earnings before income taxes....... 11,735 9,795 13,052 2,299 4,241
Income tax expense (note 6)............. 6,053 5,154 6,683 1,168 2,168
------- ------- ------- ------- -------
Net earnings.................. $ 5,682 $ 4,641 $ 6,369 $ 1,131 $ 2,073
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
E-3
<PAGE> 45
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Cash flows provided by operating activities:
Net earnings................................... $ 5,682 $ 4,641 $ 6,369 $ 1,131 $ 2,073
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation................................ 153 168 286 42 120
Amortization of goodwill.................... 1,509 1,508 1,811 377 512
Changes in certain assets and liabilities:
Deferred income taxes..................... 32 110 (603) -- --
Accounts receivable, net.................. (676) 659 (4,172) 693 903
Prepaid expenses and other current
assets................................. 12 103 (203) (92) (142)
Accounts payable and accrued expenses..... (192) (483) 2,502 (200) (1,692)
------- ------- ------- ------- -------
Net cash provided by operating
activities........................... 6,520 6,706 5,990 1,951 1,774
------- ------- ------- ------- -------
Cash flows used by investing activities --capital
expenditures................................... (150) (129) (695) (125) (417)
------- ------- ------- ------- -------
Net cash used by financing
activities -- distribution to parent........... (6,370) (6,577) (5,295) (1,826) (1,357)
------- ------- ------- ------- -------
Increase (decrease) in cash...................... -- -- -- -- --
Cash at beginning of period...................... -- -- -- -- --
------- ------- ------- ------- -------
Cash at end of period............................ $ -- $ -- $ -- $ -- $ --
======= ======= ======= ======= =======
Noncash financing activities -- contribution of
radio station net assets by parent (note 3).... $ -- $ -- $19,772 $ -- --
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
E-4
<PAGE> 46
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of
Riverside Broadcasting Co., Inc. and WAXQ Inc. (collectively, the "Company").
The Company owns and operates two commercial radio stations in the New York City
market -- WLTW-FM and WAXQ-FM and is wholly owned by Viacom International Inc.
("Viacom" or "Parent"), a wholly owned subsidiary of Viacom, Inc. Significant
intercompany accounts and transactions have been eliminated in combination.
On February 16, 1997, Viacom entered into a stock purchase agreement to
sell all the issued and outstanding shares of capital stock of WAXQ Inc. and
Riverside Broadcasting Co., Inc. in the New York City market, KYSR Inc. and KIBB
Inc. in the Los Angeles market, Viacom Broadcasting East Inc. and WMZQ Inc. in
the Washington, DC market, WLIT Inc. in the Chicago market and WDRQ Inc. in the
Detroit market (collectively, the "Viacom Radio Properties") to Evergreen Media
Corporation of Los Angeles ("Evergreen"), for $1.075 billion in cash ("Proposed
Transaction"). The Proposed Transaction is expected to close after the
expiration or termination of the applicable waiting periods under the HSR Act
and approval by the Federal Communications Commission ("FCC"). Contemporaneous
with this transaction, Evergreen entered into a joint purchase agreement with
Chancellor Broadcasting Company ("Chancellor") under which Chancellor agreed to
acquire the Chicago, Detroit and Los Angeles Viacom radio properties referred to
above for $480 million from Evergreen or from Viacom directly.
The accompanying combined financial statements reflect the carve-out
historical results of operations and financial position of Riverside
Broadcasting Co., Inc. and WAXQ Inc. These financial statements are not
necessarily indicative of the results that would have occurred if the Company
had been a separate stand-alone entity during the periods presented.
The financial statements do not include Viacom's corporate assets or
liabilities not specifically identifiable to the Company. Corporate overhead
allocations have been included in the accompanying statements of earnings in
corporate general and administrative expense and station operating expenses.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets. Repair and maintenance costs are charged to expense when
incurred.
(b) Intangible Assets
Intangible assets consist primarily of broadcast licenses. The Company
amortizes such intangible assets using the straight-line method over 40 years.
The Company continually evaluates the propriety of the carrying amount of
intangible assets as well as the amortization period to determine whether
current events or circumstances warrant adjustments to the carrying value and/or
revised estimates of useful lives. This evaluation consists of the projection of
undiscounted operating income before depreciation, amortization, nonrecurring
charges and interest over the remaining amortization periods of the related
intangible assets. At this time, the Company believes that no significant
impairment of intangible assets has occurred and that no reduction of the
estimated useful lives is warranted.
(c) Barter Transactions
The Company trades commercial air time for goods and services used
principally for promotional, sales and other business activities. An asset and
liability are recorded at the fair market value of the goods or
E-5
<PAGE> 47
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
services to be received. Barter revenue is recorded and the liability relieved
when commercials are broadcast and barter expense is recorded and the asset
relieved when goods or services are received or used.
(d) Revenue Recognition
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
(e) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable earnings. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount more likely than not to be realized. Income
tax expense is the total of tax payable for the period and the change during the
period in deferred tax assets and liabilities.
(f) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. 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 exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
(g) Fair Value
The carrying amount of accounts receivable and accounts payable
approximates fair value because of the short maturity of these instruments.
(h) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In the opinion of management, credit risk with respect to trade receivables
is limited due to the large number of diversified customers in the Company's
customer base. The Company performs ongoing credit evaluations of its customers
and believes that adequate allowances for any uncollectible trade receivables
are maintained. No one customer accounted for more than 10% of net revenues in
1994, 1995, or 1996.
(i) Unaudited Interim Financial Information
In the opinion of management, the unaudited interim combined financial
statements as of and for the three months ended March 31, 1996 and 1997, reflect
all adjustments, consisting of only normal and recurring
E-6
<PAGE> 48
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
items, which are necessary for a fair presentation of the results for the
interim periods presented. The results for the interim periods ended March 31,
1996 and 1997 are not necessarily indicative of results to be expected for any
other interim period or for the full year.
(3) ACQUISITIONS AND DISPOSITIONS
On August 1, 1996, Viacom exchanged the assets of KBSG-AM/FM and KNDD-FM in
Seattle for the assets of WAXQ-FM in New York. The transaction was accounted for
as a nonmonetary exchange and was based on the recorded amounts of the
nonmonetary assets relinquished. For the period from July 1, 1996 to July 31,
1996, Viacom operated WAXQ-FM under a time brokerage agreement.
Station start-up costs, including fees paid pursuant to the time brokerage
agreement, amounting to $2,431,000, were capitalized and amortized during 1996.
Acquisition-related costs are reflected in the accompanying financial statements
as other expense.
A summary of net assets relinquished by Viacom in connection with the
exchange is as follows:
<TABLE>
<S> <C>
Working capital............................................. $ 34
Property and equipment...................................... 2,693
Intangible assets........................................... 21,015
Deferred taxes.............................................. (3,970)
-------
$19,772
=======
</TABLE>
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1995 and
1996:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1995 1996
----------- ------ ------
<S> <C> <C> <C>
Broadcast facilities.................................. 8-20 years $1,971 $4,783
Office equipment and other............................ 5-8 years 557 754
Construction in progress.............................. 10 389
------ ------
2,538 5,926
Accumulated depreciation.............................. 1,463 1,749
------ ------
$1,075 $4,177
====== ======
</TABLE>
(5) INTANGIBLE ASSETS
Intangible assets at December 31, 1995 and 1996 consist of broadcast
licenses which are being amortized over forty years and are presented net of
accumulated amortization of $13,177 and $14,988, respectively.
(6) INCOME TAXES
The Company's results of operations are included in the combined U.S.
federal and certain combined and separate state income tax returns of Viacom
International Inc.
The tax provisions and deferred tax liabilities presented have been
determined as if the Company were a stand-alone business filing separate tax
returns. Current tax liabilities are recorded through the equity account with
Viacom.
E-7
<PAGE> 49
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Current:
Federal.................................................. $3,889 $3,258 $4,672
State and local.......................................... 2,132 1,786 2,614
Deferred:
Federal.................................................. 21 71 (356)
State.................................................... 11 39 (247)
------ ------ ------
$6,053 $5,154 $6,683
====== ====== ======
</TABLE>
A reconciliation of the U.S. Federal statutory tax rate to the Company's
effective tax rate on earnings before income taxes is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. tax rate..................................... 35.0% 35.0% 35.0%
Amortization of intangibles................................. 4.6 5.4 4.3
State and local taxes, net of federal tax benefit........... 11.9 12.1 11.8
Other, net.................................................. 0.1 0.1 0.1
---- ---- ----
Effective tax rate........................................ 51.6% 52.6% 51.2%
==== ==== ====
</TABLE>
Deferred tax assets and liabilities are computed by applying the U.S.
federal income tax rate in effect to the gross amounts of temporary differences
and other tax attributes. These temporary differences are primarily the result
of fixed asset basis differences and bad debt expense.
(7) DEBT AND INTEREST COST
Viacom has not allocated any portion of its debt or related interest cost
to the Company, and no portion of Viacom's debt is specifically related to the
operations of the Company. Accordingly, the Company's financial statements
include no charges for interest.
(8) RELATED PARTY TRANSACTIONS
Intercompany balances between the Company and Viacom resulting from normal
trade activity are reflected in Equity in the accompanying combined financial
statements (see note 9).
Viacom provides services for the Company in management, accounting and
financial reporting, human resources and information systems. The allocation of
these expenses, which is generally based on revenue dollars, is reflected in the
accompanying combined financial statements as corporate general and
administrative expense. Management believes that the method of allocation of
corporate overhead is reasonable.
Viacom has a noncontributory pension plan covering substantially all of its
employees, including the employees of the Company. Costs related to these plans
are allocated to the Company based on payroll dollars. The Company recognized
expense related to these costs in the amounts of $63, $41 and $97 for 1994, 1995
and 1996, respectively. The assets and the related benefit obligation of the
plans will not be transferred to the Company upon consummation of the Proposed
Transaction, therefore, such assets and obligations are not included in the
notes to the Company's combined financial statements.
Viacom utilizes a centralized cash management system. As a result, the
Company carries minimal cash. Disbursements are funded by the Parent upon demand
and cash receipts are transferred to the Parent daily.
E-8
<PAGE> 50
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company, from time to time, enters into transactions with companies
owned by or affiliated with Viacom. Generally, services received from such
related parties are charged to the Company at amounts which would be incurred in
transactions between unrelated entities.
(9) EQUITY
Equity represents Viacom's ownership interest in the recorded net assets of
the Company. All cash transactions and intercompany transactions flow through
the equity account. A summary of the activity is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of period.......... $ 55,462 $ 54,774 $ 52,838
Net earnings............................ 5,682 4,641 6,369
Net intercompany activity............... (6,370) (6,577) 14,477
-------- -------- --------
Balance at end of period................ $ 54,774 $ 52,838 $ 73,684
======== ======== ========
</TABLE>
(10) COMMITMENTS AND CONTINGENCIES
The Company has noncancelable operating leases, primarily for office space.
These leases generally contain renewal options for periods ranging from one to
ten years and require the Company to pay all executory costs such as maintenance
and insurance. Rental expense for operating leases (excluding those with lease
terms of one month or less that were not renewed) was approximately $192, $155
and $442 during 1994, 1995 and 1996, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1996
are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1997.................................... $ 709
1998.................................... 722
1999.................................... 759
2000.................................... 795
2001.................................... 818
Thereafter.............................. 2,411
------
$6,214
======
</TABLE>
E-9
<PAGE> 51
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Evergreen Media Corporation:
We have audited the accompanying combined balance sheets of WMZQ Inc. and
Viacom Broadcasting East Inc. as of December 31, 1995 and 1996, and the related
combined statements of earnings and cash flows for each of the years in the
three-year period ended December 31, 1996. These combined financial statements
are the responsibility of the Companies' management. Our responsibility is to
express an opinion on these combined 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 audits 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of WMZQ Inc.
and Viacom Broadcasting East Inc. as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
March 14, 1997, except for note 10,
which is as of April 14, 1997
F-1
<PAGE> 52
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------ MARCH 31,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Accounts receivable, less allowance
for doubtful accounts of $150 in
1995, $235 in 1996 and $152 in
1997............................... $ 4,893 $ 5,401 $ 4,283
Prepaid expenses and other current
assets............................. 467 629 811
Deferred income taxes (note 5)........ 60 94 94
------- ------- -------
Total current assets.......... 5,420 6,124 5,188
Property and equipment, net (note 3).... 2,407 2,316 2,339
Intangible assets, net (note 4)......... 50,204 48,695 48,319
------- ------- -------
$58,031 $57,135 $55,846
======= ======= =======
LIABILITIES AND EQUITY
Current liabilities -- accounts payable
and accrued expenses.................. $ 2,411 $ 2,458 $ 2,325
Deferred income taxes (note 5).......... 1,899 2,121 2,123
Equity (note 8)......................... 53,721 52,556 51,398
Commitments and contingencies (note
9)....................................
------- ------- -------
$58,031 $57,135 $55,846
======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-2
<PAGE> 53
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
COMBINED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------- ---------------
1994 1995 1996 1996 1997
------- ------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross revenues..................................... $21,389 $25,656 $26,584 $5,676 $5,955
Less agency commissions and national rep fees.... 3,321 4,131 4,075 838 989
------- ------- ------- ------ ------
Net revenues............................. 18,068 21,525 22,509 4,838 4,966
------- ------- ------- ------ ------
Operating expenses:
Station operating expenses excluding depreciation
and amortization.............................. 10,398 11,445 11,362 2,528 2,738
Depreciation and amortization.................... 1,798 1,814 1,884 453 469
Corporate general and administrative............. 694 940 674 218 120
------- ------- ------- ------ ------
Operating expenses............................ 12,890 14,199 13,920 3,199 3,327
------- ------- ------- ------ ------
Earnings before income taxes.................. 5,178 7,326 8,589 1,639 1,639
Income tax expense (note 5)........................ 2,607 3,437 3,929 749 778
------- ------- ------- ------ ------
Net earnings............................. $ 2,571 $ 3,889 $ 4,660 $ 890 $ 861
======= ======= ======= ====== ======
</TABLE>
See accompanying notes to combined financial statements.
F-3
<PAGE> 54
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows provided by operating
activities:
Net earnings.......................... $ 2,571 $ 3,889 $ 4,660 $ 890 $ 861
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation....................... 289 305 375 75 93
Amortization of goodwill........... 1,509 1,509 1,509 378 376
Deferred income tax expense........ 323 302 188 -- 2
Changes in certain assets and
liabilities, net of effects of
acquisitions:
Accounts receivable, net......... 179 (1,485) (508) 1,380 1,118
Prepaid expenses and other
current assets................ 14 (121) (162) (526) (182)
Accounts payable and accrued
expenses...................... (559) 20 47 70 (133)
------- ------- ------- ------- -------
Net cash provided by operating
activities.................. 4,326 4,419 6,109 2,267 2,135
------- ------- ------- ------- -------
Cash flows used by investing
activities -- capital expenditures.... (194) (491) (284) (44) (116)
------- ------- ------- ------- -------
Cash flows used by financing
activities -- distribution to
Parent................................ (4,132) (3,928) (5,825) (2,223) (2,019)
------- ------- ------- ------- -------
Increase (decrease) in cash............. -- -- -- -- --
Cash at beginning of period............. -- -- -- -- --
------- ------- ------- ------- -------
Cash at end of period................... $ -- $ -- $ -- $ -- $ --
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE> 55
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of WMZQ
Inc. and Viacom Broadcasting East Inc. (collectively, the "Company"). The
Company owns and operates four commercial radio stations in the Washington, DC
market, WMZQ-FM, WJZW-FM, WBZS-AM and WZHF-AM, and is wholly owned by Viacom
International Inc. ("Viacom" or "Parent"), a wholly owned subsidiary of Viacom,
Inc. Significant intercompany accounts and transactions have been eliminated in
combination.
On February 16, 1997, Viacom International Inc. entered into a stock
purchase agreement to sell all the issued and outstanding shares of capital
stock of WAXQ Inc. and Riverside Broadcasting Co., Inc. in the New York City
market, KYSR Inc. and KIBB Inc. in the Los Angeles market, Viacom Broadcasting
East Inc. and WMZQ Inc. in the Washington, DC market, WLIT Inc. in the Chicago
market and WDRQ Inc. in the Detroit market (collectively the "Viacom Radio
Properties") to Evergreen Media Corporation for $1.075 billion in cash
("Proposed Transaction"). The Proposed Transaction is expected to close after
the expiration or termination of the applicable waiting periods under the HSR
Act and approval by the Federal Communications Commission ("FCC").
Contemporaneous with this transaction, Evergreen entered into a joint purchase
agreement with Chancellor Broadcasting Company ("Chancellor"), under which
Chancellor agreed to acquire the Chicago, Detroit and Los Angeles Viacom Radio
Properties referred to above for $480 million from Evergreen or from Viacom
directly.
The accompanying combined financial statements reflect the carve-out
historical results of operations and financial position of WMZQ Inc. and Viacom
Broadcasting East, Inc. These financial statements are not necessarily
indicative of the results that would have occurred if the Company had been a
separate stand-alone entity during the periods presented.
The financial statements do not include Viacom's corporate assets or
liabilities not specifically identifiable to the Company. Corporate overhead
allocations have been included in the accompanying statements of earnings in
corporate general and administrative expense and station operating expenses.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets. Repair and maintenance costs are charged to expense when
incurred.
(b) Intangible Assets
Intangible assets consist primarily of broadcast licenses. The Company
amortizes such intangible assets using the straight-line method over 40 years.
The Company continually evaluates the propriety of the carrying amount of
intangible assets as well as the amortization period to determine whether
current events or circumstances warrant adjustments to the carrying value and/or
revised estimates of useful lives. This evaluation consists of the projection of
undiscounted operating income before depreciation, amortization, nonrecurring
charges and interest over the remaining amortization periods of the related
intangible assets. At this time, the Company believes that no significant
impairment of intangible assets has occurred and that no reduction of the
estimated useful lives is warranted.
(c) Barter Transactions
The Company trades commercial air time for goods and services used
principally for promotional, sales and other business activities. An asset and
liability are recorded at the fair market value of the goods or
F-5
<PAGE> 56
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
services to be received. Barter revenue is recorded and the liability relieved
when commercials are broadcast and barter expense is recorded and the asset
relieved when goods or services are received or used.
(d) Revenue Recognition
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
(e) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable earnings. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount more likely than not to be realized. Income
tax expense is the total of tax payable for the period and the change during the
period in deferred tax assets and liabilities.
(f) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. 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 exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
(g) Fair Value
The carrying amount of accounts receivable and accounts payable
approximates fair value because of the short maturity of these instruments.
(h) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In the opinion of management, credit risk with respect to trade receivables
is limited due to the large number of diversified customers in the Company's
customer base. The Company performs ongoing credit evaluations of its customers
and believes that adequate allowances for any uncollectible trade receivables
are maintained. No one customer accounted for more than 10% of net revenues in
1994, 1995, or 1996.
(i) Unaudited Interim Financial Information
In the opinion of management, the unaudited interim combined financial
statements as of and for the three months ended March 31, 1996 and 1997, reflect
all adjustments, consisting of only normal and recurring
F-6
<PAGE> 57
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
items, which are necessary for a fair presentation of the results for the
interim periods presented. The results for the interim periods ended March 31,
1996 and 1997 are not necessarily indicative of results to be expected for any
other interim period or for the full year.
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1995 and
1996:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1995 1996
--------------- ------ ------
<S> <C> <C> <C>
Broadcast facilities................................... 8 - 20 years $2,268 $2,366
Land................................................... 440 440
Building............................................... 30 - 40 years 146 146
Office equipment and other............................. 5 - 8 years 1,866 1,808
Construction in progress............................... -- 5
------ ------
4,720 4,765
------ ------
Accumulated depreciation............................... 2,313 2,449
------ ------
$2,407 $2,316
====== ======
</TABLE>
(4) INTANGIBLE ASSETS
Intangible assets at December 31, 1995 and 1996 consist of broadcast
licenses which are being amortized over forty years and are presented net of
accumulated amortization of $10,714 and $12,223, respectively.
(5) INCOME TAXES
The Company's results of operations are included in the U.S. federal and
certain combined and separate state income tax returns of Viacom International
Inc.
The tax provisions and deferred tax liabilities presented have been
determined as if the Company were a stand-alone business filing separate tax
returns. Current tax liabilities are recorded through the equity account with
Viacom.
Income tax expense consists of:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Current:
Federal................................................... $1,704 $2,434 $2,943
State and local........................................... 580 701 798
Deferred federal and state.................................. 323 302 188
------ ------ ------
$2,607 $3,437 $3,929
====== ====== ======
</TABLE>
F-7
<PAGE> 58
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the U.S. Federal statutory tax rate to the Company's
effective tax rate on earnings before income taxes is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. tax rate................. 35.0% 35.0% 35.0%
Amortization of intangibles............. 7.4 5.2 4.5
State and local taxes, net of federal
tax benefit........................... 7.9 6.7 6.2
Other, net.............................. 0.0 0.0 0.0
---- ---- ----
Effective tax rate.................... 50.3% 46.9% 45.7%
==== ==== ====
</TABLE>
Deferred tax assets and liabilities are computed by applying the U.S.
federal income tax rate in effect to the gross amounts of temporary differences
and other tax attributes. These temporary differences are primarily the result
of fixed asset basis differences and bad debt expense. Deferred tax assets and
liabilities relating to state income taxes are not material.
(6) DEBT AND INTEREST COST
Viacom has not allocated any portion of its debt or related interest cost
to the Company, and no portion of Viacom's debt is specifically related to the
operations of the Company. Accordingly, the Company's financial statements
include no charges for interest.
(7) RELATED PARTY TRANSACTIONS
Intercompany balances between the Company and Viacom resulting from normal
trade activity are reflected in Equity in the accompanying combined financial
statements (see note 8).
Viacom provides services for the Company in management, accounting and
financial reporting, human resources, information systems, legal, taxes and
other corporate services. The allocation of these expenses, which is generally
based on revenue dollars, is reflected in the accompanying financial statements
as corporate general and administrative expense. Management believes that the
method of allocation of corporate overhead is reasonable.
Viacom has a noncontributory pension plan covering substantially all of its
employees, including the employees of the Company. Costs related to these plans
are allocated to the Company based on payroll dollars and are included in
station operating expenses. The Company recognized expense related to these
costs in the amounts of $77, $74 and $242 for 1994, 1995 and 1996, respectively.
The assets and the related benefit obligation of the plans will not be
transferred to the Company upon consummation of the Proposed Transaction,
therefore, such assets and obligations are not included in the notes to the
Company's financial statements.
Viacom utilizes a centralized cash management system. As a result, the
Company carries minimal cash. Disbursements are funded centrally upon demand and
cash receipts are transferred to the Parent daily.
The Company, from time to time, enters into transactions with companies
owned by or affiliated with Viacom. Generally, services received from such
related parties are charged to the Company at amounts which would be incurred in
transactions between unrelated entities.
F-8
<PAGE> 59
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(8) EQUITY
Equity represents Viacom's ownership interest in the recorded net assets of
the Company. All cash transactions and intercompany transactions flow through
the equity account. A summary of the activity is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of period............................ $55,321 $53,760 $53,721
Net earnings.............................................. 2,571 3,889 4,660
Net intercompany activity................................. (4,132) (3,928) (5,825)
------- ------- -------
Balance at end of period.................................. $53,760 $53,721 $52,556
======= ======= =======
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES
The Company has noncancelable operating leases, primarily for office space.
These leases generally contain renewal options for periods ranging from 1 to 10
years and require the Company to pay all executory costs such as maintenance and
insurance. Rental expense for operating leases (excluding those with lease terms
of one month or less that were not renewed) was approximately $332, $356 and
$373 during 1994, 1995 and 1996, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1996
are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1997........................................................ $ 506
1998........................................................ 523
1999........................................................ 310
2000........................................................ 222
2001........................................................ 200
Thereafter.................................................. 814
------
$2,575
======
</TABLE>
(10) SUBSEQUENT EVENT
On April 14, 1997, Evergreen Media Corporation and Chancellor Broadcasting
Company entered into an agreement with ABC Radio ("ABC"), a division of The Walt
Disney Company, whereby ABC will purchase from Evergreen and Chancellor two
radio stations, WDRQ-FM and WJZW-FM for a total of $105 million.
F-9
<PAGE> 60
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- ----------------------
<C> <S>
23.1** -- Consent of KPMG Peat Marwick LLP, independent accountants
23.2** -- Consent of Arthur Andersen LLP, independent accountants
23.3** -- Consent of KPMG Peat Marwick LLP, independent accountants
23.4** -- Consent of Price Waterhouse LLP, independent accountants
</TABLE>
- ---------------
** Filed herewith
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Evergreen Media Corporation:
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (Nos. 33-83124 and 333-04379) of Evergreen Media Corporation of our
reports on the following financial statements: 1) the combined balance sheets of
WMZQ Inc. and Viacom Broadcasting East, Inc. as of December 31, 1995 and 1996
and the related combined statements of earnings and cash flows for each of the
years in the three-year period ended December 31, 1996; 2) the combined balance
sheets of Riverside Broadcasting Co., Inc. and WAXQ Inc. as of December 31, 1995
and 1996 and the related combined statements of earnings and cash flows for each
of the years in the three-year period ended December 31, 1996; and 3) the
balance sheets of KKSF-FM/KDFC-FM and AM (A Division of The Brown Organization)
as of December 31, 1995 and 1996 and the related statements of earnings and
division equity and cash flows for the years then ended, which reports appear in
the Form 8-K of Evergreen Media Corporation dated May 30, 1997.
KPMG Peat Marwick LLP
Dallas, Texas
June 2, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated May 8, 1997, in this Form 8-K of Evergreen Media Corporation dated May 30,
1997 and to the incorporation by reference in the Registration Statements on
Form S-8 (Nos. 33-83124 and 333-04379) of Evergreen Media Corporation. It should
be noted that we have not audited any financial statements of WJLB/WMXD, Detroit
subsequent to December 31, 1996 or performed any audit procedures subsequent to
the date of our report.
Arthur Andersen LLP
Chicago, Illinois
June 3, 1997
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Evergreen Media Corporation:
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (No. 33-83124 and 333-04379) of Evergreen Media Corporation of our
report on the balance sheet of WDAS-AM/FM (Station owned and operated by Beasley
FM Acquisition Corp.) as of December 31, 1996 and the related statements of
earnings and station equity and cash flows for the year then ended, which report
appears in the Form 8-K of Evergreen Media Corporation dated May 30, 1997.
KPMG Peat Marwick LLP
St. Petersburg, Florida
June 3, 1997
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (33-83124 and 333-04379) of Evergreen Media Corporation
of our report dated May 2, 1997 relating to the financial statements of Century
Chicago Broadcasting, L.P., which appears on page D-1 of this Form 8-K.
PRICE WATERHOUSE LLP
Chicago, Illinois
June 3, 1997
