<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): July 31, 1998
------------------------
Chancellor Media Corporation Chancellor Media Corporation of Los Angeles
---------------------------- -------------------------------------------
(Exact Name of Registrant as (Exact Name of Registrant as
Specified in Charter) Specified in Charter)
000-21570 333-32259
--------- ---------
(Commission File No.) (Commission File No.)
75-2247099 75-2451687
---------- ----------
(IRS Employer (IRS Employer
Identification No.) Identification No.)
Delaware Delaware
-------- --------
(State or Other Jurisdiction (State or Other Jurisdiction
of Incorporation) of Incorporation)
300 Crescent Court,
Suite 600
Dallas, Texas 75201
-------------------
(Address of Principal
Executive Offices)
(214) 922-8700
--------------
(Registrant's telephone
number, including area code)
<PAGE> 2
ITEM 2. Acquisition or Disposition of Assets.
On July 31, 1998, Chancellor Media Corporation of Los Angeles (together with
its subsidiaries, "the Company"), an indirect wholly-owned subsidiary of
Chancellor Media Corporation, consummated the acquisition of certain assets of
Martin Media and certain affiliated companies including Martin & MacFarlane,
Inc. ("Martin"), an outdoor advertising company with over 14,500 billboards and
outdoor displays in 12 states, for $591.7 million in cash plus working capital
and various other direct acquisition costs (the "Martin Acquisition"). The
purchase price of $591.7 million was determined as a result of an arms-length
negotiation between the Company and Martin, which are unrelated parties. The
Company borrowed under its senior credit facility with a syndicate of
commercial banks and other institutional lenders to finance the Martin
Acquisition. A copy of the Company's senior credit facility, listing the
commercial banks and other institutional lenders thereto, has previously been
filed with the Securities and Exchange Commission as Exhibit 4.10 to the
Current Report on Form 8-K of Evergreen Media Corporation, dated April 1, 1997
and filed on May 9, 1997. The assets acquired by the Company in the Martin
Acquisition constitute advertising signs and other physical property used in
the outdoor advertising business and will continue to be utilized by the
Company for such purposes.
2
<PAGE> 3
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits.
7(a) Financial Statements of Businesses Acquired
Historical financial statements for Martin Media as of December 31,
1996 and 1997 and for each of the years ended December 31, 1995, 1996 and 1997
and for the six months ended June 30, 1997 and 1998 and for Martin & MacFarlane,
Inc. as of December 31, 1997 and 1996 and June 30, 1995 and for each of the two
years in the period ended December 31, 1997 and six months in the period ended
December 31, 1995 and for the six months ended June 30, 1997 and 1998 and for
the year ended June 30, 1995 are included herein.
7(b) Pro Forma Financial Information
Pro forma financial information reflecting the Martin Acquisition has
been previously reported by the Company pursuant to the Form 8-K/A filed on
February 12, 1999.
7(c) Exhibits
(r) 2.45 Unit and Stock Purchase Agreement, by and among Chancellor
Media Corporation of Los Angeles, Martin Media, L.P.,
Martin & MacFarlane, Inc., Nevada Outdoor Systems,
Inc., MW Sign Corp. and certain sellers named therein,
dated as of June 19, 1998 (see table of contents for
list of omitted schedules and exhibits).
* 23.1 Consent of Arthur Andersen LLP, independent accountants.
* 23.2 Consent of Barbich Longcrier Hooper & King Accountancy
Corporation, independent auditors.
- ---------------------------
* Filed herewith.
(r) Incorporated by reference to the identically-numbered exhibit to the
Quarterly Report on Form 10-Q of Chancellor Media Corporation and
Chancellor Media Corporation of Los Angeles for the quarterly period
ending June 30, 1998, as amended.
3
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
of the registrants has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Chancellor Media Corporation Chancellor Media Corporation of Los Angeles
By: /s/ Thomas P. McMillin By: /s/ Thomas P. McMillin
-------------------------- ---------------------------------
Thomas P. McMillin Thomas P. McMillin
Senior Vice President and Senior Vice President and
Chief Financial Officer Chief Financial Officer
Date: February 12, 1999
4
<PAGE> 5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Martin Media:
We have audited the accompanying balance sheets of Martin Media (a
California limited partnership) as of December 31, 1997 and 1996 and the related
statements of operations, partners' capital (deficit), and cash flows for each
of the three years in the period ended December 31, 1997 (included at F-1
through F-18). These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Martin Media, as of December
31, 1997 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Bakersfield, California
February 13, 1998
F-1
<PAGE> 6
MARTIN MEDIA
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Current Assets
Cash and equivalents...................................... $ 23,254 $ 2,661,610
Trade accounts receivable, net of allowance for doubtful
accounts of $142,515 and $100,000 as of December 31,
1997 and 1996, respectively............................ 5,658,379 4,726,301
Current maturities of long-term notes receivable, limited
partners............................................... 136,030 132,956
Other receivables......................................... 113,514 100,892
Inventories, raw materials................................ 520,725 209,323
Prepaid expenses.......................................... 1,566,582 1,085,324
------------ -----------
Total current assets.............................. 8,018,484 8,916,406
------------ -----------
Long-Term Notes Receivable, limited partners, less current
maturities................................................ 281,279 317,309
Property and Equipment, net of accumulated depreciation..... 74,863,597 52,367,653
Intangible Assets, net of accumulated amortization.......... 58,446,919 15,872,530
Deposit on purchase option.................................. 463,800 --
------------ -----------
$142,074,079 $77,473,898
============ ===========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current Liabilities
Current maturities of long-term debt...................... $ 3,690,436 $ 5,339,365
Current maturities of capital lease obligations........... 214,380 135,586
Accounts payable.......................................... 627,590 928,712
Accrued expenses.......................................... 8,112,132 1,569,048
Unearned income........................................... 219,022 112,961
------------ -----------
Total current liabilities......................... 12,863,560 8,085,672
------------ -----------
Long-Term Liabilities
Long-term debt, less current maturities................... 109,232,810 66,752,424
Capital lease obligations, less current maturities........ 447,865 662,245
------------ -----------
Total long-term liabilities....................... 109,680,675 67,414,669
------------ -----------
Commitments (Note 10)
Mandatorily Redeemable
Preferred partnership units............................... 25,000,000 --
------------ -----------
Partners' Capital (Deficit)................................. (5,470,156) 1,973,557
------------ -----------
$142,074,079 $77,473,898
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE> 7
MARTIN MEDIA
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Income................................................ $48,106,851 $42,359,472 $33,732,821
Cost of sales......................................... 6,091,333 5,745,308 4,459,240
----------- ----------- -----------
Gross profit................................ 42,015,518 36,614,164 29,273,581
Managers' controlled operating expenses............... 21,201,914 20,929,536 16,861,406
----------- ----------- -----------
Income from managers' operations............ 20,813,604 15,684,628 12,412,175
----------- ----------- -----------
Other operating expenses:
Depreciation and amortization....................... 9,282,574 5,364,835 3,339,377
Management fees..................................... 1,937,326 1,277,431 1,111,350
Refinance and acquisition........................... 9,644,819 3,822,894 --
----------- ----------- -----------
20,864,719 10,465,160 4,450,727
----------- ----------- -----------
Operating income (loss)..................... (51,115) 5,219,468 7,961,448
----------- ----------- -----------
Nonoperating income (expenses):
Interest income..................................... 66,260 96,103 116,154
Interest expense.................................... (8,023,704) (6,022,001) (5,030,100)
Miscellaneous income................................ 1,077,184 252,653 283,597
Miscellaneous expense............................... -- (11,437) (92,682)
Loss on disposal of assets.......................... (512,338) (458,464) (378,358)
----------- ----------- -----------
(7,392,598) (6,143,146) (5,101,389)
----------- ----------- -----------
Net income (loss)........................... $(7,443,713) $ (923,678) $ 2,860,059
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 8
MARTIN MEDIA
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year............................ $ 1,973,557 $ 3,184,665 $ 822,406
Issuance of partnership units....................... -- 5,300,000 --
Redemption of partnership units..................... -- (5,260,230) --
Distributions....................................... -- (327,200) (497,800)
Net income (loss)................................... (7,443,713) (923,678) 2,860,059
----------- ----------- -----------
Balance, end of year.................................. $(5,470,156) $ 1,973,557 $ 3,184,665
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 9
MARTIN MEDIA
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................. $ (7,443,713) $ (923,678) $ 2,860,059
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization................ 9,282,574 5,364,835 3,339,377
Loss on disposal of assets................... 512,338 458,464 378,358
Changes in operating assets and liabilities
(exclusive of acquisitions):
Increase in accounts receivable........... (932,078) (1,047,834) 223,315
Increase in other receivables............. (12,622) (72,759) 24,091
(Increase) decrease in inventories, raw
materials............................... (311,402) 105,466 35,645
Increase in prepaid expenses.............. (481,258) (136,610) 53,372
Decrease in accounts payable.............. (301,122) (7,055) (195,463)
Increase in accrued expenses.............. 6,543,084 793,490 24,624
Increase in unearned income............... 106,061 84,915 (14,020)
------------ ------------ -----------
Net cash provided by operating
activities.............................. 6,961,862 4,619,234 6,729,358
------------ ------------ -----------
Cash flows from investing activities:
Principal payments on notes receivable............ 32,956 374,740 20,692
Issuance of notes receivable...................... -- (400,000) --
Proceeds from sale of property and equipment...... 49,460 63,801 79,236
Cash paid for acquisitions........................ (67,164,295) (17,200,000) (1,575,000)
Capital expenditures.............................. (7,750,411) (7,114,708) (1,762,978)
Proceeds from sale of investment.................. -- -- 970,482
Purchase option deposit........................... (463,800) -- --
------------ ------------ -----------
Net cash used in investing activities..... (75,296,090) (24,276,167) (2,267,568)
------------ ------------ -----------
Cash flows from financing activities:
Net (payments)/borrowings on line-of-credit....... -- (1,395,052) 601,324
Proceeds from issuance of long-term debt.......... 41,014,131 75,915,869 1,006,400
Principal payments on long-term debt.............. (318,259) (57,059,619) (3,522,394)
Distributions to partners......................... -- (327,200) (497,800)
Redemption of partnership units................... -- (5,260,230) --
Issuance of mandatorily redeemable preferred
partnership units.............................. 25,000,000 -- --
Issuance of partnership units..................... -- 5,000,000 --
------------ ------------ -----------
Net cash provided (used) by financing
activities.............................. 65,695,872 16,873,768 (2,412,470)
------------ ------------ -----------
Net increase (decrease) in cash and cash
equivalents....................................... (2,638,356) (2,783,165) 2,049,320
Cash and cash equivalents at beginning of year...... 2,661,610 5,444,775 3,395,455
------------ ------------ -----------
Cash and cash equivalents at end of year............ $ 23,254 $ 2,661,610 $ 5,444,775
============ ============ ===========
Supplemental disclosures of cash flow
information:
Interest paid................................ $ 8,085,486 $ 6,357,207 $ 5,036,375
============ ============ ===========
Income taxes paid............................ $ -- $ 7,349 $ 800
============ ============ ===========
</TABLE>
Supplemental disclosures of noncash investing and financing activities:
During the year ended December 31, 1997 long-term debt in the amount
of $84,845,560 was refinanced.
During the year ended December 31, 1996 long-term debt in the amount
of $1,684,215 was incurred to purchase fixed assets and intangible assets.
During the year ended December 31, 1996 notes receivables to
shareholders in the amount of $300,000 were issued for partnership units.
During the year ended December 31, 1995 long-term debt in the amount
of $318,900 was incurred to purchase sign structures.
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 10
MARTIN MEDIA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business
Martin Media, a California limited partnership (the Company), was formed in
December, 1984 and operated under the name of Colorado River Markets until
August, 1991. The Company has operating divisions located in Pennsylvania, Ohio,
Connecticut, Washington, D.C., Arizona and Nevada.
The Company owns and leases billboards on a contractual basis nationwide
for the purpose of providing outdoor advertising services. The Company extends
credit in the form of accounts receivable on a short-term basis to businesses
and advertisers doing business in the above noted areas.
Significant accounting policies
Basis of accounting
The financial statements are prepared on an accrual basis, which recognizes
income when earned and expenses when incurred.
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,
disclosures 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.
Cash and cash equivalents
The Company considers cash and cash equivalents to be all highly liquid
investments purchased with a maturity of three months or less.
Inventories, raw materials
Inventories are stated at the lower of cost or market using the first in,
first out (FIFO) cost method.
Property and equipment
Property and equipment are stated at cost and depreciated over estimated
useful lives primarily using the straight-line method. Repairs and maintenance
and small equipment purchases are expensed as incurred. Expenditures which
significantly increase asset values or extend useful lives are capitalized.
Estimated useful lives are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements.................................. 15-31
Posters..................................................... 25
Bulletins................................................... 25
Shop equipment.............................................. 3-10
Office furniture and equipment.............................. 5-10
Auto and trucks............................................. 5-7
</TABLE>
F-6
<PAGE> 11
MARTIN MEDIA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes
Under provision of the Internal Revenue Code and the respective state
Taxation Codes, partnerships are not subject to income taxes; any income or loss
realized is taxed to the individual partners. Certain states do impose a minimum
tax (franchise fee).
Intangible assets
Covenants not to compete are recorded at cost and are amortized using the
straight-line method over the contractual period specified.
Organization costs, advertising rights, permits and licenses, acquisition
fees, lease rights and goodwill are recorded at cost and are amortized using the
straight-line method over five years.
Loan fees are amortized over the life of the loan to which they are
associated.
Profit sharing plan
The Company adopted a profit sharing plan which is a qualified pension
trust under Section 401(k) of the Internal Revenue Code. All full-time employees
with twelve months of service who are 18 years old or older are eligible to
participate. Each employee may voluntarily contribute up to the lesser of 15% of
their pay or $9,500. The Company has made no contributions to the plan.
Fair value of financial instruments
The carrying amount of the long-term debt approximates fair value.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation.
2. LONG-TERM NOTES RECEIVABLE, LIMITED PARTNERS
Notes receivable, limited partners at December 31, 1997 and 1996 consisted
of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Barry Heffner, Manager of Pittsburgh Division, prime plus
2%, collateralized by subscription of one unit of Martin
Media, payable $717 per month including interest, due
September 27, 2001........................................ $ 18,758 $ 25,036
Mary Ellen Coleman, Manager of Scranton Division, prime plus
2%, collateralized by subscription of one unit of Martin
Media, payable $717 per month including interest, due
September 27, 2001........................................ 18,975 25,229
Brent Baer, Manager of Washington D.C. Division, 8%,
collateralized by 1/4 of one partnership unit, payable
$838 per month including interest, due December 28,
2001...................................................... 69,894 75,000
Thomas Jones, Manager of Las Vegas Division, 8%,
collateralized by 1/4 of one partnership unit, payable
$838 per month including interest, due December 28,
2001...................................................... 69,894 75,000
</TABLE>
F-7
<PAGE> 12
MARTIN MEDIA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
David Lamberger, National Sales Manager, 8%, collateralized
by 1/4 of one partnership unit, payable $838 per month
including interest, due December 28, 2001................. $ 69,894 $ 75,000
Lynn Terlaga, Manager of Hartford Division, 8%,
collateralized by 1/4 of one partnership unit, payable
$838 per month including interest, due December 28,
2001...................................................... 69,894 75,000
David Weyrich, 10%, unsecured, payable $833 per month
interest only, due November 27, 1997, paid in full
subsequent to December 31, 1997........................... 100,000 100,000
-------- --------
417,309 450,265
Less current maturities..................................... 136,030 132,956
-------- --------
$281,279 $317,309
======== ========
</TABLE>
Prime rate was 8.5% and 8.25% at December 31, 1997 and 1996, respectively.
NOTE 3. ACQUISITIONS
During 1997, the Company purchased substantially all the assets and assumed
certain liabilities of three outdoor advertising companies; during 1996, the
Company purchased substantially all of the assets and assumed certain
liabilities of one outdoor advertising company and exchanged partnership
interests and other consideration for substantially all of the assets, and
assumed certain liabilities, for another outdoor advertising company (the
"Exchange"). Funds used to make the acquisitions and facilitate the Exchange
were provided through the Company's credit facility. The majority of the
intangible assets acquired through the acquisitions and Exchange are being
amortized over a five year period. See Note 10 for acquisitions included above
which were acquired from a related party. Acquisitions during 1995 were not
significant.
The acquisitions were accounted for using the purchase method of accounting
and the purchase price was allocated to the various tangible and intangible
assets acquired. For the Exchange, the Company recorded the assets acquired and
liabilities assumed based on the fair value of the partnership interests
granted. Accordingly, the results of operations for the acquisitions, and the
Exchange, have been included in the results of the Company from the respective
effective dates.
A summary of the cash consideration and allocation of the purchase price as
of the acquisition dates are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Fair value of tangible assets acquired..................... $20,293,392 $ 8,420,000
Fair value of intangible assets acquired................... 46,870,903 11,870,455
Liabilities assumed........................................ -- (2,790,455)
Book value of partnership interests granted................ -- (300,000)
----------- -----------
Cash paid.................................................. $67,164,295 $17,200,000
=========== ===========
</TABLE>
Of the cash paid in 1996, approximately $5 million was utilized to redeem
existing partnership units in connection with the Exchange.
F-8
<PAGE> 13
MARTIN MEDIA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PREPAID EXPENSES
Prepaid expenses at December 31, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Leases...................................................... $1,279,243 $ 903,154
Insurance................................................... 41,541 32,545
Other....................................................... 196,064 124,726
Deposits.................................................... 49,734 24,899
---------- ----------
$1,566,582 $1,085,324
========== ==========
</TABLE>
5. PROPERTY AND EQUIPMENT
Major classes of property and equipment and accumulated depreciation at
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Land....................................................... $10,578,202 $ 936,954
Buildings and improvements................................. 5,349,404 218,947
Posters.................................................... 26,855,790 25,114,090
Bulletins.................................................. 44,189,355 36,314,244
Shop equipment............................................. 722,278 519,319
Office furniture and equipment............................. 649,696 449,391
Autos and trucks........................................... 1,951,625 1,662,820
Construction in process.................................... 402,892 215,744
----------- -----------
90,699,242 65,431,509
Less accumulated depreciation.............................. 15,835,645 13,063,856
----------- -----------
$74,863,597 $52,367,653
=========== ===========
</TABLE>
See Note 7 for collateralization of property and equipment.
Depreciation expense for the years ended December 31, 1997, 1996 and 1995
was $2,943,826, $2,624,212 and $2,392,186.
During the years ended December 31, 1997, 1996 and 1995, the Company took
down a number of boards located in the Pittsburgh, Scranton, Hartford, Las Vegas
and Cincinnati divisions. These disposals were initiated by management due to
high operating costs and/or high site lease costs, which resulted in marginal
operating results. Losses on board disposals amounted to $515,056, $440,746 and
$418,957 in the years ended December 31, 1997, 1996 and 1995.
F-9
<PAGE> 14
MARTIN MEDIA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INTANGIBLE ASSETS
Intangible assets and accumulated amortization at December 31, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Organization costs......................................... $ 1,238,376 $ 1,238,376
Covenants not to compete................................... 2,452,096 2,452,096
Advertising rights......................................... 2,925,800 1,291,338
Permits and licenses....................................... 10,705,122 2,547,274
Lease rights............................................... 14,307,733 11,970,722
Goodwill................................................... 33,979,535 220,453
Acquisition fees........................................... 3,718,759 1,053,423
Loan fees.................................................. 359,398 1,577,500
----------- -----------
69,686,819 22,351,182
Less accumulated amortization.............................. 11,239,900 6,478,652
----------- -----------
$58,446,919 $15,872,530
=========== ===========
</TABLE>
See Note 7 for collateralization of intangible assets.
Amortization expense for the years ended December 31, 1997, 1996 and 1995
was $6,338,748, $2,740,623 and $947,191.
7. LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Canadian Imperial Bank of Commerce, As administrative
agent for lenders, under the Credit Agreement dated July
31, 1997, Term A loan, interest at LIBOR plus 2%,
collateralized by accounts receivable, inventory, sign
structures, and intangible assets, payable quarterly,
due June 2004**......................................... $ 60,000,000 $ --
Canadian Imperial Bank of Commerce, As administrative
agent for lenders, under the Credit Agreement dated July
31, 1997, Term B loan, interest at LIBOR plus 2.25%,
collateralized by accounts receivable, inventory, sign
structures, and intangible assets, payable quarterly,
due December 2005**..................................... 35,000,000 --
Canadian Imperial Bank of Commerce, As administrative
agent for lenders, under the Credit Agreement dated July
31, 1997, Revolving Line of Credit, interest ranging
from prime plus 2% LIBOR plus 2.75%, collateralized by
accounts receivable, inventory, sign structures, and
intangible assets, payable quarterly, due June 2004**... 17,300,000 --
Jackson Poster Advertising, 8%, collateralized by sign
structures, payable $912 per month including interest,
due December 2000....................................... 29,124 37,381
Dominion Signs, 8%, collateralized by sign structures and
personally guaranteed by E. Thomas Martin, payable
$68,475 plus interest annually, due August 1999......... 136,950 205,425
</TABLE>
F-10
<PAGE> 15
MARTIN MEDIA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Elaine Perlroth, 7%, collateralized by mortgage, payable
$989 monthly including interest, due November 2008...... $ 90,381 $ 95,715
Ronco Media, non-interest bearing, uncollateralized,
payable $3,000 monthly, due April 2001.................. 120,000 156,000
Ronald Rieger, non-interest bearing, uncollateralized,
payable $167 monthly, due July 2001..................... 6,667 8,667
Rose Marie Rieger, non-interest bearing, uncollateralized,
payable $167 monthly, due April 2001.................... 6,667 8,667
Daniel H. Bradley, non-interest bearing, uncollateralized,
payable $1,667 monthly, due April 2001.................. 66,667 86,667
Pamela Lynn Rieger, non-interest bearing,
uncollateralized, payable $1,667 monthly, due April
2001.................................................... 66,667 86,667
Kory William Rieger, non-interest bearing,
uncollateralized, payable $1,667 monthly, due April
2001.................................................... 66,667 86,667
Rembrandt Outdoor Services, non-interest bearing,
uncollateralized, payable $608 monthly, due July 2001... 33,456 34,065
Canadian Imperial Bank of Commerce, as administrative
agent for Lenders under the Credit Agreement dated July
15, 1996, Term A Loan, interest at LIBOR plus 2.5%,
collateralized by accounts receivable, inventory, sign
structures, and intangible assets, payable quarterly,
due March 2003**........................................ -- 40,000,000
Canadian Imperial Bank of Commerce, as administrative
agent for Lenders under the Credit Agreement dated July
15, 1996, Term B Loan, interest at LIBOR plus 3%,
collateralized by accounts receivable, inventory, sign
structures, and intangible assets, payable quarterly,
due December 2004**..................................... -- 15,000,000
Canadian Imperial Bank of Commerce, as administrative
agent for Lenders under the Credit Agreement dated July
15, 1996, Revolving Line of Credit, interest ranging
from prime plus 1.25% to LIBOR plus 2.50%,
collateralized by accounts receivable, inventory, sign
structures, and intangible assets, payable annually, due
March 2003**............................................ -- 16,285,868
------------ -----------
112,923,246 72,091,789
Less current maturities................................... 3,690,436 5,339,365
------------ -----------
$109,232,810 $66,752,424
============ ===========
</TABLE>
F-11
<PAGE> 16
MARTIN MEDIA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate maturities of long-term debt at December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1998........................................................ $ 3,690,436
1999........................................................ 7,691,592
2000........................................................ 13,124,365
2001........................................................ 14,545,258
2002........................................................ 15,007,561
Thereafter.................................................. 58,864,034
------------
$112,923,246
============
</TABLE>
- ---------------
** Loan has varying interest rates based on Company performance and indexes
found in Credit Agreement dated July 31, 1997. At December 31, 1997 effective
interest rates ranged from 7.1875% to 8.5%.
The Company has entered into interest rate caps primarily to protect
against rising interest exposure of its floating rate long-term debt. The
difference to be paid or received on the cap is included in interest expense as
payments are made or received. At December 31, 1997, the Company had outstanding
interest rate cap agreements with two commercial bank, having a total notional
principal amount of $135,000,000. This agreement effectively changes the
Company's interest exposure on up to $135,000,000 of floating rate debt to a
fixed 6.5% with a floor of 5.5%. The interest rate cap agreements mature
September 1998 ($35,000,000) and September 2000 ($100,000,000).
During 1997, the Company sold an interest rate floor for a gain of
$440,000. This gain is included in other income.
The counterparties to the Company's derivative financial instrument
contract are substantial and creditworthy commercial banks which are recognized
market makers. Neither the risks of counterparty nonperformance nor the economic
consequence of counterparty nonperformance associated with these contracts were
considered by the Company to be material.
Interest expense consists of interest on notes payable and the cost
associated with the purchased of the interest rate cap instrument.
Prime rate was 8.5% and 8.25% at December 31, 1997 and 1996, respectively.
LIBOR rate was 5.9% and 6.5% at December 31, 1997 and 1996, respectively.
8. LONG-TERM CAPITAL LEASE OBLIGATIONS
The Company leases certain sign structures with lease terms through July
2000. Obligations under capital leases have been recorded in the accompanying
financial statements at the discounted present value of future minimum lease
payments. The cost and accumulated amortization for such equipment as of
December 31, 1997 was $1,029,200 and $58,321, respectively. Amortization
included in depreciation expense for the year ended December 31, 1997 was
$41,168. Interest paid on these leases was $130,118 for the year ended December
31, 1997.
F-12
<PAGE> 17
MARTIN MEDIA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The future minimum lease payments under these capital leases and the net
present value of the future minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31:
- ------------
<S> <C>
1998........................................................ $316,628
1999........................................................ 399,627
2000........................................................ 113,280
--------
Total future minimum lease payments......................... 829,535
Less amount representing interest........................... 167,290
--------
Present value of future minimum lease payment............... 662,245
Less current portion........................................ 214,380
--------
Long-term portion........................................... $447,865
========
</TABLE>
9. RELATED PARTY TRANSACTIONS
Transactions occurring between the Company and a related party, which are
not presented elsewhere in these financial statements, are as follows:
Martin and MacFarlane, Inc., a California Corporation (M&M, Inc.), which
has stockholders who are also partners in the Company, performed substantially
all administrative functions for the partnership during the year ended December
31, 1995 and January 1996. Beginning February 1, 1996, administrative functions
were performed by MW Sign Co., the general partner. The partnership pays
management fees approximating 3% of gross revenue, refinancing fees of 4% of all
debt refinanced and acquisition fees of 4% of the purchased price of acquired
companies. On January 1, 1997, management fees increased to 4% of gross revenue.
Total fees paid to M&M, Inc. for the years ended December 31, 1997 and 1996
amounted to $-0- and $78,263, respectively. Total fees paid/accrued to MW Sign
Co. for the years ended December 31, 1997 and 1996 amounted to $11,231,815 and
$5,050,039. Total fees paid to M&M, Inc. and MW Sign Co. for the year ended
December 31, 1995 amounted to $1,111,350.
10. COMMITMENTS
Leases
The Company leases land, buildings, and equipment in connection with its
outdoor advertising business under operating leases. The leasing of land relates
to the posters and bulletins. The Company also leases property, equipment and
buildings to house and support division administrative and field offices.
Future minimum lease payments under cancelable and noncancelable leases at
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING POSTERS,
DECEMBER 31, BULLETINS BUILDINGS TOTAL
- ------------ ---------- ---------- ----------
<S> <C> <C> <C>
1998............................................. $1,199,353 $ 229,539 $1,428,892
1999............................................. 1,219,818 205,164 1,424,982
2000............................................. 1,244,566 193,264 1,437,830
2001............................................. 1,270,536 183,836 1,454,372
2002............................................. 1,295,506 173,628 1,469,134
Thereafter....................................... 1,670,042 289,380 1,959,422
---------- ---------- ----------
$7,899,821 $1,274,811 $9,174,632
========== ========== ==========
</TABLE>
F-13
<PAGE> 18
MARTIN MEDIA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Certain of the Company's noncancelable lease payments are based on a
percentage of revenue generated from the poster or bulletin rather than having a
minimum rental. The percentage of rent ranges from 15% to 20% of revenue. An
estimate of the future payments under these leases has been included in the
above table under posters, bulletins. Historically, rental payments under these
leases have approximated $1,180,000 annually.
Lease expense for the years ended December 31, 1997, 1996 and 1995 was as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Land for posters and bulletins................... $8,042,746 $6,817,196 $5,226,956
Buildings........................................ 518,306 549,069 406,277
Equipment, other................................. 27,041 28,198 31,881
---------- ---------- ----------
$8,588,093 $7,394,463 $5,665,114
========== ========== ==========
</TABLE>
Acquisition, purchase and purchase option
On July 31, 1997 the Company entered into an agreement with Martin &
MacFarlane, Inc. (related party), relative to an agreement Martin & MacFarlane,
Inc. had with another company to purchase certain assets, to acquire certain
assets including sign structures, equipment, and related intangibles located in
the Las Vegas and Colorado River markets for a total purchase price of
$14,350,400. This purchase agreement has two segments, the first of which
provided for the purchase of assets during the year ending December 31, 1997 for
$11,273,400. The second segment of the agreement provides an option to the
Company to purchase additional assets for $3,077,000. Upon execution of the
option agreement, the Company deposited $463,800 in good faith with Martin &
MacFarlane, Inc. The option agreement can only be exercised upon Martin &
MacFarlane, Inc. exercising its option to purchase those assets and other assets
it has under option with the seller; the option agreement expires October 1,
1998.
Preferred partnership units
On December 23, 1997, the Company entered into an agreement to sell
preferred limited partnership units (PPU's), warrants and warrant units to a
select group of purchasers. The Company issued 25,000 PPU's at $1,000 each
($25,000,000), calling for the holders of the PPU's to receive an initial 14%
preferred rate of return, which escalates on certain dates to a maximum of 20%.
The Company can redeem PPU's for 102% of the PPU's capital account amount until
September 23, 1998 and thereafter for 100% of the PPU's capital account amount.
The Company is obligated under the agreement to redeem all outstanding PPU's on
December 23, 2006. Warrants to purchase additional PPU's, based upon terms of
the agreement, shall be issuable upon the 270th day following the purchase date
(December 23, 1997) and quarterly thereafter, if any PPU's shall then be
outstanding.
Credit facilities
On December 23, 1997, the Company entered into an agreement with Canadian
Imperial Bank of Commerce in which their Term B loan maximum borrowing limit was
increased to $40,000,000. As of December 31, 1997, the Company had $5,000,000
available under the term of the loan.
On July 31, 1997, the Company entered into an agreement with Canadian
Imperial Bank of Commerce, as administrative agent for Lenders under the credit
agreement dated July 31, 1997. Under the terms of this agreement, Swing Loan is
available in the amount of $5,000,000. As of December 31, 1997, the Company's
outstanding obligation was $-0-.
F-14
<PAGE> 19
11. SUBSEQUENT EVENTS
Subsequent to December 31, 1997, the Company acquired substantially all of
the assets and assumed certain liabilities of three outdoor advertising
companies at an aggregate purchase price of $18,350,000. Funds used to make the
purchase were provided through the Company's credit facility.
F-15
<PAGE> 20
MARTIN MEDIA
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Income...................................................... $29,335,986 $22,639,673
Cost of sales............................................... 3,554,778 2,860,922
----------- -----------
Gross profit...................................... 25,781,208 19,778,751
Managers' controlled operating expenses..................... 11,498,736 10,024,800
----------- -----------
Income from managers' operations.................. 14,282,472 9,753,951
----------- -----------
Other operating expenses:
Depreciation and amortization............................. 4,935,039 3,192,484
Management fees........................................... 1,465,200 1,332,688
Refinance and acquisition................................. 324,477 59,665
----------- -----------
6,724,716 4,584,837
----------- -----------
Operating income.................................. 7,557,756 5,169,114
----------- -----------
Nonoperating income (expenses):
Interest income........................................... 17,234 36,266
Interest expense.......................................... (7,056,690) (2,952,027)
----------- -----------
(7,039,456) (2,915,761)
----------- -----------
Net income........................................ $ 518,300 $ 2,253,353
=========== ===========
</TABLE>
The accompanying note is an integral part of these statements.
F-16
<PAGE> 21
MARTIN MEDIA
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 518,300 $ 2,253,353
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 4,935,039 3,192,484
Changes in operating assets and liabilities (exclusive
of acquisitions):
Increase in accounts receivable...................... (1,467,442) (579,923)
Decrease (increase) in other receivables............. 28,509 (339,238)
Increase in inventories, raw materials............... (755,168) (775,387)
Increase in prepaid expenses......................... (355,358) (241,092)
Decrease in accounts payable......................... (196,683) (13,949)
Decrease in accrued expenses......................... (4,717,062) (693,027)
------------ -----------
Net cash provided (used) by operating
activities..................................... (2,009,865) 2,803,221
------------ -----------
Cash flows from investing activities:
Decrease in notes receivable.............................. 17,492 450,569
Cash paid for acquisitions................................ (15,453,324) (1,863,034)
Capital expenditures...................................... (9,522,314) (4,521,138)
------------ -----------
Net cash used in investing activities............. (24,958,146) (5,933,603)
------------ -----------
Cash flows from financing activities:
Proceeds from long-term debt.............................. 25,450,460 956,013
Distributions to partners................................. 1,387,288 (37,565)
------------ -----------
Net cash provided by investing activities......... 26,837,748 918,448
------------ -----------
Net decrease in cash........................................ (130,263) (2,211,934)
Cash at beginning of year................................... 23,254 2,361,610
------------ -----------
Cash at end of period....................................... $ (107,009) $ 149,676
============ ===========
Supplemental disclosures of cash flow information:
Interest paid........................................ $ 5,313,150 $ 2,952,027
============ ===========
</TABLE>
The accompanying note is an integral part of these statements.
F-17
<PAGE> 22
MARTIN MEDIA
NOTE TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial information with respect to the six months ended June 30,
1998 and 1997 is unaudited. In the opinion of management, the financial
statements contain all adjustments consisting of normal recurring accruals,
necessary for the fair presentation of the results for such periods. The
information is not necessarily indicative of the results of operations to be
expected for the fiscal year end.
F-18
<PAGE> 23
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
Martin & MacFarlane, Inc.:
We have audited the accompanying balance sheets of Martin & MacFarlane,
Inc. (a California corporation) as of December 31, 1997 and 1996, and the
related statements of income, retained earnings and cash flows for each of the
two years in the period ended December 31, 1997 and six months in the period
ended December 31, 1995 (included at F-20 through F-34). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 financial statements referred to above present fairly,
in all material respects, the financial position of Martin & MacFarlane, Inc. as
of December 31, 1997 and 1996 and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1997 and six
months in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Bakersfield, California
February 13, 1998
F-19
<PAGE> 24
MARTIN & MACFARLANE, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Current Assets
Cash and equivalents...................................... $ 138,294 $ 10,519
Trade accounts receivable, less allowance for doubtful
accounts of $96,051 and $100,000 at December 31, 1997
and 1996............................................... 2,973,646 1,836,944
Current maturity of note receivable....................... 6,856 6,206
Other receivables......................................... 78,723 331,419
Inventories............................................... 1,764,872 1,104,190
Prepaid expenses.......................................... 928,416 565,971
Current deferred income taxes............................. 1,441 1,500
----------- -----------
5,892,248 3,856,749
----------- -----------
Note Receivable............................................. 24,381 31,083
Property and Equipment, net of accumulated depreciation..... 23,527,457 20,187,460
Intangible Assets, net of accumulated amortization.......... 11,053,092 3,007,566
Other Assets
Deposits.................................................. 24,197 22,047
Deposit on Purchase Option................................ 5,536,200 --
----------- -----------
5,560,397 22,047
----------- -----------
$46,057,575 $27,104,905
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank overdraft............................................ $ 166,083 $ 523,360
Current maturities of long-term debt...................... 690,718 7,460,727
Note payable, bank........................................ -- 800,000
Accounts payable.......................................... 543,648 465,372
Accrued expenses.......................................... 391,069 444,798
Distributions payable..................................... 61,832 61,658
Unearned income........................................... 506,348 84,530
Income taxes payable...................................... 6,408 33,205
----------- -----------
2,366,106 9,873,650
----------- -----------
Long-Term Debt, less current maturities..................... 36,041,494 6,835,699
----------- -----------
Deferred Income Taxes....................................... 102,375 111,008
----------- -----------
Commitments (Note 13)
Stockholders' Equity
Common stock, no par or stated value, authorized 150,000
shares, issued and outstanding 82,443 shares, stated
at..................................................... 1,113,070 1,113,070
Retained earnings......................................... 6,434,530 9,171,478
----------- -----------
7,547,600 10,284,548
----------- -----------
$46,057,575 $27,104,905
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-20
<PAGE> 25
MARTIN & MACFARLANE, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SIX MONTH PERIOD ENDED DECEMBER 31,
1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Revenues............................................... $22,535,117 $16,994,368 $8,311,295
Cost of sales.......................................... 2,476,991 2,155,013 1,065,709
----------- ----------- ----------
Gross profit................................. 20,058,126 14,839,355 7,245,586
Managers' controlled operating expenses................ 11,318,791 9,534,848 4,982,152
----------- ----------- ----------
Income from managers' operations............. 8,739,335 5,304,507 2,263,434
----------- ----------- ----------
Other operating expenses
Depreciation and amortization expense................ 2,902,472 1,316,520 575,291
Management fees...................................... 2,210,351 472,931 --
Refinance and acquisitions........................... 884,083 85,175 --
----------- ----------- ----------
5,996,906 1,874,626 575,291
----------- ----------- ----------
Operating income............................. 2,742,429 3,429,881 1,688,143
----------- ----------- ----------
Other income (expense)
Interest income...................................... 15,302 9,773 --
Interest expense..................................... (2,537,908) (1,115,772) (552,412)
Other income......................................... 414,138 117,025 125,286
Loss on disposition of assets........................ (207,372) (136,875) (1,744)
----------- ----------- ----------
(2,315,840) (1,125,849) (428,870)
----------- ----------- ----------
Income before income taxes............................. 426,589 2,304,032 1,259,273
Income tax (expense) benefit........................... (23,458) (57,653) 2,972,317
----------- ----------- ----------
Net income................................... $ 403,131 $ 2,246,379 $4,231,590
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-21
<PAGE> 26
MARTIN & MACFARLANE, INC.
STATEMENTS OF RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SIX MONTH PERIOD ENDED DECEMBER 31,
1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Balance, beginning of period........................... $ 9,171,478 $ 8,526,046 $4,418,120
Net income........................................... 403,131 2,246,379 4,231,590
Dividends............................................ (3,140,079) (1,600,947) (123,664)
----------- ----------- ----------
Balance, end of period................................. $ 6,434,530 $ 9,171,478 $8,526,046
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-22
<PAGE> 27
MARTIN & MACFARLANE, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SIX MONTH PERIOD ENDED DECEMBER 31,
1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 403,131 $ 2,246,379 $ 4,231,590
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 2,902,472 1,316,520 575,291
Loss on disposition of assets................... 207,372 136,875 1,744
Changes in operating assets and liabilities
(exclusive of acquisitions):
Increase in accounts receivable................. (1,136,702) (410,142) 119,579
(Increase) decrease in other receivables........ 252,697 (312,755) 59,985
Increase in inventory........................... (660,682) (220,401) (115,754)
Increase in prepaid expenses.................... (362,445) (135,739) 200,316
Decrease in deferred income tax asset........... 59 -- --
Increase in other assets -- deposits............ (2,150) (5,000) 3,124
Increase (decrease) in bank overdraft........... (357,277) 523,360 --
Increase (decrease) in accounts payable......... 78,276 (60,260) (126,935)
Increase (decrease) in accrued expenses......... (53,555) 169,057 (8,073)
Increase in unearned income..................... 421,818 1,185 (73,536)
Increase (decrease) in income taxes payable..... (26,797) 9,835 (868,116)
Increase (decrease) in deferred income taxes.... (8,633) 7,826 (2,961,731)
------------ ----------- -----------
Net cash provided by operating
activities............................... 1,657,584 3,266,740 1,037,484
------------ ----------- -----------
Cash flows from investing activities:
Increase in purchase option deposit................ (5,536,200) -- --
Proceeds from certificates of deposit.............. -- -- 200,000
Proceeds from sale of investments.................. -- 11,859 --
Proceeds from sale of property and equipment....... 107,400 217,320 14,082
Cash paid for acquisitions......................... (10,723,930) (5,849,000) (240,000)
Capital expenditures............................... (2,646,168) (748,741) (201,925)
Issuance of notes receivable....................... -- (38,901) (50,000)
Principal payments on notes receivable............. 6,052 1,612 --
Principal payments on notes receivable,
shareholder..................................... -- 50,000 --
------------ ----------- -----------
Net cash used in investing activities...... (18,792,846) (6,355,851) (277,843)
------------ ----------- -----------
Cash flows from financing activities:
Proceeds from notes payable........................ 21,459,216 5,500,000 809,400
Net (payments) borrowings on line of credit........ (950,000) 800,000 (50,000)
Principal payments on notes payable................ (106,100) (1,975,159) (1,677,500)
Distributions to shareholders...................... (3,140,079) (1,600,947) (123,664)
------------ ----------- -----------
Net cash provided by (used in) financing
activities............................... 17,263,037 2,723,894 (1,041,764)
------------ ----------- -----------
Net increase (decrease) in cash and cash
equivalents........................................ 127,775 (365,217) (282,123)
Cash and cash equivalents at beginning of year....... 10,519 375,736 657,859
------------ ----------- -----------
Cash and cash equivalents at end of year............. $ 138,294 $ 10,519 $ 375,736
============ =========== ===========
Supplemental disclosures of cash flow information:
Interest paid...................................... $ 2,634,036 $ 1,093,501 $ 563,494
============ =========== ===========
Payment of income taxes............................ $ 50,255 $ 47,818 $ 857,530
============ =========== ===========
</TABLE>
Supplemental disclosures of non cash financing activities:
During the year ended December 31, 1997 long term debt in the amount
of $18,245,035 was refinanced.
The accompanying notes are an integral part of these statements.
F-23
<PAGE> 28
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business
Martin & MacFarlane, Inc. (the Company) was incorporated December 2, 1971.
The Company owns, leases, and manages billboards on a contractual basis
nationwide for the purpose of providing outdoor advertising services. The
Company also owns and operates a small winery located in Paso Robles,
California. The Company extends short-term credit in the form of accounts
receivable to businesses and advertisers doing business in the above noted
areas.
Significant accounting policies
BASIS OF ACCOUNTING
The financial statements are prepared on an accrual basis, which recognizes
income when earned and expenses when incurred.
CHANGE IN ACCOUNTING PERIOD
Pursuant to the adoption by the Company of S Corporation status for income
tax purposes, the Company changed from a fiscal year end to a calendar year end
for the period ending December 31, 1995, as required by the Internal Revenue
Service, to coincide with shareholders' tax year end. Therefore, the reporting
periods for the financial statements cover the years ended December 31, 1997 and
1996 and six month period ended December 31, 1995.
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, liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers cash and cash equivalents to be all highly liquid
investments purchased with a maturity of three months or less. Throughout the
year, the Company may have amounts in banks in excess of federally insured
limits and as of December 31, 1997, the Company held funds in one financial
institution in excess of federally insured limits in the amount of $115,360.
INVENTORY
Inventory is valued at the lower of cost or market. Valuation is determined
using the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated over estimated
useful lives on a straight-line or accelerated basis. Repairs and maintenance
and small equipment purchases are expensed as incurred.
F-24
<PAGE> 29
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Expenditures which significantly increase asset values or extend useful lives
are capitalized. Estimated useful lives in years are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements.................................. 15-31
Posters..................................................... 7-25
Bulletins................................................... 7-25
Shop equipment.............................................. 3-10
Office furniture and equipment.............................. 5-10
Autos and trucks............................................ 3-7
Irrigation equipment........................................ 7-30
Vineyards................................................... 10-25
</TABLE>
INTANGIBLE ASSETS
Goodwill is amortized using the straight-line method over primarily five
year periods.
Covenants not to compete are amortized using the straight-line method over
the contractual period specified, which ranges from five to ten years.
Advertising rights, permits and licenses, and lease rights are amortized
using the straight-line method over five years.
INCOME TAXES
Effective July 1, 1995, the Company's shareholders elected to be taxed
under the provisions of Subchapter S of the Internal Revenue Code. Under such
election, the shareholders of an "S" Corporation are taxed individually on their
proportionate share of the Company's taxable income. Therefore, no provision or
liability for federal income tax has been included in these financial
statements. State income taxes are provided based on statutory rates. State
income taxes currently payable and deferred relate primarily to temporary
differences from the use of accelerated methods of depreciation and the direct
write-off method of accounting for bad debts.
PROFIT SHARING PLAN
The Company adopted a profit sharing plan which is a qualified pension
trust under Section 401(k) of the Internal Revenue Code. All full time employees
with twelve months of service who are 19 year old or older are eligible to
participate. Each employee may voluntarily contribute up to the lesser of 15% of
their pay or $9,500. The Company has made no matching contributions to the plan.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the long-term debt approximates fair value.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year presentation.
F-25
<PAGE> 30
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS
During 1997, the Company purchased substantially all of the assets and
assumed certain liabilities of three outdoor advertising companies; during 1996,
the Company purchased substantially all of the assets and assumed certain
liabilities of four outdoor advertising companies. Concurrently with one of the
1996 acquisitions, the Company exchanged the assets acquired and liabilities
assumed for similar assets and liabilities of another outdoor advertising
company to enable the Company to expand its existing market share in that
locality. The exchange was recorded at the fair market value of the assets
acquired. Funds used to make the acquisitions were provided through the
Company's credit facility. The majority of the intangible assets acquired are
being amortized over a five year period. See Note 13 for acquisitions included
above, which also includes a related party.
The acquisitions were accounted for using the purchase method of accounting
and the purchase price was allocated to the various tangible and intangible
assets acquired. Accordingly, the results of operations for the various
acquisitions have been included in the results of the Company from the
respective effective dates.
A summary of the cash consideration and allocation of the purchase price as
of the acquisition dates are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Fair value of tangible assets acquired...................... $ 2,756,703 $3,302,000
Fair value of intangible assets acquired.................... 9,199,897 2,597,000
Liabilities assumed......................................... (1,232,670) (50,000)
----------- ----------
Cash paid................................................... $10,723,930 $5,849,000
=========== ==========
</TABLE>
3. NOTE RECEIVABLE
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Ferguson Henderson Investments, 10%, secured by real
property, payable $806 monthly, due November 10, 2001..... $31,237 $37,289
Less current maturity....................................... 6,856 6,206
------- -------
$24,381 $31,083
======= =======
</TABLE>
4. INVENTORIES
Inventories are as follows at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Raw material................................................ $ 244,328 $ 139,309
Winery:
Materials and grape production costs...................... 198,033 138,266
In process................................................ 746,996 494,817
Finished goods............................................ 529,953 299,240
Tasting room, miscellaneous and resale.................... 45,562 32,558
---------- ----------
$1,764,872 $1,104,190
========== ==========
</TABLE>
F-26
<PAGE> 31
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. PREPAID EXPENSES
Prepaid expenses consist of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Leases...................................................... $798,887 $505,539
Insurance................................................... 15,256 13,258
Miscellaneous............................................... 114,273 47,174
-------- --------
$928,416 $565,971
======== ========
</TABLE>
6. PROPERTY AND EQUIPMENT
Major classes of property and equipment and accumulated depreciation are as
follows at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Outdoor Advertising
Buildings and improvements............................... $ 870,719 $ 593,537
Posters.................................................. 8,072,315 7,510,907
Bulletins................................................ 18,486,149 15,656,034
Shop equipment........................................... 458,691 329,493
Office furniture and equipment........................... 224,069 211,215
Autos and trucks......................................... 1,414,986 1,268,485
Land..................................................... 838,807 571,107
Construction in process, boards.......................... 363,913 178,736
----------- -----------
30,729,649 26,319,514
Less accumulated depreciation............................ 9,497,838 8,334,374
----------- -----------
21,231,811 17,985,140
----------- -----------
Winery
Buildings and improvements............................... $ 864,672 $ 844,850
Irrigation and wells..................................... 45,752 45,752
Vineyards................................................ 316,981 278,219
Landscaping.............................................. 26,194 26,194
Auto..................................................... 23,800 19,500
Vineyard equipment....................................... 129,356 125,502
Winery equipment......................................... 859,375 707,482
Office furniture and equipment........................... 50,349 40,749
Land..................................................... 376,133 376,133
----------- -----------
2,692,612 2,464,381
Less accumulated depreciation............................ 992,798 873,402
----------- -----------
1,699,814 1,590,979
----------- -----------
</TABLE>
F-27
<PAGE> 32
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Corporate
Buildings and improvements............................... $ 699,474 $ 689,293
Office furniture and equipment........................... 18,647 18,647
Land..................................................... 41,448 42,783
----------- -----------
759,569 750,723
Less accumulated depreciation............................ 163,737 139,382
----------- -----------
595,832 611,341
----------- -----------
$23,527,457 $20,187,460
=========== ===========
</TABLE>
Depreciation expense for the years ended December 31, 1997 and 1996 and the
six months ended December 31, 1995 was $1,468,013, $1,086,108, and $522,293,
respectively.
7. INTANGIBLE ASSETS
Intangible assets and accumulated amortization are as follows at December
31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Loans fees.................................................. $ 278,750 $ --
Goodwill.................................................... 5,339,883 438,965
Covenants not to compete.................................... 353,079 203,079
Advertising rights.......................................... 1,553,639 708,100
Permits and licenses........................................ 2,365,719 377,567
Lease rights................................................ 3,193,624 1,877,001
----------- ----------
13,084,694 3,604,712
Less accumulated amortization............................... 2,031,602 597,146
----------- ----------
$11,053,092 $3,007,566
=========== ==========
</TABLE>
Amortization expense for the years ended December 31, 1997 and 1996 and the
six months ended December 31, 1995 was $1,434,459, $230,412, and $52,998,
respectively.
F-28
<PAGE> 33
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Canadian Imperial Bank of Commerce, as administrative
agent for lenders under the Credit Agreement dated July
31, 1997, Term A loan, interest at LIBOR plus 2.75%,
collateralized by accounts receivable, inventory, sign
structures, and intangible assets, payable quarterly,
due June 2004**......................................... $30,000,000 $ --
Canadian Imperial Bank of Commerce, as administrative
agent for lenders under the Credit Agreement dated July
31, 1997, Revolving Line of Credit, interest ranging
from prime plus 2% or LIBOR plus 2.75%, collateralized
by accounts receivable, inventory, sign structures, and
intangible assets, payable quarterly, due June 2004**... 3,400,000 --
Canadian Imperial Bank of Commerce, as administrative
agent for lenders under the Credit Agreement dated July
31, 1997, Swing Loan, interest ranging from prime plus
2% or LIBOR plus 2.75%, collateralized by accounts
receivable, inventory, sign structures, and intangible
assets, payable at termination date, due June 2004**.... 1,455,565 --
Palmer Outdoor Advertising, Inc., 10.5%, collateralized by
sign structures, equipment, and inventory, payable
$10,266 monthly including interest, due January 2002.... 406,349 --
Anthony E. and Laverne L. Brum, 7%, collateralized by deed
of trust, payable $1,742 monthly including interest, due
August 2004............................................. 111,067 --
American Commercial Bank, 8%, collateralized by vehicle,
payable $394 monthly including interest, due March
2001.................................................... 13,443 --
American Commercial Bank, 8%, collateralized by vehicle,
payable $474 monthly including interest, due March
2001.................................................... 16,176 --
William H. and Jannette L. Kunz, 12.25%, uncollateralized,
payable $6,631 monthly including interest, due May
2010.................................................... 505,043 --
LarMark, Inc., non-interest bearing, unsecured, due
January 1998............................................ 425,000 --
Virgil and Ruth Rose, 7%, collateralized by deed of trust,
payable $931 monthly including interest, due February
2026.................................................... 137,315 138,822
Paragon Outdoor Advertising, non-interest bearing,
uncollateralized, payable $608 monthly, due July 2001... 26,157 33,456
Gaechter Outdoor Advertising, non-interest bearing,
uncollateralized, payable in decreasing annual
installments ranging from $28,000 to $21,600, due August
2001.................................................... 96,000 124,000
Ken Lyons and Michael Burkett, non-interest bearing,
uncollateralized, payable $710 monthly, due May 2001.... 29,097 37,613
</TABLE>
F-29
<PAGE> 34
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Pesenti Winery, noninterest bearing, collateralized by
sign structure, payable $1,500 per year, due December
2003.................................................... 9,000 10,500
Advanced Outdoor, noninterest bearing, collateralized by
sign structures, payable $9,500 per month, due December
1998.................................................... 102,000 214,000
Antelope Valley Bank, 8.5%, collateralized by vehicle,
payable $466 monthly including interest, payable August
2001.................................................... -- 21,471
Don Enger and Clayton Enger, 8.5%, collateralized by deed
of trust, payable $256 monthly including interest, due
July 2001............................................... -- 11,648
Massachusetts Mutual Life Insurance Co., 11.05%,
unsecured, payable $500,000 per year beginning November
11, 1994, interest payable quarterly, due November
1999.................................................... -- 1,500,000
Massachusetts Mutual Life Insurance Co., 10.9%, unsecured,
payable $687,500 per year, interest payable quarterly,
due August 1999......................................... -- 2,062,500
Massachusetts Mutual Life Insurance Company, 11.55%,
unsecured, payable $500,000 per year beginning June 1,
1996, interest payable quarterly, due June 2002......... -- 3,000,000
Bank of Santa Maria, interest at prime plus 2.5%,
collateralized by deed of trust, payable $1,188 per
month including interest, due May 2002.................. -- 119,695
Bank of Santa Maria, 9.5%, collateralized by vehicle,
payable $1,168 per month including interest, due August
1997.................................................... -- 4,244
Alta and Fred Higginbotham, 8%, collateralized by deed of
trust, payable $150 per month, due January 2000......... -- 6,771
Estates Trust, Inc., 9%, collateralized by deed of trust
and personally guaranteed by E. Thomas Martin, payable
$862 per month including interest, due October 2009..... -- 78,578
Barbara Lehmann, 10%, collateralized by deed of trust,
interest payable monthly, due March 1998................ -- 20,000
Christine and Alice Henderson, 9%, collateralized by deed
of trust, payable $805 per month including interest, due
April 2011.............................................. -- 96,034
Central Coast Federal Land Bank, 7.5%, collateralized by
winery deed of trust, products and crops inventory and
accounts receivable, payable $7,126 per month including
interest, due November 2015............................. -- 797,081
Central Coast Production Credit Association, 9.75%,
collateralized by winery accounts receivable and
inventory, interest payable quarterly, due January
1999.................................................... -- 150,000
Canadian Imperial Bank of Commerce, interest at LIBOR plus
2.5%, collateralized by the Amarillo Division's accounts
receivable, inventory, sign structures and intangible
assets and personally guaranteed by E. Thomas Martin and
David Weyrich, interest payable monthly, due May
1997**.................................................. -- 5,500,000
</TABLE>
F-30
<PAGE> 35
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Central Coast Production Credit Association, interest at
prime plus 1.5%, collateralized by winery equipment,
payable $5,590 monthly including interest, due August
2000.................................................... -- 198,165
Homer Hensley and Rick Hensley, 8.5%, collateralized by
deed of trust, payable $1,231 monthly including
interest, due January 2001.............................. -- 50,813
Paragon Outdoor Advertising, 8%, collateralized by sign
structures, payable $2,636 monthly including interest,
due July 2001........................................... -- 121,035
----------- -----------
36,732,212 14,296,426
Less current maturities................................... 690,718 7,460,727
----------- -----------
$36,041,494 $ 6,835,699
=========== ===========
</TABLE>
Aggregate maturities of long-term debt at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
------------
<S> <C>
1998........................................................ $ 690,718
1999........................................................ 5,676,502
2000........................................................ 6,189,260
2001........................................................ 6,937,451
2002........................................................ 10,084,059
Thereafter.................................................. 7,154,222
-----------
$36,732,212
===========
</TABLE>
- ---------------
** Loan has varying interest rates based on Company performance and indexes
found in the Credit Agreement dated July 31, 1997. At December 31, 1997 the
effective interest rates ranged from 7.1875% to 8.5%.
The Company has entered into an interest rate cap primarily to protect
against rising interest exposure of its floating rate long-term debt. The
difference to be paid or received on the cap is included in interest expense as
payments are made or received. At December 31, 1997, the Company had outstanding
interest rate cap agreements with two commercial banks having a total notional
principal amount of $50,000,000. This agreement effectively changes the
Company's interest exposure on $50,000,000 of floating rate debt to a fixed 6.5%
with a floor of 5.5%. The interest rate cap agreement matures September 18,
2000.
During 1997, the Company sold an interest rate floor for a gain of
$220,000. This gain is included in other income.
The counterparties to the Company's derivative financial instrument
contract are substantial and creditworthy commercial banks which are recognized
market makers. Neither the risks of counterparty nonperformance nor the economic
consequence of counterparty nonperformance associated with these contracts were
considered by the Company to be material.
Interest expense consists of interest on notes payable, management fees and
the cost associated with the purchase of the interest rate cap instrument.
Prime rate was 8.5% and 8.25% at December 31, 1997 and 1996, respectively.
F-31
<PAGE> 36
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
LIBOR rate was 5.938% and 5.625% at December 31, 1997 and 1996,
respectively.
9. NOTE PAYABLE, BANK
Note payable, bank is as follows at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- --------
<S> <C> <C>
Heritage Oaks Bank, interest at prime plus .5%,
uncollateralized, interest payable monthly, due May
1997...................................................... $ -- $800,000
==== ========
</TABLE>
Prime rate was 8.25% at December 31, 1996.
10. DISTRIBUTIONS
In January, May, August, and October 1997 and January, May, August, and
October 1996 and in July and October 1995, the Company declared a $.75 per share
cash distribution for 82,443 shares outstanding. At December 31, 1997 and 1996,
$61,832 and $61,658 were payable January 1, 1998 and 1997, respectively.
Subsequent to conversion of the Company to an S-corporation, effective July 1,
1995, the Company began making distributions equal to approximately 49% of
estimated taxable income to its' shareholders to cover their tax liabilities.
Distributions during the year ended December 31, 1997, amounted to $3,140,079,
including a $2,000,000 special distribution occurring as a result of an
acquisition. Distributions during the year ended December 31, 1996, related to
1995 and 1996 taxable income, amounted to $1,353,618.
11. DEFERRED INCOME TAXES
For state tax purposes, the applicable states do recognize "S" Corporation
status; however, they still impose a tax at the corporate level, generally at a
rate significantly lower than the regular corporate rate. Deferred tax assets
and liabilities relate to temporary differences associated with state income
taxes.
Income tax expense (benefit) for the year ended December 31, 1997 and 1996
and six months ended June
30, 1995 consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -----------
<S> <C> <C> <C>
Current.............................................. $23,458 $49,827 $ 24,170
Deferred............................................. -- 7,826 (2,996,487)
------- ------- -----------
Income tax expense (benefit)......................... $23,458 $57,653 $(2,972,317)
======= ======= ===========
</TABLE>
Components of deferred income tax balances at December 31, 1997 and 1996
consisted of:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Current deferred tax assets................................. $ 1,441 $ 1,500
======== ========
Long-term deferred tax liabilities.......................... $102,375 $111,008
======== ========
</TABLE>
Deferred income taxes arise primarily from temporary differences due to use
of accelerated depreciation methods for income tax purposes and the
straight-line method and the use of the allowance method of accounts receivable
for financial reporting purposes.
F-32
<PAGE> 37
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. RELATED PARTY TRANSACTIONS
Through February 1, 1996 the Company provided management services to Martin
Media, a company having common shareholders/partners, at a rate approximating 3%
of Martin Media's gross revenue. Management fees of $78,263 were received by the
Company from Martin Media during the year ended December 31, 1996.
Subsequent to December 31, 1995, and effective February 1, 1996, the
Company divested itself of all management and administrative employees and
contracted with M.W. Sign Company, a company wholly owned by E. Thomas Martin
and David Weyrich, to provide the Company with management services at 3% of
gross revenue. As of January 1, 1997, management fees increased to 4% of gross
revenue. Management fees of $895,281 and $472,931 were paid to M.W. Sign Company
during the years ended December 31, 1997 and 1996, respectively.
13. COMMITMENTS
Leases:
The Company leases land in connection with its outdoor advertising posters
and panels as well as for office and yard space. The Company also leases office
and shop buildings which are located in different geographic areas within the
various divisions. A portion of these are long-term leases.
Lease expense for the years ended December 31, 1997 and 1996 and six months
ended December 31, 1995 was $4,748,420, $2,333,218 and $1,064,875, respectively.
Future minimum lease payments under noncancellable leases at December 31,
1997 are as follows:
<TABLE>
<CAPTION>
POSTERS,
YEARS ENDING DECEMBER 31, BUILDINGS BULLETINS TOTAL
- ------------------------- --------- ---------- ----------
<S> <C> <C> <C>
1998.............................................. $ 19,533 $ 162,400 $ 181,933
1999.............................................. 19,944 162,400 182,344
2000.............................................. 19,944 162,400 182,344
2001.............................................. 21,285 162,400 183,685
2002.............................................. 21,732 162,400 184,132
Thereafter........................................ 48,897 454,400 503,297
-------- ---------- ----------
$151,335 $1,266,400 $1,417,735
======== ========== ==========
</TABLE>
On August 1, 1995, the Company entered into a lease with Outdoor Systems
Company of Kansas City. Under the terms of the lease Outdoor Systems leased 87
outdoor advertising structures from the Company for $12,500 per month. The
agreement terminated December 31, 1997.
Acquisition, purchase and sales options
On July 31, 1997, the Company entered into an agreement with another
company to acquire certain assets, including sign structures, equipment, and
related intangibles located in Nevada, Arizona, and California for a total
purchase price of $60,000,000. This purchase agreement has two segments, the
first of which provided for the purchase of assets totaling $20,500,000.
Simultaneously, and as part of the master agreement, the Company entered into an
agreement with Martin Media (related party) to sell them those assets located in
their geographical service area, primarily the Las Vegas and Colorado River
markets, for $11,273,400. The Company's net acquisition price under the first
segment of the agreement was $9,226,600.
F-33
<PAGE> 38
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The second segment of the agreement provides an option for the Company to
purchase additional assets for $39,500,000. As part of this transaction, the
Company has also provided Martin Media with an option to purchase the assets
located in the Las Vegas and Colorado River markets for $3,077,000. The
Company's net acquisition price for assets to be received under the second
segment of the agreement will be $36,423,000.
Upon execution of the option agreement, the Company deposited $6,000,000 in
good faith with the seller. Similarly, Martin Media deposited $463,800 with the
Company resulting in a net deposit of $5,536,200. The option agreement expires
October 1, 1998. Should the Company not exercise the option, the seller holds an
option agreement whereby it can repurchase the assets originally sold to the
Company and assets owned by the Company in and around the Bakersfield area.
As part of the option agreement, the Company will manage those assets
covered by the option agreement. The payment for the use of these assets through
the option period will approximate $285,000 per month. Revenue earned through
the managed assets is subject to the 4% management fee paid to M.W. Sign, Inc.
Credit facility
On July 31, 1997, the Company entered into an agreement with Canadian
Imperial Bank of Commerce, as administrative agent for Lenders under the credit
agreement dated July 31, 1997. Under the terms of this agreement, the Term B
Loan is available to fund future acquisitions in the amount of $20,000,000. As
of December 31, 1997, the Company's outstanding obligation was $-0-.
14. SUBSEQUENT EVENTS
Subsequent to December 31, 1997, the Company acquired substantially all of
the assets and assumed certain liabilities of one outdoor advertising company at
an aggregate purchase price of $12,500,000. Funds used to make the purchase were
provided through the Company's existing credit facility.
F-34
<PAGE> 39
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Martin & MacFarlane, Inc.
Paso Robles, California
We have audited the accompanying balance sheet of Martin & MacFarlane, Inc.
as of June 30, 1995 and the related statements of income, retained earnings and
cash flows for the year then ended (included at F-36 through F-49). These
financial statements are the responsibility of Martin & MacFarlane, Inc.'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 Martin & MacFarlane, Inc. as
of June 30, 1995 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
BARBICH LONGCRIER HOOPER & KING
ACCOUNTANCY CORPORATION
By: /s/ GEOFFREY B. KING, CPA
--------------------------------
Geoffrey B. King, CPA
Bakersfield, California
August 25, 1995
F-35
<PAGE> 40
MARTIN & MACFARLANE, INC.
BALANCE SHEET
JUNE 30, 1995
ASSETS
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Current Assets
Cash and equivalents (Note 7)............................. $ 351,705
Restricted cash (Note 6).................................. 306,154
Certificates of deposit................................... 200,000
Investments............................................... 8,400
Trade accounts receivable, less allowance for doubtful
accounts of $100,000................................... 1,546,381
Other receivables......................................... 78,649
Inventories (Note 2)...................................... 768,035
Prepaid expenses (Note 3)................................. 630,548
Current deferred income taxes (Note 10)................... 145,554
-----------
4,035,426
-----------
Property and Equipment, net of accumulated depreciation
(Notes 4, 6 and 7)........................................ 16,872,469
-----------
Intangible Assets, net of accumulated amortization (Note
5)........................................................ 764,898
-----------
Other Assets................................................ 20,171
-----------
$21,692,964
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt (Note 6)............. $ 1,848,465
Note payable, bank (Note 7)............................... 200,000
Accounts payable.......................................... 652,567
Accrued expenses.......................................... 319,021
Dividends payable (Note 9)................................ 26,451
Unearned income........................................... 156,881
Income taxes payable (Note 10)............................ 891,486
-----------
4,094,871
-----------
Long-Term Debt, less current maturities (Note 6)............ 8,857,936
-----------
Long-Term Deferred Income Taxes (Note 10)................... 3,208,967
-----------
Commitments (Note 13)
Stockholders' Equity
Common stock, no par or stated value, authorized 150,000
shares, issued and outstanding 82,443 shares (Note
9)..................................................... 1,113,070
Retained earnings......................................... 4,418,120
-----------
5,531,190
-----------
$21,692,964
===========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-36
<PAGE> 41
MARTIN & MACFARLANE, INC.
STATEMENT OF INCOME
YEAR ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Revenues.................................................... $16,168,763
Cost of sales............................................... 2,045,552
-----------
Gross profit...................................... 14,123,211
Managers' controlled operating expenses..................... 10,070,408
-----------
Income from managers' operations.................. 4,052,803
-----------
Other operating expenses
Depreciation and amortization expense..................... 1,100,305
-----------
Operating income.................................. 2,952,498
-----------
Other income (expense)
Interest expense.......................................... (1,313,456)
Other income.............................................. 152,804
Gain on disposition of assets............................. 2,405,522
Employee separation expense............................... (269,803)
-----------
Income before income taxes.................................. 3,927,565
Income tax expense (Note 10)........................... 1,519,542
-----------
Net income........................................ $ 2,408,023
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-37
<PAGE> 42
MARTIN & MACFARLANE, INC.
STATEMENT OF RETAINED EARNINGS
YEAR ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Balance, beginning of year.................................. $2,195,593
Net income................................................ 2,408,023
Dividends (Note 9)........................................ (185,496)
----------
Balance, end of year........................................ $4,418,120
==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-38
<PAGE> 43
MARTIN & MACFARLANE, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 2,408,023
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 1,100,305
Gain on disposition of assets.......................... (2,405,522)
Increase in deferred income taxes...................... 469,749
Changes in operating assets and liabilities:
Increase in accounts receivable........................ (57,463)
Increase in other receivables.......................... (66,187)
Decrease in inventory.................................. 11,117
Decrease in prepaid expenses........................... 34,520
Increase in other assets............................... (9,065)
Increase (decrease) in accounts payable................ 5,887
Increase (decrease) in accrued liabilities............. (176,570)
Increase in unearned income............................ 30,106
Increase (decrease) in income taxes payable............ 820,732
-----------
Net cash provided by operating activities......... 2,165,632
-----------
Cash flows from investing activities:
Proceeds from sale of investments......................... 5,000
Increase in certificates of deposit....................... (200,000)
Proceeds from sale of fixed assets........................ 2,656,384
Capital expenditures...................................... (736,258)
Construction of capital improvements...................... (281,102)
Principal payments on loans and notes receivable.......... 32,000
Purchase of intangible assets............................. (310,001)
-----------
Net cash provided by investing activities......... 1,166,023
-----------
Cash flows from financing activities:
Proceeds from notes payable............................... 1,007,317
Principal payments on notes payable....................... (3,946,286)
Dividends paid............................................ (185,496)
-----------
Net cash used in financing activities............. (3,124,465)
-----------
Net increase in cash and cash equivalents................... 207,190
Cash and cash equivalents at beginning of year.............. 450,669
-----------
Cash and cash equivalents at end of year.................... $ 657,859
===========
Unrestricted cash........................................... $ 351,705
Restricted cash............................................. 306,154
-----------
$ 657,859
===========
Supplemental disclosures of cash flow information:
Interest paid............................................. $ 1,339,278
===========
Payment of income taxes................................... $ 229,061
===========
</TABLE>
Schedule of noncash investing:
The Company entered into an exchange agreement with National Outdoor
Media (3M) during the year ended June 30, 1995. In accordance with the
terms of the exchange agreement, the Company traded boards in Kansas City,
Missouri to 3M in exchange for posters and bulletins in Bakersfield,
California and Kansas at a value of $1,033,850 and $2,614,150 cash.
The accompanying notes are an integral part of this statement.
F-39
<PAGE> 44
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business
Martin & MacFarlane, Inc. (the Company) was incorporated December 2, 1971.
The Company owns, leases, and manages billboards on a contractual basis
nationwide for the purpose of providing outdoor advertising services. The
Company also owns and operates a small winery located in Paso Robles,
California. The Company extends credit in the form of accounts receivable to
businesses and advertisers doing business in the above noted areas.
Significant accounting policies
BASIS OF ACCOUNTING
The financial statements are prepared on an accrual basis, which recognizes
income when earned and expenses when incurred.
CASH AND CASH EQUIVALENTS
The Company considers cash and cash equivalents to be all highly liquid
investments purchased with a maturity of three months or less. As of June 30,
1995, the Company held funds of $646,293 in one financial institution.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Bad debts are recognized under the allowance method of accounting which is
based on an average of actual write-offs in past years.
INVESTMENTS
Investments in marketable equity securities are carried at the lower of
cost or market. Decline in market values below cost, which are temporary in
nature, are not recognized as losses until the decline in value is deemed
permanent or until the security is sold.
INVENTORY
Inventory is valued at the lower of cost or market. Valuation is determined
using the first-in, first-out method.
F-40
<PAGE> 45
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated over estimated
useful lives on a straight-line or accelerated basis. Repairs and maintenance
and small equipment purchases are expensed as incurred. Expenditures which
significantly increase asset values or extend useful lives are capitalized.
Estimated useful lives in years are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements.................................. 15-31
Posters..................................................... 7-25
Bulletins................................................... 7-25
Shop equipment.............................................. 3-10
Office furniture and equipment.............................. 5-10
Autos and trucks............................................ 3-7
Irrigation equipment........................................ 7-30
Vineyards................................................... 10-25
</TABLE>
INTANGIBLE ASSETS
Goodwill is recorded at cost and is amortized using the straight-line
method over a forty year period.
Covenants not to compete are recorded at cost and are amortized using the
straight-line method over the contractual period specified, which ranges from
five to ten years.
INCOME TAXES
Effective July 1, 1993, as required by professional standards, the Company
adopted Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. Deferred income taxes are provided on timing differences between
financial statement and taxable incomes. Timing differences arise primarily from
the use of the accelerated methods of depreciation, the direct write-off method
of accounting for bad debts, and the carryforward of net operating losses for
income tax purposes. Determination of current or long-term status of the asset
or liability is based upon when the particular timing difference reverses.
2. INVENTORIES
Inventories are as follows at June 30, 1995:
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Raw material................................................ $ 84,383
Winery:
Materials and grape production costs...................... 141,255
In process................................................ 162,669
Finished goods............................................ 359,060
Tasting room, miscellaneous and resale.................... 20,668
--------
$768,035
========
</TABLE>
F-41
<PAGE> 46
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PREPAID EXPENSES
Prepaid expenses consist of the following at June 30, 1995:
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Leases...................................................... $519,079
Insurance................................................... 36,600
Miscellaneous............................................... 74,869
--------
$630,548
========
</TABLE>
4. PROPERTY AND EQUIPMENT
Major classes of property and equipment and accumulated depreciation are as
follows at June 30, 1995:
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Outdoor Advertising
Buildings and improvements................................ $ 500,731
Posters................................................... 5,987,468
Bulletins................................................. 13,850,302
Shop equipment............................................ 278,749
Office furniture and equipment............................ 191,692
Autos and trucks.......................................... 1,063,156
Land...................................................... 414,472
Construction in process, boards........................... 69,038
-----------
22,355,608
Less accumulated depreciation............................. 7,105,290
-----------
15,250,318
-----------
Winery
Buildings and improvements................................ 664,515
Irrigation and wells...................................... 45,752
Vineyards................................................. 278,219
Landscaping............................................... 26,194
Auto...................................................... 19,500
Vineyard equipment........................................ 119,142
Winery equipment.......................................... 320,720
Office furniture and equipment............................ 37,604
Land...................................................... 206,133
-----------
1,717,779
Less accumulated depreciation............................. 755,093
-----------
962,686
-----------
</TABLE>
F-42
<PAGE> 47
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Corporate
Buildings and improvements................................ $ 654,970
Office furniture and equipment............................ 267,308
Land...................................................... 42,783
-----------
965,061
Less accumulated depreciation............................. 305,596
-----------
659,465
-----------
$16,872,469
===========
</TABLE>
Depreciation expense for the year ended June 30, 1995 was $1,021,709.
5. INTANGIBLES
Intangible assets and accumulated amortization are as follows at June 30,
1995:
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Goodwill.................................................... $ 438,965
Covenants not to compete.................................... 69,000
Advertising rights.......................................... 136,100
Permits and licenses........................................ 168,567
Lease rights................................................ 335,001
----------
1,147,633
Less accumulated amortization............................... 382,735
----------
$ 764,898
==========
</TABLE>
Amortization expense for the year ended June 30, 1995 was $78,596.
6. RESTRICTED CASH
Restricted cash at June 30, 1995 consisted of the following:
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Cash, interest bearing account, holdback account, held for
the mutual benefit of the Company and National Advertising
Company, by Chicago Title & Trust Company, until released
by joint order of the parties. Cash is to be released
within twelve months of the June 30, 1995 balance sheet
date. Cash subsequently received July 7, 1995............. $306,154
========
</TABLE>
F-43
<PAGE> 48
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT
Long-term debt consists of the following at June 30, 1995:
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Federal Land Bank, 5.75% and 6.73%, at 1995 and 1994,
collateralized by first trust deed, payable $3,510 per
month including interest, due May 1, 2011................. $ 410,068
Massachusetts Mutual Life Insurance Co., 11.05%, unsecured,
payable $500,000 per year beginning November 11, 1994,
interest payable quarterly, due November 15, 1999......... 2,500,000
Massachusetts Mutual Life Insurance Co., 10.9%, unsecured,
payable $687,500 per year beginning August 15, 1992,
interest payable quarterly, due August 15, 1999........... 3,437,500
Massachusetts Mutual Life Insurance Company, 11.55%,
unsecured, payable $500,000 per year beginning June 1,
1995, interest payable quarterly, due June 1, 2002........ 3,500,000
Boatmen's First National Bank, interest at prime plus 1.5%,
collateralized by first deed of trust, payable $1,420 per
month including interest, due July 8, 2002................ 91,056
Citizens Bank of Paso Robles, interest at prime plus 2.5%,
collateralized by first trust deed, payable $1,188 per
month including interest, due May 13, 2002................ 124,134
Sierra Outdoor, 8%, collateralized by bulletins, payable
$940 per month including interest, due April 15, 1996..... 9,065
Citizens Bank of Paso Robles, interest at 9.5%,
collateralized by vehicle, payable $555 per month
including interest, due August 15, 1997................... 12,962
Citizens Bank of Paso Robles, interest at 9.5%,
collateralized by vehicle, payable $613 per month
including interest, due August 15, 1997................... 14,206
Alta and Fred Higginbotham, 8%, collateralized by deed of
trust, payable $150 per month, due January 1, 2000........ 8,544
Estates Trust, Inc., 9%, collateralized by deed of trust,
payable $862 per month including interest, due October 1,
2009...................................................... 82,916
Barbara Lehmann, 10%, collateralized by deed of trust,
interest payable monthly, due March 30, 1998.............. 20,000
Christine and Alice Henderson, 9%, collateralized by deed of
trust, payable $805 per month including interest, due
April 8, 2011............................................. 97,450
Pesenti Winery, non-interest bearing, collateralized by sign
structure, payable $1,500 per year, due December 15,
2003...................................................... 13,500
Advanced Outdoor, non-interest bearing, collateralized by
sign structures, payable $8,500 per month, due December
10, 1998.................................................. 357,000
Advanced Outdoor, non-interest bearing, collateralized by
sign structures, payable $1,000 per month, due October 1,
1997...................................................... 28,000
-----------
10,706,401
Less current maturities..................................... 1,848,465
-----------
$ 8,857,936
===========
</TABLE>
Prime rate was 9% at June 30, 1995.
F-44
<PAGE> 49
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate maturities of long-term debt at June 30, 1995 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
JUNE 30,
------------
<S> <C>
1996........................................................ $ 1,848,465
1997........................................................ 1,853,095
1998........................................................ 1,850,465
1999........................................................ 1,775,319
2000........................................................ 1,728,146
Thereafter.................................................. 1,650,911
-----------
$10,706,401
===========
</TABLE>
8. NOTE PAYABLE, BANK
Note payable, bank is as follows at June 30, 1995:
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Citizens Bank of Paso Robles, interest at 8.5%,
collateralized by certificate of deposit, annually
renewable on April 3, interest payable monthly, due April
3, 1996................................................... $200,000
========
</TABLE>
Prime rate was 9% at June 30, 1995.
9. DIVIDENDS PAYABLE
In January 1995, the Company declared a $.50 per share cash dividend, for
82,443 shares outstanding. In May 1995 the Company declared a $.75 per share
dividend, for 82,443 shares outstanding. At June 30, 1995 $26,451 was payable
July 1, 1995.
10. DEFERRED INCOME TAXES
Income tax expense for the year ended June 30, 1995 is computed under SFAS
109 and consisted of the following:
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
---------- -------- ----------
<S> <C> <C> <C>
Current........................................... $ 808,602 $241,191 $1,049,793
Deferred.......................................... 657,023 100,162 757,185
Tax benefit of net operating loss carryforward.... (251,439) (35,997) (287,436)
---------- -------- ----------
Income tax expenses............................... $1,214,186 $305,356 $1,159,542
========== ======== ==========
</TABLE>
Components of deferred income tax balances at June 30, 1995 consisted of:
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
----------- -------- ----------
<S> <C> <C> <C>
Current deferred tax assets....................... $ 136,254 $ 9,300 $ 145,554
========== ======== ==========
Long-term deferred tax liabilities................ $2,539,860 $669,107 $3,208,967
========== ======== ==========
</TABLE>
Deferred income tax liabilities arise primarily from timing differences due
to use of accelerated depreciation methods for income tax purposes and the
straight-line method for financial reporting purposes.
F-45
<PAGE> 50
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income tax assets arise primarily from the application of federal and
state net operating loss carryovers.
At June 30, 1995, the Company had alternative minimum tax credits in the
amount of $16,837, available to offset future taxes. Tax credits are included in
deferred tax assets.
11. RELATED PARTY TRANSACTIONS
The following transaction occurring between the Company and a related
party, which is not presented elsewhere in these financial statements, is as
follows:
Martin Media, which has partners who are also stockholders in the Company,
contracts the Company to perform management duties. Martin Media pays a
management fee to the Company which is approximately 3% of Martin Media's gross
revenue. Management fees of $986,356 were received from the partnership during
the fiscal year ending June 30, 1995.
12. PROFIT SHARING PLAN
Discretionary contributions under a defined contribution profit sharing
plan, which are determined by the Company's Board of Directors, have been
accrued to a trust for the benefit of qualified employees in the amount of
$50,000 for the year ended June 30, 1995. All costs are funded currently.
13. COMMITMENTS
The Company leases land in connection with its outdoor advertising posters
and panels as well as for office and yard spaces. These are long-term operating
leases which the Company and lessor have the option to terminate with thirty
days notice.
Lease expense for the year ended June 30, 1995 was $2,218,480.
The Company leases office and shop buildings which are located at various
divisions. A portion of these are long-term leases.
Future minimum lease payments under noncancellable leases at June 30, 1995
are as follows:
<TABLE>
<S> <C>
Years ending June 30,
1996...................................................... $ 47,747
1997...................................................... 22,665
1998...................................................... 18,711
1999...................................................... 19,944
2000...................................................... 19,944
Thereafter................................................ 121,830
--------
$250,841
========
</TABLE>
On August 1, 1995, the Company entered into a lease with Gannett Outdoor
Company of Kansas City. Under the terms of the lease, Gannett Outdoor is leasing
87 outdoor advertising structures from the Company for $12,500 per month. The
agreement will terminate on December 31, 1997. In addition, Gannett Outdoor
shall have the right to exercise an option to purchase these structures at any
time on or after November 2, 1995 and prior to June 30, 1997 for the option
price of $1,030,000.
F-46
<PAGE> 51
MARTIN & MACFARLANE, INC.
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Income...................................................... $16,352,832 $9,717,160
Cost of sales............................................... 1,620,010 1,151,641
----------- ----------
Gross profit...................................... 14,732,822 8,565,519
Managers' controlled operating expenses..................... 8,323,130 5,033,818
----------- ----------
Income from managers' operations.................. 6,409,692 3,531,701
Other operating expenses:
Depreciation and amortization............................. 1,676,518 909,068
Management fees........................................... 1,672,981 98,132
Refinance and acquisition................................. 103,614 39,801
----------- ----------
3,453,113 1,047,001
Operating income.................................. 2,956,579 2,484,700
Nonoperating income (expenses):
Interest expense.......................................... (1,928,998) (796,203)
----------- ----------
(1,928,998) (796,203)
----------- ----------
Income before income taxes.................................. 1,027,581 1,688,497
Income tax expense.......................................... (9,992) --
----------- ----------
Net income........................................ $ 1,017,589 $1,688,497
=========== ==========
</TABLE>
The accompanying note is an integral part of these statements.
F-47
<PAGE> 52
MARTIN & MACFARLANE, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 1,017,589 $ 1,688,497
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 1,676,518 909,068
Changes in operating assets and liabilities (exclusive
of acquisitions):
Increase in accounts receivable...................... (1,111,203) (118,870)
Increase in other receivables........................ (6,167) 279,700
Decrease in inventories, raw materials............... 75,728 117,325
Increase in prepaid expenses......................... (334,730) (225,219)
Decrease in deferred income tax asset................ 59 --
Increase in other assets............................. (125,142) (1,442,229)
Decrease in accounts payable......................... (711,997) 4,494,655
Decrease in accrued expenses......................... (121,962) (152,733)
Decrease in accrued income........................... (10,788) (64,230)
------------ -----------
Net cash provided (used) by operating
activities..................................... 347,905 5,485,964
Cash flows from investing activities:
Decrease (increase) in notes receivable................... 29,722 (22,129)
Change in intangible assets............................... (10,768,268) (810,001)
Capital expenditures...................................... (4,879,517) (1,821,808)
------------ -----------
Net cash used in investing activities............. (15,618,063) (2,653,938)
------------ -----------
Cash flows from financing activities:
Proceeds (payments) on long-term debt..................... 16,476,756 (325,153)
Distributions to partners................................. (463,235) (1,051,176)
------------ -----------
Net cash provided by investing activities......... 16,013,521 (1,376,329)
------------ -----------
Net decrease in cash........................................ 743,363 1,455,697
Cash at beginning of year................................... (27,790) (529,763)
------------ -----------
Cash at end of period....................................... $ 715,573 $ 925,934
============ ===========
Supplemental disclosures of cash flow information:
Interest paid........................................ $ 1,912,798 $ 796,203
============ ===========
Payment of income taxes.............................. $ 3,584 $ --
============ ===========
</TABLE>
The accompanying note is an integral part of these statements.
F-48
<PAGE> 53
MARTIN & MACFARLANE, INC.
NOTE TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial information with respect to the six months ended June 30,
1998 and 1997 is unaudited. In the opinion of management, the financial
statements contain all adjustments consisting of normal recurring accruals,
necessary for the fair presentation of the results for such periods. The
information is not necessarily indicative of the results of operations to be
expected for the fiscal year end.
F-49
<PAGE> 54
INDEX TO EXHIBITS
<TABLE>
<S> <C> <C>
(r) 2.45 Unit and Stock Purchase Agreement, by and among Chancellor
Media Corporation of Los Angeles, Martin Media, L.P.,
Martin & MacFarlane, Inc., Nevada Outdoor Systems,
Inc., MW Sign Corp. and certain sellers named therein,
dated as of June 19, 1998 (see table of contents for
list of omitted schedules and exhibits).
* 23.1 Consent of Arthur Andersen LLP, independent accountants.
* 23.2 Consent of Barbich Longcrier Hooper & King Accountancy
Corporation, independent auditors.
</TABLE>
- ---------------------------
* Filed herewith.
(r) Incorporated by reference to the identically-numbered exhibit to the
Quarterly Report on Form 10-Q of Chancellor Media Corporation and
Chancellor Media Corporation of Los Angeles for the quarterly period
ending June 30, 1998, as amended.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation:
As independent public accountants, we hereby consent to incorporation by
reference in this Current Report on Form 8-K and to incorporation by reference
in the Registration Statement on Form S-3 (No. 333-36855) and the Registration
Statements on Form S-8 (Nos. 333-04379, 333-35039 and 333-53179) of Chancellor
Media Corporation of our reports dated February 13, 1998, relating to the
financial statements of Martin Media and Martin & MacFarlane, Inc.
Arthur Andersen LLP
Bakersfield, California
February 12, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation:
We hereby consent to incorporation by reference in this Current Report on Form
8-K and to incorporation by reference in the Registration Statement on Form S-3
(No. 333-36855) and the Registration Statements on Form S-8 (Nos. 333-04379,
333-35039 and 333-53179) of Chancellor Media Corporation of our report dated
August 25, 1995, relating to the financial statements of Martin & MacFarlane,
Inc.
Barbich Longcrier Hooper & King
Accountancy Corporation
By: /s/ GEOFFREY B. KING, CPA
-------------------------------
Geoffrey B. King, CPA
Bakersfield, California
February 12, 1999
