SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 6, 1999
LAMAR ADVERTISING COMPANY
(Exact name of registrant as specified in its charter)
Delaware 0-20833 75-1205791
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
5551 Corporate Boulevard, Baton Rouge, Louisiana 70808
(Address of principal executive offices) (Zip Code)
(225) 926-1000
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report.)
<PAGE>
ITEM 5. OTHER EVENTS
As Lamar Advertising Company (the "Registrant") and Chancellor Media
Corporation ("Chancellor") announced on June 1, 1999, the Registrant
entered into a definitive agreement with Chancellor Media Corporation of
Los Angeles, Chancellor's wholly-owned subsidiary, pursuant to which the
Registrant agreed to purchase Chancellor's outdoor advertising business
conducted by Chancellor Media Outdoor Corporation ("Chancellor Outdoor")
for $1.6 billion in stock and cash.
The Registrant is filing this Form 8-K to provide the Financial
Statements and Pro Forma Financial Statements for Chancellor Outdoor and
its predecessor companies, the outdoor advertising division of Whiteco
Industries, Inc. ("Whiteco"), Martin Media L.P. ("Martin Media") and Martin
& MacFarlane, Inc. ("Martin & MacFarlane"), as noted below.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements. The following financial statements are
filed herewith as Exhibit 99.1 and incorporated herein by reference:
(i) The consolidated balance sheets of Chancellor Outdoor as of
December 31, 1998 and March 31, 1999 and consolidated statements of
operations, equity and cash flows for the period from July 22, 1998 to
December 31, 1998 and the three months ended March 31, 1999.
(ii) The statements of income, divisional equity and cash flows
of Whiteco for the eleven months ended November 30, 1998; balance sheets of
Whiteco as of December 31, 1996 and 1997; and statements of income and cash
flows for the years ended December 31, 1995, 1996, and 1997.
(iii) The statements of operations, partners' capital and cash
flows of Martin Media for the seven months ended July 31, 1998; balance
sheets of Martin Media as of December 31, 1996 and 1997; and statements of
operations, partners' capital (deficit) and cash flows of Martin Media for
each of the years ended December 31, 1995, 1996 and 1997.
(iv) The statements of operations, retained earnings and cash
flows of Martin & MacFarlane for the seven months ended July 31, 1998;
balance sheets of Martin & MacFarlane as of December 31, 1996 and 1997;
statements of income, retained earnings and cash flows for the six-month
period ended December 31, 1995 and each of the years ended December 31,
1996 and 1997; balance sheet of Martin & MacFarlane as of June 30, 1995;
and statements of income, retained earnings and cash flows of Martin &
MacFarlane for the year ended June 30, 1995.
<PAGE>
(b) Pro Forma Financial Statements. The following pro forma
financial statements are filed herewith as Exhibit 99.2 and incorporated
herein by reference:
(i) Unaudited pro forma condensed consolidated statements of
operations of the Registrant for the year ended December 31, 1998 and
the three months ended March 31, 1999.
(ii) Unaudited pro forma condensed consolidated balance
sheet of the Registrant as of March 31, 1999.
(c) Exhibits
(i) Consent of Arthur Andersen, LLP.
(ii) Consent of Barbich, Longcrier, Hooper & King.
(iii) Consent of BDO Seidman LLP.
(iv) Consent of PricewaterhouseCoopers LLP.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
LAMAR ADVERTISING COMPANY
By: /S/ KEITH A. ISTRE
Keith A. Istre
Treasurer and Chief Financial Officer
Dated: July 6, 1999
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
23.1 Consent of Arthur Andersen, LLP.
23.2 Consent of Barbich, Longcrier, Hooper & King.
23.3 Consent of BDO Seidman LLP.
23.4 Consent of PricewaterhouseCoopers LLP.
99.1 (i) The consolidated balance sheets of Chancellor Outdoor as of
December 31, 1998 and March 31, 1999 and consolidated
statements of operations, equity and cash flows for the
period from July 22, 1998 to December 31, 1998 and the three
months ended March 31, 1999.
(ii) The statements of income, divisional equity and cash flows
of Whiteco for the eleven months ended November 30, 1998;
balance sheets of Whiteco as of December 31, 1996 and 1997
and statements of income and cash flows for the years ended
December 31, 1995, 1996, and 1997.
(iii)The statements of operations, partners' capital and cash
flows of Martin Media for the seven months ended July 31,
1998; balance sheets of Martin Media as of December 31, 1996
and 1997; and statements of operations, partners' capital
(deficit) and cash flows of Martin Media for each of the
years ended December 31, 1995, 1996 and 1997.
(iv) The statements of operations, retained earnings and cash
flows of Martin & MacFarlane for the seven months ended July
31, 1998; balance sheets of Martin & MacFarlane as of
December 31, 1996 and 1997; statements of income, retained
earnings and cash flows for the six-month period ended
December 31, 1995 and each of the years ended December 31,
1996 and 1997; balance sheet of Martin & MacFarlane as of
June 30, 1995; and statements of income, retained earnings
and cash flows of Martin & MacFarlane for the year ended
June 30, 1995.
99.2 (i) Unaudited pro forma condensed consolidated statements of
operations of the Registrant for the year ended December 31,
1998 and the three months ended March 31, 1999.
(ii) Unaudited pro forma condensed consolidated balance sheet of
the Registrant as of March 31, 1999.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to incorporation
by reference in the two Registration Statements on Form S-8 (File Nos. 333-
10337 and 333-79571), the four Registration Statements on Form S-3 (File
Nos. 333-50559, 333-52851, 333-66059 and 333-71929) and the Registration
Statement on Form S-4 (File No. 333-60331) of Lamar Advertising Company
(the "Registrant") of our report dated February 13, 1998, with respect to
the 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, and our report dated February 13, 1998,
with respect to the balance sheets of Martin & MacFarlane, Inc. 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 the six month period ended December 31, 1995, which
reports appear in the Registrant's filing on Form 8-K dated July 6, 1999.
/s/ Arthur Andersen, LLP
Arthur Andersen, LLP
Bakersfield, California
July 6, 1999
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the two Registration
Statements of Lamar Advertising Company (the "Registrant") on Form S-8
(File Nos. 333-10337 and 333-79571), the four Registration Statements of
the Registrant on Form S-3 (File Nos. 333-50559, 333-52851, 333-66059 and
333-71929) and the Registration Statement of the Registrant on Form S-4
(File No. 333-60331) of our report dated August 25, 1995, with respect to
the balance sheet of Martin and MacFarlane, Inc. as of June 30, 1995 and
the related statements of income, retained earnings and cash flows for the
year then ended, which report appears in the Registrant's filing on Form
8-K dated July 6, 1999.
BARBICH LONGCRIER HOOPER & KING
Accountancy Corporation
/S/ GEOFFREY B. KING
By: Geoffery B. King, CPA
Bakersfield, California
July 6, 1999
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the two Registration
Statements of Lamar Advertising Company (the "Registrant") on Form S-8
(File Nos. 333-10337 and 333-79571), the four Registration Statements of
the Registrant on Form S-3 (File Nos. 333-50559, 333-52851, 333-66059 and
333-71929) and the Registration Statement of the Registrant on Form S-4
(File No. 333-60331) of our report dated September 17, 1998, with respect
to the balance sheets of the outdoor advertising division of Whiteco
Industries, Inc. as of December 31, 1996 and 1997, and the related
statements of income and cash flows for each of the three years in the
period ended December 31, 1997, which report appears in the Registrant's
filing on Form 8-K dated July 6, 1999.
/S/ BDO SEIDMAN LLP
BDO Seidman LLP
Chicago, Illinois
July 6, 1999
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the two
Registration Statements on Form S-8 (File Nos. 333-10337 and 333-79571),
the four Registration Statements on Form S-3 (File Nos. 333-50559, 333-
52851, 333-66059 and 333-71929) and the Registration Statement on Form S-4
(File No. 333-60331) of Lamar Advertising Company of our reports dated June
9, 1999 relating to the financial statements of Chancellor Media Outdoor
Corporation, The Outdoor Division of Whiteco Industries, Inc., Martin Media
L.P., and Martin & MacFarlane, Inc., which appear in the Form 8-K of Lamar
Advertising Company dated July 6, 1999.
/s/ PricewaterhouseCoopers LLP
Dallas, Texas
July 6, 1999
EXHIBIT 99.1
INDEX TO FINANCIAL STATEMENTS
CHANCELLOR MEDIA OUTDOOR CORPORATION
Report of Independent Accountants............................................F-3
Consolidated Balance Sheets as of December 31, 1998 and March 31, 1999
(unaudited).............................................................F-4
Consolidated Statements of Operations for the period from July 22, 1998 to
December 31, 1998, and the three months ended March 31, 1999
(unaudited).............................................................F-5
Consolidated Statements of Equity for the period from July 22, 1998 to
December 31, 1998, and the three months ended March 31, 1999
(unaudited).............................................................F-6
Consolidated Statements of Cash Flows for the period from July 22, 1998 to
December 31, 1998, and the three months ended March 31, 1999
(unaudited).............................................................F-7
Notes to Consolidated Financial Statements...................................F-8
THE OUTDOOR ADVERTISING DIVISION OF WHITECO INDUSTRIES, INC.
Report of Independent Accountants...........................................F-15
Statement of Income for the eleven months ended November 30, 1998...........F-16
Statement of Divisional Equity for the eleven months ended November
30, 1998...............................................................F-17
Statement of Cash Flows for the eleven months ended November 30, 1998.......F-18
Notes to Financial Statements...............................................F-19
Independent Auditors' Report................................................F-22
Balance Sheets as of December 31, 1996 and 1997.............................F-23
Statements of Income for the years ended December 31, 1995, 1996 and 1997...F-24
Statements of Cash Flows for the years ended December 31, 1995, 1996
and 1997...............................................................F-25
Notes to Financial Statements...............................................F-26
MARTIN MEDIA L.P.
Report of Independent Accountants...........................................F-29
Statement of Operations for the seven months ended July 31, 1998............F-30
Statement of Partners' Capital for the seven months ended July 31, 1998.....F-31
Statement of Cash Flows for the seven months ended July 31, 1998............F-32
Notes to Financial Statements...............................................F-33
Report of Independent Public Accountants....................................F-37
Balance Sheets as of December 31, 1997 and 1996.............................F-38
Statements of Operations for each of the years ended December 31, 1997,
1996 and 1995...............................................................F-39
Statements of Partners' Capital (Deficit) for each of the years ended
December 31, 1997, 1996 and 1995.......................................F-40
Statements of Cash Flows for each of the years ended December 31, 1997,
1996 and 1995...............................................................F-41
Notes to Financial Statements...............................................F-43
MARTIN & MACFARLANE, INC.
Report of Independent Accountants...........................................F-54
Statement of Operations for the seven months ended July 31, 1998............F-55
Statement of Retained Earnings for the seven months ended July 31, 1998.....F-56
Statement of Cash Flows for the seven months ended July 31, 1998............F-57
Notes to Financial Statements...............................................F-58
Report of Independent Public Accountants....................................F-62
Balance Sheets as of December 31, 1997 and 1996.............................F-63
Statements of Income for each of the years ended December 31, 1997 and
1996 and the six-month period ended December 31, 1995..................F-64
Statements of Retained Earnings for each of the years ended December 31,
1997 and 1996 and the six-month period ended December 31, 1995.........F-65
Statements of Cash Flows for each of the years ended December 31, 1997
and 1996 and the six-month period ended December 31, 1995..............F-66
Notes to Financial Statements...............................................F-68
Independent Auditors' Report................................................F-80
Balance Sheet as of June 30, 1995...........................................F-81
Statement of Income for the year ended June 30, 1995........................F-83
Statement of Retained Earnings for the year ended June 30, 1995............F-84
Statement of Cash Flows for the year ended June 30, 1995....................F-85
Notes to Financial Statements...............................................F-87
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
June 9, 1999
To the Board of Directors of
Chancellor Media Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, equity and cash flows present fairly, in
all material respects, the financial position of Chancellor Media Outdoor
Corporation (the "Company"), a wholly-owned subsidiary of Chancellor
Media Corporation of Los Angeles, at December 31, 1998, and the results of
their operations and their cash flows for the period from July 22, 1998 through
December 31, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
/S/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
<PAGE>
CHANCELLOR MEDIA OUTDOOR CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CHANCELLOR MEDIA CORPORATION OF LOS ANGELES)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, 1999
1998 (Unaudited)
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,023 $ 3,620
Accounts receivable, net of allowance for uncollectible
accounts of $5,053 and $5,286 27,073 29,015
Prepaid land rent 7,325 10,655
Deferred tax asset 2,122 2,243
Inventories 3,680 3,438
Other current assets 2,119 2,609
---------- ----------
Total current assets 44,342 51,580
---------- ----------
Property and equipment:
Land 16,215 16,909
Advertising structures 1,178,751 1,206,113
Buildings and improvements 10,117 10,251
Equipment and vehicles 9,005 10,328
Construction-in-progress 13,114 17,382
---------- ----------
Total cost 1,227,202 1,260,983
---------- ----------
Accumulated depreciation (20,794) (47,765)
---------- ----------
Net property and equipment 1,206,408 1,213,218
---------- ----------
Intangible assets:
Goodwill 464,359 469,795
Other 27,000 39,673
---------- ----------
Total cost 491,359 509,468
---------- ----------
Accumulated amortization (5,196) (9,616)
Net intangible assets 486,163 499,852
Prepaid land rent, non-current 1,168 1,168
---------- ----------
Total assets $1,738,081 $1,765,818
========== ==========
LIABILITIES AND EQUITY
Current liabilities:
Notes payable, current $ 698 $ 671
Accounts payable 8,799 3,479
Accrued payroll and employee benefits 5,327 7,029
Other accrued liabilities 8,007 11,661
---------- ----------
Total current liabilities 22,831 22,840
Commitments and contingencies - -
Deferred tax liabilities 99,009 95,554
Notes payable, long-term 1,715 1,854
Equity 1,614,526 1,645,570
---------- ----------
Total liabilities and equity $1,738,081 $1,765,818
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CHANCELLOR MEDIA OUTDOOR CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CHANCELLOR MEDIA CORPORATION OF LOS ANGELES)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE THREE
FROM JULY 22, MONTHS ENDED
1998 TO MARCH 31,
DECEMBER 31, 1999
1998 (UNAUDITED)
--------------- --------------
<S> <C> <C>
Revenues $ 52,750 $ 57,992
Less: agency commissions 5,145 4,391
------------ -----------
Net revenues 47,605 53,601
Operating expenses 23,505 28,451
Corporate general and administrative expenses 1,981 2,825
Depreciation and amortization 25,990 31,396
------------ -----------
Loss from operations (3,871) (9,071)
Other (income) expense (156) 86
Interest expense 105 64
------------ -----------
Loss before taxes (3,820) (9,221)
Income tax expense (benefit) 345 (3,076)
------------ -----------
Net loss $ (4,165) $ (6,145)
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CHANCELLOR MEDIA OUTDOOR CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CHANCELLOR MEDIA CORPORATION OF LOS ANGELES)
CONSOLIDATED STATEMENTS OF EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE THREE
FROM JULY 22, MONTHS ENDED
1998 TO MARCH 31,
DECEMBER 31, 1999
1998 (UNAUDITED)
--------------- --------------
<S> <C> <C>
Beginning balance $ - $ 1,614,526
Contributions from parent, net 1,618,691 37,189
Net loss (4,165) (6,145)
----------- -----------
$ 1,614,526 $ 1,645,570
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CHANCELLOR MEDIA OUTDOOR CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CHANCELLOR MEDIA CORPORATION OF LOS ANGELES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE THREE
FROM JULY 22, MONTHS ENDED
1998 TO MARCH 31,
DECEMBER 31, 1999
1998 (UNAUDITED)
--------------- --------------
<S> <C> <C>
Net loss $ (4,165) $ (6,145)
--------- ---------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 20,794 26,981
Amortization of intangibles 5,196 4,415
Deferred tax benefit (1,155) (3,576)
Changes in assets and liabilities:
Accounts receivable (1,165) (1,578)
Other assets 1,649 (2,223)
Accounts payable and accrued expenses 1,780 (379)
--------- ---------
Total adjustments 27,099 23,640
--------- ---------
Net cash provided by operating activities 22,934 17,495
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment and construction
of advertising structures (5,344) (8,176)
--------- ---------
Net cash used in investing activities (5,344) (8,176)
--------- ---------
Cash flows from financing activities:
Distributions to parent (15,347) (7,584)
Principal payments on note payable (220) (138)
--------- ---------
Net cash used in financing activities (15,567) (7,722)
--------- ---------
Net increase in cash 2,023 1,597
Cash, at beginning of period - 2,023
--------- ---------
Cash, at end of period $ 2,023 $ 3,620
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 105 $ 64
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CHANCELLOR MEDIA OUTDOOR CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF CHANCELLOR MEDIA CORPORATION OF LOS ANGELES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SIGNIFICANT ACQUISITIONS
The Chancellor Media Outdoor Corporation (the "Company"), a wholly-owned
subsidiary of Chancellor Media Corporation of Los Angeles
("CMCLA"), operated approximately 38,000 outdoor advertising display
faces in 37 states as of December 31, 1998. The Company was formed
on July 22, 1998; however, the Company held no assets until the
acquisition of Martin Media, Martin & MacFarlane and certain affiliated
companies on July 31, 1998 and the Company had no results of
operations until August 1, 1998. On June 1, 1999, Chancellor Media
Corporation ("CMC"), the indirect parent of CMCLA, announced that it
had entered into a definitive agreement to sell the Company (see
Note 8). The accompanying consolidated financial statements do not
include any effects related to the proposed transaction.
On July 31, 1998, CMCLA acquired Martin Media L.P., Martin &
MacFarlane and certain affiliated companies ("Martin") for a total
purchase price of $615,117, which consisted of $612,848 in cash and
included various other direct acquisition costs and the assumption of
notes payable of $2,270. As part of the Martin transaction, CMCLA
acquired an asset purchase agreement with Kunz & Company and paid an
additional $6,000 in cash for a purchase option deposit previously paid in
by Martin. Martin operated 13,700 billboards and outdoor displays in 12
states serving 23 markets.
On November 13, 1998, CMCLA acquired approximately 1,000 billboards
and outdoor display faces from Kunz & Company for $40,264 in cash, of
which $6,000 was previously paid as a purchase option deposit in
connection with the Martin acquisition on July 31, 1998. The Company
had previously been operating these properties under a management agreement
effective July 31, 1998.
On December 1, 1998, CMCLA acquired the assets and working capital of
the outdoor advertising division of Whiteco Industries, Inc. ("Whiteco"),
which operated approximately 22,500 billboards and outdoor displays in 34
states, for $981,698 in cash, including various other direct acquisition
costs.
The unaudited 1998 pro forma condensed consolidated results of operations
data, as if the Whiteco and Martin transactions had occurred on July 22,
1998 are as follows:
Net revenues $ 92,990
Net loss (9,856)
The pro forma results are not necessarily indicative of future results.
Between September and December 1998, CMCLA acquired approximately 670
additional billboards and outdoor displays in various markets for
approximately $23,582 in cash.
On January 21, 1999 and February 9, 1999, CMCLA acquired
approximately 4,500 outdoor display faces from Triumph Outdoor Holdings
and certain affiliated companies for $37,006 in cash including working
capital and direct acquisition costs ("the Triumph Acquisition"). In
connection with the Triumph Acquisition, CMCLA paid approximately
$1,000 to an entity controlled by James A. McLaughlin, the President and
Chief Operating Officer of the Company. An additional $700 that
may be paid to such entity is currently held in escrow, subject to
satisfaction of indemnity claims, if any.
Between January and May 1999, CMCLA acquired approximately 250
additional billboards and outdoor displays in various transactions for
approximately $11,900 in cash.
The above acquisitions were accounted for under the purchase method of
accounting. After acquisition, CMCLA pushed down the applicable
stock, assets and/or liabilities of the acquired entities to the Company
as non-cash contributions. The contributions were made at cost
and therefore no related gain or loss was recognized by CMCLA. These
acquisitions are non-cash transactions that are not reflected in the
consolidated statement of cash flows. The accompanying consolidated
financial statements include the results of operations of the acquired
entities from their respective date of acquisition.
A summary of net assets acquired during 1998 follows:
<TABLE>
<CAPTION>
<S> <C>
Cash $ 6,716
Accounts receivable, net 25,908
Other current assets 14,747
Property and equipment 1,221,858
Intangible assets 499,044
Other assets 1,195
Accounts payable and accrued expenses (10,752)
Deferred tax liabilities (98,042)
Other liabilities (13)
----------
Total net assets acquired 1,660,661
==========
Less:
Cash acquired 6,716
Notes payable 2,268
----------
Cash paid for acquisitions by CMCLA $1,651,677
==========
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles. All significant
intercompany balances and transactions have been eliminated in
consolidation. Corporate overhead costs related to the Company are
included as expenses in the accompanying financial statements. Management
considers the inclusion of such expenses reasonable. The corporate
overhead expenses may not necessarily be indicative of expenses that would
have been incurred if the Company had operated as a separate
entity.
INTERIM FINANCIAL STATEMENTS
The financial information as of March 31, 1999 and with respect to the
three months then ended 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 period. The information is not necessarily indicative of the results
of operations to be expected for the fiscal year end.
ADVERTISING CONTRACTS AND REVENUE RECOGNITION
Outdoor advertising revenue is derived from contracts with advertisers for
the rental of outdoor advertising space and is recognized on an accrual
basis ratably over the terms of the contracts, which generally cover
periods of one month up to five years. Costs associated with the outdoor
advertising operations, including contract costs and land rental, are
expensed over the related contract term.
PREPAID LAND LEASES
The majority of the Company's outdoor advertising structures are
located on leased land. Land rent is typically paid in advance for
periods ranging from one to twelve months. Prepaid land leases are
expensed ratably over the related rental term.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated
useful lives of the assets. Estimated useful lives are as follows:
Advertising structures 15 years
Building and improvements 35 years
Equipment and vehicles 5-10 years
Repaid and maintenance costs are charged to expense as incurred.
GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible assets consist of goodwill, non-compete agreements, municipal
contracts and franchise agreements. Intangible assets resulting from
acquisitions are valued based upon estimated fair values. The Company
amortizes such intangible assets using the straight-line method
over estimated useful lives of 40 years for goodwill, five years for non-
compete agreements and ten years for municipal contracts and franchise
agreements. The Company evaluates the propriety of the carrying
amount of intangible assets and related amortization periods to determine
whether current events or circumstances warrant adjustments to the
carrying value and/or revised estimates of amortization periods. These
evaluations consist of the projection of undiscounted cash flows over the
remaining amortization periods of the related intangible assets.
The projections are based on historical trend lines of actual results,
adjusted for expected changes in operating results. At this time,
the Company believes that no impairment of goodwill or other
intangible assets has occurred and that no revisions to the amortization
periods are warranted.
CASH EQUIVALENTS
The Company considers temporary cash investments purchased with
original maturities of three months or less to be cash equivalents.
DISCLOSURE OF CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. In the opinion of management, credit risk with respect to
trade receivables is limited due to the large number of diversified
customers and the geographic diversification of the Company's
customer base. The Company performs ongoing credit evaluations of
its customers and believes that adequate allowances for any uncollectible
trade receivables are maintained. At December 31, 1998, no receivable
from any customer exceeded 5% of equity and no customer accounted for more
than 10% of net revenues during the period July 22, 1998 through December
31, 1998.
3. LEASE COMMITMENTS
The Company has long-term operating leases for office space,
equipment and the majority of the land occupied by its outdoor advertising
structures. The leases expire at various dates, generally during the next
ten years, and have varying options to renew and cancel. Rental expense
for operating leases (excluding those with lease terms of one month or
less that were not renewed) was approximately $8,234 for the period July
22, 1998 to December 31, 1998. Future minimum lease payments under
noncancelable operating leases (with initial or remaining lease terms in
excess of one year) as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
YEARS
- -----
<S> <C>
1999 $ 33,624
2000 35,187
2001 35,836
2002 36,457
2003 36,970
Thereafter 1,259,991
----------
$1,438,065
==========
</TABLE>
4. INCOME TAXES
The Company is a member of a group that files a consolidated
income tax return. For purposes of separate financial statement
presentation, the Company's current and deferred income taxes
have been determined as if the Company were a separate
taxpayer.
Income tax expense for the period from July 22, 1998 to December 31,
1998 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Current tax expense:
Federal $ -
State 1,500
---------
Total current tax expense 1,500
Deferred tax benefit:
Federal (1,103)
State (52)
Total deferred tax benefit (1,155)
---------
Income tax expense $ 345
=========
</TABLE>
Total income tax expense differed from the amount computed by applying the
U.S. federal statutory income tax rate of 35% to the loss from operations
for the period from July 22, 1998 to December 31, 1998 as a result of the
following:
<TABLE>
<CAPTION>
$ %
----------- -----------
<S> <C> <C>
Computed "expected" tax benefit $ (1,337) (35.0)%
Amortization of goodwill 357 9.3%
Nondeductible meals and entertainment 350 9.2%
State income taxes, net of federal benefit 975 25.5%
--------- ---------
Income tax expense $ 345 9.0%
========= =========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1998
are presented below:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $ 8,290
Differences in book and tax bases 2,122
---------
Total deferred tax assets 10,412
---------
Deferred tax liabilities:
Property and equipment and intangibles, primarily
related to acquisitions 107,299
---------
Net deferred tax liability $ 96,887
=========
</TABLE>
Deferred tax assets and liabilities are computed by applying the U.S.
federal and state income tax rate in effect to the gross amounts of
temporary differences and other tax attributes, such as net operating loss
carryforwards.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this
assessment.
At December 31, 1998, the Company has tax net operating loss
carryforwards available to offset future taxable income of approximately
$19,700, expiring in the year 2013.
5. CONTINGENCIES
The Company is involved in various claims and lawsuits, which
are generally incidental to its business. The Company is
vigorously contesting all of these matters and believes that the
ultimate resolution of these matters will not have a materially
adverse effect on its consolidated financial position, cash flows or
results of operations.
The Company, together with its consolidated subsidiaries, has
guaranteed certain debt obligations issued by CMCLA of
approximately $4,096,000. In addition to the Company, other
subsidiaries of CMCLA guarantee the debt.
6. STOCK OPTIONS
CMC has established Key Employee Stock Option Plans ("the Employee
Option Plans") which provide for the issuance of stock options to
officers and other key employees of CMC and its subsidiaries. The
Employee Option Plans make available for issuance an aggregate
15,105,000 shares of common stock of CMC.
The total options available for grant were 2,171,939 at December 31,
1998. During 1998, CMC granted options to purchase 360,000 shares of
CMC common stock to an officer of the Company with an exercise
price of $48.375. Options to purchase 300,000 shares of CMC common
stock vest ratably 25% per year for a period of three years with the
first 25% vested on the grant date. Options to purchase 60,000 shares
of CMC common stock vest ratably 25% per year on each of the first
four annual anniversaries of the date of grant. At December 31, 1998,
75,000 shares were exercisable.
The Company applies Accounting Principles Board Opinion No. 25
in accounting for the Employee Option Plans and, accordingly, no
compensation cost for Company employees is recognized in
the consolidated financial statements for stock options which have
exercise prices equal to or in excess of the market value of CMC's
common stock on the date of grant. Had the Company determined
compensation cost based on fair value at grant date for its stock
options under Statement of Financial Accounting Standards No. 123,
the Company's pro forma net loss for the period from July 22,
1998 through December 31, 1998 would have been $5,440. The fair value
for the stock options was estimated at the date of grant using the
Black-Scholes option pricing model assuming a dividend yield of 0%, an
expected volatility of 39.91%, a risk free interest rate of 4.80% and
an expected life of seven years.
7. BENEFIT PLAN
CMC offers substantially all of its and its subsidiaries' employees
voluntary participation in a 401(k) Plan. Through the Company,
CMC may make discretionary contributions to the plans; however, no
such contributions were made by the Company during 1998.
8. SUBSEQUENT EVENT
On June 1, 1999, CMCLA entered into a definitive agreement to
sell the Company to Lamar Advertising Company ("Lamar") for
approximately $1,600,000 in stock and cash. Under the terms of the
agreement, Lamar will pay $700,000 in cash and will issue
approximately 26,227,000 shares of its common stock, valued at
approximately $900,000 based on the value of the stock on May 27,
1999. Following the transaction, CMCLA will own approximately
30% of Lamar's common stock and will have the right to appoint two
members to Lamar's board of directors, increasing the size of the
board to ten members.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
June 9, 1999
To the Board of Directors of
Chancellor Media Corporation
In our opinion, the accompanying statements of income, divisional equity
and cash flows present fairly, in all material respects, the results of
operations and cash flows of The Outdoor Division of Whiteco
Industries, Inc. (the "Division") for the eleven months ended November 30,
1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Division's management;
our responsibility is to express an opinion on these financial statements
based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/S/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
<PAGE>
THE OUTDOOR DIVISION OF WHITECO INDUSTRIES, INC.
STATEMENT OF INCOME
ELEVEN MONTHS ENDED NOVEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
Revenues $ 128,603
Less: agency commissions (8,973)
-----------
Net revenues 119,630
Cost of revenues 43,665
Selling and administrative expenses 23,719
Depreciation and amortization 10,342
Management fee expense 2,164
Other 413
-----------
Income from operations 39,327
Interest expense 35
Interest income (134)
Gain on sale of properties (1,418)
-----------
Net income $ 40,844
===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE OUTDOOR DIVISION OF WHITECO INDUSTRIES, INC.
STATEMENT OF DIVISIONAL EQUITY
ELEVEN MONTHS ENDED NOVEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
Divisional equity at December 31, 1997 $ 87,262
Net income 40,844
Interdivisional transactions, net (21,968)
----------
Divisional equity at November 30, 1998 $ 106,138
==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE OUTDOOR DIVISION OF WHITECO INDUSTRIES, INC.
STATEMENT OF CASH FLOWS
ELEVEN MONTHS ENDED NOVEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net income $ 40,844
---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 10,146
Provision for doubtful accounts 299
Gain on sale of assets (1,418)
Changes in assets and liabilities:
Accounts receivable (4,812)
Other assets (5,617)
Accounts payable and accrued expenses 2,088
---------
Total adjustments 686
---------
Net cash provided by operating activities 41,530
---------
Cash flows from investing activities:
Proceeds from sale of assets 558
Expenditures for property and equipment (20,230)
---------
Net cash used in investing activities (19,672)
---------
Cash flows from financing activities:
Interdivisional transactions, net (21,968)
---------
Net cash used in financing activities (21,968)
---------
Net decrease in cash (110)
Cash at beginning of period 250
---------
Cash at end of period $ 140
=========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE OUTDOOR DIVISION OF WHITECO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. THE COMPANY AND SALE
The Outdoor Advertising Division of Whiteco Industries, Inc. (the
"Division") owns and operates outdoor advertising signs throughout the
United States. The Division is wholly-owned by Whiteco Industries,
Inc. ("Industries").
During the period covered by the financial statements, the Division
was conducted as an integral part of Industries' overall operations
and separate financial statements were not prepared. These financial
statements have been prepared from Industries' historical accounting
records. Corporate overhead expenses are actual expenses incurred by
the Division; however, the expenses incurred by the Division for
corporate overhead may not necessarily be indicative of expenses that
would have been incurred had the Division been operated as a separate
entity.
On December 1, 1998, Industries entered into an agreement whereby
substantially all of the assets of the Division were purchased and
certain of the liabilities were assumed by Chancellor Media
Corporation of Los Angeles. The accompanying financial statements do
not reflect any adjustments relating to this transaction.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONTRACTS AND REVENUE RECOGNITION
Outdoor advertising signs are contracted to customers under individual
advertising contracts that primarily run from one month to five years.
Revenue is recognized ratably over the life of the contract. Costs
associated with the outdoor advertising operations, including contract
costs and land rental, are expensed over the related contract term.
PREPAID SIGN COSTS
The majority of the Division's outdoor advertising structures are
located on leased land. Land rent is typically paid in advance for
periods ranging from one to twelve months. Prepaid land leases are
expensed ratably over the related rental term.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost, including interest charges
capitalized during construction. Depreciation on these assets is
computed over various lives under the straight-line method over the
various useful lives. Depreciation expense for the eleven months
ended November 30, 1998 was $10,146.
The estimated useful lives of the various classes of buildings,
improvements and equipment are as follows:
Building and improvements 15-40 years
Advertising structures 5-12 years
Equipment 3-8 years
INCOME TAXES
The Division is part of Industries, which is an "S" corporation and,
as such, federal and most state income taxes are the responsibility of
the stockholder and therefore not reflected on the Division's
financial statements.
DISCLOSURE OF CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
3. LEASE COMMITMENTS
The Division leases office facilities and property under various
operating leases. The Division's primary office premises are leased
from a partnership in which Industries is the general partner. Annual
minimum rental payments under leases that have an initial or remaining
term in excess of one year or leases expected to be renewed at
November 30, 1998 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, RELATED
- ------------------------- PARTY OTHER TOTAL
--------- -------- --------
<S> <C> <C> <C>
1999 $ 224 $ 20,856 $ 21,080
2000 224 20,983 21,207
2001 224 21,094 21,318
2002 224 21,217 21,441
2003 56 21,397 21,453
Thereafter - 566,701 566,701
-------- --------- ---------
$ 952 $ 672,248 $ 673,200
======== ========= =========
</TABLE>
Total lease expense was approximately $20,080 for the eleven months
ended November 30, 1998. Lease expense to related parties was $216
for the eleven months ended November 30, 1998.
4. MANAGEMENT AGREEMENT
In October 1984, the Division entered into an agreement with Metro
Management Associates (the "Partnership"), a partnership in which
several partners are employees of Industries, for the management and
operation of approximately 540 outdoor advertising signs located in
Indiana, Texas, Rhode Island, Missouri, Ohio, Florida, Illinois,
Kentucky, Pennsylvania and Virginia. All revenue and operating
expenses related to the management and operation of the Partnership's
outdoor advertising signs are included in the Division's results of
operations. The Division is required to pay a profit participation
fee to the Partnership which approximates the operating profit of the
management assets and is based upon a fixed monthly fee and a variable
fee based upon revenue. For the eleven months ended November 30,
1998, the Division paid $2,164 to Metro Management in connection with
the agreement. On August 31, 1998, the Partnership entered into an
agreement to sell substantially all of the assets and certain
specified liabilities of the Partnership to Chancellor Media
Corporation of Los Angeles. The management agreement between the
Division and the Partnership was terminated upon the consummation of
the acquisition by Chancellor Media Corporation of Los Angeles on
December 1, 1998.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Whiteco Industries, Inc.
Merrillville, Indiana
We have audited the accompanying balance sheets of the Outdoor
Advertising Division of Whiteco Industries, Inc. as of December 31, 1996 and
1997, and the related statements of income and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Division's management. Our responsibility is to
express an opinion on these financial statements based on our 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 the Outdoor
Advertising Division of Whiteco Industries, Inc. as of December 31, 1996 and
1997, and the results of its operations and cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/S/ BDO SEIDMAN, LLP
BDO Seidman, LLP
Chicago, Illinois
September 17, 1998
<PAGE>
OUTDOOR ADVERTISING DIVISION OF
WHITECO INDUSTRIES, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1997
------------ ------------
<S> <C> <C>
Current assets
Cash............................................. $ 155,781 $ 249,733
Accounts receivable (net of $631,000 and
$1,111,000 allowance for uncollectible
accounts for December 31, 1996 and 1997,
respectively)................................. 9,112,798 10,718,470
Prepaid expenses and other
receivables................................... 2,520,913 2,684,801
Prepaid sign costs............................... 4,880,789 5,064,178
------------ ------------
Total current assets..................... 16,670,281 18,717,182
------------ ------------
Property and equipment
Land, buildings and improvements................. 5,389,827 6,279,957
Advertising signs................................ 134,120,274 150,697,192
Equipment........................................ 4,226,984 4,925,336
------------ ------------
Total cost............................... 143,737,085 161,902,485
Accumulated depreciation......................... 84,300,457 91,601,392
------------ ------------
Net property and equipment......................... 59,436,628 70,301,093
------------ ------------
Other sign costs................................... 707,273 1,424,848
------------ ------------
$ 76,814,182 $ 90,443,123
============ ============
</TABLE>
LIABILITIES AND DIVISIONAL EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Current liabilities
Accounts payable................................. $ 505,561 $ 900,145
Customers' advance payments and deposits......... 127,925 70,174
Accrued expenses................................. 1,577,194 2,210,355
------------ ------------
Total current liabilities................ 2,210,680 3,180,674
------------ ------------
Commitments
Divisional equity.................................. 74,603,502 87,262,449
------------ ------------
$ 76,814,182 $ 90,443,123
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
OUTDOOR ADVERTISING DIVISION OF
WHITECO INDUSTRIES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues....................... $108,447,476 $117,268,324 $126,800,754
Less: Agency discounts......... 6,616,011 8,400,821 8,702,563
------------ ------------ ------------
Net revenues................. 101,831,465 108,867,503 118,098,191
Cost of revenues............... 40,659,116 42,021,229 45,615,461
Selling and administrative
expenses..................... 14,878,784 16,288,955 18,369,034
Corporate overhead expenses.... 5,176,832 5,644,490 6,073,671
Depreciation and
amortization................. 8,675,204 10,501,844 11,525,410
Profit participation fee....... 2,101,620 2,248,329 2,321,884
------------ ------------ ------------
Income from operations before
other income and interest
expense...................... 30,339,909 32,162,656 34,192,731
Other income, less other
expenses..................... (1,060,355) (1,131,033) (1,833,411)
Interest expense............... 38,556 17,927 3,794
------------ ------------ ------------
Net income..................... $ 31,361,708 $ 33,275,762 $ 36,022,348
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
OUTDOOR ADVERTISING DIVISION OF
WHITECO INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income................................... $ 31,361,708 $ 33,275,762 $ 36,022,348
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for depreciation and
amortization........................... 8,675,204 10,501,844 11,525,410
Gain on disposals of assets.............. (795,498) (812,482) (1,488,665)
Increase in accounts receivable.......... (694,344) (1,853,160) (1,605,672)
Decrease (increase) in prepaid expenses
and other receivables.................. (220,881) (1,202,910) (163,888)
Increase in prepaid sign costs and other
sign costs............................. (1,044,722) (815,916) (1,840,672)
(Decrease) increase in accounts payable
and accrued expenses................... (66,319) 869,627 1,027,745
Increase (decrease) in customers' advance
payments and deposits.................. 185,750 (57,825) (57,751)
------------ ------------ ------------
Total adjustments.................... 6,039,190 6,629,178 7,396,507
------------ ------------ ------------
Net cash provided by operating activities.... 37,400,898 39,904,940 43,418,855
------------ ------------ ------------
Cash flows from investing activities
Proceeds from sales of assets.............. 1,352,297 1,115,793 2,474,779
Expenditures for advertising signs......... (26,033,225) (14,713,166) (19,541,162)
Expenditures for property and equipment.... (1,986,847) (2,180,644) (2,895,119)
------------ ------------ ------------
Net cash used in investing activities........ (26,667,775) (15,778,017) (19,961,502)
------------ ------------ ------------
Cash flows from financing activities
Interdivisional transactions............... (11,489,912) (24,124,287) (23,363,401)
------------ ------------ ------------
Net cash used in financing activities........ (11,489,912) (24,124,287) (23,363,401)
------------ ------------ ------------
Net (decrease) increase in cash.............. (756,789) 2,636 93,952
Cash, at beginning of year................... 909,934 153,145 155,781
------------ ------------ ------------
Cash, at end of year......................... $ 153,145 $ 155,781 $ 249,733
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
OUTDOOR ADVERTISING DIVISION OF
WHITECO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Whiteco Industries, Inc. ("Whiteco") has entered into an agreement to
sell substantially all of the assets and certain liabilities of its Outdoor
Advertising Division (the "Division"). The Division owns and operates outdoor
advertising signs throughout the United States.
During the periods covered by the financial statements, the Division
was conducted as an integral part of Whiteco's overall operations and separate
financial statements were not prepared. These financial statements have been
prepared from Whiteco's historical accounting records. Corporate overhead
expenses are actual expenses incurred by the Division. The Division operated
independently from Whiteco Industries, Inc. However, the expenses incurred by
the Division for corporate overhead may not necessarily be indicative of
expenses that would have been incurred had the Division been operated as a
separate entity.
Contracts and Revenue Recognition
Outdoor advertising signs are contracted to customers under individual
advertising contracts that primarily run from one month to five years. Revenue
is recognized ratably over the life of the contract. Costs associated with the
outdoor advertising operations, including contract costs and land rental, are
expensed over the related contract term.
Prepaid Sign Costs and Other Sign Costs
Prepaid sign costs and other sign costs are primarily land rental
payments relating to future periods. Amortization on these assets was
$1,020,942, $1,075,827 and $939,708 for the years ended December 31, 1995, 1996
and 1997.
Property and Equipment
Land, Buildings and Improvements and Equipment
Land, buildings and improvements and equipment are carried at cost,
including interest charges capitalized during construction. Depreciation on
these assets is computed over various lives under the straight-line method and
amounted to $767,872, $911,890 and $1,092,869 for the years ended December 31,
1995, 1996 and 1997.
Advertising Signs
Advertising sign structures are depreciated by the straight-line method
over lives principally from eight to twelve years. Depreciation of advertising
signs was $6,886,390, $8,514,127 and $9,492,833 for the years ended December 31,
1995, 1996 and 1997.
Income Taxes
The Division is part of Whiteco, which is an "S" corporation and, as
such, federal and most state income taxes are the responsibility of the
stockholder and therefore not reflected on the Division's financial statements.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. LEASES
The Division leases office facilities and property under various
operating leases. The Division's primary office premises are leased from a
partnership in which Whiteco Industries, Inc. is the general partner. Annual
minimum rental payments under leases that have an initial or remaining term in
excess of one year at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
RELATED
YEAR PARTY OTHER TOTAL
---- -------- -------- ----------
<S> <C> <C> <C>
1998....................................... $224,000 $270,000 $ 494,000
1999....................................... 224,000 131,000 355,000
2000....................................... 224,000 130,000 354,000
2001....................................... 224,000 131,000 355,000
2002....................................... 224,000 131,000 355,000
Thereafter................................. 56,000 962,000 1,018,000
</TABLE>
Total lease expense was approximately $675,000, $646,000 and $665,000
for the years ended December 31, 1995, 1996 and 1997, respectively. Related
party lease expense was $254,000, $230,000 and $117,000 for the years ended
December 31, 1995, 1996 and 1997, respectively.
3. RETIREMENT SAVINGS PLAN
The Division is a part of Whiteco Industries, Inc. ("Whiteco"), who
maintains a qualified plan under Section 401(k) of the Internal Revenue Code.
This plan is available for all employees who have completed one year or more of
continuous service. The plan permits employees to contribute up to 15% of their
annual compensation. The plan allows for discretionary Whiteco contributions.
Currently, Whiteco matches 20% of the employees' contributions, to a maximum of
6% of earnings, and also makes a 1% quarterly matching contribution.
Contributions were $154,160, $171,270 and $177,100 for the years ended December
31, 1995, 1996 and 1997, respectively.
4. MANAGEMENT AGREEMENT
In October 1984, the Division entered into an agreement with Metro
Management Associates (the "Partnership"), a partnership in which several
partners are employees of Whiteco, for the management and operation of
approximately 540 outdoor advertising signs located in Indiana, Texas, Rhode
Island, Missouri, Ohio, Florida, Illinois, Kentucky, Pennsylvania and Virginia.
All revenue and operating expenses related to the management and operation of
the Partnership's outdoor advertising signs are included in the Division's
results of operations. The Division is required to pay a profit participation
fee to the Partnership which approximates the operating profit of the managed
assets and is based upon a fixed monthly fee and a variable fee based upon
revenue. On August 31, 1998, the Partnership entered into an agreement to sell
substantially all of the assets and certain specified liabilities of the
Partnership to Chancellor Media Corporation. The management agreement between
the Division and the Partnership will be terminated upon consummation of the
acquisition by Chancellor Media Corporation.
5. SUBSEQUENT EVENT
On August 31, 1998, Whiteco Industries, Inc. entered into an agreement
to sell substantially all of the assets and certain specified liabilities of the
Division to Chancellor Media Corporation.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
June 9, 1999
To the Board of Directors of
Chancellor Media Corporation
In our opinion, the accompanying statements of operations, partners'
capital and cash flows present fairly, in all material respects, the
operations and cash flows of Martin Media, L.P. (the "Company") for the
seven months ended July 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion
on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing
standards that require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable
basis for the opinion expressed above.
/S/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
<PAGE>
MARTIN MEDIA L.P.
STATEMENT OF OPERATIONS
SEVEN MONTHS ENDED JULY 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
Revenue $ 33,791
Cost of revenue 4,136
---------
Gross profit 29,655
Managers' controlled operating expenses 14,364
---------
Income from managers' operations 15,291
Other operating expenses:
Depreciation and amortization 11,223
Refinance and acquisition expenses 3,276
Other 3,174
---------
Operating loss (2,382)
Other income (expenses):
Interest income 20
Other income 473
Interest expense (8,527)
---------
Net loss $ (10,416)
=========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
MARTIN MEDIA L.P.
STATEMENT OF PARTNERS' CAPITAL
SEVEN MONTHS ENDED JULY 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
Balance at December 31, 1997 $ 18,143
Distributions and redemption of partnership units (23,613)
Net loss (10,416)
---------
Balance at July 31, 1998 $ (15,886)
=========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
MARTIN MEDIA L.P.
STATEMENT OF CASH FLOWS
SEVEN MONTHS ENDED JULY 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities: $ (10,416)
Net loss
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 11,223
Provision for doubtful accounts 407
Changes in operating assets and liabilities (exclusive of
acquisitions):
Accounts receivable (1,276)
Other current assets (953)
Other assets 20
Accounts payable and accrued expenses (6,026)
----------
Net cash used by operating activities (7,021)
Cash flows from investing activities:
Acquisitions, net of cash acquired (22,667)
Capital expenditures (14,795)
----------
Net cash used in investing activities (37,462)
Cash flows from financing activities:
Deposit received from Chancellor Media Corporation 185,860
Payments on long-term debt (112,456)
Redemption of partnership units (23,612)
----------
Net cash provided by financing activities 49,792
Net increase in cash and cash equivalents 5,309
Cash and cash equivalents at beginning of period 23
----------
Cash and cash equivalents at end of period $ 5,332
==========
Supplemental disclosures of cash flow information:
Interest paid $ 5,313
==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
MARTIN MEDIA L.P.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. NATURE OF BUSINESS
Martin Media L.P. ("Martin" or the "Company"), a California limited
partnership, 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.
On July 31, 1998, Martin and related companies were acquired by
Chancellor Media Corporation for a total purchase price of $615,117,
which consisted of $612,848 in cash and included various direct
acquisition costs and the assumption of notes payable of $2,270. The
accompanying financial statements do not reflect any adjustments
related to this transaction.
2. SIGNIFICANT ACCOUNTING POLICIES
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
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 are expensed as incurred. Depreciation
expense for the seven months ended July 31, 1998 was $2,059.
Expenditures which significantly increase asset values are
capitalized. Estimated useful lives are as follows:
<TABLE>
<CAPTION>
YEARS
------------
<S> <C>
Building and improvements 15-31
Posters 7-25
Bulletins 7-25
Shop equipment 3-10
Office furniture and equipment 5-10
Auto and trucks 5-7
</TABLE>
CONTRACTS AND REVENUE RECOGNITION
Outdoor advertising signs are contracted to customers under individual
advertising contracts that primarily run from one month to five years.
Revenue is recognized ratably over the life of the contract. Costs
associated with the outdoor advertising operations, including contract
costs and land rental, are expensed over the related contract term.
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 or 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. 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 has adopted profit-sharing plans which are qualified 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. The Company has made no contributions to the
plan.
3. SIGNIFICANT ACQUISITIONS
On January 2, 1998, Martin acquired Las Vegas Outdoor
Advertising, Inc., an outdoor advertising company with 90 billboards
and outdoor displays in the Las Vegas market, for approximately
$16,800 in cash plus various other direct acquisition costs.
On July 9, 1998, Martin acquired POA, an outdoor advertising
company with over 1,240 billboards and outdoor displays in the
Pittsburgh market, for approximately $5,867 in cash plus various other
direct acquisition costs.
These acquisitions were accounted for under the purchase method of
accounting and, accordingly, the accompanying statement of operations
includes the results of the acquired companies' operations from the
respective dates of acquisition.
4. COMMITMENTS
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 annual minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31, TOTAL
- ------------- ---------
<S> <C>
1999 $ 6,397
2000 7,130
2001 7,404
2002 7,658
2003 7,914
Thereafter 353,578
---------
$ 390,081
=========
</TABLE>
Lease expense for the seven months ended July 31, 1998 was
approximately $5,328.
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. 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. The second segment of the agreement provides an option to
the Company to purchase additional assets for $3,077. Upon execution
of the option agreement, the Company deposited $464 in good faith
with Martin & MacFarlane, Inc.
PREFERRED PARTNERSHIP UNITS
On December 23, 1997, the Company entered into an agreement to sell
preferred limited partnership units (PPUs), warrants and warrant units
to a select group of purchasers. The Company issued 25,000 PPUs at
$1 each, calling for the holders of the PPUs to receive an initial 14%
preferred rate of return, which escalates on certain dates to a
maximum of 20%. The Company can redeem PPUs for 102% of the PPUs
capital account amount until September 23, 1998 and thereafter to
redeem all outstanding PPUs on December 23, 2006. Warrants to
purchase additional PPUs, based upon terms of the agreement, shall be
issuable upon the 270th day following the purchase date and
quarterly thereafter, if any PPUs shall then be outstanding.
5. RELATED PARTY TRANSACTIONS
Substantially all administrative functions are performed by MW Sign
Co., the general partner. The partnership pays management fees
approximating 4% of gross revenue, refinancing fees of 4% of all debt
refinanced and acquisition fees of 4% of the purchase price of
acquired companies. Total fees paid to MW Sign Co. for the seven
month period ended July 31, 1998 were approximately $1,340 and are
included in other operating expenses.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Martin Media:
We have audited the accompanying balance sheets of Martin Media,
(a California limited partnership) as of December 31, 1997 and
1996 and the related statements of operations, partners' capital (deficit),
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Martin Media, as of
December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/S/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Bakersfield, California
February 13, 1998
<PAGE>
MARTIN MEDIA
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S>
Current Assets <C> <C>
Cash and equivalents.........................................$ 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
============ ===========
</TABLE>
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
<S> <C> <C>
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.
<PAGE>
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.
<PAGE>
MARTIN MEDIA
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
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.
<PAGE>
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 income (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 by (used in) 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>
<PAGE>
MARTIN MEDIA
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
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.
<PAGE>
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:
YEARS
-----
Buildings and improvements.................................. 15-31
Posters..................................................... 25
Bulletins................................................... 25
Shop equipment.............................................. 3-10
Office furniture and equipment.............................. 5-10
Auto and trucks............................................. 5-7
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
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.
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.
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.
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
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>
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.
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>
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-.
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.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
June 9, 1999
To the Board of Directors of
Chancellor Media Corporation
In our opinion, the accompanying statements of operations, retained
earnings and cash flows present fairly, in all material respects, the
operations and cash flows of Martin & MacFarlane, Inc. (the "Company")
for the seven months ended July 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is
to express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with generally
accepted auditing standards that require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/S/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
<PAGE>
MARTIN & MACFARLANE, INC.
STATEMENT OF OPERATIONS
SEVEN MONTHS ENDED JULY 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
Revenue $ 17,946
Cost of revenue 1,370
----------
Gross profit 16,576
Managers' controlled operating expenses 10,526
----------
Income from managers' operations 6,050
Other operating expenses:
Depreciation and amortization 3,471
Refinance and acquisition expenses 1,570
Other expenses 2,623
----------
Operating loss (1,614)
Other income (expense):
Interest expense (2,244)
Gain on disposal of assets 465
Other income 537
----------
Loss before income taxes (2,856)
Income tax expense 10
----------
Net loss $ (2,866)
==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
MARTIN & MACFARLANE, INC.
STATEMENT OF RETAINED EARNINGS
SEVEN MONTHS ENDED JULY 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
Balance at December 31, 1997 $ 7,949
Dividends (743)
Net loss (2,866)
---------
Balance at July 31, 1998 $ 4,340
=========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
MARTIN & MACFARLANE, INC.
STATEMENT OF CASH FLOWS
SEVEN MONTHS ENDED JULY 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net Loss $ (2,866)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 3,471
Provision for doubtful accounts 593
Changes in operating assets and liabilities (exclusive of
acquisitions):
Accounts receivable (1,061)
Other current assets 1,075
Other assets 31
Accounts payable and accrued expenses 502
Other liabilities 91
-----------
Net cash provided by operating activities 1,836
Cash flows from investing activities:
Acquisitions, net of cash acquired (12,500)
Capital expenditures (1,881)
-----------
Net cash used in investing activities (14,381)
Cash flows from financing activities:
Dividends paid (743)
Payments on long-term debt (35,680)
Deposit received from Chancellor Media Corporation 50,000
-----------
Net cash provided by financing activities 13,577
Net increase in cash 1,032
Cash and cash equivalents at beginning of period 16
-----------
Cash and cash equivalents at end of period $ 1,048
===========
Supplemental disclosures of cash flow information:
Interest paid $ 1,913
===========
Income taxes paid $ 4
===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. NATURE OF BUSINESS
Martin & MacFarlane, Inc. (the "Company") was incorporated on
December 2, 1971 and 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.
On July 31, 1998, Martin & MacFarlane, Inc. and related companies were
acquired by Chancellor Media Corporation for a total purchase price of
$615,117, which consisted of $612,848 in cash and included various
direct acquisition costs and the assumption of notes payable of
$2,270. The accompanying financial statements do not reflect any
adjustments related to this transaction.
2. SIGNIFICANT ACCOUNTING POLICIES
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
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.
Depreciation expense for the seven months ended July 31, 1998 was
$927. Repairs and maintenance are expensed as incurred. Expenditures
which significantly increase asset values are capitalized. Estimated
useful lives are as follows:
<TABLE>
<CAPTION>
YEARS
-----------
<S> <C>
Building and improvements 15-31
Posters 7-25
Bulletins 7-25
Shop equipment 3-10
Office furniture and equipment 5-10
Auto and trucks 5-7
</TABLE>
<PAGE>
CONTRACTS AND REVENUE RECOGNITION
Outdoor advertising signs are contracted to customers under individual
advertising contracts that primarily run from one month to five years.
Revenue is recognized ratably over the life of the contract. Costs
associated with the outdoor advertising operations, including contract
costs and land rental, are expensed over the related contract term.
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.
INTANGIBLE ASSETS
Covenants not to compete are recorded at cost and are amortized using
the straight-line method over the contractual period specified.
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 has adopted profit-sharing plans which are qualified
under Section 401(k) of the Internal Revenue Code. All full-time
employees with twelve months of service who are 19 years old or older
are eligible to participate. Each employee may voluntarily contribute
up to the lesser of 15% of their pay or $10. The Company has made
no contributions to the plan.
3. 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 for the seven months ended July 31, 1998 consisted of $10 of
current state income taxes.
4. SIGNIFICANT ACQUISITION
On January 2, 1998, the Company acquired Newman Outdoor of Texas,
Inc., an outdoor advertising company with over 1,200 billboards and
outdoor displays in three markets, for approximately $12,500 in
cash plus various other direct acquisition costs. The acquisition was
accounted for under the purchase method of accounting and,
accordingly, the accompanying statement of operations includes the
results of the acquired operations from the date of acquisition.
5. 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. Certain leases are
subject to renewal options.
The Company also leases office and shop buildings which are located
at various divisions. A portion of these are long-term leases.
Future annual minimum lease payments at July 31, 1998 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
- -------------
<S> <C>
1999 $ 6,147
2000 6,850
2001 7,114
2002 7,358
2003 7,603
Thereafter $ 339,712
----------
$ 374,784
==========
</TABLE>
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.
Lease expense for the seven months July 31, 1998 was $2,782.
ACQUISITION, PURCHASE AND PURCHASE OPTION
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. This purchase
agreement has two segments, the first of which provided for the
purchase of assets totaling $20,500. 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 area, primarily the Las Vegas and Colorado River
markets, for $11,273. The Company's net acquisition price under the
first segment of the agreement was $9,227.
The second segment of the agreement provides an option for the Company
to purchase additional assets for $39,500. 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. The Company's net acquisition price for assets to
be received under the second segment of the agreement was $36,423.
Upon execution of the option agreement, the Company deposited $6,000
in good faith with the seller. Similarly, Martin Media deposited
$464 with the Company resulting in a net deposit of $5,536. The
option agreement expired on October 1, 1998.
The Company contracts with M.W. Sign Company, a company wholly-owned
by related shareholders, to provide the Company with management
services at 4% of gross revenue. Management fees of $1,841 were paid
to M.W. Sign Company during the seven months ended July 31, 1998 and
are included in other operating expenses.
<PAGE>
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. 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.
/S/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Bakersfield, California
February 13, 1998
<PAGE>
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 1997.. 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
=========== ===========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
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.
<PAGE>
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.
<PAGE>
MARTIN & MACFARLANE, INC.
STATEMENT 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.
<PAGE>
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) decrease 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 (decrease) 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.
During the year ended December 31, 1996, long-term debt in the amount
of $783,285 was incurred to purchase property and equipment and
intangible assets.
The accompanying notes are an integral part of these statements.
<PAGE>
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. 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.
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>
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
----------- -----------
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.
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
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
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.
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 years ended December 31, 1997 and
1996 and six months ended December 31, 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.
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.
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.
<PAGE>
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. 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
<PAGE>
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, 7 and 8)........................................ 16,872,469
-----------
Intangible Assets, net of accumulated amortization (Note5).. 764,898
-----------
Other Assets................................................ 20,171
-----------
$21,692,964
===========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C>
Current Liabilities
Current maturities of long-term debt (Note 7)............. $ 1,848,465
Note payable, bank (Note 8)............................... 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 7)............ 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.
<PAGE>
MARTIN & MACFARLANE, INC.
STATEMENT OF INCOME
YEAR ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Income...................................................... $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.
<PAGE>
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.
<PAGE>
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 in accounts payable........................... 5,887
Decrease in accrued liabilities........................ (176,570)
Increase in unearned income............................ 30,106
Increase 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.
<PAGE>
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 debt instruments 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.
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>
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
-----------
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>
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.
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 July 1994, October 1994 and 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 $1,519,542
========== ======== ==========
</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. 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>
<CAPTION>
Years ending June 30,
<S> <C>
1996...................................................... $ 47,747
1997...................................................... 22,665
1998...................................................... 18,711
1999...................................................... 19,944
2000...................................................... 19,944
Thereafter................................................ 121,830
--------
$250,841
========
</TABLE>
EXHIBIT 99.2
LAMAR ADVERTISING COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The following sets forth unaudited pro forma condensed consolidated
financial information for Lamar Advertising Company ("Lamar"). The unaudited
pro forma condensed consolidated statement of operations for the year ended
December 31, 1998 gives effect to the acquisition of Outdoor Communications,
Inc. (as filed in Lamar's Form 8-K/A filed June 8, 1999) and the proposed
acquisition by Lamar (the "Stock Purchase") of all of the outstanding capital
stock of Chancellor Media Outdoor Corporation ("Chancellor Outdoor") as if the
transactions had occurred on January 1, 1998. The unaudited pro forma
condensed consolidated statement of operations for the three months ended March
31, 1999 gives effect to the proposed Stock Purchase as if the transaction had
occurred on January 1, 1998. The unaudited pro forma condensed consolidated
balance sheet as of March 31, 1999 gives effect to the Stock Purchase as if the
transaction had occurred on March 31, 1999.
For purposes of the pro forma financial information: (i) the pro forma
statement of operations of Lamar for the year ended December 31, 1998 (as
adjusted for the Outdoor Communications, Inc. acquisition) has been combined
with the statement of operations of Chancellor Outdoor for the period July 22,
1998 (inception) to December 31, 1998, the statement of operations of Martin
Media L.P. ("Martin Media") for the seven months ended July 31, 1998, the
statement of operations of Martin & MacFarlane, Inc. ("Martin & MacFarlane")
for the seven months ended July 31, 1998 and the statement of income of the
outdoor advertising division of Whiteco Industries, Inc. ("Whiteco") for the
eleven months ended November 30, 1998; (ii) the statement of operations of
Lamar for the three month period ended March 31, 1999 has been combined with
the statement of operations of Chancellor Outdoor for the same period, and (iii)
the balance sheet of Lamar as of March 31, 1999 has been combined with the
balance sheet of Chancellor Outdoor as of March 31, 1999.
The unaudited pro forma condensed consolidated financial statements give
effect to the acquisitions under the purchase method of accounting. The pro
forma adjustments are described in the accompanying notes and are based on
preliminary estimates and certain assumptions that management of Lamar believes
reasonable under the circumstances.
The unaudited pro forma condensed consolidated financial statements have
been prepared by Lamar's management. The unaudited pro forma data is not
designed to represent and does not represent what Lamar's results of operations
or financial position would have been had the Stock Purchase and the acquisition
of Outdoor Communications, Inc. been completed on or as of the dates assumed,
and is not intended to project Lamar's results of operations for any future
period or as of any future date. The unaudited pro forma condensed
consolidated financial statements should be read in conjunction with the
audited and unaudited consolidated financial statements and notes of Lamar,
Chancellor Outdoor, Martin Media, Martin & MacFarlane, Whiteco and
Outdoor Communications, Inc.
<PAGE>
LAMAR ADVERTISING COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
PRO FORMA
LAMAR CHANCELLOR MARTIN MARTIN &
ADJUSTED OUTDOOR MEDIA MACFARLANE WHITECO
FOR THE OCI JULY 22, 1998 TO JAN 1, 1998 TO JAN 1, 1998 TO JAN 1, 1998 TO
ACQUISITION DECEMBER 31, 1998 JULY 31, 1998 JULY 31, 1998 NOV 30, 1998
--------------- ----------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues, net $ 332,754 $ 47,605 $ 29,655 $ 16,576 $ 119,630
--------------- ----------------- -------------- -------------- --------------
Direct advertising expenses 108,781 23,505 14,364 10,526 43,665
General and administrative expenses 69,662 1,981 6,450 4,193 26,296
Depreciation and amortization 112,805 25,990 11,223 3,471 10,342
--------------- ----------------- -------------- -------------- --------------
291,248 51,476 32,037 18,190 80,303
--------------- ----------------- -------------- -------------- --------------
Operating income (loss) 41,506 (3,871) (2,382) (1,614) 39,327
--------------- ----------------- -------------- -------------- --------------
Other expense (income):
Interest income (762) - - (20) - - (134)
Interest expense 80,581 105 8,527 2,244 35
Loss (gain) on disposition of assets (729) - - - - (465) (1,418)
Other expenses 314 (156) (473) (537) - -
--------------- ----------------- -------------- -------------- --------------
79,404 (51) 8,034 1,242 (1,517)
--------------- ----------------- -------------- -------------- --------------
Income (loss) before income taxes (37,898) (3,820) (10,416) (2,856) 40,844
Income tax expense (benefit) (6,368) 345 - - 10 - -
--------------- ----------------- -------------- -------------- --------------
Net income (loss) (31,530) $ (4,165) $ (10,416) $ (2,866) $ 40,844
================= ============== ============== ==============
Preferred stock dividends 365
---------------
Net loss applicable to common stock $ (31,895)
===============
Net loss per common share $ (0.62)
===============
Weighted average number of shares
outstanding 51,361,522
===============
</TABLE>
<TABLE>
<CAPTION>
COMBINED
CHANCELLOR
OUTDOOR ACQUISITION PRO FORMA
12/31/98 ADJUSTMENTS COMBINED
--------------- --------------- ---------------
<S> <C> <C> <C>
Revenues, net $ 213,466 $ (3,810) (6) $ 542,410
--------------- --------------- ---------------
Direct advertising expenses 92,060 (1,993) (6) 198,848
General and administrative expenses 38,920 (2,734) (1) 105,848
Depreciation and amortization 51,026 97,754 (2) 261,585
--------------- --------------- ---------------
182,006 93,027 566,281
--------------- --------------- ---------------
Operating income (loss) 31,460 (96,837) (23,871)
--------------- --------------- ---------------
Other expense (income):
Interest income (154) 154 (3) (762)
Interest expense 10,911 40,046 (4) 131,538
Loss (gain) on disposition of assets (1,883) - - (2,612)
Other expenses (1,166) - - (852)
--------------- --------------- ---------------
7,708 40,200 127,312
--------------- --------------- ---------------
Loss before income taxes 23,752 (137,037) (151,183)
Income tax benefit 355 (44,536) (5) (50,549)
--------------- --------------- ---------------
Net income (loss) $ 23,397 $ (92,501) (100,634)
=============== ===============
Preferred stock dividends 365
---------------
Net loss applicable to common stock $ (100,999)
===============
Net loss per common share $ (1.30)
===============
Weighted average number of shares
outstanding 26,227,273 77,588,795
=============== ===============
</TABLE>
<PAGE>
LAMAR ADVERTISING COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
CHANCELLOR ACQUISITION PRO FORMA
LAMAR OUTDOOR ADJUSTMENTS COMBINED
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues, net $ 85,766 $ 53,601 $ (847) (6) $ 138,520
-------------- -------------- -------------- --------------
Direct advertising expenses 29,764 28,451 (480) (6) 57,735
General and administrative expenses 20,099 2,825 - - 22,924
Depreciation and amortization 31,561 31,396 5,799 (2) 68,756
-------------- -------------- -------------- --------------
81,424 62,672 5,319 149,415
-------------- -------------- -------------- --------------
Operating income (loss) 4,342 (9,071) (6,166) (10,895)
-------------- -------------- -------------- --------------
Other expense (income):
Interest income (686) - - - - (686)
Interest expense 18,145 64 12,501 (4) 30,710
Loss on disposition of assets (336) - - - - (336)
Other expenses - - 86 - - 86
-------------- -------------- -------------- --------------
17,123 150 12,501 29,774
-------------- -------------- -------------- --------------
Loss before income taxes (12,781) (9,221) (18,667) (40,669)
Income tax benefit (2,842) (3,076) (7,800) (5) (13,718)
-------------- -------------- -------------- --------------
Loss before cumulative effect of a change
in accounting principle $ (9,939) $ (6,145) $ (10,867) $ (26,951)
============== ============== ============== ==============
Loss before cumulative effect of a change
in accounting principle per common share $ (0.16) $ (0.31)
============== ==============
Weighted average number of shares
outstanding 61,143,351 26,227,273 87,370,624
============== ============== ==============
</TABLE>
<PAGE>
LAMAR ADVERTISING COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
CHANCELLOR PRO FORMA PRO FORMA
LAMAR OUTDOOR ADJUSTMENTS COMBINED
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Cash $ 8,171 $ 3,620 $ - - $ 11,791
Net receivables 41,042 29,015 - - 70,057
Other current assets 17,573 18,945 (2,243) (7) 34,275
--------------- --------------- --------------- ---------------
Total current assets 66,786 51,580 (2,243) 116,123
--------------- --------------- --------------- ---------------
Property, plant and equipment, net 521,495 1,213,218 (571,627) (8) 1,163,086
--------------- --------------- --------------- ---------------
Intangibles 752,809 499,852 610,013 (9) 1,862,674
Other assets 17,447 1,168 - - 18,615
--------------- --------------- --------------- ---------------
Total assets $ 1,358,537 $ 1,765,818 $ 36,143 $ 3,160,498
=============== =============== =============== ===============
Current maturities of long-term debt $ 4,165 $ 671 $ - - $ 4,836
Other current liabilities 36,404 22,169 22,000 (10) 80,573
--------------- --------------- --------------- ---------------
40,569 22,840 22,000 85,409
--------------- --------------- --------------- ---------------
Long-term debt 829,288 1,854 700,000 (11) 1,531,142
Deferred income - Long term 1,313 - - - - 1,313
Other liabilities 4,464 - - - - 4,464
Deferred tax liability 23,998 95,554 12,721 (12) 132,273
--------------- --------------- --------------- ---------------
Total Liabilities 899,632 120,248 734,721 1,754,601
--------------- --------------- --------------- ---------------
Stockholders' equity 458,905 1,645,570 (698,578) (13) 1,405,897
--------------- --------------- --------------- ---------------
Total liabilities and stockholders'
equity $ 1,358,537 $ 1,765,818 $ 36,143 $ 3,160,498
=============== =============== =============== ===============
</TABLE>
<PAGE>
LAMAR ADVERTISING COMPANY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
(dollars in thousands)
For purposes of determining the pro forma effect of the Chancellor Outdoor
acquisition on Lamar's Condensed Consolidated Statements of Operations for
the year ended December 31, 1998 and the three months' ended March 31, 1999,
the following adjustments have been made:
<TABLE>
<CAPTION>
12/31/98 03/31/99
--------------- ---------------
<S> <C> <C>
(1) To eliminate expenses in Chancellor Outdoor's combined financial
statement related to management fees that would not have existed had
the Stock Purchase taken place at the beginning of the year
General and administrative expenses (2,734) - -
=============== ===============
(2) To record incremental amortization and depreciation
due to the application of purchase accounting.
Depreciation and amortization are calculated using
accelerated and straight line methods over the estimated
useful lives of the assets generally from 5-15 years. 97,754 5,799
=============== ===============
(3) To eliminate historical interest income that would not
have existed had the Stock Purchase taken place on
January 1, 1998 154 - -
=============== ===============
(4) To eliminate historical interest expense
in Chancellor Outdoor's combined financial statements
and record interest expense related to the debt acquired
and incurred in the Stock Purchase. (A difference of .125% in the
rate of interest would have changed income by $875 and
$216 for the year ended December 31, 1998 and three months
ended March 31, 1999, respectively.)
Historical interest expense (10,911) (64)
Interest expense on debt acquired and incurred in the Stock Purchase. 50,957 12,565
--------------- ---------------
40,046 12,501
=============== ===============
(5) To record the tax effect on pro forma statements
for the Stock Purchase. (44,536) (7,800)
=============== ===============
(6) To record the effect on net revenues and direct expenses of the
divestiture required of Chancellor Outdoor by the Department of Justice
in May 1999.
Net revenues (3,810) (847)
=============== ===============
Direct advertising expenses (1,993) (480)
=============== ===============
</TABLE>
<PAGE>
The terms of the Stock Purchase Agreement include the issuance of 26,227,273
Class A Common Stock at an average stock price of $36.11 per share and $700
million in cash for a total purchase price of $1,646,992. The acquisition
will be accounted for under the purchase method of accounting. The following
is a summary of the preliminary allocation of the purchase price of the
acquisition:
<TABLE>
<CAPTION>
<S> <C>
Current assets 49,337
Property, plant and equipment 641,591
Goodwill 312,371
Customer lists 132,913
Structure locations 628,649
Other intangibles 35,932
Other assets 1,168
Current liabilities (44,840)
Long-term liabilities (110,129)
--------------------------
1,646,992
</TABLE>
For purposes of determining the pro forma effect of the Stock Purchase on
Lamar's unaudited Condensed Consolidated Balance Sheet as of March 31, 1999,
the following adjustments have been made:
<TABLE>
<CAPTION>
Pro Forma
Adjustments
---------------
<S> <C>
(7) Other current assets
To eliminate historical deferred tax assets not acquired in the
Stock Purchase. (2,243)
===============
(8) Property, Plant and Equipment, net:
To record the decrease in property, plant and equipment
from the allocation of the Purchase Price for the Stock Purchase (571,627)
===============
(9) Intangibles:
To record the increase in intangibles resulting from the
allocation of the Purchase Price of the Stock Purchase. 610,013
===============
(10) Other current liabilities:
To record the increase in the accrual of severance and other liabilities
assumed in the Stock Purchase. 22,000
===============
(11) Long-term debt:
To record the increase in debt related to financing
the Stock Purchase.
Borrowings under the Credit Facility 700,000
===============
(12) Deferred Tax Liability:
To record the increase in the deferred tax liability
created as a result of the application of purchase
accounting. 12,721
===============
(13) Stockholders' Equity
To eliminate Chancellor Outdoor's historical stockholders' equity
as a result of the Stock Purchase. (1,645,570)
To record the issuance of Class A Common Stock as a result
of the Stock Purchase. 946,992
---------------
(698,578)
===============
</TABLE>
