SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): November 1, 1996
SFX BROADCASTING, INC.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 0-22486 13-3649750
-------- ------- ----------
(State or Other Jurisdiction (Commission File No.) (IRS Employer Identification No.)
of Incorporation)
</TABLE>
150 East 58th Street, 19th Floor, New York, New York 10155
- ------------------------------------------------------------- -------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 407-9191
N/A
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(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS
Financial Statements of WRFX-FM and WEDJ-FM (divisions of Pyramid
Communications, Inc.) and WKSS 95.7-FM (a division of Precision Media
Corporation)
In order to permit the incorporation by reference into certain registration
statements to be filed by SFX Broadcasting, Inc. (the "Company"), the Company
is including in Annex A attached hereto the following financial statements,
which are incorporated herein by reference: (i) the financial statements of
WRFX-FM and WEDJ-FM (divisions of Pyramid Communications, Inc.) which the
Company has agreed to acquire pursuant to an acquisition agreement dated
September 4, 1996 and (ii) the financial statements of WKSS-FM 95.7-FM (a
division of Precision Media Corporation), which Multi-Market Radio, Inc.
("MMR") acquired on September 4, 1996. The Company intends to acquire MMR
pursuant to the pending merger between MMR and a wholly-owned subsidiary of
the Company. WEDJ-FM has changed its call letters to WNKS-FM.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereto duly authorized.
SFX BROADCASTING, INC.
By: /s/ Robert F.X. Sillerman
---------------------------
Name: Robert F.X. Sillerman
Title: Executive Chairman
Date: November 1, 1996
- 2 -
<PAGE>
ANNEX A
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Evergreen Communications, Inc.
We have audited the accompanying combined balance sheet of WRFX-FM
and WEDJ-FM (Divisions of Pyramid Communications, Inc.) as of December 31,
1995 and the related statements of operations, divisional surplus and cash
flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of WRFX-FM and
WEDJ-FM (Divisions of Pyramid Communications, Inc.) as of December 31, 1995,
and the results of their operations and cash flows for the year then ended in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
September 24, 1996
<PAGE>
WRFX-FM AND WEDJ-FM
(DIVISIONS OF PYRAMID COMMUNICATIONS, INC.)
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
<S> <C>
ASSETS
Current assets:
Cash $ 37,263
Accounts receivable, net of allowance for
doubtful accounts of $53,042 2,554,955
Prepaids and other current assets 248,676
------------
Total current assets 2,840,894
Property and equipment, net 2,083,469
Intangible assets:
Goodwill 431,842
FCC license 6,891,268
Other intangibles 6,196,014
------------
13,519,124
Less accumulated amortization (4,965,853)
------------
8,553,271
------------
$ 13,477,634
============
LIABILITIES AND DIVISIONAL SURPLUS Current liabilities:
Accounts payable $ 198,236
Accrued talent fees 91,205
Accrued sales commissions 68,218
Accrued bonus 53,121
Other accrued expenses 139,691
------------
Total current liabilities 550,471
Due to related entities 9,597,507
Divisional surplus 3,329,656
Total liabilities and divisional surplus $ 13,477,634
============
</TABLE>
See accompanying notes to combined financial statements.
- 2 -
<PAGE>
WRFX-FM AND WEDJ-FM
(DIVISIONS OF PYRAMID COMMUNICATIONS, INC.)
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------
<S> <C>
Gross revenue $ 12,000,990
Less commissions 1,376,815
------------
Net operating revenue 10,624,175
Operating expenses:
Sales and promotion 2,824,807
Technical 383,562
Programming and production 2,227,526
General and administrative 2,186,929
Depreciation and amortization 3,119,981
------------
10,742,805
------------
Loss from operations (118,630)
Interest expense, net 6,883
Loss on disposal of equipment 607,893
------------
Net loss $ (733,406)
============
</TABLE>
See accompanying notes to combined financial statements.
- 3 -
<PAGE>
WRFX-FM AND WEDJ-FM
(DIVISIONS OF PYRAMID COMMUNICATIONS, INC.)
COMBINED STATEMENT OF DIVISIONAL SURPLUS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------
<S> <C>
Divisional surplus at December 31, 1994 $ 4,063,062
Net loss (733,406)
------------
Divisional surplus at December 31, 1995 $ 3,329,656
=============
</TABLE>
See accompanying notes to combined financial statements.
- 4 -
<PAGE>
WRFX-FM AND WEDJ-FM
(DIVISIONS OF PYRAMID COMMUNICATIONS, INC.)
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------
<S> <C>
Cash flows from operating activities
Net loss $ (733,406)
Adjustment to reconcile net loss to cash
provided by operating activities:
Depreciation and amortization 3,119,981
Provision for doubtful accounts 5,412
Loss on disposal of equipment 607,893
Changes in certain operating assets
and liabilities:
Increase in accounts receivable (702,752)
Decrease in prepaid expenses and other
current assets 36,072
Decrease in accounts payable (203,981)
Decrease in accrued expenses and other
current liabilities (7,354)
-----------
Net cash provided by operating activities 2,121,865
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of assets (325,784)
-----------
Net cash used in investing activities (325,784)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments to related entities (1,896,078)
-----------
Net cash used in financing activities (1,896,078)
===========
Decrease in cash (99,997)
Cash balance at beginning of year 137,260
-----------
Cash balance at end of year $ 37,263
===========
</TABLE>
See accompanying notes to combined financial statements.
- 5 -
<PAGE>
WRFX-FM AND WEDJ-FM
(DIVISIONS OF PYRAMID COMMUNICATIONS, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. NATURE OF BUSINESS AND ORGANIZATION
Pyramid Communications, Inc. (the "Company") was organized in
November of 1993 for the purpose of owning and acquiring radio stations
throughout the eastern United States. The Company accounts for the activities
of its stations as separate divisions. The accompanying financial statements
have been prepared on a going concern basis, and include the accounts of
WRFX-FM and WEDJ-FM (the "Stations") each of which are a division of the
Company. These divisions are being combined in these financial statements due
to the pending acquisition of these Stations by SFX Broadcasting, Inc. ("SFX")
(See below)
Substantially all of the assets of the Stations are pledged as
collateral under various obligations of the Company.
In March 1994, the Company completed the acquisition of the assets of
KISS Limited Partnership d/b/a Pyramid Broadcasting (the "Partnership") which
included the assets and FCC license of WRFX-FM. In August 1994 the Company
purchased certain assets, including the FCC license of WEDJ-FM (formerly
WAQQ-FM), both stations are located in Charlotte, North Carolina.
In January 1996, the Company, Evergreen Media Corporation
("Evergreen") and Evergreen Media/Pyramid Corporation ("Merger Co.") completed
the Agreement and Plan of Merger, dated as of July 14, 1995 (the "Merger
Agreement") whereby the Company merged with Evergreen.
In September 1996, Evergreen entered into a binding letter of intent
with EZ Communications, Inc. ("EZ"), whereby Evergreen agreed to sell
substantially all of the assets of WEDJ-FM to EZ and to swap the assets of
WRFX-FM in a like-kind exchange. In September 1996, EZ entered into a letter
of intent with SFX whereby EZ agreed to swap the Stations with SFX in a
like-kind exchange.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The presentation 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.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at assigned or actual cost and
depreciated using the straight-line method over their estimated useful lives
ranging from 3 to 20 years. Maintenance and repairs are charged to expense as
incurred.
INTANGIBLE ASSETS
Intangible assets are recorded at actual or assigned cost and are
being amortized on a straight-line basis. The cost of the FCC licenses and
goodwill are amortized over a 40 year period. The other intangibles, which
consist primarily of the rights in the John Boy and Billy Syndication Network,
are being amortized over a period of one to five years. The recoverability of
intangible assets are evaluated periodically based upon the undiscounted cash
flows generated from the related intangible assets.
- 6 -
<PAGE>
WRFX-FM AND WEDJ-FM
(DIVISIONS OF PYRAMID COMMUNICATIONS, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
REVENUE RECOGNITION
Sales are recorded when advertisements are aired in accordance with
the terms of sales agreements. Broadcast revenues are reported net of agency
and national commissions. Accounts receivable are not collateralized; however,
the Company reviews the creditworthiness of its customers on an ongoing basis.
TRADE ACTIVITY
Trade (barter) sales, in which available advertising time is given in
exchange for goods or services, are recognized when the bartered advertisement
is broadcast. The transactions are valued at the estimated market value of the
advertisement exchanged, which approximates the fair market value of the goods
or services received. Trade expense is recognized when the goods or services
are received or used. For the year ended December 31, 1995, the Stations
recorded trade revenue of $600,986 and trade expenses of $707,991. A
receivable is recognized when the advertisement has been broadcast, but the
stations have not yet used the goods or services being traded. Conversely, a
payable is recognized when the stations have used the goods or services being
traded, but have not yet broadcast the advertisement.
INCOME TAXES
The Stations are included in the consolidated U.S. federal, state and
local income tax returns of the Company. The provision (or benefit) for income
taxes has been calculated on a separate-company basis consistent with the
liability method prescribed by FASB Statement No. 109, "Accounting for Income
Taxes." Under the liability method, deferred income taxes reflect tax
carryforwards and the net tax effects of temporary differences between the
carrying amount of assets and liabilities for financial statement and income
tax purposes, as determined under enacted tax laws and rates. The financial
effect of changes tax laws or rates is accounted for in the period of
enactment.
The Stations generated a current taxable loss in the current year.
Therefore, no current provision has been recorded. The net deferred tax asset
of the Company is offset in full by a valuation allowance. Deferred income
taxes of the Stations are accounted for in divisional surplus.
ADVERTISING
The Stations expense all advertising costs when incurred. Advertising
expense was $342,060 for the year.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments such as cash, accounts
receivable, accounts payable and accrued expenses approximates their face
value because of the short-term nature of these instruments.
LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS No. 121"). SFAS No. 121 addresses the accounting for the impairment of
long-lived assets, certain identifiable intangibles and goodwill when events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. SFAS No. 121 is required to be adopted in 1996. The
Stations do not believe the adoption of SFAS No. 121 will have a material
effect on the Station's consolidated financial position or results of
operations.
- 7 -
<PAGE>
WRFX-FM AND WEDJ-FM
(DIVISIONS OF PYRAMID COMMUNICATIONS, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
Land and improvements .................................. $ 22,119
Building ............................................... 177,095
Tower and tower equipment .............................. 1,386,519
Furniture and fixtures ................................. 115,087
Leasehold improvements ................................. 355,594
Broadcast and other equipment .......................... 941,725
-----------
$ 2,998,139
Less accumulated depreciation .......................... (914,670)
-----------
$ 2,083,469
===========
The loss on disposal of equipment resulted primarily from a radio tower that
was donated to Davidson College's radio station.
4. LEASE COMMITMENTS
The Stations have entered into various noncancellable operating
leases for office space, transmitter tower space, vehicles, remote vehicles,
and office equipment. These financing arrangements expire at various dates
through May 2011, and leases contain renewal and/or purchase options.
Lease expense was approximately $323,000 for the year.
Future minimum lease payments for the Stations under noncancelable
operating leases that have an initial or remaining lease term in excess of one
year are as follows:
1996 ................................................ $ 291,627
1997 ................................................ 264,171
1998 ................................................ 128,215
1999 ................................................ 150,803
2000 ................................................ 140,268
Thereafter .......................................... 1,029,365
5. EMPLOYEE CONTRACTS
The Stations entered into various employment agreements with certain
key employees. These employment agreements expire at various dates though
December 1998. Future minimum obligations under these agreements are
approximately $977,000 (1996); $855,000 (1997) and $484,000 (1998). Certain
agreements contain bonus provisions which are contingent upon future
performance.
6. RELATED PARTY
Due to related entities consists primarily of amounts due to the
Company. The Stations remit excess cash to the Company in order to reimburse
it for amounts funded by the Company for the original purchase.
- 8 -
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Precision Media Corporation
We have audited the accompanying balance sheets of WKSS 95.7--FM (A
Division of Precision Media Corporation) as of December 31, 1995 and 1994 and
the related statements of income, divisional surplus and cash flows for the
two years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our 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 WKSS 95.7--FM (A
Division of Precision Media Corporation), as of December 31, 1995 and 1994,
and the results of its operations and cash flows for the two years then ended
in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
September 20, 1996
- 9 -
<PAGE>
WKSS 95.7--FM
(A DIVISION OF PRECISION MEDIA CORPORATION)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1994
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 194,489 $ 205,075
Accounts receivable, trade--net of
allowance for doubtful accounts of $80,952
and $50,193 in 1995 and 1994, respectively 971,537 810,042
Due from officer 14,130 8,580
Prepaid expenses and other
current assets 16,454 16,738
---------- ----------
Total current assets 1,196,610 1,040,435
Property and equipment:
Leasehold improvements 174,118 174,118
Antennas and transmitters 295,972 294,972
Technical equipment 212,489 192,642
Motor vehicles 45,279 25,827
Office furniture and equipment 153,169 147,981
---------- ----------
881,027 835,540
Less accumulated depreciation
and amortization 522,046 481,615
---------- ----------
358,981 353,925
---------- ----------
Broadcast licenses--net of
accumulated amortization $310,663 and
$139,343 in 1995 and 1994, respectively 4,100,808 4,272,128
---------- ----------
$5,656,399 $5,666,488
========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1994
---- ----
<S> <C> <C>
LIABILITIES AND DIVISIONAL SURPLUS
Current liabilities:
Accounts payable $ 427,225 $ 301,708
Accrued expenses and other current liabilities 248,329 155,163
Current maturities of intracompany debt 275,000 175,000
Current maturities of capital lease obligations
and other long-term debt 11,654 2,343
--------- ----------
Total-current-liabilities 962,208 634,214
Intracompany debt, less current portion 3,900,000 4,175,000
Capital lease obligation, and other
long term debt, less current portion 20,370 --
Divisional surplus 773,821 857,274
---------- ----------
Total-liabilities-and-divisional-surplus $5,656,399 $5,666,488
========== ==========
</TABLE>
See accompanying notes.
- 10 -
<PAGE>
WKSS 95.7--FM
(A DIVISION OF PRECISION MEDIA CORPORATION)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
Gross revenue $5,043,570 $4,437,949
Less agency commissions 635,278 531,763
Tower rental income 15,600 13,346
---------- -----------
Net operating revenue 4,423,892 3,919,532
Operating expenses:
Selling and promotion 1,447,545 1,298,842
Technical 83,886 79,967
Programming 1,017,499 859,840
General and administrative 737,112 602,855
Depreciation and amortization 226,722 203,986
---------- -----------
3,512,764 3,045,490
---------- -----------
Income from operations 911,128 874,042
Interest expense, net (501,614) (460,977)
Other income 14,175 25,235
---------- -----------
Income before income taxes 423,689 438,300
Income tax expense 47,665 50,404
---------- -----------
Net income $ 376,024 $ 387,896
========== ===========
</TABLE>
See accompanying notes.
- 11 -
<PAGE>
WKSS 95.7--FM
(A DIVISION OF PRECISION MEDIA CORPORATION)
STATEMENTS OF DIVISIONAL SURPLUS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
Divisional surplus, beginning of year $ 857,274 $485,345
Net cash transfers (459,477) (15,967)
Net income 376,024 387,896
--------- --------
Divisional surplus, end of year 773,821 857,274
======== ========
</TABLE>
See accompanying notes.
- 12 -
<PAGE>
WKSS 95.7--FM
(A DIVISION OF PRECISION MEDIA CORPORATION)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $ 376,024 $ 387,896
Adjustment to reconcile net income to cash provided
by operating activities:
Depreciation and amortization 226,722 203,986
Provision for doubtful accounts 30,759 20,944
Changes in certain operating assets and liabilities:
Decrease in accounts receivable (192,254) (218,292)
(Increase) decrease in due from officer (5,550) 2,939
(Increase) decrease in prepaid expenses and other current 284 (7,660)
assets
Increase (decrease) in accounts payable 125,517 (129,158)
Increase in accrued expenses and other current liabilities 93,166 69,380
--------- ---------
Net cash provided by operating activities 654,668 330,035
--------- ---------
Cash flows from investing activities
Purchases of property and equipment (26,035) (20,629)
--------- ---------
Net cash used in investing activities (26,035) (20,629)
--------- ---------
Cash flows from financing activities
Proceeds from issuance of other long-term debt 14,543 15,196
Principal payments on intracompany debt (175,000) (150,000)
Principal payments on capital lease obligation and other long-
term debt (19,285) (15,491)
Net intracompany cash transfers (459,477) (15,967)
--------- ---------
Net cash used in financing activities (639,219) (166,262)
--------- ---------
Increase (decrease) in cash $ (10,586) $ 143,144
Cash balance at beginning of year 205,075 61,931
Cash balance at end of year $ 194,489 $ 205,075
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 461,425 $ 462,320
Cash paid during the year for income taxes $ 2,538 $ 422
========= =========
Supplemental schedule of noncash investing activities:
Capital lease and debt incurred to acquire vehicles $ 34,422 $ --
========= =========
</TABLE>
See accompanying notes.
- 13 -
<PAGE>
WKSS 95.7--FM
(A DIVISION OF PRECISION MEDIA CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1. NATURE OF BUSINESS
Precision Media Corporation (the "Company") is a corporation engaged in
the business of owning and operating radio stations. The Company acquired a
radio station in Hartford, Connecticut, now known as WKSS 95.7-FM (the
"Station"), on August 27, 1984. The Company also owns and operates several
other radio stations throughout New England and accounts for the activities of
the stations as separate divisions. The accompanying financial statements have
been prepared on a going concern basis and include only the accounts of the
Station, a division of the Company.
Substantially all of the assets of the Station are pledged as
collateral under various obligations of the Company.
On April 1, 1996, the Company entered into an Asset Purchase Agreement
to sell substantially all of the assets relating to the operation of the
Station to Multi-Market Radio, Inc. for approximately $18,000,000 in cash.
2. SIGNIFICANT ACCOUNTING POLICIES
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.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables. The
Company's revenue is principally derived from broadcast advertisers within the
greater Hartford area who are impacted by the local economy.
The Company routinely assesses the financial strength of its customers
and does not require collateral or other security to support customer
receivables. No one customer accounted for more than 10% of revenues for the
years ended December 31, 1995 and 1994.
PROPERTY AND EQUIPMENT
All property and equipment is stated at cost. Major renewals, additions
and betterments are charged to the property accounts while replacements,
maintenance and repairs which do not improve or extend the lives of the
respective assets are expensed in the year incurred.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets as follows:
<TABLE>
<CAPTION>
ASSETS Life in Years
- ---------------------------------------- --------------------------
<S> <C>
Leasehold improvements.................. Life of lease
Antennas and transmitters............... 10
Technical equipment..................... 5-10
Motor vehicles.......................... 5
Office furniture and equipment.......... 5-10
</TABLE>
AMORTIZATION
Amortization of the broadcast license is computed using the
straight-line method over 40 years.
- 14 -
<PAGE>
WKSS 95.7--FM
(A DIVISION OF PRECISION MEDIA CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INCOME TAXES
The Company has elected to be taxed as an S corporation as provided in
Section 1362(a) of the Internal Revenue Code. As such, the corporate income or
loss and credits are passed to the stockholders and combined with their
personal income and deductions to determine taxable income on their individual
federal tax returns. The Station is included in the federal income tax return
of the Company.
Business income of an S Corporation is subject to a corporate level tax
on income derived in Connecticut. The corporate tax rate in Connecticut is
approximately eleven and one-half percent (11-1/2%). Accordingly, provisions
of $47,665 and $50,404, have been recorded for the Station's operations on a
stand-alone basis for 1995 and 1994, respectively. Deferred income taxes
attributable to accelerated amortization and depreciation are accounted for in
divisional surplus.
BARTER TRANSACTIONS
Agreements are entered into with various vendors on a regular and
continuing basis which provide that in return for advertising spots on the
Station, merchandise or other services will be furnished by these vendors in
lieu of cash payments. For the years ended December 31, 1995 and 1994, the
Station recorded barter revenue of $199,119 and $236,162, respectively. Barter
expense for the same two years was $240,975 and $209,490. Included in accounts
payable is the fair value of advertising spots due to vendors. Included in
accounts receivable is the fair value of the merchandise or services due to
the Company from vendors.
REVENUE RECOGNITION
Revenue is recognized as advertisements are broadcast.
ADVERTISING
All advertising and promotion costs are expensed as incurred.
3. INTRACOMPANY DEBT
<TABLE>
<CAPTION>
1995 1994
--------------------- ---------------------
<S> <C> <C>
Intracompany debt payable pursuant to an oral agreement to the corporate
office of Precision Media Corporation in 20 consecutive quarterly installments
of principal ranging from $50,000 to $100,000 through January 1, 1998 and one
final payment of the remaining principal balance due on April 1, 1998.
Interest accrues at the base rate (as defined) plus 3% payable monthly in
arrears. The prevailing interest rate at December 31, 1995 and 1994 was 11.5%
and 10.25%, respectively. Subsequent to December 31, 1995 this note
was repaid as part of a refinancing transaction................................... $4,175,000 $4,350,000
Less current maturities........................................................... 275,000 175,000
---------- ----------
$3,900,000 $4,175,000
========== ==========
</TABLE>
4. OTHER LONG-TERM DEBT
Other long-term debt includes a note payable to Ford Motor Credit
Company with principal due in monthly installments ending October 12, 1999.
- 15 -
<PAGE>
WKSS 95.7--FM
(A DIVISION OF PRECISION MEDIA CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. RETIREMENT PLAN
During 1994, the Company implemented a qualified cash or deferred
plan which covers its employees who work more than one thousand (1,000) hours
annually, have completed three months of service and have attained the age of
twenty-one years. Eligible employees may contribute up to 15% of their
compensation with a maximum dollar limitation of $9,240 for 1995. The Company
may make matching contributions at its discretion. The Station has accrued
$6,502 and none as matching contributions for the years ended December 31,
1995 and 1994, respectively.
6. COMMITMENTS AND CONTINGENCIES
TOWER SPACE INCOME AGREEMENTS
The Company subleases tower space to various corporations for radio
communications purposes for terms ranging from 3 to 18 years through April 30,
2007. The leases require monthly payments by the sublessors ranging from $323
to $3,277.
The Company is required to make additional payments as lessee to the
lessors ranging from 35% to 50% of income received as a sublessor. Tower
rental income, which is presented net of additional rent expenses of $12,235
and $9,582 was $27,835 and $22,928 for the years ended December 31, 1995 and
1994, respectively.
The following is a schedule by year of the future minimum rental
revenue, net of additional rent expense, under the noncancelable income
agreements for the year ending after December 31, 1995:
Year:
1996 ........... $ 18,774
1997 ........... 19,457
1998 ........... 20,168
1999 ........... 20,910
2000 ........... 21,682
Thereafter...... 157,584
--------
$258,575
========
CONTRACTUAL COMMITMENTS
The Company leases office space in Hartford, Connecticut under an
operating lease expiring December 1996. In addition to a base monthly rent,
the lease calls for payment of the Company's pro-rata share of operating
expenses of the lessor plus real estate taxes. Rent expense amounted to
$101,602 and $100,942 for the years ended December 31, 1995 and 1994,
respectively.
The Company leases a transmitter site in Meriden, Connecticut under
an operating lease expiring in April 2007. Under the terms of the agreement,
the Company pays additional rent based on income received as a sublessor (see
aforementioned Tower Space Income Agreements). Rent expense amounted to
$34,525 and $34,428 for the years ended December 31, 1995 and 1994,
respectively.
The Company is obligated under various other agreements for music
licenses, software licenses, a network affiliation contract, library services,
new services, advertising, and rating services expiring through March 31,
2001.
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<PAGE>
WKSS 95.7--FM
(A DIVISION OF PRECISION MEDIA CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following is a schedule by year of the future minimum contractual
obligations noted above for the year ending after December 31, 1995:
Year:
1996 ........... $ 401,799
1997 ........... 184,424
1998 ........... 187,600
1999 ........... 191,225
2000 ........... 203,422
Thereafter...... 284,595
----------
$1,453,065
==========
7. INTERDIVISIONAL TRANSACTIONS
The Company charges the Station for operational expenses such as
payroll taxes, corporate overhead and insurance premiums incurred on the
Station's behalf. It is not practicable to determine the amount of the
expenses that would have been incurred had the Station operated as an
unaffiliated entity. However, management is of the opinion that the amount
allocated to the Station is based on a reasonable allocation method. These
costs are included in general and administrative expenses in the statement of
income. The Station remits excess cash to the Company in order to reimburse it
for these expenditures and to make loans to other divisions. All of these
transactions are conducted on an interest free basis.
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