<PAGE>
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-13337
[SFX/MMR LOGO]
SUPPLEMENT NO. 1
TO
JOINT PROXY STATEMENT/PROSPECTUS DATED OCTOBER 4, 1996
The information contained in this Supplement No. 1 supplements the Joint
Proxy Statement/Prospectus, dated October 4, 1996 (the "Joint Proxy
Statement/Prospectus"), of SFX Broadcasting, Inc. ("SFX") and Multi-Market
Radio, Inc. ("MMR") relating to the 1996 Annual Meeting of Stockholders of
SFX (the "SFX Annual Meeting") and the Special Meeting of Stockholders of MMR
(the "MMR Special Meeting"), each of which is scheduled to be held on
November 22, 1996. This Supplement No. 1, together with the Annexes attached
hereto, should be read in conjunction with the Joint Proxy
Statement/Prospectus, a copy of which is included herewith. All capitalized
terms used in this Supplement No. 1 (including the Annexes attached hereto)
which are not defined herein shall have the meanings given them in the Joint
Proxy Statement/Prospectus.
This Supplement No. 1 is being delivered to all holders of SFX Shares and
MMR Shares as of October 1, 1996, the record date for the SFX Annual Meeting
and the MMR Special Meeting. This Supplement No. 1 and a copy of the Joint
Proxy Statement/Prospectus are first being mailed to stockholders of SFX and
MMR on or about October 29, 1996.
SEE PAGES S-5 AND S-6 OF THIS SUPPLEMENT NO. 1 FOR A DISCUSSION OF SFX'S
FINANCING PLAN AND CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED BY THE
STOCKHOLDERS OF SFX AND MMR.
Consistent with its business strategy, SFX has entered into a number of
additional acquisitions. These additional acquisitions are described below
and historical financial statements for certain of the acquisitions are
included herein. This Supplement No. 1 also includes revised pro forma
financial information of SFX, which gives effect to the additional
acquisitions. There can be no assurance that any of the acquisitions
described herein will be consummated. Pursuant to the terms of the Merger
Agreement, MMR has consented to SFX entering into each of the acquisitions
described herein.
ADDITIONAL ACQUISITIONS AND OTHER RECENT DEVELOPMENTS
THE CBS EXCHANGE. On September 25, 1996, SFX entered into an agreement
with CBS Inc. pursuant to which SFX agreed to exchange WHFS-FM, serving the
Baltimore, Maryland and Washington, D.C. markets, for KTXQ-FM and KRRW-FM,
both serving the Dallas, Texas market (the "CBS Exchange"). The CBS Exchange
is intended to qualify as a like-kind exchange under Section 1031 of the
Code. The closing of the CBS Exchange is subject to certain closing
conditions, including among others, the prior receipt of approval from the
FCC and the expiration or termination of any applicable waiting period under
the HSR Act.
THE SECRET COMMUNICATIONS ACQUISITION. On October 15, 1996, SFX entered
into an Asset Purchase Agreement with Secret Communications Limited
Partnership, a privately-held entity ("Secret Communications"), pursuant to
which SFX agreed to acquire substantially all of the assets (the "Secret
Communications Acquisition") used in the operation of nine radio stations
located in three markets:
(continued)
------------------------
The date of this Supplement No. 1 is October 28, 1996.
<PAGE>
WTAM-AM and WLTF-FM, both serving the Cleveland, Ohio market; WFBQ-FM,
WRZX-FM and WNDE-AM, each serving the Indianapolis, Indiana market; and
WDVE-FM, WXDX-FM, WDSY-FM and WJJJ-FM, each serving the Pittsburgh,
Pennsylvania market. Two of the radio stations, WDSY-FM and WJJJ-FM
(collectively, the "Third Party Stations"), are not yet owned by Secret
Communications. Secret Communications currently operates the Third Party
Stations under an LMA. Secret Communications has entered into an agreement to
acquire these two stations from a third party and it is anticipated that the
acquisition of the Third Party Stations by Secret Communications will occur
prior to the consummation of the Secret Communications Acquisition.
The purchase price for the nine stations is $300.0 million, subject to
certain downward adjustments based upon the cash flow of the stations to be
acquired. SFX has deposited $15.0 million in escrow in order to secure its
obligations under the purchase agreement. It is anticipated that the Secret
Communications Acquisition will be consummated during the second or third
quarter of 1997.
The closing of the Secret Communications Acquisition is subject to certain
closing conditions, including among others, the expiration or termination of
any applicable waiting period under the HSR Act and the prior receipt of
approval from the FCC.
The purchase agreement may be terminated by either party (i) prior to
February 16, 1997, if broadcast cash flow, as defined in the purchase
agreement, does not achieve a specified amount, (ii) if the closing of the
Secret Communications Acquisition does not occur before September 30, 1997
(unless such date is extended by the parties), or (iii) at any time, if the
purchase agreement relating to the Third Party Stations is terminated.
THE DELSENER/SLATER ACQUISITION. On October 11, 1996, SFX entered into an
agreement to acquire privately-owned Delsener/Slater Enterprises, Ltd.
("Delsener/Slater"), a concert promotion company, for approximately $24.0
million (the "Delsener/Slater Acquisition"). Management of SFX believes that
the acquisition will present the opportunity for SFX to take advantage of
potential synergies between the radio broadcasting business and the concert
promotion business. The acquisition is subject to customary closing
conditions, including the expiration of all applicable waiting periods under
the HSR Act, and is currently scheduled to close in the first quarter of
1997. It is anticipated that Delsener/Slater will become an independent
division of SFX and will retain its current name, management and corporate
location.
THE SFX HARTFORD ACQUISITION. On October 23, 1996, SFX entered into an
agreement to acquire the outstanding shares of WWYZ, Inc. ("WWYZ") and an
affiliated entity for $25.5 million, subject to adjustment under certain
circumstances (the "SFX Hartford Acquisition" ). WWYZ owns and operates radio
station WWYZ-FM, serving the Hartford, Connecticut market. SFX has deposited
$2.5 million in escrow to secure its obligations under the purchase
agreement. The SFX Hartford Acquisition is subject to customary closing
conditions, including the prior approval of the FCC and the expiration or
termination of any applicable waiting period under the HSR Act. The purchase
is scheduled to close by February 1, 1997.
THE TEXAS COAST ACQUISITION. MMR has entered into a purchase agreement
with Texas Coast Broadcasters, Inc. ("Texas Coast") pursuant to which MMR has
agreed to acquire substantially all of the assets (other than the real
property upon which the radio tower is located) of KQUE-FM and KNUZ-AM, both
serving the Houston, Texas market, for an aggregate purchase price of
approximately $43.0 million, including payments in connection with a
non-competition agreement and certain matters related to the lease on the
real property containing the radio tower (the "Texas Coast Acquisition").
SFX, on behalf of MMR, deposited in escrow $2.0 million to secure MMR's
obligation under the purchase agreement. MMR has agreed to transfer to SFX
its rights under the purchase agreement. Because of an identified
environmental problem related to the real property upon which the radio tower
is located, SFX has elected to lease the radio tower and obtain
indemnification secured by an insurance bond with respect to such property.
The consummation of the Texas Coast Acquisition is conditioned upon the
expiration or termination of any applicable waiting period under the HSR Act.
It is anticipated that the Texas Coast Acquisition will be consummated in the
first quarter of 1997.
The definition of "Pending Acquisitions," as used in the Joint Proxy
Statement/Prospectus, is revised to read as follows: "Pending Acquisitions"
means, collectively, the Merger, the Richmond Acquisition, the
S-2
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Albany Acquisition, the Charlotte Exchange, the Greensboro Acquisition, the
Houston Exchange, the Chancellor Exchange, the CBS Exchange, the Secret
Communications Acquisition, the Delsener/Slater Acquisition, the SFX Hartford
Acquisition and the Texas Coast Acquisition.
Upon consummation of the Pending Acquisitions (including the Merger) and
the Pending Disposition, SFX will own and operate or provide programming to
or sell advertising on behalf of 80 radio stations (62 FM and 18 AM radio
stations) in 23 markets. SFX is, and after the Pending Acquisitions and the
Pending Disposition will continue to be, diverse in terms of format and
geographic markets.
The following chart sets forth certain information with respect to SFX's
stations after giving effect to the Pending Acquisitions (other than the
Merger) and the Pending Disposition:
<TABLE>
<CAPTION>
NUMBER OF
STATIONS
FOLLOWING
PENDING
ACQUISITIONS 1995
NUMBER OF (OTHER THAN COMBINED COMBINED
STATIONS NUMBER OF THE MERGER) MARKET MARKET
MARKET CURRENTLY STATIONS TO AND AUDIENCE REVENUE
MARKET RANK OWNED(1) BE ACQUIRED DISPOSITION SHARE SHARE
- ------------------------------ ---------- ------------- ------------- -------------- ------------ ------------
AM FM
------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
NORTHEAST REGION
Providence, RI .............. 31 3 - 1 2 14.9% 28.3%
Hartford, CT ................ 41 3 1 1 3 17.9% 16.3%
Albany, NY .................. 57 4 1(2) 2 3 23.3% 32.4%
MID-SOUTH ATLANTIC REGION
Charlotte, NC ............... 37 1 3 - 4 21.6% 30.0%
Greensboro, NC .............. 42 3 1(2) 2 2 11.8% 13.7%
Nashville, TN ............... 44 2 - - 2 24.1% 27.3%
Greenville-Spartanburg, SC . 59 4 - 1 3 29.3% 43.4%
MID-ATLANTIC REGION
Pittsburgh, PA .............. 19 - 4 - 4 19.6% 25.5%
Cleveland, OH ............... 22 - 2 1 1 4.6% 13.0%
Indianapolis, IN ............ 36 - 3 1 2 16.9% 25.2%
Raleigh-Durham, NC .......... 50 4 - - 4 24.6% 35.8%
Richmond, VA ................ 56 1 4 - 5 30.0% 38.3%
SOUTHERN REGION
Jacksonville, FL ............ 53 4 2 2 4 30.7% 44.8%
Jackson, MS ................. 118 6 - 2 4 32.3% 56.0%
SOUTHWEST REGION
Dallas, TX .................. 7 - 2 - 2 4.9% 5.8%
Houston, TX ................. 9 1 3 1 3 14.6% 15.8%
San Diego, CA ............... 15 2 - - 2 6.4% 10.1%
Tucson, AZ .................. 62 4 - 2 2 22.1% 26.2%
Wichita, KS ................. 91 3 - 1 2 17.4% 21.0%
------------- ------------- ------ ------
Total ...................... 45 26 17 54
</TABLE>
- ------------
(1) Does not include eight radio stations, all of which are currently owned
by SFX, which are to be transferred by SFX in the Dallas Disposition,
the Houston Exchange, the Chancellor Exchange, the Charlotte Exchange
and the CBS Exchange.
(2) SFX currently provides programming and sells advertising pursuant to an
LMA on one station in the Greensboro, North Carolina market and
currently sells advertising pursuant to a JSA on one station in the
Albany, New York market.
S-3
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As a result of the additional acquisitions discussed above, the following
stations should be added to the chart which appears on pages 103 and 104 of
the Joint Proxy Statement/Prospectus;
<TABLE>
<CAPTION>
1995
STATION RANK STATION TOTAL NUMBER
MARKET STATION TARGET AMONG TARGET AUDIENCE REVENUE OF STATIONS IN
STATION (1) RANK FORMAT (2) DEMOGRAPHICS (2) DEMOGRAPHICS SHARE RANK MARKET
- ------------------- -------- ------------------- ---------------- -------------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
NORTHEAST REGION
Hartford, CT 41
WWYZ-FM (18) ....... Country Adults 25-54 2 7.6% NR 21
MID-ATLANTIC REGION
Pittsburgh, PA 19
WDVE-FM (19) ....... Rock Adults 25-54 1 9.2% 2 47
WDSY-FM (19) ....... Country Adults 25-54 2 7.6% 6 47
WXDX-FM (19) ....... Alternative Adults 18-34 5 2.8% 13 47
WJJJ-FM (19) ....... Smooth Jazz Adults 25-54 NR NR 15 47
Cleveland, OH 22
WLTF-FM (19) ....... AC Women 25-54 1 4.6% 5 29
WTAM-AM (19) ....... News/Talk Men 25-54 NR NR 9 29
Indianapolis, IN 36
WFBQ-FM (19) ....... Album Oriented Rock Adults 25-54 1 11.3% 1 30
WRZX-FM (19) ....... Alternative Adults 18-34 3 4.5% 8 30
WNDE-AM (19) ....... News/Talk Adults 25-54 14* 1.1% 13 30
SOUTHWEST REGION
Dallas, TX 7
KTXQ-FM (20) ....... Album Oriented Rock Adults 25-49 17 2.7% 15 47
KRRW-FM (20) ....... 70s Oldies Adults 25-54 12 2.2% 18 47
Houston, TX 9
KQUE-FM(21) ........ AC Adults 35 & over 1 5.1% 14 50
KNUZ-AM(21) ........ News/Talk Adults 35-64 NR NR NR 50
</TABLE>
- ------------
* Indicates ranking is tied with another station.
NR Not rated.
(18) To be acquired by SFX in the SFX Hartford Acquisition.
(19) To be acquired by SFX from Secret Communications, which owns or has
agreed to acquire each of the indicated stations.
(20) To be acquired by SFX in the CBS Exchange.
(21) To be acquired by SFX in the Texas Coast Acquisition.
In addition, WHFS-FM, serving the Washington, D.C./Baltimore, Maryland
markets, is deleted from the chart on page 103 of the Joint Proxy
Statement/Prospectus (along with footnote 12 to such chart), and footnote 15
(relating to KQUE-FM and KNUZ-FM, Houston, Texas) of the chart which appears
on pages 103 and 104 of the Joint Proxy Statement/Prospectus is deleted.
S-4
<PAGE>
FINANCING PLAN
SFX will be required to obtain additional financing in order to consummate
the Pending Acquisitions. SFX is currently exploring a number of
alternatives, including offerings of equity and/or debt securities and
borrowings under the New Credit Agreement. SFX's ability to issue preferred
stock or debt securities and to make borrowings under the New Credit
Agreement may be significantly impacted by the covenants in the New Credit
Agreement and/or the indenture relating to its 10.75% Senior Subordinated
Notes due 2006 ("Indenture").
SFX has made certain assumptions in the preparation of the Unaudited Pro
Forma Condensed Combined Financial Statements of SFX, as set forth on Annex A
attached hereto, with respect to the financing of the Pending Acquisitions,
including an offering of preferred stock and common stock and borrowings
under the New Credit Agreement. There can be no assurance that any financings
by SFX will be on the terms set forth in the assumptions referred to above.
In the event that SFX were to issue preferred stock pursuant to the
financing plan, as assumed in the pro forma financial information, the rights
of the holders of SFX Shares could be adversely affected with respect to
dividend, liquidation, conversion, voting or other rights. In the event that
SFX were to issue common stock, as assumed in the pro forma financial
statements, the voting rights of existing stockholders will be diluted and
the price at which the SFX Class A Shares trade may be adversely affected. In
the event that Proposal 2 is not approved by the SFX stockholders, SFX will
not have a sufficient number of authorized shares in order to consummate a
common stock offering.
SFX has received a firm commitment from its lender for a senior credit
facility of $225.0 million and expects to enter into the New Credit Agreement
relating to such facility. It is expected that SFX's obligations under the
New Credit Agreement will be secured by substantially all of its assets,
including property, stock of subsidiaries and accounts receivable, and will
be guaranteed by SFX's subsidiaries. It is expected that the New Credit
Agreement will prohibit SFX from utilizing funds available thereunder unless
SFX meets certain specified financial ratios, such as total leverage and
senior leverage ratios.
SFX's ability to implement the financing plan, as assumed in the pro forma
financial information (the combination of preferred stock and common stock
and borrowings under the New Credit Agreement), is dependent on improvements
in Broadcast Cash Flow of SFX's existing stations and the stations which SFX
has agreed to acquire and there can be no assurance that these improvements
will be realized. In the event that improvements in Broadcast Cash Flow are
not achieved, SFX may be required to alter the financing plan assumed in the
pro forma financial information.
RISK FACTORS
INCREASED SCRUTINY BY THE ANTITRUST AGENCIES. Adoption of the Recent
Legislation in February 1996 eliminated the national ownership limits and
liberalized the local ownership limits on radio station ownership by a single
company. However, the Antitrust Agencies have indicated that in certain cases
ownership of the number of radio stations permitted by the Recent Legislation
may result in the undue concentration of ownership within a market or
otherwise have an anti-competitive effect. The Antitrust Agencies are
increasingly scrutinizing acquisitions of radio stations and the entering
into of JSAs and LMAs. In particular, the Department of Justice ("DOJ") has
indicated that a prospective buyer of a radio station may not enter into an
LMA in connection with the acquisition of such station before expiration of
the applicable waiting period under the HSR Act. In a recent case, the DOJ
has also for the first time required the termination of a radio station JSA
that in the opinion of the DOJ would have given a radio station owner,
together with its proposed acquisition of other radio stations in the market,
control over more than 60% of the sales of radio advertising time in the
market. Certain of the Pending Acquisitions and the JSAs entered into by SFX
have been the subject of inquiries from the Antitrust Agencies. There can be
no assurance that future inquiries or policy and rule-making activities of
the Antitrust Agencies will not impact SFX's operations (including existing
stations or markets), expansion strategy or its ability to realize the
benefits management had anticipated obtaining following the adoption of the
Recent Legislation.
REVISION TO RISK FACTORS ENTITLED "SUBSTANTIAL LEVERAGE; INABILITY TO
SERVICE OBLIGATIONS" AND "HISTORICAL LOSSES." The following sentence
replaces, and is substituted for, the fifth and sixth sentences of the risk
factor entitled "Substantial Leverage; Inability to Service Obligations":
"For the year ended December 31, 1995 and the six months ended June 30, 1996,
on a pro forma basis after giving effect to the Recent Acquisitions and the
Transactions, as if all such transactions had occurred on January 1, 1995,
S-5
<PAGE>
SFX's earnings (defined as earnings before income taxes and fixed charges)
would have been insufficient to cover its fixed charges (defined as interest
on all indebtedness and amortization of deferred financing costs) by $22.3
million and $32.0 million, respectively, and would have been insufficient to
cover its combined fixed charges and preferred stock dividends by $48.7
million and $45.2 million, respectively."
The following sentence replaces, and is substituted for, the second
sentence of the risk factor entitled "Historical Losses": "On a pro forma
basis, after giving effect to the Recent Acquisitions and the Transactions,
as if such transactions had occurred on January 1, 1995, for the year ended
December 31, 1995 and the six months ended June 30, 1996 SFX would have had a
net loss of approximately $22.3 million and $32.0 million, respectively."
FINANCIAL INFORMATION
REVISED UNAUDITED PRO FORMA FINANCIAL INFORMATION OF SFX AND HISTORICAL
FINANCIAL INFORMATION OF CERTAIN BUSINESSES TO BE ACQUIRED. The "Unaudited
Pro Forma Condensed Combined Financial Statements of SFX" contained in the
Joint Proxy Statement/Prospectus have been revised, as set forth in Annex A
attached hereto, to reflect the CBS Exchange, the Secret Communications
Acquisition, the Delsener/Slater Acquisition, the SFX Hartford Acquisition
and the Texas Coast Acquisition. The "Summary Consolidated Financial Data of
SFX" and "Comparative Per Share Data" information contained in the "Summary"
of the Joint Proxy Statement/Prospectus have been revised, as set forth in
Annex B attached hereto, to reflect the new pro forma financial information.
Historical financial statements of certain of the acquisitions described in
this Supplement No. 1 are included in Annex C attached hereto.
The definition of "Broadcast Cash Flow," as used in the Joint Proxy
Statement/Prospectus, is revised to read as follows: "Broadcast Cash Flow"
means net revenues (including, where applicable, fees earned on a pro forma
basis by SFX pursuant to the SCMC Termination Agreement, and concert revenues
less concert costs of Delsener/Slater) less station operating expenses.
EXPERTS. The combined balance sheets of The Secret Stations: Cleveland,
Indianapolis, Pittsburgh as of June 30, 1996 and 1995 and the related
combined statements of operations and cash flows for the year ended June 30,
1996 and the eleven month period ended June 30, 1995, included in Annex C
attached hereto, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
included in reliance upon the authority of such firm as experts in giving
said report.
The financial statements of KTXQ-FM and KRRW-FM (divisions of CBS Inc.) at
December 31, 1995 and 1994 and for the years then ended, which are included
in Annex C attached hereto, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report appearing herein, and are
included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
The financial statements of Texas Coast Broadcasters, Inc. at December 31,
1995 and 1994 and for the years then ended, which are included in Annex C
attached hereto, have been audited by Mohle, Adams, Till, Guidry & Wallace,
LLP, independent auditors, as set forth in their report appearing herein, and
are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
NEW PROXY CARDS FOR SFX AND MMR
Enclosed herewith is a new proxy card for SFX or MMR, as appropriate. The
new proxy card should be completed and sent to the proxy tabulator in the
event that (i) a holder of SFX Shares or MMR Shares has not previously mailed
a proxy card or (ii) a holder of SFX Shares or MMR Shares has previously
mailed a proxy card and wishes to change his or her vote. In the event that a
holder of SFX Shares or MMR Shares has previously mailed a proxy card and
does not wish to change his or her vote, a new proxy card need not be
completed.
Due to a printer's error, the proxy card previously sent to holders of SFX
Shares contained the name of John F. Catanzaro as a nominee to the Board of
Directors of SFX. Mr. Catanzaro is not a nominee to the Board of Directors of
SFX nor has he agreed to serve as a director of SFX. The proxies named in the
proxy card previously sent to the stockholders of SFX intend to vote for all
nominees listed thereon other than Mr. Catanzaro.
S-6
<PAGE>
ANNEX A
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF SFX
The Unaudited Pro Forma Condensed Combined Balance Sheet at June 30, 1996
is presented as if SFX had completed (i) the Liberty Acquisition, including
the Washington Dispositions (as defined herein) and Chancellor Exchange (as
defined herein); (ii) the Prism Acquisition, including the Louisville
Dispositions (as defined herein); (iii) the Greensboro Acquisition (as
defined herein) and Jackson Acquisitions (as defined herein); (iv) the Dallas
Disposition (as defined herein); (v) the Richmond Acquisition (as defined
herein); (vi) the Charlotte Exchange (as defined herein); (vii) the Albany
Acquisition (as defined herein); (viii) the Merger, including the MMR
Hartford Acquisition, MMR Myrtle Beach Acquisition, MMR A Dispositions, and
exercise of all outstanding MMR Class A Warrants and the exchange of all
outstanding MMR Class B Warrants in the MMR Exchange Offer; (ix) the Secret
Communications Acquisition; (x) the Delsener/Slater Acquisition; (xi) the SFX
Hartford Acquisition; and (xii) the Texas Coast Acquisition. The transactions
set forth above are collectively referred to as the "Pending Transactions As
Of June 30, 1996." No adjustment has been made to the Unaudited Pro Forma
Condensed Combined Balance Sheet for the Houston Exchange or the CBS Exchange
as they will be recorded at historical cost.
The Unaudited Pro Forma Condensed Combined Statement of Operations for the
year ended December 31, 1995 and six months ended June 30, 1996 are presented
as if SFX had completed the Recent Acquisitions and the Transactions as of
January 1, 1995. The MMR Myrtle Beach Acquisition, the MMR Myrtle Beach
Disposition, and the Albany Acquisition have not been reflected in the
Unaudited Pro Forma Condensed Combined Statement of Operations as they would
not have a material impact.
In the opinion of management, all adjustments necessary to fairly present
this pro forma information have been made. The Unaudited Pro Forma Condensed
Combined Financial Statements are based upon, and should be read in
conjunction with, the historical financial statements and the respective
notes to such financial statements included in Annex C and those contained in
the Forms 8-K filed with the Commission on May 9, 1996 and May 30, 1996. Such
financial statements constitute all of the financial statements required by
the Commission to be included in the Unaudited Pro Forma Condensed Combined
Financial Statements of SFX. The pro forma information does not purport to be
indicative of the results that would have been reported had such events
actually occurred on the dates specified, nor is it indicative of SFX's
future results if the aforementioned transactions are completed. SFX cannot
predict whether the consummation of the Acquisitions or the Dispositions will
conform to the assumptions used in the preparation of the Unaudited Pro Forma
Condensed Combined Financial Statements.
The Unaudited Pro Forma Statement of Operations data include adjustments
to station operating expenses to reflect anticipated savings that management
believes it will be able to achieve through the implementation of its
strategy. No cost savings have been reflected for the Secret Acquisition and
certain other acquisitions. Management is currently evaluating potential cost
savings opportunities and anticipates that there will be additional savings
associated with these acquisitions. However, there can be no assurance that
SFX will be able to achieve such savings.
As used herein, (i) "Greensboro Acquisition" means the acquisition by SFX
of the assets of WHSL-FM, operating in Greensboro, North Carolina, for $6.0
million; (ii) "Jackson Acquisitions" means, collectively, the acquisitions by
SFX of the assets of WJDX-FM, WSTZ-FM and WZRX-AM, each operating in Jackson,
Mississippi; (iii) "Charlotte Exchange" means the exchange by SFX of WTDR-FM,
operating in Charlotte, North Carolina, and $64.8 million for WSSS-FM,
WRFX-FM and WKNS-FM, each operating in Charlotte, North Carolina; (iv)
"Chancellor Exchange" means the exchange by SFX of four radio stations,
operating in the Long Island, New York market, for two radio stations in the
Jacksonville, Florida market and a payment of $11.0 million; and (v)
"Additional Acquisitions" means, collectively, the acquisitions by SFX of all
of the assets of radio stations WROQ-FM, operating in Greenville, South
Carolina; WJDX-FM, WSTZ-FM and WZRX-AM, each operating in Jackson,
Mississippi; WTRG-FM and WRDU-FM, both operating in Raleigh-Durham, North
Carolina; and WHSL-FM, WMFR-AM, WMAG-FM and WTCK-AM, each operating in
Greensboro, North Carolina.
A-1
<PAGE>
SFX BROADCASTING, INC. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
LIBERTY
ACQUISITION PRISM
INCLUDING ACQUISITION GREENSBORO
SFX WASHINGTON INCLUDING ACQUISITIONS OTHER
BROADCASTING, DISPOSITIONS & LOUISVILLE AND JACKSON ACQUISITIONS/ RICHMOND CHARLOTTE
INC. AS CHANCELLOR DISPOSITIONS ACQUISITIONS DISPOSITIONS ACQUISITION EXCHANGE
REPORTED EXCHANGE (1) (2) (3) (4) (5) (6)
------------- -------------- -------------- -------------- -------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets .. $405,381 $ 24,725 $ 7,904 $ 726 $10,541 $ 4,460 $(64,800)
Property and
equipment, net . 28,635 14,079 7,483 1,546 (1,193) 1,597 -
Intangible
assets, net .... 202,726 94,062 14,997 2,262 (9,061) 9,580 64,800
Other assets .... 24,710 -- -- -- (2) 66 --
- ----------------- ------------- -------------- -------------- -------------- -------------- ------------- ----------
Total assets .... $661,452 $132,866 $30,384 $4,534 $ 285 $15,703 $ --
============= ============== ============== ============== ============== ============= ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA FOR
THE
TRANSACTIONS PRO FORMA FOR
SECRET AS OF JUNE THE PENDING
COMMUNICATIONS DELSENER/ PRO FORMA 30, 1996 TRANSACTIONS
ACQUISITION SLATER SFX HARTFORD TEXAS COAST ADJUSTMENTS (OTHER THAN MERGER AS OF JUNE
(7) ACQUISITION ACQUISITION ACQUISITION (8) THE MERGER) (9) 30, 1996
-------------- ----------- ------------ ----------- ------------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets .. $11,546 $11,688 $1,485 $2,408 $(212,500)(a) $ 98,896 $(43,245) $ 55,651
(81,487)(b)
(7,904)(b)
(6,200)(c)
(726)(c)
(38,800)(d)
(4,460)(d)
(6,285)(e)
(2,000)(f)
(1,000)(g)
145,101 (h)
300,000 (h)
(11,546)(i)
(300,000)(i)
(19,953)(j)
(25,500)(k)
(41,500)(l)
(2,408)(l)
Property and
equipment, net . 7,058 2,678 39 167 62,089 3,685 65,774
Intangible
assets, net .... 57,644 - - - 120,737 (a) 996,125 142,388 1,138,513
64,270 (b)
8,692 (c)
29,174 (d)
6,285 (e)
1,000 (g)
235,040 (i)
18,368 (j)
33,600 (k)
41,949 (l)
Other assets .... 258 37 -- 532 (5,263)(b) 14,038 (164) 13,874
(6,300)(c)
- ----------------- -------------- ----------- ------------ ----------- ------------- ------------- --------- -------------
Total assets .... $76,506 $14,403 $1,524 $3,107 $ 230,384 $1,171,148 $102,664 $1,273,812
============== =========== ============ =========== ============= ============= ========= =============
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
LIBERTY
ACQUISITION PRISM
INCLUDING ACQUISITION GREENSBORO
SFX WASHINGTON INCLUDING ACQUISITIONS OTHER
BROADCASTING, DISPOSITIONS & LOUISVILLE AND JACKSON ACQUISITIONS/ RICHMOND CHARLOTTE
INC. AS CHANCELLOR DISPOSITIONS ACQUISITIONS DISPOSITIONS ACQUISITION EXCHANGE
REPORTED EXCHANGE (1) (2) (3) (4) (5) (6)
------------- -------------- -------------- -------------- -------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Current
liabilities .... $ 18,579 $ 9,047 $ 2,399 $ 203 $ -- $ 799 $ --
Other liabilities 1,254 754 -- -- -- 996 --
Long-term debt
(incl. current
portion):
New Credit
Agreement ..... -- -- -- -- -- -- --
Senior
subordinated
notes ......... 450,000 -- -- -- -- -- --
Acquired company
debt .......... -- 71,517 15,695 -- -- 14,529 --
Other debt ...... 1,369 -- -- -- -- -- --
Deferred taxes .. 7,415 8,093 -- -- -- -- --
Minority interest -- -- -- -- -- -- --
Redeemable
preferred stock:
Preferred stock
offering ...... -- -- -- -- -- -- --
Series B Notes . 1,836 -- -- -- -- -- --
Series C
Preferred Stock 1,592 -- -- -- -- -- --
Series D
Preferred Stock 149,500 -- -- -- -- -- --
Stockholders'
equity ......... 29,907 43,455 12,290 4,331 285 (621) --
- ----------------- ------------- -------------- -------------- -------------- -------------- ------------- ----------
Total liabilities
and
stockholders'
equity ......... $661,452 $132,866 $30,384 $4,534 $285 $15,703 $--
============= ============== ============== ============== ============== ============= ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA FOR
THE
TRANSACTIONS PRO FORMA FOR
SECRET AS OF JUNE THE PENDING
COMMUNICATIONS DELSENER/ PRO FORMA 30, 1996 TRANSACTIONS
ACQUISITION SLATER SFX HARTFORD TEXAS COAST ADJUSTMENTS (OTHER THAN MERGER AS OF JUNE
(7) ACQUISITION ACQUISITION ACQUISITION (8) THE MERGER) (9) 30, 1996
-------------- ----------- ------------ ----------- ------------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Current
liabilities .... $ 3,245 $ 26 $913 $198 $ (2,399)(b) $ 29,198 $ 2,423 $ 31,621
(203)(c)
(799)(d)
(3,245)(i)
214 (l)
419 (j)
(198)(l)
Other liabilities -- 9,826 -- -- (996)(d) 15,315 15,315
2,547 (j)
934 (l)
Long-term debt
(incl. current
portion):
New Credit
Agreement ..... -- -- -- -- 145,101 (h) 145,101 -- 145,101
Senior
subordinated
notes ......... -- -- -- -- -- 450,000 -- 450,000
Acquired company
debt .......... 46,994 -- -- (71,517)(a) -- -- --
(15,695)(b)
(14,529)(d)
(46,994)(i)
Other debt ...... -- -- -- -- -- 1,369 -- 1,369
Deferred taxes .. -- -- -- 27 23,209 (a) 47,428 13,116 60,544
8,711 (k)
(27)(l)
Minority interest -- -- -- -- 1,617 (d) 1,617 -- 1,617
Redeemable
preferred stock:
Preferred stock
offering ...... -- -- -- -- 150,000 (h) 150,000 -- 150,000
Series B Notes . -- -- -- -- -- 1,836 -- 1,836
Series C
Preferred Stock -- -- -- -- (1,592)(f) -- -- --
Series D
Preferred Stock -- -- -- -- -- 149,500 -- 149,500
Stockholders'
equity ......... 26,267 4,551 611 2,882 (43,455)(a) 179,784 87,125 266,909
(12,290)(b)
(4,331)(c)
621 (d)
(408)(f)
150,000 (h)
(26,267)(i)
(4,551)(j)
(611)(k)
(2,882)(l)
- ----------------- -------------- ----------- ------------ ----------- ------------- ------------- -------- -------------
Total liabilities
and
stockholders'
equity ......... $76,506 $14,403 $1,524 $3,107 $230,384 $1,171,148 $102,664 $1,273,812
============== =========== ============ =========== ============= ============= ======== =============
</TABLE>
A-3
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(1) Liberty Acquisition
Reflects the Liberty Acquisition for $237.5 million adjusted for the
Washington Dispositions of $25.0 million and the Chancellor Exchange (SFX
will receive $11.0 million in cash in the Chancellor Exchange). No gain
or loss was recognized in connection with the Washington Dispositions or
the Chancellor Exchange.
<TABLE>
<CAPTION>
LIBERTY AS WASHINGTON CHANCELLOR LIBERTY AS
REPORTED DISPOSITIONS EXCHANGE ADJUSTED
------------ -------------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets ............................... $ 13,725 $ -- $ 11,000 $ 24,725
Property and equipment, net .................. 15,439 (1,360) -- 14,079
Intangible assets, net ....................... 128,702 (23,640) (11,000) 94,062
------------ -------------- ------------ -------------
Total assets ............................... $157,866 $(25,000) $ 0 $132,866
============ ============== ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities .......................... $ 9,047 $ -- $ -- $ 9,047
Other liabilities ............................ 754 -- -- 754
Long-term debt ............................... 71,517 -- -- 71,517
Deferred taxes ............................... 8,093 -- -- 8,093
Stockholders' equity ......................... 68,455 (25,000) -- 43,455
------------ -------------- ------------ -------------
Total liabilities and stockholders' equity $157,866 $(25,000) $ 0 $132,866
============ ============== ============ =============
</TABLE>
(2) Prism Acquisition
Reflects the Prism Acquisition for $105.25 million adjusted for the
Louisville Dispositions of $18.5 million. No gain or loss was recognized
on the Louisville Dispositions.
<TABLE>
<CAPTION>
PRISM AS LOUISVILLE PRISM AS
REPORTED DISPOSITIONS ADJUSTED
---------- -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets ............................... $ 7,904 $ -- $ 7,904
Property and equipment, net .................. 9,122 (1,639) 7,483
Intangible assets, net ....................... 31,858 (16,861) 14,997
---------- -------------- -------------
Total assets ............................... $48,884 $(18,500) $30,384
========== ============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities .......................... $ 2,399 $ -- $ 2,399
Long-term debt ............................... 15,695 15,695
Stockholders' equity ......................... 30,790 (18,500) 12,290
---------- -------------- -------------
Total liabilities and stockholders' equity $48,884 $(18,500) $30,384
========== ============== =============
</TABLE>
A-4
<PAGE>
(3) Greensboro Acquisition and the Jackson Acquisitions
Reflects the acquisition of radio stations (i) WHSL-FM from HMW
Communications, Inc. in the Greensboro Acquisition for a purchase price
of approximately $6.0 million, (ii) WSTZ-FM and WZRX-AM from Lewis
Broadcasting, Inc. and WJDX-FM from Spur Jackson, L.P. in the Jackson
Acquisitions for a purchase price of $6.5 million. The aggregate
purchase price is $12.5 million.
<TABLE>
<CAPTION>
GREENSBORO
ACQUISITION
AND THE
GREENSBORO JACKSON JACKSON
ACQUISITION ACQUISITIONS ACQUISITION
------------- -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets ............................... $ 484 $ 242 $ 726
Property and equipment, net .................. 1,164 382 1,546
Intangible assets, net ....................... 1,252 1,010 2,262
------------- -------------- -------------
Total assets ............................... $2,900 $1,634 $4,534
============= ============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities .......................... $ 171 $ 32 $ 203
Stockholders' equity ......................... 2,729 1,602 4,331
------------- -------------- -------------
Total liabilities and stockholders' equity $2,900 $1,634 $4,534
============= ============== =============
</TABLE>
(4) Other Acquisitions and Dispositions
To reflect the Dallas Disposition for $11.5 million which is net of
payment anticipated to be made to the seller of the station to SFX. See
note 8(f) for the effect of the related redemption of SFX's Series C
Preferred Stock.
<TABLE>
<CAPTION>
SALE PROCEEDS KTCK-AM ADJUSTMENT
--------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets ............................... $11,500 $ (959) $10,541
Property and equipment, net .................. -- (1,193) (1,193)
Intangible assets, net ....................... -- (9,061) (9,061)
Other assets ................................. -- (2) (2)
--------------- ----------- ------------
Total assets ............................... $11,500 $(11,215) $ 285
=============== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity ......................... 11,500 (11,215) 285
--------------- ----------- ------------
Total liabilities and stockholders' equity $11,500 $(11,215) $ 285
=============== =========== ============
</TABLE>
No adjustment has been made to the pro forma balance sheet for the Houston
Exchange or the CBS Exchange as they will be recorded at historical cost.
A-5
<PAGE>
(5) Richmond Acquisition
To reflect the acquisition of 96% interest in ABS, which will acquire
the assets of radio stations WKHK-FM, WBZU-FM and WVGO-FM/WLEE-FM, for
approximately $38.8 million.
<TABLE>
<CAPTION>
WVGO-FM/ RICHMOND
WKHK-FM WBZU-FM WLEE-FM ACQUISITION
--------- --------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets ............................... $ 2,530 $ 366 $1,564 $ 4,460
Property and equipment, net .................. 79 948 570 1,597
Intangible assets, net ....................... 4,855 1,057 3,668 9,580
Other assets ................................. 66 66
--------- --------- ---------- -------------
Total assets ............................... $ 7,464 $2,437 $5,802 $15,703
========= ========= ========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities .......................... $ 248 $ 113 $ 438 $ 799
Other liabilities ............................ 996 -- -- 996
Long-term debt ............................... 11,000 504 3,025 14,529
Stockholders' equity ......................... (4,780) 1,820 2,339 (621)
--------- --------- ---------- -------------
Total liabilities and stockholders' equity $ 7,464 $2,437 $5,802 $15,703
========= ========= ========== =============
</TABLE>
(6) Charlotte Exchange
To reflect the exchange of radio station WTDR-FM and $64.8 million cash
for WSSS-FM, WRFX-FM and WNKS-FM. No adjustment (other than to reflect
the cash paid) has been made for the Charlotte Exchange as it will be
recorded at historical cost.
<TABLE>
<CAPTION>
CHARLOTTE
EXCHANGE
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Current assets .............................. $(64,800)
Intangible assets, net ...................... 64,800
--------------
Total assets .............................. $ 0
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity ........................ $ 0
--------------
Total liabilities and stockholders' equity $ 0
==============
</TABLE>
A-6
<PAGE>
(7) The Secret Stations Acquisition
Reflects the combination of the Secret Stations balance sheet at June
30, 1996 with the balance sheet of the Third Party Stations to be
acquired by Secret Communications.
<TABLE>
<CAPTION>
THIRD PARTY TOTAL
SECRET STATIONS SECRET
--------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets ............................... $10,041 $1,505 $11,546
Property and equipment, net .................. 5,994 1,064 7,058
Intangible assets, net ....................... 57,458 186 57,644
Other assets ................................. 258 258
--------- ------------- ---------
Total assets ............................... $73,751 $2,755 $76,506
========= ============= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities .......................... $ 3,245 $ 3,245
Long-term debt, including current portion ... 46,994 46,994
Stockholders' equity ......................... 23,512 $2,755 26,267
--------- ------------- ---------
Total liabilities and stockholders' equity $73,751 $2,755 $76,506
========= ============= =========
</TABLE>
(8) Pro Forma Adjustments
a. To reflect the Liberty Acquisition for $237,500,000 net of
proceeds received from the Washington Dispositions of $25,000,000,
the recording of the related excess of the purchase price paid
over the net book value of the assets carried on the adjusted
balance sheet of $120,737,000 and incremental deferred taxes of
$23,209,000 and the adjustments to remove the long-term debt of
$71,517,000 which is not being assumed, and the stockholders'
equity of $43,455,000 of the Liberty Acquisition.
b. To reflect the Prism Acquisition for $105,250,000 net of proceeds
received from the Louisville Dispositions of $18,500,000 and net
of deposit of $5,263,000, the recording of the related excess of
the purchase price paid over the net book value of the assets
carried on the adjusted balance sheet of $64,270,000 and
adjustments to remove the current assets of $7,904,000, current
liabilities of $2,399,000, long term debt of $15,695,000 and
stockholders' equity of $12,290,000.
c. To reflect the $12,500,000 purchase price of the Greensboro
Acquisition and the Jackson Acquisitions, net of deposit of
$6,300,000, the recording of the related excess of the purchase
price paid over the net book value of the assets carried on the
adjusted balance sheet of $8,692,000 and the adjustments to remove
the current assets of $726,000, current liabilities of $203,000,
and stockholders' equity of $4,331,000.
d. To reflect the Richmond Acquisition for $38,800,000, the recording
of the related excess of the purchase price paid over the net book
value of the assets carried on the adjusted balance sheet of
$29,174,000, the minority interest of $1,617,000 and adjustments
to remove the current assets of $4,460,000, current liabilities of
$799,000, other liabilities of $996,000, long term debt of
$14,529,000 and stockholders' deficit of $621,000.
e. To reflect additional acquisition costs related to the Pending
Acquisitions as of June 30, 1996 and deferred financing costs
related to the New Credit Agreement.
f. In connection with the Dallas Disposition, SFX expects to redeem
its Series C Redeemable Convertible Preferred Stock for
approximately $2 million, which will result in a corresponding
charge of $408,000 to the gain or loss on the Dallas Disposition.
g. To reflect the Albany Acquisition for $1,000,000.
A-7
<PAGE>
h. SFX expects to raise additional financing in the form of common
stock, redeemable preferred stock and funding under the New Credit
Agreement to finance the Pending Acquisitions. For purposes of the
pro-forma financial statements SFX has assumed that it will issue
3,500,000 shares of common stock to realize net proceeds of
approximately $150,000,000, issue 11% redeemable preferred stock
to realize net proceeds of $150,000,000, and borrow $145,101,000
under the New Credit Agreement. There can be no assurance that any
financings by SFX will be on the terms set forth in the
assumptions referred to above. (See "Financing Plan").
i. To reflect the Secret Communications Acquisition for $300,000,000,
the related excess of the purchase price paid over net book value
of the assets carried on the adjusted balance sheet of
$235,040,000 and the adjustments to remove $11,546,000 of current
assets, $3,245,000 of current liabilities and $46,994,000 of long
term debt which are not being assumed, and the equity of
$26,267,000.
j. To reflect the Delsener/Slater Acquisition for $22,919,000,
$19,953,000 in cash and future payments with a net present value
of $2,966,000 ($419,000 of which is payable within one year), the
recording of related excess of the purchase price paid over net
book value of the assets carried on the adjusted balance sheet of
$18,368,000, and an adjustment to remove stockholders' equity of
$4,551,000.
k. To reflect the SFX Hartford Acquisition for $25,500,000 (including
working capital), the recording of related excess of the purchase
price paid over net book value of the assets carried on the
adjusted balance sheet of $33,600,000 and the related incremental
deferred taxes of $8,711,000, and an adjustment to remove the
stockholders' equity of $611,000.
l. To reflect the Texas Coast Acquisition for $42,648,000,
$41,500,000 in cash and future payments with a net present value
of $1,148,000 ($214,000 of which is payable within one year), the
recording of the related excess of the purchase price paid over
the net book value of the assets carried on the adjusted balance
sheet of $41,949,000 and adjustments to remove current assets of
$2,408,000, current liabilities of $198,000, deferred taxes of
$27,000 and stockholders' equity of $2,882,000.
A-8
<PAGE>
(9) Merger
<TABLE>
<CAPTION>
MULTI-MARKET RADIO, INC.
--------------------------------------------------------------------------
MMR
AS MMR A HARTFORD PRO FORMA
REPORTED DISPOSITIONS(A) ACQUISITION(B) ADJUSTMENTS AS ADJUSTED
---------- --------------- -------------- -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets ....................... $ 5,470 $ 5,600 $ -- $(18,000)(b) $(43,245)
13,200 (b)
(46,849)(c)
(2,666)(d)
Property and equipment, net .......... 3,649 (303) 339 -- 3,685
Intangible assets, net ............... 48,434 (3,797) 4,197 71,424 (e) 142,388
13,464 6,000 (c)
2,666 (d)
Other assets ......................... 7,256 (5,000) -- (2,420)(f) (164)
---------- --------------- -------------- -------------- -------------
Total assets ....................... $64,809 $(3,500) $18,000 $ 23,355 $102,664
========== =============== ============== ============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities .................. $ 4,843 -- $ -- $ (2,420)(f) $ 2,423
Other liabilities .................... 3,500 (3,500) -- -- 0
Long-term debt ....................... 40,849 -- -- (40,849)(c) 0
Deferred taxes ....................... 7,241 -- -- 5,875 (e) 13,116
Stockholders' equity ................. 8,376 -- 18,000 13,200 (b) 87,125
(18,000)(b)
(13,200)(e)
78,749 (e)
---------- --------------- -------------- -------------- -------------
Total liabilities and stockholders'
equity ............................ $64,809 $(3,500) $18,000 $ 23,355 $102,664
========== =============== ============== ============== =============
</TABLE>
- ------------
(a) Represents the sale of WRXR-FM and WKGB-FM which occurred in July 1996
for $5,000,000 and pending sale of KOLL-FM for $4,100,000. In the
aggregate, a loss of approximately $1,596,000 has been recognized during
the six months ended June 30, 1996 relating to the sales, principally
relating to WRXR-FM and WKBG-FM. Current assets include $5,600,000 of
proceeds to be received in connection with the dispositions (total sale
proceeds of $10,050,000 less $4,450,000 received in connection with the
KOLL-FM and WRSF-FM dispositions).
(b) To reflect the MMR Hartford Acquisition for $18,000,000, including
corresponding excess of purchase price paid, $13,464,000 over net book
value of assets acquired, and the adjustment to remove the stockholders'
equity of $18,000,000. SFX loaned MMR approximately $20.0 million
pursuant to the SFX Loan for the purposes of financing the MMR Hartford
Acquisition and for working capital. It is also assumed that the MMR
Class A Warrants will be exercised for net proceeds of approximately
$13,200,000.
(c) Repayment of $40,849,000 of existing MMR indebtedness and approximately
$6,000,000 related to prepayment premiums which will increase the
purchase price of MMR.
(d) Includes acquisition costs associated with the Merger of $1,666,000 and
the $1,000,000 purchase price of the MMR Myrtle Beach Acquisition.
(e) To reflect the Merger, assuming SFX's stock price is $44 per share, at an
estimated purchase price of $87,125,000 including the excess of the
purchase price paid over the net book value of the assets acquired,
including deferred taxes, of $71,424,000.
(f) To eliminate payable/receivable between SFX and MMR.
A-9
<PAGE>
SFX BROADCASTING, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
LIBERTY
ACQUISITION
INCLUDING
WASHINGTON PRISM
SFX DISPOSITIONS ACQUISITION OTHER
BROADCASTING, AND INCLUDING ACQUISITIONS/ RICHMOND CHARLOTTE
INC. CHANCELLOR LOUISVILLE ADDITIONAL DISPOSITIONS ACQUISITION EXCHANGE
AS REPORTED EXCHANGE(1) DISPOSITIONS(2) ACQUISITIONS(3) (4) (5) (6)
------------- ------------ ------------- ------------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net broadcast
revenues ... $ 47,554 $23,919 $12,404 $ 4,728 $(4,529) $ 4,548 $5,154
Concert
revenue, net
Station and
other
operating
expenses ... 33,177 16,059 10,175 2,869 (5,281) 4,150 3,580
Depreciation,
amortization
and
acquisition
related
costs ...... 4,648** 5,013 1,118 1,492 (188) 712 --
Corporate
expenses ... 2,790 452 746 111 60 401 129
Other ....... 27,489 -- -- -- (1,600) -- --
------------- ------------ ------------- ------------- ------------- ------------ ---------
Operating
income ..... (20,550) 2,395 365 256 2,480 (715) 1,445
Interest
expense,
including
amortization
of deferred
financing
costs ...... 9,588 3,319 714 382 (954) 638 13
Other expense
(income) ... (2,298) 5,934 -- (11,948) -- -- 8
Income tax
expense
(benefit) .. -- (3,380) -- 45 423 -- --
Minority
interest
income
(loss) .....
------------- ------------ ------------- ------------- ------------- ------------ ---------
Net income
(loss) ..... (27,840) (3,478) (349) 11,777 3,011 (1,353) 1,424
Preferred
stock
dividend
requirement 967 -- -- -- -- -- --
------------- ------------ ------------- ------------- ------------- ------------ ---------
Net loss
applicable
to common
shares ..... $(28,807) $(3,478) $ (349) $ 11,777 $ 3,011 $(1,353) $1,424
============= ============ ============= ============= ============= ============ =========
Net loss per
common share $ (3.87)
Average
common
shares
outstanding 7,448
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA
FOR THE
SECRET DELSENER/ TRANSACTIONS PRO FORMA
COMMUNICATIONS SLATER TEXAS COAST CBS SFX HARTFORD PRO FORMA OTHER THAN FOR THE
ACQUISITION(7) ACQUISITION ACQUISITION EXCHANGE(8) ACQUISITION ADJUSTMENTS(9) THE MERGER MERGER(10) TRANSACTIONS
-------------- ----------- ----------- --------- ------------ ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net broadcast
revenues ... $20,719 $2,112 $ (577) $2,127 $ 2,770 (a) $ 120,929* $11,509 $ 132,438
Concert
revenue, net $3,507**** 3,507**** 3,507****
Station and
other
operating
expenses ... 14,600 1,427 572 1,727 (2,645)(b) 79,797 6,622 86,419
(75)(l)
(538)(m)
Depreciation,
amortization
and
acquisition
related
costs ...... 2,330 375 26 -- 3 2,609 (c) 19,078 1,726 20,804
391 (d)
162 (e)
279 (f)
108 (n)
Corporate
expenses ... 861 -- -- -- -- 953 (g) 3,743 626 4,369
(2,760)(g)
Other ....... 159 -- (43) (396) -- 25,609 546 26,155
-------------- ----------- ----------- --------- ------------ ------------ ------------ -------- ------------
Operating
income ..... 2,769 3,132 702 (753) 397 4,287 (3,791) 1,989 (1,802)
Interest
expense,
including
amortization
of deferred
financing
costs ...... 1,425 -- -- -- (3) 24,187 (h) 32,618 -- 32,618
799 (h)
(13,667)(h)
6,017 (h)
160 (o)
Other expense
(income) ... -- (37) -- (74) -- (5,934)(i) (2,429) -- (2,429)
11,920 (i)
Income tax
expense
(benefit) .. -- -- -- 423 -- 2,489 (i) -- -- --
Minority
interest
income
(loss) ..... (10) (k) (10) (10)
-------------- ----------- ----------- --------- ------------ ------------ ------------ -------- ------------
Net income
(loss) ..... 1,344 3,169 702 (1,102) 400 (21,675) (33,970) 1,989 (31,981)
Preferred
stock
dividend
requirement -- -- -- -- -- (j) 13,209 -- 13,209
-------------- ----------- ----------- --------- ------------ ------------ ------------ -------- ------------
Net loss
applicable
to common
shares ..... $ 1,344 $ 3,169 $ 702 $(1,102) $ 400 $(33,917) $ (47,179) $ 1,989 $ (45,190)
============== =========== =========== ========= ============ ============ ============ ======== ============
Net loss per
common share $ (4.31) $ (3.55)
Average
common
shares
outstanding 10,948*** 12,738
</TABLE>
* Includes $2,770,000 of fees from Triathlon; see Note 9(a).
** Includes $277,000 of acquisition related costs.
*** Represents total shares outstanding at 12/31/95 plus 3.5 million
additional shares assumed to be issued in connection with the
financing of the Additional Acquisitions described on
pages 1 through 3.
**** Comprised of $10,785,000 of Concert and related revenue, net of
concert costs of $7,278,000. The Company is currently evaluating
alternative classification presentations of the Delsener/Slater
Acquisition.
A-10
<PAGE>
SFX BROADCASTING, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
LIBERTY
ACQUISITION
INCLUDING
WASHINGTON PRISM
SFX DISPOSITIONS ACQUISITION OTHER
BROADCASTING, AND INCLUDING ADDITIONAL ACQUISITIONS/ RICHMOND CHARLOTTE
INC. CHANCELLOR LOUISVILLE ACQUISITIONS DISPOSITIONS ACQUISITIONS ACQUISITIONS
AS REPORTED EXCHANGE(1) DISPOSITIONS(2) (3) (4) (5) (6)
------------- ------------ ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net broadcast
Revenues ... $ 76,830 $46,636 $26,959 $18,463 $(9,967) $ 9,213 $11,601
Concert
revenue, net
Station and
other
operating
expenses ... 51,039 30,339 22,411 15,570 (9,689) 8,097 8,528
Depreciation,
amortization
and
acquisition
related
costs ...... 9,137** 8,817 2,232 2,947 (124) 1,410 497
Corporate
expenses ... 3,797 3,193 2,027 265 120 650 251
Other ....... 5,000 (5,000) -- --
------------- ------------ ------------- ------------- ------------- ------------- -------------
Operating
income ..... 7,857 4,287 289 (319) 4,726 (944) 2,325
Interest
expense,
including
amortization
of deferred
financing
costs ...... 12,903 7,258 1,565 948 (1,841) 1,415 101
Other expense
(income) ... (650) (200) (201) (498) 43 799
Income tax
expense
(benefit) .. (2,725) 562 -- --
Minority
interest
income
(loss) .....
------------- ------------ ------------- ------------- ------------- ------------- -------------
Net income
(loss) ..... (4,396) (246) (1,076) (1,628) 7,065 (2,402) 1,425
Preferred
stock
dividend
requirement 291 -- --
------------- ------------ ------------- ------------- ------------- ------------- -------------
Net loss
applicable
to common
shares ..... $ (4,687) $ (246) $(1,076) $(1,628) $ 7,065 $(2,402) $ 1,425
============= ============ ============= ============= ============= ============= =============
Net loss per
common share $ (0.71)
Average
common
shares
outstanding 6,596
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA
FOR THE
SECRET DELSENER/ TRANSACTIONS PRO FORMA
COMMUNICATIONS SLATER TEXAS COAST CBS SFX HARTFORD PRO FORMA OTHER THAN FOR THE
ACQUISITION ACQUISITION ACQUISITION EXCHANGE(8) ACQUISITION ADJUSTMENTS(9) THE MERGER MERGER(10) TRANSACTIONS
-------------- ----------- ----------- --------- ------------ ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<C>
NET BROADCAST
REVENUES ... $39,100 $4,081 $(1,086) $4,688 $ 5,035 (a) $ 231,553* $22,982 $ 254,535
CONCERT
REVENUE, NET $7,811**** 7,811**** 7,811****
STATION AND
OTHER
OPERATING
EXPENSES ... 24,812 7,426 2,981 2,118 4,773 1,323 (a) 159,320 13,064 172,384
(5,290)(b)
(1,454)(l)
(3,664)(m)
DEPRECIATION,
AMORTIZATION
AND
ACQUISITION
RELATED
COSTS ...... 4,611 750 53 -- 48 978 (a) 39,524 3,980 43,504
6,286 (c)
782 (d)
325 (e)
558 (f)
217 (n)
CORPORATE
EXPENSES ... 1,933 -- -- 214 -- 45 (a) 5,747 1,253 7,000
1,905 (g)
(8,653)(g)
OTHER ....... (802) -- (58) (2,673) 2 (3,531) 1,114 (2,417)
-------------- ----------- ----------- --------- ------------ ------------ ------------ -------- ------------
OPERATING
INCOME ..... 8,546 (365) 1,105 (745) (135) 11,677 38,304 3,571 41,875
INTEREST
EXPENSE,
INCLUDING
AMORTIZATION
OF DEFERRED
FINANCING
COSTS ...... 3,101 -- -- -- -- 48,375 (h) 65,549 -- 65,549
1,598 (h)
(22,282)(h)
12,034 (h)
374 (o)
OTHER EXPENSE
(INCOME) ... (36) (495) -- (152) -- (1,390) -- (1,390)
INCOME TAX
EXPENSE
(BENEFIT) .. -- 13 48 31 7 2,064 (i) -- -- --
MINORITY
INTEREST
INCOME
(LOSS) ..... 3 (k) 3 3
-------------- ----------- ----------- --------- ------------ ------------ ------------ -------- ------------
NET INCOME
(LOSS) ..... 5,481 117 1,057 (624) (142) (30,489) 25,858 3,571 (22,287)
PREFERRED
STOCK
DIVIDEND
REQUIREMENT 26,165 (j) 26,456 -- 26,456
-------------- ----------- ----------- --------- ------------ ------------ ------------ -------- ------------
NET LOSS
APPLICABLE
TO COMMON
SHARES ..... $ 5,481 $ 117 $1,057 $ (624) $ (142) $(56,654) $ (52,314) $ 3,571 $ (48,743)
============== =========== =========== ========= ============ ============ ============ ======== ============
NET LOSS PER
COMMON SHARE $ (4.78) $ (3.83)
AVERAGE
COMMON
SHARES
OUTSTANDING 10,948*** 12,738
</TABLE>
* Includes $3,584,000 of fees from Triathlon; see Note 9(a).
** Includes $1,400,000 of duopoly integration costs.
*** Represents total shares outstanding at 12/31/95 plus 3.5 million
additional shares assumed to be issued in connection with the financing
of the Additional Acquisitions described on pages 1 through 3.
**** Comprised of a $38,660,000 of concert and related revenue, net of
concert costs of $30,855,000. The Company is currently evaluating
alternative classification presentations for the Delsener/Slater
Acquisition.
A-11
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF OPERATIONS
(1) Liberty Acquisition
Reflects the net effect of the historical operations of the Liberty
Stations adjusted for the Washington Dispositions and the Chancellor
Exchange.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996
---------------------------------------------------------------------------------------
LIBERTY AS WASHINGTON LONG ISLAND JACKSONVILLE LIBERTY AS
REPORTED DISPOSITIONS DISPOSITION ACQUISITION ADJUSTMENTS* ADJUSTED
- ------------------- ------------ -------------- ------------- -------------- -------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net broadcast
revenues .......... $25,966 $ (974) $(5,108) $4,035 $ -- $23,919
Station operating
expenses .......... 19,337 (1,563) (3,923) 2,208 16,059
Depreciation/amortization 5,926 (776) (1,429) 751 541 5,013
Corporate expenses 1,566 (88) (1,026) -- -- 452
------------ -------------- ------------- -------------- -------------- ------------
Operating income .. (863) 1,453 1,270 1,076 (541) 2,395
Interest expense .. 3,467 (141) (7) -- -- 3,319
Other expense
(income) .......... 5,935 -- (1) -- -- 5,934
Income tax expense
(benefit) ......... (3,378) -- (2) -- -- (3,380)
------------ -------------- ------------- -------------- -------------- ------------
Net income (loss) . $(6,887) $ 1,594 $ 1,280 $1,076 $(541) $(3,478)
============ ============== ============= ============== ============== ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------------------------------------------------
LIBERTY AS BECK ROSS WASHINGTON LONG ISLAND JACKSONVILLE LIBERTY AS
REPORTED ACQUISITION** DISPOSITIONS DISPOSITION ACQUISITION ADJUSTMENTS* ADJUSTED
------------ --------------- -------------- ------------- -------------- -------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net broadcast
revenues .......... $51,407 $2,486 $(3,375) $(11,511) $7,629 $ -- $46,636
Station operating
expenses .......... 34,725 2,121 (4,065) (7,282) 4,840 -- 30,339
Depreciation/amortization 10,429 40 (1,377) (2,682) 1,491 916 8,817
Corporate expenses 4,653 -- -- (1,460) -- -- 3,193
------------ --------------- -------------- ------------- -------------- -------------- ------------
Operating income
(loss) ............ 1,600 325 2,067 (87) 1,298 (916) 4,287
Interest expense .. 7,373 -- (98) (17) -- -- 7,258
Income tax expense (2,725) -- -- -- -- -- (2,725)
------------ --------------- -------------- ------------- -------------- -------------- ------------
Net income (loss) . $ (3,048) $ 325 $ 2,165 $ (70) $1,298 $(916) $ (246)
============ =============== ============== ============= ============== ============== ============
</TABLE>
- ------------
* To reflect historic depreciation of the stations that are the subject
of the Long Island Disposition net of decrease in amortization due to
the exchange allocation.
** Represents the acquisition by Liberty of radio stations WBLI-FM,
WHCN-FM and WSNE-FM from Beck-Ross Communications, Inc. in 1995.
A-12
<PAGE>
(2) Prism Acquisition
Reflects the net effect of the historical operations of the Prism
Acquisition adjusted for the Louisville Dispositions.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996
--------------------------------------
PRISM AS LOUISVILLE PRISM AS
REPORTED DISPOSITIONS ADJUSTED
---------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net broadcast revenues .... $15,752 $ (3,348) $12,404
Station operating expenses 12,651 (2,476) 10,175
Depreciation/amortization . 1,476 (358) 1,118
Corporate expenses ......... 746 -- 746
---------- -------------- ----------
Operating income ........... 879 (514) 365
Interest expense ........... 714 -- 714
---------- -------------- ----------
Net income (loss) .......... $ 165 $ (514) $ (349)
========== ============== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
---------------------------------------
PRISM AS LOUISVILLE PRISM AS
REPORTED DISPOSITIONS ADJUSTED
---------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net broadcast revenues ................... $32,572 $(5,613) $26,959
Station operating expenses ............... 26,979 (4,568) 22,411
Depreciation/amortization ................ 2,946 (714) 2,232
Corporate expenses ....................... 2,027 -- 2,027
---------- -------------- -----------
Operating income/(loss) .................. 620 (331) 289
Interest expense including ...............
amortization of deferred financing costs 1,565 -- 1,565
Other expense (income) ................... (200) -- (200)
---------- -------------- -----------
Net loss ................................. $ (745) $ (331) $ (1,076)
========== ============== ===========
</TABLE>
A-13
<PAGE>
(3) Additional Acquisitions
Reflects the net effect of the combined historical operations of the
Greensboro Acquisition and radio stations WRDU-FM, WTRG-FM, WMAG-FM, WMFR-AM
and WTCK-AM acquired from HMW Communications, Inc. (collectively
"Raleigh-Greensboro Acquisitions"), radio station WROQ-FM acquired from ABS
Greenville Partners, L.P. (the "Greenville Acquisition") and the Jackson
Acquisitions.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
-------------------------------------------------------------
RALEIGH- ADDITIONAL
GREENSBORO GREENVILLE JACKSON ACQUISITIONS
ACQUISITIONS ACQUISITION ACQUISITIONS COMBINED
-------------- ------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net broadcast revenues .................. $3,619 $ 639 $470 $ 4,728
Station operating expenses .............. 2,264 271 334 2,869
Depreciation/ amortization .............. 1,168 244 80 1,492
Corporate expenses ...................... 4 107 -- 111
-------------- ------------- -------------- --------------
Operating income (loss) ................. 183 17 56 256
Interest expense, including amortization
of deferred financing costs ............ 59 323 -- 382
Other income ............................ (51) (11,897) -- (11,948)
Income tax expense ...................... 45 -- -- 45
-------------- ------------- -------------- --------------
Net income (loss) ....................... $ 130 $ 11,591 $ 56 $ 11,777
============== ============= ============== ==============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------------------------------
ADDITIONAL
RALEIGH-GREENSBORO GREENVILLE JACKSON ACQUISITIONS
ACQUISITIONS ACQUISITION ACQUISITIONS COMBINED
---------------------------- ------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net broadcast revenues ....... $12,688 $4,074 $1,701 $18,463
Station operating expenses .. 10,982 3,238 1,350 15,570
Depreciation/amortization ... 2,325 514 108 2,947
Corporate expenses ........... -- 195 70 265
---------------------------- ------------- -------------- --------------
Operating income (loss) ..... (619) 127 173 (319)
Interest expense ............. 156 792 -- 948
Other expense (income) ....... (203) 2 -- (201)
Income tax expense (benefit) 562 -- -- 562
---------------------------- ------------- -------------- --------------
Net income (loss) ............ $ (1,134) $ (667) $ 173 $(1,628)
============================ ============= ============== ==============
</TABLE>
A-14
<PAGE>
(4) Other Acquisitions/Dispositions
To reflect the exchange of KRLD-AM and the Texas State Networks for
KKRW-FM in the Houston Exchange, and the sale of KTCK-AM in the Dallas
Disposition.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
-----------------------------------------------------------------------------
DISPOSITION ACQUISITION ADJUSTMENTS(*) NET
---------------------------------- ------------- -------------- ----------
KRLD-AM TSN KTCK-AM KKRW-FM
---------- ---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net broadcast revenues ....... $(5,048) $(1,212) $(1,858) $3,589 $ -- $(4,529)
Station operating expenses .. (4,401) (1,006) (2,211) 2,337 -- (5,281)
Depreciation/amortization ... (686) (125) (188) 346 465 (188)
Corporate expenses ........... -- -- -- 60 -- 60
Other ........................ (1,600) 0 -- -- -- (1,600)
---------- ---------- ---------- ------------- -------------- ----------
Operating income ............. 1,639 (81) 541 846 (465) 2,480
Interest expense ............. (732) (218) (4) -- -- (954)
Income tax expense (benefit) -- -- -- 423 -- 423
---------- ---------- ---------- ------------- -------------- ----------
Net income (loss) ............ $ 2,371 $ 137 $ 545 $ 423 $(465) $ 3,011
========== ========== ========== ============= ============== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------------------------------------
DISPOSITIONS ACQUISITION ADJUSTMENTS(*) NET
--------------------------------------------------- ------------- -------------- ----------
KRLD-AM TSN KTCK-AM KKRW-FM
---------------------------- ---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net broadcast
revenues .......... $(9,792) $(3,196) $(4,096) $7,117 $ -- $(9,967)
Station operating
expenses .......... (8,881) (2,261) (3,714) 5,167 -- (9,689)
Depreciation/amortization (1,350) (725) (124) 371 1,704 (124)
Corporate expenses -- -- -- 120 -- 120
Other .............. (5,000) -- -- -- -- (5,000)
---------------------------- ---------- ---------- ------------- -------------- ----------
Operating income .. 5,439 (210) (258) 1,459 (1,704) 4,726
Interest expense .. (1,433) (403) (5) -- -- (1,841)
Other income ....... -- -- (323) (175) -- (498)
---------------------------- ---------- ---------- ------------- -------------- ----------
Net income (loss) . $ 6,872 $ 193 $ 70 $1,634 $(1,704) $ 7,065
============================ ========== ========== ============= ============== ==========
</TABLE>
- ------------
(*) To reflect historical depreciation of KRLD-AM and TSN and disposition
of KTCK-AM.
A-15
<PAGE>
(5) Reflects the net effect of the combined historical operations of radio
stations WKHK-FM, WBZU-FM and WVGO-FM/WLEE-FM acquired in the Richmond
Acquisition.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
-----------------------------------------------
WVGO-FM/ RICHMOND
WKHK-FM WBZU-FM WLEE-FM ACQUISITION
--------- --------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net broadcast revenues .... $2,499 $ 499 $1,550 $ 4,548
Station operating expenses 1,818 671 1,661 4,150
Depreciation/amortization . 150 104 458 712
Corporate expenses ......... 165 52 184 401
--------- --------- ---------- -------------
Operating income ........... 366 (328) (753) (715)
Interest expense ........... 376 132 130 638
--------- --------- ---------- -------------
Net income (loss) .......... $ (10) $(460) $ (883) $(1,353)
========= ========= ========== =============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------
WVGO-FM/ RICHMOND
WKHK-FM WBZU-FM WLEE-FM ACQUISITION
--------- ---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net broadcast revenues .... $4,478 $ 849 $ 3,886 $ 9,213
Station operating expenses 3,154 1,561 3,382 8,097
Depreciation/amortization . 253 243 914 1,410
Corporate expenses ......... 245 77 328 650
--------- ---------- ---------- -------------
Operating income ........... 826 (1,032) (738) (944)
Interest expense ........... 811 287 317 1,415
Other expense .............. 43 43
--------- ---------- ---------- -------------
Net income (loss) .......... $ 15 $(1,319) $(1,098) $(2,402)
========= ========== ========== =============
</TABLE>
(6) To reflect the exchange of radio station WTDR-FM for radio stations
WSSS-FM, WRFX-FM and WNKS-FM in the Charlotte Exchange.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
--------------------------------------------------------------
ACQUISITIONS DISPOSITION
--------------------- -------------
WRFX-FM/
WSSS-FM WNKS-FM WTDR-FM ADJUSTMENTS* NET
--------- ---------- ------------- -------------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net broadcast revenues .... $1,930 $5,033 $(1,809) $ -- $5,154
Station operating expenses 1,381 3,240 (1,041) -- 3,580
Depreciation/amortization . 99 2,180 (248) (2,031) 0
Corporate expenses ......... 129 -- -- -- 129
--------- ---------- ------------- -------------- --------
Operating income ........... 321 (387) (520) 2,031 1,445
Interest expense ........... 13 13
Other expense .............. 8 -- -- -- 8
--------- ---------- ------------- -------------- --------
Net income (loss) .......... $ 300 $ (387) $ (520) $ 2,031 $1,424
========= ========== ============= ============== ========
</TABLE>
A-16
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------
ACQUISITIONS DISPOSITION
--------------------- -------------
WRFX-FM/
WSSS-FM WNKS-FM WTDR ADJUSTMENTS* NET
--------- ---------- ------------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net broadcast revenues .... $3,575 $10,624 $(2,598) -- $11,601
Station operating expenses 2,268 7,623 (1,363) -- 8,528
Depreciation/amortization . 208 3,120 (497) (2,334) 497
Corporate expenses ......... 251 251
--------- ---------- ------------- -------------- ---------
Operating income ........... 848 (119) (738) 2,334 2,325
Interest expense ........... 94 7 -- -- 101
Other expense (income) .... 191 608 -- -- 799
--------- ---------- ------------- -------------- ---------
Net income (loss) .......... $ 563 $ (734) $ (738) $ 2,334 $ 1,425
========= ========== ============= ============== =========
</TABLE>
- ------------
* To eliminate depreciation of WSSS-FM, WRFX-FM, and WNKS-FM and reflect
depreciation of WTDR-FM.
(7) The Secret Communications Acquisition
Reflects the Secret Communications Acquisition after the pending
acquisition of the Third Party Stations by Secret Communications. The
results of the Third Party Stations for the six months ended June 30,
1996 reflect five months of results under the current owner and one
month of operations under Secret Communications through an LMA, which
Secret entered with the current owner on June 1, 1996.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
-------------------------------------
SECRET THIRD PARTY
STATIONS STATIONS TOTAL
---------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net broadcast revenues .................................. $17,495 $3,224 $20,719
Station operating expenses .............................. 12,290 2,310 14,600
Depreciation, amortization and acquisition related costs 2,187 143 2,330
Other expenses (income) ................................. 170 (11) 159
---------- -------------- ---------
Net income .............................................. $ 2,848 $ 782 $ 3,630
========== ============== =========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------
SECRET THIRD PARTY
STATIONS STATIONS TOTAL
---------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net broadcast revenues .................................. $35,438 $3,662 $39,100
Station operating expenses .............................. 21,963 2,849 24,812
Depreciation, amortization and acquisition related costs 4,411 200 4,611
Other income ............................................ (802) -- (802)
---------- -------------- ---------
Operating income ........................................ 9,866 613 10,479
Other income ............................................ (36) -- (36)
---------- -------------- ---------
Net income .............................................. $ 9,902 $ 613 $10,515
========== ============== =========
</TABLE>
A-17
<PAGE>
(8) CBS Exchange
To reflect the net effect of the exchange of WHFS-FM for KTXQ-FM and
KRRW-FM in the CBS Exchange.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
------------------------------------------------
KTXQ-FM WHFS-FM
KRRW-FM DISPOSAL ADJUSTMENTS* NET
--------- ---------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net broadcast revenues .................................. $4,568 $5,145 $ -- $ (577)
Station operating expenses .............................. 3,318 2,746 -- 572
Depreciation, amortization and acquisition related costs 467 798 331 --
Other ................................................... -- 396 -- (396)
--------- ---------- -------------- ---------
Operating income ........................................ 783 1,205 (331) (753)
Other expense (income) .................................. (74) -- -- (74)
Income tax expense ...................................... 423 -- -- 423
--------- ---------- -------------- ---------
Net income (loss) ....................................... $ 434 $1,205 $(331) $(1,102)
========= ========== ============== =========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------
KTXQ-FM WHFS-FM
KRRW-FM DISPOSAL ADJUSTMENTS* NET
--------- ---------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net broadcast revenues .................................. $8,534 $9,620 $ -- $(1,086)
Station operating expenses .............................. 7,254 5,136 -- 2,118
Depreciation, amortization and acquisition related costs 1,129 1,638 509 --
Corporate expenses ...................................... 214 -- -- 214
Other expense (income) .................................. -- 2,673 -- (2,673)
--------- ---------- -------------- ----------
Operating income ........................................ (63) 173 (509) (745)
Other income ............................................ (152) -- -- (152)
Income tax expense ...................................... 31 -- -- 31
--------- ---------- -------------- ----------
Net income (loss) ....................................... $ 58 $ 173 $(509) $ (624)
========= ========== ============== ==========
</TABLE>
* To eliminate depreciation of KTXQ-FM and KRRW-FM and reflect
depreciation of WHFS-FM.
(9) Pro Forma Adjustments
a. Reflects the results of radio stations (located in San Diego, Charlotte
--WLYT only, and Dallas) acquired in the Recent Acquisitions during the
year ended December 31, 1995 and fees of $3,584,000 and $2,770,000
incurred by Triathlon and payable to SCMC for the year ended December
31, 1995 and the six months ended June 30, 1996, respectively of which
$2,584,000 and $2,020,000, respectively, represent fees based upon
acquisition and financing activities in the respective period. Future
fees may be lesser or greater based upon future acquisition and
financing activity by Triathlon. Minimum annual fees will be $1,000,000
per year commencing at such time as Triathlon spends an amount equal to
the net proceeds of its last public offering, of which $750,000 is due
in the first six months. See "Certain Relationships and Related
Transactions --Relationship of SFX with SCMC".
b. Reflects anticipated cost savings expected to be realized following the
Liberty Acquisition, the Chancellor Exchange, the Prism Acquisition,
the Jackson Acquisitions and the Richmond Acquisition, consisting
principally of the elimination of certain duplicative technical, sales
and general and administrative functions due to operating a cluster of
stations in each of its principal markets, a reduction of employee
benefit costs and commission rates and the elimination of programming
personnel due to automation and simulcasting.
A-18
<PAGE>
In addition to the cost savings identified above which are reflected in
the pro forma adjustments, SFX has identified certain additional expenses
of approximately $936,000 which are not expected to recur or are expected
to recur in reduced amounts. These expenses consist primarily of (i)
non-recurring marketing costs of approximately $471,000 related to SFX's
stations operating in San Diego, California, Charlotte, North Carolina
and Greenville-Spartanburg, South Carolina, incurred by the prior owners
of such stations, (ii) costs associated with barter arrangements of
approximately $98,000 related to SFX's stations operating in Raleigh,
North Carolina, (iii) costs of third party service providers of
approximately $272,000 related to the radio stations acquired in the
Prism Acquisition and retained by SFX, and (iv) employee relocation
expenses of approximately $95,000 incurred by the prior owners of Prism.
No cost savings have been reflected for the Secret Acquisition and
certain other pending acquisitions as management is evaluating these
potential savings. However, management does anticipate that there will be
additional savings associated with these acquisitions.
While management believes that such cost savings and the elimination of
non-recurring expenses are reasonably achievable, SFX's ability to
achieve such cost savings and to eliminate the non-recurring expenses is
subject to numerous factors, many of which are beyond SFX's control.
There can be no assurance that SFX will realize such cost savings.
c. Reflects increase (decrease) in amortization of intangible assets
resulting from the purchase price allocation and change in amortization
period:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996 YEAR ENDED DECEMBER 31, 1995
------------------------------------------- -------------------------------------------
INCREASE DUE DECREASE DUE INCREASE DUE DECREASE DUE
TO PURCHASE TO CHANGE IN TO PURCHASE TO CHANGE IN
PRICE AMORTIZATION NET INCREASE PRICE AMORTIZATION NET INCREASE
ALLOCATION PERIODS (DECREASE) ALLOCATION PERIODS (DECREASE)
------------ -------------- -------------- ------------ -------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Liberty Acquisition .......... $1,117 $(2,984) $(1,867) $2,235 $(4,799) $(2,564)
Prism Acquisition ............ 803 (592) 211 1,606 (1,186) 420
Greensboro Acquisition and
Jackson Acquisitions ........ 108 (5) 103 217 (10) 207
Richmond Acquisition ......... 364 (310) 54 729 (641) 88
Charlotte Exchange ........... 810 0 810 1,620 0 1,620
Additional Acquisitions other
than the Greensboro
Acquisition and the Jackson
Acquisition ................. 450 (639) (189) 1,018 (1,276) (258)
Albany Acquisition ........... 12 0 12 25 0 25
Secret Comm. Acquisition .... 2,938 (910) 2,028 5,876 (2,022) 3,854
Delsener/Slater Acquisition . 612 0 612 1,224 0 1,224
Texas Coast Acquisition ..... 524 0 524 1,048 0 1,048
SFX Hartford Acquisition .... 311 0 311 622 0 622
-------------- --------------
Net Increase $ 2,609 Net Increase $6,286
============== ==============
</TABLE>
d. Reflects $391,000 and $782,000 in amortization of goodwill arising from
the deferred taxes recorded in connection with the Liberty Acquisition
for the six months ended June 30, 1996 and year ended December 31,
1995, respectively.
e. Amortization of $162,000 and $325,000 for acquisition costs associated
with the Acquisitions for the six months ended June 30, 1996 and year
ended December 31, 1995, respectively.
f. To reflect $279,000 and $558,000 in amortization relating to the
present value of the Triathlon consulting fees assigned to SFX under
its agreement with SCMC for the six months ended June 30, 1996 and year
ended December 31, 1995, respectively.
A-19
<PAGE>
g. To record incremental corporate overhead charges of $953,000 and
$1,905,000 for the six months ended June 30, 1996 and year ended
December 31, 1995, respectively, relating to increases in personnel,
professional fees and administrative expenses associated with the
increased size of SFX due to the Acquisitions and the elimination of
$1,899,000 and $6,720,000 for the six months ended June 30, 1996 and
year ended December 31, 1995, respectively of the corporate overhead
of the sellers.
h. To reflect interest expense of $24,187,000 and $48,375,000 for the six
months ended June 30, 1996 and year ended December 31, 1995,
respectively, related to the $450,000,000 of Senior Subordinated Notes
at 10.75%, amortization of deferred financing costs of $799,000 and
$1,598,000 for the six months ended June 30, 1996 and year ended
December 31, 1995, respectively, interest expense of $6,017,000 and
$12,034,000 relating to the borrowings from the New Credit Agreement at
8.25% for the six months ended June 30, 1996 and year ended December
31, 1995, respectively, and elimination of existing interest expense
(net of interest on other debt) of $13,667,000 and $22,282,000 related
to SFX and the sellers for the six months ended June 30, 1996 and year
ended December 31, 1995, respectively.
i. Elimination of acquisition related costs of $5,934,000 recorded on the
income statement of Liberty for the six months June 30, 1996, gain on
the sale of assets of $11,920,000 recorded on the books of ABS
Greenville Partners, L.P. for the six months ended June 30, 1996 and
income tax benefits of $2,489,000 and $2,064,000 for the six months
ended June 30, 1996 and year ended December 31, 1995, respectively.
j. To record the incremental Series D Preferred Stock dividend and a
contemplated new redeemable preferred issuance to finance a portion of
the Pending Acquisitions at a rate of 6.5% and 11%, respectively, net
of the elimination of preferred dividends relating to the Series C
Preferred Stock.
k. To record minority interest income (loss) related to the Richmond
Acquisition of ($10,000) and $3,000 for the six months ended June 30,
1996 and year ended December 31, 1995, respectively.
l. To reflect elimination of expenses incurred by WWYZ (which is being
acquired as part of the SFX Hartford Acquisition) of $75,000 and
$1,454,000 for the six months ended June 30, 1996 and year ended
December 31, 1995, respectively, principally for salaries and related
expenses of employee-shareholders whose services are to be terminated
upon the acquisition.
m. To adjust Delsener/Slater officers salaries by $538,000 and $3,664,000
for the six months ended June 30, 1996 and the year ended December 31,
1995, respectively, to reflect new employment contracts.
n. Reflects $108,000 and $217,000 in amortization of goodwill arising from
the deferred taxes recorded in connection with the SFX Hartford
Acquisition for the six months ended June 30, 1996 and the year ended
December 31, 1995, respectively.
o. To record interest expense of $160,000 and $374,000 for the six months
ended June 30, 1996 and the year ended December 31, 1995, respectively,
in connection with the long-term payments due for the Delsener/Slater
Acquisition and the Texas Coast Acquisition.
A-20
<PAGE>
(10) Merger
Reflects the net effect of the historical operations of MMR as adjusted
for acquisitions and dispositions.
<TABLE>
<CAPTION>
MULTI-MARKET RADIO, INC.
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
--------------------------------------------------------------------------
MMR A
DISPOSITIONS MMR HARTFORD PRO FORMA PRO FORMA AS
AS REPORTED (a) ACQUISITION ADJUSTMENTS ADJUSTED
------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net broadcast revenues ....... $10,144 $ (717) $2,082 $11,509
Station operating expenses .. 6,254 (810) 1,610 $ (432)(b) 6,622
Depreciation/amortization ... 810 (95) 247 744 (c) 1,726
20 (d)
Corporate expenses ........... 1,275 -- -- 626 (e) 626
(1,275)(e)
Non-cash compensation ........ 130 -- -- 416 (g) 546
------------- -------------- ------------- ------------- -------------
Operating income ............. 1,675 188 225 (99) 1,989
Interest expense ............. 2,609 -- 203 (2,812)(f) --
Other expense (income) ....... 5,657 (1,577) (12) (4,068)(f) --
Income tax expense (benefit) -- -- 7 (7)(f) --
------------- -------------- ------------- ------------- -------------
Net income (loss) ............ $(6,591) $ 1,765 $ 27 $ 6,788 $ 1,989
============= ============== ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
MULTI-MARKET RADIO, INC.
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
------------------------------------------------------------------------------------------
MMR A SOUTHERN STARR
DISPOSITIONS MMR HARTFORD --1ST QUARTER PRO FORMA
AS REPORTED (a) ACQUISITION 1995 ADJUSTMENTS AS ADJUSTED
------------- -------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net broadcast revenues ....... $18,288 $(2,422) $4,424 $2,692 $22,982
Station operating expenses .. 11,026 (2,247) 3,286 1,863 $ (864)(b) 13,064
Depreciation/amortization ... 1,750 (304) 539 327 1,627 (c) 3,980
41 (d)
Corporate expenses ........... 1,666 -- -- -- 1,253 (e) 1,253
(1,666)(e)
Non-cash compensation ........ 281 -- -- -- 833 (g) 1,114
------------- -------------- ------------- -------------- ------------- -------------
Operating income ............. 3,565 129 599 502 (1,224) 3,571
Interest expense, including
amortization of deferred
financing costs ............. 4,966 -- 502 -- (5,468)(f) --
Other expense (income) ....... (11) -- (14) -- 25 (f) --
Income tax expense (benefit) (59) -- 48 -- 11 (f) --
------------- -------------- ------------- -------------- ------------- -------------
Net income (loss) ............ $(1,331) $ 129 $ 63 $ 502 $ 4,208 $ 3,571
============= ============== ============= ============== ============= =============
</TABLE>
- ------------
(a) Reflects the elimination of the operations of stations WRSF-FM, sold in
March 1996, WRXR-FM and WKBG-FM, sold in July 1996, and the pending
sale of KOLL-FM.
(b) Reflects cost savings of $432,000 and $864,000 for the six months ended
June 30, 1996 and year ended December 31, 1995, respectively,
anticipated with the MMR Hartford Acquisition, consisting principally
of the elimination of certain duplicative technical sales and general
and administrative functions due to operating a cluster of stations in
the Hartford market and the elimination of programming personnel due to
automation.
A-21
<PAGE>
(c) Reflects $744,000 and $1,627,000 for the six months ended June 30, 1996
and year ended December 31, 1995, respectively, in amortization of
intangible assets recorded in connection with the Merger, MMR Myrtle
Beach Acquisition, related incremental deferred taxes and change in
amortization periods.
(d) Amortization of $20,000 and $41,000 for acquisition costs associated
with the Merger for the six months ended June 30, 1996 and year ended
December 31, 1995, respectively.
(e) To record incremental corporate overhead charges of $626,000 and
$1,253,000 associated with the Merger for the three months ended June
30, 1996 and year ended December 31, 1995, respectively, and to
eliminate MMR's existing corporate overhead of $1,275,000 and
$1,666,000 for the six months ended June 30, 1996 and year ended
December 31, 1995, respectively.
(f) Elimination of a nonrecurring loss (income) of $4,067,000 and ($25,000)
for the six months ended June 30, 1996 and year ended December 31,
1995, respectively, interest expense of and $2,812,000 and $5,468,000
the six months ended June 30, 1996 and year ended December 31, 1995,
respectively, and income tax expense (benefit) of $7,000 and ($11,000)
for the six months ended June 30, 1996 and year ended December 31,
1995, respectively.
(g) Reflects non-cash compensation charge for the issuance of shares of the
Series A and Series B Convertible Preferred Shares Stock of MMR. These
shares were issued in July 1996.
A-22
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA OF SFX
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The Summary Consolidated Financial Data of SFX and predecessors include
the historical financial statements of Capstar Communications, Inc., a
predecessor of SFX ("Capstar"), and the historical financial statements of
SFX since its formation on February 26, 1992. The Summary Consolidated
Financial Data as of June 30, 1996 and for the six months ended June 30, 1996
and 1995 have been derived from the unaudited consolidated financial
statements and notes thereto of SFX which are incorporated herein by
reference. The pro forma summary data as of June 30, 1996 and for the year
ended December 31, 1995 and the six months ended June 30, 1996 are derived
from the unaudited pro forma condensed combined financial statements which,
in the opinion of SFX, reflect all adjustments necessary for a fair
presentation of the transactions for which such pro forma financial
information is given. Operating results for the six months ended June 30,
1996 are not necessarily indicative of the results that may be achieved for
the fiscal year ending December 31, 1996. The historical consolidated
financial results for SFX are not comparable from year to year because of the
acquisition and disposition of various radio stations by SFX during the
periods covered. See "Unaudited Pro Forma Condensed Combined Financial
Statements of SFX" included as Annex A.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1991 1992 1993 1994 1995
-------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues(1) ...................... $13,442 $15,003 $ 34,233 $55,556 $76,830
Concert revenue less concert costs .. -- -- -- -- --
Station operating expenses ........... 9,105 9,624 21,555 33,956 51,039
Depreciation, amortization, duopoly
integration costs and acquisition
related costs(2) .................... 3,726 3,208 4,475 5,873 9,137
Corporate expenses ................... 726 769 1,808 2,964 3,797
Corporate expenses-non-recurring
charge(3) ........................... -- -- 13,980 -- --
Write down of broadcast rights
agreement and other(4) .............. -- -- -- -- 5,000
-------- -------- --------- -------- --------
Operating income (loss) .............. (115) 1,402 (7,585) 12,763 7,857
Other (income) loss/net .............. (124) (17) 121 (650)
Interest expense, including
amortization of deferred financing
costs ............................... 4,241 3,610 7,351 9,332 12,903
Minority interest .................... -- -- -- -- --
-------- -------- --------- -------- --------
Income (loss) before income taxes,
extraordinary item and cumulative
effect of a change in accounting
principle ........................... (4,232) (2,208) (14,919) 3,310 (4,396)
Income tax expense (benefit) ......... -- -- 1,015 1,474 --
Extraordinary loss on debt retirement -- -- 1,665 -- --
Cumulative effect of a change
in accounting principle ............. -- -- 182 -- --
Net income (loss) .................... (4,232) (2,208) (17,781) 1,836 (4,396)
Redeemable preferred stock dividends
and accretion(5) .................... 302 385 557 348 291
-------- -------- --------- -------- ---------
Net income (loss) applicable to
common stock ........................ $(4,534) $(2,593) $(18,338) $ 1,488 $(4,687)
======== ======== ========= ======== ========
Net income (loss) per share .......... $ (3.85) $ (2.20) $ (7.08) $ 0.26 $ (0.71)
======== ======== ========= ======== ========
Weighted average common
shares outstanding .................. 1,179 1,179 2,589 5,792 6,596
======== ======== ========== ======== ========
OTHER OPERATING DATA:
Broadcast Cash Flow(6) ............... $ 4,337 $ 5,379 $ 12,678 $21,600 $25,791
EBITDA (6) ........................... 3,611 4,610 10,870 18,636 21,994
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------ ---------------------------------------------------
PRO FORMA FOR PRO FORMA FOR
THE RECENT THE RECENT
ACQUISITIONS ACQUISITIONS PRO FORMA FOR
AND THE PRO FORMA FOR AND THE THE RECENT
TRANSACTIONS THE RECENT TRANSACTIONS ACQUISITIONS
(OTHER THAN ACQUISITIONS (OTHER THAN AND THE
THE MERGER) AND THE THE MERGER) TRANSACTIONS
(7) TRANSACTIONS(7) (8) (8)
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
1995 1995 1995 1996 1996 1996
-------------- -------------- --------- --------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues(1) ...................... $231,553 $254,535 $34,441 $ 47,554 $120,929 $132,438
Concert revenue less concert costs .. 7,811 7,811 -- -- 3,507 3,507
Station operating expenses ........... 159,320 172,384 23,381 33,177 79,797 86,419
Depreciation, amortization, duopoly
integration costs and acquisition
related costs(2) .................... 39,524 43,504 3,684 4,648 19,078 20,804
Corporate expenses ................... 5,747 7,000 1,779 2,790 3,743 4,369
Corporate expenses-non-recurring
charge(3) ........................... -- -- -- -- -- --
Write down of broadcast rights
agreement and other(4) .............. (3,531) (2,417) 5,000 27,489 25,609 26,155
-------------- -------------- --------- --------- -------------- --------------
Operating income (loss) .............. 38,304 41,875 597 (20,550) (3,791) (1,082)
Other (income) loss/net .............. (1,390) (1,390) (99) (2,298) (2,429) (2,429)
Interest expense, including
amortization of deferred financing
costs ............................... 65,549 65,549 6,067 9,588 32,618 32,618
Minority interest .................... 3 3 -- -- (10) (10)
-------------- -------------- --------- --------- -------------- --------------
Income (loss) before income taxes,
extraordinary item and cumulative
effect of a change in accounting
principle ........................... (25,858) (22,287) (5,371) (27,840) (33,970) (31,981)
Income tax expense (benefit) ......... -- -- (2,300) -- -- --
Extraordinary loss on debt retirement -- -- -- 15,219
Cumulative effect of a change
in accounting principle ............. -- -- -- -- -- --
Net income (loss) .................... (25,858) (22,287) (3,071) (43,059) (33,970) (31,981)
Redeemable preferred stock dividends
and accretion(5) .................... 26,456 26,456 144 967 13,209 13,209
-------------- -------------- --------- --------- -------------- --------------
Net income (loss) applicable to
common stock ........................ $(52,314) $(48,743) $(3,215) $(44,026) $(47,179) $(45,190)
============== ============== ========= ========= ============== ==============
Net income (loss) per share .......... $ (4.78) $ (3.83) $ (0.54) $ (5.91) $ (4.31) $ (3.55)
============== ============== ========= ========= ============== ==============
Weighted average common
shares outstanding .................. 10,983 12,738 5,946 7,448 10,948 12,738
============== ============== ========= ========= ============== ==============
OTHER OPERATING DATA:
Broadcast Cash Flow(6) ............... $ 80,044 $ 89,962 $11,060 $ 14,377 $ 44,639 $ 49,526
EBITDA (6) ........................... 74,297 82,962 9,281 11,587 40,896 45,157
</TABLE>
B-1
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $ 96 $ 657 $ 10,287 $ 3,194 $ 11,893
Current assets ........... 3,065 4,515 31,273 28,367 32,505
Total assets ............. 37,367 36,127 152,871 145,808 187,337
Long-term debt (including
current portion) ........ 38,828 39,011 81,627 81,516 81,850
Redeemable preferred stock:
Preferred stock offering -- -- -- -- --
Series A Preferred Stock 2,839 3,892 917 -- --
Series B Preferred Stock 133 -- 2,784 2,466 1,735
Series C Preferred Stock -- -- -- -- 1,550
Series D Cumulative
Convertible Preferred
Stock .................. -- -- -- -- --
Stockholders' equity .... (6,951) (9,411) 48,598 48,856 83,061
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------------------------
PRO FORMA FOR
THE PENDING
TRANSACTIONS AS PRO FORMA FOR
OF JUNE 30, THE PENDING
1996 (OTHER TRANSACTIONS
THAN THE AS OF JUNE 30,
MERGER) (8) 1996(8)
ACTUAL (UNAUDITED) (UNAUDITED)
---------- --------------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $378,794 $ 50,189 $ 2,396
Current assets ........... 405,381 98,896 55,651
Total assets ............. 661,452 1,171,148 1,273,812
Long-term debt (including
current portion) ........ 451,170 595,101 595,101
Redeemable preferred stock:
Preferred stock offering -- 150,000 150,000
Series A Preferred Stock -- -- --
Series B Preferred Stock 1,836 1,836 1,836
Series C Preferred Stock 1,592 -- --
Series D Cumulative
Convertible Preferred
Stock .................. 149,500 149,500 149,500
Stockholders' equity .... 29,907 179,784 266,909
</TABLE>
- ------------
(1) Net revenues on a pro forma basis includes $3,584,000 and $2,770,000 of
fees from Triathlon Broadcasting Company ("Triathlon") for the year
ended December 31, 1995 and six months ended June 30, 1996,
respectively, that would have been received by SFX had the SCMC
Termination Agreement been in effect as of January 1, 1995. Future fees
may be lesser or greater based upon future acquisition and financing
activities of Triathlon.
(2) Includes $1,400,000 of duopoly integration costs during the year ended
December 31, 1995.
(3) Represents the 1993 non-cash non-recurring charge related to the
valuation of the common stock issued to SFX's founders at SFX's initial
public offering in September 1993 and certain pooling costs related to
the merger of Capstar with and into a subsidiary of SFX.
(4) Amounts for the six months ended June 30, 1996 reflect non-recurring
charges related to the Hicks Agreement, Armstrong Agreement and the
SCMC Termination Agreement.
(5) Includes dividends on preferred stock which SFX redeemed in 1993,
accretion on outstanding redeemable preferred stock and assumed
dividends on the SFX Series D Preferred Shares (as defined herein).
(6) Broadcast Cash Flow means net revenues (including, where applicable,
fees earned on a pro forma basis by SFX pursuant to the SCMC
Termination Agreement, and concert revenues less concert costs of
Delsener/ Slater) less station operating expenses. For the year ended
December 31, 1995, on a pro forma basis after giving effect to the
Recent Acquisitions and the Transaction (other than the Merger) and the
Recent Acquisitions and the Transactions, Broadcast Cash Flow included
approximately $11.4 million attributable to fees earned pursuant to the
SCMC Termination Agreement and the operations of Delsener/Slater. For
the six months ended June 30, 1996, on a pro forma basis after giving
effect to the Recent Acquisitions and the Transaction (other than the
Merger) and the Recent Acquisitions and the Transactions, Broadcast
Cash Flow included approximately $6.3 million attributable to fees
earned pursuant to the SCMC Termination Agreement and the operations of
Delsener/Slater. EBITDA means net income (loss) before (i)
extraordinary items, (ii) provisions for income taxes, (iii) interest
(income) expense, (iv) other (income) expense, (v) cumulative effects
of changes in accounting principles, (vi) depreciation, amortization,
duopoly integration costs and acquisition related costs, and (vii)
non-recurring charges. The difference between Broadcast Cash Flow and
EBITDA is that EBITDA includes corporate expenses. Although Broadcast
Cash Flow and EBITDA are not measures of performance calculated in
accordance with GAAP, SFX believes that Broadcast Cash Flow and EBITDA
are accepted by the broadcasting industry as generally recognized
measures of performance and are used by analysts who report publicly on
the performance of broadcasting companies. In addition, EBITDA is the
basis for determining compliance with several covenants in certain of
SFX's debt instruments. Nevertheless, these measures should
B-2
<PAGE>
not be considered in isolation or as a substitute for operating
income, net income, net cash provided by operating activities or any
other measure for determining SFX's operating performance or liquidity
which is calculated in accordance with GAAP.
(7) The Unaudited Pro Forma Statement of Operations Data for the six months
ended June 30, 1996 and the year ended December 31, 1995 are presented
as if SFX had completed the Recent Acquisitions and the Transactions as
of January 1, 1995. The terms "Recent Acquisitions" and "Transactions"
are defined in the Glossary attached as Annex A to the Joint Proxy
Statement/Prospectus.
(8) The Unaudited Pro Forma Balance Sheet Data at June 30, 1996 is
presented as if SFX had completed as of June 30, 1996 the Pending
Transactions As Of June 30, 1996. The term "Pending Transactions As Of
June 30, 1996" is defined in the "Unaudited Pro Forma Condensed
Combined Financial Statements of SFX" and in the Glossary attached as
Annex A to the Joint Proxy Statement/Prospectus.
B-3
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data and
combined per share data for the SFX Shares and the MMR Shares on an unaudited
pro forma basis after giving effect to the Merger as a purchase, assuming
that (i) the Exchange Ratio is 0.2842 (the ratio calculated as if the SFX
Class A Stock Price was $43.9875 per share), (ii) approximately 1,790,000 SFX
Class A Shares and SFX Class B Shares are issued in the Merger based on the
assumption that all MMR Class A Warrants are exercised prior to the Merger
and that all MMR Class B Warrants are exchanged for MMR Class A Shares prior
to the Merger and (iii) approximately 3,500,000 SFX Class A Shares are issued
in the contemplated financing of the Pending Acquisitions. The economic
rights of the different classes of the SFX Shares are identical and the
economic rights of the different classes of the MMR Shares are identical.
This data should be read in conjunction with the selected historical
financial data, the supplementary financial information regarding MMR, the
pro forma financial statements and the separate historical financial
statements of SFX and MMR and notes thereto, included elsewhere or
incorporated by reference in the Joint Proxy Statement/Prospectus. The
unaudited pro forma combined financial data are not necessarily indicative of
the operating results that would have been achieved had the transaction been
in effect as of the beginning of the periods presented and should not be
construed as representative of future operations.
<TABLE>
<CAPTION>
SFX MMR
---------------------------- --------------------------
PRO FORMA FOR
THE EQUIVALENT
HISTORICAL TRANSACTIONS HISTORICAL PRO FORMA
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss) per share outstanding
for the year ended December 31, 1995 . $(0.71) $(3.83) $(0.48) $(0.99)
Net income (loss) per share outstanding
for the six months ended
June 30, 1996 ......................... (5.91) (3.55) (1.89) (1.13)
Book value per common share
as of June 30, 1996 ................... $ 4.10 $19.51 $ 2.40 $ 3.66
</TABLE>
B-4
<PAGE>
ANNEX C
INDEX TO ADDITIONAL FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
THE SECRET STATIONS: CLEVELAND, INDIANAPOLIS, PITTSBURGH
Report of Independent Public Accountants F-2
Combined Balance Sheets as of June 30, 1996 and 1995 F-3
Combined Statements of Operations for the year ended June 30, 1996 and for the
eleven months ended June 30, 1995 F-4
Combined Statements of Cash Flows for the year ended June 30, 1996 and for the
eleven months ended June 30, 1995 F-5
Notes to Combined Financial Statements F-6
KTXQ-FM AND KRRW-FM (DIVISIONS OF CBS INC.)
Report of Independent Auditors F-11
Combined Balance Sheet as of December 31, 1995 F-12
Combined Statement of Income and Divisional Equity for the year ended
December 31, 1995 F-13
Combined Statement of Cash Flows for the year ended December 31, 1995 F-14
Notes to Combined Financial Statements F-15
Condensed Combined Balance Sheet (unaudited) --June 30, 1996 F-18
Condensed Combined Statement of Income and Divisional Equity (unaudited) --six
months ended June 30, 1996 F-19
Condensed Combined Statement of Cash Flows (unaudited) --six months ended June
30, 1996 F-20
Notes to Condensed Combined Financial Statements (unaudited) F-21
TEXAS COAST BROADCASTERS, INC.
Independent Auditors' Report F-22
Balance Sheets as of December 31, 1995 and 1994 F-23
Statements of Income and Retained Earnings for the years ended December 31, 1995
and 1994 F-24
Statements of Cash Flows for the years ended December 31, 1995 and 1994 F-25
Notes to Financial Statements F-26
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Secret Communications Limited Partnership:
We have audited the accompanying combined balance sheets of THE SECRET
STATIONS: CLEVELAND, INDIANAPOLIS, PITTSBURGH, as further described in Note
1, as of June 30, 1996, and June 30, 1995, and the related combined
statements of operations and cash flows for the year ended June 30, 1996 and
the eleven month period ended June 30, 1995. These financial statements are
the responsibility of the Station'|Als 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 accompanying combined financial statements referred to
above present fairly, in all material respects, the financial position of THE
SECRET STATIONS: CLEVELAND, INDIANAPOLIS, PITTSBURGH as of June 30, 1996, and
June 30, 1995, and the results of their operations and their cash flows for
the year ended June 30, 1996 and the eleven month period ended June 30, 1995,
in conformity with generally accepted accounting principles.
Arthur Anderson LLP
Chicago, Illinois,
October 28, 1996
F-2
<PAGE>
THE SECRET STATIONS: CLEVELAND, INDIANAPOLIS, PITTSBURGH
COMBINED BALANCE SHEETS
AS OF JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS
- -----------------------------------------------------------
1996 1995
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................. $ 390,373 $ 271,862
Accounts receivable (net of allowance for doubtful
accounts
of $274,311 and $308,083 for 1996 and 1995, respectively) 8,839,769 8,403,018
Trade receivables ......................................... 339,816 294,190
Prepaid expenses and other assets ......................... 471,175 384,590
------------- -------------
Total current assets ..................................... 10,041,133 9,353,660
------------- -------------
PROPERTY AND EQUIPMENT, net (note 3) ....................... 5,994,247 5,558,988
INTANGIBLE ASSETS, net (note 4) ............................ 57,457,846 47,124,724
OTHER ASSETS ............................................... 257,545 288,770
------------- -------------
TOTAL ASSETS ............................................... $73,750,771 $62,326,142
============= =============
LIABILITIES AND PARTNERS' CAPITAL
- -----------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses ..................... $ 2,721,888 $ 2,379,736
Trade payables ............................................ 240,135 237,796
Interest payable .......................................... 282,629 379,730
Current maturities of long-term debt ...................... 3,746,218 0
------------- -------------
Total current liabilities ................................ 6,990,870 2,997,262
------------- -------------
LONG-TERM DEBT, less current maturities (note 5) .......... 43,247,681 38,134,680
COMMITMENTS AND CONTINGENCIES (note 6) .....................
PARTNERS' CAPITAL AND STATION EQUITY:
Balance, beginning of period .............................. 21,194,200 0
Net amounts transferred to central office ................. 2,598,555 (8,828,048)
Contributed capital ....................................... (3,975,956) 27,377,402
Net income for the period ................................. 3,695,421 2,644,846
------------- -------------
Balance, end of period .................................... 23,512,220 21,194,200
------------- -------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL .................... $73,750,771 $62,326,142
============= =============
</TABLE>
The accompanying notes to combined financial statements are an integral part
of these balance sheets.
F-3
<PAGE>
THE SECRET STATIONS: CLEVELAND, INDIANAPOLIS, PITTSBURGH
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
AND FOR THE ELEVEN MONTHS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
GROSS REVENUES ..................................... $44,233,662 $38,774,517
Less: agency commissions .......................... 5,374,238 4,939,852
------------- -------------
Net revenues ..................................... 38,859,424 33,834,665
------------- -------------
OPERATING EXPENSES:
Station operating expenses excluding depreciation
and amortization ................................. 25,657,225 21,256,349
Depreciation and amortization ..................... 4,720,615 5,213,252
Central office general and administrative (note 7) 1,881,909 1,722,932
------------- -------------
Operating expenses ............................... 32,259,749 28,192,533
------------- -------------
OPERATING INCOME ................................... 6,599,675 5,642,132
NONOPERATING EXPENSE:
Interest expense (note 5) ......................... 2,858,549 2,968,509
------------- -------------
Non operating expense ............................ 2,858,549 2,968,509
------------- -------------
Income before taxes ................................ 3,741,126 2,673,623
Provision for city income taxes (note 2) .......... 45,705 28,777
------------- -------------
Net income ......................................... $ 3,695,421 $ 2,644,846
============= =============
</TABLE>
The accompanying notes to combined financial statements are an integral part
of these statements.
F-4
<PAGE>
THE SECRET STATIONS: CLEVELAND, INDIANAPOLIS, PITTSBURGH
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1996
AND FOR THE ELEVEN MONTHS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ............................................... $ 3,695,421 $ 2,644,846
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ........................... 4,720,615 5,213,252
Loss (gain) on sale of equipment ........................ 11,510 (19,464)
Changes in assets and liabilities:
(Increase) in receivables, net ......................... (482,377) (1,126,237)
(Increase) decrease in prepaid expenses and other
assets ................................................... (55,360) 47,415
Increase in payables and accrued expenses .............. 344,491 1,624,879
(Decrease) increase in interest payable ................ (97,101) 379,730
-------------- --------------
Net cash provided by operating activities ........... 8,137,199 8,764,421
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of radio stations ............................ (14,044,983) (57,430,078)
Acquisition of working capital ........................... -- (7,299,093)
Capital expenditures ..................................... (1,462,523) (538,897)
Proceeds from sale of equipment .......................... 7,000 91,475
-------------- --------------
Net cash used in investing activities ................ (15,500,506) (65,176,593)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in amounts transferred to central office ..... 2,598,555 (8,828,048)
Net (payments) borrowings of long-term debt .............. 8,859,219 38,134,680
Capital (distributions) contributions .................... (3,975,956) 27,377,402
-------------- --------------
Net cash provided by financing activities ........... 7,481,818 56,684,034
-------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ................. 118,511 271,862
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ......... 271,862 --
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................ $ 390,373 $ 271,862
============== ==============
</TABLE>
The accompanying notes to combined financial statements are an integral part
of these statements.
F-5
<PAGE>
THE SECRET STATIONS: CLEVELAND, INDIANAPOLIS, PITTSBURGH
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) BUSINESS AND BASIS OF PRESENTATION:
Secret Communications Limited Partnership ("Secret") owns, among others,
the following radio stations: WLTF-FM/WTAM-AM, licensed to Cleveland, Ohio;
WFBQ-FM/WRZX-FM/WNDE-AM licensed to Indianapolis, Indiana; and
WDVE-FM/WXDX-FM, licensed to Pittsburgh, Pennsylvania (collectively, the
"Stations"). The accompanying combined financial statements include the
accounts of the Stations after eliminating all significant intercompany
accounts and transactions.
Secret was formed in 1994 and on August 1, 1994, the general partners of
Secret contributed substantially all of the assets and debt of several radio
stations to Secret. The Stations were among those included in this initial
contribution with the exception of WXDX-FM, which was purchased by Secret in
January 1996.
As further described in Note 9, Secret has entered into an agreement to
sell substantially all of the assets of the Stations to SFX Broadcasting,
Inc. ("SFX").
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Cash Equivalents
Cash equivalents include overnight repurchase agreements backed by United
States securities.
(b) Trade Agreements
The Stations have entered into trade agreements which provide for the
exchange of advertising time for merchandise or services and are recorded at
the estimated fair market value of the goods or services to be received.
Trade receivables and trade payables represent the outstanding obligations of
the parties to the trade agreements as of the end of the year. Trade revenues
are recognized as the advertisements are broadcast. Trade expenses are
recognized as the services or merchandise is used.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated
useful lives of the assets. Repair and maintenance costs are charged to
expense when incurred.
(d) Intangible Assets
Intangible assets are recorded at their appraised values and are amortized
using the straight-line method over estimated periods of benefit up to 40
years. Should events or circumstances occur subsequent to the acquisition of
a station which bring into question the realizable value or impairment of the
related goodwill and intangibles, Secret will evaluate the remaining useful
life and balance of intangibles and make appropriate adjustments. Secret's
principal considerations in determining impairment include the strategic
benefit to Secret of the particular station and the current and expected
future operating income and cash flow levels of that particular station.
(e) Revenue Recognition
Advertising revenues are recognized as advertisements are broadcast.
(g) Income Taxes
The accompanying combined financial statements do not reflect provisions
for federal income taxes which are reported by the partners of Secret. The
income taxes reported in the accompanying statements of operations are
Cleveland city income taxes paid by Secret instead of the partners.
F-6
<PAGE>
THE SECRET STATIONS: CLEVELAND, INDIANAPOLIS, PITTSBURGH
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
(h) Statement of Cash Flows
Cash of $2,868,057 and $2,588,779 was paid for interest during the year
ended June 30, 1996, and for the eleven months ended June 30, 1995,
respectively. Cash of $22,000 and $48,500 was paid for city income taxes
during the year ended June 30, 1996, and for the eleven month period ended
June 30, 1995, respectively.
(i) Use of Estimates
The preparation of these combined financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
(3) PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at June 30, 1996, and
1995:
<TABLE>
<CAPTION>
ESTIMATED
1996 1995 USEFUL LIVES
------------- ------------- --------------
<S> <C> <C> <C>
Land ................................. $ 494,862 $ 494,743 --
Buildings and leasehold improvements 2,460,052 2,022,116 5-31.5 years
Broadcasting equipment ............... 4,349,516 3,633,636 5-15 years
Furniture and fixtures ............... 864,891 743,352 5 years
Business equipment ................... 398,513 270,150 5 years
Vehicles ............................. 300,818 227,339 5 years
------------- -------------
8,866,652 7,391,336
Less: Accumulated depreciation ...... (2,874,405) (1,832,348)
------------- -------------
$ 5,994,247 $ 5,558,988
============= =============
</TABLE>
(4) INTANGIBLE ASSETS:
Intangible assets consisted of the following at June 30, 1996, and 1995:
<TABLE>
<CAPTION>
ESTIMATED
1996 1995 USEFUL LIVES
-------------- ------------- --------------
<S> <C> <C> <C>
FCC Licenses ................... $ 54,454,944 $40,820,598 25 years
Network affiliations ........... 6,334,710 6,334,710 10-25 years
Advertiser relationships ...... 4,665,873 4,410,873 7 years
Noncompete agreement ........... 3,340,279 3,240,279 5 years
Goodwill ....................... 1,059,687 1,045,200 40 years
-------------- -------------
69,855,493 55,851,660
Less: Accumulated amortization (12,397,647) (8,726,936)
-------------- -------------
$ 57,457,846 $47,124,724
============== =============
</TABLE>
(5) LONG-TERM DEBT
Long-term debt consisted of a senior reducing revolving credit facility at
June 30, 1996, and 1995, which was used to recapitalize debt and to fund
working capital for Secret at August 1, 1994. The debt was allocated to the
Stations based on the ratio of the Station's|Al fair market value as compared
to the total
F-7
<PAGE>
THE SECRET STATIONS: CLEVELAND, INDIANAPOLIS, PITTSBURGH
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(5) LONG-TERM DEBT (Continued)
fair market value of Secret at August 1, 1994. Additional borrowings and
repayments were allocated based on the same ratio if these borrowings and
repayments were related to the general operations of all the Secret stations.
Interest expense for the year ended June 30, 1996, and the eleven month
period ended June 30, 1995, was allocated to the Stations based on the same
ratio.
Borrowings under the revolving loans bear interest, at the option of
Secret at LIBOR or prime, plus a margin. The margin over LIBOR or prime
varies from time to time depending on Secret's ratio of debt to cash flow as
defined in the agreement. The interest rate on the reducing revolver at June
30, 1996, ranged from 6.49% to 8.25%, with a weighted interest rate of 6.54%.
Amounts outstanding under the reducing revolver are payable in quarterly
installments beginning as early as June 30, 1995, and ending December 31,
2001. The amounts payable depend on the amounts then outstanding and
correspondingly reduce the amount available to be borrowed. Based on debt
outstanding during the period from August 1, 1994, through June 30, 1996,
there were no amortization payments required to be made. Amounts outstanding
under the revolving credit/term loan convert on June 30, 1997, to a term loan
payable in quarterly installments ending December 31, 2001. In addition to
scheduled amortization, Secret is required to repay revolving credit
borrowings each calendar year of up to 50% of the excess cash flow for that
calendar year as defined in the agreement, commencing with the year ending
December 31, 1995. Based on financial ratios at December 31, 1995, there is
no excess cash flow repayment due in 1996.
The senior credit facility limits indebtedness, capital expenditures, and
payment of distributions and requires certain financial ratios to be
maintained among other restrictions. At June 30, 1996, Secret was in
compliance with all provisions of its credit agreement. The senior credit
facility is secured by substantially all of the assets of Secret.
The future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 ......... $ 3,746,218
1998 ......... 7,677,861
1999 ......... 8,321,742
2000 ......... 9,683,901
2001 ......... 11,397,266
Thereafter .. 6,166,911
------------
$46,993,899
============
</TABLE>
The fair value of the debt is equal to its carrying value.
F-8
<PAGE>
THE SECRET STATIONS: CLEVELAND, INDIANAPOLIS, PITTSBURGH
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(6) COMMITMENTS AND CONTINGENCIES:
The Stations have entered into operating leases with initial or remaining
non-cancelable terms in excess of one year. The future minimum rental
payments required for all such leases as of June 30, 1996, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30,
- --------------------------------
<S> <C>
1997 ............................ $ 563,560
1998 ............................ 509,252
1999 ............................ 469,384
2000 ............................ 448,204
2001 ............................ 377,049
Future years .................... 900,144
-----------
Total minimum payments required $3,267,593
===========
</TABLE>
Rent expense was $605,266 and $500,683 for the year ended June 30, 1996,
and for the eleven month period ended June 30, 1995, respectively.
(7) RELATED PARTY TRANSACTIONS:
Central office general and administrative expenses represent an allocation
of charges incurred by Secret's headquarters for various administrative and
management services, including, but not limited to, salaries, bonuses,
management fees and service fees. The charges are allocated to the Stations
based on the total number of markets in which Secret owns stations. Amounts
charged to the Stations do not necessarily represent the amounts that would
have been incurred had the Stations operated as an unaffiliated entity.
However, management believes that these charges result in a reasonable level
of general and administrative expenses for the Stations.
Included in the central office general and administrative expenses are
fees charged to Secret by the two general partners for management and
consulting services provided to Secret. In addition, Lane Industries, Inc., a
related party to the administrative general partner of Secret, provides
certain tax, legal, financial, risk management and employee benefits services
for an annual fee. The amount allocated to the Stations for all such services
provided by the general partners amounted to $526,551 and $461,334 for the
year ended June 30, 1996, and the eleven months ended June 30, 1995,
respectively.
As described in Note 5, a portion of Secret's senior debt and interest
expense has been allocated to the Stations as of June 30, 1996, and 1995, and
for the periods then ended.
The Partners' Capital and Station Equity section of the Balance Sheet
consists of intercompany accounts, capital contributed by the partners and
retained earnings. These accounts reflect the original acquisition of the
Stations and the activity between the Stations and Secret, such as cash
transfers and expense allocations.
(8) DEFERRED SAVINGS PLAN:
Secret maintains a 401(k) savings plan in which the employees of the
Stations participate. Employees must have reached age 21 and have completed
one year of consecutive service to participate in the plan. Employees may
contribute up to 15% of their salaries in accordance with IRS limitations.
Secret matches employee contributions at a rate of 75% (up to 6%) of the
employees salary. Secret's contribution to the plan related to the Stations
was $277,570 and $284,634 for the year ended June 30, 1996, and for the
eleven month period ended June 30, 1995, respectively.
F-9
<PAGE>
THE SECRET STATIONS: CLEVELAND, INDIANAPOLIS, PITTSBURGH
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(9) SUBSEQUENT EVENT:
On October 15, 1996, Secret entered into a definitive agreement to sell
substantially all of the assets of the Stations and substantially all of the
assets of WDSY-FM/WJJJ-FM, serving Pittsburgh, Pennsylvania, to SFX. The
assets to be sold include the fixed assets and the intangible assets. In
addition, Secret will enter into a two-year noncompete agreement covering the
Stations' markets. In consideration for the assets of the Stations and
WDSY-FM/WJJJ-FM and for the noncompete agreement, SFX will pay Secret
$300,000,000 on the closing date. The sale of the Stations and
WDSY-FM/WJJJ-FM is subject to regulatory approval.
F-10
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
CBS, Inc.
We have audited the accompanying combined balance sheet of KTXQ-FM and
KRRW-FM (divisions of CBS, Inc.) (the "Stations") as of December 31, 1995,
and the related statements of income and divisional equity and cash flows for
the year then ended. These financial statements are the responsibility of the
Stations 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 KTXQ-FM and KRRW-FM
(divisions of CBS, Inc.) at December 31, 1995, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
Ernst & Young LLP
New York, New York
October 4, 1996
F-11
<PAGE>
KTXQ-FM AND KRRW-FM
(DIVISIONS OF CBS, INC.)
COMBINED BALANCE SHEET
DECEMBER 31, 1995
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Current assets:
Cash .................................................................. $ 67,000
Accounts receivable, net of allowance for doubtful accounts of $56,000 1,680,000
Prepaids and other .................................................... 95,000
-------------
Total current assets ................................................ 1,842,000
Property and equipment, net ............................................ 1,862,000
Intangible assets:
FCC licenses .......................................................... 28,300,000
Less accumulated amortization ......................................... (68,000)
-------------
Total assets ......................................................... $31,936,000
=============
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable --trade .............................................. $ 32,000
Accrued salaries and wages ............................................ 60,000
Accrued taxes ......................................................... 30,000
Other accrued expenses ................................................ 39,000
Deferred income ....................................................... 35,000
-------------
Total current liabilities ............................................ 196,000
Division equity ........................................................ 31,740,000
-------------
Total liabilities and equity ......................................... $31,936,000
=============
</TABLE>
See accompanying notes.
F-12
<PAGE>
KTXQ-FM AND KRRW-FM
(DIVISIONS OF CBS, INC.)
COMBINED STATEMENT OF INCOME AND DIVISIONAL EQUITY
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Net revenues ......................... $ 8,534,000
Operating expenses:
Station operating expenses .......... 7,254,000
Corporate expenses .................. 214,000
Depreciation and amortization ...... 1,129,000
-------------
Total operating expenses ........... 8,597,000
-------------
Loss from operations ................. (63,000)
Other (income) ....................... (152,000)
Income before taxes .................. 89,000
Federal income taxes ................. (31,000)
-------------
Net income ........................... 58,000
Division equity, beginning of period 32,813,000
Net transfers to parent .............. (1,131,000)
-------------
Division equity, end of period ...... $31,740,000
=============
</TABLE>
See accompanying notes.
F-13
<PAGE>
KTXQ-FM AND KRRW-FM
(DIVISIONS OF CBS, INC.)
COMBINED STATEMENT OF CASH FLOWS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
OPERATING ACTIVITIES
Net income ....................................................................... $ 58,000
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization .................................................. 1,129,000
Loss on sale of property and equipment ......................................... 22,000
Changes in assets and liabilities:
Decrease in accounts receivable ............................................... 126,000
Decrease in prepaid expenses and other assets ................................. 35,000
Decrease in accounts payable and accrued expenses ............................. (91,000)
-------------
Net cash provided by operating activities ........................................ 1,279,000
INVESTING ACTIVITIES
Purchases of property and equipment .............................................. (105,000)
Net cash used in investing activities ............................................ (105,000)
FINANCING ACTIVITIES
Net transfers from (to) parent ................................................... (1,131,000)
-------------
Net cash used in financing activities ............................................ (1,131,000)
Net increase in cash ............................................................. 43,000
Cash at beginning of period ...................................................... 24,000
-------------
Cash at end of period ............................................................ $ 67,000
=============
</TABLE>
See accompanying notes.
F-14
<PAGE>
KTXQ-FM AND KRRW-FM
(DIVISIONS OF CBS, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION AND BASIS OF PRESENTATION
KTXQ and KRRW (the "Stations") are radio stations located in Dallas,
Texas, owned and operated by CBS Radio Station Group, a division of CBS, Inc.
In November 1995, CBS, Inc. was acquired by Westinghouse Electric
Corporation (Westinghouse). For financial statement purposes, the acquisition
was accounted for using the purchase method, with the aggregate purchase
price allocated to the tangible and identifiable intangible assets based upon
current estimated fair market values. The preliminary allocation resulted in
a new basis of accounting for the Stations, including an decrease in the
carrying amount of broadcast license of approximately $592,000, and an
increase in the carrying amount of property and equipment of approximately
$896,000. There were no other adjustments made to the carrying amount of
assets or liabilities as a result of the acquisition. The results of
operations of the Stations from the date of acquisition through December 31,
1995 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Net revenues ................... $ 547,000
Operating expenses:
Station operating expenses ... 532,000
Corporate expenses ............ 18,000
Depreciation and amortization 102,000
-----------
Total operating expenses .... 652,000
-----------
Operating loss ................. $(105,000)
===========
</TABLE>
The purchase price allocation is preliminary and is subject to change.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONCENTRATION OF CREDIT RISK
The Stations revenue and accounts receivable primarily relate to
advertising of products and services within the radio station's broadcast
area in Dallas, Texas. Credit is extended based on an evaluation of the
customers financial condition, and generally, collateral is not required.
Credit losses are provided for in the financial statements and consistently
have been within managements expectations.
PROPERTY AND EQUIPMENT AND BROADCAST LICENSE AND GOODWILL
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the shorter of the lease term or
estimated useful lives of the assets. Broadcast license and goodwill are
amortized using the straight-line method over 40 years.
In 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," which
requires impairment losses to be recognized for long-lived assets used in
operations when indicators of impairment are present and the undiscounted
cash flows are not sufficient to recover the assets carrying amount. The
adoption of Statement 121 in 1996 is not expected to have a material effect
on the financial statements.
FEDERAL INCOME TAXES
The Stations are included in the consolidated federal income tax return of
CBS, Inc. or Westinghouse. For purposes of the accompanying financial
statements, income taxes have been calculated on a
F-15
<PAGE>
KTXQ-FM AND KRRW-FM
(DIVISIONS OF CBS, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
separate company basis. The difference between income taxes computed on
income before taxes at the statutory federal rate and the provision for
income taxes for 1995 relates primarily to nondeductible amortization for
federal income tax purposes. Deferred taxes are included in the division
equity account.
BARTER TRANSACTIONS
The Stations barter unsold advertising time for products and services.
Such transactions are recorded in the financial statements at the estimated
fair value of the products or services received. Barter revenue is recorded
when commercials are broadcast and related expenses are recorded when the
bartered product or service is used. For the year ended December 31, 1995,
the Stations recorded barter revenue of approximately $251,000 and barter
expense of approximately $233,000.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. COMMITMENTS
The Stations lease office space and various equipment under operating
leases. Total rent expense was $311,000 for the year ended December 31, 1995.
Future minimum payments in the aggregate for all noncancelable operating
leases with initial terms of one year or more consist of the following at
December 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
1996 ........................... $ 266,000
1997 ........................... 329,000
1998 ........................... 312,000
1999 ........................... 307,000
2000 ........................... 308,000
-----------
Total minimum lease payments $1,522,000
===========
</TABLE>
4. EMPLOYEE BENEFIT PLANS
Employees of the Stations who elect to participate and who have met
certain eligibility requirements are covered by the employee benefit plans
offered by CBS, Inc., including medical, disability and dental insurance, a
defined contribution plan (i.e., an employee savings plan), and a defined
pension plan. Under the defined contribution plan, employees may contribute
up to 12.5% of their annual compensation subject to Internal Revenue Code
limitations. The stations recorded expenses of $516,000 in 1995 related to
benefits provided to employees under the benefit plans. In addition, the
Stations paid approximately $12,000 in 1995 for plan administration costs.
F-16
<PAGE>
KTXQ-FM AND KRRW-FM
(DIVISIONS OF CBS, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
5. RELATED PARTY TRANSACTIONS
CBS, Inc. provides certain services and pays certain costs related to the
operations of the Stations, including but not limited to, benefits
administration, payroll services, legal services and data processing charges.
Corporate expenses charged to the Stations for the year ended December 31,
1995 (excluding the benefit expenses in Note 4) were $214,000.
6. SUBSEQUENT EVENT
In May 1996, CBS, Inc. entered into an agreement to exchange certain
assets of the Stations for certain assets of radio station WHFS, Washington,
D.C., owned by SFX Broadcasting, Inc. The transaction is expected to be
accounted for as a like-kind exchange of assets under the provisions of the
Internal Revenue Code and be substantially tax free and accounted for as a
non-monetary transaction for financial statement purposes.
F-17
<PAGE>
KTXQ-FM AND KRRW-FM
(DIVISIONS OF CBS, INC.)
CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
JUNE 30, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Accounts receivable, net of allowance for doubtful accounts of
$47,000 .............................................................. $ 2,458,000
Prepaids and other ................................................... 253,000
-------------
Total current assets ................................................ 2,711,000
Property and equipment, net ........................................... 1,703,000
Intangible assets:
FCC licenses ......................................................... 28,300,000
Less accumulated amortization ........................................ (422,000)
-------------
Total assets ........................................................ $32,292,000
=============
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable --trade ............................................. $ 28,000
Accrued salaries and wages ........................................... 90,000
Accrued taxes ........................................................ 423,000
Other accrued expenses ............................................... 134,000
-------------
Total current liabilities ........................................... 675,000
Division equity ....................................................... 31,617,000
-------------
Total liabilities and equity ........................................ $32,292,000
=============
</TABLE>
See accompanying notes.
F-18
<PAGE>
KTXQ-FM AND KRRW-FM
(DIVISIONS OF CBS, INC.)
CONDENSED COMBINED STATEMENT OF INCOME AND DIVISIONAL EQUITY (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
<S> <C>
Net revenues ........................ $ 4,568,000
Operating expenses:
Station operating expenses ......... 3,318,000
Depreciation and amortization ..... 531,000
------------
Total operating expenses .......... 3,721,000
------------
Income from operations .............. 719,000
Other (income) ...................... (74,000)
Income before taxes ................. 793,000
Federal income taxes ................ (423,000)
------------
Net income .......................... 370,000
Division equity, beginning of period 31,740,000
Net transfers to parent ............. (493,000)
------------
Division equity, end of period ..... $31,617,000
============
</TABLE>
See accompanying notes.
F-19
<PAGE>
KTXQ-FM AND KRRW-FM
(DIVISIONS OF CBS, INC.)
CONDENSED COMBINED STATEMENT OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
<S> <C>
Net cash provided by operating activities $ 444,000
INVESTING ACTIVITIES
Purchase of property and equipment ....... (18,000)
-----------
Net cash provided by investing activities (18,000)
FINANCING ACTIVITIES
Net transfers from (to) parent ............ (493,000)
-----------
Net cash used in financing activities .... (493,000)
Net decrease in cash ...................... (67,000)
Cash at beginning of period ............... 67,000
-----------
Cash at end of period ..................... $ --
===========
</TABLE>
See accompanying notes.
F-20
<PAGE>
KTXQ-FM AND KRRW-FM
(DIVISIONS OF CBS, INC.)
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1996
1. BASIS OF PRESENTATION
The condensed combined unaudited financial statements included herein have
been prepared by KTXQ and KRRW (the "Stations") pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. These condensed
combined financial statements should be read in conjunction with the audited
financial statements and notes thereto of the Stations for the year ended
December 31, 1995.
The financial information included herein reflects all adjustments
(consisting of normal recurring adjustments) except for the allocation of
corporate expenses which are provided by Westinghouse Electric Corporation
only on an annual basis. The adjustments are, in the opinion of management,
necessary to a fair presentation of the results for interim periods. The
results of operations for the six month period ended June 30, 1996 are not
necessarily indicative of the results to be expected for the full year.
2. PENDING TRANSACTION
In May 1996, CBS, Inc. entered into an agreement to exchange certain
assets of the Stations for certain assets of radio station WHFS, Washington,
D.C., owned by SFX Broadcasting, Inc. The transaction is expected to be
accounted for as a like-kind exchange of assets under the provisions of the
Internal Revenue Code and be substantially tax free and accounted for as a
non-monetary transaction for financial statement purposes.
F-21
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Texas Coast Broadcasters, Inc.:
We have audited the accompanying balance sheets of Texas Coast Broadcasters,
Inc. as of December 31, 1995 and 1994, and the related statements of income
and retained earnings, and cash flows for the 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 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 Texas Coast Broadcasters,
Inc. as of December 31, 1995 and 1994, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Mohle, Adams, Till, Guidry & Wallace LLP
Certified Public Accountants
March 6, 1996
F-22
<PAGE>
TEXAS COAST BROADCASTERS, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ....................................... $ 867,722 $1,511,912
Accounts receivable --trade (less allowance for doubtful
accounts of $38,100 and $40,000) ............................... 810,778 732,500
Other current assets ............................................ 42,781 31,790
Short-term investments (Note 2) ................................. -- 50,207
Environmental escrow account (Note 5) ........................... 500,000 --
------------ ------------
Total current assets .......................................... 2,221,281 2,326,409
Investments (Note 2) ............................................ 472,646 116,318
Property and equipment (Note 3) ................................. 192,924 240,250
------------ ------------
Total assets .................................................. $2,886,851 $2,682,977
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ........................... $ 244,361 $ 209,540
Deferred income taxes (Note 4) .................................. 27,059 24,640
------------ ------------
Total current liabilities ..................................... 271,420 234,180
------------ ------------
Shareholders' equity:
Common stock--par $10, 100,000 shares authorized, ...............
10,000 shares issued and outstanding ............................ $ 100,000 $ 100,000
Additional paid in capital ...................................... 111,153 111,153
Retained earnings ............................................... 2,404,278 2,237,644
------------ ------------
Total shareholders' equity .................................... 2,615,431 2,448,797
------------ ------------
Total liabilities and shareholders' equity .................... $2,886,851 $2,682,977
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-23
<PAGE>
TEXAS COAST BROADCASTERS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Revenues ................................ $4,538,630 $4,871,684
Less agency commissions ................. 458,072 563,482
------------ ------------
Net revenues .......................... 4,080,558 4,308,202
Station operating expenses .............. 2,981,120 2,853,213
Depreciation ............................ 52,618 78,190
------------ ------------
Total operating expenses .............. 3,033,738 2,931,403
------------ ------------
Operating income ........................ 1,046,820 1,376,799
Other Income ............................ 58,137 38,652
------------ ------------
Income before income taxes ............ 1,104,957 1,415,451
Income taxes (Note 4) ................... 48,323 62,611
------------ ------------
Net income ............................ $1,056,634 $1,352,840
============ ============
Retained earnings at beginning of period $2,237,644 $1,814,804
Net income .............................. 1,056,634 1,352,840
Dividends paid .......................... (890,000) (930,000)
------------ ------------
Retained earnings at end of period ..... $2,404,278 $2,237,644
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-24
<PAGE>
TEXAS COAST BROADCASTERS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Operating Activities:
Net income ................................................ $1,056,634 $1,352,840
Adjustments to reconcile net income to net cash provided
by operating activities ..................................
Amortization of zero coupon bond interest ............... (3,608) (3,765)
Depreciation ............................................ 52,618 78,190
Gain on sale of investments ............................. (3,929) --
Changes in assets and liabilities:
Increase in receivables ................................ (78,278) 33,925
Increase in other current assets ....................... (12,543) (1,768)
Increase in accounts payable and accrued expenses ..... 34,821 (13,755)
Increase in deferred income taxes ...................... 2,419 (26)
------------ ------------
Net cash provided by operating activities ............. 1,048,134 1,445,641
------------ ------------
Investing Activities:
Purchases of equipment .................................... (5,292) (15,358)
Collections of other current assets ....................... 1,552 11,033
Transfer of funds to environmental escrow account ........ (500,000) --
Purchases of investments .................................. (453,856) --
Proceeds from sale of investments ......................... 155,272 --
------------ ------------
Net cash (used) by investing activities ............... (802,324) (4,325)
------------ ------------
Financing Activities:
Dividends paid ............................................ (890,000) (930,000)
------------ ------------
Net cash (used) by financing activities ............... (890,000) (930,000)
------------ ------------
Net (decrease) in cash .................................... (644,190) 511,316
Cash and cash equivalents at beginning of year ........... 1,511,912 1,000,596
------------ ------------
Cash and cash equivalents at end of year .................. $ 867,722 $1,511,912
============ ============
Supplemental disclosures:
Amounts paid for franchise taxes .......................... $ 62,637 $ 36,545
Amounts paid for interest ................................. -- --
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-25
<PAGE>
TEXAS COAST BROADCASTERS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Texas Coast Broadcasters, Inc. (the "Company") operates two radio stations
(KQUE and KNUZ)in the Houston, Texas market.
Cash and Cash Equivalents
All highly liquid investments with original maturity of less than three
months are classified as cash equivalents.
Investments
Investments consist of debt securities carried at cost net of amortized
premium or discount. Interest income is reflected in the Statement of Income
and Retained Earnings as other income. Realized gain or loss is calculated
using historical cost determined under specific identification. Unrealized
gain or loss as well as the change in unrealized gain or loss is not included
in these financial statements other than as a disclosure item.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided
primarily on accelerated methods over the estimated useful lives of the
assets as follows:
<TABLE>
<CAPTION>
<S> <C>
Buildings and improvements ... 10 -25 years
Equipment and furniture ...... 5 -7 years
</TABLE>
Barter Transactions
The Company barters advertising time for products and services. Such
transactions are recorded in the financial statements at the estimated fair
value of the products or services received.
Income Taxes
The Company, with the consent of its shareholders, has elected to be an S
Corporation under the Internal Revenue Code. Under those provisions, the
Company does not incur federal corporate income taxes on its taxable income.
Instead, the shareholders are liable for individual federal income taxes on
their proportionate shares of the Company's taxable income.
The Company has adopted FAS No. 109, "Accounting for Income Taxes." FAS
109 requires the use of the liability method of computing deferred income
taxes.
The provision for income taxes consists primarily of the current and
deferred portions of state franchise taxes imposed by the State of Texas
which are calculated on income.
Accounting Changes
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." The Company adopted the provisions of the new
standard for investments held as of or acquired after January 1, 1994. No
cumulative effect adjustment was recorded at adoption.
F-26
<PAGE>
TEXAS COAST BROADCASTERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Estimates
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
The most significant estimates or assumptions contained in these financial
statements are the following:
1. Management's estimate of the allowance for bad debts.
2. The estimated useful lives of property and equipment.
3. Estimates concerning loss contingencies including the environmental
clean up matter.
(2) INVESTMENTS
Investments at December 31, 1995 and 1994, are classified as held to
maturity consistent with the Company's ability and intent to hold the
securities until maturity and are presented as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Debt securities ..........
Cost .................... $472,646 $166,525
Estimated market value . 478,816 163,368
Unrealized gains
(losses) ............... 6,170 (3,157)
Change in unrealized
gain ................... 9,327 N/A
</TABLE>
The securities are composed primarily of municipal bonds and municipal
bond investment trusts with estimated market values determined from broker
statements. One of the bonds with a face value of $45,000 matures in 1997.
The balance of the cost of securities will mature in stages over the next
5-10 years.
(3) PROPERTY AND EQUIPMENT
Property and Equipment at December 31, 1995 and 1994, consist of the
following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Land ...................... $ 95,590 $ 95,590
Buildings and improvements 158,392 158,392
Equipment and furnishings 1,360,487 1,355,195
----------- -----------
1,614,469 1,609,177
Accumulated depreciation . 1,421,545 1,368,927
----------- -----------
$ 192,924 $ 240,250
=========== ===========
</TABLE>
F-27
<PAGE>
TEXAS COAST BROADCASTERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
(4) INCOME TAXES
The income tax provision consists of the following:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
State current $45,904 $62,637
State deferred 2,419 (26)
--------- ---------
$48,323 $62,611
========= =========
</TABLE>
The net deferred tax liability at December 31, 1995 and 1994, results from
the Company utilizing the cash basis of accounting for income tax purposes
versus the accrual basis for financial statement purposes and is reflected in
detail as follows:
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Deferred Tax Assets ..................
Accounts payable and accrued
expenses ........................... $ 10,192 $ 9,429
Valuation allowance ................. -- --
----------- ----------
Total deferred tax assets .......... 10,192 9,429
----------- ----------
Deferred Tax Liabilities .............
Accounts receivable ................. (36,485) (32,962)
Other current assets ................ (766) (1,107)
----------- ----------
Total deferred tax liabilities .... (37,251) (34,069)
----------- ----------
Net deferred tax liabilities ...... $(27,059) $(24,640)
=========== ==========
</TABLE>
A reconciliation between the effective tax rate versus the statutory state
rate of 4.5% is as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Income taxes at statutory rate $49,723 $63,695
Non-taxable municipal interest (302) (383)
Other ......................... (1,098) (701)
--------- ---------
$48,323 $62,611
========= =========
</TABLE>
(5) COMMITMENTS AND CONTINGENCIES
The Company has entered into various broadcast rights agreements as well
as service contracts and employment contracts. Future minimum payments in the
aggregate for all employment agreements and service contracts consist of the
following at December 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
1996 ..................... $273,301
1997 ..................... 231,632
1998 ..................... 173,301
1999 ..................... 43,325
2000 ..................... --
----------
$721,559
==========
</TABLE>
F-28
<PAGE>
TEXAS COAST BROADCASTERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
(5) COMMITMENTS AND CONTINGENCIES (Continued)
The Company has discovered some possibility of environmental
contamination on one of its tower sites. An investigation and site study is
in the initial stages. Presently management's intention is to attempt to
remediate the site, if any contamination is discovered in the site study. An
escrow fund has been established with $1,000,000 in 1995 for possible clean
up costs. Texas Coast Broadcasters, Inc. has deposited $500,000 into the
escrow fund and SFX Broadcasting Inc. has also deposited $500,000. A reliable
estimate of the total clean up costs, if any, can not be made at this time
but managements believes the $1,000,000 escrow fund should be more than
sufficient to cover the costs.
(6) PENDING SALE
In late 1995, the Company entered into an agreement with SFX Broadcasting,
Inc. whereby SFX will purchase the license, property and equipment of both
radio stations KQUE and KNUZ for $38,000,000 pending regulatory approval. The
sale is expected to be consummated in the spring of 1996.
(7) CONCENTRATION OF CREDIT RISK
The Company's revenue and accounts receivable primarily relate to
advertising of products and services within the radio stations' broadcast
areas in Houston, Texas. Credit is extended based on an evaluation of the
customer's financial condition, and collateral is not generally required. The
Company also maintains cash in deposit accounts with financial institutions
in excess of the insured amounts.
F-29
