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FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended June 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________to _____________________
Commission file number: 0-22486
SFX BROADCASTING, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3649750
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 East 58th Street, 19th Floor
New York, New York 10155
(Address of principal executive offices)
(212)-407-9191
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of August 4, 1997, the
number of shares outstanding of the Registrant's Class A Common Stock, $.01
par value, and Class B Common Stock, $.01 par value, was 8,394,887 and
1,047,037, respectively.
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SFX BROADCASTING, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 1997
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page
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<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1997 (unaudited) and December 31, 1996......................3
Consolidated Statements of Operations for Three Months Ended
June 30, 1997 and 1996 (unaudited)..................................................................5
Consolidated Statements of Operations for Six Months Ended
June 30, 1997 and 1996 (unaudited)..................................................................6
Consolidated Statements of Cash Flows for Six Months Ended
June 30, 1997 and 1996 (unaudited)..................................................................7
Notes to Consolidated Financial Statements (unaudited)..............................................8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..............10
PART II OTHER INFORMATION
Item 1. Legal Proceedings..................................................................................19
Item 2. Changes in Securities..............................................................................19
Item 4. Submission of Matters to a Vote of Security Holders...............................................19
Item 5. Other Information..................................................................................21
Item 6. Exhibits and Reports on Form 8-K...................................................................21
SIGNATURES.......................................................................................................22
</TABLE>
2
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SFX BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ............................................ $ 51,932 $ 10,601
Cash pledged for letters of credit and restricted cash ............... 1,697 20,000
Accounts receivable less allowance for doubtful accounts of $2,137 in
1997 and $1,620 in 1996 .......................................... 61,661 47,275
Assets under contract for sale ....................................... -- 8,352
Other current assets ................................................. 8,069 2,461
----------- -----------
Total current assets .......................................... 123,359 88,689
----------- -----------
Property and Equipment:
Land ................................................................. 15,532 6,791
Buildings and improvements ........................................... 55,901 11,485
Equipment and furniture .............................................. 70,116 54,736
----------- -----------
141,549 73,012
Less accumulated depreciation and amortization ....................... (14,827) (10,192)
----------- -----------
Net property and equipment .................................... 126,722 62,820
Intangible Assets:
Broadcast licenses ................................................... 894,787 558,640
Goodwill ............................................................. 145,176 98,165
Deferred financing costs ............................................. 21,693 19,504
Other ................................................................ 11,371 4,727
----------- -----------
1,073,027 681,036
Less accumulated amortization ........................................ (28,254) (16,933)
----------- -----------
Net intangible assets ......................................... 1,044,773 664,103
Deposits and other payments for pending acquisitions ................. 31,210 31,692
Notes receivable from officers ....................................... 2,880 --
Other assets ......................................................... 15,139 12,023
----------- -----------
TOTAL ASSETS ......................................................... $ 1,344,083 $ 859,327
=========== ===========
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See accompanying notes to consolidated financial statements
3
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SFX BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
(Unaudited) (Note)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................................................... $ 11,423 $ 10,921
Accrued expenses .............................................................. 20,679 21,913
Deferred concert revenue ...................................................... 20,011 --
Accrued interest and dividends ................................................ 19,484 7,111
Current portion of long-term debt and capital lease obligations ............... 1,173 381
----------- -----------
Total current liabilities .............................................. 72,760 40,326
Other liabilities ............................................................. 4,673 --
Deferred income taxes ......................................................... 102,254 91,352
Long-term debt and capital lease obligations, less current portion ............ 713,869 481,079
----------- -----------
Total liabilities ...................................................... 893,566 612,757
Redeemable preferred stock .................................................... 367,641 152,053
Commitments and contingencies
Shareholders' Equity :
Class A voting common stock, $.01 par value; 100,000,000 shares authorized;
8,421,205 issued and 8,394,887 outstanding at June 30, 1997
and 8,089,658 issued and 8,063,340 outstanding at December 31, 1996 ........ 84 81
Class B voting convertible common stock, $.01 par value; 10,000,000
shares authorized; 1,190,911 issued and 1,047,037 outstanding at June 30,
1997 and 1,208,810 issued and 1,064,936 outstanding at December
31, 1996 ................................................................... 12 12
Additional paid-in capital .................................................... 175,637 183,866
Treasury Stock; 170,192 shares ................................................ (6,393) (6,393)
Accumulated deficit ........................................................... (86,464) (83,049)
----------- -----------
Total shareholders' equity ............................................. 82,876 94,517
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..................................... $ 1,344,083 $ 859,327
=========== ===========
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes to consolidated financial statements
4
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SFX BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30,
----------------------------
1997 1996
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Radio broadcasting revenue ............................................... $ 74,983 $ 31,573
Less: agency commissions ................................................. 9,105 3,819
----------- -----------
Net radio broadcasting revenue .................................... 65,878 27,754
Concert promotion revenue ................................................ 23,182 --
----------- -----------
Total net revenue ................................................. 89,060 27,754
Radio station operating expenses ......................................... 39,237 19,121
Concert promotion operating expenses ..................................... 20,088 --
Depreciation, amortization, duopoly integration costs and acquisition
related costs ......................................................... 9,934 2,349
Corporate expenses ....................................................... 1,983 1,580
Corporate expenses: non-cash stock compensation .......................... 156 --
Non-recurring charges, including adjustments to broadcast rights agreement -- 27,489
----------- -----------
Operating income (loss) ........................................... 17,662 (22,785)
Investment income ........................................................ (341) (2,134)
Interest expense ......................................................... 14,608 6,204
----------- -----------
Income (loss) before income taxes and extraordinary item .......... 3,395 (26,855)
Income tax expense ....................................................... 320 --
----------- -----------
Net income (loss) before extraordinary item ....................... 3,075 (26,855)
Extraordinary loss on debt retirement .................................... -- 15,219
----------- -----------
Net income (loss) ................................................... 3,075 (42,074)
Redeemable preferred stock dividends and accretion ....................... 9,844 831
----------- -----------
Net loss applicable to common stock ................................. $ (6,769) $ (42,905)
=========== ===========
Net loss per common share before extraordinary item ................. $ (0.72) $ (3.72)
Extraordinary loss on debt retirement per common share .............. -- (2.05)
----------- -----------
Net loss per common share ........................................... $ (0.72) $ (5.77)
=========== ===========
Weighted average common shares outstanding ............................... 9,399,833 7,437,642
</TABLE>
See accompanying notes to consolidated financial statements
5
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SFX BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------
1997 1996
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<S> <C> <C>
Radio broadcasting revenue ................................................ $ 125,978 $ 53,978
Less: agency commissions .................................................. 15,110 6,424
----------- -----------
Net radio broadcasting revenue ..................................... 110,868 47,554
Concert promotion revenue ................................................. 30,971 --
----------- -----------
Total net revenue .................................................. 141,839 47,554
Radio station operating expenses .......................................... 69,152 33,177
Concert promotion operating expenses ...................................... 27,825 --
Depreciation, amortization, duopoly integration costs and acquisition
related costs .......................................................... 18,079 4,648
Corporate expenses ........................................................ 3,876 2,790
Corporate expenses: non-cash stock compensation ........................... 312 --
Non-recurring charges, including adjustments to broadcast rights agreements -- 27,489
----------- -----------
Operating income (loss) ............................................ 22,595 (20,550)
Investment income ......................................................... (2,022) (2,298)
Interest expense .......................................................... 27,423 9,588
----------- -----------
Loss before income taxes and extraordinary item .................... (2,806) (27,840)
Income tax expense ........................................................ 605 --
----------- -----------
Net loss before extraordinary item ................................. (3,411) (27,840)
Extraordinary loss on debt retirement ..................................... -- 15,219
----------- -----------
Net loss ............................................................. (3,411) (43,059)
Redeemable preferred stock dividends and accretion ........................ 17,797 967
----------- -----------
Net loss applicable to common stock .................................. $ (21,208) $ (44,026)
=========== ===========
Net loss per common share before extraordinary item .................. $ (2.29) $ (3.87)
Extraordinary loss on debt retirement per common share ............... -- (2.04)
----------- -----------
Net loss per common share ............................................ $ (2.29) $ (5.91)
=========== ===========
Weighted average common shares outstanding ................................ 9,281,439 7,447,929
</TABLE>
See accompanying notes to consolidated financial statements
6
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SFX BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1997 1996
--------- ---------
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OPERATING ACTIVITIES:
Net loss .......................................................................... $ (3,411) $ (43,059)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization .................................................. 17,574 4,371
Interest on receivables from related parties and officers ...................... (80) (158)
Non-cash potion of nonrecurring charge ......................................... -- 8,578
Write off of debt costs ........................................................ -- 5,593
Changes in assets and liabilities, net of amounts acquired:
Increase in accounts receivable ................................................ (10,499) (5,601)
Increase in other assets ....................................................... (2,611) (9,372)
(Decrease) increase in accounts payable, accrued expenses and other liabilities (6,012) 3,238
(Decrease) increase in accrued interest ........................................ (499) 1,802
Increase in deferred concert revenue ........................................... 9,626 --
--------- ---------
Net cash provided by (used in) operating activities .......................... 4,088 (34,608)
INVESTING ACTIVITIES:
Deposits and other payments for pending acquisitions ........................... (9,915) (12,313)
Purchases of radio stations and concert promotion businesses, net of cash
acquired .................................................................... (388,493) (73,404)
Proceeds from sales of radio stations .......................................... 950 --
Purchases of property and equipment ............................................ (6,951) (639)
Proceeds from sales of property and equipment .................................. 367 --
Loans to officers .............................................................. (2,800) (2,420)
Increase in other intangibles .................................................. -- (2,055)
--------- ---------
Net cash used in investing activities ........................................ (406,842) (90,831)
FINANCING ACTIVITIES:
Additions to debt issuance costs ............................................... (1,186) (14,910)
Proceeds from senior and subordinated debt ..................................... 267,000 471,500
Payments on senior loans, capital lease obligations and subordinated debt ...... (50,418) (101,207)
Net proceeds from sale of preferred stock and exercise of warrants ............. 215,304 143,445
Purchase of treasury stock ..................................................... -- (6,393)
Dividends paid on preferred stock .............................................. (4,918) (95)
--------- ---------
Net cash provided by financing activities .................................... 425,782 492,340
Net increase in cash and cash equivalents ......................................... 23,028 366,901
Cash and cash equivalents at beginning of period .................................. 30,601 11,893
--------- ---------
Cash and cash equivalents at end of period ........................................ $ 53,629 $ 378,794
========= =========
Supplemental disclosure of cash flow information Cash paid during the period
for:
Interest ....................................................................... $ 26,050 $ 7,058
Income taxes ................................................................... $ 1,469 $ 111
</TABLE>
Supplemental disclosure of noncash financing activities:
Issuance of 250,838 shares of Class A Common Stock and assumption of $15.4
million of debt in connection with the Meadows Acquisition and issuance of
62,792 shares of Class A Common Stock in connection with the Sunshine
Promotions Acquisition.
See accompanying notes to consolidated financial statements
7
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SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
Information with respect to the three and six months ended June 30,
1997 and 1996 is unaudited. The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with Rule 10-01 of Regulation
S-X. Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, the unaudited interim financial
statements contain all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the financial position, results of
operations and cash flows of SFX Broadcasting, Inc. (the "Company" or "SFX"),
for the periods presented.
The results of operations for the three and six month periods are not
necessarily indicative of the results of operations for the full year. For
further information refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1996.
In February 1997, the FASB issued Statement No. 128 (SFAS 128),
"Earnings Per Share," which establishes new standards for computing and
presenting earnings per share. SFAS 128 is effective for financial statements
issued for periods ending after December 15, 1997, including interim periods.
Management does not anticipate that the effect of adopting this new standard
will have a material impact on the calculation of the Company's net earnings
or loss per share.
NOTE 2 - RECENTLY COMPLETED ACQUISITIONS AND DISPOSITIONS
Radio Broadcasting. In January 1997, the Company purchased one radio
station operating in Albany, New York, (the "Albany Acquisition") for a
purchase price of $1.0 million.
In February 1997, the Company also acquired radio stations KQUE-FM
and KNUZ-AM in Houston, Texas (the "Houston Acquisition"), for a purchase
price of $42.9 million, including fees and expenses plus certain contingent
payments of up to $750,000.
Also, in February 1997, the Company consummated the acquisition of
radio station WWYZ-FM in Hartford, Connecticut (the "Hartford Acquisition"),
for a purchase price of $25.9 million, including fees and expenses.
In March 1997, the Company exchanged one radio station operating in
Washington, D.C./Baltimore, Maryland, (the "Washington Station") for two radio
stations operating in Dallas, Texas (the "CBS Exchange") and completed the
sale of two radio stations operating in the Myrtle Beach, South Carolina
market for $5.1 million payable in installments over a five year period
(present value approximately $4.3 million). The CBS Exchange was structured as
a substantially tax free exchange of like-kind assets. The contract for sale
of the Myrtle Beach stations was in place prior to the merger with
Multi-Market Radio, Inc. ("MMR"). No gain or loss was recognized on these
transactions.
In April 1997, the Company acquired substantially all of the assets
of three radio stations in Indianapolis, Indiana and in June 1997 the Company
acquired substantially all of the assets of four stations in Pittsburgh,
Pennsylvania from Secret Communications Limited Partnership ("Secret
Communications") (the "Secret Communications Acquisition") for a total
purchase price of $255.0 million.
Also, in April 1997, the Company sold one radio station operating in
Little Rock, Arkansas (the "Little Rock Disposition") to Triathlon
Broadcasting Company, a related party. The station was sold for $4.1 million,
of which $3.5 million had been held as a deposit by the Company since 1996. No
gain or loss was recorded on the transaction.
Concert Promotion. In January 1997, the Company purchased
Delsener/Slater Enterprises, Ltd ( "Delsener/Slater"), a concert promotion
company based in New York City, for an aggregate consideration of
approximately $26.6 million, including $2.9 million for working capital and
the present value of deferred payments of $3.0 million to be paid, without
interest, over five years, and $1.0 million to be paid, without interest, over
ten years (the "Delsener/Slater Acquisition"). The deferred payments are
subject to acceleration in certain circumstances.
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In March 1997, Delsener/Slater consummated the acquisition of certain
companies which collectively own and operate the Meadows Music Theater in
Hartford, Connecticut (the "Meadows Acquisition") for $0.9 million in cash,
shares of SFX Class A Common Stock with a value of approximately $7.5 million
and the assumption of approximately $15.4 million of debt.
In June 1997, the Company acquired Sunshine Promotions, Inc., a
concert promotion company based in Indianapolis, Indiana, and certain related
companies (the "Sunshine Promotions Acquisition"), for $53.9 million in cash
at closing, $2.0 million in cash payable over 5 years, shares of Class A
Common Stock issued and issuable over a two year period with a value of
approximately $4.0 million and the assumption of approximately $1.6 million of
debt.
For financial statement purposes, all of the acquisitions described
above were 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. Certain of the recent transactions are
based on preliminary estimates of the fair value of the net assets
acquired and subject to final adjustment. The allocation resulted in an
excess of costs over estimated fair value of identifiable net assets acquired
of approximately $248,275,000, $42,679,000, $36,415,000, $29,934,600,
$21,580,000 and $932,000 for the Secret Communications Acquisition, the
Houston Acquisition, the Hartford Acquisition, the Sunshine Promotions
Acquisition, the Delsener/Slater Acquisition and the Albany Acquisition,
respectively, in 1997. The assets and liabilities of these acquisitions and
the results of their operations for the period from the date of acquisition
have been included in the accompanying consolidated financial statements.
NOTE 3 - OTHER RECENT TRANSACTIONS
Preferred Stock Offering, Note Offering. On January 23, 1997, the
Company completed the sale of $225.0 million of Series E Cumulative
Exchangeable Preferred Stock ("Series E Preferred Stock"). Dividends on the
Series E Preferred Stock accrue at the rate of 12 5/8% per annum and are
payable on January 15 and July 15 of each year. Dividends may be paid, at the
Company's option, through January 15, 2002, in cash or additional shares of
Series E Preferred Stock. Subject to certain conditions, the shares of the
Series E Preferred Stock are exchangeable in whole or in part on a pro rata
basis, at the option of the Company, on any dividend payment date, for the
Company's 12 5/8% Senior Subordinated Exchangeable Debentures due 2006. The
Company is required, subject to certain conditions, to redeem all of the
Series E Preferred Stock outstanding on October 31, 2006.
Note Receivable From Officer. The Company entered into a new
employment agreement with Robert F.X. Sillerman, the Company's Executive
Chairman, effective January 1, 1997. Pursuant to the terms of the employment
agreement, the Company made a $2.5 million loan to Mr. Sillerman. The loan is
a full-recourse obligation of Mr. Sillerman and bears interest.
NOTE 4 - SUBSEQUENT EVENTS
In July 1997, the Company acquired substantially all of the assets of
four radio stations operating in Richmond, Virginia, where the Company
currently owns one station for approximately $46.5 million, including certain
payments made to buy out certain minority equity interests which the Company
had originally agreed to provide to certain of the sellers (the "Richmond
Acquisition").
In August 1997, the Company acquired two radio stations operating in
Pittsburgh, Pennsylvania and two in Milwaukee, Wisconsin for $35.0 million
(the "Hearst Acquisition").
NOTE 5 - PENDING ACQUISITIONS AND DISPOSITIONS
Pending Acquisitions and Dispositions. Pursuant to separate
agreements, the Company has agreed to: (i) exchange four radio stations owned
by the Company and located on Long Island, New York, for two radio stations
operating in Jacksonville, Florida, where the Company currently owns four
stations, and a cash payment of $11.0 million (the "Chancellor Exchange");
(ii) exchange one radio station in Pittsburgh, Pennsylvania, which the Company
recently acquired from Secret Communications and $20.0 million in cash for one
radio station in Charlotte, North Carolina where the Company currently owns
two stations and a radio network, (the "Charlotte Exchange"); (iii) pursuant
to a letter of intent, sell six stations in Jackson, Mississippi and two
stations in Biloxi, Mississippi for a minimum consideration of $60.0 million
(the "Jackson and Biloxi Dispositions"); and (vi) exchange three radio
stations in Wichita, Kansas and one radio station in Daytona Beach, Florida
for three radio stations in Greenville, South Carolina where the Company
currently owns four stations (the "Greenville Exchange"). The aggregate
proceeds to be received from these transactions, net of acquisitions, is
approximately $51.0 million, of which the Company has deposited $5.0 million
in escrow to secure its obligations under these agreements. The Company
expects
9
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to record a pre-tax gain of approximately $20.0 million on the Jackson and
Biloxi Disposition. The Company does not expect to record a gain or loss on
any of its other dispositions.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements and related notes thereto. The following discussion
contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, risks and uncertainties relating to leverage,
the need for additional funds, consummation of the pending acquisitions,
integration of the recently completed acquisitions, the ability of the Company
to achieve certain cost savings, the management of growth, the introduction of
new technology, changes in the regulatory environment, the popularity of radio
as a broadcasting and advertising medium and changing consumer tastes. The
Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances.
GENERAL
Radio Broadcasting. The Company currently owns and operates, provides
programming to or sells advertising on behalf of 73 radio stations located in
23 markets. Following completion of the pending acquisitions and the pending
dispositions, the Company will own and operate, provide programming to or sell
advertising on behalf of 71 radio stations located in 19 markets.
The performance of a radio station group, such as the Company, is
customarily measured by its ability to generate Broadcast Cash Flow. "Broadcast
Cash Flow" is defined as net revenues less station operating expenses. Although
Broadcast Cash Flow is not a measure of performance calculated in accordance
with generally accepted accounting principles ("GAAP"), the Company believes
that Broadcast Cash Flow is accepted by the broadcasting industry as a
generally recognized measure of performance and is used by analysts who report
publicly on the performance of broadcasting companies. Nevertheless, this
measure should 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 the Company's operating performance or liquidity which
is calculated in accordance with GAAP.
The primary source of the Company's revenue is the sale of
advertising time on its radio stations. The Company's most significant station
operating expenses are employee salaries and commissions, programming expenses
and advertising and promotional expenditures. The Company strives to control
these expenses by working closely with local station management.
The Company's revenues are primarily affected by the advertising
rates its radio stations can obtain in the face of competition from radio and
other media. The Company's advertising rates are in large part based on a
station's ability to attract audiences in the demographic groups targeted by
its advertisers, as measured principally by Arbitron (an independent rating
service) on a quarterly basis. Because audience ratings in local markets are
crucial to a station's financial success, the Company endeavors to develop
strong listener loyalty. The Company believes that the diversification of
formats on its stations helps to insulate it from the effects of changes in
the musical tastes of the public in any particular format. The number of
advertisements that can be broadcast without jeopardizing listening levels
(and the resulting ratings) is limited in part by the format of a particular
station. The Company's stations strive to maximize revenue by constantly
managing the number of commercials available for sale and adjusting prices
based upon local competitive conditions. In the broadcasting industry, radio
stations often utilize trade (or barter) agreements which exchange advertising
time for goods or services (such as travel or lodging), instead of for cash.
The Company seeks to minimize its use of such agreements. The Company's
advertising contracts are generally short-term. The Company generates most of
its revenue from local advertising, which is sold primarily by a station's
sales staff. For the six months ended June 30, 1997, approximately 78% of the
Company's radio revenues were from local advertising. To generate national
advertising sales, the Company engages independent advertising sales
representatives that specialize in national sales for each of its stations.
The radio broadcasting industry is highly competitive and the
Company's stations are located in highly competitive markets. The financial
results of each of the Company's stations are dependent to a significant
degree upon its audience ratings and its share of the overall advertising
revenue within the station's geographic market. Each of the Company's stations
competes for audience share and advertising revenue directly with other FM and
AM radio stations, as well as with other media, including newspapers and
television, within their respective markets. The Company's audience ratings
and market share are subject to change, and any adverse change in audience
rating and market share in any particular market could have a material and
adverse
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effect on the Company's net revenues. Although the Company competes with other
radio stations with comparable programming formats in most of its markets, if
another station in the market were to convert its programming format to a
format similar to one of the Company's radio stations, if a new radio station
were to adopt a competitive format, or if an existing competitor were to
strengthen its operations, the Company's stations could suffer a reduction in
ratings or advertising revenue and could require increased promotional and
other expenses. In addition, certain of the Company's stations compete, and in
the future other stations may compete, with groups of stations in a market
operated by a single operator. As a result of the Telecommunication Act of
1996 (the "Telecom Act") the radio broadcasting industry has become
increasingly consolidated, resulting in the existence of radio broadcasting
companies which are significantly larger, with greater financial resources,
than the Company. Furthermore, the Telecom Act will permit other radio
broadcasting companies to enter the markets in which the Company operates or
may operate in the future. Although the Company believes that each of its
stations is able to compete effectively in its market, there can be no
assurance that any of the Company's stations will be able to maintain or
increase current audience ratings and advertising revenue market share. The
Company's stations also compete with other advertising media such as
newspapers, television, magazines, billboard advertising, transit advertising
and direct mail advertising. Radio broadcasting is also subject to competition
from new media technologies that are being developed or introduced, such as
the delivery of audio programming by cable television systems or the
introduction of digital audio broadcasting. The Company cannot predict the
effect, if any, which these new technologies may have on the radio
broadcasting industry.
Concert Promotion. In addition to its radio station operations, in
the first six months of 1997, the Company, through completed acquisitions,
became one of the leading promoters of music concerts and other entertainment
events. The Company's primary sources of revenues from its concert promotion
activities is from ticket sales, sponsorships, concessions and other ancillary
services at events which the Company promotes. The most significant expense
with respect to its concert promotion activities is talent and other expenses
associated with producing an event. The booking of talent in the concert
promotion business generally involves contracts for limited engagements often
involving a small number of performances. The Company believes that the
concert promotion business is highly competitive, and will compete with other
live entertainment, including sports activities as well as the electronic
entertainment industry.
The Company's revenues vary throughout the year. As is typical in the
radio broadcasting industry, the Company's first calendar quarter generally
produces the lowest revenues for the year, and the fourth calendar quarter
generally produces the highest revenues for the year. The Company's radio
operating results in any period may be affected by the incurrence of
advertising and promotion expenses that do not necessarily produce
commensurate revenues until the impact of the advertising and promotion is
realized in future periods. The Company anticipates that the second and third
quarters will reflect the highest revenues from the Company's concert
promotion activities.
Results of Operations
The Company's consolidated financial statements tend not to be
directly comparable from period to period due to acquisition and disposition
activity. The major acquisitions in 1996 and 1997, all of which have been
accounted for using the purchase method of accounting, and major dispositions
were as follows:
1996 Acquisitions and Dispositions: In February 1996, the Company
acquired substantially all the assets of WTDR-FM and WLYT-FM in Charlotte,
North Carolina pursuant to the Charlotte Acquisition. In June 1996, the
Company acquired substantially all of the assets of WROQ-FM, Greenville, South
Carolina, pursuant to the Greenville Acquisition and WTRG-FM and WRDU-FM, both
operating in Raleigh, North Carolina, and WMFR-AM, WMAG-FM and WTCK-AM
(formerly WWWB-AM), each operating in Greensboro, North Carolina pursuant to
the Raleigh-Greensboro Acquisition.
The Company acquired from Prism Radio Partners, LP pursuant to the
Prism Acquisition (i), substantially all of the assets used in the operation
of eight FM and five AM radio stations located in four markets: Jacksonville,
Florida; Raleigh, North Carolina; Tucson, Arizona and Wichita, Kansas, in July
1996, and (ii) substantially all of the assets of three radio stations
operating in Louisville, Kentucky, in September 1996. In October 1996, the
Company sold the Louisville stations (the "Louisville Disposition").
In July 1996, the Company acquired Liberty Broadcasting, Inc., a
privately-held radio broadcasting company which owned and operated or provided
programming to or sold advertising on behalf of 14 FM and six AM radio
stations located in six markets: Washington, DC/Baltimore, Maryland;
Nassau-Suffolk, New York; Providence, Rhode Island; Hartford, Connecticut;
Albany, New York and Richmond, Virginia. In July 1996, the Company sold three
of the Liberty Stations operating in the Washington, DC/Baltimore, Maryland
market pursuant to the Washington Dispositions.
11
<PAGE>
In July 1996, the Company acquired substantially all of the assets of
WJDX-FM, Jackson, Mississippi and in August 1996, the Company acquired
substantially all of the assets of WSTZ-FM and WZRX-AM, each operating in
Jackson and Mississippi, pursuant to collectively, the Jackson Acquisitions.
In October 1996, the Company sold radio station KTCK-AM, Dallas,
Texas pursuant to the Dallas Disposition.
In November 1996, the Company acquired Multi-Market Radio, Inc.
("MMR"), a radio broadcasting company which owned and operated, provided
programming to or sold advertising on behalf of sixteen FM stations and one AM
station located in eight markets: New Haven, Connecticut; Hartford,
Connecticut; Springfield/ Northampton, Massachusetts; Daytona Beach, Florida;
Augusta, Georgia; Biloxi, Mississippi; Myrtle Beach, South Carolina and Little
Rock, Arkansas pursuant to the MMR Merger. Of the seventeen stations MMR had
entered into agreements to sell two stations operating in Myrtle Beach, South
Carolina and one station operating in Little Rock, Arkansas (the "MMR
Dispositions"). MMR also had chosen not to renew its joint sales agreement ("
JSA") with one station operating in Augusta, Georgia and its local marketing
agreement ("LMA") with one station operating in Myrtle Beach, South Carolina.
In December 1996, the Company acquired WHSL-FM operating in
Greensboro, North Carolina pursuant to the Greensboro Acquisition.
Also, in December 1996, the Company exchanged the assets of KRLD-AM,
operating in Dallas, Texas, along with the Texas State Networks for the assets
of KKRW-FM operating in Houston, Texas pursuant to the Houston Exchange.
The Charlotte Acquisition, the Greenville Acquisition, the
Raleigh-Greensboro Acquisition, the Prism Acquisition, the Liberty
Acquisition, the Washington Dispositions, the Jackson Acquisitions, the Dallas
Disposition, the MMR Merger, the Greensboro Acquisition and the Houston
Exchange are collectively herein referred to as the "1996 Acquisitions and
Dispositions".
1997 Acquisitions and Dispositions: Radio Broadcasting. In January
1997, the Company purchased one radio station operating in Albany, New York,
(the "Albany Acquisition").
In February 1997, the Company also acquired radio stations KQUE-FM
and KNUZ-AM in Houston, Texas (the "Houston Acquisition").
Also, in February 1997, the Company consummated the acquisition of
radio station WWYZ-FM in Hartford, Connecticut (the "Hartford Acquisition".)
In March 1997, the Company exchanged one radio station operating in
Washington, D.C./Baltimore, Maryland, (the "Washington Station") for two radio
stations operating in Dallas, Texas (the "CBS Exchange") and completed the
sale of two radio stations operating in the Myrtle Beach, South Carolina
market (the "Myrtle Beach Disposition"). The CBS Exchange was structured as a
substantially tax free exchange of like kind assets. The contract for sale of
the Myrtle Beach stations was in place prior to the merger with Multi-Market
Radio, Inc. ("MMR"). No gain or loss was recognized on these transactions.
In April 1997 the Company acquired the substantially all of the
assets of three radio stations in Indianapolis, Indiana and in June 1997 the
Company acquired substantially all of the assets of four stations in
Pittsburgh, Pennsylvania from Secret Communications Limited Partnership
("Secret Communications") (the "Secret Communications Acquisition").
Also, in April 1997, the Company sold one radio station operating in
Little Rock, Arkansas (the "Little Rock Disposition") to Triathlon
Broadcasting Company, a related party. No gain or loss was recorded on the
transaction.
Concert Promotion. In January 1997, the Company purchased
Delsener/Slater Enterprises, Ltd ("Delsener/Slater"), a concert promotion
company based in New York City.
In March 1997, Delsener/Slater consummated the acquisition of certain
companies which collectively own and operate the Meadows Music Theater in
Hartford, Connecticut (the "Meadows Acquisition").
In June 1997 the Company acquired Sunshine Promotions, Inc., a
concert promotion company based in Indianapolis, Indiana, and certain related
companies (the "Sunshine Promotions Acquisition").
12
<PAGE>
The Delsener/Slater Acquisition, Sunshine Promotion Acquisition, the
Albany Acquisition, the Houston Acquisition, the Hartford Acquisition, the
Meadows Acquisition, the CBS Exchange, the Myrtle Beach Disposition and the
Secret Communications Acquisition are collectively herein referred to as the
"1997 Acquisitions and Dispositions".
Results for the 1996 quarter and the six months ended June 30, 1996
included WLYT-FM and WTDR-FM, Charlotte, North Carolina (the "Charlotte
Stations") for which the Company had provided programming and sold advertising
time pursuant to an LMA prior to the acquisition of such stations in March
1996; and WHSL-FM in Greensboro, North Carolina for which the Company had sold
advertising pursuant to a JSA beginning in the first quarter of 1996 quarter.
Results for the 1997 quarter and the six months ended June 30, 1997 included
WAPE-FM and WFYV-FM, Jacksonville, Florida (the "Jacksonville Stations") for
which the Company had provided programming and sold advertising time pursuant
to an LMA since July 1, 1996.
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
The Company's total net revenue increased 221% to $89.1 million from
$27.8 million, for the three months ended June 30, 1997 ("1997 quarter") and
1996 ("1996 quarter"), respectively, primarily as a result of the 1996
Acquisitions and Dispositions and the 1997 Acquisitions and Dispositions
(collectively the "Recent Acquisitions") which increased net revenues $60.0
million, including $23.2 million of concert promotion revenue. In addition,
the net revenue at existing SFX stations increased as a result of strong radio
advertising, combined with improved inventory management, ratings and other
factors generally affecting sales and rates. On a same station basis, assuming
all radio stations owned and operated as of June 30, 1997 were owned for the
periods reported, net radio broadcasting revenue would have increased
approximately 11% from the 1996 quarter.
Radio station operating expenses increased 105% to $39.2 million in
the 1997 quarter from $19.1 million in the 1996 quarter primarily due to the
inclusion of expenses of $20.6 million related to the Recent Acquisitions as
discussed above partially offset by $462,000 of decreased expenses at the
Company's existing stations primarily related to cost savings arising from
consolidation. In addition, $20.1 million of concert promotion operating
expenses were recorded in the 1997 quarter.
Depreciation, amortization, duopoly integration costs and acquisition
related costs increased 330% to $9.9 million from $2.3 million in the 1996
quarter due to the inclusion of $7.0 million of depreciation and amortization
related to the Recent Acquisitions and increased amortization related to debt
issuance costs.
Corporate, general and administrative expenses were $2.0 million and
$1.6 million for the 1997 quarter and 1996 quarter, respectively. The increase
reflects the growth in the Company's overall operations and its contractual
obligation to perform services for Triathlon Broadcasting Company. As a
percent of total net revenue, corporate general and administrative expense
declined from 5.7% to 2.2% from the comparable prior year period. The 1997
quarter corporate general and administrative expenses are net of $545,000 of
fees from Triathlon.
Operating income was $17.7 million for the 1997 quarter as compared
to operating loss of $22.8 million for the 1996 quarter due to the results
discussed above. The 1996 quarter also included $27.5 million of non-recurring
charges which consisted primarily of $12.5 million of stock options
repurchased and a $2.3 million related to the reserve of a loan to the
Company's former President, $5.6 million related to the reserve of the loan
and accrued interest to SCMC and the issuance of 600,000 warrants to SCMC,
$4.6 million for the repurchase of Mr. Armstrong's options, and a charge of
$1.6 million related to the early termination of the Company's contract to
broadcast Texas Rangers baseball.
Interest expense, net of investment income, increased 251% to $14.3
million from $4.1 million in the 1997 quarter, primarily due to interest on
the $450.0 million in aggregate principal of the Company's 10 3/4% Senior
Subordinated Notes due 2006 issued in May 1996 (the "Note Offering") and
borrowings under the Company's Credit Agreement in 1997.
The Company recorded state income tax expense of $320,000 in the 1997
quarter and no federal or state income tax benefit or expense for the 1996
quarter. The Company recorded federal income tax expense of $1.1 million in
the 1997 quarter which was fully offset by net operating loss carryforwards.
The Company did not recognize a federal tax benefit for losses in the 1996
quarters based upon the expectation of recording a full valuation allowance
for the full year loss, prior to giving effect to the pending acquisitions.
The Company's net income was $3.1 million for the 1997 quarter
compared to a net loss of $42.1 million for the 1996 quarter was due to the
factors discussed above.
13
<PAGE>
Net loss applicable to common stock decreased to $6.8 million in the
1997 quarter from $42.9 million in the 1996 quarter due to the increase in the
net income partially offset by dividends on the Company's 6 1/2% Series D
Cumulative Convertible Exchangeable Preferred Stock (the "Series D Preferred
Stock") and the 12 5/8% Series E Cumulative Exchangeable Preferred Stock (the
"Series E Preferred Stock") issued in May 1996 and January 1997, respectively.
Broadcast Cash Flow increased 209% to $26.6 million for the 1997
quarter from $8.6 million for the 1996 quarter. The increase was a result of
the inclusion of cash flow from the Recent Acquisitions of $16.2 million as
well as $1.8 million of improved results at the Company's existing stations.
On a same station basis, assuming all radio stations were owned and operated
as of June 30, 1997 were owned for the periods reported, Broadcast Cash Flow
from radio stations would have increased approximately 21% from the 1996
quarter.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1996
The Company's total net revenue increased 198% to $141.8 million from
$47.6 million, for the six months ended June 30, 1997 and 1996, respectively,
primarily as a result of the 1996 Acquisitions and Dispositions and the 1997
Acquisitions and Dispositions (collectively the "Recent Acquisitions") which
increased net revenues $91.8 million, including $31.0 million of concert
promotion revenue. In addition, the net revenue at existing SFX stations
increased as a result of strong radio advertising, combined with improved
inventory management, ratings and other factors generally affecting sales and
rates. On a same station basis, assuming all radio stations owned and operated
as of June 30, 1997 were owned for the periods reported, net radio
broadcasting revenue would have increased approximately 13% from the six
months ended June 30, 1996.
Radio station operating expenses increased 108% to $69.2 million for
the six months ended June 30, 1997 from $33.2 million for the six months ended
June 30, 1996 primarily due to the inclusion of expenses of $35.3 million
related to the Recent Acquisitions as discussed above and $645,000 of
increased expenses at the Company's existing stations primarily related to
increased advertising and promotion costs and higher variable costs related to
the increase in net revenues. In addition, $27.8 million of concert promotion
operating expenses were recorded in the six months ended June 30, 1997.
Depreciation, amortization, duopoly integration costs and acquisition
related costs increased 293% to $18.1 million from $4.6 million in the six
months ended June 30, 1996 due to the inclusion of $12.2 million of
depreciation and amortization related to the Recent Acquisitions and increased
amortization related to debt issuance costs.
Corporate, general and administrative expenses were $3.9 million and
$2.8 million for the six months ended June 30, 1997 and six months ended June
30, 1996, respectively. The increase reflects the growth in the Company's
overall operations and its contractual obligation to perform services for
Triathlon Broadcasting Company. As a percent of total net revenue, corporate
general and administrative expense declined from 5.9% to 2.7% from the
comparable prior year period. Corporate, general and administrative expenses
for the six months ended June 30, 1997 are net of $1.2 million of fees from
Triathlon.
Operating income was $22.6 million for the six months ended June 30,
1997 as compared to operating loss of $20.6 million for the six months ended
June 30, 1996 due to the results discussed above and 1996 non-recurring
charges of $27.5 million.
Interest expense, net of investment income, increased 248% to $25.4
million from $7.3 million in the six months ended June 30, 1997, primarily due
to interest on the $450.0 million in aggregate principal of the Company's 10
3/4% Senior Subordinated Notes due 2006 issued in May 1996 (the "Note
Offering") and interest on borrowings under the Credit Agreement.
The Company recorded state income tax expense of $605,000 for the six
months ended June 30, 1997 and no federal or state income tax benefit or
expense for the six months ended June 30, 1996. The Company did not recognize
a federal tax benefit for losses for the six months ended June 30, 1997 and
1996 periods based upon the expectation of recording a full valuation
allowance for the full year loss, prior to giving effect to the pending
acquisitions.
The Company's net loss was $3.4 million for the six months ended June
30, 1997 compared to a net loss of $43.1 million for the six months ended June
30, 1996 was due to the factors discussed above and in 1996 a $15.2 million
extraordinary loss on debt retirement.
14
<PAGE>
Net loss applicable to common stock decreased to $21.2 million in the
six months ended June 30, 1997 from $44.0 in the six months ended June 30,
1996 due to the decrease in the net loss partially offset by dividends on the
Series D Cumulative Preferred Stock and the Series E Preferred Stock issued in
May 1996 and January 1997, respectively.
Broadcast Cash Flow increased 190% to $41.7 million for the six
months ended June 30, 1997 from $14.4 million for the six months ended June
30, 1996. The increase was a result of the inclusion of cash flow from the
Recent Acquisitions of $25.5 million as well as $1.8 million of improved
results at the Company's existing stations. On a same station basis, assuming
all radio stations were owned and operated as of June 30, 1997 were owned for
the periods reported, Broadcast Cash Flow from radio would have increased
approximately 23% from the 1996 period.
Liquidity and Capital Resources. The Company's principal need for
funds has historically been to fund the acquisition of radio stations,
including related working capital needs and, to a lesser extent, capital
expenditures and the redemption of outstanding securities. The Company's
principal sources of funds for these requirements have historically been the
proceeds from offerings of equity and debt securities, borrowings under credit
agreements and, to a significantly lesser extent, cash flows from operations.
Statement of Cash Flows. Net cash provided by operations for the six
months ended June 30, 1997 was $4.1 million as compared to cash used in
operations of $34.6 million for the six months ended June 30, 1996. The
increase in 1997 as compared to 1996 was primarily attributable to improved
Broadcast Cash Flow and the cash impact of non-recurring changes incurred in
1996.
Net cash used in investing activities for the six months ended June
30, 1997 was $406.8 million as compared to cash used in investing activities
of $90.8 million for the six months ended June 30, 1996. Cash used in
investing activities in 1997 related primarily to the Secret Communications,
the Delsener/Slater, Sunshine, Albany, Houston, Hartford and Meadows
Acquisitions. Cash used in investing activities in the 1996 quarter related
primarily to the Charlotte Acquisition, Greenville Acquisition and the
Raleigh-Greensboro Acquisition.
Net cash provided by financing activities for the six months ended
June 30, 1997 was $425.8 million as compared to cash provided by financing
activities of $492.3 million for the six months ended June 30, 1996. For the
six months ended June 30, 1997, cash provided by financing activities related
primarily to $215.3 million of proceeds from the Company's public offering of
its Series E Preferred Stock in January 1997 (the "Series E Preferred Stock
Offering") and $217.0 million of net borrowings under the Company's $400.0
million Senior Credit facility, as amended (the "Credit Agreement"). The net
cash provided by financing activities in 1996 was primarily due to the
proceeds of the Note Offering and the Series D Preferred Stock Offering.
1996 Acquisitions and Dispositions. During 1996 the Company paid $21.5
million, $14.3 million, $37.3 million, $6.7 million, $106.7 million, $240.7
million, $6.7 million and net cash of $55.4 million for the Charlotte
Acquisition, the Greenville Acquisition, the Raleigh-Greensboro Acquisition,
the Jackson Acquisitions, the Prism Acquisition, the Liberty Acquisition, the
Greensboro Acquisition and the MMR Merger, respectively. In addition, the
Company received $18.5 million, $25.0 million and $13.4 million for the
Louisville Dispositions, the Washington Dispositions and the Dallas
Disposition, respectively.
The primary sources of funds for the Charlotte Acquisition were
proceeds from the Company's 1995 Public Offering of Common Stock (the "1995
Stock Offering") and funds available under the Company's senior secured credit
facility for borrowings of up to $50.0 million (the "Old Credit Agreement").
The Greenville Acquisition, Raleigh-Greensboro Acquisition, Jackson
Acquisitions, Prism Acquisition, Liberty Acquisition and Greensboro
Acquisition were primarily funded with proceeds from the Note Offering and the
Series D Preferred Stock offering. The MMR Merger was funded primarily with
proceeds from the Note Offering, the Series D Preferred Stock offering and the
Credit Agreement.
In December 1996, the Company loaned to ABS Communications, LLC
("ABS") $14.5 million to finance the purchase by ABS of two radio stations
operating in Richmond, Virginia in connection with the Richmond Acquisition.
The Company has also paid a $2.0 million deposit to ABS pursuant to its
agreement to purchase substantially all of ABS. The primary source of funds
for this loan was borrowings under the Credit Agreement.
15
<PAGE>
1997 Acquisitions and Dispositions. In January 1997, the Company
consummated the Delsener/ Slater Acquisition, pursuant to which it purchased
Delsener/Slater, a concert promotion company based in New York City, for an
aggregate consideration of approximately $23.6 million. In addition to this
amount, $3.0 million is to be paid, without interest, over five years, and
$1.0 million is to be paid, without interest, over ten years. The deferred
payments are subject to acceleration in certain circumstances. The primary
source of funds for this acquisition was borrowings under the Credit
Agreement.
Also in January 1997, the Company consummated the Albany Acquisition,
pursuant to which it purchased one radio station operating in Albany, New
York, for a purchase price of $1.0 million. The primary source of funds for
this acquisition was borrowings under the Credit Agreement.
In February 1997, the Company consummated the acquisition of radio
station WWYZ-FM in Hartford, Connecticut, for a purchase price of $25.9
million, including fees and expenses. The primary source of funds for this
acquisition was proceeds from the Series E Preferred Stock Offering.
Also, in February 1997, the Company consummated the acquisition of
radio stations KQUE-FM and KNUZ-AM in Houston, Texas, for a purchase price of
approximately $42.9 million, including fees and expense, plus certain
contingent payments of up to $750,000. The primary source of funds for these
acquisitions was proceeds from the Series E Preferred Stock Offering.
In March 1997, the Company completed the sale of two radio stations
operating in the Myrtle Beach, South Carolina market for $5.1 million payable
in installments over a five year period (present value of approximately $4.3
million). As these stations were acquired in November 1996 pursuant to the MMR
Merger, no gain or loss was recognized on the transaction.
Also, in March 1997, the Company consummated the acquisition of
certain companies which collectively own and operate the Meadows Music Theater
in Hartford, Connecticut for $0.9 million in cash, shares of SFX Class A
Common Stock with a value of approximately $7.5 million and the assumption of
approximately $15.4 million of debt. The primary source of funds for this
acquisition was proceeds from the Series E Preferred Stock Offering.
In April 1997, the Company acquired substantially all of the assets of
three radio stations in Indianapolis, Indiana and in June 1997 the Company
acquired substantially all of the assets of four stations in Pittsburgh,
Pennsylvania from Secret Communications Limited Partnership ("Secret
Communications) (the "Secret Communications Acquisition") for a total purchase
price of $255.0 million. The primary source of funds for this acquisition was
proceeds from the Series E Preferred Stock Offering and the Credit Agreement..
Also, in April 1997, the Company sold one radio station operating in
Little Rock, Arkansas (the "Little Rock Disposition") to Triathlon
Broadcasting Company, a related party. The station was sold for $4.1 million,
of which $3.5 million had been held as a deposit.
In June 1997 the Company acquired Sunshine Promotions, Inc., a concert
promotion company based in Indianapolis, Indiana, and certain related
companies (the "Sunshine Promotions Acquisition"), for $53.9 million in cash
at closing, $2.0 million in cash payable over 5 years, shares of Class A
Common Stock issuable over a two year period with a value of approximately
$4.0 million and the assumption of approximately $1.6 million of debt. The
primary source of funds for this acquisition was proceeds from the Credit
Agreement.
In July 1997, the Company acquired substantially all of the assets of
four radio stations operating in Richmond, Virginia, where the Company
currently owns one station, for approximately $46.5 million, including
payments made to buy out certain minority equity interests which the Company
had originally agreed to provide to certain of the sellers (the "Richmond
Acquisition"). The primary source of funds for this acquisition was proceeds
from the Credit Agreement.
In August 1997, the Company acquired two radio stations operating in
Pittsburgh, Pennsylvania and two in Milwaukee, Wisconsin for $35.0 million
(the "Hearst Acquisition"). The primary source of funds for this acquisition
was proceeds from the Credit Agreement.
In addition, pursuant to separate agreements, the Company has agreed
to: (i) exchange four radio stations owned by the Company and located on Long
Island, New York, for two radio stations operating in Jacksonville, Florida,
where the Company currently owns four stations, and a cash payment of $11.0
million (the "Chancellor Exchange"); (ii) exchange one radio station in
Pittsburgh, Pennsylvania, which the Company recently acquired from Secret
Communications and $20.0
16
<PAGE>
million in cash for one radio station in Charlotte, North Carolina where the
Company currently owns two stations and a radio network, (the "Charlotte
Exchange"); (iii) pursuant to a letter of intent, sell six stations in
Jackson, Mississippi and two stations in Biloxi, Mississippi for a minimum
consideration of $60.0 million (the "Jackson and Biloxi Disposition"); and
(vi) exchange three radio stations in Wichita, Kansas and one radio station
in Daytona Beach, Florida for three radio stations in Greenville, South
Carolina where the Company currently owns four stations (the "Greenville
Exchange"). The aggregate sales price of these transactions, net of
acquisitions, is approximately $51.0 million, of which the Company has
deposited $5.0 million in escrow to secure its obligations under these
agreements. The Company expects to record a gain of approximately $20.0 million
on the Jackson and Biloxi Disposition.
The Company anticipates that it will consummate all of the pending
acquisitions and dispositions as follows:
<TABLE>
<CAPTION>
CASH PURCHASE (SALE) ANTICIPATED DATE OF
TRANSACTION PRICE (1) (IN MILLIONS) CONSUMMATION
<S> <C> <C>
Charlotte Exchange $ 20.0 3rd quarter 1997
Chancellor Exchange (11.0) 3rd quarter 1997
Greenville Exchange -- 4th quarter 1997
Jackson and Biloxi Disposition (60.0) 1st quarter 1998
<FN>
(1) Represents the gross cash sales or purchase price for the corresponding
transaction. Certain of these amounts do not reflect amounts advanced or
placed in escrow, payable over a period of time or payable in stock of
the Company.
</TABLE>
The timing and completion of each of the above pending transactions
are subject to a number of closing conditions, certain of which are beyond the
Company's control. The pending acquisitions and the pending disposition are
subject to the approval of the Federal Communications Commission and the
Company's lenders. Additionally, the Department of Justice Antitrust Division
has indicated its intention to review matters related to the concentration of
ownership within markets even when the ownership in question is in compliance
with the provisions of the Telecom Act. While the Company believes that each
of the pending acquisitions and the pending disposition does not substantially
lessen competition, there can be no assurance that the Department of Justice
Antitrust Division will not take a contrary position, which could delay or
prevent the consummation of any of the pending acquisitions or require the
Company to restructure its ownership in the relevant market or markets. In
addition, the Jackson and Biloxi Disposition is subject to the execution of a
definitive acquisition agreement.
Capital expenditures totaled $6,951,000 in the six months ended June
30, 1997 as compared to $639,000 in the six months ended June 30, 1996.
Capital expenditures in 1997 included cash paid for building, computer
equipment, leasehold improvements, broadcasting equipment and general
operating equipment. The Company expects that capital expenditures in 1997
will substantially exceed historical levels due to the overall growth of the
Company, one time costs associated with consolidating newly acquired radio
stations into common facilities with existing stations and capital
expenditures requirements of the Company's new concert promotion business.
The Company is also required to make a payment of $1.0 million in
1997 to redeem the outstanding shares of Series B Preferred Stock.
Sources of Liquidity. On June 23, 1997, the Company entered into an
amended Credit Agreement, a senior revolving credit facility, providing for
borrowings of up to $400.0 million. Borrowings under the Credit Agreement
may be used to finance permitted acquisitions, for working capital and
general corporate purposes, and for letters of credit up to $20.0 million.
The facility converts into a five-year term loan on March 31, 2000, with
repayment due in quarterly installments commencing December 31, 1998, and with
the final payment due June 30, 2005. The principal will be amortized by 18% in
2000, 18% in 2001, 18% in 2002, 18% in 2003, 18% in 2004 and 10% in 2005.
Interest on the funds borrowed under the Credit Agreement is based on a
floating rate selected by the Company of either (i) the higher of (a) the Bank
of New York's prime rate and (b) the federal funds rate plus 0.5%, plus a
margin which varies from 0.125% to 1.0%, based on the Company's then-current
leverage ratio, or (ii) the LIBOR rate plus a margin which varies from 0.5% to
2.25%, based on the Company's then-current leverage ratio. The Company must
prepay certain outstanding borrowings in advance of their scheduled due dates
in certain circumstances. The Company must also pay annual commitment fees of
0.375% of the unutilized total commitments under the Credit Agreement. The
Company's obligations under the Credit Agreement are secured by substantially
all of its assets, including property, stock of subsidiaries and accounts
receivable, and are guaranteed by the Company's subsidiaries. As of August 4,
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<PAGE>
1997, the Company had outstanding borrowings under the Credit Agreement of
$306.0 million, including borrowings for the pending Charlotte Exchange.
On January 23, 1997, the Company completed the sale of $225.0 million
in aggregate liquidation preference of Series E Preferred Stock. Dividends on
the Series E Preferred Stock accrue at the rate of 12.625% per annum and are
payable on January 15 and July 15 of each year. Dividends may be paid, at the
Company's option, through January 15, 2000, in cash or additional shares of
Series E Preferred Stock. On July 15, 1997, the Company elected to pay a cash
dividend. The Company used $50.0 million of the net proceeds to repay
borrowings under the Credit Agreement.
Subject to certain conditions, the shares of Series E Preferred Stock
are exchangeable in whole or in part on a pro rata basis, at the option of the
Company, on any dividend payment date, for the Company's 12 5/8% Senior
Subordinated Exchange Debentures due 2006. The Series E Preferred Stock is
redeemable at the Company's option, in whole or in part, at any time on or
after January 15, 2002, at the redemption prices set forth herein, plus
accumulated and unpaid dividends to the date of redemption. In addition, prior
to January 15, 2000, the Company may, at its option and subject to certain
conditions, redeem up to 50% of the aggregate of (i) the liquidation
preference of the Series E Preferred Stock issued (whether initially issued or
issued in lieu of cash dividends) less the liquidation preference of Series E
Preferred Stock exchanged for Exchange Debentures and (ii) the principal
amount of Exchange Debentures issued (whether issued in exchange for Series E
Preferred Stock or in lieu of cash interest), with the net proceeds of one or
more common equity offerings at a redemption price of 112.625% of the
liquidation preference or principal amount, as the case may be. The Company is
required, subject to certain conditions, to redeem all of the Series E
Preferred Stock outstanding on October 31, 2006, at a redemption price equal
to 100% of the liquidation preferences thereof, plus accumulated and unpaid
dividends to the date of redemption. Upon the occurrence of a Change of
Control (as defined therein), each holder of Series E Preferred Stock may
require the Company to offer to purchase all of that holder's shares of Series
E Preferred Stock at a price equal to 101% of the liquidation preference
thereof, plus accumulated and unpaid dividends to the date of purchase. The
Series E Preferred Stock will rank junior to the Series D Preferred Stock and
senior to all other outstanding classes or series of capital stock, with
respect to dividend rights and rights on liquidation of the Company.
The Company may require financing in addition to cash on hand in
order to finance capital expenditures and fund working capital requirements,
which the Company anticipates obtaining through borrowings under the Credit
Agreement and, proceeds from the Chancellor Exchange and the Jackson and
Biloxi dispositions. There can be no assurance that the Chancellor Exchange or
the pending dispositions will be successfully consummated or that the Company
will be able to successfully arrange for additional financing. The Credit
Agreement prohibits the Company from utilizing funds available thereunder
unless the Company meets certain specified financial tests, such as total
leverage and senior leverage ratios and pro forma interest expense. The
ability of the Company to meet such tests is dependent on the cash flow of the
Company, giving effect to the consummation of the acquisitions and
dispositions of the Company. There can be no assurance that the Company will
have adequate borrowing capacity under the Credit Agreement or will be able to
obtain additional financing on terms acceptable to the Company or at all.
The Company expects that any additional acquisitions will be financed
through funds generated from operations, cash on hand, funds which may be
available under the Credit Agreement and additional debt and equity financing.
The availability of additional acquisition financing cannot be assured, and,
depending on the terms of the proposed acquisition financing, could be
restricted by the terms of the Credit Agreement, the debt incurrence test
under the Note Indenture, the Series D Preferred Stock and/or the Series E
Preferred Stock.
The Company's ability to make scheduled payments of principal, to pay
interest on or to refinance its debt (including the Notes and the Company's
borrowings under the Credit Agreement), to make dividend payments on the
Series D Preferred Stock and the Series E Preferred Stock and to redeem the
Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred
Stock and the Series E Preferred Stock depends on its future financial
performance, which, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors beyond its
control, as well as the success of the radio stations to be acquired and the
integration of these stations into the Company's operations. The Company's
borrowings under the Credit Agreement will be, and other future borrowings may
be, at variable rates of interest, which will result in higher interest
expense in the event of increases in interest rates. There can be no assurance
that the Chancellor Exchange or the Jackson and Biloxi Disposition will be
consummated, that the Company will be able to borrow under the Credit
Agreement, that the Company's business will generate sufficient cash flow from
operations, that anticipated improvements in operating results will be
achieved or that future working capital borrowings will be available in an
amount to enable the Company to service its debt, to make dividend, and
redemption payments and to make necessary capital or other expenditures. The
Company may be required to refinance a portion of the principal amount of the
Notes, or the aggregate liquidation
18
<PAGE>
preference of the Series E Preferred Stock and the Series D Preferred Stock
prior to their maturities. There can be no assurance that the Company will be
able to raise additional capital through the sale of securities, the
disposition of radio stations or otherwise for any such refinancing.
Charges to Operations. Pursuant to an agreement between the Company
and D. Geoffrey Armstrong, the Company's Chief Operating Officer (the
"Armstrong Agreement"), Mr. Armstrong's employment may be terminated by either
party during the one-month period commencing on November 22, 1997 upon 30
days' written notice. If his employment agreement is terminated, Mr. Armstrong
will receive a payment of $1.2 million pursuant to the provisions of his
employment agreement and the Company will purchase all of his outstanding
options under the Company's stock option plans for an amount equal to the
difference between (x) the number of such options multiplied by the respective
exercise price of such options and (y) the number of such options multiplied
by the greater of $40.00 and the average trading price of a share of Class A
Common Stock during the 20 days prior to five days before the effective date
of the termination of the employment agreement. In the event that the Company
is required to purchase Mr. Armstrong's options, based upon a repurchase price
of $40.00 per share, the Company will make a payment to Mr. Armstrong of
approximately $3.2 million. Should the employment contract be terminated and
the stock options be repurchased, the Company will record a charge to earnings
equal to the amount paid for the options.
The pending acquisitions will be accounted for using the purchase
method of accounting and the intangible assets created in the purchase
transactions will be amortized against future earnings of the combined
companies. The amount of such amortization will be substantial and will
continue to affect the Company's operating results in the future. These
expenses, however, do not result in an outflow of cash by the Company and do
not impact the Company's Broadcast Cash Flow.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Cardinal Communications Partners, L.P. ("Cardinal") filed a complaint
in the United States District Court, Northern District of Texas, Dallas
Division against the Company, its Executive Chairman and other defendants in
October 1996. The complaint concerns Cardinal's sale of radio station KTCK-AM
to the Company in 1995. The claims asserted in the complaint include breach of
contract, fraud, negligent misrepresentation, quantum meruit and unjust
enrichment. The complaint seeks declaratory relief, actual and punitive
damages and attorneys' fees, all in unspecified amount.
On July 24, 1997, the Company reached an agreement with Cardinal that
settles and resolves the claims asserted in the lawsuit. The agreement
includes the dismissal of all claims against all defendants, with prejudice,
except one claim. This one claim, alleging breach of contract related to
deferred payments which the Company may be required to pay to Cardinal in
1998 and will be dismissed without prejudice.
ITEM 2. CHANGES IN SECURITIES
(a)-(b) Not applicable.
(c) On June 23, 1997, the Company acquired substantially all of the
assets of Sunshine Promotions, Inc., a concert promoter in the
Midwest, and certain other related entities. The consideration
paid by the Company for this acquisition included the issuance
of 62,792 shares of Class A Common Stock of the Company to
Sunshine Promotions, Inc. The sale of such shares was exempt
form registration pursuant to Section 4(2) of the Securities
Act of 1933, as amended. The resale of these shares by P. David
Lucas and Steven P. Sybesma, the stockholders of Sunshine
Promotions, Inc., has been registered with the Commission on a
registration statement on Form S-3 (Reg. No. 333-29825). The
Company has also agreed to issue $1.0 million worth of Class A
Common Stock to Sunshine Promotions, Inc. on each of June 23,
1998 and 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's annual meeting of stockholders (the "Annual Meeting")
was held on May 22, 1997. On April 15, 1997, the record date for the Annual
Meeting, there were 8,394,887 outstanding shares of Class A Common Stock (the
"Class A Shares") and 1,047,037 shares of Class B Common Stock (the "Class B
Shares" and, collectively with the Class A Shares, the "Shares"). The Shares
present at the Annual Meeting represented 88.5% of the combined voting power
of the outstanding Shares as of the record date.
19
<PAGE>
In the election of directors, the first proposal voted upon, the
following persons received the number of votes set opposite their respective
names:
<TABLE>
<CAPTION>
NOMINEES ELECTED BY HOLDERS OF CLASS A SHARES AND CLASS B SHARES
NAME VOTES RECEIVED VOTES WITHHELD
<S> <C> <C>
Robert F.X. Sillerman 16,621,164 22,512
Michael G. Ferrel 16,621,464 22,212
Geoffrey Armstrong 16,621,254 22,422
Thomas P. Benson 16,621,435 22,241
Howard J. Tytel 16,621,464 22,212
Richard A. Liese 16,621,135 22,541
</TABLE>
Such nominees received the highest number of the votes cast at the
Annual Meeting for the directors to be elected by the holders of the Class A
Shares and Class B Shares, voting together, and therefore such persons were
duly elected as directors of the Company.
<TABLE>
<CAPTION>
NOMINEES ELECTED BY HOLDERS OF CLASS A SHARES
NAME VOTES RECEIVED VOTES WITHHELD
<S> <C> <C>
James F. O'Grady, Jr. 6,161,505 11,801
Paul Kramer 6,161,505 11,801
Edward F. Dugan 6,150,705 22,601
</TABLE>
Such nominees received the highest number of the votes cast at the
Annual Meeting for the directors to be elected by the holders of Class A
Shares and therefore such persons were duly elected as directors of the
Company.
The second matter voted upon was a proposal to approve the Company's
1997 Stock Option Plan and the performance goal included therein. The proposal
received the affirmative vote of 4,354,835 Class A Shares and 1,047,037 Class
B Shares and the negative vote of 1,789,511 Class A Shares and Class B Shares.
The votes in favor of the proposal represented 89.2% of the combined voting
power of the Shares represented in person or by proxy at the Annual Meeting
and voting on the proposal, and therefore the proposal was approved.
The third matter voted upon was a proposal to ratify the
appointment of Ernst & Young LLP as independent auditors of the Company for
the fiscal year ending December 31, 1997. The proposal received the
affirmative vote of 6,162,063 Class A Shares and 1,047,037 Class B Shares and
the negative vote of 10,112 Class A Shares and Class B Shares voting by proxy.
The votes in favor of the proposal represented 99.9% of the combined voting
power of the Shares represented in person or by proxy at the Annual Meeting,
and therefore the proposal was approved.
20
<PAGE>
ITEM 5. OTHER INFORMATION.
Effective August 1, 1997, the Company acquired from The Hearst
Corporation substantially all of the assets used in the operation of radio
stations WISN-AM and WLTQ-FM, both operating in Milwaukee, Wisconsin, and
WTAE-AM and WVTY-FM, both operating in Pittsburgh, Pennsylvania. The aggregate
purchase price for these assets was $35.0 million.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
2.1 Amendment No. 2, dated as of April 1, 1997, to the Asset Purchase
Agreement, dated as of October 15, 1996, between Secret
Communications Limited Partnership and SFX Broadcasting, Inc.
(incorporated by reference to Exhibit 2.3 to the Form 8-K of SFX
Broadcasting, Inc. (Commission File No. 0-22486) filed with the
Securities and Exchange Commission on April 15, 1997).
3.1 Restated Certificate of Incorporation, as amended (incorporated by
reference to Exhibit 3.1 to Form 8-K (Commission File No. 0-22486)
filed with the Commission on November 27, 1996).
3.2 By-laws, as amended (incorporated by reference to Exhibit 3.1 to
Amendment No. 1 to Registration Statement on Form S-3 (Reg. No.
333-15469) filed with the Commission on November 21, 1996).
10.1 Third Amended and Restated Credit Agreement, dated as of June 23,
1997, among SFX Broadcasting, Inc., the subsidiaries of SFX
Broadcasting, Inc. from time to time parties thereto, The Bank of
New York, individually and as agent for the lenders, and the lenders
from time to time parties thereto (incorporated by reference to
Exhibit 10.1 to Form 8-K (Commission File No. 0-22486) filed with
the Commission on July 11, 1997).
10.2 Amendment No. 2 to Asset Purchase Agreement, dated April 1, 1997,
between Secret Communications Limited Partnership and the Company
(incorporated by reference to Exhibit 10.7 to Form 10-Q (Commission
File No. 0- 22486) for the three months ended March 31, 1997).
11. Statement regarding Calculation of Per Share Earnings.
27. Financial Data Schedule.
(b) Reports on Form 8-K
On April 15, 1997, the Company filed a Form 8-K under Items 2
(Acquisition or Disposition of Assets) and 5 (Other Events) thereof,
disclosing (i) the acquisition by the Company of radio stations WFBQ-FM,
WRZX-FM and WNDE-AM, each of which serves the Indianapolis, Indiana market,
for approximately $127.5 million from Secret Communications Limited
Partnership, a privately-held partnership and (ii) the acquisition by the
Company of radio stations KTXQ-FM and KRRW-FM, each of which serves the
Dallas, Texas market, from CBS Inc. in exchange for WHFS-FM, which serves the
Baltimore/Washington, D.C. market.
On June 16, 1997, the Company filed a Form 8-K under Item 2
(Acquisition or Disposition of Assets) thereof, disclosing the acquisition by
the Company of radio stations WDVE-FM, WXDX-FM, WJJJ-FM and WDSY-FM, each of
which serves the Pittsburgh, Pennsylvania market, from Secret Communications
Limited Partnership for a payment of $127.5 million.
Also on June 16, 1997, the Company filed a Form 8-K/A under Item 7
(Financial Statements, Pro Forma Information and Exhibits) thereof, disclosing
certain financial information with respect to the radio stations acquired form
Secret Communications Limited Partnership.
On January 22, 1997, the Company filed a Form 8-K under Items 5
(Other Events) and 7 (Financial Statements, Pro Forma Financial Information
and Exhibits) thereof, disclosing (i) Unaudited Pro Forma Condensed Combined
Financial Statements of the Company, (ii) an increase in the amount of the
Company's senior revolving credit facility and (iii) the acquisition by the
Company of substantially all of the assets of Sunshine Promotions, Inc. and
certain related companies.
21
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SFX BROADCASTING, INC.
Date: August 4, 1997
By: /s/Howard J. Tytel
---------------------------------------
Howard J. Tytel
Executive Vice President and
Secretary
Date: August 4, 1997
By: /s/Thomas P. Benson
---------------------------------------
Thomas P. Benson
Chief Financial Officer and
Treasurer
22
<PAGE>
SFX BROADCASTING, INC. AND SUBSIDIARIES
EXHIBIT 11.1
STATEMENT REGARDING CALCULATION OF PER SHARE EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended June 30,
1997 1996
----------- -----------
<S> <C> <C>
Primary and Fully Diluted:
Average shares outstanding .................. 9,399,833 7,437,642
----------- -----------
Total .............................. 9,399,833 7,437,642
=========== ===========
Net income (loss) ........................... $ 3,075 $ (42,074)
Less: preferred stock dividends and accretion 9,844 831
----------- -----------
Net loss attributable to common shareholders (6,769) (42,905)
=========== ===========
Net loss per common shares .................. $ (.72) $ (5.77)
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
----------- -----------
<S> <C> <C>
Primary and Fully Diluted:
Average shares outstanding .................. 9,281,439 7,447,929
----------- -----------
Total .............................. 9,281,439 7,447,929
=========== ===========
Ne loss ..................................... $ (3,411) $ (43,059)
Less: preferred stock dividends and accretion 17,797 967
----------- -----------
Net loss attributable to common shareholders (21,208) (44,026)
=========== ===========
Net loss per common shares .................. $ (2.29) $ (5.91)
=========== ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 53,629,000
<SECURITIES> 0
<RECEIVABLES> 63,798,000
<ALLOWANCES> 2,137,000
<INVENTORY> 0
<CURRENT-ASSETS> 123,359,000
<PP&E> 141,549,000
<DEPRECIATION> 14,827,000
<TOTAL-ASSETS> 1,344,083,000
<CURRENT-LIABILITIES> 72,760,000
<BONDS> 713,869,000
367,641,000
0
<COMMON> 96,000
<OTHER-SE> 82,780,000
<TOTAL-LIABILITY-AND-EQUITY> 1,344,083,000
<SALES> 0
<TOTAL-REVENUES> 141,839,000
<CGS> 0
<TOTAL-COSTS> 119,244,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,423,000
<INCOME-PRETAX> (2,806,000)
<INCOME-TAX> 605,000
<INCOME-CONTINUING> (3,411,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,208,000)
<EPS-PRIMARY> (2.29)
<EPS-DILUTED> 0
</TABLE>
