<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
Amendment No. 1 to
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] 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 0-15392
REGENT COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 31-1492857
(State or other jurisdiction of (I.R.S. Employer
in corporation or organization) Identification No.)
50 East RiverCenter Boulevard
Suite 180
Covington, Kentucky 41011
(Address of principal executive offices)
(Zip Code)
(606) 292-0030
(Registrant's telephone number, including area code)
--------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods 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 the issuer's classes of
common stock, as of the latest practicable date.
Common Stock - $.01 Par Value - 240,000 shares as of November 16, 1998.
<PAGE> 2
REGENT COMMUNICATIONS, INC.
FORM 10-Q/A
Amendment No. 1 to Quarterly Report
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX
-----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statement of Operations
for the three months and nine months ended
September 30, 1998 (unaudited) and September
30, 1997 (unaudited)
Condensed Consolidated Balance Sheets as of
September 30, 1998 (unaudited) and December 31, 1997
Condensed Consolidated Statement of Cash Flows
for the nine months ended September 30, 1998
(unaudited) and September 30, 1997 (unaudited)
Consolidated Statement of Changes in
Shareholders' Deficit for the nine months
ended September 30, 1998 (unaudited)
Notes to Condensed Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
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<PAGE> 3
Part I - Financial Information
Item 1. Financial Statements
<TABLE>
<CAPTION>
REGENT COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- ---------------------------------
1998 1997 1998 1997
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Gross broadcast revenues $ 5,860,649 $2,104,737 $10,339,931 $ 4,559,193
Less agency commissions 439,551 199,390 855,630 495,587
----------- ---------- ----------- ------------
Net broadcast revenues 5,421,098 1,905,347 9,484,301 4,063,606
Station operating expenses 4,029,194 1,153,307 6,727,843 2,634,727
Depreciation and amortization 779,010 301,535 1,465,946 458,783
Corporate general and
administrative expense 499,931 86,952 1,360,001 297,166
----------- ---------- ----------- ------------
Operating income (loss) 112,963 363,553 (69,489) 672,930
Interest expense 942,770 486,129 2,029,378 836,404
Other income (expense), net (14,035) 14,645 6,738 16,609
----------- ---------- ----------- ------------
Loss before income taxes and
extraordinary items (843,842) (107,931) (2,092,129) (146,865)
Income tax expense 0 16,000 0 49,542
----------- ---------- ----------- ------------
Loss before extraordinary items (843,842) (123,931) (2,092,129) (196,407)
Extraordinary gain from debt
extinguishment, net of taxes 0 0 0 370,060
Extraordinary loss from debt
extinguishment, net of taxes 0 0 (1,170,080) (4,703,370)
----------- ---------- ----------- ------------
Net loss $ (843,842) $ (123,931) $(3,262,209) $(4,529,717)
=========== ========== =========== ============
Loss applicable to common shares:
Net loss $ (843,842) $ (123,931) $(3,262,209) $(4,529,717)
Preferred stock dividend
requirements (854,231) 0 (1,290,966) 0
Preferred stock accretion 0 0 (4,656,904) 0
----------- ---------- ----------- ------------
Loss applicable to common shares $(1,698,073) $ (123,931) $(9,210,079) $(4,529,717)
=========== ========== =========== ============
Basic and diluted loss per common share:
Before extraordinary items $ (7.08) $ (0.52) $ (33.51) $ (0.82)
Extraordinary items 0.00 0.00 (4.87) (18.05)
----------- ---------- ----------- ------------
Loss per common share $ (7.08) $ (0.52) $ (38.38) $ (18.87)
=========== ========== =========== ============
Weighted average number of common
shares used in basic and diluted
calculations 240,000 240,000 240,000 240,000
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
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<PAGE> 4
REGENT COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
ASSETS ------------------ -----------------
- ------ (UNAUDITED)
Current assets:
<S> <C> <C>
Cash $ 393,743 $ 535,312
Accounts receivable, less allowance
for doubtful accounts of $240,000
in 1998 and $32,000 in 1997 3,579,723 1,358,002
Other current assets 669,909 25,918
Assets held for sale 7,500,000 0
------------------ -----------------
Total current assets 12,143,375 1,919,232
Property and equipment, net 8,985,342 2,156,244
FCC broadcast licenses, net 36,579,038 6,052,764
Other intangibles, net 7,178,037 1,648,577
Other assets, net 1,691,712 1,233,737
------------------ -----------------
Total assets $ 66,577,504 $ 13,010,554
================== =================
LIABILITIES AND SHAREHOLDERS' DEFICIT
- -------------------------------------
Current liabilities:
Accounts payable $ 996,272 $ 87,280
Accrued expenses and liabilities 3,623,853 233,955
Notes payable 7,500,000 0
Current portion of long-term debt 65,000 538,396
------------------ -----------------
Total current liabilities 12,185,125 859,631
Long-term debt, less current portion 35,048,750 22,264,724
Other long-term liabilities 2,652,081 67,987
------------------ -----------------
Total liabilities 49,885,956 23,192,342
Redeemable preferred stock:
Series A convertible preferred stock, $5.00 stated value,
620,000 shares authorized; 620,000 issued and outstanding -
Liquidation value: $3,378,408 3,378,408 0
Series B senior convertible preferred stock, $5.00 stated value,
1,000,000 shares authorized; 1,000,000 shares issued and
outstanding - Liquidation value: $5,283,835 5,283,835 0
Series D convertible preferred stock, $5.00 stated value,
1,000,000 shares authorized; 1,000,000 shares issued and
outstanding - Liquidation value: $5,143,222 5,143,222 0
Series F convertible preferred stock, $5.00 stated value,
4,100,000 shares authorized; 2,050,000 shares issued and
outstanding - Liquidation value: $10,553,288 10,553,288 0
------------------ -----------------
Total redeemable preferred stock 24,358,753 0
Shareholders' deficit:
Preferred stock:
Series C convertible preferred stock, $5.00 stated value,
4,000,000 shares authorized; 3,720,620 shares issued and
outstanding - Liquidation value: $18,985,737 1,618,681 0
Series E convertible preferred stock, $5.00 stated value,
5,000,000 shares authorized; 447,842 shares issued and
outstanding - Liquidation value: $2,285,267 2,239,210 0
Common stock, $.01 par value, 30,000,000 shares authorized;
240,000 shares issued and outstanding (Note 1) 2,400 2,400
Additional paid-in capital 4,596,096 2,677,195
Retained deficit (16,123,592) (12,861,383)
------------------ -----------------
Total shareholders' deficit (7,667,205) (10,181,788)
------------------ -----------------
Total liabilities and shareholder's deficit $ 66,577,504 $ 13,010,554
================== =================
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
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<PAGE> 5
REGENT COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
1 Nine Months Ended September 30,
1998 1997
------ ------
<S> <C> <C>
Net cash provided (used) by operating activities $ (552,933) $ 185,604
============ ============
Cash flows from investing activities:
Acquisitions of radio stations, net of cash acquired $(29,263,668) $ (7,650,000)
Escrow deposit (160,000) (100,000)
Capital expenditures (433,373) (69,832)
------------ ------------
Net cash used in investing activities $(29,857,041) $ (7,819,832)
============ ============
Cash flows from financing activities:
Proceeds from long-term debt $ 35,500,000 $ 22,500,000
Proceeds from issuance of Series A, B, D and F Convertible Preferred Stock 18,150,000 0
Principal payments on long-term debt (20,733,160) (12,595,588)
Principal payments under capital lease obligations 0 (3,547)
Payments of deferred financing costs (1,292,042) (879,328)
Payments of issuance costs (1,356,393) 0
Payment of appraisal right liability 0 (1,015,000)
------------ ------------
Net cash provided by financing activities $ 30,268,405 $ 8,006,537
------------ ------------
Net increase (decrease) in cash and cash equivalents $ (141,569) $ 372,309
Cash at beginning of period $ 535,312 $ 123,221
------------ ------------
Cash at end of period $ 393,743 $ 495,530
============ ============
Supplemental schedule of non-cash investing and financing activities:
Conversion of Faircom Inc.'s convertible subordinated promissory
notes to Faircom Inc. common stock $ 10,000,000
Liabilities assumed in acquisitions 11,680,322
Series E convertible preferred stock issued in conjunction with the
acquisition of Alta California Broadcasting, Inc. and Topaz
Broadcasting, Inc. 2,239,210
Series C convertible preferred stock issued in conjunction with the merger
between Faircom Inc. and the Company 1,618,681
Warrants for the purchase of common stock issued to holders of Series A and
Series B convertible preferred stock warrants 310,000
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
-5-
<PAGE> 6
REGENT COMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
(UNAUDITED)
<TABLE>
<CAPTION>
Series C Series E
Convertible Convertible Additional Total
Preferred Preferred Common Paid-in Retained Shareholders'
Stock Stock Stock Capital Deficit Deficit
----------- ----------- --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 (retroactively stated) $2,400 $2,677,195 $(12,861,383) $(10,181,788)
Conversion of Faircom Inc.'s Class A and
Class B convertible subordinated promissory
notes in the amount of $10,000,000 10,000,000 10,000,000
Issuance of 3,720,620 shares of Series C
convertible preferred stock and retirement
of 26,390,199 shares of Faircom Inc. common
stock and recordation of the effect of
recapitalization due to the reverse merger
with Faircom Inc. $1,618,681 (3,000,000) (1,381,319)
Issuance of Faircom Inc. employee stock options
immediately converted into options to purchase
157,727 shares of Series C convertible preferred
stock in conjunction with the merger 530,264 530,264
Issuance of Series A redeemable preferred stock warrants 160,000 160,000
Issuance of 205,250 shares of Series E convertible
preferred stock in connection with the acquisition
of Alta California Broadcasting, Inc. $1,026,250 1,026,250
Issuance of 242,592 shares of Series E convertible
preferred stock in connection with the acquisition
of Topaz Broadcasting, Inc. 1,212,960 1,212,960
Dividends and accretion on Series A, B, D, and F
redeemable preferred stock (5,771,363) (5,771,363)
Net loss (3,262,209) (3,262,209)
----------- ----------- --------- ----------- ------------- -------------
Balance, September 30, 1998 $1,618,681 $2,239,210 $2,400 $4,596,096 $(16,123,592) $(7,667,205)
=========== =========== ========= =========== ============= =============
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
-6-
<PAGE> 7
REGENT COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
On June 15, 1998, Regent Communications, Inc. (including its
wholly-owned subsidiaries, the "Company") acquired, pursuant to an agreement of
merger, all of the outstanding common stock of Faircom Inc. ("Faircom") for
3,720,620 shares of the Company's Series C Convertible Preferred Stock. The
acquisition has been treated for accounting purposes as the acquisition of the
Company by Faircom with Faircom as the accounting acquirer and accounted for as
a reverse acquisition. Consequently, the historical financial statements prior
to June 15, 1998 are those of Faircom. As a result of the Faircom merger,
Faircom's historical shareholder deficit prior to the merger has been
retroactively restated to reflect the number of common shares outstanding
subsequent to the merger, with the difference between the par value of the
Company's and Faircom's common stock recorded as an offset to additional paid-in
capital.
The condensed consolidated financial statements of the Company
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC) and, in the opinion of management, include all
adjustments necessary for a fair presentation of the results of operations,
financial position and cash flows for each period shown. All adjustments are of
normal and recurring nature except for those outlined in Notes 2, 3 and 4.
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 SEC rules and regulations. Results
for interim periods may not be indicative of results for the full year. The
December 31, 1997 condensed balance sheet was derived from audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles. It is suggested that these financial statements be read
in conjunction with the financial statements and notes thereto included in
Faircom's 1997 Annual Report on Form 10-K, the Company's Form S-4 effective May
7, 1998, the Company's Form 8-K/A filed September 3, 1998 and the Company's
Form 10-Q/A filed September 21, 1998. The Company's Amendment No. 1 to Form
10-Q/A reflects the effect of adjusting the redeemable preferred stock with put
rights to its full redemption value at the balance sheet date. The resultant
accretion increased the loss applicable to common shares for the three months
and nine months ended September 30, 1998.
2. CONSUMMATED AND PENDING ACQUISITIONS
On June 30, 1997, Faircom acquired the assets and operations of
two commercial radio stations located in Mansfield, Ohio (the "Mansfield
Stations"), pursuant to the terms of an asset purchase agreement dated May 20,
1997, for $7,350,000 in cash. In addition, Faircom paid $300,000 in cash to one
of the sellers in consideration of a five-year non-compete agreement. The
acquisition was accounted for under the purchase method of accounting and was
financed with borrowings under Faircom's senior secured term notes (see Note 3).
The excess cost over the fair market value of net assets acquired and the FCC
licenses related to this acquisition are being amortized over 15- to 40-year
periods.
On January 21, 1998, Faircom acquired substantially all of the
assets and operations of radio station WSWR-FM in Shelby, Ohio (the "Shelby
Station") for $1,125,000 in cash. The acquisition was accounted for under the
purchase method of accounting and was financed through the borrowing of
$1,100,000 represented by a subordinated promissory note. The excess cost over
the fair market value of net assets acquired and the FCC licenses related to
this acquisition are being amortized over 15- to 40-year periods.
On June 15, 1998, the following acquisitions (the "June 15
Acquisitions") were consummated, and the results of operations of the acquired
businesses are included in the Company's financial statements since the date of
acquisition:
The Company acquired all of the outstanding capital stock of The
Park Lane Group ("Park Lane") for approximately $17,525,000 in cash. The
acquisition was accounted for under the purchase method of accounting. The
excess cost over the fair market value of net assets acquired and the FCC
licenses related to this acquisition are being amortized over a 40-year
period. Park Lane owns 16 radio stations in California and Arizona. At
the time of the acquisition, the Company entered into a one-year consulting
and non-competition agreement with the President of Park Lane, providing
for the payment of a fee of $200,000.
-7-
<PAGE> 8
The Company acquired the FCC licenses and related assets used
in the operation of radio stations KIXW (AM) and KZXY (FM) in Apple Valley,
California from Ruby Broadcasting, Inc. ( the "Ruby Stations"), an affiliate
of Topaz Broadcasting, Inc. ("Topaz"), for $5,985,000 in cash. The FCC
licenses acquired are being amortized over a 40-year period.
The Company acquired the FCC licenses and related assets used
in the operation of radio stations KFLG (AM) and KFLG (FM) in Bullhead City,
Arizona from Continental Radio Broadcasting, L.L.C. (the "Continental
Stations") for approximately $3,607,000 in cash. The Company separately
acquired the accounts receivables of these stations for an additional
purchase price of approximately $130,000. The FCC licenses acquired are
being amortized over a 40-year period.
The Company acquired all of the outstanding capital stock of
Alta California Broadcasting, Inc. ("Alta") for $1,025,000 in cash and
205,250 shares of the Company's Series E Convertible Preferred Stock. The
acquisition was accounted for under the purchase method of accounting. The
excess cost over the fair market value of net assets acquired and FCC
licenses related to this acquisition are being amortized over a 40-year
period. Alta owned four radio stations in California.
The Company acquired all of the outstanding capital stock of
Topaz for 242,592 shares of the Company's Series E Convertible Preferred
Stock. Immediately following the acquisition of Topaz, the Company acquired
the FCC licenses and operating assets of radio station KIXA (FM) in Lucerne
Valley, California for $275,000 in cash, pursuant to an Asset Purchase
Agreement between Topaz and RASA Communications Corp. The acquisitions were
accounted for under the purchase method of accounting. The excess cost over
the fair market value of net assets acquired and FCC licenses related to
these acquisitions are being amortized over a 40-year period.
The sources for the cash portion of the consideration paid by
the Company for the June 15 Acquisitions, aggregating approximately $53,400,000
(including approximately $21,800,000 of debt assumed and refinanced with
borrowings under the Company's Senior Reducing Revolving Credit Facility and
$3,700,000 of transaction costs), were $34,400,000 borrowed under the Company's
Senior Reducing Revolving Credit Facility (see Note 3), $18,150,000 in
additional equity from the sale of the Company's convertible preferred stock
(see Note 4), and approximately $850,000 of the Company's funds.
On July 10, 1998, the Company entered into an asset purchase
agreement with Oasis Radio, Inc. ("Oasis") to acquire substantially all of the
assets of radio station KOSS (FM) (formerly KAVC (FM)) located in Lancaster,
California for $1,600,000 in cash, subject to adjustment as defined in the
agreement. The Company has placed a $160,000 deposit held in escrow pending the
closing of the transaction. In addition, the Company entered into a local
programming and marketing agreement with Oasis, effective August 1, 1998, which
will end upon consummation of the acquisition or termination of the asset
purchase agreement.
-8-
<PAGE> 9
The following unaudited pro forma data summarize the combined
results of operations of the Company, Faircom, the Mansfield Stations, Park
Lane, the Ruby Stations, the Continental Stations, Alta, Topaz and KIXA(FM) as
though the acquisitions had occurred at the beginning of each nine-month period
ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net broadcast revenues $14,528,292 $13,369,794
Net loss before extraordinary items (2,139,228) (1,625,612)
Net loss (3,309,308) (5,958,922)
Basic and diluted loss per common share before extraordinary items $ (33.70) $ (20.36)
Basic and diluted loss per common share $ (38.57) $ (38.42)
</TABLE>
These unaudited pro forma amounts do not purport to be indicative of the results
that might have occurred if the foregoing transactions had been consummated on
the indicated dates. The acquisition of the Shelby Station did not have a
material effect on the operating results of the Company.
-9-
<PAGE> 10
3. LONG-TERM DEBT
Long-term debt consists of the following as of:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Senior secured term notes (a) $ 0 $12,803,120
Convertible subordinated promissory notes (b) 0 10,000,000
Senior reducing revolving credit facility (c) 34,400,000 0
Subordinated promissory note (d) 600,000 0
Non-compete Agreements (e) 113,750 0
------------ ------------
35,113,750 22,803,120
Less: Current portion of long-term debt (65,000) (538,396)
------------ ------------
$ 35,048,750 $ 22,264,724
============ ============
</TABLE>
(a) Senior secured term notes
During 1997, Faircom borrowed $12,500,000 under an amended and
restated loan agreement (the "1997 loan agreement"). The term notes under the
1997 loan agreement would have matured on July 1, 2002. Interest on the term
notes was at the rate of 4.50% over 30-day commercial paper rates. On June 15,
1998, the Company terminated the 1997 loan agreement using funds obtained from
the Company's Senior Reducing Revolving Credit Facility. As a result of the
extinguishment of debt, the Company recognized an extraordinary loss of
$1,170,080, net of income taxes, consisting of a $366,000 prepayment penalty and
the write-off of $804,080 of related deferred financing costs.
(b) Convertible subordinated promissory notes
During 1997, Faircom completed the sale of $10,000,000 aggregate
principal amount of its convertible subordinated promissory notes due July 1,
2002 (the "Faircom Notes"). The Faircom Notes consisted of Class A and Class B
convertible subordinated promissory notes, each in the aggregate principal
amount of $5,000,000, with interest payable at the rate of 7% per annum,
compounded quarterly. The Faircom Notes were converted into a total of
19,012,000 shares of Faircom common stock immediately preceding the merger
between the Company and Faircom (see Note 1).
(c) Senior reducing revolving credit facility
During 1997, the Company entered into an agreement with a group
of lenders (as amended, the "Credit Agreement") which provides for a senior
reducing revolving credit facility with a commitment of up to $55,000,000
expiring in March 2005 (the "Revolver"). In addition, the Company may request
from time to time that the lenders issue Letters of Credit in accordance with
the same provisions as the Revolver. In order to finance the June 15
Acquisitions (see Note 2), refinance certain existing debt and to provide for
additional working capital, the Company borrowed $34,400,000 under the Credit
Agreement.
-10-
<PAGE> 11
The Credit Agreement provides for the reduction of the
commitment under the Revolver for each of the four quarters ending December 31,
1999 and by increasing quarterly amounts thereafter, and, under certain
circumstances, requires mandatory prepayments of any outstanding loans and
further commitment reductions. The indebtedness of the Company under the Credit
Agreement is collateralized by liens on substantially all of the assets of the
Company and its operating and license subsidiaries and by a pledge of the
operating and license subsidiaries' stock, and is guaranteed by those
subsidiaries. The Credit Agreement contains restrictions pertaining to the
maintenance of financial ratios, capital expenditures, payment of dividends or
distributions of capital stock and incurrence of additional indebtedness.
Interest under the Credit Agreement is payable, at the option
of the Company, at alternative rates equal to the LIBOR rate (5.31% at September
30, 1998) plus 1.25% to 2.75% or the base rate announced by the Bank of Montreal
(8.25% at September 30, 1998) plus 0% to 1.50%. The spreads over the LIBOR rate
and such base rate vary from time to time, depending upon the Company's
financial leverage. The Company must pay quarterly commitment fees equal to 3/8%
to 1/2% per annum, depending upon the Company's financial leverage, on the
unused portion of the commitment under the Credit Agreement. The Company also is
required to pay certain other fees to the agent and the lenders for the
administration and the use of the credit facility. At September 30, 1998, the
Company had paid non-refundable fees totaling approximately $1,548,000 which are
classified as other assets in the accompanying Condensed Consolidated Balance
Sheet and are being amortized over the initial seven-year term of the Revolver.
As a condition of the Credit Agreement, the Company entered
into a two-year collar agreement (the "Collar Agreement") with the Bank of
Montreal effective as of August 17, 1998 for a notional amount of $34,400,000.
The Collar Agreement is based on the three-month LIBOR rate, provides for a CAP
Rate, as defined, of 6.50% and a Floor Rate, as defined, of 5.28% plus, in each
case, the additional spread stipulated under the Credit Agreement.
(d) Subordinated promissory note
During 1995, Park Lane issued a subordinated promissory note (the
"McNulty Note") to McNulty Broadcasting, Inc. ("McNulty") which provided Park
Lane with $600,000. The McNulty Note was assumed by the Company as part of the
acquisition of Park Lane (see Note 2). The McNulty Note provides for quarterly
principal payments of $15,000 beginning on August 1, 2000. The remaining
principal is due May 1, 2005. Interest on the McNulty Note is payable quarterly
at a rate of 8%.
(e) Non-compete agreements
During 1995, Park Lane entered into five-year non-compete agreements
with McNulty and Island Broadcasting Associates, L.P. ("Island Broadcasting") in
the amounts of $125,000 and $200,000, respectively (the "Non-Compete
Agreements"). The Non-Compete Agreements were assumed by the Company as part of
the acquisition of Park Lane (see Note 2). The Non-Compete Agreements bear no
interest, expire in May, 2000 and call for quarterly payments of $16,250.
-11-
<PAGE> 12
4. CAPITAL STOCK
The Company's Amended and Restated Certificate of Incorporation
authorizes 30,000,000 shares of common stock and 20,000,000 shares of preferred
stock and designates 620,000 shares as Series A Convertible Preferred Stock
("Series A"), 1,000,000 shares as Series B Senior Convertible Preferred Stock
("Series B"), 4,000,000 shares as Series C Convertible Preferred Stock ("Series
C"), 1,000,000 shares as Series D Convertible Preferred Stock ("Series D"),
5,000,000 shares as Series E Convertible Preferred Stock ("Series E"), and
4,100,000 shares as Series F Convertible Preferred Stock ("Series F"). The
stated value of all series of preferred stock is $5.00 per share.
Series A, Series C, Series E, and Series F have the same voting
rights as common stock and may be converted at the option of the holder into one
share of common stock, subject to adjustment, as defined. Series B and D have no
voting power except for specific events, as defined. Series D may be converted
at the option of the holder only when certain conditions, as defined, have been
met. The Company's Board of Directors also has the right to require conversion
of all shares of Series A, B, C, D, E, and F upon the occurrence of certain
events, as defined. Series A, Series C, Series D, Series E, and Series F have
equal rights for the payment of dividends and the distribution of assets and
rights upon liquidation, dissolution or winding up of the Company. Series B
ranks senior to all other series of preferred stock and may be converted at the
option of the holder into one-half share of common stock, subject to adjustment,
as defined.
Upon liquidation of the Company, no distribution shall be made
(a) to holders of stock ranking junior to the Series B unless the holders of the
Series B have received the stated value per share, plus an amount equal to all
unpaid dividends or (b) to the holders of stock ranking on a parity with the
Series B, except distributions made ratably on the Series B and all other such
parity stock. Dividends accrue cumulatively on all series of preferred stock,
except Series F, at an annual rate of $0.35 per share. Dividends accrue
cumulatively on Series F at an annual rate of $0.50 per share and, to the extent
not paid in cash, are compounded quarterly at a rate of 10% per annum. The
Company may redeem Series A, B, and D at the stated value, plus an amount equal
to all unpaid dividends to the date of redemption, whether or not declared.
Undeclared dividends in arrears on all outstanding series of preferred stock
amounted to approximately $1,438,000 at September 30, 1998.
In conjunction with the closing of the Faircom merger, and
under the terms of a stock purchase agreement dated December 8, 1997, BMO
Financial, Inc., an existing shareholder of the Company, purchased 780,000
shares of Series D for $3,900,000. In addition, General Electric Capital
Corporation ("GE Capital") paid $3,900,000 to complete its purchase of 1,000,000
shares of Series B, pursuant to the terms of its stock purchase agreement and
promissory note dated December 8, 1997.
In connection with the closing of the Park Lane acquisition,
and under the terms of a stock purchase agreement dated December 1, 1997, the
Chief Operating Officer of the Company purchased 20,000 shares of Series A for
$100,000.
On June 15, 1998, pursuant to a stock purchase agreement,
Waller-Sutton Media Partners, L.P. ("Waller-Sutton") purchased 1,000,000 shares
of Series F for $5,000,000. Also on that date, WPG Corporate Development
Associates V, L.P. and WPG Corporate Development Associates V (Overseas), L.P.
purchased a total of 650,000 shares of Series F for $3,250,000; the Chairman of
Waller-Sutton Management Group, which manages Waller-Sutton, purchased 50,000
shares of Series F for $250,000; GE Capital purchased 250,000 shares of Series F
for $1,250,000; and River Cities Capital Fund Limited Partnership ("River
Cities") purchased 100,000 shares of Series F for $500,000. In connection with
these purchases, the purchasers acquired 10-year warrants to purchase an
aggregate of 860,000 shares of the Company's common stock for $5.00 per share.
Such warrants can be "put" back to the Company after five years. In addition,
these purchasers agreed, subject to certain conditions, to purchase an
additional 2,050,000 shares of Series F at $5.00 per share. On October 23, 1998,
the Company formally notified the Series F shareholders of its intent to issue
additional shares of Regent's Series F preferred stock. The proceeds will be
used to complete the purchase of KOSS(FM) (see Note 2), finance capital
expenditures and meet initial working capital requirements of KOSS(FM).
The 860,000 warrants issued in conjunction with the Series F
have been assigned a fair value of $2,459,600 and have been classified as a
long-term liability due to the associated "put" rights.
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<PAGE> 13
The stock purchase agreement described above provides that the
terms of the Series F include the right of the holders to require the Company to
repurchase the Series F at any time after five years at a price equal to the
greater of its fair market value or the sum of its stated value of $5.00 per
share and all accrued but unpaid dividends thereon, as well as any warrants held
by such holders at a price equal to the fair market value of the Company's
common stock less the exercise price of such warrants. Holders of the Series A,
Series B, and Series D would have similar "put" rights only if the holders of
the Series F were to exercise their "put" rights. Series A, Series B, Series D,
and Series F (but not Series C and Series E) have been reclassified and excluded
from equity to reflect such anticipated "put" rights. Issuance costs of
approximately $1,900,000 for these reclassified shares have been netted against
the proceeds. The shares are being accreted to their respective redemption
values over five years.
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<PAGE> 14
In connection with the closing of the Faircom merger,
Waller-Sutton acquired 400,640 shares of Series C by purchasing an aggregate of
$1,500,000 principal amount of Faircom's convertible subordinated promissory
notes that were converted into the common stock of Faircom and subsequently
converted to Series C.
In order to induce River Cities, as a holder of Series A, to
approve the merger with Faircom, the Company issued to River Cities, upon
consummation of the merger, five-year warrants to purchase 80,000 shares of the
Company's common stock at an exercise price of $5.00 per share. R. Glen
Mayfield, a member of the Company's Board of Directors, serves as the general
partner of River Cities Management Limited Partnership, which is the general
partner of River Cities. The warrants issued to the holders of Series A have
been assigned a value of $160,000 and have been classified as additional paid-in
capital.
In order to induce GE Capital, as a holder of Series B, to
approve the addition of mandatory conversion rights to the terms of the Series B
in conjunction with the issuance of the Series F, Regent issued to GE Capital,
upon issuance of the Series F, five-year warrants to purchase 50,000 shares of
the Company's common stock at an exercise price of $5.00 per share. The warrants
issued to GE Capital have been assigned a fair value of $150,000 and have been
classified as a long-term liability due to associated "put" rights. These "put"
rights are subject to the prior exercise of the warrants and the exercise of the
"put" rights associated with the warrants issued to the Series F holders.
5. EARNINGS PER SHARE
The Company has adopted the provisions of SFAS 128, "Earnings
Per Share." SFAS 128 calls for the dual presentation of basic and diluted
earnings per share ("EPS"). Basic EPS is based upon the weighted average common
shares outstanding during the period. Diluted EPS reflects the potential
dilution that would occur if common stock equivalents were exercised. The
effects of the assumed conversion of the Company's convertible preferred stock
and the assumed exercise of outstanding options and warrants would not be
dilutive for all periods presented. Therefore, basic EPS and diluted EPS are the
same for all periods presented.
6. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standard Board issued
SFAS 130, "Reporting Comprehensive Income." SFAS 130 establishes standards of
disclosure and financial statement display for reporting total comprehensive
income and its individual components. SFAS 130 became effective for fiscal years
beginning after December 31, 1997. Company management has determined that
comprehensive income equals the Company's net loss as of September 30, 1998.
In June 1998, the Financial Accounting Standards Board issued
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
133 prescribes the accounting treatment for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. The Company may employ financial instruments to
manage its exposure to fluctuations in interest rates (see Note 3(c)). The
Company does not hold or issue such financial instruments for trading purposes.
The Company will adopt SFAS 133, as required in the year 2000, and does not
expect the impact of adoption to be material.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use," which is
effective for fiscal years beginning after December 15, 1998. SOP 98-1 requires
the capitalization of certain expenditures for software that is purchased or
internally developed for use in the business. Company management believe that
the prospective implementation of SOP 98-1 in 1999 may result in some
additional capitalization of software expenditures in the future.
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<PAGE> 15
In April 1998, the AICPA issued SOP 98-5, "Reporting on the
Costs of Start-up Activities." The SOP provides guidance on financial reporting
of costs of start-up activities. SOP 98-5 is effective for fiscal years
beginning after December 15, 1998. The Company believes the implementation of
SOP 98-5 in 1999 will not have a material impact on its financial reporting.
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<PAGE> 16
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
- ---------------------
The results of the Company's operations for the three months ended
September 30, 1998 compared to the three months ended September 30, 1997 and for
the nine months ended September 30, 1998 compared to the nine months ended
September 30, 1997 are not comparable or necessarily indicative of results in
the future due to the significance of acquisitions.
On June 30, 1997, Faircom, through a wholly-owned subsidiary, acquired
the assets and operations of two radio stations, WMAN-AM and WYHT-FM, both
located in Mansfield, Ohio (the "Mansfield Stations") for aggregate cash
consideration of $7,650,000. As of January 21, 1998, the same Faircom subsidiary
purchased substantially all of the assets and operations of radio station
WSWR-FM in Shelby, Ohio (the "Shelby Station") for $1,125,000 in cash. These
acquisitions have been accounted for as purchases, and accordingly, the
operating results of the Mansfield Stations and the Shelby Station have been
included in the Company's condensed consolidated financial statements from their
respective acquisition dates.
On June 15, 1998, the Company consummated a number of mergers,
acquisitions, borrowings and issuances of additional equity. See Notes 1 through
4 to the Company's condensed consolidated financial statements included as part
of this Form 10-Q. The historical financial statements of Faircom, which was
deemed the "accounting acquirer" in the merger between Faircom and the Company
completed June 15, 1998, have become the historical financial statements of the
Company, and accordingly, the results of operations of the Company and of the
other entities which merged with or were acquired by the Company in transactions
completed on June 15, 1998 (the "June 15 Acquisitions") have been included in
the Company's condensed consolidated financial statements only from June 15,
1998.
The increase in the Company's net broadcasting revenues in the three
months and the nine months ended September 30, 1998 as compared with the same
periods in 1997 resulted primarily from the inclusion of the operations acquired
as part of the June 15 Acquisitions, and also, for the nine-month period to a
lesser extent, from the inclusion of the operations of the Mansfield Stations.
Net broadcasting revenues increased to $5,421,000 from $1,905,000, or 184.5%, in
the three months ended September 30, 1998 as compared with the three months
ended September 30, 1997, and to $9,484,000 from $4,064,000, or 133.4%, in the
nine months ended September 30, 1998 as compared with the nine months ended
September 30, 1997.
Station operating expenses increased in the three months and nine
months ended September 30, 1998 as compared with the same periods in 1997. For
the three months ended September 30, 1998, this increase was a result of the
inclusion of the operations of the June 15 Acquisitions. For the nine months
ended September 30, 1998, this increase resulted primarily from the inclusion of
the operations acquired as part of the June 15 Acquisitions and to a lesser
extent the inclusion of the operations of the Mansfield Stations. Station
operating expenses increased to $4,029,000 from $1,153,000, or 249.4%, in the
three months ended September 30, 1998 as compared with the same period in 1997
and to $6,728,000 from $2,635,000, or 155.4%, in the nine months ended
September 30, 1998, as compared with the same period in 1997.
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 broadcasting 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 that is calculated in accordance with GAAP. Broadcast
cash flow increased in the three months and the nine months ended September 30,
1998 as compared with the same periods in 1997. For the three months ended
September 30, 1998, this increase was the result of the inclusion of the
operations acquired as part of the June 15 Acquisitions. For the nine months
ended September 30, 1998, this increase was primarily a result of inclusion of
the operations acquired as part of the June 15 Acquisitions and to a lesser
extent to the inclusion of the operations of the Mansfield Stations. Broadcast
cash flow increased to $1,392,000 from $752,000, or 85.1%, in the three months
ended September 30, 1998 as compared with the same period in 1997 and to
$2,756,000 from $1,429,000, or 92.9%, in the nine months ended September 30,
1998 as compared with the same period in 1997.
Depreciation and amortization increased in the three months and nine
months ended September 30, 1998 as compared with the comparable 1997 periods
primarily as a result of the addition of assets in connection with the June 15
Acquisitions and to a lesser extent the acquisitions of the Mansfield Stations
and the Shelby Station.
In the three months ended September 30, 1998, corporate general and
administrative expense increased as compared with the same period in 1997 to
reflect the new corporate administrative organization related to the Company's
June 15 Acquisitions resulting in additional executive personnel and
administrative expense as compared with Faircom's substantially smaller
corporate organization and expense in the comparable period in 1997. In
addition, approximately $80,000 of non-recurring corporate expenses were
incurred in the three months ended September 30, 1998. Corporate general and
administrative expense also increased in the nine months ended September 30,
1998 as compared with the same period in 1997 for the same reasons indicated for
the three-month period comparison and also as a consequence of stock options
granted as of June 15, 1998 to two officers of Faircom pursuant to the terms of
the merger agreement between the Company and Faircom, resulting in the
recognition,as of such date of grant, of approximately $530,000 in additional
compensation expense.
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<PAGE> 17
Interest expense increased in the three months and nine months ended
September 30, 1998 as compared with the same 1997 periods principally due to
debt incurred in connection with the June 15 Acquisitions and to a lesser extent
due to debt incurred in connection with the acquisition of the Mansfield
Stations and the Shelby Station.
As a result of higher corporate general and administrative expense and
interest expense, offset in part by higher broadcast cash flow, net loss for the
three months ended September 30, 1998 increased to $844,000 from net loss of
$124,000 in the comparable 1997 period. In the nine months ended September 30,
1998, net loss declined to $3,262,000 from $4,530,000 as a result of higher
broadcast cash flow and a lower extraordinary loss from debt extinguishment,
offset in part by higher depreciation and amortization and corporate and
interest expenses.
Liquidity and Capital Resources
- -------------------------------
In the nine months ended September 30, 1998, net cash used by operating
activities was $553,000 compared with net cash provided by operating activities
of $186,000 for the nine months ended September 30, 1997. In the 1998 period,
proceeds from the issuance of long-term debt and preferred stock provided most
of the funds used for operating activities, as well as funds used for the
acquisition of radio stations, principal payments on long-term debt and
other investing and financing activity cash requirements. As a result, there was
a net decrease in cash of $142,000 in the nine months ended September 30, 1998
compared with a net increase of $372,000 in the comparable 1997 period.
On November 14, 1997, the Company entered into an agreement with a
group of lenders (as amended, the "Credit Agreement") which provides for a
senior reducing revolving credit facility with a commitment of up to $55,000,000
expiring March 31, 2005 (the "Revolver"). The Credit Agreement permits the
borrowing of available credit for working capital and acquisitions, including
related acquisition expenses. In addition, the Company may request from time to
time that the lenders issue Letters of Credit in accordance with the same
provisions as the Revolver.
The Credit Agreement provides for the quarterly reduction of the
commitment under the Revolver for each of the four quarters during 1999 in the
amount of $687,500 per quarter, and by increasing quarterly amounts thereafter
to $2,750,000 during 2004, with a final payment of $6,875,000 due March 31,
2005, and, under certain circumstances, requires mandatory prepayments of any
outstanding loans and further commitment reductions. Mandatory prepayments and
commitment reductions are required to the extent that, from time to time,
outstanding loans exceed the commitment then in effect, and from certain asset
sales, surplus assets of any pension plans, sales of equity securities and
receipts of insurance proceeds. The indebtedness of the Company under the Credit
Agreement is collateralized by liens on substantially all of the assets of the
Company and its operating and license subsidiaries and by a pledge of the
operating and license subsidiaries' stock, and is guaranteed by those
subsidiaries. The Credit Agreement contains restrictions pertaining to the
maintenance of financial ratios, capital expenditures, payment of dividends or
distributions of capital stock and incurrence of additional indebtedness.
The Company is required to maintain an interest rate coverage ratio
(EBITDA, defined as earnings before interest, taxes, depreciation and
amortization, to annual interest rate cost) of at least 1.75 to 1.00 through
September 30, 1998 and of at least 2.0 to 1.0 thereafter; a fixed charge
coverage ratio (EBITDA to annual fixed charges) of at least 1.10 to 1.00; and
a financial leverage ratio (total debt to Adjusted EBITDA, as defined in the
Credit Agreement) starting at 6.5 to 1.0 and decreasing over time to 3.5 to
1.0 as follows:
Time Period Maximum Leverage Ratio
----------- ----------------------
Through March 31, 1999........................................6.50:1.00
April 1, 1999 through June 30, 1999...........................6.00:1.00
July 1, 1999 through September 30, 1999.......................5.75:1.00
October 1, 1999 through December 31, 1999.....................5.50:1.00
January 1, 2000 through March 31, 2000........................5.25:1.00
April 1, 2000 through June 30, 2000...........................5.00:1.00
July 1, 2000 through September 30, 2000.......................4.75:1.00
October 1, 2000 through December 31, 2000.....................4.50:1.00
January 1, 2001 through March 31, 2001........................4.00:1.00
April 1, 2001 and thereafter..................................3.50:1.00
As of September 30, 1998, the Company is in compliance with all of the
aforementioned debt covenants.
Interest under the Credit Agreement is payable, at the option of the
Company, at alternative rates equal to the LIBOR rate (5.31% at September 30,
1998) plus 1.25% to 2.75% or the base rate announced by the Bank of Montreal
(8.25% at September 30, 1998) plus 0% to 1.50%. The spreads over the LIBOR rate
and such base rate vary from time to time, depending upon the Company's
financial leverage. The Company will pay quarterly commitment fees equal to 3/8%
to 1/2% per annum, depending upon the Company's financial leverage, on the
unused portion of the commitment under the Credit Agreement. The Company also is
required to pay certain other fees to the agent and the lenders for the
administration and use of the credit facility.
At September 30, 1998, the Company had borrowed $34,400,000 under the
Credit Agreement, and $20,600,000 remained in the unused portion. Of the unused
portion, approximately $520,000 was available for borrowing by the Company for
working capital.
In connection with the 1997 acquisitions of KCBQ(FM) in San Diego,
California and an option to acquire WSSP(FM) in Charleston, South Carolina, the
Company issued notes in the maximum principal amounts of $6,000,000 and
$1,500,000, respectively. The San Diego note is collateralized by the assets of
the San Diego station, matures on the earlier of June 4, 2002 or the sale of the
San Diego station, and bears interest at 10% on any unpaid principal after
maturity. The Charleston note is collateralized by a lien on the proceeds of a
$1,500,000 note receivable of the Company, matures on the earlier of December 3,
2002 or upon the sale of the Charleston station or of the option, and bears
interest at 10% on any unpaid principal amount after maturity.
The Company is currently attempting to sell both stations.
Consequently, $7,500,000, representing the principal amount of both notes, has
been classified as a current asset, designated "assets held for sale," and as an
offsetting current liability, designated "notes payable," at September 30, 1998.
In connection with the June 15, 1998 acquisition of The Park Lane
Group, the Company assumed a $600,000 note, bearing interest at 8% payable
quarterly, with the principal payable in quarterly installments of $15,000 from
August 2000 to May 2005, at which time the remaining principal balance is due.
On June 15, 1998, the Company received $18,150,000 in gross proceeds
from the issuance of shares of its Series A, B, D and F Convertible Preferred
Stock at $5.00 per share. In conjunction with these transactions, the Company
also issued warrants to purchase 990,000 shares of the Company's common stock at
$5.00 per share. The purchasers of the Series F Convertible Preferred Stock also
have committed an additional $10,250,000 through the purchase, on a pro rata
basis, of an additional 2,050,000 shares of the Company's Series F Convertible
Preferred Stock at $5.00 per share, to fund future acquisitions by the Company.
The Company intends to draw $2,000,000 of such available funds to finance the
pending acquisition of KOSS(FM) and certain initial working capital needs and
capital expenditures at that station.
Based on current interest rates and accrued interest expense as of
September 30, 1998, the Company believes its interest payments for the balance
of 1998 will be approximately $1,636,000. Debt principal payments are expected
to be $16,250 for the balance of 1998. Corporate general and administrative
expense and capital expenditures for the remainder of 1998 are estimated to be
approximately $440,000 and $205,000, respectively. In addition, the Company
expects to pay prior to the end of 1998 approximately $200,000 of approximately
$1,500,000 in deferred professional fees which were mostly incurred in
connection with the June 15 Acquisitions. For these payments, the Company will
utilize net cash provided by operations, current cash balances, and available
funds under its Credit Agreement.
The Company is currently considering the sale of several of its radio
station properties which were acquired as part of the larger group of June 15
Acquisitions but which are not believed to fit within the Company's long-term
operating strategies. The Company believes net cash from operations, cash
balances, and the proceeds from such asset sales would be sufficient to pay the
balance of the deferred professional fees in 1999 and to meet the Company's
interest expense, any required principal payments, corporate expenses and
capital expenditures in the foreseeable future based on its projected operations
and indebtedness. There can be no assurance, however, that any sales of
non-strategic stations will be consummated in the near future. In the absence of
such sales, based upon discussion with holders of its Series F Convertible
Preferred Stock, the Company would expect to utilize some of its equity
commitments under its Preferred Stock Purchase Agreement which are reserved for
future acquisitions for working capital purposes instead.
The Company is actively pursuing a number of acquisitions of radio
stations in a number of markets. Such acquisitions would be financed from
borrowings against the unused portion of its Credit Agreement (less any
utilization of such portion for working capital needs) and the $10,250,000
available under the Preferred Stock Purchase Agreement with the holders of its
Series F Convertible Preferred Stock. Depending upon the size and number of
acquisitions, the Company intends to seek to expand its current borrowing
capacity under its Credit Agreement. In addition, the Company intends to seek
additional equity above the previously committed Series F Convertible Preferred
Stock. However, there can be no assurance that any of such acquisitions will be
consummated or that all or any portion of such financing will be available.
Market Risk
- -----------
The Company is exposed to the impact of interest rate changes. It is
the Company's policy to enter into interest rate transactions only to the extent
considered necessary to meet its objectives and to comply with the requirements
of its Credit Agreement. The Company has not entered into interest rate
transactions for speculative purposes. The Company's exposure to interest rate
risk results from borrowings under its Credit Agreement. At September 30, 1998,
the Company had $34,400,000 outstanding under its credit facility.
To satisfy the requirements of its Credit Agreement, the Company
entered into a two-year collar agreement with the Bank of Montreal effective
August 17, 1998 for a notional amount of $34,400,000 to mitigate the risk of
increasing interest rates created by the borrowing under its Credit Agreement.
This agreement is based on the three-month LIBOR rate, has a Cap Rate, as
defined, of 6.50% and a Floor Rate, as defined, of 5.28%. These rates are
exclusive of additional spreads over the LIBOR rate depending upon the Company's
financial leverage. Based on the $34,400,000 principal amount outstanding under
the Company's credit facility at September 30, 1998, the annual interest expense
would fluctuate by a maximum of $420,000, exclusive of leverage spreads over the
LIBOR rate.
Year 2000 Computer System Compliance
- ------------------------------------
The "Year 2000" ("Y2K") issue results from the fact that many computer
programs were written with date-sensitive codes that utilize only the last two
digits (rather than all four digits) to refer to a particular year. As the year
2000 approaches, these computer programs may be unable to process accurately
certain date-based information, as the program may interpret the year 2000 as
1900.
The Company utilizes various information technology (IT) systems in the
operation of its business, including (i) accounting and financial reporting
systems; (ii) local and wide area networking infrastructure; (iii) traffic
scheduling and billing systems; and (iv) digital audio systems providing
automated broadcasting. In addition to IT systems, the Company may also be
reliant on several non-information technology (non-IT) systems which could
potentially pose Y2K issues. Finally, in addition to the risks posed by Y2K
issues involving its own IT and non-IT systems, the Company could also be
affected by any Y2K problems experienced by its key business partners, which
include local and national advertisers, suppliers of communications services,
financial institutions and suppliers of utilities. The Company's plans to
address the Y2K issue involve four phases: (a) assessment of the existence,
nature and risk of Y2K problems affecting the Company's systems; (b) remediation
of the Company's systems, whether through repair, replacement or upgrade, based
on the findings of the assessment phase; (c) testing of the enhanced or upgraded
systems; and (d) contingency planning.
Of the three areas of concern (IT systems, non-IT systems and key
business partner interfaces), most of the work to date has been in the IT
systems area. A summary of the status of the Company's Y2K plans in relation to
each of the IT areas follows.
The Company has utilized an independent consultant to assess the Y2K
issue in its accounting and financial reporting systems and its local and wide
area networking systems. Because the Company commenced operations in 1997 with
new computer systems at its executive offices, the Company's accounting and
financial reporting systems and local and wide area networking systems were
either purchased on a Y2K compliant basis or have been rendered Y2K compliant
through network upgrades provided by the supplier at no additional cost. A
schedule for the actual testing of these systems for Y2K compliance is expected
to be developed and completed during the fourth quarter of 1998. Costs incurred
relating to the assessment, remediation and testing of these systems have been
minimal and have been expensed as incurred, and any such future costs are
expected to be immaterial.
The traffic scheduling and billing systems currently utilized at the
Company's stations are provided by two suppliers on a Y2K compliant basis, with
the exception of the Company's stations located in the Victorville, California
and the Flint, Michigan markets. By the second quarter of 1999, the Company
intends to have replaced its traffic and billing systems at these Victorville
and Flint stations with systems provided by suppliers utilized by the Company's
other stations. To confirm Y2K compliance of its traffic and billing systems,
the Company intends to conduct and complete tests of these systems during the
second quarter of 1999. The related costs of these replacements will be
capitalized. Any costs that may by incurred relative to the testing and any
necessary remediation are expected to be immaterial.
The Company acquired all but one of its radio stations on or after June
15, 1998 from several independent small operators. As part of the Company's
ongoing plan to provide its stations with a standardized digital audio broadcast
system and, thus, to realize certain of the efficiencies of operating as a
larger broadcast group, the Company has been systematically upgrading the
broadcast systems and other technical equipment at its stations. Although this
upgrading plan has had a business purpose independent of the Y2K compliance
issue, the Company has required, as a matter of course, written assurance from
its suppliers that the new broadcast systems are Y2K compliant. The upgrading
project is 70% complete, with the installation of new Y2K compliant broadcast
systems having been completed for the Company's stations in all of its markets
except the Chico, California, Flint, Michigan and Mansfield, Ohio markets. The
costs of the upgrade project have been included in capital expenditures. Upgrade
of the broadcast systems at the stations in the Flint, Michigan market is
expected to be completed during the fourth quarter of 1998. Upgrades in the
Chico, California and the Mansfield, Ohio markets are expected to be commenced
and completed by the end of the second quarter of 1999. The Company plans to
conduct and complete its own testing of the broadcast systems at all of its
stations by the end of the third quarter of 1999. The cost associated with this
testing is expected to be immaterial.
With respect to the non-IT and business partner interfaces, the Company
intends to begin and substantially complete the assessment phase during the
fourth quarter of 1998. The Company expects that the assessment in these two
areas will be fully completed with a detailed action plan in place by the end of
the first quarter of 1999. As part of the assessment phase, during the fourth
quarter of 1998, the Company plans to engage the services of an independent
consultant to analyze the scope of the Company's Y2K compliance issues,
particularly with respect to its non-IT system risks, and to initiate formal
communications with its advertisers, suppliers, lenders and other key business
partners to determine their exposure to the Y2K issue. Until this process is
underway, the Company cannot assess the degree of Company's risk it may face
from these sources.
Although the Company has not received any information to date that
would lead it to believe its internal Y2K compliance issues will not be able to
be resolved on a timely basis or that the related costs will have a material
adverse effect on the Company's operations, cash flows or financial condition,
the assessment phase of the Company's plans to address Y2K compliance issues is
not complete, in particular an assessment of the risks relative to its non-IT
system and business partner interfaces. The remediation phase is also not
complete with respect to the broadcast systems at the Company's Chico, Flint and
Mansfield stations, and no actual testing of the Company's enhanced or upgraded
systems has been conducted. Accordingly, unexpected costs associated with the
remediation of the Company's systems or with interruption of operation of the
Company's stations could occur and, if material, could have a material adverse
effect on the Company's operations, cash flows and financial condition. Possible
risks include, but are not limited to, loss of power and communications links.
Based on the assessment of external and non-IT system risks and the testing to
be undertaken by the Company, contingency plans will be developed for all
critical systems by the end of the third quarter of 1999.
United States Department of Justice Information Request
- -------------------------------------------------------
On July 29, 1998, the United States Department of Justice ("DOJ")
issued a Civil Investigative Demand ("CID") to the Company requesting
information relating to the Company's acquisition of six radio stations in and
around Redding, California ("Redding Stations"). In response to the CID, the
Company has submitted certain information requested by DOJ so that it may
evaluate whether the Company's acquisition of the Redding Stations was in
violation of applicable federal antitrust laws. The Company believes that its
acquisition of the Redding Stations did not involve a violation of antitrust
laws; however, it can not predict what DOJ will conclude.
Cautionary Statement Concerning Forward-Looking Statements
- ----------------------------------------------------------
This Form 10-Q includes certain forward-looking statements with respect
to the Company that involve risks and uncertainties. Such statements are
influenced by the Company's financial position, business strategy, budgets,
projected costs, and plans and objectives of management for future operations,
and are expressed with words such as "anticipate," "believe," "plan,"
"estimate," "expect," "intend," "project" and other similar expressions.
Although the Company believes its expectations reflected in such forward-looking
statements are based on reasonable assumptions, readers are cautioned that no
assurance can be given that such expectations will prove correct and that actual
results and developments may differ materially from those conveyed in such
forward-looking statements. For these statements, the Company claims the
protections of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995.
Important factors that could cause actual results to differ materially
from the expectations reflected in the forward-looking statements herein include
changes in general economic, business and market conditions, as well as changes
in such conditions that may affect the radio broadcast industry or the markets
in which the Company operates, including, in particular, increased competition
for attractive radio properties and advertising dollars, fluctuations in the
cost of operating radio properties, and changes in the regulatory climate
affecting radio broadcast companies. Such forward-looking statements speak only
as of the date on which they are made, and the Company undertakes no obligation
to update any forward-looking statement to reflect events or circumstances after
the date of this Form 10-Q. If the Company does update or correct one or more
forward-looking statements, readers should not conclude that the Company will
make additional updates or corrections with respect thereto or with respect to
other forward-looking statements.
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
REGENT COMMUNICATIONS, INC.
Date: March 31, 1999 By: /s/ TERRY S. JACOBS
--------------------------------------
Terry S. Jacobs, Chairman of the Board
and Chief Executive Officer
Date: March 31, 1999 By: /s/ ANTHONY A. VASCONCELLOS
--------------------------------------
Anthony A. Vasconcellos,
Chief Financial Officer and
Vice President
(Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGENT
COMMUNICATION INC.'S FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000913015
<NAME> REGENT COMMUNICATIONS
<CURRENCY>US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 393,743
<SECURITIES> 0
<RECEIVABLES> 3,819,723
<ALLOWANCES> 240,000
<INVENTORY> 0
<CURRENT-ASSETS> 12,143,375
<PP&E> 14,885,808
<DEPRECIATION> 5,900,466
<TOTAL-ASSETS> 66,577,504
<CURRENT-LIABILITIES> 12,185,125
<BONDS> 35,048,750
24,358,753
3,857,891
<COMMON> 2,400
<OTHER-SE> (11,527,496)
<TOTAL-LIABILITY-AND-EQUITY> 66,577,504
<SALES> 10,339,931
<TOTAL-REVENUES> 9,484,301
<CGS> 0
<TOTAL-COSTS> 9,553,790
<OTHER-EXPENSES> (6,738)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,029,378
<INCOME-PRETAX> (2,092,129)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,092,129)
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<NET-INCOME> (3,262,209)
<EPS-PRIMARY> (38.38)
<EPS-DILUTED> (38.38)
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