<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) July 31, 1997
UNIVERSAL OUTDOOR HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 000-20823 36-3766705
(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION) FILE NUMBER)
</TABLE>
311 SOUTH WACKER DRIVE, SUITE 6400, CHICAGO, ILLINOIS 60606
REGISTRANT'S TELEPHONE NUMBER: (312) 431-0822
<PAGE>
ITEM 5. OTHER EVENTS.
The registrant is filing certain historical financial statements and
related pro forma financial statements.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Arthur Andersen LLP
99.1 Pro Forma Financial Information
99.2 Financial Statements of Universal Outdoor Holdings, Inc.
and its subsidiary
99.3 Financial Statements of NOA Holding Company
99.4 Financial Statements of Ad-Sign
99.5 Financial Statements of POA Acquisition Corporation
99.6 Financial Statements of Revere Holding Corp. and subsidiaries
-2-
<PAGE>
SIGNATURE
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 thereunto duly authorized.
Universal Outdoor Holdings, Inc.
-------------------------------------
(Registrant)
July 31, 1996 /s/ Brian T. Clingen
-------------------------------------
Brian T. Clingen
Vice President and Chief Financial Officer
-3-
<PAGE>
LIST OF EXHIBITS
Exhibit Page
------- ----
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Arthur Andersen LLP
99.1 Pro Forma Financial Information
99.2 Financial Statements of Universal Outdoor Holdings, Inc.
and its subsidiary
99.3 Financial Statements of NOA Holding Company
99.4 Financial Statements of Ad-Sign
99.5 Financial Statements of POA Acquisition Corporation
99.6 Financial Statements of Revere Holding Corp. and subsidiaries
-4-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-30447) of Universal Outdoor Holdings, Inc. of
our reports dated (i) February 28, 1997 appearing as Exhibit 99.2, (ii)
February 28, 1997, appearing as Exhibit 99.5 and (iii) June 14, 1996
appearing as Exhibit 99.4 of this Form 8-K.
Price Waterhouse LLP
Chicago, Illinois
July 31, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to use of our report dated July 21, 1995, with respect to the con
solidated financial statements of NOA Holding Company for the year ended May
31, 1995, included in Universal Outdoor Holdings, Inc.'s Current Report
on Form 8-K dated July 31, 1997, filed with the Securities and Exchange
Commission.
ERNST & YOUNG LLP
Minneapolis, Minnesota
July 31, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of
this Form 8-K.
Arthur Andersen LLP
Baltimore, Maryland,
July 31, 1997
<PAGE>
EXHIBIT 99.1
PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma combined statement of operations for the year
ended December 31, 1996 gives effect to (i) the Transactions (as defined
below), (ii) the issuance by Universal Outdoor, Inc. ("UOI") of $225 million
of its 9 3/4% Senior Subordinated Notes due 2006 in October 1996 (the
"October Notes") and $100 million of its 9 3/4% Series B Senior Subordinated
Notes due 2006 in December 1996 (the "December Notes") and the issuance by
Universal Outdoor Holdings, Inc. (the "Company") of 6.5 million shares of the
Company's common stock in October 1996 and the application of the net
proceeds therefrom, (iii) the acquisitions of Naegele, Ad-Sign, Inc., Image
Media, Inc. and consummation of the Company's initial public offering of 6.2
million shares of its common stock and the application of the net proceeds
therefrom, and (iv) the net reduction in operating expenses of the businesses
acquired as if each had occurred at the beginning of the period.
The "Transactions" consist of: (i) the acquisition by the Company in
October 1996 of the outstanding capital stock of Outdoor Advertising
Holdings, Inc. for approximately $240 million in cash (the "POA
Acquisition"); (ii) the Company's tender offer, completed in October 1996, to
purchase all of its 14% Senior Secured Discount Notes due 2004 and UOI's
tender offer, completed in October 1996, to purchase all of its outstanding
11% Senior Notes due 2003; (iii) the acquisition by the Company of the
outstanding capital stock of Revere Holding Corp. for approximately $125
million in cash (the "Revere Acquisition"); (iv) the execution of a credit
facility providing for a total commitment of $300 million (the "New Credit
Facility"); (v) the acquisition by the Company of certain assets of Matthew
Outdoor Advertising Acquisition Co. L.P. for approximately $40 million in
cash in September 1996 (the "Matthew Acquisition"); (vi) the acquisition by
the Company in September 1996 of certain assets of Iowa Outdoor Displays and
The Chase Company for approximately $1.8 million and $5.8 million in cash,
respectively, (the "Additional Acquisitions"); and (vii) the acquisition by
the Company of certain assets located in and around Memphis, Tennessee and
Tunica County, Mississippi for approximately $71 million in cash plus 100,000
shares of the Company's common stock (the "Memphis/Tunica Acquisition").
The detail assumptions used to prepare the unaudited pro forma combined
statement of operations is contained in the notes to unaudited pro forma
combined statement of operations. The unaudited pro forma combined statement
of operations reflects the use of the purchase method of accounting for all
acquisitions during 1996.
Pro forma financial information has not been updated through June 30, 1997
due to significant acquisitions of 1997 occurring in early January 1997.
As such, pro forma information for the statement of operations would not be
significantly different from actual. The balance sheet at June 30, 1997,
included herein, includes the significant acquisitions occurring in early
January 1997.
Pro forma adjustments for all acquisitions are based upon preliminary
estimates, available information and certain assumptions that management of
the Company deems appropriate. Final adjustments may differ from the pro
forma adjustments presented herein. The unaudited proforma combined
statement of operations does not purport to present the actual financial
position or results of operations of the Company had the transactions and
events assumed therein in fact occurred on the dates specified, nor are they
necessarily indicative of the results of operations that may be achieved in
the future. The unaudited pro forma combined statement of operations is based
on certain assumptions and adjustments described in the notes thereto and
should be read in conjunction with the notes to unaudited pro forma combined
statement of operations and the separate historical financial statements and
notes which are contained elsewhere herein. Income (loss) is shown before
income taxes and extraordinary items because the Company has sufficient net
operating loss carryforwards to offset taxable income for the periods
presented. Therefore, the presentation of income taxes is neither required
nor meaningful. See the Consolidated Financial Statements and the Notes
thereto of the Company, the Consolidated Financial Statements and the Notes
thereto of NOA Holding Company, the Statement of Revenues and Direct Expenses
and the Notes thereto of Ad-Sign, the Financial Statements and Notes thereto
of POA Acquisition Corporation, and the Consolidated Financial Statements
and Notes thereto of Revere Holding Corp. included elsewhere in this report.
The unaudited pro forma combined statement of operations includes certain
adjustments relating to the acquisitions of the common stock of Naegele,
Outdoor Advertising Holdings, Inc. and Revere Holding Corp. The unaudited pro
forma adjustments reflect an allocation of a portion of the total acquisition
cost to goodwill and the establishment of acquisition liabilities and
deferred tax liabilities for the effects of the significant differences
between the tax basis of the assets acquired and the estimated fair value of
the assets, primarily property and equipment, recorded for financial
statement purposes. Since it is not deductible for tax purposes, no deferred
taxes are required to be recorded for amounts allocated to goodwill. The
unaudited pro forma adjustments in previous filings were prepared on the
belief that the recordable differences in book and tax bases of the assets
acquired would not be significant. As a result of the allocation of total
acquisition cost in this report, depreciation expense has been decreased by
approximately $7.5 million and goodwill amortization increased by
approximately $9.7 million. Pro forma adjustments for all acquisitions are
based upon preliminary estimates, available information and certain
assumptions that the management of the Company deems appropriate. Final
adjustments may differ from the pro forma adjustments presented herein.
1
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
UNIVERSAL
OUTDOOR AD-SIGN, INC MEMPHIS/
HOLDINGS, AND IMAGE POA TUNICA ADDITIONAL REVERE
INC. MEDIA NAEGELE ACQUISITION(1) ACQUISITION ACQUISITIONS ACQUISITION
--------- ------------ ------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue............ 76,138 $ 842 $5,832 $35,815 14,705 $1,166 29,047
--------- ------------ ------- ----------- ----------- ------------ -----------
Operating expenses:
Direct cost of
revenues............ 26,468 322 2,616 10,788 6,315 564 17,333
General and
administrative
expenses............ 10,648 100 1,459 9,613 2,743 304 4,118
Depreciation and
amortization........ 18,286 160 1,053 6,004 1,546 38 5,542
Non cash compensation
for common stock
warrants............ 9,000
--------- ------------ ------- ----------- ----------- ------------ -----------
64,402 582 5,128 26,405 10,604 906 26,993
--------- ------------ ------- ----------- ----------- ------------ -----------
Operating income....... 11,736 260 704 9,410 4,101 260 2,054
Interest expense....... 19,567 -- 468 5,558 89 52 3,392
Other expense.......... 1,398 -- -- (21) -- (84) (8,410)
--------- ------------ ------- ----------- ----------- ------------ -----------
Income (loss) before
income taxes and
extraordinary
items............... (9,229) $ 260 $ 236 $ 3,873 4,012 $ 292 7,072
--------- ------------ ------- ----------- ----------- ------------ -----------
--------- ------------ ------- ----------- ----------- ------------ -----------
<CAPTION>
JULY AND OCTOBER PRO FORMA
MATTHEW OFFERINGS PRO FORMA OFFERING AS
ACQUISITION ACQUISITION ADJUSTMENTS ADJUSTMENTS AS ADJUSTED ADJUSTMENTS ADJUSTED
----------- ------------------------ ------------------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Net revenue............ 8,943 $ 4,123(2)(3) $ -- 176,611 $ -- $176,611
----------- ---------- ---------- ------------ ----------- --------
Operating expenses:
Direct cost of
revenues............ 3,558 2,024(2)(3) -- 69,988 -- 69,988
General and
administrative
expenses............ 1,550 (9,687)(2)(3)(4) -- 20,848 -- 20,848
Depreciation and
amortization........ 993 17,196(2)(3)(5) -- 50,818 -- 50,818
Non cash compensation
for common stock
warrants............ 9,000 9,000
----------- ---------- ---------- ------------ ----------- --------
6,101 9,533 -- 150,654 -- 150,654
----------- ---------- ---------- ------------ ----------- --------
Operating income....... 2,842 (5,410) -- 25,957 -- 25,957
Interest expense....... -- 37,869(2)(3)(6)(7) (23,938)(9) 43,057 1,178(10) 44,235
Other expense.......... -- 8,928(2)(3)(8) -- 1,811 -- 1,811
----------- ---------- ---------- ------------ ----------- --------
Income (loss) before
income taxes and
extraordinary
items............... 2,842 $ (52,207) $ 23,938 $(18,911) $ (1,178) $(20,089)
----------- ---------- ---------- ------------ ----------- --------
----------- ---------- ---------- ------------ ----------- --------
</TABLE>
See accompanying notes to pro forma combined statements of operations.
2
<PAGE>
NOTES TO UNAUDITED COMBINED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
The following explanations describe the assumptions used in determining the
pro forma adjustments necessary to present the pro forma results of operations
of the Company giving effect to the Transactions, the Offering, the October
Offerings, the December Offering and the application of the estimated net
proceeds therefrom, and the net reduction in operating expenses of the
businesses acquired as if each had occurred at the beginning of the period.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
--------------
<C> <S> <C>
1. POA Acquisition Corporation, a wholly-owned subsidiary of OAH, acquired certain assets and
liabilities in the outdoor advertising industry in Florida during May 1996. The historical
financial information includes revenues and expenses associated with the new market prior to
the acquisition:
$ 955
Net revenues............................................................................
710
Direct cost of revenues.................................................................
2. Prior to acquisition by the Company, Revere disposed of certain assets and liabilities in
the outdoor advertising industry in Texas. The following entry eliminates revenues and
expenses associated with the Texas market prior to the acquisition:
$ (3,661)
Net revenue.............................................................................
(2,128)
Direct cost of revenues.................................................................
(568)
General and administrative expenses.....................................................
(765)
Depreciation and amortization...........................................................
(367)
Interest expense........................................................................
(853)
Other...................................................................................
3. Entry records statement of operations activity of Revere from September 30, 1996 through the
date of closing (December 10, 1996):
$ 7,784
Net revenue...............................................................................
4,152
Direct cost of revenues...................................................................
1,081
General and administrative................................................................
1,764
Depreciation and amortization.............................................................
770
Interest expense..........................................................................
848
Other expense.............................................................................
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
--------------
<C> <S> <C>
4. Entry records reduction in general and administrative expenses relating
to elimination of certain duplicate corporate expenses, principally
relating to employee costs and costs relating to other corporate
activities. Amounts have been determined based upon specific employees
identified for termination plus actual benefits costs incurred, and
expenses associated with leased facilities which will not be assumed or
will be canceled upon consummation of the acquisition.
$ 1,875
Naegele, Ad-Sign and Image Media.......................................
-----------
-----------
$ 2,100
POA Acquisition........................................................
1,000
Memphis/Tunica Acquisition.............................................
255
Additional Acquisitions................................................
-----------
$ 3,355
-----------
-----------
$ 3,770
Revere Acquisition.....................................................
1,200
Matthew Acquisition....................................................
-----------
$ 4,970
-----------
-----------
5. Entry records the increase in depreciation and amortization expense
arising from purchase accounting adjustments to advertising structures
and goodwill amortized over a period of 15 years:
$ 460
Naegele, Ad-Sign and Image Media (acquired in March 1996)..............
-----------
-----------
$ 8,480
POA Acquisition (acquired in October 1996).............................
3,101
Memphis/Tunica Acquisition (acquired in January 1997)..................
236
Additional Acquisitions (acquired in September 1996)...................
-----------
$ 11,817
-----------
-----------
$ 2,210
Revere Acquisition (acquired in December 1996).........................
1,710
Matthew Acquisition (acquired in January 1997).........................
-----------
$ 3,920
-----------
-----------
6. Entry records additional interest expense at an assumed rate of 8.25% per $ 5,604
annum to be incurred in connection with the acquisition of Naegele,
Ad-Sign and Image Media which occurred in March of 1996 (debt incurred of
$60.0 million less $1.4 million of interest expense for debt not
assumed).................................................................
-----------
-----------
7. Entry to record additional interest expense at an assumed rate of 8.5%
per annum in connection with the Transactions:
$ 20,400
POA Acquisition (debt incurred of $240.0 million)......................
6,018
Memphis/Tunica Acquisition (debt incurred of $70.8 million)............
646
Additional Acquisitions................................................
-----------
27,064
(5,699)
Actual interest expense for POA Acquisition, Memphis/Tunica Acquisition
and Additional Acquisitions..........................................
-----------
$ 21,365
-----------
-----------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER
31, 1996
-----------
<C> <S> <C> <S> <C>
$ 10,489
Revere Acquisition (debt incurred of $123.4 million)......................................
3,400
Matthew Acquisition (debt incurred of $40.0 million)......................................
--------------
13,889
(3,392)
Actual interest expense for Revere Acquisition and Matthew Acquisition....................
--------------
$ 10,497
--------------
--------------
8. Entry to reduce other income from Revere for the gain recognized on the sale of the Texas $ 8,933
markets.....................................................................................
--------------
--------------
9. Entry to record changes in interest expense:
$ (5,304)
Proceeds of $62.4 million from the offering of Class A Common Stock in July at an assumed
rate of 8.5%............................................................................
(2,550)
KEA V and KEP V and Kelso Designees (as hereafter defined) Investment of $30.0 million at
an assumed rate of 8.5%.................................................................
(17,175)
October Equity Offering proceeds of $202.0 million at an assumed rate of 8.5%.............
2,813
October Notes of $225 million at 9.75% versus assumed rate of 8.5%........................
(1,771)
Refinanced 14% Series A Senior Secured Discount Notes due 2004 of
$50 million at an assumed rate of 9.75% for 10 of 12 months.............................
(677)
Refinanced 11% Series A Senior Secured Discount Notes due 2003 of
$65 million at an assumed rate of 9.75% for 10 of 12 months.............................
726
Amortization of financing costs...........................................................
--------------
$ (23,938)
--------------
--------------
10. Entry to record the changes in interest expense:
$ 1,250
December Notes of $100 million at 9.75% versus an assumed rate of 8.5%....................
(72)
Amortization of deferred financing costs..................................................
--------------
$ 1,178
--------------
--------------
</TABLE>
11. The above pro-forma statement of
operations do not reflect the following
extraordinary losses on the early
retirement of debt:
14% Series A Senior Secured Discount
Notes due 2004:
September 1996...................... $ 1,400
October 1996........................ 10,725
11% Series A Senior Secured Discount
Notes due 2003:
October 1996........................ 14,448
--------
$26,573
--------
--------
5
<PAGE>
EXHIBIT 99.2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Universal Outdoor Holdings, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholders' equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of Universal Outdoor Holdings, Inc. and its subsidiary ("the
Company") at December 31, 1995 and 1996, and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Chicago, Illinois
February 28, 1997
1
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
-------------- -------------- MARCH 31,
1997
------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and equivalents............................................. $ 19 $ 11,631 $ 2,102
Cash held in escrow.............................................. -- 9,455
Accounts receivable, less allowance for doubtful accounts of
$106, $2,849, $106 and $2,123................................... 5,059 20,927 23,929
Other receivables................................................ 201 1,445 2,109
Prepaid land leases.............................................. 1,043 4,010 4,578
Prepaid insurance and other...................................... 1,029 4,173 4,722
-------------- -------------- ------------
Total current assets........................................... 7,351 51,641 37,440
-------------- -------------- ------------
Property and equipment, net (Note 5)............................... 55,346 382,555 513,475
Goodwill and intangible assets, net (Note 6)....................... 2,695 219,009 220,107
Other assets, net (Note 7)......................................... 5,658 25,114 19,845
-------------- -------------- ------------
Total assets....................................................... $ 71,050 $ 678,319 $ 790,867
-------------- -------------- ------------
-------------- -------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt............................. $ 58 $ -- $ --
Accounts payable................................................. 1,225 3,373 2,816
Accrued expenses (Note 8)........................................ 1,931 26,532 36,982
-------------- -------------- ------------
Total current liabilities...................................... 3,214 29,905 39,798
-------------- -------------- ------------
Long-term debt and other obligations (Note 9)...................... 106,362 349,141 451,220
Other long-term liabilities........................................ -- 485 471
Long-term deferred income tax liabilities (Note 11)................ -- 71,700 71,700
Commitments and contingencies (Notes 10 and 13).................... -- -- --
Stockholders' equity (deficit):
Preferred stock, $.01 par value, 10,000,000 shares authorized;
and no shares issued and outstanding............................ -- -- --
Common stock, $.01 par value, 75,000,000 shares authorized;
7,000,000, 23,992,800 and 24,112,800 shares issued and
outstanding..................................................... -- 239 241
Warrants......................................................... 2,500 9,967 9,967
Additional paid in capital....................................... 1,451 295,162 298,000
Accumulated deficit.............................................. (42,477) (78,280) (80,530)
-------------- -------------- ------------
Total stockholders' equity (deficit)........................... (38,526) 227,088 227,678
-------------- -------------- ------------
Total liabilities and stockholders' equity (deficit)............... $ 71,050 $ 678,319 $ 790,867
-------------- -------------- ------------
-------------- -------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31, FOR THE THREE MONTHS ENDED
--------------------------------- --------------------------------
1994 1995 1996 MARCH 31, 1996 MARCH 31, 1997
--------- --------- ----------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.................................... $ 33,180 $ 38,101 $ 84,939 $ 9,332 $ 47,575
Less agency commissions..................... 3,414 3,953 8,801 905 3,567
--------- --------- ----------- ------- ---------------
Net revenues.............................. 29,766 34,148 76,138 8,427 44,008
--------- --------- ----------- ------- ---------------
Operating expenses:
Direct advertising expenses............... 11,806 12,864 26,468 3,571 18,445
General and administrative expenses....... 3,873 4,645 10,648 1,227 4,401
Depreciation and amortization............. 7,310 7,402 18,286 2,032 12,859
Non-cash compensation expense (Note 12)... -- -- 9,000 -- --
--------- --------- ----------- ------- ---------------
22,989 24,911 64,402 6,830 35,705
--------- --------- ----------- ------- ---------------
Operating income............................ 6,777 9,237 11,736 1,597 8,303
--------- --------- ----------- ------- ---------------
Other expense:
Interest expense, including net
amortization of bond discount (premium)
of $1,818, $3,982, $4,256, $1,109 and
$(2)..................................... 9,836 12,234 19,567 3,594 10,735
Other expenses............................ 2,107 706 1,398 11 (182)
--------- --------- ----------- ------- ---------------
Total other expense..................... 11,943 12,940 20,965 3,605 10,553
--------- --------- ----------- ------- ---------------
Loss before extraordinary item.............. (5,166) (3,703) (9,229) (2,008) (2,250)
Extraordinary loss on early extinguishment
of debt.................................... -- -- 26,574 -- --
--------- --------- ----------- ------- ---------------
Net loss.................................... $ (5,166) $ (3,703) $ (35,803) $ (2,008) $ (2,250)
--------- --------- ----------- ------- ---------------
--------- --------- ----------- ------- ---------------
Loss per common and common equivalent share:
Loss before extraordinary item.............. $ (0.67) $ (0.48) $ (0.58) $ (0.26) $ (0.09)
Extraordinary loss.......................... -- -- $ (1.68) -- --
Net loss.................................... $ (0.67) $ (0.48) $ (2.27) $ (0.26) $ (0.09)
Weighted average common and common
equivalent shares outstanding.............. 7,654 7,654 15,787 7,654 24,096
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31, FOR THE THREE MONTHS ENDED
--------------------------------- --------------------------------
1994 1995 1996 MARCH 31, 1996 MARCH 31, 1997
--------- --------- ----------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................. $ (5,166) $ (3,703) $ (35,803) $ (2,008) $ (2,250)
Depreciation.............................. 7,466 10,354 13,309 $ 2,405 8,474
Amortization.............................. 2,126 1,690 4,977 900 4,630
Noncash compensation related to
warrants................................. -- -- 9,000 -- --
Extraordinary loss........................ -- -- 26,574 -- --
Loss on sale of property and equipment.... 90 -- -- -- --
Accretion of preferred stock dividends.... 1,509 -- -- -- --
Changes in assets and liabilities, net of
effects from acquisitions:
Accounts receivable and other
receivables............................ (1,278) (762) (1,200) 113 (3,664)
Prepaid land leases, insurance and
other.................................. (223) (391) 435 (539) (98)
Accounts payable and accrued expenses
....................................... 384 (188) (3,308) 2,018 4,685
--------- --------- ----------- --------------- ---------------
Net cash from operating activities.... 4,908 7,000 13,984 2,889 11,777
--------- --------- ----------- --------------- ---------------
Cash flows used in investing activities:
Capital expenditures...................... (5,671) (5,620) (7,178) (1,966) (3,584)
Payments for acquisitions, net of cash
acquired................................. (3,355) (1,925) (490,813) (13,621) (128,104)
Proceeds from sale of property and
equipment................................ 1,003 -- -- --
Payment for consulting agreement.......... -- (1,400) -- --
Other payments............................ (160) (124) 13 (86) --
--------- --------- ----------- --------------- ---------------
Net cash used in investing activities... (8,183) (9,069) (497,978) (15,673) (131,688)
--------- --------- ----------- --------------- ---------------
Cash flows from (used in) financing
activities:
Proceeds from long-term debt offerings.... 25,408 -- 325,255 --
Long-term debt repayments................. (272) (262) (117,815) (33) (497)
Deferred financing costs.................. (1,888) (336) (14,590) (606)
Net borrowings under credit agreements.... 3,040 2,671 486,052 12,809 102,030
Repayment of credit facilities............ -- -- (475,713) --
Proceeds from equity offerings............ -- -- 292,417 --
Payment for redemption of preferred
stock.................................... (23,015) -- -- --
--------- --------- ----------- --------------- ---------------
Net cash from financing activities...... 3,273 2,073 495,606 12,776 100,927
--------- --------- ----------- --------------- ---------------
Net increase (decrease) in cash and
equivalents................................ (2) 4 11,612 (8) (18,984)
Cash and equivalents, at beginning of
period..................................... 17 15 19 19 21,086
--------- --------- ----------- --------------- ---------------
Cash and equivalents, at end of period...... $ 15 $ 19 $ 11,631 $ 11 $ 2,102
--------- --------- ----------- --------------- ---------------
--------- --------- ----------- --------------- ---------------
Supplemental cash flow information:
Interest paid during the period........... $ 7,885 $ 8,196 $ 10,910 $ 401 $ 1,366
--------- --------- ----------- --------------- ---------------
--------- --------- ----------- --------------- ---------------
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON
SHARES OF STOCK AND TOTAL
SHARES OF COMMON ADDITIONAL STOCKHOLDERS'
COMMON STOCK B AND PAID-IN ACCUMULATED EQUITY
STOCK C CAPITAL WARRANTS DEFICIT (DEFICIT)
----------- ----------- ----------- --------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993...... 7,000 $ 1,051 $ (33,608) $ (32,557)
Debt proceeds attributable to
warrants issued.................. $2,500 2,500
Reclassification of redeemable
common stock..................... 400 400
Net loss.......................... (5,166) (5,166)
----------- ----------- ----------- --------- ------------- --------------
Balance at December 31, 1994...... 7,000 1,451 2,500 (38,774) (34,823)
Net loss.......................... (3,703) (3,703)
----------- ----------- ----------- --------- ------------- --------------
Balance at December 31, 1995...... 7,000 1,451 2,500 (42,477) (38,526)
Issuance of Class B and C common
shares........................... 6,000 30,000 30,000
Issuance of warrants.............. 9,000 9,000
Conversion of Class B and Class C
common stock shares to common
shares........................... 6,000 (6,000)
Initial stock offering proceeds,
net of costs associated with
issuance of $2,082............... 4,630 60,353 60,353
Exercise of warrants.............. 613 1,533 (1,533)
Secondary stock offering proceeds,
net of costs associated with
issuance of $796................. 5,750 202,064 202,064
Net loss.......................... (35,803) (35,803)
----------- ----------- ----------- --------- ------------- --------------
Balance at December 31, 1996...... 23,993 -- $ 295,401 $9,967 $ (78,280 ) $ 227,088
----------- ----------- ----------- --------- ------------- --------------
----------- ----------- ----------- --------- ------------- --------------
(UNAUDITED)
Issuance of common stock shares... 120 2,906 2,906
Costs associated with 1996
offerings........................ (66) (66 )
Net loss for the three months
ended March 31, 1997............. (2,250 ) (2,250 )
----------- ----------- ----------- --------- ------------- --------------
Balance at March 31, 1997......... 24,113 $ 298,241 $ 9,967 $ (80,530 ) $ 227,678
----------- ----------- ----------- --------- ------------- --------------
----------- ----------- ----------- --------- ------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 -- BASIS OF PRESENTATION AND DESCRIPTION OF THE BUSINESS:
Universal Outdoor Holdings, Inc., was incorporated on May 23, 1991 and
through its principal operating subsidiary, Universal Outdoor, Inc.
(collectively, the "Company") is engaged principally in the rental of
advertising space on outdoor advertising structures. The Company operates in
three distinct regions: the Midwest (Chicago, Minneapolis/St. Paul,
Indianapolis, Milwaukee, Des Moines, Evansville, IN and Dallas), the Southeast
(Orlando, Jacksonville, Palm Beach, Ocala and the Atlantic Coast, including
Myrtle Beach and the Gulf Coast areas of Florida, Memphis/Tunica and
Chattanooga), and the East Coast (New York, Washington D.C., Philadelphia,
Northern New Jersey, Wilmington, Salisbury and Hudson Valley, NY).
Historically, manufacturers of tobacco products, principally cigarettes,
have been major users of outdoor advertising displays, including displays
operated by the Company. The following industries generated significant revenues
as a percentage of the Company's net revenues in 1996: tobacco (13.2%);
automotive (10.9%); retail (14.6%); and entertainment (11.2%).
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES:
The summary of significant accounting policies is presented to assist the
reader in understanding and evaluating the Company's consolidated financial
statements. These policies are in conformity with generally accepted accounting
principles consistently applied in all material respects.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intercompany balances, transactions and
profits have been eliminated.
REVENUE RECOGNITION
The Company's revenues are generated from contracts with advertisers
generally covering periods of one to twelve months. The Company recognizes
revenues monthly over the period in which advertisement displays are posted on
the advertising structures. A full month's revenue is recognized in the first
month of posting. Costs incurred for the production of outdoor advertising
displays are recognized in the initial month of the contract or as incurred
during the contract period. Payments received in advance of billings are
recorded as deferred revenues.
CASH AND EQUIVALENTS
The Company considers all highly-liquid investments with original maturities
of three months or less to be cash equivalents.
Cash held in escrow represents a deposit made by Revere Holding Corp. under
an agreement relating to a contemplated acquisition of property. The property
was subsequently not acquired and therefore the funds were returned to cash and
equivalents.
PREPAID LAND LEASES
Most of the Company's advertising structures are located on leased land.
Land rents are typically paid in advance for periods ranging from one to twelve
months. Prepaid land leases are expensed ratably over the related rental term.
6
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Normal maintenance and repair
costs are expensed. Depreciation is computed principally using a straight-line
method over the estimated useful lives of the assets:
<TABLE>
<S> <C>
Buildings........................................................ 39 years
Advertising structures........................................... 15 years
Vehicles and equipment........................................... 5-7 years
</TABLE>
GOODWILL AND INTANGIBLE ASSETS
Non-compete agreements are amortized over their estimated economic lives,
ranging from three to ten years. Goodwill is amortized over fifteen years on a
straight-line basis. The Company reviews the carrying value of intangibles and
other long-lived assets for impairment when events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable. This
review is performed by comparing estimated undiscounted future cash flows from
the use of the asset to the recorded value of the asset.
OTHER ASSETS
Loan costs incurred in connection with obtaining financing have been
deferred and are being amortized on a straight-line basis over the life of the
loans. Acquisition costs are amortized over five years.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of cash and equivalents, accounts receivable and accounts
payable approximate the carrying value because of the immediate or short-term
maturity of these financial instruments. The fair value of the Company's other
financial instruments approximates the carrying value.
STOCK-BASED COMPENSATION
In 1996, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation." In accordance with
provisions of SFAS No. 123, the Company applies fair value accounting for its
stock-based compensation.
EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding during each
year (7,654,000 shares in 1994, 7,654,000 shares in 1995 and 15,787,000 shares
in 1996). All per share information in these financial statements have been
adjusted to give effect to a 16-for-one stock split in July 1996.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
7
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
RECLASSIFICATIONS
Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform with the current year presentation. These
reclassifications had no effect on previously reported net losses.
INTERIM FINANCIAL INFORMATION
The unaudited interim financial information as of March 31, 1997 and 1996
and for the three months then ended has been prepared from the unaudited
financial records of the Company and, in the opinion of management, reflects all
adjustments necessary for a fair presentation of the financial position and
results of operations and of cash flows for the respective interim periods. All
adjustments were of a normal and recurring nature.
NOTE 3 -- EQUITY OFFERINGS AND DEBT REFINANCINGS:
<TABLE>
<S> <C>
Proceeds from equity offerings:
Private investors............................................ $ 30,000
Initial public offering...................................... 60,353
Secondary public offering.................................... 202,064
----------
292,417
----------
Proceeds from long-term debt offerings:
9 3/4% Senior Subordinated Debt.............................. 223,587
9 3/4% Series B Senior Subordinated Debt..................... 101,500
Paramount note............................................... 168
----------
325,255
----------
Proceeds from credit facilities................................ 486,052
----------
Total proceeds from financings............................. 1,103,724
----------
Proceeds from financings used for:
14% Senior Secured Discount Notes repayment.................. 32,718
11% Senior Notes repayment................................... 65,000
Penalty on the early retirement of 11% Senior Notes and 14%
Senior Secured Notes........................................ 18,424
Mortgage and other........................................... 1,673
----------
117,815
Repayment of credit facilities................................. 475,713
Financing costs................................................ 14,590
----------
680,118
----------
Net financing proceeds......................................... $ 495,606
----------
----------
</TABLE>
In April 1996, the Company sold to private investors 2,984,000 shares of
Class B common stock and 3,016,000 shares of Class C common stock for net
proceeds of approximately $30 million. The proceeds were used to assist in
financing the acquisition of NOA Holding Corp.
8
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 3 -- EQUITY OFFERINGS AND DEBT REFINANCINGS: (CONTINUED)
In July 1996, the Company completed an initial public offering (IPO) of
approximately 4,630,000 shares of its common stock, at a price of $14.50 per
share for net proceeds of $60,353. In conjunction with the IPO, the Company
effected a 16-for-one stock split. In October 1996, a secondary offering of
approximately 5,750,000 shares of the Company's common stock was issued at an
offering price of $37.50 per share for net proceeds of $202,064.
At December 31, 1996 the Company's credit facility provides for a total loan
commitment of $230 million with (i) a revolving line of credit facility
providing for borrowings of up to $12.5 million, (ii) an acquisition credit line
in the amount of $212.5 million which is available under a revolving/term loan
facility and (iii) a swing line in the amount of $5 million. In 1996, proceeds
from credit facilities totaled $486,052, while credit facility repayments
totaled $475,713.
The Company completed a public offering of $225 million 9 3/4% Senior
Subordinated Notes due 2006 for net proceeds of $223,587 in October 1996 and a
private offering of $100 million 9 3/4% Series B Subordinated Notes due 2006 for
net proceeds of $101,500 in December 1996 (collectively, "the Notes Offerings").
The net proceeds of the equity offerings and the Notes Offerings together
with the proceeds under the available credit facilities were used to redeem all
of the outstanding 14% Senior Secured Discount Notes due 2003 at $32,718 and the
11% Senior Notes due 2003 at $65,000, pay the $18,424 related penalty, repay
approximately $285 million of the then outstanding credit facility and pay the
purchase price of $25 million relating to certain acquisitions which occurred in
1996. The redemptions during the year resulted in an extraordinary loss of
$26,574.
NOTE 4 -- ACQUISITIONS:
The Company's wholly owned subsidiary, Universal Outdoor, Inc. ("Universal")
completed the following acquisitions for cash during 1996:
<TABLE>
<CAPTION>
PURCHASE PRICE
------------------------
STOCK ASSET
ACQUIRED ACQUISITION ACQUISITION
------------------- ----------- -----------
<S> <C> <C> <C>
Ad-Sign, Inc. January, 1996 $ 12,500
NOA Holding Corp. April, 1996 $ 83,295
Iowa Outdoor Displays September, 1996 1,794
The Chase Company September, 1996 5,800
Outdoor Advertising Holdings, Inc. October, 1996 239,064
Revere Holding Corp. December, 1996 123,794
</TABLE>
9
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 4 -- ACQUISITIONS: (CONTINUED)
The purchase price for accounting purposes was allocated as follows to the
assets purchased and the liabilities assumed based upon the estimated fair
values on the dates of acquisition. It is expected that revisions to the assets
purchased and liabilities assumed will be made during 1997; however, it is not
expected that such revisions will have any material effect.
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
Current assets, other than cash.................................................. $ 22,567
Property and equipment........................................................... 323,624
Goodwill......................................................................... 219,406
Other assets..................................................................... 4,847
Current liabilities.............................................................. (32,497)
Net deferred taxes............................................................... (71,700)
-----------
$ 466,247
-----------
-----------
</TABLE>
All acquisitions have been accounted for under the purchase method of
accounting and, accordingly, the operating results of the acquired businesses
are included in the Company's consolidated financial statements from the
respective dates of acquisition. Where required, net deferred taxes were
recorded representing the temporary difference between the tax attributes
assumed and the recorded fair value as of the date of acquisition. Since it is
not deductible for tax purposes, no deferred taxes are required to be recorded
for amounts allocated to goodwill.
In conjunction with the acquisitions, the Company recorded reserves of
approximately $5.0 million to cover anticipated costs of combining its existing
business with the acquired outdoor advertising businesses. The reserves relate
to liabilities incurred for relocation $(1.6 million), severance $(1.4 million),
facility charges $(1.3 million) and other related expenditures $(0.7 million).
Approximately $1.3 million was charged against this reserve during 1996.
The following unaudited pro forma financial information includes the results
of operations of the 1996 and significant 1997 acquisitions as if the
transactions had been consummated as of the beginning of the periods presented
after including the impact of certain adjustments such as depreciation of
advertising structures, amortization of goodwill and other intangibles,
reduction of corporate expenses and interest expense on debt assumed to have
been incurred to complete the transactions.
<TABLE>
<CAPTION>
1995 1996 FOR THE THREE
------------ ------------ MONTHS ENDED
MARCH 31, 1996
(UNAUDITED) (UNAUDITED) ---------------
(UNAUDITED)
<S> <C> <C> <C>
Net revenues.................................... $ 162,758 $ 176,611 $ 40,031
Depreciation and amortization................... 50,818 50,818 12,705
Operating income................................ 24,836 34,957 5,115
Interest expense................................ 40,670 44,235 11,089
Loss before income taxes and extraordinary
loss........................................... (15,962) (20,089) (5,974)
Loss before income taxes........................ $ (15,962) $ (37,663) $ (5,974)
Loss per share.................................. $ (1.01) $ (2.39) $ (0.25)
</TABLE>
10
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 4 -- ACQUISITIONS: (CONTINUED)
These unaudited pro forma results are not necessarily indicative of what
actually would have occurred if the acquisitions had been in effect for the
entire periods presented and are not intended to project future results.
NOTE 5 -- PROPERTY AND EQUIPMENT:
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
--------- -----------
<S> <C> <C>
Outdoor advertising structures....................................... $ 76,340 $ 390,963
Land and capitalized land lease costs................................ 2,232 12,130
Vehicles and equipment............................................... 4,712 12,744
Building and leasehold improvements.................................. 3,150 11,087
Display faces under construction..................................... 1,344 748
--------- -----------
87,778 427,672
Less accumulated depreciation........................................ 32,432 45,117
--------- -----------
$ 55,346 $ 382,555
--------- -----------
--------- -----------
</TABLE>
NOTE 6 -- GOODWILL AND INTANGIBLE ASSETS:
Goodwill and intangible assets consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
--------- -----------
<S> <C> <C>
Non-compete agreements................................................. $ 6,500 $ 6,642
Goodwill............................................................... 930 221,909
--------- -----------
7,430 228,551
Less accumulated amortization.......................................... 4,735 9,542
--------- -----------
$ 2,695 $ 219,009
--------- -----------
--------- -----------
</TABLE>
NOTE 7 -- OTHER ASSETS:
Other assets consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
--------- -----------
<S> <C> <C>
Financing costs........................................................ $ 6,284 $ 24,980
Deposits............................................................... 20 5,073
Other.................................................................. 1,211 4,815
--------- -----------
7,515 34,868
Less accumulated amortization.......................................... 1,857 9,754
--------- -----------
$ 5,658 $ 25,114
--------- -----------
--------- -----------
</TABLE>
11
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 8 -- ACCRUED EXPENSES:
Accrued expenses consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Interest payable........................................................ $ 1,054 $ 5,667
Other taxes payable..................................................... -- 4,070
Employee compensation and related taxes................................. 184 2,479
Deferred revenue........................................................ 468 2,114
Accrued leases.......................................................... -- 1,599
Severance and relocation................................................ -- 2,121
Professional services................................................... -- 1,935
Lease and maintenance................................................... -- 2,392
Other................................................................... 225 4,155
--------- ---------
$ 1,931 $ 26,532
--------- ---------
--------- ---------
</TABLE>
NOTE 9 -- LONG-TERM DEBT AND OTHER OBLIGATIONS:
Long-term debt and other obligations consist of the following at December
31:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
9 3/4% Senior Subordinated Notes due 2006, net of discount of
$1,389............................................................. $ -- $ 223,611
9 3/4% Series B Senior Subordinated Notes due 2006, net of premium
of $1,487.......................................................... -- 101,487
Revolving Credit Loan............................................... 3,286 --
Acquisition Credit Loan............................................. 6,375 --
Acquisition Term Loan -- 20,000
14% Senior Secured Discount Notes, due 2004, net of discount of
$20,918............................................................ 29,083 --
11% Senior Notes due 2003, net of discount of $839.................. 64,161 --
Other obligations................................................... 3,515 4,043
----------- -----------
106,420 349,141
Less current maturities of long-term debt and other obligations..... 58 --
----------- -----------
$ 106,362 $ 349,141
----------- -----------
----------- -----------
</TABLE>
9 3/4% SENIOR SUBORDINATED NOTES
The Senior Notes mature on October 15, 2006 and bear interest at 9 3/4%
payable semiannually on April 15 and October 15, beginning on April 15, 1997.
The Company is required to meet certain financial tests which include those
relating to the maintenance of a minimum fixed charge ratio, minimum adjusted
EBITDA (earnings before interest, taxes, depreciation and amortization) and a
senior leverage ratio.
The Senior Notes are general unsecured obligations of the Company and are
subordinated to all existing and future Senior Debt, including the indebtedness
under the credit facilities. The indenture governing the Senior Notes contains
certain restrictive covenants including, among others, limitations on
12
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 9 -- LONG-TERM DEBT AND OTHER OBLIGATIONS: (CONTINUED)
additional debt incurrence, restrictions on distributions to shareholders, the
creation of liens, the merger or sale of substantially all of the Company or its
operating subsidiaries assets and engaging in certain transactions with
affiliates.
9 3/4% SERIES B SENIOR SUBORDINATED NOTES
The Series B Senior Notes mature on October 15, 2006 and bear interest at
9 3/4% payable semiannually on April 15 and October 15, beginning on April 15,
1997. The Company is required to meet certain financial tests which include
those relating to the maintenance of a minimum fixed charge ratio and minimum
adjusted EBITDA.
The Series B Senior Notes are general unsecured obligations of the Company
and are subordinated to all existing and future Senior Debt, including
indebtedness under the credit facilities. The indenture governing the Series B
Senior Notes contains certain restrictive covenants including, among others,
limitations on additional debt incurrence, restrictions on distributions to
shareholders, the creation of liens, the merger or sale of substantially all of
the Company's assets and engaging in certain transactions with affiliates.
CREDIT FACILITIES
In October 1996, the Company amended and restated its existing credit
facilities to provide for a total loan commitment of $230 million with (i) a
revolving line of credit facility providing for borrowings of up to $12.5
million, (ii) an acquisition credit line in the amount of $212.5 million which
is available under a revolving/term loan facility and (iii) a swing line in the
amount of $5 million. Upon the failure of certain events to occur prior to
October 1997, a total of $100 million under the $212.5 million revolving/ term
loan facility may be converted to a term facility which may not be reborrowed.
Approximately $212.5 million of the credit facility matures on September 30,
2003 with the remaining amount maturing on September 30, 2004. As of December
31, 1996, the Company had drawn down $20 million under the acquisition credit
facility and had no borrowings under the revolving credit facility or the swing
line of credit.
The loans under the revolving credit facility and acquisition term loan bear
interest at the rate per annum equal to the prime rate or euro dollar rate, plus
an additional 0% to 2.75% depending on the leverage ratio of the Company as
defined in the credit facility agreement. The interest rate in effect during
1996 ranged from 7.875% to 10%. Interest on the credit facility is payable upon
the date of maturity.
Each of the revolving credit facility and the acquisition credit facility
are secured by a first priority lien on the assets of Universal and upon the
existence of certain conditions, a pledge of the common stock of the Company
held by certain management shareholders, as well as the pledge of the Company's
stock. Borrowings under the new credit facility are subject to certain
restrictive covenants including, among others, a minimum fixed charge ratio, a
minimum adjusted EBITDA and maximum senior leverage ratio. The new credit
facility contains certain restrictive covenants including, among others,
limitations on additional debt incurrence, restrictions on distributions to
shareholders, the creation of liens, the merger or sale of substantially all of
the Company's assets and engaging in certain transactions with affiliates.
Commitment fees are 1/2 percent on the unused portion of the acquisition credit
line and the revolving credit facility.
Net debt issuance costs of $14,100 were capitalized in 1996 and are being
amortized on a straight-line basis over the term of the debt.
13
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 9 -- LONG-TERM DEBT AND OTHER OBLIGATIONS: (CONTINUED)
Future maturities of long-term debt and other obligations as of December 31,
1996 are as follows:
<TABLE>
<S> <C>
1997............................................................. $ --
1998............................................................. 20,352
1999............................................................. 1,991
2000............................................................. --
2001............................................................. 500
2002 and thereafter.............................................. 326,298
---------
Total............................................................ $ 349,141
---------
---------
</TABLE>
NOTE 10 -- LEASE COMMITMENTS:
Rent expense totaled $4,600, $4,600 and $13,002 in 1994, 1995 and 1996,
respectively. Minimum annual rentals under the terms of noncancelable operating
leases with terms in excess of one year in effect at December 31, 1996 are
payable as follows:
<TABLE>
<CAPTION>
YEAR CAPITAL OPERATING
- ------------------------------------------------------------------------ ----------- -----------
<S> <C> <C>
1997.................................................................... $ 275 $ 448
1998.................................................................... 233 277
1999.................................................................... 117 172
2000.................................................................... 26 126
2001.................................................................... -- 18
----- -----------
Total minimum lease payments.......................................... 651 $ 1,041
-----------
-----------
Less: amounts representing interest..................................... (71)
-----
Present value of minimum lease payments................................. 580
Less: current portion................................................... 235
-----
Long-term capitalized lease obligations................................. $ 345
-----
-----
</TABLE>
NOTE 11 -- INCOME TAXES:
The Company incurred a net operating loss in 1994, 1995 and 1996; therefore,
no provision for income taxes was required.
14
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 11 -- INCOME TAXES: (CONTINUED)
Deferred tax assets (liabilities) consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
--------- ----------
<S> <C> <C>
Deferred tax liabilities:
Property and equipment................................................ $ -- $ (99,212)
--------- ----------
Total deferred tax liabilities...................................... -- (99,212)
--------- ----------
Deferred tax assets:
Bad debts............................................................. 42 897
Non-deductible accrued expenses....................................... 53 2,140
Property and equipment................................................ 523 --
Goodwill and intangibles.............................................. -- 6,112
Non-deductible interest............................................... 1,803 --
Warrants.............................................................. -- 3,600
Operating loss and credit carryforwards............................... 6,202 34,628
--------- ----------
Total deferred tax assets........................................... 8,623 47,377
--------- ----------
Valuation allowance................................................... (8,623) (19,865)
--------- ----------
Net deferred tax liabilities........................................ $ -- $ (71,700)
--------- ----------
--------- ----------
</TABLE>
The Company has established a valuation allowance against a portion of its
operating loss and credit carryforwards following an assessment of the
likelihood of realizing such amounts. In arriving at the determination as to the
amount of the valuation allowance required, the Company considered its past
operating history as well as significant acquisitions made in 1996, statutory
restrictions on the use of operating losses from acquisitions acquired during
the year, tax planning strategies and its expectation of the level and timing of
future taxable income.
At December 31, 1996, the Company had net operating loss and credit
carryforwards for federal income tax purposes of approximately $86 million.
Included in total net operating loss carryforwards is approximately $45 million
of operating loss and credit carryforwards generated by certain acquired
companies prior to their acquisition by the Company. Total carryforwards expire
between 2005 and 2011. During the current fiscal year, the Company did not
utilize any net operating loss or credit carryforwards.
The Company experienced an ownership change within the meaning of Section
382 of the Internal Revenue Code. As such, the utilization of net operating loss
carryforwards are subject to an annual limitation based upon the value of the
Company on the change date. The acquisition of Outdoor Advertising Holdings,
Inc. and Revere Holding Corp. resulted in an "ownership change" and a limitation
is imposed on the acquired net operating loss carryforwards in these
acquisitions. Furthermore, the Company's use of the net operating loss
carryforwards are subject to limitations applicable to corporations filing
consolidated federal income tax returns.
15
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 12 -- WARRANTS:
The following table summarizes the Company's warrant activity:
<TABLE>
<CAPTION>
EXERCISE
1995 1996 PRICE
----------- ----------- ------------
<S> <C> <C> <C>
Number of shares under warrants:
Beginning of year................................... 1,000,000 1,000,000 $ .000625
Granted............................................. -- 2,470,608 $ 5.00
Exercised........................................... -- (612,800)
Canceled/expired.................................... -- --
----------- -----------
Warrants outstanding at end of year................. 1,000,000 2,857,808
----------- -----------
----------- -----------
Warrants exercisable at end of year................. 1,000,000 2,857,808
----------- -----------
----------- -----------
</TABLE>
In 1994, the Company issued 1,000,000 warrants which expire on July 1, 2004.
The warrants were assigned, based on market conditions at the time of grant, a
value of $2,500. Each warrant entitles the holder to purchase one share of
common stock (the "warrant share"). In July 1996, a total of 612,800 warrants
were exercised into warrant shares. A total of 387,200 warrants remain
exercisable into warrant shares.
In April 1996, key executives and employees were granted 2,470,608 warrants
to purchase common shares (the "1996 Warrant Plan"). Each warrant is fully
exercisable into one share of common stock at a warrant exercise price of $5.00
per share. A total of 2,470,608 shares of common stock have been reserved for
issuance pursuant to the warrants issued in 1996. The fair value of each warrant
was estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions used for grants in 1996:
dividend yield of 0%, expected stock price volatility of 39.42%, risk-free
interest rate of 6.28% and expected lives of 7 years. The Company recognized a
one-time non-cash compensation charge of $9 million relating to the issuance of
the warrants under the 1996 Warrant Plan.
NOTE 13 -- CONTINGENCIES:
The Company, as the successor to Outdoor Advertising Holdings, Inc. and POA
Acquisition Company ("POA"), is a defendant in a case pending in the United
States District Court, Middle District of Florida. The plaintiffs alleged that
POA, among others, conspired to restrain trade and to monopolize the market for
leases for land on which outdoor advertising structures can be erected. The case
was set for trial in January 1997 and has been continued pending court
availability. The plaintiffs have alleged that the acts on the defendants
resulted in harm to the plaintiffs and damages of $4 to $12 million, which could
be trebled under the applicable laws. The Company intends to defend the case
vigorously. There can be no assurance as to the ultimate outcome of this
litigation although management does not presently believe it will have a
material adverse effect on its results of operations or financial condition.
The case was settled in March 1997 with no material adverse effect on the
results of operations or financial condition of the Company (Unaudited).
The Company is subject to various other claims and routine litigation
arising in the ordinary course of business. Based on the advice of counsel,
management does not believe that the result of such other claims and litigation,
individually or in the aggregate, will have a material effect on the Company's
business or its results of operations, cash flows or financial position.
16
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 14 -- QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized quarterly financial data for 1996 is as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
--------- --------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1996
Net revenues.................................. $ 8,427 $ 17,812 $ 18,643 $ 31,256
Operating income.............................. 1,597 (1,638) 5,874 5,903
Income (loss) before extraordinary item....... (2,008) (8,148) 1,991 (1,064)
Net income (loss)............................. (2,008) (8,148) 591 (26,238)
Per Share:
Income (loss) before extraordinary item..... $ (.26) $ (1.06) $ .10 $ (.04)
Net income (loss)............................. $ (.26) $ (1.06) $ .03 $ (1.08)
Weighted average shares outstanding........... 7,654 7,654 19,297 24,343
</TABLE>
In the third quarter of 1996, the Company recorded a non-cash compensation
charge in the amount of $9 million relating to management warrants.
In 1996, the Company recorded an extraordinary loss of $26,574 related to
the early retirement of the 11% Senior Notes and the 14% Senior Secured Notes.
Summarized quarterly financial data for 1995 is as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
--------- --------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1995
Net revenues.................................. $ 7,236 $ 9,175 $ 8,940 $ 8,797
Operating income.............................. 1,319 3,055 2,458 2,405
Income (loss) before extraordinary item....... (1,778) (215) (811) (899)
Net loss...................................... (1,778) (215) (811) (899)
Per Share:
Loss before extraordinary item.............. $ (.23) $ (.03) $ (.11) $ (.12)
Net income (loss)........................... $ (.23) $ (.03) $ (.11) $ (.12)
Weighted average shares outstanding........... 7,654 7,654 7,654 7,654
</TABLE>
NOTE 15 -- RELATED-PARTY TRANSACTIONS:
During 1996 the Company paid management fees in the amount of $1,250 to a
private investor, which is included in other expenses on the Consolidated
Statement of Operations.
NOTE 16 -- SUBSEQUENT EVENTS:
In January 1997, the Company acquired a total of approximately 2,018
advertising display faces located in and around Memphis, Tennessee. The purchase
price was approximately $71 million plus 100,000 shares of common stock of the
Company issued on January 2, 1997 at market value.
In January 1997, the Company acquired a total of approximately 1,035
advertising display faces located in three markets in the east coast of the
United States, including Metro New York, Northern New Jersey and Hudson Valley,
for approximately $40 million in cash.
17
<PAGE>
UNIVERSAL OUTDOOR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 16 -- SUBSEQUENT EVENTS: (CONTINUED)
In February 1997, the Company acquired a total of approximately 135
advertising display faces located in and around Evansville, Indiana for
approximately $5.5 million in cash. The Company also acquired 12 existing
advertising display faces and 35 in process display faces in New Jersey for
approximately $5.3 million in cash.
In February 1997, the Company agreed to acquire approximately 1,450
advertising display faces in the Baltimore metropolitan area for $46.5 million
in cash.
(UNAUDITED)
In March 1997, the Company acquired a total of approximately 600 bus
shelters and panels in and around Memphis, Tennessee for approximately $8.5
million in cash.
In March 1997, the Company acquired $600,000 of outdoor advertising
properties in Florida in exchange for 20,000 shares of its common stock.
In April 1997, the Company entered into an agreement to purchase 91
advertising display faces in and around New York, New York for approximately
$51.0 million in cash.
In May 1997, the Company amended its existing credit facilities to provide
for an additional loan commitment of $75 million in the form of a term loan
which was drawn upon in May 1997.
18
<PAGE>
EXHIBIT 99.3
REPORT OF INDEPENDENT AUDITORS
Board of Directors
NOA Holding Company
We have audited the accompanying consolidated balance sheets of NOA Holding
Company as of May 31, 1994 and 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended May 31, 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of NOA Holding
Company as of May 31, 1994 and 1995 and the consolidated results of its
operations and cash flows for each of the three years in the period ended May
31, 1995 in conformity with generally accepted accounting principles.
Ernst & Young LLP
Minneapolis, Minnesota
July 21, 1995
1
<PAGE>
NOA HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 31,
--------------------
MARCH 31,
1994 1995 1996
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash....................................................... $ 1,619 $ 1,630 $ 906
Accounts receivable, net of allowance for doubtful accounts
of $346,000 in 1994 and $338,000 in 1995.................. 4,384 4,517 3,639
Other receivables.......................................... 256 262 126
Inventories................................................ 267 282 153
Current portion of prepaid leases.......................... 1,183 1,098 1,059
Prepaid expenses........................................... 390 274 191
Other assets............................................... 150 35 210
--------- --------- -----------
Total current assets................................... 8,249 8,098 6,284
--------- --------- -----------
Long-term portion of prepaid leases.......................... 312 509 545
Property and equipment, net (Note 3)......................... 23,562 22,357 14,422
Intangibles, net (Note 4).................................... 17,505 12,374 5,714
--------- --------- -----------
Total assets........................................... $ 49,628 $ 43,338 $ 26,965
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................... $ 605 $ 650 $ 460
Revolving credit........................................... 200 -- --
Accrued interest........................................... 598 191 393
Other accrued expenses..................................... 1,626 1,800 1,705
Deferred revenue........................................... 100 66 137
Current portion of long-term debt.......................... 6,000 608 90
--------- --------- -----------
Total current liabilities.............................. 9,129 3,315 2,785
--------- --------- -----------
Long-term debt (Note 5)...................................... 29,657 30,324 4,552
Other long-term liabilities.................................. 577 480 932
STOCKHOLDERS' EQUITY (NOTES 8 AND 9)
Preferred stock, par value $.10 per share:
Authorized shares -- 1,000
Issued shares -- 1,000..................................... -- -- --
Class A common stock, par value $.01 per share:
Authorized shares -- 200,000
Issued shares -- 81,693.70 in 1994 and 72,919.94 in 1995... 1 1 1
Class B common stock, par value $.01 per share:
Authorized shares -- 25,000
Issued shares -- 13,199.82 in 1994 and 6,172.16 in 1995.... -- -- --
Additional paid-in capital................................... 19,524 18,857 18,857
Retained deficit............................................. (9,260) (9,639) (162)
--------- --------- -----------
Total stockholders' equity............................. 10,265 9,219 18,696
--------- --------- -----------
Total liabilities and stockholders' equity............. $ 49,628 $ 43,338 $ 26,965
--------- --------- -----------
--------- --------- -----------
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
NOA HOLDING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TEN MONTHS ENDED
YEAR ENDED MAY 31 MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues............................................... $ 33,503 $ 33,784 $ 37,054 $ 30,369 $ 28,964
Less agency commissions and discounts.................. 4,394 4,082 4,553 3,730 3,570
--------- --------- --------- --------- ---------
Net revenue............................................ 29,109 29,702 32,501 26,639 25,394
Operating expenses:
Production........................................... 6,876 6,466 6,472 5,416 4,697
Real estate rental................................... 6,763 7,143 7,556 6,212 6,021
Selling.............................................. 2,364 2,773 2,545 2,108 1,803
General and administrative........................... 4,951 5,294 5,388 4,391 3,509
Depreciation and amortization........................ 6,726 6,816 7,201 6,589 5,073
--------- --------- --------- --------- ---------
27,680 28,492 29,162 24,716 21,103
--------- --------- --------- --------- ---------
Operating profit....................................... 1,429 1,210 3,339 1,923 4,291
Interest............................................... 3,613 3,479 3,062 2,601 1,769
Gain on sale of assets................................. -- -- -- -- (9,983)
--------- --------- --------- --------- ---------
Net income (loss) before income taxes.................. (2,184) (2,269) 277 (678) 12,505
Income taxes........................................... -- -- -- -- 2,441
--------- --------- --------- --------- ---------
Net income (loss)...................................... (2,184) (2,269) 277 (678) 10,064
Dividends on preferred stock........................... (594) -- -- -- (587)
--------- --------- --------- --------- ---------
Net income (loss) applicable to common shares.......... $ (2,778) $ (2,269) $ 277 $ (678) $ 9,477
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
NOA HOLDING COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK CLASS A COMMON CLASS B COMMON
STOCK STOCK ADDITIONAL
--------------- ---------------- ------------------ PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
------ ------ --------- ----- ---------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1992................. 1,000 $-- 81,693.70 $ 1 13,199.82 $-- $19,228 $ (3,612)
Dividends declared.................... -- -- -- -- -- -- -- (594)
Net loss.............................. -- -- -- -- -- -- -- (2,184)
------ ------ --------- ----- ---------- ------ --------- --------
Balance at May 31, 1993................. 1,000 -- 81,693.70 1 13,199.82 -- 19,228 (6,390)
Dividends declared.................... -- -- -- -- -- -- -- (305)
Dividends in-kind..................... -- -- -- -- -- -- 296 (296)
Net loss.............................. -- -- -- -- -- -- -- (2,269)
------ ------ --------- ----- ---------- ------ --------- --------
Balance at May 31, 1994................. 1,000 -- 81,693.70 1 13,199.82 -- 19,524 (9,260)
Dividends in-kind..................... -- -- -- -- -- -- 961 (656)
Proceeds from issuance of stock....... -- -- -- -- 3,852.63 -- -- --
Stock redemptions relative to the sale
of Pony Panels....................... -- -- (7,599.32) -- (9,754.26) -- (1,372) --
Repurchases of stock.................. -- -- (1,174.44) -- (1,126.03) -- (270) --
Compensation expense on stock
issuances............................ -- -- -- -- -- -- 14 --
Net income............................ -- -- -- -- -- -- -- 277
------ ------ --------- ----- ---------- ------ --------- --------
Balance at May 31, 1995................. 1,000 $-- 72,919.94 $ 1 6,172.16 $ -- $18,857 $ (9,639)
Net income (unaudited)................ -- -- -- -- -- -- -- 9,477
------ ------ --------- ----- ---------- ------ --------- --------
Balance at March 31, 1996 (unaudited)... 1,000 $ 72,919.94 $ 1 6,172.16 $-- $18,857 $ (162)
------ ------ --------- ----- ---------- ------ --------- --------
------ ------ --------- ----- ---------- ------ --------- --------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
NOA HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TEN MONTHS ENDED
YEAR ENDED MAY 31 MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................ $ (2,184) $ (2,269) $ 277 $ (678) $ 9,477
Adjustments to reconcile to net cash provided by
operating activities:
Depreciation and amortization.......................... 6,726 6,816 7,201 6,589 5,073
Gain on sale of assets................................. -- -- -- -- (9,983)
Deferred tax provision................................. 550
Barter revenue resulting from purchases of equipment... (108) -- -- -- --
Stock compensation expense............................. -- -- 14 -- --
Changes in operating assets and liabilities:
Accounts receivable.................................. (444) (57) (320) 118 (7)
Other current and noncurrent assets.................. (36) 628 98 66 (123)
Accounts payable..................................... 191 144 45 (108) --
Accrued expenses, deferred revenue and other......... 5 (477) (59) (231) (452)
--------- --------- --------- --------- ---------
Net cash provided by operating activities................ 4,150 4,785 7,256 5,756 4,535
--------- --------- --------- --------- ---------
INVESTING ACTIVITIES
Capital expenditures for signs........................... (928) (1,459) (1,636) (1,146) (1,164)
Proceeds from disposal of signs.......................... 150 301 51 26 106
Other capital expenditures............................... -- (242) (338) (293) (235)
Proceeds from the sale of assets......................... -- -- 542 542 21,784
--------- --------- --------- --------- ---------
Net cash used in investing activities.................... (778) (1,400) (1,381) (871) 20,491
--------- --------- --------- --------- ---------
FINANCING ACTIVITIES
Net borrowings from bank................................. -- 200 -- -- 1,500
Dividends paid........................................... (594) (296) -- -- --
Increase in preferred stock.............................. -- -- -- -- 540
Principal payments of bank debt.......................... (3,100) (3,043) (5,157) (4,357) (27,700)
Payments to revise credit agreement...................... -- -- (669) (668) --
Principal payments on notes payable...................... -- -- (38) -- (90)
--------- --------- --------- --------- ---------
Net cash used in financing activities.................... (3,694) (3,139) (5,864) (5,025) (25,750)
--------- --------- --------- --------- ---------
Net cash provided........................................ (322) 246 11 (140) (724)
Cash at beginning at of period........................... 1,695 1,373 1,619 1,619 1,630
--------- --------- --------- --------- ---------
Cash at end of period.................................... $ 1,373 $ 1,619 $ 1,630 $ 1,479 $ 906
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
Supplemental schedule of noncash operating and investing activities:
The Company sold the net assets of Pony Panels on August 31, 1994 as part
of a stock redemption. The book value of the net assets sold totaled
approximately $1,900,000.
The Company incurred long-term obligations of $270,000 for stock
redemptions made during the year ended May 31, 1995.
Purchases of equipment resulting from barter agreements totaled $108,000
for the year ended May 31, 1993. There were no such purchases in 1994 and
1995.
See notes to consolidated financial statements.
5
<PAGE>
NOA HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements consolidate the accounts of NOA
Holding Company (formerly McCarty Holding Company, Inc.) and its wholly-owned
subsidiary, Naegele Outdoor Advertising Company. All intercompany transactions
have been eliminated in consolidation.
REVENUE RECOGNITION
Advertising revenue is recognized monthly over the period in which
advertisement displays are posted on the advertising structures. A full month's
revenue is recognized in the first month of posting. The direct costs incurred
to produce the related advertisements are expensed as incurred. Payments
received in advance of billings are recorded as deferred revenue.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Maintenance, repairs and
renewals, which neither materially add to the value of the property, nor
appreciably prolong its life, are charged to expense as incurred.
Depreciation of property and equipment is provided on declining balance and
straight-line methods over useful lives of 3 to 25 years.
INTANGIBLE ASSETS
Intangibles assets are carried and are amortized on the straight-line method
over useful lives of 5 to 40 years. Goodwill represents the cost of acquired
businesses in excess of amounts assigned to tangible and intangible assets at
the date of acquisition.
INVENTORIES
Inventories consist principally of supplies and are stated at lower of cost
or market as determined on a first-in, first-out basis.
INCOME TAXES
Income taxes are computed in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes".
BARTER TRANSACTIONS
The Company occasionally enters into agreements to trade advertising space
for goods or services. Prior to December 8, 1992, the Company did not record
such arrangements as revenue unless the items bartered for were capital items.
The impact on revenues and expense of barter transactions not recorded in fiscal
1993 was $164,000.
RECLASSIFICATION
Certain amounts previously reported in 1993 and 1994 have been reclassified
to conform to the 1995 presentation.
INTERIM FINANCIAL INFORMATION
The interim financial information as of March 31, 1996 and 1995 and for the
ten months then ended has been prepared from the unaudited financial records of
the Company and, in the opinion of management, reflects all adjustments
necessary for a fair presentation of the financial position and results of
operations and of cash flows for the respective interim periods. All adjustments
were of a normal and recurring nature.
6
<PAGE>
NOA HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1995
2. ACQUISITIONS
Effective January 19, 1994, the Company purchased Atlantic Outdoor
Advertising, Inc. for $1 million. The acquisition was recorded using the
purchase method of accounting for business combinations.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
ESTIMATED
1994 1995 USEFUL LIFE
--------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Land............................................................. $ 1,235 $ 1,294 --
Advertising structures........................................... 24,825 25,256 20 years
Buildings........................................................ 491 491 10-25 years
Machinery and equipment.......................................... 1,180 1,201 6 years
Office furniture and equipment................................... 1,896 1,865 5-10 years
Automobiles and trucks........................................... 1,045 1,124 5 years
Other............................................................ 384 370 3-10 years
--------- ---------
31,056 31,601
Less accumulated depreciation.................................... 7,494 9,244
--------- ---------
$ 23,562 $ 22,357
--------- ---------
--------- ---------
</TABLE>
4. INTANGIBLES
The intangibles consisted of the following:
<TABLE>
<CAPTION>
ESTIMATED
1994 1995 USEFUL LIFE
--------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Advertising site leases............................................. $ 22,760 $ 21,762 7 years
Covenant not to compete............................................. 3,118 3,129 5 years
Goodwill............................................................ 2,159 2,030 40 years
Loan costs.......................................................... 2,028 2,697 6 years
Organization costs.................................................. 506 503 5 years
--------- ---------
30,571 30,121
Less accumulated amortization....................................... 13,066 17,747
--------- ---------
$ 17,505 $ 12,374
--------- ---------
--------- ---------
</TABLE>
The advertising site leases and covenant not to compete were recorded as a
result of an acquisition in May 1991. Their cost represents management's best
estimate of the fair value at the date of acquisition. The loan costs represent
fees paid to obtain a bank term loan and line of credit in 1991 and to refinance
the term loan and line of credit in August 1994. In connection with the loan
refinancing, the Company wrote-off approximately $1 million of unamortized loan
costs. The organization costs are management's estimate of the portion of
various fees paid which are allocable to this asset.
7
<PAGE>
NOA HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1995
5. DEBT
Long-term debt consists of the following at May 31:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Revolving Credit Commitment under the Amended and Restated Credit
Agreement dated August 31, 1994....................................... $ -- $ 30,700
Term loans under the Credit Agreement dated as of May 22, 1991......... 35,657 --
Revolving Credit Loan under the Credit Agreement dated as of May 22,
1991.................................................................. 200 --
Subordinated note payable, annual installments of $52 through July
1997, plus quarterly interest payments at prime....................... -- 157
Subordinated notes payable, annual installments of $38 through March
1997, plus quarterly interest payments at prime....................... -- 75
--------- ---------
35,857 30,932
Less current portion................................................... 6,200 608
--------- ---------
$ 29,657 $ 30,324
--------- ---------
--------- ---------
</TABLE>
The Company amended and restated its bank Credit Agreement on August 31,
1994 and established a Revolving Credit Commitment of up to $38,000,000 and an
Acquisition Loan Commitment of up to $5,000,000. Both commitments decrease
quarterly each fiscal year and terminate on February 28, 2001. The available
Revolving Credit Commitment at May 31, 1995 was $32,800,000. At year end there
were no borrowings against the $5,000,000 Acquisition Loan Commitment. As part
of the Agreement, interest on the first $20,000,000 of debt is payable under an
Interest Rate Protect Plan ("IPP"). The IPP provides for a fixed rate of 6.28%
plus applicable margin (2.5% at May 31, 1995) for a period of three years and
began August 5, 1994. The Amended and Restated Credit Agreement also enables the
Company to borrow the remainder of the debt at a rate equal to either the Loan
Interbank Offered Rate (LIBOR) plus 3.0% or at the Lending Agent's base rate
plus 1.75%. In addition, the Company can realize lower borrowing rates if
certain financial results are achieved. At May 31, 1995, the interest rate in
effect was LIBOR plus 2.5%.
The Company is obligated to pay loan commitment fees to the banks equal to
one-half of 1% of the average daily unused portion of the commitments.
The bank has issued a letter of credit to the Company's insurance carrier
totaling $323,000 at the end of fiscal 1994 and 1995.
All common shares of the Company are pledged as collateral for the Credit
Agreement; accordingly, substantially all of the Company's assets are
effectively pledged as collateral.
The Credit Agreement contains certain restrictive covenants which the
Company must comply with on a continuing basis. The Company is restricted as to
borrowings, dividend payments, acquisitions, stock repurchases, sales of assets
and capital expenditures.
During fiscal 1995, the Company entered into certain stock redemption
agreements to repurchase 1,174.44 shares of Class A Common Stock and 1,126.03
shares of Class B Common Stock. As part of the agreements, the Company issued
subordinated promissory notes totaling approximately $270,000.
Total interest paid on all debt was $3,849,000, $3,528,000 and $3,468,000
for fiscal 1993, 1994 and 1995, respectively.
8
<PAGE>
NOA HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1995
5. DEBT (CONTINUED)
Aggregate annual maturities of long-term debt during the five-year period
ending May 31, 2000 are (in thousands):
<TABLE>
<S> <C>
Year ending May 31:
1996............................................................. $ 608
1997............................................................. 4,365
1998............................................................. 6,227
1999............................................................. 7,600
2000............................................................. 7,600
</TABLE>
6. INCOME TAXES
At May 31, 1995, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $8.0 million. These carryforwards
expire between May 31, 2006 and 2010. During the current fiscal year, the
Company utilized approximately $625,000 of net operating loss carryforwards to
offset current year taxable income.
Components of deferred tax assets and liabilities are (in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Loss carryforward...................................................... $ 3,403 $ 3,145
Accrued expenses....................................................... 249 207
Loan cost amortization................................................. -- 343
--------- ---------
3,652 3,695
Deferred tax liabilities:
Depreciation........................................................... 857 1,090
Bad debt allowance..................................................... 33 36
--------- ---------
890 1,126
--------- ---------
Net deferred tax assets before valuation allowance....................... 2,762 2,569
Less valuation allowance................................................. 2,762 2,569
--------- ---------
Net deferred tax assets.................................................. $ -- $ --
--------- ---------
--------- ---------
</TABLE>
7. EMPLOYEE BENEFIT PLAN
The Company has a voluntary defined contribution 401(k) savings and
retirement plan for the benefit of its nonunion employees who may contribute
from 3% to 10% of their compensation. The Company has no obligation to
contribute to the plan and made no contribution for fiscal 1993, 1994 and 1995.
8. REDEEMABLE PREFERRED STOCK
The preferred stock is redeemable, subject to certain restrictions, by the
Company at a price equal to its value as carried on the financial statements.
The Company also has the right to convert the preferred stock to debt at a rate
of $1,000 principal of debt to $1,000 liquidation value of the preferred stock.
The liquidation value of each of share of preferred stock is $7,699 and $8,660
at May 31, 1994 and 1995, respectively. After May 22, 2001, the preferred
shareholders have the right to control the Board of Directors for the purpose of
selling the Company.
9
<PAGE>
NOA HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1995
8. REDEEMABLE PREFERRED STOCK (CONTINUED)
Subject to certain bank restrictions, dividends on the preferred shares are
payable semi-annually at the rate of 8% either in cash or in-kind payments which
increase the liquidation value of the preferred stock. Should operating profits
exceed certain targets, the dividend rate increases to 12%. The minimum targets
for fiscal 1996 are $9,259 for each six month period.
9. COMMON STOCK AND WARRANT
The Class B common stock is entirely owned by key employees and officers.
The ownership vests over a period of five years. In the event of a sale or
liquidation of the Company, the Class A common stock has a 10% return preference
over the Class B common stock.
During fiscal 1995, the Company implemented a stock purchase plan for its
key employees. Under the plan, 4,253 shares of Class B common stock will be
granted to the employees at a purchase price of $.10 per share. The shares will
vest over a five year period. Approximately 3,853 shares had been granted by May
31, 1995.
Additionally, a warrant to purchase 5,000 shares of Class A common stock at
$144.75 per share was outstanding at May 31, 1994 and 1995. The warrant expires
on May 22, 2006 and has no voting rights.
10. SALES OF PONY PANELS
Only July 22, 1994, the Company entered into an agreement with The McCarty
Company ("McCarty") under which McCarty acquired all of the assets of the Pony
Panels division (excluding cash) in exchange for McCarty's assumption of Pony
Panel's liabilities, delivery of 7,599.32 shares of Class A Common Stock and
9,754.26 shares of Class B Common Stock of NOA Holding Company, and cash in the
amount of $542.
11. COMMITMENTS AND CONTINGENCIES
The City of Jacksonville, Florida has enacted a number of ordinances which
would require the removal of outdoor advertising structures which are not
located on federal aid primary and/or interstate highways. Management has
vigorously contested the validity of these ordinances for the last four years.
In March 1995, the Company reached a settlement with the City of Jacksonville
and Capsigns, Inc. and has agreed to remove 711 billboards faces over a period
of 20 years.
The Company is also involved in litigation with various other municipalities
and regulatory agencies as the result of condemnation proceedings and licensing
and permit renewal disputes, which could result in the removal of advertising
structures.
Management believes, based upon the information currently available, that
the settlement with the City of Jacksonville and Capsigns, Inc., along with the
outcomes of the various actions described above, will not have a material
adverse effect on the consolidated financial condition or results of operations
of the Company.
During fiscal 1995, the Company became a party to certain material
litigation. The action alleges that a former billposting employee, while in the
process of posting a billboard, fell to the ground (because the platform on
which he was working gave way) and suffered significant injuries. It is alleged
that these injuries have precluded him from seeking any gainful employment. This
matter involves a significant level issue concerning the exclusive remedy
provision of workers' compensation law in Minnesota. Minnesota law provides that
an employer providing workers' compensation benefits is immune from tort
liability. It is the Company's contention that, because the Company provided
workers' compensation benefits to the former employee, the Company is entitled
to tort immunity.
10
<PAGE>
NOA HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1995
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Plaintiff disputes the Company's interpretation of the law and argues
that the tort suit can go forward. This matter was argued before a trial judge
on February 28, 1995, who ruled in favor of the Plaintiff. An appeal to the
Minnesota Court of Appeals is currently pending.
The Plaintiff has also made a demand of approximately $4.9 million for lost
wages and pain and suffering. An attempt to amend this complaint and state a
claim for punitive damages has also been made. The Court has not yet acted on
the amendment.
At this time it is not possible to estimate the probable outcome of these
actions and, accordingly, the Company has not established a reserve for the
outcome of this litigation.
The Company leases the facility in Minneapolis from the Company's preferred
stockholder with annual rents of $480,000, exclusive of operating costs, which
commenced May of 1993 and continues through May of 2001.
The Company is required to make the following minimum operating lease
payments for equipment and facilities under noncancelable lease agreements (in
thousands):
<TABLE>
<S> <C>
Year ending May 31:
1996............................................................. $ 552
1997............................................................. 552
1998............................................................. 552
1999............................................................. 557
2000............................................................. 557
Thereafter....................................................... 704
---------
$ 3,474
---------
---------
</TABLE>
Rent expense for operating leases for the years ended May 31, 1993, 1994 and
1995 totaled $6,950,000, $6,837,000 and $7,268,000, respectively.
11
<PAGE>
EXHIBIT 99.4
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Universal Outdoor Holdings, Inc.
We have audited the accompanying statement of revenues and direct expenses
of Ad-Sign for the year ended December 31, 1995. This statement is the
responsibility of the company's management. Our responsibility is to express an
opinion on this statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenues and direct expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement of revenues and
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the statement of revenues and direct expenses audited by us
presents fairly, in all material respects, the revenues and direct expenses of
Ad-Sign for the year ended December 31, 1995, in conformity with generally
accepted accounting principles.
PRICE WATERHOUSE LLP
June 14, 1996
Chicago, Illinois
1
<PAGE>
AD-SIGN
STATEMENT OF REVENUES AND DIRECT EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Gross revenues..................................................... $ 2,804
Less agency commissions............................................ 224
---------
Net revenues..................................................... 2,580
---------
---------
Direct expenses:
Direct advertising expenses...................................... 338
General and administrative expenses.............................. 402
Depreciation and amortization.................................... 454
---------
1,194
---------
Operating income................................................... $ 1,386
---------
---------
</TABLE>
See accompanying notes to the statement of revenues and direct expenses.
2
<PAGE>
AD-SIGN
NOTES TO THE STATEMENT OF REVENUES AND DIRECT EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1995
NOTE 1 -- BASIS OF PRESENTATION AND DESCRIPTION OF THE BUSINESS:
The Statement of Revenues and Direct Expenses for the year ended December
31, 1995 presents revenues from contracts for the 160 advertising display faces
acquired from Ad-Sign, Inc. by Universal Outdoor Holdings, Inc. (Universal) in
the first quarter of 1996. This financial statement excludes operating expenses
which are not directly related to the assets acquired by Universal. Although
Universal only acquired certain assets of Ad-Sign, Inc., this acquisition meets
the criteria for a "business acquired" in accordance with Regulation S-X, Rule
3-05 of the Securities Exchange Act of 1934.
Ad-Sign is an outdoor advertising company which owns and operates outdoor
advertising display faces principally in Chicago, Illinois. Ad-Sign sells
outdoor advertising space to national, regional and local advertisers.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES:
The preparation of the statement of revenues and direct expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates. The significant accounting policies used in the preparation of these
financial statements are as follows.
REVENUES AND DIRECT EXPENSES
Advertising revenues are generated from contracts with advertisers generally
covering periods of one to twelve months. Ad-Sign recognizes revenues ratably
over the contract term and defers customer prepayment of advertising fees. Costs
incurred for the production of outdoor advertising displays are recognized in
the initial month of the contract or as incurred during the contract period.
PREPAID LAND RENTS
Most of Ad-Sign's outdoor advertising structures are located on leased land.
Land rents are typically paid in advance for periods ranging from one to twelve
months. Prepaid land rents are expenses ratably over the related rental term.
NOTE 3 -- SUBSEQUENT EVENT:
In the first quarter of 1996, Ad-Sign, Inc. entered into an asset purchase
agreement with Universal Outdoor Holdings, Inc. Under this agreement, Universal
purchased 160 advertising display faces in the Chicago market for $12.5 million.
3
<PAGE>
EXHIBIT 99.5
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
POA Acquisition Corporation
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in shareholders' equity and of cash flows present
fairly, in all material respects, the financial position of POA Acquisition
Corporation at September 30, 1996 and December 31, 1995 and 1994, and the
results of their operations and their cash flows for the nine month period ended
September 30, 1996 and for each of the two years in the period ended December
31, 1995 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Chicago, Illinois
February 28, 1997
1
<PAGE>
POA ACQUISITION CORPORATION
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------- ------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Current assets:
Cash.......................................................... $ 3,534,128 $ 811,352 $ 727,690
Accounts receivable........................................... 6,746,361 5,631,320 4,482,520
Prepaid expenses.............................................. 2,576,998 1,822,964 1,698,539
Prepaid income taxes.......................................... 43,875 43,875 51,629
Deferred income taxes......................................... 3,314,000 3,213,848 2,596,951
-------------- -------------- --------------
Total current assets........................................ 16,215,362 11,523,359 9,557,329
Deferred income taxes........................................... 10,040,258 11,835,410 14,269,374
Property, plant and equipment, net.............................. 32,821,811 23,005,058 20,112,931
Other assets.................................................... 38,741,579 41,854,491 46,266,092
-------------- -------------- --------------
$ 97,819,010 $ 88,218,318 $ 90,205,726
-------------- -------------- --------------
-------------- -------------- --------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses......................... $ 4,289,460 $ 2,992,112 $ 3,432,619
Current portion of long-term debt............................. 9,109,419 9,109,419 8,061,214
Notes payable................................................. 416,000 -- --
-------------- -------------- --------------
Total current liabilities................................... 13,814,879 12,101,531 11,493,833
Long-term debt, less current portion............................ 71,682,647 65,603,203 70,210,555
Shareholder's equity
Common stock, $.01 par value:
Authorized shares -- 2,000,000
Issued and outstanding shares -- 100 for all periods
presented.................................................. 1 1 1
Additional paid-in capital.................................... 45,419,909 45,419,909 45,419,909
Accumulated deficit........................................... (33,098,426) (34,906,326) (36,918,572)
-------------- -------------- --------------
Total shareholder's equity.................................. 12,321,484 10,513,584 8,501,338
-------------- -------------- --------------
$ 97,819,010 $ 88,218,318 $ 90,205,726
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
POA ACQUISITION CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED FOR THE YEARS ENDED DECEMBER
SEPTEMBER 30, 31,
-------------- ------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Advertising revenues............................................ $ 38,380,932 $ 45,830,359 $ 41,737,266
Less commissions and discounts.................................. (3,520,734) (4,393,319) (3,865,492)
-------------- -------------- --------------
34,860,198 41,437,040 37,871,774
-------------- -------------- --------------
Expenses:
Operating..................................................... 10,077,666 11,775,891 11,151,065
Selling, general and administrative........................... 9,307,799 10,698,212 10,283,413
Amortization.................................................. 3,811,034 5,061,849 5,208,589
Depreciation.................................................. 2,547,946 2,545,182 2,878,346
-------------- -------------- --------------
25,744,445 30,081,134 29,521,413
-------------- -------------- --------------
Income from operations.......................................... 9,115,753 11,355,906 8,350,361
-------------- -------------- --------------
Other income (expense):
Interest expense.............................................. (5,548,379) (7,346,241) (7,012,646)
Loss on sale of a division.................................... -- -- (494,824)
Loss on disposal of property and equipment, net............... (346,974) (64,332) (329,056)
Interest and other income..................................... 367,500 42,244 24,412
-------------- -------------- --------------
(5,527,853) (7,368,329) (7,812,114)
-------------- -------------- --------------
Income before income taxes and extraordinary item............... 3,587,900 3,987,577 538,247
-------------- -------------- --------------
Provision for income taxes:
Current....................................................... 150,000 158,264 37,572
Deferred...................................................... 1,630,000 1,817,067 1,256,910
-------------- -------------- --------------
1,780,000 1,975,331 1,294,482
-------------- -------------- --------------
Income (loss) before extraordinary item......................... 1,807,900 2,012,246 (756,235)
Extraordinary item:
Loss on early extinguishment of debt, net of income tax
expense of ($147,350)........................................ -- -- (244,552)
-------------- -------------- --------------
Net income (loss)............................................... $ 1,807,900 $ 2,012,246 $ (1,000,787)
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
POA ACQUISITION CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON PREFERRED ADDITIONAL ACCUMULATED SHAREHOLDER'S
STOCK STOCK PAID-IN CAPITAL DEFICIT EQUITY
--------- ------------ --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1993.......... $ 1 $ 12,237 $ 57,644,726 $ (28,262,869) $ 29,394,095
Net loss for 1993................. -- -- -- (262,576) (262,576)
--------- ------------ --------------- --------------- ---------------
Balances at December 31, 1993....... 1 12,237 57,644,726 (28,525,445) 29,131,519
Net loss for 1994................. -- -- -- (1,000,787) (1,000,787)
Issuance of preferred stock....... -- 550,000 4,950,000 -- 5,500,000
Redemption of preferred stock..... -- (562,237) (17,174,817) -- (17,737,054)
Cumulative preferred stock
dividends........................ -- -- -- (7,392,340) (7,392,340)
--------- ------------ --------------- --------------- ---------------
Balance at December 31, 1994........ 1 -- 45,419,909 (36,918,572) 8,501,338
Net income for 1995............... -- -- -- 2,012,246 2,012,246
--------- ------------ --------------- --------------- ---------------
Balance at December 31, 1995........ 1 -- 45,419,909 (34,906,326) 10,513,584
Net income for the nine months ended
September 30, 1996................. -- -- -- 1,807,900 1,807,900
--------- ------------ --------------- --------------- ---------------
Balance at September 30, 1996 $ 1 $ -- $ 45,419,909 $ (33,098,426) $ 12,321,484
--------- ------------ --------------- --------------- ---------------
--------- ------------ --------------- --------------- ---------------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
POA ACQUISITION CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED FOR THE YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
-------------- ---------------------------
1996 1995 1994
-------------- ------------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)..................................................... $ 1,807,900 $ 2,012,246 $ (1,000,787)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Amortization........................................................ 3,811,034 5,061,849 5,208,589
Depreciation........................................................ 2,547,946 2,545,182 2,878,346
Deferred income taxes............................................... 1,695,000 1,817,067 1,123,867
Loss on sale of division............................................ -- -- 494,824
Loss on disposal of property and equipment, net..................... 346,977 64,332 329,056
Provision for bad debts............................................. 176,000 64,285 375,190
Changes in operating assets and liabilities:
Increase in accounts receivable................................... (957,596) (1,213,085) (523,087)
Increase in prepaid expenses...................................... (574,486) (124,425) (253,802)
Decrease (increase) in prepaid income taxes....................... -- 7,754 (27,786)
Decrease (increase) in other assets............................... (126,183) (500,248) (2,511,167)
(Increase) decrease in accounts payable and accrued expenses...... 1,253,284 (440,507) 772,507
-------------- ------------- ------------
Net cash provided by operating activities............................. 9,979,876 9,294,450 6,865,750
-------------- ------------- ------------
INVESTING ACTIVITIES
Proceeds from sale of division........................................ -- -- 2,000,000
Proceeds from disposal of property and equipment...................... 367,500 227,854 101,463
Payments for acquisitions net of cash acquired........................ (9,898,338) -- --
Purchases of property, plant and equipment............................ (3,805,706) (5,729,495) (1,787,528)
Purchases of intangibles.............................................. -- (150,000) --
-------------- ------------- ------------
Net cash provided by (used in) investing activities................... (13,336,544) (5,651,641) 313,935
-------------- ------------- ------------
FINANCING ACTIVITIES
Proceeds from long-term borrowings.................................... 13,147,633 4,500,000 83,023,442
Payments of long-term debt............................................ (7,068,189) (8,059,147) (70,696,101)
Proceeds from issuance of preferred stock............................. -- -- 5,500,000
Redemption of preferred stock......................................... -- -- (17,737,054)
Dividends paid........................................................ -- -- (7,392,340)
-------------- ------------- ------------
Net cash (used in) provided by financing activities................... 6,079,444 (3,559,147) (7,302,053)
-------------- ------------- ------------
Net increase (decrease) in cash....................................... 2,722,776 83,662 (122,368)
Cash at beginning of year............................................. 811,352 727,690 850,058
-------------- ------------- ------------
Cash at end of year................................................... 3,534,128 $ 811,352 $ 727,690
-------------- ------------- ------------
-------------- ------------- ------------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
POA ACQUISITION CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION
On January 31, 1989, Outdoor Advertising Holdings, Inc. (Holdings)
contributed its shares of POA Acquisition Corporation (Company) common stock,
along with cash, to Peterson Acquisition, Inc. (Acquisition), a wholly-owned
subsidiary of Holdings. Acquisition immediately purchased the Company's
outstanding common shares under the terms of an Agreement and Plan of Merger
dated December 21,1988. Acquisition was subsequently merged into the Company and
its outstanding shares were converted into one hundred shares of the Company's
common stock.
The merger was accounted for as a purchase with a purchase price of
$33,279,550 (including acquisition costs of $4,448,023). Certain individuals,
who were former shareholders of the Company, own shares of Holdings and are
included in the management of Holdings and the Company. The Company allocated
the purchase price among the assets acquired and liabilities assumed, based upon
the respective fair values of the assets and liabilities, with the excess
purchase price recorded as goodwill.
The Company provides outdoor advertising services in the states of Florida,
South Carolina and Tennessee. Approximately 70% of the business is in the State
of Florida.
NOTE 2 -- ACCOUNTING POLICIES
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation for financial
reporting purposes is computed by the straight-line method over the estimated
useful lives of the various classes of assets as follows:
<TABLE>
<S> <C>
Buildings...................................................... 28-30 years
Advertising structures......................................... 12 years
Equipment...................................................... 2-7 years
</TABLE>
The Company uses the accelerated Cost Recovery System and the Modified
Accelerated Cost Recovery System for income tax reporting purposes.
OTHER ASSETS
Loan costs incurred in connection with obtaining financing have been
deferred and are being amortized over the life of the loans. Goodwill represents
the excess of the cost of acquired businesses over the fair market value at
acquisition of the specifically identified assets.
Intangible assets are being amortized over the following periods:
<TABLE>
<S> <C>
Advertising structure leases.................................... 8-10 years
Goodwill........................................................ 40 years
Deferred loan costs............................................. 1-6 years
</TABLE>
INCOME TAXES
The Company follows the liability method of accounting for income taxes.
Deferred income taxes relate to the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
ADVERTISING REVENUE
Advertising revenue is recognized ratably on a monthly basis over the period
in which advertisement displays are posted on the advertising structures.
ADVERTISING STRUCTURE RENTALS
Advertising structure lease rentals are generally paid in advance and
charged to expense over the life of the lease.
6
<PAGE>
POA ACQUISITION CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- ACCOUNTING POLICIES (CONTINUED)
INTEREST RATE SWAP AND INTEREST CAP AGREEMENTS
The Company has entered into interest rate swap and interest rate cap
agreements to effectively convert a portion of its variable-rate borrowings into
fixed-rate obligations. The amount to be received or paid related to these
agreements is recognized over the lives of the agreements as an adjustment to
interest expense.
BARTER TRANSACTIONS
The Company enters into agreements to provide outdoor advertising services
in exchange for various goods and services of their customers. Revenue
recognized from these transactions approximated $1,183,354, $1,497,000 and
$830,000 for the nine month period ended September 30, 1996 and for the years
ended December 31, 1995 and 1994, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, accounts payable and
long-term debt at September 30, 1996 approximate fair value.
ACCOUNTING STANDARD
In March 1995, the FASB issued Statement No. 121 ("SFAS No. 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. As of September 30, 1996
there were no indications of impairment that would effect the carrying value of
assets.
NOTE 3 -- ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------- ----------------------------
1996 1995 1994
-------------- ------------- -------------
<S> <C> <C> <C>
Trade.................................................... $ 7,308,087 $ 5,701,472 $ 4,493,568
Employee notes and other................................. 293,356 463,300 458,119
-------------- ------------- -------------
7,601,443 6,164,772 4,951,687
Less allowance for uncollectible accounts................ (855,082) (533,452) (469,167)
-------------- ------------- -------------
$ 6,746,361 $ 5,631,320 $ 4,482,520
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
Included in employee notes and other are notes and accrued interest
aggregating $109,176 as of September 30, 1996 and $279,473 and $299,269 as of
December 31, 1995 and 1994, respectively, from common shareholders.
7
<PAGE>
POA ACQUISITION CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- PREPAID EXPENSES
Prepaid expenses consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------- ----------------------------
1996 1995 1994
-------------- ------------- -------------
<S> <C> <C> <C>
Lease rental payments.................................... $ 1,476,562 $ 1,261,795 $ 1,065,874
Maintenance supplies..................................... 518,009 94,581 133,268
Other.................................................... 582,427 466,588 499,397
-------------- ------------- -------------
$ 2,576,998 $ 1,822,964 $ 1,698,539
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and consist of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
--------------- --------------------------------
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Land................................................ $ 2,466,681 $ 2,466,681 $ 2,466,681
Buildings........................................... 2,077,423 2,074,084 2,011,256
Advertising structures.............................. 42,876,007 31,857,123 27,446,874
Equipment........................................... 4,612,869 3,602,942 2,978,167
--------------- --------------- ---------------
52,032,980 40,000,830 34,902,978
Less accumulated depreciation....................... (19,211,169) (16,995,772) (14,790,047)
--------------- --------------- ---------------
$ 32,821,811 $ 23,005,058 $ 20,112,931
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
NOTE 6 -- OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
--------------- --------------------------------
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Goodwill............................................ $ 45,811,889 $ 45,239,949 $ 45,239,949
Advertising structure leases, at cost............... 26,204,360 26,096,863 26,021,863
Non-compete and other, at cost...................... 6,514,322 6,495,641 6,420,390
Deferred loan costs................................. 3,403,069 3,403,065 2,903,068
--------------- --------------- ---------------
81,933,640 81,235,518 80,585,270
Less accumulated amortization....................... (43,192,061) (39,381,027) (34,319,178)
--------------- --------------- ---------------
$ 38,741,579 $ 41,854,491 $ 46,266,092
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
NOTE 7 -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------- ----------------------------
1996 1995 1994
-------------- ------------- -------------
<S> <C> <C> <C>
Trade accounts payable................................... $ 295,576 $ 1,285,008 $ 1,794,814
Accrued compensation and other........................... 3,964,353 1,677,573 1,623,766
Accrued interest......................................... 29,531 29,531 14,039
-------------- ------------- -------------
$ 4,289,460 $ 2,992,112 $ 3,432,619
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
8
<PAGE>
POA ACQUISITION CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------- ------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Notes payable to banks................................ $ 80,650,000 $ 74,500,000 $ 78,000,000
Other long-term debt.................................. 142,066 212,622 271,769
-------------- -------------- --------------
80,792,066 74,712,622 78,271,769
Less amounts due within one year...................... (9,109,419) (9,109,419) (8,061,214)
-------------- -------------- --------------
$ 71,682,647 $ 65,603,203 $ 70,210,555
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
In January 1994, the Company refinanced its notes payable to banks, paid off
the unsecured subordinated notes payable to investment banking firms and
redeemed the 14% Series A senior redeemable cumulative preferred stock with term
notes and revolving credit notes totaling $83,000,000 and $7,000,000,
respectively. Notes payable to banks are term notes and revolving credit notes
are secured by all assets and common stock of the Company. Interest is charged
on borrowings under the term notes and revolving credit notes at the Company's
discretion at either a Eurodollar base rate or an ABR rate determined in
accordance with the terms of the Credit Agreement. Interest on the term notes is
currently charged at a Eurodollar base rate determined at each interest renewal
period. The December 31, 1995 term notes consist of a $54,500,000 borrowing at
8.19% and a $20,000,000 borrowing at 10.94%. On December 29, 1995, the Company
amended its Credit Agreement to allow for an additional $50,000,000 line of
credit available for acquisitions. No borrowings under this amendment have
occurred. Long-term debt maturities over the next five years are approximately
as follows: 1996 -- $9,109,419: 1997 -- $11,051,000: 1998 -- $13,048,000: 1999
- -- $21,505,000: 2000 -- $20,000,000 and $0 thereafter.
The refinancing of the notes payable in 1994 resulted in an extraordinary
loss of $391,902 as a result of writing-off the unamortized portion of deferred
loan costs related to those borrowings.
The Company entered into interest rate swap and interest rate cap agreements
that expire in 1997 with a notional amount of $40,000,000 at December 31, 1995
to reduce the impact of changes in interest rates on its variable rate long-term
debt.
The counterpart to the agreements is a major financial institution. In the
event a counterparty fails to meet the terms of an interest rate swap or
interest rate cap agreement, the Company's exposure is limited to the interest
rate differential. Credit loss from counterparty nonperformance is not
anticipated.
The Company paid approximately $5,577,909, $7,331,000 and $7,570,000 in cash
for interest during the nine month period ended September 30, 1996 and during
the years ended December 31, 1995 and 1994, respectively.
NOTE 9 -- EMPLOYEE BENEFITS PLANS
The Company has a discretionary defined contribution plan which provides
retirement benefits to substantially all employees. The contributions made to
this plan were approximately $75,000 for the nine month period ended September
30, 1996 and $100,000 in 1995 and 1994.
NOTE 10 -- INCOME TAXES
At September 30, 1996, the Company had federal and state net operating loss
carryforwards for income tax purposes available to offset future taxable income
through 2006 to 2009. The Company was subject to alternative minimum tax which
is imposed at a 20% rate on the corporation's alternative minimum taxable income
in 1995. The alternative minimum tax expense for 1995 was $132,800. The tax paid
will be allowed as a credit carryover against regular tax in future periods. For
financial reporting
9
<PAGE>
POA ACQUISITION CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- INCOME TAXES (CONTINUED)
purposes, no valuation allowance has been recognized to offset the deferred tax
assets related to these carryforwards. The tax benefit of any net operating
losses which are not utilized will be recognized as a current year expense in
the year of expiration.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets as of September 30, 1996, are attributable to
the bad debt allowance, depreciation and amortization differences, alternative
minimum tax, and net operating loss carryforwards.
Components of the provision for income taxes for each period are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
SEPTEMBER 30, ----------------------------
1996 1995 1994
-------------- ------------- -------------
<S> <C> <C> <C>
Current
Federal................................................ $ 125,000 $ 132,754 $ 11,522
State.................................................. 25,000 25,510 26,050
-------------- ------------- -------------
Total current............................................ $ 150,000 $ 158,264 $ 37,572
-------------- ------------- -------------
-------------- ------------- -------------
Deferred:
Federal................................................ $ 1,375,000 $ 1,532,587 $ 1,073,054
State.................................................. 255,000 284,480 183,856
-------------- ------------- -------------
Total deferred........................................... $ 1,630,000 $ 1,817,067 $ 1,256,910
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
The reconciliation of the statutory federal income tax rate to the Company's
effective rate is as follows:
<TABLE>
<CAPTION>
NINE-MONTH YEAR ENDED
PERIOD ENDED DECEMBER 31,
SEPTEMBER 30, --------------------
1996 1995 1994
-------------- --------- ---------
<S> <C> <C> <C>
Income tax expense at the statutory rate......................... 34.0% 34.0% 34.0%
Goodwill......................................................... 9.8% 9.7% 175.1%
State taxes, net of federal benefit.............................. 5.2% 5.1% 25.7%
Other............................................................ 0.6% 0.7% 5.7%
------- --------- ---------
49.6% 49.5% 240.5%
------- --------- ---------
------- --------- ---------
</TABLE>
Components of deferred tax assets for each year are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforward..................... $ 3,000,000 $ 3,000,000 $ 2,444,000
Charitable contribution carryforward................ -- 2,050 --
Bad debt allowance.................................. 344,000 254,347 176,407
Accrued liabilities................................. 50,000 39,782 90,728
Property and equipment.............................. 11,000 141,450 87,150
Alternative minimum tax credit...................... 372,000 276,112 148,370
Net operating loss carryforward..................... 11,434,258 13,391,143 16,269,565
-------------- -------------- --------------
Total deferred tax assets............................. $ 15,211,258 $ 17,104,884 $ 19,216,220
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
The Company paid income taxes of $149,000 and $148,000 in 1995 and 1994,
respectively.
10
<PAGE>
POA ACQUISITION CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office space under various non-cancelable operating
leases. Minimum lease payments under these leases are approximately as follows:
1996 -- $28,750; 1997 -- $136,000 and $0 thereafter. The Company also leases
land for advertising structures under operating leases which are cancelable or
which have terms of less than one year.
Rent expense charged to operations amounted to approximately $6,548,000 for
the nine months ended September 30, 1996 and $7,461,000 and $6,947,000 in 1995
and 1994, respectively.
NOTE 12 -- ACQUISITIONS
During the year ended December 31, 1995, the Company acquired the assets of
three separate advertising entities. Under the terms of the transactions, the
Company acquired certain fixed assets, customer lists and advertising leases of
these entities for a combined total of $3,710,000. In connection with the
acquisition of the customer lists and advertising leases, intangible assets were
recorded at a total of $150,000. The customer lists and advertising leases were
assigned useful lives of three and ten years, respectively.
During the nine months ended September 30, 1996, the Company acquired
certain fixed assets, customer lists and advertising leases for a combined total
of $10.0 million. In connection with the acquisition, intangible assets of
approximately $572,000 were recorded. The customer lists and advertising leases
were assigned useful lives of three and ten years, respectively. Goodwill is
amortized over 40 years.
NOTE 13 -- SALE OF THE COMPANY
On October 8, 1996, the Company's parent, Holdings, sold the outstanding
capital stock of Holdings for approximately $240,000,000 in cash.
11
<PAGE>
EXHIBIT 99.6
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Revere Holding Corp. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of Revere
Holding Corp. (a Maryland corporation) and subsidiaries as of December 31, 1995,
and the related consolidated statements of operations, stockholders' equity and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Revere Holding Corp. and
Subsidiaries, as of December 31, 1995, and the results of their operations and
their cash flows for the year then ended, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Baltimore, Maryland,
March 8, 1996
1
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ ---------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 2)........................ $ 1,140,569 $ 511,605
Cash held in escrow (Note 17)............................. 400,000 20,447,420
Accounts receivable -- trade, net of allowance for
doubtful accounts of $316,000 and $445,000,
respectively............................................. 5,349,808 5,336,129
Accounts receivable -- barter, net of allowance for
doubtful accounts of $11,000 and $9,000, respectively
(Note 2)................................................. 207,728 318,577
Accounts receivable -- other.............................. 99,287 105,831
Inventories (Note 2)...................................... 259,522 318,193
Prepaid expenses --
Sign site leases (Note 12).............................. 1,958,745 1,622,871
Other................................................... 689,174 395,757
Deferred income taxes..................................... 687,000 627,000
------------ ---------------
Total current assets.................................. 10,791,833 29,683,383
PROPERTY AND EQUIPMENT, net (Notes 2 and 4)................. 38,899,139 28,046,022
GOODWILL, net of accumulated amortization of $570,000 and
$984,000, respectively (Note 3)........................... 22,668,371 21,809,424
OTHER ASSETS, net (Notes 2 and 5)........................... 16,383,846 13,829,535
------------ ---------------
Total assets.......................................... $88,743,189 $ 93,368,364
------------ ---------------
------------ ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable -- trade................................. $ 605,780 $ 319,133
Accounts payable -- barter (Note 2)....................... 258,698 371,589
Income taxes payable...................................... 21,000 2,738,000
Accrued interest expense.................................. 31,025 382,026
Deferred revenue.......................................... 611,134 717,095
Accrued bonuses........................................... 547,216 178,058
Accrued health benefits................................... 434,463 330,284
Accrued liabilities (Note 2).............................. 2,701,525 1,750,886
Current portion of long-term debt (Note 6)................ 2,851,765 3,305,379
Current portion of capital lease obligations (Note 12).... 234,016 220,392
------------ ---------------
Total current liabilities............................. 8,296,622 10,312,842
LONG-TERM DEBT, less current portion (Note 6)............... 38,094,955 38,280,668
CAPITAL LEASE OBLIGATIONS, less current portion (Note 12)... 470,637 382,286
DEFERRED TAX LIABILITY (Notes 2 and 7)...................... 5,520,000 5,502,202
------------ ---------------
Total liabilities..................................... 52,382,214 54,477,998
------------ ---------------
MINORITY INTEREST........................................... 140,000 140,000
------------ ---------------
STOCKHOLDERS' EQUITY:
Common stock, par value $.01, 5,000,000 shares authorized;
3,823,458 shares issued and outstanding at December 31,
1995 and September 30, 1996 (unaudited).................. 38,235 38,235
Paid-in capital in excess of par.......................... 38,196,347 38,196,347
Retained earnings (accumulated deficit)................... (1,125,107) 3,053,521
Treasury stock, at cost, -0- shares at December 31, 1995
and 150,751 shares at September 30, 1996 (unaudited)
(Note 11)................................................ -- (1,653,737)
Notes receivable from management stockholders............... (888,500) (884,000)
------------ ---------------
Total stockholders' equity............................ 36,220,975 38,750,366
------------ ---------------
Total liabilities and stockholders' equity............ $88,743,189 $ 93,368,364
------------ ---------------
------------ ---------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
2
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FOR THE NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ----------------------------
1995 1995 1996
-------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Gross revenues.................................................. $ 44,075,763 $ 32,703,421 $ 32,529,347
Less: Agency commissions........................................ (4,714,467) (3,522,060) (3,482,596)
-------------- ------------- -------------
Net revenues................................................ 39,361,296 29,181,361 29,046,751
-------------- ------------- -------------
OPERATING EXPENSES:
Operations...................................................... 8,569,222 6,313,353 6,469,145
Real estate..................................................... 8,807,786 6,420,824 7,146,224
Sales........................................................... 4,924,970 3,518,556 3,718,209
General and administrative...................................... 5,611,970 4,240,221 4,117,587
Depreciation and amortization................................... 6,898,155 5,164,942 5,541,859
-------------- ------------- -------------
Total operating expenses.................................... 34,812,103 25,657,896 26,993,024
-------------- ------------- -------------
Operating Income............................................ 4,549,193 3,523,465 2,053,727
-------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest expense (Notes 5,6 and 12)............................. (4,584,699) (3,501,551) (3,391,499)
Gain on sale of assets.......................................... -- -- 8,623,905
Other (expenses) income......................................... (333,834) 57,964 (214,151)
-------------- ------------- -------------
Total other income (expenses)............................... (4,918,533) (3,443,587) 5,018,255
-------------- ------------- -------------
Income (loss) before income taxes........................... (369,340) 79,878 7,071,982
(PROVISION) BENEFIT FOR INCOME TAXES
(Notes 2 and 7)................................................. (578,360) (271,719) (2,893,354)
-------------- ------------- -------------
Net income (loss)........................................... $ (947,700) $ (191,841) $ 4,178,628
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTES
RETAINED RECEIVABLE
PAID-IN EARNINGS TREASURY FROM TOTAL
COMMON IN EXCESS (ACCUMULATED STOCK, MANAGEMENT STOCKHOLDERS'
STOCK OF PAR DEFICIT) AT COST STOCKHOLDERS EQUITY
------- ----------- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
December 31, 1994........... $38,235 $38,196,347 $ (177,407) $ -- $(888,500) $37,168,675
Net loss.................... -- -- (947,700) -- -- (947,700)
------- ----------- ------------ ----------- ------------- -------------
BALANCE,
December 31, 1995........... 38,235 38,196,347 (1,125,107) -- (888,500) 36,220,975
Payment on note receivable
from management
stockholders (unaudited)... -- -- -- -- 4,500 4,500
Treasury stock acquired, at
cost (unaudited)........... -- -- -- (1,653,737) -- (1,653,737)
Net income (unaudited)...... -- -- 4,178,628 -- -- 4,178,628
------- ----------- ------------ ----------- ------------- -------------
BALANCE,
September 30, 1996
(Unaudited)................ $38,235 $38,196,347 $3,053,521 $(1,653,737) $(884,000) $38,750,366
------- ----------- ------------ ----------- ------------- -------------
------- ----------- ------------ ----------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE MONTHS
ENDED DECEMBER ENDED SEPTEMBER 30,
31, ----------------------------
1995 1995 1996
-------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................... $ (947,700) $ (191,841) $ 4,178,628
Adjustments to reconcile net loss to net cash provided by
operating activities --
Depreciation and amortization................................. 7,552,486 5,655,691 6,034,913
(Gain) Loss on disposals of property and equipment............ 418,222 114,319 (8,623,905)
Deferred income tax provision................................. 354,273 103,654 41,665
Changes in assets and liabilities --
Increase in accounts receivable, net........................ (219,824) (187,242) (103,714)
Decrease (increase) in inventories.......................... 32,807 (22,493) (58,671)
(Increase) decrease in prepaid expenses and other........... (204,546) (399,644) 629,291
(Decrease) increase in accounts payable and accrued
expenses................................................... (1,795,535) (1,747,672) 1,976,230
-------------- ------------- -------------
Net cash flows provided by operating activities........... 5,190,183 3,324,772 4,074,437
-------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment............................. (3,583,772) (1,951,075) (1,588,848)
Proceeds from sale of property and equipment.................... 123,551 45,926 21,514,834
Funds transferred to escrow..................................... -- -- (20,447,420)
Increase in interest receivable................................. (53,330) (58,290) (51,035)
Increase in other assets........................................ (1,974,930) (1,873,220) (952,589)
Cash paid for acquisitions...................................... (3,080,631) (3,080,631) (2,075,000)
(Increase) decrease in goodwill, net of noncash items........... (39,140) -- 13,042
Cash paid for treasury stock.................................... -- -- (8,237)
-------------- ------------- -------------
Net cash flows used in investing activities............... (8,608,252) (6,917,290) (3,595,253)
-------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt..................................... (3,501,044) (2,181,869) (2,435,099)
Payment of liability for Mall Media purchase.................... (4,000,000) (4,000,000) --
Proceeds from long-term debt.................................... 4,166,227 3,000,000 1,326,951
-------------- ------------- -------------
Net cash used in financing activities..................... (3,334,817) (3,181,869) (1,108,148)
-------------- ------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS......................... (6,752,886) (6,774,387) (628,964)
CASH AND CASH EQUIVALENTS, beginning of period.................... 7,893,455 7,893,455 1,140,569
-------------- ------------- -------------
CASH AND CASH EQUIVALENTS, end of period.......................... $ 1,140,569 $ 1,119,068 $ 511,605
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
The financial statements of Revere Holding Corp. and Subsidiaries (the
Company) include the accounts of Revere Holding Corp. (Holding) and its
wholly-owned subsidiary, Revere Acquisition Corp. (Acquisition) and
Acquisition's wholly-owned subsidiaries, Revere National Corporation and
subsidiaries (National), Revere Billboard, Inc. (Billboard), Stait Outdoor
Advertising Co. (Stait) and Mall Media Acquisition Corp. (Mall Media). National
provides outdoor advertising services through its network of sign structures in
the Mid-Atlantic region and Texas (see Note 17). Mall Media owns and maintains a
network of kiosks located in shopping malls nationwide and sells advertising
space on the kiosks. Stait provides outdoor advertising services through its
sign structures primarily located in New Jersey and Pennsylvania. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
On December 20, 1994, Acquisition acquired the entities described below,
which were accounted for by the purchase method of accounting. The results of
operations of the acquired companies are included in Holding's statements of
operations for the period in which they were owned by Holding.
On December 20, 1994, Holding was capitalized with $35.0 million in cash
from Merrill Lynch Capital Partners and $375,000 in cash from certain members of
the Board of Directors. The cash was used to capitalize Acquisition, and through
a secured bank credit agreement, Acquisition received funding of an additional
$40.0 million.
Through a series of transactions, Acquisition acquired the assets of
Billboard and Mall Media for $26.5 million and the outstanding stock of National
and Stait for $26.6 million. Additional existing secured debt of National
totaling $20.3 million was repaid by Acquisition, and the remaining funds were
used for financing and acquisition costs.
Additionally, Holding issued and transferred shares of common stock to
certain members of management and the Board of Directors of the Company with a
value of $1,359,582. The consideration for the shares issued was notes
receivable of $888,500 and common stock of National with a value of $471,082.
As provided in the asset purchase agreement, Mall Media purchased certain
assets of the kiosk business, described above, on December 20, 1994. Of the $5.5
million purchase price, $4.0 million was not paid until January 1995. As part of
the purchase price, Holding issued $1.5 million in common stock to the former
owner.
On January 2, 1996, the Company effected a reorganization of its legal
entities. Revere National Corporation of San Antonio, Revere National
Corporation of Victoria, Revere National Corporation of Corpus Christi, Revere
National Corporation of Laredo ("Texas Subs") and Revere National Corporation of
Delmarva ("Delmarva") effected a statutory merger with and into Revere National
Corporation of Philadelphia ("D.C."), with D.C. being the surviving entity.
Further, through a series of transactions, Stait was merged into Revere National
Corporation of Pennsylvania ("PA") effective January 2, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
REVENUE RECOGNITION
Advertising revenues from the sale of advertising space are recognized on a
straight-line basis over the terms of the individual contracts.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and short-term highly liquid
investments with a maturity of three months or less.
6
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INVENTORIES
Inventories, consisting primarily of sign structure parts, are stated at the
lower of cost (computed on a first-in, first-out basis) or market.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost with the exception of those
assets which have been recorded at estimated fair value in conjunction with the
purchase transactions discussed in Note 3. The cost of sign structures includes
materials and supplies, labor directly involved in construction of the sign
structures and an allocation of direct overhead expenses. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the related assets. The ranges of estimated useful lives are as
follows:
<TABLE>
<CAPTION>
USEFUL LIVES
-------------
<S> <C>
Sign structures and kiosks..................................................... 7-15 years
Buildings...................................................................... 31.5 years
Machinery and equipment........................................................ 5-7 years
Vehicles....................................................................... 5 years
Leasehold improvements......................................................... Lease Term
</TABLE>
Tear down expense or other disposals of sign structures are recorded net of
the estimated realizable value of salvaged materials. The estimated realizable
value of salvaged materials from torn down structures remains recorded as
property and equipment and is depreciated over its remaining useful life. These
materials are used in construction of new structures or refurbishment of
existing structures.
LEASE ACQUISITION COSTS
The direct costs of acquiring and renewing land leases for sites on which
sign structures are erected are capitalized in other assets and amortized using
the straight-line method over five years, which is the estimated average lives
of the leases.
BARTER ARRANGEMENTS
The Company enters into nonmonetary barter transactions with customers
wherein certain goods and services are used by the Company in exchange for
advertising services. Such transactions are recorded in the accompanying
consolidated financial statements at the estimated fair market value of the
goods and services received. Included in revenues and expenses are nonmonetary
transactions of approximately $631,000 and $601,000, respectively, for the year
ended December 31, 1995 and approximately $450,000 and $439,000, and $511,000
and $379,000, respectively, for the nine months ended Setember 30, 1995 and 1996
(unaudited). Included in property and equipment are nonmonetary transactions of
approximately $97,000 for the year ended December 31, 1995, and $18,000 and
$43,000, respectively, for the nine months ended September 30, 1995 and 1996
(unaudited).
The gross amount of barter receivables and barter payables is recorded at
the estimated fair value of services to be received and provided, respectively.
FINANCIAL INSTRUMENTS
The Company values its financial instruments as required by Statement of
Financial Accounting Standards No. 107, "Disclosures About Fair Values of
Financial Instruments." Management believes the carrying amounts of cash and
cash equivalents, accounts receivable, accounts payable and long-term debt
approximate fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the
7
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues, expenses, gains and losses during the reporting periods. Actual
results could differ from these estimates.
INCOME TAXES
Provision has been made, using Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes", for deferred Federal and state income
taxes which arise from differences between the basis of certain assets and
liabilities, for income tax and financial statement reporting purposes, and
differences between reporting methods for income tax and financial statement
reporting purposes. The differences relate principally to property, deferred
costs and accruals. The Company and its subsidiaries file consolidated Federal
income tax returns.
RECLASSIFICATIONS.
Certain financial information in the prior years have been reclassified to
conform to the current year presentation.
ACCOUNTING STANDARD
In March 1995, the FASB issued Statement No. 121 (SFAS 121), "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," which requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. As of September 30, 1996 (unaudited),
management believes there were no indications of impairment that would effect
the carrying values of assets.
NON-CASH TRANSACTIONS
In addition to the previously described barter transactions, the Company
entered into the following non-cash transactions for the year ended December 31,
1995, and the nine months ended September 30, 1995 and 1996:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEAR ENDED SEPTEMBER 30,
ENDED DECEMBER ------------------------
31, 1995 1995 1996
-------------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Property and equipment under capital leases........ $ 336,277 $ 19,600 $ 273,063
-------------- --------- -------------
-------------- --------- -------------
Treasury stock purchased in exchange for note
payable.......................................... $ -- $ -- $ 1,645,500
-------------- --------- -------------
-------------- --------- -------------
</TABLE>
INTERIM FINANCIAL INFORMATION
The interim financial information as of September 30, 1996 and for the nine
months ended September 30, 1995 and 1996 has been prepared from the unaudited
financial records of the Company and, in the opinion of management, reflects all
adjustments necessary for a fair presentation of the financial position and
results of operations and of cash flows for the respective interim periods. All
adjustments were of a normal and recurring nature.
3. GOODWILL:
The Company utilized the purchase method of accounting for the acquisitions
of the common stock of National and Stait and the purchase of the assets of
Billboard and Mall Media. The total purchase price of $73.5 million was
originally allocated approximately $37.7 million to property and equipment, $4.6
million to an acquired deferred tax liability and $18.3 million to other net
assets and liabilities, resulting
8
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. GOODWILL: (CONTINUED)
in goodwill of approximately $22.1 million. During 1995, the Company adjusted
the purchase price allocation to reflect an income tax liability of
approximately $310,000 which existed at the acquisition date, resulting in an
increase to goodwill for the same amount. Goodwill is being amortized over a
period of 40 years.
During 1995, the Company executed several acquisitions which had an
aggregate purchase price of approximately $2.8 million. These acquisitions were
accounted for in accordance with the purchase method, whereby the purchase price
is allocated to assets acquired and liabilities assumed based upon estimated
fair value. As a result of these acquisitions, the Company recorded additional
goodwill of approximately $654,000. In addition, goodwill in the amount of
$140,000 has been recorded at December 31, 1995, relating to another acquisition
of the Company in 1995.
4. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following as of December 31, 1995
and September 30, 1996:
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, SEPTEMBER 30,
1995 1996
-------------- --------------
(UNAUDITED)
<S> <C> <C>
Sign structures and kiosks.................................. $ 32,770,314 $24,205,343
Land and buildings.......................................... 6,311,519 4,694,414
Machinery and equipment..................................... 1,638,450 1,846,847
Vehicles.................................................... 740,388 195,419
Leasehold improvements...................................... 196,519 224,865
-------------- --------------
41,657,190 31,166,888
Less -- Accumulated depreciation and amortization........... (2,758,051) (3,120,866)
-------------- --------------
Property and equipment, net................................. $ 38,899,139 $28,046,022
-------------- --------------
-------------- --------------
</TABLE>
Depreciation expense for the year ended December 31, 1995, and the nine
months ended September 30, 1995 and 1996 (unaudited) was $2,782,706, and
$2,111,160 and $2,222,964, respectively.
5. OTHER ASSETS:
Other assets consisted of the following as of December 31, 1995 and
September 30, 1996:
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, SEPTEMBER 30,
1995 1996
-------------- ---------------
(UNAUDITED)
<S> <C> <C>
Intangible lease assets..................................... $ 9,352,833 $ 7,183,851
Financing and acquisition costs............................. 6,627,239 6,655,367
Lease acquisition costs..................................... 3,952,191 3,789,525
MTC contract for advertising privileges..................... -- 1,935,000
Covenants not to compete.................................... 570,000 350,000
Deposits.................................................... 82,450 76,025
Other....................................................... 151,092 108,697
-------------- ---------------
20,735,805 20,098,465
Less -- Accumulated amortization............................ (4,351,959) (6,268,930)
-------------- ---------------
Other assets, net........................................... $ 16,383,846 $ 13,829,535
-------------- ---------------
-------------- ---------------
</TABLE>
9
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. OTHER ASSETS: (CONTINUED)
Amortization for the year ended December 31, 1995, and the nine months ended
September 30, 1995 and 1996 (unaudited) was $4,769,780, and $3,544,531 and
$3,811,949, respectively, including amortization of deferred financing costs of
$654,331, and $490,749 and $493,054, which was classified as interest expense.
Intangible lease assets represent site leases with rents below market rates
which were purchased with the acquisition of Billboard. The intangible lease
assets have been recorded at the present value of the excess of the fair market
rents of the lease over the actual rents. This amount is being amortized over
the life of the leases.
Financing and acquisition costs consisting of bank, legal and other
professional fees and other costs of approximately $6.0 million were incurred
and capitalized in connection with the acquisitions described in Note 1 and the
related financing described in Note 6. These costs are being amortized over the
period of the related debt agreements.
Covenants not to compete were entered into with the former owners of the
assets of certain purchase transactions at the time of the respective purchase
and are being amortized over terms ranging from five to ten years.
6. LONG-TERM DEBT:
In connection with the acquisitions described in Note 1, Acquisition and
Holding entered into a Credit Agreement consisting of a Revolving Credit Loan, a
Term A Loan and a Term B Loan.
The Revolving Credit Loan consists of a reducing revolving credit facility
with a principal amount not to exceed $17 million. As of December 31, 1995 and
September 30, 1996 (unaudited), outstanding borrowings against the facility were
$3,500,000 and $5,000,000, respectively. The commitment under the revolving
credit facility will decrease by $1.0 million annually on December 31, 1995
through 1998. The remaining available $13.0 million will expire on June 30,
2001.
The Term A Loan in the amount of $24.5 million is scheduled to be amortized
annually in three equal installments in June, September and December of each
year. The annual amortization amounts are $2,750,000 in 1996, $3,570,000 in 1997
and 1998; and $4,500,000, $6,125,000 and $3,735,000 in 1999, 2000 and 2001,
respectively.
The Term B Loan in the amount of $13.0 million is scheduled to be paid in a
single installment on June 30, 2002.
In addition to the debt repayments discussed above, the Company is required
to make prepayments of 50% of Excess Cash Flow as defined in the Credit
Agreement. No such prepayments were required for the periods ending December 31,
1995 and September 30, 1996 (unaudited).
Interest on borrowings under this agreement are at varying rates based, at
the Company's option, on the federal funds rate, the bank's prime rate, a three
month average certificate of deposit rate or the London Interbank Offering Rate
(LIBOR), plus a fixed percent and are adjusted based upon the ratio of total
debt to operating cash flow. Additionally, commitment fees of 1/2% on available
but undrawn revolving credit funds are payable quarterly in advance. The
weighted average interest rates for the year ended December 31, 1995 and for the
nine months ended September 30, 1995 and 1996 (unaudited) were 8.3%, and 8.8%
and 8.4%, respectively. Interest expense relating to the Credit Agreement for
the year ended December 31, 1995, and for the nine months ended September 30,
1995 and 1996 (unaudited), were approximately $3,852,000 and $2,951,555 and
$2,782,050, respectively.
10
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT: (CONTINUED)
Under the covenants of the Credit Agreement, the Company is required to
maintain certain financial ratios, including an interest coverage ratio, a
leverage ratio and a fixed charges ratio. Substantially all of the Companies'
assets have been pledged as security under the Credit Agreement.
Long-term debt at September 30, 1996 (unaudited), includes a subordinated
promissory note in the amount of $1,645,500 to a former stockholder and employee
of the Company as a result of the repurchase by the Company of all of his shares
of outstanding common stock (see Note 11). The note matures on March 27, 1999,
and interest is payable annually at the lowest rate of interest applicable to
borrowings under the Credit Agreement.
A summary of long-term debt as of December 31, 1995 and September 30, 1996
(unaudited), is as follows:
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, SEPTEMBER 30,
1995 1996
-------------- ---------------
(UNAUDITED)
<S> <C> <C>
Credit Agreement Term A Note................................ $ 24,250,000 $ 21,916,666
Credit Agreement Term B Note................................ 13,000,000 13,000,000
Revolving Credit Note....................................... 3,500,000 5,000,000
Other notes payable with varying maturity dates............. 196,720 1,669,381
-------------- ---------------
Total long-term debt...................................... 40,946,720 41,586,047
Less -- Current portion of long-term debt................... (2,851,765) (3,305,379)
-------------- ---------------
Long-term debt less current portion....................... $ 38,094,955 $ 38,280,668
-------------- ---------------
-------------- ---------------
</TABLE>
Future maturities of long-term debt as of December 31, 1995 and September
30, 1996, are as follows:
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, SEPTEMBER 30,
1995 1996
-------------- ---------------
(UNAUDITED)
<S> <C> <C>
1996........................................................ $ 2,851,765 $ 3,305,379
1997........................................................ 3,632,255 3,573,693
1998........................................................ 3,602,700 3,574,080
1999........................................................ 4,500,000 6,150,007
2000........................................................ 6,125,000 6,127,427
2001 and thereafter......................................... 20,235,000 18,855,461
-------------- ---------------
Total..................................................... $ 40,946,720 $ 41,586,047
-------------- ---------------
-------------- ---------------
</TABLE>
Interest payments for the year ended December 31, 1995 and for the nine
months ended September 30, 1995 and 1996 (unaudited), were approximately
$3,901,000, and $2,911,780 and $2,387,456, respectively.
11
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES:
The (provision) benefit for income taxes for the year ended December 31,
1995, and the nine months ended September 30, 1995 and 1996 (unaudited),
consists of the following:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
FOR THE YEAR SEPTEMBER 30,
ENDED DECEMBER ----------------------------
31, 1995 1995 1996
-------------- ------------ --------------
(UNAUDITED)
<S> <C> <C> <C>
Current
Federal....................................... $ (72,187) $ (54,140) $ (2,087,942)
State......................................... (151,900) (113,925) (763,747)
-------------- ------------ --------------
(224,087) (168,065) (2,851,689)
-------------- ------------ --------------
Deferred
Federal....................................... (267,373) (38,479) (34,541)
State......................................... (86,900) (65,175) (7,124)
-------------- ------------ --------------
(354,273) (103,654) (41,665)
-------------- ------------ --------------
Total....................................... $ (578,360) $ (271,719) $ (2,893,354)
-------------- ------------ --------------
-------------- ------------ --------------
</TABLE>
Income tax payments made for the year ended December 31, 1995, and for the
nine months ended September 30, 1995 and 1996 (unaudited), were $584,674 and
$237,650 and $50,100, respectively.
The following is a reconciliation of the statutory federal income tax
benefit to the recorded effective tax (provision) benefit for year ended
December 31, 1995, and the nine months ended September 30, 1995 and 1996
(unaudited):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
FOR THE YEAR SEPTEMBER 30,
ENDED DECEMBER ----------------------------
31, 1995 1995 1996
-------------- ------------ --------------
(UNAUDITED)
<S> <C> <C> <C>
Statutory federal taxes, at 34% of pretax....... $ 125,576 $ 94,182 $ (2,404,474)
State provision................................. (238,800) (179,100) (504,073)
Non-deductible depreciation and amortization.... (549,748) (412,311) (203,097)
Other........................................... 84,612 225,510 218,290
-------------- ------------ --------------
Effective tax benefit (provision)............. $ (578,360) $ (271,719) $ (2,893,354)
-------------- ------------ --------------
-------------- ------------ --------------
</TABLE>
The Company has incurred net operating losses which are available as
carryforwards to offset future taxable income. At December 31, 1995 and
September 30, 1996 (unaudited) net operating losses for income tax reporting
purposes are approximately $5.2 million and $3.9 million, respectively, and
expire between 2008 and 2010. For losses incurred prior to December 20, 1994,
utilization is limited to taxable gains recognized through 1998 on the sale of
assets which had "built-in gains" in 1994. A full valuation allowance on all
losses has been reflected in the accompanying balance sheet due to uncertainties
relating to the utilization of these net operating losses.
12
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES: (CONTINUED)
Total deferred tax assets and liabilities and the sources of the differences
between financial accounting and tax bases of the Company's assets and
liabilities which give rise to the deferred tax assets and liabilities are as
follows as of December 31, 1995 and September 30, 1996 (unaudited):
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, SEPTEMBER 30,
1995 1996
-------------- ---------------
(UNAUDITED)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward........................... $ 2,128,403 $ 1,612,389
Accrued liabilities....................................... 560,942 560,483
Accrued environmental remediation......................... 147,814 68,141
Bad debt reserves......................................... 134,517 187,101
Valuation allowance....................................... (2,128,403) (1,612,389)
-------------- ---------------
843,273 815,725
-------------- ---------------
Deferred tax liabilities:
Property and equipment.................................... 5,487,547 5,501,664
Prepaid expenses.......................................... 8,464 8,464
Officer bonuses........................................... -- --
Other..................................................... 180,262 180,799
-------------- ---------------
5,676,273 5,690,927
-------------- ---------------
Net deferred tax liability.............................. $ 4,833,000 $ 4,875,202
-------------- ---------------
-------------- ---------------
</TABLE>
8. MANAGEMENT STOCK OPTION PLAN:
On December 20, 1994, Holding instituted a Management Stock Option Plan
("the Stock Option Plan") under which nonqualified incentive and performance
stock options were granted to certain consultants, directors and employees of
the Company. Each option entitles the grantee to purchase one share of common
stock at a certain price per share, based on the estimated fair value of the
shares at the date of grant. The maximum authorized number of shares of common
stock which may be issued under the Stock Option Plan is 360,000. All options
expire ten years after the date of grant or at the time the grantee ceases to be
a full-time employee, director or consultant.
Options are only exercisable when vested. Incentive options vest 20% every
year. Performance options vest over a five year period based on the Company
achieving certain defined levels of earnings performance or upon approval of the
Board of Directors.
13
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. MANAGEMENT STOCK OPTION PLAN: (CONTINUED)
The following options were outstanding and exercisable:
<TABLE>
<CAPTION>
OPTION
PRICE/SHARE INCENTIVE PERFORMANCE TOTAL
----------- --------- ------------- ---------
<S> <C> <C> <C> <C>
Total outstanding at December 31, 1994........................ $ 10.00 170,660 170,660 341,320
Granted in 1995............................................... $ 10.00 6,840 6,840 13,680
--------- ------------- ---------
Total outstanding at December 31, 1995........................ 177,500 177,500 355,000
--------- ------------- ---------
--------- ------------- ---------
Exercisable at December 31, 1995.............................. 35,500 35,500 71,000
--------- ------------- ---------
--------- ------------- ---------
Granted, January 1, 1996 to September 30, 1996 (unaudited).... $ 12.50 25,000 25,000 50,000
--------- ------------- ---------
Exercised, March 27, 1996 (unaudited)......................... $ 10.00 (7,700) (7,700) (15,400)
--------- ------------- ---------
Expired, January 1, 1996 to September 30, 1996 (unaudited).... $ 10.00 (32,266) (32,266) (64,532)
--------- ------------- ---------
Total outstanding at September 30, 1996 (unaudited)........... 162,534 162,534 325,068
--------- ------------- ---------
--------- ------------- ---------
Exercisable at September 30, 1996 (unaudited)................. 32,507 32,507 65,014
--------- ------------- ---------
--------- ------------- ---------
</TABLE>
9. PROFIT SHARING PLAN:
The Revere National Corporation 401(k) profit sharing plan and trust (the
Plan) covers eligible employees of the Company. Contributions made to the Plan
include an employee elected salary deduction amount and Company matching
contributions. The Company's 401(k) expense for the periods ended December 31,
1995 and September 30, 1995 and 1996 (unaudited), was $133,176, and $100,201 and
$113,984, respectively.
10. NOTES RECEIVABLE:
Notes receivable from management stockholders represent notes due in
connection with the issuance of Holding stock as discussed in Note 1. The notes
bear interest at the same rate as the Term A Note discussed in Note 6 and are
due on December 20, 2004.
11. TREASURY STOCK (UNAUDITED):
In connection with the termination of two employees, one of which was an
officer and director of the Company, the Company purchased 150,751 shares of its
common stock at a cost of $1,653,737 during the nine months ended September 30,
1996 (unaudited). These transactions were completed primarily in exchange for a
note payable, as described in Note 6.
12. COMMITMENTS:
The Company leases office space and equipment under the terms of operating
leases agreements. Lease expense of approximately $236,300, $167,600 and
$230,900 was recorded for the periods ended December 31, 1995, and September 30,
1995 and 1996 (unaudited), respectively.
14
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. COMMITMENTS: (CONTINUED)
Future minimum lease payments under capital and operating leases and the
present value of the net minimum lease payments as of December 31, 1995 and
September 30, 1996 (unaudited), are as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995 AS OF SEPTEMBER 30, 1996
------------------------- ------------------------
CAPITAL OPERATING CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASES LEASES LEASES
- ---------------------------------------------------------- ------------ ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
1996...................................................... $ 288,394 $ 227,776 $ 52,221 $ 71,177
1997...................................................... 235,066 222,770 269,064 246,528
1998...................................................... 186,610 219,778 227,160 210,930
1999...................................................... 98,724 128,224 111,323 124,575
2000...................................................... 9,274 88,164 21,484 86,164
2001 and thereafter....................................... -- -- -- 18,420
------------ ----------- ----------- -----------
Minimum lease payments.................................... $ 818,068 $ 886,712 $ 681,252 $ 757,794
----------- -----------
----------- -----------
Less -- Amount representing interest and executory
costs................................................... (113,415) (78,574)
------------ -----------
Present value of minimum lease payments................... $ 704,653 $ 602,678
------------ -----------
------------ -----------
</TABLE>
Additionally, substantially all of the Company's sign structures are located
on land which is leased from unrelated parties for periods ranging from one to
ten years. Generally, these sign site lease agreements permit the Company to
cancel an agreement upon 30 days written notice.
13. MINORITY INTEREST:
In August 1995, Mall Media entered into a 15 year operating agreement with
Vision Digital Communications, LLC ("VDC"), a California limited liability
corporation in which Mall Media holds an 80% investment, to conduct an
interactive kiosk business. Pursuant to this agreement, the initial capital
contributions of two of the minority investors of VDC were $140,000, which
reflected the estimated fair value of assets and properties these two members
contributed to VDC. This amount has been reflected in the consolidated financial
statements as Minority Interest at December 31, 1995. In accordance with the
operating agreement, 100% of the loss during 1995 was allocated to Mall Media.
14. LITIGATION:
The Company is involved in various legal and administrative actions evolving
from its conduct of routine operations. These actions include resolutions of
disputes with land owners, regulatory compliance issues and personal property
tax assessment issues, the outcome of which cannot currently be determined.
Management does not believe that the outcome of these actions will have a
material adverse effect on the Company.
15. UNAUDITED PRO FORMA SUMMARY RESULTS OF OPERATIONS:
The unaudited pro forma summary consolidated results of operations for the
year ended December 31, 1995 and the nine months ended September 30, 1996
(unaudited), assuming the acquisitions
15
<PAGE>
REVERE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. UNAUDITED PRO FORMA SUMMARY RESULTS OF OPERATIONS: (CONTINUED)
executed during 1995 and 1996 (as described in Notes 3 and 16) and the sale of
the Company's operations in Texas (as described in Note 17) had been consummated
on January 1, 1995, are as follows (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEAR MONTHS ENDED
ENDED DECEMBER SEPTEMBER 30,
31, 1995 1996
-------------- --------------
(UNAUDITED)
<S> <C> <C>
Net revenues................................................. $ 34,688 $ 25,400
-------------- --------------
-------------- --------------
Net loss..................................................... $ (287) $ (1,395)
-------------- --------------
-------------- --------------
</TABLE>
16. SUBSEQUENT EVENTS:
On February 2, 1996, the Company acquired certain assets of Mass Transit
Communications ("MTC") and Mass Transit Communications -- Wallscapes ("MTC-W")
for $2,075,000. This purchase, which is effective February 1, 1996, allows the
Company to exclusively sell and service advertising space in and on municipal
transit systems of the cities of Baltimore and Annapolis, Maryland.
In March 1996, the Board of Directors approved a restructuring of the
Company's operations at Mall Media. The ultimate impact of the restructuring has
not yet been determined; however, management does not believe the restructuring
will have a material impact on the Company's financial position or results of
operations in 1996.
17. EVENTS SUBSEQUENT TO THE DATE OF THE AUDITORS' REPORT (UNAUDITED):
On July 1, 1996, the Company sold substantially all of its assets associated
with the Company's operations in San Antonio, Texas, through a third-party
intermediary with the intention of completing a like-kind exchange of assets by
December 28, 1996. Associated with this sale was the establishment of an escrow
account whereby the proceeds of the sale ($11,000,000) were deposited and can
only be withdrawn for the purchase of like-kind property or to pay down existing
senior debt. If the purchase of like-kind property is successfully completed
within 180 days of the sale, the Company may defer the gain, for income tax
purposes, on the property sold. The gain is estimated to be approximately
$5,000,000.
On August 30, 1996, the Company sold substantially all of its assets
associated with operations in Corpus Christi and Laredo, Texas, in a like-kind
exchange transaction, similar to that discussed above, with the intentions of
completing a like-kind exchange of property by February 28, 1997. The proceeds
from the sale also were deposited with a third-party intermediary totaling
$9,300,000. The gain, for income tax purposes, if the purchase of like-kind
property is not successfully completed within 180 days of the sale, is estimated
to be approximately $4,000,000.
16
