SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
September 16, 1996 (July 18, 1996)
AMERICAN RADIO SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 0-26102 04-3196245
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
116 Huntington Avenue
Boston, Massachusetts 02116
(Address of principal executive offices, including zip code)
(617) 375-7500
(Registrant's telephone number, including area code)
<PAGE>
Item 5. Other Events
On September 4, 1996, American Radio Systems Corporation , a Delaware
corporation (the Company), reached an agreement with Capital Broadcasting
Company, a North Carolina corporation, pursuant to which the Company will
acquire substantially all of the assets of WMMX, Inc. (WMMX-FM) and CBC of
Baltimore, Inc. (WOCT-FM), both North Carolina corporations, for approximately
$60.0 million in cash and approximately $30.0 million in cash, respectively.
Both stations are located in Baltimore, Maryland. Consummation of the
transaction is subject to, among other things, the signing of a definitive asset
purchase agreement and the approval of the FCC. The Company expects to finance
the acquisition with the proceeds of borrowings under its credit agreement. For
more information , see the Company's press release, dated September 4, 1996,
which is attached herewith as Exhibit 99 and incorporated by reference herein.
Item 7. Financial Statements and Exhibits
The financial statements required by Item 7 of this Report are herein provided
with respect to the consummation of the following transactions:
Consummation on July 3, 1996 of the transactions contemplated by the Agreement
and Plan of Merger, dated March 21, 1996, as amended, by and between the Company
and Henry Broadcasting Company, a California corporation, as described in the
Company's Form 8-K dated as of July 16, 1996, which is hereby incorporated by
reference herein.(Herein referred to as the Henry acquisition).
Consummation on August 1, 1996 of the transactions contemplated by the Asset
Purchase Agreement, dated April 25, 1996, between the Company, BayCom San Jose,
L.P., a Georgia limited partnership, and BayCom Oregon, L.P., a Georgia limited
Partnership, described under Item 5 in the Company's Form 10-Q for the quarterly
period ended June 30, 1996, dated as of August 12, 1996, which is hereby
incorporated by reference herein. (Herein referred to as the BayCom
acquisition).
The financial statements required by the May 29, 1996 consummation of the
transactions contemplated by certain Asset Purchase Agreements, dated as of
August 11, 1995, between the Company and The Ten Eighty Corporation, a
Connecticut corporation, (herein referred to as the Hartford acquisition or
Prior acquisition) were filed with the Company's Form 8-K/A dated as of August
12, 1996.
(a) Financial Statements
The following financial statements are filed with this Report:
Henry Broadcasting Company - Special Financial Presentation
Independent Auditor's Report........................... Page F-1
Balance Sheets
December 31, 1994, 1995 and June 30, 1996 (unaudited).. Page F-2
Statements of Operations
Years ended December 31, 1993, 1994, 1995 and six months
ended June 30, 1995 and 1996 (unaudited)................ Page F-3
Statements of Changes in Stockholders' Deficiency years
ended December 31, 1993, 1994, 1995 and June 30, 1996
(unaudited)............................................ Page F-4
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Statements of Cash Flows Years ended December 31,
1993, 1994, 1995 and six months ended
June 30, 1996 and 1995 (unaudited)..................... Page F-5
Notes to the financial statements...................... Page F-6
BayCom Partners, L.P. And Consolidated Entities
Independent Auditors' Report.......................... Page F-19
Consolidated Balance Sheets
December 31, 1994, 1995 and June 30, 1996 (unaudited). Page F-20
Consolidated Statements of Operations
Years ended December 31, 1993, 1994, 1995 and six months
ended June 30,1995 and 1996 (unaudited)............... Page F-22
Consolidated Statement of Partners' Capital December 31, 1993,
1994, 1995 and June 30, 1996
(unaudited)........................................... Page F-23
. Consolidated Statements of Cash Flows
Years ended December 31, 1993, 1994, 1995 and six months
ended June 30, 1996 and 1995 (unaudited).............. Page F-24
Notes to the consolidated financial statements........ Page F-25
(b) Pro Forma Financial Information
The following unaudited pro forma condensed consolidated financial
statements are filed with this report:
Pro Forma Condensed Consolidated Balance Sheet:
As of June 30, 1996................................... Page P-1
Pro Forma Condensed Consolidated Statements of Operations:
Year ended December 31, 1995.......................... Page P-2
Six Months Ended June 30, 1996........................ Page P-3
The Pro forma condensed consolidated balance sheet as of June 30, 1996 reflects
the financial position of the Company after giving effect to the Henry
acquisition and the BayCom acquisition as if they took place on June 30, 1996.
The Pro Forma condensed consolidated balance sheet does not include any
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<PAGE>
adjustments for the Hartford acquisition as the transactions are already
reflected in the balance sheet filed with the Company's Form 10-Q for the
quarterly period ended June 30, 1996. The Pro forma condensed consolidated
statements of operations for the year ended December 31, 1995 and six months
ended June 30, 1996 assume that the Henry, BayCom and Hartford acquisitions
occurred on January 1, 1995 and January 1, 1996, respectively, and are based on
the operations of the Company for the year ended December 31, 1995 and six
months ended June 30, 1996, respectively. The unaudited pro forma condensed
consolidated financial statements have been prepared by the Company based on
certain assumptions and are presented herein for illustrative purposes only and
are not necessarily indicative of the future results of operations of the
Company, or results of operations of the Company that would have occurred had
the transactions occurred on the dates specified or for the periods presented,
nor are they indicative of the Company's future results of operations.
The unaudited pro forma financial statements should be read in conjunction with
the Company's historical consolidated financial statements and notes thereto.
(c) Exhibits
Exhibit 2.1 - Agreement and Plan of Merger, dated as of March 21, 1996,
by and between the Company and Henry Broadcasting Company, a California
corporation (HBC).*
Exhibit 2.2 - Amendment to Agreement and Plan of Merger, dated as of
July 3, 1996, by and between the Company and HBC.**
Exhibit 2.3 - Asset Purchase Agreement, dated as of April 25, 1996,
between the Company and BayCom San Jose, L.P., a Georgia limited
partnership, and BayCom Oregon, L.P., a Georgia limited Partnership.***
Exhibit 23A - Consent of Deloitte & Touche LLP
Exhibit 23B - Consent of Miller, Kaplan, Arase & Co.
Exhibit 99 - Company press release dated September 4, 1996
* Filed as Exhibit 10.44 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995.
** Filed as Exhibit 2.3 to the Company's Report on Form 8-K dated as of
July 16, 1996.
*** Filed as Exhibit 10.55 to the Company's Report on Form 10-Q for the
quarterly period ended March 31, 1996.
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Independent Auditor's Report
Board of Directors
Henry Broadcasting Company
2277 Jerrold Avenue
San Francisco, California 94124
Members of the Board:
We have audited the accompanying balance sheets - special financial presentation
- - of Henry Broadcasting Company as of December 31, 1995 and 1994, and the
related statements of operations, changes in stockholders' deficiency and cash
flows - special financial presentations, for each of the years ended December
31, 1995, 1994 and 1993. 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, such special financial presentation financial statements present
fairly, in all material respects, the financial position of Henry Broadcasting
Company as of December 31, 1995 and 1994 and the results of its operations and
its cash flows for the years ended December 31, 1995, 1994 and 1993 in
conformity with generally accepted accounting principles.
As discussed in Note 1A, the accompanying financial statements include
principally those accounts of Henry Broadcasting Company which were merged with
American Radio Systems Corporation on July 3, 1996.
MILLER, KAPLAN, ARASE & CO.
North Hollywood, California
April 16, 1996 (Except for Note 18
as to which the date is July 3, 1996).
F-1
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<TABLE>
<CAPTION>
HENRY BROADCASTING COMPANY
BALANCE SHEETS -
SPECIAL FINANCIAL PRESENTATION
December 31,
June 30, 1995 1994
1996 ------------ -----------
------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Other Receivables $ 58,618 $ 11,652 $ --
Prepaid Sports Broadcast Rights -- 167,339 --
Prepaid Expenses 90,751 90,935 69,995
------------ ------------ ------------
TOTAL CURRENT ASSETS $ 149,369 $ 269,926 $ 69,995
------------ ------------ ------------
PROPERTY AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION (Note 3) $ 3,363,466 $ 3,529,802 $ 1,712,293
------------ ------------ ------------
OTHER ASSETS
Intangibles, Net of Accumulated Amortization (Note 4) $ 10,928,935 $ 11,177,414 $ 7,652,031
Loan Fees -- 124,330 157,463
Other $ 117,547 $ 90,023 $ 92,822
------------ ------------ ------------
TOTAL OTHER ASSETS $ 11,046,482 $ 11,391,767 $ 7,902,316
------------ ------------ ------------
TOTAL $ 14,559,317 $ 15,191,495 $ 9,684,604
============ ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 59,202 $ 203,578 $ 44,198
Accrued Interest -- 556,875 656,080
Current Portion of Long-Term Debt to be Assumed 30,182,450 32,562,796 7,570,000
(Note 5)
Sports Broadcast Rights Payable -- 62,920 181,582
Due to Majority Stockholder to be Assumed (Note 5) 5,000,000 -- --
------------ ------------ ------------
TOTAL CURRENT LIABILITIES $ 35,241,652 $ 33,386,171 $ 8,451,860
------------ ------------ ------------
LONG-TERM DEBT TO BE ASSUMED, NET
OF CURRENT PORTION (Note 5) $ 727,550 $ 757,202 $ 28,260,000
------------ ------------ ------------
DUE TO MAJORITY STOCKHOLDER TO BE ASSUMED
NET OF CURRENT PORTION (Note 6) $ -- $ 5,000,000 $ 5,000,000
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 10, 11 and 12)
TOTAL LIABILITIES ASSUMED $ 35,969,202 $ 39,143,373 $ 41,711,860
------------ ------------ ------------
NET LIABILITIES (ASSETS) NOT SOLD OR ASSUMED (Note 16) 6,752,714 2,631,990 (4,337,011)
STOCKHOLDERS' DEFICIENCY (28,162,599) (26,583,868) (27,690,245)
------------ ------------ ------------
TOTAL $ 14,559,317 $ 15,191,495 $ 9,684,604
============ ============ ============
</TABLE>
(See Accompanying Auditor's Report)
(Attached notes are an integral part of this statement)
F-2
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<TABLE>
<CAPTION>
HENRY BROADCASTING COMPANY
STATEMENTS OF OPERATIONS
SPECIAL FINANCIAL PRESENTATION
Six Months Ended June 30 Years Ended December 31
---------------------------- -----------------------
1996 1995
(Unaudited) (Unaudited) 1995 1994 1993
------------- ------------ ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET REVENUES $ 12,408,447 $ 9,653,483 $ 20,603,788 $ 20,514,615 $ 17,742,260
------------ ------------ ------------ ------------ ------------
OPERATING EXPENSES
Operating Expenses Excluding
Depreciation and Amortization, Corporate,
and General and Administrative Expenses $ 5,448,125 $ 4,436,096 $ 9,775,864 $ 8,836,119 $ 8,131,176
Depreciation and Amortization 629,389 331,053 871,459 895,790 1,589,793
General & Administrative Expenses 1,932,357 1,476,966 3,271,077 3,301,316 2,948,878
Corporate Expenses 2,458,989 413,970 1,130,268 618,575 622,533
------------ ------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES $ 10,468,860 $ 6,658,085 $ 15,048,668 $ 13,651,800 $ 13,292,380
------------ ------------ ------------ ------------ ------------
INCOME FROM OPERATIONS $ 1,939,587 $ 2,995,398 $ 5,555,120 $ 6,862,815 $ 4,449,880
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES)
Interest Expense (3,044,238) (1,720,663) (3,441,900) (3,454,827) (3,370,428)
Other Income (Expense) -- -- (335,363) (8,334) 2,439
------------ ------------ ------------ ------------ ------------
TOTAL OTHER (EXPENSE) (3,044,238) (1,720,663) (3,777,263) (3,463,161) (3,367,859)
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) (1,104,651) 1,274,735 1,777,857 3,399,654 1,081,891
============ ============ ============ ============ ============
</TABLE>
(See Accompanying Auditor's Report)
(Attached notes are an integral part of this statement)
F-3
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<TABLE>
<CAPTION>
HENRY BROADCASTING COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY -
SPECIAL FINANCIAL PRESENTATION
Common Stock Total
------------ Paid in Accumulated Stockholders'
Shares Amount Capital Deficit Deficiency
------- ------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1993 1,000 $ 1,000 $ 25,000 $(32,197,790) $(32,171,790)
Net Income -- -- -- 1,081,891 1,081,891
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1993 1,000 $ 1,000 $ 25,000 $(31,115,899) $(31,089,899)
Net Income -- -- -- 3,399,654 3,399,654
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1994 1,000 $ 1,000 $ 25,000 $(27,716,245) $(27,690,245)
Distribution to Majority
Stockholder (Note 13) -- -- -- (671,480) (671,480)
Net Income -- -- -- 1,777,857 1,777,857
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 1,000 $ 1,000 $ 25,000 $(26,609,868) $(26,583,868)
Stock Bonus Distribution
(Note 14) 15 15 937,485 -- 937,500
Distribution to Majority
Stockholder (Note 13) -- -- -- (1,411,580) (1,411,580)
Net (Loss) -- -- -- (1,104,651) (1,104,651)
------------ ------------ ------------ ------------ ------------
Balance, June 30, 1996
(Unaudited) 1,015 $ 1,015 $ 962,485 $(29,126,099) $(28,162,599)
============ ============ ============ ============ ============
</TABLE>
(See Accompanying Auditor's Report)
(Attached notes are an integral part of this statement)
F-4
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<TABLE>
<CAPTION>
HENRY BROADCASTING COMPANY
STATEMENTS OF CASH FLOWS -
SPECIAL FINANCIAL PRESENTATION
Six Months Ended
June 30, Years Ended December 31,
1996 1995
(Unaudited) (Unaudited) 1995 1994 1993
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $(1,104,651) $ 1,274,735 $ 1,777,857 $ 3,399,654 $ 1,081,891
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided (Used) by Operating Activities:
Depreciation 380,910 147,452 504,255 374,576 477,759
Amortization 248,479 183,601 367,204 521,214 1,112,034
Amortization of Loan Fees 124,330 19,947 33,133 23,779 56,007
Stock Bonus Distribution (Note 14) 937,500 -- -- -- --
(Increase) Decrease In:
Accounts Receivable 212,928 566,153 (577,323) (327,544) (929,039)
Other Receivables (70,403) (534,544) (10,155) (12,903) --
Prepaid Sports Broadcast Rights 167,339 -- (167,339) 308,000 (308,000)
Other Prepaid Expenses (25,971) (74,110) (20,940) (9,648) 19,612
Other Assets (27,524) 4,310 2,799 22,172 (37,164)
Increase (Decrease) In:
Accounts Payable and Accrued Expenses: (296,988) (18,663) 190,958 (8,483) (53,783)
Accrued Interest (556,875) (99,205) (99,205) (128,595) (700,325)
Accrued Wages and Commissions (94,853) (42,671) 13,003 48,929 151,434
Deferred Revenue -- -- -- -- (39,143)
Sports Broadcast Rights Payable (62,920) (181,582) (118,662) 181,582 (60,000)
----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES $ (168,699) $ 1,245,423 $ 1,895,585 $ 4,392,733 $ 771,283
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Property and Equipment $ (214,574) $ (251,945) $ (461,132) $ (258,498) $ (184,298)
Acquisition of KCTC-AM -- -- (3,062,727) -- --
Acquisition of KKDJ-FM -- -- -- (1,740,611) --
NET CASH (USED IN) ----------- ----------- ----------- ----------- -----------
INVESTING ACTIVITIES $ (214,574) $ (251,945) $(3,523,859) $(1,999,109) $ (184,298)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments on Long-Term Debt $(2,410,000) $(3,310,000) $(3,310,000) $(4,272,485) $ (3,673)
Distribution to Majority Stockholder (1,411,560) -- (671,480) -- --
NET CASH (USED IN) ----------- ----------- ----------- ----------- -----------
FINANCING ACTIVITIES $(3,821,580) $(3,310,000) $(3,981,480) $(4,272,485) $ (3,673)
NET INCREASE (DECREASE) IN CASH BEFORE ADJUSTMENT $(4,204,853) $(2,316,522) $(5,609,754) $(1,878,861) $ 583,312
ADJUSTMENT FOR NET LIABILITIES (ASSETS)
NOT SOLD OR ASSUMED (Note 16) $ 4,204,853 $ 2,316,522 $ 5,609,754 $ 1,878,861 $ (583,312)
NET INCREASE (DECREASE) IN CASH (Note 1A) $ -- $ -- $ -- $ -- $ --
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid during the Year for Interest $ 3,601,112 $ 1,819,868 $ 4,061,220 $ 4,634,873 $ 4,199,348
=========== =========== =========== =========== ===========
Cash Paid During the Year for Taxes (Note 13) $ 800 $ -- $ 29,734 $ -- $ --
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES
Included in the purchase of KRQC-FM was an assumption of an $800,000 promissory
note payable. (Note 5d.)
See Note 17 for supplemental disclosure of a non-cash radio station exchange.
</TABLE>
(See Accompanying Auditor's Report)
(Attached notes are an integral part of this statement)
F-5
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HENRY BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS -
SPECIAL FINANCIAL PRESENTATION
THREE YEARS ENDED DECEMBER 31, 1995
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Presentation
The financial statements include the accounts of Henry Broadcasting
Company, a California corporation (the "Company") excluding the assets,
liabilities and results of operations spun off into a newly-formed
corporation as discussed in Note 18. The financial statements
principally include the accounts to be merged with American Radio
Systems Corporation ("ARS") (the "Merger") and primarily consist of the
Company's Muzak division (Business Music Service) and its radio
divisions KBBT-AM and KUFO-FM licensed to Portland, Oregon; KFAB-AM and
KGOR-FM licensed to Omaha, Nebraska; KMJ-AM, KSKS-FM and KKDJ-FM
licensed to Fresco, California; and KCTC- FM and KYMX-FM licensed to
Sacramento, California (for 1995 presentation only - Note 17).
Accordingly, cash and other account balances not merged with ARS have
not been included in the accompanying special financial presentation.
Note 16 to the financial statements discusses and itemizes the
summarized amount of "net liabilities (assets) not sold or assumed" as
presented in the balance sheets.
B. Unaudited Interim Information
In the opinion of management, the financial statements for the
unaudited periods include all adjustments necessary for a fair
presentation in accordance with generally accepted accounting
principles and the basis of presentation discussed above, consisting
solely of normal recurring accruals and adjustments. The results of
operations and cash flows for the six months ended June 30, 1996 and
1995 are not necessarily indicative of results which would be expected
for a full year.
C. Basis of Accounting
Revenues are recognized when advertisements are broadcast and
transmitting services are provided. Expenses are recognized when
incurred. The accompanying financial statements are presented on the
accrual basis.
(See Accompanying Auditor's Report)
F-6
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HENRY BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS -
SPECIAL FINANCIAL PRESENTATION
THREE YEARS ENDED DECEMBER 31, 1995
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
D. Depreciation
Property and equipment are stated at cost and are depreciated over the
estimated useful lives of the assets. The assets are depreciated
principally using the straight-line method for financial reporting
purposes. On an ongoing basis, management evaluates the recoverability
of the net carrying value of property and equipment and intangible
assets by reference to the Company's anticipated future cash flows
generated by those assets and comparison of carrying value to
management's estimates of fair value, generally determined by using
certain accepted industry measures of value (principally, nondiscounted
cash flow multiplied methods).
The following estimated useful lives are used for financial reporting
purposes:
Building and Building Improvements 10 to 20 years
Towers and Transmitter Equipment 5 to 10 years
Studio Equipment 5 to 7 years
Equipment and Fixtures 3 to 10 years
Music Library 5 years
Transportation Equipment 3 to 7 years
Leasehold Improvements 5 to 10 years
E. Amortization
Intangible assets and loan fees are recorded at cost and are amortized
for financial reporting purposes using the straight-line method over
the estimated useful lives of the assets as follows:
Investment in FCC Licenses, Goodwill
and Going Concern Value 40 years
Premium of Radio Station Formats Purchased 5 years
Bargain Element of Leases Assumed 14 to 22 years
Network Affiliation Agreement 40 years
Loan Fees 5 to 12 years
F. Trade Activity
The Company exchanges commercial air time for goods and services, as is
customary in the broadcasting industry. The sales from such trade
activity are recognized when the air time is run. The related trade
expense is recognized when the goods or services are used. Trade
revenue and expense is recorded at estimated fair market value.
The Company's policy is to utilize bartered goods and services on a
basis which is essentially concurrent with the running of related air
time. Accordingly, no significant assets or liabilities generally
result from barter activity. It is also the Company's policy to value
goods and services received from barter transactions at the fair value
of commercial air time run. Gross trade revenue and expense recognized
by the Company were as follows for the periods set forth below:
(See Accompanying Auditor's Report)
F-7
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HENRY BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS -
SPECIAL FINANCIAL PRESENTATION
THREE YEARS ENDED DECEMBER 31, 1995
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
Periods Ended June 30, Periods Ended December 31,
---------------------- ------------------------------------
1995 1996 1993 1994 1995
---- ---- ---- ---- ----
$428,000 $449,000 $778,000 $791,000 $779,000
======== ======== ======== ======== ========
G. Cash Flows
For reporting in the statement of cash flows, the Company considers all
short-term investments with a maturity of 3 months or less to be cash
equivalents.
H. Income Taxes
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus
deferred taxes. Deferred taxes are recognized for differences between
the basis of assets and liabilities for financial statement and income
tax purposes. The differences relate primarily to different
depreciation methods, net operating loss carryover and state franchise
tax. The deferred taxes represent the future tax return consequences of
those differences, which will either be taxable or deductible when the
assets and liabilities are recovered or settled.
I. Accounting 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.
Corporate and interest expenses are allocated among the individual
entities of Henry Broadcasting Company and its Subsidiary on a pro rata
basis based on revenue. The amounts allocated to the net assets to be
merged with ARS have been reflected in these financial statements.
J. Impact of Recently Adopted Accounting Standard
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 121 "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
of" (FAS 121). FAS 121 addresses the accounting for the impairment of
long-lived assets, certain identifiable intangibles and goodwill when
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. FAS 121 was adopted effective January
1, 1996. The impact of FAS 121 did not have a material impact on the
Company's results of operations, liquidity or financial position.
(See Accompanying Auditor's Report)
F-8
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HENRY BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS -
SPECIAL FINANCIAL PRESENTATION
THREE YEARS ENDED DECEMBER 31, 1995
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
NOTE 2 - DESCRIPTION OF BUSINESS
The Company as presented in the accompanying financial statements (Note
1A) owns and operates commercial radio stations licensed to the cities
of Portland, Oregon; Sacramento, California; Omaha, Nebraska; and
Fresno, California. In addition, the Company has the exclusive Muzak
franchise for specific territories located in Nebraska and Iowa. Muzak
is the system and business of furnishing planned programs of music to
business and commercial places.
<TABLE>
<CAPTION>
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
June 30, 1996 December 31, 1995 December 31, 1994
------------- ----------------- -----------------
<S> <C> <C> <C>
Land $ 436,144 $ 436,144 $ 91,992
Building and Building Improvements 711,494 685,545 314,210
Towers and Transmitter Equipment 4,212,769 4,144,394 3,327,713
Studio Equipment 3,761,504 3,738,202 3,276,657
Equipment and Fixtures 1,430,844 1,395,933 1,227,671
Music Library 98,777 98,777 91,651
Transportation Equipment 348,755 348,755 309,930
Leasehold Improvements 201,929 157,770 88,882
------------ ------------ ------------
$ 11,202,216 $ 11,005,520 $ 8,728,706
Less Accumulated Depreciation (7,838,750) (7,475,718) (7,016,413)
------------ ------------ ------------
$ 3,363,466 $ 3,529,802 $ 1,712,293
============ ============ ============
</TABLE>
(See Accompanying Auditor's Report)
F-9
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HENRY BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS -
SPECIAL FINANCIAL PRESENTATION
THREE YEARS ENDED DECEMBER 31, 1995
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NOTE 4 - INTANGIBLE ASSETS
Intangible assets consist of the following:
June 30, 1996 December 31, 1995 December 31, 1994
------------- ----------------- -----------------
<S> <C> <C> <C>
FCC Licenses $ 10,171,463 $ 10,171,463 $ 6,424,796
Goodwill 296,676 296,676 150,756
Going Concern Value 75,000 75,000 75,000
Premium of Radio Stations Formats
Purchased 2,220,870 2,220,870 2,220,870
Bargain Element of Leases Assumed 3,035,395 3,035,395 3,035,395
Network Affiliation Agreement 462,000 462,000 462,000
------------ ------------ ------------
$ 16,261,404 $ 16,261,404 $ 12,368,817
Less Accumulated Amortization (5,332,469) (5,083,990) (4,716,786)
------------ ------------ ------------
$ 10,928,935 $ 11,177,414 $ 7,652,031
============ ============ ============
</TABLE>
The increase in FCC license costs from December 31, 1994 to December
31, 1995 was due to the purchase of KCTC-AM and the exchange of KVOD-FM
for KYMX-FM discussed in Note 17.
NOTE 5 - LONG-TERM DEBT TO BE ASSUMED
Long-term debt to be assumed consists of the following:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995 December 31, 1994
------------- ----------------- -----------------
Current Long-Term Current Long Term Current Long-Term
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Senior Secured Notes Payable -
Insurance Companies (a) $22,350,000 $ - $24,750,000 $ - $2,350,000 $24,500,000
Loan Payable - Trust Company of
the West (b) 4,200,000 - 4,200,000 - 4,200,000 -
Loan Payable - Trust Company of
the West (c) 3,570,000 - 3,570,000 - 1,020,000 3,760,000
Loan Payable - Model Associates,
Inc. (d) 62,450 727,550 42,798 757,202 - -
----------- -------- ----------- -------- ---------- -----------
$30,182,450 $727,550 $32,562,798 $757,202 $7,570,000 $28,260,000
=========== ======== =========== ======== ========== ===========
</TABLE>
At completion of the Merger, ARS assumed all obligations under these
agreements and retired the notes and loans.
(a) In 1990 the Company issued a series of Senior Secured Notes
(the "Notes"), in the aggregate principal amount of $30
million to a group of insurance companies. The Notes were due
January 15, 2002, and bear interest at 10.80%, payable
quarterly. Annual principal repayments ranging from $1.35
million to $4.2 million were scheduled each January 15,
through maturity of the Notes.
(See Accompanying Auditor's Report)
F-10
<PAGE>
HENRY BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS -
SPECIAL FINANCIAL PRESENTATION
THREE YEARS ENDED DECEMBER 31, 1995
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
The Notes are collateralized equally and ratably with the
indebtedness of the Company to Trust Company of the West [see
(b) and (c)] by a pledge of all of the outstanding capital
stock of Henry Broadcasting Co. The agreement also provides
for restrictions and limitations on certain additional
indebtedness, liens, loans, contingent liabilities, capital
expenditures, and lease obligations. Additionally, certain
financial covenants must be met including covenants governing
debt service, cash flow and ratio of debt to station cash
flow. The Company was in violation of several of its loan
covenants at June 30, 1996 and December 31, 1995 for which the
lender has not granted waivers. As such, the loan has become
due on demand. As of June 30, 1996, the Company is current
with all scheduled principal payments (see Note 18).
(b) Concurrently with the closing of the Merger, ARS has assumed a
portion of two Revolving Loan Agreements. The Loans (the
"Loans") are with Trust Company of the West and provide for
restrictions and limitations on certain additional
indebtedness, liens, loans, contingent liabilities, capital
expenditures and lease obligations. Additionally, certain
financial covenants must be met including covenants governing
debt service, cash flow and ratio of debt to station cash
flow.
One of the two Revolving Loan Agreements for a $7.7 million
commitment of which ARS assumed $4.2 million is collateralized
by all the assets of one of the stations not being acquired by
ARS and certain officer-stockholder guarantees. This loan
matured on June 30, 1995, and bears interest at Sanwa Bank's
prime rate (8.25% at June 30, 2996 and 8.5% at December 31,
1995 and 1994) plus 1.375%. Interest payments are due
quarterly. Semi-annual principal reductions were scheduled to
begin December 31, 1992, however, aggregate principal payments
of $4,200,000 were in arrears at June 30, 1996 and December
31, 1995 and aggregate principal payments of $3,010,909 were
in arrears at December 31, 1994. At June 30, 1996 the entire
loan balance would be classified as current.
(c) The other of the two Revolving Loan Agreements assumed,
discussed in (b) is an original commitment for $5.9 million,
of which ARS assumed $3.57 million, collateralized equally and
ratably with the Notes (see (a)) by all of the outstanding
capital stock of Henry Broadcasting Co. This note matures on
December 31, 1997 and bears interest at Sanwa Bank's prime
rate (8.25% at June 30, 1996 and 8.5% at December 31, 1995 and
1994) plus 1.375%. Interest payments are due quarterly.
Semi-annual principal reductions ranging from $40,000 to $1.52
million are scheduled to be paid through maturity. The Company
was in violation of several of its loan covenants for this
loan at June 30, 1996 and December 31, 1995 for which the
lender has not granted waivers. As such, the loan has become
due on demand. As of June 30, 1996 and December 31, 1995, the
Company is current with all scheduled principal payments (see
Note 18).
(d) On January 1, 1995, the Company assumed an $800,000 promissory
note as part of the purchase of KRQC-FM (one of the stations
not being acquired by ARS) from an affiliated company (refer
to Note 6). The note is payable to Model Associates, Inc. and
is personally guaranteed by Charlton Buckley, majority
stockholder. The note is payable with interest only through
April 1, 1996, payable quarterly at a rate of 7%. Thereafter,
payments of principal and interest totaling $9,287.43 are
payable monthly until April 1, 2006 at which time all
remaining principal and accrued interest is due (see Note 18).
(See Accompanying Auditor's Report)
F-11
<PAGE>
HENRY BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS -
SPECIAL FINANCIAL PRESENTATION
THREE YEARS ENDED DECEMBER 31, 1995
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
Aggregate principal payments required on long-term debt for each of the
succeeding five years ending June 30, are as follows (see Note 18):
Current Long-Term
------- ---------
1997 $30,182,450 $ --
1998 -- 62,500
1999 -- 67,019
2000 -- 71,864
2001 -- 526,167
----------- -----------
$30,182,450 $ 727,550
=========== ===========
NOTE 6 - RELATED PARTY TRANSACTIONS
The loan from stockholder (see table below) bears interest at Sanwa
Bank's prime rate (8.25% at June 30, 1996 and 8.5% at December 31, 1995
and 1994) plus 0.75%. Although the loan is due upon demand, the
stockholder has agreed to forgo his right to demand payment during
1996. The loan is subordinated to the notes and loans referred to in
Note 5(a) and (b). As a result of the Merger, the loan balance has been
classified as current at June 30, 1996 (see Note 18). Subsequent to the
closing of the Merger, ARS repaid the loan.
Due to majority stockholder to be assumed includes the following (see
Note 18):
[CAPTION]
<TABLE>
June 30, 1996 December 31, 1995 December 31, 1994
--------------- ------------------- ------------------
Current Long-Term Current Long-Term Current Long-Term
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Loan Payable $5,000,000 $ --- $ --- $5,000,000 $ --- $5,000,000
</TABLE>
In addition to the lease commitments disclosed in Note 10, the Company
leases two studio/office buildings, an AM tower, as well as various
furnishings and equipment from the Company's majority stockholder on a
month-to-month basis. The rental expense for these leases was $103,538
and $203,510 for the six months ended June 30, 1996 and 1995 and
$413,590, $409,490 and $384,512 for the years ended December 31, 1995,
1994 and 1993. The Company also pays the property taxes, insurance,
maintenance and operating expenses related to these properties.
On January 1, 1995, the Company purchased substantially all of the
assets of radio station KROC-FM, licensed to Salinas, California from
an affiliated company which is 100% owned by the majority
(See Accompanying Auditor's Report)
F-12
<PAGE>
HENRY BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS -
SPECIAL FINANCIAL PRESENTATION
THREE YEARS ENDED DECEMBER 31, 1995
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
stockholder of the Company (the "Affiliate"). The aggregate price of
$968,500 included the assumption of an $800,000 promissory note payable
to a third party.
Included in corporate expense was a $500,000 cash bonus paid to the
majority stockholder during the year ended December 31, 1995 and a
$562,500 cash and $937,500 stock bonus (discussed in Note 14) paid to
key employees during the six months ended June 30, 1996.
NOTE 7 - EMPLOYEE BENEFIT PLAN
The Company adopted a Savings and Stock Plan (the "Plan") under Section
401(k) of the Internal Revenue Code. This Plan allows all employees who
work at least 1,000 hours per year and older than 21 years of age to
defer up to 15% of their income on a pre-tax basis through
contributions to the Plan, limited to an annual maximum of $9,500 for
1996, $9,240 for 1995 and 1994 and $8,994 for 1993. The Company matches
50% of every dollar the employee contributes up to 1% of their
compensation. The Company contributed $23,871, $18,300, $40,200,
$34,498 and $26,589 to the plan for the six months ending June 30, 1996
and 1995 and for the years ending December 31, 1995, 1994 and 1993,
respectively.
In addition, a contribution can be made into the Plan based upon a
share of the station's profits. The level of this contribution is
determined by Company management on an annual basis. No such
contributions were made for the six months ended June 30, 1996 and for
the years ended December 31, 1995, 1994 or 1993.
NOTE 8 - INCOME TAXES
Effective December 31, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS
109"). Under the provisions of SFAS 109 an entity recognizes deferred
tax assets and liabilities for future tax consequences of events that
have been previously recognized on the Company's financial statements
or tax returns. The measurement of deferred tax assets and liabilities
is based on the provisions of the tax laws in effect as of the date of
these financial statements; the effects of future changes in tax laws
or rates are not anticipated except as otherwise noted.
Effective on January 1, 1987, the Company elected to be treated as a
small business corporation ("S" Corporation) for both federal and state
purposes pursuant to an election made under Section 1362 of the
Internal Revenue Code by the sole stockholder of the Company.
Consequently, the Company's profits and losses will be passed through
directly to the stockholder for income tax purposes and the Company
will accrue no liability for income taxes during the period the
election remains in effect, except for those states charging "S"
Corporations taxes based on income.
The Company's income is currently subject to a 1 1/2% California tax on
income apportioned to California. As a result of the low California tax
rate, the Company has not reflected deferred taxes
(See Accompanying Auditor's Report)
F-13
<PAGE>
HENRY BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS -
SPECIAL FINANCIAL PRESENTATION
THREE YEARS ENDED DECEMBER 31, 1995
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
or benefits for any of its "S" Corporation activities. The Company has
California net operating losses ("NOL") from calendar years 1987
through 1992 of approximately $1,000,000 and $3,890,000 at December 31,
1995 and 1994, respectively, available to offset future "S" Corporation
income allocated to California. The NOL carryforwards at December 31,
1995 expire in 1997. The Company does not expect to have California
taxable income sufficient to utilize any benefits from its California
NOL's due to its "S" Corporation status; thus no benefit for these
NOL's is reflected in the financial statements. The Company's 1995,
1994 and 1993 income tax liabilities were entirely eliminated through
the utilization of approximately $1,100,000, $1,800,000 and $109,000 of
NOL carryforwards, respectively.
The Company has available to offset future federal "C" Corporation
taxable income, NOL carryforwards of approximately $2,300,000, expiring
in 2000 and investment tax credit carryovers of approximately $45,000
also expiring in 2000.
NOTE 9 - RENTAL INCOME
Transmitter sites and transmitter facilities are leased to third
parties who wish to utilize the Subcarrier Communication Authorization
facility with terms, including renewal options, ranging from one to
thirty years. Total rental income from these leases was $113,711,
$28,800, $75,637, $50,400 and $48,000 for the six months ending June
30, 1996 and 1995 and for the years ending December 31, 1995, 1994 and
1993, respectively. Following the Merger discussed in Notes 1A and 18,
ARS assumed all rights and obligations under these agreements.
The following is a schedule by years of future minimum rental payments
due under rental agreements that have initial or remaining
non-cancelable terms in excess of one year as of June 30:
1997 $ 70,100
1998 57,600
1999 63,360
2000 69,120
2001 69,120
Thereafter 178,560
--------
$507,860
========
(See Accompanying Auditor's Report)
F-14
<PAGE>
HENRY BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS -
SPECIAL FINANCIAL PRESENTATION
THREE YEARS ENDED DECEMBER 31, 1995
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
NOTE 10 - LEASE COMMITMENTS
Administrative and studio offices, office equipment, automobiles, news
services, rating services and transmitter sites are leased with terms,
including renewal options, ranging from one to eighteen years. Under
most of the leasing arrangements, the Company pays the property taxes,
insurance, maintenance and expenses related to the leased property.
Total rental expense for operating leases was $209,170, $203,653,
$407,305, $226,497 and $203,859 for the six months ending June 30 ,1996
and 1995 and for the years ending December 31, 1995, 1994 and 1993,
respectively. Following the Merger discussed in Notes 1A and 18, ARS
assumed all rights and obligations under these agreements.
The following is a schedule by years of future minimum rental payments
required under operating leases that have initial or remaining
noncancellable lease terms in excess of one year as of June 30:
1997 $303,741
1998 180,943
1999 163,930
2000 119,058
2001 51,700
Thereafter 77,700
--------
$897,072
========
NOTE 11 - OTHER COMMITMENTS
The Company has a five year contract with California State University,
Fresno ("CSUF") for sports broadcast rights which expire in June, 1998.
Annual fees of $112,000 (subject to yearly increases of 6%) are payable
monthly through June, 1998. The Company also has a 20 year contract
with CSUF for use of a skybox which expires in 2002. Annual fees of
$20,000 are due each year through December 31, 2001. Following the
Merger discussed in Notes 1A and 18, ARS assumed all rights and
obligations under these agreements.
The following is a schedule by years of future minimum payments
required under these contracts as of June 30:
1997 $184,958
1998 159,398
1999 20,000
2000 20,000
2001 20,000
Thereafter 10,000
--------
$414,356
========
(See Accompanying Auditor's Report)
F-15
<PAGE>
HENRY BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS -
SPECIAL FINANCIAL PRESENTATION
THREE YEARS ENDED DECEMBER 31, 1995
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
NOTE 12 - CONTINGENCIES
The Company was involved in litigation with the U.S. Tax Court
regarding deductions taken during tax years 1987 through 1989. The case
proceeded through the appeals level of the IRS, with a full settlement
reached in September, 1994. Although certain deductions related to
amortization of intangible assets were ultimately disallowed, the court
decision had no adverse effect on the Company's business or financial
position, due to the Company's S Corporation status.
NOTE 13 - DISTRIBUTION TO MAJORITY STOCKHOLDER
The Company paid income taxes of $1,411,580 and $671,480 on behalf of
the majority stockholder during the six months ended June 30, 1996 and
the year ended December 31, 1995.
NOTE 14 - STOCK BONUS DISTRIBUTION
During June 1996, 15 shares of the Company's $1 par common stock were
issued to key employees as a bonus. The shares were valued at $937,500
on the date they were issued which was based on the fair market value
of the Company determined by what ARS was relinquishing as their part
of the merger. The entire $937,500 was included as compensation expense
to those employees and included in general and administrative expenses
for the six months ended June 30, 1996.
NOTE 15 - ACQUISITION OF KKDJ-FM
On November 22, 1994, the Company purchased the assets, including FCC
license, of KKDJ-FM for $1,725,000, plus closing costs of $15,611. The
station, licensed to Fresno, California, is operated in combination
with stations KMJ-AM and KSKS-FM. During purchase negotiations, the
Company operated KKDJ-FM under a local marketing agreement (LMA) which
commenced July 1, 1994. LMA fees totaling $184,810 are included in
general and administrative expenses for the year ended December 31,
1994.
NOTE 16 - NET LIABILITIES (ASSETS) NOT SOLD OR ASSUMED
As discussed in Note 1A, these financial statements principally reflect
only the Henry Broadcasting Company assets, liabilities and results of
operations of the stations merged with ARS. However, the intercompany
and interdivisional transactions which would have been eliminated had
the financial statements been prepared on a consolidated basis have
resulted in intercompany balances with affiliated entities.
(See Accompanying Auditor's Report)
F-16
<PAGE>
HENRY BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS -
SPECIAL FINANCIAL PRESENTATION
THREE YEARS ENDED DECEMBER 31, 1995
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
In addition, certain assets, liabilities and results of operations of
the stations being merged with ARS were not assumed by ARS, or were
spun off into the new Corporation (Note 18), and certain debt not
associated with those stations has been assumed by ARS.
The following schedule sets forth those items mentioned above:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995 December 31, 1994
<S> <C> <C> <C>
Intercompany Accounts with Entities Spun Off $ 19,128,700 $ 18,289,511 $ 15,920,214
Assets Not Acquired by ARS:
Cash (34,158) (1,325,318) (1,085,481)
Investments -- (2,722,997) (8,456,500)
Accounts Receivable, Net (4,233,683) (4,446,611) (3,869,288)
Other Receivables (61,215) (49,188) (15,400)
Prepaid Expenses (117,913) (75,642) (94,856)
Property and Equipment, (635,030) (646,318) (637,807)
Net of Accumulated
Depreciation
Other Assets (1,383) (1,383) --
Liabilities Not Assumed by ARS:
Accounts Payable and 115,810 267,667 249,764
Accrued Expenses
Accrued Wages and 357,804 452,657 439,654
Commissions
Due to Shareholder 810,589 819,589 846,468
Long-Term Debt (Current) 19,348 18,181 16,055
Long-Term Debt (Long-Term) 23,856 33,831 52,012
Other Debt Assumed by ARS:
Long-Term Debt (Current) (4,200,000) (4,200,000) (4,200,000)
Cumulative Intercompany Income (Expenses)
Allocated to Sold and Spun-Off
Entities:
Rental Income 60,883 110,790 --
Interest Income 342,218 330,438 23,076
Corporate Expenses (1,894,560) (1,350,556) (855,655)
Interest Expenses (2,406,004) (2,354,892) (2,151,498)
Depreciation Expense (4,779) -- --
Other Expense (517,769) (517,769) (517,769)
------------ ------------ ------------
TOTAL NET LIABILITIES $ 6,752,714 $ 2,631,990 ($ 4,337,011)
(ASSETS) NOT SOLD OR ============ ============ ============
ASSUMED
(See Accompanying Auditor's Report)
F-17
<PAGE>
HENRY BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS -
SPECIAL FINANCIAL PRESENTATION
THREE YEARS ENDED DECEMBER 31, 1995
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
NOTE 17 - RADIO STATION EXCHANGE
On November 21, 1995, the Company exchanged the assets of its
Denver station KVOD-FM with an unrelated broadcasting company
owning radio stations KCTC-AM/KYMX-FM in Sacramento,
California. The Company paid $3,000,000 for the fixed assets
and FCC license of the AM station. The remaining land,
buildings, equipment, furnishings and intangible assets were
swapped as an even exchange. No financial statement gain or
loss was recognized by the Company in this transaction. The
assets of KCTC-AM were recorded at the $3,000,000 price paid.
The remaining assets were recorded using the net book value of
KVOD-FM assets.
NOTE 18 - COMPANY MERGER
On March 21, 1996, the Company entered into a merger agreement
with ARS under which ARS would continue as the surviving
corporation. Immediately prior to the consummation of the
Merger, the Company spun off certain assets and liabilities
consisting primarily of the Company's cash, accounts
receivable, the business associated with the operations of
KDON-FM and KRQC-FM in Salinas, California, the investment in
the Company's subsidiary, substantially all assets of the
Corporate division, and various current liabilities of the
Company into a newly-formed corporation. The newly-formed
corporation is 100% owned by the majority stockholder of Henry
Broadcasting Company.
FCC approval for transfer of the licenses was granted on May
16, 1996. The merger was consummated on July 3, 1996 at which
time the stockholders conveyed all of the Company stock to ARS
for approximately $110.4 million consisting of approximately
$64 million of ARS stock, $10.4 million in cash and the
assumption of approximately $36 million of the Company's
current and long-term debt (described in Notes 5 and 6).
(See Accompanying Auditor's Report)
F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To BayCom Partners, L.P:
We have audited the accompanying consolidated balance sheets of BayCom Partners,
L.P. (a limited partnership) and consolidated entities as of December 31, 1994
and 1995, and the related consolidated statements of operations, partners'
capital, and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Partnership'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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Partnership and consolidated
entities at December 31, 1994 and 1995, and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1995 in conformity with generally accepted accounting principles.
As emphasized in Note 8 to the financial statements, the owners of BayCom
Partners, L.P. sold the assets of BayCom San Jose, L.P. and BayCom Oregon, L.P.
to American Radio Systems Corporation on August 1, 1996.
DELOITTE & TOUCHE LLP
Birmingham, Alabama
March 8, 1996
(August 1, 1996 as to Note 8)
F-19
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
BAYCOM PARTNERS, L.P. AND CONSOLIDATED ENTITIES
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS ------------------------------- June 30, 1996
1994 1995 (Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 902,646 $ 2,488,956 $ 1,689,783
Accounts receivable, less allowance for
doubtful accounts of $165,000, $121,000
and $70,000, respectively:
Customers 2,824,870 3,882,884 4,025,284
Barter 114,656 214,701 228,621
Other 46,673 69,524
Prepaid expenses 91,237 98,021 679,614
---------- ---------- -----------
Total current assets 3,980,082 6,754,086 6,623,302
---------- ---------- -----------
PROPERTY AND EQUIPMENT:
Land and land improvements 393,200
Buildings 489,100
Broadcast equipment 1,766,595 1,471,326 1,777,887
Studio equipment 864,394 1,327,034 1,491,241
Furniture and fixtures 368,388 582,880 613,298
Leasehold improvements 160,548 340,005 340,005
Computer equipment 254,343 345,571 383,317
Other equipment 207,189 146,171 214,546
---------- ---------- -----------
Total 4,503,757 4,212,987 4,820,294
Less accumulated depreciation 1,443,820 1,640,981 1,978,913
---------- ---------- -----------
Property and equipment, net 3,059,937 2,572,006 2,841,381
---------- ---------- -----------
OTHER ASSETS:
Intangible assets, net of accumulated
amortization of $4,584,632, $7,219,117
and $8,520,762, respectively (Note 2) 11,741,787 17,827,078 16,563,470
Excess of cost over net assets acquired, net
of accumulated amortization of $983,273,
$1,748,473 and $2,186,854, respectively 12,624,833 11,500,274 11,061,893
Deposits and other 45,514 148,550 157,506
---------- ---------- -----------
Total other assets 24,412,134 29,475,902 27,782,869
---------- ---------- -----------
TOTAL (Note 4) $31,452,153 $38,801,994 $37,247,552
=========== =========== ===========
See notes to consolidated financial statements.
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
BAYCOM PARTNERS, L.P. AND CONSOLIDATED ENTITIES
CONSOLIDATED BALANCE SHEETS
December 31,
LIABILITIES AND PARTNERS' CAPITAL ------------------------------- June 30, 1996
1994 1995 (Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 4) $ 661,500 $ 906,034 $ 1,311,020
Accounts payable:
Vendors 566,395 386,008 358,595
Barter 132,008 210,563 166,366
Accrued expenses:
Interest (Note 4) 123,785 438,013 1,125,289
Other 690,182 555,575 629,406
Other liabilities 40,790 100,860
----------- ----------- -----------
Total current liabilities 2,214,660 2,496,193 3,691,536
LONG-TERM DEBT (Note 4) 20,680,000 26,616,350 25,920,855
CONTINGENT INTEREST (Note 4) 1,029,170 9,043,000 11,584,817
----------- ----------- -----------
Total liabilities 23,923,830 38,155,543 41,197,208
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
(Note 5)
PARTNERS' CAPITAL (Note 6) 7,528,323 646,451 (3,949,656)
----------- ----------- -----------
TOTAL $31,452,153 $38,801,994 $37,247,552
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-21
<PAGE>
<TABLE>
<CAPTION>
BAYCOM PARTNERS, L.P. AND CONSOLIDATED ENTITIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended
Years Ended December 31, June 30,
-------------------------------------------- -----------------------------
1995 1996
1993 1994 1995 (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
NET REVENUES $ 6,176,611 $ 13,848,326 $ 16,960,695 $ 8,170,453 $ 8,241,336
------------ ------------ ------------ ------------ ------------
OPERATING EXPENSES:
Operating expenses excluding
depreciation and amortization and
partnership general and administrative
expenses 5,278,487 10,796,070 11,521,838 5,890,341 6,302,637
Depreciation and amortization 1,739,642 3,908,312 4,181,521 1,738,422 2,011,604
Partnership general and administrative 525,742 745,520 1,055,818 581,749 440,621
------------ ------------ ------------ ------------ ------------
Total operating expenses 7,543,871 15,449,902 16,759,177 8,210,512 8,754,862
------------ ------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (1,367,260) (1,601,576) 201,518 (40,059) (513,526)
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Gain (loss) on disposition of assets (49,279) (211,680) 1,345,192 16,945
Interest income 133,187 6,396 55,645 19,637 34,691
Interest expense (655,777) (3,101,346) (10,943,401) (1,719,848) (4,139,765)
Other, net (78,130) 5,412 (4,337) 436,710 5,548
------------ ------------ ------------ ------------ ------------
Total other income (expense) (649,999) (3,301,218) (9,546,901) (1,263,501) (4,082,581)
------------ ------------ ------------ ------------ ------------
NET LOSS $ (2,017,259) $ (4,902,794) $ (9,345,383) $ (1,303,560) $ (4,596,107)
============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-22
<PAGE>
BAYCOM PARTNERS, L.P. AND CONSOLIDATED ENTITIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
Total
BALANCE, JANUARY 1, 1994 $ 12,431,117
NET LOSS (4,902,794)
------------
BALANCE, DECEMBER 31, 1994 7,528,323
CAPITAL CONTRIBUTION 2,638,511
CAPITAL REDEMPTION (175,000)
NET LOSS (9,345,383)
------------
BALANCE, DECEMBER 31, 995 646,451
NET LOSS (Unaudited) (4,596,107)
------------
BALANCE, JUNE 30, 1996 (Unaudited) $ (3,949,656)
============
See notes to consolidated financial statements
F-23
<PAGE>
BAYCOM PARTNERS, L.P. AND CONSOLIDATED ENTITIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
December 31, June 30,
----------------------------------------------------------------------
1993 1994 1995 1995 1996
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (2,017,259) $ (4,902,794) $ (9,345,383) $ (1,303,560) $ (4,596,107)
Adjustments to reconcile net
loss to net cash provided by (used in) operating
activities:
Depreciation and amortization 1,739,642 3,908,312 4,181,521 1,738,422 2,011,604
Provision for bad debts 80,953 151,905 171,638 81,312 75,990
(Gain) loss on sale or abandonment of assets, net 49,279 211,680 (1,345,192) (16,945)
Barter (revenue) expense, net 125,427 (140,659) (13,524) (111,121) (58,116)
Contingent interest provision 79,167 950,003 8,013,830 475,000 2,541,817
Changes in assets and liabilities provided (used)
cash, net of effects of acquisitions of radio
stations:
Accounts receivable (987,497) (1,363,976) (1,229,650) (889,255) (218,390)
Other Assets 26,525 (48,052) (132,671) (40,169) (521,025)
Accounts Payable 205,016 305,065 (180,387) (102,888) (27,413)
Other liabilities 433,422 433,701 271,535 179,390 928,319
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities (265,325) (494,815) 391,717 27,131 119,734
------------ ------------ ------------ ------------ ------------
INVESTING ACTIVITIES:
Expenditures for property and equipment (297,570) (768,004) (940,102) (252,081) (607,305)
Expenditures for intangible assets, net of financing costs (623,176) (12,063)
Proceeds from sale of radio station and property
and equipment 15,093 4,174,717 16,945
Acquisitions of radio stations (26,481,010) (10,591,354) (10,591,354)
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities (27,386,663) (780,067) (7,356,739 (10,843,435) (590,360)
------------ ------------ ------------ ------------ ------------
FINANCING ACTIVITIES:
Proceeds from long-term debt 19,850,000 2,583,000 9,203,492 9,203,492
Principal payments on long-term debt and capital
leases (4,517,750) (873,750) (3,115,671) (460,500) (290,511)
Expenditures for financing costs (822,775) (106,156) (38,036)
Capital contributions 13,386,639 2,638,511 2,638,511
Capital redemption (175,000)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities 27,896,114 1,603,094 8,551,332 11,381,503 (328,547)
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 244,126 328,212 1,586,310 565,199 (799,173)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 330,308 574,434 902,646 902,646 2,488,956
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 574,434 $ 902,646 $ 2,488,956 $ 1,467,845 $ 1,689,783
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION -
Cash paid during the year for interest $ 433,548 $ 1,902,437 $ 2,482,639 $ 1,536,425 $ 844,318
============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements
F-24
<PAGE>
BAYCOM PARTNERS, L.P. AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - The consolidated financial statements included the accounts of
BayCom Partners, L.P. ("Partners") and its consolidated entities BayCom San
Jose, L.P. ("San Jose") and BayCom Oregon, L.P. ("Oregon")(collectively the
"Partnership"). In consolidation, Partners' investments in San Jose and Oregon
are eliminated against the appropriate partnership's equity. All significant
intercompany balances and transactions have been eliminated (see Note 3).
The Partnership operates two FM radio stations in both San Jose, California and
Portland, Oregon. The Partnership sells advertising to national, regional and
local customers and extends credit based on evaluation of the customer's
financial condition, generally without requiring collateral. Exposure to losses
on receivables is principally dependent on each customer's financial condition.
The Partnership monitors its exposure for credit losses and maintains allowances
for anticipated losses.
As discussed in Note 3, on July 27, 1995 the Partnership sold KSJX-AM to an
unrelated third party. Summarized unaudited financial data of KSJX-AM for the
year ended December 31, 1995 and the six months ended June 30, 1995 were as
follows:
December 31, 1995 June 30, 1995
Net revenues $475,647 $386,398
======== ========
Operating expenses excluding depreciation and
amortization and Partners' general and
administrative expenses $305,074 $258,816
======== ========
Operating income before depreciation and
amortization and Partners' general and
administrative expenses $170,573 $127,582
======== ========
Also as discussed in Note 3, on October 18, 1995 the Partnership sold KUPL-Am to
an outside party. KUPL-Am was an AM simulcast with no significant operating
revenues or expenses.
Unaudited Interim Information - In the opinion of management, the financial
statements for the unaudited periods presented include all adjustments necessary
for a fair presentation in accordance with generally accepted accounting
F-25
<PAGE>
principles, consisting solely of normal recurring accruals and adjustments. The
results of operations and cash flows for the six months ended June 30, 1995 and
1996 are not necessarily indicative of results which would be expected for a
full year.
Accounting 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.
Significant Accounting Policies - In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of" ("SFAS 121"). SFAS 121 addresses the accounting for the impairment
of long-lived assets, certain identifiable intangibles and goodwill when events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. SFAS 121 was adopted effective January 1, 1996. The impact
of SFAS 121 did not have a material impact on the Partnership's results of
operations, liquidity or financial position.
Cash and Cash Equivalents - Cash and cash equivalents include cash on hand and
cash on deposit with financial institutions with original maturities of less
than three months.
Property and Equipment and Intangible Assets - Property and equipment is stated
at cost. Depreciation is computed principally using accelerated methods and
rates based on estimated useful lives of 5 to 15 years for broadcast equipment,
5 years for studio equipment, 31.5 years for buildings, 15 years for land
improvements, 7 years for furniture and fixtures and 5 to 11 years for other
equipment.
Intangible assets are stated at cost less accumulated amortization and are
amortized on a straight-line basis over the estimated useful life of the asset.
On an ongoing basis, management evaluates the recoverability of the net carrying
value of property and equipment and intangible assets by reference to the
Partnership's anticipated future cash flows generated by those assets and
comparison of carrying value to management's estimate of fair value.
Excess of Cost Over Net Assets Acquired - Costs in excess of net assets acquired
are amortized on a straight-line basis over 15 to 40 years. Amortization expense
was $78,628, $900,719, $908,245, $450,360 (unaudited) and $438,381 (unaudited),
for the years ended December 31, 1993, 1994 and 1994 and for the six month
periods ended June 30, 1995 and 1996, respectively.
Income Taxes - Taxable income of the Partnership is includable in the income tax
returns of the partners. Accordingly, no provision is made for income taxes in
the accompanying consolidated financial statements.
F-26
<PAGE>
Revenue Recognition - Radio advertising revenues are recognized when the related
advertisements are broadcast.
Barter Transactions - The Partnership barters unsold advertising time for
products or services. All barter transactions are reported at the estimated fair
value of the produce or service received. Barter revenue is reported when
advertising is broadcast, and merchandise or services received is reported when
received or used.
Reclassifications - Reclassifications of certain prior period amounts were made
for comparative purposes.
2. INTANGIBLE ASSETS
Intangible assets consist of the following and are being amortized over the
indicated periods:
<TABLE>
<CAPTION>
December 31, June 30,
------------------------------- 1996
1994 1995 (Unaudited)
<S> <C> <C> <C> <C>
Customer lists $1,141,078 $ 1,141,078 $ 1,141,078 5 years
Noncompete agreement 7,250,000 7,250,000 7,250,000 3-5 years
Format premium 729,858 729,858 729,858 5 years
FCC licenses 5,386,000 13,259,700 13,259,700 15-25 years
Financing costs 928,931 928,931 962,765 7 years
Other 890,552 1,736,628 1,740,831 6 months - 17 years
----------- ----------- -----------
Total 16,326,419 25,046,195 25,084,232
Less Accumulated
amortization 4,584,632 7,219,117 8,520,762
----------- ----------- -----------
Total $11,741,787 $17,827,078 $16,563,470
=========== =========== ===========
</TABLE>
Amortization expense related to intangible assets was $1,187,793, $2,538,716,
$2,679,095, $1,077,518 (unaudited) and $1,301,644 (unaudited) for the years
ended Decmber 31, 1993, 1994 and 1995 and the six month periods ended June 30,
1995 and 1996, respectively.
3. INVESTMENTS IN LIMITED PARTNERSHIPS
In 1991, Partners entered into a limited partnership agreement that created San
Jose, with Partners as the 99% limited partner. The remaining 1% of San Jose is
owned by BCSJ Management, Inc. ("BCSJ"), the general partners and a corporation
wholly-owned by certain members of Partners' management. Net profits and losses
are allocated 99% to Partners and 1% to BCSJ provided the allocation of net
losses does not cause Partners' capital account to have a deficit. Should the
maximum amount of net losses be allocated to Partners, then any excess net loss
will be allocated to BCSJ. Any subsequent net profit would be allocated to
Partners to the extent of previously allocated net losses. In December 1991, San
Jose purchased two radio stations for $5,438,000. During 1995, San Jose sold one
of the stations for net proceeds of $2,180,824 and recorded a gain on the
F-27
<PAGE>
transaction of $1,577,886. Also, in 1995, San Jose acquired substantially all
the assets of another radio station for $10,591,354. The acquisitions have been
treated as purchases for accounting purposes. The cost of the 1995 acquisition
has been allocated to the assets based on their fair values as follows:
FCC licenses $ 8,226,000
Property and equipment 708,729
Excess of cost over net assets acquired 810,998
Pre-sold advertising contracts 296,560
Favorable contracts 189,036
Other intangibles 360,031
-----------
Total purchase price paid in cash $10,591,354
===========
The following unaudited pro forma summary presents the consolidated results of
operations as if the acquisition had occurred as of January 1, 1994 and 1995
after giving effect to certain adjustments, including depreciation and
amortization of assets and interest expense on debt incurred to fund the
acquisition. These unaudited pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of what would have
occurred had the acquisition been made as of January 1, 1994 and 1995 or of
results which may occur in the future.
Year Ended
December 31,
---------------------------------------
1994 1995
Net revenues $17,344,001 $16,929,454
=========== ===========
Net loss $(5,268,342) $(9,984,384)
============ ============
In April 1993, Partners entered into a limited partnership agreement that
created Oregon with Partners as the 99% limited partner. The remaining 1% of
Oregon is owned by BCO Management, Inc. ("BCO"), the general partner and a
corporation wholly-owned by certain members of Partners' management. Net profits
and losses are allocated 99% to Partners and 1% to BCO provided the allocation
of net losses does not cause Partners' capital account to have a deficit. Should
the maximum amount of net losses be allocated to Partners then any excess net
loss will be allocated to BCO. Any subsequent net profits would be allocated to
Partners to the extent of previously allocated net losses. During 1993, Oregon
acquired substantially all the assets of three radio stations. During 1995,
Oregon sold one of the stations for net proceeds of $1,988,000 and recorded a
loss on the transaction of $244,315.
The minority interest in each of the above partnerships is not significant and
is not presented for consolidated financial statement purposes.
F-28
<PAGE>
4. LONG-TERM DEBT
Long-term debt and capitalized lease obligations are as follows:
<TABLE>
<CAPTION>
December 31, June 30,
-------------------------- 1996
1994 1995 (Unaudited)
<S> <C> <C> <C>
Notes payable:
FINOVA loan agreement (prime plus 2.5%) $12,908,500 $17,450,000 $17,175,000
ALTA subordinated promissory notes (10%) 5,850,000 7,401,494 7,401,494
Triad subordinated promissory notes (15%) 1,878,615 1,878,615 1,878,615
ALTA subordinated promissory notes (15%) 704,385 704,385 704,385
Capitalized lease obligations 87,890 72,381
----------- ----------- -----------
Total 21,341,500 27,522,384 27,231,875
Less current maturities 661,500 906,034 1,311,020
----------- ----------- -----------
Long-term debt and capitalized lease obligations $20,680,000 $26,616,350 $25,920,855
=========== =========== ===========
</TABLE>
On June 30, 1995, the Partnership renegotiated an $18,000,000 loan and security
agreement (the "Loan Agreement") with FINOVA Capital Corporation. At December
31, 1994 and 1995, and June 30, 1996, the balance outstanding under the Loan
Agreement was $12,908,500, $17,450,000 and $17,175,000 (unaudited),
respectively. The principal is payable in quarterly installments of varying
amounts until July 1, 2000, with a final payment due on December 8, 2000.
Interest accrues on the outstanding principal balance at a rate of prime (8.5%
at both December 31, 1994 and 1995 and 8.25% at June 30, 1996) plus 2.5% and is
payable quarterly. The Loan Agreement contains restrictive covenants which
require the Partnership and its properties to meet minimum annual operating cash
flows and limit the amounts of annual capital expenditures, operating lease
payments and overhead expenses. At December 31, 1995, the Partnership was in
violation of certain of these covenants; an appropriate waiver has been obtained
from the lender. Commencing on January 1, 1996, the lender has the option to
request a partial prepayment of the loan based on a percentage of excess cash
flow, as defined in the loan agreement. The loan is collateralized by the
Partnership's real and personal property and other Partnership interests.
On June 30, 1005, the Partnership renegotiated its subordinated promissory note
agreements (the "Subordinated Notes") with Alta Subordinated Debt Partners, L.P.
("ALTA"), which provided for total subordinated notes of $7,401,494. The
Subordinated Notes are due December 31, 2001 and bear a fixed interest rate of
10% payable quarterly. Additionally, the Subordinated Notes bear contingent
interest, which is due upon payment of the outstanding principal. The contingent
interest on these notes will depend on future cash flows and will ultimately be
F-29
<PAGE>
determined at between 10% to 15% of the Partnership's net equity value, as
defined. Management has based its estimate of contingent interest on what it
considers the most likely occurrences and a desire to be in a fully accrued
position. The accrual for contingent interest includes management's best
estimates of the Partnership's net equity value. The estimates are based on an
analysis of the Partnership's current and future operations and include
valuations by independent appraisers which utilize cash flow multiples currently
available in the radio broadcasting market. It is reasonably possible that those
estimates of future operations or cash flow multiples utilized, or both, will
change in the near term. As a result, the amounts the Partnership will
ultimately realize could differ materially in the near term from the amounts
assumed in arriving at the accrual for contingent interest. An accrual for
contingent interest has been recorded for $1,029,170, $9,043,000 and $11,584,517
(unaudited) at December 31, 1994 and 1995 and June 30, 1996, respectively.
Interest expense recognized for contingent interest is $79,167, $950,003,
$8,013,830, $475,000 (unaudited) and $2,541,817 (unaudited) for the years ended
December 31, 1993, 1994, and 1995 and the six month periods ended June 30, 1995
and 1996, respectively. The Subordinated Notes contain certain restrictive
covenants which require the Partnership to meet a minimum annual operating cash
flow and to maintain a certain ratio of operating cash flow to debt service. The
covenants also limit the amount of annual capital expenditures and partnership
overhead expenses. At December 31, 1995, the Partnership was in violation of
certain of these covenants; an appropriate waiver has been obtained from the
lender. The notes are collateralized by substantially all of the assets of the
Partnership and such security interest is subordinate to the senior debt
described previously.
During 1994, the Partnership entered into additional subordinated promissory
note agreements (the "Additional Notes") totaling $2,583,000, which are due
December 31, 2001. These Additional Notes bear interest at a rate of 10% for
amounts outstanding one year or less and increase to a rate of 15% on amounts
outstanding greater than one year. Interest is due in full upon payment of the
outstanding principal. Triad Capital Management, Inc. ("Triad") (formerly
CableSouth, Inc.) a 99% limited partner, is the holder of $1,878,615 of the
Additional Notes. Interest expense for interest to Triad has been recorded for
$81,934, $239,401, $105,455 (unaudited) and $161,094 (unaudited) for the years
ended December 31, 1994 and 1995 and for the six month periods ended June 30,
1995 and 1996, respectively. An accrual for interest to Triad has been recorded
of $81,934, $321,335, $482,249 (unaudited) and $187,389 (unaudited) at December
31, 1994 and 1995 and June 30, 1995 and 1996, respectively. The remaining
$704,385 of the Additional Notes is held by ALTA. Interest expense for interest
to ALTA for the Additional Notes has been recorded for $28,024, $88,654, $39,879
(unaudited) and $59,722 (unaudited) for the years ended December 31, 1994 and
1995 and for the six month periods ended June 30, 1995 and 1996, respectively.
An accrual for interest to ALTA for the Additional Notes has been recorded for
$28,024, $116,678, $67,903 (unaudited) and $176,400 (unaudited) at December 31,
1994 and 1995 and June 30, 1995 and 1996, respectively.
F-30
<PAGE>
Long-term debt at June 30, 1996 is scheduled to mature as follows:
Six Months Ending December 31, 1996 (unaudited) $ 625,510
Years Ending December 31:
1997 1,416,020
1998 1,590,850
1999 1,745,000
2000 11,870,000
2001 9,984,495
-----------
Long-term debt $27,231,875
===========
The carrying values of the Loan Agreement with FINOVA Capital Corporation and
capitalized lease obligations approximate their fair value at December 31, 1995.
Management does not believe it is practicable to estimate the fair value of the
ALTA Subordinated Notes because quoted market prices do not exist for these
financial instruments and they do not have similar characteristics to other
financial instruments which do have quoted market prices. The Additional Notes
due Triad and ALTA have a fair value of $3,735,956 at December 31, 1995. The
fair value of this debt was estimated using a discounted cash flow analysis,
based on the borrowing rate currently available to the Partnership for bank
loans with similar terms and average maturities.
5. COMMITMENTS AND CONTINGENCIES
The Partnership leases office facilities, transmitter sites and various items of
equipment under noncancelable operating leases. Many of these lease agreements
have renewal options. Generally, under the terms of some agreements, the
Partnership is required to pay taxes, insurance and normal maintenance costs.
Future minimum lease payments for operating leases with remaining noncancelable
lease terms of more than one year are as follows:
Six Months Ending December 31, 1996 (unaudited) $ 238,102
Years Ending December 31:
1997 $ 428,522
1998 420,205
1999 408,015
2000 412,427
2001 411,508
Later years 1,858,502
----------
Future minimum lease payments $ 4,177,281
===========
F-31
<PAGE>
Total rent expense was $294,233, $400,922, $505,398, $209,703 (unaudited) and
$212,459 (unaudited) for the years ended December 31, 1993, 1994 and 1995 and
the six months ended June 30, 1995 and 1996, respectively. Sublease rental
income was $38,696, $40,200 and $34,400 (unaudited) for the years ended December
31, 1994 and 1995 and the six month period ended June 30, 1995. There was no
sublease rental income for the six months ended June 30, 1996.
At June 30, 1996 the Partnership had committed to purchase radio listening
rating, news information and other services. Future obligations under such
commitments are as follows:
Six months ending December 31, 1996 (unaudited) $ 293,935
Years ending December 31:
1997 582,973
1998 620,164
----------
Total $1,497,072
==========
Total expense under these commitments was $184,659, $427,255, $550,875, $267,440
(unaudited) and $303,502 (unaudited) for the years ended December 31, 1993,
1994, 1995 and the six month periods ended June 30, 1995 and 1996, respectively.
The Partnership has also entered into music license agreements extending through
December 1996. Fees are based on a percentage of adjusted net revenue as defined
in the agreements. Music license fees of $158,334, $413,071, $476,752, $237,306
(unaudited) and $250,658 (unaudited) are included in operating expenses for the
years ended December 31, 1993, 1994 and 1995 and the six month periods ended
June 30, 1995 and 1996, respectively.
San Jose has an employment and deferred compensation agreement with an officer
of San Jose providing for deferred compensation to be paid this officer based on
a percentage of the increase in estimated net worth of the FM radio stations in
San Jose, as defined in the agreement. The percentage applied in the calculation
of deferred compensation is based on a vesting schedule contained in the
agreement. The officer has no vested benefits as of June 30, 1996. Compensation
expense and an accrual for deferred compensation has been recorded for $100,000
(unaudited) for the six month period ended June 30, 1996. Vesting is accelerated
to 100% upon the sale of the stations.
F-32
<PAGE>
6. PARTNERS' CAPITAL
Net profits and losses of Partners are allocated 99% to Triad, the limited
partner, and 1% to M&C Management, Inc. ("M&C"), the general partner, provided
the allocation of net losses does not cause Triad's capital account to have a
deficit. Should the maximum amount of net losses be allocated to Triad, then any
excess net loss will be allocated to M&C. Any subsequent net profits would be
allocated to M&C to the extent of previously allocated net losses.
7. EMPLOYEE BENEFIT PLANS
Effective January 1, 1994, the Partnership adopted and began participation in
the Triad and Affiliates 401(k) Retirement Plan for employees who elect to
participate and meet certain eligibility requirements. Plan expenses are paid by
the Partnership. Under the Plan, eligible employees may contribute up to 15% of
their annual compensation. The Partnership's contributions are discretionary. No
employer contributions were made for the years ended December 31, 1995 and 1994.
8. SUBSEQUENT EVENT
On August 1, 1996, the Partnership sold substantially all of the tangible and
intangible assets of the Partnership to American Radio Systems Corporation for
approximately $103 million. In connection with the sale, the debt discussed in
Note 4 was retired, including payment of $11,584,817 of contingent interest, and
deferred compensation was paid to the officer of San Jose in the amount of
$660,000 as discussed in Note 5. American Radio Systems Corporation assumed
certain obligations under the agreements discussed in Note 5.
* * * * *
F-33
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
American Radio Systems Corporation
June 30, 1996
(in thousands)
Adjustments
For Current Pro
Historical Acquisitions Forma
---------- ------------ -----
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents....................................... $149,175 $(43,608) (d) $105,567
Accounts receivable, net........................................ 32,028 32,028
Other current assets............................................ 5,577 149 (a) 5,726
Property and equipment, net..................................... 45,739 39,000 (a) 84,739
Station investment notes........................................ 41,377 41,377
Goodwill, net................................................... 97,442 94,050 (a) 191,492
FCC licenses, net............................................... 58,231 117,000 (a) 175,231
Other intangible assets, net.................................... 22,212 22,212
Deposits and other assets....................................... 25,438 (9,882) (d) 15,556
Restricted cash................................................. 18,000 (18,000) (d)
Net assets held under exchange agreement - net ................ 46,825 46,825
-------- -------- --------
Total.................................................. $542,044 $178,709 $720,753
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities, excluding
current portion of long-term debt.......................... 21,411 59 (a) 21,470
Deferred income taxes........................................... 10,240 34,650 (a) 44,890
Other long-term liabilities..................................... 1,843 1,843
Long-term debt, including current portion....................... 175,086 80,000 (b) 255,086
Stockholders' equity............................................ 333,464 64,000 (c) 397,464
-------- -------- --------
Total...................................................... $542,044 $178,709 $720,753
======== ======== ========
- -----------------------------------------------------
<FN>
(a) To record the fair value of property and equipment, FCC licenses,
goodwill and other assets and liabilities acquired as a result of
the Henry acquisition and the BayCom acquisition based on preliminary
appraisals or management estimates. Management does not expect actual
amounts to vary materially following the final appraisals.
(b) To record borrowings under the credit agreement to consummate the
BayCom acquisition.
(c) To record the issuance of 1,879,034 shares of Class A Common Stock to
consummate the Henry acquisition.
(d) To record the cash consideration and disbursement of amounts held in
escrow for the Henry and BayCom acquisitions, including the payoff of
approximately $35.9 million of debt assumed in the Henry acquisition.
</FN>
</TABLE>
P-1
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
American Radio Systems Corporation
Year Ended December 31, 1995
(Amounts in thousands, except share data)
Adjustments Adjustments
For Prior Acquisition For Current Pro
Historical (a) Acquisitions (d) Forma
---------- --------------------- ---------------- -----
<S> <C> <C> <C> <C>
Net revenues.................................. $ 97,772 $ 10,463 $ 37,089 $ 145,324
Operating expenses............................ 67,048 7,294 20,993 95,335
Depreciation and amortization................. 12,364 1,588 (b) 10,931 (e) 24,883
Corporate general and administrative
expenses...................................... 3,908 (g) -- -- 3,908
---------- ---------- ----------- -----------
Operating income.............................. 14,452 1,581 5,165 21,198
---------- ---------- ----------- -----------
Other (income) expense:
Interest expense - net.................... 10,062 1,260 (c) 7,088 (f) 18,410
Gain on disposal of assets, net........... (11,544) (11,544)
---------- ---------- ----------- -----------
Total other (income)
expense.............................. (1,482) 1,260 7,088 (6,866)
---------- ---------- ----------- -----------
Income (loss) before income taxes............ 15,934 321 (1,923) 14,332
Provision (benefit) for income taxes......... 6,829 137 (827) 6,139
---------- ---------- ----------- -----------
Net income (loss) ........................... 9,105 184 (1,096) 8,193
Preferred Stock and Series C Common Stock
dividends................... (815) (815)
---------- ---------- ----------- -----------
Net income applicable to common
stockholders................................ $ 8,290 $ 184 $ (1,096) $ 7,378
========== ========== =========== ===========
Net income per common share................. $ 0.66 $ 0.58
========== ========== ===========
Weighted average common shares
outstanding................................. 12,645,556 12,645,556
========== ========== ===========
<FN>
- -------------------------------------------------------------------------------------
(a) To reflect the operations of the Hartford acquisition.
(b) To record estimated depreciation and amortization for the Hartford acquisition.
(c) To reverse interest income recorded on Hartford acquisition station investment note.
(d) To reflect the operations of the Henry and BayCom acquisitions. The BayCom operations excludes the operations
of KSJX-AM which was sold during 1995.
(e) To record estimated depreciation and amortization for the Henry and BayCom acquisitions.
(f) To record interest expense on borrowings under the credit agreement to consummate the BayCom acquisition.
(g) Corporate expenses of the prior owners have not been carried forward into the pro forma financial information as those
costs represent the cost of duplicative facilities and compensation to owners and/or executives not retained by the
Company. Because the Company maintains a separate corporate headquarters which provides to all stations services
substantially similar to those represented by these costs, they are not expected to recur following acquisition. The
Company believes that it has existing management capacity sufficient to provide such services without incurring
incremental costs.
</FN>
</TABLE>
P-2
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
American Radio Systems Corporation
Six Months Ended June 30, 1996
(Amounts in thousands, except share data)
Adjustments Adjustments
For Prior For Current Pro
Historical Acquisition (a) Acquisitions (d) Forma
---------- --------------- ---------------- -------
<S> <C> <C> <C> <C>
Net revenues............................... $ 61,426 $ 4,117 $ 20,648 $ 86,191
Operating expenses......................... 45,696 2,594 11,751 60,041
Depreciation and amortization.............. 4,839 662 (b) 5,466 (e) 10,967
Corporate general and administrative
expenses................................... 2,340 (g) -- -- 2,340
---------- --------- ---------- -----------
Operating income........................... 8,551 861 3,431 12,843
---------- --------- ---------- -----------
Other (income) expense:
Interest expense - net................. 5,323 1,350 (c) 3,490 (f) 10,163
Loss on disposal of assets, net........ 36 -- 36
---------- --------- ---------- -----------
Total other (income)
expense........................... 5,359 1,350 3,490 10,199
Income (loss) before income taxes.......... 3,192 (489) (59) 2,644
Provision (benefit) for income taxes....... 1,436 (220) (27) 1,189
---------- --------- ---------- -----------
Net income (loss).......................... 1,756 (269) (32) 1,455
Preferred Stock dividends.............. (134) -- -- (134)
---------- --------- ---------- -----------
Net income (loss) applicable to common
stockholders............................... $ 1,622 $ (269) $ (32) $ 1,321
========== ========= ========== ===========
Net income per common share................ 0.09 $ 0.07
========== ===========
Weighted average common shares
outstanding................................ 19,025,668 19,025,668
========== ===========
<FN>
- ---------------------------------------------------------------------
(a) To reflect the operations of the Hartford acquisition.
(b) To record estimated depreciation and amortization for the Hartford acquisition.
(c) To reverse interest income recorded on Hartford acquisition station investment note.
(d) To reflect the operations of the Henry and BayCom acquisitions.
(e) To record estimated depreciation and amortization for the Henry and BayCom acquisitions.
(f) To record interest expense on borrowings under the credit agreement to consummate the BayCom
acquisition.
(g) Corporate expenses of the prior owners have not been carried forward into the pro forma financial information as those
costs represent the cost of duplicative facilities and compensation to owners and/or executives not retained by the
Company. Because the Company maintains a separate corporate headquarters which provides to all stations services
substantially similar to those represented by these costs, they are not expected to recur following acquisition. The
Company believes that it has existing management capacity sufficient to provide such services without incurring
incremental costs.
</FN>
</TABLE>
P-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERICAN RADIO SYSTEMS CORPORATION
(Registrant)
By: /s/ Justin D. Benicasa
Justin D. Benincasa
Vice President and Chief Accounting
Officer
Date: September 13, 1996
EXHIBIT 23A
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-08601 of American Radio Systems Corporation on Form S-8 and Form S-3 of our
report dated March 8, 1996 (August 1, 1996 as to Note 8) (which expresses an
unqualified opinion and includes an explanatory paragraph relating to the sale
of the assets of BayCom San Jose, L.P. and BayCom Partners, L.P. to American
Radio Systems Corporation) on the consolidated financial statements of BayCom
Partners, L.P. (a limited partnership) and consolidated entities appearing in
this Current Report on Form 8-K/A (Amendment No. 1) of American Radio Systems
Corporation.
DELOITTE & TOUCHE LLP
Birmingham, Alabama
September 13, 1996
EXHIBIT 23B
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement of
American Radio Systems Corporation on Form S-8/S-3 (File No. 333-08601) of our
report on the financial statements of Henry Broadcasting Company - Special
Financial Statement Presentation, dated April 16, 1996 (except for Note 18 as to
which the date is July 3, 1996) appearing in this Form 8-K/A of American Radio
Systems Corporation.
MILLER, KAPLAN, ARASE & CO.
North Hollywood, California
September 13, 1996
AMERICAN RADIO SYSTEMS
FOR IMMEDIATE RELEASE Contact: Joe Winn, Chief Financial
Officer or Bruce Danziger, Director
of Investor Relations
(617) 375-7500
AMERICAN RADIO SYSTEMS ACQUIRES WWMX-FM
AND WOCT-FM, BALTIMORE, MARYLAND
Boston, Massachusetts -- September 4, 1996 -- American Radio Systems Corporation
(NASDAQ: AMRD) announced today that it has reached an agreement to acquire radio
stations WWMX-FM and WOCT-FM in Baltimore from Capitol Broadcasting Company.
WWMX will be acquired for approximately $60,000,000, and WOCT will be acquired
for approximately $30,000,000. Consummation of the transaction is subject to the
approval of the Federal Communications Commission. American Radio Systems
currently owns WQSR-FM and WBMD-AM in Baltimore.
American will be responsible for the management of the stations under a Local
Marketing Agreement commencing October 1. Steve Dodge, American's Chairman and
CEO, stated, "We've had opportunities to acquire other radio stations in
Baltimore since we bought WQSR, but WWMX and WOCT are the ones we wanted. These
are high quality stations with solid market positions, and they'll provide a
nice complement to our existing properties. We're very pleased to be able to
increase our presence in what we believe is one of the best radio markets in the
country."
American Radio Systems Corporation began trading shares publicly in June, 1995
on NASDAQ. The Company owns and/or manages 42 FM and 21 AM stations in Boston,
Baltimore, Portland, Sacramento, Hartford, Las Vegas, Austin, Buffalo, San Jose,
West Palm Beach, Rochester, Dayton, Fresno and Omaha. The Company also has
options and/or agreements to buy additional radio stations in Boston, Baltimore,
Sacramento, Las Vegas, Buffalo, San Jose, West Palm Beach, Rochester, Dayton and
Fresno. In addition, on August 5, 1996 the Company announced that it had reached
an agreement to merge with EZ Communications, Inc. EZ Communications owns and/or
operates 23 radio stations in seven markets nationwide.
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116 Huntington Avenue, Boston, Massachusetts 02116
(617) 375-7500 FAX (617) 375-7575
