<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the period ended
September 29, 1996
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
__________ to __________
Commission file number: 33-92732
COMMODORE MEDIA, INC.
(Exact name of registrant as specified in its charter)
See Table of Additional Registrants
Delaware 13-3034720
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
500 Fifth Avenue, Ste. 3000, New York, NY 10110
(Address of principal executive offices) (Zip Code)
(212) 302-2727
Registrant's telephone number, including area code
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Shares Outstanding at
Class September 29, 1996
----- ---------------------
<S> <C>
Class A Common Stock, $.01 par value 61,002
Class B Common Stock, $.01 par value 486,373
</TABLE>
As of September 29, 1996, there was no public market for the Company's
common stock.
Page 1 of 25 Pages
<PAGE> 2
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
STATE OR OTHER PRIMARY STANDARD I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION
INCORPORATION CERTIFICATION NUMBER
NAME NUMBER
<S> <C> <C> <C>
Commodore Media of Delaware, Inc. Delaware 4832 51-0286804
Commodore Media of Kentucky, Inc. Delaware 4832 61-0997863
Commodore Media of Pennsylvania, Inc. Delaware 4832 23-2207457
Commodore Media of Norwalk, Inc. Delaware 4832 06-1277523
Commodore Media of Florida, Inc. Delaware 4832 59-2813110
Commodore Media of Westchester, Inc. Delaware 4832 13-3356485
Commodore Holdings, Inc. Delaware 4832 13-3858506
Danbury Broadcasting, Inc. Connecticut 4832 13-3653113
</TABLE>
-2-
<PAGE> 3
COMMODORE MEDIA, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE
NUMBER
Item 1 Financial Statements (unaudited)
Consolidated Balance Sheets ................................ 4
Consolidated Statements of Operations ...................... 5
Condensed Consolidated Statements of Cash Flows ............ 6
Consolidated Statement of Stockholders' Deficit ............ 7
Notes to Consolidated Financial Statements ................. 8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations .............. 13
PART II - OTHER INFORMATION
Item 5 Other Information........................................... 21
Item 6 Exhibits and Reports on Form 8 - K ......................... 22
Signatures ................................................. 24
- 3 -
<PAGE> 4
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMMODORE MEDIA, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, September 29,
1995 1996
--------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and short term cash investments $ 10,891,489 $ 5,325,116
Accounts receivable, net 6,131,447 7,824,867
Prepaid expenses and other current assets 285,412 512,844
------------ ------------
Total current assets 17,308,348 13,662,827
Property, plant and equipment, net 8,080,043 11,929,627
FCC licenses, net 18,769,172 40,495,511
Goodwill, net 1,998,453 9,009,434
Other intangible assets 1,761,306 3,151,756
Deferred charges, net 3,910,582 4,261,842
Deposits and other assets 982,876 1,456,616
------------ ------------
Total assets $ 52,810,780 $ 83,967,613
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilites:
Accounts payable and accrued expenses $ 1,774,256 $ 2,224,382
Accrued compensation 815,162 668,985
Accrued interest 960,368 2,537,592
Accrued income taxes 16,840 56,121
Current maturities of long-term debt 11,977 11,977
------------ ------------
Total current liabilities 3,578,603 5,499,057
Long-term debt 65,142,763 87,591,371
Non-current compensation 1,482,275 1,424,439
Note payable - officer 1,161,706 --
Deferred income taxes -- 1,700,000
Senior Exchangeable Redeemable Preferred Stock, Series A, $0.01
par value, 75,000 shares authorized, 10,000 shares issued -- 9,164,482
Stockholders' deficit:
Class A Common Stock, $0.01 par value; 3,000,000
shares authorized, 146,526 issued 1,465 1,465
Class B Common Stock, convertible into Class A Common Stock
$0.01 par value; 486,373 shares authorized and issued 4,864 4,864
Additional paid-in capital 23,580,184 24,238,222
Accumulated deficit (42,115,080) (45,630,287)
------------ ------------
(18,528,567) (21,385,736)
Less treasury stock, at cost 26,000 26,000
------------ ------------
Total stockholders' deficit (18,554,567) (21,411,736)
------------ ------------
Total liabilities and stockholders' deficit $ 52,810,780 $ 83,967,613
============ ============
</TABLE>
-4-
<PAGE> 5
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
COMMODORE MEDIA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months ended : For the Nine Months ended :
September 24, September 29, September 24, September 29,
1995 1996 1995 1996
------------ ------------- --------------- ----------------
<S> <C> <C> <C> <C>
Total revenue $ 8,016,906 12,304,413 $ 23,348,065 $ 32,273,328
Less: agency commissions (693,683) (1,014,526) (2,023,410) (2,657,459)
------------ ------------ ------------ ------------
Net revenue 7,323,223 11,289,887 21,324,655 29,615,869
Operating expenses:
Programming, technical and news 1,366,221 2,087,937 3,724,106 5,500,197
Sales and promotion 2,144,977 3,261,274 6,289,104 8,651,734
General and administrative 1,146,194 2,228,178 3,481,996 5,689,281
Corporate expenses 511,988 609,281 1,506,534 1,684,769
Depreciation and amortization 490,038 875,021 1,363,042 2,020,734
Long-term incentive compensation -- -- 2,006,550 --
------------ ------------ ------------ ------------
Operating income 1,663,805 2,228,196 2,953,323 6,069,154
Interest expense 2,238,417 2,799,245 4,906,764 7,950,713
Interest income 141,243 40,055 271,502 207,820
Other expenses, net 89,260 870,921 247,048 1,708,468
------------ ------------ ------------ ------------
Income (loss) before provision for income
taxes (522,629) (1,401,915) (1,928,987) (3,382,207)
Provision for income taxes 1,954 81,000 61,954 133,000
------------ ------------ ------------ ------------
Income (loss) before extraordinary item (524,583) (1,482,915) (1,990,941) (3,515,207)
Extraordinary loss on extinguishment of debt -- -- 443,521 --
------------ ------------ ------------ ------------
Net income (loss) $ (524,583) (1,482,915) $ (2,434,462) $ (3,515,207)
============ ============ ============ ============
</TABLE>
-5-
<PAGE> 6
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
COMMODORE MEDIA, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months ended :
September 24, September 29,
1995 1996
------------- -------------
<S> <C> <C>
Net cash provided by operating activities $ 1,695,241 $ 2,317,264
Cash flows from investing activities
Purchase of property, plant and equipment (247,480) (448,677)
Deferred acquisition and intangible costs (397,474) (1,326,673)
Repayment on stockholder loan 117,500 --
Loans to stockholders and employees (250,375) --
Deposit on acquisitions -- (1,645,000)
Acquisitions of stations (3,075,000) (31,000,000)
Other investing activities, net -- (187,528)
------------ ------------
Net cash (used in) investing activities (3,852,829) (34,607,878)
Cash flows from financing activities
Gross proceeds from issuance of debt securities 64,956,422 18,700,000
Net proceeds from issuance of preferred stock -- 9,822,520
Payment of deferred debt issuance costs (3,849,654) (781,170)
Payment of Merger expenses and aborted IPO costs -- (1,007,297)
Repayment of amounts borrowed (39,014,833) --
Redemption of preferred stock (8,665,835) --
Principal payments on capital leases (7,860) (9,812)
Purchase of redeemable warrant (1,000,000) --
Exercise of warrants 100 --
Repurchase of common stock (25,000) --
------------ ------------
Net cash provided by financing activities 12,393,340 26,724,241
------------ ------------
Net (decrease) increase in cash and short term cash investments 10,235,752 (5,566,373)
Cash and short term cash investments beginning of period 2,042,249 10,891,489
------------ ------------
Cash and short term cash investments end of period $ 12,278,001 $ 5,325,116
============ ============
Interest paid $ 1,423,301 $ 3,655,775
Taxes paid 297,769 112,049
</TABLE>
-6-
<PAGE> 7
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
COMMODORE MEDIA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 29, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON STOCK PAID-IN ACCUMULATED TREASURY STOCKHOLDERS'
CLASS A CLASS B CAPITAL DEFICIT STOCK DEFICIT
------- ------- ------- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 1,465 4,864 $ 23,580,184 $(42,115,080) $(26,000) $(18,554,567)
Warrants issued with preferred stock facility 981,500 981,500
Dividends on preferred stock (323,462) (323,462)
Net loss for the period (3,515,207) (3,515,207)
------- ----- ------------ ------------ -------- ------------
Balance at September 29, 1996 $ 1,465 4,864 $ 24,238,222 $(45,630,287) $(26,000) $(21,411,736)
======= ===== ============ ============ ======== ============
</TABLE>
-7-
<PAGE> 8
COMMODORE MEDIA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine month period ended September 29,
1996 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Form 10-K
for the year ended December 31, 1995. The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries.
2. MERGER AGREEMENT
On October 16, 1996 the Company consummated its planned merger pursuant
to the Merger Agreement dated June 21, 1996, as amended by Amendment No. 1 to
the Merger Agreement, dated September 3, 1996, and Amendment No. 2 to the Merger
Agreement, dated October 16, 1996, between the Company, the Estate of Carter
Burden, Bruce A. Friedman, James T. Shea, Jr., William A. M. Burden & Co., L.
P., James J. Sullivan and CMI Acquisition Company, Inc. ("Mergeco"), a
wholly-owned subsidiary of Capstar Broadcasting Partners, Inc. ("Capstar").
Pursuant to the Merger Agreement, Mergeco merged with and into the Company (the
"Merger") and as a result the Company became a wholly-owned subsidiary of
Capstar, which is an indirect majority owned subsidiary of Hicks, Muse, Tate &
Furst Equity Fund III, L.P. The holders of Class A Common Stock and Class B
Common Stock (collectively, the "Common Stock"), the holders of employee stock
options and the holders of warrants received from Capstar $140 per share as
consideration for the Merger less, in the case of option and warrant holders,
the exercise price per share. In addition, Capstar provided the funds necessary
to redeem the Senior Exchangeable Redeemable Preferred Stock, Series A, $.01 par
value per share (the "Series A Preferred Stock") plus all accrued and unpaid
dividends payable at such date. As a result, all shares of Common Stock and
Series A Preferred Stock ceased to be outstanding on October 16, 1996. Through
September 29, 1996, the Company incurred approximately $682,000 of merger
related costs which are included in other expenses. In addition, the Company
will recognize approximately $12.8 million in stock option compensation expense,
and approximately $800,000 of additional merger related fees and expenses during
the fourth quarter of 1996. Other than recording the aforementioned merger
related costs, no adjustments have been made to the financial statements of the
Company as of September 29, 1996 in connection with the Merger.
-8-
<PAGE> 9
COMMODORE MEDIA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 1996
(UNAUDITED)
2. MERGER AGREEMENT, CONTINUED
As a result of the Merger and the change of control effected thereby,
the Company was obligated to satisfy the existing deferred compensation and
employment agreements with its President and Chief Executive Officer and its
deferred compensation agreement with its Chief Operating Officer, resulting in
an additional charge to operations of approximately $1.1 million which will be
taken during the fourth quarter of 1996. Furthermore, the Company, as the
surviving corporation, was required to make an offer to purchase the outstanding
13 1/4% Senior Subordinated Notes due 2003 at a purchase price equal to 101% of
their accreted value, plus any accrued and unpaid interest. This offer expires
on November 26, 1996.
As a result of the Merger, the Company will not proceed with
its previously announced intention to undertake an initial public equity
offering ("IPO") and has therefore withdrawn its registration statement filed on
Form S-1 on May 17, 1996 with the Securities and Exchange Commission. Included
in other expenses are approximately $525,000 in various fees and expenses
incurred in connection with such filing.
3. ACQUISITIONS AND JOINT OPERATING AGREEMENTS
On March 27, 1996 the Company purchased (i) certain defined assets of
radio stations WZZN-FM in Mount Kisco, New York, WAXB-FM in Patterson, New York
and WPUT-AM in Brewster, New York from Hudson Valley Growth, L.P. for $4,950,000
and (ii) all of the issued and outstanding common stock of Danbury Broadcasting,
Inc., owner of WRKI-FM and WINE-AM in Brookfield, Connecticut, plus certain real
property for $9,950,000. The transaction was financed with the Company's
existing cash and borrowings under the AT&T Senior Credit Facility (as defined
below, Note 4). The Company terminated its LMA agreements with Hudson Valley
Growth, L.P. and Danbury Broadcasting, Inc. at closing.
-9-
<PAGE> 10
COMMODORE MEDIA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 1996
(UNAUDITED)
3. ACQUISITIONS AND JOINT OPERATING AGREEMENTS, (CONTINUED)
On May 30, 1996, the Company purchased certain defined assets of radio
stations WKHL-FM and WSTC-AM in Stamford, Connecticut from Q Broadcasting, Inc.
for $9,500,000 (the "Stamford Acquisition"). The transaction was financed with
borrowings from the AT&T Senior Credit Facility (Note 4) and funds from the
Preferred Stock Facility (as defined below, Note 5).
On May 31, 1996, the Company purchased certain defined assets of radio
stations WBBE-FM (formerly WKQS-FM), WAVW-FM and WAXE-AM in the Fort
Pierce-Stuart-Vero Beach, Florida market from Media VI, L.P. for $8,000,000 (the
"Florida Acquisition"). The transaction was funded with borrowings from the AT&T
Senior Credit Facility (Note 4) and funds from the Preferred Stock Facility
(Note 5). The Company terminated its Joint Sales Agreement with Media VI at
closing.
Unaudited proforma results of the Company for the aforementioned
acquisitions and the acquisition during 1995 of WQOL-FM in the Fort
Pierce-Stuart-Vero Beach, Florida market (the "WQOL Acquisition"), which were
accounted for under the purchase method of accounting, as if they were acquired
on January 1, 1995 are as follows:
<TABLE>
<CAPTION>
(dollars in thousands)
Three Months Ended Nine Months Ended
--------------------------------- ------------------------------
September 24, September 29, September 24, September 29,
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenue $ 9,345 $ 11,290 $28,012 $31,505
======= ======== ======= =======
Loss before
extraordinary item $(1,194) $ (1,483) $(3,381) $(4,037)
======= ======== ======= =======
Net loss $(1,194) $ (1,483) $(3,824) $(4,037)
======= ======== ======= =======
</TABLE>
-10-
<PAGE> 11
COMMODORE MEDIA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 1996
(UNAUDITED)
3. ACQUISITIONS AND JOINT OPERATING AGREEMENTS, (CONTINUED)
On April 8, 1996 the Company entered into (i) an Asset Purchase
Agreement to purchase from Adventure Communications, Inc. radio stations WKEE-FM
and WKEE-AM in Huntington, West Virginia, WZZW-AM in Milton, West Virginia,
WBVB-FM in Coal Grove, Ohio and WIRO-AM in Ironton, Ohio for an aggregate
purchase price of approximately $7,765,000, and (ii) an Asset Purchase Agreement
with Simmons Broadcasting Company ("Simmons") and an Option Agreement with
Michael R. Shott to acquire radio stations WHRD-AM in Huntington, West Virginia,
WFXN-FM in Milton, West Virginia and WMLV-FM in Ironton, Ohio for an aggregate
purchase price of approximately $4,235,000 (collectively, the "Huntington
Acquisitions"). In addition, the Company entered into Local Marketing Agreements
with each of Adventure Communications, Inc. and Simmons Broadcasting Company to
provide, on a cooperative basis, the programming, sales, marketing and certain
other services to the stations pending the closing of these acquisitions. The
Company closed on the aforementioned acquisitions, with the exception of
WHRD-AM, on October 16, 1996 and funded the transaction with borrowings from the
AT&T Senior Credit Facility (Note 4) and with funds provided from Capstar (Note
2). On October 16, 1996, the Company entered into an LMA agreement and an Option
Purchase Agreement with Simmons for WHRD-AM.
On September 26, 1996 the Company entered into an Asset Purchase
Agreement with Indian River Shores Partners, L.C. to purchase certain defined
assets of radio station WOSN-FM (the "WOSN Acquisition") located in the Ft.
Pierce-Stuart-Vero Beach, Florida market for a total purchase price of
$1,600,000. The Company anticipates that this transaction will close in the
first quarter of 1997 with funding to be provided by available revolving credit
borrowings under the AT&T Senior Credit Facility.
4. DEBT
On March 13, 1996, the Company entered into a Loan and Security
Agreement with AT&T Commercial Finance Corporation ("AT&T") pursuant to which
AT&T will make available to the Company senior secured (i) revolving loans in an
amount up to $30 million and (ii) accounts receivable loans in an amount which
shall be the lessor of (A) $5 million or (B) 85% of the net book value of the
accounts receivable of the Company (the "AT&T Senior Credit Facility"). The
Company's subsidiaries agreed to guarantee the indebtedness to AT&T. Interest is
payable monthly at a rate of 3.5% over LIBOR and principal amortization of the
revolving loans and accounts receivable loans begins June 1, 1998 and November
30, 1997, respectively.
-11-
<PAGE> 12
COMMODORE MEDIA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 1996
(UNAUDITED)
5. PREFERRED STOCK FACILITY
On May 1, 1996, the Company entered into a Securities Purchase
Agreement with CIBC WG Argosy Merchant Fund 2, LLC (the "CIBC Merchant Fund"),
pursuant to which the CIBC Merchant Fund agreed to purchase from the Company, if
and when requested by the Company, up to an aggregate liquidation value of
$12,500,000 of Series A Preferred Stock of the Company in such amounts as the
Company may request (the "Preferred Stock Facility"), provided that such request
be for an aggregate liquidation value of at least $2,500,000 and be made no
later than October 31, 1996. The Series A Preferred Stock accrues cash dividends
at the rate of 8% per annum, or 10% per annum if paid in additional shares of
Series A Preferred Stock, through April 30, 1999. In connection with the
Preferred Stock Facility, the Company issued to the CIBC Merchant Fund warrants
to purchase 7,550 shares of the Company's Class A Common Stock, at an exercise
price of $.01 per warrant, which is immediately exercisable and expires May 1,
2000. These warrants were valued in the aggregate at $981,500 at the time of
issue.
In connection with the Stamford Acquisition on May 30, 1996 and the
Florida Acquisition on May 31, 1996, the Company issued 5,700 shares and 4,300
shares, respectively, of Series A Preferred Stock to the CIBC Merchant Fund for
an aggregate purchase price of $10,000,000.
On October 16, 1996, the Company redeemed all of the outstanding shares
of Series A Preferred Stock plus accrued dividends from funds provided by
Capstar (Note 2).
-12-
<PAGE> 13
COMMODORE MEDIA, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
The following table sets forth certain consolidated summary data of the
Company:
<TABLE>
<CAPTION>
(dollars in thousands)
For the Three Months Ended For the Nine Months Ended
---------------------------------- -------------------------------
September 24, September 29, September 24, September 29,
1995 1996 1995 1996
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Non barter revenue................ $ 7,273 $11,197 $21,052 $29,283
Barter revenue.................... 744 1,107 2,296 2,990
------- ------- ------- -------
Total revenue (a)............. 8,017 12,304 23,348 32,273
Variable expenses (b) (c)......... 1,994 3,015 5,728 7,914
Other operating expenses (c) (d).. 2,710 4,562 7,613 11,776
Barter expense (c)................ 647 1,015 2,178 2,808
Corporate expenses................ 512 609 1,506 1,685
Depreciation and amortization..... 490 875 1,363 2,021
Long-term incentive compensation.. 0 0 2,007 0
------- ------- ------- -------
Operating income.............. $ 1,664 $ 2,228 $ 2,953 $ 6,069
======= ======= ======= =======
Other data:
Broadcast cash flow (e)........... $ 2,666 $ 3,712 $ 7,829 $ 9,775
EBITDA (e)........................ 2,154 3,103 6,323 8,090
Variable expenses as a percent of
non barter revenue.............. 27.4% 26.9% 27.2% 27.0%
Other operating expenses as a
percent of non barter revenue... 37.3% 40.7% 36.2% 40.2%
</TABLE>
(a) Net revenue, as detailed in the Company's unaudited financial
statements, equals total revenue less agency commissions.
(b) Variable expenses consist of all commissions (including agency,
salesperson, national representative and tower representative), music
licensing fees and bad debts, and excludes barter expense.
(c) Station operating expenses consists of variable expenses plus other
operating expenses plus barter expense less agency commissions.
(d) Other operating expenses consist primarily of employee salaries,
programming and similar expenses, advertising and promotional
expenses and lease costs for office, studio space and transmission
sites, and excludes barter expense.
(e) EBITDA is defined as net income (loss) before (i) interest expense,
net, (ii) income taxes, (iii) depreciation and amortization, (iv)
extraordinary gain (loss), (v) other expenses (income) and (vi)
long-term incentive compensation expense. Broadcast cash flow means
EBITDA before corporate expenses.
-13-
<PAGE> 14
RESULTS OF OPERATIONS (CONTINUED)
THREE MONTHS ENDED SEPTEMBER 29, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
24, 1995
Total Revenue. Total revenue increased 53.5% to $12.3 million in the
third quarter of 1996 from $8.0 million during the same period in 1995 due
primarily to the additional revenues from various acquisitions and joint
operating agreements which include: the JSA agreement with WPAW-FM in the Fort
Pierce-Stuart-Vero Beach, Florida market entered into in August 1995; the JSA
agreement entered into on February 19, 1996 and subsequent acquisition on May
31, 1996 of WAVW-FM, WBBE-FM and WAXE-AM in the Fort Pierce-Stuart-Vero Beach,
Florida market (the "Florida Acquisition"); the LMA agreements entered into on
October 30, 1995 and subsequent acquisition on March 27, 1996 of WRKI-FM and
WINE-AM in Fairfield County, Connecticut (the "Danbury Acquisition") and
WAXB-FM, WZZN-FM and WPUT-AM in Westchester County and Putnam County, New York
(the "Westchester Acquisition"); the LMA agreement effective April 1, 1996 with
WKEE-FM, WKEE-AM and WHRD-AM in Huntington, West Virginia, WZZW-AM and WFXN-FM
in Milton, West Virginia, WBVB-FM in Coal Grove, Ohio, and WIRO-AM and WMLV-FM
in Ironton, Ohio (the "Huntington LMA"); and the acquisition of WKHL-FM and
WSTC-AM in Stamford, Connecticut on May 30, 1996 (the "Stamford Acquisition").
On a same station basis, total revenue increased 10.4% to $8.8 million in the
third quarter of 1996 from $8.0 million in the third quarter of 1995 as a
result of increases in revenue at a majority of the stations.
Station Operating Expenses. Station operating expenses increased 62.7%
to $7.6 million in the third quarter of 1996 from $4.7 million during the same
period in 1995. The increase was due primarily to the additional operating
expenses from the Florida Acquisition, the Danbury Acquisition, the Westchester
Acquisition, the Huntington LMA, the Stamford Acquisition and the JSA agreement
with WPAW-FM. On a same station basis, station operating expenses increased 3.2%
to $4.8 million in the third quarter of 1996 from $4.6 million in the same
period in 1995. The variable expense component of station operating expenses
increased to $3.0 million or 26.9% of non barter revenue in the third quarter of
1996 from $2.0 million or 27.4% of non barter revenue in the third quarter of
1995. On a same station basis, the variable expense component of station
operating expenses increased to $2.1 million or 26.5% of non barter revenue in
the third quarter of 1996 from $2.0 million or 27.5% of non barter revenue in
the third quarter of 1995. The other operating expense component of station
operating expenses increased 68.3% to $4.6 million in the third quarter of 1996
from $2.7 million during the same period in 1995 primarily due to the additional
operating expenses from the aforementioned acquisitions and operating
agreements. Other operating expenses were 40.7% of non barter revenue in the
third quarter of 1996 increasing from 37.3% of non barter revenue in the third
quarter of 1995 primarily due to the fees related to the JSA and LMA agreements
in effect during the quarter. On a same station basis, other operating expenses
remained unchanged at $2.6 million.
14
<PAGE> 15
Corporate Expenses. Corporate expenses increased 19.0% in the third
quarter of 1996 to approximately $609,000 from approximately $512,000 during the
same period in 1995 as a result of higher salary expense for additional
staffing, which was partially offset by lower incentive accruals. Corporate
expenses as a percentage of non barter revenue were 5.4% in the third quarter of
1996 compared to 7.0% in the third quarter of 1995.
Other Expenses. Depreciation and amortization increased 78.6% to
approximately $875,000 in the third quarter of 1996 from approximately $490,000
during the same period in 1995 primarily due to the WQOL Acquisition, the
Florida Acquisition, the Stamford Acquisition, the Danbury Acquisition and the
Westchester Acquisition. Interest expense increased 25.1% to $2.8 million in the
third quarter of 1996 from $2.2 million during the same period in 1995 primarily
due to the interest expense associated with the acquisition and working capital
funding from the AT&T Senior Credit Facility. Interest income of approximately
$40,000 was earned on the Company's temporary cash investments. Other expenses
increased to approximately $871,000 in the third quarter of 1996 from
approximately $89,000 during the same period in 1995. The increase was primarily
due to approximately $682,000 of merger related costs and expenses and increased
amortization of deferred financing costs resulting from the AT&T Senior Credit
Facility.
Operating Income. Operating income in the third quarter of 1996
increased 33.9% to $2.2 million from $1.7 million in the third quarter of 1995.
The increase was due to additional operating income from the various
acquisitions and operating agreements, and a reduction in long-term incentive
compensation expense, which were partially offset by increased depreciation and
amortization realized on the completed acquisitions. On a same station basis,
operating income for the third quarter of 1996 increased 31.9% to $2.2 million
from $1.7 million in the third quarter of 1995 primarily due to increased
revenues.
Net Loss. Net loss before extraordinary items for the third quarter of
1996 was $1.5 million compared to a net loss of approximately $525,000 during
the same period in 1995. The increase in the net loss over the prior period was
primarily due to the recognition of approximately $700,000 of merger and IPO
related expenses and increased interest expense of approximately $561,000 which
was partially offset by the increase in operating income provided by the various
acquisitions and operating agreements.
15
<PAGE> 16
NINE MONTHS ENDED SEPTEMBER 29, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 24,
1995
Total Revenue. Total revenue increased 38.2% to $32.2 million for the
nine months ended September 29, 1996 from $23.3 million during the nine months
ended September 24, 1995 due primarily to the additional revenues from various
acquisitions and joint operating agreements. On a same station basis, total
revenue increased 2.5% to $23.6 million for the nine months ended September 29,
1996 from $23.0 million for the nine months ended September 24, 1995.
Station Operating Expenses. Station operating expenses increased 47.0%
to $19.8 million in the first nine months of 1996 from $13.5 million during the
same period in 1995. The increase was due primarily to the additional operating
expenses from the various acquisitions and joint operating agreements. On a same
station basis, station operating expenses decreased 1.8% to $13.0 million in the
first nine months of 1996 from $13.2 million in the same period in 1995. The
variable expense component of station operating expenses was $7.9 million or
27.0% of non barter revenue in the first nine months of 1996 compared to $5.7
million or 27.2% of non barter revenue in the same period in 1995. On a same
station basis, the variable expense component of station operating expenses was
$5.8 million or 27.2% of non barter revenue in the first nine months of 1996
compared to $5.7 million or 27.3% of non barter revenue in the same period in
1995. The other operating expense component of station operating expenses
increased 54.7% to $11.8 million in the first nine months of 1996 from $7.6
million during the same period in 1995 primarily due to the additional operating
expenses from the various acquisitions and joint operating agreements. Other
operating expenses were 40.2% of non barter revenue in the first nine months of
1996 increasing from 36.2% of non barter revenue in the first nine months of
1995 primarily due to the fees related to the JSA and LMA agreements in effect
during the current period. On a same station basis, other operating expenses
decreased 4.5% to $7.1 million or 33.2% of non barter revenue in the first nine
months of 1996 from $7.4 million or 35.6% of non barter revenue during the same
period in 1995 primarily as a result of maximizing barter arrangements for
advertising and promotion expenses during 1996.
Corporate Expenses. Corporate expenses increased 11.8% in the nine
months ended September 29, 1996 to $1.7 million from $1.5 million in the nine
months ended September 24, 1995 as a result of higher salary expense for
additional staffing, which was partially offset by lower incentive accruals.
Corporate expenses as a percentage of non barter revenue were 5.8% in the first
nine months of 1996 compared to 7.2% in the same period in 1995.
16
<PAGE> 17
Other Expenses. Depreciation and amortization increased 48.3% to $2.0
million in the first nine months of 1996 from $1.4 million during the same
period in 1995 primarily due to the WQOL Acquisition, the Florida Acquisition,
the Stamford Acquisition, the Danbury Acquisition and the Westchester
Acquisition. Long-term incentive compensation expense of $2.0 million in 1995
consisted of compensation expense incurred by the Company pursuant to Mr.
Friedman's and Mr. Shea's (the Company's Chief Executive Officer and President
and its Chief Operating Officer, respectively) prior employment agreements;
currently, Mr. Friedman's and Mr. Shea's employment agreements do not contain
any provisions for long term incentive compensation, and therefore no expense
has been recognized during the current period. Interest expense increased 62.0%
to $8.0 million in 1996 from $4.9 million during the same period in 1995
primarily due to the interest expense associated with the Company's 13 1/4%
Senior Subordinated Notes and $18.7 million in acquisition and working capital
funding from the AT&T Senior Credit Facility. Interest income of approximately
$208,000 was earned on the Company's temporary cash investments. Other expenses
increased to $1.7 million for the nine months ended September 29, 1996 from
approximately $247,000 for the nine months ended September 24, 1995. The
increase was primarily due to approximately $525,000 in expenses associated with
the filing of the Company's Registration Statement on Form S-1 with the
Securities and Exchange Commission on May 17, 1996, which was subsequently
withdrawn, approximately $682,000 of merger related costs and expenses, and an
increase in amortization of deferred financing costs resulting from the Senior
Subordinated Notes and the AT&T Senior Credit Facility.
Operating Income. Operating income for the nine months ended September
29, 1996 increased 105.5% to $6.1 million from $3.0 million for the nine months
ended September 24, 1995. The increase was primarily due to additional operating
income from the various acquisitions and operating agreements and a reduction in
long-term incentive compensation expense, which were partially offset by
increased depreciation and amortization on the completed acquisitions. On a same
station basis, operating income increased 90.0% to $5.6 million in 1996 from
$3.0 million in 1995 primarily due to the decrease in long-term incentive
compensation.
Net Loss. Net loss before extraordinary items for the nine months ended
September 29, 1996 was $3.5 million compared to a net loss of $2.0 million
during the same period in 1995. The increase in the net loss over the prior
period was primarily due to an increase in interest expense of $3.0 million,
approximately $525,000 of other expenses incurred in connection with the aborted
Form S-1 filing and $682,000 of merger related costs and expenses, which were
partially offset by a $2.0 million reduction in long-term incentive compensation
and increased operating income provided from the various acquisitions and
operating agreements. Upon issuance of the Company's 13 1/4% Senior Subordinated
Notes in April 1995, the Company wrote-off approximately $444,000 of deferred
financing fees associated with its prior credit agreement and recorded it as an
extraordinary loss.
17
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES:
The Company's liquidity needs arise primarily from its debt service
obligations, funding of its working capital needs, acquisitions and capital
expenditures. Net cash provided by operations was $2.3 million for the nine
months ended September 29, 1996 compared to $1.7 million for the nine months
ended September 24, 1995. The increase in the Company's net cash flows from
operating activities were primarily the result of improvement in its broadcast
cash flow and a reduction in long term incentive payments, which were partially
offset by an increase in the amount of interest paid.
During the first nine months of 1996, net cash flow used in investing
activities increased to $34.6 million from $3.9 million for the first nine
months of 1995. These investing activities in the first nine months of 1996
included approximately $449,000 of capital expenditures, $1.3 million in
deferred acquisition and intangible costs, and $32.6 million for station
acquisitions and deposits which includes a $600,000 deposit towards the purchase
of the Huntington LMA stations, $14.4 million for the Danbury and Westchester
Acquisitions (net of a $500,000 deposit paid in the fourth quarter of 1995),
$9.5 million for the Stamford Acquisition, $8.0 million for the Florida
Acquisition and a $100,000 deposit on the WOSN Acquisition. Investing activities
for the first nine months of 1995 included approximately $397,000 of deferred
acquisition and intangible costs, approximately $247,000 of capital purchases,
approximately $133,000 net of loans to employees and $3.1 million for the WQOL
Acquisition.
Net cash flow provided by financing activities for the nine months
ended September 29, 1996 totaled $26.7 million as compared to $12.4 million for
the nine months ended September 24, 1995. Financing activities for the first
nine months of 1996 include $15.0 million of senior debt issued under the AT&T
Senior Credit Facility as partial funding for the Danbury, Westchester, Stamford
and Florida Acquisitions, as well as a drawdown of $3.7 million under the
accounts receivable tranche of the AT&T Senior Credit Facility. In addition, the
Company paid approximately $781,000 of deferred debt issuance costs in
connection with the AT&T Senior Credit Facility and $1.0 million of various
costs related to the Merger and the abandoned IPO. During the second quarter of
1996, the Company issued a total of 10,000 shares of Series A Preferred Stock in
order to finance a portion of the Stamford and Florida Acquisitions resulting in
net proceeds of $9.8 million. Net cash flow provided by financing activities for
the first nine months of 1995 included $65.0 million of gross proceeds from the
issuance of the Company's Senior Subordinated Notes and $3.8 million paid in
deferred debt issuance costs, repayment of $39.0 million of amounts borrowed
from The Bank of New York, Radio Financial Partners and Michael Hanson, the
redemption of $8.7 million of the Company's preferred stock and a $1.0 million
payment for the purchase of a common stock warrant held by The Bank of New York.
18
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES (CONT'D)
The AT&T Senior Credit Facility allows the Company to borrow up to $30
million in revolving loans and up to $5 million in accounts receivable loans.
Interest is payable monthly at a rate of 3.5% over LIBOR. Principal amortization
commences on November 30, 1997 for the receivable loan.
On October 16, 1996 the Company consummated its planned merger
pursuant to the Merger Agreement dated June 21, 1996, as amended by Amendment
No. 1 to the Merger Agreement, dated September 3, 1996, and Amendment No. 2 to
the Merger Agreement, dated October 16, 1996, between the Company, the Estate of
Carter Burden, Bruce A. Friedman, James T. Shea, Jr., William A. M. Burden &
Co., L. P., James J. Sullivan and CMI Acquisition Company, Inc. ("Mergeco"), a
wholly-owned subsidiary of Capstar Broadcasting Partners, Inc. ("Capstar").
Pursuant to the Merger Agreement, Mergeco merged with and into the Company and
as a result the Company became a wholly-owned subsidiary of Capstar, which is an
indirect majority owned subsidiary of Hicks, Muse, Tate & Furst Equity Fund III,
L.P. The holders of Class A Common Stock and Class B Common Stock (collectively,
the "Common Stock"), the holders of employee stock options and the holders of
warrants received from Capstar $140 per share as consideration for the Merger
less, in the case of option and warrant holders, the exercise price per share.
In addition, Capstar provided the funds necessary to redeem the Senior
Exchangeable Redeemable Preferred Stock, Series A, $.01 par value per share (the
"Series A Preferred Stock") plus all accrued and unpaid dividends payable at
such date. As a result, all shares of Common Stock and Series A Preferred Stock
ceased to be outstanding on October 16, 1996. As a result of these transactions,
the Company will recognize approximately $12.8 million in stock option
compensation expense, and approximately $800,000 of additional merger related
fees and expenses during the fourth quarter of 1996.
As a result of the Merger and the change of control effected thereby,
the Company was obligated to satisfy the existing deferred compensation and
employment agreements with its President and Chief Executive Officer and its
deferred compensation agreement with its Chief Operating Officer, resulting in
an additional charge to operations of approximately $1.1 million during the
fourth quarter of 1996. Furthermore, the Company, as the surviving corporation,
was required to make an offer to purchase the outstanding 13 1/4% Senior
Subordinated Notes due 2003 at a purchase price equal to 101% of their accreted
value, plus any accrued and unpaid interest. This offer expires on November 26,
1996.
19
<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES (CONT'D)
On May 1, 1996, the Company entered into a Securities Purchase
Agreement with CIBC WG Argosy Merchant Fund 2, LLC (the "CIBC Merchant Fund"),
pursuant to which the CIBC Merchant Fund agreed to purchase from the Company, if
and when requested by the Company, up to an aggregate liquidation value of
$12,500,000 of Series A Preferred Stock of the Company in such amounts as the
Company may request (the "Preferred Stock Facility"), provided that such request
be for an aggregate liquidation value of at least $2,500,000 and be made no
later than October 31, 1996. The Series A Preferred Stock accrues cash dividends
at the rate of 8% per annum, or 10% per annum if paid in additional shares of
Series A Preferred Stock, through April 30, 1999. In connection with the
Preferred Stock Facility, the Company issued to the CIBC Merchant Fund warrants
to purchase 7,550 shares of the Company's Class A Common Stock, at an exercise
price of $.01 per warrant, which is immediately exercisable and expires May 1,
2000.
In connection with the Stamford Acquisition on May 30, 1996 and the
Florida Acquisition on May 31, 1996, the Company issued 5,700 shares and 4,300
shares, respectively, of Series A Preferred Stock to the CIBC Merchant Fund for
an aggregate purchase price of $10,000,000. On October 16, 1996, the Company
redeemed all of the outstanding shares of Series A Preferred Stock plus accrued
dividends from funds provided by Capstar (Note 2).
The Company closed on the Huntington Acquisitions on October 16, 1996
and funded the $12.0 million purchase price with funds from the revolving credit
facility under the AT&T Senior Credit Facility and with equity funding provided
by Capstar.
On September 26, 1996 the Company entered into an Asset Purchase
Agreement with Indian River Shores Partners, L.C. to purchase certain defined
assets of radio station WOSN-FM located in the Ft. Pierce-Stuart-Vero Beach,
Florida market for a total purchase price of $1,600,000. The Company anticipates
that this transaction will close in the first quarter of 1997 with funding to be
provided by available revolving credit borrowings under the AT&T Senior Credit
Facility.
Management believes that cash from operating activities together with
available revolving credit borrowings under the AT&T Senior Credit Facility will
permit the Company to meet its financial obligations, fund its operations for
the foreseeable future and consummate its planned acquisitions. The Company's
long-term debt is comprised of the Senior Subordinated Notes and borrowing under
the AT&T Senior Credit Facility. The Company may require additional financing
for future acquisitions and there can be no assurance that it will be able to
obtain such financing on terms considered by management to be favorable.
20
<PAGE> 21
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Upon the effectiveness of the Merger, (i) Bruce A. Friedman, Daniel
H. Stern and Susan L. Burden resigned as directors of the Company and were
replaced by Eric C. Neuman, R. Steven Hicks and Thomas O. Hicks, and (ii)
R. Steven Hicks, James T. Shea, Jr., Eric C. Neuman, James J. Sullivan and
Peter S. Brodsky were named as Chairman of the Board and Chief Executive
Officer; President; Vice President; Chief Financial Officer, Treasurer and
Secretary; and Assistant Secretary, respectively.
21
<PAGE> 22
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
Number Exhibit Title
10.75* Amendment No. 1, dated as of September 3,
1996, to the Agreement and Plan of Merger
(the "Merger Agreement") by and among CMI
Acquisition Company, Inc., the Company and
the stockholders and other signatories
thereto dated as of June 21, 1996.
10.76* Amendment No. 2 dated as of October 16,
1996 to the Merger Agreement.
10.77* Amended and Restated Employment Agreement
dated October 16, 1996 between the Company
and James T. Shea, Jr.
10.78* Amendment No. 1, dated October 15, 1996,
to the Asset Purchase Agreement, dated as of
April 8, 1996, between Simmons Broadcasting
Company ("Simmons") and Commodore Media of
Kentucky, Inc. ("Commodore-Kentucky").
10.79* Amendment No. 1, dated October 15, 1996,
to the Contingent Sale and Assignment of
Options dated as of April 8, 1996 between
Commodore-Kentucky and Simmons.
10.80* Irrevocable and Exclusive Option Agreement
dated as of October 16, 1996 between Simmons
and Commodore-Kentucky.
10.81* Local Marketing Agreement dated October
16, 1996 between Simmons and
Commodore-Kentucky regarding WHRD-AM.
99.1* Press Release issued on October 4, 1996
regarding acquisition of WOSN-FM.
99.2* Press Release issued on October 16, 1996
regarding the Merger.
* Previously filed on Form 8-K dated October 16, 1996, and incorporated herein
by reference.
22
<PAGE> 23
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K, CONTINUED
(b) REPORTS ON FORM 8-K:
During the quarter ended September 29, 1996 the following report
on Form 8-K was filed:
(i) A Form 8-K/A dated May 30, 1996 was filed on August 12, 1996,
reporting the financial statements of the Stamford Acquisition and
the Florida Acquisition and proforma financial information with
respect to the Stamford Acquisition and the Florida Acquisition.
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Commodore Media, Inc.
(Registrant)
Date: November 13, 1996 /s/ James T. Shea, Jr.
--------------------------
James T. Shea, Jr.
President
(principal executive officer)
Date: November 13, 1996 /s/ James J. Sullivan
--------------------------
James J. Sullivan
Chief Financial Officer
(principal financial and
accounting officer)
24
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Commodore Media of Delaware, Inc.
a Delaware Corporation
Commodore Media of Kentucky, Inc.
a Delaware Corporation
Commodore Media of Pennsylvania, Inc.
a Delaware Corporation
Commodore Media of Norwalk, Inc.
a Delaware Corporation
Commodore Media of Florida, Inc.
a Delaware Corporation
Commodore Media of Westchester, Inc.
a Delaware Corporation
Commodore Holdings, Inc.
a Delaware Corporation
Danbury Broadcasting, Inc.
a Connecticut Corporation
Date: November 13, 1996
By: /s/ James T. Shea, Jr.
--------------------------------
James T. Shea, Jr.
President
(principal executive officer)
Date: November 13, 1996 By: /s/ James J. Sullivan
---------------------------
James J. Sullivan
Chief Financial Officer
(principal financial and accounting
officer)
25
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