<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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):January 9, 1997
TRIATHLON BROADCASTING COMPANY
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 0-26530 33-0668235
--------------------------- -------------------- -------------------
(State or Other Jurisdiction (Commission File No.) (IRS Employer
of Incorporation) Identification No.)
Symphony Towers, 750 B Street, Suite 1920, San Diego, CA 92101
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 239-4242
---------------------------
N/A
- ------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of businesses acquired or to be acquired.
The audited financial statements for the radio stations acquired and to be
acquired from Southern Skies for the years ended December 31, 1995 and 1994
are set forth in the Prospectus dated March 4, 1996, contained in the
Registration Statement filed by the Company with the Securities and Exchange
Commission (File No. 333-1186), which is incorporated herein by reference. The
unaudited financial information for the radio stations acquired and to be
acquired from Southern Skies as of September 30, 1996 and for the nine month
Periods ended September 30, 1996 and 1995 are set forth in the Company's
current Report on Form 8K, dated January 9, 1997, which is incorporated
herein by reference.
The audited financial statements for the years ended December 31, 1995 and 1994
and the unaudited financial information as of September 30, 1996 and for the
nine month periods ended September 30, 1996 and 1995 for the KFAB-AM, KGOR (FM)
and the Business Music Service ("KFAB/KGOR") to be acquired from American Radio
Systems follow:
<PAGE>
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 combined balance sheets of KFAB-AM, KGOR-FM
and Business Music Service (Divisions of Henry Broadcasting Company) as of
December 31, 1995 and 1994, and the related combined statements of operations
and stockholders' deficiency and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 combined financial statements present fairly, in all
material respects, the financial position of KFAB-AM, KGOR-FM and Business
Music Service (Divisions of Henry Broadcasting Company) as of December 31,
1995 and 1994 and the results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
MILLER, KAPLAN, ARASE & CO.
North Hollywood, California
April 16, 1996 (Except for Note 12 as
to which the date is July 3, 1996)
<PAGE>
KFAB-AM, KGOR-FM AND BUSINESS MUSIC SERVICE
(DIVISIONS OF HENRY BROADCASTING COMPANY)
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
CASH $ 510,401 $ 425,101
-------------- --------------
Accounts Receivable, Net of Allowance for
Uncollectible Accounts of
$57,386 and $59,409 1,617,937 1,219,983
Other Receivables -- 6,465
Prepaid Sports Broadcast Rights 167,339 --
Prepaid Expenses 19,978 12,190
-------------- --------------
TOTAL CURRENT ASSETS 2,315,655 1,663,739
-------------- --------------
PROPERTY AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION (Note 3) 786,534 712,203
-------------- --------------
OTHER ASSETS
Intangibles, Net of Accumulated Amortization
(Note 4) 4,045,354 4,270,432
Other 63,411 65,710
-------------- --------------
TOTAL OTHER ASSETS 4,108,765 4,336,142
-------------- --------------
TOTAL ASSETS $ 7,210,954 $ 6,712,084
============== ==============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 121,065 $ 101,690
Accrued Wages and Commissions 150,837 125,512
Sports Broadcast Rights Payable -- 122,222
-------------- --------------
TOTAL CURRENT LIABILITIES 271,902 349,424
-------------- --------------
INTERDIVISIONAL PAYABLE (Note 11) 14,496,189 13,209,772
-------------- --------------
TOTAL LIABILITIES 14,768,091 13,559,196
STOCKHOLDERS' DEFICIENCY
(7,557,137) (6,847,112)
-------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $ 7,210,954 $ 6,712,084
============== ==============
</TABLE>
(Attached notes are an integral part of this statement)
<PAGE>
KFAB-AM, KGOR-FM AND BUSINESS MUSIC SERVICE
(DIVISIONS OF HENRY BROADCASTING COMPANY)
COMBINED STATEMENTS OF OPERATIONS AND STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
NET REVENUES $ 7,247,040 $ 7,742,181
OPERATING EXPENSES
Operating Expenses 3,854,493 3,626,639
Depreciation and Amortization 497,364 456,117
General and Administrative Expense 1,268,791 1,273,244
Corporate Expense 402,140 229,152
-------------- --------------
TOTAL OPERATING EXPENSES 6,022,788 5,585,152
-------------- --------------
INCOME FROM OPERATIONS 1,224,252 2,157,029
-------------- --------------
Interest Expense (1,934,277) (2,150,277)
-------------- --------------
NET INCOME (LOSS) (710,025) 6,752
STOCKHOLDERS' DEFICIENCY--BEGINNING
OF PERIOD (6,847,112) (6,853,864)
-------------- --------------
STOCKHOLDERS' DEFICIENCY--END
OF PERIOD $(7,557,137) $(6,847,112)
============== ==============
</TABLE>
(Attached notes are an integral part of this statement)
<PAGE>
KFAB-AM, KGOR-FM AND BUSINESS MUSIC SERVICE
(DIVISIONS OF HENRY BROADCASTING COMPANY)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1994
-------------- ------------
<CAPTION>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (710,025) $ 6,752
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided (Used) by Operating
Activities:
Depreciation 272,286 231,027
Amortization 225,078 225,090
(Increase) Decrease in:
Accounts Receivable (397,954) 4,336
Inventory 2,831 19,676
Deposits (532) 1,657
Other Receivables 6,465 (6,465)
Prepaid Expenses (7,788) 7,204
Prepaid Sports Broadcast Rights (167,339) 252,000
Increase (Decrease) in:
Accounts Payable and Accrued Expenses 19,375 4,338
Accrued Wages and Commissions 25,325 (39,268)
Sports Broadcast Rights Payable (122,222) 122,222
Interdivisional Payable 1,286,417 (770,614)
------------ ------------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES 431,917 57,955
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Property and Equipment (346,617) (106,005)
------------ ------------
NET CASH (USED IN) INVESTING
ACTIVITIES (346,617) (106,005)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments on Long-Term Debt -- (2,485)
------------ ------------
NET CASH (USED IN)
FINANCING ACTIVITIES -- (2,485)
------------ ------------
NET INCREASE (DECREASE) IN CASH 85,300 (50,535)
CASH, BEGINNING OF PERIOD 425,101 475,636
------------ ------------
CASH, END OF PERIOD $ 510,401 $ 425,101
============ ============
</TABLE>
(Attached notes are an integral part of this statement)
<PAGE>
KFAB-AM, KGOR-FM AND BUSINESS MUSIC SERVICE
(DIVISIONS OF HENRY BROADCASTING COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Presentation
The financial statements include the accounts of KFAB-AM, KGOR-FM and
Business Music Service, "Divisions" of Henry Broadcasting Company, a
California corporation (the "Company"), after eliminating all
significant interdivisional accounts and transactions between the
divisions. Radio stations KFAB-AM and KGOR-FM are licensed to Omaha,
Nebraska and Business Music Service (the Company's Muzak Division)
has the exclusive Muzak Franchise for specific territories located in
Nebraska and Iowa.
B. 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.
C. 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
industry measures of value (principally, nondiscounted cash flow
multiple methods).
The following estimated useful lives are used for financial reporting
purposes:
Building and Building Improvements 20 years
Towers and Transmitter Equipment 5 to 10 years
Studio Equipment 5 years
Equipment and Fixtures 5 years
Music Library 5 years
Transporting Equipment 3 to 5 years
Leasehold Improvements 5 to 10 years
<PAGE>
KFAB-AM, KGOR-FM AND BUSINESS MUSIC SERVICE
(DIVISIONS OF HENRY BROADCASTING COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
D. Amortization
Intangible assets 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 and Goodwill 40 years
Bargain Element of Leases Assumed 13 to 20 years
Network Affiliation Agreement 40 years
E. 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. Gross trade revenue and expense
recognized by KFAB-AM and KGOR-FM were as follows for the periods set
forth below:
Periods Ended Periods Ended
June 30, December 31,
------------- -------------
1996 1995 1995 1994
---- ---- ---- ----
$178,889 $143,087 $297,012 $309,514
======== ======== ======== ========
F. 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
divisions of Henry Broadcasting Company and its Subsidiary on a pro
rata basis. Corporate expenses were allocated based on revenues and
interest expenses were allocated based on the cost basis of property,
plant and equipment and intangible assets. The amounts allocated to
KFAB-AM, KGOR-FM and Business Music Service have been reflected in
the financial statements.
<PAGE>
KFAB-AM, KGOR-FM AND BUSINESS MUSIC SERVICE
(DIVISIONS OF HENRY BROADCASTING COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
G. Impact of Recently Adopted Accounting Standard
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" (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 adoption of FAS 121 did not
have a material impact on the Company's results of operations,
liquidity or financial position.
NOTE 2 - DESCRIPTION OF BUSINESS
The Divisions own and operate commercial radio stations licensed to the
city of Omaha, Nebraska. In addition, the Divisions have 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.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
Land $ 30,000 $ 30,000
Building and Building Improvements 275,460 275,460
Towers and Transmitters Equipment 2,373,124 2,373,124
Studio Equipment 897,773 723,619
Equipment and Fixtures 512,292 426,628
Music Library 54,590 52,085
Transportation Equipment 118,528 102,204
Leasehold Improvements 80,379 12,409
---------- ----------
$4,342,146 $3,995,529
Less Accumulated Depreciation ( 3,555,612) ( 3,283,326)
---------- ----------
$ 786,534 $ 712,203
========== ==========
</TABLE>
NOTE 4 - INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
FCC Licenses $3,500,000 $3,500,000
Goodwill 145,756 145,756
Bargain Element of Leases Assumed 1,963,300 1,963,300
Network Affiliation Agreement 462,000 462,000
---------- ----------
$6,071,056 $6,071,056
Less Accumulated Amortization ( 2,025,702) ( 1,800,624)
---------- ----------
$4,045,354 $4,270,432
========== ==========
</TABLE>
<PAGE>
KFAB-AM, KGOR-FM AND BUSINESS MUSIC SERVICE
(DIVISIONS OF HENRY BROADCASTING COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1994
NOTE 5 - LONG-TERM DEBT
The secured long-term debt of the Company is not reflected in these
financial statements although interest expense has been allocated to
the divisions discussed in Note 1F. This secured long-term debt is
secured by a pledge of all the outstanding capital stock of Henry
Broadcasting Co., and totaled $33,320,000 and $35,830,000 at
December 31, 1995 and 1994, respectively. On July 3, 1996, concurrent
with the closing of the Merger (discussed in Note 12) the debt
mentioned above was assumed by American Radio Systems and immediately
following the merger was retired releasing all liens on the stations.
The Company was in violation of several of its loan covenants at
December 31, 1995, for which lenders had not granted waivers.
NOTE 6 - RELATED PARTY TRANSACTIONS
The majority stockholder loaned the Company $5,000,000 (not reflected
in the balance sheet) which bears interest at Sanwa Bank's prime rate
(8.25% at June 30, 1996 and 8.5% at December 31, 1995 and 1994) plus
.75%. The loan is subordinated to the debt discussed in Note 5. This
loan was assumed by American Radio Systems as part of the July 3,
1996 merger (discussed in Note 12) and immediately retired. Interest
expense related to this loan totaled $478,801 and $394,692 of which
$258,074 and $209,187 has been allocated to KFAB-AM, KGOR-FM and
Business Music Service as interest expense for the years ending
December 31, 1995 and 1994, respectively.
In addition to the lease commitments disclosed in Note 9, the Company
leases the corporate office building from the Company's majority
stockholder on a month-to-month basis. Rental expense for this lease
was $105,121 and $105,121 of which $26,816 and $27,226 has been
allocated to KFAB-AM, KGOR-FM and Business Music Service as Corporate
expense for the years ending December 31, 1995 and 1994, respectively.
Included in corporate expense was a $500,000 cash bonus paid to the
majority stockholder during the year ended December 31, 1995.
Corporate expense allocated to KFAB-AM, KGOR-FM and Business Music
Service for the above was $127,500 for the year ending December 31,
1995.
<PAGE>
KFAB-AM, KGOR-FM AND BUSINESS MUSIC SERVICE
(DIVISIONS OF HENRY BROADCASTING COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1994
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 and $9,240 for 1995 and 1994. The Company matches 50%
of every dollar the employee contributes up to 1% of their
compensation. KFAB-AM, KGOR-FM and Business Music Service contributed
$12,029 and $16,808 to the plan for the years ending December 31,
1995 and 1994, 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 years ended December 31, 1995 and 1994.
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 Divisions have not reflected deferred taxes
or benefits for any "S" Corporation activities. The Company has
California net operating losses ("NOL") from calendar years 1987
though 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 carry forwards 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 and 1994 income tax liabilities were entirely
eliminated through the utilization of approximately $1,100,000 and
$1,800,000 of NOL carry forwards, respectively.
<PAGE>
KFAB-AM, KGOR-FM AND BUSINESS MUSIC SERVICE
(DIVISIONS OF HENRY BROADCASTING COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1994
NOTE 8 - INCOME TAXES (Continued)
The Company has available to offset future federal "C" Corporation
taxable income, NOL carry forwards of approximately $2,300,000,
expiring in 2000 and investment tax credit carryovers of
approximately $45,000 also expiring in 2000.
NOTE 9 - LEASE COMMITMENTS
Administrative and studio offices, office equipment, 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 KFAB-AM, KGOR-FM and Business
Music Service for operating leases was $75,410 and $50,533 for the
years ending December 31, 1995 and 1994, respectively.
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 for years
ending June 30,:
<TABLE>
<CAPTION>
<S> <C>
1997 ........ $ 52,239
1998 ........ 36,071
1999 ........ 26,275
2000 ........ 25,200
2001 ........ 25,200
Thereafter . 77,700
---------
$242,685
=========
</TABLE>
Following the merger discussed in Note 12, ARS assumed all rights and
obligations under these agreements.
NOTE 10 - 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 11 - INTERDIVISIONAL PAYABLE
As discussed in Note 1A, these financial statements present only the
accounts of KFAB-AM, KGOR-FM and Business Music Service. The
interdivisional transactions which would have been eliminated had the
financial statements been prepared on a consolidated basis have
resulted in an interdivisional payable to those divisions which have
not been included herein.
<PAGE>
KFAB-AM, KGOR-FM AND BUSINESS MUSIC SERVICE
(DIVISIONS OF HENRY BROADCASTING COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1994
NOTE 11 - INTERDIVISIONAL PAYABLE (Continued)
This payable consists primarily of KFAB-AM, KGOR-FM and Business
Music Service acquisition debt recorded on the books of the
corporate division of the Company, and interdivisional allocations
of corporate and interest expenses.
NOTE 12 - COMPANY MERGER
On March 21, 1996, the Company entered into a merger agreement with
American Radio Systems, Inc. (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 certain divisions, 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 $109 million, consisting of approximately $64 million
of ARS stock, $9 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).
NOTE 13 - SUBSEQUENT EVENT (UNAUDITED)
In October 1996, ARS entered into an agreement, as amended, to
sell radio stations KGOR(FM) and KFAB-AM, to Triathlon Broadcasting
Company for $38 million in cash. In addition to the two stations,
the sale includes Business Music Service, the exclusive Muzak
franchise for the Nebraska and Southwestern Iowa markets. The
closing is expected to occur in the second calendar quarter of 1997.
<PAGE>
KFAB-AM, KGOR-FM AND BUSINESS MUSIC SERVICE
COMBINED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ 142,274
Accounts Receivable, Net of Allowance for Uncollectible
Accounts of $27,077 1,008,452
Other Receivables 6,350
Prepaid Expenses 19,911
-----------
TOTAL CURRENT ASSETS 1,176,987
-----------
PROPERTY AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION (Note 3) 2,668,637
-----------
OTHER ASSETS
Intangibles, Net of Accumulated Amortization (Note 4) 26,868,019
Other 56,574
-----------
TOTAL OTHER ASSETS 26,924,593
-----------
TOTAL ASSETS $30,770,217
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 264,218
Accrued Wages and Commissions 25,364
-----------
TOTAL CURRENT LIABILITIES 289,582
-----------
INTERDIVISIONAL PAYABLE (Note 11) 30,195,125
-----------
TOTAL LIABILITIES 30,484,707
STOCKHOLDERS' EQUITY 285,510
-----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $30,770,217
===========
(Attached notes are an integral part of this statement)
<PAGE>
KFAB-AM, KGOR-FM AND BUSINESS MUSIC SERVICE
COMBINED STATEMENTS OF OPERATIONS AND STOCKHOLDERS' EQUITY
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
1996 1995
------------------ ------------------
NET REVENUES $5,654,782 $4,811,190
OPERATING EXPENSES
Operating Expenses 2,372,277 2,455,546
Depreciation and Amortization 522,544 221,079
General and Administrative Expense 987,807 887,797
Corporate Expense 832,666 299,949
----------- -----------
TOTAL OPERATING EXPENSES 4,715,294 3,864,371
----------- -----------
INCOME FROM OPERATIONS 939,488 946,819
----------- -----------
OTHER EXPENSE
Interest Expense (1,649,200) (1,448,652)
Other (36,810) --
----------- -----------
TOTAL OTHER EXPENSE (1,686,010) (1,448,652)
----------- -----------
NET LOSS (746,522) (501,833)
STOCKHOLDERS' DEFICIENCY --
BEGINNING OF PERIOD (7,557,137) (6,847,112)
STOCKHOLDERS' DEFICIENCY SPUN OFF
PRIOR TO MERGER 8,589,169 --
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIENCY) --
END OF PERIOD $ 285,510 $(7,348,945)
=========== ===========
(Attached notes are an integral part of this statement)
<PAGE>
KFAB-AM, KGOR-FM AND BUSINESS MUSIC SERVICE
COMBINED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------
1996 1995
----------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(746,522) $(501,833)
Adjustments to Reconcile Net Loss to Net Cash
Provided (Used) by Operating Activities:
Depreciation 201,458 52,271
Amortization 321,086 168,808
(Increase) Decrease in:
Accounts Receivable (440,036) 237,715
Inventory 7,340 (19,507)
Other Receivables (71,376) 2,507
Prepaid Expenses (7,314) (746,739)
Prepaid Sports Broadcast Rights 167,339 (18,616)
Increase (Decrease) in:
Accounts Payable and Accrued Expenses 197,602 53,104
Accrued Wages and Commissions 16,746 27,878
Interdivisional Payable 221,155 998,601
Sports Broadcast Rights Payable -- (122,222)
--------- ---------
NET CASH (USED BY) OPERATING ACTIVITIES (132,522) 131,967
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Property and Equipment (136,059) (290,276)
--------- ---------
NET CASH (USED IN) INVESTING ACTIVITIES (136,059) (290,276)
--------- ---------
NET (DECREASE) IN CASH (268,581) (158,309)
CASH BEGINNING OF PERIOD 510,401 425,101
CASH SPUN OFF PRIOR TO MERGER (99,546) --
--------- ---------
CASH, END OF PERIOD $ 142,274 $ 266,792
========= =========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES
As a result of the Merger between Henry Broadcasting Company and American Radio
Systems, Inc. discussed in Note 12, KFAB-AM, KGOR-FM and Business Music Service
experienced a step up in the basis of their property and equipment and
intangibles. The basis in the property and equipment increased by $2,025,652
and the basis in the intangibles increased by $23,143,751. This transaction was
recorded through the interdivisional account discussed in Note 11.
Immediately prior to the consummation of the Merger, KFAB-AM, KGOR-FM and
Business Music Service spun off certain assets and liabilities consisting of
cash of $99,546, net accounts receivable of $1,049,522, other receivable of
$22,600, accrued expenses of $38,776, interdivisional payable of $14,335,316
and stockholders' deficiency of ($8,589,169).
(Attached notes are an integral part of this statement)
<PAGE>
KFAB-AM, KGOR-FM AND BUSINESS MUSIC SERVICE
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION
The financial statements include the accounts of KFAB-AM, KGOR-FM
and Business Music Service after eliminating all significant
interdivisional accounts and transactions. During the periods of
presentation through June 30, 1996, the divisions were owned and
operated by Henry Broadcasting Company, a California corporation
("HBC") ("Company"). Commencing July 1, 1996, the divisions were
owned and operated by American Radio Systems, Inc., a Delaware
Corporation ("ARS"). Accordingly, certain periods of presentation
reflected in these financial statements include combined
information for a period while being owned and operated by these
entities. Radio stations KFAB-AM and KGOR-FM are licensed to
Omaha, Nebraska and Business Music Service (the Company's Muzak
Division) has the exclusive Muzak Franchise for specific
territories located in Nebraska and Iowa.
B. UNAUDITED INTERIM INFORMATION
In the opinion of management, the financial statements for the
unaudited periods ended September 30, 1996 and 1995 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 nine months ended September 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.
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 multiple methods).
The following estimated useful lives are used for financial
reporting purposes:
<PAGE>
KFAB-AM, KGOR-FM AND BUSINESS MUSIC SERVICE
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
D. DEPRECIATION (Continued)
Building, Tower and Grounds 15 to 31.5 years
Leasehold Improvements 5 to 10 years
Technical Equipment 5 to 10 years
Transmitter Equipment 5 to 15 years
Computer Equipment 5 years
Furniture and Fixtures 5 to 7 years
Office Equipment 5 years
Music Library 3 to 5 years
Vehicles 3 to 5 years
Test Equipment and Tools 3 years
E. AMORTIZATION
Intangible assets 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 and Goodwill 25 to 40 years
Other 5 to 40 years
F. TRADE ACTIVITY
Commercial air time is exchanged 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. Gross trade
revenue and expense recognized by KFAB-AM and KGOR-FM were as
follows for the periods set forth below:
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1996 1995
---- ----
Revenue $233,874 $199,801
Expense $217,234 $199,801
G. 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.
<PAGE>
KFAB-AM, KGOR-FM AND BUSINESS MUSIC SERVICE
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
G. ACCOUNTING ESTIMATES (Continued)
Corporate and interest expenses are allocated among the individual
divisions on a pro rata basis. Corporate expenses were allocated
based on revenues and interest expenses were allocated based on
the cost basis of property, plant and equipment and intangible
assets. The amounts allocated to KFAB-AM, KGOR-FM and Business
Music Service have been reflected in the financial statements.
H. IMPACT OF RECENTLY ADOPTED ACCOUNTING STANDARD
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" (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
adoption of FAS 121 did not have a material impact on the
Company's results of operations, liquidity or financial position.
NOTE 2 -- DESCRIPTION OF BUSINESS
The Divisions own and operate commercial radio stations licensed to
the city of Omaha, Nebraska. In addition, the Divisions have 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.
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
September 30, 1996
------------------
Land $ 409,623
Building, Tower and Grounds 222,613
Leasehold Improvements 161,211
Technical Equipment 455,420
Transmitter Equipment 1,048,038
Computer Equipment 27,615
Furniture and Fixtures 113,284
Office Equipment 46,514
Music Library 7,083
Vehicles 68,205
Test Equipment and Tools 166,356
----------
Total Property and Equipment $2,725,962
Less: Accumulated Depreciation (57,325)
----------
Net Property and Equipment $2,668,637
==========
<PAGE>
KFAB-AM, KGOR-FM AND BUSINESS MUSIC SERVICE
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
NOTE 4 -- INTANGIBLE ASSETS
Intangible assets consist of the following:
SEPTEMBER 30, 1996
------------------
FCC Licenses $ 8,475,000
Goodwill 18,429,293
Other 172,273
-----------
$27,076,566
Less Accumulated Amortization (208,547)
-----------
$26,868,019
===========
NOTE 5 -- LONG-TERM DEBT
The secured long-term debt of HBC is not reflected in these
financial statements although interest expense has been allocated to
the divisions as discussed in Note 1G. This secured long-term debt
is secured by a pledge of all the outstanding capital stock of HBC,
and totaled $30,910,000 at June 30, 1996. On July 3, 1996, concurrent
with the closing of the Merger (discussed in Note 12) the debt
mentioned above was assumed by ARS and immediately following the
merger was retired releasing all liens on the stations. HBC was in
violation of several of its loan covenants at December 31, 1995, for
which lenders had not granted waivers.
NOTE 6 -- RELATED PARTY TRANSACTIONS
The majority stockholder loaned HBC $5,000,000 (not reflected in the
balance sheet) which bears interest at Sanwa Bank's prime rate (8.25%
at June 30, 1996 and 8.5% at December 31, 1995 and 1994) plus .75%.
The loan was subordinated to the debt discussed in Note 5. This loan
was assumed by ARS as part of the July 3, 1996 merger (discussed in
Note 12) and immediately retired. Interest expense related to this
loan totaled approximately $225,479 and $359,101 of which
approximately $121,308 and $193,555 has been allocated to KFAB-AM,
KGOR-FM and Business Music Service as interest expense for the six
months ending June 30, 1996 and for the nine months ending September
30, 1995, respectively.
In addition to the lease commitments disclosed in Note 9, HBC leased
the corporate office building from its majority stockholder on a
month-to-month basis. Rental expense for this lease was approximately
$24,000 and $78,841 of which approximately $6,278 and $20,112 has
been allocated to KFAB-AM, KGOR-FM and Business Music Service as
corporate expense for the six months ending June 30, 1996, prior to
the merger, and for the nine months ending September 30, 1995,
respectively.
During June 1996, 15 shares of HBC'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 HBC 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 HBC's corporate expense for the six
months ended June 30, 1996.
<PAGE>
KFAB-AM, KGOR-FM AND BUSINESS MUSIC SERVICE
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
NOTE 6 -- RELATED PARTY TRANSACTIONS (Continued)
Included in HBC corporate expense was $562,500 cash and $937,500
stock bonus (discussed above) paid to key employees during the six
months ending June 30, 1996. Corporate expense allocated to KFAB-AM,
KGOR-FM and Business Music Service for the above items was $360,900
for the six months ending June 30, 1996.
NOTE 7 -- EMPLOYEE BENEFIT PLAN
HBC 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 and $9,240 for 1995. HBC matches 50% of every dollar the
employee contributes up to 1% of their compensation. KFAB-AM, KGOR-FM
and Business Music Service contributed $7,126 to the plan for the six
months ending June 30, 1996 (Note 12) and $9,022 for the nine months
ended September 30, 1995.
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 HBC management on an annual basis. No such contributions
have ever been made.
NOTE 8 -- INCOME TAXES
Effective December 31, 1993, HBC 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. HBC 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 were passed through
directly to the stockholder for income tax purposes and the Company
accrues no liability for income taxes during the period the election
remains in effect, except for those states charging "S" Corporations
taxes based on income.
HBC'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 Divisions have not reflected deferred taxes or benefits
for any "S" Corporation activities. The Company had California net
operating losses ("NOL") from calendar years 1987 through 1992 of
of approximately $1,000,000 at December 31, 1995, available to offset
future "S" Corporation income allocated to California. The NOL
carryforwards at December 31, 1995 expire in 1997. HBC 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. HBC's 1995 and 1994 income tax liabilities were entirely
eliminated through the utilization of approximately $1,100,000 and
$1,800,000 of NOL carryforwards, respectively.
<PAGE>
KFAB-AM, KGOR-FM AND BUSINESS MUSIC SERVICE
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
NOTE 8 - INCOME TAXES (Continued)
HBC has available to offset future federal "C" Corporation taxable income,
NOL carryforwards of approximately $2,300,000, expiring in 2000 and investement
tax credit carryovers of approximately $45,000 also expiring in 2000.
NOTE 9 - LEASE COMMITMENTS
Administrative and studio offices, office equipment, 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 KFAB-AM, KGOR-FM and Business
Music Service was approximately $46,566 and $56,558 for the nine months ending
September 30, 1996 and 1995, respectively.
The following is a schedule by years of future minimum rental payments
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year for years ending September 30, 1996:
1997 48,196
1998 33,622
1999 26,007
2000 25,200
2001 25,200
Thereafter 64,640
--------
$222,865
========
Following the merger discussed in Note 12, ARS assumed all rights and
obligations under these agreements.
NOTE 10 - CONTINGENCIES
HBC 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 HBC's S Corporation status.
NOTE 11 - INTERDIVISIONAL PAYABLE
As discussed in Note 1A, these financial statements present only the
accounts of KFAB-AM, KGOR-FM and Business Music Service. The interdivisional
transactions which would have been eliminated had the financial statements been
prepared on a consolidated basis have resulted in an interdivisional payable
to those divisions which have not been included herein.
This payable consists primarily of KFAB-AM, KGOR-FM and Business Music
Service acquisition debt recorded on the books of the corporate division of the
Company, and interdivisional allocations of corporate and interest expenses.
<PAGE>
KFAB-AM, KGOR-FM AND BUSINESS MUSIC SERVICE
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
NOTE 12 - COMPANY MERGER
On March 21, 1996, HBC entered into a merger agreement with ARS under
which ARS would continue as the surviving corporation. Immediately prior to the
consummation of the Merger, HBC spun off certain assets and liabilities
consisting primarily of HBC's cash, accounts receivable, the business
associated with the operations of certain divisions, 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 (effective July 1, 1996) at which
time the stockholders conveyed all of the Company stock to ARS for
approximately $109 million, consisting of approximately $64 million of ARS
stock, $9 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).
NOTE 13 - SUBSEQUENT EVENT
In October, 1996, ARS entered into an agreement to sell radio stations
KGOR(FM) and KFAB-AM to Triathlon Broadcasting Company for $38 million
in cash. In addition to the two stations, this sale includes Business Music
Service, the exclusive Muzak franchise for the Nebraska and Southwestern Iowa
markets. The closing is expected to occur in the second calendar quarter of
1997.
<PAGE>
(b) Pro Forma Financial Information
The unaudited pro forma financial information of the Company which includes
radio stations acquired or to be acquired from Southern Skies and American
Radio Systems for the year ended March 31, 1996 and as at and for the six
months ended September 30, 1996 follows:
<PAGE>
TRIATHLON BROADCASTING COMPANY
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(Unaudited)
The Pro Forma Condensed Combined Balance Sheet at September 30, 1996 is
presented as if, at such date, the Company had completed the acquisitions of:
(i) KVOR-AM, KSPZ-(FM), KTWK-AM, KVUU-(FM), KEYF-(FM), KEYF-AM, KEYN-(FM),
KUDY-AM, KKZX-(FM), KEGX-(FM) and KTCR-AM (the "Pourtales Acquisition");
(ii) KZSN-(FM), KZSN-AM, KSSN-(FM) and KMVK-(FM) (the "Southern Skies
Acquisition"); (iii) KGOR-(FM), KFAB-AM and Business Music Service (the
"KGOR/KFAB Acquisition"); and (iv) KOLL-(FM) (the "KOLL Acquisition") and
received proceeds from borrowings under the credit facility obtained from
AT&T Commercial Finance Corporation ("AT&T) (the "Credit Facility"), including
amounts which will exceed the Credit Facility.
The Pro Forma Condensed Combined Statement of Operations for the year ended
March 31, 1996 and for the six months ended September 30, 1996 gives effect to
the following transactions as if they had occurred as of April 1, 1995: (i)
the acquisitions of KRBB-(FM), KFH-AM, KWSJ-(FM)(formerly KXLK-(FM)) and
KQAM-AM (the "Wichita Acquisitions"), KTGL-(FM) and KZKX-(FM) (the "Lincoln
Acquisition"), KIBZ-(FM), KKNB-(FM) and KHAT-AM (the "Rock Steady
Acquisition"), KTNP-(FM) (formerly KRRK-(FM)) (the "93.3, Inc. Acquisition"),
KXKT-(FM) (the "Valley Acquisition"), KALE-AM and KIOK-(FM) (the "Sterling
Acquisition"), KISC-(FM), KNFR-(FM) and KAQQ-AM (the "Silverado Acquisition"),
the Pourtales Acquisition, the Southern Skies Acquisition, the KGOR/KFAB
Acquisition, and the KOLL Acquisition; (ii) the initial public offering of the
Company's Class A Common Stock; (iii) the issuance of the 9% Mandatory
Convertible Preferred Stock ("Preferred Stock Offering"); and (iv) the
application of net proceeds from the Credit Facility, including amounts which
will exceed the Credit Facility.
The above acquisitions have been accounted for using the purchase method
of accounting. The total cost of each acquisition has been allocated to the
tangible and intangible assets of the stations acquired and liabilities assumed
based on their respective fair values. The allocations of the purchase price
assumed in the pro forma financial statements are preliminary. The Company does
not expect that the final allocations will materially differ from the
preliminary allocations.
<PAGE>
In the opinion of management, all adjustments necessary to fairly present
this pro forma information have been made. These Pro Forma Condensed Combined
Financial Statements have been prepared utilizing, and should be read in
conjunction with: (i) the Company's Consolidated Financial Statements as of
and for the year ended March 31, 1996 (included in the Company's Form 10KSB);
(ii) the Company's Condensed Consolidated Financial Statements as of and for
the six months ended September 30, 1996 (included in the Company's Form 10QSB;
and (iii) the historical financial statements of the sellers of the Wichita
Acquisitions (consisting of Marathon Broadcasting Corporation, KFH/KXLK, a
division of Pourtales Radio Partnership, and Midcontinent Broadcasting, Co. of
Kansas), the Lincoln Acquisition (consisting of KZKX-(FM), Inc., KTGL
Corporation, KZKX and KTGL, divisions of Pourtales Radio Partnership), the Rock
Steady Acquisition (consisting of Rock Steady, Inc.), the 93.3, Inc.
Acquisition (consisting of 93.3, Inc.), the Valley Acquisition (consisting of
Valley Broadcasting, Inc.), the Sterling Acquisition (consisting of KALE/KIOK
Radio Station, a unit of Sterling Realty Organization), the Silverado
Acquisition (consisting of KAQQ-AM, KISC-(FM) and KNFR-(FM), divisions of
Silverado Company, Inc.), the Pourtales Acquisition (consisting of Springs
Radio, Inc., KVUU/KSSS, Inc., KOTY-(FM), Inc., KEYF Corporation, Fourth Street
Broadcasting, Inc., and KTCR/KEGX, KEYF, KUDY/KKZX and KEYN, divisions of
Pourtales Radio Partnership), the KOLL Acquisition (consisting of KOLL-(FM), a
division of Southern Starr Broadcasting Group, Inc. and KOLL-(FM), a division
of Southern Starr of Arkansas, Inc.) and the Southern Skies Acquisition
(consisting of Southern Skies Corporation and Arkansas Skies Corporation) and
the KGOR/KFAB Acquisition (consisting of KGOR (FM), KFAB-AM and the Business
Music Service to be acquired from American Radio Systems), all included, as
applicable, in the Prospectus, dated March 4, 1996, the Company's Current
Report on Form 8-K/A, dated November 22, 1996, which are incorporated herein by
reference and Item 7(a) included elsewhere herein. The Company's fiscal year
ended on March 31, 1996. The fiscal year for all of the acquired stations ended
on December 31, 1995, except for Rock Steady, Inc., which ended on September
30, 1995. The pro forma information does not purport to be indicative of the
results that would have been reported had such events actually occurred on the
dates specified, nor is it indicative of the Company's future results if the
aforementioned transactions are completed.
Each of the sellers of the acquired and to be acquired radio stations has
its own historical financial and operating structures and may include or
exclude items which may affect the comparability of certain items. Management
believes that the pro forma results are a better indicator of the Company's
performance in that pro forma numbers reflect the proposed capital structure
and acquisition prices.
The Pro Forma Condensed Combined Statement of Operations data include
adjustments to station operating expenses to reflect anticipated savings that
management believes it will be able to achieve through the implementation of
its strategy. There can be no assurance that the Company will be able to
achieve such savings.
No pro forma adjustments have been made to the Pro Forma Condensed
Combined Statement of Operations for the year ended March 31, 1996, to reflect
the acquisition of KQAM-AM (one of the three stations in the Wichita
Acquisitions) because the Company has determined that the impact of such
adjustments would not have a material effect on the Company's results of
operations and financial condition.
<PAGE>
No pro forma adjustments have been made to the Pro Forma Condensed
Combined Statement of Operations for the six months ended September 30, 1996 to
reflect the Rock Steady Acquisition, the Sterling Acquisition, the 93.3, Inc.
Acquisition, the Valley Acquisition and the Silverado Acquisition for the
period prior to their respective acquisitions as the impact of such adjustments
would not have a material effect on the Company's results of operations.
No pro forma adjustments have been made to the Pro Forma Condensed Combined
Statement of Operations for the six months ended September 30, 1996 to reflect
the KOLL Acquisition as the Company has been operating the KOLL Acquisition
under a local marketing agreement since March 15, 1996 and the impact of such
adjustments would not have a material effect on the Company's results of
operations.
In order to consummate the pending acquisitions, the Company must also seek
additional financing. The amounts available under the Credit Facility and cash
on hand and from operations is not sufficient to fund the purchase price of all
of the pending acquisitions. The ability of the Company to issue certain
securities or borrow under the Credit Agreement are subject to meeting certain
financial tests. In addition, consummation of the acquisitions is subject to the
prior approval of AT&T, the lender under the Credit Agreement. There can be no
assurance that the Company's existing stations, and the stations which the
Company will acquire, will achieve the cash flow levels required to issue
certain securities or borrow under the Credit Agreement. Without additional
financing it is unlikely that the Company will be able to implement its
acquisition strategy and will lose all or part of the deposits made in
connection with the pending acquisitions.
<PAGE>
TRIATHLON BROADCASTING COMPANY
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
TRIATHLON
BROADCASTING POURTALES SOUTHERN SKIES
COMPANY ACQUISITION ACQUISITION
-------------- ------------- --------------
(HISTORICAL)
<S> <C> <C> <C>
ASSETS
Current assets ............. $17,711,187 $ 300,344 $ 1,267,220
Property and equipment, net 5,333,959 1,427,763 361,138
Intangible assets, net .... 41,408,131 5,310,479 4,404,408
Other assets ............... 7,214,755 13,678 6,832
-------------- ------------- --------------
$71,668,032 $ 7,052,264 $ 6,039,598
============== ============= ==============
LIABILITIES & STOCKHOLDERS'
EQUITY /(DEFICIT)
Current liabilities ........ $ 3,348,294 $ 593,923 $ 11,957,890
Long term liabilities ..... -- 8,422,900 7,264,671
Deferred taxes ............. 2,501,550 -- --
Deferred compensation ..... 128,745 -- --
Stockholder's equity/
(deficit) ................. 65,689,443 (1,964,559) (13,182,963)
-------------- ------------- --------------
$71,668,032 $ 7,052,264 $ 6,039,598
============== ============= ==============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
KGOR/KFAB KOLL PRO FORMA PRO FORMA
ACQUISITION ACQUISITION ADJUSTMENTS COMBINED
------------- ------------- ---------------- --------------
<S> <C> <C> <C> <C>
ASSETS
Current assets ............. $ 1,176,987 $ 215,428 $ 73,600,000 (1) $ 11,954,166
(82,317,000)(2)
Property and equipment, net 2,668,637 303,249 -- 10,150,588
Intangible assets, net .... 26,924,593 1,991,745 1,400,000 (1) 130,799,936
44,288,422 (2)
5,128,000 (2)
Other assets ............... -- -- (7,000,000)(2) 235,265
------------- ------------- ---------------- --------------
$30,770,217 $2,510,422 $ 35,099,422 $153,139,955
============= ============= ================ ==============
LIABILITIES & STOCKHOLDERS'
EQUITY/(DEFICIT)
Current liabilities ........ $ 289,582 $ 24,954 $(12,772,426)(2) $ 3,442,217
Long term liabilities ..... 30,195,125 348,958 75,000,000 (1) 75,750,000
(46,231,654)(2)
750,000 (2)
Deferred taxes ............. -- -- 5,128,000 (2) 7,629,550
Deferred compensation ..... -- -- -- 128,745
Stockholder's equity/
(deficit) ................. 285,510 2,136,510 12,752,502 (2) 66,189,443
500,000 (2)
------------- ------------- ---------------- --------------
$30,770,217 $2,510,422 $ 35,099,422 $153,139,955
============= ============= ================ ==============
</TABLE>
<PAGE>
TRIATHLON BROADCASTING COMPANY
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ACQUISITIONS
DURING THE
ACQUISITIONS SIX MONTHS
TRIATHLON PRIOR TO ENDED
BROADCASTING MARCH 31, SEPTEMBER
COMPANY 1996 30, 1996
------------ ------------ ------------
(HISTORICAL) (3) (4)
<S> <C> <C> <C>
Net revenue ......... $ 3,169,271 $4,017,524 $7,523,863
Station operating
expenses ........... 2,723,975 2,874,732 6,343,521
Depreciation and
amortization ....... 321,104 826,057 763,495
Corporate expenses . 547,891 288,000 161,000
Deferred
compensation ....... 273,369 -- --
------------ ------------ ------------
Operating income
(loss) ............. (697,068) 28,735 255,847
Interest expense ... (590,062) (72,390) (759,287)
Other income
(expense) .......... 239,740 (482,896) 89,810
------------ ------------ ------------
Income (loss) before
provision for taxes (1,047,390) (526,551) (413,630)
Provision for income
taxes .............. -- -- --
------------ ------------ ------------
Income (loss) before
extraordinary item (1,047,390) $ (526,551) $ (413,630)
------------ ------------
Preferred stock
dividend
requirement ........ (314,000)
------------
Net loss before
extraordinary item
applicable to
common shares ...... $(1,361,390)
------------
Net loss before
extraordinary item
per common share .. $ (.44)
------------
Weighted average
common shares
outstanding ........ 3,069,144
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SOUTHERN
POURTALES SKIES KOLL KGOR/KFAB PRO FORMA PRO FORMA
ACQUISITION ACQUISITION ACQUISITION ACQUISITION ADJUSTMENTS COMBINED
------------ ------------ ----------- ----------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue ......... $ 8,186,234 $ 6,970,842 $873,787 $ 7,247,040 $ (126,471)(11) $37,862,090
Station operating
expenses ........... 6,671,079 5,069,746 548,665 5,123,284 (1,904,298)(5) 27,324,233
Depreciation and (126,471)(11)
amortization ....... 1,104,098 778,107 92,906 497,364 185,319 (6) 4,568,450
Corporate expenses . 864,335 474,005 70,677 402,140 (1,008,048)(7) 1,800,000
Deferred
compensation ....... -- -- -- -- -- 273,369
------------ ------------ ----------- ----------- --------------- ------------
Operating Income
(loss) ............. (453,278) 648,984 161,539 1,224,252 2,727,027 3,896,038
Interest expense ... (164,625) (1,675,067) (43,517) (1,934,277) (2,260,775)(8) (7,500,000)
Other Income
(expense) .......... (1,468,507) 3,695 -- -- 1,857,898 (9) 239,740
------------ ------------ ----------- ----------- --------------- ------------
Income (loss) before
provision for
income taxes ....... (2,086,410) (1,022,388) 118,022 (710,025) 2,324,150 (3,364,222)
Provision for income
tax expense ........ -- -- (55,047) -- 55,047 (10) --
------------ ------------ ----------- ----------- --------------- ------------
Income (loss) before
extraordinary item $(2,086,410) $(1,022,388) $ 62,975 $ (710,025) 2,379,197 (3,364,222)
------------ ------------ ----------- ----------- ---------------
Preferred stock
dividend
requirement ........ (12) (5,507,296)
------------
Net loss before
extraordinary item
applicable to
common shares ...... $(8,871,518)
------------
Net loss before
extraordinary item
per common share .. $ (1.82)
------------
Weighted average
common shares
outstanding ........ (13) 4,887,789
</TABLE>
<PAGE>
TRIATHLON BROADCASTING COMPANY
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
TRIATHLON SOUTHERN
BROADCASTING POURTALES SKIES
COMPANY ACQUISITION ACQUISITION
-------------- -------------- -------------
(HISTORICAL)
<S> <C> <C> <C>
Net revenue ............................. $ 9,950,260 $ 923,691 $3,453,108
Station operating expenses .............. 7,028,180 811,933 2,586,076
Depreciation and amortization ........... 760,359 386,635 387,328
Corporate expenses ...................... 802,388 414,635 240,581
Non-cash compensation ................... 225,745 -- --
-------------- -------------- -------------
Operating income (loss) ................. 1,133,588 (689,512) 239,123
Interest expense ........................ (1,292,548) (67,293) (613,129)
Other income (expense) .................. 425,897 (436,809) 771
-------------- -------------- -------------
Income (loss) before provision for taxes 266,937 (1,193,614) (373,235)
Provision for income taxes .............. (54,000) -- --
-------------- -------------- -------------
Net income (loss) ....................... 212,937 $(1,193,614) $ (373,235)
-------------- -------------
Preferred stock dividend requirement ... (2,723,699)
--------------
Net loss applicable to common shares ... $(2,510,762)
--------------
Net loss per common share ............... $ (0.52)
--------------
Weighted average common shares
outstanding ............................ 4,841,600
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
KGOR/ KFAB PRO FORMA PRO FORMA
ACQUISITION ADJUSTMENTS COMBINED
------------- -------------- --------------
(4)
<S> <C> <C> <C>
Net revenue ............................. $ 3,314,208 $ 993,862 (11) $18,635,129
Station operating expenses .............. 2,012,514 (462,500)(5) 12,970,065
993,862 (11)
Depreciation and amortization ........... 432,609 317,294 (6) 2,284,225
Corporate expenses ...................... 743,062 (1,398,278)(7) 802,388
Non-cash compensation ................... -- -- 225,745
------------- -------------- --------------
Operating income (loss) ................. 126,023 1,543,484 2,352,706
Interest expense ........................ (1,202,681) (574,349)(8) (3,750,000)
Other income (expense) .................. (65,478) 501,516 (9) 425,897
------------- -------------- --------------
Income (loss) before provision for taxes (1,142,136) 1,470,651 (971,397)
Provision for income taxes .............. -- 54,000 (10) --
------------- -------------- --------------
Net income (loss) ....................... $(1,142,136) $ 1,524,651 (971,397)
------------- --------------
Preferred stock dividend requirement ... (12) (2,753,648)
--------------
Net loss applicable to common shares ... $(3,725,045)
--------------
Net loss per common share ............... $ (0.76)
--------------
Weighted average common shares
outstanding ............................ (13) 4,887,789
</TABLE>
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
BALANCE SHEET ADJUSTMENTS
(1) To reflect the proceeds from borrowings:
Credit Facility $40,000,000
Additional financing (a) 35,000,000
Less: fees and expenses (b) 1,400,000
------------
Net proceeds from financings $73,600,000
============
(a) Assumed to be borrowed utilizing the Credit Facility by
amendment.
(b) Includes fees and expenses pursuant to the Amended and
Restated SCMC Agreement of $525,000 related to the additional
financing and excludes $600,000 related to the Credit Facility
paid prior to September 30, 1996. Also excludes $800,000 of other
fees and expenses paid prior to September 30, 1996.
(2) To reflect the purchase of stations to be acquired subsequent to
September 30, 1996 and the preliminary allocation of the purchase
price including fees and expenses of $2,100,000:
Pourtales Acquisition $22,500,000(a)
Southern Skies Acquisitions 23,867,000(b)
KFAB/KGOR Acquisition 38,000,000
KOLL Acquisition 4,100,000
-----------
88,467,000
Fees and expenses 2,100,000(c)
-----------
Total $90,567,000
==============
(a) Excludes $2,000,000 deposit recorded as financing expense by the
Company during the period that the stations were operated by the
Company under a Local Marketing Agreement ("LMA") from January 16
through November 22, 1996.
(b) Includes the issuance of 46,189 shares of Class A Common Stock
valued at $500,000 and $750,000 payable pursuant to a
non-competition agreement executed by a principal of Southern
Skies.
(c) Includes fees and expenses pursuant to the Amended and Restated
SCMC Agreement of $1,327,000. Also excludes $1,300,000 of other
fees and expenses paid prior to September 30, 1996.
Deposits of $5,700,000 have been made for letters of credit which have been
posted for the acquisitions prior to September 30, 1996 and will be applied
towards the purchase price or returned to the Company at the closing.
ALLOCATION OF
PURCHASE PRICE CARRYING VALUE ADJUSTMENT
-------------- -------------- ----------
ASSETS
Current assets $2,959,979 $2,959,979
<PAGE>
ALLOCATION OF
PURCHASE PRICE CARRYING VALUE ADJUSTMENT
-------------- -------------- ----------
Property and equipment, net 4,760,787 4,760,787
Intangible assets, net 82,919,647 38,631,225 $44,288,422
Goodwill (b) 5,128,000 5,128,000
Other assets 20,510 20,510
----------- ------------ -----------
Total assets 95,788,923 46,372,501 49,416,422
LIABILITIES
Current liabilities $93,923 $ 12,866,349 $(12,772,426)
Long term debt (a) $ 46,231,654 (46,231,654)
Deferred taxes (b) 5,128,000 5,128,000
----------- ------------ ------------
Net assets $90,567,000 $(12,725,502) $103,292,502
----------- ------------ ------------
The preliminary allocation of purchase price may change upon final
determination of the fair value of the net assets acquired.
(a) to reflect the repayment of long term debt by the seller.
(b) To reflect a deferred tax liability and corresponding goodwill
based on the excess of the consideration paid over the tax basis
of the underlying assets of the stations acquired in the
Pourtales Acquisition using a 35% effective tax rate. This
assumes that the tax basis of the assets approximates the book
value of these assets prior to the acquisition. To the extent
that the tax basis is different, there would be an adjustment to
goodwill and the deferred tax liability.
STATEMENT OF OPERATIONS ADJUSTMENTS
- -----------------------------------
(3) Includes the historical results of operations for stations acquired
by the Company through March 31, 1996 for the periods prior to their
acquisition, as follows:
<TABLE>
<CAPTION>
LINCOLN
WICHITA ACQUISITIONS ACQUISITION
------------------------ ------------
COMBINED
KFH/KXLK(a) KRBB(a) KZKX/KTGL(b) TOTAL
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net Revenue .................. $ 378,580 $767,916 $2,871,028 $4,017,524
Station operating expenses .. 568,891 565,950 1,739,891 2,874,732
Depreciation and amortization 184,017 69,596 572,444 826,057
Corporate expenses ........... 72,000 -- 216,000 288,000
------------ ---------- ------------ ------------
Operating Income (loss) ..... (446,328) 132,370 342,693 28,735
Interest income .............. -- 199 -- 199
Interest expense ............. 11,227 (75,295) (8,322) (72,390)
Other income (expense) ....... -- 6,409 (489,504) (483,095)
------------ ---------- ------------ ------------
NET INCOME (LOSS) ............ $(435,101) $ 63,683 $ (155,133) $ (526,551)
============ ========== ============ ============
</TABLE>
- ------------
(a) For the period April 1, 1995 through September 12, 1995
(b) For the period April 1, 1995 through December 31, 1995
<PAGE>
(4) Includes the historical results of operations for stations acquired
by the Company during the six months ended September 30, 1996 for
the periods prior to acquisition, as follows:
<TABLE>
<CAPTION>
ROCK STEADY STERLING
ACQUISITION(a) ACQUISITION(b)
-------------- --------------
<S> <C> <C>
Net Revenue .................. $ 908,537 $ 581,234
Station operating expenses .. 1,098,992 785,603
Depreciation and amortization 66,672 33,571
Corporate expenses ........... -- --
-------------- --------------
Operating income (loss) ..... (257,127) (237,940)
Interest income .............. -- --
Interest expense ............. (126,646) (182)
Other income (expense) ....... (4,460) 11,788
-------------- --------------
NET INCOME (LOSS) ............ $ (388,233) $(226,334)
============== ==============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
93.3, INC. VALLEY SILVERADO COMBINED
ACQUISITION(b) ACQUISITION(b) ACQUISITION(b) TOTAL
-------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
NET REVENUE .................. $1,058,452 $1,732,548 $3,243,092 $7,523,863
Station operating expenses .. 756,333 1,190,716 2,511,877 6,343,521
Depreciation and amortization 52,994 129,739 480,519 763,495
Corporate expenses ........... -- -- 161,000 161,000
-------------- -------------- -------------- ------------
Operating income (loss) ..... 249,125 412,093 89,696 255,847
Interest income .............. -- -- 8,495 8,495
Interest expense ............. (53,423) (579,036) -- (759,287)
Other income (expense) ....... 7,072 67,566 (651) 81,315
-------------- -------------- -------------- ------------
NET INCOME (LOSS) ............ $ 202,774 $ (99,377) $ 97,540 $ (413,630)
============== ============== ============== ============
</TABLE>
- ------------
(a) For the 12 months ended March 31, 1996
(b) For the year ended December 31, 1995
No adjustment was included in the Pro Forma Condensed Combined Statements
of Operations for the six months ended September 30, 1996 for the
historical results prior to their acquisition for the above stations as
the impact would be immaterial on the results of operation for the six
month period.
(5) To reflect certain cost savings that are being implemented and have
been implemented as a result of the combination of stations in
markets including the elimination of certain positions, combining
duplicative general, administrative and sales responsibilities,
automation of live programming, commission reductions and facilities
cost savings and the standardization of salesperson commissions.
There can be no assurance
<PAGE>
that unforeseen developments will not prevent full realization of
the anticipated cost savings associated with the implementation of
such measures.
(6) To reflect the incremental additional amortization expense relating
to the acquisitions based on the preliminary purchase price
allocations. The actual depreciation and amortization expense may
change upon final determination of the fair value of the net assets
acquired. To the extent the tax basis is adjusted a corresponding
adjustment in amortization expense would be made.
(7) To adjust corporate general and administrative expenses to
reflect the terms of the Amended and Restated Financial Consulting
Agreement and to eliminate expenses of the acquired stations not
expected to be incurred by the Company.
(8) To adjust interest expense incurred upon the formation of the
Company and by the stations that were acquired and to reflect
interest expense including the amortization of deferred financing
costs associated with the Credit Facility and the additional
borrowing required to complete all the acquisitions.
(9) To eliminate non-operating expenses that are not expected to be
incurred by the Company.
(10) Income taxes have not been provided in that for Federal income taxes
a net operating loss would have existed during the periods
presented. State taxes are considered immaterial and have been
included in corporate general and administration expenses.
(11) To adjust for JSA/LMA fees.
(12) To reflect the full year dividend requirement for the Preferred
Stock Offering.
(13) To reflect the weighted average number of common stock outstanding
for a full year.
<PAGE>
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 thereto duly authorized.
TRIATHLON BROADCASTING COMPANY
February 4, 1997 By:/s/ Jan E. Chason
------------------------------------------
Name: Jan E. Chason
Title: Chief Financial Officer and Treasurer
