<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): August 13, 1997 (June 2,
1997)
TRIATHLON BROADCASTING COMPANY
----------------------------------------
(Exact name of registrant as specified in charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 0-26530 33-0668235
- -------------------------------- ------------------------- ----------------------
(State or Other Jurisdiction (Commission File No.) (IRS Employer
of Incorporation) Identification No.)
</TABLE>
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.
The audited combined financial statements for radio stations KFAB-AM and
KGOR-FM operating in the Omaha, Nebraska market, and the exclusive Muzak
franchise for the Omaha and Lincoln, Nebraska markets acquired from American
Radio Systems Corporation, as of and for the six months ended June 30, 1996,
as of December 31, 1996 and for the period from July 3, 1996 to December 31,
1996, and the unaudited financial information as of March 31, 1997 and for
the three month periods ended March 31, 1997 and 1996 follow.
<PAGE>
Independent Auditors' Report
Board of Directors
Henry Broadcasting Company
2277 Jerrold Avenue
San Francisco, California 94124
Members of the Board:
We have audited the accompanying balance sheet of KFAB-AM, KGOR-FM and
Business Music Service (Divisions of Henry Broadcasting Company) as of June
30, 1996, and the related statements of operations and stockholders'
deficiency and cash flows for the six months then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of KFAB-AM, KGOR-FM and
Business Music Service (Divisions of Henry Broadcasting Company) as of June
30, 1996 and the results of their operations and their cash flows for the six
months then ended, in conformity with generally accepted accounting
principles.
MILLER, KAPLAN, ARASE & CO.
North Hollywood, California
June 25, 1997
1
<PAGE>
KFAB-AM, KGOR-FM AND BUSINESS MUSIC SERVICE
(DIVISIONS OF HENRY BROADCASTING COMPANY)
BALANCE SHEET
JUNE 30, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 112,834
Accounts Receivable, Net of Allowance for Uncollectible
Accounts of $105,665 1,049,522
Other Receivables 40,801
Prepaid Expenses 43,299
-------------
TOTAL CURRENT ASSETS $ 1,246,456
-------------
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED
DEPRECIATION (Note 3) $ 700,310
-------------
OTHER ASSETS
Intangibles, Net of Accumulated Amortization (Note 4) $ 3,932,815
Inventory 90,413
Other 732
-------------
TOTAL OTHER ASSETS $ 4,023,960
-------------
TOTAL ASSETS $ 5,970,726
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 69,071
Accrued Wages and Commissions 72,092
-------------
TOTAL CURRENT LIABILITIES $ 141,153
-------------
INTERDIVISIONAL PAYABLE (Note 10) $14,335,316
-------------
COMMITMENTS (Note 9)
TOTAL LIABILITIES $14,476,479
STOCKHOLDERS' EQUITY (8,505,753)
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,970,726
=============
</TABLE>
(See Accompanying Auditors' Report)
(Attached notes are an integral part of this statement)
2
<PAGE>
KFAB-AM, KGOR-FM AND BUSINESS MUSIC SERVICE
(DIVISIONS OF HENRY BROADCASTING COMPANY)
STATEMENT OF OPERATIONS AND STOCKHOLDERS' DEFICIENCY
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
<S> <C>
NET REVENUES $ 4,037,616
--------------
OPERATING EXPENSES
Operating Expenses Excluding
Depreciation and Amortization,
and Corporate and General
and Administrative Expenses $ 1,586,697
Depreciation and Amortization 256,672
General and Administrative Expenses 703,736
Corporate Expenses 789,927
--------------
TOTAL OPERATING EXPENSES $ 3,337,032
--------------
INCOME FROM OPERATIONS $ 700,584
--------------
OTHER (EXPENSE)
Interest Expense $(1,649,200)
--------------
NET (LOSS) $ (948,616)
STOCKHOLDERS' DEFICIENCY:
BEGINNING (7,557,137)
--------------
STOCKHOLDERS' DEFICIENCY:
ENDING $(8,505,753)
==============
</TABLE>
(See Accompanying Auditors' Report)
(Attached notes are an integral part of this statement)
3
<PAGE>
KFAB-AM, KGOR-FM AND BUSINESS MUSIC SERVICE
(DIVISIONS OF HENRY BROADCASTING COMPANY)
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $(948,616)
Adjustments to Reconcile Net (Loss) to Net Cash
(Used in) Operating Activities:
Depreciation 144,133
Amortization 112,539
(Increase) Decrease in:
Accounts Receivable 568,415
Inventory (27,734)
Other Receivables (40,801)
Prepaid Expenses (23,321)
Prepaid Sports Broadcast Rights 167,339
Increase (Decrease) in:
Accounts Payable and Accrued Expenses (51,994)
Accrued Wages and Commissions (78,745)
Interdivisional Payable (160,873)
------------
NET CASH (USED IN) OPERATING ACTIVITIES $(339,658)
------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Property and Equipment $ (57,909)
------------
NET CASH (USED IN) INVESTING ACTIVITIES $ (57,909)
------------
NET (DECREASE) IN CASH $(397,567)
CASH, BEGINNING OF PERIOD 510,401
------------
CASH, END OF PERIOD $ 112,834
============
</TABLE>
(See Accompanying Auditors' Report)
(Attached notes are an integral part of this statement)
4
<PAGE>
KFAB-AM, KGOR-FM AND BUSINESS MUSIC SERVICE
(DIVISION OF HENRY BROADCASTING COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
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 among 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. Concentration of Credit Risk
Financial instruments that potentially subject the Company to
credit risk consist of accounts receivable. Concentrations of
credit risk with respect to accounts receivable is somewhat
limited due to the large number of customers comprising the
Company's customer base and their dispersion across many
different industries and geographic locations.
KFAB-AM, KGOR-FM and Business Music Service maintain bank account
balances in excess of amounts insured by the FDIC. At June 30,
1996, they had combined bank balances of approximately $353,106,
of which $253,106 exceeded the level of insurance coverage of
$100,000 per bank.
D. Depreciation
Property and equipment are stated at cost and are depreciated
over the estimated useful lives of the assets. The assets are
depreciated using the straight-line method for financial
reporting purposes. Expenditures for repairs, maintenance and
minor renewals are charged to expense as incurred.
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:
<TABLE>
<CAPTION>
<S> <C>
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
Transportation Equipment 3 to 5 years
Leasehold Improvements 5 to 10 years
</TABLE>
(See Accompanying Auditors' Report)
5
<PAGE>
KFAB-AM, KGOR-FM AND BUSINESS MUSIC SERVICE
(DIVISION OF HENRY BROADCASTING COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
NOTE 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. Inventory
Business Music Service maintains an inventory of materials for
use in sound system installations. Inventory is valued at the
lower of cost or market using the FIFO method of accounting.
F. 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:
<TABLE>
<CAPTION>
<S> <C>
FCC Licenses and Goodwill 40 years
Bargain Element of Leases Assumed 13 to 20 years
Network Affiliation Agreement 40 years
</TABLE>
G. Trade Activity
The Company exchanges commercial air time for goods and services,
as is customary in the broadcasting industry. The revenue form
such trade activity is 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 of the airtime provided.
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 assets or liabilities generally
result from barter activity. Gross trade revenue and expense
recognized by KFAB-AM and KGOR-FM were $178,889 for the six
months ended June 30, 1996. Business Music Service had no trade
activity for the six months ended June 30, 1996.
H. 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 were allocated among the
individual divisions. 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.
(See Accompanying Auditors' Report)
6
<PAGE>
KFAB-AM, KGOR-FM AND BUSINESS MUSIC SERVICE
(DIVISION OF HENRY BROADCASTING COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
NOTE 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
I. 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" (SFAS 121). SFAS 121 addresses the accounting for
the impairment of long-lived assets, certain identifiable
intangibles and goodwill when events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. SFAS 121 was adopted effective January 1, 1996. The
adoption of SFAS 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 in the business of furnishing planned
programs of music to business and commercial places.
NOTE -3 PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1996 consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Land $ 30,000
Building and Building Improvements 275,460
Towers and Transmitter Equipment 2,373,124
Studio Equipment 905,192
Equipment and Fixtures 539,076
Music Library 54,590
Transportation Equipment 118,528
Leasehold Improvements 104,085
-------------
$ 4,400,055
Less: Accumulated Depreciation (3,699,745)
-------------
Net Property and Equipment $ 700,310
=============
</TABLE>
NOTE 4 -INTANGIBLE ASSETS
Intangible assets at June 30, 1996 consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
FCC Licenses $ 3,500,000
Goodwill 145,756
Bargain Element of Leases Assumed 1,963,300
Network Affiliation Agreement 462,000
-------------
$ 6,071,056
Less Accumulated Amortization (2,138,241)
-------------
$ 3,932,815
=============
</TABLE>
(See Accompanying Auditors' Report)
7
<PAGE>
KFAB-AM, KGOR-FM AND BUSINESS MUSIC SERVICE
(DIVISION OF HENRY BROADCASTING COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
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 as discussed in Note 1H. This long-term debt is
secured by a pledge of all the outstanding capital stock of the
Company and totaled $30,910,000 at June 30, 1996. On July 3, 1996,
concurrent with the closing of the Merger (Note 11), the debt
mentioned above was assumed by American Radio Systems ("ARS") 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 June 30, 1996 for which lenders had not granted
waivers. These violations had no effect on the presentation of these
financial statements.
NOTE 6 -RELATED PARTY TRANSACTIONS
The majority stockholder loaned the Company $5,000,000 (not
reflected in the balance sheet) bearing interest at Sanwa Bank's
prime rate (8.25% at June 30, 1996) plus .75%. The loan was
subordinate to the debt discussed in Note 5. This loan was assumed
by ARS as part of the July 3, 1996 merger (Note 11) and immediately
retired. Interest expense related to this loan totaled approximately
$225,479, of which $121,308 had been allocated to KFAB-AM, KGOR-FM
and Business Music Service as interest expense for the six months
ended June 30, 1996. In addition to the lease commitments (Note 9),
the Company leases a corporate office building from the Company's
majority stockholder on a month-to-month basis. Rental expense for
this lease was $24,000, of which $6,278 had been allocated to
KFAB-AM, KGOR-FM and Business Music Service as corporate expense for
the six months ended June 30, 1996.
During June, 1996, 15 shares of the Company's $1 par common stock
were issued to key employees as a bonus. The shares were valued at
$937,500 on the date they were issued which was based on the fair
market value of the Company as determined by what ARS relinquished
as their part of the merger. The entire $937,500 was reported as
compensation to those employees and included in the Company's
corporate expense for the six months ended June 30, 1996. The
portion of the bonus allocated to KFAB-AM, KGOR-FM and Business
Music Service as corporate expense was $360,900 for the six months
ended June 30, 1996.
NOTE 7 -EMPLOYEE BENEFIT PLAN
The Company adopted a Savings and Stock Plan (the "Plan") under
Section 401(k) of the Internal Revenue Code. The 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. 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 $7,126 to the plan
for the six months ended June 30, 1996.
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 the Company's management on an annual basis. No such
contributions were made for the six months ended June 30, 1996.
(See Accompanying Auditors' Report)
8
<PAGE>
KFAB-AM, KGOR-FM AND BUSINESS MUSIC SERVICE
(DIVISION OF HENRY BROADCASTING COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
NOTE 8 -INCOME TAXES
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 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.
The Company's income is currently subject to a 1-1/2% California tax
on income apportioned to California. The Company has California net
operating losses ("NOL") from calendar years 1987 through 1992 of
approximately $1,000,000 and $3,890,000 at December 31, 1995 and
1994, respectively, available to offset future "S" Corporation
income allocated to California. The NOL carryforwards at December
31, 1995 expire in 1997.
The Company has available to offset future federal "C" Corporation
taxable income, NOL carryforwards of approximately $2,300,000,
expiring in 2000 and investment tax credit carryovers of
approximately $45,000 also expiring in 2000.
The Company computes its deferred taxes in accordance with 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.
As of June 30, 1996, the Company's net deferred tax assets (using a
California rate of 1-1/2%) consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Deferred Tax Asset $ 15,000
Deferred Tax Asset Valuation (15,000)
----------
Net Deferred Tax Asset $ --
==========
</TABLE>
The tax benefit computed at the statutory rate is due primarily to
temporary differences in revenues on construction projects reported
using the completed contract method for tax purposes, and the
percentage-of-completion method for book purposes, depreciation and
amortization calculated for book and tax purposes, and NOL
carryforwards. 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.
(See Accompanying Auditors' Report)
9
<PAGE>
KFAB-AM, KGOR-FM AND BUSINESS MUSIC SERVICE
(DIVISION OF HENRY BROADCASTING COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
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 $31,044 for the six months
ended June 30, 1996.
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 the
twelve months 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 (Note 11), ARS assumed all rights and
obligations under these agreements.
NOTE 10 -INTERDIVISIONAL PAYABLE
As discussed in Note 1A, the 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 presented in the financial statement.
The interdivisional payable consists primarily of FKAB-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 11 -COMPANY MERGER
On March 21, 1996, the Company entered into a merger agreement with
ARS under which ARS would continue as the surviving corporation.
Immediately prior to the consummation of the merger, the Company
spun off certain assets and liabilities consisting primarily of the
Company's cash, accounts receivable, the business associated with
the operations of 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 the 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 (Notes 5 and
6).
(See Accompanying Auditors' Report)
10
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
American Radio Systems Corporation
We have audited the accompanying combined balance sheet of KFAB-AM, KGOR-FM and
Business Music Service (Divisions of American Radio Systems Corporation) (the
"Divisions") as of December 31, 1996 and the related combined statements of
operations and cash flows for the period from July 3, 1996 (date of
acquisition) to December 31, 1996. These financial statements are the
responsibility of the Division's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of KFAB-AM, KGOR-FM and
Business Music Service (Divisions of American Radio Systems Corporation) as of
December 31, 1996, and the combined results of their operations and their cash
flows for the period from July 3, 1996 (date of acquisition) to December 31,
1996, in conformity with generally accepted accounting principles.
Ernst & Young LLP
New York, New York
June 2, 1997
<PAGE>
KFAB-AM, KGOR-FM AND
BUSINESS MUSIC SERVICE
(DIVISIONS OF AMERICAN RADIO SYSTEMS CORPORATION)
COMBINED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash $ 162,042
Accounts receivable, net of allowance for doubtful accounts of
$54,239 1,337,963
Inventory 106,378
Prepaid expenses and other current assets 18,043
-------------
Total current assets 1,624,426
-------------
Property and equipment, less accumulated depreciation and
amortization 2,638,147
Intangible assets, less accumulated amortization 35,361,853
-------------
Total assets $39,624,426
=============
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 195,151
Accrued wages and commissions 92,873
Deferred income 19,334
Interdivisional payable 33,330,162
Taxes payable 347,722
-------------
Total current liabilities 33,985,242
Deferred tax liability 5,240,577
Divisional equity 398,607
-------------
Total liabilities and divisional equity $39,624,426
=============
</TABLE>
See accompanying notes to combined financial statements.
2
<PAGE>
KFAB-AM, KGOR-FM AND
BUSINESS MUSIC SERVICE
(DIVISIONS OF AMERICAN RADIO SYSTEMS CORPORATION)
COMBINED STATEMENT OF OPERATIONS
PERIOD FROM JULY 3, 1996 (DATE OF ACQUISITION) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Gross revenue $3,907,876
Less: agency commission 390,558
------------
Net revenue 3,517,318
Operating expenses:
Divisional expenses 1,659,592
General and administrative 583,107
Depreciation and amortization 532,394
Corporate expenses 81,464
------------
Total operating expenses 2,856,557
------------
Income from operations 660,761
Other income 85,568
------------
Income before provision for income taxes 746,329
Provision for income taxes 347,722
------------
Net income $ 398,607
============
</TABLE>
See accompanying notes to combined financial statements.
3
<PAGE>
KFAB-AM, KGOR-FM AND
BUSINESS MUSIC SERVICE
(DIVISIONS OF AMERICAN RADIO SYSTEMS CORPORATION)
COMBINED STATEMENT OF CASH FLOWS
PERIOD FROM JULY 3, 1996 (DATE OF ACQUISITION) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 398,607
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 532,394
Changes in current assets and current liabilities:
Increase in accounts receivable (1,337,963)
Increase in inventory (106,378)
Increase in prepaid expenses and other current assets (6,350)
Increase in accounts payable and accrued expenses 180,529
Increase in accrued wages and commissions 92,873
Increase in deferred income 19,334
Increase in taxes payable 347,722
-------------
Net cash provided by operating activities 120,768
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (33,005)
-------------
Net cash used in investing activities (33,005)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in interdivisional payable 74,279
-------------
Net cash provided by financial activities 74,279
-------------
Net increase in cash 162,042
Cash at July 3, 1996 --
-------------
Cash at December 31, 1996 $ 162,042
=============
</TABLE>
See accompanying notes to combined financial statements.
4
<PAGE>
KFAB-AM, KGOR-FM AND
BUSINESS MUSIC SERVICE
(DIVISIONS OF AMERICAN RADIO SYSTEMS CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. NATURE OF BUSINESS AND ORGANIZATION
On July 3, 1996, American Radio Systems Corporation (the "Company") acquired
radio stations KFAB-AM and KGOR-FM (the "Stations") operating in the Omaha,
Nebraska market and the exclusive Muzak franchise (the "Business Music
Service") for the Omaha and Lincoln, Nebraska markets (collectively, the
"Divisions") from Henry Broadcasting Company ("Henry"). The Divisions were
acquired as part of a merger between Henry and the Company whereby the Company
continued as the surviving corporation. The acquisitions were accounted for
under the purchase method of accounting; accordingly, the cost to acquire the
Divisions has been preliminarily allocated to the net assets acquired and
liabilities assumed in proportion to estimates of their respective values as
follows: $2,719,792 property and equipment; $8,475,000 FCC license; $27,304,597
goodwill and other intangibles; and $5,240,577 deferred tax liability. The
Company owns and operates several other ratio stations and accounts for the
activities of the Stations and the Business Music Service as separate
divisions. The accompanying financial statements include the combined financial
position, results of operations and cash flows of the Stations and the Business
Music Service after eliminating all significant interdivisional accounts and
transactions between the Divisions; as they are under common control and
subject to the sale described below.
On June 2, 1997, the Company consummated the sale of the Divisions to
Triathlon Broadcasting Company for approximately $38.0 million in cash.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenues are recognized when advertisements are broadcast and transmitting
services are provided. Expenses are recognized when incurred. Gross revenues
include approximately $174,000 related to revenues generated from the Business
Music Service for the period from July 3, 1996 to (date of acquisition)
December 31, 1996.
5
<PAGE>
KFAB-AM, KGOR-FM AND
BUSINESS MUSIC SERVICE
(DIVISIONS OF AMERICAN RADIO SYSTEMS CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated using the
straight line method over their estimated useful lives varying from three to
thirty-two years. Expenditures for maintenance and repairs are charged to
operations as incurred.
INTANGIBLE ASSETS
Intangible assets include the portion of the Division's purchase price
allocable to Federal Communication Commission licenses ("FCC Licenses"),
goodwill and other intangibles, which are amortized on a straight-line method
over 25 to 40 years.
It is the Company's policy to account for intangible assets at the lower of
amortized cost or net realizable value. As part of an ongoing review of the
valuation and amortization of intangible assets, management assesses the
carrying value of the Company's intangible assets if facts and circumstances
suggest that they may be impaired. If this review indicates that the
intangibles will not be recoverable as determined by a non-discounted cash
flow analysis over the remaining amortization period, the carrying value of
the Company's intangible assets would be reduced to its estimated realizable
value.
BARTER TRANSACTIONS
Revenue from barter transactions (advertising provided in exchange for goods
and services) is recognized as income based on the fair value of goods or
services received when advertisements are broadcast; goods and services
received are accounted for when used. Barter revenue and expense included in
the statement of operations for the period from July 3, 1996 (date of
acquisition) to December 31, 1996 includes approximately $131,000 and $100,000,
respectively.
6
<PAGE>
KFAB-AM, KGOR-FM AND
BUSINESS MUSIC SERVICE
(DIVISIONS OF AMERICAN RADIO SYSTEMS CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS
The Company expenses advertising costs related to the Stations and the Business
Music Service as they are incurred. Advertising expense amounted to
approximately $86,000 for the period from July 3, 1996 (date of acquisition) to
December 31, 1996.
INVENTORY
Inventory consisting of sound equipment for the Business Music Service is
valued at the lower of costs or market using the first in, first out method.
INCOME TAXES
Income taxes have been provided on a separate company basis using the
liability method in accordance with Statement of Financial Accounting
Standard No. 109, "Accounting for Income Taxes."
USE OF 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.
7
<PAGE>
KFAB-AM, KGOR-FM AND
BUSINESS MUSIC SERVICE
(DIVISIONS OF AMERICAN RADIO SYSTEMS CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RISKS AND UNCERTAINTIES
Financial instruments which potentially subject the Company to concentrations
of credit risk consist primarily of trade receivables. The Company's revenue
is principally derived from broadcast advertisers and Muzak customers within
the Omaha and Lincoln, Nebraska area who are impacted by the local economy.
The Company routinely assesses the financial strength of its customers and
does not require collateral or other security to support customer
receivables. Credit losses are provided for in the combined financial
statements in the form of an allowance for doubtful accounts.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Land $ 409,623
Building and improvements 384,020
Furniture and fixtures 213,439
Broadcasting and technical equipment 1,677,510
Vehicles 68,205
-----------
2,752,797
Less accumulated depreciation and amortization (114,650)
-----------
$2,638,147
===========
</TABLE>
8
<PAGE>
KFAB-AM, KGOR-FM AND
BUSINESS MUSIC SERVICE
(DIVISIONS OF AMERICAN RADIO SYSTEMS CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
4. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
FCC Licenses $ 8,475,000
Goodwill and other
intangibles 27,304,597
------------
35,779,597
Less accumulated amortization (417,744)
------------
$35,361,853
============
</TABLE>
5. INTERDIVISIONAL TRANSACTIONS
As discussed in Note 1, the accompanying combined financial statements
present only the accounts of the Stations and the Business Music Service. The
interdivisional transactions which would have been eliminated had these
combined financial statements been prepared on a consolidated basis with the
Company have resulted in an interdivisional payable to those divisions or the
Company which have not been included herein.
This payable consists primarily of the Stations and the Business Music
Service acquisition debt recorded on the books of the Company, and
interdivisional allocations of costs and expenses.
The Company charges the Divisions for operational expenses such as payroll
taxes, corporate overhead, and insurance premiums paid on the Station's and
the Business Music Services' behalf; management is of the opinion that the
amount allocated to the Divisions are based on a reasonable allocation
method. The Stations and the Business Music Service remit excess cash to the
Company in order to reimburse it for these expenditures and to repay amounts
funded by the Company for the original purchase. All of these transactions
are conducted on the interest free basis. The interdivisional payable for the
six months ended December 31, 1996 is analyzed below:
<TABLE>
<CAPTION>
<S> <C>
Balance at July 3, 1996 $33,255,883
Allocation of costs to the Divisions 1,711,902
Cash transfers to the Company (1,637,623)
-------------
Balance at December 31, 1996 $33,330,162
=============
</TABLE>
9
<PAGE>
KFAB-AM, KGOR-FM AND
BUSINESS MUSIC SERVICE
(DIVISIONS OF AMERICAN RADIO SYSTEMS CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
6. INCOME TAXES
The provision for income taxes for the period from July 3, 1996 (date of
acquisition) to December 31, 1996 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Current:
Federal $296,989
State and local 50,733
----------
$347,722
==========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the deferred tax liability are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
--------------
<S> <C>
Deferred tax assets:
Property and equipment $ 681,572
Deferred tax liabilities:
FCC licenses and other
intangibles 5,922,149
--------------
Net deferred tax liability $5,240,577
==============
</TABLE>
A reconciliation of income taxes attributable to continuing operations
computed at the United States Federal Statutory rates to income taxes
provided for is as follows:
<TABLE>
<CAPTION>
<S> <C>
Amount computed using statutory rate $261,215
Goodwill amortization 57,076
State taxes, net of federal benefit 29,431
----------
$347,722
==========
</TABLE>
10
<PAGE>
KFAB-AM, KGOR-FM AND
BUSINESS MUSIC SERVICE
(DIVISIONS OF AMERICAN RADIO SYSTEMS CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
7. LEASE COMMITMENTS
The Company is committed to non-cancellable operating leases covering its
antenna, office and studio facility located near Omaha, Nebraska which expire
over the next nine years.
The Company incurred rental charges of approximately $18,000 for the period
from July 3, 1996 (date of acquisition) to December 31, 1996.
The minimum aggregate annual rental payments under non-cancellable operating
leases are payable as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 27,600
1998 27,600
1999 28,600
2000 30,600
2001 30,600
Thereafter 87,200
---------
$232,200
=========
</TABLE>
8. RETIREMENT PLAN
The Company maintains a 401(k) employee savings plan (the "401(k) plan")
that covers substantially all employees, subject to certain minimum age and
length-of-employment requirements. Under the 401(k) plan, the Divisions match
30% of participants' contributions up to 5% of compensation. The Divisions
contributed approximately $8,200 to the 401(k) plan for the period from July
3, 1996 (date of acquisition) to December 31, 1996.
11
<PAGE>
KFAB-AM, KGOR-FM AND
BUSINESS MUSIC SERVICE
COMBINED BALANCE SHEET
(UNAUDITED)
MARCH 31, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets $ 1,289,254
Property and equipment, net 2,796,100
Intangible assets, net 35,203,900
Other assets 164,392
-------------
$39,453,646
=============
LIABILITIES AND DIVISIONAL
EQUITY
Interdivisional payable $33,253,375
Other current liabilities 391,931
Deferred tax liability 5,240,577
Divisional equity:
Balance at December 31,
1996 398,607
Net income 169,156
-------------
Balance at March 31, 1997 567,763
-------------
$39,453,646
=============
</TABLE>
See notes to Combined Financial Statements.
<PAGE>
KFAB-AM, KGOR-FM AND
BUSINESS MUSIC SERVICE
COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
------------ ------------
<S> <C> <C>
Net revenue $1,556,905 $2,215,295
Divisional operating expenses 982,618 1,193,623
Corporate expenses 36,659 394,964
Depreciation and amortization 266,197 128,336
------------ ------------
Income from operations 271,431 498,372
Interest expense -- 824,600
Income (loss) before provision
for income taxes 271,431 (326,228)
Provision for income taxes 102,275 --
------------ ------------
Net income (loss) $ 169,156 $ (326,228)
============ ============
</TABLE>
See notes to Combined Financial Statements.
<PAGE>
KFAB-AM,KGOR-FM AND BUSINESS MUSIC SERVICE
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1997 1996
----------- -----------
<S> <C> <C>
Net cash provided by (used in) operating activities $ 122,782 $ (38,536)
Net cash used in investing activities-Plant & Equipment (115,282) --
Net cash (used in) provided by financing activities-
Interdivisional Payable (76,787) 156,784
----------- -----------
Net (decrease) increase in cash (69,287) 118,248
Cash at beginning of period 162,042 510,401
----------- -----------
Cash at end of period $ 92,755 $ 628,649
=========== ===========
</TABLE>
See notes to combined financial statements
Page 1
<PAGE>
KFAB-AM, KGOR-FM AND
BUSINESS MUSIC SERVICE
NOTES TO COMBINED FINANCIAL STATEMENTS--UNAUDITED
1. NATURE OF BUSINESS AND ORGANIZATION
On July 3, 1996, American Radio Systems Corporation (the "Company") acquired
radio stations KFAB-AM and KGOR-FM (the "Stations") operating in the Omaha,
Nebraska market and the exclusive Muzak franchise (the "Business Music
Service") for the Omaha and Lincoln, Nebraska markets (collectively, the
"Divisions") from Henry Broadcasting Company ("Henry"). The Divisions were
acquired as part of a merger between Henry and the Company whereby the
Company continued as the surviving corporation.
The accompanying combined financial statements include the combined financial
position, results of operations and cash flows of the Divisions which, for
the 1997 periods relates to the Company and for the 1996 periods relate to
Henry. In addition, all significant interdivisional accounts and transactions
between the Divisions have been eliminated as they have been under common
control and are subject to the sale described below.
On June 2, 1997, the Company consummated the sale of the Divisions to
Triathlon Broadcasting Company for $38 million in cash.
2. BASIS OF PRESENTATION
The accompanying unaudited combined financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. 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 adjustments) considered
necessary for a fair presentation have been included. Operating results for
an interim period are not necessarily indicative of the results that may be
expected for a full year.
<PAGE>
(b) Pro Forma Financial Information
The unaudited pro forma financial information of the Company for the year ended
December 31, 1996 and as of and for the three months ended March 31, 1997
follows:
<PAGE>
TRIATHLON BROADCASTING COMPANY
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The Pro Forma Condensed Combined Balance Sheet as of March 31, 1997 is
presented as if, at such a date, the Company had completed the acquisition of
radio stations KSSN-FM and KMVK-FM (the "Southern Skies Little Rock
Acquisition"), KOLL-FM (the "KOLL Acquisition"), KFAB-AM and KGOR-FM with the
exclusive Muzak franchise for the Lincoln and Omaha, Nebraska markets (the
"KFAB/KGOR Acquisition"), received proceeds from additional borrowings under
the Company's credit facility with AT&T Commercial Finance Corporation and
Union Bank of California, N.A. (the "Credit Facility"), and received proceeds
from the subsequent sale of KSSN-FM, KMVK-FM and KOLL-FM (the "Little Rock
Disposition").
The Pro Forma Condensed Combined Statements of Operations for the year ended
December 31, 1996 and for the three months ended March 31, 1997 gives effect to
the following transactions as if they had occurred as of January 1, 1996: (i)
the acquisitions of 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"), KVOR-AM, KSPZ-FM, KTWK-AM, KVUU-FM, KEYF-AM, KEYF-FM,
KEYN-FM, KUDY-AM, KKZX-FM, KEGX-FM and KTCR-AM (the "Pourtales Acquisition"),
KZSN-FM and KZSN-AM (the "Southern Skies Wichita Acquisition" and together with
the Southern Skies Little Rock Acquisition, the "Southern Skies Acquisition"),
the KFAB/KGOR Acquisition; (ii) the Little Rock Disposition; and (iii) the
financing and other costs of the acquisitions.
No adjustments have been made to the Pro Forma Condensed Combined Statements
of Operations to reflect the Southern Skies Little Rock Acquisition since the
related stations are subject to the Little Rock Disposition. The Company has
been operating KOLL-FM under a local marketing agreement since March 15,
1996, therefore the Pro Forma Condensed Combined Statements of Operations
eliminate such operations which are subject to the Little Rock Disposition.
No adjustments have been made to the Pro Forma Condensed Combined Financial
Statements for the acquisition of Pinnacle Sports Productions, LLC as such
transaction was deemed to be immaterial.
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. The Southern Skies Little Rock Acquisition
which closed on April 25, 1997 was the subject of an agreement, as amended,
dated November 26, 1996 which also included the acquisition of two radio
stations in Wichita, Kansas which closed in January 1997. See Note 2 to the
Pro Forma Condensed Combined Balance Sheet for reallocation of amounts
recorded by the Company for the Southern Skies Wichita Acquisition. The
KFAB/KGOR Acquisition which closed on June 2, 1997, was the subject of
an agreement dated October 6, 1996.
<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 December 31, 1996 (including in the Company's Transition
Report on Form 10KSB); (ii) the Company's Condensed Consolidated Financial
Statements as of and for the three months ended March 31, 1997 (included in the
Company's Form 10QSB; and (iii) the historical financial statements of the
sellers of 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
Broadcasting 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), the
KFAB/KGOR Acquisition (consisting of KFAB-AM, KGOR-FM and Business Music
Service, divisions of Henry Broadcasting Company and KFAB-AM, KGOR-FM and
Business Music Service, divisions of American Radio Systems Corporation) and
all included, as applicable, in the Prospectus, dated March 4, 1996, and Item
7(a) included elsewhere herein. 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 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.
<PAGE>
TRIATHLON BROADCASTING COMPANY
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
MARCH 31, 1997
<TABLE>
<CAPTION>
TRIATHLON
BROADCASTING KFAB/KGOR PRO FORMA PRO FORMA
COMPANY ACQUISITION ADJUSTMENTS COMBINED
-------------- -------------- --------------- --------------
(HISTORICAL) (HISTORICAL)
<S> <C> <C> <C> <C>
ASSETS
Current assets $ 7,608,000 $ 1,289,254 $ 46,200,000 (1)$ 10,921,382
(6,822,159)(2)
(36,064,459)(4)
(1,289,254)(4)
Property and equipment, net 7,737,000 2,796,100 10,533,100
Intangible assets, net 76,566,000 35,203,900 1,300,000 (1) 110,410,248
(2,516,111)(2)
(958,000)(1)
814,459 (4)
Assets held for sale 20,000,000 (2) --
(20,000,000)(3)
Other assets 13,807,000 164,392 (10,480,839)(2) 576,161
(2,750,000)(4)
(164,392)(4)
-------------- -------------- --------------- --------------
$105,718,000 $ 39,453,646 $(12,730,755) $132,440,891
============== ============== =============== ==============
LIABILITIES & STOCKHOLDERS'
EQUITY
Current liabilities $ 4,660,000 $ 391,931 $ (447,005)(2)$ 4,212,995
(391,931)(4)
Long term liabilities 30,358,000 47,500,000 (1) 57,858,000
(20,000,000)(3)
Interdivisional payable 33,253,375 (33,253,375)(4) --
Non-compete payable 300,000 375,000 (2) 675,000
Deferred taxes 7,630,000 5,240,577 (5,240,577)(4) 7,630,000
Deferred compensation 96,000 96,000
Stockholders' equity 62,674,000 567,763 (958,000)(1) 61,968,896
252,896 (2)
(567,763)(4)
-------------- -------------- --------------- --------------
$105,718,000 $ 39,453,646 $(12,730,755) $132,440,891
============== ============== =============== ==============
</TABLE>
<PAGE>
TRIATHLON BROADCASTING COMPANY
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
TRIATHLON SOUTHERN
BROADCASTING SKIES WICHITA KFAB/KGOR LITTLE ROCK PRO FORMA PRO FORMA
COMPANY ACQUISITION ACQUISITION DISPOSITION ADJUSTMENTS COMBINED
-------------- --------------- ------------- ------------- ------------- --------------
(HISTORICAL) (6) (7) (8)
<S> <C> <C> <C> <C> <C> <C>
Net revenue $ 5,660,780 $46,397 $1,556,905 $224,321 $ 7,039,761
Station operating expenses 4,406,149 34,698 982,618 208,556 5,214,909
Depreciation and amortization 751,671 -- 266,197 274 262,556 (9) 1,280,150
Corporate expenses 490,400 -- 36,659 -- 527,059
Deferred compensation 100,464 -- -- -- 100,464
-------------- --------------- ------------- ------------- ------------- --------------
Operating income (loss) (87,904) 11,699 271,431 15,491 (262,556) (82,821)
Interest expense (764,123) -- -- (87,304) (558,994)(11) (1,235,813)
Other income 194,623 -- -- -- 194,623
-------------- --------------- ------------- ------------- ------------- --------------
Income (loss) before provision
for taxes (657,404) 11,699 271,431 (71,813) (821,550) (1,124,011)
Provision for income taxes -- -- 102,275 -- (102,275)(16) --
-------------- --------------- ------------- ------------- ------------- --------------
Net income (loss) (657,404) $11,699 $ 169,156 $(71,813) $(719,275) (1,124,011)
=============== ============= ============= =============
Preferred stock dividend
requirement (1,376,824) (1,376,824)
-------------- --------------
Net loss applicable to common
shares $(2,034,228) $(2,500,835)
============== ==============
Net loss per common share $ (0.42) $ (0.51)
============== ==============
Weighted average common shares
outstanding 4,861,568 (15) 4,887,789
</TABLE>
<PAGE>
TRIATHLON BROADCASTING COMPANY
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ACQUISITIONS
TRIATHLON DURING THE YEAR SOUTHERN
BROADCASTING ENDED DECEMBER SKIES WICHITA
COMPANY 31, 1996 ACQUISITION
-------------- --------------- ---------------
(HISTORICAL) (5) (6)
<S> <C> <C> <C>
Net revenue $18,963,101 $ 3,434,842 $2,687,337
Station operating
expenses 13,678,117 3,087,384 1,889,942
Depreciation and
amortization 1,426,759 875,367 69,515
Corporate expenses 1,719,283 448,571 --
Deferred
compensation 365,992 -- --
DOJ information
costs 300,000 -- --
-------------- --------------- ---------------
Operating income
(loss) 1,472,950 (976,480) 727,880
Interest expense (2,581,423) (188,938) (348,326)
Other income
(expense) 669,637 (635,633) (486,829)
-------------- --------------- ---------------
Income (loss)
before provision
for taxes (438,836) (1,801,051) (107,275)
Provision for
income taxes -- -- --
-------------- --------------- ---------------
Income (loss)
before
extraordinary
item (438,836) $(1,801,051) $ (107,275)
=============== ===============
Preferred stock
dividend
requirement (4,414,523)
--------------
Net loss before
extraordinary
item applicable
to common shares $(4,853,359)
==============
Net loss before
extraordinary
item per common
share $ (0.97)
==============
Weighted average
common shares
outstanding 4,841,600
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
LITTLE
KFAB/KGOR ROCK PRO FORMA PRO FORMA
ACQUISITION DISPOSITION ADJUSTMENTS COMBINED
------------- ------------- --------------- --------------
(7) (8)
<S> <C> <C> <C> <C>
Net revenue $ 7,554,934 $797,284 $ (296,221)(13)$31,546,709
Station operating
expenses 4,533,132 623,456 (296,221)(13) 22,268,898
Depreciation and
amortization 789,066 273 1,579,063 (9) 4,739,497
Corporate expenses 871,391 -- (1,139,245)(10) 1,900,000
Deferred
compensation -- -- 365,992
DOJ information
costs -- -- 300,000
------------- ------------- --------------- --------------
Operating income
(loss) 1,361,345 173,555 (439,818) 1,972,322
Interest expense (1,649,200) -- (2,180,919)(11) (6,948,806)
Other income
(expense) 85,568 -- 1,036,894 (12) 669,637
------------- ------------- --------------- --------------
Income (loss)
before provision
for taxes (202,287) 173,555 (1,583,843) (4,306,847)
Provision for
income taxes 347,722 -- (347,722)(16) --
------------- ------------- --------------- --------------
Income (loss)
before
extraordinary
item $ (550,009) $173,555 $(1,236,121) (4,306,847)
============= ============= ===============
Preferred stock
dividend
requirement (14) (5,507,296)
--------------
Net loss before
extraordinary
item applicable
to common shares $ (9,814,143)
==============
Net loss before
extraordinary
item per common
share $ (2.01)
==============
Weighted average
common shares
outstanding (15) 4,887,789
</TABLE>
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
BALANCE SHEET ADJUSTMENTS
(1) To reflect the net proceeds from additional borrowings under the Company's
Credit Facility:
<TABLE>
<CAPTION>
<S> <C>
Proceeds from the Credit Facility $47,500,000
Fees and expenses (a) 1,300,000
-----------
Net proceeds from the Credit Facility $46,200,000
===========
</TABLE>
(a) Includes fees and expenses payable to the Sillerman Companies of $600,000.
In connection with the Company's Credit Facility, the Company wrote off
$958,000 of deferred financing costs related to the old credit facility.
(2) To reflect the purchase price of approximately $20 million for Southern
Skies Little Rock Acquisition and KOLL Acquisition. The aggregate purchase
price includes fees and expenses of $652,865, including fees to The Sillerman
Companies of $239,500. Consideration for the radio stations included the
issuance of 23,725 shares of the Company's Class A Common Stock valued at
$252,896 and a note for $375,000 payable over five years. Deposits and advances
to the sellers aggregating approximately $10.5 million were also applied
against the amounts due at closing. Adjustments to Current Assets of
$6,822,159, Intangible Assets of $2,516,111, Current Liabilities of $447,005
have been made in order to reclassify all assets in the Little Rock Market as
Assets Held for Sale. The Company has also reallocated a portion of amounts
previously recorded in connection with the Southern Skies Wichita Acquisition
to the purchase price of the Southern Skies Little Rock Acquisition, in
accordance with generally accepted accounting principles, to reflect
the subsequent sales price of the radio stations so that no gain or loss will
be recognized in connection with the disposition of this part of the Southern
Skies Acquisition or on the sale of KOLL-FM.
(3) To reflect the proceeds to be received from the Little Rock Disposition,
which will be applied to amounts outstanding under the Credit Facility.
(4) To reflect the purchase price of approximately $39 million for the radio
stations subject to the KFAB/KGOR Acquisition. The aggregate purchase price
includes fees and expenses of $814,459, including fees to The Sillerman
Companies of $570,000. A deposit and advanced payments of $2,750,000 has
been paid by the Company in connection with the KFAB/KGOR Acquisition and was
applied towards the purchase price and related expenses.
A preliminary allocation of the purchase price follows:
<TABLE>
<CAPTION>
KFAB/KGOR
Allocation of Acquisition
Purchase Price (Historical) Adjustments
-------------- ------------ -----------
<S> <C> <C> <C>
ASSETS:
Current assets $ -- $ 1,289,254 $ (1,289,254)
Property and equipment, net 2,796,100 2,796,100 --
Intangible assets, net 36,018,359 35,203,900 814,459
Other assets -- 164,392 (164,392)
----------- ----------- ------------
Total assets 38,814,459 39,453,646 (639,187)
LIABILITIES:
Current liabilities -- 391,931 (391,931)
Interdivisional payable -- 33,253,375 (33,253,375)
Deferred taxes -- 5,240,577 (5,240,577)
----------- ----------- ------------
Net assets $38,814,459 $ 567,763 $(38,246,696)
----------- ----------- ------------
Divisional equity $ 567,763 $ (567,763)
=========== ============
</TABLE>
- 5 -
<PAGE>
STATEMENT OF OPERATIONS ADJUSTMENTS
(5) Includes the historical results of operations for stations acquired by
the Company during the year ended December 31, 1996, for periods prior to
their acquisition, as follows:
<TABLE>
<CAPTION>
LINCOLN ROCK STEADY 93.3 INC. VALLEY
ACQUISITION(A) ACQUISITION(B) ACQUISITION(C) ACQUISITION(C)
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net revenue ............... $151,856 $353,297 $150,460 $338,119
Station operating
expenses.................. 109,942 330,054 125,311 212,794
Depreciation and
amortization ............. 39,556 47,963 28,704 50,366
Corporate expenses ........ -- -- -- --
-------------- -------------- ------------- --------------
Operating income (loss) .. 2,358 (24,720) (3,555) 74,959
Interest expense .......... (489) (60,919) -- --
Other income (expense) ... (17,806) 2,593 -- --
-------------- -------------- ------------- --------------
Net income (loss) ......... $(15,937) $(83,046) $ (3,555) $ 74,959
============== ============== ============= ==============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
STERLING SILVERADO POURTALES
ACQUISITION(D) ACQUISITION(E) ACQUISITION TOTAL
-------------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenue ............... $117,530 $ 433,825 $ 1,889,755 $3,434,842
Station operating
expenses.................. 203,345 424,221 1,681,717 3,087,384
Depreciation and
amortization ............. 11,007 119,379 578,392 875,367
Corporate expenses ........ -- -- 448,571 448,571
------------ ------------- ------------- -----------
Operating income (loss) .. (96,822) (109,775) (818,925) (976,480)
Interest expense .......... -- -- (127,530) (188,938)
Other income (expense) ... -- 1,245 (621,665) (635,633)
------------ ------------- ------------- -----------
Net income (loss) ......... $(96,822) $(108,530) $(1,568,120) $1,801,051
============ ============= ============= ===========
</TABLE>
- ------------
(a) For the period from January 1, 1996 through January 23, 1996.
(b) For the period from January 1, 1996 through June 12, 1996.
(c) For the period from January 1, 1996 through April 9, 1996.
(d) For the period from January 1, 1996 through April 18, 1996.
(e) For the period from January 1, 1996 through February 29, 1996.
(f) For the period from January 1, 1996 through November 21, 1996.
(6) Represents the historical results of operations for stations acquired by
the Company on January 9, 1997 pursuant to the Southern Skies Wichita
Acquisition, for periods prior to their acquisition.
(7) Represents the historical results of operations for stations and
the exclusive MUZAK franchise acquired by the Company on May 30,
1997 pursuant to the KFAB/KGOR Acquisition, for periods prior
to their acquisition.
(8) Represents elimination of the historical results of operations of
KOLL-(FM) which the Company has been operating under a local marketing
agreement since March 15, 1996. This station will be sold in connection
with the Little Rock Disposition.
- 6 -
<PAGE>
(9) 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.
(10) To adjust corporate expenses to reflect the incremental corporate
office costs for a larger station group for an entire year, offset by
the elimination of expenses of the acquired stations not expected to
be incurred by the Company.
(11) To adjust interest expense to reflect outstanding borrowings for
entire period. Proceeds from the Little Rock Disposition will be used
to reduce debt, and therefore, interest expense has been adjusted
accordingly.
(12) To eliminate non-operating expenses that are not expected to be
incurred by the Company.
(13) To adjust for JSA/LMA fees.
(14) To reflect the full year dividend requirement for the Company's
preferred stock.
(15) To reflect the weighted average number of common stock outstanding
for a full year.
(16) 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 expenses.
- 7 -
<PAGE>
EXHIBITS
23.1. Consent of Ernst & Young LLP, Independent Accountants
23.2. Consent of Miller Kaplan Arase & Co
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
August 13, 1997 By: /s/ Norman Feuer
------------------------------
Name: Norman Feuer
Title: Chief Executive Officer
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 333-21267) of Triathlon Broadcasting Company (the "Company")
and in the related Prospectus of our report dated May 30, 1997, with respect
to the combined financial statements of KFAB-AM, KGOR-FM and Business Music
Service (Divisions of American Radio Systems Corporation) included in this
Current Report on Form 8-K/A of the Company, filed with the Securities and
Exchange Commission.
ERNST & YOUNG LLP
New York, New York
August 11, 1997
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion of our report dated June 25, 1997 with respect
to the balance sheet of KFAB-AM, KGOR-FM and Business Music Service,
divisions of Henry Broadcasting Company as of June 30, 1996, and the related
statements of operations and stockholders deficiency and cash flows for the
six months then ended, which report appears in the Form 8-K/A Amendment No. 1
of Triathlon Broadcasting Company dated August 13, 1997, and to the
incorporation by reference of such financial statements in Registration
Statement No. 333-21267 of Triathlon Broadcasting Company.
Miller, Kaplan, Arase & Co.
North Hollywood, California
August 13, 1997
