UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from _______ to _______
Commission file number 0-16841
OSBORN COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06-1142367
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
130 Mason Street, Greenwich, Connecticut 06830
(Address of principal executive offices)(Zip Code)
(203) 629-0905
Registrant's telephone number, including area code
____________________________________________________________
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days. Yes X No______
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE LAST FIVE YEARS
Indicate by check mark whether the registrant has filed
all documents and reports required to be filed by Section
12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan
confirmed by a court. Yes_____ No______
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding in each of
the issuer's classes of common stock, as of the latest
practicable date.
Outstanding
Class at November 6, 1995
Common stock, $.01 par value 5,276,347
Non-voting common stock, $.01 par value -
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
(1) Consolidated Balance Sheets at September 30, 1995
(unaudited) and December 31, 1994
(2) Consolidated Statements of Operations for the three
and nine months ended September 30, 1995 and 1994
(unaudited)
(3) Consolidated Statements of Cash Flows for the nine
months ended September 30, 1995 and 1994 (unaudited)
(4) Consolidated Statement of Changes in Stockholders'
Equity for the nine months ended September 30, 1995
(unaudited)
(5) Notes to Unaudited Consolidated Financial
Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
OSBORN COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1995 1994
(Unaudited)
Current assets:
Cash and cash equivalents $2,181,164 $6,368,473
Accounts receivable, less allowance
for doubtful accounts of $486,677
in 1995 and $370,102 in 1994 5,310,749 5,435,792
Distribution receivable - 2,264,552
Note receivable - 1,620,455
Inventory 1,078,835 1,080,647
Prepaid expenses and other current assets 1,652,088 782,544
Total current assets 10,222,836 17,552,463
Investment in affiliated companies 530,640 535,913
Property, plant and equipment, at cost,
less accumulated depreciation of
$17,884,306 in 1995 and $15,945,361
in 1994 15,487,820 16,442,810
Intangible assets, net of accumulated
amortization of $15,578,240 in 1995
and $13,308,848 in 1994 41,423,105 44,418,927
Other noncurrent assets 124,561 216,373
Total assets $67,788,962 $79,166,486
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $3,118,329 $3,787,528
Accrued wages and sales commissions 142,703 304,781
Accrued interest payable 579,812 1,944,787
Accrued income taxes 474,228 535,489
Current portion of long-term debt 2,700,000 2,700,000
Total current liabilities 7,015,072 9,272,585
Long-term debt 44,500,000 48,313,905
Deferred income taxes 2,185,047 2,035,047
Other noncurrent liabilities 280,927 263,107
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, par value $.01 per
share; authorized 5,000,000 shares,
none issued and outstanding - -
Common stock, par value $.01 per share;
authorized 7,425,000 shares, issued
and outstanding shares: 5,286,347 and
5,276,347 respectively, in 1995;
5,369,747 and 5,359,747, respectively,
in 1994 52,764 53,598
Non-voting common stock, par value $.01
per share; authorized 75,000 shares,
none issued and outstanding - -
Additional paid-in capital 39,694,601 40,181,258
Accumulated deficit (25,939,449) (20,953,014)
Total stockholders' equity 13,807,916 19,281,842
Total liabilities and stockholders'
equity $67,788,962 $79,166,486
See accompanying notes.
OSBORN COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine months ended September 30, 1995 and 1994
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
1995 1994 1995 1994
Net revenues $12,001,802 $11,547,756 $28,802,257 $23,675,365
Operating expenses:
Selling, technical
and program 2,817,392 2,744,017 8,869,892 6,122,852
Direct programmed music
and entertainment 3,773,692 3,243,356 7,148,981 6,630,437
General and
administrative 2,031,876 1,955,865 5,791,337 4,605,401
Depreciation and
amortization 1,398,887 1,329,817 4,315,622 3,445,799
Corporate expenses 426,674 480,510 1,276,051 1,927,615
Total operating
expenses 10,448,521 9,753,565 27,401,883 22,732,104
Operating income 1,553,281 1,794,191 1,400,374 943,261
Other income (expense) 76,030 117,320 1,975,009 (136,311)
Interest expense 1,290,320 1,454,115 4,137,330 2,809,436
Equity in loss of
affiliated company (5,273) - (5,273) -
Income (loss) before
income taxes 333,718 457,396 (767,220) (2,002,486)
Provision for income taxes 106,824 49,958 298,154 151,207
Income (loss) before
extraordinary item 226,894 407,438 (1,065,374) (2,153,693)
Extraordinary item:
Loss on debt
extinguishment (3,921,061) - (3,921,061) (436,329)
Net income (loss) ($3,694,167) $407,438 ($4,986,435) ($2,590,022)
Earnings per common share:
Income (loss) before
extraordinary item $0.05 $0.08 ($0.20) ($0.40)
Loss on extinguishment
of debt (0.75) - (0.75) (0.08)
Net income (loss) per
common share ($0.70) $0.08 ($0.95) ($0.48)
Weighted average common
shares outstanding 5,256,292 5,377,590 5,258,216 5,376,681
See accompanying notes.
OSBORN COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1995 and 1994
(Unaudited)
1995 1994
Cash flows from operating activities:
Cash received from clients $28,557,416 $21,686,950
Cash paid to vendors and employees (24,415,386) (18,080,461)
Interest received 321,375 280,268
Interest paid (5,216,445) (3,000,189)
Income taxes paid (209,415) (57,725)
Net cash (used in) provided by
operating activities (962,455) 828,843
Cash flows from investing activities:
Distributions from affiliated companies 3,918,186 -
Payments for business acquisitions - (22,290,337)
Proceeds from note receivable 1,620,455 242,498
Capital expenditures (966,132) (686,904)
Expenditures for intangible assets (143,044) -
Reclassification of other noncurrent assets 91,812 (12,083)
Net cash provided by (used in)
investing activities 4,521,277 (22,746,826)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 44,500,000 48,460,982
Proceeds from issuance of stock warrant - 1,774,837
Debt issuance costs (1,258,640) (1,921,362)
Proceeds from exercise of stock options 154,863 6,000
Purchase and retirement of treasury stock (642,354) -
Prepayment penalty on debt retirement (500,000) -
Principal payments on long-term debt and
notes payable (50,000,000) (23,286,671)
Net cash (used in) provided by
financing activities (7,746,131) 25,033,786
Net (decrease) increase in cash and
cash equivalents (4,187,309) 3,115,803
Cash and cash equivalents at beginning
of period 6,368,473 1,321,175
Cash and cash equivalents at end of period $2,181,164 $4,436,978
Reconciliation of net loss to net cash (used
in) provided by operating activities:
Net loss ($4,986,435) ($2,590,022)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 4,315,622 3,415,799
Loss on extinguishment of debt 3,921,061 436,329
Write-off of registration statement costs - 397,583
Equity in loss of affiliated company 5,273 11,052
Deferred income taxes 150,000 -
Non-cash interest expense 285,860 -
Decrease (increase) in accounts receivable 125,043 (1,453,987)
Decrease (increase) in inventory 1,812 (276,262)
Distributions from affiliated companies (1,653,634) -
Increase in prepaid expenses and other
current assets (869,544) (175,557)
Increase (decrease) in accounts payable
and accrued expenses (669,199) 1,242,218
Decrease in accrued wages and sales
commissions (162,078) (81,039)
Decrease in accrued interest payable (1,364,975) (190,753)
Increase (decrease) in accrued income taxes (61,261) 93,482
Total adjustments 4,023,980 3,418,865
Net cash (used in) provided by operating
activities ($962,455) $828,843
Schedule of non-cash investing activities:
Acquisition of radio station through the
assumption of long-term debt - $2,464,181
See accompanying notes.
OSBORN COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY
For the nine months ended September 30, 1995
(Unaudited)
Voting Non-voting Additional
Par Par paid-in Accumulated
Shares value Shares value capital deficit
Balance at
December 31, 1994 5,359,747 $53,598 - - $40,181,258 ($20,953,014)
Purchase and
retirement of
treasury stock (107,059) (1,071) - - (641,283) -
Exercise of options 23,659 237 - - 154,626 -
Net loss - - - - - (4,986,435)
Balance at
September 30, 1995 5,276,347 $52,764 - - $39,694,601 ($25,939,449)
See accompanying notes.
OSBORN COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
1. The financial information included herein is unaudited;
however, such information reflects all adjustments
(consisting solely of normal recurring adjustments) that
are, in the opinion of management, necessary for a fair
presentation of the financial position, results of
operations, and cash flows for the interim periods
presented.
2. In August 1995, the Company agreed to acquire
substantially all the assets of radio stations WKII-AM/WEEJ-
FM, Port Charlotte, Florida from Kneller Broadcasting of
Charlotte County, Inc. for $2.85 million, subject to Federal
Communications Commission ("FCC") approval and license
renewal. In the event that the Company is able to relocate
WEEJ-FM's broadcast antenna to the Company's Pine Island,
Florida tower, additional consideration of $750,000 will be
paid. Pending the closing of the transaction, which is
expected in 1996, the stations are being managed by the
Company pursuant to a Local Marketing Agreement.
In September 1995, the Company agreed to sell substantially
all the assets of radio stations WNDR-AM/WNTQ-FM, Syracuse,
New York to Pilot Communications of Syracuse, Inc. for $12.5
million, subject to FCC approval. Pending the closing of the
transaction, which is expected in early 1996, the stations
are being managed by the purchaser pursuant to a Local
Marketing Agreement.
In September 1995, the Company agreed to sell substantially
all the assets of radio stations WWRD-FM, Jacksonville,
Florida/Brunswick, Georgia and WFKS-FM, Daytona
Beach/Palatka, Florida, as well as the Company's 50%
interest in the broadcast tower serving WWRD-FM to Renda
Broadcasting Corporation for total consideration of $6.5
million. The closing of the transactions is subject to FCC
approval and, in the case of WFKS-FM, to license renewal.
The sale of WWRD-FM is expected to close in late 1995 and
the sale of WFKS-FM is expected to close in the second
quarter of 1996. Pending the closing of the transactions,
the stations are being managed by the purchaser pursuant to
a Local Marketing Agreement.
3. In August 1995, the Company entered into a credit
facility of $56.0 million with Society National Bank. The
facility consists of a $46.0 million revolving credit
agreement and a $10.0 million facility which may be used for
acquisitions. The initial drawdown of $44.5 million, along
with the Company's existing funds, was used to repay
existing loans from a financial institution totalling $50.0
million (see Note 8) plus transaction costs. Along with the
repayment of debt, the Company was able to cancel purchase
rights with respect to 676,000 warrant shares of the
1,014,000 warrant shares issued with the previous loans.
As a result of the repayment of the loans, the Company
recorded an extraordinary loss on the early extinguishment
of debt of approximately $3.9 million. The extraordinary
loss is primarily due to non-cash charges from the write-off
of deferred financing costs and debt discount.
4. On June 30, 1994, the Company, through wholly-owned
subsidiaries, acquired substantially all the assets of
three FM and one AM radio stations for an aggregate of $20.0
million plus transaction costs. The acquisition included
radio stations WKSF-FM/WWNC-AM, Asheville, North Carolina;
WOLZ-FM, Ft. Myers, Florida; and WFKS-FM, Daytona
Beach/Palatka, Florida. On August 1, 1994, the Company,
through a wholly-owned subsidiary, acquired substantially
all the assets of radio stations WQEN-FM/WAAX-AM, Gadsden,
Alabama for $1.75 million plus transaction costs. The
Gadsden market is adjacent to the Anniston market, in which
the Company owns and operates its television station. The
Company applied for a waiver from the FCC's regulations
prohibiting ownership of radio and television stations in
the same market. The FCC granted the waiver in August 1995.
Prior to the FCC's ruling on the waiver application, the
Gadsden radio stations were placed in a trust which operated
the stations on the Company's behalf.
The acquisitions have been accounted for as purchases.
Accordingly, the purchase price of each acquisition has been
allocated to the assets based upon their fair values at the
date of acquisition. The results of operations of the
acquired properties are included in the Company's
consolidated results of operations from the dates of
acquisition. The consolidated balance sheet at December 31,
1994 and the consolidated statements of operations for the
1994 periods have been restated to reflect the Gadsden
acquisition under the purchase method of accounting. Prior
to the FCC's ruling on the waiver application, the Gadsden
acquisition had been accounted for under the equity method
of accounting.
5. On March 30, 1994, Atlantic City Broadcasting Corp.
("Atlantic City"), a wholly-owned subsidiary of the Company,
acquired radio station WAYV-FM, Atlantic City, New Jersey,
for consideration of approximately $2.7 million. The
consideration consisted of a $2.7 million term loan assumed
by Atlantic City. The term loan is secured by the capital
stock and assets of Atlantic City, and is otherwise non-
recourse to the Company and its other assets. The Atlantic
City term loan agreement restricts Atlantic City's ability
to pay cash dividends or make other cash distributions to
the Company. The acquisition has been accounted for as a
purchase. Accordingly, the purchase price of the
acquisition has been allocated to the assets based upon
their fair values at the date of acquisition. The results
of operations of Atlantic City are included in the Company's
consolidated results of operations from the date of
acquisition.
In the second quarter of 1995, the Company agreed to sell
substantially all the assets of Atlantic City, subject to
FCC approval. The purchaser has defaulted on the sale
agreement and the Company has cancelled such agreement. The
Company plans to sell substantially all the assets of
Atlantic City.
6. In January 1995, the Company repurchased and
subsequently retired 107,059 unregistered shares of its
common stock which were held by an institution for $642,000.
7. In January 1995, the Company received a distribution
from Fairmont Communications Corporation of $2,265,000 which
was earned in 1994. In February 1995, the note receivable of
$1,620,000 relating to the 1988 disposition of the Toledo,
Ohio radio station and Muzak franchise was received.
8. On June 30, 1994, the Company entered into credit
agreements totalling $50.0 million with a financial
institution (see Note 3). The proceeds were used to fund
the acquisition of six radio stations (see Note 4); to repay
the Company's existing long-term debt; to fund transaction
expenses; and to provide working capital. The debt
repayments resulted in an extraordinary loss on the
extinguishment of debt of $436,000.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On June 30, 1994, the Company acquired substantially all the
assets of three FM and one AM radio stations for an
aggregate of $20.0 million plus transaction costs. The
acquisition included radio stations WKSF-FM/WWNC-AM,
Asheville, North Carolina; WOLZ-FM, Ft. Myers, Florida; and
WFKS-FM, Daytona Beach/Palatka, Florida. On August 1, 1994,
the Company acquired substantially all the assets of radio
stations WQEN-FM/WAAX-AM, Gadsden, Alabama for $1.75 million
plus transaction costs. The Gadsden market is adjacent to
the Anniston market, in which the Company owns and operates
its television station. The Company applied for a waiver
from the Federal Communications Commission's ("FCC")
regulations prohibiting ownership of radio and television
stations in the same market. The FCC granted the waiver in
August 1995. Prior to the FCC's ruling on the waiver
application, the Gadsden radio stations were placed in a
trust which operated the stations on the Company's behalf.
On March 30, 1994, Atlantic City Broadcasting Corp.
("Atlantic City"), a wholly-owned subsidiary of the Company,
acquired radio station WAYV-FM, Atlantic City, New Jersey,
for consideration of approximately $2.7 million. The
consideration consisted of a $2.7 million term loan assumed
by Atlantic City. The term loan is secured by the capital
stock and assets of Atlantic City and is otherwise non-
recourse to the Company and its other assets. In the second
quarter of 1995, the Company agreed to sell substantially
all the assets of Atlantic City, subject to FCC approval.
The purchaser has defaulted on the sale agreement and the
Company has cancelled such agreement. The Company plans to
sell substantially all the assets of Atlantic City.
The acquisitions have been accounted for as purchases.
Accordingly, the purchase price of each acquisition has been
allocated to the assets based upon their fair values at the
date of acquisition. The results of operations of the
acquired properties are included in the Company's
consolidated results of operations from the dates of
acquisition. The consolidated balance sheet at December 31,
1994 and the consolidated statements of operations for the
1994 periods have been restated to reflect the Gadsden
acquisition under the purchase method of accounting. Prior
to the FCC's ruling on the waiver application, the Gadsden
acquisition had been accounted for under the equity method
of accounting.
Pending Transactions
In August 1995, the Company agreed to acquire substantially
all the assets of radio stations WKII-AM/WEEJ-FM, Port
Charlotte, Florida from Kneller Broadcasting of Charlotte
County, Inc. for $2.85 million, subject to FCC approval and
license renewal. In the event that the Company is able to
relocate WEEJ-FM's broadcast antenna to the Company's Pine
Island, Florida tower, additional consideration of $750,000
will be paid. Pending the closing of the transaction, which
is expected in 1996, the stations are being managed by the
Company pursuant to a Local Marketing Agreement.
In September 1995, the Company agreed to sell substantially
all the assets of radio stations WNDR-AM/WNTQ-FM, Syracuse,
New York to Pilot Communications of Syracuse, Inc. for $12.5
million, subject to FCC approval. Pending the closing of the
transaction, which is expected in early 1996, the stations
are being managed by the purchaser pursuant to a Local
Marketing Agreement.
In September 1995, the Company agreed to sell substantially
all the assets of radio stations WWRD-FM, Jacksonville,
Florida/Brunswick, Georgia and WFKS-FM, Daytona
Beach/Palatka, Florida, as well as the Company's 50%
interest in the broadcast tower serving WWRD-FM to Renda
Broadcasting Corporation for total consideration of $6.5
million. The closing of the transactions is subject to FCC
approval and, in the case of WFKS-FM, to license renewal.
The sale of WWRD-FM is expected to close in late 1995 and
the sale of WFKS-FM is expected to close in the second
quarter of 1996. Pending the closing of the transactions,
the stations are being managed by the purchaser pursuant to
a Local Marketing Agreement.
Results of Operations
Three months ended September 30, 1995 and 1994
Net revenues of $12,002,000 in the third quarter of 1995
represent a 4% increase from 1994 quarterly net revenues of
$11,548,000. Net revenues in 1994 include management fee
revenue of $572,000 related to the sale of Fairmont
Communications Corporation's ("Fairmont") radio stations
(see Management Agreements). For businesses owned and
operated for a comparable period in 1995 and 1994, net
revenues increased 10%. For broadcasting properties
operated for comparable periods, net revenues increased 9%,
to $8,979,000 in the third quarter of 1995 from $8,232,000
in 1994. The increase is primarily attributable to strong
performance by the Wheeling concert and entertainment
operations and Asheville radio stations, partially offset by
reduced revenue at the Syracuse radio stations. Net revenues
for the programmed music division increased from $2,274,000
in 1994 to $2,430,000 in 1995, which represents a 7%
increase.
Total operating expenses increased 7%, from $9,754,000 in
1994 to $10,449,000 in 1995. The increase is primarily
attributable to the increased level of activity at the
concert and entertainment businesses, partially offset by
reductions in corporate expenses.
Operating cash flow (operating income before depreciation,
amortization and corporate expenses) decreased 6%, to
$3,379,000 in 1995 from $3,605,000 in 1994. The decrease is
attributable to the Fairmont management fee revenue earned
in 1994 of $572,000. Operating cash flow for businesses
owned and operated for a comparable period in both years
increased by 13%. EBITDA (earnings before interest, taxes,
depreciation and amortization) of $2,952,000 in the third
quarter of 1995 decreased 6%, from $3,124,000 in 1994, due
to the Fairmont management fee revenue in 1994.
Operating income of $1,553,000 in 1995 compares to
$1,794,000 in 1994. Interest expense decreased to
$1,290,000 in 1995 from $1,454,000 in 1994, primarily
attributable to the lower debt level and cost of capital
related to the August 1995 debt refinancing (see Liquidity
and Capital Resources). Interest expense in 1995 includes
$77,000 of non-cash interest relating to deferred financing
cost and debt discount amortization.
Due to the debt refinancing (see Long-term debt) undertaken
in August 1995, net loss includes an extraordinary loss on
the early extinguishment of debt of $3,921,000, or $0.75 per
share. Along with the repayment of debt, the Company was
able to cancel purchase rights with respect to 676,000
warrant shares of the 1,014,000 warrant shares issued with
the previous loans. The extraordinary loss is primarily due
to non-cash charges from the write-off of deferred financing
costs and debt discount.
Income before extraordinary item of $227,000, or $0.05 per
share, compared to income before extraordinary item of
$407,000, or $0.08 per share, in 1994. Net loss of
$3,694,000 in 1995, or $0.70 per share, compares to net
income of $407,000, or $0.08 per share, in 1994.
Nine months ended September 30, 1995 and 1994
Net revenues of $28,802,000 in the first nine months of 1995
represent a 22% increase from 1994 net revenues of
$23,675,000. The increase is primarily attributable to the
radio stations acquired during 1994. Net revenues in 1994
include management fee revenue of $572,000 related to the
sale of Fairmont's radio stations (see Management
Agreements). For businesses owned and operated for a
comparable period in 1995 and 1994, net revenues increased
7%. For broadcasting properties operated for comparable
periods, net revenues increased 7%, to $16,477,000 in the
first nine months of 1995 from $15,470,000 in 1994. The
increase is primarily attributable to strong performance at
the Company's Wheeling, Asheville, Jackson, and Atlantic
City properties, partially offset by decreased revenue at
the Syracuse radio stations. The Anniston television
station's revenues declined slightly, although the prior
year included significant revenue from political advertising
which typically occurs in election years. Net revenues for
the programmed music division increased 8%, from $6,106,000
in 1994 to $6,620,000 in 1995.
Total operating expenses increased 21%, from $22,732,000 in
1994 to $27,402,000 in 1995. The increase is primarily
attributable to the radio stations acquired during 1994,
partially offset by reductions in corporate expenses of
$652,000. For businesses owned and operated for a
comparable period in 1995 and 1994, total operating expenses
increased 7%.
Operating cash flow increased 11%, to $6,992,000 in 1995
from $6,317,000 in 1994. The increase is primarily
attributable to the radio stations acquired during 1994, as
well as improved operations at the Company's broadcast and
entertainment properties owned for comparable periods in
both years. Results in 1994 include Fairmont management fee
revenue of $572,000. Operating cash flow for businesses
owned and operated for a comparable period in both years
increased by 8%. The increase for comparable properties is
attributable to improved operations at the Company's
broadcasting, entertainment and programmed music franchises.
EBITDA increased 30%, to $5,716,000 in 1995 from $4,389,000
in 1994.
Operating income increased 48%, to $1,400,000 in 1995 from
$943,000 in 1994. Other income of $1,975,000 in 1995
includes a distribution from Northstar Television Group of
$1,572,000 (see Management Agreements). Other expense in
1994 includes approximately $400,000 of costs associated
with the registration statement filed by the Company in
March 1994 and withdrawn in July 1994. Interest expense
increased to $4,137,000 in 1995 from $2,809,000 in 1994 due
to the greater level of debt resulting from the 1994
acquisitions (see Liquidity and Capital Resources).
Interest expense in 1995 includes $286,000 of non-cash
interest relating to deferred financing cost and debt
discount amortization.
Due to the debt refinancing (see Long-term debt) undertaken
in August 1995, net loss in 1995 includes an extraordinary
loss on the early extinguishment of debt of $3,921,000, or
$0.75 per share. Results in 1994 include an extraordinary
loss on the early extinguishment of debt of $436,000, or
$0.08 per share.
Loss before extraordinary item of $1,065,000, or $0.20 per
share, decreased from $2,154,000, or $0.40 per share, in
1994. Net loss of $4,986,000 in 1995, or $0.95 per share,
compares to net loss of $2,590,000, or $0.48 per share, in
1994. Per share amounts for 1994 are adjusted for the 1-for-
2 reverse stock split effected in July 1994.
Liquidity and Capital Resources
Cash flows from operating activities
In 1995, net cash used in operating activities was $962,000,
compared to net cash provided by operating activities of
$829,000 in 1994 (see Results of Operations). The
difference is primarily attributable to the amount and
timing of interest payments, partially offset by improved
operations.
Cash flows from investing activities
The Company received distribution payments in the first
quarter of 1995 from Fairmont Communications Corporation and
Northstar Television Group totalling $3,918,000 (see
Management Agreements and Results of Operations). The note
receivable of $1,620,000 relating to the 1988 disposition of
the Toledo, Ohio radio station and Muzak franchise was
received in the first quarter of 1995. In the second and
third quarters of 1994, the Company acquired six radio
stations for approximately $22.3 million.
In addition to debt service requirements, the Company's
remaining liquidity demands will be for capital expenditures
and to meet working capital needs. The Company made
capital expenditures of $966,000 and $687,000 in the first
nine months of 1995 and 1994, respectively, which are
primarily attributable to equipment installations related to
its programmed music franchises and improvements to
technical facilities of certain of the stations acquired in
1994.
For the remainder of 1995, capital expenditures made by the
Company's wholly-owned businesses will be a function of the
number of installations by the programmed music franchises,
as well as routine expenditures for the Company's
broadcasting properties. The Company is in the process of
relocating its Ft. Myers, Florida radio station to new
studio and office space and expects to make additional
capital expenditures as necessary.
Cash flows from financing activities
In January 1995, the Company repurchased and subsequently
retired 107,059 unregistered shares of its common stock
which were held by an institution for $642,000. Also in
January 1995, the Company paid $107,000 for the common
shares repurchased in December 1994.
Long-term debt
In August 1995, the Company entered into a credit facility
of $56.0 million with Society National Bank. The facility
consists of a $46.0 million revolving credit agreement and a
$10.0 million facility which may be used for acquisitions.
The initial drawdown of $44.5 million, along with the
Company's existing funds, was used to repay existing debt
issued in 1994 from a financial institution totalling $50.0
million plus transaction costs. Along with the repayment of
debt, the Company was able to cancel purchase rights with
respect to 676,000 warrant shares of the 1,014,000 warrant
shares issued with the previous loans.
As a result of the repayment of the loans, the Company
recorded an extraordinary loss on the early extinguishment
of debt of approximately $3.9 million (see Results of
Operations).
Long-term debt to total capitalization increased between
December 31, 1994 and September 30, 1995 from 73% to 77%.
Long-term debt includes $2.7 million of debt, net of
unamortized debt discount of $700,000, associated with the
Atlantic City radio station. The Atlantic City debt is
secured by the capital stock and assets of Atlantic City,
and is otherwise non-recourse to the Company or its other
assets. The Atlantic City term loan agreement restricts
Atlantic City's ability to pay cash dividends or make other
cash distributions to the Company. The Company plans to
sell the Atlantic City radio station. The Atlantic City
debt will be repaid with the proceeds from the sale.
Working capital
At September 30, 1995, cash and cash equivalents totalled
$2,181,000, compared to $6,368,000 at December 31, 1994.
Working capital decreased $5,072,000, from $8,280,000 to
$3,208,000 during the period, primarily due to the repayment
of long-term debt.
The Company believes that cash flows from operations and
existing funds will be sufficient to meet the Company's
current cash requirements for the foreseeable future. It is
not possible to ascertain the effect on the Company's
liquidity that would result from potential future
acquisitions, dispositions or debt repayments. The Company
expects to evaluate all viable forms of financing when
examining potential future acquisitions or its capital
structure. This could take the form of, among other things,
additional sales of stock or notes, bank and/or
institutional borrowings, or seller financing, as well as
internally generated funds.
Management Agreements
The Company currently owns 25% of the stock of Fairmont
Communications Corporation ("Fairmont"). Fairmont is
currently managed by the Company pursuant to a management
agreement, for which the Company receives a modest
management fee plus reimbursement of out-of-pocket expenses
and allocated overhead costs. All of Fairmont's stations
were sold by the second quarter of 1994. The Company will
continue to manage Fairmont pursuant to the management
agreement which expires upon the liquidation of Fairmont,
which is expected to occur in 1995.
The Company held a 32% interest in Northstar Television
Group, Inc. ("Northstar") and managed Northstar's four
television stations pursuant to a management agreement in
return for reimbursement of out-of-pocket expenses and
allocated overhead costs. In 1994, Northstar's creditors
and equity investors reached an agreement with respect to
restructuring Northstar's highly leveraged capital structure
pursuant to which, among other things, the Company received
a portion of accrued and unpaid management fees and retains
an economic interest. The Company's management agreement
with Northstar terminated following the restructuring. In
January 1995, three of Northstar's four television stations
were sold and the Company received a distribution of
approximately $1.6 million (see Results of Operations).
Osborn Healthcare
The Company's credit agreements allow for additional
investment in Osborn Healthcare by the Company of up to $2.5
million, of which approximately $700,000 has been invested.
Seasonality
For broadcasting properties, the first quarter is expected
to reflect the lowest revenues and net income of the year,
while the fourth quarter has historically had the highest
revenues and net income. This is due in part to increases
in retail advertising in the fall in preparation for the
holiday season, with a subsequent reduction of business
after the holidays.
The Company's entertainment properties are expected to
reflect the lowest revenues and net income of the year in
the first quarter due to the planned scheduling of the most
popular performers during the peak spring, summer and fall
seasons. Also, the Company's country music festival,
Jamboree in the Hills, takes place in the third quarter.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Securities
Holders
Not applicable
Item 5. Other information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Loan Agreement by and among Osborn Communications
Corporation, Society National Bank, and the
Financial Institutions Listed Herein as of August
18, 1995
Assets Purchase Agreement dated as of August 31,
1995 by and between Kneller Broadcasting of
Charlotte County, Inc. and Osborn Communications
Corporation
Asset Purchase Agreement dated as of August 31,
1995 by and between Nelson Broadcasting
Corporation and Renda Broadcasting Corporation
Asset Purchase Agreement dated as of August 31,
1995 by and between Daytona Beach Broadcasting
Corporation and Renda Broadcasting Corporation
Stock Purchase Agreement between Renda
Broadcasting Corporation and SNG Holdings, Inc.,
the sole stockholder of Nelson Tower Corporation,
dated as of August 31, 1995
Asset Purchase Agreement between Pilot
Communications of Syracuse, Inc. and Orange
Communications, Inc. dated as of September 18,
1995
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
OSBORN COMMUNICATIONS CORPORATION
(Registrant)
Date: November 7, 1995 /s/ Frank D. Osborn
(Signature)
Frank D. Osborn
President and Chief Executive
Officer
Date: November 7, 1995 /s/ Thomas S. Douglas
(Signature)
Thomas S. Douglas
Principal Financial Officer