SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
-------------
Date of Report (Date of Earliest Event Reported): January 23, 1997
CHANCELLOR RADIO BROADCASTING COMPANY
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(Exact Name of Registrant as Specified in its Charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
33-80534 75-2544623
- ------------------------------ ------------------------------
(Commission File Number) (I.R.S. Employer
Identification No.)
12655 North Central Expressway
Suite 405
Dallas, Texas 75243
- --------------------------------------------- --------------------
(Address of Principal Executive Offices) (Zip Code)
(972) 239-6220
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(Registrant's Telephone Number, Including Area Code)
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(Former Name or Former Address, if Changed Since Last Report)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
As announced on January 23, 1997 in the press release filed
herewith as Exhibit 99, Chancellor Radio Broadcasting Company (the
"Company"), a Delaware corporation and the wholly-owned subsidiary of
Chancellor Broadcasting Company, a Delaware corporation, consummated
the acquisition (the "Colfax Acquisition") of twelve radio stations
(the "Colfax Stations") from Colfax Communications, Inc. and its
affiliates ("Colfax") pursuant to an asset purchase agreement. The
aggregate purchase price for the Colfax Stations, based upon an
appraisal of the assets purchased, was $365 million in cash, subject
to adjustment within 90 days of the closing to take into account the
amount of net working capital as of the closing, the apportionment of
certain costs and the amount of any Colfax Stations' net trade balance
as of the closing in excess of $25,000. The Colfax Acquisition has
been funded with the proceeds from (i) the sale of Chancellor Radio
Broadcasting Company's $200 million liquidation preference 12%
Exchangeable Preferred Stock due 2009, par value $0.01 per share, and
Chancellor Broadcasting Company's $100 million liquidation preference
7% Convertible Preferred Stock, par value $0.01 per share, and (ii)
the Company's new $345 million credit facility, all of which closed
concurrently with the Colfax Acquisition and were also announced in
the press release filed herewith as Exhibit 99. The Company plans to
operate ten of the twelve Colfax Stations and to divest the two Colfax
Stations located in Milwaukee, subject to the negotiation of a
definitive agreement. The financial statements of Colfax
Communications, Inc. are set forth herein under Item 7(a). Unaudited
pro forma financial information giving effect to the consummation of
the Colfax Acquisition is set forth herein under Item 7(b). Such
unaudited pro forma financial information differs from the unaudited
pro forma financial information presented under Item 5 hereof only in
that the unaudited pro forma financial information presented under
Item 5 hereof includes the Company's disposition of WWWW-FM and WDFN-
AM in Detroit (which was consummated on January 30, 1997) and the Omni
Transaction (as defined in Item 5 hereof) and the unaudited pro forma
financial information presented under Item 7(b) does not.
ITEM 5. OTHER EVENTS
In connection with the offering of 2,000,000 shares of its $200
million liquidation preference 12% Exchangeable Preferred Stock due
2009, par value $0.01 per share, referred to in Item 2 above and in
the attached press release, the Company prepared a final offering
memorandum that contained certain pro forma financial statements of
operations for the year ended December 31, 1995 and for the nine
months ended September 30,
1995 and 1996, and a pro forma balance sheet as of September 30, 1996.
These pro forma financial statements are set forth below.
The following unaudited pro forma financial information (referred
to for purposes of Item 5 as the "Pro Forma Financial Information") is
based on the historical financial statements of (i) the Company, (ii)
KDWB-FM (acquired by the Company in August 1995), (iii) Trefoil
Communications, Inc. and its wholly-owned subsidiary, Shamrock
Broadcasting, Inc., and its respective subsidiaries (collectively,
"Shamrock Broadcasting") (acquired by the Company in February 1996),
(iv) KOOL-FM (acquired by Colfax in April 1996), (v) KIMN-FM and KALC-
FM (acquired by the Company in July 1996 and for which a Houston
station was exchanged), (vi) the stations acquired by Colfax from
Sundance Broadcasting, Inc. ("Sundance") in September 1996, (vii)
WKYN-AM (acquired by the Company in November 1996), (viii) the Colfax
Stations (acquired by the Company in January 1997), two of which will
be divested, (ix) the stations (the "Omni Stations") in Orlando,
Florida to be acquired from OmniAmerica Group, (x) KSTE-AM in
Sacramento, California, which will be acquired from American Radio
System Corporation, and (xi) the three FM and one AM stations (the
"SFX Stations") in Nassau-Suffolk (Long Island) to be acquired from
SFX Communications, Inc. Financial information for the SFX Stations,
KSTE-AM and WKYN-AM is shown in the Pro Forma Financial Information
under the caption "All Other".
The pro forma condensed statements of operations for the year
ended December 31, 1995 and for the nine months ended September 30,
1995 and 1996 give effect to the consummation of the acquisition of
KDWB-FM, Shamrock Broadcasting, KOOL-FM, KIMN-FM and KALC-FM (for
which a Houston station was exchanged), the stations acquired by
Colfax from Sundance, WKYN-AM and the Colfax Stations (two of which
will be divested), the disposition of WWWW-FM and WDFN-AM in Detroit
and the pending acquisition of the Omni Stations (five of which will
be divested in exchange for the SFX Stations and KSTE-AM)
(collectively, the "Omni Transaction") and, in each case, the
financing thereof, as if each such transaction had occurred on January
1, 1995. The pro forma balance sheet as of September 30, 1996 has
been prepared as if the acquisition of WKYN-AM, the acquisition of the
Colfax Stations, the disposition of WWWW-FM and WDFN-AM and the Omni
Transaction and, in each case, the financing thereof, had occurred on
that date. The Pro Forma Financial Information is not necessarily
indicative of either future results of operations or the results that
might have occurred if the foregoing transactions had been consummated
on the indicated dates.
The purchases of KDWB-FM, Shamrock Broadcasting, KOOL-FM, the
stations acquired by Colfax from Sundance, WKYN-AM and the Colfax
Stations and the disposition of WWWW-FM and WDFN-AM were accounted for
using the purchase method of accounting. The acquisition of KIMN-FM
and KALC-FM in exchange for a Houston station was accounted for using
the fair value of the Houston
station and the additional cash consideration paid. The Omni
Transaction will be accounted for using the purchase method of
accounting. The total purchase costs of the acquisitions and
exchanges will be allocated to the tangible and intangible assets and
liabilities acquired based upon their respective fair values. The
allocation of the aggregate purchase price reflected in the Pro Forma
Financial Information is preliminary. The final allocation of the
purchase price is contingent upon the receipt of final appraisals of
the acquired assets; however, such allocation is not expected to
differ materially from the preliminary allocation.
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1995
Historical
-------------------------------------------------------------------------------
Chancellor Shamrock KIMN-FM
Broadcasting Broadcasting KDWB-FM KALC-FM Colfax Sundance KOOL-FM
------------- ------------- -------- -------- --------- --------- ----------
Net revenues . . . . . . . . . . . . . . $ 64,322 $94,605 $ 893 $7,205 $30,143 $14,840 $4,914
--------- ------- ----- ------ ------- ------- ------
Station operating expenses . . . . . . . 37,464 73,720 473 6,193 22,169 9,774 3,573
Depreciation and amortization . . . . . . 9,047 8,751 518 875 6,505 2,145 899
Corporate expenses . . . . . . . . . . . 1,816 3,139 - - - - -
Stock option compensation expense . . . . 6,360 - - - - - -
--------- ------- ----- ------ ------- ------- ------
Operating income (loss) . . . . . . . . 9,635 8,995 (98) 137 1,469 2,921 442
Interest expense . . . . . . . . . . . . 17,324 14,703 - - 656 - 1,162
Other (income) expense . . . . . . . . . 42 (78) 23 2 771 21 -
--------- ------- ----- ------ ------- ------- ------
Income (loss) before provision
for income taxes . . . . . . . . . . . (7,731) (5,630) (121) 135 42 2,900 (720)
Provision for income taxes . . . . . . . 3,800 (1,287) (93) - - - -
--------- ------- ----- ------ ------- ------- ------
Net income (loss) . . . . . . . . . . . (11,531) $(4,343) $ (28) $ 135 $ 42 $ 2,900 $ (720)
======= ===== ====== ======= ======= ======
Dividends and accretion on
preferred stock . . . . . . . . . . . . -
---------
Loss applicable to common shares . . . . $ (11,531)
=========
Deficiency of earnings to fixed charges
and preferred stock dividends and
accretion . . . . . . . . . . . . . . . . $ 7,731
Historical
----------------------
Omni All
Stations Other Adjustments Pro Forma
----------- ---------- ----------- -------------
Net revenues . . . . . . . . . . . . . $13,468 $13,508 $ (540)(A) $223,429
(19,929)(B)
------- ------ -------- --------
Station operating expenses . . . . . . 9,128 9,343 (540)(A) 143,965
(15,891)(B)
(11,441)(C)
Depreciation and amortization . . . . . 1,576 2,927 4,757 (D) 38,000
Corporate expenses . . . . . . . . . . - 1,460 (2,015)(E) 4,400
Stock option compensation expense . . . - - - 6,360
------- ------ ------- --------
Operating income (loss) . . . . . . . 2,764 (222) 4,661 30,704
Interest expense . . . . . . . . . . . - 25 11,771 (F) 45,641
Other (income) expense . . . . . . . . (264) (12) - 505
------- ------ ------- --------
Income (loss) before provision
for income taxes . . . . . . . . . 3,028 (235) (7,110) (15,442)
Provision for income taxes . . . . . . - - 8,505 (G) 10,925
------- ------ ------- --------
Net income (loss) . . . . . . . . . . $ 3,028 $ (235) $(15,615) (26,367)
======= ====== ========
Dividends and accretion on
preferred stock . . . . . . . . . . . $38,503 (H) $ 38,503
--------
Loss applicable to common shares . . . $(64,870)
========
Deficiency of earnings to fixed
charges and preferred stock
dividends and accretion . . . . . . . $ 79,613
See Accompanying Notes to Pro Forma Financial Information
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, 1995
Historical
-----------------------------------------------------------------------------
Chancellor Shamrock KTMN-FM
Broadcasting Broadcasting KDWB-FM KALC-FM Colfax Sundance KOOL-FM
------------- ------------- -------- -------- -------- --------- ---------
Net revenues . . . . . . . . . . . . $47,921 $69,630 $ 893 $5,210 $21,692 $10,718 $3,497
------- ------- ----- ------ ------- ------- ------
Station operating expenses . . . . . 28,120 55,413 473 4,519 15,678 7,389 2,838
Depreciation and amortization . . . . 6,708 6,549 518 699 5,084 1,761 657
Corporate expenses . . . . . . . . . 1,292 2,515 - - - - -
Stock option compensation expense . . 5,410 - - - - - -
------- ------- ----- ------ ------- ------- ------
Operating income (loss) . . . . . . 6,391 5,153 (98) (8) 930 1,568 2
Interest expense . . . . . . . . . . 12,780 11,067 - - 476 - 876
Other (income) expense . . . . . . . 82 (169) 23 - 939 17 -
------- ------- ----- ------ ------- ------- ------
Income (loss) before provision
for income taxes . . . . . . . . (6,471) (5,745) (121) (8) (485) 1,551 (874)
Provision for income taxes . . . . . 2,829 (1,798) (93) - - - -
------- ------- ----- ------ ------- ------- ------
Net income (loss) . . . . . . . . . (9,300) $(3,947) $ (28) $ (8) $ (485) $ 1,551 $ (874)
======= ===== ====== ======= ======= ======
Dividends and accretion on
preferred stock . . . . . . . . . . -
-------
Loss applicable to common shares . . $(9,300)
=======
Deficiency of earnings to
fixed charges and preferred
stock dividends and accretion . . . $ 6,471
Historical
----------------------
Omni All
Stations Other Adjustments Pro Forma
----------- ---------- ----------- -------------
Net revenues . . . . . . . . . . . . . $11,134 $10,169 $ (540)(A) $165,504
(14,820)(B)
------- ------ -------- --------
Station operating expenses . . . . . . 7,370 7,084 (540)(A) 107,906
(12,192)(B)
(8,246)(C)
Depreciation and amortization . . . . . 1,331 1,868 3,325 (D) 28,500
Corporate expenses . . . . . . . . . . - 987 (1,494)(E) 3,300
Stock option compensation expense . . . - - - 5,410
------- ------ ------- --------
Operating income (loss) . . . . . . . 2,433 230 3,787 20,388
Interest expense . . . . . . . . . . . - 22 9,178 (F) 34,399
Other (income) expense . . . . . . . . (84) - - 808
------- ------ ------- --------
Income (loss) before provision
for income taxes . . . . . . . . . 2,517 208 (5,391) (14,819)
Provision for income taxes . . . . . . - 40 7,216 (G) 8,194
------- ------ ------- --------
Net income (loss) . . . . . . . . . . $ 2,517 $ 168 $(12,606) (23,013)
======= ====== ========
Dividends and accretion on
preferred stock . . . . . . . . . . . $28,550 (H) $ 28,550
--------
Loss applicable to common shares . . . $(51,563)
========
Deficiency of earnings to fixed
charges and preferred stock
dividends and accretion . . . . . . . $ 62,402
See Accompanying Notes to Pro Forma Financial Information
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, 1996
Historical
-------------------------------------------------------------------------
Chancellor Shamrock KIMN-FM
Broadcasting Broadcasting KALC-FM Colfax Sundance KOOL-FM
-------------- -------------- --------- --------- ---------- ---------
Net revenues . . . . . . . . . . . . . . . . . . $122,838 $ 8,464 $1,796 $28,146 $12,104 $1,431
-------- ------- ------ ------- ------- ------
Station operating expenses . . . . . . . . . . . 74,922 7,762 1,617 18,684 7,678 852
Depreciation and amortization . . . . . . . . . . 17,704 595 511 3,933 1,242 229
Corporate expenses . . . . . . . . . . . . . . . 3,377 2,515 - - - -
Stock option compensation expense . . . . . . . . 2,850 - - - - -
-------- ------- ------ ------- ------- ------
Operating income (loss) . . . . . . . . . . . . 23,985 (2,108) (332) 5,529 3,184 350
Interest expense . . . . . . . . . . . . . . . . 24,469 1,380 - 3,227 - 299
Other (income) expense . . . . . . . . . . . . . 130 49 (2,847) (120) 25 -
-------- ------- ------ ------- ------- ------
Income (loss) before provision
for income taxes . . . . . . . . . . . . . . (614) (3,537) 2,515 2,422 3,159 51
Provision for income taxes . . . . . . . . . . . 2,201 - - - - -
-------- ------- ------ ------- ------- ------
Net income (loss) before extraordinary loss . . (2,815) (3,537) 2,515 2,422 3,159 51
Extraordinary loss on early extinguishment
of debt . . . . . . . . . . . . . . . . . . . . 5,609 - - - - -
-------- ------- ------ ------- ------- ------
Net income (loss) . . . . . . . . . . . . . . . (8,424) $(3,537) $2,515 $ 2,422 $ 3,159 $ 51
======= ====== ======= ======= ======
Dividends and accretion on preferred stock . . . 8,187
Loss on repurchase of preferred stock . . . . . . 16,570
--------
Loss applicable to common shares . . . . . . . . $(33,181)
========
Deficiency of earnings to fixed charges and
preferred stock dividends and accretion . . . . $ 8,801
Historical
----------------------
Omni All
Stations Other Adjustments Pro Forma
----------- ---------- ----------- -------------
Net revenues . . . . . . . . . . . . . $7,445 $ 6,933 $(10,754)(B) $176,670
(1,733)(K)
------- ------ -------- --------
Station operating expenses . . . . . . 5,325 5,348 (5,934)(B) 110,581
(1,900)(C)
(3,773)(K)
Depreciation and amortization . . . . . 1,458 2,307 806 (D) 28,785
Corporate expenses . . . . . . . . . . - 1,024 (2,491)(E) 4,125
Stock option compensation expense . . . - - - 2,850
------- ------ ------- --------
Operating income (loss) . . . . . . . 662 (1,746) 805 30,329
Interest expense . . . . . . . . . . . - 27 4,089 (F) 33,491
Other (income) expense . . . . . . . . (404) (5,100) - (8,267)
------- ------ ------- --------
Income (loss) before provision
for income taxes . . . . . . . . . 1,066 3,327 (3,284) 5,105
Provision for income taxes . . . . . . - - 5,993 (G) 8,194
------- ------ ------- --------
Net income (loss) before
extraordinary loss . . . . . . . . 1,066 3,327 (9,277) (3,089)
Extraordinary loss on early
extinguishment of debt . . . . . . . - - (5,609)(I) -
------- ------- ------- -------
Net income (loss) . . . . . . . . . . $ 1,066 $3,327 $(3,668) (3,089)
======= ====== =======
Dividends and accretion on
preferred stock . . . . . . . . . . . $23,847 (H) $ 32,034
Loss on repurchase of preferred stock . (16,570)(J) -
--------
Loss applicable to common shares . . . $(35,123)
========
Deficiency of earnings to fixed
charges and preferred stock
dividends and accretion . . . . . . . $ 48,286
See Accompanying Notes to Pro Forma Financial Information
UNAUDITED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
ASSETS
Historical
--------------------------------------------------
Chancellor Omni All
Broadcasting Colfax Stations Other Adjustments Pro Forma
------------ ----------- ----------- ----------- ------------- ------------
Current assets:
Cash . . . . . . . . . . . . . . . . . . $ 5,112 $ 2,504 $ 1,823 $ 2,755 $ (4,579)(L) $ 7,615
Accounts receivable, net . . . . . . . . 42,172 9,848 718 470 (1,188)(L) 52,020
Prepaid expenses and other . . . . . . . 1,955 646 19 83 2,703
-------- -------- ------- ------- --------- ----------
Total current assets . . . . . . . 49,239 12,998 2,560 3,308 (5,767) 62,338
Restricted cash . . . . . . . . . . . . . . 20,000 - - - (20,000)(M) -
Property and equipment, net . . . . . . . . 49,082 10,218 23,432 4,908 15 (N) 87,655
Intangible and other assets, net . . . . . 586,863 147,520 14,636 33,249 (4,870)(M) 1,007,658
230,260 (N)
-------- -------- ------- -------- --------- ----------
Total assets . . . . . . . . . . . . . $705,184 $170,736 $40,628 $ 41,465 $ 199,638 $1,157,651
======== ======== ======= ======== ========= ==========
LIABILITIES AND COMMON STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt . . . . 400 - - - 8,975 (M) 9,375
Accounts payable and other
accrued expenses . . . . . . . . . . . 14,487 4,186 55 363 (185)(O) 18,906
-------- -------- ------- -------- -------- ----------
Total current liabilities . . . . . . 14,887 4,186 55 363 8,790 28,281
-------- -------- ------- -------- -------- ----------
Long-term debt . . . . . . . . . . . . . . 364,708 57,950 - - (57,950)(M) 505,074
140,366 (M)
Deferred tax liability . . . . . . . . . . 19,037 - - - - 19,037
Other . . . . . . . . . . . . . . . . . . . 821 - - 77 - 898
-------- -------- ------- -------- -------- ----------
Total liabilities . . . . . . . . . . 399,453 62,136 55 440 91,206 553,290
Senior exchangeable preferred stock . . . . 103,853 - - - - 103,853
Exchangeable preferred stock . . . . . . . - 192,500 (P) 192,500
Common stockholder's equity . . . . . . . . 201,878 108,600 40,573 41,025 (4,870)(M) 308,008
(190,198)(Q)
111,000 (P)
-------- -------- ------- ------- --------- ----------
Total liabilities and common
stockholder's equity . . . . . . . . . $705,184 $170,736 $40,628 $ 41,465 $ 199,638 $1,157,651
======== ======== ======= ======== ========= ==========
See Accompanying Notes to Pro Forma Financial Information
NOTES TO PRO FORMA FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
(A) The adjustment represents the elimination of time brokerage fees
paid by the Company in 1995 to Midcontinent Radio of Minnesota,
Inc. from February 1, 1995 to July 31, 1995 pursuant to an LMA
relating to KDWB-FM.
(B) The adjustment represents the elimination of net revenues and
station operating expenses of the Houston station, which was
exchanged for two Denver stations (KIMN and KALC) in July 1996,
and the Detroit and Milwaukee stations, which are pending
disposition:
Houston Detroit Milwaukee Total
------- ------- --------- -----
Year Ended December 31, 1995
----------------------------
Net revenues . . . . . . . . . . . $4,125 $7,757 $8,047 $19,929
Station operating expenses . . . . 4,032 7,082 4,777 15,891
Nine Months Ended September 30, 1995
------------------------------------
Net revenues . . . . . . . . . . . 3,229 5,619 5,972 14,820
Station operating expenses . . . . 3,312 5,275 3,605 12,192
Nine Months ended September 30, 1996
------------------------------------
Net revenues . . . . . . . . . . . 1,464 2,980 6,310 10,754
Station operating expenses . . . . 726 1,361 3,847 5,934
(C) The adjustment reflects cost savings resulting from the
elimination of redundant operating expenses arising from the
combination of the Company and Shamrock Broadcasting, including
the elimination of certain station management positions, the
standardization of employee benefits and compensation practices
and the implementation of operating strategies currently utilized
by the Company's management. The pro forma cost savings are
summarized as follows:
Year Ended Nine Months Ended
December 31, September 30,
----------------------------
1995 1995 1996
------------- ------------- -------------
Shamrock Broadcasting
Selling expenses . . . . . . . $ 3,135 $2,422 $ 523
Programming and technical . . . 2,297 1,610 383
Advertising and promotions . . 2,554 1,484 422
General and administrative . . 3,455 2,730 572
------- ------ ------
Total . . . . . . . . . . . $11,441 $8,246 $1,900
======= ====== ======
(D) The adjustment reflects (i) a change in depreciation and
amortization resulting from conforming the estimated useful lives
of the acquired stations and (ii) the additional depreciation and
amortization expense resulting from the allocation of the
purchase price of the acquired stations, net of stations
exchanged and sold, including an increase in property and
equipment and intangible assets to their estimated fair market
value and the recording of goodwill associated with the
acquisitions. Goodwill is amortized over 40 years.
(E) The adjustment reflects cost savings anticipated to be achieved
by operating all of the stations under the Company's
decentralized management strategy and from the elimination of
redundant management costs.
(F) The adjustment reflects the effect on interest expense of the
change in debt structure resulting from each pro forma event. Pro
forma interest reflects $200,000 of 9 3/8% Senior Subordinated
Notes due 2004 and $60,000 of 12 1/2% Senior Subordinated Notes
due 2004 and $254,449 of bank financing with an annual interest
rate of approximately 7.7%.
(G) The adjustment reflects the increase in the provision for income
taxes resulting from the deferred tax liabilities generated
during each period from the respective acquisitions, offset by
the reversal of book/tax basis differences of Shamrock
Broadcasting during each period had the acquisition occurred on
January 1, 1995.
(H) The adjustment reflects the dividends and accretion on the 12
1/4% Series A Senior Cumulative Exchangeable Preferred Stock due
2008, where not already included, and the 12% Exchangeable
Preferred Stock due 2009.
(I) The adjustment reflects the elimination of a non-recurring
extraordinary loss on early extinguishment of debt in connection
with the refinancing of the Company's term and revolving loan
facilities in conjunction with the acquisition of Shamrock
Broadcasting and a partial prepayment of the Company's existing
credit agreement in August 1996.
(J) The adjustment reflects the elimination of a non-recurring
extraordinary loss on repurchase of preferred stock, which was
recognized in March 1996 in connection with the acquisition of
Shamrock Broadcasting.
(K) The adjustment reflects the elimination of the LMA and related
facility fee payments for the Omni Transaction.
(L) The adjustment represents the elimination of the historical cash
and receivables balances, net of the allowance for bad debts, for
the Omni Transaction, as the respective acquisition and exchange
agreements exclude these items.
(M) The adjustment reflects (i) the application of the restricted
cash ($20,000) and borrowings under the Company's new $345
million credit agreement ($254,449) to finance the acquisition of
the Colfax Stations and the Omni Stations, net of the proceeds of
the pending station swaps and dispositions, (ii) the repayment of
the existing credit agreement ($105,108) and (iii) the
elimination of $4,870 of the Company's deferred financing costs
associated with the
existing credit agreement, which will be recognized as an
extraordinary loss in the period the refinancing occurs.
(N) The adjustment reflects the allocation of the purchase price of
the pending acquisitions, net of the pending dispositions and
exchanges, to the assets being acquired and liabilities being
assumed resulting in an increase in property and equipment and
intangible assets to their estimated fair values and the
recording of goodwill associated with the transactions as
follows:
Omni All
Colfax Transaction Other Corporate Total
---------- ------------ --------- --------- ---------
Cash . . . . . . . . . . . . $ 2,504 $ 2,504
Accounts receivable, net . . 9,848 9,848
Prepaid expenses and other . 646 102 748
Property and equipment . . . 27,735 13,313 (2,475) 38,573
Goodwill . . . . . . . . . . 303,572 146,143 (27,051) 422,664
Deferred financing . . . . . - - - 3,000 3,000
Accounts payable and other
accrued expenses . . . . . (4,186) (418) 91 (4,513)
-------- -------- -------- ------ --------
Total . . . . . . . . . $340,119 $159,140 $(29,435) $3,000 $472,824
======== ======== ======== ====== ========
(O) The adjustment represents the elimination of the accounts payable
and other accrued expenses for the Detroit and Milwaukee
stations, which are being sold.
(P) The adjustment reflects (i) the sale of the 12% Exchangeable
Preferred Stock due 2009, net of related transaction costs
($192,500), (ii) the capital contribution of the proceeds from
the concurrent sale of Chancellor Broadcasting Company's 7%
Convertible Preferred Stock, net of related transaction costs
($96,000) and (iii) the capital contribution resulting from the
issuance of Chancellor Broadcasting Company's Class A Common
Stock ($15,000) pursuant to the agreement relating to the
acquisition of the Omni Stations.
(Q) The adjustment reflects the elimination of the historical equity
balances of the stations being acquired.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(a) Financial Statements of Business Acquired
The following are the combined financial statements of Colfax
Communications, Inc. Radio Group as of December 31, 1993, 1994 and
1995 and for the years ended December 31, 1993, 1994 and 1995.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Colfax Communications, Inc. Radio Group:
We have audited the accompanying combined balance sheets of the
Colfax Communications, Inc. Radio Group (the "Company") as of December
31, 1995, 1994, and 1993, and the related combined statements of
income (loss), changes in partners' equity and cash flows for each of
the three years in the period ended December 31, 1995. These combined
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
combined 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
an 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 combined financial statements referred to
above present fairly, in all material respects, the financial position
of the Colfax Communications, Inc. Radio Group as of December 31,
1995, 1994, and 1993, and the results of its operations and its cash
flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Washington, D.C.,
September 24, 1996
COLFAX COMMUNICATIONS, INC. RADIO GROUP
COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1995, 1994, AND 1993
CURRENT ASSETS
1995 1994 1993
------------- ------------- -------------
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . $ 682,672 $ 216,414 $ 194,905
Accounts receivable, net of allowance for doubtful
accounts of $203,088, $238,801 and $0, respectively . . 7,626,579 8,978,881 7,314,558
Prepaid expenses and other current assets . . . . . . . . 286,774 343,441 514,060
----------- ----------- ----------
Total current assets . . . . . . . . . . . . . . 8,596,025 9,538,736 8,023,523
Property and equipment at cost, net of depreciation . . . 8,675,724 9,608,603 10,087,042
Intangibles and other noncurrent assets at cost, net
of amortization . . . . . . . . . . . . . . . . . . . . 32,383,587 37,653,803 44,234,705
----------- ----------- -----------
Total assets . . . . . . . . . . . . . . . . . . $49,655,336 $56,801,142 $62,345,270
=========== =========== ===========
Liabilities
Accounts payable and accrued expenses . . . . . . . . . . $ 3,224,139 $ 3,883,242 $ 3,174,794
Current maturities of long-term debt . . . . . . . . . . - 900,000 800,000
----------- ----------- -----------
Total current liabilities . . . . . . . . . . . 3,224,139 4,783,242 3,974,794
Long-term debt . . . . . . . . . . . . . . . . . . . . . 39,225,000 7,100,000 8,000,000
----------- ----------- -----------
Total liabilities . . . . . . . . . . . . . . . 42,449,139 11,883,242 11,974,794
----------- ----------- -----------
Commitments (Note 8):
Partners' equity:
Radio Acquisition Associates . . . . . . . . . . . . . (2,783,226) (3,121,671) (2,464,398)
Equity Group Holdings . . . . . . . . . . . . . . . . . 9,888,902 47,558,478 52,305,936
Colfax Communications, Inc. . . . . . . . . . . . . . . 100,521 481,093 528,938
Class B Limited Partners . . . . . . . . . . . . . . . - - -
----------- ----------- -----------
Total partners' equity . . . . . . . . . . . . . 7,206,197 44,917,900 50,370,476
----------- ----------- -----------
Total liabilities and partners' equity . . . . . $49,655,336 $56,801,142 $62,345,270
=========== =========== ===========
The accompanying notes are an integral
part of these balance sheets.
COLFAX COMMUNICATIONS, INC. RADIO GROUP
COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1995 1994 1993
------------- ------------ -------------
Advertising revenues:
Local sponsors . . . . . . . . . . . . . . . . . . . . $23,425,588 $24,147,363 $17,070,501
National sponsors . . . . . . . . . . . . . . . . . . . 9,151,724 8,221,228 5,075,658
Other . . . . . . . . . . . . . . . . . . . . . . . . . 1,910,483 2,090,737 1,507,337
----------- ----------- -----------
Gross advertising revenues . . . . . . . . . . . 34,487,795 34,459,328 23,653,496
Less -- Commissions . . . . . . . . . . . . . . . . . . . (4,345,062) (4,283,386) (2,788,198)
----------- ----------- -----------
Net advertising revenues . . . . . . . . . . . . 30,142,733 30,175,942 20,865,298
----------- ----------- -----------
Operating expenses:
Programming . . . . . . . . . . . . . . . . . . . . . . 5,461,691 9,604,067 8,348,699
Sales and advertising . . . . . . . . . . . . . . . . . 11,360,597 10,885,717 9,141,312
General and administrative . . . . . . . . . . . . . . 4,332,286 3,651,832 1,931,197
Engineering . . . . . . . . . . . . . . . . . . . . . . 1,014,375 1,084,282 812,347
Depreciation and amortization . . . . . . . . . . . . . 6,505,492 7,599,901 7,197,017
----------- ----------- -----------
Total operating expenses . . . . . . . . . . . . 28,674,441 32,825,799 27,430,572
----------- ----------- -----------
Income (loss) from operations . . . . . . . . . 1,468,292 (2,649,857) (6,565,274)
Interest expense . . . . . . . . . . . . . . . . . . . . 655,795 531,387 524,368
Loss on dissolution of GRAD-H (Note 6) . . . . . . . . . - - 499,540
Loss on sale of fixed assets . . . . . . . . . . . . . . 770,689 - -
Other expense . . . . . . . . . . . . . . . . . . . . . . - 75,364 299,179
----------- ----------- -----------
Net income (loss) . . . . . . . . . . . . . . . $ 41,808 $(3,256,608) $(7,888,361)
=========== =========== ===========
The accompanying notes are an integral part of these statements.
COLFAX COMMUNICATIONS, INC. RADIO GROUP
COMBINED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
Radio Colfax Equity Class B
Acquisition Comm., Group Limited
Associates Inc. Holdings Partners Total
----------- ----------- ----------- ----------- ------------
Balance, December 31, 1992 . . $(1,618,492) $ 93,136 $ 9,178,480 $ - $ 7,653,124
Capital contributions
from partners . . . . . . . - 527,767 52,248,758 - 52,776,525
Capital distributions
to partners . . . . . . . . (484,890) (16,763) (1,669,159) - (2,170,812)
Net income (loss) . . . . . . (361,016) (75,202) (7,452,143) - (7,888,361)
----------- --------- ------------ ------ ------------
Balance, December 31, 1993 . . (2,464,398) 528,938 52,305,936 - 50,370,476
Capital contributions
from partners . . . . . . . 368,281 60,023 5,949,744 - 6,378,048
Capital distributions
to partners . . . . . . . . (1,678,638) (68,618) (6,826,760) - (8,574,016)
Net income (loss) . . . . . . 653,084 (39,250) (3,870,442) - (3,256,608)
----------- --------- ----------- ------ ------------
Balance, December 31, 1994 . . (3,121,671) 481,093 47,558,478 - 44,917,900
Capital contributions
from partners . . . . . . . - 5,735 567,746 - 573,481
Capital distributions
to partners . . . . . . . . (1,031,464) (372,709) (36,922,819) - (38,326,992)
Net income (loss) . . . . . . 1,369,909 (13,598) (1,314,503) - 41,808
----------- --------- ------------ ------ ------------
Balance, December 31, 1995 . . $(2,783,226) $ 100,521 $ 9,888,902 $ - $ 7,206,197
=========== ========= ============ ====== ============
The accompanying notes are an integral part of these statements.
COLFAX COMMUNICATIONS, INC. RADIO GROUP
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1995 1994 1993
-------------- --------------- ---------------
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . $ 41,808 $(3,256,608) $ (7,888,361)
Adjustment to reconcile net loss to net cash
used in operating activities --
Depreciation and amortization . . . . . . . . . . 6,505,492 7,599,901 7,197,017
Loss on dissolution of GRAD-H . . . . . . . . . . - - 499,540
Loss on asset disposal . . . . . . . . . . . . . 770,689 57,398 -
Restructuring charge . . . . . . . . . . . . . . 737,729 - -
Change in assets and liabilities:
Decrease (increase) in accounts
receivable . . . . . . . . . . . . . . . . . 1,352,302 (1,664,323) (3,071,525)
Decrease (increase) in prepaid expenses
and other current assets . . . . . . . . . . 56,667 170,619 (279,592)
(Decrease) increase in accounts payable and
accrued expenses . . . . . . . . . . . . . . (1,396,832) 708,448 935,241
Decrease in accrued interest . . . . . . . . . - - (5,633)
----------- ----------- ------------
Net cash provided by operating
activities . . . . . . . . . . . . . 8,067,855 3,615,435 (2,613,313)
----------- ----------- ------------
Cash flows from investing activities:
Cash paid for acquisition of intangibles and
other noncurrent assets . . . . . . . . . . . . . (363,174) (12,944) (46,419,228)
Payments for additions to property and
equipment . . . . . . . . . . . . . . . . . . . . (823,737) (968,929) (1,067,289)
Disposal of fixed assets . . . . . . . . . . . . . 113,825 - -
----------- ----------- ------------
Net cash used in investing activities . . (1,073,086) (981,873) (47,486,517)
----------- ----------- ------------
Cash flows from financing activities:
Repayment of note payable . . . . . . . . . . . . . (8,000,000) (800,000) (600,000)
Loan proceeds . . . . . . . . . . . . . . . . . . . 39,225,000 - -
Capital contributions from partners . . . . . . . . 573,481 6,378,048 52,776,525
Capital distributions to partners . . . . . . . . . (38,326,992) (8,190,101) (2,170,812)
----------- ----------- ------------
Net cash (used in) provided by
financing activities . . . . . . . . (6,528,511) (2,612,053) 50,005,713
----------- ----------- ------------
Net increase (decrease) in cash . . . . . . . . . . . 466,258 21,509 (94,117)
Cash, beginning of period . . . . . . . . . . . . . . 216,414 194,905 289,022
----------- ----------- ------------
Cash, end of period . . . . . . . . . . . . . . . . . $ 682,672 $ 216,414 $ 194,905
=========== =========== ============
Supplemental disclosure of cash
flow information --
Cash paid during the year for interest . . . . . . $ 615,900 $ 514,213 $ 530,001
=========== =========== ============
The accompanying notes are an integral part of these statements.
COLFAX COMMUNICATIONS, INC. RADIO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995, 1994, AND 1993
1. BASIS OF PRESENTATION:
The accompanying financial statements include the radio station
holdings of Colfax Communications, Inc. ("Colfax"), a Maryland
Corporation. Three of the stations serve the Washington, D.C. market:
WGMS-FM (classical format), WBIG-FM (oldies format), and WTEM-AM
(all-sports format). The remaining two stations, WBOB-FM (country
format) and KQQL-FM (oldies format), serve the Minneapolis-St. Paul
market. All five stations are owned by entities under the common
control of Colfax and its affiliates.
2. DESCRIPTION OF COLFAX COMMUNICATIONS, INC. RADIO GROUP:
Classical Acquisition Limited Partnership
Classical Acquisition Limited Partnership ("CALP") is a Maryland
limited partnership formed to acquire and operate radio stations
WGMS-AM (currently WTEM-AM) and WGMS-FM. Radio Acquisition Associates
Limited Partnership, a Maryland limited partnership, had a 98.04
percent general partner interest and Equity Group Holdings, a District
of Columbia general partnership, had a 1.96 percent limited partner
interest in CALP prior to the admission of the Class B Limited
Partners as discussed below. Radio Acquisition Associates Limited
Partnership has Colfax as a one percent general partner and Equity
Group Holdings as a 99 percent limited partner.
Certain Class B Limited Partners were admitted to the partnership
on January 1, 1993 and on January 1, 1995. The Class B Limited
Partners have a 13.25 percent interest in CALP and Equity Group
Holdings' limited partnership interest in CALP was reduced to 1.813
percent effective January 1, 1993. Radio Acquisition Associates'
Limited Partnership general partnership interest was reduced to 90.687
percent and 84.937 percent effective January 1, 1993 and
January 1, 1995, respectively.
Radio 570 Limited Partnership
Radio 570 Limited Partnership ("Radio 570") is a Maryland limited
partnership formed on December 10, 1991, to operate radio station
WTEM-AM (formerly WGMS-AM). Radio 570 was formed by Colfax as the one
percent general partner and Equity Group Holdings as the 99 percent
limited partner. WTEM began broadcasting on May 24, 1992.
Effective January 1, 1993, certain Class B Limited Partners were
admitted to the partnership. On September 15, 1995, a Class
B Limited Partner was redeemed of his partnership interest. At
December 31, 1995, the Class B Limited Partners have a 9.25 percent
interest and Equity Group Holdings has a 89.75 percent interest.
Radio 100 Limited Partnership
Radio 100 Limited Partnership ("Radio 100") was formed on August
11, 1992, to acquire and operate radio stations. Radio 100 was formed
by Colfax as the one percent general partner and Equity Group Holdings
as the 99 percent limited partner.
In 1993, Radio 100 completed its acquisition of two radio
stations in Minnesota for $25,500,000. WBOB-FM (formerly WCTSFM) and
KQQL-FM began on-air operations under Radio 100 ownership on May 7,
1993, and February 18, 1993,
respectively.
Effective January 1, 1993, certain Class B Limited Partners were
admitted to the partnership. The Class B Limited Partners have a 10.25
percent interest and the Equity Group Holdings interest was reduced to
88.75 percent.
Radio 100 of Maryland Limited Partnership
Radio 100 of Maryland Limited Partnership ("Radio 100 of
Maryland") was formed on December 2, 1992 to acquire and operate radio
stations. Radio 100 of Maryland was formed by Colfax as the one
percent general partner and Equity Group Holdings as the 99 percent
limited partner.
On June 3,1993, Radio 100 of Maryland acquired WBIG-FM (formerly
WJZE-FM) in Washington, D.C. for $19,500,000.
Effective January 1, 1993, certain Class B Limited Partners were
admitted to the partnership. On September 15, 1995, a Class B Limited
Partner was redeemed of his partnership interest. On October 1, 1995,
a Class B Limited Partner was admitted to the partnership. At December
31, 1995, the Class B Limited Partners have a 11.25 percent interest
and Equity Group Holdings has a 87.75 percent interest.
Partnership Allocations
The partnerships distribute cash from operations and allocate net
profits or losses to the partners, in general, in accordance with
their stated interests except that no partner shall receive any
distribution from a partnership until such time as the net invested
capital of the general partner and Class A Limited Partner have been
distributed, along with a cumulative priority return on the average
net invested capital at an annual rate equal to the prime rate plus
one quarter of one percent compounded monthly.
In accordance with the Company's new debt agreement (described
below) distributions to partners may be permitted on a quarterly basis
if certain requirements are met.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Accounting
The accompanying financial statements are presented on the
accrual basis of accounting in accordance with generally accepted
accounting principles.
Barter Transactions
The partnerships enter into barter transactions in which they
provide on-air advertising in exchange for goods and services.
Revenues and expenses from barter transactions are presented in the
accompanying statement of revenues and expenses based on the estimated
fair market value of the goods or services received. Barter revenue
approximated $1,590,000, $1,870,000 and $1,340,000 for the years ended
December 31, 1995, 1994, and 1993, respectively; while barter expense
approximated $1,486,000, $1,520,000 and $1,370,000, for the years
ended December 31, 1995, 1994, and 1993, respectively.
Income Taxes
Provision for Federal and state income taxes has not been made in
the accompanying financial statements since the partnerships do not
pay Federal and state income taxes but rather allocate profits and
losses to the partners for inclusion in their respective income tax
returns.
Buildings and Leasehold Improvements
Buildings and leasehold improvements are recorded at fair value
at the date of acquisition. Depreciation is recorded using the
straight-line method over 31.5 or 40 years.
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are recorded at fair value at
the date of acquisition. Depreciation is recorded using the
straight-line method over the estimated useful life of the assets,
which is typically 5 to 7 years.
Intangible Assets
Intangible assets are recorded at fair value at the date of
acquisition. Amortization is recorded over their useful fives. The
estimated useful lives of intangible assets as of December 31, 1995,
are as follows:
Useful Life
-----------
FCC Licenses . . . . . . . . . . . . . . . . . . 7-25 years
Covenants Not to Compete . . . . . . . . . . . . 3 years
Employment Agreements . . . . . . . . . . . . . . 2 years
Organizational Costs . . . . . . . . . . . . . . 5 years
Start-up Costs . . . . . . . . . . . . . . . . . 5 years
Land
Certain partners have contributed to Radio 570 a parcel of land
in Germantown, Maryland, which is being used as the site for a new
array of broadcasting towers. The land has been recorded at its
original purchase price plus costs related to preparing the land for
its intended use.
Radio 100 of Maryland acquired a parcel of land and property in
Washington, D.C., through the purchase agreement with United
Broadcasting Company. This land was sold in February 1995. Radio 100
acquired a parcel of land in Nowthen, Minnesota, through the purchase
agreement with Trumper Communication of Minnesota Limited Partnership.
Both parcels of land were recorded at their appraised value at
acquisition.
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.
Fair Value of Financial Instruments
In 1995, the Company adopted Statement of Financial Accounting
Standard ("SFAS") No. 107, "Disclosure about Fair Value of Financial
Instruments," which requires disclosures of fair value information
about financial instruments, whether or not recognized in the balance
sheet.
The carrying amount reported in the balance sheets for cash,
accounts receivable, accounts payable and accrued liabilities,
approximate their fair value due to the immediate or short-term
maturity of such instruments. The carrying amount reported for
long-term debt approximates fair value due to the debt being priced at
floating rates (see Note 7 for additional information).
New Pronouncements
In March 1995, the FASB issued No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." This statement requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Long-lived assets and certain identifiable intangibles to be disposed
of are to be reported at the lower of carrying amount or fair value
less cost to sell. SFAS No. 121 requires adoption for fiscal years
beginning after December 15, 1995. In management's opinion, the
application of SFAS No. 121 will not have a significant impact on the
Company's financial statements.
4. PROPERTY AND EQUIPMENT:
The components of property and equipment at December 31, 1995,
1994, and 1993, are summarized below:
As of December 31,
-------------------------------------------
1995 1994 1993
------------- ------------- -------------
Land . . . . . . . . . . . . . . . . $ 1,901,663 $ 2,233,341 $ 2,233,341
Buildings . . . . . . . . . . . . . . 26,453 604,927 591,427
Construction in progress . . . . . . 27,232 201,404 1,894,049
Furniture, fixtures and equipment . . 8,520,853 7,690,841 5,582,139
Leasehold improvements . . . . . . . 816,031 522,806 489,328
----------- ----------- -----------
11,292,232 11,253,319 10,790,284
Less -- Accumulated depreciation . . (2,616,508) (1,644,716) (703,242)
----------- ----------- -----------
$ 8,675,724 $ 9,608,603 $10,087,042
=========== =========== ===========
5. INTANGIBLES AND OTHER NONCURRENT ASSETS:
The components of FCC licenses and other noncurrent assets at
December 31, 1995, 1994, and 1993, are summarized below:
As of December 31,
-------------------------------------------
1995 1994 1993
------------- ------------- -------------
FCC licenses . . . . . . . . . . . . $39,505,783 $39,505,773 $39,505,773
Covenants not to compete . . . . . . 8,493,147 8,493,147 9,993,147
Start-up and organizational costs . . 2,132,577 2,153,036 2,153,036
Other . . . . . . . . . . . . . . . . 958,245 1,891,395 1,870,832
----------- ----------- -----------
51,089,752 52,043,351 53,522,788
Less -- Accumulated amortization . . (18,706,165) (14,389,548) 9,288,083)
----------- ----------- ----------
$32,383,587 $37,653,803 $44,234,705
=========== =========== ===========
6. RELATED-PARTY TRANSACTIONS:
Each partnership is involved in certain transactions with other
partnerships in the radio group related to sharing of services and
purchasing. These transactions are settled on a current basis through
adjustments to partners' equity accounts.
On January 18, 1995, CALP and Radio 100 of Maryland each entered
into a ten-year agreement to lease tower space from Colfax Towers,
Inc. The initial annual rental payment was $30,000
for CALP and $36,000 for Radio 100 of Maryland. Colfax Towers, Inc. is
owned by the shareholders of Colfax Communications, Inc.
Employees of Colfax perform activities on behalf of and oversee
the operations of the radio stations included in the radio group.
Colfax does not charge any fees to the radio stations for the
performance of such services. Corporate expenses of $1,354,296,
$1,144,082 and $798,630 related to those services are not included in
the financial statements of the radio group for the years ending
December 31, 1995, 1994, and 1993, respectively. These amounts include
$148,000, $110,000 and $0, respectively, related to management
restructuring at certain radio stations. These corporate expenses were
funded directly by the owners of Colfax Communications, Inc.
CALP owned 100 percent of the stock of GRADH-104, Inc., an Ohio
corporation. On September 15, 1993, the stockholder and directors
authorized the dissolution of GRADH-104, Inc. The assets of GRADH-104
were distributed to its shareholder and recorded at their fair market
value at the time of transfer.
7. LONG-TERM DEBT:
On December 27, 1995, CALP, Radio 570, Radio 100, and Radio 100
of Maryland (collectively, the "Borrowers") entered into a $40 million
revolving loan agreement. At December 31, 1995, $39,225,000 was
outstanding under this agreement. The proceeds were allocated to each
borrower on the basis of each station's capital account as follows:
CALP........................................................ $ 7,378,243
Radio 570................................................... 4,140,078
Radio 100................................................... 16,878,782
Radio 100 of Maryland....................................... 10,827,897
-----------
$39,225,000
===========
The proceeds were used to repay the indebtedness of CALP
(described below), to make certain permitted distributions to partners
of the Borrowers, and for working capital purposes in the operations
of the Borrowers. Borrowings under this agreement bear interest at
floating rates equal to prime and/or LIBOR (as defined in the loan
agreement) plus an applicable margin determined by a leverage ratio.
The expiration date of the loan agreement is December 31, 2002. Under
the loan agreement, the Borrowers are required to maintain a specific
leverage ratio and certain ratios pertaining to cash flow coverage.
On March 31, 1992, CALP entered into a $10 million loan
agreement. This loan bore interest at a floating rate equal to prime
plus 0.5 percent, LIBOR plus 2.0 percent or the CD rate (as defined in
the loan agreement) plus 2.0 percent, along with certain other
interest rate options. As described above, this loan was paid in full
on December 27, 1995.
8. COMMITMENTS:
The Radio Group has entered into various contracts for exclusive
radio broadcasting rights and other programming. In addition, the
partnerships lease office space and have entered into various service
contracts, including certain personal service contracts. These
broadcasting rights, leases and service contracts expire over periods
ranging from 1996 to 2012. The minimum future commitments under these
agreements, leases and service contracts are as follows.
1996........................................................ $ 3,688,393
1997........................................................ 3,377,277
1998........................................................ 1,951,379
1999........................................................ 1,150,057
2000........................................................ 922,649
Thereafter.................................................. 1,950,932
-----------
$13,040,687
===========
9. RESTRUCTURING CHARGES:
During 1995, the Radio Group incurred restructuring costs of
$737,729 at certain radio stations. These costs included severance and
salary payments to terminated employees of $357,563, costs related to
hiring a new general manager at one of the radio stations of $135,519
and costs related to a loss on space vacated by one of the radio
stations of $244,647.
10. SUBSEQUENT EVENTS:
Radio 94 of Phoenix Limited Partnership ("Radio 94") was formed
on January 3, 1996, to acquire and operate radio stations. Radio 94
was formed by Colfax as the one percent general partner and Equity
Group Holdings as the 99 percent limited partner. On April 1, 1996,
Radio 94 acquired KOOL (AM and KOOL-FM in Phoenix, Arizona for
$35,000,000. Effective April 5, 1996, certain Class B Limited Partners
were admitted to the partnership. The Class B Limited Partners have an
8.25 percent interest and the Equity Group Holdings interest was
reduced to 90.75 percent. In June 1996, Radio 94 entered into an asset
purchase agreement to sell KOOL (AM).
Radio 95 of Phoenix Limited Partnership ("Radio 95") was formed
on May 3, 1996, to acquire and operate radio stations. Radio 95 was
formed by Colfax as the one percent general partner and Equity Group
Holdings as the 99 percent limited partner. On September 12, 1996,
Radio 95 acquired KYOT-FM, KZON-FM, KOY (AM) and KISO (AM), each in
Phoenix, Arizona; KIDO (AM) and KLTB (FM, each in Boise, Idaho; KARO
(FM) in Caldwell, Idaho; WMIL-FM in Waukesha, Wisconsin; and WOKY (AM)
in Milwaukee, Wisconsin for $95,000,000.
On August 24,1996, Chancellor Radio Broadcasting Company
("Chancellor") a Delaware Corporation, purchased substantially all of
the assets of CALP, Radio 570, Radio 100, Radio 100 of Maryland, Radio
94 (with the exception of KOOL (AM)) and Radio 95 (with the exception
of KIDO (AM, KLTB (FM) and KARO (FM) for $365,000,000 through the
execution of an Asset Purchase Agreement (the "Agreement"). The
Agreement stipulates that the purchase price for the assets be
allocated among the limited partnerships as follows:
CALP........................................................ $ 50,000,000
Radio 570................................................... 21,000,000
Radio 100................................................... 85,000,000
Radio 100 of Maryland....................................... 90,000,000
Radio 94.................................................... 30,000,000
Radio 95.................................................... 89,000,000
------------
$365,000,000
============
(b) Pro Forma Financial Information
The following unaudited pro forma financial information
(referred to for purposes of Item 7(b) as the "Pro Forma Financial
Information") is based on the historical financial statements of (i)
the Company, (ii) KDWB-FM (acquired by the Company in August 1995),
(iii) Shamrock Broadcasting (acquired by the Company in February
1996), (iv) KOOL-FM (acquired by Colfax in April 1996), (v) KIMN-FM
and KALC-FM (acquired by the Company in July 1996 and for which a
Houston station was exchanged), (vi) the stations acquired by Colfax
from Sundance in September 1996, (vii) WKYN-AM (acquired by the
Company in November 1996) and (viii) the Colfax Stations (acquired by
the Company in January 1997), two of which will be divested.
Financial information for WKYN-AM is shown where applicable in the Pro
Forma Financial Information.
The pro forma condensed statements of operations for the year
ended December 31, 1995 and for the nine months ended September 30,
1995 and 1996 give effect to the consummation of the acquisition of
KDWB-FM, Shamrock Broadcasting, KOOL-FM, KIMN-FM and KALC-FM (for
which a Houston station was exchanged), WKYN-AM and the Colfax
Stations (two of which will be divested) and, in each case, the
financing thereof, as if each such transaction had occurred on January
1, 1995. The pro forma balance sheet as of September 30, 1996 has
been prepared as if the acquisition of WKYN-AM and the Colfax Stations
and, in each case, the financing thereof, had occurred on that date.
The Pro Forma Financial Information is not necessarily indicative of
either future results of operations or the results that might have
occurred if the foregoing transactions had been consummated on the
indicated dates.
The purchases of KDWB-FM, Shamrock Broadcasting and the Colfax
Stations were accounted for using the purchase method of accounting.
The acquisition of KIMN-FM and KALC-FM in exchange for a Houston
station was accounted for using the fair value of the Houston station
and the additional cash consideration paid. The total purchase costs
of the acquisitions and exchanges will be allocated to the tangible
and intangible assets and liabilities acquired based upon their
respective fair values. The allocation of the aggregate purchase
price reflected in the Pro Forma Financial Information is preliminary.
The final allocation of the purchase price is contingent upon the
receipt of final appraisals of the acquired assets; however, such
allocation is not expected to differ materially from the preliminary
allocation.
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(dollars in thousands)
Year Ended December 31, 1995
Historical
----------------------------------------------------------------------
Chancellor Shamrock KIMN-FM
Broadcasting Broadcasting KDWB-FM KALC-FM Colfax Sundance KOOL-FM Adjustments Pro Forma
------------ ------------ ------- ------- -------- -------- ------- -------- ----------
Net revenues . . . . . . . $ 64,322 $94,605 $ 893 $7,205 $30,143 $14,840 $4,914 $ (540)(A) $212,257
(4,125)(B)
--------- ------- ----- ------ ------- ------- ------ -------- --------
Station operating
expenses . . . . . . . . . 37,464 73,720 473 6,193 22,169 9,774 3,573 (540)(A) 137,353
(4,032)(B)
(11,441)(C)
Depreciation and
amortization . . . . . . . 9,047 8,751 518 875 6,505 2,145 899 7,357 (D) 36,097
Corporate expenses . . . . 1,816 3,139 - - - - - (955)(E) 4,000
Stock option
compensation expense . . . 6,360 - - - - - - - 6,360
--------- ------- ----- ------ ------- ------- ------ ------- --------
Operating income (loss) . 9,635 8,995 (98) 137 1,469 2,921 442 4,946 28,447
Interest expense . . . . . 17,324 14,703 - - 656 - 1,162 7,789 (F) 41,634
Other (income) expense . . 42 (78) 23 2 771 21 - - 781
--------- ------- ----- ------ ------- ------- ------ ------- --------
Income (loss) before
provision for income
taxes . . . . . . . . . . (7,731) (5,630) (121) 135 42 2,900 (720) (2,842) (13,967)
Provision for income
taxes . . . . . . . . . . . 3,800 (1,287) (93) - - - - 4,918 (G) 7,338
--------- ------- ----- ------ ------- ------- ------ ------- --------
Net income (loss) . . . . (11,531) $(4,343) $ (28) $ 135 $ 42 $ 2,900 $ (720) $(7,760) (21,305)
======= ===== ====== ======= ======= ====== =======
Dividends and accretion
on preferred stock . . . . - $38,503 (H) $ 38,503
--------- --------
Loss applicable to common
shares . . . . . . . . . . $ (11,531) $(59,808)
========= ========
Deficiency of earnings to
fixed charges and preferred
stock dividends and
accretion . . . . . . . . . $ 7,731 $ 78,065
See Accompanying Notes to Pro Forma Financial Information.
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(dollars in thousands)
Nine Months Ended September 30, 1995
Historical
---------------------------------------------------------------------
Chancellor Shamrock KTMN-FM
Broadcasting Broadcasting KDWB-FM KALC-FM Colfax Sundance KOOL-FM Adjustments Pro Forma
------------ ------------ ------- ------- ------- -------- ------- -------- ---------
Net revenues . . . . . . . . $47,921 $69,630 $ 893 $5,210 $21,692 $10,718 $3,497 $ (540)(A) $155,792
(3,229)(B)
------- ------- ----- ------ ------- ------- ------ ------- --------
Station operating
expenses . . . . . . . . . . 28,120 55,413 473 4,519 15,678 7,389 2,838 (540)(A) 102,332
(3,312)(B)
(8,246)(C)
Depreciation and
amortization . . . . . . . . 6,708 6,549 518 699 5,084 1,761 657 5,096 (D) 27,072
Corporate expenses . . . . . 1,292 2,515 - - - - - (807)(E) 3,000
Stock option
compensation expense . . . . 5,410 - - - - - - - 5,410
------- ------- ----- ------ ------- ------- ------ ------- --------
Operating income (loss) . . 6,391 5,153 (98) (8) 930 1,568 2 4,040 17,978
Interest expense . . . . . . 12,780 11,067 - - 476 - 876 6,178 (F) 31,377
Other (income) expense . . . 82 (169) 23 - 939 17 - - 892
------- ------- ----- ------ ------- ------- ------ ------- --------
Income (loss) before
provision for income
taxes . . . . . . . . . . . . (6,471) (5,745) (121) (8) (485) 1,551 (874) (2,138) (14,236)
Provision for income
taxes . . . . . . . . . . . . 2,829 (1,798) (93) - - - - 4,565 (G) 5,503
------- ------- ----- ------ ------- ------- ------ ------- --------
Net income (loss) . . . . . (9,300) $(3,947) $ (28) $ (8)$ (485) $ 1,551 $ (874) $(6,703) (19,794)
======= ===== ====== ======= ======= ====== =======
Dividends and accretion on
preferred stock . . . . . . . - 28,550 (H) 28,550
------- --------
Loss applicable to
common shares . . . . . . . . $(9,300) $(48,345)
======= ========
Deficiency of earnings to
fixed charges and preferred
stock dividends and
accretion . . . . . . . . . . $ 6,471 $ 61,875
See Accompanying Notes to Pro Forma Financial Information.
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(dollars in thousands)
Nine Months Ended September 30, 1996
Historical
------------------------------------------------------------
Chancellor Shamrock KIMN-FM
Broadcasting Broadcasting KALC-FM Colfax Sundance KOOL-FM Adjustments Pro Forma
------------ ------------ ------- ------- -------- ------- -------- ---------
Net revenues . . . . . . . . . . . . $122,838 $ 8,464 $1,796 $28,146 $12,104 $1,431 $(1,464)(B) $173,315
-------- ------- ------ ------- ------- ------ ------- --------
Station operating expenses . . . . . 74,922 7,762 1,617 18,684 7,678 852 (726)(B) 108,889
(1,900)(C)
Depreciation and amortization . . . . 17,704 595 511 3,933 1,242 229 3,129 (D) 27,343
Corporate expenses . . . . . . . . . 3,377 2,515 - - - - (2,292)(E) 3,300
Stock option compensation expense . . 2,850 - - - - - - 2,850
-------- ------- ------ ------- ------- ------ ------- --------
Operating income (loss) . . . . . . 23,985 (2,108) (332) 5,529 3,184 350 325 30,933
Interest expense . . . . . . . . . . 24,469 1,380 - 3,227 - 299 1,094 (F) 30,469
Other (income) expense . . . . . . . 130 49 (2,847) (120) 25 - - (2,763)
-------- ------- ------ ------- ------- ------ ------- --------
Income (loss) before
provision for income taxes . . . . (614) (3,537) 2,515 2,422 3,159 51 (769) 3,227
Provision for income taxes . . . . . 2,201 - - - - - 3,302 (G) 5,503
-------- ------- ------ ------- ------- ------ ------- --------
Net income (loss) before
extraordinary loss . . . . . . . . (2,815) (3,537) 2,515 2,422 3,159 51 (4,072) (2,277)
Extraordinary loss on early
extinguishment of debt . . . . . . . 5,609 - - - - - (5,609)(I) -
-------- ------- ------ ------- ------- ------ ------- --------
Net income (loss) . . . . . . . . . (8,424) $(3,537) $2,515 $ 2,422 $ 3,159 $ 51 $ 1,537 (2,277)
======= ====== ======= ======= ====== =======
Dividends and accretion on
preferred stock . . . . . . . . . . . 8,187 $23,847 (H) 32,034
Loss on repurchase of
preferred stock . . . . . . . . . . . 16,570 (16,570)(J) -
-------- --------
Loss applicable to common shares . . $(33,181) $(34,311)
======== ========
Deficiency of earnings to fixed
charges and preferred stock
dividends and accretion . . . . . . . $ 8,801 $ 50,164
See Accompanying Notes to Pro Forma Financial Information.
UNAUDITED PRO FORMA BALANCE SHEET
September 30, 1996
(dollars in thousands)
ASSETS
Historical
-----------------------------
Chancellor
Broadcasting Colfax Adjustments Pro Forma
-------------- ------------- ----------------- -------------
Current assets:
Cash . . . . . . . . . . . . . . . . . . $ 5,112 $ 2,504 $ - $ 7,616
Accounts receivable, net . . . . . . . . 42,172 9,848 - 52,020
Prepaid expenses and other . . . . . . . 1,955 646 - 2,601
-------- -------- --------- ----------
49,239 12,998 - 62,237
Restricted Cash . . . . . . . . . . . . . . 20,000 - - 20,000
Property and equipment, net . . . . . . . . 49,082 10,218 21,682 (K) 80,982
Intangible and other assets, net . . . . . 586,863 147,520 (4,870)(L) 926,000
3,000 (L)
193,487 (K)
-------- -------- --------- ----------
Total assets . . . . . . . . . . . . . $705,184 $170,736 $ 213,299 $1,089,219
======== ======== ========= ==========
LIABILITIES AND COMMON STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt . . . . 400 - 8,975 (L) 9,375
Accounts payable and other
accrued expenses . . . . . . . . . . . . 14,487 4,186 - 18,673
-------- -------- -------- ----------
Total current liabilities . . . . . . 14,887 4,186 8,975 28,048
-------- -------- -------- ----------
Long-term debt . . . . . . . . . . . . . . 364,708 57,950 (57,950) 451,952
87,244 (L)
Deferred tax liability . . . . . . . . . . 19,037 - - 19,037
Other . . . . . . . . . . . . . . . . . . . 821 - - 821
-------- -------- -------- ----------
Total liabilities . . . . . . . . . . 399,453 62,136 38,269 499,858
Senior exchangeable preferred stock . . . . 103,853 - - 103,853
Exchangeable preferred stock . . . . . . . - - 192,500 (M) 192,500
Common stockholder's equity . . . . . . . . 201,878 108,600 (4,870)(L) 293,008
(108,600)(N)
96,000 (M)
-------- -------- --------- ----------
Total liabilities and common
stockholder's equity . . . . . . . . . $705,184 $170,736 $ 213,299 $1,089,219
======== ======== ========= ==========
See Accompanying Notes to Pro Forma Financial Information.
NOTES TO PRO FORMA FINANCIAL INFORMATION
(dollars in thousands)
(A) The adjustment represents the elimination of time brokerage fees
paid by the Company in 1995 to Midcontinent Radio of Minnesota,
Inc. from February 1, 1995 to July 31, 1995 pursuant to an LMA
relating to KDWB-FM.
(B) The adjustment represents the elimination of net revenues and
station operating expenses of the Houston station, which was
exchanged for KIMN-FM and KALC-FM in Denver in July 1996.
(C) The adjustment reflects cost savings resulting from the
elimination of redundant operating expenses arising from the
combination of the Company and Shamrock Broadcasting, including
the elimination of certain station management positions, the
standardization of employee benefits and compensation practices
and the implementation of operating strategies currently utilized
by the Company's management. The pro forma cost savings are
summarized as follows:
Year Ended Nine Months Ended
December 31, September 30,
-----------------------
1995 1995 1996
------------ ---------- ----------
Selling expenses . . . . . . $ 3,135 $2,422 $ 523
Programming and technical . . 2,297 1,610 383
Advertising and promotions . 2,554 1,484 422
General and administrative . 3,455 2,730 572
------- ------ ------
Total $11,441 $8,246 $1,900
======= ====== ======
(D) The adjustment reflects (i) a change in depreciation and
amortization resulting from conforming the estimated useful lives
of the acquired stations and (ii) the additional depreciation and
amortization expense resulting from the allocation of the
purchase price of the acquired stations, net of stations
exchanged, including an increase in property and equipment and
intangible assets to their estimated fair market value and the
recording of goodwill associated with the acquisitions. Goodwill
is amortized over 40 years.
(E) The adjustment reflects cost savings anticipated to be achieved
by operating all of the stations under the Company's
decentralized management strategy and from the elimination of
redundant management costs.
(F) The adjustment reflects the effect on interest expense of the
change in debt structure resulting from each pro forma event.
Pro forma interest reflects $200,000 of 9 3/8% Senior
Subordinated Notes due 2004 and $60,000 of 12 1/2% Senior
Subordinated Notes due 2004, and $200,327 of bank financing, with
an annual interest rate of approximately 7.7%.
(G) The adjustment reflects the change in the provision for income
taxes resulting from the deferred tax liabilities generated
during each period from the respective acquisitions, offset by
additional reversals of book/tax basis differences of Shamrock
Broadcasting during each period.
(H) The adjustment reflects the dividends and accretion on the 12
1/4% Series A Senior Cumulative Exchangeable Preferred Stock due
2008, where not already included, and the 12% Exchangeable
Preferred Stock.
(I) The adjustment reflects the elimination of a non-recurring
extraordinary loss on early extinguishment of debt in connection
with the refinancing of the Company's term and revolving loan
facilities in conjunction with the acquisition of Shamrock
Broadcasting and a partial prepayment of the Company's existing
credit agreement in August 1996.
(J) The adjustment reflects the elimination of a non-recurring
extraordinary loss on repurchase of preferred stock, which was
recognized in February 1996 in connection with the acquisition of
Shamrock Broadcasting.
(K) The adjustment reflects a preliminary allocation of the purchase
price of WKYN-AM and the acquisition of the Colfax Stations to
the assets being acquired and liabilities being assumed resulting
in an increase in property and equipment and intangible assets to
their estimated fair values and the recording of goodwill
associated with the transactions as follows:
[S] [C]
Cash . . . . . . . . . . . . . . . . . $ 2,504
Accounts receivable, net . . . . . . . 9,848
Prepaid expenses and other . . . . . . 646
Property and equipment . . . . . . . . 31,900
Goodwill . . . . . . . . . . . . . . . 341,007
Accounts payable and other accrued (4,186)
expenses . . . . . . . . . . . . . . . --------
Total $381,719
========
(L) The adjustment reflects (i) borrowings under the Company's new
$345 million credit agreement (the "New Credit Agreement")
($200,327) to finance the acquisition of the Colfax Stations,
(ii) additional deferred financing costs associated with the New
Credit Agreement ($3,000), (iii) the repayment of the existing
credit agreement ($105,108) and (iv) the elimination of the
Company's deferred financing costs associated with the existing
credit agreement ($4,870), which will be recognized as an
extraordinary loss in the period the refinancing occurs.
(M) The adjustment reflects the issuance of the 12% Exchangeable
Preferred Stock due 2009 net of transaction costs ($192,500) and
the capital contribution of the proceeds from the concurrent sale
of Chancellor Broadcasting Company's 7% Convertible Preferred
Stock, net of related transaction costs ($96,000).
(N) The adjustment reflects the elimination of the historical equity
balances of the stations being acquired.
(c) Exhibits
1.1 Asset Purchase Agreement dated as of August 24, 1996 by and
among Classical Acquisition Limited Partnership, Radio 100
of Maryland Limited Partnership, Radio 100 Limited
Partnership, Radio 570 Limited Partnership, Radio 94 of
Phoenix Limited Partnership, Radio 95 of Phoenix Limited
Partnership and Chancellor Radio Broadcasting Company*
1.2 Purchase Agreement dated as of January 17, 1997 among
Chancellor Radio Broadcasting Company, BT Securities
Corporation, Credit Suisse First Boston Corporation,
NationsBanc Capital Markets, Inc., Goldman, Sachs & Co. and
Smith Barney Inc.
4.1 Certificate of Designation for 12% Exchangeable Preferred
Stock
4.2 Registration Rights Agreement dated as of January 23, 1997
among Chancellor Radio Broadcasting Company, BT Securities
Corporation, Credit Suisse First Boston Corporation,
NationsBanc Capital Markets, Inc., Goldman, Sachs & Co. and
Smith Barney Inc.
4.3 Indenture dated as of January 23, 1997 between Chancellor
Radio Broadcasting Company and U.S. Trust Company of Texas,
N.A.
99.1 Press release dated January 23, 1997
-----------------
* Incorporated by reference to Chancellor Radio Broadcasting
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.
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 hereunto duly authorized.
CHANCELLOR RADIO BROADCASTING COMPANY
Date: February 5, 1997 By: /s/ JACQUES D. KERREST
-------------------------------------
Jacques D. Kerrest
Senior Vice President and
Chief Financial Officer
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
1.1 Asset Purchase Agreement dated as of August 24, 1996 by and
among Classical Acquisition Limited Partnership, Radio 100
of Maryland Limited Partnership, Radio 100 Limited
Partnership, Radio 570 Limited Partnership, Radio 94 of
Phoenix Limited Partnership, Radio 95 of Phoenix Limited
Partnership and Chancellor Radio Broadcasting Company*
1.2 Purchase Agreement dated as of January 17, 1997 among
Chancellor Radio Broadcasting Company, BT Securities
Corporation, Credit Suisse First Boston Corporation,
NationsBanc Capital Markets, Inc., Goldman, Sachs & Co. and
Smith Barney Inc.
4.1 Certificate of Designation for 12% Exchangeable Preferred
Stock
4.2 Registration Rights Agreement dated as of January 17, 1997
among Chancellor Radio Broadcasting Company, BT Securities
Corporation, Credit Suisse First Boston Corporation,
NationsBanc Capital Markets, Inc., Goldman, Sachs & Co. and
Smith Barney Inc.
4.3 Indenture dated as of January 23, 1997 between Chancellor
Radio Broadcasting Company and U.S. Trust Company of Texas,
N.A.
99.1 Press release dated January 23, 1997
----------------
* Incorporated by reference to Chancellor Radio Broadcasting
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.