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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-29253
BEASLEY BROADCAST GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 65-0960915
(State of Incorporation) (I.R.S. Employer
Identification Number)
3033 Riviera Drive, Suite 200
Naples, Florida 34103
(Address of Principal Executive Offices and Zip Code)
(941) 263-5000
(Registrant's Telephone Number, Including Area Code)
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class A Common Stock, $.001 par value, 7,252,068 Shares Outstanding as of
November 8, 2001
Class B Common Stock, $.001 par value, 17,021,373 Shares Outstanding as of
November 8, 2001
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INDEX
Page
No.
------
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) 1
Consolidated Balance Sheets of Beasley Broadcast Group, Inc. as
of December 31, 2000 and September 30, 2001 1
Consolidated Statements of Operations of Beasley Broadcast
Group, Inc.for the Three and Nine Months Ended September 30,
2000 and September 30, 2001 2
Consolidated Statements of Cash Flows of Beasley Broadcast
Group, Inc. for the Nine Months Ended September 30, 2000 and
September 30, 2001 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities and Use of Proceeds 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BEASLEY BROADCAST GROUP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
2000 2001
-------------- -----------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 5,742,628 $ 4,603,478
Accounts receivable, less allowance for doubtful accounts of $607,147 in
2000 and $624,344 in 2001 18,712,862 19,254,846
Trade sales receivable 843,843 1,475,284
Other receivables 980,504 1,414,066
Prepaid expenses and other 2,249,615 3,029,938
Deferred tax assets 176,000 3,839,000
------------- -------------
Total current assets 28,705,452 33,616,612
Notes receivable from related parties 4,990,480 4,897,735
Property and equipment, net 15,619,688 21,314,732
Intangibles, net 164,893,584 263,327,547
Other investments 1,523,729 650,002
Other assets 2,425,631 2,604,729
------------- -------------
Total assets $ 218,158,564 $ 326,411,357
============= =============
Total Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt $ 8,352 $ 11,258,867
Accounts payable 2,355,006 4,552,339
Accrued expenses 6,986,006 6,512,200
Trade sales payable 798,198 1,184,279
Derivative financial instruments - 4,397,000
------------- -------------
Total current liabilities 10,147,562 27,904,685
Long-term debt, less current installments 103,478,405 214,241,749
Deferred tax liabilities 25,575,000 23,534,000
------------- -------------
Total liabilities 139,200,967 265,680,434
Preferred stock, $.001 par value, 10,000,000 shares authorized, none issued - -
Class A common stock, $.001 par value, 150,000,000 shares authorized, 7,252,068
issued and outstanding 7,252 7,252
Class B common stock, $.001 par value, 75,000,000 shares authorized, 17,021,373
issued and outstanding 17,021 17,021
Additional paid-in capital 106,633,932 106,633,932
Accumulated deficit (27,700,608) (45,927,282)
------------- -------------
Stockholders' equity 78,957,597 60,730,923
------------- -------------
Total liabilities and stockholders' equity $ 218,158,564 $ 326,411,357
============= =============
See accompanying notes to consolidated financial statements
1
BEASLEY BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
w
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
2000 2001 2000 2001
-------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
Net revenues $ 28,032,797 $ 28,702,673 $ 77,900,520 $ 84,759,628
------------ ------------ ------------ ------------
Costs and expenses:
Program and production 8,129,023 9,219,974 20,966,406 23,403,216
Sales and advertising 6,425,430 7,917,572 20,295,787 25,764,150
Station general and administrative 4,284,210 4,013,028 11,590,422 13,091,297
Corporate general and administrative 922,834 1,010,117 2,990,008 3,540,182
Equity appreciation rights -- -- 1,173,759 --
Depreciation and amortization 4,662,574 7,380,663 12,921,566 20,589,198
Impairment loss on long-lived assets -- 7,000,000 -- 7,000,000
------------ ------------ ------------ ------------
Total costs and expenses 24,424,071 36,541,354 69,937,948 93,388,043
Operating income (loss) 3,608,726 (7,838,681) 7,962,572 (8,628,415)
Other income (expense):
Interest expense (2,093,204) (4,588,745) (6,616,605) (12,386,322)
Loss on investment -- -- -- (1,585,417)
Loss on decrease in fair value of derivative financial instruments -- (1,638,000) -- (4,463,000)
Other non-operating expenses (200,000) (66,765) (264,552) (69,923)
Interest income 101,111 97,792 374,204 335,304
Other non-operating income 14,444 404,776 37,611 2,984,099
------------ ------------ ------------ ------------
Income (loss) before income taxes 1,431,077 (13,629,623) 1,493,230 (23,813,674)
Income tax expense (benefit) 651,000 (2,086,000) 29,132,000 (5,546,000)
------------ ------------ ------------ ------------
Income (loss) before cumulative effect of accounting change 780,077 (11,543,623) (27,638,770) (18,267,674)
Cumulative effect of accounting change (net of income tax effect) -- -- -- 41,000
------------ ------------ ------------ ------------
Net income (loss) $ 780,077 $(11,543,623) $(27,638,770) $(18,226,674)
============ ============ ============ ============
Basic and diluted earnings per share:
Income (loss) before cumulative effect of accounting change $ 0.03 $ (0.48) $ (1.19) $ (0.75)
Cumulative effect of accounting change -- -- -- --
------------ ------------ ------------ ------------
Net income (loss) $ 0.03 $ (0.48) $ (1.19) $ (0.75)
============ ============ ============ ============
Basic common shares outstanding 24,273,441 24,273,441 23,248,441 24,273,441
============ ============ ============ ============
Diluted common shares outstanding 24,277,624 24,297,678 23,248,441 24,306,094
============ ============ ============ ============
See accompanying notes to consolidated financial statements
2
BEASLEY BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30,
--------------------------------
2000 2001
--------------- -------------
(Unaudited)
Cash flows from operating activities:
Net loss $ (27,638,770) $ (18,226,674)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 12,921,566 20,589,198
Impairment loss on long-lived assets - 7,000,000
Loss on investment - 1,585,417
Loss on decrease in fair value of derivative financial instruments - 4,397,000
Change in assets and liabilities net of effects of acquisitions and
dispositions of radio stations:
Increase in receivables (926,336) (1,315,394)
Increase in prepaid expenses and other (202,885) (49,805)
Increase in other assets (660,565) (1,652,551)
Increase (decrease) in payables and accrued expenses (3,099,884) 1,944,995
Increase (decrease) in deferred tax liabilities 27,029,000 (5,704,000)
------------- -------------
Net cash provided by operating activities 7,422,126 8,568,186
Cash flows from investing activities:
Expenditures for property and equipment (1,744,620) (2,261,127)
Payments for acquisitions of radio stations (34,780,000) (128,305,753)
Payments for signal upgrade - (2,477,000)
Payment for purchase of equity investment (50,002) -
Payments from related parties 556,796 92,745
Loans to stockholders (910,263) -
Payments from stockholders 9,768,240 -
------------- -------------
Net cash used in investing activities (27,159,849) (132,951,135)
------------- -------------
Cash flows from financing activities:
Proceeds from issuance of indebtedness 138,300,523 123,250,000
Principal payments on indebtedness (161,888,733) (6,201)
Principal payments on related party notes (47,723,076) -
Payments of loan fees (2,893,192) -
Capital contributions 100,000 -
Stockholder distributions (2,250,000) -
Issuance of common stock 99,009,900 -
Payment of initial public offering costs (2,593,238) -
------------- -------------
Net cash provided by financing activities 20,062,184 123,243,799
------------- -------------
Net increase (decrease) in cash and cash equivalents 324,461 (1,139,150)
Cash and cash equivalents at beginning of period 7,002,669 5,742,628
============= =============
Cash and cash equivalents at end of period $ 7,327,130 $ 4,603,478
============= =============
Cash paid for interest $ 9,880,801 $ 11,318,441
============= =============
Cash paid for income taxes $ 26,825 $ 3,188,360
============= =============
Supplement disclosure of non-cash investing and financing activities:
Financed purchase of equity investment $ 3,000,000 $ -
============= =============
Equity investment acquired through placement of advertising air time $ 492,479 $ 711,690
============= =============
Minority interests acquired through issuance of Class A common stock $ 8,370,064 $ -
============= =============
Principal payments on indebtedness through placement of advertising air time $ 1,282,778 $ 1,229,940
============= =============
See accompanying notes to consolidated financial statements
3
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) Interim Financial Statements
In the opinion of management, the accompanying consolidated financial
statements include all adjustments deemed necessary to summarize fairly and
reflect the financial position and results of operations of Beasley Broadcast
Group, Inc. ("the Company") for the interim periods presented. Results of the
third quarter of 2001 are not necessarily indicative of results for the full
year. These consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto contained on Form 10-K
for the year ended December 31, 2000.
(b) Corporate Reorganization
Prior to February 11, 2000, the Company's radio stations were operated
through a series of subchapter S corporations, partnerships and limited
liability companies related to one another through common ownership and control.
These subchapter S corporations, partnerships and limited liability companies
were collectively known as Beasley FM Acquisition Corp. and related companies
("BFMA") through February 10, 2000. The accompanying financial statements
include the results of operations of BFMA from January 1, 2000 to February 10,
2000.
The Company completed an initial public offering of common stock and the
corporate reorganization on February 11, 2000. Immediately prior to the initial
public offering, pursuant to the reorganization, affiliates of BFMA contributed
their equity interests in those entities to the Company, a newly formed holding
company, in exchange for common stock. Immediately after these transactions, the
Company contributed the capital stock and partnership interests acquired to
Beasley Mezzanine Holdings, LLC ("BMH") and BMH became a wholly-owned subsidiary
of the Company. All S corporation elections were terminated and the resulting
entities became C corporations. The reorganization and contribution of equity
interests was accounted for in a manner similar to a pooling of interests as to
the majority owners, and as an acquisition of minority interest using the
purchase method of accounting.
(c) Derivative Financial Instruments
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. The Company uses
interest rate collar and swap agreements to specifically hedge against the
potential impact of increases in interest rates on its credit facility. The
Company records interest differentials as adjustments to interest expense and
changes in fair value of its derivative financial instruments in the period they
occur.
(d) Revenue Recognition
Revenue is recognized as advertising air time is broadcast and is net of
advertising agency commissions.
(e) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(f) Earnings per Share
Basic earnings per share are computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflect the potential dilution that
could occur if options or other contracts to issue common stock were exercised
or converted into common stock and were not anti-dilutive.
4
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(g) Accounting Change
Effective January 1, 2001, the Company adopted SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and for hedging activities.
In accordance with the transition provisions of SFAS 133, the Company recorded
an asset of $66,000 to recognize its derivatives at fair value and the
cumulative effect of the accounting change, as of January 1, 2001, in the
statement of operations for the nine months ended September 30, 2001. The
cumulative effect of the change, net of income tax effect, decreased the net
loss $41,000 and did not change the net loss per share.
(h) Recent Accounting Pronouncements
In September 2000, the FASB issued SFAS 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." SFAS 140
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. SFAS 140 replaced SFAS 125
and was effective for recognition and reclassification of collateral and for
disclosures relating to securitization transactions and collateral for fiscal
years ending after December 15, 2000. SFAS 140 was effective for transfers and
servicing of financial assets and extinguishments occurring after March 31,
2001. The Company has adopted SFAS 140 with no material impact on its
consolidated financial statements.
In July 2001, the FASB issued SFAS 141, "Business Combinations", and SFAS
142, "Goodwill and Other Intangible Assets." SFAS 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001 as well as all purchase method business combinations completed after
June 30, 2001. SFAS 141 also specifies criteria intangible assets acquired in a
purchase method business combination must meet to be recognized and reported
apart from goodwill, noting that any purchase price allocable to an assembled
workforce may not be accounted for separately. SFAS 142 will require that
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment at least annually in accordance
with the provisions of SFAS 142. SFAS 142 will also require that intangible
assets with estimable useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of."
The Company is required to adopt the provisions of SFAS 141 immediately,
and SFAS 142 effective January 1, 2002. Furthermore, any goodwill or intangible
assets determined to have an indefinite useful life that is acquired in a
purchase business combination completed after June 30, 2001, but before SFAS 142
is adopted in full will not be amortized, but will continue to be evaluated for
impairment in accordance with the appropriate pre-SFAS 142 accounting
literature. Goodwill and intangible assets acquired in business combinations
completed before July 1, 2001 will continue to be amortized prior to the
adoption of SFAS 142.
SFAS 141 will require upon adoption of SFAS 142, that the Company evaluate
its existing intangible assets and goodwill that were acquired in a prior
purchase business combination, and to make any necessary reclassifications in
order to conform with the new criteria in SFAS 141 for recognition apart from
goodwill. Upon adoption of SFAS 142, the Company will be required to reassess
the useful lives and residual values of all intangible assets acquired, and make
any necessary amortization period adjustments by the end of the first interim
period after adoption. In addition, to the extent an intangible asset is
identified as having an indefinite useful life, the Company will be required to
test the intangible asset for impairment in accordance with the provisions of
SFAS 142 within the first interim period. Any impairment loss will be measured
as of the date of adoption and recognized as the cumulative effect of a change
in accounting principle in the first interim period.
5
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In connection with the transitional goodwill impairment evaluation, SFAS
142 will require the Company to perform an assessment of whether there is an
indication that goodwill is impaired as of the date of adoption. To accomplish
this, the Company must identify its reporting units and determine the carrying
value of each reporting unit by assigning the assets and liabilities, including
the existing goodwill and intangible assets, to those reporting units as of the
date of adoption. The Company will then have up to six months from the date of
adoption to determine the fair value of each reporting unit and compare it to
the reporting unit's carrying amount. To the extent a reporting unit's carrying
amount exceeds its fair value, an indication exists that the reporting unit's
goodwill may be impaired and the Company must perform the second step of the
transitional impairment test. In the second step, the Company must compare the
implied fair value of the reporting unit's goodwill, determined by allocating
the reporting unit's fair value to all of it assets (recognized and
unrecognized) and liabilities in a manner similar to a purchase price allocation
in accordance with SFAS 141, to its carrying amount, both of which would be
measured as of the date of adoption. This second step is required to be
completed as soon as possible, but no later than the end of the year of
adoption. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the Company's consolidated
statement of operations.
And finally, any unamortized negative goodwill existing at the date SFAS
142 is adopted must be written off as the cumulative effect of a change in
accounting principle.
As of the date of adoption, the Company expects to have unamortized
goodwill in the amount of approximately $12.1 million, and unamortized FCC
licenses, which the Company expects to qualify as identifiable intangible assets
with indefinite useful lives, in the amount of approximately $240.4 million, all
of which will be subject to the transition provisions of SFAS 141 and SFAS 142.
Amortization expense related to goodwill was $1.1 million and $981,000 for the
year ended December 31, 2000 and the nine months ended September 30, 2001,
respectively. Amortization expense related to FCC licenses was $12.1 million and
$14.5 million for the year ended December 31, 2000 and the nine months ended
September 30, 2001, respectively. Because of the extensive effort needed to
comply with adopting SFAS 141 and SFAS 142, it is not practicable to reasonably
estimate the impact of adopting these statements on the Company's consolidated
financial statements at the date of this report, including whether it will be
required to recognize any transitional impairment losses as the cumulative
effect of a change in accounting principle.
(2) Acquisitions
(a) Current Acquisitions
As of February 1, 2001, the Company acquired all of the outstanding common
stock of Centennial Broadcasting Nevada, Inc. and all of the membership
interests in Centennial Broadcasting, LLC for an aggregate purchase price,
subject to certain adjustments, of approximately $116.3 million, which included
a working capital adjustment of approximately $2.8 million. Centennial
Broadcasting Nevada, Inc. owns approximately 18.5% of the membership interests
in Centennial Broadcasting, LLC. Centennial Broadcasting, LLC owns the radio
stations KJUL-FM, KSTJ-FM and KKLZ-FM in Las Vegas, Nevada and WRNO-FM, KMEZ-FM
and WBYU-AM in New Orleans, Louisiana. This acquisition was partially funded by
surplus working capital and partially financed through the Company's credit
facility. The acquisition was accounted for by the purchase method of
accounting.
On April 2, 2001, the Company acquired the assets of WKXC-FM and WSLT-FM in
Augusta, Georgia for approximately $12.0 million. This acquisition was partially
funded by surplus working capital and partially financed through the Company's
credit facility. The acquisition was accounted for by the purchase method of
accounting.
6
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The aggregate purchase price for the current acquisitions was allocated as
follows:
Accounts receivable, net $ 2,233,223
Prepaid expenses and other 730,518
Property and equipment 5,526,234
FCC broadcasting licenses 119,772,766
Goodwill 201,000
Other assets 6,625
Accounts payable (32,000)
Accrued expenses (132,613)
----------------
$128,305,753
================
(b) Unaudited Pro Forma Results of Operations
The following unaudited pro forma information presents the results of
operations for the three and nine months ended September 30, 2000 and 2001, with
pro forma adjustments as if the acquisitions of the stations had occurred on
January 1, 2000.
This unaudited pro forma information is not necessarily indicative of what
would have occurred had the acquisitions occurred on January 1, 2000 or of
results that may occur in the future.
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------------- --------------------------------------
2000 2001 2000 2001
---------------- ---------------- ----------------- -----------------
Net revenues $ 32,709,515 $ 28,702,673 $ 93,800,216 $ 86,396,655
---------------- ---------------- ----------------- -----------------
Costs and expenses:
Program and production 9,246,429 9,219,974 24,444,800 23,926,717
Sales and advertising 7,957,018 7,917,572 25,545,854 26,313,523
Station general and administrative 5,000,101 4,013,028 13,964,726 13,477,832
Corporate general and administrative 922,834 1,010,117 2,990,008 3,540,182
Equity appreciation rights - - 1,173,759 -
Depreciation and amortization 6,911,116 7,380,663 20,359,773 21,338,712
Impairment loss on long-lived assets - 7,000,000 - 7,000,000
---------------- ---------------- ----------------- -----------------
Total costs and expenses 30,037,498 36,541,354 88,478,920 95,596,966
Operating income (loss) 2,672,017 (7,838,681) 5,321,296 (9,200,311)
Other income (expense):
Interest expense (4,519,688) (4,588,745) (14,657,093) (13,066,765)
Loss on investment - - - (1,585,417)
Loss on decrease in fair value
of derivative financial instruments - (1,638,000) - (4,463,000)
Other non-operating expenses (200,000) (66,765) (264,552) (69,923)
Interest income 101,111 97,792 374,204 335,304
Other non-operating income 14,444 404,776 37,611 2,984,099
---------------- ---------------- ----------------- -----------------
Loss before income taxes (1,932,116) (13,629,623) (9,188,534) (25,066,013)
Income tax expense (benefit) (477,000) (2,086,000) 25,519,000 (5,973,000)
---------------- ---------------- ----------------- -----------------
Loss before cumulative effect
of accounting change (1,455,116) (11,543,623) (34,707,534) (19,093,013)
Cumulative effect of accounting
change (net of income tax effect) - - - 41,000
---------------- ---------------- ----------------- -----------------
Net loss $ (1,455,116) $(11,543,623) $(34,707,534) $(19,052,013)
================ ================ ================= =================
Basic and diluted net loss per share $ (0.06) $ (0.48) $ (1.49) $ (0.78)
================ ================ ================= =================
Basic common shares outstanding 24,273,441 24,273,441 23,248,441 24,273,441
================ ================ ================= =================
Diluted common shares outstanding 24,277,624 24,297,678 23,248,441 24,306,094
================ ================ ================= =================
7
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(c) Pending Disposition
On October 31, 2001, the Company entered into a definitive agreement with
Wilks Broadcasting LLC to sell WRNO-FM and KMEZ-FM in the New Orleans market for
approximately $23.0 million, subject to certain adjustments. In connection with
the definitive agreement, the Company entered into a time brokerage agreement
("TBA"), which permits Wilks Broadcasting to operate WRNO-FM and KMEZ-FM,
beginning November 1, 2001 in exchange for a monthly fee and reimbursement of
certain expenses. The TBA will terminate upon the sale of WRNO-FM and KMEZ-FM,
which the Company expects to complete during the first quarter of 2002. On
October 31, 2001, the carrying amount of WRNO-FM and KMEZ-FM exceeded the sales
price, therefore the Company recorded an impairment loss on long-lived assets of
$7.0 million for the three and nine months ended September 30, 2001.
(3) Intangibles
Intangibles, at cost, is comprised of the following:
December 31, September 30,
2000 2001
----------------- -----------------
FCC broadcasting licenses $188,307,206 $304,214,612
Goodwill 25,219,054 25,404,561
Advertising base 4,139,251 3,633,752
Loan fees 5,816,671 4,252,268
Noncompete agreements 1,120,000 -
Other intangibles 6,011,469 3,048,548
----------------- -----------------
230,613,651 340,553,741
Less accumulated amortization (65,720,067) (77,226,194)
----------------- -----------------
$164,893,584 $263,327,547
================= =================
(4) Other Investments
In December 1999, the Company entered into an agreement to purchase 750,000
shares of preferred stock of eTour, Inc. in exchange for $3.0 million of
advertising air time. The Company earned these shares as advertisements were
placed over the term of the agreement. For the nine months ended September 30,
2001, eTour, Inc. placed advertising air time totaling approximately $712,000,
and for the nine months ended September 30, 2001, the Company earned
approximately 178,000 shares. The shares contain restrictions that generally
limit the Company's ability to sell or otherwise dispose of them. The investment
was recorded using the cost method of accounting.
On May 7, 2001, the Company received a letter from the management of eTour
stating that eTour is in the process of winding down. Based on this information,
the Company stopped placement of any further advertising air time for eTour and
recorded a loss on investment of approximately $1.6 million, the recorded cost
of the 396,354 shares earned as of May 7, 2001.
8
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(5) Long-Term Debt
On August 14, 2001, the Company entered into an amendment to its credit
agreement that revised certain financial covenants.
As of September 30, 2001, the maximum commitment under the credit facility
is $300.0 million and the outstanding balance is $225.5 million. The credit
facility bears interest at either the base rate or LIBOR plus a margin that is
determined by the Company's debt to cash flow ratio. The base rate is equal to
the higher of the prime rate or the overnight federal funds effective rate plus
0.5%. As of December 31, 2000 and September 30, 2001, the credit facility
carried interest at an average rate of 7.9375% and 6.625%, respectively.
Interest is generally payable monthly through maturity on June 30, 2008. The
scheduled reductions in the amount available under the credit facility may
require principal repayments if the outstanding balance at that time exceeds the
new maximum amount available under the credit facility. The Company has entered
into interest rate hedge agreements as discussed in note 8. The credit agreement
requires the Company to maintain certain financial ratios and includes
restrictive covenants. The restrictive covenants prohibit the payment of
dividends. The loans are secured by substantially all assets of the Company.
On January 14, 2000, the Company executed a $3.0 million promissory note in
favor of FindWhat.com as consideration for the purchase of 600,000 shares of
common stock. The note bears interest at 5.73% per annum and matures on January
14, 2002. All outstanding principal and accrued interest is due at maturity,
however the Company may repay the note in full with an equivalent amount of
advertising air time as specified in the loan agreement and a related
advertising agreement with FindWhat.com. As of September 30, 2001, the
outstanding principal amount has been repaid in full through the placement of
advertising air time. The note is guaranteed by BFMA.
(6) Related Party Transactions
The Company leases office and studio broadcasting space in Ft. Myers,
Florida from its principal stockholder, George G. Beasley. For the three and
nine months ended September 30, 2000, rental expense paid to Mr. Beasley was
approximately $24,000 and $72,000, respectively. For the three and nine months
ended September 30, 2001, rental expense paid to Mr. Beasley was approximately
$25,000 and $76,000, respectively.
The Company leases a radio tower in Augusta, Georgia from Wintersrun
Communications, Inc. ("WCI"), which is owned by George G. Beasley and Brian E.
Beasley. For the three and nine months ended September 30, 2000, rental expense
paid to WCI was approximately $5,000 and $14,000, respectively. For the three
and nine months ended September 30, 2001, rental expense paid to WCI was
approximately $6,000 and $17,000, respectively.
The Company leases office and studio broadcasting space in Boca Raton,
Florida from Beasley Family Towers, Inc. ("BFT"). For the three and nine months
ended September 30, 2000, rental expense paid to BFT was approximately $21,000
and $24,000, respectively. For the three and nine months ended September 30,
2001, rental expense paid to BFT was approximately $18,000 and $54,000,
respectively.
The Company leases office space in Naples, Florida from Beasley
Broadcasting Management Corp. ("BBMC"), which is wholly-owned by George G.
Beasley. For the three and nine months ended September 30, 2000, rental expense
paid to BBMC was approximately $23,000 and $63,000, respectively. For the three
and nine months ended September 30, 2001, rental expense paid to BBMC was
approximately $26,000 and $76,000, respectively.
The Company leases certain radio towers from BFT. The lease agreements
expire on December 28, 2020. For the three and nine months ended September 30,
2001, rental expense paid to BFT was approximately $120,000 and $361,000,
respectively. Notes receivable from BFT are due in monthly payments, including
interest at 6.77%. The notes mature on December 28, 2020. For the three and nine
months ended September 30, 2001, interest income on the notes receivable from
BFT was approximately $86,000 and $258,000, respectively.
9
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(7) Commitments and Contingencies
In 1997, the Company entered into contracts for the radio broadcast rights
relating to the Miami Dolphins, Florida Marlins and Florida Panthers sports
franchises. These contracts grant WQAM-AM the exclusive, English language rights
for live radio broadcasts of the sporting events of these franchises for a five-
year term that began in 1997. The contracts require the Company to pay certain
fees and to provide commercial advertising and other considerations. For the
three and nine months ended September 30, 2000, the contract expense calculated
on a straight-line basis and other direct expenses exceeded related revenues by
$1.6 million and $3.4 million, respectively. For the three and nine months ended
September 30, 2001, the contract expense calculated on a straight-line basis and
other direct expenses exceeded related revenues by $1.6 million and $3.1
million, respectively. Unless the Company is able to increase its revenues under
these contracts during the remaining three quarters, the contracts are likely to
have a material adverse effect on the Company's results of operations. However,
in light of the uncertainty regarding future revenues, the amount of any future
loss cannot be determined at this time.
In the normal course of business, the Company is party to various legal
matters. The ultimate disposition of these matters will not, in management's
judgment, have a material adverse effect on the Company's financial position.
(8) Derivative Financial Instruments
The Company uses interest rate collar and swap agreements to hedge against
the potential impact of increases in interest rates on the credit facility. For
the three and nine months ended September 30, 2000, the Company received
additional interest of approximately $25,000 and $113,000, respectively. For the
three and nine months ended September 30, 2001, the Company paid additional
interest of approximately $468,000 and $574,000, respectively. The amount
received or paid is based on the differential between the specified rates of the
collar and swap agreements and the variable interest rate of the credit
facility.
As of September 30, 2001, the Company's collar agreements are summarized in
the following chart:
Estimated
Notional Expiration Fair
Agreement Amount Floor Cap Date Value
-------------------- ------------- --------- -------- ---------------- ---------------
Interest rate $20,000,000 6.69% 8% May 2002 $ (528,000)
collar
Interest rate $20,000,000 5.45 % 7.5% November 2002 (635,000)
collar
Interest rate $20,000,000 5.75 % 7.35% November 2002 (700,000)
collar
Interest rate $55,000,000 4.95 % 7% October 2003 (2,534,000)
collar
---------------
$(4,397,000)
===============
(9) Other Non-Operating Income
On March 23, 2001, the Company received a $2.6 million payment on a related
party receivable previously written off prior to the Company's initial public
offering on February 11, 2000. The resulting gain is recorded in other
non-operating income in the consolidated statement of operations for the nine
months ended September 30, 2001.
10
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(10) Income Taxes
Income tax expense (benefit) from continuing operations is as follows:
Three months ended September 30, Nine months ended September 30,
----------------------------------- ----------------------------------
2000 2001 2000 2001
---------------- --------------- --------------- ---------------
Federal:
Current $ 957,000 $ - $ 1,722,000 $ -
Deferred (424,000) (1,858,000) 22,130,000 (4,677,000)
---------------- --------------- --------------- ---------------
533,000 (1,858,000) 23,852,000 (4,677,000)
State:
Current 212,000 70,000 381,000 183,000
Deferred (94,000) (298,000) 4,899,000 (1,027,000)
---------------- --------------- --------------- ---------------
118,000 (228,000) 5,280,000 (844,000)
---------------- --------------- --------------- ---------------
$ 651,000 $ (2,086,000) $29,132,000 $ (5,521,000)
================ =============== =============== ===============
Income tax expense (benefit) differs from the amounts that would result
from applying the federal statutory rate of 34% to the Company's net loss as
follows:
Three months ended September 30, Nine months ended September 30,
----------------------------------- -----------------------------------
2000 2001 2000 2001
--------------- ---------------- ---------------- ---------------
Expected tax expense (benefit) $ 487,000 $(4,634,000) $ 508,000 $(8,074,000)
State income taxes, net of federal benefit 66,000 (89,000) 69,000 (495,000)
Establishment of deferred tax assets and
liabilities upon conversion from a
subchapter S corporation to a
subchapter C corporation on
February 11, 2000 - - 28,297,000 -
Non-deductible impairment loss on long-
lived assets - 2,380,000 - 2,380,000
Non-deductible depreciation and
amortization of Centennial
Broadcasting acquisition - 145,000 - 387,000
Non-deductible amortization of minority
interest acquisitions 54,000 47,000 140,000 142,000
Other 44,000 65,000 118,000 139,000
--------------- ---------------- ---------------- ---------------
$ 651,000 $(2,086,000) $29,132,000 $(5,521,000)
=============== ================ ================ ===============
Temporary differences that give rise to the components of deferred tax
assets and liabilities, as of December 31, 2000 and September 30, 2001 are as
follows:
2000 2001
---------------- ----------------
Allowance for doubtful accounts $ 176,000 $ 241,000
Derivative financial instruments - 1,698,000
Net operating loss carryforwards - 1,900,000
Unrealized loss on investment 927,000 927,000
---------------- ----------------
Gross deferred tax assets 1,103,000 4,766,000
Property and equipment (869,000) (1,302,000)
Intangibles (25,633,000) (23,159,000)
---------------- ----------------
Gross deferred tax liabilities (26,502,000) (24,461,000)
---------------- ----------------
Net deferred tax liabilities $ (25,399,000) $ (19,695,000)
================ ================
11
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(11) Segment Information
Segment information is as follows:
Three months ended September 30, Nine months ended September 30,
------------------------------------- -----------------------------------
--------------- --- ---------------
2000 2001 2000 2001
---------------- ----------------- --------------- ---------------
Net revenues:
Radio Group One $ 18,573,723 $ 16,243,258 $ 49,794,648 $ 48,552,113
Radio Group Two 9,459,074 8,796,766 28,105,872 25,971,437
Radio Group Three - 3,662,649 - 10,236,078
---------------- ----------------- --------------- ---------------
Total net revenues 28,032,797 28,702,673 77,900,520 84,759,628
---------------- ----------------- --------------- ---------------
Broadcast cash flow:
Radio Group One $ 5,795,527 $ 3,905,126 $ 15,144,024 $ 12,761,400
Radio Group Two 3,398,607 2,640,430 9,903,881 6,895,005
Radio Group Three - 1,006,543 - 2,844,560
---------------- ----------------- --------------- ---------------
Total broadcast cash flow 9,194,134 7,552,099 25,047,905 22,500,965
---------------- ----------------- --------------- ---------------
Reconciliation to income (loss)
before income taxes:
Corporate general and administrative $ (922,834) $ (1,010,117) $ (2,990,008) $ (3,540,182)
Equity appreciation rights - - (1,173,759) -
Depreciation and amortization (4,662,574) (7,380,663) (12,921,566) (20,589,198)
Impairment loss on long-lived assets - (7,000,000) - (7,000,000)
Interest expense (2,093,204) (4,588,745) (6,616,605) (12,386,322)
Other non-operating income (loss) (84,445) (1,202,197) 147,263 (2,798,937)
---------------- ----------------- --------------- ---------------
Income (loss) before income taxes $ 1,431,077 $ (13,629,623) $ 1,493,230 $(23,813,674)
================ ================= =============== ===============
Radio Group One includes radio stations located in Miami-Ft. Lauderdale,
FL, Ft. Myers-Naples, FL, West Palm Beach, FL and Greenville-New
Bern-Jacksonville, NC. Radio Group Two includes radio stations located in
Atlanta, GA, Philadelphia, PA, Boston, MA, Fayetteville, NC, and Augusta, GA.
Radio Group Three includes radio stations located in Las Vegas, NV and New
Orleans, LA.
Broadcast cash flow consists of operating income (loss) before corporate
general and administrative expenses, equity appreciation rights, depreciation
and amortization and impairment loss on long-lived assets.
(12) Equity Plan
During the nine months ended September 30, 2001, the Company granted
105,000 stock options, with an exercise price per share equal to the closing
stock price on the respective grant dates. The issued stock options have
ten-year terms and generally vest ratably and become fully exercisable after a
period of three to four years from the date of grant, however some contain
performance-related provisions that may delay vesting beyond four years. During
the three and nine months ended September 30, 2001, no options were exercised.
During the nine months ended September 30, 2001, the number of options forfeited
was 16,000. As of September 30, 2001, the number of options exercisable was
787,565 and the weighted-average exercise price of those options was $15.39.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following discussion together with the financial
statements and related notes included elsewhere in this report. The results
discussed below are not necessarily indicative of the results to be expected in
any future periods. Certain matters discussed herein are forward-looking
statements. This report contains "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. All statements other than statements of historical fact
are "forward-looking statements" for purposes of federal and state securities
laws, including any projections of earnings, revenues or other financial items;
any statements of the plans, strategies and objectives of management for future
operations; any statements concerning proposed new services or developments; any
statements regarding future economic conditions or performance; any statements
of belief; and any statements of assumptions underlying any of the foregoing.
Forward-looking statements may include the words "may," "will," "estimate,"
"intend," "continue," "believe," "expect" or "anticipate" and other similar
words. Such forward-looking statements may be contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations," among
other places.
Although we believe that the expectations reflected in any of our
forward-looking statements are reasonable, actual results could differ
materially from those projected or assumed in any of our forward-looking
statements. Our future financial condition and results of operations, as well as
any forward-looking statements, are subject to change and to inherent risks and
uncertainties, such as economic changes, unforeseen media events that would
cause the company to broadcast commercial free for any period of time, and
changes in the radio broadcasting industry generally. Key risks to our company
are described in our annual report on Form 10-K filed with the Securities and
Exchange Commission. We do not intend, and undertake no obligation, to update
any forward-looking statement.
General
A radio broadcasting company derives its revenues primarily from the sale
of broadcasting time to local and national advertisers. The advertising rates
that a radio station is able to charge and the number of advertisements that can
be broadcast without jeopardizing listener levels largely determine those
revenues. Advertising rates are primarily based on three factors:
. a radio station's audience share in the demographic groups targeted by
advertisers, as measured principally by quarterly reports issued by The
Arbitron Ratings Company;
. the number of radio stations in the market competing for the same
demographic groups; and
. the supply of and demand for radio advertising time.
Several factors may adversely affect a radio broadcasting company's
performance in any given period. In the radio broadcasting industry, seasonal
revenue fluctuations are common and are due primarily to variations in
advertising expenditures by local and national advertisers. Typically, revenues
are lowest in the first calendar quarter of the year. We generally incur
advertising and promotional expenses to increase listenership and Arbitron
ratings. However, because Arbitron reports ratings quarterly in most of our
markets, any increased ratings, and therefore increased advertising revenues,
tend to lag behind the incurrence of advertising and promotional spending.
In the broadcasting industry, radio stations often utilize trade or barter
agreements to reduce expenses by exchanging advertising time for goods or
services. In order to maximize cash revenue from our spot inventory, we minimize
our use of trade agreements and during the five years prior to 2000 have held
barter revenues under 5% of our gross revenues and barter related broadcast cash
flow under 3% of our broadcast cash flow. In 2000, barter revenues increased as
a percentage of our gross revenues and barter related broadcast cash flow
increased as a percentage of our broadcast cash flow due to our investments in
eTour, Inc. and FindWhat.com. Due to the completion of our obligations to eTour,
Inc. and FindWhat.com, we expect barter revenues and related broadcast cash flow
to return to historical percentages of our gross revenues and broadcast cash
flow during 2002.
13
We calculate same station results by comparing the performance of radio
stations at the end of a relevant period to the performance of those same
stations in the prior year's corresponding period, including the effect of
barter revenues and expenses. These results exclude one station that changed
formats during the fourth quarter of 2000, six stations that were acquired
during the first quarter of 2001 and two stations acquired during the second
quarter of 2001. Broadcast cash flow consists of operating income (loss) before
corporate general and administrative expenses, equity appreciation rights,
depreciation and amortization and impairment loss on long-lived assets and may
not be comparable to similarly titled measures employed by other companies. Same
station broadcast cash flow is the broadcast cash flow of the radio stations
included in our same station calculations.
Recent Event
On October 31, 2001, we entered into a definitive agreement with Wilks
Broadcasting LLC to sell WRNO-FM and KMEZ-FM in the New Orleans market for
approximately $23.0 million, subject to certain adjustments. In connection with
the definitive agreement, we entered into a time brokerage agreement ("TBA"),
which permits Wilks Broadcasting to operate WRNO-FM and KMEZ-FM, beginning
November 1, 2001 in exchange for a monthly fee and reimbursement of certain
expenses. The TBA will terminate upon the sale of WRNO-FM and KMEZ-FM, which we
expect to complete during the first quarter of 2002. On October 31, 2001, the
carrying amount of WRNO-FM and KMEZ-FM exceeded the sales price, therefore we
recorded an impairment loss on long-lived assets of $7.0 million for the three
and nine months ended September 30, 2001. During the fourth quarter, we expect
to record additional expenses related to severance and the assignment of
contracts.
Results of Operations
Several factors affected our results of operations in the nine months ended
September 30, 2000 that did not affect the corresponding period of the current
year. First, we redeemed, for cash in the first quarter, equity appreciation
rights previously granted to two of our station managers, as we do not believe
this form of compensation is well-suited to public companies. In connection with
this redemption, we recorded an expense of approximately $1.2 million in the
first quarter of 2000. Second, in connection with our reorganization in February
2000, our net stockholders' equity was reduced by approximately $27.6 million to
establish the net deferred tax liability resulting from the termination of our
subchapter S status.
As of February 1, 2001, we purchased three FM radio stations in the Las
Vegas market and two FM and one AM radio stations in the New Orleans market for
an aggregate purchase price of approximately $113.5 million, plus a working
capital adjustment of approximately $2.8 million. This acquisition contributed
to higher net revenues and station operating expenses during the three and nine
months ended September 30, 2001.
On April 2, 2001, we acquired two FM radio stations in the Augusta, Georgia
market for approximately $12.0 million. This acquisition contributed to higher
net revenues and station operating expenses during the three months and nine
months ended September 30, 2001.
On May 7, 2001, we received a letter from the management of eTour stating
that eTour is in the process of winding down. Based on this information, we
stopped placement of any further advertising air time for eTour and recorded a
loss on investment of approximately $1.6 million, the recorded cost of the
396,354 shares earned as of May 7, 2001.
In 1997, we entered into contracts for the radio broadcast rights relating
to the Miami Dolphins, Florida Marlins and Florida Panthers sports franchises.
These contracts grant WQAM-AM the exclusive, English language rights for live
radio broadcasts of the sporting events of these franchises for a five-year term
that began in 1997. The contracts require us to pay certain fees and to provide
commercial advertising and other considerations. For the three and nine months
ended September 30, 2000, the contract expense calculated on a straight-line
basis and other direct expenses exceeded related revenues by $1.6 million and
$3.4 million, respectively. For the three and nine months ended September 30,
2001, the contract expense calculated on a straight-line basis and other direct
expenses exceeded related revenues by $1.6 million and $3.1 million,
respectively. Unless we are able to generate increased revenues under these
contracts during the remaining three quarters, the contracts are likely to have
a material adverse effect on our results of operations. However, in light of the
uncertainty regarding future revenues, the amount of any future loss cannot be
determined at this time.
14
During the first three quarters of 2001, we have experienced a softer
advertising environment due to slowing economic conditions. We expect this
environment to continue into the fourth quarter and possibly into 2002. In
response to the expected reduction in net revenues we have taken significant
steps to cut costs not vital to programming and sales during the fourth quarter
of 2001, including continued consolidation of our operations.
Three Months ended September 30, 2001 Compared to the Three Months Ended
September 30, 2000
Net Revenue. Net revenue increased 2.4% to $28.7 million for the three
months ended September 30, 2001 from $28.0 million for three months ended
September 30, 2000. The increase was primarily due to our radio station
acquisitions in the Las Vegas and New Orleans markets during the first quarter
of 2001 and in the Augusta, Georgia market during the second quarter of 2001.
The increase was partially offset by lower revenues at most of our radio
stations due to the softer advertising environment and at WPTP-FM in the
Philadelphia market due to a format change during the fourth quarter of 2000. On
a same station basis, net revenues decreased 9.6% to $23.4 million for the three
months ended September 30, 2001 from $25.9 million for three months ended
September 30, 2000.
Station Operating Expenses. Station operating expenses increased 12.3% to
$21.2 million for the three months ended September 30, 2001 from $18.8 million
for three months ended September 30, 2000. The increase was primarily due to our
radio station acquisitions in the Las Vegas and New Orleans markets during the
first quarter of 2001 and in the Augusta, Georgia market during the second
quarter of 2001. The increase was partially offset by lower station operating
expenses at most of our radio stations in our response to the softer advertising
environment. On a same station basis, station operating expenses decreased 2.0%
to $16.7 million for the three months ended September 30, 2001 from $17.0
million for three months ended September 30, 2000.
Broadcast Cash Flow. Broadcast cash flow decreased 17.9% to $7.6 million
for the three months ended September 30, 2001 from $9.2 million for three months
ended September 30, 2000. The decrease was primarily due to lower revenues at
most of our radio stations due to the softer advertising environment and at
WPTP-FM in the Philadelphia market due to a format change during the fourth
quarter of 2000. The decrease was partially offset by additional broadcast cash
flow associated with our radio station acquisitions in the Las Vegas market
during the first quarter of 2001. On a same station basis, broadcast cash flow
decreased 24.3% to $6.7 million for the three months ended September 30, 2001
from $8.9 million for three months ended September 30, 2000.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased 9.5% to $1.0 million for the three months
ended September 30, 2001 from $0.9 million for three months ended September 30,
2000. The increase was primarily due to higher general and administrative
expenses associated with our radio station acquisitions in the Las Vegas and New
Orleans markets during the first quarter of 2001 and in the Augusta, Georgia
market during the second quarter of 2001.
Depreciation and Amortization. Depreciation and amortization increased
58.3% to $7.4 million for the three months ended September 30, 2001 from $4.7
million for three months ended September 30, 2000. The increase was primarily
due to additional amortization and depreciation expense associated with our
radio station acquisitions in the Las Vegas and New Orleans markets during the
first quarter of 2001 and in the Augusta, Georgia market during the second
quarter of 2001.
Interest Expense. Interest expense increased 119.2% to $4.6 million for the
three months ended September 30, 2001 from $2.1 million for three months ended
September 30, 2000. The increase was primarily due to increased borrowings under
our credit facility to finance the radio station acquisitions in the Las Vegas
and New Orleans markets during the first quarter of 2001 and in the Augusta,
Georgia market during the second quarter of 2001 with draws from our credit
facility.
Net Income (Loss). Net loss for the three months ended September 30, 2001
was $11.5 million compared to net income of $0.8 million for three months ended
September 30, 2000. The change was primarily due to the decrease in broadcast
cash flow, the increase in depreciation and amortization and interest expense, a
$7.0 million impairment loss on long-lived assets due to the impending sale of
WRNO-FM and KMEZ-FM in the New Orleans market and an additional $1.6 million
loss in the fair value of our derivative financial instruments due to the
adoption of SFAS 133 in 2001.
15
Nine Months ended September 30, 2001 Compared to the Nine Months Ended
September 30, 2000
Net Revenue. Net revenue increased 8.8% to $84.8 million for the nine
months ended September 30, 2001 from $77.9 million for nine months ended
September 30, 2000. The increase was primarily due to our radio station
acquisitions in the Miami-Ft. Lauderdale and West Palm Beach markets during the
second quarter of 2000, in the Las Vegas and New Orleans markets during the
first quarter of 2001 and in the Augusta, Georgia market during the second
quarter of 2001. The increase was partially offset by lower revenues at most of
our radio stations due to the softer advertising environment and at WPTP-FM in
the Philadelphia market due to the format change during the fourth quarter of
2000. On a same station basis, net revenues decreased 3.7% to $70.0 million for
the nine months ended September 30, 2001 from $72.7 million for nine months
ended September 30, 2000.
Station Operating Expenses. Station operating expenses increased 17.8% to
$62.3 million for the nine months ended September 30, 2001 from $52.9 million
for nine months ended September 30, 2000. The increase was primarily due to our
radio station acquisitions in the Las Vegas and New Orleans markets during the
first quarter of 2001 and in the Augusta, Georgia market during the second
quarter of 2001. In addition, promotions budgets have been larger at most of our
radio stations during the first two quarters of 2001 to help generate growth in
net revenues. During the third quarter of 2001, the increases were partially
offset by lower station operating expenses at most of our radio stations in our
response to the continued softer advertising environment. On a same station
basis, station operating expenses increased 3.2% to $49.2 million for the nine
months ended September 30, 2001 from $47.7 million for nine months ended
September 30, 2000.
Broadcast Cash Flow. Broadcast cash flow decreased 10.2% to $22.5 million
for the nine months ended September 30, 2001 from $25.0 million for nine months
ended September 30, 2000. The decrease was primarily due to lower revenues at
most of our radio stations due to the softer advertising environment and at
WPTP-FM in the Philadelphia market due to a format change during the fourth
quarter of 2000. The decrease was partially offset by additional broadcast cash
flow associated with our radio station acquisitions in the Miami-Ft. Lauderdale
and West Palm Beach markets during the second quarter of 2000, in the Las Vegas
and New Orleans markets during the first quarter of 2001 and in the Augusta
market during the second quarter of 2001. On a same station basis, broadcast
cash flow decreased 16.9% to $20.8 million for the nine months ended September
30, 2001 from $25.0 million for nine months ended September 30, 2000.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased 18.4% to $3.5 million for the nine months
ended September 30, 2001 from $3.0 million for nine months ended September 30,
2000. The increase was primarily due to higher general and administrative
expenses associated with our radio station acquisitions in the Las Vegas and New
Orleans markets during the first quarter of 2001 and in the Augusta, Georgia
market in the second quarter of 2001. In addition, the increase is due to our
operating as a public company for the entire first three quarters of 2001 as
compared to a partial first three quarters in 2000.
Depreciation and Amortization. Depreciation and amortization increased
59.3% to $20.6 million for the nine months ended September 30, 2001 from $12.9
million for nine months ended September 30, 2000. The increase was primarily due
to additional amortization and depreciation expense associated with our radio
station acquisitions in the Miami-Ft. Lauderdale and West Palm Beach in the
second quarter of 2000, in the Las Vegas and New Orleans markets in the first
quarter of 2001 and in the Augusta, Georgia market in the second quarter of
2001.
Interest Expense. Interest expense increased 87.2% to $12.4 million for the
nine months ended September 30, 2001 from $6.6 million for nine months ended
September 30, 2000. The increase was primarily due to increased borrowings under
our credit facility to finance the radio station acquisitions in the Miami-Ft.
Lauderdale and West Palm Beach in the second quarter of 2000, in the Las Vegas
and New Orleans markets in the first quarter of 2001 and in the Augusta, Georgia
market in the second quarter of 2001 with draws from our credit facility. The
increase was partially offset by a decrease in interest rates on our credit
facility.
Net Loss. Net loss for the nine months ended September 30, 2001 was $18.2
million compared to a net loss of $27.6 million for nine months ended September
30, 2000. The change was primarily due the establishment of a $27.6 million net
deferred tax liability upon conversion from a series of subchapter S
corporations to a series of subchapter C corporations as a result of the initial
public offering and corporate reorganization in 2000. In 2000, the
16
net loss was also increased by the redemption of equity appreciation rights for
$1.2 million. In 2001, the net loss was increased by a $7.0 million impairment
loss on long-lived assets due to the impending sale of WRNO-FM and KMEZ-FM in
the New Orleans market, a $1.6 million loss on investment and a $4.5 million
loss in the fair value of our derivative financial instruments due to the
adoption of SFAS 133 and decreased by a $2.6 million gain on a previously
written off related party receivable.
Liquidity and Capital Resources
Overview. Historically, we have used a significant portion of our liquidity
to consummate acquisitions. These acquisitions have been funded from one or a
combination of the following sources:
. our credit facility;
. disposing of radio stations in transactions which are intended to
qualify as like-kind exchanges under Section 1031 of the Internal
Revenue Code;
. internally-generated cash flow; and
. advances to us from George G. Beasley, members of his family and
affiliated entities.
Other liquidity needs have been for debt service, working capital,
distributions to equity holders and general corporate purposes, including
capital expenditures. In the future, we expect that our principal liquidity
requirements will be for working capital and general corporate purposes,
including acquisitions of additional radio stations. We expect to finance future
acquisitions through a combination of bank borrowings, internally generated
funds and our stock.
As of September 30, 2001, we held $4.6 million in cash and cash equivalents
and had $74.5 million in availability under our credit facility. We believe that
the cash available from operations as well as the availability from our credit
facility should be sufficient to permit us to meet our financial obligations for
at least the next twelve months.
Net Cash Provided by (Used in) Operating Activities. Net cash provided by
operating activities was $7.4 million and $8.6 million for the nine months ended
September 30, 2000 and 2001, respectively. The change is primarily due to the
$2.6 million gain on a previously written off related party receivable and the
$3.8 million increase in non-cash working capital during the first nine months
of 2001, partially offset by a decrease in broadcast cash flow totaling $2.5
million and additional interest expense associated with financing our radio
station acquisitions totaling $5.8 million. In 2000, net cash provided by
operating activities was decreased by the redemption of equity appreciation
rights totaling $1.2 million and additional current income tax expense of $1.9
million.
Net Cash Provided by (Used in) Investing Activities. Net cash used in
investing activities was $27.2 million and $133.0 million for the nine months
ended September 30, 2000 and 2001, respectively. The change is primarily due to
the acquisition of three radio stations in the Las Vegas market, three radio
stations in the New Orleans market and two radio stations in the Augusta,
Georgia market in 2001 for an aggregate $128.3 million compared to the
acquisition of two radio stations in the Atlanta market, one radio station in
the Boston market, two radio stations in the Miami-Ft. Lauderdale market and one
radio station in the West Palm Beach market in 2000 for an aggregate $34.8
million. In addition, net cash used in investing activities was also increased
in 2001 by payments totaling $2.5 million for a signal upgrade. Net cash used in
2000 was offset by the repayment of loans to the former S corporation
stockholders and increased by repayment of notes receivable from related parties
and stockholders.
Net Cash Provided by (Used in) by Financing Activities. Net cash provided
by financing activities was $20.1 million and $123.2 million for the nine months
ended September 30, 2000 and 2001, respectively. The change is primarily due to
financing the acquisition of three radio stations in the Las Vegas market, three
radio stations in the New Orleans market and two radio stations in the Augusta,
Georgia market in 2001 for an aggregate $123.2 million compared to the
acquisition of two radio stations in the Atlanta market, one radio station in
the Boston market, two radio stations in the Miami-Ft. Lauderdale market and one
radio station in the West Palm Beach market in 2000 for
17
an aggregate $34.8 million. In 2000, net cash was increased by the initial
public offering proceeds, less associated costs, which were used to repay $58.5
million of the credit facility and all outstanding notes payable to related
parties. In 2000, we also refinanced our credit facility with an outstanding
balance of $102.2 million and paid loan fees totaling $2.9 million. In 2000, net
cash was also decreased by distributions totaling $2.3 million to the former S
corporation stockholders.
Credit Facility. As of September 30, 2001, the maximum commitment under our
credit facility was $300.0 million and the outstanding balance is $225.5
million. The credit facility consists of $150.0 million revolving credit loan
and a $150.0 million term loan. The revolving credit loan includes a $50.0
million sub-limit for letters of credit. The credit facility bears interest at
either the base rate or LIBOR plus a margin that is determined by our debt to
cash flow ratio. The base rate is equal to the higher of the prime rate or the
overnight federal funds effective rate plus 0.5%. As of September 30, 2001, the
credit facility carried interest at an average rate of 6.625%. Interest is
generally payable monthly through maturity on June 30, 2008. The scheduled
reductions in the amount available under the credit facility may require
principal repayments if the outstanding balance at that time exceeds the new
maximum available amount under the credit facility. The credit agreement
requires us to maintain certain financial ratios and includes restrictive
covenants. The loans are secured by substantially all assets of the company.
As of September 30, 2001, the scheduled reductions of the maximum
commitment of the credit facility for the next five fiscal years and thereafter
are as follows:
Revolving Total Credit
Credit Loan Term Loan Facility
---------------- ----------------- ----------------
2002 $ - $ 15,000,000 $ 15,000,000
2003 - 22,500,000 22,500,000
2004 15,000,000 22,500,000 37,500,000
2005 22,500,000 22,500,000 45,000,000
Thereafter 112,500,000 67,500,000 180,000,000
---------------- ----------------- ----------------
Total $150,000,000 $150,000,000 $300,000,000
================ ================= ================
We must pay a quarterly unused commitment fee, which is based upon our
total leverage to operating cash flow ratio and ranges from 0.25% to 0.375% of
the unused portion of the maximum commitment. If the unused portion exceeds 50%
of the maximum commitment, the fee is increased by 0.375%. For the three and
nine months ended September 30, 2001, our unused commitment fee was
approximately $71,000 and $256,000, respectively.
We are required to satisfy financial covenants, which require us to
maintain specified financial ratios and to comply with financial tests, such as
ratios for maximum total leverage, minimum interest coverage and minimum fixed
charges. On August 14, 2001, we entered into an amendment to our credit
agreement that revised certain financial covenants as follows:
. Maximum Total Leverage Test. For the period from April 1, 2001 through
September 30, 2001, the required maximum ratio is 6.5 times. For the
period from July 1, 2001 through March 30, 2002, the required maximum
ratio is 7.0 times. As of March 31, 2002, the required maximum ratio is
6.25 times. For the period from April 1, 2002 through December 31, 2002,
the required maximum ratio is 6.0 times. For each twelve-month period
after December 31, 2002, the maximum ratio will decrease by 0.5 times.
For all periods after January 1, 2006, the maximum ratio is 4.0 times.
. Minimum Interest Coverage Test. From closing through September 30, 2001,
our operating cash flow for the four quarters ending on the last day of
each fiscal quarter must have not been less than 1.75 times the amount of
our interest expense. For the period from October 1, 2001 through March
31, 2002, the minimum ratio is 1.5 times. For the period from April 1,
2002 through September 30, 2002, the minimum ratio is 1.75 times. For all
periods after October 1, 2002, the minimum ratio is 2.0 times.
In addition, the operating cash flow definition has been revised to
disregard certain losses associated with the Florida Marlins sports contract
until its expiration in the fourth quarter of 2001. As of September 30, 2001, we
were in compliance with all applicable financial covenants.
18
The credit facility also prohibits us from paying cash dividends and
restricts our ability to make other distributions with respect to our capital
stock. The credit facility also contains other customary restrictive covenants.
These covenants limit our ability to:
. incur additional indebtedness and liens;
. enter into certain investments or joint ventures;
. consolidate, merge or effect asset sales;
. make overhead expenditures;
. enter sale and lease-back transactions;
. sell or discount accounts receivable;
. enter into transactions with affiliates or stockholders;
. sell, assign, pledge, encumber or dispose of capital stock; or
. change the nature of our business.
Recent Pronouncements
In September 2000, the FASB issued SFAS 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." SFAS 140
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. SFAS 140 replaced SFAS 125
and was effective for recognition and reclassification of collateral and for
disclosures relating to securitization transactions and collateral for fiscal
years ending after December 15, 2000. SFAS 140 was effective for transfers and
servicing of financial assets and extinguishments occurring after March 31,
2001. We have adopted SFAS 140 with no material impact on our consolidated
financial statements.
In July 2001, the FASB issued SFAS 141, "Business Combinations", and SFAS
142, "Goodwill and Other Intangible Assets." SFAS 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001 as well as all purchase method business combinations completed after
June 30, 2001. SFAS 141 also specifies criteria intangible assets acquired in a
purchase method business combination must meet to be recognized and reported
apart from goodwill, noting that any purchase price allocable to an assembled
workforce may not be accounted for separately. SFAS 142 will require that
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment at least annually in accordance
with the provisions of SFAS 142. SFAS 142 will also require that intangible
assets with estimable useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of."
We are required to adopt the provisions of SFAS 141 immediately, and SFAS
142 effective January 1, 2002. Furthermore, any goodwill or intangible assets
determined to have an indefinite useful life that is acquired in a purchase
business combination completed after June 30, 2001, but before SFAS 142 is
adopted in full will not be amortized, but will continue to be evaluated for
impairment in accordance with the appropriate pre-SFAS 142 accounting
literature. Goodwill and intangible assets acquired in business combinations
completed before July 1, 2001 will continue to be amortized prior to the
adoption of SFAS 142.
SFAS 141 will require upon adoption of SFAS 142, that we evaluate our
existing intangible assets and goodwill that were acquired in a prior purchase
business combination, and to make any necessary reclassifications in order to
conform with the new criteria in SFAS 141 for recognition apart from goodwill.
Upon adoption of SFAS 142, we will be required to reassess the useful lives and
residual values of all intangible
19
assets acquired, and make any necessary amortization period adjustments by the
end of the first interim period after adoption. In addition, to the extent an
intangible asset is identified as having an indefinite useful life, we will be
required to test the intangible asset for impairment in accordance with the
provisions of SFAS 142 within the first interim period. Any impairment loss will
be measured as of the date of adoption and recognized as the cumulative effect
of a change in accounting principle in the first interim period.
In connection with the transitional goodwill impairment evaluation, SFAS
142 will require us to perform an assessment of whether there is an indication
that goodwill is impaired as of the date of adoption. To accomplish this, we
must identify our reporting units and determine the carrying value of each
reporting unit by assigning the assets and liabilities, including the existing
goodwill and intangible assets, to those reporting units as of the date of
adoption. We will then have up to six months from the date of adoption to
determine the fair value of each reporting unit and compare it to the reporting
unit's carrying amount. To the extent a reporting unit's carrying amount exceeds
its fair value, an indication exists that the reporting unit's goodwill may be
impaired and we must perform the second step of the transitional impairment
test. In the second step, we must compare the implied fair value of the
reporting unit's goodwill, determined by allocating the reporting unit's fair
value to all of it assets (recognized and unrecognized) and liabilities in a
manner similar to a purchase price allocation in accordance with SFAS 141, to
its carrying amount, both of which would be measured as of the date of adoption.
This second step is required to be completed as soon as possible, but no later
than the end of the year of adoption. Any transitional impairment loss will be
recognized as the cumulative effect of a change in accounting principle in our
consolidated statement of operations.
And finally, any unamortized negative goodwill existing at the date SFAS
142 is adopted must be written off as the cumulative effect of a change in
accounting principle.
As of the date of adoption, we expect to have unamortized goodwill in the
amount of approximately $12.1 million, and unamortized FCC licenses, which we
expect to qualify as identifiable intangible assets with indefinite useful
lives, in the amount of approximately $240.4 million, all of which will be
subject to the transition provisions of SFAS 141 and SFAS 142. Amortization
expense related to goodwill was $1.1 million and $981,000 for the year ended
December 31, 2000 and the nine months ended September 30, 2001, respectively.
Amortization expense related to FCC licenses was $12.1 million and $14.5 million
for the year ended December 31, 2000 and the nine months ended September 30,
2001, respectively. Because of the extensive effort needed to comply with
adopting SFAS 141 and SFAS 142, it is not practicable to reasonably estimate the
impact of adopting these statements on our consolidated financial statements at
the date of this report, including whether it will be required to recognize any
transitional impairment losses as the cumulative effect of a change in
accounting principle.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk is the risk of loss arising from adverse changes in market
rates and prices such as interest rates, foreign currency exchange rate and
commodity prices. Our primary exposure to market risk is interest rate risk
associated with our credit facility. Amounts borrowed under the credit facility
incur interest at the London Interbank Offered Rate, or LIBOR, plus additional
basis points depending on the outstanding principal balance under the credit
facility. As of September 30, 2001, $225.5 million was outstanding under our
credit facility. We evaluate our exposure to interest rate risk by monitoring
changes in interest rates in the market place.
To manage interest rate risk associated with our credit agreement, we have
entered into several interest rate collar agreements.
An interest rate collar is the combined purchase and sale of an interest
rate cap and an interest rate floor so as to keep interest rate exposure within
a defined range. We have purchased four interest rate collars. Under these
agreements, our base LIBOR cannot exceed the cap interest rate and our base
LIBOR cannot fall below our floor interest rate.
Notional amounts are used to calculate the contractual payments to be
exchanged under the contract. As of December 31, 2000 and September 30, 2001,
the notional amount upon maturity of these collar agreements is approximately
$100.0 million and $115.0 million, respectively.
20
As of September 30, 2001, our collar agreements are summarized in the
following chart:
Estimated
Notional Expiration Fair
Agreement Amount Floor Cap Date Value
-------------------- ------------- --------- -------- ---------------- ---------------
Interest rate $20,000,000 6.69% 8% May 2002 $ (528,000)
collar
Interest rate $20,000,000 5.45% 7.5% November 2002 (635,000)
collar
Interest rate $20,000,000 5.75% 7.35% November 2002 (700,000)
collar
Interest rate $55,000,000 4.95% 7% October 2003 (2,534,000)
collar
---------------
$ (4,397,000)
===============
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We currently and from time to time are involved in litigation incidental to
the conduct of our business, but we are not a party to any lawsuit or proceeding
which, in the opinion of management, is likely to have a material adverse effect
on us.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit
Number Description
----- -----------
2.1 Agreement of purchase and sale of assets by and among Beasley FM
Acquisition Corp., Beasley Broadcasting of Nevada, LLC, KJUL
License, LLC, Wilks Broadcasting, LLC and Wilks License Co., LLC,
dated as of October 31, 2001.
10.1 First amendment to credit agreement between Beasley Mezzanine
Holdings, LLC and Fleet National Bank, as syndication agent, Bank
of America, as documentation agent, the Bank of New York, as
co-documentation agent and managing agent, and the Bank of
Montreal, Chicago Branch, as administrative agent, dated August 14,
2001.
10.2 Time brokerage agreement by and among Beasley Broadcasting of
Nevada, LLC, KJUL License, LLC and Wilks Broadcasting, LLC, dated
as of October 31, 2001.
99.1 Press release for sale of WRNO-FM and KMEZ-FM in New Orleans,
Louisiana.
- ----------
(b) No reports on Form 8-K were filed during the three month period ended
September 30, 2001
22
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.
Date: November 9, 2001 BEASLEY BROADCAST GROUP, INC.
/s/ George G. Beasley
------------------------------------
Name: George G. Beasley
Title: Chairman of the Board and Chief
Executive Officer
Date: November 9, 2001
/s/ Caroline Beasley
------------------------------------
Name: Caroline Beasley
Title: Vice President, Chief Financial
Officer, Secretary, Treasurer
and Director
23