1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 16, 1999
CUMULUS MEDIA INC.
(Exact Name of Registrant as specified in its charter)
ILLINOIS 000-24525 36-4159663
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
111 EAST KILBOURN AVENUE, SUITE 2700 MILWAUKEE, WI 53202
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (414) 615-2800
NONE
(Former name or former address, if changed since last report)
2
Item 5. Other Events
On November 3, 1999, Cumulus Media Inc. (the "Company") filed a
Current Report on Form 8-K (the "Form 8-K") describing certain recently
completed and pending acquisitions and providing certain historical financial
statements for those acquired entities. The historical financial statements were
incorporated by reference in the Company's Registration Statement on Form S-3
(the "Form S-3") (Registration No. 333-89825) filed with the SEC on October 28,
1999.
The Company hereby amends the Form 8-K to provide for inclusion
herein and, therefore, incorporation by reference in the Form S-3, of the
unaudited financial statements listed in Item 7 hereof.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements.
Index to Financial Statements attached hereto.
(1) Cape Fear Broadcasting Company
Report of Independent Accountants
Financial Statements:
Balance Sheets as of September 30, 1999 (unaudited)
and December 31, 1998
Statements of Operations for the nine months ended
September 30, 1999 and 1998 (unaudited) and for the
year ended December 31, 1998
Statement of Changes in Shareholders' Equity for the
year ended December 31, 1998
Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998 (unaudited) and for the
year ended December 31, 1998
Notes to Financial Statements
(2) C.F. Radio, Inc.,
Report of Independent Accountants
Consolidated Financial Statements:
Consolidated Balance Sheets as of September 30, 1999
(unaudited) and December 31, 1998
Consolidated Statements of Operations for the nine
months ended September 30, 1999 and 1998 (unaudited)
and for the year ended December 31, 1998
Consolidated Statement of Changes in Shareholders'
Equity for the year ended December 31, 1998
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1999 and 1998 (unaudited)
and for the year ended December 31, 1998
Notes to Consolidated Financial Statements
2
3
(3) Calendar Broadcasting, Inc. and Subsidiaries
Independent Auditors Report
Consolidated Financial Statements:
Consolidated Balance Sheets as of September 30, 1999
(unaudited) and December 31, 1998
Consolidated Statements of Operations for the nine
months ended September 30, 1999 and 1998 (unaudited)
and for the year ended December 31, 1998
Consolidated Statements of Stockholders' Equity for
the nine months ended September 30, 1999 (unaudited)
and for the year ended December 31, 1998
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1999 and 1998 (unaudited)
and for the year ended December 31, 1998
Notes to Consolidated Financial Statements
(4) Coast Radio L.L.C.
Report of Independent Accountants
Financial Statements:
Balance Sheets as of September 30, 1999 (unaudited)
and December 31, 1998
Statements of Operations for the nine months ended
September 30, 1999 and 1998 (unaudited) and for the
year ended December 31, 1998
Statement of Changes in Members' Equity for the year
ended December 31, 1998
Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998 (unaudited) and for the
year ended December 31, 1998
Notes to Financial Statements
3
4
(b) Exhibits:
2.0 Stock Purchase Agreement dated June 15,
1999, among the Company and M&F Calendar
Holdings, L.P., Kevin C. Whitman, Nassau
Capital Partners L.P., NAS Partners I
L.L.C., and Philip J. Giordano.*
2.1 Asset Purchase Agreement dated as of June
29, 1999, by and among Cumulus Broadcasting,
Inc., Cumulus Licensing, Inc. and Coast
Radio, L.L.C., a Florida limited liability
company.*
2.3 Asset Purchase Agreement dated as of
September 23, by and between Cumulus
Broadcasting, Inc., Cumulus Licensing, Inc.,
Cumulus Wireless, Inc., C.F. Radio, Inc.,
Cape Fear Radio, L.L.C., Cape Fear
Broadcasting Company and Cape Fear Tower
Systems, L.L.C.*
23.0 Consent of PricewaterhouseCoopers LLP
23.1 Consent of KPMG LLP
* Incorporated by reference from the Company's Current Report on Form 8-K filed
with the SEC on November 3, 1999
4
5
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 hereunto duly authorized.
CUMULUS MEDIA INC.
By: /S/ Richard W. Weening
-------------------------------------
Richard W. Weening
Executive Chairman
and Treasurer
Date: November 16, 1999
6
INDEX TO FINANCIAL STATEMENTS
CAPE FEAR BROADCASTING COMPANY
Report of Independent Accountants............................................................... F-1
Balance Sheets as of September 30, 1999 (unaudited) and December 31, 1998....................... F-2
Statements of Operations for the nine months ended September 30, 1999 and 1998 (unaudited)
and for the year ended December 31, 1998.................................................... F-3
Statement of Changes in Shareholders' Equity for the year ended
December 31, 1998............................................................................ F-4
Statements of Cash Flows for the nine months ended September 30, 1999 and 1998 (unaudited)
and for the year ended December 31, 1998..................................................... F-5
Notes to Financial Statements................................................................... F-6
C.F. RADIO, INC.
Report of Independent Accountants............................................................... F-11
Consolidated Balance Sheets as of September 30, 1999 (unaudited) and December 31, 1998.......... F-12
Consolidated Statements of Operations for the nine months ended September 30, 1999 and
1998 (unaudited) and for the year ended December 31, 1998................................... F-13
Consolidated Statement of Changes in Shareholders' Equity for the
year ended December 31, 1998................................................................ F-14
Consolidated Statements of Cash Flows for the nine months ended September 30, 1999
and 1998 (unaudited) and for the year ended December 31, 1998............................... F-15
Notes to Consolidated Financial Statements...................................................... F-16
CALENDAR BROADCASTING, INC. AND SUBSIDIARIES
Independent Auditors' Report.................................................................... F-22
Consolidated Balance Sheets as of September 30, 1999 (unaudited) and December 31, 1998.......... F-23
Consolidated Statements of Operations for the nine months ended September 30, 1999 and 1998
(unaudited) and for the year ended December 31, 1998........................................ F-24
Consolidated Statement of Stockholders' Equity for the nine months ended September 30, 1999
(unaudited) and for the year ended December 31, 1998........................................ F-25
Consolidated Statements of Cash Flows for the nine months ended September 30, 1999 and 1998
(unaudited) and for the year ended December 31, 1998........................................ F-26
Notes to Consolidated Financial Statements...................................................... F-27
COAST RADIO LLC
Report of Independent Accountants............................................................... F-37
Balance Sheets as of September 30, 1999 (unaudited) and December 31, 1998....................... F-38
Statements of Operations for the nine months ended September 30, 1999 and 1998 (unaudited)
and for the year ended December 31, 1998..................................................... F-39
Statement of Changes in Members' Equity for the year ended
December 31, 1998............................................................................ F-40
Statements of Cash Flows for the nine months ended September 30, 1999 and 1988 (unaudited)
and for the year ended December 31, 1998..................................................... F-41
Notes to Financial Statements................................................................... F-42
7
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Cumulus Media Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in shareholders' equity and of cash flows present fairly,
in all material respects, the financial position of Cape Fear Broadcasting
Company at December 31, 1998, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
October 27, 1999
Chicago, Illinois
F-1
8
CAPE FEAR BROADCASTING COMPANY
BALANCE SHEETS
September 30, December 31,
ASSETS 1999 1998
------------- ------------
(unaudited)
Current assets:
Cash and cash equivalents $1,520,110 $2,002,609
Accounts receivable, less allowance for doubtful
accounts of $85,202 at September 30, 1999 and December 31, 1998 640,143 1,247,924
Current portion of notes receivable from shareholders 166,170 166,170
Prepaid expenses 65,857 6,646
---------- ----------
Total current assets 2,392,280 3,423,349
---------- ----------
Property and equipment, net 681,042 731,147
Intangible assets, net of accumulated amortization of $1,687 3,313 --
Notes receivable from shareholders, net of current portion 277,815 296,215
Accounts receivable, officers 614,557 582,005
Due from affiliate 1,728,401 989,442
Other receivables 542,295 --
Securities available for sale 521,901 418,856
---------- ----------
4,369,324 3,017,665
---------- ----------
Total assets $6,761,604 $6,441,014
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 55,340 $ 72,580
Accounts payable 16,846 99,238
Accrued payroll and commissions 300,417 279,877
Accrued taxes payable 54,952 115,988
Other accrued expenses 86,216 57,550
---------- ----------
Total current liabilities 513,771 625,233
---------- ----------
Long term debt, net of current portion 300,332 344,740
---------- ----------
Total liabilities 814,103 969,973
---------- ----------
Commitments and contingencies
Shareholders' equity:
Capital stock $100 par value, 1,000 shares authorized
with 416 shares issued and outstanding 41,600 41,600
Retained earnings 5,558,850 5,182,658
Accumulated other comprehensive income 347,051 246,783
---------- ----------
Total shareholders' equity 5,947,501 5,471,041
---------- ----------
Total liabilities and shareholders' equity $6,761,604 $6,441,014
========== ==========
The accompanying notes are an integral part of these financial statements.
F-2
9
CAPE FEAR BROADCASTING COMPANY
STATEMENTS OF OPERATIONS
For the Nine Months
Ended September 30,
-----------------------------------
December 31,
1999 1998 1998
----------- ----------- -----------
(unaudited)
Revenues $ 3,998,252 $ 4,228,094 $ 5,847,552
Less: Agency commissions (467,265) (367,308) (573,887)
----------- ----------- -----------
Net revenues 3,530,987 3,860,786 5,273,665
----------- ----------- -----------
Station operating expenses 1,456,510 1,638,388 2,251,644
General and administrative expenses 1,054,060 1,160,674 1,458,619
Depreciation and amortization 99,048 143,322 141,463
----------- ----------- -----------
Income from operations 921,369 918,402 1,421,939
----------- ----------- -----------
Interest income 48,037 50,970 131,436
Interest expense 29,960 39,928 27,869
Other income, net 213,434 11,405 48,704
----------- ----------- -----------
Net income $ 1,152,880 $ 940,849 $ 1,574,210
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-3
10
CAPE FEAR BROADCASTING COMPANY
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the year ended December 31, 1998
Accumulated
Other
Capital Retained Comprehensive
Stock Earnings Income Total
----------- ----------- ------------- -----------
Balance at January 1, 1998 $ 41,600 $ 4,574,048 $ 108,108 $ 4,723,756
Net income 1,574,210 1,574,210
Unrealized holding gains on securities
available for sale 138,675 138,675
-----------
Comprehensive income 1,712,885
Distributions to shareholders (965,600) (965,600)
----------- ----------- ----------- -----------
Balance at December 31, 1998 $ 41,600 $ 5,182,658 $ 246,783 $ 5,471,041
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-4
11
CAPE FEAR BROADCASTING COMPANY
STATEMENTS OF CASH FLOWS
For the Nine Months
Ended September 30,
-------------------------------
December 31,
1999 1998 1998
----------- ----------- -----------
(unaudited)
Cash flows from operating activities:
Net income $ 1,152,880 $ 940,849 $ 1,574,210
Adjustment to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 99,048 143,322 141,463
Allowance for doubtful accounts 85,202 85,202 85,202
Changes in operating assets and liabilities:
Accounts receivable 522,579 (80,527) (201,913)
Prepaid expenses (59,211) (125,732) 15,257
Accounts receivable, officers and affiliates (771,511) (202,426) (812,605)
Other receivables (542,295) -- --
Accounts payable (82,392) 22,312 46,939
Accrued payroll and commissions 20,540 15,520 83,638
Other accrued expenses 28,666 (91,649) 37,896
Accrued taxes payable (61,036) 56,534 107,869
----------- ----------- -----------
Net cash provided by operating activities 392,470 763,405 1,077,956
----------- ----------- -----------
Cash flows from investing activities:
Purchase of intangible asset (5,000) -- --
Purchase of property and equipment (47,256) (128,100) (84,290)
Purchase of investments (2,777) -- (10,281)
Issuances of notes receivable -- (248,297) --
Payments received on notes receivable 18,400 -- 538,847
----------- ----------- -----------
Net cash (used) provided by investing activities (36,633) (376,397) 444,276
----------- ----------- -----------
Cash flows from financing activities:
Issuance of long-term debt -- -- 21,000
Payments made on long-term debt (61,648) (48,590) (114,880)
Distributions to shareholders (776,688) (760,454) (965,600)
----------- ----------- -----------
Net cash used by financing activities (838,336) (809,044) (1,059,480)
----------- ----------- -----------
Net (decrease) increase in cash (482,499) (422,036) 462,752
Cash at beginning of period 2,002,609 1,539,857 1,539,857
----------- ----------- -----------
Cash at end of period $ 1,520,110 $ 1,117,821 $ 2,002,609
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 28,784 $ 39,928 $ 27,869
=========== =========== ===========
Non-cash operating activities:
Trade revenue $ 78,300 $ 90,117 $ 233,469
=========== =========== ===========
Trade expense $ 59,401 $ 52,086 $ 229,480
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-5
12
CAPE FEAR BROADCASTING COMPANY
INDEX TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Company was incorporated in 1942 under the laws of the State of North
Carolina. The Company is engaged in radio broadcasting, operating
stations WFNC-AM, WQSM and WGNI in the Fayetteville and Wilmington, North
Carolina markets.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
All items with an original maturity of three months or less are
considered to be cash equivalents.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
TRADE
The Company enters into agreements in which advertising time is traded
for various products or services. Trade transactions are reported at the
value of goods or services received. Revenue or expense and a
corresponding asset or liability are reported when advertisements are
aired or when goods and services are received.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line basis over their estimated useful lives as follows:
Transmitting and studio equipment 5-15 years
Furniture and fixtures 5-10 years
Vehicles 5 years
Building 39 years
INTANGIBLE ASSETS
Intangible assets consist of a broadcast license which is amortized
on a straight-line basis over 5 years.
Management regularly monitors and evaluates the realizability of recorded
intangibles. Recoverability of assets to be held and used is measured by
a comparison of carrying amount of the assets to future cash flows
expected to be generated by the assets. If such assets are considered to
be impaired, the impairment to be recognized is the amount by which the
carrying amount exceeds the fair value of the assets. The Company
believes that the carrying value of recorded intangibles is not
impaired.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts receivable.
The Company performs credit evaluations of its customers and generally
does not require collateral for its accounts receivable. The Company
reserves for potential credit losses based upon the expected
collectibility of all accounts receivable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable and accounts payable
approximates fair value because of the short maturity of these
instruments. The carrying value of the Company's debt approximates fair
value. Fair value of the debt is based on the quoted market prices for
the same or similar issues.
F-6
13
CAPE FEAR BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
SECURITIES AVAILABLE FOR SALE
The Company's securities available for sale consist of marketable equity
securities that have a readily determinable fair market value. Management
determines the appropriate classification of its investments at the time
of purchase. The securities are carried at fair market value.
Unrealized gains and losses are reported as a separate component of
shareholders' equity. Realized gains and losses on all marketable
securities are determined by specific identification and are charged or
credited to current earnings.
INCOME TAXES
The Company has elected to be taxed as an S Corporation, effective June
1, 1987, under the provisions of the Internal Revenue Code. Under those
provisions, the Company does not pay corporate income taxes on its
taxable income. Instead, the shareholders are liable for individual
income taxes on their respective share of the Company's taxable income.
INTERIM FINANCIAL STATEMENTS
The financial statements for the nine months ended September 30, 1999 and
1998, are unaudited, but in the opinion of management, such financial
statements have been presented on the same basis as the audited financial
statements for the year ended December 31, 1998, and include all
adjustments, consisting only of normal recurring adjustments necessary
for a fair presentation of the financial position and results of
operations and cash flows for these periods.
2. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
Transmitting and studio equipment $ 1,914,501
Furniture and fixtures 496,055
Building and improvements 657,350
Vehicles 222,172
Land 71,819
--------------
3,361,897
Accumulated depreciation 2,630,750
--------------
Property and equipment, net $ 731,147
===============
Depreciation expense was $141,463 for the year ended December 31, 1998.
F-7
14
CAPE FEAR BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. NOTES RECEIVABLE FROM SHAREHOLDER
Notes receivable consist of the following:
Notes receivable from shareholders, interest
accrual at 5.63% per annum, secured by stock of the Company $ 323,815
Notes receivable from shareholders, interest
accrual at 5.63% per annum, secured by stock of the Company 138,570
-------------
462,385
Less current portion 166,170
-------------
$ 296,215
=============
4. SECURITIES AVAILABLE FOR SALE
The cost and estimated market value of securities available for sale at
December 31, 1998 are as follows:
Fair market value $ 418,856
Cost 172,073
------------
Unrealized gain $ 246,783
============
F-8
15
CAPE FEAR BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. LONG TERM DEBT
Long term debt consists of the following:
Note payable to First Union National Bank,
payments of $2,795 per month, including
interest at prime, collateralized by broadcast tower, due
February 2000 $ 18,809
Note payable to First Union National Bank,
payments of $627 per month including
interest at 9.5%, collateralized by broadcast equipment,due
February 1999 942
Note payable to First Union National Bank,
payments of $585 per month, including
interest at 8.5% collateralized by vehicle, due November 2001 18,085
Note payable to First Union National Bank,
payments to $6,500 per month including
interest at prime, a balloon payment due
December 2000, collateralized by real estate 379,484
-----------
417,320
Less current portion 72,580
-----------
$ 344,740
===========
Maturities of long term debt are as follows:
1999 $ 72,580
2000 338,620
2001 6,120
-----------
$ 417,320
===========
6. CONCENTRATION OF CREDIT RISK
The Company maintains its cash balances at five financial institutions
located in Fayetteville, NC and Wilmington, NC. Accounts at each
institution are insured by the Federal Deposit Insurance Corporation up
to $100,000. At December 31, 1998, the Company's uninsured cash balances
totaled $1,460,320. The Company has not experienced any losses in such
cash accounts and believes it is not exposed to any significant credit
risk.
F-9
16
CAPE FEAR BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is an unconditional guarantor of a C.F. Radio, Inc. bank
loan in the amount of $4,511,278 (see Note 8). The Company leases
office and tower space from an affiliated company for radio
broadcasting operations under an oral lease agreement. Management
believes the rent charged approximates market rates.
8. RELATED PARTY TRANSACTIONS
The Company is affiliated with C.F. Radio, Inc., a North Carolina
corporation, through common ownership. At December 31, 1998 amounts
receivable from C.F. Radio, Inc. were $989,442.
Accounts receivable for $582,005 as of December 31, 1998 are due the
Company from certain officers for life insurance premiums.
The Company has notes receivable from shareholders totaling $462,385 as
of December 31, 1998. These notes bear interest at 5.63%.
9. EMPLOYEE BENEFIT PLANS
Effective July 1, 1997, the Company established a qualified deferred
compensation plan under section 401(k) of the Internal Revenue Code.
Under the plan, employees may elect to defer up to 10% of their
salary, subject to the Internal Revenue Service limits. The Company
may make a discretionary contribution. The Company accrued
contributions of $10,417 in 1998 that were paid to the plan in
January, 1999.
10. SUBSEQUENT EVENT
On September 1, 1999 the Company entered into a local marketing
agreement with Cumulus Broadcasting, Inc. Under the local marketing
agreement the licensee of the Company's stations make available to
Cumulus Broadcasting Inc., for a fee, air time on their stations. Such
fee is included within other income. Cumulus will provide the
programming to be broadcast during the air time and will collect the
advertising it sells for such programming.
On September 23, 1999, the Company and C.F. Radio, Inc., an entity also
controlled by the Company's shareholders entered into an agreement to
sell substantially all of their broadcast assets and FCC licenses to
Cumulus Broadcasting, Inc., Cumulus Wireless Services, Inc., and
Cumulus Licensing Corp., (wholly owned subsidiaries of Cumulus Media
Inc.) (collectively "Cumulus") for $44,000,000 in cash and an
additional payment of $3,000,000 due at closing, payable in cash or
stock at the discretion of Cumulus.
F-10
17
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Cumulus Media Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
C.F. Radio, Inc. at December 31, 1998, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
October 27, 1999
Chicago, Illinois
F-11
18
C.F. RADIO, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
ASSETS 1999 1998
------------- ------------
(unaudited)
Current assets:
Cash and cash equivalents $ 742,676 $ 591,793
Accounts receivable 327,465 513,232
Prepaid expenses 37,729 1,628
---------- ----------
Total current assets 1,107,870 1,106,653
---------- ----------
Property and equipment, net 1,633,980 1,825,245
Intangible assets, net 3,897,111 4,103,980
Other assets - 19,706
Other receivables 229,318 -
Escrow deposit 338,331 -
---------- ----------
Total assets $7,206,610 $7,055,584
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 470,969 $ 181,481
Accounts payable 8,805 52,396
Accrued payroll and commissions 120,875 108,800
Accrued interest 37,175 37,658
Other accrued expenses 74,614 35,347
---------- ----------
Total current liabilities 712,438 415,682
---------- ----------
Long term liabilities:
Long term debt, net of current portion 5,036,684 5,400,621
Due to affiliate 1,683,083 989,442
---------- ----------
Total long term liabilities 6,719,767 6,390,063
---------- ----------
Total liabilities 7,432,205 6,805,745
---------- ----------
Commitments and contingencies
Shareholders' equity:
Capital stock no par value, 100,000 shares authorized
with 7,000 shares issued and outstanding 7,000 7,000
Retained earnings (deficit) (232,595) 242,839
---------- ----------
Total shareholders' equity (225,595) 249,839
---------- ----------
Total liabilities and shareholders' equity $7,206,610 $7,055,584
========== ==========
The accompanying notes are an integral part of these financial statements.
F-12
19
C.F. RADIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
----------------------- DECEMBER 31,
1999 1998 1998
---------- ---------- ------------
(UNAUDITED)
Revenues $1,666,633 $1,362,412 $2,040,052
Less: Agency commissions (218,990) (164,043) (233,518)
---------- ---------- ----------
Net revenues 1,447,643 1,198,369 1,806,534
Station operating expenses 755,487 417,231 753,284
General and administrative expenses 299,417 219,653 342,817
Depreciation and amortization 498,279 134,133 354,866
---------- ---------- ----------
Income (loss) from operations (105,540) 427,352 355,567
---------- ---------- ----------
Interest expense 357,478 211,658 350,368
Other income, net 127,852 33,146 11,952
---------- ---------- ----------
Net income (loss) $ (335,166) $ 248,840 $ 17,151
========== ========= ==========
The accompanying notes are an integral part of these financial statements.
F-13
20
C.F. RADIO, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the year ended December 31, 1998
CAPITAL RETAINED
STOCK EARNINGS TOTAL
------ -------- --------
Balance at January 1, 1998 $7,000 $232,688 $239,688
Net income 17,151 17,151
Distributions to shareholders (7,000) (7,000)
------ -------- --------
Balance at December 31, 1998 $7,000 $242,839 $249,839
====== ======== ========
The accompanying notes are an integral part of these financial statements.
F-14
21
C.F. RADIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
------------------------ DECEMBER 31,
1999 1998 1998
--------- ----------- -----------
(UNAUDITED)
Cash flows from operating activities:
Net income (loss) $(335,166) $ 248,840 $ 17,151
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 498,279 134,133 354,866
Change in operating assets and liabilities:
Accounts receivable 185,767 (236,276) (231,146)
Prepaid expenses (36,101) (17,778) (1,582)
Other receivables (229,318) - -
Other assets 19,706 - (28,872)
Accounts payable (43,591) 15,077 45,804
Accrued payroll and commissions 12,075 4,925 60,427
Other accrued expenses and accrued interest 38,784 66,968 67,632
--------- ----------- -----------
Net cash provided by operating activities 110,435 215,889 284,280
Cash flows from investing activities:
Purchase of property and equipment (100,145) (212,773)
Acquisition of stations (5,316,001) (5,219,213)
Due to affiliate 693,641 692,131 770,239
Escrow deposit (338,331) - -
--------- ----------- -----------
Net cash used by investing activities 255,165 (4,623,870) (4,661,747)
--------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long term debt - 4,570,126 5,076,538
Payments made on long term debt (74,449) (150,028) (612,440)
Distributions to shareholders (140,268) (500) (7,000)
--------- ----------- -----------
Net cash used by financing activities (214,717) 4,419,598 4,457,098
--------- ----------- -----------
Net increase (decrease) in cash 150,883 11,617 79,631
Cash at beginning of period 591,793 512,162 512,162
--------- ----------- -----------
Cash at end of period $ 742,676 $ 523,779 $ 591,793
========= =========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 357,961 $ 135,078 $ 312,710
========= =========== ===========
Noncash operating activities:
Trade revenue $ 37,653 $ 12,765 $ 32,350
========= =========== ===========
Trade expense $ 35,510 $ 5,322 $ 9,723
========= =========== ===========
The accompanying notes are an integral part of these financial statements.
F-15
22
C.F. RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
C.F. Radio, Inc. was incorporated in April, 1992 under the laws of the
State of North Carolina and began operations in July, 1992. C.F. Radio,
Inc. owns 100% of Cape Fear Tower Systems, L.L.C. C.F. Radio, Inc. and
Cape Fear Tower Systems, L.L.C. (collectively, "the Company") is engaged
in radio broadcasting, operating stations WFNC-FM, WRCQ, and WMNX in the
Fayetteville and Wilmington, North Carolina markets.
The consolidated financial statements of the Company include the
accounts of C.F. Radio, Inc. and Cape Fear Tower Systems, LLC. Significant
intercompany balances have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
All items with an original maturity of three months or less are considered
to be cash equivalents.
TRADE
The Company enters into agreements in which advertising time is traded for
various products or services. Trade transactions are reported at the fair
value of the goods or services received. Revenue or expense and a
corresponding asset or liability are reported when advertisements are
aired or when goods and services are received.
ACCOUNTS RECEIVABLE
The Company considers accounts receivable at December 31, 1998 to be fully
collectible; accordingly, no allowance for doubtful accounts is required.
Amounts that become uncollectible are charged to operations when that
determination is made.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line basis over their estimated useful lives as follows:
Transmitting and studio equipment 5-15 years
Furniture and fixtures 5-10 years
Vehicles 5 years
Building 39 years
INTANGIBLE ASSETS
Intangible assets, primarily FCC licenses and goodwill, are capitalized
and amortized on a straight-line basis and amortized over 15 years.
Management regularly monitors and evaluates the realizability of recorded
intangibles. Recoverability of assets to be held and used is measured by a
comparison of carrying amount of the assets to future cash flows expected
to be generated by the assets. If such assets are considered to be
impaired, the impairment to be recognized is the amount by which the
carrying amount exceeds the fair value of the assets. The Company believes
that the carrying value of recorded intangibles is not impaired.
F-16
23
C.F. RADIO, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable and accounts payable
approximates fair value because of the short maturity of these
instruments. The carrying value of the Company's debt approximates fair
value. The fair value of debt is based on the quoted market prices for
the same or similar issues.
INCOME TAXES
The Company has elected to be taxed as an S Corporation since inception,
under the provisions of the Internal Revenue Code. Under those provisions,
the Company does not pay corporate income taxes on its taxable income.
Instead, the shareholders are liable for individual income taxes on their
respective share of the Company's taxable income.
INTERIM FINANCIAL STATEMENTS
The financial statements for the nine months ended September 30, 1999 and
1998, are unaudited, but in the opinion of management, such financial
statements have been presented on the same basis as the audited financial
statements for the year ended December 31, 1998, and include all
adjustments, consisting only of normal recurring adjustments necessary
for a fair presentation of the financial position and results of
operations and cash flows for these periods.
2. INTANGIBLE ASSETS
Intangible assets consist of the following:
FCC licenses and goodwill $4,267,937
Accumulated amortization (163,957)
-----------
Intangible assets, net $4,103,980
===========
Amortization expense was $133,057 for the year ended December 31, 1998.
3. ACQUISITIONS OF STATIONS
On March 2, 1998, C.F. Radio, Inc. acquired the assets of WFNC-FM in
Lumberton, NC for an aggregate purchase price of $700,000 plus acquisition
costs of $9,328. The acquisition was accounted for as a purchase and was
included with combined operations from that date through December 31,
1998. The purchase was financed with a $500,000 loan from the former owner
of the station and a $200,000 cash payment.
The total purchase price of $709,328 was allocated as follows:
Property and equipment $350,218
Intangible assets 359,110
--------
Total $709,328
========
The allocation of the purchase price was based upon management's estimate
of the fair market value of the acquired assets.
F-17
24
C.F. RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. ACQUISITIONS OF STATIONS, CONTINUED
On July 28, 1998, C.F. Radio, Inc. acquired the assets of WRCQ in
Fayetteville, NC for an aggregate purchase price of $4,313,688 and
acquisition costs of $196,197. The acquisition was accounted for as a
purchase and was included with combined operations from that date through
December 31, 1998. The purchase was financed with a $4,025,000 bank loan
and $288,688 cash payment.
The total purchase price of $4,509,885 was allocated as follows:
Property and equipment $ 695,871
Prepaid expenses 4,522
Program deposits 9,166
Intangible assets 3,800,326
----------
$4,509,885
==========
4. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
1998
----------
Transmitting and studio equipment $1,909,711
Furniture and fixtures 113,165
Building and improvements 402,320
Vehicles 54,397
Land 100,000
----------
2,579,593
Accumulated depreciation 754,348
----------
Property and equipment, net $1,825,245
==========
Depreciation expense was $221,809 for the year ended December 31, 1998.
F-18
25
C.F. RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. LONG-TERM DEBT
Long-term debt consists of the following:
1998
-----------
Note payable to First Union Bank, monthly interest only
payments through September 1999 at a variable interest
rate of the LIBOR Market Index plus an Applicable
Margin of 2.85% (see Note 6), monthly principal payments
to commence October 1999, balloon payment of $3,042,668
due July 2003, collateralized by substantially all assets
of the Company plus Company stock $4,511,278
Note payable to shareholders, payable in monthly installments,
with interest at 5.63% per annum due December 1999. 315,861
Mortgage payable to DRW Agency, Inc. monthly payments
of $3,773 including interest at 9%, collateralized by
purchase money deed of trust on real estate and guaranty
agreements of shareholders, due February 2005. 213,667
Note payable to First Union Bank, monthly payments of
$808, including interest at 7.8%, collateralized by
equipment, due December 2003. 39,893
Note payable to BB&T, monthly payments, of $516
including interest at 8%, collateralized by vehicle, due 25,367
December 2003.
Note payable, Arthur DeBerry and Associates, Inc.,
monthly payments of $6,334 including interest at 9%, 476,036
due March 2008. ----------
5,582,102
Less current portion 181,481
----------
$5,400,621
==========
F-19
26
C.F. RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. LONG-TERM DEBT, CONTINUED
Maturities of long term debt are as follows:
1999 $ 181,481
2000 449,073
2001 488,226
2002 534,807
2003 3,433,089
Thereafter 495,426
----------
$5,582,102
==========
The First Union note in the amount of $4,511,728 contains restrictive
covenants regarding fixed charge coverage, interest coverage, debt to
earnings before interest and taxes, and capital expenditures. For the year
ended December 31, 1998, the Company was in violation of capital
expenditure covenant. The Company has received a waiver for this
violation.
6. INTEREST RATE SWAP AGREEMENT
On August 3, 1998, in conjunction with the $4,511,278 loan payable to
First Union, the Company entered into an interest rate swap agreement on
the full amount of the debt, which effectively converts the loan to a
fixed interest rate of 8.99%. The agreement terminates on July 31, 2003.
Each month, the Company makes payments to (receives payments from) First
Union equal to the amount by which the loan's monthly interest at 8.99%
exceeds (is less than) the monthly interest at the loan's floating rate.
If the Company should repay the loan prior to its scheduled maturity, or
otherwise break the swap agreement, an amount would be due by the Company
to First Union, or by First Union to the Company, based approximately upon
the present value of the future monthly payments under the swap agreement
given the interest rates in effect at the time the swap agreement is
canceled. As of December 31, 1998, the Company has no plans to cancel the
swap agreement; accordingly, no liability for any amounts which would be
due to First Union if the agreement were canceled has been recorded.
7. CONCENTRATION OF CREDIT RISK
The Company maintains its cash balances at financial institutions located
in Fayetteville and Wilmington, NC. Accounts at each institution are
insured by the Federal Deposit Insurance Corporation up to $100,000. At
December 31, 1998 the Company's uninsured cash balances totaled $313,895.
The Company has not experienced any losses in such cash accounts and
believes it is not exposed to any significant credit risk.
F-20
27
C.F. RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. RELATED PARTY TRANSACTIONS
The Company is affiliated with Cape Fear Broadcasting Co., Inc., a North
Carolina corporation, through common ownership. At December 31, 1998
amounts payable to Cape Fear Broadcasting Co., Inc. were $989,442.
The Company borrowed funds from its shareholders in conjunction with the
initial purchase of the assets of the Company in 1992. At December 31,
1998 the amount owed to shareholders on these loans was $315,861.
The Company rents office and tower space to an affiliated company for
radio broadcasting operations under an oral lease agreement. Related
party rental income of approximately $35,000 is included within other
income.
9. EMPLOYEE BENEFIT PLANS
Effective July 1, 1997, the Company established a qualified deferred
compensation plan under section 401(k) of the Internal Revenue Code. Under
the plan, employees may elect to defer up to 10% of their salary, subject
to the Internal Revenue Service limits. The Company may make a
discretionary contribution. The Company accrued contributions of $573 in
1998 that were paid to the plan in January, 1999.
10. SUBSEQUENT EVENT
On September 1, 1999, the Company entered into a local marketing agreement
with Cumulus Broadcasting, Inc. Under the local marketing agreement the
licensees of the Company's stations make available to Cumulus
Broadcasting, Inc., for a fee, air time on their stations. Such fee is
included within other income. Cumulus will provide the programming to be
broadcast during the air time and will collect the advertising it sells
for such programming.
On September 23, 1999, the Company and Cape Fear Broadcasting Company,
an entity also controlled by the Company's shareholders, entered into an
agreement to sell substantially all of their broadcast assets and FCC
licenses to Cumulus Broadcasting, Inc., Cumulus Wireless Services, Inc.,
and Cumulus Licensing Corp., (wholly owned subsidiaries of Cumulus Media
Inc.) (collectively "Cumulus") for $44,000,000 in cash and an additional
payment of $3,000,000 due at closing, payable in cash or stock at the
discretion of Cumulus.
F-21
28
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Calendar Broadcasting, Inc.:
We have audited the accompanying consolidated balance sheet of Calendar
Broadcasting, Inc. and subsidiaries as of December 31, 1998, and the
related consolidated statements of operations, stockholder's equity, and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Calendar
Broadcasting, Inc. and subsidiaries as of December 31, 1998, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
April 2, 1999, except as to
note 13, which is as of
November 1, 1999
F-22
29
CALENDAR BROADCASTING, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
SEPTEMBER 30, DECEMBER 31,
Assets (note 5) 1999 1998
------------ ------------
(Unaudited)
Current assets:
Cash 452,787 413,555
Accounts receivable, less allowance for doubtful accounts
of $70,761 and $94,669 at September 30, 1999 and
December 31, 1998, respectively 1,296,410 1,523,510
Prepaid expenses 51,867 49,689
Note receivable from affiliate (note 9) -- 130,500
Other current assets 41,138 42,110
------------ ------------
Total current assets 1,842,202 2,159,364
Property and equipment, net of accumulated depreciation of
$3,762,283 and $3,455,077 at September 30, 1999 and
December 31, 1998, respectively (notes 3 and 4) 1,857,717 2,058,505
Intangible assets, net of accumulated amortization of $6,875,034
and $6,114,510, at September 30, 1999 and December 31, 1998,
respectively (notes 3 and 5) 11,058,312 11,818,542
Other assets 20,605 19,605
------------ ------------
14,778,836 16,056,016
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable 140,756 69,871
Accrued compensation 48,705 38,518
Accrued management fees (note 9) -- 175,000
Other accrued expenses 109,440 147,949
Accrued interest 98,118 124,261
Deferred revenue -- 20,531
Current portion of long-term debt (note 6) 150,000 450,000
------------ ------------
Total current liabilities 547,019 1,026,130
Long-term debt (note 6) 12,507,000 12,507,000
Mandatory redeemable convertible preferred stock, stated
and redemption value $1,000 per share. Authorized,
issued and outstanding 1,550 shares (note 11) 1,550,000 1,550,000
Stockholder's equity (notes 6 and 11):
Common stock, par value $.01. Authorized 30,000 shares;
issued and outstanding 6,783 shares 67 67
Additional paid-in capital 4,893,934 4,893,934
Accumulated deficit (4,719,184) (3,921,115)
------------ ------------
Total stockholders' equity 174,817 972,886
------------ ------------
Commitments (notes 10 and 12) 14,778,836 16,056,016
============ ============
See accompanying notes to consolidated financial statements.
F-23
30
CALENDAR BROADCASTING, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
NINE-MONTH PERIOD YEAR ENDED
ENDED SEPTEMBER 30 DECEMBER 31
-------------------------- -----------
1999 1998 1998
----------- ----------- -----------
(Unaudited)
Revenues 5,716,540 5,585,905 7,569,065
----------- ----------- -----------
Expenses:
Selling, technical and program 2,603,742 2,522,064 3,462,500
General and administrative (notes 9 and 10) 1,765,758 1,584,452 2,171,762
Depreciation and amortization 1,067,730 1,093,423 1,438,905
----------- ----------- -----------
Total expenses 5,437.230 5,199,939 7,073,167
----------- ----------- -----------
Operating income 279,310 385,966 495,898
Other income (expense):
Interest income 880 32 26,952
Interest expense (note 6) (1,078,259) (1,057,574) (1,499,000)
Loss on sale of radio station KVJY (AM) (note 3) -- -- (72,027)
----------- ----------- -----------
Loss before minority interest
in losses of subsidiaries
and extraordinary item (798,069) (671,576) (1,048,177)
Minority interest in losses of subsidiaries (note 1) 57,484 46,000
----------- ----------- -----------
Loss before extraordinary item (798,069) (614,092) (1,002,177)
Extraordinary item - loss on extinguishment of debt
(note 6) -- -- (236,725)
----------- ----------- -----------
Net loss (798,069) (614,092) (1,238,902)
=========== =========== ===========
See accompanying notes to consolidated financial statements.
F-24
31
CALENDAR BROADCASTING, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholder's Equity
COMMON ADDITIONAL
STOCK, $.01 PAID-IN ACCUMULATED
PAR VALUE CAPITAL DEFICIT TOTAL
---------- ---------- ---------- ----------
Balance at December 31, 1997 67 5,993,934 (2,682,213) 3,311,788
Repurchase of warrants (note 6) -- (1,100,000) -- (1,100,000)
Net loss -- -- (1,238,902) (1,238,902)
---------- ---------- ---------- ----------
Balance at December 31, 1998 67 4,893,934 (3,921,115) 972,886
Net loss (unaudited) -- -- (798,069) (798,069)
---------- ---------- ---------- ----------
Balance at September 30, 1999 $ 67 4,893,934 (4,719,184) 174,817
(unaudited) ========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
F-25
32
CALENDAR BROADCASTING, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
NINE-MONTH PERIOD
ENDED SEPTEMBER 30 DECEMBER 31
---------------------------- -----------
1999 1998 1998
--------- --------- ---------
(UNAUDITED)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash $(798,069) $(614,092) (1,238,902)
provided by (used in) operating activities:
Extraordinary item - loss on extinguishment of debt -- -- 236,725
Depreciation and amortization 1,067,730 1,093,423 1,438,905
Minority interest -- (57,484) (46,000)
Amortization of deferred financing costs -- -- 41,491
Amortization of debt discount -- 28,700 31,575
Loss on sale of radio station KVJY (AM) -- -- 72,027
Change in allowance for doubtful accounts 23,908 (25,389) 3,540
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 203,192 (281,191) (313,664)
Increase in prepaid expenses (2,178) (3,737) (20,816)
(Increase) decrease in other current assets 673 (81) 38,393
Increase in accrued interest on note receivable
from minority stockholder -- -- (26,484)
Increase in other assets, net (701) (1,000) (1,000)
Decrease in accounts payable, accrued
expenses and deferred revenue (152,968) (64,015) (238,445)
Increase (decrease) in accrued and deferred
interest (26,143) 231,832 (30,055)
-------- -------- --------
Net cash provided by (used in) operating
activities 315,444 306,966 (52,710)
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment (106,712) (343,892) (326,090)
Proceeds from sale of radio station KVJY (AM), net
of selling costs of $71,422 -- -- 628,578
(Increase) decrease in note receivable from affiliate 130,500 -- (130,500)
-------- ------- --------
Net cash provided by (used in)
investing activities 23,788 (343,892) 171,988
-------- -------- --------
Cash flows from financing activities:
Repurchase of warrants -- -- (1,100,000)
Repayments of subordinated debt -- -- (4,000,000)
Proceeds from term note payable -- 5,857,000
Repayment of term note (300,000) -- (500,000)
Payments under covenant not-to-compete -- (60,000)
Repayments of note receivable from
minority stockholder -- -- 15,000
Deferred financing costs -- -- (135,000)
-------- --------- ---------
Net cash (used in) provided by
financing activities (300,000) -- 77,000
-------- --------- ---------
Net increase (decrease) in cash 39,232 (36,926) 196,278
Cash at beginning of period 413,555 217,277 217,277
-------- --------- ---------
Cash at end of period $452,787 $180,351 $413,555
======== ========== =========
DECEMBER 31
-------------
1998
-------------
Supplemental disclosure of cash flow information - cash
paid for interest $ 1,456,844
============
See accompanying notes to consolidated financial statements.
F-26
33
CALENDAR BROADCASTING, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
(1) NATURE OF BUSINESS AND ORGANIZATION
Calendar Broadcasting, Inc. (the Company) was incorporated in the state
of Delaware in 1989 and is owned by M&F Calendar Holdings, L.P. (M&F
Calendar). M&F Calendar is a special purpose investment partnership
formed by the equity investment firm of M&F Associates, L.P. (formerly
Murphy & Fauver, L.P.). The Company was established for the purposes of
purchasing, owning, operating and managing radio stations.
In 1990, the Company established May Holding Corporation (May Holding), a
90% subsidiary, which in turn established May Communications, Inc. (May
Communications), a wholly-owned subsidiary. May Communications owns and
operates radio station KBFM (FM) in Edinburg, Texas, which was acquired
in 1991 for a purchase price of approximately $2,500,000.
In 1993, the Company established July Broadcasting, Inc. (July
Broadcasting). July Broadcasting owns and operates radio station KTEX
(FM) in Brownsville, Texas, and KVJY (AM) in Pharr, Texas, purchased for
$5,100,000 in 1995. On December 16, 1994, the Company established July
Holding Corporation (July Holding), an 88% subsidiary, for the purposes
of purchasing, owning, operating and managing radio stations. KVJY (AM)
was sold during 1998 (see note 3).
On February 7, 1997, April Holding Corporation (April Holding), a 90%
subsidiary of the Company, acquired April Broadcasting, Inc. (April
Broadcasting), for cash, exchange of stock and conversion of a Class A
note receivable due from April Broadcasting into common stock of April
Holding. April Broadcasting owns WBLX (FM) and WDLT (AM) in Mobile,
Alabama, purchased in 1990 for $5,250,000 and WDLT (FM) in Mobile,
Alabama, purchased in 1997 for approximately $3,400,000.
The Company, April Holding, April Broadcasting, May Holding, May
Communications, July Holding and July Broadcasting have some common
officers and directors.
(2) SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of the Company, April Holding, April Broadcasting, May Holding, May
Communications, July Holding and July Broadcasting. All material
intercompany items and transactions have been eliminated.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the respective
assets, which range from 5 to 31-1/2 years. Maintenance and repairs are
charged to operations as incurred.
(Continued)
F-27
34
CALENDAR BROADCASTING, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
INTANGIBLE ASSETS
Intangible assets consist primarily of broadcasting assets amortized on a
straight-line basis over periods from 5 to 25 years.
Management regularly monitors and evaluates the realizability of recorded
intangibles. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of the assets to future undiscounted
cash flows expected to be generated by the assets. If such assets are
considered to be impaired, the impairment to be recognized is the amount
by which the carrying amount exceeds the fair value of the assets. The
Company believes that the carrying value of recorded intangibles is not
impaired.
INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Deferred income taxes are measured using the enacted tax rates
and laws that are anticipated to be in effect when the differences are
expected to reverse.
REVENUE
Broadcast revenue is recognized when advertisements are aired and is
presented net of agency commissions.
BARTER TRANSACTIONS
Revenue from barter transactions (advertising provided in exchange for
goods and services) is recognized as income when advertisements are
broadcast, and barter expense is recognized when merchandise is received
or services are performed. Barter revenue was approximately $390,000 and
barter expense was approximately $324,000 during the year ended December
31, 1998.
USE OF 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 disclosures 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.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets and identifiable intangibles
for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable through a review
of undiscounted cash flows.
(Continued)
F-28
35
CALENDAR BROADCASTING, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
(3) DISPOSITION
On November 9, 1998, July Broadcasting completed the sale of KVJY (AM)
Pharr, Texas, to Vie Dansante Broadcasting, Inc. for $700,000. A portion
of the proceeds from the sale was used to repay a portion of the
principal balance of the FINOVA Term Loan (see note 6). July Broadcasting
recognized a loss on the sale totaling $72,027.
(Continued)
F-29
36
CALENDAR BROADCASTING, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
(4) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 consists of the following:
1998
----------
Land 211,110
Buildings 1,039,742
Equipment 4,040,206
Furniture and fixtures 196,406
Vehicles 26,118
----------
5,513,582
Less accumulated depreciation 3,455,077
----------
2,058,505
==========
(5) INTANGIBLE ASSETS
Intangible assets at December 31, 1998 consists of the following:
1998
------------
Goodwill 6,452,271
FCC licenses 5,892,524
Advertising client base and contracts 2,096,987
Favorable leases 623,167
Covenants not to compete 635,081
Deferred financing costs 130,576
Other intangibles 2,102,446
------------
17,933,052
Less accumulated amortization 6,114,510
------------
11,818,542
============
(Continued)
F-30
37
CALENDAR BROADCASTING, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
(6) LONG-TERM DEBT
Long-term debt at December 31, 1998 consists of the following:
1998
----------
Term loan 12,957,000
----------
Total long-term debt 12,957,000
Less current portion 450,000
----------
12,507,000
==========
On October 29, 1998, April Broadcasting, May Communications and
July Broadcasting executed the Second Amended and Restated Loan
Agreement by which they borrowed an additional $5,857,000 from
FINOVA which was used to repay in full amounts due under the
Allied agreement (discussed below); repurchase the Allied
warrants; pay all amounts due under the covenant not to compete;
pay transaction costs; and provide working capital. The principal
terms of the Term Loan, as amended are repayment in 20 consecutive
quarterly installments, starting at $150,000 and increasing to
$350,000 beginning April 1, 1999, with the remaining principal of
$1,357,000 due on the first business day of October 2003; and
interest payable monthly beginning November 1998 at the base rate
of a major bank plus an
(Continued)
F-31
38
CALENDAR BROADCASTING, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
additional factor which varies from 1.00% to 2.50%, based upon a cash
flow related ratio. In connection with the repayments under the Allied
agreement and the FINOVA refinancing, the Company wrote off the related
unamortized deferred financing costs and unamortized discount on the
Allied subordinated debt, which are included as an extraordinary item in
the accompanying consolidated statement of operations for the year ended
December 31, 1998.
On November 9, 1998, July Broadcasting made a $500,000 payment of the
principal balance of the FINOVA Term Loan from a portion of the proceeds
from the sale of KVJY (AM) (see note 3).
The Term Loan is collateralized by substantially all of the assets and
stock of April Broadcasting, May Communications and July Broadcasting.
The refinanced loan also contains certain restrictive covenants that
require the maintenance of certain debt service and leverage ratios, as
well as other financial and nonfinancial covenants, applied on a
consolidated basis. The term loan is guaranteed by the minority
stockholder of the Company.
On October 31, 1997, the Company entered into a subordinated debt
agreement with Allied for $4,000,000. The proceeds were used for
working capital and to provide April Broadcasting funds to acquire radio
station WDLT (FM). No principal payments could be made under this
subordinated debt agreemnt until the Term Loan was paid in full;
however; quarterly interest payments were required to be made. The
agreement granted Allited warrants for 15% of the Company's capital
stock. The warrants were exercisable at any time at an exercise price
of $100. At any time beginning five years after the date of the
subordinated debt agreement, the holders could, on one occasion only,
require the Company to purchase the warrants or the shares issued
thereunder at the price determinded as of the time of the exercise of
the clause, equl to the product of the appraised value of the Company
determined pursuant to the terms of the agreement. If the subordinated
debentures are repaid in full within three years of the date of the
subordinated debt agreement, the Company at its option could repurchase
the warrants or any shares issued thereunder at $1,100,000 through the
24th month of the subordinated debt agreement and at $2,000,000 through
the 36th month.
All outstanding amounts under the subordinated debt agreement were due
February 14, 2003. The restrictive covenants required under the Term Loan
applied to the subordinated debt agreement.
The Allied agreement was repaid in full on October 29, 1998 and the
warrants were repurchased for $1,100,000.
(Continued)
F-32
39
CALENDAR BROADCASTING, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
The aggregate minimum principal amounts due under the above agreements at
December 31, 1998 are as follows:
Year ending December 31:
1999 $ 450,000
2000 825,000
2001 1,000,000
2002 1,200,000
2003 9,482,000
------------
$ 12,957,000
============
(7) COVENANT NOT-TO-COMPETE
The WBLX (AM/FM) purchase agreement included a covenant not-to-compete
for $250,000. The agreement provided for annual payments of $50,000 to
the seller over five years subject to certain specified cash flow levels.
On October 29, 1998, the balance, together with the related accrued
interest, was repaid.
(8) INCOME TAXES
Income tax benefit for the year ended December 31, 1998 differed from the
amount computed by applying the U.S. federal income tax rate of 34% to
pretax income as a result of the following:
1998
------------
Computed tax benefit at 34% (421,227)
Increase decrease in income taxes
resulting from:
Goodwill 154,610
Meals and entertainment expense 2,169
Increase in balance of the valuation
allowance for deferred tax assets 264,448
------------
Income tax expense --
============
(Continued)
F-33
40
CALENDAR BROADCASTING, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liability at
December 31, 1998 is as follows:
1998
---------------
Deferred tax assets:
Federal and state net operating loss carryforwards 2,755,838
Allowance for doubtful accounts 32,188
---------------
Total gross deferred tax assets 2,788,026
Less valuation allowance 2,737,012
---------------
Net deferred tax assets 51,014
Deferred tax liability - book vs. tax basis accumulated
depreciation and amortization 51,014
---------------
Net deferred taxes --
===============
The valuation allowance for deferred tax assets as of January 1, 1998 was
$2,472,564. The net change in the total valuation allowance for the year
ended December 31, 1998 was an increase of $264,448. The Company has
experienced certain ownership changes which, under the provisions of
Section 382 of the Internal Revenue Code of 1986, as amended, may result
in an annual limitation on the Company's ability to utilize its net
operating losses in the future. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than
not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which
those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable
income and tax planning strategies in making this assessment. Based upon
the level of historical taxable income and projections for future taxable
income over the periods in which the deferred tax assets are deductible,
management could not conclude that it is more likely than not that the
Company will realize the benefits of these deductible differences. As a
result, there is a full valuation allowance at December 31, 1998.
At December 31, 1998, the Company has net operating loss carryforwards of
approximately $8,200,000 for federal and state income tax reporting
purposes available to offset future taxable income through the year 2013.
(Continued)
F-34
41
CALENDAR BROADCASTING, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
(9) RELATED-PARTY TRANSACTIONS
April Broadcasting, May Communications and July Broadcasting have
management agreements with M&F Associates L.P. (M&F), the general partner
of M&F Calendar, to perform financial advisory and management services.
The annual fee is $50,000 each for April Broadcasting and May
Communications and $100,000 for July Broadcasting, plus out-of-pocket
expenses. M&F charged $200,000 under these agreements in 1998. As of
December 31, 1998, $175,000 has been accrued for the unpaid portions of
these services.
During 1995, July Holding received a capital contribution in the form of
a $303,000 note receivable from a stockholder of the Company. Interest
accrues quarterly on the note at prime plus 1% and is payable with the
principal on June 27, 2000. During 1998, the stockholder repaid $15,000
of this note. The unpaid balance of the note plus accrued interest is
reflected as an offset to minority interest in the accompanying
consolidated balance sheets. In March 1999, the note receivable was
forgiven by the Company and was written off against the minority interest
liability.
In October 1998, the Company loaned $130,500 to an affiliated
organization. The note is noninterest bearing and is payable in full on
the earlier of the date on which a sale of substantially all of the
Company's operating radio stations is consummated or November 1, 2003.
The affiliate may repay any or all of the outstanding principal balance
at any time.
(10) EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries maintained a 401(k) Employee Savings
Plan (the Plan) covering all of their full-time employees. All eligible
employees could elect to contribute a portion of their wages to the Plan,
subject to certain limitations. In addition, the Company contributed to
the Plan at the rate of 25% of the employee contributions up to a maximum
of 4% of the employee's salary. The Company's contribution to the Plan
was $2,615 during the year ended December 31, 1998. On August 25, 1998,
the Company filed an application with the Internal Revenue Service to
terminate the Plan effective March 31, 1998 and received a favorable
determination letter from the Internal Revenue Service in April 1999.
(Continued)
F-35
42
CALENDAR BROADCASTING, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
(11) REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company has 1,550 shares of Series A Convertible Preferred Stock, par
value $1,000 per share, outstanding as of December 31, 1998. Each share
of the Series A Preferred Stock is convertible at the option of the
holder into one share of common stock. The Company is required to redeem
all outstanding shares of Series A Preferred Stock not previously
converted on June 30, 2001, at a price of $1,000 per share plus accrued
dividends, if any. As of December 31, 1998, no dividends had been
declared.
(12) COMMITMENTS
LEASES
As of December 31, 1998, the Company and its subsidiaries are obligated
for future minimum payments under certain noncancelable operating leases
as follows:
Year ending December 31:
1999 $ 173,722
2000 144,029
2001 111,625
2002 107,667
2003 83,679
Thereafter 822,821
----------
$1,443,543
==========
Rental expense, principally for office space and tower rentals, amounted
to approximately $137,030 for the year ended December 31, 1998.
(13) SUBSEQUENT EVENTS
On June 15, 1999, the Company's stockholders entered into a stock
purchase agreement for the sale of the Company's outstanding common stock
to Cumulus Media Inc. (the Buyer) for $36,000,000. The Company has
guaranteed net working capital of at least $1,500,000 at the closing
date. Failure by the Company to transfer the $1,500,000 will result in a
reduction of the purchase price by such shortfall. The sale was
consummated on November 1, 1999.
F-36
43
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Cumulus Media Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, changes in members' equity and cash flows present fairly, in all
material respects, the financial position of Coast Radio L.L.C. at December 31,
1998, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
February 28, 1999
Chicago, Illinois
F-37
44
COAST RADIO L.L.C.
BALANCE SHEET
As of December 31, 1998
SEPTEMBER 30, DECEMBER 31,
ASSETS 1999 1998
------------- ------------
(UNAUDITED)
Current assets:
Cash and cash equivalents $ 936,181 $ 668,066
Accounts receivable 510,704 521,979
Prepaid expenses 76,358 74,541
Due from member 89,000 5,000
---------- ----------
Total current assets 1,612,243 1,269,586
Property and equipment, net 508,162 581,647
Intangible assets, net 588,923 606,219
---------- ----------
Total assets $2,709,328 $2,457,452
========== ==========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable $ -- $ 14,579
Accrued expenses 20,994 53,555
Current portion, long term debt 56,451 52,985
---------- ----------
Total current liabilities 77,445 121,119
Long term debt 141,959 181,261
---------- ----------
Total liabilities 219,404 302,380
---------- ----------
Commitments:
Members' equity 2,489,924 2,155,072
---------- ----------
Total liabilities and members' equity $2,709,328 $2,457,452
========== ==========
The accompanying notes are an integral part of the financial statements.
F-38
45
COAST RADIO L.L.C.
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
FOR THE NINE MONTHS ENDED FOR THE YEAR
SEPTEMBER 30, ENDED
-------------------------- DECEMBER 31,
1999 1998 1998
---------- ---------- ----------
(UNAUDITED)
Revenues $2,184,587 $2,118,272 $2,932,119
Less: Agency commissions (247,489) (232,845) (317,717)
---------- ---------- ----------
Net revenues 1,937,098 1,885,427 2,614,402
---------- ---------- ----------
Operating expenses:
Programming 301,110 315,478 440,331
Sales and promotions 624,210 622,797 805,246
Technical 23,700 17,099 27,285
General and administrative 491,047 440,184 900,587
Depreciation and amortization 97,175 96,869 128,825
---------- ---------- ----------
Total operating expenses 1,537,242 1,492,427 2,302,274
---------- ---------- ----------
Income from operations 399,856 393,000 312,128
Interest expense 13,304 14,705 19,962
---------- ---------- ----------
Income before income taxes 386,552 378,295 292,186
State income tax benefit -- -- (37,092)
---------- ---------- ----------
Net Income $ 386,552 $ 378,295 $ 329,258
========== ========== ==========
The accompanying notes are an integral part of the financial statements.
F-39
46
COAST RADIO L.L.C.
STATEMENT OF CHANGES IN MEMBERS' EQUITY
for the year ended December 31, 1998
Balance at January 1, 1998 $ 1,918,416
Net income 329,258
Distributions (92,602)
-----------
Balance at December 31, 1998 $ 2,155,072
===========
The accompanying notes are an integral part of the financial statements.
F-40
47
COAST RADIO L.L.C.
STATEMENT OF CASH FLOWS
For the year ended December 31, 1998
For the Nine Months Ended For the Year
September 30, Ended
--------------------- December 31,
1999 1998 1998
-------- ----------- ----------
(unaudited)
Cash flows from operating activities:
Net income $386,552 $ 378,295 $ 329,258
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 97,175 96,869 128,827
Deferred tax liability -- -- 37,092
Changes in operating assets and liabilities:
Accounts receivable 11,275 (97,513) (77,094)
Due from member (71,358) (47,000) (5,000)
Prepaid expenses (14,459) (11,099) (41,904)
Accounts payable (14,579) -- 14,579
Accrued expenses (32,561) 1,200 (56,269)
-------- --------- ---------
Net cash provided by operating activities 362,045 320,752 329,489
-------- --------- ---------
Cash flows from investing activities:
Acquisition costs (1,260)
Purchase of property and equipment (5,134) (814)
Proceeds from sale of property and equipment -- -- (6,547)
-------- --------- ---------
Cash provided by used for investing activities (6,394) (814) (6,547)
-------- --------- ---------
Cash flows from financing activities:
Principal payments on bank borrowings (35,836) (32,913) (48,888)
Distributions to members (51,700) (75,404) (92,602)
-------- --------- ---------
Cash used for financing activities (87,536) (108,317) (141,490)
-------- --------- ---------
Increase in cash and cash equivalents 268,115 211,621 181,452
Cash and cash equivalents at beginning of year 668,066 486,614 486,614
-------- --------- ---------
Cash and cash equivalents at end of year $936,181 $ 698,235 $ 668,066
======== ========= =========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 13,304 $ 14,705 $ (19,952)
======== ========= =========
Non-cash operating activities:
Trade revenue $117,489 $ 85,073 $ 131,641
======== ========= =========
Trade expense $ 94,723 $ 42,482 $ 103,720
======== ========= =========
The accompanying notes are an integral part of the financial statements.
F-41
48
COAST RADIO L.L.C.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. SUBSEQUENT EVENTS
Effective January 29, 1999, the Company entered into an option agreement
with Cumulus Broadcasting, Inc. (a wholly owned subsidiary of Cumulus Media
Inc.) ("Cumulus") to sell substantially all of the Company's assets for $9
million in cash. Under the terms of the agreement, Cumulus has the right to
exercise the purchase option at any time through December 31, 1999. The
Company may require Cumulus to exercise the option between June 30, 1999
and December 31, 1999. Additionally, should Cumulus enter into a purchase
agreement with any other station in the Company's market area prior to June
30, 1999, the Company has the right to require Cumulus to exercise the
option.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Coast Radio LLC, formed in 1994, owns and operates two radio stations;
WWRO-FM and WCOA-AM (the "Stations" or "Company") located in Pensacola,
Florida.
The significant accounting principles followed by the Company and the
methods of applying those principles which materially affect the
determination of financial position, results of operations, and cash flows
are summarized below.
USE OF 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
disclosures 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.
CASH AND CASH EQUIVALENTS
All items with an original maturity of three months or less are considered
to be cash equivalents.
The Company has $668,066 on deposit with a single financial institution,
which is in excess of the $100,000 insured limit.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts receivable and
accounts payable approximates fair value because of the short maturity of
these instruments. The carrying value of the Company's debt approximates
fair value. Fair value is based upon the current market price of similar
issues.
PROPERTY AND EQUIPMENT
Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives
F-42
49
COAST RADIO L.L.C.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
of the assets, are capitalized at cost and depreciated on a straight-line
basis over their estimated useful lives as follows:
Broadcasting equipment 10 years
Office furniture and equipment 5 years
Tower and antenna 10 years
Vehicles 3 years
Maintenance, repairs, and minor replacement of these items are charged to
expense as incurred.
INTANGIBLE ASSETS
Intangible assets include FCC broadcast licenses, are stated at cost and
are being amortized using the straight-line method over the estimated
useful life of 30 years. Management regularly monitors and evaluates the
realizability of recorded intangibles. Recoverability of assets to be held
and used is measured by a comparison of carrying amount of the assets to
future cash flows expected to be generated by the assets. If such assets
are considered to be impaired, the impairment to be recognized is the
amount by which the carrying amount exceeds the fair value of the assets.
The Company believes that the carrying value of recorded intangibles is
not impaired.
INCOME TAXES
The Company has organized in the State of Florida as a Limited Liability
Company (LLC) and is treated as a partnership for federal income tax
purposes. Accordingly, income of the Company is personally taxable to the
members of the LLC for federal tax purposes and no federal income tax
expense has been recorded in these financial statements.
Prior to 1998, the State of Florida recognized the Company as a regular
corporation and therefore, was subject to state income taxes. Beginning in
1998, the State of Florida recognizes LLC's as a partnership. The income
tax benefit recognized in these financial statements represents the
reversal of previously recorded deferred state income taxes, as such, the
liability will ultimately be paid by the members.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
TRADE AGREEMENTS
The Company enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from
trade agreements are recognized at the fair market value of products or
services received as advertising air time is broadcast. Products and
services received are expensed when used in the broadcast operations.
F-43
50
COAST RADIO L.L.C.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
ACCOUNTS RECEIVABLE
The Company considers accounts receivable at December 31, 1998 to be fully
collectible; accordingly, no allowance for doubtful accounts is required.
Amounts that become uncollectible are charged to operations when that
determination is made.
INTERIM FINANCIAL STATEMENTS
The financial statements for the nine months ended September 30, 1999 and
1998, are unaudited, but in the opinion of management, such financial
statements have been presented on the same basis as the audited financial
statements for the year ended December 31, 1998, and include all
adjustments, consisting only of normal recurring adjustments necessary for
a fair presentation of the financial position and results of operations
and cash flows for these periods.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
Broadcasting equipment $ 754,731
Office furniture and equipment 144,516
Tower and antenna 124,000
Vehicles 58,426
------------
1,081,673
Accumulated depreciation (500,026)
------------
Property and equipment, net $ 581,647
============
Depreciation expense was $104,086 for the year ended December 31, 1998.
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
FCC broadcast licenses $ 713,041
Accumulated amortization (106,822)
------------
Intangible assets, net $ 606,219
============
Amortization expense was $24,741 for the year ended December 31, 1998.
F-44
51
COAST RADIO L.L.C.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. COMMITMENTS
The Company incurred expenses of approximately $57,188 for the year ended
December 31, 1998 under an operating lease for radio broadcasting
facilities. Future minimum annual payments under this operating lease are
$71,208 through February 2003. The Company may terminate this lease by
providing the lessor 90 days notice and a termination fee equal to six
months rent.
The Company has entered into a joint venture agreement to share expenses of
leasing and maintaining a tower. Total amounts paid under this agreement
were $19,789 for the year ended December 31, 1998. The Company is liable
for its pro-rata share of lease payments under a lease agreement executed
by the joint venture. The Company's share of future minimum lease payments
under this agreement is $4,635 through 2003 and $45,900 for the remaining
11 years through 2014.
6. LONG-TERM DEBT
Long-term debt consists of the following as of December 31, 1998:
Note payable to AmSouth Bank, due in monthly
installments of $5,460, including interest at 8.00%;
maturing February, 2003; $234,246
Less current maturities (52,985)
---------
Long-term $181,261
=========
Maturities of long-term debt are as follows:
1999 52,985
2000 52,932
2001 57,325
2002 62,083
2003 8,921
-------
234,246
=======
7. STOCK PURCHASE AGREEMENT
The Company and its members have reached an agreement which stipulates the
terms under which the Company's shares can be sold, transferred or pledged.
The agreement extends the option to the Company, then to members, to
purchase a members' shares upon termination of employment, retirement,
disability or incapacity. The Company is obligated to purchase the shares
of any member upon death, bankruptcy or dissolution. Other transfers of
stock by its members are also restricted. The purchase price shall be
calculated based on the members' portion of the total value of the Company,
as stipulated in the agreement. This value was approximately $9.5 million
as of December 31, 1998. The purchase price is payable in 60 monthly
installments, with interest on the unpaid principle balance at the rate of
8 percent.
F-45
52
COAST RADIO L.L.C.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. RETIREMENT PLAN
The Company has adopted a 401(k) retirement plan covering substantially all
employees. Under the plan, employees may elect to defer up to the maximum
percentage allowable subject to IRS regulations. The plan allows the
Company to make discretionary matching contributions not to exceed the
first 5 percent deferred by an employee. No Company contributions were made
for the years ended December 31, 1998 and 1997.
F-46
53
EXHIBIT INDEX
Sequentially
Numbered
Exhibit No. Description Page
----------- ----------- ----
2.0 Stock Purchase Agreement dated June 15, 1999, among the
Company and M&F Calendar Holdings, L.P., Kevin C.
Whitman, Nassau Capital Partners L.P., NAS Partners I
L.L.C., and Philip J. Giordano.*
2.1 Asset Purchase Agreement dated as of June 29, 1999, by and
among Cumulus Broadcasting Inc., Cumulus Licensing Inc.
and Coast Radio, L.L.C., a Florida limited liability company.*
2.3 Asset Purchase Agreement dated as of September 23, by and
between Cumulus Broadcasting, Inc., Cumulus Licensing,
Inc., Cumulus Wireless, Inc., C.F. Radio, Inc., Cape Fear
Radio, L.L.C., Cape Fear Broadcasting Company and Cape
Fear Tower Systems, L.L.C.*
23.0 Consent of PricewaterhouseCoopers LLP
23.1 Consent of KPMG LLP
* Incorporated by reference from the Company's Current Report on Form 8-K filed
with the SEC on November 3, 1999