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EXHIBIT 99.2
OCI CORP. OF MICHIGAN
AND SUBSIDIARIES
Consolidated Financial Statements
For the Period August 1, 1995 through April 3, 1996
With Independent Auditors' Report Thereon
2
OCI CORP. OF MICHIGAN
AND SUBSIDIARIES
TABLE OF CONTENTS
Page(s)
Independent Auditors' Report 1
Consolidated Statement of Operations 2
Consolidated Statement of Stockholders' Deficit 3
Consolidated Statement of Cash Flows 4
Notes to Consolidated Financial Statements 5-9
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
OCI Corp. of Michigan:
We have audited the accompanying consolidated statements of operations,
stockholders' deficit, and cash flows of OCI Corp. of Michigan and subsidiaries
(the Company) for the period August 1, 1995 through April 3, 1996. 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 results of operations and the cash flows
of the Company for the period August 1, 1995 through April 3, 1996, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
East Lansing, Michigan
June 4, 1996
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OCI CORP. OF MICHIGAN
AND SUBSIDIARIES
Consolidated Statement of Operations
For the period August 1, 1995 through April 3, 1996
Revenues:
Poster $ 3,581,596
Painted 3,406,560
Other 447,319
-----------
Gross revenues 7,435,475
Less commissions and discounts 752,093
-----------
Net operating revenues 6,683,382
-----------
Operating expenses:
Operations 1,651,583
Selling, general, and administrative 3,019,373
Depreciation 1,021,901
Amortization of intangible assets 346,432
Amortization of deferred acquisition costs 61,248
-----------
Total operating expenses 6,100,537
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Operating income 582,845
Other income (deductions):
Loss on disposal of property, plant, and equipment (9,973)
Interest expense (1,460,671)
Interest income 8,142
Management fees (68,649)
Miscellaneous, net 319
Noncompete income 53,333
-----------
Loss before income taxes (894,654)
Income taxes (155,856)
-----------
Net loss $(1,050,510)
===========
See accompanying notes to consolidated financial statements.
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OCI CORP. OF MICHIGAN
AND SUBSIDIARIES
Consolidated Statement of Stockholders' Deficit
For the period August 1, 1995 through April 3, 1996
12.5 PERCENT
CUMULATIVE CLASS A ADDITIONAL TOTAL
PREFERRED COMMON PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK STOCK CAPITAL DEFICIT DEFICIT
----------- ------- ---------- ----------- -------------
Balances at July 31, 1995 $ 90 10 1,009,168 (7,225,888) (6,216,620)
Issuance of 3 shares of Class
A common stock -- -- 226,158 -- 226,158
Net loss -- -- -- (1,050,510) (1,050,510)
-------- -------- --------- ---------- ----------
Balances at April 3, 1996 $ 90 10 1,235,326 (8,276,398) (7,040,972)
======== ========= ========= ========== ==========
See accompanying notes to consolidated financial statements.
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OCI CORP. OF MICHIGAN
AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the period August 1, 1995 through April 3, 1996
Cash flows from operating activities:
Net loss $ (1,050,510)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Stock compensation expense 226,158
Depreciation of plant and equipment 1,021,901
Amortization of intangible assets 346,432
Amortization of deferred acquisition costs 61,248
Loss on disposal of property, plant, and equipment 9,973
Decrease in trade accounts receivable 24,942
Decrease in due from affiliated entity 46,277
Increase in refundable income taxes (7,159)
Increase in inventories (46,993)
Increase in prepaid rent expense (71,694)
Increase in other prepaid expenses (54,028)
Increase in other assets (596,771)
Increase in trade accounts payable 59,303
Decrease in income taxes payable (1,309)
Decrease in due to stockholder (50,000)
Decrease in accrued expenses (300,502)
Increase in deferred advertising revenues 200,506
Increase in noncurrent accrued interest 1,027,160
Decrease in deferred noncompete income (53,333)
Increase in deferred income taxes 156,074
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Net cash provided by operating activities 947,675
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Cash flows from investing activities:
Capital expenditures (587,537)
Proceeds from sale of property, plant, and equipment 3,001
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Net cash used in investing activities (584,536)
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Cash flows from financing activities:
Principal payments on long-term debt (300,000)
Payments on obligations under noncompete agreements (200,000)
---------------
Net cash used in financing activities (500,000)
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Net decrease in cash and cash equivalents (136,861)
Cash and cash equivalents at beginning of the period 396,061
---------------
Cash and cash equivalents at end of the period $ 259,200
===============
See accompanying notes to consolidated financial statements.
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OCI CORP. OF MICHIGAN
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Period from August 1, 1995 through April 3, 1996
(1) BUSINESS OPERATIONS
The business operations of OCI Corp. of Michigan and subsidiaries (the
"Company") consist of outdoor billboard advertising in the states of
Michigan, Illinois, and Wisconsin.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of the Company, as summarized below, conform
with generally accepted accounting principles and reflect practices
appropriate to the business in which it operates.
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial
statements of OCI Corp. of Michigan and its two wholly owned
subsidiaries, OCI Corp. of Port Huron and OCI Management Corp.
All significant intercompany balances and transactions have been
eliminated in consolidation.
(b) CASH EQUIVALENTS
Cash equivalents consist of overnight repurchase agreements. For
purposes of the consolidated statements of cash flows, the
Company considers all highly liquid debt instruments with
maturities of three months or less at the time of purchase to be
cash equivalents.
(c) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
(d) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Depreciation
on plant and equipment is computed using straight-line and
accelerated methods over the estimated useful lives of the
assets.
(e) INTANGIBLE ASSETS
Intangible assets include noncompete agreements and goodwill.
Goodwill, which represents the excess of purchase price over fair
value of net assets acquired on their dates of acquisition, is
amortized on a straight-line basis over the expected periods to
be benefited, generally 20 years. The noncompete agreements are
amortized over the terms of the respective agreements which range
from 4 to 10 years.
The Company assesses the recoverability of goodwill by
determining whether the amortization of the goodwill balance over
its remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. The amount of
goodwill impairment, if any, is measured based on projected
discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds.
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OCI CORP. OF MICHIGAN
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Period from August 1, 1995 through April 3, 1996
(f) DEFERRED ACQUISITION COSTS
Significant expenses, including debt acquisition costs and
organizational costs, incurred as a result of the business
combinations are recorded as deferred acquisition costs and
amortized on a straight-line basis. Organizational costs are
amortized over 5 years. Debt acquisition costs are amortized over
the term of the related debt.
(g) EMPLOYEE BENEFITS
The Company participates in a self-insured employee health care
plan as provided for in an agreement with an affiliated entity.
The liability for self-insurance reflects the estimated cost for
the uninsured portion of claims not paid prior to year end. The
liability is based on estimates for losses reported prior to year
end and estimates for incurred but not reported losses.
(h) RETIREMENT PROGRAM
The Company provides a defined contribution 401(k) plan, which
covers all full-time employees of the Company with one or more
years of service. Eligible employees can contribute up to 12
percent of their compensation through payroll deductions. The
Company contributes an amount equal to 50 percent of each
employee's contribution up to three percent of the employee's
total compensation.
(i) REVENUE RECOGNITION
The Company recognizes revenue from advertising contracts on an
accrual basis ratably over the term of the contracts, as
advertising services are provided.
(j) 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 and operating loss and
tax credit carryforwards. 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.
(k) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to
prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from
those estimates.
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OCI CORP. OF MICHIGAN
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Period from August 1, 1995 through April 3, 1996
(3) INCOME TAXES
Income tax expense attributable to loss before income taxes for the
period August 1, 1995 through April 3, 1996 consists of:
Federal - current $ (1,718)
Federal - deferred 156,074
State and local 1,500
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Total $ 155,856
===============
Income taxes differed from the amounts computed by applying the federal
income tax rate of 34 percent for the period August 1, 1995 through
April 3, 1996 to loss before income taxes as a result of the following:
Computed "expected" tax benefit $ (304,182)
Increase (reduction) in income taxes resulting from:
State and local income taxes, net of federal
income tax benefit 990
Non-deductible expenses 32,237
Adjustment of prior year deferrals
Change in the beginning-of-the-year balance of the 226,811
valuation allowance for deferred tax assets
allocated to income tax expense 200,000
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$ 155,856
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At April 3, 1996, the Company had net operating loss carryforwards for
federal income tax purposes of $950,003, which are available to offset
future federal taxable income, if any, through 2011. The Company has an
alternative minimum tax credit carryforward of $22,479, which is
available to reduce future regular income taxes, if any, over an
indefinite period.
(4) STOCKHOLDERS' EQUITY
All general voting power is vested in the holders of Class A common
stock. The holders of Class B common stock and preferred stock are not
entitled to vote at any stockholders' meetings. Any share of Class B
common stock can be converted, at the option of the holder, into Class A
common stock at the rate of one share of Class A common stock for each
share of Class B common stock, subject to certain approvals.
No dividends will be declared or paid on the common stock during any
year unless the full amount of dividends on the preferred stock accrued
to the proposed date of declaration has been paid. Upon declaration, the
holders of the preferred stock are entitled to receive an annual
cumulative dividend at a rate of 12.5 percent of the liquidation value
of the preferred stock, as defined below. Dividends, if declared, are
payable in cash annually on each August 31. If any accrued and unpaid
dividends exist as of August 31 of any year, the amount of the dividends
payable in respect to the preferred stock will be increased at a rate of
12.5 percent, compounded annually as of August 31. Cumulative preferred
stock dividend rights were unaccrued and unpaid at April 3, 1996 and
July 31, 1995, in the amount of $1,060,185 and $907,665, respectively.
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OCI CORP. OF MICHIGAN
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Period from August 1, 1995 through April 3, 1996
In the event of liquidation or dissolution of the Company, the holders
of the preferred stock are entitled to receive a preferential amount
equal to $1,000 per share of the issued and outstanding preferred stock
("liquidation value") and a further preferential amount equal to all
declared and unpaid dividends thereon. This liquidation value will be
paid before the payment or distribution of any assets of the Company to
the holders of common stock.
(5) LEASES
The Company leases substantially all of the land presently used as sites
for poster panels under various terms. The leases are classified as
operating leases. These leases generally contain renewal options ranging
from one to 15 years and require the Company to pay all executory costs
such as maintenance and insurance. Rental expense for operating leases
amounted to approximately $655,000 during the period August 1, 1995
through April 3, 1996.
(6) RELATED PARTY TRANSACTIONS
The Company has entered into an agreement with an affiliated entity that
requires the Company to purchase specific employee benefits. The Company
and certain affiliated entities are primarily self-insured for employee
health care costs. Employee benefit payments, for costs incurred under
this agreement, approximated $158,000 during the period August 1, 1995
through April 3, 1996.
The Company receives management and accounting consultation services
from certain stockholders and an affiliated entity related through
common ownership. The affiliated entity and the Company have entered
into a continuing agreement which may be canceled by either party upon
30 days written notice. Total management fee expense incurred under the
above arrangements amounted to $68,649 during the period August 1, 1995
through April 3, 1996.
The Company has several noncancelable operating leases with a
stockholder for administrative offices, operating facilities, and land
presently used as sites for billboard structures. The leases are
classified as operating leases. These leases generally contain renewal
options ranging from two to five years and require the Company to pay
all executory costs such as maintenance and insurance. Rental expense
for operating leases with the stockholder amounted to approximately
$100,000 during the period August 1, 1995 through April 3, 1996.
(7) RETIREMENT PROGRAM
Retirement program expense with respect to the Company's defined
contribution 401(k) plan approximated $29,000 during the period August
1, 1995 through April 3, 1996.
(8) SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid $8,250 for income taxes during the period August 1,
1995 through April 3, 1996. Cash payments for interest approximated
$648,000 during the period August 1, 1995 through April 3, 1996.
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OCI CORP. OF MICHIGAN
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Period from August 1, 1995 through April 3, 1996
(9) STOCK COMPENSATION
Under a written agreement dated August 9, 1994 between the Company and
certain members of management, three shares of class A common stock
would be granted to them upon accomplishing certain goals. The terms of
the agreement were met and the three shares of stock were issued during
the period August 1, 1995 through April 3, 1996, at $75,386 per share,
which was determined to be the fair market value at the date of
transaction. This transaction was treated as compensation expense.
(10) SUBSEQUENT EVENT
At the close of business on April 3, 1996, the Company's stockholders
(the "Stockholders") entered into a plan of reorganization (the
"Reorganization Plan") to restructure and merge the Company with an
affiliated entity in the same line of business. Pursuant to the
Reorganization Plan, the Stockholders agreed to sell their entire
interests in the common and preferred stock of the Company. In
conjunction with the Reorganization Plan, OCI Holdings Corp.
("Holdings") was incorporated for the purpose of affecting the
reorganization and merger.
Certain outside investors (the "Investors") purchased 24.67 shares and
60 shares of the Company's common and preferred stock, respectively,
from the Stockholders. These same shares were subsequently assigned by
the Investors to Holdings in exchange for Holdings' common stock. The
remaining 75.33 shares and 840 shares of the Company's common and
preferred stock, respectively, were purchased for cash by Holdings,
which resulted in Holdings being the sole stockholder of all the
Company's outstanding common and preferred stock.
Concurrent with the reorganization and merger, the Company, Holdings,
and Outdoor Communications, Inc. (collectively the "Borrowers") entered
into a Credit Agreement with Chase Manhattan Bank N.A. Under the Credit
Agreement, the Company borrowed $20,000,000 under a term loan which was
principally used to pay off the existing long-term debt, senior
subordinated debt, and junior subordinated debt, including all accrued
interest. In addition to the aforementioned term loan, the Credit
Agreement also provides a revolving loan commitment to the Borrowers,
collectively.
The effects of the aforementioned transactions have not been included in
the financial statements as they occurred subsequent to the closing
balance sheet.
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