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EXHIBIT 99.3
MASS COMMUNICATIONS CORP.
AND SUBSIDIARY
Consolidated Financial Statements
For the Period September 1, 1995 through April 3, 1996
(With Independent Auditors' Report Thereon)
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MASS COMMUNICATIONS CORP.
AND SUBSIDIARY
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
Mass Communications Corp.:
We have audited the accompanying consolidated statements of operations,
stockholders' deficit, and cash flows of Mass Communications Corp. and
subsidiary (the Company) for the period September 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 cash flows of
the Company for the period September 1, 1995 through April 3, 1996, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
East Lansing, Michigan
May 31, 1996
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MASS COMMUNICATIONS CORP.
AND SUBSIDIARY
Consolidated Statement of Operations
For the period September 1, 1995 through April 3, 1996
Revenues:
Poster $ 3,097,607
Painted 2,306,790
Other 98,142
-----------
Gross revenues 5,502,539
Less commissions and discounts 545,537
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Net operating revenues 4,957,002
Operating expenses:
Operations 1,166,765
Selling, general, and administrative 2,039,476
Depreciation 550,869
Amortization of intangible assets 41,011
Amortization of deferred financing costs 54,885
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Total operating expenses 3,853,006
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Operating income 1,103,996
Other income (deductions):
Loss on disposal of property, plant, and equipment (832)
Interest expense (644,606)
Interest income 3,876
Management fee income 58,333
Miscellaneous, net (50,449)
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Income before income tax expense 470,318
Income tax expense 201,413
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Net income $ 268,905
===========
See accompanying notes to consolidated financial statements.
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MASS COMMUNICATIONS CORP.
AND SUBSIDIARY
Consolidated Statement of Stockholders' Deficit
For the period September 1, 1995 through April 3, 1996
10 PERCENT
CUMULATIVE ADDITIONAL TOTAL
PREFERRED COMMON PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK STOCK CAPITAL DEFICIT DEFICIT
-------------- -------------- ------------- -------------- -------------
Balances at August 31, 1995 $ 1,000 3,500 999,000 (4,000,221) (2,996,721)
Net income -- -- -- 268,905 268,905
---------- ---------- ---------- ---------- ----------
Balances at April 3, 1996 $ 1,000 3,500 999,000 (3,731,316) (2,727,816)
========== ========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
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MASS COMMUNICATIONS CORP.
AND SUBSIDIARY
Consolidated Statement of Cash Flows
For the period September 1, 1995 through April 3, 1996
Cash flows from operating activities:
Net income $ 268,905
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of plant and equipment 550,869
Amortization of intangible assets 41,011
Amortization of deferred financing costs 54,885
Decrease in deferred income taxes 124,141
Loss on disposal of plant and equipment 832
Increase in trade accounts receivable (169,017)
Increase in income taxes receivable (97,552)
Increase in due from affiliated entity (54,310)
Decrease in inventory - construction material 676
Decrease in prepaid rent expense 18,743
Increase in other prepaid expenses (69,670)
Decrease in other assets 51,571
Increase in trade accounts payable 113,373
Decrease in income taxes payable (303,632)
Increase in accrued expenses 185,014
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Net cash provided by operating activities 715,839
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Cash flows from investing activities:
Capital expenditures (745,996)
Proceeds from sale of plant and equipment 6,723
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Net cash used in investing activities (739,273)
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Cash flows from financing activities:
Principal payments on long-term debt (500,000)
Proceeds from issuance of long-term debt 500,000
Dividends --
---------
Net cash used in financing activities --
---------
Net decrease in cash and cash equivalents (23,434)
Cash and cash equivalents at beginning of the period 476,636
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Cash and cash equivalents at end of the period $ 453,202
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Supplemental schedule of noncash investing activities:
Transfer of salvage materials from inventory to
property, plant, and equipment $ 13,437
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See accompanying notes to consolidated financial statements.
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MASS COMMUNICATIONS CORP.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Period September 1, 1995 through April 3, 1996
(1) BUSINESS OPERATIONS
The business operations of Mass Communications Corp. and subsidiary (the
"Company") consist of outdoor billboard advertising in the states of
Mississippi, Tennessee, Georgia, and Kentucky.
(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 Mass Communications Corp. and its wholly owned
subsidiary, Outdoor Communications, Inc. All significant
intercompany balances and transactions have been eliminated in
consolidation.
(b) CASH EQUIVALENTS
Cash equivalents consist of money market funds. 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) GOODWILL
Goodwill, which represents the excess of purchase price over the
fair value of net assets acquired, is being amortized on a
straight-line basis over a 40 year period.
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.
(f) DEFERRED FINANCING COST
Debt financing costs incurred as a result of debt restructuring
are recorded as deferred financing costs and amortized on a
straight-line basis over the term of the related debt.
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MASS COMMUNICATIONS CORP.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Period September 1, 1995 through April 3, 1996
(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) 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.
(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) 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.
(3) INCOME TAXES
Income tax expense attributable to income before income tax expense for
the period September 1, 1995 through April 3, 1996, consists of:
CURRENT DEFERRED TOTAL
-------- -------- --------
Federal $ 80,043 108,321 188,364
State and local (2,771) 15,820 13,049
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Total $ 77,272 124,141 201,413
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6 (Continued)
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MASS COMMUNICATIONS CORP.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Period September 1, 1995 through April 3, 1996
Income tax expense differed from the amounts computed by applying the
federal income tax rate of 34 percent for the period September 1, 1995
through April 3, 1996 to income before income tax expense as a result of
the following:
Computed "expected" tax expense $ 159,908
Increase (reduction) in income taxes resulting from:
State and local income taxes, net of federal income
tax expense (4,436)
Non-deductible expenses 18,900
Alternative minimum tax expense 59,693
Other, net (32,652)
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$ 201,413
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(4) STOCKHOLDERS' EQUITY
All general voting power is vested in the holders of Class A common
stock. The holders of preferred stock are not entitled to vote at any
stockholders' meetings.
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 10 percent per annum of the liquidation value of
the preferred stock, as defined below. Dividends, if declared, are
payable in cash annually on each April 30.
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 $398,000 during the period September 1, 1995
through April 3, 1996.
(6) RELATED PARTY TRANSACTIONS
The Company leases real property from a trust for which the vice
president, who is a major stockholder of the Company, serves as trustee.
Rental expense to the trust amounted to approximately $18,000 for the
period September 1, 1995 through April 3, 1996. The Company also leases a
sign location from the president and vice president of the Company. The
rental payment for the sign location amounted to approximately $600 for
the period September 1, 1995 through April 3, 1996.
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MASS COMMUNICATIONS CORP.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Period September 1, 1995 through April 3, 1996
The Company provides management and accounting consultation services to
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 income incurred under the above arrangements amounted to $58,333 for
the period September 1, 1995 through April 3, 1996.
(7) SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid approximately $482,000 for income taxes during the
period September 1, 1995 through April 3, 1996. Cash payments for
interest approximated $547,000 for the period September 1, 1995 through
April 3, 1996.
(8) 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.
The Stockholders of the Company exchanged 7,371.01 shares of common
stock, 308.78 shares of preferred stock for 2,764.99 shares of Class A
common stock and Series A subordinated notes of OCI Holdings Corp. The
Stockholders of the Company also sold 657.895 warrants, 5,128.99 shares
of common stock and 691.22 shares of preferred stock for cash and new
subordinated notes totaling $6,692,500. This transaction resulted in
Holdings ultimately owning all of the stock of the Company.
Concurrent with the reorganization and merger, the Company, Holdings, and
OCI North (collectively the "Borrowers") entered into a Credit Agreement
with Chase Manhattan Bank N.A. Under the Credit Agreement, the Company
borrowed $40,000,000 under a term loan which was used to pay off the
existing long-term debt, including all accrued interest, and the
acquisitions discussed below. 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.
Georgia Acquisition
At the close of business on April 3, 1996, Outdoor Communications, Inc.
completed the purchase of certain assets of Georgia Outdoor Advertising,
pursuant to an Asset Purchase Agreement dated March 8, 1996, for cash of
$11,650,000. The acquisition was accounted for by the purchase method.
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MASS COMMUNICATIONS CORP.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Period September 1, 1995 through April 3, 1996
Alabama Acquisition
On April 30, 1996, Outdoor Communications, Inc. completed the purchase of
certain assets and assumed certain liabilities of AOA Acquisition,
L.L.C., pursuant to an Asset Sale Agreement dated March 19, 1996, for
cash of $32,000,000. The acquisition was accounted for by the purchase
method.
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