U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number: 0-22486
SFX BROADCASTING, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3649750
(State of Incorporation) (I.R.S. Employer
Identification No.)
150 East 58th Street, 19th Floor
New York, New York 10155
(Address of principal executive offices)
Registrant's telephone number, including area code: ( 212)-407-9191
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of August 14, 1996, the
number of shares outstanding of the Registrant's Class A Common Stock, $.01
par value, and Class B Common Stock, $.01 par value, was 6,431,897 and
856,156, respectively.
SFX BROADCASTING, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 1996
PART I FINANCIAL INFORMATION
Page
Number
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at June 30, 1996 (unaudited) and December 31, 1995.................. 3
Consolidated Statements of Operations for Three Months Ended June 30, 1996 and 1995 (unaudited) 5
Consolidated Statements of Operations for Six Months Ended June 30, 1996 and 1995 (unaudited)... 6
Consolidated Statements of Cash Flows for Six Months Ended June 30, 1996 and 1995 (unaudited)... 7
Notes to Consolidated Financial Statements ..................................................... 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..................................................................... 13
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS............................................................................ 20
ITEM 2. CHANGES IN SECURITIES........................................................................ 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................................. 22
SIGNATURES
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SFX BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
June 30, December 31,
1996 1995
----------------- -----------------
ASSETS (Unaudited) (Note)
Current Assets:
Cash and cash equivalents..................................................... $ 378,794 $ 11,893
Accounts receivable, net...................................................... 23,697 18,034
Prepaid broadcast rights and other current assets............................. 2,890 2,578
----------------- -----------------
Total current assets..................................................... 405,381 32,505
Property and equipment, at cost, less accumulated depreciation................ 28,635 16,767
Broadcast licenses and other intangible assets, less accumulated amortization. 202,726 129,543
Receivables from affiliates, including accrued interest....................... 2,420 4,439
Deposits on station acquisitions.............................................. 12,313 3,000
Other assets.................................................................. 9,977 1,083
----------------- -----------------
Total assets............................................................. $ 661,452 $ 187,337
================= =================
Note: The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
See accompanying notes to consolidated financial statements
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SFX BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
June 30, December 31,
1996 1995
----------------- -----------------
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited) (Note)
Current Liabilities:
Accounts payable and accrued expenses......................................... $ 13,522 $ 8,741
Accrued interest.............................................................. 4,833 2,303
Current portion of capital lease obligations.................................. 224 311
Current portion of debt....................................................... 199 260
----------------- -----------------
Total current liabilities................................................ 18,778 11,615
Deferred income taxes payable................................................. 7,415 7,415
Capital lease obligations, less current portion............................... 1,254 1,352
Debt, less current portion.................................................... 576 609
Subordinated notes............................................................ 450,594 80,000
----------------- -----------------
Total liabilities........................................................ 478,617 100,991
Redeemable preferred stock.................................................... 152,928 3,285
Shareholders' Equity:
Class A voting common stock, $.01 par value; 10,000,000 shares authorized;
6,458,215 issued; 6,431,897 outstanding at June 30, 1996, and
6,458,215 outstanding at December 31, 1995............................... 64 64
Class B voting convertible common stock, $.01 par value;1,000,000 shares
authorized; 1,000,000 issued; 856,126 outstanding at June 30,1996, and
1,000,000 outstanding at December 31, 1995............................... 10 10
Additional paid-in-capital.................................................... 111,482 115,184
Treasury stock; 170,192 shares................................................ (6,393) --
Accumulated deficit........................................................... (75,256) (32,197)
----------------- -----------------
Total shareholders' equity............................................... 29,907 83,061
----------------- -----------------
Total liabilities and shareholders' equity............................... $ 661,452 $ 187,337
================= =================
Note: The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
See accompanying notes to consolidated financial statements
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SFX BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended June 30,
----------------------------------------
1996 1995
---------------- ----------------
Revenue......................................................................... $ 31,573 $ 23,550
Less: agency commissions........................................................ 3,819 2,826
---------------- ----------------
Net revenue..................................................................... 27,754 20,724
Station operating expenses...................................................... 19,121 13,705
Depreciation, amortization, duopoly integration costs and acquisition related
costs...................................................................... 2,349 1,987
Corporate expenses.............................................................. 1,580 972
Non-recurring charges including adjustments to broadcast rights agreement....... 27,489 5,000
---------------- ----------------
Total operating expenses........................................................ 50,539 21,664
Operating loss.................................................................. (22,785) (940)
Investment income............................................................... (2,134) (102)
Interest expense................................................................ 6,204 3,635
---------------- ----------------
Loss before income taxes and extraordinary item................................. (26,855) (4,473)
Income tax benefit.............................................................. -- (1,923)
---------------- ----------------
Loss before extraordinary item.................................................. (26,855) (2,550)
Extraordinary loss on debt retirement........................................... 15,219 --
---------------- ----------------
Net loss........................................................................ (42,074) (2,550)
Redeemable preferred stock dividends and accretion.............................. 831 73
---------------- ----------------
Net loss applicable to common stock............................................. $ (42,905) $ (2,623)
================ ================
Net loss per common share before extraordinary item............................. $ (3.72) $ (0.44)
Extraordinary loss on debt retirement per common share.......................... (2.05) --
---------------- ----------------
Net loss per common share....................................................... $ ( 5.77) $ (0.44)
================ =================
Weighted average common shares outstanding...................................... 7,437,642 5,976,058
See accompanying notes to consolidated financial statements
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SFX BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
Six Months Ended June 30,
--------------------------------------
1996 1995
---------------- ----------------
Revenue......................................................................... $ 53,978 $ 39,156
Less: agency commissions........................................................ 6,424 4,715
---------------- ----------------
Net revenue..................................................................... 47,554 34,441
Station operating expenses...................................................... 33,177 23,381
Depreciation, amortization, duopoly integration costs and acquisition related
costs...................................................................... 4,648 3,684
Corporate expenses.............................................................. 2,790 1,779
Non-recurring charges including adjustments to broadcast rights agreement....... 27,489 5,000
---------------- ----------------
Total operating expenses........................................................ 68,104 33,844
Operating (loss) income......................................................... (20,550) 597
Investment income............................................................... (2,298) (99)
Interest expense................................................................ 9,588 6,067
---------------- ----------------
Loss before income taxes and extraordinary item................................. (27,840) (5,371)
Income tax benefit.............................................................. -- (2,300)
---------------- ----------------
Loss before extraordinary item.................................................. (27,840) (3,071)
Extraordinary loss on debt retirement........................................... 15,219 --
---------------- ----------------
Net loss........................................................................ (43,059) (3,071)
Redeemable preferred stock dividends and accretion ............................. 967 144
---------------- ----------------
Net loss applicable to common stock............................................. $ (44,026) $ (3,215)
================ ================
Net loss per common share before extraordinary item............................. $ (3.87) $ (0.54)
Extraordinary loss on debt retirement per common share.......................... (2.04) --
---------------- ----------------
Net loss per common share....................................................... $ (5.91) $ (0.54)
================ ================
Weighted average common shares outstanding...................................... 7,447,929 5,946,251
See accompanying notes to consolidated financial statements
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SFX BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30,
--------------------------------------
1996 1995
---------------- ----------------
Operating Activities:
Net loss.......................................................................... $(43,059) $(3,071)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization................................................ 4,371 3,684
Interest on receivables from related parties................................. (158) (134)
Non-cash portion of non-recurring charge..................................... 8,578 --
Deferred tax benefit......................................................... -- (2,300)
Loss on sale of investments.................................................. -- 84
Write off of debt costs...................................................... 5,593 --
Changes in assets and liabilities:
Increase in accounts receivable.............................................. (5,601) (3,317)
Increase in prepaid broadcast rights and other assets........................ (9,372) (1,465)
Increase in accrued interest payable......................................... 1,802 36
Increase in accounts payable, accrued expenses and other liabilities......... 3,238 5,190
Decrease in other liabilities................................................ -- (294)
---------------- ----------------
Net cash used in operating activities............................................ (34,608) (1,587)
Investing activities:
Deposits on station acquisitions.................................................. (12,313) (5,000)
Purchase of stations, net of cash acquired........................................ (73,404) (14,642)
Proceeds from the sale of short term investments.................................. -- 7,918
Advances to related party......................................................... (2,420) (2,000)
Proceeds from sale of assets...................................................... -- 300
Purchase of property, plant and equipment......................................... (639) (6,031)
Increase in other intangibles..................................................... (2,055) --
---------------- ----------------
Net cash used in investing activities............................................. (90,831) (19,455)
Financing activities:
Additions to debt issuance costs.................................................. (14,910) (1,848)
Proceeds from senior and subordinted debt......................................... 471,500 22,000
Payments on subordinated debt..................................................... (79,406) --
Payments on senior loans and capital lease obligations............................ (21,801) (266)
Decrease in accrued stock acquisition cost........................................ -- (1,150)
Proceeds from preferred stock offering............................................ 143,445 --
Purchase of treasury stock........................................................ (6,393) --
Dividends paid on preferred stock ................................................ (95) --
---------------- ----------------
Net cash provided by financing activities......................................... 492,340 18,736
Net increase (decrease) in cash and cash equivalents.............................. 366,901 (2,306)
Cash and cash equivalents at beginning of period.................................. 11,893 3,194
---------------- ----------------
Cash and cash equivalents at end of period........................................ $ 378,794 $ 888
================ =================
See accompanying notes to consolidated financial statements
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SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
Information with respect to the three and six months ended June 30, 1996
and 1995 is unaudited. The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with Rule 10-01 of Regulation
S-X. Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, the unaudited interim financial
statements contain all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the financial position, results of
operations and cash flows of SFX Broadcasting, Inc. (the "Company" or "SFX"),
for the periods presented.
The results of operations for the three and six month period are not
necessarily indicative of the results of operations for the full year. For
further information refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
NOTE 2 - RECENTLY COMPLETED ACQUISITIONS AND DISPOSITIONS
In June 1996, SFX acquired substantially all of the assets of WROQ-FM,
Greenville, South Carolina, for approximately $14.0 million (the "Greenville
Acquisition") and WTRG-FM and WRDU-FM, both operating in Raleigh, North
Carolina, and WMFR-AM, WMAG-FM and WTCK-AM (formerly WWWB-AM), each operating
in Greensboro, North Carolina for approximately $36.8 million (the "HMW
Acquisition"). Multi-Market Radio, Inc. ("MMR"), a publicly held radio
broadcasting Company in which the Company's Chief Executive Officer is a
significant shareholder, initially entered into the acquisition agreements
relating to these stations. SFX and MMR agreed that SFX would finance the
purchase of such stations and that MMR would transfer the purchased assets to
SFX simultaneously with the acquisition by MMR. The Company has recorded the HMW
Acquisition and the Greenville Acquisition using the purchase method of
accounting based on the preliminary allocation of the purchase price. The
amounts recorded are subject to change based on the final allocation of the
purchase price.
In July 1996, SFX acquired substantially all of the assets of
WJDX-FM, Jackson, Mississippi for a purchase price of approximately $3.0
million (the "Jackson Acquisition").
In July 1996, SFX acquired from Prism Radio Partners L.P. ("Prism"), a
privately-held radio broadcasting company, substantially all of the assets
used in the operation of eight FM and five AM radio stations located in four
markets: Jacksonville, Florida; Raleigh, North Carolina; Tucson, Arizona and
Wichita, Kansas (the "Prism Acquisition"). The purchase price was
approximately $82.8 million.
In July 1996, SFX acquired Liberty Broadcasting Inc. ("Liberty
Broadcasting") for a purchase price of approximately $227.0 million, plus
$10.5 million for working capital (the "Liberty Acquisition"). Liberty
Broadcasting was a privately-held radio broadcasting company which owned and
operated or provided programming to or sold advertising on behalf of 14 FM and
six AM radio stations (the "Liberty Stations") located in six markets;
Washington, DC/Baltimore, Maryland; Nassau-Suffolk, New York; Providence,
Rhode Island; Hartford Connecticut; Albany, New York and Richmond, Virginia.
In July 1996, SFX sold three of the Liberty Stations operating in the
Washington, DC/Baltimore, Maryland market (the "Washington Dispositions"), for
$25.0 million, of which approximately $22.0 million was received by SFX at the
closing and the remainder of which will be paid to SFX upon the satisfaction
of certain conditions.
The Greenville Acquisition, the HMW Acquisition, the Jackson Acquisition,
the Prism Acquisition and, the Liberty Acquisition are collectively herein
referred to as the "Completed Acquisitions."
NOTE 3 - OTHER RECENT TRANSACTIONS
AGREEMENT WITH SCMC. On April 15, 1996, SFX and Sillerman Communications
Management Corporation ("SCMC"), a corporation controlled by Robert F. X.
Sillerman, the Chief Executive Officer of the Company, entered into the SCMC
Termination Agreement pursuant to which SCMC assigned to SFX its rights to
receive fees for consulting and marketing services payable by each
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SFX BROADCASTING, INC. AND SUBSIDIARIES
of MMR and Triathlon Broadcasting Company ("Triathlon"), a publicly-traded
radio company operating in small and medium-sized markets in the midwest and
west, except for fees relating to certain transactions pending at the date of
such agreement, and SFX and SCMC terminated the arrangement pursuant to which
SCMC performed financial consulting services for SFX. In consideration
therefor, SFX agreed to cancel $2.0 million of indebtedness plus accrued
interest thereon owing from SCMC to the Company upon completion of the MMR
Merger (as hereinafter defined) and SCMC received warrants to purchase up to
600,000 shares of Class A Common Stock of SFX at an exercise price, subject to
adjustment, of $33.75 per share (the market price at the time the financial
consulting arrangement was terminated) of which a warrant to purchase up to
300,000 shares is immediately exercisable. The exercise of the remaining
warrants is subject to stockholder approval. In connection with such agreement,
the Company recognized a non-recurring, non-cash charge to earnings of
approximately $5.6 million during the three-month period ended June 30, 1996,
which is one half of the value of the warrants (fair value of approximately $9
million) and loan forgiveness. The remainder will be allocated to the Triathlon
Agreement and amortized over the life of the agreement. Subsequent to the
termination of its current relationship with SCMC, SFX intends to perform
internally the functions performed by SCMC.
REPAYMENT OF OLD CREDIT AGREEMENT. On May 31, 1996, SFX repaid all
amounts outstanding under its $50.0 million senior credit facility (the "Old
Credit Agreement").
PREFERRED STOCK OFFERING, NOTE OFFERING, AND NEW CREDIT AGREEMENT. In May
1996, SFX completed a private placement of $450.0 million in aggregate
principal amount of its 10.75% Senior Subordinated Notes due 2006 (the "Note
Offering") and a private placement of $149.5 million in aggregate liquidation
preference of its Series D Preferred Stock (the "Preferred Stock Offering").
Pursuant to its contractual obligations with the original purchasers of the
securities offered in the Note Offering and the Preferred Stock Offering, SFX
filed registration statements with the Securities and Exchange Commission
relating to an exchange offer for the notes that were the subject of the Note
Offering and a "shelf" offering of the Series D Preferred Stock by the holders
thereof. Such registration statements were declared effective in July 1996. In
addition, SFX has received an underwritten commitment from its lender for a
senior credit facility of $150.0 million and expects to enter into a
definitive credit agreement (the "New Credit Agreement") with respect to such
facility. SFX has been advised by its lender that it has received commitments
significantly in excess of $150 million. The Company is currently considering
whether to expand the facility beyond $150 million. There can be no assurance,
however, that SFX will be able to enter into the New Credit Agreement on a
timely basis or at all.
TENDER OFFER. Concurrently with the closings of the Preferred Stock
Offering and the Note Offering (collectively, the "Financing"), SFX completed
the tender offer (the "Tender Offer") and a related consent solicitation (the
"Consent Solicitation") with respect to its 11.375% Senior Subordinated Notes
due 2000 (the "Old Notes"). SFX purchased approximately $79.4 million in
principal amount of the $80.0 million in principal amount of the Old Notes
outstanding in the Tender Offer. SFX also entered into a supplemental
indenture amending the terms of the indenture pursuant to which the Old Notes
were issued.
AGREEMENTS WITH MESSRS. ARMSTRONG, BENSON AND HICKS. In April 1996, SFX
entered into an Agreement (the "Armstrong Agreement") with D. Geoffrey
Armstrong, Chief Financial Officer of SFX, pursuant to which Mr. Armstrong
agreed to become the Chief Operating Officer of SFX concurrently with the
completion of the MMR Merger (as hereinafter defined) and defer certain payments
due to him under his employment agreement. SFX also agreed in the Armstrong
Agreement to repurchase certain securities owned by Mr. Armstrong. In June 1996,
Mr. Armstrong was designated by the Board of Directors to begin serving as the
Chief Operating Officer of SFX and to resign as Chief Financial Officer of SFX
upon the consummation of the MMR Merger. The $4.6 million paid pursuant to the
Armstrong Agreement was expensed as a non-recurring charge. Concurrently with
such agreement, SFX entered into an employment agreement with Thomas Benson
pursuant to which he agreed to serve as Vice President of Financial Affairs of
SFX and to serve as Chief Financial Officer of SFX upon the consummation of the
MMR Merger. In June 1996, SFX entered into an Agreement (the "Hicks Agreement")
with R. Steven Hicks, the former President, Chief Executive Officer, Chief
Operating Officer and a Director of SFX, pursuant to which Mr. Hicks resigned
from all positions held by him with SFX, sold to SFX all of the securities of
SFX then owned by him or which he had the right to obtain and agreed to refrain
from owning or operating for a period of one year from completion of the MMR
Merger any direct or indirect interest in radio stations in certain markets in
the United States in which SFX currently owns and operates, or subsequent to the
MMR Merger, will own and operate radio stations in return for payments
aggregating $18.6 million. The Company recorded a non-recurring charge in the
quarter ended June 30, 1996 of $19.8 million in connection with the Armstrong
Agreement and Hicks Agreement.
AGREEMENT WITH MR. FERREL. In July 1996, SFX granted Michael G. Ferrel ten-
year options to purchase up to 50,000 shares of Class A Common Stock at an
exercise price of $33.75 per share. Such options are immediately exercisable.
Such
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SFX BROADCASTING, INC. AND SUBSIDIARIES
options were granted to Mr. Ferrel in consideration for his serving as a
consultant to SFX and in connection with his anticipated employment by SFX as
its Chief Executive Officer. See Note 6--Pending MMR Merger. SFX will record a
charge to earnings in the quarter ended September 30, 1996 in connection with
these options of approximately $350,000.
NOTE 4 - TERMINATION OF BROADCAST RIGHTS AGREEMENT
In August 1994, the Company entered into an agreement to broadcast Texas
Rangers baseball games on KRLD-AM and to syndicate the games through Texas
State Networks, for a period of four years, commencing with the 1995 season.
While the contract contemplated the possibility of a baseball work stoppage,
and contained certain provisions affording the Company partial relief from the
payment of rights fees under certain specified conditions related to work
stoppages, the nature of the major league baseball strike and consequently the
damage to the value of the Texas Rangers broadcast rights has been more
material than management had anticipated. The total rights fees under the
four-year agreement, subject to adjustment, were stated at $17,000,000. In the
second quarter of 1995, the Company recorded a charge of $5,000,000 with
respect to the estimated diminished value of the contract.
In March of 1996, the Company made its annual rights fee payment relating
to the broadcast of Texas Rangers baseball games, reducing such payment by an
amount calculated to reflect the adjustment provisions contained in the rights
agreement with respect to the major league baseball labor dispute which
resulted in the work stoppages during the 1994 and 1995 major league baseball
seasons. The Company received notice from the Texas Rangers disputing the
adjustment and credits taken by the Company. On April 11, 1996, in order to
facilitate the Houston Exchange (as hereinafter defined), the Company and the
Texas Rangers amended the radio broadcast rights agreement. The amended terms
provide for the termination of the agreement no later than November 30, 1996.
The Company recorded a $1,600,000 charge in the second quarter of 1996 related
to the termination of the agreement and to adjust the value of the contract for
the 1996 season.
NOTE 5 - PENDING ACQUISITONS AND DISPOSITIONS
In connection with the Prism Acquisition, SFX has agreed to purchase from
Prism substantially all of the assets used in the operation of two FM radio
stations and one AM radio station, each operating in Louisville, Kentucky,
upon renewal of the Federal Communications Commission ("FCC") licenses of such
stations (the "Louisville Acquisition"). SFX has entered into two separate
agreements to sell these stations upon their acquisition (the "Louisville
Dispositions") for $19.5 million. SFX expects that it will recognize no gain
or loss on the Louisville Dispositions.
In addition, SFX has agreed to acquire substantially all of the assets of
WHSL-FM, Greensboro, North Carolina, for a purchase price of $6.0 million (the
"Greensboro Acquisition") and substantially all of the assets of WSTZ-FM and
WZRX-AM, each operating in Jackson, Mississippi, for approximately $3.5
million (the "Additional Jackson Acquisition"). MMR has entered into the
acquisition agreements relating to these stations. SFX and MMR have agreed
that SFX will finance the purchase of such stations and that MMR will transfer
ownership of the stations to SFX simultaneously with the acquisition by MMR.
SFX has also (i) entered into an agreement pursuant to which SFX will
exchange radio station KRLD-AM, Dallas, Texas, and the Texas State Networks
for radio station KKRW-FM, Houston, Texas (the "Houston Exchange"), (ii)
entered into an agreement pursuant to which SFX will sell radio station
KTCK-AM, Dallas, Texas for approximately $11.5 million, net of certain
anticipated payments to the original seller (the "Dallas Disposition"), and
(iii) entered into an agreement pursuant to which SFX will exchange three FM
radio stations and one AM radio station, each operating in the Long Island,
New York market, all of which were acquired in the Liberty Acquisition, for
two FM radio stations, WAPE- FM and WFYV-FM, both operating in the
Jacksonville, Florida market and both of which Chancellor Radio Broadcasting
Company ("Chancellor") has agreed to acquire, and a payment to SFX in the amount
of $11.0 million from Chancellor (the "Chancellor Exchange"). The Company does
not expect to recognize a gain or loss on either the Houston Exchange or the
Chancellor Exchange. Until the consummation of the Chancellor Exchange, SFX and
Chancellor are providing programming and selling advertising pursuant to local
marketing agreements on the Jacksonville radio stations and the Long Island
radio stations, respectively.
The Louisville Acquisition, the MMR Merger, the Greensboro Acquisition, the
Additional Jackson Acquisition, the Houston Exchange and the Chancellor
Exchange are referred to herein collectively as the "Pending Acquisitions" The
Pending Acquisitions and the Completed Acquisitions are referred to herein
collectively as the "Acquisitions." The Louisville Dispositions and the Dallas
Dispositions are referred to herein collectively as the "Pending
Dispositions." The Pending Dispositions and the Washington Disposition are
referred to herein collectively as the "Dispositions."
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SFX BROADCASTING, INC. AND SUBSIDIARIES
The timing and completion of the Pending Acquisitions and the Pending
Dispositions are subject to a number of conditions, certain of which are
beyond SFX's control, and there can be no assurance that such transactions
will be completed during such periods, approved by the FCC or completed on the
terms described herein, or at all.
NOTE 6 - PENDING MMR MERGER
In April 1996, the Company entered into an amended and restated agreement
(the "Merger Agreement") and plan of merger (the "MMR Merger"), as amended in
May and July 1996, pursuant to which it has agreed to acquire MMR. Following
completion of the MMR Merger, MMR will become a wholly-owned subsidiary of the
Company. MMR is a radio broadcasting company which owns and operates, provides
programming to or sells advertising on behalf of 11 FM stations and one AM
station located in seven markets: New Haven, Connecticut;
Springfield/Northampton, Massachusetts; Daytona Beach, Florida; Augusta,
Georgia; Biloxi, Mississippi; and Myrtle Beach, South Carolina. MMR has
entered into agreements or letters of intent to acquire WKSS-FM, Hartford,
Connecticut, and WMYB-FM, Myrtle Beach, South Carolina, and to sell KOLL-FM,
Little Rock, Arkansas (the "MMR Dispositions"). MMR is currently negotiating
the termination of a Joint Sales Agreement ("JSA") with WCHZ-FM operating in
Augusta, Georgia.
Upon consummation of the MMR Merger and subject to certain conditions,
including approval of the shareholders of MMR and SFX, the outstanding
securities of MMR will be converted into shares of common stock of the Company
as follows: (i) the shares of Class A Common Stock of MMR and the shares of
Series B Convertible Preferred Stock of MMR will be converted into that number
of shares of Class A Common Stock of the Company determined on the basis of
the Exchange Ratio (as defined below) and (ii) the shares of Class B Common
Stock of MMR, the shares of Class C Common Stock of MMR and shares of original
preferred stock of MMR will be converted into the number of shares of Class B
Common Stock of the Company determined on the basis of the Exchange Ratio.
The Exchange Ratio means the number of shares of Class A Common Stock or
Class B Common Stock of the Company, as the case may be, to be issued in the
MMR Merger equal to the quotient obtained by dividing $12.00 by the average of
the last bid and asked prices of the Company's Common Stock for the 20
consecutive trading days ending on the fifth trading day prior to the closing
(the "Class A Common Stock Price"); provided, however, that (1) in the event
that the Class A Common Stock Price exceeds $42.00 but is equal to or less
than $44.00, then the Exchange Ratio shall be the quotient obtained by
dividing (i) the sum of (A) $12.00, plus (B) the product of (I) twenty-five
percent (25%) multiplied by (II) the difference between the Class A Common
Stock Price and $42.00 by (ii) the Class A Common Stock Price, (2) in the
event that the Class A Common Stock Price exceeds $44.00, then the Exchange
Ratio shall be the quotient obtained by dividing (i) the sum of (A) $12.50,
plus (B) the product of (I) thirty percent (30%) multiplied by (II) the
difference between the Class A Common Stock Price and $44.00, or (3) in the
event that the Class A Common Stock Price is less than $32.00, then the Exchange
Ratio shall be .3750.
Upon the completion of the MMR Merger, each outstanding option or stock
appreciation rights issued pursuant to MMR's stock option plans, whether
vested or unvested, will be assumed by the Company.
Additionally, each outstanding (i) Class A Warrant (the "MMR Class A
Warrants") and Class B Warrant (the "MMR Class B Warrants") of MMR issued in
connection with MMR's public ofering in March 1994, (ii) option issued
pursuant to the unit purchase options issued to the underwriters of MMR's
public offering in March 1994, (iii) warrant issued to the underwriters of
MMR's initial public offering in July 1993, (iv) warrant issued to The Huff
Alternative Income Fund, L.P. and (v) options issued to Robert F.X. Sillerman
outside MMR's stock option plans (collectively, the "MMR Warrants"), shall be
assumed by the Company.
In the Merger Agreement, SFX agreed that, if requested by MMR, it would
negotiate in good faith to enter into an agreement to advance up to $18.0
million to MMR to enable MMR to acquire WKSS-FM, Hartford, Connecticut, and up
to $5.0 million to MMR for working capital. As of June 30, 1996, the Company
had advanced MMR approximately $2.4 million for working capital (the "MMR
Loan"), including $2 million which was paid to SCMC for investment banking
services provided to MMR in connection with the MMR Merger. SFX and MMR are
currently negotiating the terms of such loan. It is anticipated that the MMR
Loan will be an interest at a rate of 12%. In addition, SFX and MMR agreed that
Michael G. Ferrel, the Chief Executive Officer, Chief
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SFX BROADCASTING, INC. AND SUBSIDIARIES
Operating Officer and President of MMR, would become the Chief Executive
Officer of SFX upon the consummation of the Merger and MMR agreed to make
available to SFX, until the earlier of the termination of the Merger Agreement
or the consumation of the MMR Merger, the services of Mr. Ferrel as a
consultant to SFX to the extent that such services do not conflict with Mr.
Ferrel's obligations to MMR. Upon completion of the MMR Merger the Company will
be required to repay MMR's senior debt and senior subordinated notes totaling
approximately $40.1 million and to treat any amounts outstanding under the MMR
Loan as contributed capital.
In addition, in the Merger Agreement, SFX has agreed to enter into a
Local Marketing Agreement (the "LMA") with, and assigned its rights under a
Joint Sales Agreement with respect to WYSR-FM, Albany, New York, to, MMR
pursuant to which MMR will provide programming to and sell advertising on
behalf of the following stations acquired by SFX from Liberty Broadcasting;
WHCN-FM, WMRQ-FM and WPOP-AM, each operating in Hartford, Connecticut, WSNE-
FM, WHJY-FM and WHJJ-AM, each operating in Providence, Rhode Island, WGNA-FM,
WGNA-AM, WPYX-FM, WTRY-AM and WYSR-FM, each operating in Albany, New York, and
WMXB-FM, operating in Richmond, Virginia (collectively, the "MMR Liberty
Stations"). It is anticipated that these agreements will provide that
substantially all of the Broadcast Cash Flow (as defined herein) generated by
these stations will be paid by MMR to SFX. In the event that the Merger
Agreement is terminated, except in certain circumstances, MMR will have the
right, subject to the receipt of prior FCC approval, to acquire SFX's
interests in the MMR Liberty Stations for $100.0 million, or, in certain
circumstances, to acquire SFX's interests in the MMR Liberty Stations pursuant
to an exchange of stations intended to qualify as a like-kind exchange under
section 1031 of the Internal Revenue Code of 1986, as amended. The MMR Merger
will be accounted for as a purchase transaction.
The MMR Merger will be accounted for using the purchase method of
accounting.
See accompanying notes to consolidated financial statements
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SFX BROADCASTING, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements and related notes thereto. The following discussion
contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, risks and uncertainties relating to leverage,
the need for additional funds, consummation of the Pending Acquisitions or the
Pending Dispositions, integration of the Acquisitions, the ability of the
Company to achieve certain cost savings, the management of growth, the
popularity of radio as a broadcasting and advertising medium and changing
consumer tastes.
GENERAL
The Company currently owns and operates, provides programming to or sells
advertising on behalf of 54 radio stations located in eighteen markets.
Following completion of the Pending Acquisitions and the Pending Dispositions,
the Company will own and operate, provide programming to or sell advertising
on behalf of 64 radio stations (49 FM and 15 AM) located in 21 markets. The
Company intends to finance the Pending Acquisitions from the remaining
proceeds of the Company's recent Financing and the Dispositions.
The following analysis of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
consolidated financial statements and notes thereto.
The performance of a radio station group, such as the Company, is
customarily measured by its ability to generate Broadcast Cash Flow. Broadcast
Cash Flow is defined as net revenues (including, where applicable, fees earned
by the Company pursuant to the SCMC Termination Agreement) less station
operating expenses. Although Broadcast Cash Flow is not a measure of
performance calculated in accordance with generally accepted accounting
principles ("GAAP"), the Company believes that Broadcast Cash Flow is accepted
by the broadcasting industry as a generally recognized measure of performance
and is used by analysts who report publicly on the performance of broadcasting
companies. Nevertheless, this measure should not be considered in isolation or
as a substitute for operating income, net income, net cash provided by
operating activities or any other measure for determining the Company's
operating performance or liquidity which is calculated in accordance with
GAAP.
The primary source of the Company's revenue is the sale of advertising
time on its radio stations. The Company's most significant station operating
expenses are employee salaries and commissions, programming expenses and
advertising and promotional expenditures. The Company strives to control these
expenses by working closely with local station management.
The Company's revenues are primarily affected by the advertising rates
its radio stations charge. The Company's advertising rates are in large part
based on a station's ability to attract audiences in the demographic groups
targeted by its advertisers, as measured principally by Arbitron (an
independent rating service) on a quarterly basis. Because audience ratings in
local markets are crucial to a station's financial success, the Company
endeavors to develop strong listener loyalty. The Company believes that the
diversification of formats on its stations helps to insulate it from the
effects of changes in the musical tastes of the public in any particular
format.
The number of advertisements that can be broadcast without jeopardizing
listening levels (and the resulting ratings) is limited in part by the format
of a particular station. The Company's stations strive to maximize revenue by
constantly managing the number of commercials available for sale and adjusting
prices based upon local market conditions. In the broadcasting industry, radio
stations often utilize trade (or barter) agreements which exchange advertising
time for goods or services (such as travel or lodging), instead of for cash.
The Company seeks to minimize its use of trade agreements.
The Company's advertising contracts are generally short-term. The Company
generates most of its revenue from local advertising, which is sold primarily
by a station's sales staff. For the three and six months ended June 30, 1996,
approximately 77% of the Company's revenues were from local advertising. To
generate national advertising sales, the Company engages independent
advertising sales representatives that specialize in national sales for each
of its stations.
The Company's revenues vary throughout the year. As is typical in the
radio broadcasting industry, the Company's
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SFX BROADCASTING, INC. AND SUBSIDIARIES
first calendar quarter generally produces the lowest revenues for the year,
and the fourth calendar quarter generally produces the highest revenues for
the year. The Company's operating results in any period may be affected by the
incurrence of advertising and promotion expenses that do not necessarily
produce commensurate revenues until the impact of the advertising and
promotion is realized in future periods.
Fee revenue from the SCMC Termination Agreement will fluctuate
principally based upon the level of acquisition and financing activity of
Triathlon above the minimum annual fees of $800,000 (which minimum fees shall
increase to $900,000 at such time as Triathlon has used an amount equal to the
net proceeds of its last public offering in the manner contemplated by the
registration statement filed in connection therewith) of which $625,000 is due
in the first calendar quarter of 1997.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
The Company's net revenues increased 34% to $27.8 million from $20.7
million, for the three months ended June 30, 1996 ("1996 quarter") and 1995
("1995 quarter"), respectively, due to revenue increases in all of the
Company's markets, and net revenues related to the operations of WMAG-FM,
WTCK-AM, WMFR-AM, and WHSL-FM, Greensboro, North Carolina, WSTZ-FM, Jackson,
Mississippi, and WROQ-FM, Greenville, South Carolina, which the Company began
operating in the first quarter of 1996, and the net revenues related to the
operations of WRDU-FM and WTRG-FM, Raleigh, North Carolina, which SFX began
operating in June 1996. The increase in net revenue from existing operations
was related to strong radio advertising growth averaging approximately 11% in
the Company's markets, combined with improved inventory management, ratings
and other factors generally affecting sales and rates.
Station operating expenses increased 40% to $19.1 million in the 1996
quarter from $13.7 million in the 1995 quarter primarily due to: the inclusion
of expenses of $3.1 million related to the stations which SFX began operating
as discussed above; and $1.8 million of increases in variable costs related to
the increase in net revenues of the existing SFX stations.
Depreciation, amortization, duopoly integration costs and acquisition
related costs increased 15% to $2.3 million from $2.0 million due to the
inclusion of depreciation and amortization related to the acquisition of
WTDR-FM and WLYT- FM, Charlotte, North Carolina in February 1996 (the
"Charlotte Acquisition") and the acquisition of KTCK-AM, Dallas, Texas, in
September 1995 (the "Dallas Acquisition"), and to $277,000 of certain one time
acquisition related costs in Charlotte.
Corporate, general and administrative expenses were $1.6 million and
$971,000 for the 1996 second quarter and 1995 second quarter, respectively.
The increase reflects the growth in the Company's overall operations.
The Company recorded a non-recurring charge of $27.5 million in the 1996
quarter which consisted primarily of payments in excess of the fair value of
stock repurchased totaling $12.5 million to Mr. Hicks and the reserve by the
Company of $2.3 million relating to the loan and accrued interest to Mr.
Hicks, $5.6 million related to the reserve of the loan and accrued interest to
SCMC and the issuance of 600,000 warrants to SCMC, $4.6 million for the
repurchase of Mr. Armstrong's options, and a charge of $1.6 million related to
the early termination of the Company's contract to broadcast Texas Rangers
baseball and an adjustment in the value of the contract for the 1996 season. In
the 1995 quarter, the Company recorded a $5 million special charge related to
the write down in value of the Company's broadcast rights of Texas Rangers
baseball.
Operating loss was $22.8 million for the 1996 quarter as compared to
operating loss of $940,000 for the 1995 quarter due to the results discussed
above.
Interest expense, net of investment income, increased 15% to $4.1 million
from $3.5 million in 1995 quarter, primarily due to one month of interest on
the $450 million of subordinated debt issued in May 1996. Additionally,
interest on borrowings of $21.5 million related to the Charlotte Acquisition
that was completed in February 1996, contributed to the increase.
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SFX BROADCASTING, INC. AND SUBSIDIARIES
The Company incurred an extraordinary loss totaling $15.2 million in the
1996 quarter which consisted primarily of payments of $9 million for the
repurchase premium and consent payments related to the early redemption of
$79.4 million of the Old Notes in the Tender Offer and the related Consent
Solicitation and the write-off of $5.6 million of debt issue costs.
The Company recorded no income tax benefit for the 1996 quarter compared
to income tax benefit of $1.9 million for the 1995 quarter. For the 1995 quarter
the Company recorded a tax benefit based on the then anticipated tax rate for
the full year. The Company has not provided a tax benefit for the 1996 quarter
based upon the expectation of recording a full valuation allowance for the
current year loss, prior to giving effect to the pending acquisitions.
The Company's net loss was $42.1 million for the 1996 quarter compared to
a net loss of $2.6 million for the 1995 quarter due to the factors discussed
above.
Broadcast Cash Flow increased 23% to $8.6 million for the 1996 quarter
from $7.0 million for the 1995 quarter. The increase was a result of the
inclusion in the 1996 quarter of the results of WRDU-FM, WTRG-FM, WROQ-FM,
WSTZ-FM, WMAG-FM, WTCK-FM, WMFR-AM and WHSL-FM for the portions of the periods
the Company owned and operated, provided programming to or sold advertising on
behalf of the stations as well as improved results at the Company's existing
stations in all markets except Jackson.
Results for the 1996 quarter include WLYT-FM and WTDR-FM, Charlotte,
North Carolina, for which the Company had provided programming and sold
advertising time pursuant to an LMA prior to the Charlotte Acquisition;
KYXY-FM, San Diego, California, for which the Company had provided programming
and sold advertising time pursuant to an LMA since January 1995 and was
acquired on April 13, 1995; KTCK-AM, Dallas, Texas for which the Company had
provided programming and sold advertising time pursuant to an LMA prior to the
Dallas Acquisition; WMAG-FM, WTCK-AM, WMFR-AM and WHSL-FM, each operating in
Greensboro, North Carolina; WSTZ-FM, Jackson, Mississippi; WROQ-FM, Greenville,
South Carolina; for which the Company had sold advertising pursuant to a JSA
beginning in the first quarter of 1996 quarter; and WRDU-FM and WTRG-FM, Raleigh
North Carolina, which the Company acquired in June 1996.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
The Company's net revenues increased 38% to $47.6 million from $34.4
million, for the six months ended June 30, 1996 and 1995, respectively, due to
revenue increases at all of the Company's markets, $5.8 million of net
revenues related to the operations of WMAG-FM, WTCK-AM, WMFR-AM, and WHSL-FM,
Greensboro, North Carolina, WSTZ-FM, Jackson, Mississippi, and WROQ-FM,
Greenville, South Carolina, which were implemented in the first quarter of
1996, and the net revenues related to the operations of WRDU-FM and WTRG-FM,
Raleigh, North Carolina, which SFX began operating in June 1996. The increase
in net revenue from existing operations was related to strong radio
advertising growth averaging approximately 9.6% in the Company's markets,
combined with improved inventory management, ratings and other factors
generally affecting sales and rates.
Station operating expenses increased 42% to $33.2 million for the six
months ended June 30, 1996 from $23.4 million for the six months ended June
30, 1995 primarily due to: the inclusion of expenses of $4.9 million related
to the stations which SFX began operating as discussed above; the inclusion of
expenses of $2.1 million related to KYXY-FM, San Diego, California, KTCK-AM,
Dallas, Texas, and WTDR-FM and WLYT-FM, both operating in Charlotte, North
Carolina for the entire six month period ended June 30, 1996; and $1.3 million
of increases in variable expenses related to the increases of net revenue at
the existing SFX stations.
Depreciation, amortization, duopoly integration costs and acquisition
related costs increased 26% to $4.6 million from $3.7 million due to the
inclusion of depreciation and amortization related to the San Diego, Charlotte
and Dallas Acquisitions, and to $277,000 of certain one time acquisition
related costs in Charlotte.
Corporate, general and administrative expenses were $2.8 million and
$1.8 million for the six months ended June 30, 1996 and 1995, respectively.
The increase reflects the growth in the Company's overall operations.
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SFX BROADCASTING, INC. AND SUBSIDIARIES
The Company recorded a non-recurring charge of $27.5 million in the
second quarter of 1996 which consisted primarily of payments in excess of the
fair value of stock repurchased totaling $12.5 million to Mr. Hicks and the
reserve by the Company of $2.3 million relating to the loan and accrued
interest to Mr. Hicks, $5.6 million related to the reserve of the $2.0 million
loan and accrued interest to SCMC and the issuance of 600,000 warrants to SCMC,
$4.6 million of the repurchase of Mr. Armstrong's options, and a charge of $1.6
million related to the termination of the Company's contractual four-year
broadcast rights of Texas Rangers baseball and an adjustment in the value of the
contract for the 1996 season. In the 1995 quarter, the Company recorded a $5
million special charge related to the write down in value of the Company's
broadcast rights of Texas Rangers baseball.
Operating loss was $20.6 million for the six month period ended June 30,
1996 compared to operating income of $600,000 for the same period in 1995 due
to the results discussed above.
Interest expense, net of investment income, increased 22% to $7.3 million
from $6.0 million in the period ended June 30, 1995, primarily due to one
month of interest on the $450 million of subordinated debt issued in May 1996.
Additionally, interest on borrowings of $21.5 million, of which $18.5 million
was outstanding in the first quarter of 1996, related to the Charlotte
Acquisition contributed to the increase.
The Company incurred an extraordinary loss totaling $15.2 million in the
period ended June 30, 1996 which consisted primarily of payments of $9 million
for the repurchase premium and consent payments related to the early
redemption of $79.4 million of the Company's Old Notes in the Tender Offer and
the related Consent Solicitations and the write-off of $5.6 million of debt
issue costs.
The Company recorded no income tax benefit for the six month period ended
June 30, 1996 compared to income tax benefit of $2.3 million for the same
period ended 1995. For the 1995 quarter the Company recorded a tax benefit based
on the then anticipated tax rate for the full year. The Company has not provided
a tax benefit for the 1996 quarter based upon the expectation of recording a
full valuation allowance for the current year loss, prior to giving effect to
the pending acquisitions.
The Company's net loss was $43.1 million for the six month period ended
June 30, 1996 compared to a net loss of $3.1 million for the same period ended
1995 due to the factors discussed above.
Broadcast Cash Flow increased 30% to $14.4 million for the six months
ended June 30, 1996 from $11.1 million for the 1995 period. The increase was
primarily a result of the inclusion of the results of KYXY-FM, KTCK-AM, WTDR-
FM, WLYT-FM, WRDU-FM, WTRG-FM, WROQ-FM, WSTZ-FM, WMAG-FM, WTCK-FM, WMFR-AM and
WHSL-FM for the portions of the periods the Company owned and operated,
provided programming to or sold advertising on behalf of the stations as well
as improved results at the Company's existing stations in all markets except
Jackson.
Results for the six month period ending June 30, 1996 include WLYT-FM and
WTDR-FM, Charlotte, North Carolina, for which the Company had provided
programming and sold advertising time pursuant to an LMA prior to its
acquisition in the first quarter of 1996; KYXY-FM, San Diego, California, for
which the Company had provided programming and sold advertising time pursuant
to an LMA since January 1995 and was acquired on April 13, 1995; KTCK-AM,
Dallas, Texas for which the Company had provided programming and sold
advertising time pursuant to an LMA since March 1995 and was acquired on
September 14, 1995; WMAG-FM, WTCK-AM, WMFR-AM and WHSL-FM, each operating in
Greensboro, North Carolina; WSTZ-FM, Jackson, Mississippi; WROQ-FM,
Greenville, South Carolina; for which the Company had sold advertising
pursuant to a JSA beginning in the first quarter of 1996 quarter; and WRDU-FM
and WTRG-FM, Raleigh North Carolina, which the Company acquired in June 1996.
FUTURE CHARGES. In April 1996, the Company and SCMC entered into the SCMC
Termination Agreement pursuant to which the consulting arrangement between
such parties was terminated in consideration for the assignment by SCMC to the
Company of the right to receive certain consulting fees payable by MMR and
Triathlon, the agreement to cancel $2.0 million of indebtedness plus accrued
interest thereon owing from SCMC to the Company upon completion of the MMR
Merger and the issuance of warrants to SCMC to purchase up to 600,000 shares
of Class A Common Stock at an exercise price of $33.75 per share (fair value of
approximately $9 million). In connection with the SCMC Termination Agreement,
the Company has allocated $5.6 million of value to the Triathlon Agreement and
will amortize such amounts over the life of the agreement.
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SFX BROADCASTING, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal need for funds has historically been to fund the
acquisition of radio stations, and to a lesser extent, capital expenditures
and the redemption of outstanding securities. The Company's principal sources
of funds for these requirements have historically been the proceeds from the
public and private offerings of equity and debt securities, borrowings under
credit agreements and, to a significantly lesser extent, cash flows from
operations.
STATEMENTS OF CASH FLOWS. Net cash used in operating activities was $34.6
million for the six months ended June 30, 1996 as compared to $1.6 million for
the six months ended June 30, 1995. The increase was primarily due to the cash
portion of the non-recurring charges.
Net cash used in investing activities was $90.8 million for the six
months ended June 30, 1996 as compared to $19.4 million of cash used in
investing activities for the six months ended June 30, 1995. The cash used in
investing activities in 1996 related primarily to the Charlotte , Greenville
and HMW Acquisitions while the cash used in investing activities in 1995
relates to the sale of investments offset by the purchase of KYXY in San
Diego.
Net cash provided by financing activities was $492.0 million for the six
months ended June 30, 1996 as compared to net cash provided by financing
activities of $18.7 million for the six months ended June 30, 1995. The net
cash provided by financing activities was primarily due to the proceeds of the
Note offering and Preferred Stock offering.
RECENT ACQUISITIONS AND DISPOSITIONS. In June 1996, SFX completed the
Greenville Acquisition and the HMW Acquisition. MMR initially entered into the
acquisition agreements relating to these stations. SFX and MMR agreed that SFX
would finance the purchase of such stations and that MMR would transfer the
purchased assets to SFX simultaneously with the acquisition by MMR.
In July 1996, SFX completed the Jackson Acquisition, the Prism
Acquisition, the Liberty Acquisition and the Washington Dispositions.
PENDING ACQUISITIONS AND DISPOSITIONS. The Company has entered into
agreements relating to the Pending Acquisitions and the Pending Dispositions.
In April 1996, the Company entered into the Merger Agreement pursuant to which
it has agreed to acquire MMR in exchange for capital stock of the Company
having a value estimated at approximately $80.0 million assuming the reported
price of the Company's stock is $40.00 per share and an MMR Class A Common
Stock price of $12.00 per share. In addition, MMR has entered into an
agreement to acquire radio station WKSS-FM, Hartford, Connecticut, for a
purchase price of $18.0 million of which $1.8 million was placed in escrow as
a deposit by MMR (the "MMR Hartford Acquisition"). The Company has agreed to
repay MMR's senior debt and subordinated notes totaling approximately $40.1
million as of July 31, 1996 and to treat any amounts outstanding under the MMR
Loan as contributed capital. The Company expects that MMR's outstanding Class A
Warrants to purchase 1,840,000 shares of MMR Class A Common Stock will be
exercised at an exercise price of $7.75 per share. MMR is entitled to call such
warrants for redemption at a nominal price in the event that the trading price
of MMR's Class A Common Stock exceeds $10.75 per share, on average, for twenty
consecutive trading days following notice and a thirty-day opportunity to
exercise such warrants. The Company anticipates that such notice will be
issued and the warrants will be exercised within ninety days. Such exercise
would result in net proceeds of approximately $13.6 million of which $2.8
million has been received by MMR through warrant exercises as of August 12,
1996. In the event such exercise fails to occur, MMR's borrowing under its
credit agreement would be repaid by the Company with additional borrowings under
the New Credit Agreement at the time of the MMR Merger. MMR also plans to offer
to exchange MMR's outstanding Class B Warrants to purchase 1,840,000 shares of
MMR Class A Common Stock at a ratio of 5 Class B Warrants for each share of
Class A Common Stock prior to the completion of the MMR Merger.
The timing and completion of the Pending Acquisitions, the Merger, the
Houston Exchange and the Chancellor Exchange and the Dispositions are subject
to a number of conditions, certain of which are beyond SFX's control, and
there can be no assurance that such transactions will be completed during such
periods, approved by the FCC or completed on the terms described herein, or at
all.
In the event that the MMR Merger is terminated, the Company will be
required, except in certain circumstances, to pay $3.5 million to MMR. In
addition, the Company will be required to pay MMR $1.0 million in the event
the majority of the combined voting power of SFX votes with respect to, but
does not vote in favor of, the MMR Merger.
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SFX BROADCASTING, INC. AND SUBSIDIARIES
The Company intends to finance the Pending Acquisitions and the repayment
of indebtedness of MMR, from the proceeds of the Financing, the Dispositions,
the MMR Dispositions and the exercise of the MMR Class A Warrants and
available cash.
The Company anticipates that it will consummate all of the Pending
Acquisitions and Pending Dispositions within approximately 60 days. However,
the closing of each of the transactions is subject to certain closing
conditions, certain of which are beyond the Company's control, and there can
be no assurance as to when such transactions will be completed or that they
will be completed on the terms described herein, or at all. In the event that
the Pending Dispositions and exercise of MMR's Class A Warrants are not
consummated in a timely manner, the Company may be required to seek additional
financing. There can be no assurance that such financing will be available to
the Company on commercially acceptable terms, if at all. The MMR Merger is
also subject to stockholder approval.
The Company expects that the Acquisitions will be accounted for using the
purchase method of accounting, that the intangible assets created in the
purchase transactions will be amortized against future earnings of the
combined companies, that such amounts will be substantial and that they will
continue to affect the Company's operating results in the future. These
expenses, however, do not result in an outflow of cash by the Company and do
not impact the Company's Broadcast Cash Flow.
SOURCES OF LIQUIDITY. In March 1995, the Company entered into the Old
Credit Agreement. In May 1996, the Company repaid all amounts owing under the
Old Credit Agreement with the proceeds of the Financing. The Company has
received a firm commitment from a lending institution to underwrite a new $150
million senior credit facility (the "New Credit Agreement"). SFX has been
advised by its lender that it has received commitments significantly in excess
of $150 million. The Company is currently considering whether to expand the
facility beyond $150 million. The Company's obligations under the New Credit
Agreement will be secured by substantially all of its assets in which a
security interest may lawfully be granted, including property, stock of
subsidiaries and accounts receivable, and are guaranteed by the subsidiaries
of the Company. There can be no assurance that the Company will be able to
enter into the New Credit Agreement on a timely basis, or at all. To the
extent that the Dispositions and the exercise of the MMR Class A Warrants do
not occur, borrowings will be required under the New Credit Agreement for the
MMR Merger.
In May 1996, the Company issued $149.5 million in aggregate liquidation
preference of the Series D Preferred Stock. Dividends on the Series D
Preferred Stock are payable quarterly in cash. The Series D Preferred Stock
will be converted into shares of Class A Common Stock at any time prior to the
close of business on the maturity date, unless previously redeemed or
repurchased. The Certificate of Designation contains certain covenants that,
among other things, limit the ability of the Company and its subsidiaries to
engage in transactions with their affiliates.
In May 1996, the Company issued $450.0 million of its 10.75% Senior
Subordinated Notes due in 2006. The Note Offerings contain covenants that,
among other things, limit the ability of the Company and its subsidiaries to
engage in transactions with their affiliates.
The Company expects that any additional acquisitions of radio stations
will be financed through funds generated from operations, cash on hand, funds
which may be available under the New Credit Agreement and additional debt and
equity financing. The availability of additional acquisition financing cannot
be assured, and, depending on the terms of the proposed acquisition financing,
could be restricted by the New Credit Agreement and/or the debt incurrence
test under the indenture relating to its 10.75% Senior Subordinated Notes due
2006 (the "Notes").
The Company's ability to make scheduled payments of principal of, or to
pay interest on or to refinance, its debt and to make dividend payments on the
Series D Preferred Stock depends on its future financial performance, which,
to a certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors beyond its control, as well as the
success of the radio stations to be acquired and the integration of such
stations into the Company's operations. Based upon the Company's current level
of operations and anticipated improvements, management believes that cash flow
from operations, together with the net proceeds of the Financing, the
Dispositions, the MMR Dispositions, the exercise of the MMR Class A Warrants
and available borrowings under the New Credit Agreement, will be adequate
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SFX BROADCASTING, INC. AND SUBSIDIARIES
to meet the Company's anticipated future requirements for working capital,
capital expenditures, scheduled payments of interest on its debt and to make
dividend payments on the Series D Preferred Stock. There can be no assurance
that the Pending Dispositions and the exercise of the MMR Class A Warrants
will occur or that the Company's business will generate sufficient cash flow
from operations, that anticipated improvements in operating results will be
achieved or that future working capital borrowings will be available in an
amount sufficient to enable the Company to service its debt, to make dividend
payments on the Series D Preferred Stock or to make necessary capital or other
expenditures. The Company may be required to refinance a portion of the Notes
or the aggregate liquidation preference of the Series D Preferred Stock prior
to their respective maturities. There can be no assurance that the Company
will be able to raise additional capital through the sale of securities, the
disposition of radio stations or otherwise for any such refinancing.
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SFX BROADCASTING, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In a complaint (Civil Action No. 602056-96) dated April 18, 1996, Paul
Pops, who purports to be a stockholder of MMR, brought suit in the Supreme
Court of the State of New York against MMR, each of the directors of MMR, the
Company and Robert F.X. Sillerman, the Chief Executive Officer of SFX, seeking
to enjoin the MMR Merger or, in the alternative, seeking monetary damages. The
suit alleges that the consideration to be paid to the MMR stockholders in the
MMR Merger is unfair and grossly inadequate. The suit also alleges that in
connection with entering into the MMR Merger Agreement, the directors of MMR
violated their fiduciary duties to MMR and its stockholders and that the
Company aided and abetted such violation. The plaintiff is seeking to have his
suit certified as a class action representing the interests of the
stockholders of MMR. The defendants consider the case to be without merit and
have filed a motion to dismiss the complaint for failure to state a cause of
action. SFX and MMR are engaged in discussions with the plaintiff's counsel
regarding the plaintiff's objection to the MMR Merger and do not believe this
litigation will materially delay the consummation of the MMR Merger.
In the opinion of management, there are no other material threatened or
pending legal proceedings against the Company or any entity affiliated with
Mr. Sillerman, which, if adversely decided, would have a material effect on
the financial condition or prospects of the Company.
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SFX BROADCASTING, INC. AND SUBSIDIARIES
ITEM 2. CHANGES IN SECURITIES
In the Consent Solicitation, the Company solicited consents to certain
proposed amendments to the indenture pursuant to which the Old Notes were
issued (the "Old Indenture"). The Company received such consents in respect of
a majority of the outstanding principal of the Old Notes and in May 1996 the
Company entered into a supplemental indenture amending the terms of
the Old Indenture. The supplemental indenture modifies the provisions
of the Old Indenture governing the Company's ability to, among other things,
(i) pay dividends and make certain other payments (including
acquisition-related payments), (ii) incur indebtedness, (iii) enter into
certain transactions with affiliates, (iv) dispose of its assets, (v) engage
in different lines of business and (vi) merge or consolidate with or into
another entity, or sell or transfer substantially all of its assets to another
entity. In addition, certain definitions were changed, added or deleted in the
Old Indenture to effect the changes to the covenants noted above. The
supplemental indenture also harmonized the covenants listed above and the
"Events of Default" provisions in the Old Indenture with the corresponding
covenants, provisions and definitions contained in the indenture governing the
Notes issued in the Note Offering.
The indenture (the "Indenture") governing the notes that were sold in the
Note Offering contain provisions which limit the rights of the holders of the
Class A Common Stock of the Company, including, but not limited to, provisions
which restrict the payment of dividends. A copy of the Indenture is filed as an
exhibit hereto and is incorporated herein by reference.
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SFX BROADCASTING, INC. AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON REPORT 8-K
(A) EXHIBITS
4.1 First Supplemental Indenture, dated as of May 23, 1996, between SFX Broadcasting, Inc. and
Chemical Bank (Incorporated by reference to Exhibit 4.4 of the Form S-4 of SFX Broadcasting,
Inc. (Commission File No. 333-6553) filed on June 21, 1996).
4.2 Indenture relating to the 10.75% Senior Subordinated Notes due 2006 Iincorporated by reference to
Exhibit 4.3 of the Form S-4 of SFX Broadcasting, Inc. (Commission File No. 333-65531 filed on
June 21, 1996).
10.1 Amendment No. 1 to Amended and Restated Agreement and Plan of Merger (Incorporated by
Reference to Exhibit 10.9 to Multi-Market Radio, Inc.'s Form 10-Q for the quarter ended March 31,
1996).
10.2 Form of Local Marketing Agreement between Chancellor Radio Broadcasting Company and SFX
Broadcasting, Inc. relating to the Jacksonville stations.
10.3 Form of Local Marketing Agreement between Chancellor Radio Broadcasting Company and SFX
Broadcasting, Inc. relating to the Long Island stations.
10.4 Form of Time Brokerage Agreement between KRBE Company and SFX Broadcasting, Inc.
10.5 Local Marketing Agreement, dated June 28, 1996, between SFX Broadcasting of South Carolina,
Inc. and HMW Communications, Inc.
11.1 Statement Regarding Calculation of Per Share Earnings
27 Financial Data Schedule
99.1 Asset Purchase Agreement by and between Multi-Market Radio, Inc. and Puritan Radiocasting
Company (Incorporated by Reference to Exhibit 10.1 to Multi-Market Radio, Inc.'s 10-Q for the
quarter ended March 31, 1996).
99.2 Programming Agreement by and between Multi-Market Radio, Inc. and Puritan Radiocasting
Company (Incorporated by Reference to Exhibit 10.2 to Multi-Market Radio, Inc.'s 10-Q for the
quarter ended March 31, 1996).
99.3 Asset Purchase Agreement by and between Multi-Market Radio, Inc. and Wilks Broadcast
Acquisitions, Inc. (Incorporated by Reference to Exhibit 10.3 to Multi-Market Radio, Inc.'s 10-Q
for the quarter ended March 31, 1996).
99.4 Local Marketing Agreement by and between Multi-Market Radio, Inc. and Wilks Broadcast
Acquisitions, Inc. (Incorporated by Reference to Exhibit 10.4 to Multi-Market Radio, Inc.'s 10-Q
for the quarter ended March 31, 1996).
99.5 Asset Purchase Agreement by and between Multi-Market Radio, Inc. and Precision Media
Corporation (Incorporated by Reference to Exhibit 10.5 to Multi-Market Radio, Inc.'s 10-Q for the
quarter ended March 31, 1996).
99.6 Letter Agreement by and between Multi-Market Radio, Inc. and Jones Eastern Radio of Augusta,
Inc. (Incorporated by Reference to Exhibit 10.6 to Multi-Market Radio, Inc.'s 10-Q for the quarter
ended March 31, 1996).
99.7 Local Market Agreement by and between Multi-Market Radio, Inc. and Jones Eastern Radio of
Augusta, Inc. (Incorporated by Reference to Exhibit 10.7 to Multi-Market Radio, Inc.'s 10-Q for the
quarter ended March 31, 1996).
99.8 Local Market Agreement by and between Southern Starr of Arkansas, Inc. and Triathlon
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Broadcasting of Little Rock, Inc. (Incorporated by Reference to Exhibit 10.10 to Multi-Market
Radio, Inc.'s 10-Q for the quarter ended March 31, 1996).
99.10 Advertising Brokerage Agreement by and between GMR Broadcasting, Inc. and Multi-Market
Radio of Augusta, Inc. (Incorporated by Reference to Exhibit 10.53 to Multi-Market Radio, Inc.'s
Annual Report on Form 10-KSB for the year ended December 31, 1995).
99.11 Time Sales Agreement by and between Morey Organization, Inc. and Liberty Broadcasting Inc.
(Incorporated by Reference to Exhibit 10.59 to Multi-Market Radio, Inc.'s Annual
Report on Form 10-KSB for the year ended December 31, 1995).
99.12 Local Marketing Agreement by and between Yale Broadcasting Company, Inc. and General
Broadcasting of Connecticut, Inc. (Incorporated by Reference to Exhibit 10.53 to Multi-Market
Radio, Inc.'s Annual Report on Form 10-KSB for the year ended December 31, 1995).
99.13 Voting agreement, dated July 26, 1996, executed by Chilton Investment
Partners, L.P. and Richard L. Chilton (Incorporated by reference to
Exhibit 99.1 to the Form 8-K filed by Multi-Market Radio on August 8, 1996).
99.14 Voting agreement, dated July 26, 1996, executed by Gabriel Capital,
L.P. and Ariel Fund Limited (Incorporated by reference to Exhibit
99.2 to the Form 8-K filed byMulti- Market Radio on August 8, 1996).
99.15 Voting agreement, dated July 31, 1996, executed by J. Morton Davis and D. H. Blair Investment
Banking Corp. (Incorporated by reference to Exhibit 99.3 to the Form 8-K filed
by Multi-Market Radio on August 8, 1996).
(b) Reports on Form 8-K
A report on Form 8-K was filed on April 18, 1996 under Item 5
thereof (other events) to disclose the execution of an Agreement and
Plan of Merger, dated April 15, 1996, among the Company, Multi-Market
Radio, Inc. and a wholly-owned subsidiary of SFX.
A report on Form 8-K was filed on May 9, 1996 under Item 5 thereof
(other events) to disclose the commencement of the tender offer and
consent solicitation for the company's outstanding 11.375% Senior
Subordinated Notes, the execution of the Amended and Restated Agreement
and Plan of Merger and the commencement of certain private placements
and certain financial information (including financial statements).
A report on Form 8-K was filed on May 24, 1996 under Item 5 (other
events) to disclose the receipt of commitment from its lender and the
execution of agreements relating to the Louisville Disposition.
A report on Form 8-K was filed on May 30, 1996 under Item 5 (other
events). The Form 8-K included certain historical and pro forma
financial statements.
A report on Form 8-K was filed on June 21, 1996 under Item 5
(other events). The Form 8-K included certain pro forma financial
statements.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SFX BROADCASTING, INC.
Date: August 14 , 1996 By:/s/Howard Tytel
---------------
Howard J. Tytel
Executive Vice President and
Secretary
Date: August 14 , 1996 By:/s/D. Geoffrey Armstrong
------------------------
D. Geoffrey Armstrong
Vice President, Treasurer, and Chief
Financial Officer
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