1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 23, 1999
CUMULUS MEDIA INC.
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(Exact Name of Registrant as specified in its charter)
ILLINOIS 000-24525 36-4159663
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(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
111 EAST KILBOURN AVENUE, SUITE 2700 MILWAUKEE, WI 53202
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (414) 615-2800
NONE
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(Former name or former address, if changed since last report)
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Item 5. Other Events
On September 15, 1999, Cumulus Broadcasting, Inc., a Nevada corporation
("Cumulus Broadcasting") and a wholly-owned subsidiary of Cumulus Media Inc.,
an Illinois corporation (the "Company"), completed (i) the acquisition of six
radio stations in Wisconsin pursuant to the terms of an Asset Purchase
Agreement dated as of April 2, 1999, by and between Cumulus Broadcasting,
Cumulus Licensing Corp., a Nevada corporation ("Cumulus Licensing"), Cumulus
Wireless Services Inc., a Nevada corporation ("Cumulus Wireless") and Phillips
Broadcasting Company, Inc., an Iowa corporation, for a purchase price of $14.8
million in cash and (ii) the acquisition of five radio stations in Kentucky
pursuant to an Asset Purchase Agreement dated as of March 9, 1999 by and
between Cumulus Broadcasting, Cumulus Licensing, Cumulus Wireless, HMH
Broadcasting Inc., a Kentucky corporation, and HMH Realty, LLC, a Kentucky
limited liability company, for a purchase price of $44.5 million in cash.
In addition, on November 1, 1999, the Company acquired all of the
outstanding capital stock of Calendar Broadcasting, Inc., a Delaware
corporation ("Calendar") pursuant to the terms of a Stock Purchase Agreement
dated June 15, 1999, among the Company and M&F Calendar Holdings, L.P., a
Delaware limited partnership, Kevin C. Whitman, Nassau Capital Partners L.P.,
a Delaware limited partnership, NAS Partners I L.L.C., a Delaware limited
liability company, and Philip J. Giordano. Calendar, indirectly through
subsidiaries, owns and operates two radio stations in Texas and three radio
stations in Alabama.
Subsidiaries of the Company are parties to the following acquisition
agreements which have not yet been consummated but which the Company believes
are probable of completion:
1) Asset Purchase Agreement dated as of June 29, 1999, by and
among Cumulus Broadcasting, Cumulus Licensing and Coast Radio, L.L.C.,
2) Asset Purchase Agreement (the "Cape Fear Asset Purchase Agreement")
dated as of September 23, 1999, by and between Cumulus Broadcasting,
Cumulus Licensing, Cumulus Wireless, C. F. Radio, Inc., Cape Fear
Radio, LLC, Cape Fear Broadcasting Company and Cape Fear Tower
Systems, LLC.
The execution of the Cape Fear Asset Purchase Agreement, when aggregated
with the other completed and pending acquisitions described in this Current
Report on Form 8-K, requires the inclusion, under Section 3-05 of Regulation
S-X, of the historical financial statements included herein in a registration
statement filed by the Company under the Securities Act of 1933, as amended.
Accordingly, the historical financial statements included herein are
incorporated by reference in the Registration Statement on Form S-3 filed by the
Company (Registration No. 333-89825) on October 28, 1999.
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Item 7. Financial Statements and Exhibits.
(a) Financial Statements.
Index to Financial Statements attached hereto
(1) HMH Broadcasting, Inc.
Report of Independent Accountants
Financial Statements:
Balance Sheets as of June 30, 1999 (unaudited) and December 31, 1998
Statements of Operations for six months ended June 30, 1999 and 1998
(unaudited) and for the year ended December 31, 1998
Statement of Changes in Shareholders' Equity for the year ended
December 31, 1998
Statements of Cash Flows for the six months ended June 30, 1999 and
1998 (unaudited) and for the year ended December 31, 1998
Notes to Financial Statements
(2) Phillips Broadcasting Company, Inc.
Report of Independent Accountants
Financial Statements:
Balance Sheets as of June 30, 1999 and December 31, 1998 (unaudited)
Statements of Operations and Retained Earnings for the six months
ended June 30, 1999 and 1998(unaudited) and for the year ended
December 31, 1998
Statements of Cash Flows for the six months ended June 30, 1999 and
1998 (unaudited) and for the year ended December 31, 1998
Notes to Financial Statements
(3) Cape Fear Broadcasting Company
Report of Independent Accountants
Financial Statements:
Balance Sheets as of June 30, 1999 (unaudited) and December 31, 1998
Statements of Operations for the six months ended June 30, 1999 and
1998 (unaudited) and for the year ended December 31, 1998
Statement of Changes in Shareholders' Equity for the year ended
December 31, 1998
Statements of Cash Flows for the six months ended June 30, 1999 and
1998 (unaudited) and for the year ended December 31, 1998
Notes to Financial Statements
(4) C.F. Radio, Inc.,
Report of Independent Accountants
Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 1999 (unaudited) and
December 31, 1998
Consolidated Statements of Operations for the six months ended June
30, 1999 and 1998 (unaudited) and for the year ended December 31,
1998
Consolidated Statement of Changes in Shareholders' Equity for the
year ended December 31, 1998
Consolidated Statements of Cash Flows for the six months ended June
30, 1999 and 1998 (unaudited) and for the year ended December 31,
1998
Notes to Consolidated Financial Statements
(5) Calendar Broadcasting, Inc. and Subsidiaries
Independent Auditors Report
Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 1999 (unaudited) and
December 31, 1998
Consolidated Statements of Operations for the six months ended June
30, 1999 and 1998 (unaudited) and for the year ended December 31,
1998
Consolidated Statements of Stockholders' Equity for the six months
ended June 30, 1999 (unaudited) and for the year ended
December 31, 1998
Consolidated Statements of Cash Flows for the six months ended June
30, 1999 and 1998 (unaudited) and for the year ended December 31,
1998
Notes to Consolidated Financial Statements
(6) Coast Radio L.L.C.
Report of Independent Accountants
Financial Statements:
Balance Sheets as of June 30, 1999 (unaudited) and December 31, 1998
Statements of Operations for the six months ended June 30, 1999 and
1998 (unaudited) and for the year ended December 31, 1998
Statement of Changes in Members' Equity for the year ended
December 31, 1998
Statements of Cash Flows for the six months ended June 30, 1999 and
1998 (unaudited) and for the year ended December 31, 1998
Notes to Financial Statements
(b) Pro Forma Financial Information.
Cumulus Media Inc. Unaudited Pro Forma Statement of Operations for
the Year Ended December 31, 1998.
Cumulus Media Inc. Unaudited Pro Forma Balance Sheet as of June 30,
1999 and Unaudited Pro Forma Statement of Operations for the Six
Months Ended June 30, 1999.
(c) Exhibits:
2.0 Asset Purchase Agreement dated as of April 2, 1999, by and
between Cumulus Broadcasting, Cumulus Licensing, Cumulus
Wireless and Phillips Broadcasting Company
2.1 Asset Purchase Agreement dated as of March 9, 1999 by and
between Cumulus Broadcasting, Cumulus Licensing, Cumulus
Wireless, HMH Broadcasting Inc., and HMH Realty, LLC.
2.2 Stock Purchase Agreement dated June 15, 1999, among the Company
and M&F Calendar Holdings, L.P., Kevin C. Whitman, nassau
Capital Partners L.P., NAS Partners I L.L.C., and Philip J.
Giordano.
2.3 Asset Purchase Agreement dated as of June 29, 1999, by and
among Cumulus Broadcasting, Cumulus Licensing and Coast Radio,.
L.C., a Florida limited liability company.
2.4 Asset Purchase Agreement dated as of September
23, 1999, by and between Cumulus Broadcasting, Cumulus
Licensing, Cumulus Wireless, C. F. Radio, Inc., Cape Fear
Radio, LLC, Cape Fear Broadcasting Company and Cape Fear Tower
Systems, LLC.
23.0 Consent of PricewaterhouseCoopers LLP.
23.1 Consent of Wipfli Ullrich Bertelson LLP.
23.2 Consent of KPMG LLP.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CUMULUS MEDIA INC.
By: /s/ Richard W. Weening
----------------------
Richard W. Weening
Executive Chairman
and Treasurer
Date: November 3, 1999
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UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited Pro Forma Financial Statements are excerpted from
the Company's Registration Statement (registration number 333-89825)(the
"Registration Statement") on Form S-3 filed on October 28, 1999. Please refer
to the Registration Statement for a more detailed description of the transaction
reflected in the unaudited Pro Forma Financial Statements.
The following unaudited pro forma financial statements reflect the results
of operations for the year ended December 31, 1998 and the six months ended June
30, 1999 and the balance sheet as of June 30, 1999 after giving effect to the
transactions described below. The information set forth under the heading
"Cumulus Historical" in the pro forma statements of operations includes results
relating to LMAs. The information set forth under the heading "Pending
Acquisitions" in the pro forma statements of operations excludes results
relating to LMAs to the extent that such activity is included in our historical
financial information.
The pro forma statements of operations for the year ended December 31, 1998
and the six months ended June 30, 1999 give effect to:
- this offering,
- the July 1999 offering of our Class A common stock,
- the completion of our 1998 and 1999 acquisitions and our pending
acquisitions,
- our initial public offerings of our Class A common stock, our senior
subordinated notes and our Series A preferred stock,
- the redemption of a portion of our Series A preferred stock,
- borrowings under and the repayment of all indebtedness outstanding under
our old credit facility, and
- borrowings under our credit facility,
in each case as if such transactions had occurred on January 1, 1998.
The information set forth under the heading "Pro Forma Adjustments for
Cumulus Historical and the 1999 Completed Acquisitions" in the pro forma
statement of operations for the year ended December 31, 1998 includes the
effects of our initial public offerings. The information set forth under the
heading "1999 Subsequent Acquisitions" in the pro forma statement of operations
for the six months ended June 30, 1999 includes the effect of our acquisitions
completed after June 30, 1999.
- The pro forma balance sheet as of June 30, 1999 gives effect to:
- this offering,
- the July 1999 offering of our Class A common stock,
- the redemption of a portion of our Series A preferred stock,
- the completion of our pending acquisitions and acquisitions completed
after June 30, 1999,
- the borrowings under and repayment of all indebtedness outstanding under
our old credit facility, and
- borrowings under our credit facility,
in each case as if such transactions had occurred on June 30, 1999.
The information set forth under the heading "Pro Forma Adjustments for the
1999 Subsequent Acquisitions" includes the effect of our acquisitions completed
after June 30, 1999.
The pro forma financial statements are based on our historical consolidated
financial statements and the financial statements of those entities acquired, or
from which assets were acquired, in conjunction with our completed and pending
acquisitions. The unaudited pro forma financial information reflects the use of
the purchase method of accounting for all acquisitions. For purposes of the
unaudited pro forma financial statements, the purchase prices of the stations
acquired and to be acquired in our completed acquisitions and pending
acquisitions have been allocated based primarily on information furnished by
management of the acquired stations. The final allocation of the relative
purchase prices of the stations acquired and to be acquired to our completed
acquisitions and pending acquisitions is determined a reasonable time after
consummation of such transactions and are based on complete evaluations of the
assets acquired and liabilities
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assumed. Accordingly the information presented herein may differ from the final
purchase price allocation; however, in the opinion of our management, the final
purchase price allocation will not differ significantly from the information
presented herein. In the opinion of our management, all adjustments have been
made that are necessary to present fairly the pro forma data.
The unaudited pro forma information is presented for illustrative purposes
only and is not indicative of the operating results or financial position that
would have occurred if the transactions referred to above had been consummated
on the dates indicated, nor is it indicative of future operating results or
financial positions. The failure of the aforementioned transactions to be
completed would significantly alter the unaudited pro forma information.
All pro forma financial information should be read in conjunction with our
consolidated financial statements.
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CUMULUS MEDIA INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
(D)
PRO FORMA
ADJUSTMENTS
FOR (A)+(B)+(C)+
CUMULUS (D) = (E)
(B) HISTORICAL PRO FORMA AS
PRO FORMA (C) AND THE ADJUSTED FOR
(A) ADJUSTMENTS 1999 1999 THE 1999
CUMULUS FOR CUMULUS COMPLETED COMPLETED COMPLETED
HISTORICAL HISTORICAL(2) ACQUISITIONS(3) ACQUISITIONS ACQUISITIONS
---------- ------------- --------------- ------------ ------------
STATEMENT OF OPERATIONS DATA:
Revenues..................................... $108,172 $29,250 $32,304 $ -- $169,726
Less: agency commissions..................... (9,385) (1,934) (1,815) -- (13,134)
-------- ------- ------- -------- --------
Net revenues................................. 98,787 27,316 30,489 -- 156,592
Station operating expenses excluding
depreciation and amortization............... 72,154 20,973 22,019 -- 115,146
Depreciation and amortization................ 19,584 3,772 4,794 8,015 (4) 36,165
Corporate general and administrative
expenses.................................... 5,607 1,395 1,116 -- 8,118
-------- ------- ------- -------- --------
Operating income (loss)...................... 1,442 1,176 2,560 (8,015) (2,837)
Interest expense............................. (15,551) (2,950) (3,482) (5,400)(5) (27,383)
Interest income.............................. 2,373 -- -- (2,173)(6) 200
Gain (loss) on sale of assets................ -- 21,249 (72) (21,177)(7) --
Other income (expense)....................... (2) (182) (129) -- (313)
-------- ------- ------- -------- --------
Income (loss) before income taxes............ (11,738) 19,293 (1,123) (36,765) (30,333)
Income tax (expense) benefit................. (126) (86) (24) -- (236)
-------- ------- ------- -------- --------
Net income (loss) before extraordinary
item........................................ (11,864) 19,207 (1,147) (36,765) (30,569)
Preferred stock dividends and accretion of
discount.................................... (13,591) -- -- (4,503)(8) (18,094)
-------- ------- ------- -------- --------
Net income (loss) before extraordinary item
attributable to common stockholders......... $(25,455) $19,207 $(1,147) $(41,268) $(48,663)
======== ======= ======= ======== ========
(E)+(F)=(G)
(F) PRO FORMA AS (I)
PRO FORMA ADJUSTED FOR THE PRO FORMA
ADJUSTMENTS 1999 COMPLETED ADJUSTMENTS
FOR THE ACQUISITIONS, FOR THE PENDING
COMPLETED THE COMPLETED ACQUISITIONS
OFFERING OFFERING AND (H) AND THE (G)+(H)+(I)=(J)
AND THE NEW THE NEW CREDIT PENDING CURRENT PRO FORMA
CREDIT FACILITY FACILITY ACQUISITIONS OFFERING AS ADJUSTED(1)
--------------- ---------------- ------------ --------------- ---------------
STATEMENT OF OPERATIONS DATA:
Revenues..................................... $ -- $169,726 $30,149 $ -- $199,875
Less: agency commissions..................... -- (13,134) (2,154) -- (15,288)
------- -------- ------- ------- --------
Net revenues................................. -- 156,592 27,995 -- 184,587
Station operating expenses excluding
depreciation and amortization............... -- 115,146 24,383 139,529
Depreciation and amortization................ -- 36,165 2,975 5,694(4) 44,834
Corporate general and administrative
expenses.................................... -- 8,118 1,007 -- 9,125
------- -------- ------- ------- --------
Operating income (loss)...................... -- (2,837) (370) (5,694) (8,901)
Interest expense............................. (1,397)(9) (28,780) (1,210) 1,210(11) (28,780)
Interest income.............................. -- 200 -- 200
Gain (loss) on sale of assets................ -- -- 1,072 (1,072)(12) --
Other income (expense)....................... -- (313) 433 120
------- -------- ------- ------- --------
Income (loss) before income taxes............ (1,397) (31,730) (75) (5,556) (37,361)
Income tax (expense) benefit................. -- (236) 32 -- (204)
------- -------- ------- ------- --------
Net income (loss) before extraordinary
item........................................ (1,397) (31,966) (43) (5,556) (37,565)
Preferred stock dividends and accretion of
discount.................................... 6,333(10) (11,761) -- -- (11,761)
------- -------- ------- ------- --------
Net income (loss) before extraordinary item
attributable to common stockholders......... $ 4,936 $(43,727) $ (43) $(5,556) $(49,326)
======= ======== ======= ======= ========
See accompanying notes to the unaudited pro forma statement of operations.
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Cumlus Media Inc.
Support for Column(C)-1999 Completed Acquisitions
for the year Ended December 31, 1998
CALENDAR 1999 COMPLETED
HMH BROADCASTING, PHILLIPS OTHER COMPLETED ACQUISITIONS
BROADCASTING, INC. INC AND SUBSIDIARIES BROADCASTING, INC. ACQUISITIONS COLUMN(C)
----------------- -------------------- ------------------ --------------- --------------
STATEMENT OF OPERATIONS DATA:
Revenues $ 9,735 $ 7,570 $3,610 $11,389 $32,304
Less: agency commissions (1,222) - (175) (418) (1,815)
---------------- ---------------- ----------------- --------------- -------------
Net revenues 8,513 7,570 3,435 10,971 30,489
Station operating expenses excluding
depreciation and amortization 5,387 4,888 2,471 9,273 22,019
Depreciation and amortization 1,329 1,439 705 1,321 4,794
Corporate General and
administrative expenses 311 547 - 258 1,116
Non-cash stock compensation expense - - - - 0
---------------- ---------------- ----------------- -------------- -------------
Operating income(loss) 1,486 696 259 119 2,560
---------------- ---------------- ----------------- -------------- -------------
Interest expense (866) (1,472) (436) (708) (3,482)
Interest income - - - - 0
Gain (loss) on sale of asset - (72) - - (72)
Other income (expense) - (154) 19 6 (129)
---------------- ---------------- ----------------- -------------- -------------
Income (loss) before income taxes 620 (1,002) (158) (583) (1,123)
Income tax (expense) benefit - - - (24) (24)
---------------- ---------------- ----------------- -------------- -------------
Net income (loss) before
extraordinary item $ 620 (1,002) $ (158) $ (607) $(1,147)
================ ================ ================= ============== =============
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Cumulus Media Inc.
Support for Column H - Pending Acquisitions
for the year ended December 31, 1998
CAPE FEAR C.F. COAST OTHER PENDING
BROADCASTING RADIO, INC. RADIO, LLC PENDING ACQUISITIONS
COMPANY ACQUISITIONS COLUMN(H)
------------ ----------- ---------- ------------ ------------
STATEMENT OF OPERATIONS DATA:
Revenues $5,847 $2,040 $2,932 $19,330 $30,149
Less: agency commissions (573) (234) (318) (1,029) (2,154)
----------- --------- -------- ----------- -----------
- - - - -
Net revenues 5,274 1,806 2,614 18,301 27,995
- - - - -
Station operating expenses - - - - -
excluding depreciation and - - - - -
amortization 3,711 1,096 2,173 17,403 24,383
- - - - -
Depreciation and amortization 142 355 129 2,349 2,975
- - - - -
Corporate General and - - - - -
administrative expenses - - - 1,007 1,007
- - - - -
Non-cash stock compensation expense - - - - -
----------- --------- -------- ----------- -----------
- - - - -
Operating income (loss) 1,421 355 312 (2,458) (370)
----------- --------- -------- ----------- -----------
- - - - -
Interest expense (28) (350) (20) (812) (1,210)
Interest income - - - - -
Gain (loss) on sale of asset - - - 1,072 1,072
Other income (expense) 180 12 - 241 433
----------- --------- -------- ----------- -----------
- - - - -
Income (loss) before income 1,573 17 292 (1,957) (75)
taxes - - - - -
Income tax (expense) benefit - - 37 (5) 32
----------- --------- -------- ----------- -----------
- - - - -
Net income (loss) before
extraordinary loss 1,573 17 329 (1,962) (43)
=========== ========= ======== =========== ===========
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NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
(1) The pro forma financial results exclude the effects of estimated cost
savings which management believes will result from the integration of our
completed and pending acquisitions.
(2) Reflects historical revenues and expenses of stations acquired by us in
1998 for the period from January 1, 1998 through the date the stations were
acquired by us.
(3) Reflects the historical revenues and expenses of stations acquired by us in
1999 for the period from January 1, 1998 through December 31, 1998.
(4) Adjustments reflect (i) the change in depreciation and amortization expense
resulting from conforming the estimated useful lives of our completed and
pending acquisitions' assets to our policies and (ii) the additional
depreciation and amortization expense resulting from the allocation of the
purchase price to the estimated fair market value of the assets acquired.
On a pro forma basis, depreciation expense is $10,560 and amortization
expense is $34,274 after giving effect to the completed and pending
acquisitions. Depreciation expense has been calculated on a straight line
basis using a weighted average life of seven years for property and
equipment. Goodwill and other intangible assets' amortization has been
calculated on a straight line basis over 25 years. Non-compete agreements
are being amortized over the lives of the agreements which range from one
to three years.
We allocate the purchase prices of the acquired stations based on
evaluations of the assets acquired and the liabilities assumed. We believe
that the excess of cost over the fair value of tangible net assets of an
acquired radio station almost exclusively relates to the value of the FCC
broadcasting license and goodwill. We believe that the purchase price
allocation method described above is consistent with general practice in
the radio broadcasting industry.
(5) Adjustment to reflect increased interest expense resulting from:
Interest on the $114,450 indebtedness under the old credit
facility at 8.5%............................................ $ 9,728
Interest on our senior subordinated notes at 10.375%........ 16,600
Annual amortization of $3,102 in transaction costs
associated with the old credit facility over eight
years..................................................... 387
Annual amortization of $6,689 in debt issue costs associated
with our senior subordinated notes over ten years......... 668
--------
Total interest expense...................................... 27,383
Less: historical interest recorded by us and the businesses
acquired in connection with our completed acquisitions.... (21,983)
--------
Net adjustment.............................................. $ 5,400
========
(6) Adjustment to reduce historical interest income to reflect the effects of
our completed and pending acquisitions as of January 1, 1998.
(7) Adjustment to eliminate intercompany gains recognized by Crystal Radio
Group, Inc., Midland Broadcasting, Inc. and Savannah Communications, L.P.
on the 1998 sales of radio stations to us.
(8) Adjustment to reflect additional accretion related to Series A preferred
stock dividend as if the Series A preferred stock were outstanding for the
full period from January 1, 1998 to December 31, 1998.
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Accretion of Series A preferred stock dividend (compounded
quarterly at 13.75%)........................................ $ 18,094
Less: historical dividends recorded by us................... (13,591)
--------
Net adjustment.............................................. $ 4,503
========
(9) Adjustment to reflect increased interest expense resulting from:
Sources of funds from Completed Offering and Credit
Facility:
Amount financed by the new credit facility ($125,000 to
Cumulus net of fees of $4,000).............................. $121,000
Class A common stock offered ($268,116 to Cumulus net of
fees of $14,656)....................................... 253,460
--------
Total.................................................. $374,460
========
Uses of funds:
Repayment of the old credit facility...................... $ 62,500
Redemption of Series A preferred stock:
Redemption of original liquidation preference (35% of
$125,000)............................................ $43,750
Redemption premium (13.75% of redeemed amount)......... 6,016
-------
Total payment to Series A preferred stockholders....... 49,766
Cash on hand........................................... 262,194
--------
Total................................................ $374,460
========
Interest on the $125,000 indebtedness under the new credit
facility at 8.50%......................................... $ 10,625
Interest on our senior subordinated notes at 10.375%........ 16,600
Annual amortization of $7,102 in deferred transaction costs
associated with the old and new credit facilities over
eight years............................................... 887
Annual amortization of $6,689 in debt issue costs associated
with our senior subordinated notes over ten years......... 668
--------
Total interest expense................................. 28,780
Less: interest expense recorded pro forma as adjusted
for the 1999 completed acquisitions.................. (27,383)
--------
Net adjustment......................................... $ 1,397
========
(10) Adjustment to reflect the reduction in the dividend on the Series A
preferred stock, on a pro forma basis, as if the redemption had occurred
as of January 1, 1998:
Annual dividend on $81,250 Series A preferred stock at
13.75%...................................................... $ 11,761
Less: pro forma dividend as adjusted for the 1999 completed
acquisitions.............................................. (18,094)
--------
Net adjustment.............................................. $ 6,333
========
(11) Adjustment to reflect the elimination of $1,210 of interest expense
recorded by sellers related to debt which was not assumed by Cumulus.
(12) Adjustment recorded to eliminate the net non-recurring gains (losses) on
the sale of assets recorded by Anderson Broadcasting Company and Calendar
Broadcasting Inc., combined with an adjustment recorded to eliminate the
net non-recurring gain recognized by Savannah Valley Broadcasting Radio
12
Properties. The non-recurring gain was recognized by Savannah Valley
Broadcasting Radio Properties upon the sale of assets not acquired by us.
Sources of funds from the Current Offering:
Class A common stock offered ($99,000 to Cumulus net of
fees of $6,200)........................................ $ 92,800
Escrow funds.............................................. 3,736
--------
Total.................................................. $ 96,536
========
Uses of funds:
Purchase price of the pending acquisitions................ $144,595
Decrease in cash on hand.................................. (48,059)
--------
Total.................................................. $ 96,536
========
The floating interest rate used to calculate pro forma interest expense on
the new credit facility is eight and one half percent (8.50%). The rate on the
new credit facility is based on our estimates, considering current market
conditions for similar securities. A one-eighth of one percent (0.125%) change
in the interest rate on the new credit facility results in a $156 increase or
decrease in the pro forma interest expense for the twelve months ended December
31, 1998.
Upon the consummation of the preferred stock redemption on October 1, 1999,
we will record a redemption premium of $6,016 on the redemption of $43,750
Series A preferred stock in the fourth quarter of 1999.
13
CUMULUS MEDIA INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS)
(D)
PRO FORMA (A)+(B)+(C)+
(B) ADJUSTMENTS (D)=(E)
PRO FORMA (C) FOR CUMULUS PRO FORMA AS
(A) ADJUSTMENTS 1999 HISTORICAL AND THE ADJUSTED FOR THE
CUMULUS FOR CUMULUS SUBSEQUENT 1999 COMPLETED 1999 COMPLETED
HISTORICAL HISTORICAL(1)(2) ACQUISITIONS(3) ACQUISITIONS ACQUISITIONS
---------- ---------------- --------------- ------------------ ----------------
STATEMENT OF OPERATIONS DATA:
Revenues......................... $ 84,241 $ 400 $8,308 $ -- $ 92,949
Less: agency commissions......... (6,526) (30) (765) -- (7,321)
-------- ----- ------ ------- --------
Net revenues..................... 77,715 370 7,543 -- 85,628
Station operating expenses
excluding depreciation and
amortization................... 59,126 427 5,239 64,792
Depreciation and amortization.... 16,341 110 1,857 (617)(4) 17,691
Corporate general and
administrative expenses........ 3,410 -- 537 -- 3,947
-------- ----- ------ ------- --------
Operating income (loss).......... (1,162) (167) (90) 617 (802)
Interest expense................. (12,492) (71) (1,313) 478 (5) (13,398)
Interest income.................. 220 -- -- (170)(6) 50
Gain (loss) on sale of asset..... -- -- -- -- --
Other income (expense)........... (2) 2 123 -- 123
-------- ----- ------ ------- --------
Income (loss) before income
taxes.......................... (13,436) (236) (1,280) 925 (14,027)
Income tax (expense) benefit..... -- -- -- -- --
-------- ----- ------ ------- --------
Net income (loss) before
extraordinary item............. (13,436) (236) (1,280) 925 (14,027)
Preferred stock dividends........ (9,297) -- -- -- (7) (9,297)
-------- ----- ------ ------- --------
Net income (loss) before
extraordinary item attributable
to common stockholders......... (22,733) (236) (1,280) 925 (23,324)
======== ===== ====== ======= ========
(E)+(F)=(G)
PRO FORMA AS (I)
(F) ADJUSTED FOR PRO FORMA
PRO FORMA THE 1999 ADJUSTMENTS
ADJUSTMENTS COMPLETED FOR THE
FOR THE ACQUISITIONS, PENDING
COMPLETED THE COMPLETED ACQUISITIONS
OFFERING OFFERING AND (H) AND THE (G)+(H)+(I)= (J)
AND THE NEW THE NEW CREDIT PENDING CURRENT PRO FORMA
CREDIT FACILITY FACILITY ACQUISITIONS OFFERING COMBINED(1)
--------------- -------------- ------------ ------------ ----------------
STATEMENT OF OPERATIONS DATA:
Revenues......................... $ -- $ 92,949 $11,235 $ $104,184
Less: agency commissions......... -- (7,321) (792) -- (8,113)
------ -------- ------- ------- --------
Net revenues..................... -- 85,628 10,443 -- 96,071
Station operating expenses
excluding depreciation and
amortization................... -- 64,792 9,208 74,000
Depreciation and amortization.... -- 17,691 1,378 2,957 (4) 22,026
Corporate general and
administrative expenses........ -- 3,947 201 -- 4,148
------ -------- ------- ------- --------
Operating income (loss).......... -- (802) (344) (2,957) (4,103)
Interest expense................. (992)(8) (14,390) (533) 533 (10) (14,390)
Interest income.................. -- 50 -- 50
Gain (loss) on sale of asset..... -- -- 60 (60)(11) --
Other income (expense)........... -- 123 117 240
------ -------- ------- ------- --------
Income (loss) before income
taxes.......................... (992) (15,019) (700) (2,484) (18,203)
Income tax (expense) benefit..... -- -- -- -- --
------ -------- ------- ------- --------
Net income (loss) before
extraordinary item............. (992) (15,019) (700) (2,484) (18,203)
Preferred stock dividends........ 2,793 (9) (6,504) -- -- (6,504)
------ -------- ------- ------- --------
Net income (loss) before
extraordinary item attributable
to common stockholders......... 1,801 (21,523) (700) (2,484) (24,707)
====== ======== ======= ======= ========
See accompanying notes to the unaudited pro forma statement of operations.
14
CALENDAR OTHER 1999 COMPLETED
HMH BROADCASTING, INC. PHILLIPS COMPLETED ACQUISITIONS
BROADCASTING, INC. AND SUBSIDIARIES BROADCASTING, INC. ACQUISITIONS COLUMN(C)
------------------ ------------------ ------------------ ------------ ---------------
STATEMENT OF OPERATIONS DATA:
Revenues $2,383 $4,174 $ 888 $863 $ 8,308
Less: agency commissions (260) (442) (63) - (765)
---------------- ------ ---------------- ----------- ------------
Net revenues 2,123 3,732 825 863 7,543
Station operating expenses
excluding depreciation and -
amortization 1,314 2,439 730 756 5,239
Depreciation and amortization 675 738 340 104 1,857
Corporate General and -
administrative expenses 85 432 - 20 537
Non-cash stock compensation
expense - - - - -
---------------- ------ ---------------- ----------- ------------
Operating income (loss) 49 123 (245) (17) (90)
---------------- ------ ---------------- ----------- ------------
Interest expense (409) (700) (204) - (1,313)
Interest income - - - - -
(Gain) loss on sale of asset - - - - -
Other income (expense) - - 123 - 123
---------------- ------ ---------------- ----------- ------------
Income (loss) before income taxes (360) (577) (326) (17) (1,280)
Income tax (expense) benefit - - - - -
---------------- ------ ---------------- ----------- ------------
Net income (loss) before
extraordinary item $ (360) (577) $(326) $(17) $(1,280)
================ ====== ================ =========== ============
15
C/F CAPE FEAR PENDING
RADIO, BROADCASTING, COAST OTHER PENDING ACQUISITIONS
INC. INC RADIO, LLC ACQUISITIONS COLUMN (H)
---------- --------------- ---------- ------------ ------------
STATEMENT OF OPERATIONS DATA:
Revenues $1,179 $2,860 $1,431 $ 5,765 $11,235
Less: agency commissions (132) (263) (155) (242) (792)
------- ------ ------- -------- -------
Net revenues 1,047 2,597 1,276 5,523 10,443
Station operating expenses
excluding depreciation and - - - - -
amortization 764 1,910 948 5,586 9,208
Depreciation and amortization 323 83 65 907 1,378
Corporate General and - - - - -
administrative expenses - - - 201 201
Non-cash stock compensation
expense - - - - -
------ ------ ------- -------- -------
Operating income (loss) (40) 604 263 (1,171) (344)
------ ------ ------- -------- -------
Interest expense (254) (20) (9) (250) (533)
Interest income - - - - -
Gain (loss) on sale of asset - - - 60 60
Other income (expense) 35 57 - 25 117
------ ------ ------- -------- -------
Income (loss) before income taxes (259) 641 254 (1,336) (700)
Income tax (expense) benefit - - - - -
------ ------ ------- -------- -------
Net income (loss) before extra
ordinary loss (259) 641 254 (1,336) $ (700)
====== ====== ======= ======== =======
16
NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS)
(1) The pro forma financial results exclude the effects of estimated cost
savings which management believes will result from the integration of our
completed and pending acquisitions.
(2) Reflects historical revenues and expenses of stations acquired by us in the
first six months of 1999 for the period from January 1, 1999 through the
date the stations were acquired by us.
(3) Reflects the historical revenues and expenses of stations acquired by us
after June 30, 1999 for the period from January 1, 1999 through June 30,
1999.
(4) Adjustments reflect (i) the change in depreciation and amortization expense
resulting from conforming the estimated useful lives of our completed and
pending acquisitions' assets to our policies and (ii) the additional
depreciation and amortization expense resulting from the allocation of the
purchase price to the estimated fair market value of the assets acquired. On
a pro forma basis, depreciation expense is $5,211 and amortization expense
is $16,815 after giving effect to the completed and pending acquisitions.
Depreciation expense has been calculated on a straight-line basis using a
weighted average life of seven years for property and equipment. Goodwill
and other intangible assets' amortization has been calculated on a
straight-line basis over 25 years. Non-compete agreements are being
amortized over the lives of the agreements which range from one to three
years.
We allocate the purchase prices of the acquired stations based on
evaluations of the assets acquired and the liabilities assumed. We believe
that the excess of cost over the fair value of tangible net assets of an
acquired radio station almost exclusively relates to the value of the FCC
broadcasting license and goodwill. We believe that the purchase price
allocation method described above is consistent with general practice in the
radio broadcasting industry.
(5) Adjustment to reflect increased interest expense resulting from:
Six months of interest on the $114,450 indebtedness under
the old credit facility at 8.5%........................... $ 4,570
Six Month of interest on our senior subordinated notes at
10.375%..................................................... 8,300
Six months of amortization of $3,102 in transaction costs
associated with the old credit facility over eight
years..................................................... 194
Six months of amortization of $6,689 in debt issue costs
associated with our senior subordinated notes over ten
years..................................................... 334
--------
Total interest expense................................. 13,398
Less: historical interest recorded by us and the
businesses acquired in connection with our completed
acquisitions.......................................... (13,876)
--------
Net adjustment......................................... $ (478)
========
(6) Adjustments to reduce historical interest income to reflect the effects of
our completed and pending acquisitions as of January 1, 1999.
(7) Adjustment to reflect additional accretion related to Series A preferred
stock dividend as if the Series A preferred stock were outstanding for the
full period from January 1, 1998 to June 30, 1999.
Accretion of Series A preferred stock dividend (compounded
quarterly at 13.75%)...................................... $ 9,297
Less: historical dividends recorded by us.................. (9,297)
-------
Net adjustment.............................................. $ 0
=======
17
(8) Adjustment to reflect increased interest expense resulting from:
Sources of funds:
Amount financed by the new credit facility ($125,000 to
Cumulus net of fees of $4,000)........................ $121,000
Class A common stock offered ($268,116 to Cumulus net of
fees of $14,656)....................................... 253,460
--------
Total.................................................. $374,460
========
Uses of funds:
Repayment of the old credit facility..................... $107,537
Redemption of Series A preferred stock:
Redemption of original liquidation preference (35% of
$125,000)............................................ $43,750
Redemption premium (13.75% of redeemed amount)....... 6,016
-------
Total payment to Series A preferred stockholders..... 49,766
Cash on hand............................................. $217,157
--------
Total.............................................. $374,460
========
Six months interest on the $125,000 indebtedness under
the new credit facility at 8.50%....................... 5,312
Six months interest on our senior subordinated notes at
10.375%................................................ 8,300
Six Months amortization of $7,102 in deferred transaction
costs associated with the old and new credit facilities
over eight years....................................... 444
Six Months amortization of $6,689 in debt issue costs
associated with our senior subordinated notes over ten
years.................................................. 334
--------
Total interest expense............................. 14,390
Less: interest expense recorded pro forma as adjusted
for our completed acquisitions.................... (13,398)
--------
Net adjustment...................................... $ 992
========
(9) Adjustment to reflect the redemption of Series A preferred stock, on a pro
forma basis, as if the redemption had occurred as of January 1, 1998:
Original Series A preferred stock....................... $125,000
Less: redemption of original liquidation preference..... (43,750)
--------
Pro forma Series A preferred stock balance as of
January 1, 1998......................................... 81,250
Annual dividend on Series A preferred stock at 13.75%
compounded quarterly.................................. 11,761
--------
Pro forma Series A preferred stock balance as of
December 31, 1998....................................... 93,011
Six Months dividend on $93,011 Series A preferred stock ========
at 13.75%............................................... (6,504)
Less: pro forma dividend as adjusted for the 1999
subsequent acquisitions................................ (9,297)
--------
Net adjustment............................................ $ 2,793
========
(10) Adjustment to reflect the elimination of $533 of interest expense
recorded by sellers related to debt which was not assumed by Cumulus.
18
(11) Adjustment recorded to eliminate the non-recurring gain on the sale of
assets recorded by Centroplex Communications Inc.
Sources of funds:
Class A common stock offered ($99,000 to Cumulus net
of fees of $6,200)................................... $ 92,800
Escrow funds......................................... 3,736
--------
Total.............................................. $ 96,536
========
Uses of funds:
Purchase price of the pending acquisitions......... $144,595
Decrease in cash on hand......................... (48,059)
--------
Total............................................ $ 96,536
========
The floating interest rate used to calculate pro forma interest expense on
the new credit facility is eight and one quarter percent (8.25%). The rate on
the new credit facility is based on our estimates, considering current market
conditions for similar securities. A one-eighth of one percent (0.125%) change
in the interest rate on our new credit facility results in a $39 increase or
decrease in the pro forma interest expense for the twelve months ended March 31,
1999.
Upon the consummation of the Series A Preferred Stock Redemption on October
1, 1999, we will record a redemption premium of $6,016 on the redemption of
$43,750 Series A preferred stock in the fourth quarter of 1999.
19
CUMULUS MEDIA INC.
UNAUDITED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1999
(IN THOUSANDS)
(A)+(B)+(C)=(D)
(B) (C) PRO FORMA AS
PRO FORMA PRO FORMA ADJUSTED FOR THE
ADJUSTMENTS FOR ADJUSTMENTS COMPLETED OFFERINGS,
(A) THE COMPLETED FOR THE 1999 THE CREDIT FACILITY
CUMULUS OFFERINGS AND THE SUBSEQUENT AND THE 1999
HISTORICAL CREDIT FACILITY(1) ACQUISITIONS(2) SUBSEQUENT ACQUISITIONS
---------- ------------------ --------------- -----------------------
ASSETS:
Current assets:
Cash and cash equivalents.......... $ 9,086 $ 217,157 $(102,050) $124,193
Accounts receivable................ 41,508 -- -- 41,508
Prepaid expenses and other current
assets........................... 5,723 -- -- 5,723
-------- --------- -------- --------
Total current assets........... 56,317 217,157 (102,050) 171,424
Property and equipment, net........ 49,228 -- 10,205 59,433
Intangible assets, net............. 431,113 -- 98,325 529,438
Other assets....................... 15,808 4,000 -- 19,808
-------- --------- -------- --------
Total assets................... $552,466 $ 221,157 $ 6,480 $780,103
======== ========= ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Current liabilities:
Accounts payable and other
liabilities...................... $ 21,152 $ -- $ -- $ 21,152
Current portion of long-term
debt............................. 1,020 -- -- 1,020
-------- --------- -------- --------
Total current liabilities...... 22,172 -- -- 22,172
Long-term debt:
Old credit facility.............. 107,537 (107,537) -- --
New credit facility.............. 125,000 125,000
Senior subordinated notes........ 160,000 -- -- 160,000
Other............................ -- -- -- --
Other long-term liabilities:
Deferred tax liability............. 15,074 -- 6,480 21,554
Other long-term liabilities........ 2,244 -- -- 2,244
-------- --------- -------- --------
Total liabilities.............. 307,027 17,463 6,480 330,970
-------- --------- -------- --------
Preferred stock subject to
mandatory redemption............. 143,038 (43,750) -- 99,288
-------- --------- -------- --------
Stockholders' equity:
Class A common stock............. 87 111 -- 198
Class B common stock............. 87 -- -- 87
Class C common stock............. 24 -- -- 24
Additional paid in capital....... 132,913 268,004 -- 400,917
(14,655) (14,655)
(6,016) (6,016)
-- --
Accumulated other comprehensive
income........................... 5 -- -- 5
Retained earnings (deficit)........ (30,715) -- -- (30,715)
-------- --------- -------- --------
Total stockholders' equity..... 102,401 247,444 -- 349,845
-------- --------- -------- --------
Total liabilities and
stockholders' equity......... $552,466 $ 221,157 $ 6,480 $780,103
======== ========= ======== ========
(E) (F)
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS (E)+(F)=(G)
FOR THE FOR THE PENDING PRO FORMA
CURRENT OFFERING(3) ACQUISITIONS(4) COMBINED
------------------- --------------- -----------
ASSETS:
Current assets:
Cash and cash equivalents.......... $92,800 $(140,859) $ 76,134
Accounts receivable................ -- -- 41,508
Prepaid expenses and other current
assets........................... -- -- 5,723
------- --------- --------
Total current assets........... 92,800 (140,859) 123,365
Property and equipment, net........ -- 14,460 73,893
Intangible assets, net............. -- 131,022 660,460
Other assets....................... -- (3,736) 16,072
------- --------- --------
Total assets................... $92,800 $ 887 $873,790
======= ========= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Current liabilities:
Accounts payable and other
liabilities...................... $ -- $ -- $ 21,152
Current portion of long-term
debt............................. -- -- 1,020
------- --------- --------
Total current liabilities...... -- -- 22,172
Long-term debt:
Old credit facility.............. -- -- --
New credit facility.............. -- -- 125,000
Senior subordinated notes........ -- -- 160,000
Other............................ -- -- --
Other long-term liabilities:
Deferred tax liability............. -- 887 22,441
Other long-term liabilities........ -- -- 2,244
------- --------- --------
Total liabilities.............. -- 887 331,857
------- --------- --------
Preferred stock subject to
mandatory redemption............. -- -- 99,288
------- --------- --------
Stockholders' equity:
Class A common stock............. 40 -- 238
Class B common stock............. (10) -- 77
Class C common stock............. -- -- 24
Additional paid in capital....... 98,970 -- 473,016
(6,200)
Accumulated other comprehensive
income........................... -- -- 5
Retained earnings (deficit)........ -- -- (30,715)
------- --------- --------
Total stockholders' equity..... 92,800 -- 442,645
------- --------- --------
Total liabilities and
stockholders' equity......... $92,800 $ 887 $873,790
======= ========= ========
See accompanying notes to the unaudited pro forma balance sheet.
20
Cumulus Media Inc.
Support for Column (C) - Total Subsequent Acquisitions as Adjusted
June 30, 1999
TOTAL
CALENDAR SUBSEQUENT
HMH BROADCASTING PHILLIPS OTHER TOTAL ACQUISITIONS
BROADCASTING, INC. AND BROADCASTING, SUBSEQUENT SUBSEQUENT PRO FORMA AS ADJUSTED
INC. SUBSIDIARIES INC. ACQUISITIONS ACQUISITIONS ADJUSTMENTS COLUMN (C)
----------- ------------ ----------- ------------ ----------- ---------- -----------
ASSETS:
Current assets:
Cash and cash equivalents $ 26 $ 497 $ 150 $ 72 $ 745 (102,795) (102,050)
Accounts receivable 940 1,399 180 80 2,599 (2,599) -
Prepaid expenses and other current
assets 16 175 - 71 262 (262) -
----------- ----------- ----------- ------------ ----------- ---------- -------------
Total current assets 982 2,071 330 223 3,606 (105,656) (102,050)
Property and equipment, net 1,681 1,918 1,569 378 5,546 4,659 10,205
Intangible assets, net 11,937 11,291 2,517 796 26,541 71,784 98,325
Other assets 209 20 - - 229 (229) -
----------- ----------- ----------- ------------ ----------- ---------- -------------
TOTAL ASSETS $14,809 $15,300 4,416 $1,397 35,922 $(29,442) $ 6,480
=========== =========== =========== ============ =========== ========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
- - - -
Accounts payable and other liabilities 428 509 160 161 1,258 (1,258) -
Notes payable - - - - - - -
Due to partners/affiliated companies - - - - - - -
Current portion of long-term debt 1,053 338 1,660 - 3,051 (3,051) -
----------- ----------- ----------- ------------ ----------- ---------- -------------
Total current liabilities 1,481 847 1,820 161 4,309 (4,309) -
Credit Facility - - - - - - -
Notes - - - - - - -
Deferred Tax Liability - - - - - 6,480 6,480
Other long-term liabilities 8,837 12,507 3,139 16 24,499 (24,499) -
Preferred Stock subject to long-term
redemption - 1,550 - - 1,550 (1,550) -
----------- ----------- ----------- ------------ ----------- ---------- -------------
- - - -
Total liabilities 10,318 14,904 4,959 177 30,358 (23,878) 6,480
- - - -
STOCKHOLDERS' EQUITY: - - - - - - -
Series A Common 5,089 - 51 20 5,160 (5,160) -
Series B Common - - - - - - -
Series C Common - - - - - - -
Partner's investment - - - - - - -
Additional paid in capital (802) 4,894 (649) 870 4,313 (4,313) -
Accumulated other comprehensive
income - - - - - - -
Retained earnings (deficit) 204 (4,498) 55 330 (3,909) 3,909 -
Cost of treasury shares - - - - -
----------- ----------- ----------- ------------ ----------- ---------- -------------
Total stockholders' equity (deficit) 4,491 396 (543) 1,220 5,564 (5,564) -
----------- ----------- ----------- ------------ ----------- ---------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $14,809 $15,300 $4,416 $1,397 $35,922 $(29,442) $ 6,480
=========== =========== =========== ============ =========== ========== =============
21
Cumulus Media Inc.
Support for Column (F) - Total Pending Acquisitions as Adjusted
June 30, 1999
C/F CAPE FEAR COAST
RADIO,INC. BROADCASTING, RADIO, LLC
INC.
---------- ------------- ------------
ASSETS:
Current assets:
Cash and cash equivalents $671 $1,713 $863
Accounts receivable 579 1,140 485
Prepaid expenses and other
current assets 14 178 146
------------- -------------- ------------
Total current assets 1,264 3,031 1,494
Property and equipment, net 1,742 732 532
Intangible assets, net 3,960 4 595
Other assets - 2,783 -
------------- -------------- ------------
TOTAL ASSETS $6,966 $6,550 $2,621
============= ============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable and other liabilities 240 459 22
Current portion of long-term debt 334 56 53
------------- -------------- ------------
Total current liabilities 574 515 75
Credit Facility - - -
Notes - - -
Deferred Tax Liability - - -
Other long-term liabilities 6,542 314 157
Preferred Stock subject to long-term
redemption - - -
------------- -------------- ------------
Total liabilities 7,116 829 232
STOCKHOLDERS' EQUITY: - - -
Series A Common 7 41 -
Series B Common - - -
Series C Common - - -
Additional paid in capital - - -
Accumulated other comprehensive income - 376 -
Retained earnings (deficit) (157) 5,304 2,389
Cost of treasury shares - - -
------------- -------------- ------------
Total stockholders' equity (deficit) (150) 5,721 2,389
------------- -------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $6,966 $6,550 $2,621
============= ============== ============
OTHER TOTAL PRO FORMA TOTAL PENDING
PENDING PENDING ADJUSTMENTS ACQUISITIONS AS
ACQUISITIONS ACQUISITIONS ADJUSTED
COLUMN (F)
------------ ------------ ----------- ---------------
ASSETS:
Current assets:
Cash and cash equivalents $ 1,049 $4,296 $(145,155) $(140,859)
Accounts receivable 2,668 4,872 (4,872) -
Prepaid expenses and other
current assets 192 530 (530) -
----------- -------------- ------------ -------------
Total current assets 3,909 9,698 (150,557) (140,859)
Property and equipment, net 4,424 7,430 7,030 14,460
Intangible assets, net 8,158 12,717 118,305 131,022
Other assets 1,425 4,208 (7,944) (3,736)
----------- -------------- ------------ -------------
TOTAL ASSETS $17,916 $34,053 $(33,166) $ 887
=========== ============== ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and other liabilities 2,872 3,593 (3,593) -
Current portion of long-term debt 2,417 2,860 (2,860) -
----------- -------------- ------------ -------------
Total current liabilities 5,289 6,453 (6,453) -
Credit Facility - - - -
Notes - - - -
Deferred Tax Liability - - 887 887
Other long-term liabilities 12,848 19,861 (19,861) -
Preferred Stock subject to long-term
redemption - - - -
----------- -------------- ------------ -------------
Total liabilities 18,137 26,314 (25,427) 887
STOCKHOLDERS' EQUITY: - - - -
Series A Common 734 782 (782) -
Series B Common - - - -
Series C Common - - - -
Additional paid in capital 4,450 4,450 (4,450) -
Accumulated other comprehensive income - 376 (376) -
Retained earnings (deficit) (5,405) 2,131 (2,131) -
Cost of treasury shares - - - -
----------- -------------- ------------ -------------
Total stockholders' equity (deficit) (221) 7,739 (7,739) -
----------- -------------- ------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $17,916 $34,053 $(33,166) $ 887
=========== ============== ============ =============
22
NOTES TO THE UNAUDITED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1999
(IN THOUSANDS)
(1) To reflect: (i) the net proceeds of July offering to Cumulus of
$268,115, net of $14,655 in issuance costs; (ii) the redemption of 35%
of the original liquidation preference of the Series A preferred stock
in the amount of $43,750 plus a 13.75% redemption premium on the
redeemed preferred stock in the amount of $6,016; (iii) borrowings of
$125,000 under the new credit facility; and (iv) a net repayment of
$107,537 of our old credit facility. Remaining proceeds of this
offering and borrowings under our new credit facility will be used to
fund the completion of our pending acquisitions.
Sources of funds:
Amount financed by the new credit facility
($125,000 to Cumulus net of fees of $4,000)... $121,000
Class A common stock offered ($268,115 to
Cumulus net of fees of $14,655)............... 253,460
--------
Total................................. $374,460
========
Uses of funds:
Repayment of the old credit facility............ $107,537
Redemption of Series A preferred stock:
Redemption of original liquidation preference
(35% of $125,000).......................... $ 43,750
Redemption premium (13.75% of redeemed
amount).................................... 6,016
---------
Total payment to Series A preferred
stockholders.................................. 49,766
Cash on hand.................................. $217,157
--------
Total................................. $374,460
========
(2) To record the allocation of the $102,050 purchase price paid for
transactions consummated subsequent to June 30, 1999. The pro forma
allocation of the purchase price of the 1999 subsequent acquisitions is
as follows:
Property and equipment.......................... $ 10,205
Intangible assets, principally broadcast
licenses...................................... 98,325
Deferred Tax Liability.......................... (6,480)
---------
$ 102,050
=========
(3) To reflect: (i) the net proceeds of Current offering to Cumulus of
$99,000, net of $6,200 in issuance costs
Sources of funds from Completed Offering and the Credit
Facility:
Class A common stock offered ($99,000 to Cumulus net of
fees of $6,200)...................................... $ 92,800
Escrow funds............................................ 3,736
--------
Total........................................... $ 96,536
========
Uses of funds:
Purchase price of the pending acquisitions.............. $144,595
Decrease in cash on hand................................ (48,059)
========
Total........................................... $ 96,536
========
23
INDEX TO FINANCIAL STATEMENTS
HMH BROADCASTING, INC.
Report of Independent Accountants............................................................... F-1
Balance Sheets as of June 30, 1999 (unaudited) and December 31, 1998............................ F-2
Statements of Operations for the six months ended June 30, 1999 and 1998 (unaudited)
and for the year ended December 31, 1998.................................................... F-3
Statement of Changes in Shareholders' Equity for the year ended
December 31, 1998........................................................................... F-4
Statements of Cash Flows for the six months ended June 30, 1999 and 1998 (unaudited)
and for the year ended December 31, 1998.................................................... F-5
Notes to Financial Statements................................................................... F-6
PHILLIPS BROADCASTING COMPANY, INC.
Report of Independent Accountants............................................................... F-11
Balance Sheets as of June 30, 1999 (unaudited) and December 31, 1998............................ F-12
Statements of Operations and Retained Earnings for the six months ended June 30, 1999
and 1998 (unaudited) and for the year ended December 31, 1998............................... F-14
Statements of Cash Flows for the six months ended June 30, 1999 and 1998 (unaudited)
and for the year ended December 31, 1998.................................................... F-15
Notes to Financial Statements................................................................... F-16
CAPE FEAR BROADCASTING COMPANY
Report of Independent Accountants............................................................... F-23
Balance Sheets as of June 30, 1999 (unaudited) and December 31, 1998............................ F-24
Statements of Operations for the six months ended June 30, 1999 and 1998 (unaudited)
and for the year ended December 31, 1998.................................................... F-25
Statement of Changes in Shareholders' Equity for the year ended
December 31, 1998............................................................................ F-26
Statements of Cash Flows for the six months ended June 30, 1999 and 1998 (unaudited)
and for the year ended December 31, 1998..................................................... F-27
Notes to Financial Statements................................................................... F-29
C.F. RADIO, INC.
Report of Independent Accountants............................................................... F-33
Consolidated Balance Sheets as of June 30, 1999 (unaudited) and December 31, 1998............... F-34
Consolidated Statements of Operations for the six months ended June 30, 1999 and
1998 (unaudited) and for the year ended December 31, 1998................................... F-35
Consolidated Statement of Changes in Shareholders' Equity for the
year ended December 31, 1998................................................................ F-36
Consolidated Statements of Cash Flows for the six months ended June 30, 1999
and 1998 (unaudited) and for the year ended December 31, 1998............................... F-37
Notes to Consolidated Financial Statements...................................................... F-38
CALENDAR BROADCASTING, INC. AND SUBSIDIARIES
Independent Auditors' Report.................................................................... F-44
Consolidated Balance Sheets as of June 30, 1999 (unaudited) and December 31, 1998............... F-45
Consolidated Statements of Operations for the six months ended June 30, 1999 and 1998
(unaudited) and for the year ended December 31, 1998........................................ F-46
Consolidated Statement of Stockholders' Equity for the six months ended June 30, 1999
(unaudited) and for the year ended December 31, 1998........................................ F-47
Consolidated Statements of Cash Flows for the six months ended June 30, 1999 and 1998
(unaudited) and for the year ended December 31, 1998........................................ F-48
Notes to Consolidated Financial Statements...................................................... F-49
COAST RADIO LLC
Report of Independent Accountants............................................................... F-59
Balance Sheets as of June 30, 1999 (unaudited) and December 31, 1998............................ F-60
Statements of Operations for the six months ended June 30, 1999 and 1998 (unaudited)
and for the year ended December 31, 1998..................................................... F-61
Statement of Changes in Members' Equity for the year ended
December 31, 1998............................................................................ F-62
Statements of Cash Flows for the six months ended June 30, 1999 and 1988 (unaudited)
and for the year ended December 31, 1998..................................................... F-63
Notes to Financial Statements................................................................... F-64
24
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Cumulus Media Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in shareholders' equity and of cash flows present fairly,
in all material respects, the financial position of HMH Broadcasting, Inc. at
December 31, 1998, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
February 28, 1999, except for Note 8, which is dated September 15, 1999
Chicago, Illinois
F-1
25
HMH BROADCASTING, INC.
BALANCE SHEETS
June 30, December 31,
ASSETS 1999 1998
---------------- ------------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 25,069 $ 10,050
Accounts receivable, less allowance for doubtful accounts
of $18,998 as of June 30, 1999 and $0 as of December 31, 1998 940,560 1,724,924
Prepaid expenses and other 16,551 57,231
---------------- ------------------
Total current assets 982,180 1,792,205
Property and equipment, net 1,681,122 1,635,881
Intangible assets, net 11,936,891 12,457,310
Other assets 209,449 95,844
---------------- ------------------
Total assets $ 14,809,642 $ 15,981,240
================ ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,053,819 $ 516,819
Accounts payable 13,506 43,932
Accrued commissions 67,222 274,348
Other accrued expenses 70,454 281,137
Due to related party 275,986 225,296
---------------- ------------------
Total current liabilities 1,480,987 1,341,532
---------------- ------------------
Long-term debt 8,837,500 9,512,500
---------------- ------------------
Total liabilities 10,318,487 10,854,032
---------------- ------------------
Commitments and contingencies
Shareholders' equity:
Common stock, no par value, 1,000 shares authorized,
923 shares issued 5,088,500 5,088,500
Retained earnings 204,322 840,375
Common stock held in treasury, at cost (801,667) (801,667)
---------------- ------------------
Total shareholders' equity 4,491,155 5,127,208
---------------- ------------------
Total liabilities and shareholders' equity $ 14,809,642 $ 15,981,240
================ ==================
The accompanying notes are an integral part of the financial statements.
F-2
26
HMH BROADCASTING, INC.
STATEMENTS OF OPERATIONS
For the Six
Months Ended For the Year
June 30, Ended
-------------------------------------- December 31,
1999 1998 1998
------------------ ------------------ ------------------
(Unaudited)
Revenues $ 2,383,367 $ 4,609,974 $ 9,734,692
Less: Agency commissions (259,948) (619,662) (1,221,764)
------------------ ------------------ ------------------
Net revenues 2,123,419 3,990,312 8,512,928
------------------ --------------- ------------------
Station operating expenses 858,493 1,660,287 3,928,404
General and administrative expenses 540,400 916,283 1,770,088
Depreciation and amortization 674,768 648,807 1,329,011
------------------ ------------------ ------------------
Income from operations 49,758 764,935 1,485,425
Interest expense 408,911 429,979 865,707
------------------ ------------------ ------------------
Net income (loss) $ (359,153) $ 334,956 $ 619,718
================== ================== ==================
The accompanying notes are an integral part of the financial statements.
F-3
27
HMH BROADCASTING, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the year ended December 31, 1998
Common Retained Treasury
Stock Earnings Stock Total
Balance at January 1, 1998 $ 5,088,500 $ 690,257 $ 5,778,757
Purchase of 77 shares of Company
common stock $ (801,667) (801,667)
Net income 619,718 619,718
Dividends paid (469,600) (469,600)
---------------- ---------------- --------------- ---------------
Balance at December 31, 1998 $ 5,088,500 $ 840,375 $ (801,667) $ 5,127,208
================ ================ =============== ===============
The accompanying notes are an integral part of the financial statements.
F-4
28
HMH BROADCASTING, INC.
STATEMENTS OF CASH FLOWS
For the Six
Months Ended For the Year
June 30, Ended
--------------------------------------- December 31,
1999 1998 1998
------------------ ------------------ ------------------
(Unaudited)
Cash flows from operating activities:
Net income (loss) $ (359,153) $ 334,956 $ 619,718
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 674,768 648,807 1,329,011
Changes in operating assets and liabilities:
Accounts receivable 784,364 184,974 151,255
Prepaid expenses and other 40,680 60,896 53,657
Other assets 1,229 - (33,739)
Accounts payable (30,426) 29,398 (7,575)
Accrued commissions (207,126) 19,913 (7,179)
Other accrued expenses (210,683) (491,789) (360,058)
Due to related party 50,690 58,910 101,971
------------------ ------------------ ------------------
Net cash provided by operating
activities 744,343 846,065 1,847,061
------------------ ------------------ ------------------
Cash flows from investing activities:
Capital expenditures (199,590) (80,116) (354,812)
Acquisition costs (114,834) - -
------------------ ------------------ ------------------
Net cash used for investing activities (314,424) (80,116) (354,812)
------------------ ------------------ ------------------
Cash flows from financing activities:
Proceeds from revolving note payable 486,000 1,385,000 1,516,000
Repayment of revolving note payable (624,000) (972,000) (1,687,000)
Repayment of note to shareholder - - (50,000)
Dividends paid to shareholders (276,900) (377,300) (469,600)
Purchase of treasury stock - (801,667) (801,667)
------------------ ------------------ ------------------
Net cash used for financing activities (414,900) (765,967) (1,492,267)
------------------ ------------------ ------------------
Increase (Decrease) in cash and cash equivalents 15,019 (18) (18)
Cash and cash equivalents at beginning of year 10,050 10,068 10,068
------------------ ------------------ ------------------
Cash and cash equivalents at end of year $ 25,069 $ 10,050 $ 10,050
================== ================== ==================
Supplemental disclosures of cash flow information:
Cash paid for interest $ 403,717 $ 433,780 $ 858,527
================== ================== ==================
Non-cash operating activities:
Trade revenue $ 91,063 $ 190,131 $ 345,275
================== ================== ==================
Trade expense $ 84,984 $ 89,033 $ 334,554
================== ================== ==================
The accompanying notes are an integral part of the financial statements.
F-5
29
HMH BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
HMH Broadcasting, Inc. owns and operates five radio stations: WVLK-AM,
WVLK-FM, WLRO-FM, WXZZ-FM and WLTO-FM (the "Stations" or "Company")
located in Lexington, Kentucky.
The significant accounting principles followed by the Company and the
methods of applying those principles which materially affect the
determination of financial position, results of operations, and cash
flows are summarized below.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
All items with an original maturity of three months or less are
considered to be cash equivalents.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts receivable.
The Company performs credit evaluations of its customers and generally
does not require collateral for its accounts receivable. The Company
reserves for potential credit losses based upon the expected
collectibility of all accounts receivable. The Company considers accounts
receivable at December 31, 1998 to be fully collectible; accordingly no
allowance for doubtful accounts is required.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable and accounts payable
approximates fair value because of the short maturity of these
instruments. The carrying value of the Company's debt approximates fair
value. Fair value of the debt is based on the quoted market prices for
the same or similar issues.
F-6
30
HMH BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
PROPERTY AND EQUIPMENT
Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of the assets, are capitalized
at cost and depreciated on a straight-line basis over their estimated
useful lives as follows:
Office furniture and equipment 7 years
Tower, antenna and equipment 7-20 years
Leasehold improvement 3 years
Other 5 - 39 years
Maintenance, repairs, and minor replacement of these items are charged to
expense as incurred.
INTANGIBLE ASSETS
Intangible assets include FCC licenses and goodwill. Intangible assets
are stated at cost and are being amortized using the straight-line method
over 15 years. Management regularly monitors and evaluates the
realizability of recorded intangibles. Recoverability of assets to be
held and used is measured by a comparison of carrying amount of the
assets to future cash flows expected to be generated by the assets. If
such assets are considered to be impaired, the impairment to be
recognized is the amount by which the carrying amount exceeds the fair
value of the assets. The Company believes that the carrying value of
recorded intangibles is not impaired.
INCOME TAXES
The Company is organized as a Subchapter S-Corporation. Accordingly, all
income is personally taxable to the shareholders and no provision for
income taxes has been recorded in the accompanying financial statements.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
TRADE AGREEMENTS
The Company enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Revenues from
trade agreements are recognized at the fair market value of products or
services received as advertising air time is broadcast. Products and
services received are expensed when used in the broadcast operations. In
1998, trade revenues were less than 5% of total broadcast revenues.
INTERIM FINANCIAL STATEMENTS
The financial statements for the six months ended June 30, 1999 and 1998,
are unaudited, but in the opinion of management, such financial
statements have been presented on the same basis as the audited financial
statements for the year ended December 31, 1998, and include all
adjustments, consisting only of normal recurring adjustments necessary
for a fair presentation of the financial position and results of
operations and cash flows for these periods.
F-7
31
HMH BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
Office furniture and equipment $ 733,845
Tower, antenna and equipment 1,552,361
Leasehold improvements 170,443
Other 40,933
------------------
2,497,582
Accumulated depreciation 861,701
------------------
Property and equipment, net $ 1,635,881
==================
Depreciation expense was $288,072 for the year ended December 31, 1998.
3. INTANGIBLE ASSETS
Intangible assets consist of the following:
FCC licenses and goodwill $ 15,297,650
Accumulated amortization 2,840,340
------------------
Intangible assets, net $ 12,457,310
==================
Amortization expense was $1,040,939 for the year ended December 31, 1998.
4. EMPLOYEE BENEFIT PLANS
Effective July 1, 1996, the Company established a qualified deferred
compensation plan under section 401(k) of the Internal Revenue Code.
Under the plan, employees may elect to defer up to 10% of their salary,
subject to the Internal Revenue Service limits. The Company may make a
discretionary contribution. The Company accrued contributions of $100,000
in 1998 that were paid to the plan in February, 1999.
5. LONG-TERM DEBT
The Company has a $11,600,000 reducing revolving credit note payable with
a local bank. Interest accrues at 8% and is payable quarterly. The
maximum principal balance of $11,600,000 reduces quarterly until August
18, 2002. Subsequent to August 18, 2002, the maximum borrowings under the
facility are limited to $5,600,000. Borrowings are collateralized by
substantially all of the Company's assets.
F-8
32
HMH BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. LONG-TERM DEBT, CONTINUED
The quarterly principal balance reductions are as follows:
January 1, 1999 - October 1, 1999 $ 250,000
October 1, 1999 - October 1, 2000 337,500
October 1, 2000 - January 1, 2001 362,500
January 1, 2001 - April 1, 2001 362,000
April 1, 2001 - July 1, 2001 363,000
July 1, 2001 - August 18, 2002 362,500
Debt consists of the following at December 31, 1998:
Reducing revolving credit note payable $ 10,029,319
Less current maturities 516,819
--------------
Long-term debt $ 9,512,500
==============
6. RELATED PARTY TRANSACTIONS
The Company leases its radio station facility and corporate headquarters
from HMH Realty, LLC, which is owned by shareholders of the Company. The
lease term is five years with six options to renew for five years each.
The base rent is $8,750 per month. The rent fluctuates annually based upon
the change in the Consumer Price Index. The monthly rate at December 31,
1998 was $9,240.
At December 31, 1998, the future non-cancelable minimum lease payments
under the above lease were as follows:
1999 $ 110,880
2000 110,880
2001 36,960
------------------
Total $ 258,720
==================
Rent expense under this operating lease totaled $109,880 for the year
ended December 31, 1998.
At December 31, 1998, the Company owes HMH Realty, LLC $225,296 with
interest at 4%. The amount is due and payable on demand and is included in
due to related party.
F-9
33
HMH BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. COMMITMENTS AND CONTINGENCIES
The Company leases office equipment and studio and tower space under
certain non-cancelable operating leases which expire between 1999 and
2004.
At December 31, 1998, the future minimum rental payments under
non-cancelable operating leases, excluding related party leases in Note 7
were as follows:
1999 $ 215,904
2000 168,403
2001 165,971
2002 161,014
2003 119,824
Thereafter 4,565
------------------
$ 835,681
==================
Rent expense, excluding related party rent in Note 7, for the year ended
December 31, 1998 was $194,968.
The Company is party to an agreement with three other unrelated parties
for the purpose of broadcasting all University of Kentucky football and
baseball games over a network of radio stations located in Kentucky. Each
party to the agreement shares equally in the profits or losses associated
with broadcasting of such games. In 1998, the Company's portion of the
profits were immaterial and are included in broadcast revenues.
8. SUBSEQUENT EVENTS
In February 1999, the Company entered into an agreement to sell
substantially all of its broadcast assets and FCC licenses to Cumulus
Broadcasting, Inc. (a wholly owned subsidiary of Cumulus Media Inc.)
("Cumulus") for $44,500,000 cash. In April, 1999 the Company entered
into a local marketing agreement with Cumulus Broadcasting, Inc. Under
the local marketing agreement the licensee of the Company's stations make
available to Cumulus Broadcasting Inc., for a fee, air time on their
stations. Cumulus will provide the programming to be broadcast during the
air time and will collect the advertising it sells for such programming.
The transaction closed on September 15, 1999.
F-10
34
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Phillips Broadcasting Company, Inc.
Eau Claire, Wisconsin
In our opinion, the accompanying balance sheet and the related statements of
income and retained earnings and cash flows present fairly, in all material
respects, the financial position of Phillips Broadcasting Company, Inc. at
December 31, 1998, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.
/s/ Wipfli Ullrich Bertelson LLP
February 25, 1999
Eau Claire, Wisconsin
F-11
35
Phillips Broadcasting Company, Inc.
Balance Sheets
June 30, 1999 and 1998 (unaudited) and December 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------
UNAUDITED AUDITED
--------------------------------- --------------------
ASSETS JUNE 30, JUNE 30, DECEMBER 31,
1999 1998 1998
- ------------------------------------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $150,450 $40,606 $28,113
Accounts receivable 96,550 577,152 550,039
Notes receivable 83,254 3,946 3,946
Prepaid expenses 326 326 326
- ------------------------------------------------------------------------------------------------------------------------------
Total current assets 330,580 622,030 582,424
- ------------------------------------------------------------------------------------------------------------------------------
Property and equipment:
Land 83,478 83,478 83,478
Buildings and improvements 587,291 583,501 587,291
Tower and antenna 526,728 504,397 526,382
Equipment 1,550,883 1,475,076 1,517,168
Vehicles 146,041 146,041 146,041
Office furniture and equipment 438,263 414,619 432,668
- ------------------------------------------------------------------------------------------------------------------------------
Totals 3,332,684 3,207,112 3,293,028
Less - Accumulated depreciation 1,763,643 1,400,326 1,609,150
- ------------------------------------------------------------------------------------------------------------------------------
Net property and equipment 1,569,041 1,806,786 1,683,878
- ------------------------------------------------------------------------------------------------------------------------------
Other assets:
Goodwill - Net of accumulated amortization 2,213,568 2,389,481 2,301,525
Loan fees - Net of accumulated amortization 59,891 59,909 54,400
Organization costs - Net of accumulated amortization 0 90,926 86,939
Consulting agreement - Net of accumulated amortization 243,289 365,711 300,000
- ------------------------------------------------------------------------------------------------------------------------------
Total other assets 2,516,748 2,906,027 2,742,864
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $4,416,369 $5,334,843 $5,009,166
==============================================================================================================================
F-12
36
Phillips Broadcasting Company, Inc.
Balance Sheets
June 30, 1999 and 1998 (unaudited) and December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------
UNAUDITED AUDITED
--------------------------------- --------------------
JUNE 30, JUNE 30, DECEMBER 31,
LIABILITIES AND DEFICIENCY IN ASSETS 1999 1998 1998
- ------------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Current maturities of notes payable $545,098 $622,152 $623,528
Current maturities of capital lease obligations 15,830 11,000 16,297
Note payable - Bank 1,100,000 0 0
Accounts payable - Trade 53,566 62,428 101,873
Accounts payable - Stockholder 0 0 6,330
Accrued expenses 105,934 246,630 282,495
- ------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,820,428 942,210 1,030,523
- ------------------------------------------------------------------------------------------------------------------------------
Long-term liabilities:
Notes payable 3,105,445 4,702,359 4,340,784
Capital lease obligations 33,359 33,244 38,364
- ------------------------------------------------------------------------------------------------------------------------------
Total long-term liabilities 3,138,804 4,735,603 4,379,148
- ------------------------------------------------------------------------------------------------------------------------------
Deficiency in assets:
Common stock - No par value:
Authorized - 600 shares
Issued - 330 shares 51,000 51,000 51,000
Retained earnings 54,637 254,530 196,995
- ------------------------------------------------------------------------------------------------------------------------------
Total 105,637 305,530 247,995
Less - 66 shares of treasury stock - At cost 648,500 648,500 648,500
- ------------------------------------------------------------------------------------------------------------------------------
Total deficiency in assets (542,863) (342,970) (400,505)
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND DEFICIENCY IN ASSETS $4,416,369 $5,334,843 $5,009,166
==============================================================================================================================
F-13
37
Phillips Broadcasting Company, Inc.
Statements of Operations and Retained Earnings
Six months ended June 30, 1999 and 1998 (unaudited) and year ended December 31,
1998
- -----------------------------------------------------------------------------------------------------
UNAUDITED AUDITED
-------------------------------- ----------------
JUNE 30, JUNE 30, DECEMBER 31,
1999 1998 1998
- -----------------------------------------------------------------------------------------------------
Revenues:
AM revenue $138,169 $217,150 $437,371
FM revenue 750,411 1,506,411 3,172,296
- -----------------------------------------------------------------------------------------------------
Total revenues 888,580 1,723,561 3,609,667
Less - Agency commission 62,922 94,962 175,170
- -----------------------------------------------------------------------------------------------------
Net revenues 825,658 1,628,599 3,434,497
- -----------------------------------------------------------------------------------------------------
Operating expenses:
Technical expenses 103,166 116,628 284,871
Program expenses 264,859 487,251 1,044,554
Selling expenses 193,009 326,390 654,395
General and administrative expenses 509,072 598,898 1,191,587
- -----------------------------------------------------------------------------------------------------
Total operating expenses 1,070,106 1,529,167 3,175,407
- -----------------------------------------------------------------------------------------------------
Gross profit (loss) from operations (244,448) 99,432 259,090
- -----------------------------------------------------------------------------------------------------
Other income (deductions):
Rental income 6,366 7,450 19,100
Interest income 52 361 789
Interest expense (204,430) (224,858) (436,708)
Other income 203,358 16,458 36,571
Other expense 0 0 (37,571)
Organization costs write-off (86,939) 0 0
- -----------------------------------------------------------------------------------------------------
Total other income (deductions) (81,593) (200,589) (417,819)
- -----------------------------------------------------------------------------------------------------
Net loss before extraordinary item (326,041) (101,157) (158,729)
Extraordinary item - Forgiveness of principal
and interest upon extinguishment of debt related
to previous business acquisition 191,205 0 0
- -----------------------------------------------------------------------------------------------------
Net loss (134,836) (101,157) (158,729)
Retained earnings at beginning 196,995 357,070 357,070
- -----------------------------------------------------------------------------------------------------
Totals 62,159 255,913 198,341
Distributions to stockholder 7,522 1,383 1,346
- -----------------------------------------------------------------------------------------------------
Retained earnings at end $ 54,637 $254,530 $196,995
=====================================================================================================
F-14
38
Phillips Broadcasting Company, Inc.
Statements of Cash Flows
Six months ended June 30, 1999 and 1998 (unaudited) and year ended December 31,
1998
- -----------------------------------------------------------------------------------------------------------------------------
UNAUDITED AUDITED
--------------------------------- ----------------
JUNE 30, JUNE 30, DECEMBER 31,
1999 1998 1998
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss ($134,836) ($101,157) ($158,729)
- -----------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net loss to net cash provided
by operating activities:
Provision for depreciation and amortization 413,609 332,963 704,951
Extraordinary gain on extinguishment of debt (191,205) 0 0
Changes in operating assets and liabilities:
Accounts receivable 453,489 (18,389) 8,724
Prepaid expenses and other assets (79,308) 0 0
Accounts payable (54,637) (11,000) 34,774
Accrued and other liabilities (83,356) 51,636 87,501
- -----------------------------------------------------------------------------------------------------------------------------
Total adjustments 458,592 355,210 835,950
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 323,756 254,053 677,221
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (39,656) (77,943) (163,860)
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase in short-term debt 1,100,000 0 0
Principal payments on long-term liabilities (1,221,241) (140,362) (505,493)
Proceeds from issuance of long-term liabilities 0 0 15,350
Stockholder distributions (7,522) (1,383) (1,346)
Payment of loan fees (33,000) (4,800) (4,800)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (161,763) (146,545) (496,289)
- -----------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 122,337 29,565 17,072
Cash and cash equivalents at beginning 28,113 11,041 11,041
- -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end $150,450 $40,606 $28,113
=============================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $190,705 $204,459 $398,086
F-15
39
Phillips Broadcasting Company, Inc.
Notes to Financial Statements
- -------------------------------------------------------------------------------
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPAL BUSINESS ACTIVITY
Phillips Broadcasting Company, Inc. (the "Company") operates six radio
stations in western Wisconsin: WMEQ-AM and FM, located in Menomonie;
WQRB-FM in Bloomer; WATQ-FM in Chetek; and WBIZ-AM and FM licensed in
Eau Claire.
On February 13, 1999, the sole stockholder of the Company signed a
letter of intent for sale of all tangible and intangible assets used in
the operation of all stations. The agreement calls for negotiation and
execution of a definitive Asset Purchase Agreement to be completed
within 45 days of delivery of various documents to the buyer. On April
7, 1999, the Company entered into a Local Marketing Agreement ("LMA")
with Cumulus Broadcasting, Inc. Under the LMA, Phillips makes
available, for a fee, airtime on its station to Cumulus, which supplies
programming to be broadcast during that airtime and collects from
advertising aired during such programming. The LMA remained in effect
until the Asset Purchase Agreement was finalized on September 15, 1999.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of the accompanying financial statements in conformity
with generally accepted accounting principles requires management to
make certain estimates and assumptions that directly affect the results
of reported assets, liabilities, revenue, and expenses. Actual results
may differ from these estimates.
TRADE AGREEMENTS
The Company enters into trade agreements which give rise to sales of
advertising airtime in exchange for products and services. Sales from
trade agreements are recognized at the fair market value of products or
services received as advertising airtime is broadcast. Products and
services received are expensed when used in the broadcast operations.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and accounts
receivable. The Company performs ongoing credit evaluations of its
customers and believes credit risk is minimal.
The Company maintains its cash in bank deposit accounts at various
local financial institutions. Accounts at each institution are insured
by the Federal Deposit Insurance Corporation up to $100,000. Operating
cash requirements frequently require that
F-16
40
Phillips Broadcasting Company, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
amounts on deposit exceed the FDIC limits. Management believes these
financial institutions have strong credit ratings and the credit risk
related to these deposits is minimal.
F-17
41
Phillips Broadcasting Company, Inc.
Notes to Financial Statements
- -------------------------------------------------------------------------------
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with an
original maturity of three months or less to be cash equivalents.
PROPERTY, EQUIPMENT, AND DEPRECIATION
Property and equipment are valued at cost and include equipment under
leases which have been capitalized. Maintenance and repair costs are
charged to expense as incurred. Gains or losses on disposition of
property and equipment are reflected in income. Depreciation and
amortization of property and equipment are provided for financial
reporting purposes using straight-line and accelerated methods over the
estimated useful lives of the assets or terms of the lease, whichever
is required. Depreciation expense for the year totalled $400,715.
Buildings and improvements 31 to 39 years
Tower and antenna 15 to 20 years
Equipment 5 to 10 years
Vehicles 5 years
Office furniture and equipment 5 to 7 years
OTHER ASSETS
Organization costs related to the start up of WATQ-FM in Chetek and the
acquisition of WBIZ-AM and FM in Eau Claire are being amortized on the
straight-line basis over a 60-month period.
During the first quarter of 1999, the Company changed its method of
accounting for organization costs. The change involved expensing these
costs as incurred, rather than capitalizing and subsequently amortizing
these costs. The change in accounting principle resulted in a write-off
of the costs capitalized as of January 1, 1999 totalling $86,939.
Loan origination fees are being amortized on the straight-line basis
over the terms of the related long-term debt.
Goodwill acquired in the acquisition of WBIZ-AM and FM in Eau Claire is
being amortized on the straight-line basis over 15 years.
A consulting agreement entered into as part of the acquisition of
WBIZ-AM and FM is being amortized over the five-year life of the
agreement.
Total amortization expense for the year totalled $304,236.
F-18
42
Phillips Broadcasting Company, Inc.
Notes to Financial Statements
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME TAXES
The Company has elected to be taxed under the provisions of Subchapter
S of the Internal Revenue Code and comparable state regulations. Under
these provisions, the Company does not pay federal and state corporate
income taxes on its taxable income (nor is it allowed a net operating
loss carryback or carryover as a deduction). Instead, the stockholder
reports on his personal income tax return his proportionate share of
the Company's taxable income (or loss) and tax credits.
INTERIM FINANCIAL DATA (UNAUDITED)
The interim financial data as of June 30, 1999 and 1998, and for each
of the six months ended June 30, 1999 and 1998, is unaudited. The
accompanying unaudited 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 of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
necessary for a fair presentation of results of the interim periods
have been made and such adjustments were of a normal and recurring
nature. The results of operations and cash flows for the six months
ended June 30, 1999, are not necessarily indicative of the results that
can be expected for the entire fiscal year ending December 31, 1999.
NOTE 2 LONG-TERM NOTES PAYABLE
Long-term notes payable consist of the following:
F-19
43
Phillips Broadcasting Company, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
AUDITED
DECEMBER 31,
1998
- ---------------------------------------------------------------------------------
Variable rate note payable (8.5% at December 31, 1998)
with Norwest Bank Minnesota N.A., secured by accounts
receivable, property and equipment, and general
intangibles, personal guaranty of the sole
stockholder, and assignment of various life insurance
policies with principal payable in monthly
installments ranging from $41,892 in 1999 to $67,027
in 2004 plus interest, due December 1, 2004. $3,866,950
6% note payable to Americus Communications #1 Limited
Partnership with accrued interest and principal
balance due in a single payment on February 5, 2002,
subordinate to Norwest Bank Minnesota N.A. note 750,000
payable above.
Installment obligation to Americus Communications #1
Limited Partnership for consulting services, payable
in annual installments of $100,000 through February 5, 300,000
2002.
F-20
44
Phillips Broadcasting Company, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 3 LONG-TERM NOTES PAYABLE (Continued)
AUDITED
DECEMBER 31,
1998
-------------------------------------------------------------------------
8.25% note payable, secured by a vehicle, payable in
monthly installments of $392 including interest, due
June 5, 2000. $4,298
9.25% note payable, secured by a vehicle, payable in
monthly installments of $1,253 including interest, due
September 10, 2001. 36,401
8.25% note payable, secured by a vehicle, payable in
monthly installments of $732 including interest, due
August 21, 1999. 6,663
--------------------------------------------------------------------------
Totals 4,964,312
Less - Current maturities 623,528
--------------------------------------------------------------------------
Total long-term portion $4,340,784
==========================================================================
The variable rate note payable is supported by a credit agreement which
provides for certain restrictive covenants, including minimum amounts
of operating cash flow, maintenance of various financial ratios, and
limitations on additional borrowing or payment of dividends.
Required payments of principal on long-term notes payable including
current maturities, are summarized as follows:
1999 $623,528
2000 668,635
2001 717,980
2002 1,415,112
2003 734,724
Thereafter 804,333
--------------------------------------------------------------------------------------------------------
Totals $4,964,312
========================================================================================================
F-21
45
Phillips Broadcasting Company, Inc.
Notes to Financial Statements
- ------------------------------------------------------------------------------
NOTE 4 LEASES
The Company leases office equipment and software under agreements
expiring in the next four years, which are classified as capital
leases.
Property and equipment includes the following amounts for the leases
that have been capitalized:
Office equipment $71,507
Less - Accumulated amortization 28,723
-------------------------------------------------------------------------------------------------------
Total $42,784
=======================================================================================================
Lease amortization is included in depreciation expense.
Future minimum payments by year and in aggregate, under the capital
leases with initial or remaining terms in excess of one year, consist
of the following at June 30, 1999:
1999 $20,311
2000 19,193
2001 16,887
2002 6,033
------------------------------------------------------------------------------------------------------
Total minimum lease payments 62,424
Amount representing interest 7,763
------------------------------------------------------------------------------------------------------
Present value of net minimum lease payments 54,661
Less - Current maturities 16,297
------------------------------------------------------------------------------------------------------
Long-term obligations under capital leases $38,364
======================================================================================================
F-22
46
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Cumulus Media Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in shareholders' equity and of cash flows present fairly,
in all material respects, the financial position of Cape Fear Broadcasting
Company at December 31, 1998, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
October 27, 1999
Chicago, Illinois
F-23
47
CAPE FEAR BROADCASTING COMPANY
BALANCE SHEETS
June 30, December 31,
ASSETS 1999 1998
---------- ------------
(unaudited)
Current assets:
Cash and cash equivalents $1,712,799 $2,002,609
Accounts receivable, less allowance for doubtful
accounts of $85,202 at June 30, 1999 and December 31, 1998 1,140,254 1,247,924
Current portion of notes receivable from shareholders 152,311 166,170
Prepaid expenses 26,377 6,646
---------- ----------
Total current assets 3,031,741 3,423,349
---------- ----------
Property and equipment, net 732,035 731,147
Intangible assets, net of accumulated amortization of $1,666 3,334 --
Notes receivable from shareholders, net of current portion 304,887 296,215
Accounts receivable, officers 604,746 582,005
Due from affiliate 1,325,678 989,442
Securities available for sale 547,834 418,856
---------- ----------
3,518,514 3,017,665
---------- ----------
Total assets $6,550,255 $6,441,014
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 56,350 $ 72,580
Accounts payable 63,353 99,238
Accrued payroll and commissions 282,648 279,877
Accrued taxes payable 46,772 115,988
Other accrued expenses 66,852 57,550
---------- ----------
Total current liabilities 515,975 625,233
---------- ----------
Long term debt, net of current portion 313,112 344,740
---------- ----------
Total liabilities 829,087 969,973
---------- ----------
Commitments and contingencies
Shareholders' equity:
Capital stock $100 par value, 1,000 shares authorized
with 416 shares issued and outstanding 41,600 41,600
Retained earnings 5,303,807 5,182,658
Accumulated other comprehensive income 375,761 246,783
---------- ----------
Total shareholders' equity 5,721,168 5,471,041
---------- ----------
Total liabilities and shareholders' equity $6,550,255 $6,441,014
========== ==========
The accompanying notes are an integral part of these financial statements.
F-24
48
CAPE FEAR BROADCASTING COMPANY
STATEMENTS OF OPERATIONS
For the Six Months
Ended June 30,
-----------------------------------
December 31,
1999 1998 1998
----------- ----------- -----------
(unaudited)
Revenues $ 2,860,634 $ 2,661,160 $ 5,847,552
Less: Agency commissions (263,405) (215,536) (573,887)
----------- ----------- -----------
Net revenues 2,597,229 2,445,624 5,273,665
----------- ----------- -----------
Station operating expenses 1,156,795 1,072,009 2,251,644
General and administrative expenses 753,201 684,467 1,458,619
Depreciation and amortization 82,815 99,822 141,463
----------- ----------- -----------
Income from operations 604,418 589,326 1,421,939
----------- ----------- -----------
Interest income 43,020 27,399 131,436
Interest expense 20,314 26,439 27,869
Other income, net 13,885 1,155 48,704
----------- ----------- -----------
Net income $ 641,009 $ 591,441 $ 1,574,210
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-25
49
CAPE FEAR BROADCASTING COMPANY
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the year ended December 31, 1998
Accumulated
Other
Capital Retained Comprehensive
Stock Earnings Income Total
----------- ----------- ------------- -----------
Balance at January 1, 1998 $ 41,600 $ 4,574,048 $ 108,108 $ 4,723,756
Net income 1,574,210 1,574,210
Unrealized holding gains on securities
available for sale 138,675 138,675
-----------
Comprehensive income 1,712,885
Distributions to shareholders (965,600) (965,600)
----------- ----------- ----------- -----------
Balance at December 31, 1998 $ 41,600 $ 5,182,658 $ 246,783 $ 5,471,041
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-26
50
CAPE FEAR BROADCASTING COMPANY
STATEMENTS OF CASH FLOWS
For the Six Months
Ended June 30,
-------------------------------
December 31,
1999 1998 1998
----------- ----------- -----------
(unaudited)
Cash flows from operating activities:
Net income $ 641,009 $ 591,441 $ 1,574,210
Adjustment to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 82,815 99,822 141,463
Allowance for doubtful accounts -- -- 85,202
Changes in operating assets and liabilities:
Accounts receivable 107,670 (1,891) (201,913)
Prepaid expenses (19,731) (28,431) 15,257
Accounts receivable, officers and affiliates (358,977) (138,294) (812,605)
Other assets -- (157,951) --
Accounts payable (35,885) 10,056 46,939
Accrued payroll and commissions 2,771 1,620 83,638
Other accrued expenses 9,302 (63,200) 37,896
Accrued taxes payable (69,216) 2,858 107,869
----------- ----------- -----------
Net cash provided by operating activities 359,758 316,030 1,077,956
----------- ----------- -----------
Cash flows from investing activities:
Purchase of intangible asset (5,001) -- --
Purchase of property and equipment (82,036) (100,988) (84,290)
Purchase of investments -- -- (10,281)
Issuances of notes receivable -- (98,636) --
Payments received on notes receivable 5,187 -- 538,847
----------- ----------- -----------
Net cash (used) provided by investing activities (81,850) (199,624) 444,276
----------- ----------- -----------
Cash flows from financing activities:
Issuance of long-term debt -- -- 21,000
Payments made on long-term debt (47,858) (24,271) (114,880)
Distributions to shareholders (519,860) (317,048) (965,600)
----------- ----------- -----------
Net cash used by financing activities (567,718) (341,319) (1,059,480)
----------- ----------- -----------
Net (decrease) increase in cash (289,810) (224,913) 462,752
Cash at beginning of year 2,002,609 1,539,857 1,539,857
----------- ----------- -----------
Cash at end of year $ 1,712,799 $ 1,314,944 $ 2,002,609
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 20,314 $ 26,439 $ 27,869
=========== =========== ===========
Non-cash operating activities:
Trade revenue $ 53,420 $ 62,710 $ 233,469
=========== =========== ===========
Trade expense $ 45,606 $ 61,791 $ 229,480
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-27
51
\CAPE FEAR BROADCASTING COMPANY
INDEX TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Company was incorporated in 1942 under the laws of the State of North
Carolina. The Company is engaged in radio broadcasting, operating
stations WFNC-AM, WQSM and WGNI in the Fayetteville and Wilmington, North
Carolina markets.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
All items with an original maturity of three months or less are
considered to be cash equivalents.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
TRADE
The Company enters into agreements in which advertising time is traded
for various products or services. Trade transactions are reported at the
value of goods or services received. Revenue or expense and a
corresponding asset or liability are reported when advertisements are
aired or when goods and services are received.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line basis over their estimated useful lives as follows:
Transmitting and studio equipment 5-15 years
Furniture and fixtures 5-10 years
Vehicles 5 years
Building 39 years
INTANGIBLE ASSETS
Intangible assets consist of a broadcast license which is amortized
on a straight-line basis over 5 years.
Management regularly monitors and evaluates the realizability of recorded
intangibles. Recoverability of assets to be held and used is measured by
a comparison of carrying amount of the assets to future cash flows
expected to be generated by the assets. If such assets are considered to
be impaired, the impairment to be recognized is the amount by which the
carrying amount exceeds the fair value of the assets. The Company
believes that the carrying value of recorded intangibles is not
impaired.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts receivable.
The Company performs credit evaluations of its customers and generally
does not require collateral for its accounts receivable. The Company
reserves for potential credit losses based upon the expected
collectibility of all accounts receivable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable and accounts payable
approximates fair value because of the short maturity of these
instruments. The carrying value of the Company's debt approximates fair
value. Fair value of the debt is based on the quoted market prices for
the same or similar issues.
F-28
52
CAPE FEAR BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
SECURITIES AVAILABLE FOR SALE
The Company's securities available for sale consist of marketable equity
securities that have a readily determinable fair market value. Management
determines the appropriate classification of its investments at the time
of purchase. The securities are carried at fair market value.
Unrealized gains and losses are reported as a separate component of
shareholders' equity. Realized gains and losses on all marketable
securities are determined by specific identification and are charged or
credited to current earnings.
INCOME TAXES
The Company has elected to be taxed as an S Corporation, effective June
1, 1987, under the provisions of the Internal Revenue Code. Under those
provisions, the Company does not pay corporate income taxes on its
taxable income. Instead, the shareholders are liable for individual
income taxes on their respective share of the Company's taxable income.
INTERIM FINANCIAL STATEMENTS
The financial statements for the six months ended June 30, 1999 and 1998,
are unaudited, but in the opinion of management, such financial
statements have been presented on the same basis as the audited financial
statements for the year ended December 31, 1998, and include all
adjustments, consisting only of normal recurring adjustments necessary
for a fair presentation of the financial position and results of
operations and cash flows for these periods.
2. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
Transmitting and studio equipment $ 1,914,501
Furniture and fixtures 496,055
Building and improvements 657,350
Vehicles 222,172
Land 71,819
--------------
3,361,897
Accumulated depreciation 2,630,750
--------------
Property and equipment, net $ 731,147
===============
Depreciation expense was $141,463 for the year ended December 31, 1998.
F-29
53
CAPE FEAR BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. NOTES RECEIVABLE FROM SHAREHOLDER
Notes receivable consist of the following:
Notes receivable from shareholders, interest
accrual at 5.63% per annum, secured by stock of the Company $ 323,815
Notes receivable from shareholders, interest
accrual at 5.63% per annum, secured by stock of the Company 138,570
-------------
462,385
Less current portion 166,170
-------------
$ 296,215
=============
4. SECURITIES AVAILABLE FOR SALE
The cost and estimated market value of securities available for sale at
December 31, 1998 are as follows:
Fair market value $ 418,856
Cost 172,073
------------
Unrealized gain $ 246,783
============
F-30
54
CAPE FEAR BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. LONG TERM DEBT
Long term debt consists of the following:
Note payable to First Union National Bank,
payments of $2,795 per month, including
interest at prime, collateralized by broadcast tower, due
February 2000 $ 18,809
Note payable to First Union National Bank,
payments of $627 per month including
interest at 9.5%, collateralized by broadcast equipment,due
February 1999 942
Note payable to First Union National Bank,
payments of $585 per month, including
interest at 8.5% collateralized by vehicle, due November 2001 18,085
Note payable to First Union National Bank,
payments to $6,500 per month including
interest at prime, a balloon payment due
December 2000, collateralized by real estate 379,484
-----------
417,320
Less current portion 72,580
-----------
$ 344,740
===========
Maturities of long term debt are as follows:
1999 $ 72,580
2000 338,620
2001 6,120
-----------
$ 417,320
===========
6. CONCENTRATION OF CREDIT RISK
The Company maintains its cash balances at five financial institutions
located in Fayetteville, NC and Wilmington, NC. Accounts at each
institution are insured by the Federal Deposit Insurance Corporation up
to $100,000. At December 31, 1998, the Company's uninsured cash balances
totaled $1,460,320. The Company has not experienced any losses in such
cash accounts and believes it is not exposed to any significant credit
risk.
F-31
55
CAPE FEAR BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is an unconditional guarantor of a C.F. Radio, Inc. bank
loan in the amount of $4,511,278 (see Note 8). The Company leases
office and tower space from an affiliated company for radio
broadcasting operations under an oral lease agreement. Management
believes the rent charged approximates market rates.
8. RELATED PARTY TRANSACTIONS
The Company is affiliated with C.F. Radio, Inc., a North Carolina
corporation, through common ownership. At December 31, 1998 amounts
receivable from C.F. Radio, Inc. were $989,442.
Accounts receivable for $582,005 as of December 31, 1998 are due the
Company from certain officers for life insurance premiums.
The Company has notes receivable from shareholders totaling $462,385 as
of December 31, 1998. These notes bear interest at 5.63%.
9. EMPLOYEE BENEFIT PLANS
Effective July 1, 1997, the Company established a qualified deferred
compensation plan under section 401(k) of the Internal Revenue Code.
Under the plan, employees may elect to defer up to 10% of their
salary, subject to the Internal Revenue Service limits. The Company
may make a discretionary contribution. The Company accrued
contributions of $10,417 in 1998 that were paid to the plan in
January, 1999.
10. SUBSEQUENT EVENT
On September 1, 1999 the Company entered into a local marketing
agreement with Cumulus Broadcasting, Inc. Under the local marketing
agreement the licensee of the Company's stations make available to
Cumulus Broadcasting Inc., for a fee, air time on their stations.
Cumulus will provide the programming to be broadcast during the air
time and will collect the advertising it sells for such programming.
On September 23, 1999, the Company and C.F. Radio, Inc., an entity also
controlled by the Company's shareholders entered into an agreement to
sell substantially all of their broadcast assets and FCC licenses to
Cumulus Broadcasting, Inc., Cumulus Wireless Services, Inc., and
Cumulus Licensing Corp., (wholly owned subsidiaries of Cumulus Media
Inc.) (collectively "Cumulus") for $44,000,000 in cash and an
additional payment of $3,000,000 due at closing, payable in cash or
stock at the discretion of Cumulus.
F-32
56
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Cumulus Media Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
C.F. Radio, Inc. at December 31, 1998, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
October 27, 1999
Chicago, Illinois
F-33
57
C.F. RADIO, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
ASSETS 1999 1998
---------- ------------
(unaudited)
Current assets:
Cash and cash equivalents $ 670,579 $ 591,793
Accounts receivable 579,972 513,232
Prepaid expenses 13,503 1,628
---------- ----------
Total current assets 1,264,054 1,106,653
---------- ----------
Property and equipment, net 1,741,801 1,825,245
Intangible assets, net 3,960,482 4,103,980
Other assets - 19,706
---------- ----------
Total assets $6,966,337 $7,055,584
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 334,386 $ 181,481
Accounts payable 28,930 52,396
Accrued payroll and commissions 113,480 108,800
Accrued interest 37,241 37,658
Other accrued expenses 59,914 35,347
---------- ----------
Total current liabilities 573,951 415,682
---------- ----------
Long term liabilities:
Long term debt, net of current portion 5,218,836 5,400,621
Due to affiliate 1,324,037 989,442
---------- ----------
Total long term liabilities 6,542,873 6,390,063
---------- ----------
Total liabilities 7,116,824 6,805,745
---------- ----------
Commitments and contingencies
Shareholders' equity:
Capital stock no par value, 100,000 shares authorized
with 7,000 shares issued and outstanding 7,000 7,000
Retained earnings (deficit) (157,487) 242,839
---------- ----------
Total shareholders' equity (150,487) 249,839
---------- ----------
Total liabilities and shareholders' equity $6,966,337 $7,055,584
========== ==========
The accompanying notes are an integral part of these financial statements.
F-34
58
C.F. RADIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS
ENDED JUNE 30,
---------------------- DECEMBER 31,
1999 1998 1998
---------- -------- ------------
(UNAUDITED)
Revenues $1,179,617 $707,639 $2,040,052
Less: Agency commissions (132,382) (84,585) (233,518)
---------- -------- ----------
Net revenues 1,047,235 623,054 1,806,534
Station operating expenses 561,047 241,855 753,284
General and administrative expenses 203,104 113,561 342,817
Depreciation and amortization 323,498 62,485 354,866
---------- -------- ----------
Income (loss) from operations (40,414) 205,153 355,567
---------- -------- ----------
Interest expense 254,142 41,388 350,368
Other income, net 34,528 22,045 11,952
---------- -------- ----------
Net income (loss) $ (260,028) $185,810 $ 17,151
========== ======== ==========
The accompanying notes are an integral part of these financial statements.
F-35
59
C.F. RADIO, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the year ended December 31, 1998
CAPITAL RETAINED
STOCK EARNINGS TOTAL
------ -------- --------
Balance at January 1, 1998 $7,000 $232,688 $239,688
Net income 17,151 17,151
Distributions to shareholders (7,000) (7,000)
------ -------- --------
Balance at December 31, 1998 $7,000 $242,839 $249,839
====== ======== ========
The accompanying notes are an integral part of these financial statements.
F-36
60
C.F. RADIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS
ENDED JUNE 30,
------------------------ DECEMBER 31,
1999 1998 1998
--------- ----------- -----------
(UNAUDITED)
Cash flows from operating activities:
Net income (loss) $(260,028) $ 185,810 $ 17,151
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 323,498 62,485 354,866
Change in operating assets and liabilities:
Accounts receivable (66,740) (21,418) (231,146)
Prepaid expenses (11,875) 1,538 (1,582)
Other assets 19,706 - (28,872)
Accounts payable (23,466) (1,553) 45,804
Accrued payroll and commissions (51,454) 11,606 60,427
Other accrued expenses and accrued interest 80,284 31,533 67,632
--------- ----------- -----------
Net cash provided by operating activities 9,925 270,001 284,280
Cash flows from investing activities:
Purchase of property and equipment (96,556) (416,937) (212,773)
Acquisition of stations (559,110) (5,219,213)
Due to affiliate 334,595 259,440 770,239
--------- ----------- -----------
Net cash used by investing activities 238,039 (716,607) (4,661,747)
--------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long term debt - 500,000 5,076,538
Payments made on long term debt (28,880) (82,729) (612,440)
Distributions to shareholders (140,298) (7,000)
--------- ----------- -----------
Net cash used by financing activities (169,178) 417,271 4,457,098
--------- ----------- -----------
Net increase (decrease) in cash 78,786 (29,335) 79,631
Cash at beginning of year 591,793 512,162 512,162
--------- ----------- -----------
Cash at end of year $ 670,579 $ 482,827 $ 591,793
========= =========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 254,559 $ 41,388 $ 312,710
========= =========== ===========
Noncash operating activities:
Trade revenue $ 16,171 $ - $ 32,350
========= =========== ===========
Trade expense $ 13,612 $ - $ 9,723
========= =========== ===========
The accompanying notes are an integral part of these financial statements.
F-37
61
C.F. RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
C.F. Radio, Inc. was incorporated in April, 1992 under the laws of the
State of North Carolina and began operations in July, 1992. C.F. Radio,
Inc. owns 100% of Cape Fear Tower Systems, L.L.C. C.F. Radio, Inc. and
Cape Fear Tower Systems, L.L.C. (collectively, "the Company") is engaged
in radio broadcasting, operating stations WFNC-FM, WRCQ, and WMNX in the
Fayetteville and Wilmington, North Carolina markets.
The consolidated financial statements of the Company include the
accounts of C.F. Radio, Inc. and Cape Fear Tower Systems, LLC. Significant
intercompany balances have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
All items with an original maturity of three months or less are considered
to be cash equivalents.
TRADE
The Company enters into agreements in which advertising time is traded for
various products or services. Trade transactions are reported at the fair
value of the goods or services received. Revenue or expense and a
corresponding asset or liability are reported when advertisements are
aired or when goods and services are received.
ACCOUNTS RECEIVABLE
The Company considers accounts receivable at December 31, 1998 to be fully
collectible; accordingly, no allowance for doubtful accounts is required.
Amounts that become uncollectible are charged to operations when that
determination is made.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line basis over their estimated useful lives as follows:
Transmitting and studio equipment 5-15 years
Furniture and fixtures 5-10 years
Vehicles 5 years
Building 39 years
INTANGIBLE ASSETS
Intangible assets, primarily FCC licenses and goodwill, are capitalized
and amortized on a straight-line basis and amortized over 15 years.
Management regularly monitors and evaluates the realizability of recorded
intangibles. Recoverability of assets to be held and used is measured by a
comparison of carrying amount of the assets to future cash flows expected
to be generated by the assets. If such assets are considered to be
impaired, the impairment to be recognized is the amount by which the
carrying amount exceeds the fair value of the assets. The Company believes
that the carrying value of recorded intangibles is not impaired.
F-38
62
C.F. RADIO, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable and accounts payable
approximates fair value because of the short maturity of these
instruments. The carrying value of the Company's debt approximates fair
value. The fair value of debt is based on the quoted market prices for
the same or similar issues.
INCOME TAXES
The Company has elected to be taxed as an S Corporation since inception,
under the provisions of the Internal Revenue Code. Under those provisions,
the Company does not pay corporate income taxes on its taxable income.
Instead, the shareholders are liable for individual income taxes on their
respective share of the Company's taxable income.
INTERIM FINANCIAL STATEMENTS
The financial statements for the six months ended June 30, 1999 and 1998,
are unaudited, but in the opinion of management, such financial statements
have been presented on the same basis as the audited financial statements
for the year ended December 31, 1998, and include all adjustments,
consisting only of normal recurring adjustments necessary for a fair
presentation of the financial position and results of operations and cash
flows for these periods.
2. INTANGIBLE ASSETS
Intangible assets consist of the following:
FCC licenses and goodwill $4,267,937
Accumulated amortization (163,957)
-----------
Intangible assets, net $4,103,980
===========
Amortization expense was $133,057 for the year ended December 31, 1998.
3. ACQUISITIONS OF STATIONS
On March 2, 1998, C.F. Radio, Inc. acquired the assets of WFNC-FM in
Lumberton, NC for an aggregate purchase price of $700,000 plus acquisition
costs of $9,328. The acquisition was accounted for as a purchase and was
included with combined operations from that date through December 31,
1998. The purchase was financed with a $500,000 loan from the former owner
of the station and a $200,000 cash payment.
The total purchase price of $709,328 was allocated as follows:
Property and equipment $350,218
Intangible assets 359,110
--------
Total $709,328
========
The allocation of the purchase price was based upon management's estimate
of the fair market value of the acquired assets.
F-39
63
C.F. RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. ACQUISITIONS OF STATIONS, CONTINUED
On July 28, 1998, C.F. Radio, Inc. acquired the assets of WRCQ in
Fayetteville, NC for an aggregate purchase price of $4,313,688 and
acquisition costs of $196,197. The acquisition was accounted for as a
purchase and was included with combined operations from that date through
December 31, 1998. The purchase was financed with a $4,025,000 bank loan
and $288,688 cash payment.
The total purchase price of $4,509,885 was allocated as follows:
Property and equipment $ 695,871
Prepaid expenses 4,522
Program deposits 9,166
Intangible assets 3,800,326
----------
$4,509,885
==========
4. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
1998
----------
Transmitting and studio equipment $1,827,871
Furniture and fixtures 113,165
Building and improvements 309,618
Vehicles 54,397
Land 85,000
----------
2,390,051
Accumulated depreciation 564,806
----------
Property and equipment, net $1,825,245
==========
Depreciation expense was $221,809 for the year ended December 31, 1998.
F-40
64
C.F. RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. LONG-TERM DEBT
Long-term debt consists of the following:
1998
-----------
Note payable to First Union Bank, monthly interest only
payments through September 1999 at a variable interest
rate of the LIBOR Market Index plus an Applicable
Margin of 2.85% (see Note 6), monthly principal payments
to commence October 1999, balloon payment of $3,042,668
due July 2003, collateralized by substantially all assets
of the Company plus Company stock $4,511,278
Note payable to shareholders, payable in monthly installments,
with interest at 5.63% per annum due December 1999. 315,861
Mortgage payable to DRW Agency, Inc. monthly payments
of $3,773 including interest at 9%, collateralized by
purchase money deed of trust on real estate and guaranty
agreements of shareholders, due February 2005. 213,667
Note payable to First Union Bank, monthly payments of
$808, including interest at 7.8%, collateralized by
equipment, due December 2003. 39,893
Note payable to BB&T, monthly payments, of $516
including interest at 8%, collateralized by vehicle, due 25,367
December 2003.
Note payable, Arthur DeBerry and Associates, Inc.,
monthly payments of $6,334 including interest at 9%, 476,036
due March 2008. ----------
5,582,102
Less current portion 181,481
----------
$5,400,621
==========
F-41
65
C.F. RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. LONG-TERM DEBT, CONTINUED
Maturities of long term debt are as follows:
1999 $ 181,481
2000 449,073
2001 488,226
2002 534,807
2003 3,433,089
Thereafter 495,426
----------
$5,582,102
==========
The First Union note in the amount of $4,511,728 contains restrictive
covenants regarding fixed charge coverage, interest coverage, debt to
earnings before interest and taxes, and capital expenditures. For the year
ended December 31, 1998, the Company was in violation of capital
expenditure covenant. The Company has received a waiver for this
violation.
6. INTEREST RATE SWAP AGREEMENT
On August 3, 1998, in conjunction with the $4,511,278 loan payable to
First Union, the Company entered into an interest rate swap agreement on
the full amount of the debt, which effectively converts the loan to a
fixed interest rate of 8.99%. The agreement terminates on July 31, 2003.
Each month, the Company makes payments to (receives payments from) First
Union equal to the amount by which the loan's monthly interest at 8.99%
exceeds (is less than) the monthly interest at the loan's floating rate.
If the Company should repay the loan prior to its scheduled maturity, or
otherwise break the swap agreement, an amount would be due by the Company
to First Union, or by First Union to the Company, based approximately upon
the present value of the future monthly payments under the swap agreement
given the interest rates in effect at the time the swap agreement is
canceled. As of December 31, 1998, the Company has no plans to cancel the
swap agreement; accordingly, no liability for any amounts which would be
due to First Union if the agreement were canceled has been recorded.
7. CONCENTRATION OF CREDIT RISK
The Company maintains its cash balances at financial institutions located
in Fayetteville and Wilmington, NC. Accounts at each institution are
insured by the Federal Deposit Insurance Corporation up to $100,000. At
December 31, 1998 the Company's uninsured cash balances totaled $313,895.
The Company has not experienced any losses in such cash accounts and
believes it is not exposed to any significant credit risk.
F-42
66
C.F. RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. RELATED PARTY TRANSACTIONS
The Company is affiliated with Cape Fear Broadcasting Co., Inc., a North
Carolina corporation, through common ownership. At December 31, 1998
amounts payable to Cape Fear Broadcasting Co., Inc. were $989,442.
The Company borrowed funds from its shareholders in conjunction with the
initial purchase of the assets of the Company in 1992. At December 31,
1998 the amount owed to shareholders on these loans was $315,861.
The Company rents office and tower space to an affiliated company for
radio broadcasting operations under an oral lease agreement. Related
party rental income of approximately $35,000 is included within other
income.
9. EMPLOYEE BENEFIT PLANS
Effective July 1, 1997, the Company established a qualified deferred
compensation plan under section 401(k) of the Internal Revenue Code. Under
the plan, employees may elect to defer up to 10% of their salary, subject
to the Internal Revenue Service limits. The Company may make a
discretionary contribution. The Company accrued contributions of $573 in
1998 that were paid to the plan in January, 1999.
10. SUBSEQUENT EVENT
On September 1, 1999, the Company entered into a local marketing agreement
with Cumulus Broadcasting, Inc. Under the local marketing agreement the
licensees of the Company's stations make available to Cumulus
Broadcasting, Inc., for a fee, air time on their stations. Cumulus will
provide the programming to be broadcast during the air time and will
collect the advertising it sells for such programming.
On September 23, 1999, the Company and Cape Fear Broadcasting Company,
an entity also controlled by the Company's shareholders, entered into an
agreement to sell substantially all of their broadcast assets and FCC
licenses to Cumulus Broadcasting, Inc., Cumulus Wireless Services, Inc.,
and Cumulus Licensing Corp., (wholly owned subsidiaries of Cumulus Media
Inc.) (collectively "Cumulus") for $44,000,000 in cash and an additional
payment of $3,000,000 due at closing, payable in cash or stock at the
discretion of Cumulus.
F-43
67
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Calendar Broadcasting, Inc.:
We have audited the accompanying consolidated balance sheet of Calendar
Broadcasting, Inc. and subsidiaries as of December 31, 1998, and the
related consolidated statements of operations, stockholder's equity, and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Calendar
Broadcasting, Inc. and subsidiaries as of December 31, 1998, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
April 2, 1999, except as to
note 13, which is as of
November 1, 1999
F-44
68
CALENDAR BROADCASTING, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
JUNE 30, DECEMBER 31,
Assets (note 5) 1999 1998
------------ ------------
(Unaudited)
Current assets:
Cash 496,551 413,555
Accounts receivable, less allowance for doubtful accounts
of $99,921 and $94,669 at June 30, 1999 and
December 31, 1998, respectively 1,399,371 1,523,510
Prepaid expenses 102,604 49,689
Note receivable from affiliate (note 9) -- 130,500
Other current assets 72,129 42,110
------------ ------------
Total current assets 2,070,655 2,159,364
Property and equipment, net of accumulated depreciation of
$3,666,740 and $3,455,077 at June 30, 1999 and
December 31, 1998, respectively (notes 3 and 4) 1,918,003 2,058,505
Intangible assets, net of accumulated amortization of $6,642,294
and $6,114,510, at June 30, 1999 and December 31, 1998,
respectively (notes 3 and 5) 11,290,758 11,818,542
Other assets 20,605 19,605
------------ ------------
15,300,021 16,056,016
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable 183,984 69,871
Accrued compensation 149,805 38,518
Accrued management fees (note 9) -- 175,000
Other accrued expenses 66,448 147,949
Accrued interest 109,393 124,261
Deferred revenue -- 20,531
Current portion of long-term debt (note 6) 337,500 450,000
------------ ------------
Total current liabilities 847,130 1,026,130
Long-term debt (note 6) 12,507,000 12,507,000
Mandatory redeemable convertible preferred stock, stated
and redemption value $1,000 per share. Authorized,
issued and outstanding 1,550 shares (note 11) 1,550,000 1,550,000
Stockholder's equity (notes 6 and 11):
Common stock, par value $.01. Authorized 30,000 shares;
issued and outstanding 6,783 shares 67 67
Additional paid-in capital 4,893,934 4,893,934
Accumulated deficit (4,498,110) (3,921,115)
------------ ------------
Total stockholders' equity 395,891 972,886
------------ ------------
Commitments (notes 10 and 12)
15,300,021 16,056,016
============ ============
See accompanying notes to consolidated financial statements.
F-45
69
CALENDAR BROADCASTING, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
SIX-MONTH PERIOD YEAR ENDED
ENDED JUNE 30 DECEMBER 31
-------------------------- -----------
1999 1998 1998
----------- ----------- -----------
(Unaudited)
Revenues 3,732,838 3,414,748 7,569,065
----------- ----------- -----------
Expenses:
Selling, technical and program 1,769,660 1,585,727 3,462,500
General and administrative (notes 9 and 10) 1,101,629 1,034,738 2,171,762
Depreciation and amortization 739,447 722,642 1,438,905
----------- ----------- -----------
Total expenses 3,610,736 3,343,107 7,073,167
----------- ----------- -----------
Operating income 122,102 71,641 495,898
Other income (expense):
Interest income 753 175 26,952
Interest expense (note 6) (699,850) (657,848) (1,499,000)
Loss on sale of radio station KVJY (AM) (note 3) -- -- (72,027)
----------- ----------- -----------
Loss before minority interest
in losses of subsidiaries
and extraordinary item (576,995) (586,032) (1,048,177)
Minority interest in losses of subsidiaries (note 1) 57,484 46,000
----------- ----------- -----------
Loss before extraordinary item (576,995) (528,548) (1,002,177)
Extraordinary item - loss on extinguishment of debt
(note 6) -- -- (236,725)
----------- ----------- -----------
Net loss (576,995) (528,548) (1,238,902)
=========== =========== ===========
See accompanying notes to consolidated financial statements.
F-46
70
CALENDAR BROADCASTING, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholder's Equity
COMMON ADDITIONAL
STOCK, $.01 PAID-IN ACCUMULATED
PAR VALUE CAPITAL DEFICIT TOTAL
---------- ---------- ---------- ----------
Balance at December 31, 1997 67 5,993,934 (2,682,213) 3,311,788
Repurchase of warrants (note 6) -- (1,100,000) -- (1,100,000)
Net loss -- -- (1,238,902) (1,238,902)
---------- ---------- ---------- ----------
Balance at December 31, 1998 67 4,893,934 (3,921,115) 972,886
Net loss (unaudited) -- -- (576,995) (576,995)
---------- ---------- ---------- ----------
Balance at June 30, 1999 (unaudited) $ 67 4,893,934 (4,498,110) 395,891
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
F-47
71
CALENDAR BROADCASTING, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
SIX-MONTH PERIOD
ENDED JUNE 30 DECEMBER 31
---------------------------- -----------
1999 1998 1998
--------- --------- ---------
(UNAUDITED)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash (576,995) (528,548) (1,238,902)
(used in) provided by operating activities:
Extraordinary item - loss on extinguishment of debt -- 236,725
Depreciation and amortization 739,447 722,642 1,438,905
Minority interest -- (57,484) (46,000)
Amortization of deferred financing costs -- -- 41,491
Amortization of debt discount -- 17,000 31,575
Loss on sale of radio station KVJY (AM) -- -- 72,027
Change in allowance for doubtful accounts 5,252 (45,681) 3,540
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 118,887 (221,739) (313,664)
Increase in prepaid expenses (52,915) (29,366) (20,816)
(Increase) decrease in other current assets (30,019) 26,869 38,393
Increase in accrued interest on note receivable
from minority stockholder -- -- (26,484)
Increase in other assets, net (1,000) -- (1,000)
Increase (decrease) in accounts payable, accrued
expenses and deferred revenue (51,632) 245,321 (238,445)
Increase (decrease) in accrued and deferred
interest (14,868) 136,099 (30,055)
-------- -------- --------
Net cash (used in) provided by operating
activities 136,157 265,113 (52,710)
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment (71,161) (216,140) (326,090)
Proceeds from sale of radio station KVJY (AM), net
of selling costs of $71,422 -- -- 628,578
(Increase) decrease in note receivable from affiliate 130,500 -- (130,500)
-------- ------- --------
Net cash (used in) provided by
investing activities 59,339 (216,140) 171,988
-------- -------- --------
Cash flows from financing activities:
Repurchase of warrants -- -- (1,100,000)
Repayments of subordinated debt -- -- (4,000,000)
Proceeds from term note payable -- 5,857,000
Repayment of term note (112,500) -- (500,000)
Payments under covenant not-to-compete -- (60,000)
Repayments of note receivable from
minority stockholder -- -- 15,000
Deferred financing costs -- -- (135,000)
-------- --------- ---------
Net cash provided by (used in)
financing activities (112,500) -- 77,000
Net increase in cash -------- -------- --------
Cash at beginning of period 82,996 48,973 196,278
413,555 217,277 217,277
Cash at end of period -------- ---------- --------
496,551 266,250 413,555
======== ========== ========
DECEMBER 31
-------------
1998
-------------
Supplemental disclosure of cash flow information - cash
paid for interest 1,456,844
============
See accompanying notes to consolidated financial statements.
F-48
72
CALENDAR BROADCASTING, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
(1) NATURE OF BUSINESS AND ORGANIZATION
Calendar Broadcasting, Inc. (the Company) was incorporated in the state
of Delaware in 1989 and is owned by M&F Calendar Holdings, L.P. (M&F
Calendar). M&F Calendar is a special purpose investment partnership
formed by the equity investment firm of M&F Associates, L.P. (formerly
Murphy & Fauver, L.P.). The Company was established for the purposes of
purchasing, owning, operating and managing radio stations.
In 1990, the Company established May Holding Corporation (May Holding), a
90% subsidiary, which in turn established May Communications, Inc. (May
Communications), a wholly-owned subsidiary. May Communications owns and
operates radio station KBFM (FM) in Edinburg, Texas, which was acquired
in 1991 for a purchase price of approximately $2,500,000.
In 1993, the Company established July Broadcasting, Inc. (July
Broadcasting). July Broadcasting owns and operates radio station KTEX
(FM) in Brownsville, Texas, and KVJY (AM) in Pharr, Texas, purchased for
$5,100,000 in 1995. On December 16, 1994, the Company established July
Holding Corporation (July Holding), an 88% subsidiary, for the purposes
of purchasing, owning, operating and managing radio stations. KVJY (AM)
was sold during 1998 (see note 3).
On February 7, 1997, April Holding Corporation (April Holding), a 90%
subsidiary of the Company, acquired April Broadcasting, Inc. (April
Broadcasting), for cash, exchange of stock and conversion of a Class A
note receivable due from April Broadcasting into common stock of April
Holding. April Broadcasting owns WBLX (FM) and WDLT (AM) in Mobile,
Alabama, purchased in 1990 for $5,250,000 and WDLT (FM) in Mobile,
Alabama, purchased in 1997 for approximately $3,400,000.
The Company, April Holding, April Broadcasting, May Holding, May
Communications, July Holding and July Broadcasting have some common
officers and directors.
(2) SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of the Company, April Holding, April Broadcasting, May Holding, May
Communications, July Holding and July Broadcasting. All material
intercompany items and transactions have been eliminated.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the respective
assets, which range from 5 to 31-1/2 years. Maintenance and repairs are
charged to operations as incurred.
(Continued)
F-49
73
CALENDAR BROADCASTING, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
INTANGIBLE ASSETS
Intangible assets consist primarily of broadcasting assets amortized on a
straight-line basis over periods from 5 to 25 years.
Management regularly monitors and evaluates the realizability of recorded
intangibles. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of the assets to future undiscounted
cash flows expected to be generated by the assets. If such assets are
considered to be impaired, the impairment to be recognized is the amount
by which the carrying amount exceeds the fair value of the assets. The
Company believes that the carrying value of recorded intangibles is not
impaired.
INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Deferred income taxes are measured using the enacted tax rates
and laws that are anticipated to be in effect when the differences are
expected to reverse.
REVENUE
Broadcast revenue is recognized when advertisements are aired and is
presented net of agency commissions.
BARTER TRANSACTIONS
Revenue from barter transactions (advertising provided in exchange for
goods and services) is recognized as income when advertisements are
broadcast, and barter expense is recognized when merchandise is received
or services are performed. Barter revenue was approximately $390,000 and
barter expense was approximately $324,000 during the year ended December
31, 1998.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets and identifiable intangibles
for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable through a review
of undiscounted cash flows.
(Continued)
F-50
74
CALENDAR BROADCASTING, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
(3) DISPOSITION
On November 9, 1998, July Broadcasting completed the sale of KVJY (AM)
Pharr, Texas, to Vie Dansante Broadcasting, Inc. for $700,000. A portion
of the proceeds from the sale was used to repay a portion of the
principal balance of the FINOVA Term Loan (see note 6). July Broadcasting
recognized a loss on the sale totaling $72,027.
(Continued)
F-51
75
CALENDAR BROADCASTING, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
(4) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 consists of the following:
1998
----------
Land 211,110
Buildings 1,039,742
Equipment 4,040,206
Furniture and fixtures 196,406
Vehicles 26,118
----------
5,513,582
Less accumulated depreciation 3,455,077
----------
2,058,505
==========
(5) INTANGIBLE ASSETS
Intangible assets at December 31, 1998 consists of the following:
1998
------------
Goodwill 6,452,271
FCC licenses 5,892,524
Advertising client base and contracts 2,096,987
Favorable leases 623,167
Covenants not to compete 635,081
Deferred financing costs 130,576
Other intangibles 2,102,446
------------
17,933,052
Less accumulated amortization 6,114,510
------------
11,818,542
============
(Continued)
F-52
76
CALENDAR BROADCASTING, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
(6) LONG-TERM DEBT
Long-term debt at December 31, 1998 consists of the following:
1998
----------
Term loan 12,957,000
----------
Total long-term debt 12,957,000
Less current portion 450,000
----------
12,507,000
==========
On October 29, 1998, April Broadcasting, May Communications and
July Broadcasting executed the Second Amended and Restated Loan
Agreement by which they borrowed an additional $5,857,000 from
FINOVA which was used to repay in full amounts due under the
Allied agreement (discussed below); repurchase the Allied
warrants; pay all amounts due under the covenant not to compete;
pay transaction costs; and provide working capital. The principal
terms of the Term Loan, as amended are repayment in 20 consecutive
quarterly installments, starting at $150,000 and increasing to
$350,000 beginning April 1, 1999, with the remaining principal of
$1,357,000 due on the first business day of October 2003; and
interest payable monthly beginning November 1998 at the base rate
of a major bank plus an
(Continued)
F-53
77
CALENDAR BROADCASTING, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
additional factor which varies from 1.00% to 2.50%, based upon a cash
flow related ratio. In connection with the repayments under the Allied
agreement and the FINOVA refinancing, the Company wrote off the related
unamortized deferred financing costs and unamortized discount on the
Allied subordinated debt, which are included as an extraordinary item in
the accompanying consolidated statement of operations for the year ended
December 31, 1998.
On November 9, 1998, July Broadcasting made a $500,000 payment of the
principal balance of the FINOVA Term Loan from a portion of the proceeds
from the sale of KVJY (AM) (see note 3).
The Term Loan is collateralized by substantially all of the assets and
stock of April Broadcasting, May Communications and July Broadcasting.
The refinanced loan also contains certain restrictive covenants that
require the maintenance of certain debt service and leverage ratios, as
well as other financial and nonfinancial covenants, applied on a
consolidated basis. The term loan is guaranteed by the minority
stockholder of the Company.
On October 31, 1997, the Company entered into a subordinated debt
agreement with Allied for $4,000,000. The proceeds were used for
working capital and to provide April Broadcasting funds to acquire radio
station WDLT (FM). No principal payments could be made under this
subordinated debt agreemnt until the Term Loan was paid in full;
however; quarterly interest payments were required to be made. The
agreement granted Allited warrants for 15% of the Company's capital
stock. The warrants were exercisable at any time at an exercise price
of $100. At any time beginning five years after the date of the
subordinated debt agreement, the holders could, on one occasion only,
require the Company to purchase the warrants or the shares issued
thereunder at the price determinded as of the time of the exercise of
the clause, equl to the product of the appraised value of the Company
determined pursuant to the terms of the agreement. If the subordinated
debentures are repaid in full within three years of the date of the
subordinated debt agreement, the Company at its option could repurchase
the warrants or any shares issued thereunder at $1,100,000 through the
24th month of the subordinated debt agreement and at $2,000,000 through
the 36th month.
All outstanding amounts under the subordinated debt agreement were due
February 14, 2003. The restrictive covenants required under the Term Loan
applied to the subordinated debt agreement.
The Allied agreement was repaid in full on October 29, 1998 and the
warrants were repurchased for $1,100,000.
(Continued)
F-54
78
CALENDAR BROADCASTING, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
The aggregate minimum principal amounts due under the above agreements at
December 31, 1998 are as follows:
Year ending December 31:
1999 $ 450,000
2000 825,000
2001 1,000,000
2002 1,200,000
2003 9,482,000
------------
$ 12,957,000
============
(7) COVENANT NOT-TO-COMPETE
The WBLX (AM/FM) purchase agreement included a covenant not-to-compete
for $250,000. The agreement provided for annual payments of $50,000 to
the seller over five years subject to certain specified cash flow levels.
On October 29, 1998, the balance, together with the related accrued
interest, was repaid.
(8) INCOME TAXES
Income tax benefit for the year ended December 31, 1998 differed from the
amount computed by applying the U.S. federal income tax rate of 34% to
pretax income as a result of the following:
1998
------------
Computed tax benefit at 34% (421,227)
Increase decrease in income taxes
resulting from:
Goodwill 154,610
Meals and entertainment expense 2,169
Increase in balance of the valuation
allowance for deferred tax assets 264,448
------------
Income tax expense --
============
(Continued)
F-55
79
CALENDAR BROADCASTING, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liability at
December 31, 1998 is as follows:
1998
---------------
Deferred tax assets:
Federal and state net operating loss carryforwards 2,755,838
Allowance for doubtful accounts 32,188
---------------
Total gross deferred tax assets 2,788,026
Less valuation allowance 2,737,012
---------------
Net deferred tax assets 51,014
Deferred tax liability - book vs. tax basis accumulated
depreciation and amortization 51,014
---------------
Net deferred taxes --
===============
The valuation allowance for deferred tax assets as of January 1, 1998 was
$2,472,564. The net change in the total valuation allowance for the year
ended December 31, 1998 was an increase of $264,448. The Company has
experienced certain ownership changes which, under the provisions of
Section 382 of the Internal Revenue Code of 1986, as amended, may result
in an annual limitation on the Company's ability to utilize its net
operating losses in the future. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than
not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which
those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable
income and tax planning strategies in making this assessment. Based upon
the level of historical taxable income and projections for future taxable
income over the periods in which the deferred tax assets are deductible,
management could not conclude that it is more likely than not that the
Company will realize the benefits of these deductible differences. As a
result, there is a full valuation allowance at December 31, 1998.
At December 31, 1998, the Company has net operating loss carryforwards of
approximately $8,200,000 for federal and state income tax reporting
purposes available to offset future taxable income through the year 2013.
(Continued)
F-56
80
CALENDAR BROADCASTING, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
(9) RELATED-PARTY TRANSACTIONS
April Broadcasting, May Communications and July Broadcasting have
management agreements with M&F Associates L.P. (M&F), the general partner
of M&F Calendar, to perform financial advisory and management services.
The annual fee is $50,000 each for April Broadcasting and May
Communications and $100,000 for July Broadcasting, plus out-of-pocket
expenses. M&F charged $200,000 under these agreements in 1998. As of
December 31, 1998, $175,000 has been accrued for the unpaid portions of
these services.
During 1995, July Holding received a capital contribution in the form of
a $303,000 note receivable from a stockholder of the Company. Interest
accrues quarterly on the note at prime plus 1% and is payable with the
principal on June 27, 2000. During 1998, the stockholder repaid $15,000
of this note. The unpaid balance of the note plus accrued interest is
reflected as an offset to minority interest in the accompanying
consolidated balance sheets. In March 1999, the note receivable was
forgiven by the Company and was written off against the minority interest
liability.
In October 1998, the Company loaned $130,500 to an affiliated
organization. The note is noninterest bearing and is payable in full on
the earlier of the date on which a sale of substantially all of the
Company's operating radio stations is consummated or November 1, 2003.
The affiliate may repay any or all of the outstanding principal balance
at any time.
(10) EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries maintained a 401(k) Employee Savings
Plan (the Plan) covering all of their full-time employees. All eligible
employees could elect to contribute a portion of their wages to the Plan,
subject to certain limitations. In addition, the Company contributed to
the Plan at the rate of 25% of the employee contributions up to a maximum
of 4% of the employee's salary. The Company's contribution to the Plan
was $2,615 during the year ended December 31, 1998. On August 25, 1998,
the Company filed an application with the Internal Revenue Service to
terminate the Plan effective March 31, 1998 and received a favorable
determination letter from the Internal Revenue Service in April 1999.
(Continued)
F-57
81
CALENDAR BROADCASTING, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
(11) REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company has 1,550 shares of Series A Convertible Preferred Stock, par
value $1,000 per share, outstanding as of December 31, 1998. Each share
of the Series A Preferred Stock is convertible at the option of the
holder into one share of common stock. The Company is required to redeem
all outstanding shares of Series A Preferred Stock not previously
converted on June 30, 2001, at a price of $1,000 per share plus accrued
dividends, if any. As of December 31, 1998, no dividends had been
declared.
(12) COMMITMENTS
LEASES
As of December 31, 1998, the Company and its subsidiaries are obligated
for future minimum payments under certain noncancelable operating leases
as follows:
Year ending December 31:
1999 $ 173,722
2000 144,029
2001 111,625
2002 107,667
2003 83,679
Thereafter 822,821
----------
$1,443,543
==========
Rental expense, principally for office space and tower rentals, amounted
to approximately $137,030 for the year ended December 31, 1998.
(13) SUBSEQUENT EVENTS
On June 15, 1999, the Company's stockholders entered into a stock
purchase agreement for the sale of the Company's outstanding common stock
to Cumulus Media Inc. (the Buyer) for $36,000,000. The Company has
guaranteed net working capital of at least $1,500,000 at the closing
date. Failure by the Company to transfer the $1,500,000 will result in a
reduction of the purchase price by such shortfall. The sale was
consummated on November 1, 1999.
F-58
82
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Cumulus Media Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, changes in members' equity and cash flows present fairly, in all
material respects, the financial position of Coast Radio L.L.C. at December 31,
1998, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
February 28, 1999
Chicago, Illinois
F-59
83
COAST RADIO L.L.C.
BALANCE SHEETS
JUNE 30, DECEMBER 31,
ASSETS 1999 1998
------------ ------------
(UNAUDITED)
Current assets:
Cash and cash equivalents $ 862,193 $ 668,066
Accounts receivable 485,012 521,979
Prepaid expenses 77,142 74,541
Due from member 69,000 5,000
----------- ------------
Total current assets 1,493,347 1,269,586
Property and equipment, net 532,989 581,647
Intangible assets, net 595,108 606,219
----------- ------------
Total assets $ 2,621,444 $ 2,457,452
=========== ============
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable $ - $ 14,579
Accrued expenses 22,196 53,555
Current portion, long term debt 52,958 52,985
----------- -------------
Total current liabilities 75,154 121,119
Long term debt 157,613 181,261
----------- -------------
Total liabilities 232,767 302,380
----------- -------------
Commitments:
Members' equity 2,388,677 2,155,072
----------- -------------
Total liabilities and members' equity $ 2,621,444 $ 2,457,452
=========== =============
The accompanying notes are an integral part of the financial statements.
F-60
84
COAST RADIO L.L.C.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED FOR THE YEAR
JUNE 30, ENDED
--------------------------------- DECEMBER 31,
1999 1998 1998
------------ ------------ --------------
(UNAUDITED)
Revenues $ 1,431,703 $ 1,327,314 $ 2,932,119
Less: Agency commissions (155,939) (133,834) (317,717)
------------ ------------ -------------
Net revenues 1,275,764 1,193,480 2,614,402
------------ ------------ -------------
Operating expenses:
Programming 202,432 223,711 440,331
Sales and promotions 413,446 399,430 805,246
Technical 14,703 9,143 27,285
General and administrative 318,655 276,289 900,587
Depreciation and amortization 64,698 62,522 128,825
------------ ------------ -------------
Total operating expenses 1,013,934 971,095 2,302,274
------------ ------------ -------------
Income from operations 261,830 222,385 312,128
Interest expense 9,085 9,338 19,962
------------ ------------ -------------
Income before income taxes 252,745 213,047 292,166
State income tax benefit - - (37,092)
------------ ------------- -------------
Net Income $ 252,745 $ 213,047 $ 329,258
============ ============= =============
The accompanying notes are an integral part of the financial statements.
F-61
85
COAST RADIO L.L.C.
STATEMENT OF CHANGES IN MEMBERS' EQUITY
for the year ended December 31, 1998
Balance at January 1, 1998 $ 1,918,416
Net income 329,258
Distributions (92,602)
-----------
Balance at December 31, 1998 $ 2,155,072
===========
The accompanying notes are an integral part of the financial statements.
F-62
86
COAST RADIO L.L.C.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED FOR THE YEAR
JUNE 30, ENDED
-------------------------------------- DECEMBER 31,
1999 1998 1998
------------------ -------------- -------------
(UNAUDITED)
Cash flows from operating activities:
Net Income $ 252,745 $ 213,047 $ 329,258
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 64,698 62,522 128,827
Deferred tax liability - - 37,092
Changes in operating assets and liabilities:
Accounts receivable 36,967 (39,013) (77,094)
Due from member (64,000) (13,000) (5,000)
Prepaid expenses (2,601) (15,922) (41,904)
Accounts payable (14,579) - 14,579
Accrued expenses (31,359) 101 (56,269)
---------------- --------------- -----------
Net cash provided by operating activities 241,871 207,735 329,489
---------------- --------------- -----------
Cash flows from investing activities:
Acquisition costs (1,259)
Purchase of property and equipment (3,670) (814)
Proceeds from sale of property and equipment - - (6,547)
---------------- --------------- -----------
Cash provided by used for investing activities (4,929) (814) (6,547)
---------------- --------------- -----------
Cash flows from financing activities:
Principal payments on bank borrowings (23,675) (20,325) (48,888)
Distributions to members (19,140) (56,278) (92,602)
---------------- --------------- -----------
Cash used for financing activities (42,815) (76,603) (141,490)
---------------- --------------- -----------
Increase in cash and cash equivalents 194,127 130,318 181,452
Cash and cash equivalents at beginning of year 668,066 486,614 486,614
---------------- --------------- -----------
Cash and cash equivalents at end of year $ 862,193 $ 616,932 $ 668,066
================ =============== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 9,085 $ 9,338 $ (19,962)
================ =============== ===========
Non-cash operating activities:
Trade revenue $ 64,781 $ 62,855 $ 131,641
================ =============== ===========
Trade expense $ 94,723 $ 42,482 $ 103,720
================ =============== ===========
The accompanying notes are an integral part of the financial statements.
F-63
87
COAST RADIO L.L.C.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. SUBSEQUENT EVENTS
Effective January 29, 1999, the Company entered into an option agreement
with Cumulus Broadcasting, Inc. (a wholly owned subsidiary of Cumulus Media
Inc.) ("Cumulus") to sell substantially all of the Company's assets for $9
million in cash. Under the terms of the agreement, Cumulus has the right to
exercise the purchase option at any time through December 31, 1999. The
Company may require Cumulus to exercise the option between June 30, 1999
and December 31, 1999. Additionally, should Cumulus enter into a purchase
agreement with any other station in the Company's market area prior to June
30, 1999, the Company has the right to require Cumulus to exercise the
option.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Coast Radio LLC, formed in 1994, owns and operates two radio stations;
WWRO-FM and WCOA-AM (the "Stations" or "Company") located in Pensacola,
Florida.
The significant accounting principles followed by the Company and the
methods of applying those principles which materially affect the
determination of financial position, results of operations, and cash flows
are summarized below.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
All items with an original maturity of three months or less are considered
to be cash equivalents.
The Company has $668,066 on deposit with a single financial institution,
which is in excess of the $100,000 insured limit.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts receivable and
accounts payable approximates fair value because of the short maturity of
these instruments. The carrying value of the Company's debt approximates
fair value. Fair value is based upon the current market price of similar
issues.
PROPERTY AND EQUIPMENT
Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives
F-64
88
COAST RADIO L.L.C.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
of the assets, are capitalized at cost and depreciated on a straight-line
basis over their estimated useful lives as follows:
Broadcasting equipment 10 years
Office furniture and equipment 5 years
Tower and antenna 10 years
Vehicles 3 years
Maintenance, repairs, and minor replacement of these items are charged to
expense as incurred.
INTANGIBLE ASSETS
Intangible assets include FCC broadcast licenses, are stated at cost and
are being amortized using the straight-line method over the estimated
useful life of 30 years. Management regularly monitors and evaluates the
realizability of recorded intangibles. Recoverability of assets to be held
and used is measured by a comparison of carrying amount of the assets to
future cash flows expected to be generated by the assets. If such assets
are considered to be impaired, the impairment to be recognized is the
amount by which the carrying amount exceeds the fair value of the assets.
The Company believes that the carrying value of recorded intangibles is
not impaired.
INCOME TAXES
The Company has organized in the State of Florida as a Limited Liability
Company (LLC) and is treated as a partnership for federal income tax
purposes. Accordingly, income of the Company is personally taxable to the
members of the LLC for federal tax purposes and no federal income tax
expense has been recorded in these financial statements.
Prior to 1998, the State of Florida recognized the Company as a regular
corporation and therefore, was subject to state income taxes. Beginning in
1998, the State of Florida recognizes LLC's as a partnership. The income
tax benefit recognized in these financial statements represents the
reversal of previously recorded deferred state income taxes, as such, the
liability will ultimately be paid by the members.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
TRADE AGREEMENTS
The Company enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from
trade agreements are recognized at the fair market value of products or
services received as advertising air time is broadcast. Products and
services received are expensed when used in the broadcast operations.
F-65
89
COAST RADIO L.L.C.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
ACCOUNTS RECEIVABLE
The Company considers accounts receivable at December 31, 1998 to be fully
collectible; accordingly, no allowance for doubtful accounts is required.
Amounts that become uncollectible are charged to operations when that
determination is made.
INTERIM FINANCIAL STATEMENTS
The financial statements for the six months ended June 30, 1999 and 1998,
are unaudited, but in the opinion of management, such financial statements
have been presented on the same basis as the audited financial statements
for the year ended December 31, 1998, and include all adjustments,
consisting only of normal recurring adjustments necessary for a fair
presentation of the financial position and results of operations and cash
flows for these periods.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
Broadcasting equipment $ 754,731
Office furniture and equipment 144,516
Tower and antenna 124,000
Vehicles 58,426
------------
1,081,673
Accumulated depreciation (500,026)
------------
Property and equipment, net $ 581,647
============
Depreciation expense was $104,086 for the year ended December 31, 1998.
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
FCC broadcast licenses $ 713,041
Accumulated amortization (106,822)
------------
Intangible assets, net $ 606,219
============
Amortization expense was $24,741 for the year ended December 31, 1998.
F-66
90
COAST RADIO L.L.C.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. COMMITMENTS
The Company incurred expenses of approximately $57,188 for the year ended
December 31, 1998 under an operating lease for radio broadcasting
facilities. Future minimum annual payments under this operating lease are
$71,208 through February 2003. The Company may terminate this lease by
providing the lessor 90 days notice and a termination fee equal to six
months rent.
The Company has entered into a joint venture agreement to share expenses of
leasing and maintaining a tower. Total amounts paid under this agreement
were $19,789 for the year ended December 31, 1998. The Company is liable
for its pro-rata share of lease payments under a lease agreement executed
by the joint venture. The Company's share of future minimum lease payments
under this agreement is $4,635 through 2003 and $45,900 for the remaining
11 years through 2014.
6. LONG-TERM DEBT
Long-term debt consists of the following as of December 31, 1998:
Note payable to AmSouth Bank, due in monthly
installments of $5,460, including interest at 8.00%;
maturing February, 2003; $234,246
Less current maturities (52,985)
---------
Long-term $181,261
=========
Maturities of long-term debt are as follows:
1999 52,985
2000 52,932
2001 57,325
2002 62,083
2003 8,921
-------
234,246
=======
7. STOCK PURCHASE AGREEMENT
The Company and its members have reached an agreement which stipulates the
terms under which the Company's shares can be sold, transferred or pledged.
The agreement extends the option to the Company, then to members, to
purchase a members' shares upon termination of employment, retirement,
disability or incapacity. The Company is obligated to purchase the shares
of any member upon death, bankruptcy or dissolution. Other transfers of
stock by its members are also restricted. The purchase price shall be
calculated based on the members' portion of the total value of the Company,
as stipulated in the agreement. This value was approximately $9.5 million
as of December 31, 1998. The purchase price is payable in 60 monthly
installments, with interest on the unpaid principle balance at the rate of
8 percent.
F-67
91
COAST RADIO L.L.C.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. RETIREMENT PLAN
The Company has adopted a 401(k) retirement plan covering substantially all
employees. Under the plan, employees may elect to defer up to the maximum
percentage allowable subject to IRS regulations. The plan allows the
Company to make discretionary matching contributions not to exceed the
first 5 percent deferred by an employee. No Company contributions were made
for the years ended December 31, 1998 and 1997.
F-68
92
EXHIBIT INDEX
Sequentially
Exhibit No. Description Numbered Page
- ----------- ----------------------------------------------------------------- -------------
2.0 Asset Purchase Agreement dated as of April 2,
1999, by and between Cumulus Broadcasting, Cumulus Licensing,
Cumulus Wireless and Phillips Broadcasting Company, Inc.
2.1 Asset Purchase Agreement dated as of March 9,
1999 by and between Cumulus Broadcasting, Cumulus Licensing,
Cumulus Wireless, HMH Broadcasting Inc., a Kentucky
corporation and HMH Realty, LLC.
2.2 Stock Purchase Agreement dated June 15, 1999,
among the Company and M&F Calendar Holdings, L.P., Kevin C.
Whitman, nassau Capital Partners L.P., NAS Partners I L.L.C.,
and Philip J. Giordano.
2.3 Asset Purchase Agreement dated as of June 29, 1999, by and
among Cumulus Broadcasting, Cumulus Licensing and Coast
Radio, L.C., a Florida limited liability company.
2.4 Asset Purchase Agreement dated as of September
23, 1999, by and between Cumulus Broadcasting, Cumulus
Licensing, Cumulus Wireless, C. F. Radio, Inc., Cape Fear
Radio, LLC, Cape Fear Broadcasting Company and Cape Fear Tower
Systems, LLC.
23.0 Consent of PricewaterhouseCoopers LLP.
23.1 Consent of Wipfli Ullrich Bertelson LLP.
23.2 Consent of KPMG LLP.
- ----------------