MAX MEDIA PROPERTIES LLC
Consolidated Balance Sheets
(unaudited)
December 31 June 30
1997 1998
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Assets (note 4)
Current assets:
Cash and cash equivalents $ 1,789,194 $ 2,277,935
Restricted cash (note 3) 512,856 --
Accounts receivable, net 11,484,849 11,230,969
Program contract rights, current portion 2,325,431 2,276,647
Deferred charges, primarily barter agreements 640,145 727,246
Prepaid expenses and other current assets 851,502 1,188,430
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Total current assets 17,603,977 17,701,227
Property and equipment, net 25,709,048 23,330,692
Program contract rights, long-term portion 2,182,349 1,291,568
Intangible assets, net 82,137,183 78,402,585
Due from related party 1,800,370 1,951,758
Notes receivable 457,445 461,181
Other assets 92,667 75,297
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$ 129,983,039 $ 123,214,308
============= =============
Liabilities and Members' Capital Current liabilities:
Current portion of long-term debt (note 4) $ 4,751,520 $ 5,251,704
Program contract rights payable, current portion 2,430,572 1,718,669
Accounts payable 717,748 301,756
Accrued compensation and benefits 2,043,859 6,981,339
Other accrued expenses 979,409 714,706
Deferred revenue, primarily barter agreements 1,026,238 1,063,250
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Total current liabilities 11,949,346 16,031,424
Long-term debt, excluding current portion (note 4) 68,927,774 66,138,251
Program contract rights payable, long-term portion 1,736,102 983,680
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Total liabilities 82,613,222 83,153,355
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Members' capital (notes 4 and 5):
Class A - 3,069,000 member units 21,346,430 21,346,430
Class B - 5,140,500 member units 6,738,406 6,738,406
Class C - 3,421,931member units 21,893,829 21,893,830
Accumulated deficit (2,608,848) (9,917,713)
Total members' capital 47,369,817 40,060,953
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$ 129,983,039 $ 123,214,308
============= =============
See accompanying notes to consolidated financial statements.
MAX MEDIA PROPERTIES LLC
Consolidated Statements of Operations (unaudited)
Six months
ended June 30,
1997 1998
---- ----
Gross revenues $ 29,425,665 $ 33,452,910
Less agency commissions 3,534,017 3,961,790
------------ ------------
Net revenues 25,891,648 29,491,120
Operating expenses:
General and administrative 5,176,700 10,530,713
Sales 5,315,190 5,863,769
News 1,285,073 1,599,496
Programming and production:
Program amortization 2,636,652 2,754,930
Operations 2,405,736 2,425,703
Promotions 1,647,228 1,685,829
Engineering 1,519,111 1,695,085
Depreciation and amortization of property and equipment 2,046,230 2,565,851
Amortization of intangible assets 3,739,586 4,131,524
Total operating expenses 25,771,506 33,252,900
------------ ------------
Income (loss) from operations 120,142 (3,761,780)
------------ ------------
Other income (expenses):
Interest expense (2,942,922) (3,003,458)
Gain on station sale, net (note 3) 8,511,109 --
Other income (expense) (26,179) 140,751
------------ ------------
Total other income (expenses), net 5,542,008 (2,862,707)
------------ ------------
Income (loss) $ 5,662,150 $ (6,624,487)
============ ============
Pro forma income data:
Income (loss) $ 5,662,150 $ (6,624,487)
Pro forma income tax expense (benefit) (note 6) 2,208,239 (2,583,550)
------------ ------------
Pro forma net income (loss) $ 3,453,911 $ (4,040,937)
============ ============
See accompanying notes to consolidated financial statements.
MAX MEDIA PROPERTIES LLC
Consolidated Statements of Cash Flows (unaudited)
Six months
ended June 30,
1997 1998
---- ----
Cash flows from operating activities:
Income (loss) $ 5,662,150 $ (6,624,487)
------------ ------------
Reconciliation of income (loss) to net cash
provided by operating activities:
Depreciation and amortization of property
and equipment 2,046,230 2,565,851
Amortization of intangible assets 3,739,586 4,131,524
Amortization of program contract rights 1,300,108 1,013,390
Barter program amortization 1,336,546 1,741,540
Barter program revenue (1,336,546) (1,741,540)
Gain on station sale, net (8,511,109) --
(Gain) loss on disposal of equipment 44,609 27,745
Changes in assets and liabilities, net
of effect of station acquisitions:
Accounts receivable, net (1,235,182) 253,880
Deferred charges, primarily barter agreements (116,970) (87,101)
Prepaid expenses and other current assets (121,891) (336,492)
Accounts payable 167,200 (415,992)
Accrued compensation and benefits (46,171) 4,937,480
Other accrued expenses (76,710) (264,703)
Deferred revenue, primarily barter agreements 105,951 37,012
------------ ------------
Net cash provided by operating activities 2,957,801 5,238,107
------------ ------------
Cash flows from investing activities:
Acquisition of stations, net of cash deposits (34,108,599) --
Payments for program contract rights (1,184,839) (1,538,150)
Purchases of property and equipment (5,191,783) (606,864)
Payment of organizational and start-up costs (452,749) (8,614)
Restricted cash (deposited in) released from escrow (505,162) 512,856
Proceeds from sale of station 12,506,743 --
Proceeds from sale of property and equipment 510,000 845
Issuance of notes receivable -- (18,176)
Other (3,700) (117,546)
------------ ------------
Net cash used in investing activities (28,430,089) (1,775,649)
------------ ------------
MAX MEDIA PROPERTIES LLC
Consolidated Statements of Cash Flows, Continued
Six months
ended June 30,
1997 1998
---- ----
Cash flows from financing activities:
Proceeds from issuance of long-term debt $ 38,100,000 $ --
Proceeds from issuance of Class C member
units, net of expenses 21,200,000 --
Payment to cancel Class B member units (11,200,000) --
Repayment of long-term debt:
Credit Facility (21,710,000) (2,220,000)
Other (134,091) (69,339)
Payments of loan, financing and equity issuance costs (336,232) --
Member distributions (89,750) (684,378)
------------ ------------
Net cash provided by (used in) financing activities 25,829,927 (2,973,717)
------------ ------------
Net increase in cash and cash equivalents 357,639 488,741
Cash and cash equivalents at beginning of period 1,175,542 1,789,194
------------ ------------
Cash and cash equivalents at end of period $ 1,533,181 $ 2,277,935
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 3,100,685 $ 3,002,839
============ ============
Supplemental disclosure of noncash investing and financing activities:
Noncash additions to program contract rights and
program contract rights payable $ 206,638 $ 73,825
============ ============
Noncash additions to long-term debt
obligations (note 5) $ 829,071 $ --
============ ============
The Company assumed liabilities in 1997 in connection with station
acquisitions as more fully described in note 3.
See accompanying notes to consolidated financial statements.
MAX MEDIA PROPERTIES LLC
Notes to Consolidated Financial Statements
(unaudited)
(1) Basis of Presentation
The accompanying interim financial statements of Max Media Properties LLC
(the "Company") are unaudited. In the opinion of the Company's management,
the accompanying unaudited consolidated financial statements contain all
adjustments (consisting only of normal recurring adjustments) which the
Company considers necessary for the fair presentation of the Company's
consolidated financial position as of June 30, 1998 and the consolidated
results of its operations and its cash flows for the six-month periods
ended June 30, 1997 and 1998.
The consolidated interim financial statements included herein have been
prepared in accordance with generally accepted accounting principles and
Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to SEC rules and regulations.
These consolidated interim financial statements should be read in
conjunction with the Company's audited consolidated financial statements
for the year ended December 31, 1997. Certain 1997 amounts have been
reclassified for comparability with the 1998 financial statement
presentation.
Results for interim periods presented are not necessarily indicative of
results that may be expected for the entire year.
(2) Sale of the Company
On December 2, 1997, the Class A member and one of the Class C members
entered into agreements to sell all the issued and outstanding shares of
each member to one buyer. Simultaneously, the Class B member and one of the
other Class C members entered into agreements to sell their respective
member units, equity interests in other members and limited partnership
interests to this buyer. The Company is also a party to each of these
purchase agreements. The aggregate purchase price is $255,000,000 plus the
assumption of certain liabilities consisting primarily of program contract
rights payable. A portion of this purchase price will be used to repay all
long-term debt and make certain payments contingent on the closing of the
transaction. Cash, accounts receivable, notes receivable and certain other
immaterial assets are excluded from this transaction. The transaction
closed July 3, 1998.
(3) Acquisitions and Dispositions
(a) Acquisitions
On January 3, 1997, the Company acquired the assets of WMMP-TV,
Charleston, South Carolina for approximately $3.4 million plus the
assumption of approximately $612,000 of liabilities and paid $850,000
for a three-year agreement not to compete.
On January 31, 1997, the Company acquired the assets of WFOG AM/FM and
WPTE-FM, Norfolk, Virginia for approximately $15.2 million.
MAX MEDIA PROPERTIES LLC
Notes to Consolidated Financial Statements
(unaudited)
On March 14, 1997, the Company acquired the assets of KETK-TV, Tyler,
Texas and substantially all the assets of KLSB-TV, Nacogdoches, Texas
(other than FCC licenses and certain related assets) for approximately
$16.9 million plus the assumption of certain immaterial liabilities.
Simultaneously, the Company entered into a 10-year time brokerage
agreement to operate KLSB-TV.
The following is a summary of the assets acquired, liabilities assumed
and consideration given for the above-stated acquisitions:
Deferred charges, primarily barter agreements $ 225,177
Program contract rights 737,652
Property and equipment 7,023,608
FCC licenses 20,105,728
Goodwill 249,553
Other intangible assets 9,119,698
-----------
Total assets acquired 37,461,416
-----------
Less:
Deferred revenue assumed, primarily
barter agreements 225,177
Program contract rights payable assumed 510,858
Other liabilities assumed 32,714
-----------
Cash paid for acquisitions $36,692,667
===========
The Company allocated the aggregate consideration to the tangible and
intangible assets based on their respective fair values. Goodwill was
recorded as the excess of the purchase price over the assets acquired.
(b) Dispositions
On January 28, 1997, the Company sold the assets of KKLZ-FM, Las
Vegas, Nevada for approximately $12.5 million, net of commissions and
other selling expenses, including a two-year agreement not to compete,
which resulted in a gain of approximately $8.5 million. The Company
agreed to indemnify and hold harmless the purchaser from certain
losses, liabilities, damages, costs and expenses. The Company placed
$500,000 in escrow for a period of one year to serve as security for
the performance of the Company's indemnification obligations. The
escrow fund is included in restricted cash in the accompanying
consolidated financial statements at December 31, 1997.
(4) Long-term Debt
The Company maintains a $100 million Credit Facility consisting of a $36
million term facility, an $11.2 million term facility, a $47.8 million
reducing revolving credit facility and a $5 million non-reducing revolving
credit facility. Amounts outstanding under the $11.2 million term facility
are guaranteed by the Class B member.
MAX MEDIA PROPERTIES LLC
Notes to Consolidated Financial Statements
(unaudited)
The Credit Facility is secured by all of the member units and assets of the
Company. Outstanding principal under the Credit Facility bears interest at
a floating rate based in part on the Company achieving certain operating
cash flow ratios. Interest on outstanding borrowings was 7.66% and 8.16% at
June 30, 1998 and December 31, 1997, respectively. The Company is obligated
to pay a quarterly commitment fee on the average daily unused portion of
the reducing and non-reducing revolving credit facilities at an annual rate
of 0.375% to 0.50% depending on certain operating cash flow ratios and an
annual agency fee of $30,000.
Amounts outstanding under the term loans must be repaid over an eight-year
period in quarterly installments beginning in 1997 with final payment
required no later than June 30, 2004. The non-reducing revolving credit
facility must be paid in full by June 30, 2004.
The Credit Facility contains substantial restrictive covenants, including
restrictions on the Company's ability to incur additional debt, acquire
interests in other business entities, sell, mortgage, pledge or otherwise
encumber any of its assets, make capital expenditures or make distributions
to the members (other than distributions used to pay taxes attributable to
the operations of the Company), without the prior written consent of the
lenders. In addition, the Company is required, among other things, to
maintain certain operating ratios.
To reduce the impact of changes in interest rates, the Company is required
to maintain interest rate protection on a minimum of 50% of the aggregate
amount outstanding under the Credit Facility. At June 30, 1998, the Company
has two outstanding interest rate cap agreements which expire on September
30, 1999 and October 1, 1999 and which limit the rate of interest to 8.50%
and 7.50%, respectively. The principal amounts related to these agreements
aggregate $40,512,500 at June 30, 1998.
(5) Members' Capital
The Company was organized under the Virginia Limited Liability Company Act
and the members are generally not liable for any debts or other obligations
of the Company. Under the terms of its January 1, 1996 Operating Agreement,
the Company will cease to exist on December 31, 2045 unless earlier
terminated. The Company has three classes of member units. With the
exception of the right to elect the Company's Board of Managers, all units
are identical. Holders of a majority of the Class A and Class B member
units each have the right to elect four of the eight members of the
Company's Board of Managers. Holders of Class C member units are not
entitled to vote for members of the Board. Net profits and losses are
allocated in proportion to the members' respective percentage interests.
On February 14, 1997, the Operating Agreement was amended to admit
additional members. The Company issued 3,321,931 Class C member units to
the new members for net proceeds of approximately $21.2 million. On March
13, 1997, the Company paid $11.2 million and incurred transactions costs of
approximately $455,000 and other long-term obligations of approximately
$818,000 in connection with the cancellation of 1,690,500 Class B member
units.
MAX MEDIA PROPERTIES LLC
Notes to Consolidated Financial Statements
(unaudited)
(6) Income Taxes
The pro forma income tax expense (benefit) presented on the consolidated
statements of operations represents the estimated taxes that would have
been recorded had the Company been a C corporation for income tax purposes
for each of the periods presented. The pro forma income tax expense
(benefit) is as follows:
Pro forma
Six months
ended June 30,
1997 1998
----------- -----------
Federal $ 1,925,131 $(2,252,326)
State 283,108 (331,224)
----------- -----------
Total pro forma $ 2,208,239 $(2,583,550)
=========== ===========
A reconciliation of the statutory federal income tax rate and the pro
forma effective rate is as follows:
1997 1998
---- ----
Statutory tax rate 34% 34%
Effect of state income taxes,
net of federal tax benefit 5% 5%
-- --
Pro forma effective tax rate 39% 39%
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