-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FQrU6qZno8416IPEqMcUj12u3hDOGOn9qdWVIlmIj53XKQ/Ane1nyW47fz8db43b U3DqBg2/5aj6jZDeBALI/g== 0000930661-96-001163.txt : 19960904 0000930661-96-001163.hdr.sgml : 19960904 ACCESSION NUMBER: 0000930661-96-001163 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960903 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960903 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: EVERGREEN MEDIA CORP CENTRAL INDEX KEY: 0000894972 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 752247099 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-21570 FILM NUMBER: 96625276 BUSINESS ADDRESS: STREET 1: 433 EAST LAS COLINAS BLVD STREET 2: STE 2230 CITY: IRVING STATE: TX ZIP: 75039 BUSINESS PHONE: 2148699020 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 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 3, 1996 ----------------- Evergreen Media Corporation --------------------------- (Exact Name of Registrant as Specified in Charter) Delaware 75 2247099 - ------------------ -------------------- (State or Other (IRS Employer Jurisdiction Identification No.) of Incorporation) 433 East Las Colinas Boulevard Suite 1130 Irving, Texas 75039 ------------------------------ (Address of Principal Executive Offices) (214) 869-9020 ------------------ (Registrant's telephone number, including area code) ITEM 5. Other Events ------------ Financial Information for Evergreen Media Corporation ----------------------------------------------------- On August 8, 1996 the Company declared a three-for-two split effected in the form of a stock dividend payable on August 26, 1996 to shareholders of record at the close of business on August 19, 1996. All share data contained in the accompanying financial statements have been retroactively adjusted to give effect to the stock dividend. On May 15, 1996, the shareholders of the Company amended its Certificate of Incorporation to increase the authorized shares of the Company from 31,000,000 to 75,000,000. The Company hereby provides the following information, not otherwise called for by this form but of importance to securityholders, in regard to the Company: (1) the Company's Consolidated Financial Statements as of December 31, 1994 and 1995 and for each of the years in the three year period ended December 31, 1995, included on pages A-1 to A-24 of this report and (2) the Company's Consolidated Financial Statements as of March 31, 1996 and for the three month period ended March 31, 1995 and 1996 (unaudited) on pages A-25 to B-32 of this report. ITEM 7. Financial Statements and Exhibits --------------------------------- 7 (c) Exhibits -------------- (13.1) Evergreen Media Corporation Consolidated Financial Statements as of December 31, 1994 and 1995 and for each of the years in the three year period ended December 31, 1995 and Independent Auditor's Report. (13.1) Evergreen Media Corporation Consolidated Financial Statements as of March 31, 1996 and for the three month periods ended March 31, 1995 and 1996. (23.1) Consent of KPMG Peat Marwick LLP, independent accountants. (27.1) Financial Data Schedule for the Company's Consolidated Financial Statements for the year ended December 31, 1995. (27.2) Financial Data Schedule for the Company's Consolidated Financial Statements for the quarterly period ended March 31, 1996. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Evergreen Media Corporation By: /s/ MATTHEW E. DEVINE ----------------------- Matthew E. Devine Chief Financial Officer Date: August 30, 1996 EX-13.1 2 FORM 10-K/A EXHIBIT 13.1 EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES Index to Consolidated Financial Statements Page ---- Independent Auditors' Report........................................... A-2 Consolidated Annual Financial Statements: Consolidated Balance Sheets as of December 31, 1994 and 1995........... A-3 Consolidated Statements of Operations for each of the years in the three-year period ended December 31, 1995......................... A-4 Consolidated Statements of Stockholders' Equity for each of the years in the three-year period ended December 31, 1995........ A-5 Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 1995......................... A-6 Notes to Consolidated Financial Statements............................. A-7 Consolidated Interim Financial Statements (unaudited): Consolidated Balance Sheets as of December 31, 1995 and March 31, 1996 (unaudited).................................... A-25 Consolidated Statements of Operations for the three months ended March 31, 1995 and 1996 (unaudited)............................... A-26 Consolidated Statements of Cash Flows for the three months ended March 31, 1995 and 1996 (unaudited)............................... A-27 Notes to Consolidated Financial Statements............................. A-28 A-1 INDEPENDENT AUDITORS' REPORT ---------------------------- The Board of Directors Evergreen Media Corporation: We have audited the accompanying consolidated financial statements of Evergreen Media Corporation and subsidiaries as of December 31, 1994 and 1995 and for each of the years in the three-year period ended December 31, 1995. 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 audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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 audits provide 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 Evergreen Media Corporation and subsidiaries as of December 31, 1994 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995 in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Dallas, Texas February 9, 1996, except for note 14(b), which is as of February 14, 1996, and note 1(m), which is as of August 8, 1996 A-2 EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets December 31, 1994 and 1995 (dollars in thousands, except for share data)
Assets 1994 1995 ------ ---------- ---------- Current assets: Cash and cash equivalents $ 1,216 $ 3,430 Accounts receivable, less allowance for doubtful accounts of $835 in 1994 and $2,000 in 1995 26,945 45,413 Prepaid expenses and other 2,223 2,146 -------- -------- Total current assets 30,384 50,989 Property and equipment, net (notes 3 29,021 37,839 and 10) Intangible assets, net (note 4) 233,494 458,787 Other assets, net (note 5) 5,091 4,732 -------- -------- $297,990 $552,347 ======== ======== Liabilities and Stockholders' Equity ------------------------------------ Current liabilities: Accounts payable and accrued $ 10,036 $ 15,892 expenses (note 6) Current portion of long-term 4,000 4,000 debt (note 7) Other current liabilities 396 541 -------- -------- Total current liabilities 14,432 20,433 Long-term debt, excluding current 170,000 197,000 portion (note 7) Deferred tax liability (note 9) -- 29,233 Other liabilities 1,205 1,104 -------- -------- Total liabilities 185,637 247,770 -------- -------- Stockholders' equity (notes 1(m), 2 and 8): Preferred stock. Authorized 6,000,000 shares; issued 1,610,000 shares of $3 Convertible Exchangeable Preferred Stock in 1994 and 1995 80,500 80,500 Class A common stock, $.01 par value. Authorized 75,000,000 shares; issued 9,959,384 shares in 1994 and 24,929,529 shares in 1995 100 249 Class B common stock, $.01 par value. Authorized 4,500,000 shares; issued 3,148,316 shares in 1994 and 3,116,066 shares in 1995 31 31 Warrants 12,488 -- Paid-in capital 102,052 317,295 Accumulated deficit (82,818) (93,498) -------- -------- Total stockholders' equity 112,353 304,577 Commitments and contingencies (notes 3, 6, 8, 10, 11 and 14) -------- -------- $297,990 $552,347 ======== ========
See accompanying notes to consolidated financial statements. A-3 EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations Years ended December 31, 1993, 1994 and 1995 (in thousands, except for per share data)
1993 1994 1995 ----------- ---------- ----------- Gross revenues $106,813 $125,478 $186,365 Less agency commissions 13,309 15,962 23,434 -------- -------- -------- Net revenues 93,504 109,516 162,931 -------- -------- -------- Operating expenses: Station operating expenses excluding depreciation and amortization 60,656 68,852 97,674 Depreciation and amortization 33,524 30,596 47,005 Corporate general and 2,378 2,672 4,475 administrative Other nonrecurring costs (note 8(d)) 7,002 -- -- -------- -------- -------- Operating expenses 103,560 102,120 149,154 -------- -------- -------- Operating income (loss) (10,056) 7,396 13,777 -------- -------- -------- Nonoperating income (expenses): Interest expense (13,878) (13,809) (19,199) Interest income 148 91 55 Gain on disposition of assets (note 2) 3,392 6,991 -- Other expense, net (355) (630) (291) -------- -------- -------- Nonoperating expenses, net (10,693) (7,357) (19,435) -------- -------- -------- Income (loss) before income taxes and extraordinary item (20,749) 39 (5,658) Income tax expense (note 9) -- -- 192 -------- -------- -------- Income (loss) before extraordinary item (20,749) 39 (5,850) Extraordinary item - loss on extinguishment of debt (note 7) -- (3,585) -- -------- -------- -------- Net loss (20,749) (3,546) (5,850) Accretion of redeemable preferred stock to mandatory redemption value, including $17,506 relating to early redemption (note 8(a)) (18,823) -- -- Preferred stock dividends (note 8(a)) (4,756) (4,830) (4,830) -------- -------- -------- Net loss attributable to common stockholders $(44,328) $ (8,376) $(10,680) ======== ======== ======== Loss per common share (notes 1(j), 1(m), 7 and 8(a)): $(4.48) $(.37) $(.51) Before extraordinary item Extraordinary item -- (.28) -- -------- -------- -------- Net loss $(4.48) $(.65) $(.51) ======== ======== ======== Weighted average common shares 9,890 13,002 20,721 outstanding ======== ======== ========
See accompanying notes to consolidated financial statements. A-4 EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity Years ended December 31, 1993, 1994 and 1995 (dollars in thousands)
Convertible Class A Common Class B Class C Preferred stock Common stock Common stock Common stock ------------------------ ------------------ -------------------- -------------------- Shares Amount Shares Amount Shares Amount Shares Amount --------- ------------- ---------- ------ ----------- ------- ----------- ------- Balances at December 31, 1992 -- $ -- 1,811,483 $ 18 -- $ -- 3,168,941 $ 31 Issuance of Class A common stock (note 8(b)) -- -- 6,037,500 60 -- -- -- -- Conversion of common stock (note 8(b)) -- -- -- -- 3,168,941 31 (3,168,941) (31) Reclassification of Class A common stock and Class B common stock previously subject to purchase obligation (note 8(b)) -- -- 171,738 2 1,288,038 13 -- -- Conversion of Class B common stock to Class A common stock (note 8(b)) -- -- 1,288,038 13 (1,288,038) (13) -- -- Call of Class A common stock warrants (note 8(c)) -- -- -- -- -- -- -- -- Grant of stock options (note 8(d)) -- -- -- -- -- -- -- -- Redeemable preferred stock dividends (note 8(a)) -- -- -- -- -- -- -- -- Accretion of redeemable preferred stock to mandatory redemption value (note 8(a)) -- -- -- -- -- -- -- -- Issuance of convertible preferred stock and retirement of redeemable preferred stock (note 8(a)) 1,610,000 80,500 -- -- -- -- -- -- Exercise of common stock warrants (note 8(c)) -- -- 450,000 5 -- -- -- -- Convertible preferred stock dividends (note 8(a)) -- -- -- -- -- -- -- -- Net loss -- -- -- -- -- -- -- -- --------- ------------- ---------- ---- ---------- ------ ---------- ------ Balances at December 31, 1993 1,610,000 80,500 9,758,759 98 3,168,941 31 -- -- Conversion of common stock (note 8(b)) -- -- 20,625 -- (20,625) -- -- -- Issuance costs for convertible preferred stock (note 8(a)) -- -- -- -- -- -- -- -- Exercise of common stock options (note 8(d)) -- -- 180,000 2 -- -- -- -- Convertible preferred stock dividends (note 8(a)) -- -- -- -- -- -- -- -- Net loss -- -- -- -- -- -- -- -- --------- ------------- ---------- ---- ---------- ------ ---------- ------ Balances at December 31, 1994 1,610,000 80,500 9,959,384 100 3,148,316 31 -- -- Issuance of Class A common stock in acquisition (note 2(c)) -- -- 5,611,009 56 -- -- -- -- Issuance of Class A common stock in public offering (note 8(b)) -- -- 7,350,000 73 -- -- -- -- Exercise of common stock warrants (note 8(c)) -- -- 1,951,386 20 -- -- -- -- Conversion of Class B common stock to Class A common stock (note 8(b)) -- -- 32,250 -- (32,250) -- -- -- Exercise of common stock options (note 8(d)) -- -- 25,500 -- -- -- -- -- Convertible preferred stock dividends (note 8(a)) -- -- -- -- -- -- -- -- Net loss -- -- -- -- -- -- -- -- --------- ------------- ---------- ---- ---------- ------ ---------- ------ Balances at December 31, 1995 1,610,000 $80,500 24,929,529 $249 3,116,066 $ 31 -- $ -- ========= ============= ========== ==== ========== ====== ========== ====== Total Warrants Paid-in Accumulated stockholders' (note 8(c)) capital deficit equity ------------- ----------- ------------ -------------- Balances at December 31, 1992 $ 15,910 $ 19,059 $(32,113) $ 2,905 Issuance of Class A common stock (note 8(b)) -- 58,684 -- 58,744 Conversion of common stock (note 8(b)) -- -- -- -- Reclassification of Class A common stock and Class B common stock previously subject to purchase obligation (note 8(b)) -- 14,986 1,999 17,000 Conversion of Class B common stock to Class A common stock (note 8(b)) -- -- -- -- Call of Class A common stock warrants (note 8(c)) (3,122) 3,122 -- -- Grant of stock options (note 8(d)) -- 7,002 -- 7,002 Redeemable preferred stock dividends (note 8(a)) -- -- (3,897) (3,897) Accretion of redeemable preferred stock to mandatory redemption value (note 8(a)) -- -- (18,823) (18,823) Issuance of convertible preferred stock and retirement of redeemable preferred stock (note 8(a)) -- (3,855) -- 76,645 Exercise of common stock warrants (note 8(c)) (300) 3,295 -- 3,000 Convertible preferred stock dividends (note 8(a)) -- -- (859) (859) Net loss -- -- (20,749) (20,749) ------------ -------- -------- -------- Balances at December 31, 1993 12,488 102,293 (74,442) 120,968 Conversion of common stock (note 8(b)) -- -- -- -- Issuance costs for convertible preferred stock (note 8(a)) -- (240) -- (240) Exercise of common stock options (note 8(d)) -- (1) -- 1 Convertible preferred stock dividends (note 8(a)) -- -- (4,830) (4,830) Net loss -- -- (3,546) (3,546) ------------ -------- -------- -------- Balances at December 31, 1994 12,488 102,052 (82,818) 112,353 Issuance of Class A common stock in acquisition (note 2(c)) -- 70,082 -- 70,138 Issuance of Class A common stock in public offering (note 8(b)) -- 132,648 -- 132,721 Exercise of common stock warrants (note 8(c)) (12,488) 12,481 -- 13 Conversion of Class B common stock to Class A common stock (note 8(b)) -- -- -- -- Exercise of common stock options (note 8(d)) -- 32 -- 32 Convertible preferred stock dividends (note 8(a)) -- -- (4,830) (4,830) Net loss -- -- (5,850) (5,850) ------------ -------- -------- -------- Balances at December 31, 1995 $ -- $317,295 $(93,498) $304,577 ============ ======== ======== ========
See accompanying notes to consolidated financial statements. A-5 EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 1993, 1994 and 1995 (in thousands)
1993 1994 1995 ---------- --------- ---------- Cash flows from operating activities: Net loss $(20,749) $ (3,546) $ (5,850) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 3,884 4,528 5,508 Amortization of goodwill, intangible assets and other assets 29,640 26,068 41,497 Loss on extinguishment of long- term debt -- 3,585 -- Provision for doubtful accounts 501 754 904 Gain on disposition of assets (3,392) (6,991) -- Deferred income tax benefit -- -- (479) Grant of stock options 7,002 -- -- Changes in certain assets and liabilities, net of effects of acquisitions: Accounts receivable (1,550) (5,051) (6,628) Prepaid expenses and other current assets (78) 84 724 Accounts payable and accrued expenses 810 1,194 4,405 Other assets 73 (724) (184) Other liabilities (1,182) (21) 490 -------- -------- --------- Net cash provided by operating activities 14,959 19,880 40,387 -------- -------- --------- Cash flows from investing activities: Acquisitions, net of cash (88,058) (44,921) (188,004) acquired Capital expenditures (1,735) (5,227) (2,642) Proceeds from sale of assets 17,453 19,101 -- Other (3,823) (1,881) (1,466) -------- -------- --------- Net cash used by investing activities (76,163) (32,928) (192,112) -------- -------- --------- Cash flows from financing activities: Proceeds from issuance of long-term debt 59,000 36,000 186,000 Principal payments on long-term debt (72,000) (14,000) (159,000) Payments on other long-term liabilities (463) (645) (694) Proceeds (costs) from issuance of common stock, preferred stock and warrants 138,390 (240) 132,766 Dividends on preferred stock -- (4,830) (4,830) Payments for debt issuance costs (58) (4,602) (303) Redemption of redeemable preferred stock (62,826) -- -- -------- -------- --------- Net cash provided by financing activities 62,043 11,683 153,939 -------- -------- --------- Increase (decrease) in cash and cash equivalents 839 (1,365) 2,214 Cash and cash equivalents at beginning of year 1,742 2,581 1,216 -------- -------- --------- Cash and cash equivalents at end of year $ 2,581 $ 1,216 $ 3,430 ======== ======== =========
See accompanying notes to consolidated financial statements. A-6 EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (tables in thousands of dollars, except for per share data) (1) Summary of Significant Accounting Policies ------------------------------------------ (a) Description of Business ----------------------- Evergreen Media Corporation ("Evergreen") and its subsidiaries own and operate commercial radio stations in various geographical regions across the United States, primarily in the top ten radio revenue markets. (b) Principles of Consolidation --------------------------- The consolidated financial statements include the accounts of Evergreen Media Corporation and its subsidiaries (collectively, the "Company") all of which are wholly owned. All subsidiaries are involved in the operation of commercial radio stations. Significant intercompany balances and transactions have been eliminated in consolidation. (c) Property and Equipment ---------------------- Property and equipment are stated at cost. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets. Repair and maintenance costs are charged to expense when incurred. (d) Intangible Assets ----------------- Intangible assets consist primarily of broadcast licenses, goodwill and other identifiable intangible assets. The Company amortizes such intangible assets using the straight-line method over estimated useful lives ranging from 1 to 40 years. The Company continually evaluates the propriety of the carrying amount of goodwill and other intangible assets as well as the amortization period to determine whether current events or circumstances warrant adjustments to the carrying value and/or revised estimates of useful lives. This evaluation consists of the projection of undiscounted operating income before depreciation, amortization, nonrecurring charges and interest for each of the Company's radio stations over the remaining amortization periods of the related intangible assets. The projections are based on a historical trend line of actual results since the acquisitions of the respective stations adjusted for expected changes in operating results. To the extent such projections indicate that undiscounted operating income is not expected to be adequate to recover the carrying amounts of the related intangible assets, such carrying amounts are written down by charges to expense. At this time, the Company believes that no significant impairment of goodwill and other intangible assets has occurred and that no reduction of the estimated useful lives is warranted. A-7 EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (tables in thousands of dollars, except for per share data) (e) Barter Transactions ------------------- The Company trades commercial air time for goods and services used principally for promotional, sales and other business activities. An asset and liability is recorded at the fair market value of the goods or services received. Barter revenue is recorded and the liability relieved when commercials are broadcast and barter expense is recorded and the asset relieved when goods or services are received or used. Barter amounts are not significant to the Company's consolidated financial statements. (f) Income Taxes ------------ Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable earnings. Valuation allowances are established when necessary to reduce deferred tax assets to the amount more likely than not to be realized. Income tax expense is the total of tax payable for the period and the change during the period in deferred tax assets and liabilities. (g) Revenue Recognition ------------------- Revenue is derived primarily from the sale of commercial announcements to local and national advertisers. Revenue is recognized as commercials are broadcast. Fees received or paid pursuant to various time brokerage agreements are recognized as gross revenues or amortized to expense, respectively, over the term of the agreement using the straight-line method. (h) Statements of Cash Flows ------------------------ For purposes of the statements of cash flows, the Company considers temporary cash investments purchased with original maturities of three months or less to be cash equivalents. The Company paid approximately $14,089,000, $12,852,000 and $19,134,000 for interest in 1993, 1994 and 1995, respectively. (i) Derivative Financial Instruments -------------------------------- The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. They are used to manage well-defined interest rate risks related to interest on the Company's outstanding debt. As interest rates change under interest rate swap and cap agreements, the differential to be paid or received is recognized as an adjustment to interest expense. The Company is not exposed to credit loss as its interest rate swap agreements are with the participating banks under the Company's senior credit facility. A-8 EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (tables in thousands of dollars, except for per share data) (j) Loss Per Common Share --------------------- Loss per common share for 1993, 1994 and 1995 is calculated based on the weighted average shares of common stock outstanding during each year. Options and warrants are not included in the calculation as their effect would be antidilutive. (k) Disclosure of Certain Significant Risks and Uncertainties --------------------------------------------------------- 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 disclosure 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. In the opinion of management, credit risk with respect to trade receivables is limited due to the large number of diversified customers and the geographic diversification of the Company's customer base. The Company performs ongoing credit evaluations of its customers and believes that adequate allowances for any uncollectible trade receivables are maintained. At December 31, 1994 and 1995, no receivable from any customer exceeded 5% of stockholders' equity and no customer accounted for more than 10% of net revenues in 1993, 1994 or 1995. (l) Reclassifications ----------------- Certain reclassifications have been made to prior years' consolidated financial statements to conform to the current year presentation. (m) Stock Authorization and Stock Split ----------------------------------- On May 15, 1996, the shareholders of the Company amended its Certificate of Incorporation to increase the authorized shares of the Company from 31,000,000 to 75,000,000. On August 8, 1996, the Company declared a three-for-two stock split effected in the form of a stock dividend payable on August 26, 1996 to shareholders of record at the close of business on August 19, 1996. All share data contained in the accompanying financial statements have been retroactively adjusted to give effect to the increase in authorized shares and the stock dividend. A-9 EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (tables in thousands of dollars, except for per share data) (2) Acquisitions and Dispositions ----------------------------- (a) 1993 Acquisitions and Dispositions ---------------------------------- In May 1993, the Company acquired WFYV-FM in Jacksonville, Florida for cash of approximately $7,868,000 (including $1,000,000 paid for a noncompetition agreement). Pending the acquisition, the Company entered into a time brokerage agreement which allowed the Company to purchase substantially all of the broadcast time on radio station WFYV-FM for the period from June 1992 to May 1993. In June 1993, the Company acquired KTRH-AM and KLOL-FM in Houston, Texas, for cash of approximately $50,407,000 (including $3,600,000 for the stations' accounts receivable and $2,000,000 for a noncompetition agreement). In July 1993, the Company entered into an agreement to acquire WWBZ- FM (now WRCX-FM) in Chicago, Illinois for approximately $29,783,000 (including $1,600,000 for the station's accounts receivable and $5,000,000 for a noncompetition agreement). The acquisition was completed on December 27, 1993. Pending the acquisition, the Company entered into a time brokerage agreement which allowed the Company to purchase substantially all of the broadcast time on WWBZ-FM for the period from July 1993 to December 1993. In October 1992, the Company entered into a time brokerage agreement to sell to a third party substantially all of the broadcast time on radio station KSNN-FM in Dallas. On October 7, 1993, the Company sold the station to this third party for approximately $10,511,000. The Company recognized a gain of $4,053,000 on this transaction. In October 1992, the Company entered into an agreement to sell radio stations WKBQ-FM and KASP-AM in St. Louis for $7,000,000 in cash. The Company also entered into a time brokerage agreement to sell substantially all of the broadcast time of these stations pending their sale. These two agreements were subject to the Company's acquisition of these stations, which subsequently occurred on November 6, 1992. The other party to the sales agreement could not complete the purchase of the radio stations by June 30, 1993, as required under the agreement. Accordingly, the Company terminated the time brokerage agreement with the other party and operated the stations in July and August 1993 prior to entering into a new time brokerage and sales agreement with another unaffiliated third party for cash consideration of $6,942,000. Upon completion of the sale of these stations on December 22, 1993, the Company recognized a loss of $687,000. A-10 EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (tables in thousands of dollars, except for per share data) (b) 1994 Acquisition and Dispositions --------------------------------- In April 1994, the Company acquired radio station KIOI-FM in San Francisco, California for cash consideration of approximately $44,921,000. This acquisition was funded with proceeds received from the sale of stations WAPE-FM and WFYV-FM in Jacksonville (which sale closed in April 1994) and additional borrowings under the Company's senior credit facility. The Company received proceeds of $19,500,000 less closing costs from the sale of WAPE-FM and WFYV-FM and recognized a gain of $7,328,000 on such sale. (c) 1995 Acquisition ---------------- In May 1995, the Company acquired Broadcasting Partners, Inc. ("BPI"), a publicly traded radio broadcasting company with seven FM and four AM radio stations, eight of which are in the nation's ten largest radio markets (the "BPI Acquisition"). The BPI Acquisition was effected through the merger of a wholly-owned subsidiary of the Company with and into BPI, with BPI surviving the merger as a wholly-owned subsidiary of the Company. The BPI Acquisition included the conversion of each outstanding share of BPI common stock into the right to receive $12.00 in cash and .69 shares of the Company's Class A Common Stock, resulting in total cash payments of $94,813,000 and the issuance of 5,611,009 shares of the Company's Class A Common Stock valued at $12.50 per share. In addition, the Company retired existing BPI debt of $81,926,000 and incurred various other direct acquisition costs. The total purchase price, including closing costs, allocated to net assets acquired was approximately $258,634,000. (d) Summary Combined Information ---------------------------- The acquisitions discussed above were accounted for as purchases. Accordingly, the accompanying consolidated financial statements include the results of operations of the acquired entities from the dates of acquisition. A summary of the net assets acquired follows:
1993 1994 1995 -------- --------- ---------- Working capital, including cash of $492 in 1995 $ 5,036 $ (79) $ 12,432 Property and equipment 10,316 1,762 11,684 Assets held for sale (note 2) 7,938 -- -- Intangible assets 64,768 43,238 264,650 Deferred tax liability -- -- (29,712) Other liabilities -- -- (420) ------- ------- -------- $88,058 $44,921 $258,634 ======= ======= ========
(e) Pro forma Results of Operations (Unaudited) ------------------------------------------- Consolidated condensed pro forma results of operations data for 1994 and 1995, as if the 1994 and 1995 acquisitions discussed above and the 1995 common stock offering described in note 8 occurred at the beginning of the respective years, follow:
1994 1995 ---------- ---------- Net revenues $162,587 $181,990 Operating income 4,295 8,764 Net loss (5,577) (7,836) Net loss per common share (.37) (.45)
A-11 EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (tables in thousands of dollars, except for per share data) (3) Property and Equipment ---------------------- Property and equipment consists of the following at December 31, 1994 and 1995:
Estimated useful life 1994 1995 ----------------- --------- --------- Broadcast and other equipment 3 - 15 years $ 29,199 $ 36,428 Buildings and improvements 3 - 20 years 6,596 8,570 Furniture and fixtures 5 - 7 years 4,569 6,429 Land -- 3,402 6,524 -------- -------- 43,766 57,951 Less accumulated depreciation 14,745 20,112 -------- -------- $ 29,021 $ 37,839 ======== ========
(4) Intangible Assets ----------------- Intangible assets consist of the following at December 31, 1994 and 1995:
Estimated useful life 1994 1995 ----------------- -------- -------- Broadcast licenses 15-40 $ 89,649 $187,024 Goodwill 15-40 40,605 70,317 Other intangibles 1-40 173,487 291,203 -------- -------- 303,741 548,544 Less accumulated amortization 70,247 89,757 -------- -------- $233,494 $458,787 ======== ========
In addition to broadcast licenses and goodwill, categories of other intangible assets include: (i) premium advertising revenue base (the value of the higher radio advertising revenues in certain of the Company's markets as compared to other markets of similar population); (ii) advertising client base (the value of the well-established advertising base in place at the time of acquisition of certain stations); (iii) talent contracts (the value of employment contracts between certain stations and their key employees); (iv) fixed asset delivery premium (the benefit expected from the Company's ability to operate fully constructed and operational stations from the date of acquisition), and (v) premium audience growth pattern (the value of expected above-average population growth in a given market). A-12 EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (tables in thousands of dollars, except for per share data) (5) Other Assets ------------ Other assets consist of the following at December 31, 1994 and 1995:
Estimated useful life 1994 1995 ----------- ------- ------- Debt issuance costs 8 years $4,602 $4,905 Organizational costs 5 years 516 540 Other -- 346 334 ------ ------ 5,464 5,779 Less accumulated amortization 373 1,047 ------ ------ $5,091 $4,732 ====== ======
During the years ended December 31, 1993, 1994 and 1995, the Company recognized amortization of debt issuance costs of $728,000, $712,000 and $631,000, respectively, which amounts are included in amortization expense in the accompanying consolidated statements of operations. (6) Accounts Payable and Accrued Expenses ------------------------------------- Accounts payable and accrued expenses consist of the following at December 31, 1994 and 1995:
1994 1995 ---------- --------- Accounts payable $ 5,929 $ 9,591 Accrued payroll 1,663 3,080 Accrued interest 1,360 1,304 Accrued dividends 1,020 1,020 Other 64 897 -------- -------- $ 10,036 $ 15,892 ======== ========
(7) Long-term Debt -------------- Long-term debt consists of the following at December 31, 1994 and 1995:
1994 1995 -------- -------- Senior Credit Facility (a) $156,000 $187,000 Senior Notes (b) 18,000 14,000 -------- -------- Total long-term debt 174,000 201,000 Less current portion 4,000 4,000 -------- -------- $170,000 $197,000 ======== ========
A-13 EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (tables in thousands of dollars, except for per share data) (a) Senior Credit Facility ---------------------- On November 6, 1992, the Company entered into a variable rate loan agreement with a group of banks providing for a $115,000,000 term loan and a revolving loan of up to $55,000,000. On November 28, 1994, amounts outstanding under this agreement were retired with borrowings under a new senior credit facility (the "Senior Credit Facility") which provided for a $150,000,000 term loan and a revolving loan of up to $200,000,000. In connection with this debt restructuring, the Company wrote off the unamortized balance of deferred debt issuance costs of $3,585,000 as an extraordinary charge. Borrowings under the Senior Credit Facility bear interest at a rate based, at the option of the Company, on the participating banks' prime rate or Eurodollar rate, plus an incremental rate. The blended interest rate on the $150,000,000 loan outstanding under the term loan was 6.97% at December 31, 1995 and was based on the Eurodollar rate. The interest rates on $33,000,000 and $4,000,000 of advances outstanding under the revolving loan were 7.19% and 8.625% at December 31, 1995 and are based on the Eurodollar and prime rate, respectively. At December 31, 1995, additional borrowings of $163,000,000 were available to the Company under the revolving loan. To reduce the impact of changes in interest rates on its floating rate long-term debt, the Company entered into certain interest rate swap agreements with the participating banks. At December 31, 1995, interest rate swap agreements covering a notional balance of $55,000,000 are outstanding. These outstanding swap agreements mature during 1996 and 1997 and require the Company to pay a fixed rate of 5.8-5.87% while the counterparty pays a floating rate based on the six-month London Interbank Borrowing Offered Rate ("LIBOR") plus an incremental rate. In connection with the BPI merger, the Company assumed interest rate cap agreements on $15,000,000 at a LIBOR rate of 7%, $10,000,000 at a LIBOR rate of 8%, $10,000,000 at a LIBOR rate of 7.5% and $10,000,000 at a LIBOR rate of 6%. These outstanding interest rate cap agreements mature during 1996 and 1997. During the years ended December 31, 1994 and 1995, the Company recognized charges (income) under its interest rate swap and cap agreements of $1,200,000 and $(275,000), respectively. The Senior Credit Facility calls for outstanding borrowings to be repaid in quarterly installments beginning on March 31, 1997, with the final installment due on June 30, 2002. In addition to the limitations and covenants discussed in (c) below, if the Company's current controlling shareholder, President and Chief Financial Officer fail to maintain at least 51%, on a combined basis, of the voting power of the Company's common stock, an event of default would occur under the Senior Credit Facility and A-14 EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (tables in thousands of dollars, except for per share data) the lenders could declare all amounts outstanding thereunder due and payable. The Company pays fees of 1/2% per annum on the aggregate unused portion of the loan commitment, in addition to an annual agent's fee. (b) Senior Notes ------------ As partial financing for the acquisition of certain assets of a radio station in 1989, the Company issued $20,000,000 of senior notes (the "Senior Notes"). The Senior Notes bear interest at 11.59% per annum payable quarterly and principal is due in equal quarterly installments through May 1999. The fair value of the Company's Senior Notes is estimated by discounting expected cash flows at the rates currently offered to the Company for debt of similar maturities. (c) Other ----- The Senior Credit Facility and the Senior Notes each contain certain financial and operational covenants and other restrictions with which the Company must comply, including, among others, limitations on capital expenditures, corporate overhead and the incurrence of additional indebtedness, restrictions on the use of borrowings, paying cash dividends and redeeming or repurchasing the Company's capital stock, and requirements to maintain certain financial ratios, including cash flow and debt service coverage (as defined). The Senior Credit Facility also separately restricts the Company from making certain acquisitions without the prior consent of the lenders. If the Company increases its leverage beyond certain specified levels in order to effect an acquisition, the Senior Notes require that the Company prepay all principal and accrued interest thereunder, together with a "make whole" premium equal to the amount of unearned interest, based on current market rates, through the original maturity date. Substantially all of the Company's assets are pledged as security for the Senior Credit Facility and Senior Notes under the loan agreements. The obligations of the Company under the Senior Credit Facility and Senior Notes rank pari passu. A summary of the future maturities of long-term debt follows:
1996 $ 4,000 1997 26,500 1998 26,500 1999 28,250 2000 30,000 Thereafter 85,750 -------- $201,000 ========
A-15 EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (tables in thousands of dollars, except for per share data) (8) Stockholders' Equity -------------------- (a) Redeemable and Convertible Preferred Stocks ------------------------------------------- The Company has authorized 6,000,000 shares of preferred stock which can be issued in series with varying preferences and conversion features as determined by the Board of Directors of the Company. In October 1993, the Company issued 1,610,000 shares of $3 Convertible Exchangeable Preferred Stock (the "Convertible Preferred Stock") for net proceeds of approximately $76,645,000. The shares of Convertible Preferred Stock are convertible at the option of the holder at any time, unless previously redeemed or exchanged, into shares of Class A Common Stock at $16 per share (equivalent to a conversion rate of 3.1245 shares of Class A Common Stock per share of Convertible Preferred Stock), subject to adjustment in certain events. Upon the occurrence of a change in control (as defined), holders will have special conversion rights; however, the Company, at its option, may redeem such shares for cash prior to their conversion. The liquidation preference of each share of Convertible Preferred Stock is $50 plus accrued and unpaid dividends. Annual dividends of $3 per share are cumulative and payable quarterly when, as and if declared by the Board of Directors of the Company. The Convertible Preferred Stock is redeemable, in whole or in part, at the option of the Company, for cash at any time if the price of the Class A Common Stock exceeds 200% of the conversion price for 20 out of any 30 consecutive trading days, and at any time after October 15, 1996, initially at $52.40 per share, declining ratably on October 15 of each year to a redemption price of $50 per share after October 15, 2003, plus in each case accrued and unpaid dividends. The Convertible Preferred Stock is exchangeable into 6% Convertible Subordinated Debentures due 2008 (the "Exchange Debentures"), subject to certain conditions, at the option of the Company, in whole but not in part, on any dividend payment date commencing October 15, 1996, at a rate of $50 principal amount of Exchange Debentures for each share of Convertible Preferred Stock. Upon receipt of the proceeds from issuance of the Convertible Preferred Stock, the Company redeemed all outstanding shares of Series A and Junior Exchangeable Redeemable Preferred Stock (collectively, the "Redeemable Preferred Stock") at mandatory redemption values plus accumulated dividends (approximately $62,826,000) and repaid bank debt. The difference between the estimated fair value A-16 EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (tables in thousands of dollars, except for per share data) of the Redeemable Preferred Stock at issue date and the mandatory redemption amount was being accreted by charges to accumulated deficit using the interest method. Due to the early redemption of the Redeemable Preferred Stock, the Company recognized a one-time accretion charge of approximately $17,506,000 which increased loss per common share for the year ended December 31, 1993 by $1.77. (b) Common Stock ------------ The rights of holders of Class A and Class B Common Stock are identical except for voting and conversion rights. Holders of shares of common stock vote as a single class on all matters submitted to a vote of the stockholders, with each share of Class A Common Stock entitled to one vote and each share of Class B Common Stock entitled to ten votes, except for (i) certain amendments to the Certificate of Incorporation of the Company, (ii) proposed "going private" transactions between the Company and the controlling shareholder and (iii) as otherwise provided by law. Each share of Class B Common Stock is convertible at the option of the holder into one share of Class A Common Stock at any time. The Class B Common Stock will convert automatically into Class A Common Stock, and thereby lose its special voting rights, if such Class B Common Stock is sold or otherwise transferred to any person or entity other than certain specified affiliates of the current holder. During 1994 and 1995, the holder of the outstanding shares of Class B Common Stock disposed of 20,625 and 32,250 shares of such stock, thereby causing the shares sold to be converted to Class A Common Stock. In May 1993, the Company issued 6,037,500 shares of its Class A Common Stock in its initial public offering resulting in net proceeds to the Company of approximately $58,744,000. These net proceeds were used to fund the acquisitions of KTRH-AM and KLOL-FM in Houston, Texas, and WFYV-FM in Jacksonville, Florida, as discussed in note 2. Upon consummation of the initial public offering, all then outstanding shares of previously issued Class B Common Stock were exchanged for a like number of shares of Class A Common Stock, and current outstanding shares of the Company's Class C Common Stock were redesignated as shares of Class B Common Stock. In May 1995, the Company issued 5,611,009 shares of Class A Common Stock in connection with the BPI Acquisition. A-17 EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (tables in thousands of dollars, except for per share data) In July 1995, the Company completed a secondary public offering of 8,287,500 shares of its Class A Common Stock. The Company issued and sold 7,350,000 shares in the offering, while 937,500 shares were issued and sold in connection with the exercise of certain warrants. Furthermore, 1,013,886 shares were issued in the offering in connection with the exercise of the remaining warrants outstanding pursuant to the over-allotment option. The net proceeds to the Company in connection with the offering of approximately $132.7 million were used to reduce borrowings under the revolving credit portion of the Senior Credit Facility. (c) Common Stock Purchase Warrants ------------------------------ In November 1992, the Company issued certain warrants which, immediately prior to the consummation of the common stock offering in July 1995, entitled holders to purchase an aggregate of 1,951,386 shares of Class A Common Stock at $.01 per share. These warrants were assigned a value at date of issuance of $12,488,000. Such warrants were exercised in connection with the common stock offering in July 1995. (d) Stock Options ------------- The Company has established the 1992, 1993 and 1995 Key Employee Stock Option Plans (the "Employee Option Plans") which provide for the issuance of stock options to officers and other key employees of the Company and its subsidiaries. The Employee Option Plans make available for issuance an aggregate of 1,957,500 shares of Class A Common Stock. Options issued under the Employee Option Plans have varying vesting periods as provided in separate stock option agreements and generally carry an expiration date of ten years subsequent to the date of issuance. In March 1993, the Company granted 877,500 options under the 1992 Employee Option Plan at an exercise price of $0.01 per share. The difference between the market value of the Class A Common Stock at the date of grant and the exercise price of $.01 per share ($7,002,000) was recognized as other nonrecurring costs in the accompanying consolidated statement of operations for the year ended December 31, 1993. Options issued under the 1993 and 1995 Employee Option Plans are required to have exercise prices equal to or in excess of the fair market value of the Company's Class A Common Stock on the date of issuance. In May 1995, the Company also established the Stock Option Plan for Non-Employee Directors (the "Director Plan") which provides for the issuance of stock options to non-employee directors of the Company. The Director Plan makes available for issuance an aggregate of 225,000 shares of Class A Common Stock. Options issued under the Director Plan have exercise prices equal to the fair market value of the A-18 EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (tables in thousands of dollars, except for per share data) Company's Class A Common Stock on the date of issuance, vest over a three year period and have an expiration date of ten years subsequent to the date of issuance. In connection with the BPI Acquisition, the Company assumed outstanding options to purchase 94,000 shares of BPI common stock held by BPI employees. The Company currently expects that in connection with this assumption, options to purchase approximately 97,500 shares of the Company's Class A Common Stock will vest and become exercisable (subject to satisfaction of vesting conditions through May 1996). Following is a summary of activity in the option plans and agreements discussed above for the years ended December 31, 1993, 1994 and 1995:
Shares Option under option price per share ------------- --------------- Balance at December 31, 1992 -- -- Granted 877,500 $ .01 --------- Balance at December 31, 1993 877,500 $ .01 Granted 280,500 $ 10.67 Exercised (180,000) $ .01 --------- Balance at December 31, 1994 978,000 $ .01-10.67 Granted or assumed 413,138 $10.67-21.33 Exercised (25,500) $ .01-10.67 Cancelled (75,764) $10.67-12.33 --------- Balance at December 31, 1995 1,289,874 $ .01-21.33 =========
At December 31, 1995, 945,000 options outstanding under the option plan and agreements discussed above were exercisable and 842,264 shares were available for grant. (9) Income Taxes ------------ The provision for income taxes for the year ended December 31, 1995 is comprised of current federal and state taxes of $246,000 and $425,000, respectively, and a deferred federal income tax benefit of $479,000. The Company did not incur significant tax expense during the years ended December 31, 1993 and 1994 as its operations did not generate taxable income. A-19 EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (tables in thousands of dollars, except for per share data) Total income tax expense (benefit) differed from the amount computed by applying the U.S. federal statutory income tax rate of 35% to loss before extraordinary item for the years ended December 31, 1993, 1994 and 1995 as a result of the following:
1993 1994 1995 -------- -------- -------- Computed "expected" tax benefit $(7,055) $(1,172) $(1,980) Amortization of goodwill 390 355 788 Net operating loss carryforwards for which no tax benefit was recognized 6,644 760 923 State income taxes, net of federal benefit -- -- 276 Other, net 21 57 185 ------- ------- ------- $ -- $ -- $ 192 ======= ======= =======
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 1994 and 1995 are presented below:
1994 1995 --------- --------- Deferred tax assets: Net operating loss carryforwards $ 9,573 $ 18,748 Property and equipment and intangibles, primarily due to differences in depreciation and amortization 3,133 -- Accrued compensation relating to stock options 1,781 1,787 Other 20 649 -------- -------- Total gross deferred tax assets 14,507 21,184 Less valuation allowance (14,458) -- -------- -------- Net deferred tax assets 49 21,184 Deferred tax liabilities: Property and equipment and intangibles, primarily resulting from difference in basis from BPI Acquisition -- (49,884) Other (49) (533) -------- -------- Net deferred tax liability $ -- $(29,233) ======== ========
Deferred tax assets and liabilities are computed by applying the U.S. federal income tax rate in effect to the gross amounts of temporary differences and other tax attributes, such as net operating loss carryforwards. Deferred tax assets and liabilities relating to state income taxes are not material. The net change in the total valuation allowance for the years ended December 31, 1994 and 1995 was $479,000 and $14,458,000, respectively. As a result of the application of purchase accounting to the BPI Acquisition in May 1995, the Company recognized deferred tax assets of $15,380,000 which had not been recognized by the Company in previous periods. Recognition of these assets effectively reduced goodwill resulting from the BPI Acquisition by a corresponding amount. A-20 EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (tables in thousands of dollars, except for per share data) 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. The Company expects the deferred tax assets at December 31, 1995 to be realized as a result of the reversal during the carryforward period of existing taxable temporary differences giving rise to deferred tax liabilities, the generation of taxable income in the carryforward period and the disposition of one or more of its stations. At December 31, 1995, the Company has net operating loss carryforwards available to offset future taxable income of approximately $53,600,000 which begin to expire in 2004. Approximately $32,478,000 of such net operating loss carryforwards are subject to annual use limitations of up to $2,800,000 per year. (10) Operating Leases ---------------- The Company has noncancelable operating leases, primarily for office space. These leases generally contain renewal options for periods ranging from one to ten years and require the Company to pay all executory costs such as maintenance and insurance. Rental expense for operating leases (excluding those with lease terms of one month or less that were not renewed) was approximately $1,440,000, $2,193,000 and $3,073,000 during 1993, 1994 and 1995, respectively. Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of December 31, 1995 are as follows:
Year ending December 31: 1996 $2,634 1997 2,049 1998 1,739 1999 1,800 2000 1,768
(11) Commitments and Contingencies ----------------------------- In August 1993, the Company terminated an agreement with Sagittarius Broadcasting Company (an affiliate of Infinity Broadcasting Corporation) and One Twelve, Inc. (collectively, the "Claimants" or the "Plaintiffs") pursuant to which programming featuring radio personality Howard Stern was broadcast on radio station WLUP-AM (now WMVP- A-21 EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (tables in thousands of dollars, except for per share data) AM) in Chicago. The Claimants allege that termination of the agreement was wrongful and have sued the Company in the Supreme Court of the State of New York, County of New York (the "Court"). The agreement required payments to the Claimants in the amount of $2,600,000 plus five percent of advertising revenues generated by the programming over the three-year term of the agreement. A total of approximately $680,000 was paid to the Claimants pursuant to the agreement prior to termination. Claimants' complaint alleged claims for breach of contract, indemnification, breach of fiduciary duty and fraud. Plaintiffs' aggregate prayer for relief totaled $45,000,000. On July 12, 1994, the Court granted the Company's motion to dismiss Plaintiffs' claims for fraud and breach of fiduciary duty. On June 6, 1995, the Court denied the Plaintiff's motion for summary judgment on their contract and indemnification claims. The Plaintiffs have appealed the Court's June 6, 1995 ruling. Plaintiffs seek in excess of $10,000,000 on their claims for breach of contract and indemnification. The Company believes that it acted within its rights in terminating the agreement. The Company is also involved in various other claims and lawsuits which are generally incidental to its business. The Company is vigorously contesting all such matters and believes that their ultimate resolution will not have a material adverse effect on its consolidated financial position, results of operations or cash flows. The Company offers substantially all of its employees voluntary participation in a 401(k) Plan. The Company may make discretionary contributions to the plan; however, no such contributions were made by the Company during 1993, 1994 or 1995. In October 1995, the Company entered into an agreement with Fairbanks Communications, Inc., pursuant to which the Company has agreed to acquire WKLB-FM in Boston for approximately $34,000,000 in cash. The acquisition is subject to certain conditions including consent of the Federal Communications Commission ("FCC"). (12) Quarterly Financial Data (Unaudited) ------------------------------------
Quarter ended ------------------------------------------------- March 31 June 30 September 30 December 31 --------- --------- ------------- ------------ 1995: Net revenues $25,413 $41,992 $47,772 $47,754 Operating income 919 6,613 1,812 4,433 Net loss (4,118) (759) (3,559) (2,244) Net loss per share (.31) (.05) (.14) (.08)
A-22 EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (tables in thousands of dollars, except for per share data)
1994: Net revenues $22,094 $28,324 $29,369 $29,729 Operating income (loss) (1,763) 3,514 3,200 2,445 Income (loss) before extra- ordinary item (4,879) 7,316 (700) (1,698) Net income (loss) (4,879) 7,316 (700) (5,283) Income (loss) per share before extraordinary item: Primary (.47) .39 (.15) (.22) Fully diluted (.47) .35 (.15) (.22) Net income (loss) per share: Primary (.47) .39 (.15) (.49) Fully diluted (.47) .35 (.15) (.49)
Operating income (loss) is defined as net revenues less station operating expenses, corporate general and administrative expenses, depreciation and amortization and other nonrecurring costs. The extraordinary loss recorded in the quarter ended December 31, 1994 relates to the early extinguishment of debt (see note 7). Net loss per share for the years ended December 31, 1994 and 1995 differs from the sum of net loss per share for the quarters during the respective year due to the different periods used to calculate weighted average shares outstanding. (13) Fair Value of Financial Instruments ----------------------------------- The following table presents the carrying amounts and estimated fair values of the Company's financial instruments for which the estimated fair value of the instrument differs significantly from its carrying amounts at December 31, 1994 and 1995. The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties.
1994 1995 -------------------- -------------------- Carrying Fair Carrying Fair amount value amount value --------- --------- --------- --------- Interest rate swaps $ 3 $ 750 $ -- $ 272 Long-term debt - Senior Notes (18,000) (19,350) (14,000) (15,443)
The following methods and assumptions were used to estimate the fair value of each class of financial instrument: Cash and cash equivalents, accounts receivable and accounts payable: The carrying amount of these assets and liabilities approximates fair value because of the short maturity of these instruments. Interest rate swaps: The fair value of the interest rate swap and cap contracts is estimated by obtaining quotations from brokers. The fair value is an estimate of the amounts that the Company would receive (pay) at the reporting date if the contracts were transferred to other parties or canceled by the broker. The carrying amounts of receivables (payables) under interest rate swaps and caps are included in accrued expenses in the accompanying consolidated balance sheets. Long-term debt: The fair values of the Company's Senior Notes are based on discounted cash flows under the Senior Notes using interest rates currently available to the Company for similar debt issues. As amounts outstanding under the Company's Senior Credit Facility agreements bear interest at current market rates, their carrying amounts approximate fair market value. A-23 EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (tables in thousands of dollars, except for per share data) (14) Subsequent Events ----------------- (a) Pyramid Acquisition ------------------- On January 17, 1996, the Company acquired Pyramid Communications, Inc. ("Pyramid"), a radio broadcasting company with nine FM and three AM radio stations in five radio markets (Chicago, Philadelphia, Boston, Charlotte and Buffalo) (the "Pyramid Acquisition"). The Pyramid Acquisition was effected through the merger of a wholly-owned subsidiary of the Company with and into Pyramid with Pyramid surviving the merger as a wholly owned subsidiary of the Company. The aggregate purchase price paid by the Company in connection with the Pyramid Acquisition was $306.5 million in cash, plus an additional payment of $9.0 million attributable to net working capital (other than cash), which payment is subject to post closing adjustments, and various other direct acquisition costs. Consolidated condensed pro forma results of operations data for 1994 and 1995 as if the Pyramid Acquisition, the BPI Acquisition discussed in note 2(c) and the common stock offering discussed in note 8 occurred at the beginning of the respective years, follow:
1994 1995 ---------- ---------- (unaudited) Net revenues $221,593 $248,144 Operating loss (8,001) (1,717) Net loss (33,035) (34,802) Net loss per common share (1.35) (1.41)
To effect the Pyramid Acquisition, the Company amended and restated the Senior Credit Facility. The amended agreement dated January 17, 1996 permits the existing Senior Credit Facility as described in note 7 to remain in place while providing for an additional revolving loan ("New Revolving Loan") of up to $275,000,000. Repayments of the New Revolving Loan are to be made at such time as the principal amount of the New Revolving Loan exceeds the commitment. The New Revolving Loan commitment reductions begin on March 31, 1998. (b) Detroit Option Agreement ------------------------ Effective on February 14, 1996, the Company entered into the Detroit Option Agreement with Chancellor Broadcasting ("Chancellor") pursuant to which Chancellor granted the Company an option to buy from Chancellor, and the Company granted Chancellor an option to sell to the Company, WWWW-FM and WDFN-AM in Detroit, Michigan, for $30 million in cash. In addition, pursuant to the Detroit Option Agreement, the Company and Chancellor entered into the Detroit joint sales agreement ("JSA") pursuant to which Chancellor will outsource to the Company for a two-year period certain sales and promotional functions of the Detroit stations in exchange for an annual fee of $2.6 million to be paid to Chancellor. The Company's option is exercisable during the thirty-day period following the expiration of the Detroit JSA, which occurs in February 1998. Chancellor may exercise its option at any time prior to the expiration of the Detroit JSA, provided that if Chancellor exercises its option, the closing of the sale of the stations shall not take place prior to the first anniversary of the expiration of the Detroit JSA. A-24 PART I ITEM 1. FINANCIAL STATEMENTS - ------- -------------------- EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in thousands)
December 31, March 31, 1995 1996 ------------ --------- ASSETS Current assets: Cash and cash equivalents $ 3,430 $ 7,216 Accounts receivable, net 45,413 49,700 Prepaid expenses and other assets 2,146 3,704 -------- -------- Total current assets 50,989 60,620 Assets held for sale - 32,000 Property and equipment, net 37,839 44,871 Intangible assets, net 458,787 762,874 Other assets 4,732 8,535 -------- -------- $552,347 $908,900 ======== ========
See accompanying Notes to Consolidated Financial Statements. A-25 EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS, CONTINUED (UNAUDITED) (Dollars in thousands)
December 31, March 31, 1995 1996 ------------ --------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 15,892 $ 20,298 Current portion of long-term debt 4,000 9,625 Other current liabilities 541 541 -------- -------- Total current liabilities 20,433 30,464 -------- -------- Long-term debt, excluding current portion 197,000 500,375 Deferred tax liability 29,233 87,528 Other liabilities 1,104 1,117 -------- -------- Total liabilities 247,770 619,484 -------- -------- Stockholders' equity: Convertible Preferred Stock. Authorized 6,000,000 shares; Issued and outstanding 1,610,000 shares in 1995 and 1996. 80,500 80,500 Class A common stock, $.01 par value. Authorized 75,000,000 shares; issued and outstanding 24,929,529 shares in 1995 and 24,959,529 in 1996. 249 249 Class B common stock, $.01 par value. Authorized 4,500,000 shares; issued and outstanding 3,116,066 shares in 1995 and in 1996. 31 31 Paid-in capital 317,295 317,615 Accumulated deficit (93,498) (108,979) -------- -------- Total stockholders' equity 304,577 289,416 -------- -------- $552,347 $908,900 ======== ========
See accompanying Notes to Consolidated Financial Statements. A-26 EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Dollars in thousands, except for per share data)
Three Months Ended March 31, March 31, 1995 1996 ---------- ----------- Gross revenues $ 29,088 $ 60,782 Less agency commissions 3,675 7,411 ---------- ----------- Net revenues 25,413 53,371 ---------- ----------- Station operating expenses excluding depreciation and amortization 17,428 37,426 Depreciation and amortization 6,290 22,676 Corporate general and administrative expenses 776 1,492 ---------- ----------- Operating expenses 24,494 61,594 ---------- ----------- Operating income (loss) 919 (8,223) ---------- ----------- Nonoperating expenses (income): Interest expense 3,755 8,966 Interest income (14) - Other expense, net 88 7 ---------- ----------- Nonoperating expenses, net 3,829 8,973 ---------- ----------- Loss before income taxes (2,910) (17,196) Income tax benefit - 2,923 ---------- ----------- Net loss (2,910) (14,273) Preferred stock dividends (1,208) (1,208) ---------- ----------- Net loss attributable to common stockholders $ (4,118) $ (15,481) ========== =========== Loss per common share $ (0.31) $ (0.55) ========== =========== Weighted average common shares outstanding 13,107,000 28,056,000 ========== ===========
See accompanying Notes to Consolidated Financial Statements. A-27 EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in thousands)
Three Months Ended March 31, March 31, 1995 1996 --------- --------- Cash flows from operating activities: Net loss $(2,910) $ (14,273) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 1,183 1,784 Amortization of goodwill, intangible assets and other assets 5,107 20,892 Provision for doubtful accounts 242 677 Deferred income tax benefit - (2,923) Changes in certain assets and liabilities, net of effects of acquisitions: Accounts receivable 3,226 9,771 Prepaid expenses and other current assets (197) (713) Accounts payable and accrued expenses (1,278) (383) Other assets (208) (80) Other liabilities (3) 108 ------- --------- Net cash provided by operating activities 5,162 14,860 ------- --------- Cash flows from investing activities: Acquisitions, net of cash acquired - (314,826) Capital expenditures (911) (344) Other (540) (336) ------- --------- Net cash used by investing activities (1,451) (315,506) ------- --------- Cash flows from financing activities: Proceeds from issuance of long-term debt - 319,750 Principal payments on long-term debt (3,000) (10,750) Payments on other long-term liabilities (417) (95) Proceeds from issuance of common stock - 320 Dividend payments on preferred stock (1,208) (1,208) Payments for debt issuance costs (177) (3,585) ------- --------- Net cash provided by (used in) financing activities (4,802) 304,432 ------- --------- Increase (decrease) in cash and cash equivalents (1,091) 3,786 Cash and cash equivalents at beginning of period 1,216 3,430 ------- --------- Cash and cash equivalents at end of period $ 125 $ 7,216 ======= =========
See accompanying Notes to Consolidated Financial Statements. A-28 EVERGREEN MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of Presentation --------------------- In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position, results of operations and cash flows of Evergreen Media Corporation and subsidiaries (the "Company") for the periods presented. Interim periods are not necessarily indicative of results to be expected for the year. It is suggested that these financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All significant intercompany balances and transactions have been eliminated in consolidation. On May 15, 1996, the shareholders of the Company amended its Certificate of Incorporation to increase the authorized shares of the Company from 31,000,000 to 75,000,000. On August 8, 1996, the Company declared a three-for-two stock split effected in the form of a stock dividend payable on August 26, 1996 to shareholders of record at the close of business on August 19, 1996. All share data contained in the accompanying financial statements have been retroactively adjusted to give effect to the increase in authorized shares and the stock dividend. Loss per common share is based on the weighted average number of common shares outstanding during the periods. Stock options and warrants are not included in the calculation as their effect would be antidilutive. The Company adopted the provisions of SFAS 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" on January 1, 1996. The adoption of this statement did not have a material effect on the Company's financial position or results of operations. 2. Acquisitions, Dispositions, and Financings ------------------------------------------ In May 1995, the Company acquired Broadcasting Partners, Inc. ("BPI"), a publicly traded radio broadcasting company with seven FM and four AM radio stations, eight of which are in the nation's ten largest radio markets(the "BPI Acquisition"). The BPI Acquisition was effected through the merger of a wholly- owned subsidiary of the Company with and into BPI, with BPI surviving the merger as a wholly-owned subsidiary of the Company. The BPI Acquisition included the conversion of each outstanding share of BPI common stock into the right to receive $12.00 in cash and .69 shares of the Company's Class A Common Stock, resulting in total cash payments of $94.8 million and the issuance of 5,611,009 shares of the Company's Class A Common Stock valued at $12.50 per share. In addition, the Company retired existing BPI debt of $81.9 million A-29 and incurred various other direct acquisition costs. The total purchase price, including closing costs, allocated to net assets acquired was approximately $258.6 million. In July 1995, the Company completed a secondary public offering of 8,287,500 shares of its Class A Common Stock. The Company issued and sold 7,350,000 shares in the offering, while 937,500 shares were issued and sold in connection with the exercise of certain warrants. Furthermore, 1,013,886 shares were issued in the offering in connection with the exercise of the remaining warrants outstanding pursuant to the over-allotment option. The net proceeds to the Company in connection with the offering of approximately $132.7 million were used to reduce borrowings under the revolving credit portion of the Senior Credit Facility. On January 17, 1996, the Company acquired Pyramid Communications, Inc. ("Pyramid"), a radio broadcasting company with nine FM and three AM radio stations in five radio markets (Chicago, Philadelphia, Boston, Charlotte and Buffalo) (the "Pyramid Acquisition"). The Pyramid Acquisition was effected through the merger of a wholly-owned subsidiary of the Company with and into Pyramid with Pyramid surviving the merger as a wholly-owned subsidiary of the Company. The total purchase price, including closing costs, allocated to net assets acquired was approximately $316.3 million. Effective on February 14, 1996, the Company entered into the Detroit Option Agreement with Chancellor Broadcasting ("Chancellor") pursuant to which Chancellor granted the Company an option to buy from Chancellor, and the Company granted Chancellor an option to sell to the Company, WWWW-FM and WDFN-AM in Detroit, Michigan, for $30 million in cash. In addition, pursuant to the Detroit Option Agreement, the Company and Chancellor entered into the Detroit joint sales agreement ("JSA") pursuant to which Chancellor will outsource to the Company for a two-year period certain sales and promotional functions of the Detroit stations in exchange for an annual fee of $2.6 million to be paid to Chancellor. Effective April 1, 1996, the JSA was converted into a time brokerage agreement which will extend for the same time period as the previous JSA. The Company's option is exercisable during the thirty-day period following the expiration of the Detroit JSA, which occurs in February 1998. Chancellor may exercise its option at any time prior to the expiration of the Detroit JSA, provided that if Chancellor exercises its option, the closing of the sale of the stations shall not take place prior to the first anniversary of the expiration of the Detroit JSA. The BPI Acquisition and the Pyramid Acquisition discussed above were accounted for as purchases. Accordingly, the accompanying A-30 consolidated financial statements include the results of operations of the acquired entities from the dates of acquisition. A summary of the net assets acquired follows:
1995 1996 --------- --------- Working capital, including cash of $492 in 1995 and $949 in 1996 $ 12,432 $ 16,837 Assets held for sale - 32,000 Property and equipment 11,684 8,472 Intangible assets 264,650 325,040 Deferred tax liability (29,712) (61,218) Other liabilities (420) (4,788) -------- -------- $258,634 $316,343 ======== ========
Pro forma Results of Operations (Unaudited) - ------------------------------------------- Consolidated condensed pro forma results of operations data for the three months ended March 31, 1995 and 1996, as if the 1995 common stock offering and the 1995 and 1996 acquisitions discussed above and the dispositions discussed in note 4, "Other Events" occurred at January 1, 1995, follow:
1995 1996 --------- --------- Net revenues $ 51,657 $ 55,150 Operating income (9,175) (9,601) Net loss (15,010) (14,968) Net loss per common share (0.58) (0.57)
The above pro forma results of operations are presented pursuant to applicable accounting rules relating to business acquisitions and are not necessarily indicative of the actual results that would have been achieved had these transactions occurred at the beginning of 1995, nor are they indicative of future results of operations. Pro forma adjustments for the April 1996 agreement to acquire KYLD-FM in San Francisco and the May 1996 acquisition of WKLB-FM in Boston are not presented as any adjustment would be immaterial to the consolidated condensed pro forma results of operations. 3. Contingencies ------------- The Company is involved in several lawsuits that are incidental to its business. A discussion of certain of these lawsuits is contained in Part II, Item 1, "Legal Proceedings", of this Form 10-Q. The Company believes that the ultimate resolution of the lawsuits will not have a material effect on its financial position or results of operations. A-31 4. Other Events ------------ In April 1996, the Company entered into agreements to sell Buffalo radio stations WHTT-FM and WHTT-AM for $19.5 million in cash and WSJZ-FM for $12.5 million in cash in two separate transactions. The Company also entered into time brokerage agreements to sell substantially all of the broadcast time of these stations pending the completion of the sales. The aforementioned stations were acquired in connection with the Pyramid Acquisition discussed in Note 2. Accordingly, the assets of these stations have been classified as assets held for sale at March 31, 1996 in connection with the purchase price allocation of the Pyramid Acquisition, and no gain or loss will be recognized by the Company upon consummation of the sales. In April 1996, the Company entered into an agreement to acquire KYLD-FM in San Francisco for $44 million in cash. The Company also entered into an agreement to operate the station under a time brokerage agreement effective May 1, 1996 pending the completion of the purchase. The acquisition of KYLD-FM, expected to close in the fall of 1996, will be financed through additional borrowings under the Senior Credit Facility. In May 1996, the Company acquired WKLB-FM in Boston for $34 million in cash plus various other direct acquisition costs. The acquisition of WKLB-FM was financed through additional borrowings of $33 million under the Senior Credit Facility in addition to $1 million in escrow funds previously paid by the Company. In May 1996, the Company amended the Senior Credit Facility which resulted in reducing the incremental rate applied to the participating banks' prime rate or Eurodollar rate on borrowings under the Senior Credit Facility. A-32 EX-23.1 3 KPMG PEAT MARWICK CONSENT EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT ----------------------------- The Board of Directors Evergreen Media Corporation: We consent to incorporation by reference in the Registration Statements on Form S-3 (No. 33-93874) and Form S-8 (Nos. 33-83124 and 333-04379) of Evergreen Media Corporation of our report dated February 9, 1996, except for note 14(b), which is as of February 14, 1996, and note 1(m), which is as of August 8, 1996, relating to the consolidated balance sheets of Evergreen Media Corporation and subsidiaries as of December 31, 1994 and 1995 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1995, which report appears in the Form 8-K dated September 3, 1996 filed by Evergreen Media Corporation. KPMG Peat Marwick LLP Dallas, Texas August 29, 1996 EX-27.1 4 FINANCIAL DATA SCHEDULE-12/31/95 FINANCIAL STATEMENTS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 12/31/95 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 3,430 0 47,413 2,000 0 50,989 57,951 20,112 552,347 20,433 197,000 80,500 0 280 223,797 552,347 162,931 162,931 23,431 149,154 (291) 0 19,144 (5,658) 192 (5,850) 0 0 0 (10,680) (0.51) (0.51)
EX-27.2 5 FINANCIAL DATA SCHEDULE-3/31/96 FINANCIAL STATEMENTS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 3/31/96 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1995 JAN-01-1996 MAR-31-1996 7,216 0 52,270 2,570 0 60,620 66,522 21,651 908,900 30,464 500,375 80,500 0 280 208,636 908,900 53,371 53,371 7,411 61,594 7 0 8,966 (17,196) (2,923) (14,273) 0 0 0 (15,481) (0.55) (0.55)
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