UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20022003
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 0-29253
BEASLEY BROADCAST GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware | 65-0960915 | |
(State or other jurisdiction of incorporation |
(I.R.S. Employer Identification No.) | |
3033 Riviera Drive, Suite 200
Naples, Florida 34103
(Address of principal executive offices and Zip Code)
(239) 263-5000
(Registrant’s telephone number, including area code)
Securities Registered pursuant to Section 12(b) of the Act:
None
Securities Registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $.001 par value
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx No¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.x¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yesx No¨
As of March 6, 2003,10, 2004, the aggregate market value of the Class A common stock held by non-affiliates of the registrant was $107,035,971$99,856,237 based on the number of shares outstanding as of March 6, 200310, 2004 and the closing price of $14.749$13.55 on The Nasdaq Stock Market’s National Market on June 28, 2002,30, 2003, the last business day of our most recently completed second quarter.
Class A Common Stock, $.001 par value 7,440,6987,444,364 Shares Outstanding as of March 6, 200310, 2004
Class B Common Stock, $.001 par value 16,832,743 Shares Outstanding as of March 6, 200310, 2004
Documents Incorporated by Reference
Certain information in the registrant’s Definitive Proxy Statement for its 20032004 Annual Meeting of Stockholders pursuant to Regulation 14A, is incorporated by reference in Part III of this report, which will be filed with the Securities and Exchange Commission no later than April 30, 2003.29, 2004.
FORM 10-K ANNUAL REPORT
FOR THE PERIOD ENDED DECEMBER 31, 20022003
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Market for Registrant’s Common Equity, | 16 | |||
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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Item 9A. | Controls and Procedures | 66 | ||
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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Services |
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Exhibits, Financial Statement Schedules, and Reports on Form 8-K |
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CERTAIN DEFINITIONS
Unless the context requires otherwise, all references in this report to “Beasley,” “Beasley Broadcast Group,” “we,” “us,” “our,” and similar terms refer to Beasley Broadcast Group, Inc. and its consolidated subsidiaries.
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
You should read the following discussion together with the financial statements and related notes included elsewhere in this report. The results discussed below are not necessarily indicative of the results to be expected in any future periods. Certain matters discussed herein are forward-looking statements. This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including any projections of earnings, revenues or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” and other similar words. Such forward-looking statements may be contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” among other places.
Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, including, but not limited to, economic changes, unforeseen media events that would cause the company to broadcast commercial free for any period of time, changes in the radio broadcasting industry generally and other key risks described herein under the heading “Risk Factors.” We do not intend, and undertake no obligation, to update any forward-looking statement.
Overview
We were founded in 1961 and, according to BIA Financial Network, Inc., we wereare the 17th largest radio broadcasting company in the United States based on 2001 gross revenue. After giving effect to the disposition of WBYU-AM, our remaining station in the New Orleans market, which we completed on February 5, 2003, we own and operate 41 stations, 26 FM and 15 AM. Our stations are located in ten large and mid-sized markets primarily located in the eastern United States. Sixteen of these stations are located in six of the nation’s top fifty radio markets: Boston, Atlanta, Philadelphia, Miami-Ft. Lauderdale, Las Vegas and West Palm Beach-Boca Raton and, according to Miller, Kaplan, Arase & Co. (December 2002 ed.), our station groups rank among the three largest clusters, based on gross revenue, in five of our ten markets. Collectively, our radio stations reach 3.4 million people on a weekly basis according to BIA Financial Network, Inc. For the year ended December 31, 2002, after giving effect to the dispositionsWe own and operate 41 radio stations in the New Orleans market which we completed on March 20, 200210 markets including Atlanta, GA, Boston, MA, Philadelphia, PA, Miami-Ft. Lauderdale, FL, Las Vegas, NV, West Palm Beach-Boca Raton, FL, Ft. Myers-Naples, FL, Fayetteville, NC, Greenville-New Bern-Jacksonville, NC, and February 5, 2003, as if these dispositions had been completed as of January 1, 2002, we would have had net revenue of $114.6 million, broadcast cash flow of $36.7 million and a net loss of $2.9 million.Augusta, GA.
We seek to maximize revenueswere founded in 1961 and broadcast cash flow by operating and acquiring clusters of stations in high-growth large and mid-sized markets located primarily in the eastern United States. Our radio stations program a variety of formats, including rock, country, contemporary hit radio and talk, which target the demographic groups in each market that we consider the most attractive to our advertisers.
We are led by our Chairman and Chief Executive Officer, George G. Beasley, who has 41 years of experience in the radio broadcasting industry.Beasley. Under Mr. Beasley’s guidance, excluding the radio stations that we currently own, we have acquired and disposed of a total of 55 radio stations, including stations in Los Angeles, Chicago, New Orleans, Orlando and Cleveland.stations. We acquiredpurchased these 55 radio stations for an aggregate acquisitionpurchase price of $200.5 million and the total consideration that we received upon disposition wassold them for an aggregate sales price of $370.6 million. Mr. Beasley is supported by a management team with an average of 2627 years of experience in the radio broadcasting industry.
Mr. Beasley and our management team have established a track record of acquiring and operating a substantial portfolio of well run radio stations and, in several instances, have demonstrated the ability to reposition and turn around under-performing stations. We believe that we are well positioned to continue to realize cash flow growth from our existing stations and to acquire and operate new radio stations in both existing and new markets with positive demographic trends and growth characteristics.
Our operations are divided into three reportable segments, Radio Group One, Radio Group Two, and Radio Group Three. TotalOperating results and total assets net revenue and other financial information for theseour reportable segments are contained in the notesnote 12 to our consolidated financial statements included in Item 8 of this report.
Recent Events
On September 30, 2002, we entered into an amended and restated credit agreement, under which a new $100.0 million term loan B was issued and certain financial covenants were revised. The proceeds from term loan B were used to reduce the outstanding balance of the revolving credit loan by $16.0 million and the outstanding balance of term loan A by $84.0 million. In addition, the maximum commitment of the revolving credit loan was reduced to $103.5 million. In connection with the amended and restated credit facility, we recorded a $2.0 million loss on extinguishment of long-term debt for the year ended December 31, 2002, of which $0.1 million is reported net of income taxes in discontinued operations.
On October 3, 2002, we entered into a definitive agreement with ABC, Inc. to sell WBYU-AM in the New Orleans market for $1.5 million, subject to certain adjustments. On February 5, 2003, we completed the sale of WBYU-AM to ABC, Inc for $1.5 million. The proceeds from the sale were used to reduce the outstanding balance of the revolving credit loan under our credit facility. Upon completion of this sale we no longer have operations in the New Orleans market, therefore the results of operations for WBYU-AM have been reported as discontinued operations in the consolidated statements of operations for all periods presented.
On February 24, 2003, we announced that we had restated our financial statements for the years ended December 31, 2000 and 2001, and for the three months ended March 31, 2002. During the first quarter of 2002, we recorded an adjustment to our deferred tax assets and deferred income tax expense as a result of the completion of our 2001 income tax returns. However, during the fourth quarter of 2002, it was determined that the adjustment should have been recorded in prior periods. As restated, the adjustment corrects our deferred tax assets and liabilities recorded upon conversion from a series of subchapter S corporations, partnerships and limited liability companies to a subchapter C corporation at the time of our initial public offering of common stock on February 11, 2000. As a result of these restatements, the reported net loss for the year ended December 31, 2000 was decreased by $1,083,240, or $0.05 per share, while deferred tax assets were increased by $705,823 and other receivables were increased by $377,417. For the year ended December 31, 2001, the reported net loss was increased by $377,417, or $0.01 per share, while deferred tax assets and stockholders’ equity were increased by $705,823. For the three months ended March 31, 2002, the reported net loss was increased by $705,823, or $0.03 per share.
The restatement of our consolidated financial statements is discussed in more detail in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and note 2 and note 16 to our consolidated financial statements each contained elsewhere in this report.
Operating Strategy
The principal components of our operating strategy are to:
• | Develop Market-Leading |
• | Conduct Extensive Market |
• | Establish Strong Local Brand |
• | Build Relationship-Oriented Sales Staff and Emphasize Focused Marketing and Promotional |
relationship-oriented sales staff to lead local and national marketing and promotional initiatives. We design our sales efforts based on advertiser demand and market conditions. Our radio stations have an experienced and stable sales force with an average of five years experience with Beasley Broadcast Group. In addition, we provide our sales force with extensive training, competitive compensation and performance-based incentives. Our radio stations also engage in special local promotional activities such as concerts featuring nationally recognized performers, contests, charitable events and special community events. Our experienced sales staff and these promotional initiatives help strengthen our relationship with our advertisers and listening community. |
• | Hire, Develop and Motivate Strong Local Management |
Acquisition Strategy
Our acquisition strategy which will focus on stations located in the 100 largest radio markets, is to:
Our ability to execute our acquisition strategy, is subject to our ability to identify acquisition targets that both satisfy our acquisition criteria and that are available on terms that are economically and commercially acceptable to us. During the past two fiscal years, we have remained selective in our approach to acquisitions, and did not identify any radio stations that both fit our criteria and that were available on terms that were acceptable to us. As a result, we did not acquire any radio stations during the past two fiscal years. While we cannot be certain that conditions will change and that acceptable acquisition opportunities will arise in the future, we intend to continue to pursue our acquisition strategy. We believe that many of our competitors have had a similar experience in this regard during the past several years and that they may be eager to take advantage of any improvement in the market for radio stations. Many of these competitors have greater financial resources than we do and may be able to outbid us for attractive acquisition targets. Additionally, even if we are able to identify acceptable acquisition opportunities, our ability to complete such acquisitions will also remain subject to, among other factors, the availability of additional borrowings under our credit facility, or other permitted financings including additional equity offerings, which may not be available to us when needed or on acceptable terms.
Radio Station Portfolio
The following table sets forth selected information about our portfolio of radio stations. The table excludes one AM radio station in the New Orleans market that was sold on February 5, 2003.
Market/Station | 2002 Radio Market Revenue Rank | Year Acquired | Format | 2002 Market Revenue Growth | 2002 Beasley Market Revenue Rank | ||||||
Atlanta, GA | 6 | — | % | — | |||||||
WAEC-AM | 2000 | Religious | |||||||||
WWWE-AM | 2000 | Hispanic | |||||||||
Boston, MA | 8 | — |
| — | |||||||
WRCA-AM | 2000 | Hispanic | |||||||||
Philadelphia, PA | 10 | 9.3 |
| 5 | |||||||
WXTU-FM | 1983 | Country | |||||||||
WPTP-FM | 1997 | All 80’s | |||||||||
WTMR-AM | 1998 | Religious | |||||||||
WWDB-AM | 1986 | Financial | |||||||||
Miami-Ft. Lauderdale, FL | 11 | 9.3 |
| 3 | |||||||
WQAM-AM | 1996 | Sports/Talk | |||||||||
WPOW-FM | 1986 | Dance CHR | |||||||||
WKIS-FM | 1996 | Country | |||||||||
WWNN-AM | 2000 | Health | |||||||||
WHSR-AM | 2000 | Foreign Language | |||||||||
Las Vegas, NV | 36 | 10.2 |
| 4 | |||||||
KSTJ-FM | 2001 | All 80’s | |||||||||
KJUL-FM | 2001 | Adult Standards | |||||||||
KKLZ-FM | 2001 | Classic Rock | |||||||||
West Palm Beach-Boca Raton, FL | 42 | — |
| — | |||||||
WSBR-AM | 2000 | Financial | |||||||||
Ft. Myers-Naples, FL | 66 | 11.0 |
| 3 | |||||||
WRXK-FM | 1986 | Classic Rock | |||||||||
WXKB-FM | 1995 | Adult CHR | |||||||||
WJBX-FM | 1998 | Alternative Rock | |||||||||
WJPT-FM | 1998 | Adult Standards | |||||||||
WWCN-AM | 1987 | Sports/Talk |
Market/Radio Station | 2003 Radio Market Revenue Rank | Year Acquired | Format | 2003 Market Revenue Growth | 2003 Beasley Market Revenue Rank | ||||||
Atlanta, GA | 6 | — | % | — | |||||||
WAEC-AM | 2000 | Religious | |||||||||
WWWE-AM | 2000 | Hispanic | |||||||||
Boston, MA | 9 | — | — | ||||||||
WRCA-AM | 2000 | Hispanic |
Market/Station | 2002 Radio Market Revenue Rank | Year Acquired | Format | 2002 Market Revenue Growth | 2002 Beasley Market Revenue Rank | ||||||||||||||||
Market/Radio Station | 2003 Radio Market Revenue Rank | Year Acquired | Format | 2003 Market Revenue Growth | 2003 Beasley Market Revenue Rank | ||||||||||||||||
Philadelphia, PA | 10 | (0.7 | ) | 5 | |||||||||||||||||
WXTU-FM | 1983 | Country | |||||||||||||||||||
WRDW-FM | 1997 | Rhythmic CHR | |||||||||||||||||||
WTMR-AM | 1998 | Religious | |||||||||||||||||||
WWDB-AM | 1986 | Financial | |||||||||||||||||||
Miami-Ft. Lauderdale, FL | 11 | 1.4 | 3 | ||||||||||||||||||
WQAM-AM | 1996 | Sports/Talk | |||||||||||||||||||
WPOW-FM | 1986 | Rhythmic CHR | |||||||||||||||||||
WKIS-FM | 1996 | Country | |||||||||||||||||||
WWNN-AM | 2000 | Health | |||||||||||||||||||
WHSR-AM | 2000 | Foreign Language | |||||||||||||||||||
Las Vegas, NV | 35 | 4.8 | 4 | ||||||||||||||||||
KSTJ-FM | 2001 | 80’s | |||||||||||||||||||
KJUL-FM | 2001 | Adult Standards | |||||||||||||||||||
KKLZ-FM | 2001 | Classic Rock | |||||||||||||||||||
West Palm Beach-Boca Raton, FL | 45 | — | — | ||||||||||||||||||
WSBR-AM | 2000 | Financial | |||||||||||||||||||
Ft. Myers-Naples, FL | 66 | 10.1 | 2 | ||||||||||||||||||
WRXK-FM | 1986 | Classic Rock | |||||||||||||||||||
WXKB-FM | 1995 | Adult CHR | |||||||||||||||||||
WJBX-FM | 1998 | Alternative Rock | |||||||||||||||||||
WJPT-FM | 1998 | Adult Standards | |||||||||||||||||||
WWCN-AM | 1987 | Sports/Talk | |||||||||||||||||||
Fayetteville, NC | 92 | 7.0 | 1 | 96 | (6.9 | ) | 1 | ||||||||||||||
WKML-FM | 1983 | Country | 1983 | Country | |||||||||||||||||
WZFX-FM | 1997 | Urban | 1997 | Urban | |||||||||||||||||
WFLB-FM | 1996 | Oldies | 1996 | Oldies | |||||||||||||||||
WUKS-FM | 1997 | Urban/Adult Contemporary | 1997 | Urban AC | |||||||||||||||||
WAZZ-AM | 1997 | Nostalgia | 1997 | Nostalgia | |||||||||||||||||
WYRU-AM | 1997 | Religious | |||||||||||||||||||
Greenville-New Bern-Jacksonville, NC | 96 | 18.8 | 1 | ||||||||||||||||||
WTEL-AM | 1997 | Religious | |||||||||||||||||||
Greenville-New Bern- | 98 | 6.0 | 1 | ||||||||||||||||||
WIKS-FM | 1996 | Urban | 1996 | Urban AC | |||||||||||||||||
WNCT-FM | 1996 | Oldies | 1996 | Oldies | |||||||||||||||||
WSFL-FM | 1991 | Classic Rock | 1991 | Classic Rock | |||||||||||||||||
WMGV-FM | 1996 | Adult Contemporary | 1996 | AC | |||||||||||||||||
WXNR-FM | 1996 | Alternative Rock | 1996 | Alternative Rock | |||||||||||||||||
WNCT-AM | 1996 | Hispanic | 1996 | Hispanic | |||||||||||||||||
Augusta, GA | 118 | 14.8 | 2 | 119 | (8.2 | ) | 1 | ||||||||||||||
WKXC-FM | 2001 | Country | 2001 | Country | |||||||||||||||||
WGAC-AM | 1993 | News/Talk/Sports | 1993 | News/Talk | |||||||||||||||||
WCHZ-FM | 1997 | Alternative Rock | 1997 | Alternative Rock | |||||||||||||||||
WGOR-FM | 1992 | Oldies | 1992 | Oldies | |||||||||||||||||
WSLT-FM | 2001 | Adult Contemporary | 2001 | AC | |||||||||||||||||
WAJY-FM | 1994 | Nostalgia | 1994 | Religious | |||||||||||||||||
WRDW-AM | 2000 | Sports/Talk | 2000 | Sports/Talk | |||||||||||||||||
WRFN-FM | 2000 | Sports/Talk | |||||||||||||||||||
WGAC-FM | 2000 | News/Talk | |||||||||||||||||||
WGUS-AM | 2003 | Classic Country |
For our radio station portfolio, we derived:
Competition; Changes in Broadcasting Industry
The radio broadcasting industry is highly competitive. The success of each of our radio stations depends largely upon its audience ratings and its share of the overall advertising revenue within its market. Our radio stations compete for listeners and advertising revenue directly with other radio stations within their respective markets. Radio stations compete for listeners primarily on the basis of program content that appeals to a particular demographic group. By building a strong listener base consisting of a specific demographic group in each of our markets, we are able to attract advertisers seeking to reach those listeners.
The following are some of the factors that are important to a radio station’s competitive position:
In addition, we attempt to improve our competitive position with promotional campaigns aimed at the demographic groups targeted by our radio stations and by sales efforts designed to attract advertisers.
The operation of a radio broadcast station requires a license from the FCC. The number of radio stations that can operate in a given market is limited by strict AM interference criteria and availability of FM radio frequencies allotted by the FCC to communities in that market. The number of radio stations that a single entity may operate in a market is further limited by the FCC’s multiple ownership rules that regulate the number of radio stations serving the same area that may be owned or controlled by a single entity.
Radio station operators are subject to the possibility of another radio station changing programming formats to compete directly for listeners and advertisers or launching an aggressive promotional campaign in support of an already existing competitive format. If a competitor were to attempt to compete in either of these fashions, our results of operations could be adversely affected as a result of an increase in operating expenses in the broadcast cash flow of our affected station could decrease due tomarket associated with increased promotional and other expenses and/or lowerdecreased advertising revenues. There can be no assurance that any one of our radio stations will be able to maintain or increase its current audience ratings and radio advertising revenue market share.
Our radio stations also compete for audiences and advertising revenues within their respective markets directly with other radio stations, as well as with other media such as newspapers, magazines, network and cable
television, outdoor advertising and direct mail. In addition, the radio broadcasting industry is subject to competition from new media technologies that are being developed or introduced such as:
The radio broadcasting industry historically has grown despite the introduction of new technologies for the delivery of entertainment and information, such as television broadcasting, cable television, audio tapes and compact discs. A growing population and greater availability of radios, particularly car and portable radios, have contributed to this growth. We cannot assure you, however, that this historical growth will continue or that the development or introduction in the future of any new media technology will not have an adverse effect on the radio broadcasting industry.
We cannot predict what other new competitive services or other regulatory matters might be considered in the future by the FCC, nor can we assess in advance what impact, if any, the implementation of any of these services, proposals or changes might have on our business.
We employ a number of on-air personalities and generally enter into employment agreements with these personalities to protect our interests in those relationships that we believe to be valuable. The loss of some of
these personalities could result in a short-term loss of audience share, but we do not believe that the loss would have a material adverse effect on our business.
Federal Regulation Of Radio Broadcasting
The radio broadcasting industry is subject to extensive and changing regulation of, among other things, program content including determination of decency standards, advertising content, technical operations and business and employment practices. The ownership, operation and sale of radio stations are subject to the jurisdiction of the FCC. Among other things, the FCC:
The FCC has the power to impose penalties for violations of its rules or the Communications Act, including the imposition of monetary forfeitures, the issuance of short-term licenses, the imposition of a condition on the renewal of a license, non-renewal of licenses and the revocation of operating authority.
The following is a brief summary of some provisions of the Communications Act and of certain specific FCC regulations and policies. The summary is not a comprehensive listing of all of the regulations and policies affecting radio stations. For further information concerning the nature and extent of federal regulation of radio stations, you should refer to the Communications Act, FCC rules and FCC public notices and rulings.
FCC Licenses. Radio stations operate pursuant to renewable broadcasting licenses that are ordinarily granted by the FCC for maximum terms of eight years. A radio station may continue to operate beyond the expiration date of its license if a timely filed license renewal application is pending. During the periods when renewal applications are pending, petitions to deny license renewals can be filed by interested parties, including members of the public. The FCC is required to hold hearings on a radio station’s renewal application if a substantial or material question of fact exists as to whether the radio station has served the public interest, convenience and necessity. If, as a result of an evidentiary hearing, the FCC determines that the licensee has failed to meet certain requirements and that no mitigating factors justify the imposition of a lesser sanction, then the FCC may deny a license renewal application. Historically, FCC licenses have generally been renewed. We have no reason to believe that our licenses will not be renewed in the ordinary course, although there can be no assurance to that effect. The non-renewal of one or more of our licenses could have a material adverse effect on our business.
The FCC classifies each AM and FM radio station. An AM radio station operates on either a clear channel, regional channel or local channel. A clear channel is one on which AM radio stations are assigned to serve wide areas. Clear channel AM radio stations are classified as either: Class A radio stations, which operate on an unlimited time basis and are designated to render primary and secondary service over an extended area; Class B radio stations, which operate on an unlimited time basis and are designed to render service only over a primary service area; or Class D AM radio stations, which operate either during daytime hours only, during limited times only or on an unlimited time basis with low nighttime power. A regional channel is one on which Class B and Class D AM radio stations may operate and serve primarily a principal center of population and the rural areas contiguous to it. A local channel is one on which AM radio stations operate on an unlimited time basis and serve primarily a community and the immediately contiguous suburban and rural areas. Class C AM radio stations operate on a local channel and are designed to render service only over a primary service area that may be reduced as a consequence of interference.
The FCC has authorized an additional 100 kHz of bandwidth for the AM band and has allotted frequencies in this new band to certain existing AM radio station licensees that applied for migration to the expanded AM band, including certainone of our radio stations, subject to the requirement that at the end of a transition period, those licensees return to the FCC the license for their existing AM band radio station. Upon the completion of the migration process, it is expected that some AM radio stations will have improved coverage because of reduced interference. We have not evaluated the impact of the migration process on our business but do not believe that such impact will be material.
The minimum and maximum facilities requirements for an FM radio station are determined by its class. FM class designations depend upon the geographic zone in which the transmitter of the FM radio station is located. In general, commercial FM radio stations are classified as follows, in order of increasing power and antenna height: Class A, B1, C3, B, C2, C1, C0 and C. In addition, the FCC has adopted a rule that subjects Class C FM radio stations that do not satisfy a certain antenna height requirement to an involuntary downgrade in class to Class C0 under certain circumstances.
The following table sets forth the metropolitan market served (the FCC-designated city of license may differ), call letters, FCC license classification, frequency, power and FCC license expiration date of each of the radio stations that we own excluding one AM radio station in the New Orleans market that was sold on February 5, 2003.own. In many cases, our licenses are held by wholly-owned indirect subsidiaries. Pursuant to FCC rules and regulations, many AM radio stations are licensed to operate at a reduced power during the nighttime broadcasting hours, which can result in reducing the radio station’s coverage during the nighttime hours of operation. Both daytime and nighttime power ratings are shown, where applicable. For FM radio stations, the maximum effective radiated power in the main lobe is given.
Market | Radio Station | FCC Class | Frequency | Power in Kilowatts | Expiration Date of License | |||||
Atlanta, GA | WAEC-AM | B | 860 kHz | 5 kW day/.5 kW night | 04/01/2004 | |||||
WWWE-AM | D | 1100 kHz | 5 kW day | 04/01/2004 | ||||||
Boston, MA | WRCA-AM | B | 1330 kHz | 5 kW | 04/01/2006 | |||||
Philadelphia, PA | WXTU-FM | B | 92.5 MHz | 15.5 kW | 08/01/2006 | |||||
| B | 96.5 MHz | 17.0 kW | 08/01/2006 | ||||||
WTMR-AM | B | 800 kHz | 5 kW day/.5 kW night | 06/01/2006 | ||||||
WWDB-AM | D | 860 kHz | 10 kW day | 08/01/2006 | ||||||
Miami-Ft. Lauderdale, FL | WQAM-AM | B | 560 kHz | 5 kW day/1 kW night | 02/01/2004 | |||||
WPOW-FM | C | 96.5 MHz | 100 kW | 02/01/ | ||||||
WKIS-FM | C | 99.9 MHz | 100 kW | 02/01/ | ||||||
WWNN-AM | B | 1470 kHz | 50 kW day/2.5 kW night | 02/01/ | ||||||
WHSR-AM | B | 980 kHz | 5 kW day/1 kW night | 02/01/ | ||||||
Las Vegas, NV | KSTJ-FM | C | 102.7 MHz | 96 kW | 10/01/2005 | |||||
KJUL-FM | C | 104.3 MHz | 24.5 kW | 10/01/2005 | ||||||
KKLZ-FM | C | 96.3 MHz | 100 kW | 10/01/2005 | ||||||
West Palm Beach-Boca Raton, FL | WSBR-AM | B | 740 kHz | 2.5 kW day/.94 kW night | 02/01/2004 | |||||
Ft. Myers-Naples, FL | WRXK-FM | C | 96.1 MHz | 100 kW | 02/01/ | |||||
WXKB-FM | C | 103.9 MHz | 100 kW | 02/01/ | ||||||
WJBX-FM | C2 | 99.3 MHz | 45 kW | 02/01/ | ||||||
WJPT-FM | C2 | 106.3 MHz | 50 kW | 02/01/ | ||||||
WWCN-AM | B | 770 kHz | 10 kW day/1 kW night | 02/01/ | ||||||
Fayetteville, NC | WKML-FM | C | 95.7 MHz | 100 kW | 12/01/ | |||||
WZFX-FM | C1 | 99.1 MHz | 100 kW | 12/01/ | ||||||
WFLB-FM | C | 96.5 MHz | 100 kW | 12/01/ | ||||||
WUKS-FM | C3 | 107.7 MHz | 5.2 kW | 12/01/ | ||||||
WAZZ-AM | C | 1490 kHz | 1 kW day/night | 12/01/ | ||||||
| B | 1160 kHz | 5 kW day/.25 kW night | 12/01/ |
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Greenville-New | WIKS-FM | C1 | 101.9 MHz | 100 kW | 12/01/ | |||||
WNCT-FM | C | 107.9 MHz | 100 kW | 12/01/2003 | ||||||
WSFL-FM | C1 | 106.5 MHz | 100 kW | 12/01/ | ||||||
WMGV-FM | C1 | 103.3 MHz | 100 kW | 12/01/ | ||||||
WXNR-FM | C2 | 99.5 MHz | 16.5 kW | 12/01/ | ||||||
WNCT-AM | B | 1070 kHz | 10 kW day/night | 12/01/ | ||||||
Augusta, GA | WKXC-FM | C2 | 99.5 MHz | 24 kW | 12/01/ | |||||
WGAC-AM | B | 580 kHz | 5 kW day/.84 kW night | 04/01/2004 | ||||||
WCHZ-FM | C3 | 95.1 MHz | 5.7 kW | 04/01/2004 | ||||||
WGOR-FM | C3 | 93.9 MHz | 13 kW | 04/01/2004 | ||||||
WSLT-FM | A | 98.3 MHz | 2.8 kW | 12/01/2003 | ||||||
WAJY-FM | A | 102.7 MHz | 3 kW | 12/01/ | ||||||
WRDW-AM | B | 1480 kHz | 5 kW day/night | 04/01/2004 | ||||||
| A | 93.1 MHz | 4.1 kW | 04/01/2004 | ||||||
| B | 1630 kHz | 10 kW day/1 kW night | 04/01/2004 |
We have timely filed license renewal applications for all of our radio stations. However certain licenses, including one that is subject to two indecency-related inquiries at the FCC’s Enforcement Bureau, were not renewed prior to their expiration dates. Based on having filed timely renewal applications, we continue to operate the radio stations operating under these licenses and do not anticipate that they will not be renewed.
Transfers or Assignment of License. The Communications Act prohibits the assignment of broadcast licenses or the transfer of control of a broadcast licensee without the prior approval of the FCC. In determining whether to grant such approval, the FCC considers a number of factors pertaining to the licensee and proposed licensee, including:
To obtain FCC consent to assign or transfer control of a broadcast license, appropriate applications must be filed with the FCC. If the application involves a substantial change in ownership or control, the application must be placed on public notice for not less than 30 days during which time petitions to deny or other objections against the application may be filed by interested parties, including members of the public. These types of petitions are filed from time to time with respect to proposed acquisitions. Informal objections to assignment and transfer of control applications may be filed at any time up until the FCC acts on the application. If the application does not involve a substantial change in ownership or control, it is a pro forma application. The pro forma application is nevertheless subject to having informal objections filed against it. When passing on an assignment or transfer application, the FCC is prohibited from considering whether the public interest might be served by an assignment or transfer of the broadcast license to any party other than the assignee or transferee specified in the application. If the FCC grants an assignment or transfer application, interested parties have 30 days from public notice of the grant to seek reconsideration of that grant. The FCC usually has an additional ten days to set aside the grant on its own motion. The Communications Act permits certain court appeals of a contested grant as well.
Multiple and Cross-Ownership Rules. The Communications Act and FCC rules impose specific limits on the number of commercial radio stations an entity can own in a single market and the combination of radio stations, television stations and newspapers that any entity can own in a single market. The radio multiple-ownership rules may preclude us from acquiring certain radio stations we might otherwise seek to acquire. The ownership rules also effectively prevent us from selling radio stations in a market to a buyer that has reached its ownership limit in the market unless that buyer divests other radio stations. The local radio ownership rules are as follows:
The FCC is also considering proposing a policy that would give special review to a proposed transaction if it would enable a single owner to attain a high degree of revenue concentration in a market. In connection with this,On June 2, 2003, the FCC has invited comment on the impact of concentration in public notices concerning proposed transactions, and has delayed or refused its consent in some cases because of revenue concentration. On November 8, 2001, the FCC issued a notice of proposed rulemaking regarding itsadopted rules, and policies on ownership and operation of multiple local radio stations and set specific deadlines to expedite the resolution of pending applications. The FCC indicated that it was undertaking a comprehensive examination of its local radio ownership rules and policies in order to develop a framework that will be more responsive to current marketplace realities while continuing to address its public interest concern of promoting diversity and competition. Pending a decision on the proposed rule making proceeding, the FCC has adopted interim rules to review applications. Under the interim rules, the FCC will continue to examine the potential competitive effects of proposed radio station combinations and will continue to rely on a 50/70 screen to identify applications that may raise competitive concerns. Under this screen, an application that proposes a radio station combination that would provide one station group with 50%, or two station groups with 70%, of the radio advertising revenue share of the relevant market will be flagged by the FCC. The FCC will presume that an application that falls below the screen will not raise competition concerns. Conversely, it plans to invite public comment on applications proposing combinations that fall above the screen and intends to carefully consider the potential competitive impact of such proposals before acting upon them. The Notice also set processing targets for such applications. As to applications that have been pending for over one year, the FCC stated that its staff would make a recommendation on the applications within 90 days of the adoption of the Notice. For all other pending applications, the Commission staff is to issue recommendations within six months of the adoption date.
In December 2000, the FCC began a rule making proceeding reviewing possible changes towhich changed the methodology by which the FCCit defines a particular “radio market”radio market and counts radio stations to determine compliance with the radio multiple ownership restrictions. TheUnder those new rules, the FCC issued another notice in this proceeding in November 2001, which requested comment onwill count non-commercial as well as commercial radio stations for purposes of determining the FCC’s proposal to give special review to a proposed transaction if it would enable a single owner to attain a high degreetotal number of revenue concentrationradio stations in a market In September 2002,market. However, other changes to the FCC incorporated this review into a comprehensive examinationmethodology would generally result in parties being able to own fewer radio stations in Arbitron-rated markets than was the case under the previous rules. The FCC’s new rules also provide that parties which own groups of all of its broadcastradio stations which comply with the previous multiple ownership rules, and policies, includingbut would not comply with the new rules, will be allowed to
retain those affecting radio and television stations andgroups on a “grandfathered” basis, but will not be allowed to transfer or assign those groups intact unless such transfer or assignment is to certain eligible small businesses. On September 3, 2003, the broadcast/newspaper cross-ownership rule. The reviewUnited States Court of Appeals for the Third Circuit issued a stay of the FCC’s local radio ownershipnew rules, and policies is investigating whetherwhich were to become effective on September 4, 2003, pending the FCC should revise its radio ownership rules to develop a framework that will be more responsive to current marketplace realities while continuing to address its public interest concernoutcome of promoting diversity and competition.legal proceedings involving those rules. Pending a decision in this omnibus proceeding, the FCC is applying its current ownership rules and an interim policy on the reviewresolution of advertising revenue concentration to review transfer and assignment applications. Under the interim policy, the FCC examines the potential competitive effects of proposed radio station combinations and relies on a “50/70” screen to identify applications that may raise competitive concerns. Under this screen, an application that proposes a radio station combination that would provide one station group with 50% or more, or two station groups with 70% or more, of the radio advertising revenue of the relevant market will be flagged by the FCC. The FCC will presume that an application that falls below the screen will not raise competition concerns. If an application is flagged by the FCC, the FCC invites public comment on the application to carefully consider the potential competitive impact of such proposals before acting upon them. Under the interim policythose proceedings, the FCC has delayedcontinued to apply its previous rules. If the FCC’s new rules regarding radio multiple ownership are upheld by the courts, our ability to transfer or refused its consent in some cases because of revenue concentration. It is possible that the FCC may impose more stringent ownership standards, rather than relax its existing rules,assign our radio stations as a resultgroup to a single buyer in one of the pending
rulemaking proceedings. If this occurs, and the ownership of existing combinations of stations is not “grandfathered,” as is under consideration in the proceeding, we mayour current markets will be required to divest one or more stations in certain markets; the FCC is also considering whether or not to allow the transfer or acquisition of a grandfathered combination.limited.
The FCC’s revised radio/television cross-ownership rules permit a single owner to own up to two television stations, consistent with the FCC’s rules on common ownership of television stations, together with one radio station in all markets. In addition, an owner will be permitted to own additional radio stations, not to exceed the local radio ownership limits for the market, as follows:
A media voice includes each independently-owned, full power television and radio station and each daily newspaper, plus one voice for all cable television systems operating in the market.
In addition to the limits on the number of radio stations and radio/television combinations that a single owner may own, the FCC’s broadcast/newspaper cross-ownership rule prohibits the same owner from owning a broadcast station and a daily newspaper in the same geographic market.
As part of its June 2, 2003 rulemaking order on broadcast ownership, the FCC adopted new rules which would eliminate television-radio cross ownership restrictions in markets with four or more television stations, and would relax newspaper-broadcast cross ownership restrictions in markets with between four and eight television stations (inclusive). Under these new rules, cross ownership among newspapers, radio and television stations would not be permitted in markets with fewer than four television stations and would not be restricted in markets with nine or more television stations. These new rules have been stayed pending the outcome of the legal proceedings before the Third Circuit Court of Appeals described above, and in the meantime the FCC has continued to apply its previous rules regarding cross ownership.
The FCC generally applies its ownership limits to attributable interests held by an individual, corporation, partnership or other association. In the case of corporations controlling broadcast licenses, the interests of officers, directors and those who, directly or indirectly, have the right to vote 5% or more of the corporation’s voting stock are generally attributable. In addition, certain passive investors are attributable if they hold 20% or more of the corporation’s voting stock. The FCC temporarily revoked the single majority shareholder exemption that provided that the interest of minority shareholders in a corporation were not attributable if a single entity or individual held 50% or more of that corporation’s voting stock. However, the FCC grandfathered as non-attributable those minority stock interests that were held as of the date of the revocation. On December 3, 2001, the FCC reinstated the single majority shareholder exemption for all transactions after the order.
The FCC also has a rule, known as the equity-debt-plus rule, that causes certain creditors or investors to be attributable owners of a radio station. Under this rule, a major programming supplier or a same-market owner will be an attributable owner of a radio station if the supplier or owner holds debt or equity, or both, in the radio station that is greater than 33% of the value of the radio station’s total debt plus equity. A major programming supplier includes any programming supplier that provides more than 15% of the radio station’s weekly programming hours. A same-market owner includes any attributable owner of a media company, including broadcast stations, cable television and newspapers, located in the same market as the radio station, but only if
the owner is attributable under an FCC attribution rule other than the equity-debt-plus rule. The attribution rules limit the number of radio stations we may acquire or own in any market.
Alien Ownership Rules. The Communications Act prohibits the issuance or holding of broadcast licenses by persons who are not U.S. citizens, whom the FCC rules refer to as “aliens,” including any corporation if more than 20% of its capital stock is owned or voted by aliens. In addition, the FCC may prohibit any corporation from holding a broadcast license if the corporation is controlled by any other corporation of which more than 25% of the capital stock is owned of record or voted by aliens, if the FCC finds that the prohibition is in the public interest. Our certificate of incorporation prohibits the ownership, voting and transfer of our capital stock in violation of the FCC restrictions, and prohibits the issuance of capital stock or the voting rights such capital stock represents to or for the account of aliens or corporations otherwise subject to domination or control by aliens in excess of the FCC limits. The certificate of incorporation authorizes our board of directors to enforce these
prohibitions. For example, the certificate of incorporation provides for the redemption of shares of our capital stock by action of the board of directors to the extent necessary to comply with these alien ownership restrictions.
Time Brokerage Agreements. It is not uncommon for radio stations to enter into what have commonly been referred to as time brokerage agreements. While these agreements may take varying forms, under a typical time brokerage agreement, separately owned and licensed radio stations agree to enter into cooperative arrangements of varying sorts, subject to compliance with the requirements of antitrust laws and with FCC’s rules and policies. Under these arrangements, separately-owned radio stations could agree to function cooperatively in programming, advertising sales and similar matters, subject to the requirement that the licensee of each radio station maintain independent control over the programming and operations of its own radio station. One typical type of time brokerage agreement is a programming agreement between two separately-owned radio stations serving a common service area, whereby the licensee of one radio station provides substantial portions of the broadcast programming for airing on the other licensee’s radio station, subject to ultimate editorial and other controls being exercised by the latter licensee, and sells advertising time during those program segments.
The FCC’s rules provide that a radio station that brokers more than 15% of the weekly broadcast time on another radio station serving the same market will be considered to have an attributable ownership interest in the brokered radio station for purposes of FCC’s local radio ownership limits. As a result, in a market where we own a radio station, we would not be permitted to enter into a time brokerage agreement with another radio station in the same market if we could not own the brokered radio station under the multiple ownership rules, unless our programming on the brokered radio station constituted 15% or less of the brokered radio station’s programming time on a weekly basis. FCC rules also prohibit a broadcast station from duplicating more than 25% of its programming on another radio station in the same broadcast service, that is AM-AM or FM-FM, either through common ownership of the two radio stations or through a time brokerage agreement, where the brokered and brokering radio stations which it owns or programs serve substantially the same area.
Radio stations may also enter into what are commonly known as joint sales agreements. In a typical joint sales agreement, separately owned and licensed radio stations agree to enter into cooperative arrangements involving the sale of advertising time and the collection of proceeds from such sales, but involving none or only a limited amount of programming time. Such arrangements are subject to compliance with the requirements of the antitrust laws and the FCC’s rules and policies. In its June 2, 2003 rulemaking, the FCC determined that a radio station that sold more than 15% of the weekly advertising time of another radio station serving the same market would be considered to have an attributable interest in that other radio station. These new rules have been stayed pending the outcome of the legal proceedings before the Third Circuit Court of Appeals described above, and in the meantime the FCC has continued to apply its previous rule that joint sales agreements do not constitute attributable relationships.
Programming and Operations. The Communications Act requires broadcasters to serve the public interest. The FCC gradually has relaxed or eliminated many of the more formalized procedures it had developed in the past to promote the broadcast of certain types of programming responsive to the needs of a radio station’s
community of license. A licensee continues to be required, however, to present programming that is responsive to issues of the radio station’s community of license and to maintain records demonstrating this responsiveness. Complaints from listeners concerning a radio station’s programming often will be considered by the FCC when it evaluates renewal applications of a licensee, and although listener complaints may be filed at any time, they are required to be maintained in the radio station’s public file and generally may be considered by the FCC at any time. StationsRadio stations also must pay regulatory and application fees and follow various rules promulgated under the Communications Act. Those rules regulate, among other things, political advertising, sponsorship identifications, the advertisement of contests and lotteries, employment practices, obscene and indecent broadcasts and technical operations, including limits on human exposure to radio frequency radiation.
On November 7, 2002, the FCC adopted new rules prohibiting employment discrimination by broadcast stations on the basis of race, religion, color, national origin, and gender; and requiring broadcasters to implement programs to promote equal employment opportunities at their radio stations. These rules replace earlier rules that were found by the federalFederal Court of Appeals for the District of ColombiaColumbia Circuit to be unconstitutional. The rules generally require broadcasters to widely disseminate information about full-time job openings to all segments of the community to ensure that all qualified applicants have sufficient opportunity to apply for the job, to send job vacancy announcements to recruitment organizations and others in the community indicating an interest in all or some vacancies at the radio station, and to implement a number of specific longer-term recruitment outreach efforts, such as job fairs, internship programs, and interaction with educational and community groups from among a menu of approaches itemized by the FCC. Radio stations with ten or more full-time employees in a given market must file a Mid-term EEO Report with the FCC midway through the license term. Broadcasters must prepare and place in their public files and on their websites an annual EEO report, and to file the previous two reports with the FCC along with the Mid-term EEO Report and the renewal application. The rules becomebecame effective on March 10, 2003. The applicability of these policies to part-time employment opportunities is the subject of a pending further rule making proceeding, which is expected to be completed in 2003.proceeding.
FCC decisions hold that a broadcast station may not deny a candidate for federal political office a request for broadcast advertising time solely on the grounds that the amount of time requested is not the standard length of time which the radio station offers to its commercial advertisers. This policy has not had a material impact on our programming and commercial advertising operations but the policy’s future impact is uncertain.
Proposed and Recent Changes. Congress and the FCC may in the future consider and adopt new laws, regulations and policies regarding a wide variety of matters that could affect, directly or indirectly, the operation, ownership and profitability of our radio stations, including the loss of audience share and advertising revenues for our radio stations, and an inability to acquire additional radio stations or to finance those acquisitions. Such matters may include:
The FCC has selected the In-Band On-Channel™ as the exclusive technology for introduction of terrestrial digital operations by AM and FM radio stations. The FCC has authorized the commencement of “hybrid” In-Band On-Channel™ transmissions, that is, simultaneous broadcast in both digital and analog format, (after an individualized grant of special temporary authority by the FCC), pending the adoption of formal licensing and service rules. Nighttime operations by digital AM radio stations have not yet
been authorized and remain subject to further review. The advantages of digital audio broadcasting over traditional analog broadcasting technology include improved sound quality and the ability to offer a greater variety of auxiliary services. In-Band On-Channel™ technology would permit a radio station to transmit radio programming in both analog and digital formats, and eventually in digital only formats, using the bandwidth that the radio station is currently licensed to use. It is unclear what formal licensing and service rules the FCC will adopt regarding In-Band On-Channel™ technology and what effect such regulations would have on our business or the operations of our radio stations. It is also unclear what impact the introduction of digital broadcasting will have on the radio markets in which we compete.
Finally, the FCC has adopted procedures for the auction of broadcast spectrum in circumstances where two or more parties have filed for new or major change applications which are mutually exclusive. Such procedures may limit our efforts to modify or expand the broadcast signals of our radio stations.
We cannot predict what other matters might be considered in the future by the FCC or Congress, nor can we judge in advance what impact, if any, the implementation of any of these proposals or changes might have on our business.
Federal Antitrust Laws. The agencies responsible for enforcing the federal antitrust laws, the Federal Trade Commission or the Department of Justice, may investigate certain acquisitions. We cannot predict the outcome of any specific FTC or Department of Justice investigation. Any decision by the FTC or the Department of Justice to challenge a proposed acquisition could affect our ability to consummate the acquisition or to consummate it on the proposed terms.
For an acquisition meeting certain size thresholds, the Hart-Scott-Rodino Act requires the parties to file Notification and Report Forms concerning antitrust issues with the FTC and the Department of Justice and to
observe specified waiting period requirements before consummating the acquisition. If the investigating agency raises substantive issues in connection with a proposed transaction, then the parties frequently engage in lengthy discussions or negotiations with the investigating agency concerning possible means of addressing those issues, including restructuring the proposed acquisition or divesting assets. In addition, the investigating agency could file suit in federal court to enjoin the acquisition or to require the divestiture of assets, among other remedies. Acquisitions that areIn addition, acquisitions, whether or not required to be reported under the Hart-Scott-Rodino Act, may be investigated by the FTC, or the Department of Justice or other state authorities under the antitrust laws before or after consummation. In addition, private parties may under certain circumstances bring legal action to challenge an acquisition under the antitrust laws.
As part of its increased scrutiny of radio station acquisitions, the Department of Justice has stated publicly that it believes that local marketing agreements, joint sales agreements, time brokerage agreements and other similar agreements customarily entered into in connection with radio station transfers could violate the Hart-Scott-Rodino Act if such agreements take effect prior to the expiration of the waiting period under the Hart-Scott-Rodino Act. Furthermore, the Department of Justice has noted that joint sales agreements may raise antitrust concerns under Section 1 of the Sherman Act and has challenged joint sales agreements in certain locations. The Department of Justice also has stated publicly that it has established certain revenue and audience share concentration benchmarks with respect to radio station acquisitions, above which a transaction may receive additional antitrust scrutiny. However, to date, the Department of Justice has also investigated transactions that do not meet or exceed these benchmarks and has cleared transactions that do exceed these benchmarks.
Seasonality
Seasonal revenue fluctuations are common in the radio broadcasting industry and are due primarily to fluctuations in advertising expenditures. Our revenues and broadcast cash flows are typically lowest in the first calendar quarter and highest in the fourth calendar quarter.
Employees
On December 31, 2002,2003, we had a staff of 481500 full-time employees and 166174 part-time employees. We are a party to a collective bargaining agreement with the American Federation of Television and Radio Artists. This agreement applies only to somecertain of our employees at WXTU-FM in Philadelphia. The collective bargaining agreement expires on March 31, 2004 and will automatically renew thereafter for successive one-year periods unless either party gives a notice of proposed termination at least 60 days before the termination date. We believe that our relations with our employees are good.
Environmental
As the owner, lessee or operator of various real properties and facilities, we are subject to various federal, state and local environmental laws and regulations. Historically, compliance with these laws and regulations has not had a material adverse effect on our business. There can be no assurance, however, that compliance with existing or new environmental laws and regulations will not require us to make significant expenditures of funds.
Internet Address and Internet Access to Periodic and Current ReportsAvailable Information
Our Internet address on the world wide web is bbgi.com.www.bbgi.com. You may obtain through our Internet website, free of charge, copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. These reports will be available as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission.
The types of facilities required to support each of our radio stations include offices, studios and transmitter and antenna sites. We typically lease our office and studio broadcasting space with lease terms from threefive to ten10 years, although we do own some of our facilities. Our principal executive offices are located at 3033 Riviera Drive, Suite 200, Naples, Florida 34103. We lease that building from Beasley Broadcasting Management Corp., which is wholly-owned by George G. Beasley. We currently have a month to month lease and pay approximately $7,400$8,600 per month. We lease the majority of our towers from Beasley Family Towers, Inc., which is a corporation owned by George G. Beasley, Bruce G. Beasley, Caroline Beasley, Brian E. Beasley and other family members of George G. Beasley. The transmitter and antenna site for each radio station is generally located so as to provide maximum market coverage, consistent with the radio station’s FCC license.
No one facility is material to us. We believe that our facilities are generally in good condition and suitable for our operations. However, we continually look for opportunities to upgrade our facilities and may do so in the future. Substantially all of our properties and equipment serve as collateral for our obligations under our credit facility.
We currently and from time to time are involved in litigation incidental to the conduct of our business including indecency claims and related proceedings at the FCC, but we are not a party to any lawsuit or proceeding which, in the opinion of management, is likely to have a material adverse effect on us.our financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Beasley Broadcast Group, Inc. has two authorized and outstanding classes of equity securities: Class A common stock, $.001 par value, and Class B common stock, $.001 par value. The only difference between the Class A and Class B common stock is that Class A is entitled to one vote per share and Class B is entitled to ten votes per share. Class B is convertible into Class A shares on a one for one share basis under certain circumstances. Our Class A common stock trades on Nasdaq’s National Market System under the symbol “BBGI.” There is no established public trading market for our Class B common stock. Quarterly high and low prices of our Class A common stock are shown below:
Fiscal 2003 | High | Low | ||||||||||
First Quarter | $ | 12.59 | $ | 8.94 | ||||||||
Second Quarter | 13.69 | 9.60 | ||||||||||
Third Quarter | 15.60 | 12.78 | ||||||||||
Fourth Quarter | 16.75 | 13.35 | ||||||||||
Fiscal 2002 | High | Low | ||||||||||
First Quarter | $ | 16.08 | $ | 9.84 | $ | 16.08 | $ | 9.84 | ||||
Second Quarter |
| 17.55 |
| 12.42 | 17.55 | 12.42 | ||||||
Third Quarter |
| 14.75 |
| 9.85 | 14.75 | 9.85 | ||||||
Fourth Quarter |
| 13.58 |
| 9.28 | 13.58 | 9.28 | ||||||
Fiscal 2001 | ||||||||||||
First Quarter | $ | 15.625 | $ | 9.25 | ||||||||
Second Quarter |
| 17.00 |
| 12.75 | ||||||||
Third Quarter |
| 16.25 |
| 10.25 | ||||||||
Fourth Quarter |
| 13.90 |
| 8.72 |
As of March 6, 2003,10, 2004, the number of holders of our Class A common stock was approximately 700.604. As of March 6, 2003,10, 2004, the number of holders of our Class B common stock was nine.10.
We did not pay any cash dividends in the year 2000, 2001, 2002 or 20022003 and do not anticipate paying any cash dividends in the foreseeable future. Additionally, our new credit facility prohibits us from paying cash dividends and restricts our ability to make other distributions with respect to our capital stock.
Equity Compensation Plan Information
The following table sets forth certain information with respect to our equity compensation plans as of December 31, 2002.
Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a) | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (b) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plan (Excluding Securities Reflected in Column (a)) (c) | ||||
Equity Compensation Plans Approved By Security Holders | 2,821,000 | $ | 15.02 | 179,000 | |||
Equity Compensation Plans Not Approved | — |
| — | — | |||
Total | 2,821,000 | 179,000 | |||||
See note 20 to our consolidated financial statements contained elsewhere in this report for a description of the 2000 Equity Plan of Beasley Broadcast Group, Inc.
ITEM 6. SELECTED FINANCIAL DATA
We have derived the selected financial data shown below as of and for the yearsyear ended December 31, 1998 and 1999 from our audited combined financial statements not included in this report. We have derived the selected financial data shown below as of December 31, 2000 and 2001 and for the year ended December 31, 2000 from our consolidated financial statements not included in this report. We have derived the selected financial data shown below for the year ended December 31, 20002001 and as of and for the years ended December 31, 20012002 and 20022003 from our audited consolidated financial statements included elsewhere in Item 8 of this report.
We have restated our consolidated financial statements for the years ended December 31, 2000 and 2001 and the three months ended March 31, 2002. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements included herein for additional information on the restatements. The information in the following selected financial data table reflects these restatements.
As you review the information contained in the following table and throughout this report, you should note the following:
Although broadcast cash flow is not a financial measure calculated in accordance with accounting principles generally accepted in the United States of America, we believe that this measure is useful to an investor in evaluating our performance because we believe it reflects a measure of the performance of our radio stations before considering costs and expenses related to our specific corporate and capital structure including our corporate overhead, depreciation and amortization and interest expense. In addition, this measure is widely used in the broadcast industry to evaluate a radio company’s operating performance and is used by management for internal budgeting purposes and to evaluate the performance of our radio stations. However, you should not consider this measure in isolation or as a substitute for operating income, cash flows from operating activities or any other measure for determining our operating performance or liquidity that is calculated in accordance with accounting principles generally accepted in the United States of America. In addition, because broadcast cash flow is not calculated in accordance with accounting principles generally accepted in the United States of America, it is not necessarily comparable to similarly titled measures employed by other companies.
The comparability of the historical financial information reflected below has been significantly affected by acquisitions and dispositions. You should read the selected financial data together with “Management Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this report.
Year ended December 31, | ||||||||||||||||||||
1998 | 1999 | 2000 | 2001 | 2002 | ||||||||||||||||
As Restated | As Restated | |||||||||||||||||||
(in thousands except per share data and shares outstanding) | ||||||||||||||||||||
Operating Data: | ||||||||||||||||||||
Net revenue | $ | 81,433 |
| $ | 93,621 |
| $ | 106,154 |
| $ | 115,132 |
| $ | 114,692 |
| |||||
Costs and expenses: | ||||||||||||||||||||
Station operating expenses |
| 61,692 |
|
| 66,661 |
|
| 71,725 |
|
| 82,354 |
|
| 77,843 |
| |||||
Corporate general and administrative |
| 2,498 |
|
| 2,764 |
|
| 3,992 |
|
| 4,684 |
|
| 5,151 |
| |||||
Equity appreciation rights |
| — |
|
| 606 |
|
| 1,174 |
|
| — |
|
| — |
| |||||
Format change expenses |
| — |
|
| — |
|
| 1,545 |
|
| — |
|
| — |
| |||||
Employee and contract termination expenses |
| — |
|
| — |
|
| — |
|
| 1,528 |
|
| — |
| |||||
Depreciation and amortization |
| 16,096 |
|
| 16,410 |
|
| 17,409 |
|
| 27,439 |
|
| 3,725 |
| |||||
Impairment loss on long-lived assets |
| — |
|
| — |
|
| — |
|
| 7,000 |
|
| — |
| |||||
Total costs and expenses |
| 80,286 |
|
| 86,441 |
|
| 95,845 |
|
| 123,005 |
|
| 86,719 |
| |||||
Operating income (loss) from continuing operations |
| 1,147 |
|
| 7,180 |
|
| 10,309 |
|
| (7,873 | ) |
| 27,973 |
| |||||
Other income (expense): | ||||||||||||||||||||
Interest expense |
| (13,602 | ) |
| (14,008 | ) |
| (8,813 | ) |
| (16,652 | ) |
| (15,264 | ) | |||||
Loss on extinguishment of long-term debt |
| — |
|
| — |
|
| — |
|
| — |
|
| (1,906 | ) | |||||
Gain (loss) on change in fair value of derivative financial instruments |
| — |
|
| — |
|
| — |
|
| (4,696 | ) |
| 2,821 |
| |||||
Gain (loss) on equity investments |
| — |
|
| — |
|
| (2,400 | ) |
| (1,585 | ) |
| 600 |
| |||||
Other non-operating income (expense) |
| (160 | ) |
| 776 |
|
| 305 |
|
| 1,994 |
|
| 188 |
| |||||
Gain on sale of radio stations |
| 4,028 |
|
| — |
|
| — |
|
| — |
|
| — |
| |||||
Income (loss) from continuing operations before income taxes |
| (8,587 | ) |
| (6,052 | ) |
| (599 | ) |
| (28,812 | ) |
| 14,412 |
| |||||
Income tax expense (benefit) |
| — |
|
| — |
|
| 27,915 |
|
| (6,997 | ) |
| 5,812 |
| |||||
Income (loss) from continuing operations before cumulative effect of accounting change and discontinued operations |
| (8,587 | ) |
| (6,052 | ) |
| (28,514 | ) |
| (21,815 | ) |
| 8,600 |
| |||||
Cumulative effect of accounting change (net of income taxes) |
| — |
|
| — |
|
| — |
|
| 41 |
|
| (11,677 | ) | |||||
Discontinued operations (net of income taxes) |
| — |
|
| — |
|
| — |
|
| (360 | ) |
| (650 | ) | |||||
Net loss | $ | (8,587 | ) | $ | (6,052 | ) | $ | (28,514 | ) | $ | (22,134 | ) | $ | (3,727 | ) | |||||
Pro-forma income tax benefit | $ | (3,250 | ) | $ | (2,204 | ) |
| N/A |
|
| N/A |
|
| N/A |
| |||||
Pro-forma net loss | $ | (5,337 | ) | $ | (3,848 | ) |
| N/A |
|
| N/A |
|
| N/A |
| |||||
Basic and diluted net loss per share |
| — |
|
| — |
| $ | (1.21 | ) | $ | (0.91 | ) | $ | (0.15 | ) | |||||
Pro forma basic and diluted net loss per share | $ | (0.31 | ) | $ | (0.22 | ) |
| — |
|
| — |
|
| — |
| |||||
Weighted average common shares outstanding—basic |
| 17,423,441 |
|
| 17,423,441 |
|
| 23,506,091 |
|
| 24,273,441 |
|
| 24,273,441 |
| |||||
Weighted average common shares outstanding—diluted |
| 17,423,441 |
|
| 17,423,441 |
|
| 23,506,091 |
|
| 24,273,441 |
|
| 24,312,899 |
| |||||
Other Data: | ||||||||||||||||||||
Broadcast cash flow: | ||||||||||||||||||||
Net revenue | $ | 81,433 |
| $ | 93,621 |
| $ | 106,154 |
| $ | 115,132 |
| $ | 114,692 |
| |||||
Station operating expenses |
| (61,692 | ) |
| (66,661 | ) |
| (71,725 | ) |
| (82,354 | ) |
| (77,843 | ) | |||||
Broadcast cash flow | $ | 19,741 |
| $ | 26,960 |
| $ | 34,429 |
| $ | 32,778 |
| $ | 36,849 |
| |||||
Cash provided by (used in): | ||||||||||||||||||||
Operating activities | $ | 4,921 |
| $ | 7,195 |
| $ | 7,270 |
| $ | 8,908 |
| $ | 13,265 |
| |||||
Investing activities |
| (12,527 | ) |
| (2,760 | ) |
| (28,622 | ) |
| (132,894 | ) |
| 18,360 |
| |||||
Financing activities |
| 4,689 |
|
| (2,192 | ) |
| 20,092 |
|
| 123,242 |
|
| (31,176 | ) |
As of December 31, | ||||||||||||||||
1998 | 1999 | 2000 | 2001 | 2002 | ||||||||||||
As Restated | As Restated | |||||||||||||||
(in thousands) | ||||||||||||||||
Balance Sheet: | ||||||||||||||||
Cash and cash equivalents | $ | 4,760 | $ | 7,003 |
| $ | 5,743 | $ | 4,999 | $ | 5,448 | |||||
Intangibles, net |
| 151,048 |
| 137,287 |
|
| 164,894 |
| 256,904 |
| 217,815 | |||||
Total assets |
| 194,773 |
| 185,861 |
|
| 219,242 |
| 319,299 |
| 282,091 | |||||
Long-term debt |
| 163,285 |
| 163,123 |
|
| 103,487 |
| 225,498 |
| 196,359 | |||||
Total stockholders’ equity (deficit) |
| 6,041 |
| (2,919 | ) |
| 80,041 |
| 57,907 |
| 54,180 |
Year ended December 31, | |||||||||||||||||||
1999 | 2000 | 2001 | 2002 | 2003 | |||||||||||||||
(in thousands except per share data) | |||||||||||||||||||
Operating Data: | |||||||||||||||||||
Net revenue | $ | 93,621 | $ | 106,154 | $ | 115,132 | $ | 114,692 | $ | 114,482 | |||||||||
Operating income (loss) from continuing operations | $ | 7,180 | $ | 10,309 | $ | (7,873 | ) | $ | 27,973 | $ | 26,393 | ||||||||
Income (loss) from continuing operations | $ | (6,052 | ) | $ | (28,514 | ) | $ | (21,815 | ) | $ | 8,600 | $ | 12,504 | ||||||
Pro-forma net loss from continuing operations | $ | (3,848 | ) | N/A | N/A | N/A | N/A | ||||||||||||
Net income (loss) | $ | (6,052 | ) | $ | (28,514 | ) | $ | (22,134 | ) | $ | (3,727 | ) | $ | 12,771 | |||||
Pro-forma net loss | $ | (3,848 | ) | N/A | N/A | N/A | N/A | ||||||||||||
Basic net income (loss) from continuing operations per share | N/A | $ | (1.21 | ) | $ | (0.90 | ) | $ | 0.35 | $ | 0.52 | ||||||||
Diluted net income (loss) from continuing operations per share | N/A | $ | (1.21 | ) | $ | (0.90 | ) | $ | 0.35 | $ | 0.51 | ||||||||
Pro forma basic and diluted net loss from operations per share | $ | (0.22 | ) | N/A | N/A | N/A | N/A | ||||||||||||
Basic net income (loss) per share | N/A | $ | (1.21 | ) | $ | (0.91 | ) | $ | (0.15 | ) | $ | 0.53 | |||||||
Diluted net income (loss) per share | N/A | $ | (1.21 | ) | $ | (0.91 | ) | $ | (0.15 | ) | $ | 0.52 | |||||||
Pro forma basic and diluted net loss per share | $ | (0.22 | ) | N/A | N/A | N/A | N/A |
As of December 31, | ||||||||||||||||
1999 | 2000 | 2001 | 2002 | 2003 | ||||||||||||
(in thousands) | ||||||||||||||||
Balance Sheet: | ||||||||||||||||
Total assets | $ | 185,861 | $ | 219,242 | $ | 319,299 | $ | 282,091 | $ | 277,891 | ||||||
Long-term debt, including current installments | 163,123 | 103,487 | 225,498 | 196,359 | 169,987 | |||||||||||
Total stockholders’ equity (deficit) | (2,919 | ) | 80,041 | 57,907 | 54,180 | 69,410 |
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GeneralOverview
AWe are the 17th largest radio broadcasting company derives its revenuesin the United States according to BIA Financial Network, Inc. We own and operate 41 radio stations in 10 markets including Atlanta, GA, Boston, MA, Philadelphia, PA, Miami-Ft. Lauderdale, FL, Las Vegas, NV, West Palm Beach-Boca Raton, FL, Ft. Myers-Naples, FL, Fayetteville, NC, Greenville-New Bern-Jacksonville, NC, and Augusta, GA. We refer to each group of radio stations that we own in each radio market as a market cluster.
Our operations are divided into three reportable segments, Radio Group One, Radio Group Two, and Radio Group Three. Radio Group One includes market clusters located in Miami-Ft. Lauderdale, West Palm Beach-Boca Raton, Ft. Myers-Naples, and Greenville-New Bern-Jacksonville. Radio Group Two includes market clusters located in Atlanta, Boston, Philadelphia, Fayetteville, and Augusta. Radio Group Three includes our market cluster located in Las Vegas. Operating results and total assets for our reportable segments are contained in note 12 to our consolidated financial statements included in Item 8 of this report.
Effective January 1, 2004, we reorganized our internal reporting process including the information provided to the Company’s chief operating decision maker to better facilitate his evaluation of the performance of our radio stations. Our chief operating decision maker now receives operating results and other information directly from our radio stations and no longer evaluates performance or allocates resources based on the operating
segments previously reported. As a result of this reorganization, we now operate only one segment which includes all of our radio stations. Accordingly, we will no longer be reporting segment information beginning in the first quarter of 2004.
Net Revenue. Our net revenue, from which we generate the majority of our cash, is primarily derived from the sale of broadcasting timeadvertising airtime to local and national advertisers. Net revenue is gross revenue less agency commissions. Local revenue generally consists of advertising airtime sales to advertisers in a radio station’s local market either directly with the advertiser or through the advertiser’s agency. National revenue generally consists of advertising airtime sales to agencies purchasing advertising for multiple markets. National sales are generally facilitated by our national representation firm, which serves as our agent in these transactions.
We generated 74.0% of our net revenue from sales of local advertising airtime and 18.9% of our net revenue from sales of national advertising airtime in 2003. We generated the balance of our net revenue from promotional events, brokered programming and sales to broadcasting networks that purchase advertising airtime.
The advertising rates that a radio station iswe are able to charge and the number of advertisements that we can be broadcast without jeopardizing listener levels largelygenerally determine those revenues.our net revenue. Advertising rates are primarily based on three factors:
In 2002, we generated 72.5%
Our operations are divided into three reportable segments, Radio Group One, Radio Group Two, and Radio Group Three. Total assets, net revenue is affected by general economic conditions, competition and other financial information for these segmentsour ability to improve operations at our market clusters. Seasonal revenue fluctuations are containedalso common in the notes to our consolidated financial statements included in Item 8 of this report.
Several factors may adversely affect a radio broadcasting company’s performance in any given period. In the radio broadcasting industry seasonal revenue fluctuations are common and are primarily due primarily to variations in advertising expenditures by local and national advertisers. Typically, revenues are lowest in the first calendar quarter of the year. We generally incur advertisingyear and promotional expenses to increase listenership and Arbitron ratings. However, because Arbitron reports ratings quarterlyhighest in most of our markets, any increased ratings, and therefore increased advertising revenues, tend to lag behind the incurrence of advertising and promotional spending.fourth calendar quarter.
In the broadcasting industry, radio stations often utilizeWe use trade or barter agreements to reduce cash paid for expenses by exchanging advertising timeairtime for goods or services. In orderservices, however, we minimize our use of trade agreements to maximize cash revenue from our inventory we minimize our use of trade agreements and during the year ended December 31, 2002, barter revenue was $6.7 million or 5.8%airtime. The following summary table presents a comparison of our nettrade revenue and barter expenses were $6.5 million or 8.4% of our station operating expenses.
We calculate same station results by comparing the performance of radio stations owned or operated at the end of a relevant period to the performance of those same stations in the prior year’s corresponding period, including the effect of barter revenues and expenses. These results exclude two stations that were sold in the New Orleans market during the first quarter of 2002 and one station that was sold in the New Orleans market during the first quarter of 2003. In addition, for the comparison of 2001 to 2000 only, these results also exclude the operating results of WPTP-FM in the Philadelphia market from January 1 to October 31 in 2001 and 2000 due to a major format change on November 6, 2000. We excluded the operating results of WPTP-FM because the implementation of this major format change resulted in a significant decrease in net revenue and a significant increase in promotional expenses during the period from January 1, 2001 to October 31, 2001, which were not comparable to the same period in 2000 under the previous format.
Broadcast cash flow consists of net revenue less station operating expenses. Station operating expenses include program and production, sales and advertising, and station general and administrative expenses. Same station broadcast cash flow is the broadcast cash flow of the radio stations included in our same station
calculations. As you review the information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” you should note that although broadcast cash flow and same station broadcast cash flow are not financial measures calculated in accordance with accounting principles generally accepted in the United States of America, we believe that these measures are useful to an investor in evaluating our performance because we believe they reflect a measure of the performance of our radio stations before considering costs and expenses related to our specific corporate and capital structure including our corporate overhead, depreciation and amortization and interest expense. In addition, we believe same station broadcast cash flow provides a useful measure of performance because it presents broadcast cash flow before the impact of any acquisitions or dispositions completed during the relevant periods which allows us to measure only the performance of radio stations that we have owned and operated for the entire relevant periods. Broadcast cash flow and same station broadcast cash flow are measures widely used in the broadcast industry to evaluate a radio company’s operating performance and are used by management for internal budgeting purposes and to evaluate the performance of our radio stations. However, you should not consider these measures in isolation or as substitutes for operating income, cash flows from operating activities or any other measure for determining our operating performance or liquidity that is calculated in accordance with accounting principles generally accepted in the United States of America. In addition, because broadcast cash flow and same station broadcast cash flow are not calculated in accordance with accounting principles generally accepted in the United States of America, they are not necessarily comparable to similarly titled measures employed by other companies
Restatement of Financial Information
On February 24, 2003 we announced that we had restated our financial statements for the years ended December 31, 20002001, 2002 and 2001,2003.
Year ended December 31, | |||||||||
2001 | 2002 | 2003 | |||||||
Trade revenue | $ | 9,078,749 | $ | 6,702,237 | $ | 6,356,638 | |||
Trade expenses | $ | 6,798,793 | $ | 6,548,259 | $ | 5,894,725 |
Operating Expenses. Our operating expenses consist primarily of (1) programming, engineering, and for the three months ended March 31, 2002. During the first quarterpromotional expenses, reported as cost of 2002, we recorded an adjustmentservices, and selling, general and administrative expenses incurred at our radio stations, (2) general and administrative expenses, including compensation, insurance and other expenses, incurred at our corporate offices, and (3) depreciation and amortization. We strive to control our deferred tax assetsoperating expenses by centralizing certain functions at our corporate offices and deferred income tax expense as a result of the completionconsolidating certain functions in each of our 2001market clusters.
Income Taxes. Our effective tax rate is approximately 40%, which differs from the federal statutory rate of 34% due to the effect of state income tax returns. However, during the fourth quarter of 2002, it was determined that the adjustment should have been recorded in prior periods. As restated, the adjustment corrects our deferred tax assetstaxes and liabilities recorded upon conversion from a series of subchapter S corporations, partnerships and limited liability companies to a subchapter C corporation at the timecertain of our initial public offering of common stock on February 11, 2000. As a result of these restatements, the reported net lossexpenses that are not deductible for the year ended December 31, 2000 was decreased by $1,083,240, or $0.05 per share, while deferred tax assets were increased by $705,823 and other receivables were increased by $377,417.purposes. For the year ended December 31, 2001, the reported net loss2003, our effective tax rate was increased by $377,417, or $0.01 per share, while deferred tax assets and stockholders’ equity were increased by $705,823. For the three months ended March 31, 2002, the reported neta non-deductible $0.5 million loss was increased by $705,823, or $0.03 per share. These adjustments had no impact on operating income (loss)arising from continuing operations or other income (expense) as originally reported during 2000, 2001 and 2002, except for other non-operating income for the year ended December 31, 2001. The following information presents the impact of these adjustments on the Company’s financial information as originally reported during 2000, 2001 and 2002:
Year ended December 31, 2000 | Year ended December 31, 2001 | |||||||||||||||
As Reported | As Restated | As Reported | As Restated | |||||||||||||
Other non-operating income | $ | 168,383 |
| $ | 168,383 |
| $ | 3,032,501 |
| $ | 2,655,084 |
| ||||
Loss from continuing operations before income taxes |
| (599,687 | ) |
| (599,687 | ) |
| (29,021,705 | ) |
| (28,812,740 | ) | ||||
Income tax expense (benefit) |
| 28,998,000 |
|
| 27,914,760 |
|
| (7,224,000 | ) |
| (6,997,539 | ) | ||||
Loss from continuing operations before cumulative effect of accounting change and discontinued operations |
| (29,597,687 | ) |
| (28,514,447 | ) |
| (21,797,705 | ) |
| (21,815,201 | ) | ||||
Cumulative effect of accounting change (net of income taxes) |
| — |
|
| — |
|
| 41,000 |
|
| 41,000 |
| ||||
Discontinued operations (net of income taxes) |
| — |
|
| — |
|
| — |
|
| (359,921 | ) | ||||
Net loss | $ | (29,597,687 | ) | $ | (28,514,447 | ) | $ | (21,756,705 | ) | $ | (22,134,122 | ) | ||||
Basic and diluted net loss per share | $ | (1.26 | ) | $ | (1.21 | ) | $ | (0.90 | ) | $ | (0.91 | ) | ||||
Three months ended March 31, 2002 | ||||||||||||||||
As Reported | As Restated | |||||||||||||||
Income from continuing operations before income taxes | $ | 1,570,244 |
| $ | 1,641,711 |
| ||||||||||
Income tax expense (benefit) |
| (275,055 | ) |
| 458,369 |
| ||||||||||
Income from continuing operations before cumulative effect of accounting change and discontinued operations |
| 1,845,299 |
|
| 1,183,342 |
| ||||||||||
Cumulative effect of accounting change (net of income taxes) |
| (12,122,391 | ) |
| (11,676,516 | ) | ||||||||||
Discontinued operations (net of income taxes) |
| — |
|
| (489,741 | ) | ||||||||||
Net loss | $ | (10,277,092 | ) | $ | (10,982,915 | ) | ||||||||||
Basic and diluted net loss per share | $ | (0.42 | ) | $ | (0.45 | ) | ||||||||||
December 31, 2000 | December 31, 2001 | |||||||||||||||
As Reported | As Restated | As Reported | As Restated | |||||||||||||
Other receivables | $ | 980,504 |
| $ | 1,357,921 |
| $ | 3,079,552 |
| $ | 3,079,552 |
| ||||
Deferred tax assets |
| 176,000 |
|
| 881,823 |
|
| 1,525,000 |
|
| 2,230,823 |
| ||||
Total assets |
| 218,158,564 |
|
| 219,241,804 |
|
| 318,593,676 |
|
| 319,299,499 |
| ||||
Accumulated deficit |
| (27,700,608 | ) |
| (26,617,368 | ) |
| (49,457,313 | ) |
| (48,751,490 | ) | ||||
Stockholders’ equity |
| 78,957,597 |
|
| 80,040,837 |
|
| 57,200,892 |
|
| 57,906,715 |
| ||||
Total liabilities and stockholders’ equity |
| 218,158,564 |
|
| 219,241,804 |
|
| 318,593,676 |
|
| 319,299,499 |
|
Results of Operationsa split-dollar life insurance arrangement.
As noted above, we have restated our financial statements for the years ended December 31, 2000 and 2001. All amounts and percentages have been revised to reflect the adjustments made to our prior period financial information.
In March 2002, we completed the saleCertain Events that Affected Our Results of two radio stations in the New Orleans market. As of November 1, 2001, the purchaser began operating these stations under a time brokerage agreement until their disposition on March 20, 2002, which resulted in lower net revenue and station operating expenses during the year ended December 31, 2002. We also completed our barter agreements with eTour, Inc. in May 2001 and FindWhat.com in October 2001, both of which contributed to lower net revenue during the year ended December 31, 2002. In addition, we also completed our 1997 radio broadcast rights contract with the Florida Marlins in October 2001.
On April 1, 2002, we began a one-year extension to our radio broadcast rights contract with the Florida Marlins on more favorable terms for the 2002 season. Currently, we do not have a contract to broadcast the Florida Marlins during the 2003 season.
On October 3, 2002, we entered into a definitive agreement with ABC, Inc. to sell WBYU-AM in the New Orleans market for $1.5 million, subject to certain adjustments.Operations. On February 5, 2003, we completed the sale of WBYU-AM to ABC, Inc for $1.5 million. The proceeds from the sale were used to reduce the outstanding balance of the revolving credit loan under our credit facility. Upon completion of this sale we no longer have operations in the New Orleans, market, therefore the results of operations for WBYU-AM have been reported as discontinued operations in the consolidated statements of operations for all periods presented.
Effective January 1, 2002, we adopted Statement of Financial Accounting Standards (“SFAS”) 142,“Goodwill and Other Intangible Assets.” SFAS 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisionsadoption of SFAS 142. Implementation of this standard resulted in lower amortization expense for the year ended December 31, 2002. In accordance with the provisions of SFAS 142, as of January 1, 2002, we tested our FCC broadcasting licenses, which were identified as intangible assets having indefinite useful lives, and goodwill for impairment. To determine the fair value of our FCC broadcasting licenses and goodwill, we obtained appraisals from an independent appraisal company. As a result of the testing, we recognized an impairment of $17.5 million related to FCC broadcasting licenses and goodwill in the Radio Group Three segment and recorded the loss as a cumulative effect of accounting change in the consolidated statement of operations for the year ended December 31, 2002. The cumulative effect of the accounting change, net of income taxes,tax effect, decreased net income $12.1 million and earnings per share $0.50, of which $0.4 million or $0.02 per share is reported in discontinued operations. We tested our FCC broadcasting licenses and goodwill as of December 31, 2002 and 2003 and no further impairment losses were recorded.
The following information presents the impact on the net lossincome (loss) and net lossincome (loss) per share had SFAS 142 been effective on January 1, 2001 and as a result FCC broadcasting licenses and goodwill had not been amortized during 2000 and 2001:
2000 | 2001 | 2002 | ||||||||||
As Restated | As Restated | |||||||||||
Net loss | $ | (28,514,447 | ) | $ | (22,134,122 | ) | $ | (3,727,050 | ) | |||
FCC broadcasting licenses amortization (net of income taxes) |
| 7,402,958 |
|
| 13,054,437 |
|
| — |
| |||
Goodwill amortization (net of income taxes) |
| 704,774 |
|
| 768,066 |
|
| — |
| |||
Adjusted net loss | $ | (20,406,715 | ) | $ | (8,311,619 | ) | $ | (3,727,050 | ) | |||
Basic and diluted net loss per share: | ||||||||||||
Net loss | $ | (1.21 | ) | $ | (0.91 | ) | $ | (0.15 | ) | |||
FCC broadcasting licenses amortization |
| 0.31 |
|
| 0.54 |
|
| — |
| |||
Goodwill amortization |
| 0.03 |
|
| 0.03 |
|
| — |
| |||
Adjusted net loss | $ | (0.87 | ) | $ | (0.34 | ) | $ | (0.15 | ) | |||
Basic common shares outstanding |
| 23,506,091 |
|
| 24,273,441 |
|
| 24,273,441 |
| |||
Diluted common shares outstanding |
| 23,506,091 |
|
| 24,273,441 |
|
| 24,312,899 |
| |||
Our effective tax rate is approximately 40%, which differs from the federal statutory rate of 34% due to the effect of state income taxes and certain expenses that are not deductible for tax purposes.
Year Ended December 31, 2002 Compared to Year Ended December 31, 2001
Net Revenue. Net revenue decreased 0.4% to $114.7 million for 2002 from $115.1 million for 2001. The decrease was primarily due to the sale of two radio stations in the New Orleans market in March 2002 and the completion of our barter agreements with eTour, Inc. in May 2001 and FindWhat.com in October 2001, which had contributed $0.7 million and $1.4 million, respectively, to net revenue during the year ended December 31,
2001. However, these decreases were partially offset by the inclusion of twelve months of operations from our radio station acquisitions in the Las Vegas and Augusta markets which were completed in February 2001 and April 2001, respectively, and improved performance at our Philadelphia and Las Vegas market clusters. On a same station basis, net revenues increased 2.3% to $114.6 million for 2002 from $112.0 million for 2001. The increase was primarily due to improved performance at our Philadelphia and Las Vegas market clusters, which was partially offset by the completion of our barter agreements with eTour, Inc. and FindWhat.com. The following table reconciles reported net revenue to same station net revenue for 2001 and 2002.
2001 | 2002 | Change | |||||||||
Reported net revenue | $ | 115,131,801 |
| $ | 114,692,029 |
| (0.4 | )% | |||
Sold New Orleans stations |
| (4,421,359 | ) |
| (135,043 | ) | |||||
Acquired Las Vegas stations |
| 571,279 |
|
| — |
| |||||
Acquired Augusta stations |
| 671,654 |
|
| — |
| |||||
Same station net revenue | $ | 111,953,375 |
| $ | 114,556,986 |
| 2.3 | % | |||
Station Operating Expenses. Station operating expenses decreased 5.5% to $77.8 million for 2002 from $82.4 million for 2001. Station operating expenses consist of program and production expenses, sales and advertising expenses and general and administrative expenses incurred at our radio stations. The decrease was primarily due to the decrease in program and production expenses as a result of the completion of our 1997 radio broadcast rights contract with the Florida Marlins, the absence of promotional expenses incurred during the first quarter of 2001 to promote a format change at a radio station in the Philadelphia market, and the sale of two radio stations in the New Orleans market in March 2002. However, these decreases were partially offset by increased station operating expenses due to the inclusion of twelve months of operations from our radio station acquisitions in the Las Vegas and Augusta markets, which were completed in February 2001 and April 2001, respectively. On a same station basis, station operating expenses decreased 2.7% to $77.8 million for 2002 from $80.0 million for 2001. The decrease was primarily due to the completion of our 1997 radio broadcast rights contract with the Florida Marlins and the absence of promotional expenses incurred during the first quarter of 2001 to promote a format change at a radio station in the Philadelphia market. The following table reconciles reported station operating expenses to same station operating expenses for 2001 and 2002.
2001 | 2002 | Change | ||||||||
Reported station operating expenses | $ | 82,353,695 |
| $ | 77,842,569 | (5.5 | )% | |||
Sold New Orleans stations |
| (3,359,052 | ) |
| 7,311 | |||||
Acquired Las Vegas stations |
| 462,368 |
|
| — | |||||
Acquired Augusta stations |
| 549,574 |
|
| — | |||||
Other |
| (1,109 | ) |
| — | |||||
Same station operating expenses | $ | 80,005,476 |
| $ | 77,849,880 | (2.7 | )% | |||
Broadcast Cash Flow. Broadcast cash flow increased 12.4% to $36.8 million for 2002 from $32.8 million for 2001. On a same station basis, broadcast cash flow increased 14.9% to $36.7 million for 2002 from $31.9 million for 2001. The increase in actual and same station broadcast cash flow was primarily due to the completion of our 1997 radio broadcast rights contract with the Florida Marlins and the absence of promotional expenses incurred during the first quarter of 2001 to promote a format change at a radio station in the Philadelphia market. The increase was also due to improved performance at our Philadelphia market cluster. These increases were partially offset by the completion of our barter agreements with eTour, Inc. and FindWhat.com. The following tables present the calculation of broadcast cash flow and same station broadcast cash flow for 2001 and 2002.
2001 | 2002 | Change | |||||||||
Reported net revenue | $ | 115,131,801 |
| $ | 114,692,029 |
| (0.4 | )% | |||
Reported station operating expenses |
| (82,353,695 | ) |
| (77,842,569 | ) | (5.5 | ) | |||
Broadcast cash flow | $ | 32,778,106 |
| $ | 36,849,460 |
| 12.4 | % | |||
2001 | 2002 | Change | |||||||||
Same station net revenue | $ | 111,953,375 |
| $ | 114,556,986 |
| 2.3 | % | |||
Same station operating expenses |
| (80,005,476 | ) |
| (77,849,880 | ) | (2.7 | ) | |||
Same station broadcast cash flow | $ | 31,947,899 |
| $ | 36,707,106 |
| 14.9 | % | |||
Corporate General and Administrative Expenses. Corporate general and administrative expenses increased 10.0% to $5.2 million for 2002 from $4.7 million for 2001. Corporate general and administrative expenses consist primarily of salaries, insurance, rent and other expenses incurred at our corporate offices. The increase is primarily due to increased compensation and premiums for general liability insurance.
Depreciation and Amortization. Depreciation and amortization decreased 86.4% to $3.7 million for 2002 from $27.4 million for 2001. The decrease was primarily due to the adoption of SFAS 142 on January 1, 2002, which requires that our FCC broadcasting licenses and goodwill no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS 142. FCC broadcasting licenses and goodwill amortization was $21.9 million for 2001.
Interest Expense. Interest expense decreased 8.3% to $15.3 million for 2002 from $16.7 million for 2001. The decrease was primarily due to a general decrease in interest rates and a reduction of the outstanding balance under our credit facility with $19.5 million of proceeds from the sale of two radio stations in the New Orleans market and $9.6 million of repayments in 2002. The decrease was partially offset by an increase in interest expense due to financing our radio station acquisitions in the Las Vegas, New Orleans and Augusta markets during 2001 with borrowings from our credit facility.
Net Loss. Net loss for 2002 was $3.7 million compared to a net loss of $22.1 million for 2001. The net loss for 2002 was primarily due to the adoption of SFAS 142, which resulted in a $12.1 million impairment loss net of income taxes, of which $11.7 million is reported as a cumulative effect of accounting change and $0.4 million in discontinued operations. This loss was partially offset by the increase in broadcast cash flow and the decrease in amortization expense due to the adoption of SFAS 142. The net loss for 2002 also includes a $2.0 million loss on extinguishment of long-term debt, of which $0.1 million is reported net of income taxes in discontinued operations, and a $2.8 million gain on an increase in the fair value of our derivative financial instruments compared to a $4.7 million loss on a decrease in the fair value of our derivative financial instruments in 2001. The net loss for 2001 included a $7.0 million impairment loss on long-lived assets, a $1.6 million loss on our investment in eTour, Inc. and a $2.6 million gain on a previously written off related party receivable.
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Net Revenue. Net revenue increased 8.5% to $115.1 million for 2001 from $106.2 million for 2000. The increase was primarily due to our radio station acquisitions in the Las Vegas and New Orleans markets during the first quarter of 2001, in the Augusta, Georgia market during the second quarter of 2001 and the inclusion of net revenue for an entire year from our radio station acquisitions in the Miami-Ft. Lauderdale and West Palm Beach-Boca Raton markets during the second quarter of 2000. The increase was partially offset by lower revenues at most of our radio stations due to the softer advertising environment and at WPTP-FM in the Philadelphia market due to the format change during the fourth quarter of 2000. On a same station basis, net revenue decreased 3.6% to $96.6 million for 2001 from $100.2 million for 2000. Our same station results exclude the operating results of WPTP-FM from January 1 to October 31 in 2001 and 2000 due to a major format change on November 6, 2000. We excluded the operating results of WPTP-FM because the implementation of this major format change resulted in a significant decrease in net revenue and a significant increase in promotional expenses during the
period from January 1, 2001 to October 31, 2001, which were not comparable to the same period in 2000 under the previous format. The following table reconciles reported net revenue to same station net revenue for 2000 and 2001.
2000 | 2001 | Change | |||||||||
Reported net revenue | $ | 106,153,640 |
| $ | 115,131,801 |
| 8.5 | % | |||
WPTP revenue from January 1 to October 31 |
| (7,627,807 | ) |
| (3,224,651 | ) | |||||
Acquired Las Vegas stations |
| — |
|
| (8,482,848 | ) | |||||
Acquired New Orleans stations |
| — |
|
| (4,421,359 | ) | |||||
Acquired Augusta stations |
| — |
|
| (2,394,926 | ) | |||||
Acquired Atlanta stations |
| 41,156 |
|
| — |
| |||||
Acquired Boston station |
| 312,551 |
|
| — |
| |||||
Acquired Miami-Ft. Lauderdale stations |
| 816,526 |
|
| — |
| |||||
Acquired West Palm Beach-Boca Raton station |
| 515,281 |
|
| — |
| |||||
Other |
| (600 | ) |
| — |
| |||||
Same station net revenue | $ | 100,210,747 |
| $ | 96,608,017 |
| (3.6 | )% | |||
Station Operating Expenses. Station operating expenses increased 14.8% to $82.4 million for 2001 from $71.7 million for 2000. The increase was primarily due to our radio station acquisitions in the Las Vegas and New Orleans markets during the first quarter of 2001 and in the Augusta, Georgia market during the second quarter of 2001. On a same station basis, station operating expenses increased 1.6% to $67.1 million for 2001 from $66.0 million for 2000. Our same station results exclude the operating results of WPTP-FM from January 1 to October 31 in 2001 and 2000 due to a major format change on November 6, 2000. We excluded the operating results of WPTP-FM because the implementation of this major format change resulted in a significant decrease in net revenue and a significant increase in promotional expenses during the period from January 1, 2001 to October 31, 2001, which were not comparable to the same period in 2000 under the previous format. The following table reconciles reported station operating expenses to same station operating expenses for 2000 and 2001.
2000 | 2001 | Change | |||||||||
Reported station operating expenses | $ | 71,724,586 |
| $ | 82,353,695 |
| 14.8 | % | |||
WPTP station operating expenses from January 1 to October 31 |
| (6,176,059 | ) |
| (4,874,269 | ) | |||||
Acquired Las Vegas stations |
| — |
|
| (5,420,311 | ) | |||||
Acquired New Orleans stations |
| — |
|
| (3,359,052 | ) | |||||
Acquired Augusta stations |
| — |
|
| (1,612,155 | ) | |||||
Acquired Atlanta stations |
| 23,348 |
|
| — |
| |||||
Acquired Boston station |
| 87,918 |
|
| — |
| |||||
Acquired Miami-Ft. Lauderdale stations |
| 150,089 |
|
| — |
| |||||
Acquired West Palm Beach-Boca Raton station |
| 275,215 |
|
| — |
| |||||
Other |
| (56,929 | ) |
| (1,109 | ) | |||||
Same station operating expenses | $ | 66,028,168 |
| $ | 67,086,799 |
| 1.6 | % | |||
Broadcast Cash Flow. Broadcast cash flow decreased 4.8% to $32.8 million for 2001 from $34.4 million for 2000. The decrease was primarily due to lower revenues at most of our radio stations due to the softer advertising environment and at WPTP-FM in the Philadelphia market due to a format change during the fourth quarter of 2000. The decrease was partially offset by additional broadcast cash flow associated with our radio station acquisitions in the Las Vegas and New Orleans markets during the first quarter of 2001, in the Augusta market during the second quarter of 2001, and the inclusion of broadcast cash flow for an entire year from our radio station acquisitions in the Miami-Ft. Lauderdale and West Palm Beach-Boca Raton markets during the second quarter of 2000. On a same station basis, broadcast cash flow decreased 13.6% to $29.5 million for 2001
from $34.2 million for 2000. The following tables present the calculation of broadcast cash flow and same station broadcast cash flow for 2000 and 2001.
2000 | 2001 | Change | |||||||||
Reported net revenue | $ | 106,153,640 |
| $ | 115,131,801 |
| 8.5 | % | |||
Reported station operating expenses |
| (71,724,586 | ) |
| (82,353,695 | ) | 14.8 |
| |||
Broadcast cash flow | $ | 34,429,054 |
| $ | 32,778,106 |
| (4.8 | )% | |||
Same station net revenue | $ | 100,210,747 |
| $ | 96,608,017 |
| (3.6 | )% | |||
Same station station operating expenses |
| (66,028,168 | ) |
| (67,086,799 | ) | 1.6 |
| |||
Same station broadcast cash flow | $ | 34,182,579 |
| $ | 29,521,218 |
| (13.6 | )% | |||
Corporate General and Administrative Expenses. Corporate general and administrative expenses increased 17.3% to $4.7 million for 2001 from $4.0 million for 2000. The increase was primarily due to higher general and administrative expenses associated with our radio station acquisitions in the Las Vegas and New Orleans markets during the first quarter of 2001. In addition, the increase is due to our operating as a public company for the entire fiscal year 2001 as compared to a partial fiscal year 2000.
Depreciation and Amortization. Depreciation and amortization increased 57.6% to $27.4 million for 2001 from $17.4 million for 2000. The increase was primarily due to additional amortization and depreciation expense associated with our radio station acquisitions in the Las Vegas and New Orleans markets during the first quarter of 2001, in the Augusta, Georgia market during the second quarter of 2001, and the inclusion of depreciation and amortization for an entire year from our radio station acquisitions in the Miami-Ft. Lauderdale and West Palm Beach-Boca Raton markets during the second quarter of 2000. FCC broadcasting licenses and goodwill amortization was $21.9 million and $13.2 million for 2001 and 2000, respectively.
Interest Expense. Interest expense increased 89.0% to $16.7 million for 2001 from $8.8 million for 2000. The increase was primarily due to increased borrowings under our credit facility to finance the radio station acquisitions in the Las Vegas and New Orleans markets during the first quarter of 2001 and in the Augusta, Georgia market during the second quarter of 2001. The increase was partially offset by a decrease in interest rates on our credit facility.
Net Loss. Net loss for 2001 was $22.1 million compared to a net loss of $28.5 million for 2000. The change is partially due to the decrease in broadcast cash flow, and the increases in corporate general and administrative, depreciation and amortization and interest expense. In addition, the net loss for 2001 includes expenses of $1.5 million associated with employee and contract termination expenses due to the impending sale of WRNO-FM and KMEZ-FM in the New Orleans market and continued consolidation of our operations, a $7.0 million impairment loss on long-lived assets due to the impending sale of WRNO-FM and KMEZ-FM in the New Orleans market, a $1.6 million loss on our investment in eTour, Inc., a $4.7 million loss in the fair value of our derivative financial instruments due to the adoption of SFAS 133 and a $2.6 million gain on a previously written off related party receivable. The net loss for 2000 includes the establishment of a $27.2 million net deferred tax liability upon conversion from a series of subchapter S corporations to a series of subchapter C corporations as a result of the initial public offering and corporate reorganization, the redemption of equity appreciation rights for $1.2 million, expenses of $1.5 million associated with the format change at WPTP-FM in the Philadelphia market, and a $2.4 million unrealized loss on our investment in FindWhat.com.
Liquidity and Capital Resources
Overview. Our primary sources of liquidity are internally-generated cash flow and our credit facility. Our liquidity needs have been, and for the next twelve months and thereafter are expected to continue to be, for working capital, debt service, radio station acquisitions and other general corporate purposes, including capital expenditures. We expect to provide for future liquidity needs through one or a combination of the following:
We believe that we will have sufficient liquidity and capital resources to permit us to meet our financial obligations for at least the next twelve months. Poor financial results, unanticipated opportunities or unanticipated expenses could give rise to additional debt servicing requirements or other additional financing requirements sooner than we expect; and, we may not secure financing when needed or on acceptable terms.
As of December 31, 2002, we held $5.4 million in cash and cash equivalents and had $45.0 million in remaining commitments available under our credit facility; however, as of December 31, 2002 our maximum total leverage covenant would have limited additional borrowings to $18.8 million. Our ability to reduce our total leverage ratio by increasing operating cash flow and/or decreasing long-term debt will determine how much, if any, of the remaining commitments under our credit facility will be available to us in the future. Poor financial results or unanticipated expenses could result in our failure to maintain or lower our total leverage ratio and we may not be permitted to make any additional borrowings under our credit facility.
Net Cash Provided By Operating Activities. Net cash provided by operating activities was $13.3 million and $8.9 million for 2002 and 2001, respectively. The change was primarily due to a $1.9 million increase in cash receipts from sales, a $0.9 decrease in cash paid for station operating expenses, a $2.7 million decrease in cash paid for income taxes and the receipt of a $2.2 million income tax refund during 2002. Net cash provided by operating activities included the receipt of $2.6 million from a previously written off related party receivable during 2001.
Net cash provided by operating activities was $8.9 million and $7.3 million for 2001 and 2000, respectively. The change is primarily due to a $6.2 million increase in cash receipts from sales and the $2.6 million gain on a previously written off related party receivable, partially offset by a $2.6 million increase in cash paid for station operating expenses, expenses of $1.5 million related to employee contract and termination expenses due to the impending sale of WRNO-FM and KMEZ-FM in the New Orleans market and continued consolidation of our operations, a $3.5 million increase in cash paid for interest and a $1.3 million increase in cash paid for income taxes. In 2000, net cash provided by operating activities was decreased by the redemption of $1.2 million of equity appreciation rights and expenses of $1.5 million related to the format change at WPTP-FM in the Philadelphia market.
Net Cash Provided By (Used In) Investing Activities. Net cash provided by investing activities was $18.4 million for 2002. Net cash used in investing activities was $132.9 million for 2001. The change is primarily due to the receipt of cash proceeds totaling $19.65 million from the sale of two radio stations in the New Orleans market for $23.0 million in 2002, compared to the acquisitions of three radio stations in the Las Vegas market, three radio stations in the New Orleans market and two radio stations in the Augusta market for $128.3 million in 2001. Net cash used in investing activities also included payments of $2.5 million for a signal upgrade in the Las Vegas market in 2001.
Net cash used in investing activities was $132.9 million and $28.6 million 2001 and 2000, respectively. The change is primarily due to the acquisition of three radio stations in the Las Vegas market, three radio stations in the New Orleans market and two radio stations in the Augusta, Georgia market in 2001 for an aggregate $128.3 million compared to the acquisition of two radio stations in the Atlanta market, one radio station in the Boston market, two radio stations in the Miami-Ft. Lauderdale market and one radio station in the West Palm Beach-Boca Raton market in 2000 for an aggregate $34.8 million. In addition, net cash used in investing activities was also increased in 2001 by payments totaling $2.5 million for a signal upgrade. Net cash used in 2000 was offset by the repayment of loans to the former S corporation stockholders and increased by repayment of notes receivable from related parties and stockholders.
Net Cash Provided By (Used In) Financing Activities. Net cash used in financing activities was $31.2 million for 2002. Net cash provided by financing activities was $123.2 million for 2001. The change is primarily
due to the repayment of borrowings under our credit facility with $19.5 million of cash proceeds from the sale of two radio stations in the New Orleans market and $9.6 million of repayments in 2002, compared to financing our acquisitions of three radio stations in the Las Vegas market, three radio stations in the New Orleans market and two radio stations in the Augusta market with $123.2 million of borrowings under our credit facility in 2001. Net cash used in financing activities also included payments of loan fees of $2.0 million for changes to our credit facility during the first and third quarters of 2002 and proceeds of $100.0 million from the issuance of term loan B under our credit facility which were used to repay $16.0 million of the revolving credit loan and $84.0 million of term loan A.
Net cash provided by financing activities was $123.2 million and $20.1 million for 2001 and 2000, respectively. The change is primarily due to financing the acquisitions of three radio stations in the Las Vegas market, three radio stations in the New Orleans market and two radio stations in the Augusta, Georgia market in 2001 for an aggregate $123.2 million compared to financing the acquisitions of two radio stations in the Atlanta market, one radio station in the Boston market, two radio stations in the Miami-Ft. Lauderdale market and one radio station in the West Palm Beach-Boca Raton market in 2000 for an aggregate $34.8 million. In 2000, net cash was increased by the initial public offering proceeds, less associated costs, which were used to repay $58.5 million of the credit facility and all outstanding notes payable to related parties. In 2000, we also refinanced our credit facility with an outstanding balance of $102.2 million and paid loan fees totaling $2.8 million. In 2000, net cash was also decreased by distributions totaling $2.3 million to the former S corporation stockholders.
Credit Facility. On March 20, 2002, we entered into an amendment to our credit agreement that reduced the maximum commitment for the revolving credit loan under our credit facility to $119.5 million and revised certain financial covenants.
On September 30, 2002, we entered into an amended and restated credit agreement, under which a new $100.0 million term loan B was issued and certain financial covenants were revised. The proceeds from term loan B were used to reduce the outstanding balance of the revolving credit loan by $16.0 million and the outstanding balance of term loan A by $84.0 million. In addition, the maximum commitment for the revolving credit loan was reduced to $103.5 million. In connection with the amended and restated credit facility, we recorded a $2.0 million loss on extinguishment of long-term debt for the year ended December 31, 2002, of which $0.1 million is reported net of income taxes in discontinued operations.
As of December 31, 2002, the maximum commitment for the revolving credit loan under our credit facility was $103.5 million; however, as of December 31, 2002, our maximum total leverage covenant would have limited additional borrowings to $18.8 million. The revolving credit loan includes a $50.0 million sub-limit for letters of credit. The revolving credit loan and term loan A bear interest at either the base rate or LIBOR plus a margin that is determined by our debt to operating cash flow ratio. The base rate is equal to the higher of the prime rate or the overnight federal funds rate plus 0.5%. The revolving credit loan and term loan A carried interest at 5.0625% and 4.4375% as of December 31, 2001 and 2002, respectively. The term loan B bears interest at either the base rate plus 2.75% or LIBOR plus 4.0%. Term loan B carried interest at 5.4375% as of December 31, 2002. Interest is generally payable monthly through maturity. The revolving credit loan and term loan A mature on June 30, 2008 and term loan B matures on December 31, 2009. The scheduled reductions in the amount available under the revolving credit loan may require principal repayments if the outstanding balance at that time exceeds the new maximum amount available under the revolving credit loan.
The credit facility is secured by substantially all of our assets and guaranteed jointly and severally by all of our direct and indirect subsidiaries. The guarantees were issued to our lenders for repayment of the outstanding balance of the credit facility. If we default on a payment under the terms of the credit facility, the subsidiaries may be required to perform under their guarantees. The maximum amount of undiscounted payments the subsidiaries would have to make in the event of default is $196.4 million. The guarantees for the revolving credit loan and term loan A expire on June 30, 2008 and the guarantees for term loan B expire on December 31, 2009.
As of December 31, 2002, the scheduled repayments of the credit facility for the next five years and thereafter are as follows:
Revolving Credit Loan | Term Loan A | Term Loan B | Total Credit Facility | |||||||||
2003 | $ | — | $ | 6,315,789 | $ | 1,000,000 | $ | 7,315,789 | ||||
2004 |
| — |
| 6,315,789 |
| 1,000,000 |
| 7,315,789 | ||||
2005 |
| — |
| 6,315,789 |
| 1,000,000 |
| 7,315,789 | ||||
2006 |
| — |
| 6,315,789 |
| 1,000,000 |
| 7,315,789 | ||||
2007 |
| 17,071,262 |
| 8,421,053 |
| 1,000,000 |
| 26,492,315 | ||||
Thereafter |
| 41,390,000 |
| 4,210,527 |
| 95,000,000 |
| 140,600,527 | ||||
Total | $ | 58,461,262 | $ | 37,894,736 | $ | 100,000,000 | $ | 196,355,998 | ||||
We must pay a quarterly unused commitment fee, which is based upon our total leverage to operating cash flow ratio and ranges from 0.25% to 0.375% of the unused portion of the maximum commitment. If the unused portion exceeds 50% of the maximum commitment, the fee is increased by 0.375%. For the year ended December 31, 2002, our unused commitment fee was $193,000.
We are required to satisfy financial covenants, which require us to maintain specified financial ratios and to comply with financial tests. As of December 31, 2002, these financial covenants included:
As of December 31, 2002, we believe that we were in compliance with all applicable financial covenants. As of December 31, 2002, our total leverage ratio was 6.16 times operating cash flow, our interest coverage ratio was 2.12 times interest expense, and our fixed charges ratio was 1.18 times fixed charges.
Failure to comply with these financial covenants, scheduled interest payments, scheduled principal repayments, or any other terms of our credit facility could result in the acceleration of the maturity of our outstanding debt.
The credit facility also prohibits us from paying cash dividends and restricts our ability to make other distributions with respect to our capital stock. The credit facility also contains other customary restrictive covenants. These covenants limit our ability to:
Contractual Obligations
Our contractual obligations as of December 31, 2002 consist of the following:
Payments due by period | |||||||||||||||
Contractual Obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||
Long-Term Debt (1) | $ | 196,359,170 | $ | 7,318,961 | $ | 14,631,578 | $ | 33,808,104 | $ | 140,600,527 | |||||
Operating Leases |
| 22,276,000 |
| 2,402,000 |
| 4,082,000 |
| 4,017,000 |
| 11,775,000 | |||||
Purchase Obligations (2) |
| 10,623,820 |
| 6,503,257 |
| 4,069,976 |
| 50,587 |
| — | |||||
Other Long-Term Liabilities (3) |
| 1,809,000 |
| 1,590,000 |
| 219,000 |
| — |
| — | |||||
Total Contractual Obligations | $ | 231,067,990 | $ | 17,814,218 | $ | 23,002,554 | $ | 37,875,691 | $ | 152,375,527 | |||||
2001 | 2002 | 2003 | |||||||||
Net income (loss) | $ | (22,134,122 | ) | $ | (3,727,050 | ) | $ | 12,771,192 | |||
FCC broadcasting licenses amortization (net of income tax benefit of $7,562,102) | 13,054,437 | — | — | ||||||||
Goodwill amortization (net of income tax benefit of $483,264) | 768,066 | — | — | ||||||||
Adjusted net income (loss) | $ | (8,311,619 | ) | $ | (3,727,050 | ) | $ | 12,771,192 | |||
Basic net income (loss) per share: | |||||||||||
Net income (loss) | $ | (0.91 | ) | $ | (0.15 | ) | $ | 0.53 | |||
FCC broadcasting licenses amortization | 0.54 | — | — | ||||||||
Goodwill amortization | 0.03 | — | — | ||||||||
Adjusted net income (loss) | $ | (0.34 | ) | $ | (0.15 | ) | $ | 0.53 | |||
Diluted net income (loss) per share: | |||||||||||
Net income (loss) | $ | (0.91 | ) | $ | (0.15 | ) | $ | 0.52 | |||
FCC broadcasting licenses amortization | 0.54 | — | — | ||||||||
Goodwill amortization | 0.03 | — | — | ||||||||
Adjusted net income (loss) | $ | (0.34 | ) | $ | (0.15 | ) | $ | 0.52 | |||
Basic common shares outstanding | 24,273,441 | 24,273,441 | 24,273,783 | ||||||||
Diluted common shares outstanding | 24,273,441 | 24,312,899 | 24,334,480 | ||||||||
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amount of revenues and expenses during the reporting period. We base our estimates on historical experience and assumptions we consider reasonable at the time of making those estimates. We evaluate our estimates on an on-going basis. Actual results may differ from these estimates under different circumstances or using different assumptions.
Accounts Receivable.We have recorded an allowance for doubtful accounts for estimated losses resulting from customers’ inability to make payments to us. We review specific accounts by radio station, the current
financial condition of our customers and historical write-off experience when evaluating the adequacy of the allowance for doubtful accounts. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, then additional allowances may be required.
We have recorded certain deferred tax assets, which we consider realizable due to the existence of certain deferred tax liabilities that are anticipated to reverse during similar future periods; however, we have recorded a valuation allowance to reduce our deferred tax assets related to net operating losses in certain states. If we were to determine that we would be unable to fully realize some or all of our remaining deferred tax assets in the future, an adjustment to our deferred tax assets would be recorded as an expense in the period such determination was made.
We haveFCC Broadcasting Licenses. Our FCC broadcasting licenses represent significant amounts of property and equipment recorded in our financial statements. We assess the recoverability of our property and equipment on an on-going basis using estimates of future undiscounted cash flows that we expect to generate from these assets. Our radio stations operate in competitive markets and as such could experience adverse changes in listenership and cash flows. These adverse changes may result in an impairment of our property and equipment in the future.
On January 1, 2002, we adopted SFAS 142, which requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS 142. To estimate the fair value of our FCC broadcasting licenses and goodwill for our initial impairment test as of January 1, 2002,December 31, 2003, we obtained appraisals from an independent appraisal company. Subsequent estimates of fair value, whether by appraisal or management estimates of future discounted cash flows, may result in an impairment of our FCC broadcasting licenses and goodwill in the future. In addition, the use of different underlying assumptions by an appraisal company or management, such as determining future cash flows and discount rates, could result in materially different estimates of fair value and therefore could result in a material impairment of our FCC broadcasting licenses and goodwill.licenses.
Recent Pronouncements
In June 2001, FASB issued SFAS 143,Accounting for Asset Retirement Obligations. SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS 143 amends SFAS 19 and is effective for financial statements issued for fiscal years beginning after June 15, 2002. At the present time, the adoption of SFAS 143 is not expected to have a material impact on our consolidated financial statements.
In August 2001, FASB issued SFAS 144,Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. We have adopted SFAS 144 with no material impact on our consolidated financial statements.
In April 2002, FASB issued SFAS 145,Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS 145 addresses the income statement classification of gains or losses from extinguishment of debt and the accounting for certain lease modifications. We adopted SFAS 145 upon issuance143 during the first quarter of 2003 with no material impact on our consolidated financial statements.
In June 2002, FASB issued SFAS 146,Accounting for Costs Associated with Exit or Disposal Activities. SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities. SFAS 146 nullifies Emerging Issues Task Force Issue No. 94-3 and is effective for exit or disposal activities that are initiated after December 31, 2002. At the present time, we cannot determine the impact that the adoption ofWe have adopted SFAS 146 will havewith no material impact on our consolidated financial statements.
In November 2002, FASB issued Interpretation No. 45,Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (the Interpretation)(FIN 45), which addresses the disclosure to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. These disclosure requirements are included in note 9 to the consolidated financial statements. The InterpretationFIN 45 also requires the recognition of a liability by a guarantor at the inception of certain guarantees. The InterpretationFIN 45 requires the guarantor to recognize a liability for the non-contingent component of the guarantee, which is the obligation to stand ready to perform in the event that specified triggering events or conditions occur. The initial measurement of this liability is the fair value of the guarantee at inception. The recognition of the liability is required even it is not probable that payments will be required under the guarantee or if the guarantee was issued with a premium payment or as part of a transaction with multiple elements. As noted above, weWe have adopted the disclosure requirements of the InterpretationFIN 45 and will apply the recognition and measurement provisions for all applicable guarantees entered into after December 31, 2002. To date, we have not entered into guarantees, which would require recognition and measurement pursuant to the provisions of the Interpretation.FIN 45.
In December 2002, FASB issued SFAS 148,Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123. SFAS 148 amends SFAS 123 to provide alternative
methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. We adopted the disclosure provisions of SFAS 148 upon issuance with no material impact on our consolidated financial statements.
In January 2003, FASB issued Interpretation No. 46,Consolidation of Variable Interest Entities (the Interpretation)(FIN 46), which clarifies the application of Accounting Research Bulletin No. 51, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The Interpretation is effective for variable interest entities created after January 31, 2003. At the present time, the adoption of the Interpretation is not expected to have aEffective July 1, 2003, we adopted FIN 46 with no material impact on our consolidated financial statements. In December 2003, FASB issued Interpretation No. 46(R),Consolidation of Variable Interest Entities (FIN 46(R)), which revised and clarified FIN 46. The issuance of FIN 46(R) had no material impact on our consolidated financial statements or on our adoption of FIN 46 effective July 1, 2003.
In May 2003, FASB issued SFAS 150,Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after September 15, 2003. Effective July 1, 2003, we adopted SFAS 150 with no material impact on our consolidated financial statements.
Year Ended December 31, 2003 Compared to Year Ended December 31, 2002
Consolidated
The following summary table presents a comparison of our results of operations for the years ended December 31, 2002 and 2003 with respect to certain of our key financial measures. These changes illustrated in the table are discussed in greater detail below. This section should be read in conjunction with the consolidated financial statements and notes to consolidated financial statements included in Item 8 of this report.
Year ended December 31, | Change | ||||||||||||
2002 | 2003 | $ | % | ||||||||||
Net revenue | $ | 114,692,029 | $ | 114,482,240 | $ | (209,789 | ) | (0.2 | )% | ||||
Cost of services | 37,458,376 | 39,461,502 | 2,003,126 | 5.3 | |||||||||
Selling, general and administrative expenses | 40,384,193 | 39,559,535 | (824,658 | ) | (2.0 | ) | |||||||
Corporate general and administrative expenses | 5,151,244 | 5,494,605 | 343,361 | 6.7 | |||||||||
Depreciation and amortization | 3,725,484 | 3,573,992 | (151,492 | ) | (4.1 | ) | |||||||
Interest expense | 15,263,648 | 11,195,231 | (4,068,417 | ) | (26.7 | ) |
Net Revenue. The decrease in net revenue was partially due to a $1.6 million decrease in net revenue from our Philadelphia market cluster primarily due to a non-traditional revenue event not held in 2003 that contributed $1.1 million to net revenue in 2002, and a decrease in national advertising revenue. The decrease was also partially due to a $1.0 million decrease in net revenue from our Fayetteville market cluster, which is located near several military bases. These decreases were partially offset by a $0.9 million increase in net revenue from our Ft. Myers-Naples market cluster, a $0.9 million increase in net revenue from our Miami-Ft. Lauderdale market cluster, and a $0.7 million increase in net revenue from our Las Vegas market cluster due to improved performance in these clusters.
Cost of Services. The increase in cost of services was primarily due to a $2.1 million increase in costs at our Miami-Ft. Lauderdale market cluster primarily due to a $1.3 million increase in program rights fees associated with the Florida Marlins baseball club and an increase in that market cluster in other programming and promotional expenses.
Selling, General and Administrative Expenses. The decrease in selling, general and administrative expenses was primarily due to a $0.7 million decrease in expenses at our Miami-Ft. Lauderdale market cluster primarily due to cost containment measures.
Corporate General and Administrative Expenses. The increase in corporate general and administrative expenses is primarily due to increased compensation and insurance premiums.
Interest Expense. The decrease in interest expense was primarily due to a general decline in interest rates and a reduction of the outstanding balance under our credit facility as described in Net Cash Provided By (Used In) Financing Activities in the Liquidity and Capital Resources section in this Item.
Loss on Extinguishment of Long-Term Debt. On September 30, 2002, we entered into an amended and restated credit agreement, under which a new $100.0 million term loan B was issued and certain financial covenants were revised. The proceeds from term loan B were used to reduce the outstanding balance and maximum commitment of the revolving credit loan and the outstanding balance of term loan A. In connection with the amended and restated credit agreement, we recorded a $1.9 million loss on extinguishment of long-term debt for the year ended December 31, 2002.
Gain (Loss) on Investments. The $4.5 million gain on sale of investments in 2003 was the result of the sale of an aggregate of 300,000 shares of common stock of FindWhat.com during the year ended December 31, 2003 compared to a $0.6 million gain as a result of the sale of an aggregate of 100,000 shares of common stock of FindWhat.com during the year ended December 31, 2002.
Gain (Loss) on Change in Fair Value of Derivative Financial Instruments. In accordance with SFAS 133,Accounting for Derivative Instruments and Hedging Activities, our interest rate cap, collar and swap agreements are carried at fair value. The estimated fair value of each agreement is based on the amounts we would expect to receive or pay to terminate the agreement. The gain on increase in fair value of derivative financial instruments of $1.6 million for the year ended December 31, 2003 and $2.8 million for the year ended December 31, 2002 reflects the decrease in the amounts we would expect to pay to terminate our interest rate cap, collar and swap agreements not designated as hedges in accordance with SFAS 133.
Cumulative Effect of Accounting Change. As a result the adoption of SFAS 142 effective January 1, 2002, we recognized an impairment loss of $17.5 million related to FCC broadcasting licenses and goodwill in the Radio Group Three segment, of which $11.7 million, net of income taxes, was reported as a cumulative effect of accounting change and $0.4 million, net of income taxes, was reported in discontinued operations for the year ended December 31, 2002.
Discontinued Operations. On October 3, 2002, we entered into a definitive agreement with ABC, Inc. to sell WBYU-AM in the New Orleans market for $1.5 million, subject to certain adjustments. As of the completion of this sale on February 5, 2003, we no longer had operations in New Orleans therefore the results of operations for WBYU-AM have been reported as discontinued operations in the consolidated statements of operations for all periods presented. Net income from discontinued operations was $0.3 million for the year ended December 31, 2003, which included a gain on disposal of $0.3 million, net of income taxes, compared to a net loss from discontinued operations of $0.6 million for the year ended December 31, 2002, which included the $0.4 million impairment loss, net of income taxes, due to the adoption of SFAS 142.
Radio Group One Segment
Year ended December 31, | Change | ||||||||||||
2002 | 2003 | $ | % | ||||||||||
Net revenue | $ | 64,811,126 | $ | 66,792,441 | $ | 1,981,315 | 3.1 | % | |||||
Cost of services | 23,506,507 | 25,588,382 | 2,081,875 | 8.9 | |||||||||
Selling, general and administrative | 21,815,189 | 21,303,947 | (511,242 | ) | (2.3 | ) |
Net Revenue. The increase in net revenue was primarily due to a $0.9 million increase in net revenue from our Ft. Myers-Naples market cluster and a $0.9 million increase in net revenue from our Miami-Ft. Lauderdale market cluster due to improved performance in these clusters.
Cost of Services. The increase in cost of services was primarily due to a $2.1 million increase in costs at our Miami-Ft. Lauderdale market cluster primarily due to a $1.3 million increase in program rights fees associated with the Florida Marlins baseball club and an increase in other programming and promotional expenses.
Selling, General and Administrative Expenses. The decrease in selling, general and administrative expenses was primarily due to a $0.7 million decrease in expenses at our Miami-Ft. Lauderdale market cluster primarily due to cost containment measures. This decrease was partially offset by a $0.4 million increase in expenses at our Ft. Myers-Naples market cluster primarily due to increased selling expenses related to the increase in revenue.
Radio Group Two Segment
Year ended December 31, | Change | ||||||||||||
2002 | 2003 | $ | % | ||||||||||
Net revenue | $ | 39,106,616 | $ | 36,335,058 | $ | (2,771,558 | ) | (7.1 | )% | ||||
Cost of services | 11,280,485 | 11,369,470 | 88,985 | 0.8 | |||||||||
Selling, general and administrative | 14,330,753 | 14,022,619 | (308,134 | ) | (2.2 | ) |
Net Revenue. The decrease in net revenue was partially due to a $1.6 million decrease in net revenue from our Philadelphia market cluster primarily due to a non-traditional revenue event not held in 2003 that contributed $1.1 million to net revenue in 2002 and a decrease in national advertising revenue. The decrease was also partially due to a $1.0 million decrease in net revenue from our Fayetteville market cluster, which is located near several military bases.
Selling, General and Administrative Expenses. The decrease in selling, general and administrative expenses was primarily due to a $0.2 million decrease in expenses at our Fayetteville market cluster primarily due to decreased selling expenses related to the decrease in revenue.
Radio Group Three Segment
Year ended December 31, | Change | ||||||||||||
2002 | 2003 | $ | % | ||||||||||
Net revenue | $ | 10,774,287 | $ | 11,354,741 | $ | 580,454 | 5.4 | % | |||||
Cost of services | 2,671,384 | 2,503,650 | (167,734 | ) | (6.3 | ) | |||||||
Selling, general and administrative | 4,238,251 | 4,232,969 | (5,282 | ) | (0.1 | ) |
Net Revenue. The increase in net revenue was primarily due to a $0.7 million increase in net revenue from our Las Vegas market cluster due to improved performance in this cluster.
Cost of Services. The decrease in cost of services was primarily due to a decrease in programming and promotional expenses at our Las Vegas market cluster.
Year Ended December 31, 2002 Compared to Year Ended December 31, 2001
The following summary table presents a comparison of our results of operations for the years ended December 31, 2001 and 2002 with respect to certain of our key financial measures. These changes illustrated in the table are discussed in greater detail below. This section should be read in conjunction with the consolidated financial statements and notes to consolidated financial statements included in Item 8 of this report.
Year ended December 31, | Change | ||||||||||||
2001 | 2002 | $ | % | ||||||||||
Net revenue | $ | 115,131,801 | $ | 114,692,029 | $ | (439,772 | ) | (0.4 | )% | ||||
Cost of services | 41,411,263 | 37,458,376 | (3,952,887 | ) | (9.5 | ) | |||||||
Selling, general and administrative expenses | 40,942,432 | 40,384,193 | (558,239 | ) | (1.4 | ) | |||||||
Corporate general and administrative expenses | 4,683,775 | 5,151,244 | 467,469 | 10.0 | |||||||||
Depreciation and amortization | 27,439,179 | 3,725,484 | (23,713,695 | ) | (86.4 | ) | |||||||
Interest expense | 16,652,363 | 15,263,648 | (1,388,715 | ) | (8.3 | ) |
Net Revenue. The decrease in net revenue was partially due to the sale of two radio stations in the New Orleans market cluster in March 2002, which had contributed $4.4 million to net revenue during the year ended
December 31, 2001. The decrease was also partially due to a $1.0 million decrease in revenue from our Ft. Myers-Naples market cluster and a $0.9 million decrease in revenue from our Miami-Ft. Lauderdale market cluster due to competition and the completion of our barter agreements with eTour, Inc. in May 2001 and FindWhat.com in October 2001. These decreases were partially offset by a $2.2 million increase in net revenue from our Las Vegas market cluster and a $1.2 million increase in net revenue from our Augusta market cluster primarily due to the inclusion of twelve months of operations from our radio station acquisitions in the Las Vegas and Augusta markets which were completed in February 2001 and April 2001, respectively and improved performance in these clusters. From January 1, 2001 to the date of acquisition, net revenue from the Las Vegas and Augusta markets clusters was $0.6 million and $0.7 million, respectively. These decreases were also partially offset by a $1.7 million increase in net revenue from our Philadelphia market cluster due to improved performance in this cluster.
Cost of Services. The decrease in cost of services was partially due to a $3.7 million decrease in costs at our Miami-Ft. Lauderdale market cluster primarily due to the completion of our 1997 radio broadcast rights contract with the Florida Marlins. The decrease was also partially due to the sale of two radio stations in the New Orleans market in March 2002, which had incurred $1.6 million in costs during the year ended December 31, 2001. These decreases were partially offset by a $0.7 million increase in costs at our Las Vegas market cluster and a $0.5 million increase in costs at our Augusta market cluster primarily due to the inclusion of twelve months of operations from our radio station acquisitions in the Las Vegas and Augusta markets which were completed in February 2001 and April 2001, respectively. From January 1, 2001 to the date of acquisition, cost of services from the Las Vegas and Augusta markets clusters was $0.2 million and $0.3 million, respectively.
Selling, General and Administrative Expenses. The decrease in selling, general and administrative expenses was partially due to the sale of two radio stations in the New Orleans market in March 2002, which had incurred $1.7 million in expenses during the year ended December 31, 2001. The decrease was also due to a $0.5 million decrease in expenses at our Philadelphia market cluster due to cost containment measures. These decreases were partially offset by a $0.8 million increase in expenses at our Las Vegas market cluster primarily due to the inclusion of twelve months of operations from our radio station acquisitions in the Las Vegas market cluster which were completed in February 2001 and increased selling expenses related to the increase in revenue. From January 1, 2001 to the date of acquisition, selling, general and administrative expenses from the Las Vegas and Augusta markets clusters was $0.2 million for each cluster. These decreases were also partially offset by a $0.8 million increase in expenses at our Miami-Ft. Lauderdale market cluster.
Corporate General and Administrative Expenses. The increase in corporate general and administrative expenses is primarily due to increased compensation and insurance premiums.
Depreciation and Amortization. The decrease in depreciation and amortization was primarily due to the adoption of SFAS 142 on January 1, 2002, which requires that our FCC broadcasting licenses and goodwill no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS 142. FCC broadcasting licenses and goodwill amortization was $21.9 million for 2001.
Impairment Loss on Long-Lived Assets. On October 31, 2001, we entered into a definitive agreement with Wilks Broadcasting LLC to sell WRNO-FM and KMEZ-FM in the New Orleans market for $23.0 million, subject to certain adjustments. On October 31, 2001, the carrying amount of WRNO-FM and KMEZ-FM exceeded the sales price, therefore we recorded an impairment loss on long-lived assets of $7.0 million.
Interest Expense. The decrease in interest expense was primarily due to a general decline in interest rates and a reduction of the outstanding balance under our credit facility as described in the Net Cash Provided By (Used In) Financing Activities in the Liquidity and Capital Resources section in this Item. The decrease was partially offset by an increase in interest expense due to financing our radio station acquisitions in the Las Vegas, New Orleans and Augusta markets during 2001 with borrowings from our credit facility.
Loss on Extinguishment of Long-Term Debt. On September 30, 2002, we entered into an amended and restated credit agreement, under which a new $100.0 million term loan B was issued and certain financial covenants were revised. The proceeds from term loan B were used to reduce the outstanding balance and maximum commitment of the revolving credit loan and the outstanding balance of term loan A. In connection with the amended and restated credit agreement, we recorded a $1.9 million loss on extinguishment of long-term debt for the year ended December 31, 2002.
Gain (Loss) on Investments. The $0.6 million gain on sale of investments in 2002 was the result of the sale of an aggregate of 100,000 shares of common stock of FindWhat.com during the year ended December 31, 2002. On May 7, 2001, we received a letter from the management of eTour, Inc. stating that eTour, Inc. is in the process of winding down. Based on this information, we recorded a loss on investment of $1.6 million, the recorded cost of the 396,354 shares earned as of May 7, 2001.
Gain (Loss) on Change in Fair Value of Derivative Financial Instruments. In accordance with SFAS 133,Accounting for Derivative Instruments and Hedging Activities, our interest rate cap, collar and swap agreements are carried at fair value. The estimated fair value of each agreement is based on the amounts we would expect to receive or pay to terminate the agreement. The gain on increase in fair value of derivative financial instruments of $2.8 million for the year ended December 31, 2002 and loss on decrease in fair value of derivative financial instruments of $4.7 million for the year ended December 31, 2001 reflects the change in the amounts we would expect to pay to terminate our interest rate cap, collar and swap agreements not designated as hedges in accordance with SFAS 133.
Cumulative Effect of Accounting Change. As a result the adoption of SFAS 142 effective January 1, 2002, we recognized an impairment loss of $17.5 million related to FCC broadcasting licenses and goodwill in the Radio Group Three segment, of which $11.7 million, net of income taxes, was reported as a cumulative effect of accounting change and $0.4 million, net of income taxes, was reported in discontinued operations for the year ended December 31, 2002.
Discontinued Operations. On October 3, 2002, we entered into a definitive agreement with ABC, Inc. to sell WBYU-AM in the New Orleans market for $1.5 million, subject to certain adjustments. As of the completion of this sale on February 5, 2003, we no longer had operations in New Orleans therefore the results of operations for WBYU-AM have been reported as discontinued operations in the consolidated statements of operations for all periods presented. The net loss from discontinued operations was $0.6 million for the year ended December 31, 2002, which included the $0.4 million impairment loss, net of income taxes, due to the adoption of SFAS 142 compared to a net loss from discontinued operations of $0.4 million for the year ended December 31, 2001.
Radio Group One Segment
Year ended December 31, | Change | ||||||||||||
2001 | 2002 | $ | % | ||||||||||
Net revenue | $ | 66,292,601 | $ | 64,811,126 | $ | (1,481,475 | ) | (2.2 | )% | ||||
Cost of services | 26,835,342 | 23,506,507 | (3,328,835 | ) | (12.4 | ) | |||||||
Selling, general and administrative | 21,185,541 | 21,815,189 | 629,648 | 3.0 |
Net Revenue. The decrease in net revenue was primarily due to a $1.0 million decrease in net revenue from our Ft. Myers-Naples market cluster and a $0.9 million decrease in net revenue from our Miami-Ft. Lauderdale market cluster due to competition and the completion of our barter agreements with eTour, Inc. in May 2001 and FindWhat.com in October 2001. These decreases were partially offset by a $0.3 million increase in net revenue from our Greenville-New Bern Jacksonville market cluster due to improved performance in this cluster.
Cost of Services. The decrease in cost of services was primarily due to a $3.7 million decrease in costs at our Miami-Ft. Lauderdale market cluster primarily due to the completion of our 1997 radio broadcast rights contract with the Florida Marlins. This decrease was partially offset by a $0.4 million increase in costs at our Ft. Myers-Naples market cluster due to increased programming and promotional expenses.
Selling, General and Administrative Expenses. The increase in selling, general and administrative expenses was primarily due to a $0.8 million increase in expenses at our Miami-Ft. Lauderdale market cluster.
Radio Group Two Segment
Year ended December 31, | Change | ||||||||||||
2001 | 2002 | $ | % | ||||||||||
Net revenue | $ | 35,934,993 | $ | 39,106,616 | $ | 3,171,623 | 8.8 | % | |||||
Cost of services | 10,987,847 | 11,280,485 | 292,638 | 2.7 | |||||||||
Selling, general and administrative | 14,565,602 | 14,330,753 | (234,849 | ) | (1.6 | ) |
Net Revenue. The increase in net revenue was partially due to a $1.7 million increase in net revenue from our Philadelphia market cluster due to improved performance in this cluster and partially due to a $1.2 million increase in net revenue from our Augusta market cluster primarily due to the inclusion of twelve months of operations from our radio station acquisitions in the Augusta market which were completed in April 2001 and improved performance in this cluster.
Cost of Services. The increase in cost of services was primarily due to a $0.5 million increase in costs at our Augusta market cluster primarily due to the inclusion of twelve months of operations from our radio station acquisitions in the Augusta market which were completed in April 2001.
Selling, General and Administrative Expenses. The decrease in selling, general and administrative expenses was primarily due to a $0.5 million decrease in expenses at our Philadelphia market cluster due to cost containment measures.
Radio Group Three Segment
Year ended December 31, | Change | ||||||||||||
2001 | 2002 | $ | % | ||||||||||
Net revenue | $ | 12,904,207 | $ | 10,774,287 | $ | (2,129,920 | ) | (16.5 | )% | ||||
Cost of services | 3,588,074 | 2,671,384 | (916,690 | ) | (25.5 | ) | |||||||
Selling, general and administrative | 5,191,289 | 4,238,251 | (953,038 | ) | (18.4 | ) |
Net Revenue. The decrease in net revenue was primarily due to the sale of two radio stations in the New Orleans market cluster in March 2002, which has contributed $4.4 million to net revenue during the year ended December 31, 2001. This decrease was partially offset by a $2.2 million increase at our Las Vegas market cluster primarily due to the inclusion of twelve months of operations from our radio station acquisitions in the Las Vegas market which were completed in February 2001 and improved performance in this cluster.
Cost of Services. The decrease in cost of services was primarily due to the sale of two radio stations in the New Orleans market in March 2002, which had incurred $1.6 million in costs during the year ended December 31, 2001. This decrease was partially offset by a $0.7 million increase in costs at our Las Vegas market cluster primarily due to the inclusion of twelve months of operations from our radio station acquisitions in the Las Vegas market which were completed in February 2001.
Selling, General and Administrative Expenses. The decrease in selling, general and administrative expenses was primarily due to the sale of two radio stations in the New Orleans market in March 2002, which had incurred $1.7 million in expenses during the year ended December 31, 2001. This decrease was partially offset by a $0.8 million increase in expenses at our Las Vegas market cluster primarily due to the inclusion of twelve months of operations from our radio station acquisitions in the Las Vegas market which were completed in February 2001 and increased selling expenses related to the increase in revenue.
Liquidity and Capital Resources
Overview. Our primary sources of liquidity are internally-generated cash flow and our credit facility. Our liquidity needs have been, and for the next twelve months and thereafter are expected to continue to be, for working capital, debt service, radio station acquisitions and other general corporate purposes, including capital expenditures. We expect to provide for future liquidity needs through one or a combination of the following:
We believe that we will have sufficient liquidity and capital resources to permit us to meet our financial obligations for at least the next twelve months. However, poor financial results, unanticipated acquisition opportunities or unanticipated expenses could give rise to additional debt servicing requirements or other additional financing requirements sooner than we expect and, we may not secure financing when needed or on acceptable terms.
As of December 31, 2003, we held $7.7 million in cash and cash equivalents and had $64.1 million in remaining commitments available under our credit facility; however, as of December 31, 2003 our maximum total leverage covenant would have limited additional borrowings to $13.1 million. Our ability to reduce our total leverage ratio by increasing operating cash flow and/or decreasing long-term debt will determine how much, if any, of the remaining commitments under our credit facility will be available to us in the future. Poor financial results or unanticipated expenses could result in our failure to maintain or lower our total leverage ratio and we may not be permitted to make any additional borrowings under our credit facility.
The following summary table presents a comparison of our capital resources for the years ended December 31, 2001, 2002 and 2003 with respect to certain of our key measures affecting our liquidity. The changes set forth in the table are discussed in greater detail below. This section should be read in conjunction with the consolidated financial statements and notes to consolidated financial statements included in Item 8 of this report.
Year ended December 31, | ||||||||||||
2001 | 2002 | 2003 | ||||||||||
Net cash provided by operating activities | $ | 8,907,950 | $ | 13,265,424 | $ | 20,337,950 | ||||||
Net cash provided (used in) investing activities | (132,893,700 | ) | 18,360,044 | 8,405,461 | ||||||||
Net cash provided by (used in) financing activities | 123,241,648 | (31,176,390 | ) | (26,461,269 | ) | |||||||
Net increase (decrease) in cash and cash equivalents | (744,102 | ) | 449,078 | 2,282,142 | ||||||||
Net Cash Provided By Operating Activities. The increase in net cash from operating activities for 2003 compared to 2002 was primarily due to a $1.2 million increase in cash receipts from sales, a $1.4 decrease in cash paid for station operating expenses, a $6.7 million decrease in cash paid for interest during 2003. Net cash provided by operating activities in 2002 included the receipt of a $2.2 million income tax refund during that year.
The increase in net cash from operating activities for 2002 compared to 2001 was primarily due to a $1.9 million increase in cash receipts from sales, a $0.9 decrease in cash paid for station operating expenses, a $2.7 million decrease in cash paid for income taxes and the receipt of a $2.2 million income tax refund during 2002. Net cash provided by operating activities included the receipt of $2.6 million from a previously written-off related-party receivable during 2001.
Net Cash Provided By (Used In) Investing Activities. Net cash provided by investing activities in 2003 was primarily due to the receipt of cash proceeds of $4.8 million from the sale of investments, $3.35 million from the repayment of a note receivable and $1.5 million from the sale of one radio station in the New Orleans market. Net cash provided by investing activities in 2002 was primarily due to the receipt of cash proceeds of $19.65 million from the sale of two radio stations in the New Orleans market for $23.0 million and $0.7 million from the sale of investments. Cash payments for capital expenditures were $1.3 million for 2003 compared to $2.1 million for 2002. Net cash used in investing activities in 2001 is primarily due to the acquisitions of three radio stations in the Las Vegas market, three radio stations in the New Orleans market and two radio stations in the Augusta market for $128.3 million and the payments of $2.5 million for a signal upgrade in the Las Vegas market. Cash payments for capital expenditures were $2.1 million for 2002 compared to $2.2 million for 2001.
Net Cash Provided By (Used In) Financing Activities. Net cash used in financing activities in 2003 was primarily due to the repayment of borrowings under our credit facility with $7.3 million of scheduled repayments, $3.8 million of cash proceeds, including interest, from the repayment of a note receivable, $1.5 million of cash proceeds from the sale of one radio station in New Orleans, and $13.7 million of additional repayments. Net cash used in financing activities in 2002 was primarily due to the repayment of borrowings under our credit facility with $9.6 million of scheduled repayments and $19.5 million of cash proceeds from the sale of two radio stations in the New Orleans market, payments of loan fees of $2.0 million for changes to our credit facility during the first and third quarters, and proceeds from the issuance of a new $100.0 million term loan B which were used to repay $16.0 million of the revolving credit loan and $84.0 million of term loan A under our credit facility. Net cash provided by financing activities in 2001 was primarily due to the financing of our acquisitions of three radio stations in the Las Vegas market, three radio stations in the New Orleans market and two radio stations in the Augusta market with $123.2 million of borrowings under our credit facility.
Credit Facility. As of December 31, 2003, the revolving credit loan had a maximum commitment of $103.5 and included a $50.0 million sub-limit for letters of credit. The revolving credit loan and term loan A bore interest at either the base rate or LIBOR plus a margin that was determined by our debt to operating cash flow ratio. The base rate was equal to the higher of the prime rate or the overnight federal funds rate plus 0.5%. The revolving credit loan and term loan A carried interest at 4.4375% and 3.4375% as of December 31, 2002 and 2003, respectively. Term loan B bore interest at either the base rate plus 2.75% or LIBOR plus 4.0%. Term loan B carried interest at an average rate of 5.4375% and 5.1875% as of December 31, 2002 and 2003, respectively.
As of December 31, 2003, we believe that we were in compliance with applicable financial covenants under our credit facility. As of December 31, 2003, as calculated pursuant to the terms of our amended and restated credit agreement, our total leverage was 5.57 times consolidated operating cash flow compared to the maximum requirement of 6.0 times, our interest coverage ratio was 2.73 times compared to the minimum requirement of 1.75 times, and our fixed charges ratio was 1.51 times fixed charges compared to a minimum requirement of 1.1 times.
On February 27, 2004, we entered into a new credit agreement. The new credit facility consists of a revolving credit loan with a maximum commitment of $75.0 million and a term loan of $150.0 million. Proceeds from the new credit facility were used to repay the old credit facility. The revolving credit loan includes a $10.0 million sub-limit for letters of credit which may be increased to $20.0 million upon our request and with the approval of the Bank of Montreal, Chicago Branch in its capacity as a letter of credit issuer. The revolving credit loan and term loan bear interest at either the base rate or LIBOR plus a margin that is determined by our debt to operating cash flow ratio. The base rate is equal to the higher of the prime rate or the overnight federal funds rate
plus 0.5%. Interest on base rate loans is payable quarterly through maturity. Interest on LIBOR loans is payable on the last day of the selected LIBOR period and, if the selected period is longer than three months, every three months after the beginning of the LIBOR period. The revolving credit loan and term loan mature on June 30, 2011. The scheduled reductions in the amount available under the revolving credit loan may require principal repayments if the outstanding balance at that time exceeds the new maximum amount available under the revolving credit loan. In connection with the new credit agreement, we expect to record a $2.4 million loss on extinguishment of long-term debt during the first quarter of 2004 related to the old credit facility.
The new credit facility is secured by substantially all of our assets and guaranteed jointly and severally by all of our subsidiaries. The guarantees were issued to our lenders for repayment of the outstanding balance of the credit facility. If we default under the terms of the credit facility, the subsidiaries may be required to perform under their guarantees. The maximum amount of undiscounted payments the subsidiaries would have to make in the event of default is $169.0 million. The guarantees for the revolving credit loan and term loan expire on June 30, 2011.
As of February 27, 2004, the scheduled repayments of the new credit facility for the next five years and thereafter are as follows:
Revolving Credit Loan | Term Loan | Total Credit Facility | |||||||
2004 | $ | — | $ | — | $ | — | |||
2005 | — | 5,625,000 | 5,625,000 | ||||||
2006 | — | 7,500,000 | 7,500,000 | ||||||
2007 | — | 10,875,000 | 10,875,000 | ||||||
2008 | — | 12,000,000 | 12,000,000 | ||||||
Thereafter | 18,986,906 | 114,000,000 | 132,986,906 | ||||||
Total | $ | 18,986,906 | $ | 150,000,000 | $ | 168,986,906 | |||
We must pay a quarterly unused commitment fee equal to 0.375% of the unused portion of the revolving credit loan. For the year ended December 31, 2003, our unused commitment fee was approximately $193,000.
We are required to satisfy financial covenants, which require us to maintain specified financial ratios and to comply with financial tests, such as ratios for maximum total leverage, minimum interest coverage and minimum fixed charges. As of February 27, 2004, these financial covenants included:
• | Maximum Consolidated Total Debt Ratio. On the last day of each fiscal quarter from February 27, 2004 to March 31, 2005, our consolidated total debt must not exceed 6.25 times our consolidated operating cash flow for the four quarters ending on such day (as such terms are defined in the new credit agreement). On the last day of each fiscal quarter for the period from April 1, 2005 through December 31, 2005, the maximum ratio is 6.0 times. On the last day of each fiscal quarter for the period from January 1, 2006 through June 30, 2006, the maximum ratio is 5.75 times. On the last day of each fiscal quarter for the period from July 1, 2006 through December 31, 2006, the maximum ratio is 5.5 times. On the last day of each fiscal quarter for the period from January 1, 2007 through June 30, 2007, the maximum ratio is 5.25 times. On the last day of each fiscal quarter for the period from July 1, 2007 through December 31, 2007, the maximum ratio is 5.0 times. On the last day of each fiscal quarter for all periods after January 1, 2008, the maximum ratio is 4.5 times. |
• | Minimum Interest Coverage Ratio. Our consolidated operating cash flow for the four quarters ending on the last day of each quarter must not have been less than 2.0 times the amount of our consolidated cash interest expense for such four quarter period. |
• | Minimum Fixed Charge Coverage Ratio. Our consolidated operating cash flow for any four consecutive quarters must not be less than 1.1 times the amount of our consolidated fixed charges for such four quarter period. Fixed charges include cash interest expense, cash tax expense, capital expenditures, agency and commitment fees, and scheduled principal repayments. |
Failure to comply with these financial covenants, scheduled interest payments, scheduled principal repayments, or any other terms of our credit facility could result in the acceleration of the maturity of our outstanding debt.
The credit facility also prohibits us from paying cash dividends and restricts our ability to make other distributions with respect to our capital stock. The credit facility also contains other customary restrictive covenants. These covenants limit our ability to:
Contractual Obligations
As of December 31, 2003, our contractual obligations consist of the following:
Payments due by period | |||||||||||||||
Contractual Obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||
Long-Term Debt (1) | $ | 168,986,906 | $ | — | $ | 13,125,000 | $ | 22,875,000 | $ | 132,986,906 | |||||
Operating Leases | 23,279,000 | 2,592,000 | 4,711,000 | 4,275,000 | 11,701,000 | ||||||||||
Purchase Obligations (2) | 16,250,917 | 10,768,355 | 5,476,130 | 6,432 | — | ||||||||||
Other Long-Term Liabilities (3) | 179,185 | 179,185 | — | — | — | ||||||||||
Total Contractual Obligations | $ | 208,696,008 | $ | 13,539,540 | $ | 23,312,130 | $ | 27,156,432 | $ | 144,687,906 | |||||
(1) | Payments due under long-term debt reflect a $1.0 million principal repayment under our old credit facility in January 2004 and the amortization schedule under our new credit facility which began on February 27, 2004. Failure to comply with our financial covenants, scheduled interest payments, scheduled principal repayments, or any other terms of our credit facility could result in the acceleration of the maturity of our outstanding debt. |
(2) | Purchase obligations include contracts for rating services, sports programming rights, and on-air personalities not employed by us. |
(3) | Other long-term liabilities include the estimated fair value of two interest rate collar agreements and one interest rate swap agreement. The estimated fair value of each agreement is based on the amounts we would expect to pay to terminate the agreement. These amounts could become due and payable prior to the expiration of the agreements. |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Our Form 10-K disclosure and analysis concerning our operations, cash flows and financial position, including, in particular, the likelihood of our success in developing and expanding our business, include forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates” and similar expressions are forward-looking statements. Although these statements are based upon assumptions we consider reasonable, they are subject to risks and uncertainties that are described more fully below. Accordingly, we can give no assurance that we will achieve the results anticipated or implied by our forward-looking statements.
Risk Factors
Our radio stations may not be able to compete effectively in their respective markets for advertising revenues, which could adversely affect our revenue and cash flow.
We operate in a highly competitive business. A decline in our audience share or advertising rates in a particular market may cause a decline in the revenue and cash flow of our stations located in that market. Our radio stations compete for audiences and advertising revenues within their respective markets directly with other radio stations, as well as with other media. These media include newspapers, magazines, network and cable television, outdoor advertising and direct mail and emerging media such as satellite radio.
Our stations could suffer a reduction in ratings or advertising revenue and could incur increased promotional and other expenses if:
Other radio broadcasting companies may enter into markets in which we operate or may operate in the future. These companies may be larger and have more financial resources than we have. Our radio stations may not be able to maintain or increase their current audience ratings and advertising revenues.
A downturn in the performance of our Miami-Ft. Lauderdale or Philadelphia radio stations could adversely affect our revenue and broadcast cash flow.net revenue.
A ratings decline or other operating difficulty in the performance of our radio stations in Miami-Ft.Miami- Ft. Lauderdale or Philadelphia could have a disproportionately adverse affect on our total revenue and broadcast cash flow.consolidated net revenue. For the year ended December 31, 2002,2003, approximately 36%37.3% of our consolidated net revenue and 31% of our broadcast cash flow came from our radio stations in the Miami-Ft. Lauderdale market. ForBecause of the same period approximately 15%large portion of our consolidated net revenue and 13% of our broadcast cash flow came from our radio stations in the Philadelphia market. WeMiami- Ft. Lauderdale we have greater exposure to adverse events or conditions affecting the economy in these marketsthat market than would be the case if we were more geographically diverse.
We have substantial debt that could have important consequences to you.
We have debt that is substantial in relation to our stockholders’ equity. As of December 31, 2002,2003, we had long-term debt of $196.4$170.0 million and stockholders’ equity of $54.2$69.4 million. Our long-term debt is substantial in amount and could have an impact on you. For example, it could:
As of December 31, 2002,2003, we had $45.0$64.1 million in remaining commitments available under our old credit facility; however, as of December 31, 20022003 our maximum total leverage covenant would have limited additional borrowings to $18.8$13.1 million. Our new credit facility also contains a similarly restrictive covenant. Our ability to
reduce our total leverage ratio by increasing operating cash flow and/or decreasing long-term debt will determine how much, if any, of the remaining commitments under our credit facility will be available to us in the future. Poor financial results or unanticipated expenses could result in our failure to maintain or lower our total leverage ratio and we may not be permitted to make any additional borrowings under our credit facility. Moreover, we may need to modify or enter into a new credit facility to close on future acquisitions. We also may seek to obtain other funding or additional financing for any of the following transactions: (1)in connection with the acquisition of radio stations; and/or (2)stations, the full or partial redemptionrepayment of our outstanding debt and/or the payment of a dividend.dividend on our common stock. We have no assurancescannot assure you that we will be able to obtain other funding, additional financing or the approvals, if necessary, for any of these transactions. Any additional borrowings would further increase the amount of our debt and the associated risks.
TheWe are subject to restrictive debt covenants, in our credit facilitywhich may restrict our financial and operational flexibility, which could have an adverse affect on our results of operations.flexibility.
Our credit facility contains various financial and operating covenants, that restrict,including, among other things, restrictions on our ability to borrow, make particular types of investments or other restricted payments, swap or sell assets, issue equity or merge or consolidate. An event of default under our credit facility could allow the lenders to declare all amounts outstanding immediately due and payable. We have pledged substantially all ofincur additional indebtedness, subject our assets to secureadditional liens, enter into certain investments, consolidate, merge or effect asset sales, enter into sale and lese-back transactions, sell or discount accounts receivable, enter into transactions with our affiliates or stockholders, change the debt undernature of our credit facility. If the amounts outstanding underbusiness, pay dividends on and redeem or repurchase capital stock, or make other restricted payments. These restrictions could limit our credit facility were accelerated, the lenders could proceed againstability to take actions that collateral. Any eventrequire funds in excess of default, therefore, could have a material adverse affect on our business.those available to us.
Our credit facility also requires us to maintain specified financial ratios. A failureratios and to satisfy financial condition tests. Our ability to meet thesethose financial ratios and tests may be affected by events beyond our control and we cannot assure you that we will meet those ratios and tests. Our breach of any of these covenants, ratios, tests or restrictions could result in an event of default. An event of default under our credit facility. If an event of default exists under our credit facility, could allow the lenders could elect to declare all amounts outstanding thereunder to be immediately due and payable. If the lenders accelerate the payment of the indebtedness, we cannot assure you that our assets would be sufficient to repay in full that indebtedness.
We may also may incur future debt obligations whichin addition to, or in lieu of, our credit facility. Such future debt obligations might subject us to additional and different restrictive covenants that could affectfurther limit our financial and operational flexibility or subject us to other events of default.
The radio broadcasting industry faces many unpredictable business risks that could have a material adverse affect on our advertising revenues.
Our future operations are subject to many business risks, including those risks that specifically influence the radio broadcasting industry, which could have a material adverse affect on our business including,business. These risks include, but are not limited to,:to:
In addition, we believe that for most businesses advertising is a discretionary business expense, meaning that spending on advertising tends to decline disproportionately during economic recession or downturn as compared to other types of business spending. Consequently, a recession or downturn in the United States economy or the economy of an individual geographic market in which we own or operate radio stations would likely adversely affect our advertising revenues and therefore, our results of operations.
We may not be successful in identifying, financing, consummating and integrating future acquisitions, an element of our business strategy, which could significantly impair our future growth.
Radio broadcasting isWe believe that in order to continue to compete effectively in our industry, we need to identify radio stations that meet certain criteria and consummate acquisitions of such stations on terms that are both economically and commercially acceptable to us. During the years ended December 31, 2002 and 2003, however, we were unable to identify radio stations that satisfied these requirements. As a rapidly consolidating industry, with many companies seekingresult, during that time, we did not acquire any stations.
While we intend to continue to pursue our acquisition strategy, we cannot assure you that we will be able to identify radio stations that meet our acquisition requirements and consummate future acquisitions. Additionally, even if we are successful in identifying acceptable targets, our ability to consummate acquisitions and increase their market share. If we are unable to identify and consummate future acquisitions in markets where we have the opportunity to purchase additional stations, our ability to compete in those markets could be impaired. Moreover, to the extent securities analysts and investors anticipate that we will continue to grow through acquisitions, and we do not do so, our stock price could decline, perhaps substantially.
We compete and will continue to compete with many other buyers for the acquisition of radio stations. Our acquisition strategy is subject to a number of risks, including:including the risks that:
Even if we are able to consummate acquisitions, we cannot assure you that we will be successful in integrating the operations of the acquired station or stations into our existing operations or that we will realize the benefits that we expect to realize in connection with such acquisitions. Moreover, consummating these acquisitions could also result in the incurrence of additional debt and related interest expense as well as unforeseen contingent liabilities, all of which could have a material adverse effect of our business, financial condition and results of operations.
Our Chairman of the Board and Chief Executive Officer effectively controls Beasley Broadcast Group, and members of his immediate family also own a substantial equity interest in Beasley Broadcast Group. Their interests may conflict with yours.
George G. Beasley, our Chairman of the Board and Chief Executive Officer, generally is able to control the vote on all matters submitted to a vote of stockholders. Without the approval of Mr. Beasley, we will be unable to consummate transactions involving an actual or potential change in control, including transactions in which you might otherwise receive a premium for your shares over then current market prices. Shares of Class B common stock, whichthat Mr. Beasley beneficially owns, represent approximately 79.6% of the total voting power of all classes of our common stock. Mr. Beasley also has currently exercisable employee stock options which are currently exercisable, to purchase 487,500 shares of Class A common stock. Members of his immediate family also own significant amounts of Class B common stock and, through employee stock options, Class A common stock. Mr. Beasley will be able to direct our management and policies, except with respect to those matters requiring a class vote under the provisions of our amended certificate of incorporation, third amended and restated bylaws or applicable law.
Historically, we have entered into significant transactions with George G. Beasley, members of his immediate family and affiliated entities.entities that may conflict with the interests of our stockholders now or in the future. See note 1714 to the accompanying consolidated financial statements. For example, prior to our initial public offering on February 11, 2000, Beasley Broadcast Group owned a number of radio towers used in the operations of our stations. These towers and related real estate assets were transferred to a company owned by George G. Beasley and members of his immediate family. We currently lease these towers pursuant to twenty-year leases and therefore these operating assets will not be under our direct control. Future related party transactions may not be on terms as favorable to us as could be obtained from unaffiliated parties.
Our business depends on the efforts of key personnel and the loss of any one of them could have a material adverse affect on our business.
Our business depends upon the continued efforts, abilities and expertise of our executive officers and other key employees, including George G. Beasley, our Chairman of the Board and Chief Executive Officer. Mr. Beasley is 7071 years old. We believe the unique combination of skills and experience possessed by
Mr. Beasley would be difficult to replace and that the loss of Mr. Beasley’s or other key executives’ expertise could impair our ability to execute our operating and acquisition strategies.
We may not remain competitive if we do not respond to the rapid change in technology, standards and services that characterize our industry.
The radio broadcasting industry is subject to rapid technological change, evolving industry standards and the emergence of new media technologies and services. We may not have the resources to acquire and deploy new technologies or to introduce new services that could compete with these new technologies. Competition arising from new technologies or regulatory change may have a negativean adverse effect on the radio broadcasting industry or on our company.
If we are not able to obtain regulatory approval for our acquisitions, our future growth may be impaired.
An important part of our growth strategy is the acquisition of additional radio stations. We may not be able to complete all the acquisitions that we may agree to make. Radio station acquisitions are subject to the approval of the FCC and, potentially, other regulatory authorities. FCC regulations limit the number of radio stations that a licensee can own in a market, which could restrict our ability to consummate future transactions and in certain circumstances could require us to divest some radio stations. The FCC recently adopted rules which could further limit the number of radio stations a licensee can own in a market, and may further restrict our ability to acquire and sell radio stations. Although those new rules are currently stayed by a federal court, they could become effective if upheld by the courts. Also, the FCC in the past has interimadopted, and may re-institute, procedures to review radio advertising concentration levels in proposed radio broadcasting transactions even if the proposed acquisition otherwise complies with the FCC’s ownership limitations.
Additionally, since the passage of the Telecommunications Act of 1996, the Justice Department has become more involved in reviewing proposed acquisitions of radio stations and radio station networks. The Justice Department is particularly concerned when the proposed buyer already owns one or more radio stations in the market of the station it is seeking to buy. Historically, the Justice Department has challenged a number of radio broadcasting transactions. Some of those challenges ultimately resulted in consent decrees requiring, among other things, divestitures of certain stations. In general, the Justice Department has more closely scrutinized radio broadcasting acquisitions that result in local market shares in excess of 40% of radio advertising revenue.
We are dependent on federally-issued licenses to operate our radio stations and are subject to extensive federal regulation.
The radio broadcasting industry is subject to extensive regulation by the FCC under the Communications Act. We are required to obtain licenses from the FCC to operate our radio stations. Licenses are normally granted for a term of eight years and are renewable. Although the vast majority of FCC radio station licenses are routinely renewed, we cannot assure you that the FCC will approve our future renewal applications or that the renewals will be for full eight-year terms or will not include conditions or qualifications. The non-renewal, or renewal with substantial conditions or modifications, of one or more of our licenses could have a material adverse effect on us.
We must comply with extensive FCC regulations and policies in the ownership and operation of our radio stations. FCC regulations limit the number of radio stations that a licensee can own in a market, which could restrict our ability to consummate future transactions and in certain circumstances could require us to divest some radio stations. The FCC also requires radio stations to comply with certain technical requirements to limit interference between two or more radio stations. If the FCC relaxes these technical requirements, it could impair the signals transmitted by our radio stations and could have a material adverse effect on us. Moreover, these FCC regulations and others may change over time and we cannot assure you that those changes would not have a material adverse effect on us.
FCC regulations prohibit the broadcast of obscene material at any time and indecent material between the hours of 6:00 a.m. and 10:00 p.m. The FCC has recently indicated that it is enhancing its enforcement efforts relating to the regulation of indecency and has threatened on more than one occasion to initiate license revocation proceedings against a broadcast licensee who commits a “serious” indecency violation. In addition, legislation has been introduced in Congress that would dramatically increase the penalties for broadcasting indecent programming and potentially subject broadcasters to license revocation, renewal or qualification proceedings in the event that they broadcast indecent material. In addition, the FCC’s heightened focus on the indecency regulatory scheme against the broadcast industry generally, may encourage third parties to oppose the Company’s license renewal applications or applications for consent to acquire broadcast stations. One of our stations is currently subject to two indecency-related inquiries at the FCC’s Enforcement Bureau and we may in the future become subject to additional inquiries or proceedings related to our stations’ broadcast of indecent or obscene material. To the extent that these inquiries or other proceedings result in the imposition of fines, revocation of any of our station licenses or denials of license renewal applications, our results of operation and business could be materially adversely affected.
Future sales by George G. Beasley or members of his family of our Class A common stock could adversely affect its market price.
The market for our Class A common stock could fall substantially if our stockholders who hold restricted shares of common stock, including George G. Beasley and members of his family, sell large amounts of shares of Class A common stock in the public market. These sales, or the possibility that these sales may occur, could make it more difficult for us to sellraise capital by selling equity or equity-related securities in the future.
ItThe difficulties associated with any attempt to gain control of our Company may be difficult to take over Beasley Broadcast Group and that could adversely affect the price of our Class A common stock.
George G. Beasley effectively controls the decision whether a change of control of Beasley Broadcast Group will occur. Moreover, some provisions of our certificate of incorporation, by-laws and Delaware law could make it more difficult for a third party to acquire control of us, even if a change of control could be beneficial to you. In addition, the Communications Act and FCC rules and policies limit the number of stations that one individual or entity can own, directly or by attribution, in a market. FCC approval for transfers of control of FCC licensees and assignments of FCC licenses are also required. Because of the limitations and restrictions imposed on us by these provisions and regulations, the trading price of our Class A common stock couldmay be adversely affected.
There may not be an active market for our Class A common stock, making it difficult for you to sell your stock.
Our stock may not be actively traded. An illiquid market for our stock may result in price volatility and poor execution of buy and sell orders for investors. Our stock price and trading volume have fluctuated widely for a number of reasons, including some reasons that may be unrelated to our businesstheir businesses or results of operations. This market volatility could depress the price of our Class A common stock without regard to our operating performance. In addition, our operating results may be below expectations of public market analysts and investors. If this were to occur, the market price of our Class A common stock could decrease, perhaps significantly.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Market risk is the risk of loss arising from adverse changes in market rates and prices such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk associated with our credit facility. Amounts borrowed under the credit facility incur interest at the London Interbank Offered Rate, or LIBOR, plus additional basis points depending on the outstanding principal balance under the credit facility. As of December 31, 2002, $196.42003, $170.0 million was outstanding under our credit facility. We evaluate our exposure to interest rate risk by monitoring changes in interest rates in the market place.
To manage interest rate risk associated with our credit facility, we have entered into threeseveral interest rate cap, collar agreements, oneand swap agreements. Under the cap agreement, and one swap agreement.our base LIBOR cannot exceed the cap interest rate. Under the collar agreements, our base LIBOR cannot exceed the cap interest rate and our base LIBOR cannot fall below our floor interest rate. Under the cap agreement, our base LIBOR cannot exceed the cap interest rate. Under the swap agreement, we pay a fixed interest rate of 2.26% and the other party pays us a variable amount based on LIBOR. Notional amounts are used to calculate the contractual payments to be exchanged under the contracts. As of December 31, 20012002 and 2002,2003, the aggregate notional amount upon maturity of these cap, collar cap and swap agreements was $115.0$100.0 million and $100.0$95.0 million, respectively. Our collar, cap and swap agreements as
As of December 31, 20022003, our swap agreements designated as cash flow hedges are summarized in the following table:
Agreement | Notional Amount | Floor | Cap | Swap | Expiration Date | Estimated Fair Value | ||||||||||||
Interest rate collar | $ | 55,000,000 | 4.95 | % | 7.0 | % | — |
| October 2003 | $ | (1,590,000 | ) | ||||||
Interest rate cap |
| 10,000,000 | — |
| 6.0 | % | — |
| May 2004 |
| — |
| ||||||
Interest rate collar |
| 15,000,000 | 1.50 | % | 4.5 | % | — |
| November 2004 |
| (34,000 | ) | ||||||
Interest rate collar |
| 10,000,000 | 1.50 | % | 4.4 | % | — |
| November 2004 |
| (22,000 | ) | ||||||
Interest rate swap |
| 10,000,000 | — |
| — |
| 2.26 | % | November 2004 |
| (163,000 | ) | ||||||
$ | (1,809,000 | ) | ||||||||||||||||
Agreement | Notional Amount | Floor | Cap | Swap | Expiration | Estimated Fair Value | |||||||||
Interest rate swap | $ | 20,000,000 | — | — | 1.98 | % | May 2006 | $ | 164,676 | ||||||
Interest rate swap | 20,000,000 | — | — | 1.98 | May 2006 | 164,357 | |||||||||
Interest rate swap | 10,000,000 | — | — | 1.91 | May 2006 | 94,640 | |||||||||
$ | 50,000,000 | $ | 423,673 | ||||||||||||
As of December 31, 2003, our cap, collar and swap agreements that were not designated as hedges are summarized in the following table:
Agreement | Notional Amount | Floor | Cap | Swap | Expiration | Estimated Fair Value | ||||||||||||
Interest rate cap | 10,000,000 | — | 6.0 | % | — | May 2004 | — | |||||||||||
Interest rate collar | 15,000,000 | 1.5 | % | 4.5 | — | November 2004 | $ | (47,492 | ) | |||||||||
Interest rate collar | 10,000,000 | 1.5 | 4.4 | — | November 2004 | (31,661 | ) | |||||||||||
Interest rate swap | 10,000,000 | — | — | 2.26 | % | November 2004 | (100,032 | ) | ||||||||||
$ | 45,000,000 | $ | (179,185 | ) | ||||||||||||||
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BEASLEY BROADCAST GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The Board of Directors
Beasley Broadcast Group, Inc.:
We have audited the accompanying consolidated balance sheets of Beasley Broadcast Group, Inc. and subsidiaries as of December 31, 20012002 and 20022003 and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2002.2003. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our 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 Beasley Broadcast Group, Inc. and subsidiaries as of December 31, 20012002 and 2002,2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2002,2003, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
As discussed in note 1 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards 142,Goodwill and Otherother Intangible Assets, effective January 1, 2002.
As discussed in note 2 to the consolidated financial statements, the accompanying consolidated financial statements for the years ended December 31, 2000 and 2001 have been restated.
/s/ KPMG LLP
Tampa, Florida
January 30, 2004, except as to Note 18, which is as of February 17, 200327, 2004
CONSOLIDATED BALANCE SHEETS
December 31, 2001 | December 31, 2002 | |||||||||||||||
As Restated | December 31, 2002 | December 31, 2003 | ||||||||||||||
A S S E T S | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 4,998,526 |
| $ | 5,447,604 |
| $ | 5,447,604 | $ | 7,729,746 | ||||||
Accounts receivable, less allowance for doubtful accounts of $576,342 in 2001 and $415,814 in 2002 |
| 20,068,951 |
|
| 21,057,358 |
| ||||||||||
Barter receivables |
| 1,135,628 |
|
| 1,015,641 |
| ||||||||||
Accounts receivable, less allowance for doubtful accounts of $415,814 in 2002 and $467,303 in 2003 | 21,057,358 | 21,441,820 | ||||||||||||||
Trade sales receivable | 1,015,641 | 1,656,604 | ||||||||||||||
Other receivables |
| 3,079,552 |
|
| 1,094,539 |
| 1,094,539 | 902,673 | ||||||||
Prepaid expenses and other |
| 1,481,066 |
|
| 1,978,492 |
| 1,978,492 | 1,952,853 | ||||||||
Deferred tax assets | 3,399,952 | 1,102,455 | ||||||||||||||
Assets of discontinued operations |
| 1,499,845 |
|
| 992,996 |
| 992,996 | — | ||||||||
Deferred tax assets |
| 2,230,823 |
|
| 3,399,952 |
| ||||||||||
Total current assets |
| 34,494,391 |
|
| 34,986,582 |
| 34,986,582 | 34,786,151 | ||||||||
Notes receivable |
| 4,698,492 |
|
| 7,910,070 |
| 7,910,070 | 4,411,976 | ||||||||
Property and equipment, net |
| 20,012,426 |
|
| 18,078,438 |
| 18,078,438 | 16,979,825 | ||||||||
FCC broadcasting licenses |
| 239,137,540 |
|
| 201,328,987 |
| 203,174,334 | 203,174,334 | ||||||||
Goodwill |
| 12,095,384 |
|
| 11,973,571 |
| 10,128,224 | 10,128,224 | ||||||||
Other intangibles, net |
| 5,671,113 |
|
| 4,512,352 |
| 4,512,352 | 3,704,131 | ||||||||
Investments |
| 650,002 |
|
| 550,002 |
| 550,002 | 3,800,002 | ||||||||
Derivative financial instruments | — | 423,673 | ||||||||||||||
Other assets |
| 2,540,151 |
|
| 2,750,568 |
| 2,750,568 | 482,429 | ||||||||
Total assets | $ | 319,299,499 |
| $ | 282,090,570 |
| $ | 282,090,570 | $ | 277,890,745 | ||||||
T O T A L L I A B I L I T I E S A N D S T O C K H O L D E R S’ E Q U I T Y | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Current installments of long-term debt | $ | 15,009,045 |
| $ | 7,318,961 |
| $ | 7,318,961 | $ | — | ||||||
Accounts payable |
| 3,180,158 |
|
| 1,478,872 |
| 1,478,872 | 1,997,209 | ||||||||
Accrued expenses |
| 5,291,360 |
|
| 4,020,636 |
| 4,020,636 | 3,953,347 | ||||||||
Barter payables |
| 1,206,720 |
|
| 1,485,219 |
| ||||||||||
Trade sales payable | 1,485,219 | 1,857,324 | ||||||||||||||
Derivative financial instruments | 1,590,000 | 179,185 | ||||||||||||||
Liabilities of discontinued operations |
| 14,081 |
|
| 27,303 |
| 27,303 | — | ||||||||
Derivative financial instruments |
| 1,714,000 |
|
| 1,590,000 |
| ||||||||||
Total current liabilities |
| 26,415,364 |
|
| 15,920,991 |
| 15,920,991 | 7,987,065 | ||||||||
Derivative financial instruments | 219,000 | — | ||||||||||||||
Long-term debt, less current installments |
| 210,489,420 |
|
| 189,040,209 |
| 189,040,209 | 169,986,906 | ||||||||
Derivative financial instruments |
| 2,916,000 |
|
| 219,000 |
| ||||||||||
Deferred tax liabilities |
| 21,572,000 |
|
| 22,730,705 |
| 22,730,705 | 30,506,455 | ||||||||
Total liabilities |
| 261,392,784 |
|
| 227,910,905 |
| 227,910,905 | 208,480,426 | ||||||||
Commitments and contingencies (note 19) | ||||||||||||||||
Commitments and contingencies (note 16) | ||||||||||||||||
Preferred stock, $.001 par value, 10,000,000 shares authorized, none issued |
| — |
|
| — |
| — | — | ||||||||
Class A common stock, $.001 par value, 150,000,000 shares authorized, 7,252,068 and 7,440,698 issued and outstanding in 2001 and 2002, respectively |
| 7,252 |
|
| 7,441 |
| ||||||||||
Class B common stock, $.001 par value, 75,000,000 shares authorized, 17,021,373 and 16,832,743 issued and outstanding in 2001 and 2002, respectively |
| 17,021 |
|
| 16,832 |
| ||||||||||
Class A common stock, $.001 par value, 150,000,000 shares authorized, 7,440,698 and 7,442,364 issued and outstanding in 2002 and 2003, respectively | 7,441 | 7,443 | ||||||||||||||
Class B common stock, $.001 par value, 75,000,000 shares authorized, 16,832,743 issued and outstanding | 16,832 | 16,832 | ||||||||||||||
Additional paid-in capital |
| 106,633,932 |
|
| 106,633,932 |
| 106,633,932 | 106,654,351 | ||||||||
Accumulated deficit |
| (48,751,490 | ) |
| (52,478,540 | ) | (52,478,540 | ) | (39,707,348 | ) | ||||||
Accumulated other comprehensive income | — | 2,439,041 | ||||||||||||||
Stockholders’ equity |
| 57,906,715 |
|
| 54,179,665 |
| 54,179,665 | 69,410,319 | ||||||||
Total liabilities and stockholders’ equity | $ | 319,299,499 |
| $ | 282,090,570 |
| $ | 282,090,570 | $ | 277,890,745 | ||||||
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, 2000 | Year Ended December 31, 2001 | Year Ended December 31, 2002 | ||||||||||||||||||||||
As Restated | As Restated | Year Ended December 31, 2001 | Year Ended December 31, 2002 | Year Ended December 31, 2003 | ||||||||||||||||||||
Net revenue | $ | 106,153,640 |
| $ | 115,131,801 |
| $ | 114,692,029 |
| $ | 115,131,801 | $ | 114,692,029 | $ | 114,482,240 | |||||||||
Costs and expenses: | ||||||||||||||||||||||||
Program and production |
| 27,919,127 |
|
| 30,908,314 |
|
| 26,874,979 |
| |||||||||||||||
Sales and advertising |
| 28,208,358 |
|
| 34,329,079 |
|
| 34,636,834 |
| |||||||||||||||
Station general and administrative |
| 15,597,101 |
|
| 17,116,302 |
|
| 16,330,756 |
| |||||||||||||||
Cost of services (exclusive of depreciation and amortization shown separately below) | 41,411,263 | 37,458,376 | 39,461,502 | |||||||||||||||||||||
Selling, general and administrative | 40,942,432 | 40,384,193 | 39,559,535 | |||||||||||||||||||||
Corporate general and administrative |
| 3,991,535 |
|
| 4,683,775 |
|
| 5,151,244 |
| 4,683,775 | 5,151,244 | 5,494,605 | ||||||||||||
Equity appreciation rights |
| 1,173,759 |
|
| — |
|
| — |
| |||||||||||||||
Format change expenses |
| 1,545,547 |
|
| — |
|
| — |
| |||||||||||||||
Employee and contract termination expenses |
| — |
|
| 1,527,764 |
|
| — |
| 1,527,764 | — | — | ||||||||||||
Depreciation and amortization |
| 17,409,162 |
|
| 27,439,179 |
|
| 3,725,484 |
| 27,439,179 | 3,725,484 | 3,573,992 | ||||||||||||
Impairment loss on long-lived assets |
| — |
|
| 7,000,000 |
|
| — |
| 7,000,000 | — | — | ||||||||||||
Total costs and expenses |
| 95,844,589 |
|
| 123,004,413 |
|
| 86,719,297 |
| 123,004,413 | 86,719,297 | 88,089,634 | ||||||||||||
Operating income (loss) from continuing operations |
| 10,309,051 |
|
| (7,872,612 | ) |
| 27,972,732 |
| (7,872,612 | ) | 27,972,732 | 26,392,606 | |||||||||||
Other income (expense): | ||||||||||||||||||||||||
Interest expense |
| (8,812,564 | ) |
| (16,652,363 | ) |
| (15,263,648 | ) | (16,652,363 | ) | (15,263,648 | ) | (11,195,231 | ) | |||||||||
Loss on extinguishment of long-term debt |
| — |
|
| — |
|
| (1,906,184 | ) | — | (1,906,184 | ) | — | |||||||||||
Other non-operating expenses |
| (310,754 | ) |
| (1,092,267 | ) |
| (593,977 | ) | (1,092,267 | ) | (593,977 | ) | (594,548 | ) | |||||||||
Gain (loss) on investments | (1,585,417 | ) | 599,877 | 4,491,938 | ||||||||||||||||||||
Gain (loss) on change in fair value of derivative financial instruments |
| — |
|
| (4,696,000 | ) |
| 2,821,000 |
| (4,696,000 | ) | 2,821,000 | 1,629,815 | |||||||||||
Gain (loss) on equity investments |
| (2,400,000 | ) |
| (1,585,417 | ) |
| 599,877 |
| |||||||||||||||
Interest income |
| 446,197 |
|
| 430,835 |
|
| 611,183 |
| 430,835 | 611,183 | 593,409 | ||||||||||||
Other non-operating income |
| 168,383 |
|
| 2,655,084 |
|
| 170,815 |
| 2,655,084 | 170,815 | 33,699 | ||||||||||||
Income (loss) from continuing operations before income taxes |
| (599,687 | ) |
| (28,812,740 | ) |
| 14,411,798 |
| (28,812,740 | ) | 14,411,798 | 21,351,688 | |||||||||||
Income tax expense (benefit) |
| 27,914,760 |
|
| (6,997,539 | ) |
| 5,812,479 |
| (6,997,539 | ) | 5,812,479 | 8,847,336 | |||||||||||
Income (loss) from continuing operations before cumulative effect of accounting change and discontinued operations |
| (28,514,447 | ) |
| (21,815,201 | ) |
| 8,599,319 |
| (21,815,201 | ) | 8,599,319 | 12,504,352 | |||||||||||
Cumulative effect of accounting change (net of income taxes) |
| — |
|
| 41,000 |
|
| (11,676,516 | ) | |||||||||||||||
Discontinued operations (net of income taxes) |
| — |
|
| (359,921 | ) |
| (649,853 | ) | |||||||||||||||
Cumulative effect of accounting change (net of income tax expense of $25,000 and income tax benefit of $5,162,204 for the years ended December 31, 2001 and 2002, respectively) | 41,000 | (11,676,516 | ) | — | ||||||||||||||||||||
Discontinued operations (net of income tax benefit of $226,461 and $325,466 and income tax expense of $137,463 for the years ended December 31, 2001, 2002 and 2003, respectively) | (359,921 | ) | (649,853 | ) | 266,840 | |||||||||||||||||||
Net loss | $ | (28,514,447 | ) | $ | (22,134,122 | ) | $ | (3,727,050 | ) | |||||||||||||||
Net income (loss) | $ | (22,134,122 | ) | $ | (3,727,050 | ) | $ | 12,771,192 | ||||||||||||||||
Basic and diluted net loss per share: | ||||||||||||||||||||||||
Basic net income (loss) per share: | ||||||||||||||||||||||||
Income (loss) from continuing operations before cumulative effect of accounting change and discontinued operations | $ | (1.21 | ) | $ | (0.90 | ) | $ | 0.35 |
| $ | (0.90 | ) | $ | 0.35 | $ | 0.52 | ||||||||
Cumulative effect of accounting change |
| — |
|
| — |
|
| (0.48 | ) | — | (0.48 | ) | — | |||||||||||
Discontinued operations |
| — |
|
| (0.01 | ) |
| (0.02 | ) | (0.01 | ) | (0.02 | ) | 0.01 | ||||||||||
Net loss | $ | (1.21 | ) | $ | (0.91 | ) | $ | (0.15 | ) | |||||||||||||||
Net income (loss) | $ | (0.91 | ) | $ | (0.15 | ) | $ | 0.53 | ||||||||||||||||
Diluted net income (loss) per share: | ||||||||||||||||||||||||
Income (loss) from continuing operations before cumulative effect of accounting change and discontinued operations | $ | (0.90 | ) | $ | 0.35 | $ | 0.51 | |||||||||||||||||
Cumulative effect of accounting change | — | (0.48 | ) | — | ||||||||||||||||||||
Discontinued operations | (0.01 | ) | (0.02 | ) | 0.01 | |||||||||||||||||||
Net income (loss) | $ | (0.91 | ) | $ | (0.15 | ) | $ | 0.52 | ||||||||||||||||
Basic common shares outstanding |
| 23,506,091 |
|
| 24,273,441 |
|
| 24,273,441 |
| 24,273,441 | 24,273,441 | 24,273,783 | ||||||||||||
Diluted common shares outstanding |
| 23,506,091 |
|
| 24,273,441 |
|
| 24,312,899 |
| 24,273,441 | 24,312,899 | 24,334,480 | ||||||||||||
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)COMPREHENSIVE INCOME (LOSS)
Class A Common Stock | Class B Common Stock | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Treasury Stock | Notes Receivable From Stockholders | Net Stockholders’ Equity (Deficit) | ||||||||||||||||||||||||
Balances as of December 31, 1999 | $ | — | $ | — |
| $ | 4,530,352 |
| $ | 34,774,928 |
| $ | (32,818,024 | ) | $ | (548,600 | ) | $ | (8,857,977 | ) | $ | (2,919,321 | ) | ||||||||
Net loss |
| — |
| — |
|
| — |
|
| — |
|
| (1,897,079 | ) |
| — |
|
| — |
|
| (1,897,079 | ) | ||||||||
Capital contributions |
| — |
| — |
|
| — |
|
| 100,000 |
|
| — |
|
| — |
|
| — |
|
| 100,000 |
| ||||||||
Stockholders distributions |
| — |
| — |
|
| — |
|
| — |
|
| (2,250,000 | ) |
| — |
|
| — |
|
| (2,250,000 | ) | ||||||||
Loans to stockholders |
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (910,263 | ) |
| (910,263 | ) | ||||||||
Balances as of February 10, |
| — |
| — |
|
| 4,530,352 |
|
| 34,874,928 |
|
| (36,965,103 | ) |
| (548,600 | ) |
| (9,768,240 | ) |
| (7,876,663 | ) | ||||||||
Distributions to and contributions from subchapter S corporation stockholders in exchange for Class B common stock |
| — |
| 17,021 |
|
| (4,530,352 | ) |
| (33,000,372 | ) |
| 36,965,103 |
|
| 548,600 |
|
| — |
|
| — |
| ||||||||
Issuance of common stock |
| 7,252 |
| — |
|
| — |
|
| 99,002,648 |
|
| — |
|
| — |
|
| — |
|
| 99,009,900 |
| ||||||||
Initial public offering costs |
| — |
| — |
|
| — |
|
| (2,613,336 | ) |
| — |
|
| — |
|
| — |
|
| (2,613,336 | ) | ||||||||
Acquisition of minority interests |
| — |
| — |
|
| — |
|
| 8,370,064 |
|
| — |
|
| — |
|
| — |
|
| 8,370,064 |
| ||||||||
Payments of notes receivable from stockholders |
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 9,768,240 |
|
| 9,768,240 |
| ||||||||
Net loss, as restated |
| — |
| — |
|
| — |
|
| — |
|
| (26,617,368 | ) |
| — |
|
| — |
|
| (26,617,368 | ) | ||||||||
Balances as of December 31, 2000 |
| 7,252 |
| 17,021 |
|
| — |
|
| 106,633,932 |
|
| (26,617,368 | ) |
| — |
|
| — |
|
| 80,040,837 |
| ||||||||
Net loss, as restated |
| — |
| — |
|
| — |
|
| — |
|
| (22,134,122 | ) |
| — |
|
| — |
|
| (22,134,122 | ) | ||||||||
Balances as of December 31, 2001 |
| 7,252 |
| 17,021 |
|
| — |
|
| 106,633,932 |
|
| (48,751,490 | ) |
| — |
|
| — |
|
| 57,906,715 |
| ||||||||
Conversion of Class B common stock to Class A common stock |
| 189 |
| (189 | ) |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||
Net loss |
| — |
| — |
|
| — |
|
| — |
|
| (3,727,050 | ) |
| — |
|
| — |
|
| (3,727,050 | ) | ||||||||
Balances as of December 31, 2002 | $ | 7,441 | $ | 16,832 |
| $ | — |
| $ | 106,633,932 |
| $ | (52,478,540 | ) | $ | — |
| $ | — |
| $ | 54,179,665 |
| ||||||||
Year Ended December 31, 2001 | Year Ended December 31, 2002 | Year Ended December 31, 2003 | |||||||||
Net income (loss) | $ | (22,134,122 | ) | $ | (3,727,050 | ) | $ | 12,771,192 | |||
Other comprehensive income: | |||||||||||
Unrealized gain on available-for-sale investments (net of income tax expense of $1,371,009) | — | — | 2,178,991 | ||||||||
Unrealized gain on derivative financial instruments (net of income tax expense of $163,623) | — | — | 260,050 | ||||||||
Comprehensive earnings | — | — | 2,439,041 | ||||||||
Comprehensive income (loss) | $ | (22,134,122 | ) | $ | (3,727,050 | ) | $ | 15,210,233 | |||
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Class A Common Stock | Class B Common Stock | Additional Capital | Accumulated Deficit | Accumulated Other Comprehensive Income | Net Stockholders’ Equity | ||||||||||||||||
Balances as of December 31, 2000 | $ | 7,252 | $ | 17,021 | $ | 106,633,932 | $ | (26,617,368 | ) | $ | — | $ | 80,040,837 | ||||||||
Net loss | — | — | — | (22,134,122 | ) | — | (22,134,122 | ) | |||||||||||||
Balances as of December 31, 2001 | 7,252 | 17,021 | 106,633,932 | (48,751,490 | ) | — | 57,906,715 | ||||||||||||||
Conversion of Class B common stock to Class A common stock | 189 | (189 | ) | — | — | — | — | ||||||||||||||
Net loss | — | — | — | (3,727,050 | ) | — | (3,727,050 | ) | |||||||||||||
Balances as of December 31, 2002 | 7,441 | 16,832 | 106,633,932 | (52,478,540 | ) | — | 54,179,665 | ||||||||||||||
Exercise of employee stock options | 2 | — | 18,374 | — | — | 18,376 | |||||||||||||||
Tax benefit from exercise of employee stock options | — | — | 2,045 | — | — | 2,045 | |||||||||||||||
Net income | — | — | — | 12,771,192 | — | 12,771,192 | |||||||||||||||
Comprehensive earnings | — | — | — | — | 2,439,041 | 2,439,041 | |||||||||||||||
Balances as of December 31, 2003 | $ | 7,443 | $ | 16,832 | $ | 106,654,351 | $ | (39,707,348 | ) | $ | 2,439,041 | $ | 69,410,319 | ||||||||
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, 2000 | Year Ended December 31, 2001 | Year Ended December 31, 2002 | ||||||||||||||||||||||
As Restated | As Restated | Year Ended December 31, 2001 | Year Ended December 31, 2002 | Year Ended December 31, 2003 | ||||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||
Net loss | $ | (28,514,447 | ) | $ | (22,134,122 | ) | $ | (3,727,050 | ) | |||||||||||||||
Loss from discontinued operations |
| — |
|
| 359,921 |
|
| 649,853 |
| |||||||||||||||
Net income (loss) | $ | (22,134,122 | ) | $ | (3,727,050 | ) | $ | 12,771,192 | ||||||||||||||||
(Income) loss from discontinued operations | 359,921 | 649,853 | (266,840 | ) | ||||||||||||||||||||
Loss from continuing operations |
| (28,514,447 | ) |
| (21,774,201 | ) |
| (3,077,197 | ) | |||||||||||||||
Adjustments to reconcile net loss to net cash provided by continuing operations: | ||||||||||||||||||||||||
Income (loss) from continuing operations | (21,774,201 | ) | (3,077,197 | ) | 12,504,352 | |||||||||||||||||||
Adjustments to reconcile income (loss) from continuing operations to net cash provided by continuing operations: | ||||||||||||||||||||||||
Cumulative effect of accounting change |
| — |
|
| (41,000 | ) |
| 11,676,516 |
| (41,000 | ) | 11,676,516 | — | |||||||||||
Income from barter transactions |
| (3,358,662 | ) |
| (2,279,956 | ) |
| (153,978 | ) | |||||||||||||||
Income from trade sales | (2,279,956 | ) | (153,978 | ) | (461,913 | ) | ||||||||||||||||||
Depreciation and amortization |
| 17,409,162 |
|
| 27,439,179 |
|
| 3,725,484 |
| 27,439,179 | 3,725,484 | 3,573,992 | ||||||||||||
Impairment loss on long-lived assets |
| — |
|
| 7,000,000 |
|
| — |
| 7,000,000 | — | — | ||||||||||||
Loss on extinguishment of long-term debt |
| — |
|
| — |
|
| 1,906,184 |
| — | 1,906,184 | — | ||||||||||||
Loss on disposal of property and equipment |
| — |
|
| 651,423 |
|
| — |
| 651,423 | — | — | ||||||||||||
Loss on note receivable from related party |
| — |
|
| 162,616 |
|
| — |
| 162,616 | — | — | ||||||||||||
(Gain) loss on investments | 1,585,417 | (599,877 | ) | (4,491,938 | ) | |||||||||||||||||||
(Gain) loss on change in fair value of derivative financial instruments |
| — |
|
| 4,696,000 |
|
| (2,821,000 | ) | 4,696,000 | (2,821,000 | ) | (1,629,815 | ) | ||||||||||
(Gain) loss on equity investments |
| 2,400,000 |
|
| 1,585,417 |
|
| (599,877 | ) | |||||||||||||||
Change in assets and liabilities net of effects of acquisitions and dispositions of radio stations: | ||||||||||||||||||||||||
Change in operating assets and liabilities net of effects of acquisitions and dispositions of radio stations: | ||||||||||||||||||||||||
(Increase) decrease in receivables |
| 645,813 |
|
| (840,145 | ) |
| 1,005,641 |
| (840,145 | ) | 1,005,641 | (182,929 | ) | ||||||||||
(Increase) decrease in prepaid expenses and other |
| (331,392 | ) |
| 1,499,067 |
|
| (497,426 | ) | 1,499,067 | (497,426 | ) | 25,639 | |||||||||||
Increase in other assets |
| (774,349 | ) |
| (2,529,695 | ) |
| (210,417 | ) | |||||||||||||||
Decrease in payables and accrued expenses |
| (4,899,266 | ) |
| (1,034,107 | ) |
| (2,995,482 | ) | |||||||||||||||
(Increase) decrease in other assets | (2,529,695 | ) | (210,417 | ) | 2,268,139 | |||||||||||||||||||
Increase (decrease) in payables and accrued expenses | (1,034,107 | ) | (2,995,482 | ) | 451,255 | |||||||||||||||||||
Increase (decrease) in deferred income taxes |
| 24,693,177 |
|
| (5,150,539 | ) |
| 5,477,246 |
| (5,150,539 | ) | 5,477,246 | 8,480,794 | |||||||||||
Net cash provided by continuing operations |
| 7,270,036 |
|
| 9,384,059 |
|
| 13,435,694 |
| 9,384,059 | 13,435,694 | 20,537,576 | ||||||||||||
Net cash used in discontinued operations |
| — |
|
| (476,109 | ) |
| (170,270 | ) | (476,109 | ) | (170,270 | ) | (199,626 | ) | |||||||||
Net cash provided by operating activities |
| 7,270,036 |
|
| 8,907,950 |
|
| 13,265,424 |
| 8,907,950 | 13,265,424 | 20,337,950 | ||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||
Capital expenditures |
| (3,207,148 | ) |
| (2,235,967 | ) |
| (2,119,220 | ) | (2,235,967 | ) | (2,119,220 | ) | (1,374,904 | ) | |||||||||
Payments for acquisitions of radio stations |
| (34,780,000 | ) |
| (128,305,753 | ) |
| — |
| (128,305,753 | ) | — | — | |||||||||||
Proceeds from disposition of radio stations |
| — |
|
| — |
|
| 19,650,000 |
| — | 19,650,000 | 1,500,000 | ||||||||||||
Payments for signal upgrade |
| — |
|
| (2,477,000 | ) |
| — |
| (2,477,000 | ) | — | — | |||||||||||
Payment for purchase of equity investment |
| (50,002 | ) |
| — |
|
| — |
| |||||||||||||||
Proceeds from sale of equity investment |
| — |
|
| — |
|
| 699,877 |
| |||||||||||||||
Payments from related parties |
| 556,796 |
|
| 125,020 |
|
| 129,387 |
| |||||||||||||||
Loans to stockholders |
| (910,263 | ) |
| — |
|
| — |
| |||||||||||||||
Payments from stockholders |
| 9,768,240 |
|
| — |
|
| — |
| |||||||||||||||
Proceeds from sale of investments | — | 699,877 | 4,791,938 | |||||||||||||||||||||
Repayment of note receivable | — | — | 3,350,000 | |||||||||||||||||||||
Repayment of related party notes receivable | 125,020 | 129,387 | 138,427 | |||||||||||||||||||||
Net cash provided by (used in) investing activities |
| (28,622,377 | ) |
| (132,893,700 | ) |
| 18,360,044 |
| (132,893,700 | ) | 18,360,044 | 8,405,461 | |||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||
Proceeds from issuance of indebtedness |
| 138,300,523 |
|
| 123,250,000 |
|
| 100,000,000 |
| 123,250,000 | 100,000,000 | — | ||||||||||||
Principal payments on indebtedness |
| (161,890,721 | ) |
| (8,352 | ) |
| (129,139,295 | ) | (8,352 | ) | (129,139,295 | ) | (26,372,264 | ) | |||||||||
Principal payments on related party notes |
| (47,723,076 | ) |
| — |
|
| — |
| |||||||||||||||
Payments of loan fees |
| (2,840,990 | ) |
| — |
|
| (2,037,095 | ) | — | (2,037,095 | ) | (107,381 | ) | ||||||||||
Capital contributions |
| 100,000 |
|
| — |
|
| — |
| |||||||||||||||
Stockholder distributions |
| (2,250,000 | ) |
| — |
|
| — |
| |||||||||||||||
Issuance of common stock |
| 99,009,900 |
|
| — |
|
| — |
| |||||||||||||||
Payments of initial public offering costs |
| (2,613,336 | ) |
| — |
|
| — |
| |||||||||||||||
Proceeds from exercise of employee stock options | — | — | 18,376 | |||||||||||||||||||||
Net cash provided by (used in) financing activities |
| 20,092,300 |
|
| 123,241,648 |
|
| (31,176,390 | ) | 123,241,648 | (31,176,390 | ) | (26,461,269 | ) | ||||||||||
Net increase (decrease) in cash and cash equivalents |
| (1,260,041 | ) |
| (744,102 | ) |
| 449,078 |
| (744,102 | ) | 449,078 | 2,282,142 | |||||||||||
Cash and cash equivalents at beginning of year |
| 7,002,669 |
|
| 5,742,628 |
|
| 4,998,526 |
| 5,742,628 | 4,998,526 | 5,447,604 | ||||||||||||
Cash and cash equivalents at end of year | $ | 5,742,628 |
| $ | 4,998,526 |
| $ | 5,447,604 |
| $ | 4,998,526 | $ | 5,447,604 | $ | 7,729,746 | |||||||||
Cash paid for interest | $ | 12,052,995 |
| $ | 15,551,925 |
| $ | 15,859,044 |
| $ | 15,551,925 | $ | 15,859,044 | $ | 11,419,615 | |||||||||
Cash paid for income taxes | $ | 1,878,825 |
| $ | 3,188,360 |
| $ | 484,408 |
| $ | 3,188,360 | $ | 484,408 | $ | 448,050 | |||||||||
Supplement disclosure of non-cash operating, investing and financing activities: | ||||||||||||||||||||||||
Barter revenue | $ | 8,146,879 |
| $ | 9,078,749 |
| $ | 6,702,237 |
| |||||||||||||||
Trade sales revenue | $ | 9,078,749 | $ | 6,702,237 | $ | 6,356,638 | ||||||||||||||||||
Barter expense | $ | 4,788,217 |
| $ | 6,798,793 |
| $ | 6,548,259 |
| |||||||||||||||
Trade sales expense | $ | 6,798,793 | $ | 6,548,259 | $ | 5,894,725 | ||||||||||||||||||
Property and equipment acquired through placement of advertising air time | $ | 434,729 |
| $ | 455,063 |
| $ | 552,464 |
| |||||||||||||||
Property and equipment acquired through placement of advertising airtime | $ | 455,063 | $ | 552,464 | $ | 193,055 | ||||||||||||||||||
Financed purchase of equity investment | $ | 3,000,000 |
| $ | — |
| $ | — |
| |||||||||||||||
Equity investment acquired through placement of advertising airtime | $ | 711,690 | $ | — | $ | — | ||||||||||||||||||
Equity investment acquired through placement of advertising air time | $ | 873,727 |
| $ | 711,690 |
| $ | — |
| |||||||||||||||
Minority interests acquired through issuance of Class A common stock | $ | 8,370,064 |
| $ | — |
| $ | — |
| |||||||||||||||
Principal payments on indebtedness through placement of advertising air time | $ | 1,770,060 |
| $ | 1,229,940 |
| $ | — |
| |||||||||||||||
Financed sale of property and equipment to a related party | $ | 5,115,500 |
| $ | — |
| $ | — |
| |||||||||||||||
Principal payments on indebtedness through placement of advertising airtime | $ | 1,229,940 | $ | — | $ | — | ||||||||||||||||||
Note received as partial consideration for disposition of radio stations | $ | — |
| $ | — |
| $ | 3,350,000 |
| $ | — | $ | 3,350,000 | $ | — | |||||||||
See accompanying notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) Basis of Presentation and Corporate Reorganization
Beasley Broadcast Group, Inc. (the “Company”) owns 4241 radio stations with its primary source of revenue generated from the sale of advertising timeairtime to local and national spot advertisers and national network advertisers. The accompanying consolidated financial statements include the Company and its wholly-owned subsidiaries. All significant inter-company balances and transactions have been eliminated in presenting the Company’s consolidated financial statements. The accompanying financial statements as of and for
Certain amounts previously reported in the years ended December 31, 2000, 2001 and 2002 are presented on a consolidated basis.
Prior to February 11, 2000, the Company’s radio stations were operated through a series of subchapter S corporations, partnerships and limited liability companies related to one another through common ownership and control. These subchapter S corporations, partnerships and limited liability companies were collectively known as Beasley FM Acquisition Corp. and related companies (“BFMA”) through February 10, 2000. The accompanying financial statements include the results of operations of BFMA for the period from January 1, 2000have been reclassified to February 10, 2000.
The Company completed an initial public offering of common stock and the corporate reorganization on February 11, 2000. Immediately priorconform to the initial public offering, pursuant to the reorganization, affiliates of BFMA contributed their equity interests in those entities to the Company, a newly formed holding company, in exchange for common stock. Immediately after these transactions, the Company contributed the capital stock and partnership interests acquired to Beasley Mezzanine Holdings, LLC (“BMH”) and BMH became a wholly-owned subsidiary of the Company. All S corporation elections were terminated and the resulting entities became C corporations. The reorganization and contribution of equity interests was accounted for in a manner similar to a pooling of interests as to the majority owners, and as an acquisition of minority interest using the purchase method of accounting.2003 presentation.
The Company has two classes of common stock and may issue one or more series of preferred stock. Class B common shares are held by majority stockholders of the former S corporations. Class A common shares were issued in the initial public offering including shares to former minority-interest stockholders. No shares of preferred stock were issued in the offering. The only difference between the Class A and Class B common stock is that Class A is entitled to one vote per share and Class B is entitled to ten votes per share. Class B is convertible into Class A shares on a one for one share basis under certain circumstances.
(b) Cash and Cash Equivalents
Cash and cash equivalents include demand deposits and short-term investments with an original maturity of three months or less.
(c) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets for financial reporting purposes. For income tax purposes, property and equipment is depreciated using accelerated methods.
(d) Impairment
The Company assesses the recoverability of property and equipment and certain intangibles on an ongoing basis based on estimates of related future undiscounted cash flows compared to net book value. If the future undiscounted cash flow estimate is less than net book value, the net book value is reduced to the estimated fair value. The Company also evaluates the useful lives of property and equipment and certain intangibles to determine whether events or circumstances warrant revised depreciation or amortization periods.
BEASLEY BROADCAST GROUP, INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(e) FCC Broadcasting Licenses and Goodwill
FCC broadcasting licenses and goodwill are stated at cost less the accumulated amortization recorded through December 31, 2001. The Company adopted Statement of Financial Accounting Standards (“SFAS”) 142,Goodwill and Other Intangible Assets on January 1, 2002. FCC broadcasting licenses and goodwill are no longer amortized but are tested for impairment at least annually in accordance with the provisions of SFAS 142. For income tax purposes, FCC broadcasting licenses and goodwill continue to be amortized using the straight-line method over their estimated useful lives. FCC broadcasting licenses totaling $1.8 million were reclassified from goodwill in the 2002 consolidated balance sheet to conform to the 2003 presentation.
(f) Other Intangibles
Other intangibles are stated at cost less accumulated amortization. Amortization is calculated using the straight-line method over the estimated useful lives of the assets for financial reporting and income tax purposes.
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(g) Investments
The Company’s investment in FindWhat.com is classified as available-for-sale and recorded at fair value based on its quoted market price. The unrealized gain on FindWhat.com is reported, net of income taxes, as a component of accumulated other comprehensive income in stockholders’ equity. The investment in FindWhat.com was originally recorded at historical cost due to restrictions that limited the Company’s ability to sell or otherwise dispose of the securities. These restrictions were completely removed during the first quarter of 2003 at which time the Company began accounting for this investment as available-for-sale. The Company’s investment in iBiquity is recorded at historical cost due to restrictions that limit the Company’s ability to sell or otherwise dispose of the securities.
Derivative Financial Instruments
The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. The Company uses interest rate cap, collar and swap agreements to reduce the potential impact of changes in interest rates on its credit facility. On May 23, 2003, the Company entered into three swap agreements, which were designated and accounted for as cash flow hedges of the Company’s credit facility in accordance with the provisions of SFAS 133. The swap agreements are reported at fair value in the balance sheet and any changes in fair value are reported, net of income taxes, as a component of accumulated other comprehensive income in stockholders’ equity. The Company also has certain cap, collar and swap agreements that are not designated as cash flow hedges, which are reported at fair value in the balance sheet with any changes in fair value reported in the statement of operations.
Revenue Recognition
Revenue from the sale of broadcast air timeadvertising airtime is recognized when commercials are broadcast. Revenues are reported net of advertising agency commissions in the consolidated financial statements.
(h) Barter TransactionsTrade Sales
Barter transactionsTrade sales are recorded at the estimated fair value of the productsgoods or services received. Revenue from barter transactionstrade sales is recognized when commercials are broadcast. ProductsGoods or services are recorded when the productsgoods or services are received. If commercials are broadcast before the receipt of productsgoods or services, a bartertrade sales receivable is recorded. If productsgoods or services are received before the broadcast of commercials, a bartertrade sales payable is recorded.
(i) Program Rights
The total fixed cost of the contracts for the radio broadcast rights relating to the Miami Dolphins, Florida Marlins and Florida Panthers sports contracts is expensed on a straight-line basis in the quarters in which the programs are broadcast. Other payments are expensed when additional contract elements, such as post-season games, are paid for and broadcast.
(j) Derivative Financial Instruments
The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. The Company uses interest rate collar, cap and swap agreements to reduce the potential impact of changes in interest rates on its credit facility. The Company records interest differentials as adjustments to interest expense and changes in fair value of its derivative financial instruments in the statement of operations in the period they occur.
(k) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(l) Earnings per Share
Basic earnings per share are computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if options or other contracts to issue common stock were exercised or converted into common stock and were not anti-dilutive. Earnings per share for the period from January 1, 2000 to February 10, 2000 are based on the number of common shares issued immediately prior to the initial public offering.
(m) Stock-Based Employee Compensation
As of December 31, 2002,2003, the Company has one stock-based employee compensation plan, which is described more fully in note 20.17. The Company accounts for this plan under the recognition and measurement principles of APB Opinion 25,Accounting for Stock Issued to Employees. No stock-based employee compensation cost is reflected in the net loss,income (loss), as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on the net lossincome (loss) and net lossincome (loss) per share as if the Company had applied the fair value recognition provisions of SFAS 123,Accounting for Stock-Based Compensation, as amended by SFAS 148,Accounting for Stock-Based Compensation—Transition and Disclosure,to stock-based employee compensation.
2000 | 2001 | 2002 | ||||||||||
As Restated | As Restated | |||||||||||
Net loss | $ | (28,514,447 | ) | $ | (22,134,122 | ) | $ | (3,727,050 | ) | |||
Total stock-based employee compensation expense determined under fair value based methods for all awards (net of income taxes) |
| (3,473,639 | ) |
| (4,636,940 | ) |
| (4,612,317 | ) | |||
Adjusted net loss | $ | (31,988,086 | ) | $ | (26,771,062 | ) | $ | (8,339,367 | ) | |||
Net loss per share: | ||||||||||||
Basic and diluted—as reported | $ | (1.21 | ) | $ | (0.91 | ) | $ | (0.15 | ) | |||
Basic and diluted—as adjusted | $ | (1.36 | ) | $ | (1.10 | ) | $ | (0.34 | ) |
2001 | 2002 | 2003 | ||||||||||
Net income (loss) | $ | (22,134,122 | ) | $ | (3,727,050 | ) | $ | 12,771,192 | ||||
Total stock-based employee compensation expense determined under fair value based methods for all awards (net of income tax benefit of $2,917,540, $2,902,048 and $850,992 for the years ended December 31, 2001, 2002 and 2003, respectively) | (4,636,940 | ) | (4,612,317 | ) | (1,352,510 | ) | ||||||
Adjusted net income (loss) | $ | (26,771,062 | ) | $ | (8,339,367 | ) | $ | 11,418,682 | ||||
Net income (loss) per share: | ||||||||||||
Basic—as reported | $ | (0.91 | ) | $ | (0.15 | ) | $ | 0.53 | ||||
Basic—as adjusted | $ | (1.10 | ) | $ | (0.34 | ) | $ | 0.47 | ||||
Diluted—as reported | $ | (0.91 | ) | $ | (0.15 | ) | $ | 0.52 | ||||
Diluted—as adjusted | $ | (1.10 | ) | $ | (0.34 | ) | $ | 0.47 | ||||
(n) Defined Contribution Plan
The Company has a defined contribution plan that conforms with Section 401(k) of the Internal Revenue Code. Under this plan, employees may contribute a minimum of 1% of their compensation (no maximum) to the Plan. The Internal Revenue Code, however, limited contributions to $10,500 in 2000 and 2001, and $11,000 or $12,000 if aged 5550 years or older in 2002.2002, and $12,000 or $14,000 if aged 50 years or older in 2003. There was no employer matching contributions for the years ended December 31, 2000, 2001, 2002 and 2002.2003.
(o) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 amount of revenues and expenses during the reporting period. Actual results could differ from these estimates. To the extent management’s estimates prove to be incorrect, financial results for future periods may be adversely affected.
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(p) Accounting Changes
Effective January 1, 2001, the Company adopted SFAS 133,Accounting for Derivative Instruments and Hedging Activities. This statementSFAS 133 establishes accounting and reporting standards for derivative financial instruments, including derivative financial instruments embedded in other contracts, and for hedging activities. In accordance with the transition provisions of SFAS 133, the Company recorded an asset of $66,000 to recognize its derivativesderivative financial instruments at fair value and the cumulative effect of the accounting change, as of January 1, 2001. The cumulative effect of the change, net of income taxes, decreased the net loss $41,000 and did not change the net loss per share.
Effective January 1, 2002, the Company adopted SFAS 142,Goodwill and Other Intangible Assets. SFAS 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS 142. In accordance with the provisions of SFAS 142, as of January 1, 2002, the Company tested its FCC broadcasting licenses, which were identified as intangible assets having indefinite useful lives, and goodwill for impairment. To estimate the fair value of its FCC broadcasting licenses and goodwill, the Company obtained appraisals from an independent appraisal company. As a result of the testing, the Company recognized an impairment of $17.5 million related to FCC broadcasting licenses and goodwill in the Radio Group Three segment and recorded the loss as the cumulative effect of accounting change in the consolidated statement of operations for the year ended December 31, 2002. The cumulative effect of the accounting change, net of income taxes, decreased net income $12.1 million and earnings per share $0.50, of which $0.4 million or $0.02 per share is reported in discontinued operations.
The following information presents the impact on the net loss and net loss per share had FCC broadcasting licenses and goodwill not been amortized during 2000 and 2001:
2000 | 2001 | 2002 | ||||||||||
As Restated | As Restated | |||||||||||
Net loss | $ | (28,514,447 | ) | $ | (22,134,122 | ) | $ | (3,727,050 | ) | |||
FCC broadcasting licenses amortization (net of income taxes) |
| 7,402,958 |
|
| 13,054,437 |
|
| — |
| |||
Goodwill amortization (net of income taxes) |
| 704,774 |
|
| 768,066 |
|
| — |
| |||
Adjusted net loss | $ | (20,406,715 | ) | $ | (8,311,619 | ) | $ | (3,727,050 | ) | |||
Basic and diluted net loss per share: | ||||||||||||
Net loss | $ | (1.21 | ) | $ | (0.91 | ) | $ | (0.15 | ) | |||
FCC broadcasting licenses amortization |
| 0.31 |
|
| 0.54 |
|
| — |
| |||
Goodwill amortization |
| 0.03 |
|
| 0.03 |
|
| — |
| |||
Adjusted net loss | $ | (0.87 | ) | $ | (0.34 | ) | $ | (0.15 | ) | |||
Basic common shares outstanding |
| 23,506,091 |
|
| 24,273,441 |
|
| 24,273,441 |
| |||
Diluted common shares outstanding |
| 23,506,091 |
|
| 24,273,441 |
|
| 24,312,899 |
| |||
2001 | 2002 | 2003 | |||||||||
Net income (loss) | $ | (22,134,122 | ) | $ | (3,727,050 | ) | $ | 12,771,192 | |||
FCC broadcasting licenses amortization (net of income tax benefit of $7,562,102) | 13,054,437 | — | — | ||||||||
Goodwill amortization (net of income tax benefit of $483,264) | 768,066 | — | — | ||||||||
Adjusted net income (loss) | $ | (8,311,619 | ) | $ | (3,727,050 | ) | $ | 12,771,192 | |||
Basic net income (loss) per share: | |||||||||||
Net income (loss) | $ | (0.91 | ) | $ | (0.15 | ) | $ | 0.53 | |||
FCC broadcasting licenses amortization | 0.54 | — | — | ||||||||
Goodwill amortization | 0.03 | — | — | ||||||||
Adjusted net income (loss) | $ | (0.34 | ) | $ | (0.15 | ) | $ | 0.53 | |||
Diluted net income (loss) per share: | |||||||||||
Net income (loss) | $ | (0.91 | ) | $ | (0.15 | ) | $ | 0.52 | |||
FCC broadcasting licenses amortization | 0.54 | — | — | ||||||||
Goodwill amortization | 0.03 | — | — | ||||||||
Adjusted net income (loss) | $ | (0.34 | ) | $ | (0.15 | ) | $ | 0.52 | |||
Basic common shares outstanding | 24,273,441 | 24,273,441 | 24,273,783 | ||||||||
Diluted common shares outstanding | 24,273,441 | 24,312,899 | 24,334,480 | ||||||||
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(q) Recent Accounting Pronouncements
In June 2001, FASBthe Financial Accounting Standards Board (“FASB”) issued SFAS 143,Accounting for Asset Retirement Obligations. SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS 143 amends SFAS 19 and is effective for financial statements issued for fiscal years beginning after June 15, 2002. At the present time, the adoption of SFAS 143 is not expected to have a material impact on the Company’s consolidated financial statements.
In August 2001, FASB issued SFAS 144,Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001 and interim
BEASLEY BROADCAST GROUP, INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
periods within those fiscal years. The Company has adopted SFAS 144 with no material impact on its consolidated financial statements.
In April 2002, FASB issued SFAS 145,Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS 145 addresses the income statement classification of gains or losses from extinguishment of debt and the accounting for certain lease modifications. The Company adopted SFAS 145 upon issuance143 during the first quarter of 2003 with no material impact on its consolidated financial statements.
In June 2002, FASB issued SFAS 146,Accounting for Costs Associated with Exit or Disposal Activities. SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities. SFAS 146 nullifies Emerging Issues Task Force Issue No. 94-3 and is effective for exit or disposal activities that are initiated after December 31, 2002. At the present time, theThe Company cannot determine the impact that the adoption ofadopted SFAS 146 will havewith no material impact on its consolidated financial statements.
In November 2002, FASB issued Interpretation No. 45,Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (the Interpretation)(FIN 45), which addresses the disclosure to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. These disclosure requirements are included in note 9. The InterpretationFIN 45 also requires the recognition of a liability by a guarantor at the inception of certain guarantees. The InterpretationFIN 45 requires the guarantor to recognize a liability for the non-contingent component of the guarantee, which is the obligation to stand ready to perform in the event that specified triggering events or conditions occur. The initial measurement of this liability is the fair value of the guarantee at inception. The recognition of the liability is required even it is not probable that payments will be required under the guarantee or if the guarantee was issued with a premium payment or as part of a transaction with multiple elements. As noted above, theThe Company has adopted the disclosure requirements of the InterpretationFIN 45 and will apply the recognition and measurement provisions for all applicable guarantees entered into after December 31, 2002. To date, the Company has not entered into guarantees, which would require recognition and measurement pursuant to the provisions of the Interpretation.
In December 2002, FASB issued SFAS 148,Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123. SFAS 148 amends SFAS 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company adopted the disclosure provisions of SFAS 148 upon issuance with no material impact on its consolidated financial statements.FIN 45.
In January 2003, FASB issued Interpretation No. 46,Consolidation of Variable Interest Entities (the Interpretation)(FIN 46), which clarifies the application of Accounting Research Bulletin No. 51, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Effective July 1, 2003, the Company adopted FIN 46 with no material impact on its consolidated financial statements. In December 2003, FASB issued Interpretation No. 46(R),Consolidation of Variable Interest Entities (FIN 46(R)), which revised and clarified FIN 46. The Interpretation is effective for variable interest entities created after January 31, 2003. At the present time, the adoptionissuance of the Interpretation is not expected to have aFIN 46(R) had no material impact on the Company’s consolidated financial statements or on its adoption of FIN 46 effective July 1, 2003.
In May 2003, FASB issued SFAS 150,Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. Effective July 1, 2003, the Company adopted SFAS 150 with no material impact on its consolidated financial statements.
(2) Restatement of Financial Information
The Company has restated its financial statements for the years ended December 31, 2000 and 2001. During the first quarter of 2002, the Company recorded an adjustment to its deferred tax assets and deferred income tax expense as a result of the completion of the Company’s 2001 income tax returns. However, during the fourth quarter of 2002, it was determined that the adjustment should have been recorded in prior periods. The adjustment corrects the Company’s deferred tax assets and liabilities recorded upon conversion from a series of
BEASLEY BROADCAST GROUP, INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
subchapter S corporations, partnerships and limited liability companies to a subchapter C corporation at the time of the Company’s initial public offering of common stock on February 11, 2000. As a result of these restatements, the reported net loss for the year ended December 31, 2000 was decreased by $1,083,240, or $0.05 per share, while deferred tax assets were increased by $705,823 and other receivables were increased by $377,417. For the year ended December 31, 2001, the reported net loss was increased by $377,417, or $0.01 per share, while deferred tax assets and stockholders’ equity were increased by $705,823. These adjustments had no impact on operating income (loss) from continuing operations or other income (expense) as originally reported during 2000 and 2001, except for other non-operating income for the year ended December 31, 2001. See note 16 for the impact of these adjustments on the Company’s quarterly financial information as originally reported during 2001 and 2002. The following information presents the impact of these adjustments on the Company’s financial information as originally reported during 2000 and 2001:
Year ended December 31, 2000 | Year ended December 31, 2001 | |||||||||||||||
As Reported | As Restated | As Reported | As Restated | |||||||||||||
Other non-operating income | $ | 168,383 |
| $ | 168,383 |
| $ | 3,032,501 |
| $ | 2,655,084 |
| ||||
Loss from continuing operations before income taxes |
| (599,687 | ) |
| (599,687 | ) |
| (29,021,705 | ) |
| (28,812,740 | ) | ||||
Income tax expense (benefit) |
| 28,998,000 |
|
| 27,914,760 |
|
| (7,224,000 | ) |
| (6,997,539 | ) | ||||
Loss from continuing operations before cumulative effect of accounting change and discontinued operations |
| (29,597,687 | ) |
| (28,514,447 | ) |
| (21,797,705 | ) |
| (21,815,201 | ) | ||||
Cumulative effect of accounting change (net of income taxes) |
| — |
|
| — |
|
| 41,000 |
|
| 41,000 |
| ||||
Discontinued operations (net of income taxes) |
| — |
|
| — |
|
| — |
|
| (359,921 | ) | ||||
Net loss | $ | (29,597,687 | ) | $ | (28,514,447 | ) | $ | (21,756,705 | ) | $ | (22,134,122 | ) | ||||
Basic and diluted net loss per share | $ | (1.26 | ) | $ | (1.21 | ) | $ | (0.90 | ) | $ | (0.91 | ) | ||||
December 31, 2001 | ||||||||||||||||
As Reported | As Restated | |||||||||||||||
Other receivables | $ | 3,079,552 |
| $ | 3,079,552 |
| ||||||||||
Deferred tax assets |
| 1,525,000 |
|
| 2,230,823 |
| ||||||||||
Total assets |
| 318,593,676 |
|
| 319,299,499 |
| ||||||||||
Accumulated deficit |
| (49,457,313 | ) |
| (48,751,490 | ) | ||||||||||
Stockholders’ equity |
| 57,200,892 |
|
| 57,906,715 |
| ||||||||||
Total liabilities and stockholders’ equity |
| 318,593,676 |
|
| 319,299,499 |
|
(3) Acquisitions and Dispositions
StationRadio station acquisitions were accounted for by the purchase method for financial statement purposes, and accordingly, the purchase price has been allocated to the assets acquired based on their estimated fair market values at the date of the acquisition. Except for the acquisitions as of February 1, 2001, no liabilities were
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
assumed by the Company as a result of these acquisitions. Operations of acquired radio stations have been included in the results of the Company since the acquisition date of each such radio station.
(a) 2003 Disposition
A summary of discontinued operations is as follows:
Year ended December 31, | |||||||||||
2001 | 2002 | 2003 | |||||||||
Net revenue | $ | 72,814 | $ | 115,293 | $ | 3,027 | |||||
Gain on disposal | $ | — | $ | — | $ | 436,365 | |||||
Income (loss) before income taxes | $ | (586,382 | ) | $ | (332,322 | ) | $ | 404,303 | |||
Income tax expense (benefit) | (226,461 | ) | (128,344 | ) | 137,463 | ||||||
Income (loss) before cumulative effect of accounting change | (359,921 | ) | (203,978 | ) | 266,840 | ||||||
Cumulative effect of accounting change (net of income tax benefit of $197,122) | — | (445,875 | ) | — | |||||||
Net income (loss) from discontinued operations | $ | (359,921 | ) | $ | (649,853 | ) | $ | 266,840 | |||
2002 Acquisitions and Dispositions
On March 20, 2002, the Company completed the sale of two radio stations in the New Orleans market to Wilks Broadcasting LLC. As consideration for the sale of these radio stations, the Company received $23.0 million, subject to certain adjustments, including $19.65 million in cash and a $3.35 million note payable
BEASLEY BROADCAST GROUP, INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
from Wilks Broadcasting LLC. The note accruesaccrued interest at 9% per annum and was repaid in full during the principal amount and all accrued interest are due on June 20, 2004.third quarter of 2003. The Company used $19.5 million of the net cash proceeds to repay a portion of term loan A under its credit facility. The Company recorded a pre-tax loss of $297,447 on the disposition. The loss is reported in other non-operating expenses in the consolidated statement of operations for the year ended December 31, 2002.
Dispositions for the yearyears ended December 31, 2002 and 2003 are summarized as follows:
Year ended December 31, | ||||||||||||
2002 | 2003 | |||||||||||
Proceeds from disposition of radio stations | $ | 23,000,000 |
| $ | 23,000,000 | $ | 1,500,000 | |||||
Accounts receivable |
| (70,704 | ) | (70,704 | ) | — | ||||||
Property and equipment |
| (1,557,805 | ) | (1,557,805 | ) | (398,705 | ) | |||||
FCC broadcasting licenses |
| (21,040,250 | ) | (21,040,250 | ) | (500,000 | ) | |||||
Goodwill |
| (51,396 | ) | (51,396 | ) | — | ||||||
Other intangibles |
| (327,077 | ) | (327,077 | ) | (96,146 | ) | |||||
Selling expenses |
| (250,215 | ) | (250,215 | ) | (68,784 | ) | |||||
Loss on disposition of radio stations | $ | (297,447 | ) | |||||||||
Gain (loss) on disposition of radio stations | $ | (297,447 | ) | $ | 436,365 | |||||||
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(b) 2001 Acquisitions and Dispositions
(c) 2000 Acquisitions and Dispositions
BEASLEY BROADCAST GROUP, INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
Acquisitions for the yearsyear ended December 31, 2000 and 2001 are summarized as follows:
Year ended December 31, | |||||||||||
2000 | 2001 | ||||||||||
Accounts receivable, net | $ | — | $ | 2,233,223 |
| $ | 2,233,223 | ||||
Prepaid expenses and other |
| — |
| 730,518 |
| 730,518 | |||||
Property and equipment |
| 4,088,173 |
| 5,526,234 |
| 5,526,234 | |||||
FCC broadcasting licenses |
| 30,606,827 |
| 119,772,766 |
| 119,772,766 | |||||
Goodwill |
| 85,000 |
| 201,000 |
| 201,000 | |||||
Other assets |
| — |
| 6,625 |
| 6,625 | |||||
Accounts payable |
| — |
| (32,000 | ) | (32,000 | ) | ||||
Accrued expenses |
| — |
| (132,613 | ) | (132,613 | ) | ||||
Payments for acquisitions of radio stations | $ | 34,780,000 | $ | 128,305,753 |
| $ | 128,305,753 | ||||
(d) Unaudited Pro Forma Results of Operations
The following unaudited pro forma information presents the results of operations for the years ended December 31, 20012002 and 2002,2003, with pro forma adjustments as if the acquisitionsradio station dispositions in 2002 and dispositions of the stations in 2001 and 20022003 had occurred on January 1, 2001.2002.
Year ended December 31, | ||||||||
2001 | 2002 | |||||||
Net revenue | $ | 111,953,374 |
| $ | 114,556,986 |
| ||
Operating income from continuing operations |
| 138,830 |
|
| 27,831,772 |
| ||
Income (loss) from continuing operations before cumulative effect of accounting change and discontinued operations |
| (16,414,492 | ) |
| 8,768,357 |
| ||
Net loss |
| (16,782,224 | ) |
| (3,558,012 | ) | ||
Basic and diluted net loss per share |
| (0.69 | ) |
| (0.15 | ) |
Year ended December 31, | |||||||
2002 | 2003 | ||||||
Net revenue | $ | 114,556,986 | $ | 114,482,240 | |||
Operating income from continuing operations | 27,831,772 | 26,392,606 | |||||
Income from continuing operations before cumulative effect of accounting change and discontinued operations | 8,768,357 | 12,504,352 | |||||
Net income (loss) | (3,558,012 | ) | 12,771,192 | ||||
Basic net income (loss) per share | (0.15 | ) | 0.53 | ||||
Diluted net income (loss) per share | (0.15 | ) | 0.52 |
This unaudited pro forma information is not necessarily indicative of what would have occurred had the acquisitions and dispositions occurred on January 1, 20012002 or of results that may occur in the future.
(e) Subsequent Dispositions
(4) Property and Equipment
Property and equipment, at cost, is comprised of the following:
December 31, | Estimated useful lives (years) | |||||||||
2001 | 2002 | |||||||||
Land, buildings and improvements | $ | 7,049,522 |
| $ | 7,304,022 |
| 15-30 | |||
Broadcast equipment |
| 21,484,525 |
|
| 16,723,128 |
| 5-15 | |||
Transportation equipment |
| 959,431 |
|
| 1,018,275 |
| 5 | |||
Office equipment and other |
| 4,567,361 |
|
| 3,192,036 |
| 5-10 | |||
Construction in progress |
| 762,722 |
|
| 520,797 |
| — | |||
| 34,823,561 |
|
| 28,758,258 |
| |||||
Less accumulated depreciation and amortization |
| (14,811,135 | ) |
| (10,679,820 | ) | ||||
$ | 20,012,426 |
| $ | 18,078,438 |
| |||||
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(5) FCC Broadcasting Licenses(3) Property and GoodwillEquipment
The changes inProperty and equipment is comprised of the carrying amount of FCC broadcasting licenses for the year ended December 31, 2002 are as follows:following:
Radio Group One | Radio Group Two | Radio Group Three | Total | |||||||||||
Balances as of January 1, 2002 | $ | 61,589,091 | $ | 79,629,896 | $ | 97,918,553 |
| $ | 239,137,540 |
| ||||
Impairment losses |
| — |
| — |
| (16,768,303 | ) |
| (16,768,303 | ) | ||||
FCC broadcasting licenses written off related to the sale of two radio stations |
| — |
| — |
| (21,040,250 | ) |
| (21,040,250 | ) | ||||
Balances as of December 31, 2002 | $ | 61,589,091 | $ | 79,629,896 | $ | 60,110,000 |
| $ | 201,328,987 |
| ||||
The changes in the carrying amount of goodwill for the year ended December 31, 2002 are as follows:
Radio Group One | Radio Group Two | Radio Group Three | Total | |||||||||||
Balances as of January 1, 2002 | $ | 8,892,865 | $ | 3,080,706 | $ | 121,813 |
| $ | 12,095,384 |
| ||||
Impairment losses |
| — |
| — |
| (70,417 | ) |
| (70,417 | ) | ||||
Goodwill written off related to the sale of two radio stations |
| — |
| — |
| (51,396 | ) |
| (51,396 | ) | ||||
Balances as of December 31, 2002 | $ | 8,892,865 | $ | 3,080,706 | $ | — |
| $ | 11,973,571 |
| ||||
See note 1(p) for the impact on the net loss and net loss per share had FCC broadcasting licenses and goodwill not been amortized during 2000 and 2001.
December 31, | Estimated useful lives (years) | |||||||||
2002 | 2003 | |||||||||
Land, buildings and improvements | $ | 7,304,022 | $ | 7,388,791 | 15-30 | |||||
Broadcast equipment | 16,723,128 | 16,982,785 | 5-15 | |||||||
Transportation equipment | 1,018,275 | 1,181,123 | 5 | |||||||
Office equipment and other | 3,192,036 | 3,360,024 | 5-10 | |||||||
Construction in progress | 520,797 | 1,372,773 | — | |||||||
28,758,258 | 30,285,496 | |||||||||
Less accumulated depreciation and amortization | (10,679,820 | ) | (13,305,671 | ) | ||||||
$ | 18,078,438 | $ | 16,979,825 | |||||||
(6)(4) Other Intangibles
Other intangibles areis comprised of the following:
December 31, 2001 | December 31, 2002 | December 31, 2002 | December 31, 2003 | |||||||||||||||||||||||||
Gross carrying amount | Accumulated amortization | Gross carrying amount | Accumulated amortization | Gross carrying amount | Accumulated amortization | Gross carrying amount | Accumulated amortization | |||||||||||||||||||||
Amortized intangible assets: | ||||||||||||||||||||||||||||
Loan fees | $ | 5,209,136 | $ | (781,431 | ) | $ | 5,250,464 | $ | (1,417,560 | ) | $ | 5,250,464 | $ | (1,417,560 | ) | $ | 5,305,187 | $ | (2,039,554 | ) | ||||||||
Other intangibles |
| 1,688,227 |
| (444,819 | ) |
| 1,204,741 |
| (525,293 | ) | 1,204,741 | (525,293 | ) | 1,204,741 | (766,243 | ) | ||||||||||||
$ | 6,897,363 | $ | (1,226,250 | ) | $ | 6,455,205 | $ | (1,942,853 | ) | $ | 6,455,205 | $ | (1,942,853 | ) | $ | 6,509,928 | $ | (2,805,797 | ) | |||||||||
As of December 31, 2002,2003, estimated amortization expense for the next five years and thereafter is as follows:
2003 | $ | 900,753 | ||||
2004 |
| 900,753 | $ | 916,092 | ||
2005 |
| 839,845 | 855,184 | |||
2006 |
| 675,339 | 691,173 | |||
2007 |
| 659,310 | 674,650 | |||
2008 | 413,894 | |||||
Thereafter |
| 536,352 | 153,138 | |||
Total | $ | 4,512,352 | $ | 3,704,131 | ||
(5) Investments
The Company held 500,000 and 200,000 shares of common stock of FindWhat.com as of December 31, 2002 and 2003, respectively. The fair value of the FindWhat.com common stock as of December 31, 2003 is $3.75 million which includes an unrealized gain of $3.55 million. The Company held 5,394 shares of preferred stock of iBiquity Digital as of December 31, 2002 and 2003.
In 2003, the Company sold 300,000 shares of FindWhat.com and recorded a gain on investment of $4.5 million. In 2002, the Company sold 100,000 shares and recorded a gain on investment of $0.6 million.
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(7) Investments
On January 14, 2000,In 2001, the Company purchased 600,000 shares of common stock of FindWhat.com in exchange for a $3.0 million promissory note. The shares contained restrictions that generally limit the Company’s ability to sell or otherwise dispose of them. In January 2001, FindWhat.com filed a registration statement under the Securities Act pursuant to which the Company may resell its shares at prevailing market prices. The investment was initially recorded using the cost method of accounting. On December 31, 2000, the Company considered a decline in market value to be other than temporary and recorded an unrealized loss on this investment of $2.4 million. In December 2002, the Company sold 100,000 shares of common stock of FindWhat.com and recorded a gainloss on investment of $0.6 million.
On April 4, 2000,$1.6 million, the Company purchased 5,394 sharesrecorded cost of preferred stock of iBiquity Digital for $50,002. The shares contain restrictions that generally limit the Company’s ability to sell or otherwise dispose of them. The investment was recorded using the cost method of accounting.
In December 1999, the Company entered into an agreement to purchase 750,000396,354 shares of preferred stock of eTour, Inc. in exchange for $3.0 millionearned as of advertising airtime. The Company earned these shares as advertisements were placed over the term of the agreement. On May 7, 2001, the Company receivedafter receiving a letter from the management of eTour, Inc. stating that eTour, Inc. was in the process of winding down. Based on this information, the Company stopped placement of any further advertising air time for eTour, Inc. and recorded a loss on investment of $1.6 million, the recorded cost of the 396,354 shares earned as of May 7, 2001.was subsequently liquidated.
(8)(6) Accrued Expenses
Accrued expenses is comprised of the following:
December 31, | December 31, | |||||||||||
2001 | 2002 | 2002 | 2003 | |||||||||
Accrued payroll | $ | 2,135,391 | $ | 1,766,533 | $ | 1,766,533 | $ | 1,865,849 | ||||
Accrued interest expense |
| 1,174,568 |
| 584,000 | 584,000 | 359,616 | ||||||
Other accrued expenses |
| 1,981,401 |
| 1,670,103 | 1,670,103 | 1,727,882 | ||||||
$ | 5,291,360 | $ | 4,020,636 | $ | 4,020,636 | $ | 3,953,347 | |||||
(9)(7) Long-Term Debt
Long-term debt is comprised of the following:
December 31, | ||||||||
2001 | 2002 | |||||||
Credit facility: | ||||||||
Revolving credit loan | $ | 75,486,261 |
| $ | 58,461,262 |
| ||
Term loan A |
| 150,000,000 |
|
| 37,894,736 |
| ||
Term loan B |
| — |
|
| 100,000,000 |
| ||
| 225,486,261 |
|
| 196,355,998 |
| |||
Other notes payable |
| 12,204 |
|
| 3,172 |
| ||
| 225,498,465 |
|
| 196,359,170 |
| |||
Less current installments |
| (15,009,045 | ) |
| (7,318,961 | ) | ||
$ | 210,489,420 |
| $ | 189,040,209 |
| |||
BEASLEY BROADCAST GROUP, INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
As of December 31, 2001, the maximum commitment for the revolving credit loan under the credit facility was $150.0 million. The revolving credit loan included a $50.0 million sub-limit for letters of credit. The revolving credit loan and term loan A carried interest at 5.0625% and matured on June 30, 2008. The credit facility was secured by substantially all of the Company’s assets and guaranteed jointly and severally by all of the Company’s subsidiaries.
December 31, | |||||||
2002 | 2003 | ||||||
Credit facility: | |||||||
Revolving credit loan | $ | 58,461,262 | $ | 39,407,958 | |||
Term loan A | 37,894,736 | 31,578,948 | |||||
Term loan B | 100,000,000 | 99,000,000 | |||||
196,355,998 | 169,986,906 | ||||||
Other notes payable | 3,172 | — | |||||
196,359,170 | 169,986,906 | ||||||
Less current installments | (7,318,961 | ) | — | ||||
$ | 189,040,209 | $ | 169,986,906 | ||||
On March 20, 2002, the Company entered into an amendment to its credit agreement that reduced the maximum commitment for the revolving credit loan under its credit facility from $150.0 million to $119.5 million and revised certain financial covenants.
On September 30, 2002, the Company entered into an amended and restated its credit agreement, under which a new $100.0 million term loan B was issued and certain financial covenants were revised. The proceeds from term loan B were used to reduce the outstanding balance of the revolving credit loan by $16.0 million and the outstanding balance of term loan A by $84.0 million. In addition, the maximum commitment for the revolving credit loan was reduced to $103.5 million. In connection with the amended and restated credit facility,agreement, the Company recorded a $2.0 million loss on extinguishment of long-term debt for the year ended December 31, 2002, of which $0.1 million is reported net of income taxes in discontinued operations.
As of December 31, 2002 the maximum commitment forand 2003, the revolving credit loan under the credit facility washad a maximum commitment of $103.5 million; however, as of December 31, 2002, the Company’s maximum total leverage covenant would have limited additional borrowings to $18.8 million. The revolving credit loan includesand included a $50.0 million sub-limit for letters of credit. The revolving credit loan and term loan A bearbore interest at either the base rate or LIBOR plus a margin that iswas determined by the Company’s debt to operating cash flow
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ratio. The base rate iswas equal to the higher of the prime rate or the overnight federal funds rate plus 0.5%. The revolving credit loan and term loan A carried interest at 4.4375% and 3.4375% as of December 31, 2002.2002 and 2003, respectively. Term loan B bearsbore interest at either the base rate plus 2.75% or LIBOR plus 4.0%. Term loan B carried interest at an average rate of 5.4375% and 5.1875% as of December 31, 2002. Interest is payable monthly through maturity. The revolving credit loan2002 and term loan A mature on June 30, 2008 and term loan B matures on December 31, 2009. The scheduled reductions in the amount available under the revolving credit loan may require principal repayments if the outstanding balance at that time exceeds the new maximum amount available under the revolving credit loan.2003, respectively.
The credit facility iswas secured by substantially all of the Company’s assets and guaranteed jointly and severally by all of the Company’s subsidiaries. The guarantees were issued to the Company’s lenders for repayment of the outstanding balance of the credit facility. If the Company defaults on a payment under the terms of the credit facility, the subsidiaries may be required to perform under their guarantees. The maximum amount of undiscounted payments the subsidiaries would have to make in the event of default is $196.4$170.0 million. The guarantees for the revolving credit loan and term loan A expire on June 30, 2008 and the guarantees for term loan B expire on December 31, 2009.
As of December 31, 2002, the scheduled repayments of the credit facility for the next five years and thereafter are as follows:
Revolving Credit Loan | Term Loan A | Term Loan B | Total Credit Facility | |||||||||
2003 | $ | — | $ | 6,315,789 | $ | 1,000,000 | $ | 7,315,789 | ||||
2004 |
| — |
| 6,315,789 |
| 1,000,000 |
| 7,315,789 | ||||
2005 |
| — |
| 6,315,789 |
| 1,000,000 |
| 7,315,789 | ||||
2006 |
| — |
| 6,315,789 |
| 1,000,000 |
| 7,315,789 | ||||
2007 |
| 17,071,262 |
| 8,421,053 |
| 1,000,000 |
| 26,492,315 | ||||
Thereafter |
| 41,390,000 |
| 4,210,527 |
| 95,000,000 |
| 140,600,527 | ||||
Total | $ | 58,461,262 | $ | 37,894,736 | $ | 100,000,000 | $ | 196,355,998 | ||||
BEASLEY BROADCAST GROUP, INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
The Company has entered into interest rate collar, cap and swap agreements to reduce the potential impact of changes in interest rates on its credit facility as discussed in note 10.
The Company is required to satisfy financial covenants, which require us to maintain specified financial ratios and to comply with financial tests.tests, such as ratios for maximum total leverage, minimum interest coverage and minimum fixed charges. As of December 31, 2002,2003, these financial covenants included:
• | Maximum Total Leverage Test. As of December 31, |
• | Minimum Interest Coverage Test. The Company’s consolidated operating cash flow for the four quarters ending on the last day of each quarter must not have been less than 2.0 times the amount of its interest expense. |
• | Minimum Fixed Charges Test. The Company’s consolidated operating cash flow for any four consecutive quarters must not |
As of December 31, 2002,2003, management of the Company believed it was in compliance with all applicable financial covenants.
Failure to comply with these financial covenants, scheduled interest payments, scheduled principal repayments, or any other terms of ourits credit facility could result in the acceleration of the maturity of its outstanding debt. The Company believes that it will have sufficient liquidity and capital resources to permit it to meet its financial obligations for at least the next twelve months.
On January 14, 2000,February 27, 2004, the Company executedentered into a $3.0 million promissorynew credit agreement (see note in favor of FindWhat.com as consideration for the purchase of 600,000 shares of common stock. The note bore interest at 5.73% per annum and matured on January 14, 2002. All outstanding principal and accrued interest was due at maturity, however,18). As a result, the Company repaidclassified the note in full with an equivalent amountcurrent and long-term installments of advertising air time as specifiedlong-term debt in the loan agreement and a related advertising agreementconsolidated balance sheet as of December 31, 2003 in accordance with FindWhat.com. The note was guaranteed by BFMA.the terms of the new credit agreement.
BEASLEY BROADCAST GROUP, INC.
(10)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(8) Derivative Financial Instruments
The Company uses interest rate collar, cap and swap agreements to hedge againstDerivatives financial instruments designated as cash flow hedges are summarized in the potential impact of increasesfollowing table:
Agreement | Notional Amount | Floor | Cap | Swap | Expiration | Estimated Fair Value | |||||||||
Interest rate swap | $ | 20,000,000 | — | — | 1.98 | % | May 2006 | $ | 164,676 | ||||||
Interest rate swap | 20,000,000 | — | — | 1.98 | May 2006 | 164,357 | |||||||||
Interest rate swap | 10,000,000 | — | — | 1.91 | May 2006 | 94,640 | |||||||||
$ | 50,000,000 | $ | 423,673 | ||||||||||||
Derivative financial instruments that were not designated as hedges are summarized in interest rates on the credit facility. following table:
Agreement | Notional Amount | Floor | Cap | Swap | Expiration | Estimated Fair Value | ||||||||||||
Interest rate cap | 10,000,000 | — | 6.0 | % | — | May 2004 | — | |||||||||||
Interest rate collar | 15,000,000 | 1.5 | % | 4.5 | — | November 2004 | $ | (47,492 | ) | |||||||||
Interest rate collar | 10,000,000 | 1.5 | 4.4 | — | November 2004 | (31,661 | ) | |||||||||||
Interest rate swap | 10,000,000 | — | — | 2.26 | % | November 2004 | (100,032 | ) | ||||||||||
$ | 45,000,000 | $ | (179,185 | ) | ||||||||||||||
For the years ended December 31, 2001, 2002 and 2002,2003, the Company paid additional interest of $1.3 million, and $4.2 million and $3.0 million, respectively. For the year ended December 31, 2000, the Company received additional interest of approximately $113,000. The amount received or paid is based on the differential between the specified rates of the cap, collar cap and swap agreements and the variable interest rate of the credit facility.
BEASLEY BROADCAST GROUP, INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
As of December 31, 2002, the Company’s collar, cap and swap agreements are summarized in the following table:
Agreement | Notional Amount | Floor | Cap | Swap | Expiration Date | Estimated Fair Value | ||||||||||||
Interest rate collar | $ | 55,000,000 | 4.95 | % | 7.0 | % | — |
| October 2003 | $ | (1,590,000 | ) | ||||||
Interest rate cap |
| 10,000,000 | — |
| 6.0 | % | — |
| May 2004 |
| — |
| ||||||
Interest rate collar |
| 15,000,000 | 1.50 | % | 4.5 | % | — |
| November 2004 |
| (34,000 | ) | ||||||
Interest rate collar |
| 10,000,000 | 1.50 | % | 4.4 | % | — |
| November 2004 |
| (22,000 | ) | ||||||
Interest rate swap |
| 10,000,000 | — |
| — |
| 2.26 | % | November 2004 |
| (163,000 | ) | ||||||
$ | (1,809,000 | ) | ||||||||||||||||
The Company is exposed to credit loss in the event of nonperformance by the other parties to the agreements. The Company, however, does not anticipate nonperformance by the counterparties. The estimated fair value of each interest rate collar, cap and swap agreement is based on the amounts the Company would expect to pay to terminate the agreement.
(11)(9) Other Non-Operating Income
On March 23, 2001, the Company received a $2.6 million payment on a related party receivable previously written off prior to the Company’s initial public offering on February 11, 2000. The resulting gain is recorded in other non-operating income in the consolidated statement of operations for the year ended December 31, 2001.
(12)(10) Income Taxes
Total income tax expense (benefit) is as follows:
Year ended December 31, | |||||||||||||||||||||||
2000 | 2001 | 2002 | Year ended December 31, | ||||||||||||||||||||
As Restated | As Restated | 2001 | 2002 | 2003 | |||||||||||||||||||
Continuing operations | $ | 27,914,760 | $ | (6,997,539 | ) | $ | 5,812,479 |
| $ | (6,997,539 | ) | $ | 5,812,479 | $ | 8,847,336 | ||||||||
Cumulative effect of accounting change |
| — |
| 25,000 |
|
| (5,162,204 | ) | 25,000 | (5,162,204 | ) | — | |||||||||||
Discontinued operations |
| — |
| (226,461 | ) |
| (325,466 | ) | (226,461 | ) | (325,466 | ) | 137,463 | ||||||||||
Additional paid-in capital | — | — | (2,045 | ) | |||||||||||||||||||
Accumulated other comprehensive income | — | — | 1,534,632 | ||||||||||||||||||||
$ | 27,914,760 | $ | (7,199,000 | ) | $ | 324,809 |
| $ | (7,199,000 | ) | $ | 324,809 | $ | 10,517,386 | |||||||||
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Income tax expense (benefit) from continuing operations is as follows:
Year ended December 31, | ||||||||||
2000 | 2001 | 2002 | ||||||||
As Restated | As Restated | |||||||||
Federal: | ||||||||||
Current | $ | 2,489,000 | $ | (2,092,000 | ) | $ | — | |||
Deferred |
| 19,909,101 |
| (3,844,086 | ) |
| 4,419,431 | |||
| 22,398,101 |
| (5,936,086 | ) |
| 4,419,431 | ||||
State: | ||||||||||
Current |
| 1,109,000 |
| 245,000 |
|
| 279,214 | |||
Deferred |
| 4,407,659 |
| (1,306,453 | ) |
| 1,113,834 | |||
| 5,516,659 |
| (1,061,453 | ) |
| 1,393,048 | ||||
$ | 27,914,760 | $ | (6,997,539 | ) | $ | 5,812,479 | ||||
BEASLEY BROADCAST GROUP, INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
Year ended December 31, | ||||||||||
2001 | 2002 | 2003 | ||||||||
Federal: | ||||||||||
Current | $ | (2,092,000 | ) | $ | — | $ | — | |||
Deferred | (3,844,086 | ) | 4,419,431 | 7,069,968 | ||||||
(5,936,086 | ) | 4,419,431 | 7,069,968 | |||||||
State: | ||||||||||
Current | 245,000 | 279,214 | 444,345 | |||||||
Deferred | (1,306,453 | ) | 1,113,834 | 1,333,023 | ||||||
(1,061,453 | ) | 1,393,048 | 1,777,368 | |||||||
$ | (6,997,539 | ) | $ | 5,812,479 | $ | 8,847,336 | ||||
Income tax expense (benefit) from continuing operations differ from the amounts that would result from applying the federal statutory rate of 34% to the Company’s income (loss) from continuing operations before taxes as follows:
Year ended December 31, | |||||||||||||||||||||
2000 | 2001 | 2002 | Year ended December 31, | ||||||||||||||||||
As Restated | As Restated | 2001 | 2002 | 2003 | |||||||||||||||||
Expected tax expense (benefit) | $ | (204,000 | ) | $ | (9,796,332 | ) | $ | 4,900,011 | $ | (9,796,332 | ) | $ | 4,900,011 | $ | 7,259,574 | ||||||
State income taxes, net of federal benefit |
| 532,000 |
|
| (700,559 | ) |
| 462,652 | (700,559 | ) | 462,652 | 1,163,736 | |||||||||
Establishment of deferred tax assets and liabilities upon conversion from a subchapter S corporation to a subchapter C corporation on February 11, 2000 |
| 27,213,760 |
|
| — |
|
| — | |||||||||||||
Non-deductible impairment loss on long-lived assets |
| — |
|
| 2,380,000 |
|
| — | 2,380,000 | — | — | ||||||||||
Non-deductible depreciation and amortization of Centennial Broadcasting acquisition |
| — |
|
| 490,561 |
|
| — | 490,561 | — | — | ||||||||||
Non-deductible amortization of minority interest acquisitions |
| 194,000 |
|
| 189,721 |
|
| — | 189,721 | — | — | ||||||||||
Valuation allowance |
| — |
|
| — |
|
| 415,498 | — | 415,498 | 60,721 | ||||||||||
Other |
| 179,000 |
|
| 439,070 |
|
| 34,318 | 439,070 | 34,318 | 363,305 | ||||||||||
$ | 27,914,760 |
| $ | (6,997,539 | ) | $ | 5,812,479 | $ | (6,997,539 | ) | $ | 5,812,479 | $ | 8,847,336 | |||||||
Temporary differences that give rise to the components of deferred tax assets and liabilities are as follows:
December 31, | ||||||||||||||||
2001 | 2002 | December 31, | ||||||||||||||
As Restated | 2002 | 2003 | ||||||||||||||
Allowance for doubtful accounts | $ | 240,000 |
| $ | 172,665 |
| $ | 172,665 | $ | 180,472 | ||||||
Program rights |
| 162,779 |
|
| — |
| ||||||||||
Derivative financial instruments |
| 1,788,000 |
|
| 698,636 |
| ||||||||||
Unrealized loss on derivative financial instruments | 698,636 | — | ||||||||||||||
Unrealized loss on investment |
| 927,000 |
|
| 772,400 |
| 772,400 | — | ||||||||
Net operating losses |
| 1,166,044 |
|
| 3,458,577 |
| 3,458,577 | 1,632,240 | ||||||||
Valuation allowance |
| — |
|
| (415,498 | ) | (415,498 | ) | (476,219 | ) | ||||||
Gross deferred tax assets |
| 4,283,823 |
|
| 4,686,780 |
| 4,686,780 | 1,336,493 | ||||||||
Unrealized gain on derivative financial instruments | — | (94,422 | ) | |||||||||||||
Unrealized gain on investment | — | (1,062,050 | ) | |||||||||||||
Property and equipment |
| (1,224,000 | ) |
| (1,447,616 | ) | (1,447,616 | ) | (1,348,321 | ) | ||||||
Intangibles |
| (22,401,000 | ) |
| (22,569,917 | ) | (22,569,917 | ) | (28,235,700 | ) | ||||||
Gross deferred tax liabilities |
| (23,625,000 | ) |
| (24,017,533 | ) | (24,017,533 | ) | (30,740,493 | ) | ||||||
Net deferred tax liabilities | $ | (19,341,177 | ) | $ | (19,330,753 | ) | $ | (19,330,753 | ) | $ | (29,404,000 | ) | ||||
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company expects future operations to generate sufficient taxable income to utilize its net deferred tax assets. As of December 31, 2002,2003, the Company has federal net operating losses of $7.7$2.5 million and state net operating losses of $12.7$11.2 million, which expire in various years through 2022.2023. The increase in the valuation allowance relates to net operating losses in certain states in which management has determined, more likely than not, that such losses will not be utilized before they expire.
On October 3, 2002, the Company entered into a definitive agreement with ABC, Inc. to sell WBYU-AM in the New Orleans market, for $1.5 million, subject to certain adjustments. The Company purchased WBYU-AM
BEASLEY BROADCAST GROUP, INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
on February 1, 2001. The Company completed the sale of WBYU-AM on February 5, 2003. Upon completion of this sale the Company no longer has operations in the New Orleans market, therefore, the results of operations for WBYU-AM have been reported as discontinued operations in the consolidated statements of operations for the years ended December 31, 2001 and 2002.
A summary of discontinued operations is as follows:
Year ended December 31, | ||||||||
2001 | 2002 | |||||||
Net revenue | $ | 72,814 |
| $ | 115,293 |
| ||
Loss before income taxes | $ | (586,382 | ) | $ | (332,322 | ) | ||
Income tax benefit |
| (226,461 | ) |
| (128,344 | ) | ||
Loss before cumulative effect of accounting change |
| (359,921 | ) |
| (203,978 | ) | ||
Cumulative effect of accounting change (net of income taxes) |
| — |
|
| (445,875 | ) | ||
Net loss from discontinued operations | $ | (359,921 | ) | $ | (649,853 | ) | ||
(14)(11) Income (Loss) Per Share
Income (loss) from continuing operations before cumulative effect of accounting change and discontinued operations per share calculation information is as follows:
2000 | 2001 | 2002 | |||||||||||||||||||
As Restated | As Restated | 2001 | 2002 | 2003 | |||||||||||||||||
Income (loss) from continuing operations before cumulative effect of accounting change and discontinued operations | $ | (28,514,447 | ) | $ | (21,815,201 | ) | $ | 8,599,319 | $ | (21,815,201 | ) | $ | 8,599,319 | $ | 12,504,352 | ||||||
Weighted-average shares outstanding: | |||||||||||||||||||||
Basic |
| 23,506,091 |
|
| 24,273,441 |
|
| 24,273,441 | 24,273,441 | 24,273,441 | 24,273,783 | ||||||||||
Effect of dilutive stock options |
| — |
|
| — |
|
| 39,458 | — | 39,458 | 60,697 | ||||||||||
Diluted |
| 23,506,091 |
|
| 24,273,441 |
|
| 24,312,899 | 24,273,441 | 24,312,899 | 24,334,480 | ||||||||||
Income (loss) from continuing operations before cumulative effect of accounting change and discontinued operations per basic and diluted share | $ | (1.21 | ) | $ | (0.90 | ) | $ | 0.35 | |||||||||||||
Income (loss) from continuing operations before cumulative effect of accounting change and discontinued operations per basic share | $ | (0.90 | ) | $ | 0.35 | $ | 0.52 | ||||||||||||||
Income (loss) from continuing operations before cumulative effect of accounting change and discontinued operations per diluted share | $ | (0.90 | ) | $ | 0.35 | $ | 0.51 | ||||||||||||||
(15)(12) Segment Information
The Company operates three reportable segments comprised of 41 separate radio stations located primarily in the eastern United States. The reportable segments are in the radio broadcasting industry, providing a similar product to similar customers. Net revenue, consisting primarily of sales of airtime to national and local advertising,advertisers, is derived from domestic external sources. The Company does not rely on any major customer as a source of net revenue. The Company identifies its reportable segments based on the operating management responsibility for the segment. The chief operating decision maker uses net revenue and other financial measures of profitability to assess segment profit or loss and to allocate resources between the three segments. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Segment information is as follows:
Radio Group One | Radio Group Two | Radio Group Three | Corporate | Total | ||||||||||||||||||||||||||||||||||||
2002 | ||||||||||||||||||||||||||||||||||||||||
Radio Group One | Radio Group Two | Radio Group Three | Corporate | Total | ||||||||||||||||||||||||||||||||||||
Year ended December 31, 2003 | ||||||||||||||||||||||||||||||||||||||||
Net revenue | $ | 64,811,126 |
| $ | 39,106,616 |
| $ | 10,774,287 |
| $ | — |
| $ | 114,692,029 |
| $ | 66,792,441 | $ | 36,335,058 | $ | 11,354,741 | $ | — | $ | 114,482,240 | |||||||||||||||
Cost of services | 25,588,382 | 11,369,470 | 2,503,650 | — | 39,461,502 | |||||||||||||||||||||||||||||||||||
Selling, general and administrative | 21,303,947 | 14,022,619 | 4,232,969 | — | 39,559,535 | |||||||||||||||||||||||||||||||||||
Station operating income | 19,900,112 | 10,942,969 | 4,618,122 | — | 35,461,203 | |||||||||||||||||||||||||||||||||||
Corporate general and administrative | 2,840,984 | 2,083,556 | 570,065 | — | 5,494,605 | |||||||||||||||||||||||||||||||||||
Depreciation and amortization |
| 1,771,537 |
|
| 1,506,544 |
|
| 389,548 |
|
| 57,855 |
|
| 3,725,484 |
| 1,717,127 | 1,343,352 | 456,000 | 57,513 | 3,573,992 | ||||||||||||||||||||
Operating income (loss) from continuing operations | 15,342,001 | 7,516,061 | 3,592,057 | (57,513 | ) | 26,392,606 | ||||||||||||||||||||||||||||||||||
Interest expense |
| (5,515,586 | ) |
| (5,783,673 | ) |
| (3,964,389 | ) |
| — |
|
| (15,263,648 | ) | (4,130,216 | ) | (4,351,026 | ) | (2,713,989 | ) | — | (11,195,231 | ) | ||||||||||||||||
Loss on extinguishment of long-term debt |
| (775,638 | ) |
| (506,015 | ) |
| (624,531 | ) |
| — |
|
| (1,906,184 | ) | |||||||||||||||||||||||||
Gain on change in fair value of derivative financial instruments |
| — |
|
| — |
|
| — |
|
| 2,821,000 |
|
| 2,821,000 |
| |||||||||||||||||||||||||
Gain on equity investments |
| 335,931 |
|
| 263,946 |
|
| — |
|
| — |
|
| 599,877 |
| |||||||||||||||||||||||||
Gain on sale of investments | 2,515,485 | 1,976,453 | — | — | 4,491,938 | |||||||||||||||||||||||||||||||||||
Gain on increase in fair value of derivative financial instruments | — | — | — | 1,629,815 | 1,629,815 | |||||||||||||||||||||||||||||||||||
Interest income |
| 150,502 |
|
| 172,221 |
|
| 235,851 |
|
| 52,609 |
|
| 611,183 |
| 151,130 | 166,102 | 220,602 | 55,575 | 593,409 | ||||||||||||||||||||
Income (loss) from continuing operations before income taxes |
| 9,047,191 |
|
| 4,242,888 |
|
| (1,694,035 | ) |
| 2,815,754 |
|
| 14,411,798 |
| |||||||||||||||||||||||||
Other non-operating expense | (44,706 | ) | (516,143 | ) | — | — | (560,849 | ) | ||||||||||||||||||||||||||||||||
Income from continuing operations before income taxes | 13,833,694 | 4,791,447 | 1,098,670 | 1,627,877 | 21,351,688 | |||||||||||||||||||||||||||||||||||
Income tax expense |
| — |
|
| — |
|
| — |
|
| 5,812,479 |
|
| 5,812,479 |
| — | — | — | 8,847,336 | 8,847,336 | ||||||||||||||||||||
Cumulative effect of accounting change |
| — |
|
| — |
|
| (11,676,516 | ) |
| — |
|
| (11,676,516 | ) | |||||||||||||||||||||||||
Income (loss) from continuing operations before discontinued operations | 13,833,694 | 4,791,447 | 1,098,670 | (7,219,459 | ) | 12,504,352 | ||||||||||||||||||||||||||||||||||
Discontinued operations |
| — |
|
| — |
|
| (649,853 | ) |
| — |
|
| (649,853 | ) | — | — | 266,840 | — | 266,840 | ||||||||||||||||||||
Net income (loss) | $ | 13,833,694 | $ | 4,791,447 | $ | 1,365,510 | $ | (7,219,459 | ) | $ | 12,771,192 | |||||||||||||||||||||||||||||
Capital expenditures | $ | 1,857,436 |
| $ | 632,571 |
| $ | 151,329 |
| $ | 30,348 |
| $ | 2,671,684 |
| $ | 772,896 | $ | 736,916 | $ | 21,598 | $ | 36,549 | $ | 1,567,959 | |||||||||||||||
Total assets |
| 100,288,772 |
|
| 103,976,841 |
|
| 68,996,395 |
|
| 8,828,562 |
|
| 282,090,570 |
| $ | 103,669,520 | $ | 101,872,795 | $ | 64,398,667 | $ | 7,949,763 | $ | 277,890,745 | |||||||||||||||
2001 | ||||||||||||||||||||||||||||||||||||||||
Year ended December 31, 2002 | ||||||||||||||||||||||||||||||||||||||||
Net revenue | $ | 66,292,601 |
| $ | 35,934,993 |
| $ | 12,904,207 |
| $ | — |
| $ | 115,131,801 |
| $ | 64,811,126 | $ | 39,106,616 | $ | 10,774,287 | $ | — | $ | 114,692,029 | |||||||||||||||
Cost of services | 23,506,507 | 11,280,485 | 2,671,384 | — | 37,458,376 | |||||||||||||||||||||||||||||||||||
Selling, general and administrative | 21,815,189 | 14,330,753 | 4,238,251 | — | 40,384,193 | |||||||||||||||||||||||||||||||||||
Station operating income | 19,489,430 | 13,495,378 | 3,864,652 | — | 36,849,460 | |||||||||||||||||||||||||||||||||||
Corporate general and administrative | 2,758,738 | 1,891,151 | 501,355 | — | 5,151,244 | |||||||||||||||||||||||||||||||||||
Depreciation and amortization |
| 12,111,535 |
|
| 8,382,922 |
|
| 6,887,205 |
|
| 57,517 |
|
| 27,439,179 |
| 1,771,537 | 1,506,544 | 389,548 | 57,855 | 3,725,484 | ||||||||||||||||||||
Impairment loss on long-lived assets |
| — |
|
| — |
|
| 7,000,000 |
|
| — |
|
| 7,000,000 |
| |||||||||||||||||||||||||
Operating income (loss) from continuing operations | 14,959,155 | 10,097,683 | 2,973,749 | (57,855 | ) | 27,972,732 | ||||||||||||||||||||||||||||||||||
Interest expense |
| (5,805,281 | ) |
| (5,914,708 | ) |
| (4,932,374 | ) |
| — |
|
| (16,652,363 | ) | (5,515,586 | ) | (5,783,673 | ) | (3,964,389 | ) | — | (15,263,648 | ) | ||||||||||||||||
Loss on change in fair value of derivative financial instruments |
| — |
|
| — |
|
| — |
|
| (4,696,000 | ) |
| (4,696,000 | ) | |||||||||||||||||||||||||
Loss on equity investments |
| (1,030,521 | ) |
| (475,625 | ) |
| (79,271 | ) |
| — |
|
| (1,585,417 | ) | |||||||||||||||||||||||||
Interest income |
| 188,151 |
|
| 197,386 |
|
| — |
|
| 45,298 |
|
| 430,835 |
| |||||||||||||||||||||||||
Loss from continuing operations before income taxes |
| (1,270,937 | ) |
| (7,089,702 | ) |
| (15,743,882 | ) |
| (4,708,219 | ) |
| (28,812,740 | ) | |||||||||||||||||||||||||
Income tax benefit |
| — |
|
| — |
|
| — |
|
| (6,997,539 | ) |
| (6,997,539 | ) | |||||||||||||||||||||||||
Cumulative effect of accounting change |
| — |
|
| — |
|
| — |
|
| 41,000 |
|
| 41,000 |
| |||||||||||||||||||||||||
Discontinued operations |
| — |
|
| — |
|
| (359,921 | ) |
| — |
|
| (359,921 | ) | |||||||||||||||||||||||||
Capital expenditures | $ | 1,654,787 |
| $ | 767,042 |
| $ | 237,758 |
| $ | 31,443 |
| $ | 2,691,030 |
| |||||||||||||||||||||||||
Total assets |
| 99,277,161 |
|
| 105,054,680 |
|
| 106,181,672 |
|
| 8,785,986 |
|
| 319,299,499 |
| |||||||||||||||||||||||||
2000 | ||||||||||||||||||||||||||||||||||||||||
Net revenue | $ | 68,983,714 |
| $ | 37,169,926 |
| $ | — |
| $ | — |
| $ | 106,153,640 |
| |||||||||||||||||||||||||
Depreciation and amortization |
| 9,295,425 |
|
| 8,100,396 |
|
| — |
|
| 13,341 |
|
| 17,409,162 |
| |||||||||||||||||||||||||
Interest expense |
| (5,056,320 | ) |
| (3,756,244 | ) |
| — |
|
| — |
|
| (8,812,564 | ) | |||||||||||||||||||||||||
Loss on equity investments |
| (1,344,000 | ) |
| (1,056,000 | ) |
| — |
|
| — |
|
| (2,400,000 | ) | |||||||||||||||||||||||||
Interest income |
| 307,384 |
|
| 121,475 |
|
| — |
|
| 17,338 |
|
| 446,197 |
| |||||||||||||||||||||||||
Income (loss) before income taxes |
| 2,456,502 |
|
| (3,060,186 | ) |
| — |
|
| 3,997 |
|
| (599,687 | ) | |||||||||||||||||||||||||
Income tax expense |
| — |
|
| — |
|
| — |
|
| 27,914,760 |
|
| 27,914,760 |
| |||||||||||||||||||||||||
Capital expenditures | $ | 1,203,629 |
| $ | 2,242,851 |
| $ | — |
| $ | 195,397 |
| $ | 3,641,877 |
| |||||||||||||||||||||||||
Total assets |
| 111,366,591 |
|
| 100,368,725 |
|
| — |
|
| 7,506,488 |
|
| 219,241,804 |
|
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Radio Group One | Radio Group Two | Radio Group Three | Corporate | Total | ||||||||||||||||
Loss on extinguishment of long-term debt | (775,638 | ) | (506,015 | ) | (624,531 | ) | — | (1,906,184 | ) | |||||||||||
Gain on sale of investments | 335,931 | 263,946 | — | — | 599,877 | |||||||||||||||
Gain on increase in fair value of derivative financial instruments | — | — | — | 2,821,000 | 2,821,000 | |||||||||||||||
Interest income | 150,502 | 172,221 | 235,851 | 52,609 | 611,183 | |||||||||||||||
Other non-operating expense | (107,173 | ) | (1,274 | ) | (314,715 | ) | — | (423,162 | ) | |||||||||||
Income (loss) from continuing operations before income taxes | 9,047,191 | 4,242,888 | (1,694,035 | ) | 2,815,754 | 14,411,798 | ||||||||||||||
Income tax expense | — | — | — | 5,812,479 | 5,812,479 | |||||||||||||||
Income (loss) from continuing operations before cumulative effect of accounting change and discontinued operations | 9,047,191 | 4,242,888 | (1,694,035 | ) | (2,996,725 | ) | 8,599,319 | |||||||||||||
Cumulative effect of accounting change | — | — | (11,676,516 | ) | — | (11,676,516 | ) | |||||||||||||
Discontinued operations | — | — | (649,853 | ) | — | (649,853 | ) | |||||||||||||
Net income (loss) | $ | 9,047,191 | $ | 4,242,888 | $ | (14,020,404 | ) | $ | (2,996,725 | ) | $ | (3,727,050 | ) | |||||||
Capital expenditures | $ | 1,857,436 | $ | 632,571 | $ | 151,329 | $ | 30,348 | $ | 2,671,684 | ||||||||||
Total assets | $ | 100,288,772 | $ | 103,976,841 | $ | 68,996,395 | $ | 8,828,562 | $ | 282,090,570 | ||||||||||
Year ended December 31, 2001 | ||||||||||||||||||||
Net revenue | $ | 66,292,601 | $ | 35,934,993 | $ | 12,904,207 | $ | — | $ | 115,131,801 | ||||||||||
Cost of services | 26,835,342 | 10,987,847 | 3,588,074 | — | 41,411,263 | |||||||||||||||
Selling, general and administrative | 21,185,541 | 14,565,602 | 5,191,289 | — | 40,942,432 | |||||||||||||||
Station operating income | 18,271,718 | 10,381,544 | 4,124,844 | — | 32,778,106 | |||||||||||||||
Corporate general and administrative | 2,830,434 | 1,853,341 | — | — | 4,683,775 | |||||||||||||||
Employee contract and termination expenses | 160,903 | 465,745 | 901,116 | — | 1,527,764 | |||||||||||||||
Depreciation and amortization | 12,111,535 | 8,382,922 | 6,887,205 | 57,517 | 27,439,179 | |||||||||||||||
Impairment loss on long-lived assets | — | — | 7,000,000 | — | 7,000,000 | |||||||||||||||
Operating income (loss) from continuing operations | 3,168,846 | (320,464 | ) | (10,663,477 | ) | (57,517 | ) | (7,872,612 | ) | |||||||||||
Interest expense | (5,805,281 | ) | (5,914,708 | ) | (4,932,374 | ) | — | (16,652,363 | ) | |||||||||||
Loss on decrease in fair value of derivative financial instruments | — | — | — | (4,696,000 | ) | (4,696,000 | ) | |||||||||||||
Loss on investments | (1,030,521 | ) | (475,625 | ) | (79,271 | ) | — | (1,585,417 | ) | |||||||||||
Interest income | 188,151 | 197,386 | — | 45,298 | 430,835 |
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Radio Group One | Radio Group Two | Radio Group Three | Corporate | Total | ||||||||||||||||
Other non-operating income (expense) | 2,207,868 | (576,291 | ) | (68,760 | ) | — | 1,562,817 | |||||||||||||
Loss from continuing operations before income taxes | (1,270,937 | ) | (7,089,702 | ) | (15,743,882 | ) | (4,708,219 | ) | (28,812,740 | ) | ||||||||||
Income tax benefit | — | — | — | (6,997,539 | ) | (6,997,539 | ) | |||||||||||||
Income (loss) from continuing operations before cumulative effect of accounting change and discontinued operations | (1,270,937 | ) | (7,089,702 | ) | (15,743,882 | ) | 2,289,320 | (21,815,201 | ) | |||||||||||
Cumulative effect of accounting change | — | — | — | 41,000 | 41,000 | |||||||||||||||
Discontinued operations | — | — | (359,921 | ) | — | (359,921 | ) | |||||||||||||
Net income (loss) | $ | (1,270,937 | ) | $ | (7,089,702 | ) | $ | (16,103,803 | ) | $ | 2,330,320 | $ | (22,134,122 | ) | ||||||
Capital expenditures | $ | 1,654,787 | $ | 767,042 | $ | 237,758 | $ | 31,443 | $ | 2,691,030 | ||||||||||
Radio Group One includes radio stations located in Miami-Ft. Lauderdale, FL, Ft. Myers-Naples, FL, West Palm Beach-Boca Raton, FL, Ft. Myers-Naples, FL and Greenville-New Bern-Jacksonville, NC. Radio Group Two includes radio stations located in Atlanta, GA, Boston, MA, Philadelphia, PA, Boston, MA, Fayetteville, NC, and Augusta, GA. Radio Group Three includes radio stations located in Las Vegas, NV.NV and New Orleans, LA. Corporate total assets include cash and cash equivalents, deferred tax assets, property and equipment and certain other assets.
(16)(13) Selected Quarterly Data (Unaudited)
The following unaudited information shows selected items for each quarter of the Company’s two most recent fiscal years.
Year ended December 31, 2003 | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||||||||||||||
Net revenue | $ | 24,519,616 | $ | 28,473,088 | $ | 29,356,876 | $ | 32,132,660 | |||||||||||||||||||||
Operating income from continuing operations | 4,657,334 | 7,055,229 | 7,305,627 | 7,374,416 | |||||||||||||||||||||||||
Income from continuing operations before discontinued operations | 1,709,494 | 4,382,621 | 3,112,232 | 3,300,005 | |||||||||||||||||||||||||
Net income | 1,976,334 | 4,382,621 | 3,112,232 | 3,300,005 | |||||||||||||||||||||||||
Basic and diluted income from continuing operations before discontinued operations per share | 0.07 | 0.18 | 0.13 | 0.14 | |||||||||||||||||||||||||
Basic and diluted net income per share | 0.08 | 0.18 | 0.13 | 0.14 | |||||||||||||||||||||||||
Year ended December 31, 2002 | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||||||||||
As Restated | |||||||||||||||||||||||||||||
Net revenue | $ | 24,872,458 |
| $ | 28,327,654 |
| $ | 28,793,802 |
| $ | 32,698,115 |
| $ | 24,872,458 | $ | 28,327,654 | $ | 28,793,802 | $ | 32,698,115 | |||||||||
Operating income from continuing operations |
| 4,744,080 |
|
| 7,512,699 |
|
| 7,219,285 |
|
| 8,496,668 |
| 4,744,080 | 7,512,699 | 7,219,285 | 8,496,668 | |||||||||||||
Income from continuing operations before cumulative effect of accounting change and discontinued operations |
| 1,183,342 |
|
| 2,647,124 |
|
| 1,585,548 |
|
| 3,183,305 |
| 1,183,342 | 2,647,124 | 1,585,548 | 3,183,305 | |||||||||||||
Net income (loss) | (10,982,915 | ) | 2,600,939 | 1,480,058 | 3,174,868 | ||||||||||||||||||||||||
Basic and diluted income from continuing operations before cumulative effect of accounting change and discontinued operations per share |
| 0.05 |
|
| 0.11 |
|
| 0.06 |
|
| 0.13 |
| 0.05 | 0.11 | 0.06 | 0.13 | |||||||||||||
Net income (loss) |
| (10,982,915 | ) |
| 2,600,939 |
|
| 1,480,058 |
|
| 3,174,868 |
| |||||||||||||||||
Basic and diluted net income (loss) per share |
| (0.45 | ) |
| 0.11 |
|
| 0.06 |
|
| 0.13 |
| (0.45 | ) | 0.11 | 0.06 | 0.13 | ||||||||||||
Year ended December 31, 2001 | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||||||||||||||
As Restated | |||||||||||||||||||||||||||||
Net revenue | $ | 25,842,721 |
| $ | 30,199,878 |
| $ | 28,680,826 |
| $ | 30,408,376 |
| |||||||||||||||||
Operating income (loss) from continuing |
| (590,278 | ) |
| 124,160 |
|
| (7,658,408 | ) |
| 251,914 |
| |||||||||||||||||
Loss from continuing operations before cumulative effect of accounting change and discontinued operations |
| (2,542,593 | ) |
| (3,981,039 | ) |
| (11,810,388 | ) |
| (3,481,181 | ) | |||||||||||||||||
Basic and diluted loss from continuing operations before cumulative effect of accounting change and discontinued operations per share |
| (0.11 | ) |
| (0.16 | ) |
| (0.49 | ) |
| (0.14 | ) | |||||||||||||||||
Net loss |
| (2,582,420 | ) |
| (4,100,631 | ) |
| (11,921,040 | ) |
| (3,530,031 | ) | |||||||||||||||||
Basic and diluted net loss per share |
| (0.11 | ) |
| (0.17 | ) |
| (0.49 | ) |
| (0.14 | ) |
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following information presents the impact of the adjustments discussed in note 2 on the Company’s statements of operations as originally reported for the three months ended March 31, 2002 and for the three months ended September 30, 2001:
Three months ended March 31, 2002 | Three months ended September 30, 2001 | |||||||||||||||
As Reported | As Restated | As Reported | As Restated | |||||||||||||
Other non-operating income | $ | 3,200 |
| $ | 3,200 |
| $ | 404,776 |
| $ | 27,359 |
| ||||
Income (loss) from continuing operations before income taxes |
| 1,570,244 |
|
| 1,641,711 |
|
| (13,629,623 | ) |
| (13,826,767 | ) | ||||
Income tax expense (benefit) |
| (275,055 | ) |
| 458,369 |
|
| (2,086,000 | ) |
| (2,016,379 | ) | ||||
Income (loss) from continuing operations before cumulative effect of accounting change and discontinued operations |
| 1,845,299 |
|
| 1,183,342 |
|
| (11,543,623 | ) |
| (11,810,388 | ) | ||||
Cumulative effect of accounting change (net of income taxes) |
| (12,122,391 | ) |
| (11,676,516 | ) |
| — |
|
| — |
| ||||
Discontinued operations (net of income taxes) |
| — |
|
| (489,741 | ) |
| — |
|
| (110,652 | ) | ||||
Net loss | $ | (10,277,092 | ) | $ | (10,982,915 | ) | $ | (11,543,623 | ) | $ | (11,921,040 | ) | ||||
Basic and diluted net loss per share | $ | (0.42 | ) | $ | (0.45 | ) | $ | (0.48 | ) | $ | (0.49 | ) | ||||
The adjustments discussed in note 2 had no impact on the Company’s balance sheets as originally reported as of March 31, June 30, and September 30, 2002. The following information presents the impact of the adjustments discussed in note 2 on the Company’s balance sheets as originally reported as of March 31, June 30, and September 30, 2001:
March 31, 2001 | June 30, 2001 | |||||||||||||||
As Reported | As Restated | As Reported | As Restated | |||||||||||||
Other receivables | $ | 1,336,159 |
| $ | 1,713,576 |
| $ | 1,041,161 |
| $ | 1,418,578 |
| ||||
Deferred tax assets |
| 881,000 |
|
| 1,586,823 |
|
| 2,323,000 |
|
| 3,028,823 |
| ||||
Total assets |
| 331,471,393 |
|
| 332,554,633 |
|
| 334,360,704 |
|
| 335,443,944 |
| ||||
Accumulated deficit |
| (30,283,028 | ) |
| (29,199,788 | ) |
| (34,383,659 | ) |
| (33,300,419 | ) | ||||
Stockholders’ equity |
| 76,375,177 |
|
| 77,458,417 |
|
| 72,274,546 |
|
| 73,357,786 |
| ||||
Total liabilities and stockholders’ equity |
| 331,471,393 |
|
| 332,554,633 |
|
| 334,360,704 |
|
| 335,443,944 |
| ||||
September 30, 2001 | ||||||||||||||||
As Reported | As Restated | |||||||||||||||
Deferred tax assets | $ | 3,839,000 |
| $ | 4,544,823 |
| ||||||||||
Total assets |
| 326,411,357 |
|
| 327,117,180 |
| ||||||||||
Accumulated deficit |
| (45,927,282 | ) |
| (45,221,459 | ) | ||||||||||
Stockholders’ equity |
| 60,730,923 |
|
| 61,436,746 |
| ||||||||||
Total liabilities and stockholders’ equity |
| 326,411,357 |
|
| 327,117,180 |
|
(17)(14) Related Party Transactions
Notes receivable totaling $4.7$4.6 million are due from Beasley Family Towers, Inc. (“BFT”), which is a corporation owned by George G. Beasley, Bruce G. Beasley, Caroline Beasley, Brian E. Beasley and other family members of George G. Beasley, in monthly payments including interest at 6.77%. The notes mature on December 28, 2020. For the years ended December 31, 2001, 2002 and 2002,2003 interest income on the notes receivable from BFT was approximately $342,000, $323,000 and $323,000,$314,000, respectively.
BEASLEY BROADCAST GROUP, INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
In December 2001, BFT built a new tower for WGAC-AM in the Augusta, Georgia market and the Company forgave the indebtedness of approximately $163,000 associated with the note for the original tower. The new tower is leased to the Company on terms identical to the lease for the original tower.
The Company leases office and studio broadcasting space in Ft. Myers, Florida from its principal stockholder, George G. Beasley. The lease agreements expire on September 1, 2004. For each of the years ended December 31, 2000, 2001, 2002 and 2002,2003, rental expense paid to Mr. Beasley was approximately $96,000, $102,000, $108,000 and $108,000,$115,000, respectively.
The Company leases a radio tower in Augusta, Georgia from Wintersrun Communications, Inc. (“WCI”), which is owned by George G. Beasley and Brian E. Beasley. The lease agreement expires on April 30, 2014. For the years ended December 31, 2000, 2001, 2002 and 2002,2003, rental expense paid to WCI was approximately $21,000,$23,000, $23,000 and $23,000,$24,000, respectively.
The Company leases office and studio broadcasting space in Boca Raton, Florida from BFT. The lease agreement expires on June 5, 2010. For the years ended December 31, 2000, 2001, 2002 and 2002,2003, rental expense paid to BFT was approximately $42,000, $74,000, $78,000 and $78,000,$82,000, respectively.
The Company leases office space in Naples, Florida from Beasley Broadcasting Management Corp. (“BBMC”), which is wholly-owned by George G. Beasley. For the years ended December 31, 2000, 2001, 2002 and 2002,2003, rental expense paid to BBMC was approximately $89,000, for each year.$89,000 and $100,000, respectively.
The Company leases certain radio towers from BFT. The lease agreements expire on December 28, 2020. For the years ended December 31, 2001, 2002 and 2002,2003, rental expense paid to BFT was approximately $515,000, $527,000 and $527,000, respectively.
On November 1, 2003, the Company entered into an agreement to lease land for new office and studio space under construction in Augusta, Georgia from George G. Beasley. The lease agreement expires on November 1, 2023 and requires monthly lease payments totaling $32,000 per annum. For the year ended December 31, 2003, rental expense was approximately $5,000.
As of December 31, 2002,2003, future minimum lease payments to related parties for the next five years and thereafter are summarized as follows:
2003 | $ | 682,000 | |
2004 |
| 692,000 | |
2005 |
| 703,000 | |
2006 |
| 715,000 | |
2007 |
| 727,000 | |
Thereafter |
| 7,934,000 | |
Total | $ | 11,453,000 | |
The Company’s Co-Chief Operating Officer and Vice Chairman of the Board of Directors, Allen B. Shaw, owned approximately 8.5% of Centennial Broadcasting, LLC and received a distribution of $6.1 million, subject to certain conditions, as a result of the acquisition of Centennial Broadcasting as of February 1, 2001.
The Company had a management agreement with BBMC. From January 1, 2000 to February 10, 2000, management fee expense under the agreement was approximately $447,000.
Notes payable to related parties were repaid in full on February 16, 2000. From January 1, 2000 to February 16, 2000, interest expense on notes payable to related parties was approximately $80,000.
Notes receivable from stockholders were repaid in full on February 16, 2000. From January 1, 2000 to February 16, 2000, interest income on notes receivable from related parties was approximately $135,000.
Distributions to stockholders of the S corporations from January 1, 2000 to February 10, 2000 were $2.3 million.
2004 | $ | 686,000 | |
2005 | 614,000 | ||
2006 | 619,000 | ||
2007 | 625,000 | ||
2008 | 631,000 | ||
Thereafter | 6,419,000 | ||
Total | $ | 9,594,000 | |
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(18)(15) Fair Value of Financial Instruments
The Company’s significant financial instruments and the methods used to estimate their fair values are as follows:
(19)(16) Commitments and Contingencies
The Company leases property and equipment from third parties under one-five- to forty-year operating leases. For the years ended December 31, 2000, 2001, 2002 and 2002,2003, lease expense was $2.1$2.3 million, $2.3$1.9 million and $1.9 million, respectively. As of December 31, 2002,2003, future minimum lease payments to third parties for the next five years and thereafter are summarized as follows:
2003 | $ | 1,720,000 | |
2004 |
| 1,448,000 | |
2005 |
| 1,239,000 | |
2006 |
| 1,287,000 | |
2007 |
| 1,288,000 | |
Thereafter |
| 3,841,000 | |
Total | $ | 10,823,000 | |
The Company had employment agreements with two radio station managers that contained provisions allowing the station manager to participate in the gain on the sale of the station managed in the event it is sold, and while the station manager was still employed by the Company. In addition, these agreements provided that upon the occurrence of certain liquidity events the station manager would be paid a percentage of the increase in value of the station managed upon completion of the offering. On February 16, 2000, the Company paid $1.2 million to the station managers as a result of the initial public offering.
2004 | $ | 1,906,000 | |
2005 | 1,769,000 | ||
2006 | 1,709,000 | ||
2007 | 1,592,000 | ||
2008 | 1,427,000 | ||
Thereafter | 5,282,000 | ||
Total | $ | 13,685,000 | |
In 2002,2003, the Company entered into a two year contract for the radio broadcast rights relating to the Miami Dolphins sports franchiseFlorida Marlins baseball team and a onetwo year contract for the radio broadcast rights relating to the Florida Panthers sports franchise.hockey team. These contracts grant WQAM-AM the exclusive, English language rights for live radio broadcasts of the sporting events of these franchises.teams. The contracts require the Company to pay fees and to provide commercial advertising and other considerations. As of December 31, 2002,2003, remaining payments of fees are $3.9$6.0 million in 2003.2004 and approximately $139,000 in 2005.
On December 29, 1998,The Company has timely filed license renewal applications for all of its radio stations however certain licenses were not renewed prior to their expiration dates. Based on having filed timely renewal applications, the Company filed a lawsuit incontinues to operate the Circuit Court of the Eleventh Judicial Circuit, Miami-Dade County, against the Florida Marlins Inc., Florida Marlins Baseball Team, Ltd.,radio stations operating under these licenses and Front Row Communications for breach of contract and other related claims. The lawsuit is based on actions taken by the Florida Marlins major league baseball team to trade or release key players of the Marlins after the 1997 season, thereby transforming the Marlins into a non-competitive team. On May 22, 1999, the Marlins countersued for
BEASLEY BROADCAST GROUP, INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
breach of contract. On January 14, 2000, the court dismissed the Marlins’ motion for summary judgment. On January 10, 2001, the Company settled both lawsuits with the other parties with no material impact on the accompanying financial statements.does not anticipate that they will not be renewed.
In the normal course of business, the Company is party to various legal matters. The ultimate disposition of these matters will not, in management’s judgment, have a material adverse effect on the Company’s financial position.
(20)(17) Equity Plan
On February 11, 2000, the Company adopted the 2000 Equity Plan of Beasley Broadcast Group, Inc. (the “Plan”). A total of 3,000,000 shares of Class A common stock were reserved for issuance under the Plan, of which 2,500,000 stock options were granted on February 11, 2000 with an exercise price per share equal to the initial public offering price.Plan. The issued stock options have ten-year terms and generally vest ratably and become fully exercisable after a period of three to four years from the date of grant, however some contain performance-related provisions that may delay vesting beyond four years.years but no longer than seven years after the date of grant.
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
On June 3, 2003, the Board of Directors authorized the reserve of an additional 1,000,000 shares of Class A common stock for issuance under the Plan subject to stockholder approval at the 2004 Annual Meeting. Approval by stockholders is expected to be a formality as members of the Board of Directors control enough votes to approve the additional reserve, therefore the Company will continue to account for all option grants under the Plan, including the additional reserve, in accordance with APB Opinion 25. As of December 31, 2003, no options had been issued from the additional reserve.
As of December 31, 2002,2003, there were 179,0001,081,500 additional shares available for grant under the Plan.
Stock option activity during the periods indicated is as follows:
Number of Shares | Weighted- Average Exercise Price | |||||
Balance as of December 31, 2000 | 2,582,000 | $ | 15.27 | |||
Granted | 105,000 | 14.43 | ||||
Exercised | — | — | ||||
Forfeited | (21,000 | ) | 15.14 | |||
Expired | — | — | ||||
Balance as of December 31, 2001 | 2,666,000 | $ | 15.24 | |||
Granted | 180,000 | 11.70 | ||||
Exercised | — | — | ||||
Forfeited | (25,000 | ) | 14.90 | |||
Expired | — | — | ||||
Balance as of December 31, 2002 | 2,821,000 | $ | 15.02 | |||
Granted | 97,500 | 12.06 | ||||
Exercised | (1,666 | ) | 11.03 | |||
Forfeited | — | — | ||||
Expired | — | — | ||||
Balance as of December 31, 2003 | 2,916,834 | $ | 14.92 | |||
Options exercisable as of December 31: | ||||||
2001 | 787,565 | $ | 15.39 | |||
2002 | 1,568,878 | $ | 15.34 | |||
2003 | 2,320,085 | $ | 15.34 |
The options outstanding as of December 31, 2003, have a range of exercise prices from $7.94 to $15.50 and a weighted-average remaining contractual life of 6.5 years.
The per share weighted-average fair value of stock options outstanding as of December 31, 2001, 2002 and 2003 was $8.84, $8.78, and $8.77, respectively. The fair value of each option was estimated on the date of grant using the Black ScholesBlack-Scholes option-pricing model withand the following weighted-average assumptions: expected life of 7 years, expected volatility of 50% to 68%, risk-free interest rate of 3.54% to 5.33%, and no expected dividend yield.
Stock option activity during the periods indicated is as follows:
Number of Shares | Weighted- Average Exercise Price | |||||
Balance as of February 11, 2000 | — |
|
| — | ||
Granted | 2,607,000 |
| $ | 15.26 | ||
Exercised | — |
|
| — | ||
Forfeited | (25,000 | ) |
| 14.48 | ||
Expired | — |
|
| — | ||
Balance as of December 31, 2000 | 2,582,000 |
| $ | 15.27 | ||
Granted | 105,000 |
|
| 14.43 | ||
Exercised | — |
|
| — | ||
Forfeited | (21,000 | ) |
| 15.14 | ||
Expired | — |
|
| — | ||
Balance as of December 31, 2001 | 2,666,000 |
| $ | 15.24 | ||
Granted | 180,000 |
|
| 11.70 | ||
Exercised | — |
|
| — | ||
Forfeited | (25,000 | ) |
| 14.90 | ||
Expired | — |
|
| — | ||
Balance as of December 31, 2002 | 2,821,000 |
| $ | 15.02 | ||
As of December 31, 2002, the range of exercise prices and weighted-average remaining contractual life of outstanding options was $7.94–$15.50 and 7.4 years, respectively.
As of December 31, 2002, the number of options exercisable was 1,568,878 and the weighted-average exercise price of those options was $15.34.
Year ended December 31, | ||||||
2001 | 2002 | 2003 | ||||
Expected life (in years) | 7 | 7 | 7 | |||
Expected volatility | 50% | 68% | 68% | |||
Risk-free interest rate | 3.54% to 5.04% | 4.00% | 3.81% to 4.40% | |||
Dividend yield | — | — | — |
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(18) Subsequent Event
On February 27, 2004, the Company entered into a new credit agreement. The new credit facility consists of a revolving credit loan with a maximum commitment of $75.0 million and a term loan of $150.0 million. Proceeds from the new credit facility were used to repay the old credit facility (see note 7). The revolving credit loan includes a $10.0 million sub-limit for letters of credit which may be increased to $20.0 million upon the Company’s request and with the approval of the Bank of Montreal, Chicago Branch in its capacity as a letter of credit issuer. The revolving credit loan and term loan bear interest at either the base rate or LIBOR plus a margin that is determined by the Company’s debt to operating cash flow ratio. The base rate is equal to the higher of the prime rate or the overnight federal funds rate plus 0.5%. Interest on base rate loans is payable quarterly through maturity. Interest on LIBOR loans is payable on the last day of the selected LIBOR period and, if the selected period is longer than three months, every three months after the beginning of the LIBOR period. The revolving credit loan and term loan mature on June 30, 2011. The scheduled reductions in the amount available under the revolving credit loan may require principal repayments if the outstanding balance at that time exceeds the new maximum amount available under the revolving credit loan. In connection with the new credit agreement, the Company expects to record a $2.4 million loss on extinguishment of long-term debt during the first quarter of 2004.
The new credit facility is secured by substantially all of the Company’s assets and guaranteed jointly and severally by all of the Company’s subsidiaries. The guarantees were issued to the Company’s lenders for repayment of the outstanding balance of the credit facility. If the Company defaults under the terms of the credit facility, the subsidiaries may be required to perform under their guarantees. The maximum amount of undiscounted payments the subsidiaries would have to make in the event of default is $169.0 million. The guarantees for the revolving credit loan and term loan expire on June 30, 2011.
As of February 27, 2004, the scheduled repayments of the new credit facility for the next five years and thereafter are as follows:
Revolving Credit Loan | Term Loan | Total Credit Facility | |||||||
2004 | $ | — | $ | — | $ | — | |||
2005 | — | 5,625,000 | 5,625,000 | ||||||
2006 | — | 7,500,000 | 7,500,000 | ||||||
2007 | — | 10,875,000 | 10,875,000 | ||||||
2008 | — | 12,000,000 | 12,000,000 | ||||||
Thereafter | 18,986,906 | 114,000,000 | 132,986,906 | ||||||
Total | $ | 18,986,906 | $ | 150,000,000 | $ | 168,986,906 | |||
The Company is required to satisfy financial covenants, which require us to maintain specified financial ratios and to comply with financial tests, such as ratios for maximum total leverage, minimum interest coverage and minimum fixed charges. As of February 27, 2004, these financial covenants included:
• | Maximum Consolidated Total Debt Ratio. On the last day of each fiscal quarter from February 27, 2004 to March 31, 2005, the Company’s consolidated total debt must not exceed 6.25 times its consolidated operating cash flow for the four quarters ending on such day (as such terms are defined in the new credit agreement). On the last day of each fiscal quarter for the period from April 1, 2005 through December 31, 2005, the maximum ratio is 6.0 times. On the last day of each fiscal quarter for the period from January 1, 2006 through June 30, 2006, the maximum ratio is 5.75 times. On the last day of each fiscal quarter for the period from July 1, 2006 through December 31, 2006, the maximum |
BEASLEY BROADCAST GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ratio is 5.5 times. On the last day of each fiscal quarter for the period from January 1, 2007 through June 30, 2007, the maximum ratio is 5.25 times. On the last day of each fiscal quarter for the period from July 1, 2007 through December 31, 2007, the maximum ratio is 5.0 times. On the last day of each fiscal quarter for all periods after January 1, 2008, the maximum ratio is 4.5 times. |
• | Minimum Interest Coverage Ratio. The Company’s consolidated operating cash flow for the four quarters ending on the last day of each quarter must not have been less than 2.0 times the amount of its consolidated cash interest expense for such four quarter period. |
• | Minimum Fixed Charge Ratio. The Company’s consolidated operating cash flow for any four consecutive quarters must not be less than 1.1 times the amount of its consolidated fixed charges for such four quarter period. Fixed charges include cash interest expense, cash tax expense, capital expenditures, agency and commitment fees, and scheduled principal repayments. |
FINANCIAL STATEMENT SCHEDULE
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 2000, 2001, 2002 and 20022003
Column A Description | Column B Balance at Beginning of Period | Column C Charged to Costs and Expenses | Column D Deductions | Column E Balance at End of Period | Column B Balance at | Column C Charged to Costs and Expenses | Column D Deductions | Column E Balance at End of Period | ||||||||
Year ended December 31, 2000: | ||||||||||||||||
Allowance for doubtful accounts | 560,282 | 1,673,939 | 1,627,074 | 607,147 | ||||||||||||
Year ended December 31, 2001: | ||||||||||||||||
Allowance for doubtful accounts | 607,147 | 1,210,436 | 1,241,241 | 576,342 | 607,147 | 1,210,436 | 1,241,241 | 576,342 | ||||||||
Year ended December 31, 2002: | ||||||||||||||||
Allowance for doubtful accounts | 576,342 | 979,534 | 1,140,062 | 415,814 | 576,342 | 979,534 | 1,140,062 | 415,814 | ||||||||
Valuation allowance for deferred tax assets | — | 415,498 | — | 415,498 | — | 415,498 | — | 415,498 | ||||||||
Year ended December 31, 2003: | ||||||||||||||||
Allowance for doubtful accounts | 415,814 | 951,264 | 899,775 | 467,303 | ||||||||||||
Valuation allowance for deferred tax assets | 415,498 | 60,721 | — | 476,219 |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9A. CONTROLS AND PROCEDURES.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As of December 31, 2003, the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level.
There has been no significant change in our internal controls over financial reporting during the Company’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is incorporated in this report by reference to the information set forth in the 20032004 proxy statement for the 20032004 Annual Meeting of Stockholders to be held April 22, 2003,May 12, 2004, which is expected to be filed with the Commission within 120 days after the close of our fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated in this report by reference to the information set forth under the caption “Executive Officers Compensation” in the 20032004 proxy statement.statement, which is expected to be filed with the Commission within 120 days after the close of our fiscal year. The sections entitled “Compensation Committee Report on Executive Compensation” and “Performance Graph” in the 20032004 proxy statement are not incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The information required by this Item 12 is incorporated in this report by reference to the information set forth under the caption “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in the 20032004 proxy statement.statement, which is expected to be filed with the Commission within 120 days after the close of our fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated in this report by reference to the information set forth under the caption “Certain Relationships and Related Transactions” in the 20032004 proxy statement.statement, which is expected to be filed with the Commission within 120 days after the close of our fiscal year.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item 14 is incorporated in this report by reference to the information set forth under the caption “Principal Accountant Fees and Services” in the 2004 proxy statement, which is expected to be filed with the Commission within 120 days after the close of our fiscal year.
ITEM 14. CONTROLS AND PROCEDURES.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Within the 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.
There have been no significant changes in our internal controls or in other factors that could significantly affect the internal controls subsequent to the date we completed our evaluation.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements. A list of financial statements included herein is set forth in the Index to Financial Statements appearing in “ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.”
(b) Reports on Form 8-K. No reportsWe filed a Current Report on Form 8-K were filed during the three months ended December 31, 2002.on November 3, 2003 furnishing under Item 12 our earnings release dated November 3, 2003 regarding our third quarter 2003 financial results.
(c) Exhibits.
Exhibit Number
| Description | |
|
| |
| Amended certificate of incorporation of the Registrant. | |
3.2 | Third amended and restated bylaws of the Registrant. | |
10.1 | George G. Beasley executive employment agreement with Beasley Mezzanine Holdings, LLC, dated January 31, 2000. | |
10.2 | Bruce G. Beasley executive employment agreement with Beasley Mezzanine Holdings, LLC, dated January 31, 2000. | |
10.3 | B. Caroline Beasley executive employment agreement with Beasley Mezzanine Holdings, LLC, dated January 31, 2000. | |
10.4 | Brian E. Beasley executive employment agreement with Beasley Mezzanine Holdings, LLC, dated January 31, 2000. | |
10.5 | The 2000 Equity Plan of Beasley Broadcast Group, Inc. | |
10.6 | Allen B. Shaw executive employment agreement with Beasley Mezzanine Holdings, LLC, dated February 1, 2001. | |
10.7 |
| |
| Amended and restated credit agreement between Beasley Mezzanine Holdings, LLC, Fleet National Bank, as syndication agent, Bank of America, as documentation agent, | |
| Credit agreement between Beasley Mezzanine Holdings, LLC, Bank of Montreal, Chicago Branch, as administrative agent, Bank of New York, as syndication agent, Harris Nesbitt and BNY Capital Markets, Inc. as co-lead arrangers, Bank of America N.A., ING Capital, LLC and Wells Fargo, National Association, as co-documentation agents, and other financial institutions, dated February 27, 2004. | |
21.1 | Subsidiaries of the Company. | |
23.1 | Consent of KPMG LLP. | |
31.1 | Certification of Chief Executive Officer pursuant to Rule 15d-14(a) (17 CFR 240.15d-14(a)). | |
31.2 | Certification of Vice President, Chief Financial Officer, Secretary and Treasurer pursuant to Rule 15d-14(a) (17 CFR 240.15d-14(a)). | |
32.1 | Certification of Chief Executive Officer pursuant to Rule 15d-14(b) (17 CFR 240.15d-14(b)) and 18 U.S.C. Section 1350. | |
32.2 | Certification of Vice President, Chief Financial Officer, Secretary and Treasurer pursuant to Rule 15d-14(b) (17 CFR 240.15d-14(b)) and 18 U.S.C. Section 1350. |
(1) |
Incorporated by reference to Beasley Broadcast Group’s Registration Statement on Form S-1 (333-91683). |
Incorporated by reference to Exhibit 3.1 to Beasley Broadcast Group’s Annual Report on Form 10-K dated February 13, 2001. |
Incorporated by reference to Exhibit 10.30 to Beasley Broadcast Group’s Annual Report on Form 10-K dated February 13, 2001. |
Incorporated by reference to Exhibit 10.1 to Beasley Broadcast Group’s Quarterly Report on Form 10-Q dated November 13, 2002. |
Incorporated by reference to Exhibit 21.1 to Beasley Broadcast Group’s Quarterly Report on Form 10-Q dated August 14, 2001. |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BEASLEY BROADCAST GROUP, INC. | ||
By: | /s/ GEORGE G. BEASLEY | |
George G. Beasley Chairman of the Board and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | Title | Date | ||
/s/ GEORGE G. BEASLEY George G. Beasley | Chairman of the Board and Chief Executive Officer (principal executive officer) | March | ||
/s/ BRUCE G. BEASLEY Bruce G. Beasley | President, Co-Chief Operating Officer and Director | March | ||
/s/ ALLEN B. SHAW Allen B. Shaw | Vice-Chairman of the Board and | March | ||
/s/ CAROLINE BEASLEY Caroline Beasley | Vice President, Chief Financial Officer, Secretary, Treasurer and Director (principal financial and accounting officer) | March | ||
/s/ BRIAN E. BEASLEY Brian E. Beasley | Vice President of Operations and Director | March | ||
/s/ JOE B. COX Joe B. Cox | Director | March | ||
/s/ MARK S. FOWLER Mark S. Fowler | Director | March | ||
/s/ HERBERT W. M Herbert W. McCord | Director | March |
Certification of Chief Executive Officer
I, George G. Beasley, certify that:
Date: March 10, 2003
| ||
|
| |
Certification of Vice President, Chief Financial Officer, Secretary and Treasurer
I, Caroline Beasley, certify that:
Date: March 10, 2003
| ||
|
| |
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