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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 2001
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
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BEASLEY BROADCAST GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 65-0960915
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation of
organization)
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
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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. Yes [X] 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
amendments to this Form 10-K. [_]
As of March 22, 2002, the aggregate market value of the Class A common stock
held by non-affiliates of the registrant was $111,318,407 based on the closing
price on The Nasdaq Stock Market's National Market on such date.
Class A Common Stock, $.001 par value 7,252,068 Shares Outstanding as of March
22, 2002
Class B Common Stock, $.001 par value 17,021,373 Shares Outstanding as of March
22, 2002
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BEASLEY BROADCAST GROUP, INC.
FORM 10-K ANNUAL REPORT
FOR THE PERIOD ENDED DECEMBER 31, 2001
TABLE OF CONTENTS
Page
----
Part I--Financial Information
Item 1. Business............................................................................. 1
Item 2. Properties........................................................................... 18
Item 3. Legal Proceedings.................................................................... 18
Item 4. Submission of Matters to a Vote of Security Holders.................................. 18
Part II--Other Information
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................ 19
Item 6. Selected Financial Data.............................................................. 19
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................... 31
Item 8. Financial Statements and Supplementary Data.......................................... 33
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 56
Part III
Item 10. Directors and Executive Officers of the Registrant................................... 56
Item 11. Executive Compensation............................................................... 56
Item 12. Security Ownership of Certain Beneficial Owners and Management....................... 56
Item 13. Certain Relationships and Related Transactions....................................... 56
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..................... 57
Signatures.................................................................................... 59
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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, such as economic changes, unforeseen media events that would
cause the company to broadcast commercial free for any period of time, and
changes in the radio broadcasting industry generally. We do not intend, and
undertake no obligation, to update any forward-looking statement.
PART I
ITEM 1. BUSINESS
Overview
We were founded in 1961 and are the 17th largest radio broadcasting company
in the United States based on 2000 gross revenues. After giving effect to the
dispositions in New Orleans completed on March 20, 2002, we own and operate 42
stations, 26 FM and 16 AM. Our stations are located in eleven large and
mid-sized markets primarily located in the eastern United States. Seventeen of
these stations are located in seven of the nation's top fifty radio markets:
Atlanta, Boston, Philadelphia, Miami-Ft. Lauderdale, Las Vegas, New Orleans and
West Palm Beach-Boca Raton. Our station groups rank as the largest cluster,
based on gross revenues, in four of our eleven markets and the third largest
cluster in one market. Collectively, our radio stations reach approximately 3.4
million people on a weekly basis. For the year ended December 31, 2001, after
giving effect to acquisitions completed during the period, as well as the
dispositions in New Orleans completed on March 20, 2002, as if these
acquisitions and dispositions had been completed as of January 1, 2001, we
would have had net revenues of $112.0 million, broadcast cash flow of $31.4
million and a net loss of $14.0 million.
We seek to maximize revenues and broadcast cash flow by acquiring and
operating 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. Under Mr.
Beasley's guidance, excluding the stations that we currently own, we have
acquired and disposed of a total of 54 radio stations, including stations in
Los Angeles, Chicago, New Orleans, Orlando and Cleveland. We acquired these 54
stations for an aggregate acquisition price of approximately $199.0 million and
the total consideration that we received upon disposition was approximately
$369.1 million. Mr. Beasley is supported by a management team with an average
of 24 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.
Recent Events
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
approximately $23.0 million, subject to certain adjustments. In connection with
the definitive agreement, we entered into a time brokerage agreement, which
allowed Wilks Broadcasting to operate WRNO-FM and KMEZ-FM, beginning November
1, 2001 in exchange for a monthly fee and reimbursement of certain expenses. 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 during the third quarter of 2001. In connection with the pending sale
of WRNO-FM and KMEZ-FM, we recorded employee and contract termination expenses
of $0.9 million during the fourth quarter of 2001.
On March 20, 2002, we terminated the time brokerage agreement and completed
the sale of WRNO-FM and KMEZ-FM to Wilks Broadcasting LLC. As consideration for
the sale of these two stations we received $23.0 million, subject to certain
adjustments, including $19.65 million in cash and $3.35 million in the form of
a note payable from Wilks Broadcasting LLC. The note accrues interest at 9% per
annum and the principal amount and all accrued interest are due on June 20,
2004. We used $19.5 million of the net cash proceeds to repay a portion of the
outstanding term loan under our credit facility.
On March 20, 2002, we entered into an amendment to our credit agreement that
revised certain financial covenants and the maximum commitment under our credit
facility. The maximum commitment under our revolving credit loan was reduced by
$30.5 million and the outstanding balance and maximum commitment of our term
loans were reduced by $19.5 million as a result of the application of the net
cash proceeds from the sale of WRNO-FM and KMEZ-FM in the New Orleans market on
March 20, 2002.
Operating Strategy
The principal components of our operating strategy are to:
. Develop Market-Leading Clusters. We seek to secure and maintain a
leadership position in the markets we serve by creating clusters of
multiple stations in each of our markets. Our station groups rank among
the three largest clusters, based on gross revenues, in five of our eleven
markets. We operate our stations in clusters to capture a variety of
demographic listener groups, which enhances our stations' appeal to a wide
range of advertisers. In addition, we have been able to achieve operating
efficiencies by strategically aligning our sales and promotional efforts
and consolidating broadcast facilities where possible to minimize
duplicative management positions and reduce overhead expenses. Finally, we
believe that strategic acquisitions of additional stations in existing
clusters position us to capitalize on our market expertise and existing
relationships with local advertisers to increase revenues of the acquired
stations.
. Conduct Extensive Market Research. We conduct extensive market research
to enhance our ratings and in certain circumstances to identify
opportunities to reformat a station to reach an underserved demographic
group. Our research, programming and marketing strategy combines thorough
research with an assessment of our competitors' vulnerabilities and
overall market dynamics in order to identify specific audience and
formatting opportunities within each market. Using this research, we
tailor our programming, marketing and promotions on each station to
maximize its appeal to its target audience and to respond to the changing
preferences of our listeners.
. Establish Strong Local Brand Identity. Our stations pursue a variety of
programming and marketing initiatives designed to develop a distinctive
identity and to strengthen the stations' local brand or franchise. In
addition, through our research, programming and promotional initiatives,
we create a
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marketable identity for our stations to enhance audience share and
listener loyalty. As part of this objective, we promote nationally
recognized on-air personalities and local sports programming at a number
of our stations. For example, we broadcast nationally-syndicated shows
such as "Howard Stern" and "Lex and Terry", and we are the flagship
station for the Florida Marlins 2001 season and for the Miami Dolphins,
Florida Panthers and Miami Hurricanes 2001-2002 seasons on our sports
station in the Miami-Ft. Lauderdale market.
. Build Relationship-Oriented Sales Staff and Emphasize Focused Marketing
and Promotional Initiatives. We seek to gain advertising revenue share in
each of our markets by utilizing our 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
stations have an experienced and stable sales force with an average of
four years experience with Beasley Broadcast Group. In addition, we
provide our sales force with extensive training, competitive compensation
and performance-based incentives. Our 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 Teams. Our station
general managers have been with Beasley Broadcast Group for an average of
approximately nine years, and a substantial majority operate under
employment contracts. We believe that broadcasting is primarily a
locally-based business and much of its success is based on the efforts of
local management teams. We believe that our station managers have been
able to recruit, develop, motivate and train superior management teams. We
offer competitive compensation packages with performance-based incentives
for our key employees. In addition, we provide employees with
opportunities for personal growth and advancement through extensive
training, seminars and other educational initiatives.
. Enhance Broadcast Cash Flow of Underutilized AM Stations. We seek to
selectively acquire and enhance the performance of major-market AM
stations serving niche markets. To enhance broadcast cash flows at these
radio stations, we sell blocks of time to providers of financial, ethnic,
religious and other specialty formats.
Acquisition Strategy
Our acquisition strategy, which will focus on stations located in the 100
largest radio markets, is to:
. acquire additional radio stations in our current markets to further
enhance our market position;
. acquire existing clusters in new markets or establish a presence in new
markets where we believe we can build successful clusters over time;
. pursue swap opportunities with other radio station owners to build or
enhance our market clusters; and
. selectively acquire large-market AM stations serving attractive
demographic groups with specialty programming.
Station Portfolio
Our stations are clustered in demographically attractive and growing markets
located mostly in the eastern United States. The following table sets forth
information about our portfolio and the markets where we operate. The column
entitled Beasley Stations in the table excludes two FM radio stations in New
Orleans that were sold on March 20, 2002.
3
2001 Beasley
Beasley Market
Stations Revenue
-------- -------
2001 1996-2000
Radio Market Radio Market 2001
Revenue Average Annual Radio Market
Market Rank Revenue Growth Revenue Growth FM AM Share Rank
- ------ ---- -------------- -------------- -- -- ----- ----
Boston, MA.................... 7 15.1% --% -- 1 --% --
Atlanta, GA................... 8 16.8 -- -- 2 -- --
Philadelphia, PA.............. 10 10.2 (9.4) 2 2 5.3 6
Miami-Ft. Lauderdale, FL...... 12 11.0 (4.7) 2 3 17.6 3
Las Vegas, NV................. 37 16.1 0.7 3 -- 12.6 4
New Orleans, LA............... 40 9.3 -- -- 1 -- --
West Palm Beach-Boca Raton, FL 45 11.6 -- -- 1 -- --
Ft. Myers-Naples, FL.......... 69 10.2 2.5 4 1 30.7 1
Greenville-New Bern-
Jacksonville, NC............ 90 10.5 (9.6) 5 1 55.0 1
Fayetteville, NC.............. 96 12.4 (4.3) 4 2 64.9 1
Augusta, GA................... 118 3.7 (1.8) 6 2 44.9 1
-- --
Total.................. 26 16
For our station portfolio, we derived:
. the 2001 radio market revenue rank from BIA Research, Inc.
. the 1996-2000 radio market average annual revenue growth from Duncan's
Radio Market Guide (2001 ed.).
. the 2001 radio market revenue growth from Miller, Kaplan, Arase & Co.
(December 2001 ed.). Reports for the Boston, Atlanta, New Orleans and West
Palm Beach-Boca Raton markets were not available to us.
. our audience share and audience rank in target demographic data from
surveys of persons, listening Monday through Sunday, 6 a.m. to 12
midnight, in the indicated demographic, as set forth in the Fall 2001
radio market reports published by The Arbitron Ratings Company.
. our 2001 cluster market revenue rank and 2001 cluster market revenue share
data from Miller, Kaplan, Arase & Co. (December 2001 ed.). Reports for the
Boston, Atlanta, New Orleans and West Palm Beach-Boca Raton markets were
not available to us.
. the viable station data for each market from Duncan's Radio Market Guide
(2001 ed.). Duncan's defines viable stations as stations that are active
and viable competitors for advertising dollars in a market.
Our radio station and market data reflects the completion of our
dispositions in New Orleans on March 20, 2002. Further information about our
radio stations on a market-by-market basis follows.
BOSTON, MA
2001 Radio Market Revenue Rank: 7
Target Audience Share in Audience Rank in
Station Call Letters Year Acquired Format Demographic Target Demographic Target Demographic
- -------------------- ------------- ------ ----------- ------------------ ------------------
WRCA-AM 2000 Hispanic 25-54 -- --
Market Overview
Boston is the seventh largest radio market in the United States based on
2001 radio market revenue. Radio market revenues in the Boston market have
grown from approximately $194.0 million in 1996 to approximately
4
$345.3 million in 2000 at an average annual rate of 15.1%. In 2000, there were
20 viable stations in the Boston market.
ATLANTA, GA
2001 Radio Market Revenue Rank: 8
Target Audience Share in Audience Rank in
Station Call Letters Year Acquired Format Demographic Target Demographic Target Demographic
- -------------------- ------------- ------ ----------- ------------------ ------------------
WAEC-AM 2000 Religious 35-64 -- --
WWWE-AM 2000 Hispanic 35-64 -- --
Market Overview
Atlanta is the eighth largest radio market in the United States based on
2001 radio market revenue. Radio market revenues in the Atlanta market have
grown from approximately $194.0 million in 1996 to approximately $369.0 million
in 2000 at an average annual rate of 16.8%. In 2000, there were 20 viable
stations in the Atlanta market.
PHILADELPHIA, PA
2001 Radio Market Revenue Rank: 10
2001 Cluster Market Revenue Share: 5.3%
2001 Cluster Market Revenue Rank: 6
Target Audience Share in Audience Rank in
Station Call Letters Year Acquired Format Demographic Target Demographic Target Demographic
- -------------------- ------------- ------ ----------- ------------------ ------------------
WXTU-FM 1983 Country 25-54 3.2% 12
WPTP-FM 1997 All 80's 25-54 2.8 13t
WWDB-AM 1986 Financial 35-64 men -- --
WTMR-AM 1998 Religious 35-64 -- --
- --------
t Tied for audience rank.
Market Overview
Philadelphia is the tenth largest radio market in the United States based on
2001 radio market revenue. Radio market revenues in the Philadelphia market
have grown from approximately $204.3 million in 1996 to approximately $312.5
million in 2000 at an average annual rate of 10.2%. Radio market revenue
decreased 9.4% in 2001, as compared to 2000. In 2000, there were 21.5 viable
stations in the Philadelphia market.
MIAMI-FT. LAUDERDALE, FL
2001 Radio Market Revenue Rank: 12
2001 Cluster Market Share: 17.6%
2001 Cluster Market Revenue Rank: 3
Target Audience Share in Audience Rank in
Station Call Letters Year Acquired Format Demographic Target Demographic Target Demographic
- -------------------- ------------- ------ ----------- ------------------ ------------------
WPOW-FM 1986 Dance CHR 18-34 12.5% 2
WQAM-AM 1996 Sports/Talk 25-54 men 6.0 3
WKIS-FM 1996 Country 25-54 2.6 17t
WWNN-AM 2000 Health 35+ -- --
WHSR-AM 2000 Foreign Language 25-54 -- --
- --------
t Tied for audience rank.
5
Market Overview
Miami-Ft. Lauderdale is the twelfth largest radio market in the United
States based on 2001 radio market revenue. Radio market revenues in the
Miami-Ft. Lauderdale market have grown from approximately $174.5 million in
1996 to approximately $260.3 million in 2000 at an average annual rate of
11.0%. Radio market revenue decreased 4.7% in 2001, as compared to 2000. In
2000, there were 25 viable stations in the Miami-Ft. Lauderdale market.
LAS VEGAS, NV
2001 Radio Market Revenue Rank: 37
2001 Cluster Market Share: 12.6%
2001 Cluster Market Revenue Rank: 4
Target Audience Share in Audience Rank in
Station Call Letters Year Acquired Format Demographic Target Demographic Target Demographic
- -------------------- ------------- ------ ----------- ------------------ ------------------
KJUL-FM 2001 Adult Standards 35-64 7.4% 3t
KSTJ-FM 2001 All 80's 25-54 5.8 5t
KKLZ-FM 2001 Classic Rock 25-54 men 5.3 7
- --------
t Tied for audience rank.
Market Overview
Las Vegas is the thirty-seventh largest radio market in the United States
based on 2001 radio market revenue. Radio market revenues in the Las Vegas
market have grown from approximately $44.7 million in 1996 to approximately
$80.0 million in 2000 at an average annual rate of 16.1%. Radio market revenue
increased 0.7% in 2001, as compared to 2000. In 2000, there were 19.5 viable
stations in the Las Vegas market.
NEW ORLEANS, LA
2001 Radio Market Revenue Rank: 40
Target Audience Share in Audience Rank in
Station Call Letters Year Acquired Format Demographic Target Demographic Target Demographic
- -------------------- ------------- ------ ----------- ------------------ ------------------
WBYU-AM 2001 Health 35+ -- --
Market Overview
New Orleans is the fortieth largest radio market in the United States based
on 2001 radio market revenue. Radio market revenues in the New Orleans market
have grown from approximately $46.5 million in 1996 to approximately $64.8
million in 2000 at an average annual rate of 9.3%. In 2000, there were 16.5
viable stations in the New Orleans market.
WEST PALM BEACH-BOCA RATON, FL
2001 Radio Market Revenue Rank: 45
Target Audience Share in Audience Rank in
Station Call Letters Year Acquired Format Demographic Target Demographic Target Demographic
- -------------------- ------------- ------ ----------- ------------------ ------------------
WSBR-AM 2000 Financial 35-64 men -- --
Market Overview
West Palm Beach-Boca Raton is the forty-fifth largest radio market in the
United States based on 2001 radio market revenue. Radio market revenues in the
West Palm Beach-Boca Raton market have grown from
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approximately $35.3 million in 1996 to approximately $58.0 million in 2000 at
an average annual rate of 11.6%. In 2000, there were 15 viable stations in the
West Palm Beach-Boca Raton market.
FT. MYERS-NAPLES, FL
2001 Radio Market Revenue Rank: 69
2001 Cluster Market Revenue Share: 30.7%
2001 Cluster Market Revenue Rank: 1
Target Audience Share in Audience Rank in
Station Call Letters Year Acquired Format Demographic Target Demographic Target Demographic
- -------------------- ------------- ------ ----------- ------------------ ------------------
WRXK-FM 1986 Classic Rock 25-54 men 10.4% 1
WXKB-FM 1995 Adult CHR 18-49 women 8.7 2
WJBX-FM 1998 Alternative Rock 18-34 men 9.0 3
WJPT-FM 1998 Adult Standards 35-64 2.0 15
WWCN-AM 1987 Sports/Talk 25-54 men 1.2 17t
- --------
t Tied for audience rank.
Market Overview
Ft. Myers-Naples is the sixty-ninth largest radio market in the United
States based on 2001 radio market revenue. Radio market revenues in the Ft.
Myers-Naples market have grown from approximately $20.3 million in 1996 to
approximately $30.4 million in 2000 at an average annual rate of 10.2%. Radio
market revenue increased 2.5% in 2001, as compared to 2000. In 2000, there were
19 viable stations in the Ft. Myers-Naples market.
GREENVILLE-NEW BERN-JACKSONVILLE, NC
2001 Radio Market Revenue Rank: 90
2001 Cluster Market Revenue Share: 55.0%
2001 Cluster Market Revenue Rank: 1
Target Audience Share in Audience Rank in
Station Call Letters Year Acquired Format Demographic Target Demographic Target Demographic
- -------------------- ------------- ------ ----------- ------------------ ------------------
WIKS-FM 1996 Urban 25-54 12.3% 2
WXNR-FM 1996 Alternative Rock 18-34 men 11.5 3
WNCT-FM 1996 Oldies 35-64 7.9 3
WSFL-FM 1991 Classic Rock 25-54 men 7.7 3
WMGV-FM 1996 Adult Contemporary 25-54 women 7.4 3
WNCT-AM 1996 Hispanic 25-54 -- --
Market Overview
Greenville-New Bern-Jacksonville is the ninetieth largest radio market in
the United States based on 2001 radio market revenue. Radio market revenues in
the Greenville-New Bern-Jacksonville market have grown from approximately $17.3
million in 1996 to approximately $24.0 million in 2000 at an average annual
rate of 10.5%. Radio market revenue decreased 9.6% in 2001, as compared to
2000. In 2000, there were 12 viable stations in the Greenville-New
Bern-Jacksonville market.
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FAYETTEVILLE, NC
2001 Radio Market Revenue Rank: 96
2001 Cluster Market Revenue Share: 64.9%
2001 Cluster Market Revenue Rank: 1
Target Audience Share in Audience Rank in
Station Call Letters Year Acquired Format Demographic Target Demographic Target Demographic
- -------------------- ------------- ------ ----------- ------------------ ------------------
WZFX-FM 1997 Urban 18-49 16.6% 1
WKML-FM 1983 Country 25-54 11.2 2
WFLB-FM 1996 Oldies 35-64 6.7 3
WUKS-FM 1997 Urban/Adult 25-54 6.7 4t
Contemporary
WAZZ-AM 1997 Nostalgia 55+ 5.4 6t
WYRU-AM 1997 Religious 35-64 1.0 24t
- --------
t Tied for audience rank.
Market Overview
Fayetteville is the ninety-sixth largest radio market in the United States
based on 2001 radio market revenue. Radio market revenues in the Fayetteville
market have grown from approximately $12.6 million in 1996 to approximately
$20.2 million in 2000 at an average annual rate of 12.4%. Radio market revenue
decreased 4.3% in 2001, as compared to 2000. In 2000, there were 9 viable
stations in the Fayetteville market.
AUGUSTA, GA
2001 Radio Market Revenue Rank: 118
2001 Cluster Market Revenue Share: 44.9%
2001 Cluster Market Revenue Rank: 1
Audience Share in Audience Rank in
Station Call Letters Year Acquired Format Target Demographic Target Demographic Target Demographic
- -------------------- ------------- ------------------ ------------------ ------------------ ------------------
WCHZ-FM 1997 Alternative Rock 18-34 men 14.7 1
WAJY-FM 1994 Nostalgia 55+ 9.2 3
WGAC-AM 1993 News/Talk/Sports 35-64 7.2 4
WSLT-FM 2001 Adult Contemporary 25-54 women 7.1 4t
WGOR-FM 1992 Oldies 35-64 4.3 7t
WKXC-FM 2001 Country 25-54 5.2 8
WRDW-AM 2000 Sports/Talk 25-54 men 1.8 16t
WRFN-FM 2000 Sports/Talk 25-54 men -- --
- --------
t Tied for audience rank.
Market Overview
Augusta is the one hundred eighteenth largest radio market in the United
States based on 2001 radio market revenue. Radio market revenues in the Augusta
market have grown from approximately $14.5 million in 1996 to approximately
$16.6 million in 2000 at an average annual rate of 3.7%. Radio market revenue
decreased 1.8% in 2001, as compared to 2000. In 2000, there were 13.5 viable
stations in the Augusta market.
Competition; Changes in Broadcasting Industry
The radio broadcasting industry is highly competitive. The success of each
of our stations depends largely upon its audience ratings and its share of the
overall advertising revenue within its market. Our stations compete
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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:
. management experience;
. the station's local audience rank in its market;
. transmitter power;
. assigned frequency;
. audience characteristics;
. local program acceptance; and
. the number and characteristics of other radio stations and other
advertising media in the market area.
In addition, we attempt to improve our competitive position with promotional
campaigns aimed at the demographic groups targeted by our 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 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 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 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, the broadcast cash flow of our affected station could
decrease due to increased promotional and other expenses and/or lower
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 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:
. satellite delivered digital audio radio service, which provides
subscriber-based satellite radio services with numerous channels and sound
quality equivalent to that of compact discs;
. audio programming by cable systems, direct broadcast satellite systems,
internet content providers, personal communications services and other
digital audio broadcast formats;
. in-band on-channel digital radio, which provides multi-channel,
multi-format digital radio services in the same bandwidth currently
occupied by traditional AM and FM radio services; and
. low power FM radio, which will result in additional FM radio broadcast
outlets that are designed to serve localized areas.
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
9
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.
The FCC has adopted licensing and operating rules for satellite delivered
audio and in April 1997 awarded two licenses for this service. Satellite
delivered audio may provide a medium for the delivery by satellite or
terrestrial means of multiple new audio programming formats to local and/ or
national audiences. XM Satellite Radio launched its commercial service on
September 25, 2001 and Sirius Satellite Radio began the launch of it's service
on February 14, 2002. Digital technology also may be used in the future by
terrestrial radio broadcast stations either on existing or alternate
broadcasting frequencies, and the FCC has stated that it will consider making
changes to its rules to permit AM and FM radio stations to offer digital sound
following industry analysis of technical standards. In addition, 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 station licensees that
applied for migration to the expanded AM band, 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. Upon the completion of the migration
process, it is expected that some AM 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.
We cannot predict what other 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 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, 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:
. assigns frequency bands for broadcasting;
. determines the particular frequencies, locations, operating powers and
other technical parameters of stations;
. issues, renews, revokes, conditions and modifies station licenses;
. determines whether to approve changes in ownership or control of station
licenses;
. regulates equipment used by stations; and
. adopts and implements regulations and policies that directly affect the
ownership, operation and employment practices of stations.
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 specific FCC regulations and policies. The summary is not a
comprehensive listing of all of the regulations and policies
10
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 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 station's renewal application if a
substantial or material question of fact exists as to whether the 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 station. An AM station operates on either
a clear channel, regional channel or local channel. A clear channel is one on
which AM stations are assigned to serve wide areas. Clear channel AM stations
are classified as either: Class A stations, which operate on an unlimited time
basis and are designated to render primary and secondary service over an
extended area; Class B stations, which operate on an unlimited time basis and
are designed to render service only over a primary service area; or Class D AM
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 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 stations operate on an unlimited time basis and
serve primarily a community and the immediately contiguous suburban and rural
areas. Class C AM 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 minimum and maximum facilities requirements for an FM station are
determined by its class. FM class designations depend upon the geographic zone
in which the transmitter of the FM station is located. In general, commercial
FM 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 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, call letters,
FCC license classification, frequency, power and FCC license expiration date of
each of the stations that we own following the sale of two FM radio stations in
New Orleans, which was completed on March 20, 2002. In many cases, our licenses
are held by wholly-owned 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 results in reducing the radio station's
coverage during the nighttime hours of operation. Both power ratings are shown,
where applicable. For FM stations, the maximum effective radiated power in the
main lobe is given.
Expiration
FCC Power in Date of FCC
Market Station Class Frequency Kilowatts License
------ ------- ----- --------- -------------------- -----------
Boston, MA...... WRCA-AM B 1330 kHz 5 kW 04/01/2006
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
Philadelphia, PA WXTU-FM B 92.5 MHz 15.5 kW 08/01/2006
WPTP-FM 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
11
Expiration
FCC Power in Date of FCC
Market Station Class Frequency Kilowatts License
- ------ ------- ----- --------- ----------------------- -----------
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 02/01/2004
WKIS-FM C 99.9 MHz 100 kW 02/01/2004
WWNN-AM B 1470 kHz 50 kW day/2.5 kW night 02/01/2004
WHSR-AM B 980 kHz 5 kW day/1 kW night 02/01/2004
Las Vegas, NV................. KKLZ-FM C 96.3 MHz 100 kW 10/01/2005
KJUL-FM C 104.3 MHz 24.5 kW 10/01/2005
KSTJ-FM C 102.7 MHz 100 kW 10/01/2005
New Orleans, LA............... WBYU-AM C 1450 kHz 1 kW 06/01/2004
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.......... WXKB-FM C 103.9 MHz 100 kW 02/01/2004
WRXK-FM C 96.1 MHz 100 kW 02/01/2004
WJBX-FM C2 99.3 MHz 45 kW 02/01/2004
WJPT-FM C2 106.3 MHz 50 kW 02/01/2004
WWCN-AM B 770 kHz 10 kW day/1 kW night 02/01/2004
Greenville-New Bern-
Jacksonsville, NC........... WSFL-FM C1 106.5 MHz 100 kW 12/01/2003
WIKS-FM C1 101.9 MHz 100 kW 12/01/2003
WNCT-AM B 1070 kHz 10 kW day/night 12/01/2003
WNCT-FM C 107.9 MHz 100 kW 12/01/2003
WXNR-FM C2 99.5 MHz 16.5 kW 12/01/2003
WMGV-FM C1 103.3 MHz 100 kW 12/01/2003
Fayetteville, NC.............. WZFX-FM C1 99.1 MHz 100 kW 12/01/2003
WKML-FM C 95.7 MHz 100 kW 12/01/2003
WFLB-FM C 96.5 MHz 100 kW 12/01/2003
WUKS-FM C3 107.7 MHz 5.2 kW 12/01/2003
WAZZ-AM C 1490 kHz 1 kW day/night 12/01/2003
WYRU-AM B 1160 kHz 5 kW day/.25 kW night 12/01/2003
Augusta, GA................... WGAC-AM B 580 kHz 5 kW day/1 kW night 04/01/2004
WGOR-FM C3 93.9 MHz 13 kW 04/01/2004
WCHZ-FM C3 95.1 MHz 5.7 kW 04/01/2004
WAJY-FM A 102.7 MHz 6 kW 12/01/2003
WRFN-FM A 93.1 MHz 4.1 kW 04/01/2004
WRDW-AM B 1480 kHz 5 kW day/night 04/01/2004
WKXC-FM C2 99.5 MHz 24 kW 12/01/2003
WSLT-FM A 98.3 MHz 2.8 kW 12/01/2003
WTEL-AM B 1630 kHz 10 kW day/1 kW night 04/01/2004
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:
. compliance with the various rules limiting common ownership of media
properties in a given market;
. the character of the licensee and those persons holding attributable
interests in the licensee; and
. compliance with the Communications Act's limitations on alien ownership as
well as compliance with other FCC regulations and policies.
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
12
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.
Multiple 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. These rules may preclude us from acquiring certain stations we
might otherwise seek to acquire. The rules also effectively prevent us from
selling stations in a market to a buyer that has reached its ownership limit in
the market unless that buyer divests other stations. The local radio ownership
rules are as follows:
. in markets with 45 or more commercial radio stations, ownership is limited
to eight commercial stations, no more than five of which can be either AM
or FM;
. in markets with 30 to 44 commercial radio stations, ownership is limited
to seven commercial stations, no more than four of which can be either AM
or FM;
. in markets with 15 to 29 commercial radio stations, ownership is limited
to six commercial stations, no more than four of which can be either AM or
FM; and
. in markets with 14 or fewer commercial radio stations, ownership is
limited to five commercial stations or no more than 50% of the market's
total, whichever is lower, and no more than three of which can be either
AM or FM.
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, 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 its 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.
The FCC has revised its radio/television cross-ownership rule to allow for
greater common ownership of television and radio stations. The 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
13
with one radio station in all markets. In addition, an owner will be permitted
to own additional radio stations, not to exceed the local ownership limits for
the market, as follows:
. in markets where 20 media voices will remain after the consummation of the
proposed transaction, an owner may own an additional 5 radio stations, or,
if the owner only has one television station, an additional 6 radio
stations; and
. in markets where 10 media voices will remain after the consummation of the
proposed transaction, an owner may own an additional 3 radio stations.
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.
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 station,
regardless of whether there is a single majority stockholder. Under this rule,
a major programming supplier or a same-market owner will be an attributable
owner of a station if the supplier or owner holds debt or equity, or both, in
the station that is greater than 33% of the value of the station's total debt
plus equity. A major programming supplier includes any programming supplier
that provides more than 15% of the 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 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. Over the past few years, a number of radio
stations have entered 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
14
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 stations could agree to function cooperatively
in programming, advertising sales and similar matters, subject to the
requirement that the licensee of each station maintain independent control over
the programming and operations of its own 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
station provides substantial portions of the broadcast programming for airing
on the other licensee's 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 station serving the same market will be
considered to have an attributable ownership interest in the brokered 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 station under the multiple ownership rules, unless our
programming on the brokered station constituted 15% or less of the brokered
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
station in the same broadcast service, that is AM-AM or FM-FM through a time
brokerage agreement where the brokered and brokering stations which it owns or
programs serve substantially the same area.
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
station's community of license. A licensee continues to be required, however,
to present programming that is responsive to issues of the station's community
of license and to maintain records demonstrating this responsiveness.
Complaints from listeners concerning a station's programming often will be
considered by the FCC when it evaluates renewal applications of a licensee,
although listener complaints may be filed at any time, are required to be
maintained in the station's public file and generally may be considered by the
FCC at any time. 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, obscene and
indecent broadcasts and technical operations, including limits on human
exposure to radio frequency radiation.
On January 20, 2000, 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 stations. The rules
generally require broadcast stations to disseminate information about job
openings widely so that all qualified applicants, including minorities and
women, have an adequate opportunity to compete for the job. These rules were
suspended at the beginning of 2001 in response to a January 16, 2001 decision
of the Court of Appeals for the District of Columbia that vacated the rules. On
December 13, 2001, the FCC sought comments on the new proposed EEO rules. The
proposed rules require broadcasters to widely disseminate information about job
openings to all segments of the community to ensure that all qualified
applicants have sufficient opportunity to apply for the job. The proposed rules
require sending job vacancy announcements to recruitment organizations and
selecting from a menu of non-vacancy specific outreach approaches such as job
fairs, internship programs, and interaction with educational and community
groups. Also, broadcasters must file an annual EEO report with the FCC
detailing their outreach efforts. Broadcasters with ten or more full-time
employees must file a statement with the FCC certifying compliance with the EEO
rules in the fourth year of the license term. Broadcaster also must file
employment information with the FCC annually for statistical purpose. Until the
FCC has issued final rules, the impact of the pending EEO rules are unclear.
The FCC recently issued a decision holding 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 station offers to its commercial
advertisers. This decision is currently
15
being reconsidered by the FCC. The effect that this FCC decision will have on
our programming and commercial advertising operations 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:
. changes in the FCC's cross-interest, multiple ownership and attribution
policies including the definition of the local market for multiple
ownership purposes;
. regulatory fees, spectrum use fees or other fees on FCC licenses;
. streaming fees for radio;
. foreign ownership of broadcast licenses;
. restatement in revised form of FCC's equal employment opportunity rules
and revisions to the FCC's rules relating to political broadcasting,
including free air time to candidates;
. technical and frequency allocation matters; and
. proposals to restrict or prohibit the advertising of beer, wine and other
alcoholic beverages on radio.
The FCC currently is considering standards for evaluating, authorizing, and
implementing terrestrial digital audio broadcasting technology, including
In-Band On-Channel(TM) technology for FM radio stations. Digital audio
broadcasting's advantages 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 an FM station to
transmit radio programming in both analog and digital formats, or in digital
only formats, using the bandwidth that the radio station is currently licensed
to use. It is unclear what regulations the FCC will adopt regarding Digital
Audio Broadcasting or In-Band On-Channel technology and what effect such
regulations would have on our business or the operations of its radio stations.
On January 20, 2000, the FCC voted to adopt rules creating a new low power
FM radio service. The new low power stations will operate at a maximum power of
between 10 and 100 watts in the existing FM commercial and non-commercial band.
Low power stations may be used by governmental and non-profit organizations to
provide noncommercial educational programming or public safety and
transportation radio services. No existing broadcaster or other media entity,
including us, will be permitted to have an ownership interest or enter into any
program or operating agreement with any low power FM station. During the first
two years of the new service, applicants must be based in the area that they
propose to serve. Applicants will not be permitted to own more than one station
nationwide during the initial two year period. After the initial two year
period, entities will be allowed to own up to five stations nationwide, and
after three years, the limit will be raised to ten stations nationwide. A
single person or entity may not own two low power stations whose transmitters
are less than seven miles from each other. The authorizations for the new
stations will not be transferable. In April 2001, the FCC adopted third
adjacent channel interference protection standard and prohibited any applicant
from obtaining a low power FM station license if the applicant has previously
engaged in unlicensed operations of a station. The FCC has accepted
applications for new low power FM stations and issued some authorizations.
At this time, it is difficult to assess the competitive impact of these new
stations. The new low power stations must comply with certain technical
requirements aimed at protecting existing FM radio stations from interference,
although we cannot be certain of the level of interference that low power
stations will cause after they begin operating. Moreover, if low power FM
stations are licensed in the markets in which we operate our stations, the low
power stations may compete for listeners and advertisers. The low power
stations may also limit
16
our ability to obtain new license or to modify our existing facilities. Any of
these events may materially and adversely impact our operating performance.
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 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 are not required to be reported
under the Hart-Scott-Rodino Act may be investigated by the FTC or the
Department of Justice 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.
Employees
On December 31, 2001, we had a staff of 519 full-time employees and 150
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 some employees at WXTU-FM in Philadelphia. The collective bargaining
agreement expired on March 31, 2000; however we continue to operate under
similar provisions as we renegotiate the agreement. 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.
17
ITEM 2. PROPERTIES
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 three to ten
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 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 station is
generally located so as to provide maximum market coverage, consistent with the
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.
ITEM 3. LEGAL PROCEEDINGS
We currently and from time to time are involved in litigation incidental to
the conduct of our business, 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.
On December 29, 1998, we filed a lawsuit in the Circuit Court of the
Eleventh Judicial Circuit, Miami-Dade County, against the Florida Marlins Inc.,
Florida Marlins Baseball Team, Ltd., 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 breach of
contract. On January 14, 2000, the court dismissed the Marlins' motion for
summary judgment. On January 10, 2001, we settled both lawsuits with the other
parties with no material impact on our financial position 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.
18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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. 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 2001 High Low
----------- ------- -------
First Quarter........ $15.625 $ 9.250
Second Quarter....... 17.000 12.750
Third Quarter........ 16.250 10.250
Fourth Quarter....... 13.900 8.720
Fiscal 2000
-----------
February 11-March 31. $14.125 $ 9.250
Second Quarter....... 14.750 7.750
Third Quarter........ 15.813 9.688
Fourth Quarter....... 9.953 7.563
As of March 22, 2002, the number of holders of our Class A common stock was
approximately 725. As of March 22, 2002, the number of holders of our Class B
common stock was nine.
We did not pay any dividends in the year 2000 or 2001 and do not anticipate
paying any cash dividends in the foreseeable future. Additionally, our credit
facility prohibits us from paying cash dividends and restricts our ability to
make other distributions with respect to our capital stock.
ITEM 6. SELECTED FINANCIAL DATA
We have derived the selected financial data shown below as of and for the
years ended December 31, 1997 and 1998 and as of December 31, 1999 from our
audited combined financial statements, which are not included in this report.
We have derived the selected financial data shown below for the year ended
December 31, 1999 from our audited combined financial statements included
elsewhere in this report. We have derived the selected financial data shown
below as of and for the years ended December 31, 2000 and 2001 from our audited
consolidated financial statements included elsewhere in this report.
As you review the information contained in the following table and
throughout this report, you should note the following:
. From January 1, 1997 to February 10, 2000, we operated as a series of
partnerships and subchapter S corporations under the Internal Revenue
Code. Accordingly, we were not liable for federal and some state and local
corporate income taxes, as we would have been if we had been treated as a
subchapter C corporation. During these periods, our stockholders included
our taxable income or loss in their federal and applicable state and local
income tax returns. The pro forma amounts shown in the table reflect
provisions for federal, state and local income taxes, applied to income
(loss) before pro forma income taxes, as if we had been taxed as a
subchapter C corporation. On February 11, 2000, our subchapter S status
terminated.
. For purposes of our historical financial statements, the term pro forma
refers to the adjustments necessary to reflect our status as a subchapter
C corporation for income tax purposes rather than a series of subchapter S
corporations and partnerships, distributions to equity holders for income
taxes on income of entities comprising Beasley Broadcast Group, Inc. prior
to the reorganization, the distribution of untaxed
19
retained income and subsequent re-contribution of the same amounts as
additional paid-in capital and the fair value adjustment necessary to
record the acquisition of minority shareholder interest using the purchase
method of accounting.
. Broadcast cash flow consists of operating income (loss) before corporate
general and administrative expenses, equity appreciation rights, format
change expenses, employee and contract termination expenses, depreciation
and amortization, and impairment loss on long-lived assets.
. Broadcast cash flow margin represents broadcast cash flow as a percentage
of net revenues.
. EBITDA consists of broadcast cash flow minus corporate general and
administrative expenses.
. After-tax cash flow consists of net income (loss) minus gains on sales of
radio stations and cumulative effect of accounting change plus the
following: depreciation and amortization, deferred income tax expense (or
minus deferred income tax benefit), nonrecurring items and other non-cash
charges.
Although broadcast cash flow, EBITDA and after-tax cash flow are not
measures of performance or liquidity calculated in accordance with generally
accepted accounting principles, we believe that these measures are useful to an
investor in evaluating our performance. These measures are widely used in the
broadcast industry to evaluate a radio company's operating performance.
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 generally accepted accounting principles. In addition, because
broadcast cash flow, EBITDA and after-tax cash flow are not calculated in
accordance with generally accepted accounting principles, they are not
necessarily comparable to similarly titled measures employed by other companies.
20
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 combined and
consolidated financial statements and the related notes included elsewhere in
this report.
Year ended December 31,
-----------------------------------------------------------------------
1997 1998 1999 2000 2001
----------- ----------- ----------- ----------- -----------
(in thousands except per share data, shares outstanding and margin data
Operating Data:
Net revenues........................................... $ 73,704 $ 81,433 $ 93,621 $ 106,154 $ 115,205
Operating expenses:....................................
Radio station operating expenses.................... 55,247 61,692 66,661 71,725 82,895
Corporate general and administrative................ 2,055 2,498 2,764 3,992 4,684
Equity appreciation rights.......................... -- -- 606 1,174 --
Format change expenses.............................. -- -- -- 1,545 --
Employee and contract termination expenses.......... -- -- -- -- 1,528
Depreciation and amortization....................... 14,174 16,096 16,410 17,409 27,554
Impairment loss on long-lived assets................ 4,124 -- -- -- 7,000
----------- ----------- ----------- ----------- -----------
Total operating expenses.......................... 75,600 80,286 86,441 95,845 123,661
Operating income (loss)........................ (1,896) 1,147 7,180 10,309 (8,456)
Other income (expense):
Interest expense.................................... (13,606) (13,602) (14,008) (8,813) (16,652)
Loss on investment.................................. -- -- -- (2,400) (1,585)
Loss on decrease in fair value of derivative
financial instruments.............................. -- -- -- -- (4,696)
Other non-operating income (expense)................ 54 (160) 776 304 2,367
Gain on sale of radio stations...................... 82,067 4,028 -- -- --
----------- ----------- ----------- ----------- -----------
Total other income (expense)...................... 68,515 (9,734) (13,232) (10,909) (20,566)
Income (loss) before income taxes.............. 66,619 (8,587) (6,052) (600) (29,022)
Current income tax expense............................. -- -- -- 3,598 (1,847)
Deferred income tax expense............................ -- -- -- 25,400 (5,377)
----------- ----------- ----------- ----------- -----------
Income (loss) before cumulative effect
of accounting change......................... 66,619 (8,587) (6,052) (29,598) (21,798)
Cumulative effect of accounting change................. -- -- -- -- 41
----------- ----------- ----------- ----------- -----------
Net income (loss).............................. $ 66,619 $ (8,587) $ (6,052) $ (29,598) $ (21,757)
=========== =========== =========== =========== ===========
Pro-forma current income tax expense (benefit)......... 7,054 (5,010) 692 N/A N/A
Pro-forma deferred income tax expense (benefit)........ 18,741 1,760 (2,896) N/A N/A
----------- ----------- ----------- ----------- -----------
Pro-forma net income (loss)............................ $ 40,824 $ (5,337) $ (3,848) N/A N/A
=========== =========== =========== =========== ===========
Basic and diluted net loss per share................... -- -- -- (1.26) (0.90)
Pro forma basic and diluted net income (loss) per
share................................................. 2.34 (0.31) (0.22) -- --
Weighted average common shares outstanding--basic...... 17,423,441 17,423,441 17,423,441 23,506,091 24,273,441
Weighted average common shares
outstanding--diluted.................................. 17,423,441 17,423,441 17,423,441 23,519,406 24,303,019
Other Data:
Broadcast cash flow.................................... $ 18,457 $ 19,741 $ 26,960 $ 34,429 $ 32,310
Broadcast cash flow margin............................. 25 % 24 % 29 % 32 % 28 %
EBITDA................................................. $ 16,402 $ 17,243 $ 24,196 $ 30,438 $ 27,626
After tax cash flow.................................... -- -- -- 18,473 14,033
Pro-forma after tax cash flow.......................... (4,204) 8,491 10,379 -- --
Cash provided by (used in):............................
Operating activities................................ $ 1,586 $ 4,921 $ 7,195 $ 7,705 $ 9,360
Investing activities................................ 18,871 (12,527) (2,760) (29,057) (133,346)
Financing activities................................ (17,052) 4,689 (2,192) 20,092 123,242
As of December 31,
---------------------------------------------
1997 1998 1999 2000 2001
-------- -------- -------- -------- --------
(in thousands)
Balance Sheet:
Cash and cash equivalents........... $ 7,678 $ 4,760 $ 7,003 $ 5,743 $ 4,999
Intangibles, net.................... 145,487 151,048 137,287 164,894 258,135
Total assets........................ 193,440 194,773 185,861 218,159 318,594
Long-term debt...................... 152,644 163,285 163,123 103,487 225,498
Total stockholders' equity (deficit) 19,579 6,041 (2,919) 78,958 57,201
21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
A radio broadcasting company derives its revenues primarily from the sale of
broadcasting time to local and national advertisers. The advertising rates that
a radio station is able to charge and the number of advertisements that can be
broadcast without jeopardizing listener levels largely determine those
revenues. Advertising rates are primarily based on three factors:
. a radio station's audience share in the demographic groups targeted by
advertisers, as measured principally by quarterly reports issued by The
Arbitron Ratings Company;
. the number of radio stations in the market competing for the same
demographic groups; and
. the supply of, and demand for, radio advertising time.
In 2001, we generated 72% of our revenues from local advertising, which is
sold primarily by each individual radio station's local sales staff. We
generated 18% of our revenues from national advertising in 2001, which is
purchased through independent, national advertising sales representatives by
customers that want to advertise nationwide. We generated the balance of our
revenues principally from promotional events and sales to broadcasting networks
that purchase commercial airtime.
Our operations are divided into three reportable segments, Radio Group One,
Radio Group Two, and Radio Group Three. The total assets, net revenues,
broadcast cash flow and other financial information for these segments is
contained in the notes to our 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 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
advertising and promotional expenses to increase listenership and Arbitron
ratings. However, because Arbitron reports ratings quarterly in most of our
markets, any increased ratings, and therefore increased advertising revenues,
tend to lag behind the incurrence of advertising and promotional spending.
In the broadcasting industry, radio stations often utilize trade or barter
agreements to reduce cash expenses by exchanging advertising time for goods or
services. In order to maximize cash revenue from our inventory, we minimize our
use of trade agreements and during the five years prior to 2000 have held
barter revenues under 5% of our gross revenues and barter related broadcast
cash flow under 3% of our broadcast cash flow. However, barter revenues
increased as a percentage of our gross revenues and barter related broadcast
cash flow increased as a percentage of our broadcast cash flow in fiscal 2000
and 2001 due to our investments in eTour, Inc. and FindWhat.com. As of December
31, 2001, we have completed our barter agreements with eTour, Inc. and
FindWhat.com.
We calculate same station results by comparing the performance of radio
stations 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 six stations that were
acquired during the first quarter of 2001, two stations that were acquired
during the second quarter of 2001, and the results from November 1, 2000 to
October 31, 2001 for one station that changed formats during the fourth quarter
of 2000.
Broadcast cash flow consists of operating income (loss) before corporate
general and administrative expenses, equity appreciation rights, format change
expenses, employee and contract termination expenses, depreciation and
amortization and impairment loss on long-lived assets and may not be comparable
to similarly titled measures employed by other companies. Same station
broadcast cash flow is the broadcast cash flow of the radio stations included
in our same station calculations.
22
For purposes of the following discussion, pro forma net income represents
historical income before income taxes adjusted as if we were treated as a
subchapter C corporation during all relevant periods at an effective tax rate
of 38.62%, applied to income before income taxes.
Results of Operations
As of February 1, 2001, we acquired three FM radio stations in the Las Vegas
market and two FM and one AM radio stations in the New Orleans market for an
aggregate purchase price of approximately $113.5 million, plus a working
capital adjustment of approximately $2.8 million. This acquisition contributed
to higher net revenues and station operating expenses during 2001.
On April 2, 2001, we acquired two FM radio stations in the Augusta, Georgia
market for approximately $12.0 million. This acquisition contributed to higher
net revenues and station operating expenses during 2001.
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 stopped placement of any further advertising air time for
eTour, Inc. and recorded a loss on investment of approximately $1.6 million,
the recorded cost of the 396,354 shares earned as of May 7, 2001.
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
approximately $23.0 million, subject to certain adjustments. In connection with
the definitive agreement, we entered into a time brokerage agreement, which
allowed Wilks Broadcasting to operate WRNO-FM and KMEZ-FM, beginning November
1, 2001 in exchange for a monthly fee and reimbursement of certain expenses. 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 during the third quarter of 2001. In connection with the pending sale
of WRNO-FM and KMEZ-FM, we recorded employee and contract termination expenses
of approximately $0.9 million during the fourth quarter of 2001.
On March 20, 2002, we terminated the time brokerage agreement and completed
the sale of WRNO-FM and KMEZ-FM to Wilks Broadcasting LLC. As consideration for
the sale of these two stations we received $23.0 million, subject to certain
adjustments, including $19.65 million in cash and $3.35 million in the form of
a note payable from Wilks Broadcasting LLC. The note accrues interest at 9% per
annum and the principal amount and all accrued interest are due on June 20,
2004. We used $19.5 million of the net cash proceeds to repay a portion of the
outstanding term loan under our credit facility.
In 1997, we entered into contracts for the radio broadcast rights relating
to the Miami Dolphins, Florida Marlins and Florida Panthers sports franchises.
These contracts grant WQAM-AM the exclusive, English language rights for live
radio broadcasts of the sporting events of these franchises for a five year
term which began in 1997. The contracts require us to pay fees and to provide
commercial advertising and other considerations. As of December 31, 2001,
remaining payments of fees are as follows: $359,000 in 2002. For the years
ended December 31, 1999, 2000 and 2001, the contract expense calculated on a
straight-line basis and other direct expenses exceeded related revenues by
approximately $3.5 million, $4.0 million and $3.7 million, respectively.
During 2001, we experienced a softer advertising environment due to slowing
economic conditions. In response to the reduction in net revenues we took
significant steps to cut costs not vital to programming and sales and we
continued consolidation of our operations. In connection with this response, we
recorded employee and contract termination expenses of approximately $0.6
million during the fourth quarter of 2001.
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Net Revenue. Net revenue increased 8.5% to $115.2 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 revenues
decreased 3.6% to $96.6 million for 2001 from $100.2 million for 2000.
23
Station Operating Expenses. Station operating expenses increased 15.6% to
$82.9 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.
Broadcast Cash Flow. Broadcast cash flow decreased 6.2% to $32.3 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.
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
58.3% to $27.6 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.
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 $21.8 million compared to a net loss of
$29.6 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 $27.6 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.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Net Revenue. Net revenue increased 13.4% to $106.2 million for 2000 from
$93.6 million for 1999. The increase was primarily due to revenue growth at
most of our existing radio stations, particularly in the Miami-Ft. Lauderdale
and Greenville-New Bern-Jacksonville markets. In addition, net revenues
increased due to our radio
24
station acquisitions in the Atlanta, Boston, Miami-Ft. Lauderdale and West Palm
Beach-Boca Raton markets. Net revenues decreased in the Philadelphia market due
to programming changes. On a same station basis, net revenues increased 10.8%
to $99.7 million for 2000 from $90.0 million for 1999.
Station Operating Expenses. Station operating expenses increased 7.6% to
$71.7 million for 2000 from $66.7 million for 1999. The increase was primarily
due to increased station operating expenses at most of our existing radio
stations associated with generating the growth in net revenues. In addition,
station operating expenses increased due to our radio station acquisitions in
the Atlanta, Boston, Miami-Ft. Lauderdale and West Palm Beach-Boca Raton
markets. Station operating expenses decreased in the Philadelphia market due to
programming changes. On a same station basis, station operating expenses
increased 7.4% to $65.2 million for 2000 from $60.7 million for 1999.
Broadcast Cash Flow. Broadcast cash flow increased 27.7% to $34.4 million
for 2000 from $27.0 million for 1999. The increase was primarily due to the
additional broadcast cash flow generated through revenue growth and increased
operating efficiencies at most of our existing radio stations, particularly in
the Greenville-New Bern-Jacksonville and Philadelphia markets. In addition,
broadcast cash flow increased due to our radio station acquisitions in the
Atlanta, Boston, Miami-Ft. Lauderdale and West Palm Beach-Boca Raton markets.
On a same station basis, broadcast cash flow increased 17.8% to $34.5 million
for 2000 from $29.3 million for 1999.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased 44.4% to $4.0 million for 2000 from $2.8
million for 1999. The increase was primarily due to higher general and
administrative expenses associated with our revenue growth over the same period
and from operating as a public company.
Depreciation and Amortization. Depreciation and amortization increased 6.1%
to $17.4 million for 2000 from $16.4 million for 1999. The increase was
primarily due to additional amortization and depreciation associated with the
acquisitions of radio stations in Atlanta, Boston, Miami-Ft. Lauderdale and
West Palm Beach-Boca Raton markets.
Interest Expense. Interest expense decreased 37.1% to $8.8 million in 2000
from $14.0 million for 1999. The decrease was primarily due to the repayment of
$58.5 million of the credit facility as well as the repayment of all
outstanding notes payable to related parties with proceeds from the initial
public offering. This decrease was partially offset by an increase in interest
expense due to financing the radio station acquisitions in the Atlanta, Boston,
Miami-Ft. Lauderdale and West Palm Beach-Boca Raton markets with borrowings
from our credit facility.
Net Loss. Net loss for 2000 was $29.6 million compared to a pro forma net
loss of $3.8 million for 1999. The increase in the loss was primarily due to
the establishment of a $27.6 million net deferred tax liability upon conversion
from a series of subchapter S corporations to a series of subchapter C
corporations, the $1.2 million redemption of equity appreciation rights as a
result of the initial public offering and corporate reorganization, the
expenses of approximately $1.5 million associated with the format change at
WPTP-FM in the Philadelphia market, the increase in amortization and
depreciation associated with the acquisition of radio stations in Atlanta,
Boston, Miami-Ft. Lauderdale and West Palm Beach-Boca Raton markets, and the
$2.4 million unrealized loss on our investment in FindWhat.com. The net loss
for the year ended December 31, 2000 was partially offset by the additional net
income generated through the revenue growth, increased operating efficiencies
at most of our existing radio stations and the decrease in interest expense due
to reduced borrowings from our credit facility.
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 will 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:
25
. internally-generated cash flow;
. our credit facility;
. additional borrowings, other than under our existing credit facility, to
the extent permitted; and
. additional equity offerings.
As of December 31, 2001, we held $5.0 million in cash and cash equivalents
and had $74.5 million in remaining commitments under our credit facility,
however, our financial covenants as of December 31, 2001 would have limited
additional borrowings to $0.7 million.
Net Cash Provided by (Used in) Operating Activities. Net cash provided by
operating activities was $9.4 million and $7.7 million for 2001 and 2000,
respectively. The change is primarily due to the $2.6 million gain on a
previously written off related party receivable and a $2.8 million increase in
non-cash working capital during 2001, partially offset by a decrease in
broadcast cash flow totaling $2.1 million, 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, and additional interest expense associated with financing our
radio station acquisitions totaling $7.8 million. In 2000, net cash provided by
operating activities was decreased by the redemption of equity appreciation
rights totaling $1.2 million, expenses of $1.5 million associated with the
format change at WPTP-FM in the Philadelphia market, and additional current
income tax expense of $5.4 million.
Net cash provided by operating activities was $7.7 million and $7.2 million
for 2000 and 1999, respectively. Equity appreciation rights totaling $1.2
million were redeemed during the year ended December 31, 2000; however this
redemption was offset by the additional net income generated through the
revenue growth, increased operating efficiencies at most of our existing radio
stations, and the decrease in interest expense due to reduced borrowings from
our credit facility.
Net Cash Provided by (Used in) Investing Activities. Net cash used in
investing activities was $133.3 million and $29.1 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 used in investing activities was $29.1 million and $2.8 million for
2000 and 1999, respectively. The change was partially due to loans to the
former S corporation stockholders and the subsequent repayment of these loans
and all other outstanding notes receivable from related parties and
stockholders as a result of our initial public offering. The change was also
partially due to the radio station acquisitions in the Atlanta, Boston,
Miami-Ft. Lauderdale and West Palm Beach-Boca Raton markets and expenditures
for property and equipment.
Net Cash Provided by (Used in) Financing Activities. 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 $2.9 million. In 2000, net cash was also decreased
by distributions totaling $2.3 million to the former S corporation stockholders.
26
Net cash provided by financing activities was $20.1 million for 2000 and net
cash used in financing activities was $2.2 million for 1999. The change was
partially due to distributions made to the former S corporation stockholders
prior to our initial public offering. The change was also partially due to the
proceeds from our initial public offering, less related costs, which were used
for repayment of approximately $58.5 million of the credit facility and all
outstanding notes payable to related parties. The change was also partially due
to additional borrowings from our credit facility to complete the radio station
acquisitions in the Atlanta, Boston, Miami-Ft. Lauderdale and West Palm
Beach-Boca Raton markets. The change was also partially due to payments of loan
fees related to the refinancing of our credit facility.
Credit Facility. As of December 31, 2001, the maximum commitment under our
credit facility was $300.0 million and the outstanding balance was $225.5
million. The credit facility consists of a $150.0 million revolving credit loan
and a $150.0 million term loan. The revolving credit loan includes a $50.0
million sub-limit for letters of credit. The credit facility bears interest at
either the base rate or LIBOR plus a margin that is determined by our debt to
cash flow ratio. The base rate is equal to the higher of the prime rate or the
overnight federal funds effective rate plus 0.5%. As of December 31, 2001, the
credit facility carried interest at an average rate of 5.0625%. Interest is
generally payable monthly through maturity on June 30, 2008. The scheduled
reductions in the amount available under the credit facility may require
principal repayments if the outstanding balance at that time exceeds the new
maximum available amount under the credit facility. The credit agreement
requires us to maintain certain financial ratios and includes restrictive
covenants. The loans are secured by substantially all assets of the company.
As of December 31, 2001, the scheduled reductions of the maximum commitment
of our credit facility for the next five years and thereafter were as follows:
Revolving Total Credit
Credit Loan Term Loan Facility
- ------------ ------------ ------------
2002...... $ -- $ 15,000,000 $ 15,000,000
2003...... -- 22,500,000 22,500,000
2004...... 15,000,000 22,500,000 37,500,000
2005...... 22,500,000 22,500,000 45,000,000
2006...... 22,500,000 22,500,000 45,000,000
Thereafter 90,000,000 45,000,000 135,000,000
------------ ------------ ------------
Total.. $150,000,000 $150,000,000 $300,000,000
============ ============ ============
As of December 31, 2001, assuming the disposition of WRNO-FM and KMEZ-FM in
the New Orleans market had been completed and we had used $19.5 million of the
net cash proceeds therefrom to repay a portion of the outstanding term loan,
our credit facility would have had an outstanding balance of approximately
$206.0 million.
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, 2001, our unused commitment fee was approximately $329,000.
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 December 31, 2001, these financial covenants include:
. Maximum Total Leverage Test. From July 1, 2001 through March 30, 2002,
our total debt as of the last day of each quarter must not exceed 7.0
times our operating cash flow for the four quarters ending on that day. As
of March 31, 2002, the maximum ratio is 6.25 times. For the period from
April 1, 2002 through December 31, 2002, the maximum ratio is 6.0 times.
For each twelve-month period after December 31, 2002, the maximum ratio
will decrease by 0.5 times. For all periods after January 1, 2006, the
maximum
27
ratio is 4.0 times. The operating cash flow definition excludes certain
losses associated with the Florida Marlins sports contract until its
expiration in the fourth quarter of 2001.
. Minimum Interest Coverage Test. From October 1, 2001 through March 31,
2002, our operating cash flow for the four quarters ending on the last day
of each quarter must not be less than 1.5 times the amount of our interest
expense. For the period from April 1, 2002 through September 30, 2002, the
minimum ratio is 1.75 times. For all periods after October 1, 2002, the
minimum ratio is 2.0 times.
. Minimum Fixed Charges Test. Our operating cash flow for any four
consecutive quarters must not be less than 1.10 times the amount of our
fixed charges. Fixed charges include interest expense, current income tax
expense, capital expenditures, and scheduled principal repayments.
As of December 31, 2001, we were in compliance with all applicable financial
covenants. As of December 31, 2001, our total leverage ratio was 6.98 times
operating cash flow, our interest coverage ratio was 1.79 times interest
expense, and our fixed charges ratio was 1.54 times fixed charges.
Failure to comply with these or any other of our financial covenants could
result in the acceleration of the maturity of our outstanding debt.
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 financing requirements sooner than we
expect; and, we may not secure financing when needed or on acceptable terms.
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:
. incur additional indebtedness and liens;
. enter into certain investments or joint ventures;
. consolidate, merge or effect asset sales;
. make overhead expenditures;
. enter sale and lease-back transactions;
. sell or discount accounts receivable;
. enter into transactions with affiliates or stockholders;
. sell, assign, pledge, encumber or dispose of capital stock; or
. change the nature of our business.
Credit Facility Amendment . On March 20, 2002, we entered into an amendment
to our credit agreement that revised certain financial covenants as follows:
. Maximum Total Leverage Test. As of March 30, 2002, our total debt must not
exceed 7.0 times our operating cash flow for the four quarters ending on
that day and as of March 31, 2002, the maximum ratio is 7.25 times. For
the period from April 1, 2002 through June 30, 2002, the maximum ratio is
7.0 times. For the period from July 1, 2002 through September 30, 2002 the
maximum ratio is 6.75 times. For the period from October 1, 2002 through
December 31, 2002 the maximum ratio is 6.25 times. For the period from
January 1, 2003 through March 31, 2003 the maximum ratio is 6.0 times. For
the period from April 1, 2003 through December 31, 2003 the maximum ratio
is 5.5 times. For the period from January 1, 2004 through December 31,
2004 the maximum ratio is 5.0 times. For the period from January 1, 2005
through December 31, 2005 the maximum ratio is 5.0 times. For all periods
after January 1, 2006, the maximum ratio is 4.0 times.
28
. Minimum Interest Coverage Test. Our operating cash flow for the four
quarters ending March 31, 2002 must not be less than 1.5 times the amount
of our interest expense. For the period from April 1, 2002 through June
30, 2002, the minimum ratio is 1.6 times. For the period from July 1, 2002
through September 30, 2002, the minimum ratio is 1.75 times. For all
periods after October 1, 2002, the minimum ratio is 2.0 times.
. Minimum Fixed Charges Test. Our operating cash flow for any four
consecutive quarters must not be less than 1.05 times the amount of our
fixed charges. Fixed charges include interest expense, current income tax
expense, capital expenditures, and scheduled principal repayments.
Failure to comply with these or any other of our financial covenants could
result in the acceleration of the maturity of our outstanding debt.
In addition, the maximum commitment under our revolving credit loan was
reduced by $30.5 million and the outstanding balance and maximum commitment of
our term loan were reduced by $19.5 million as a result of the application of
the net cash proceeds from the sale of WRNO-FM and KMEZ-FM in the New Orleans
market on March 20, 2002.
As of March 20, 2002, the scheduled reductions of the revised maximum
commitment of our credit facility for fiscal 2002, the next four years and
thereafter are as follows:
Revolving
Credit Term Total
Loan Loan Credit Facility
------------ ------------ ---------------
2002...... $ -- $ 13,050,000 $ 13,050,000
2003...... -- 19,575,000 19,575,000
2004...... 11,950,000 19,575,000 31,525,000
2005...... 17,925,000 19,575,000 37,500,000
2006...... 17,925,000 19,575,000 37,500,000
Thereafter 71,700,000 39,150,000 110,850,000
------------ ------------ ------------
Total.. $119,500,000 $130,500,000 $250,000,000
============ ============ ============
Contractual Cash Obligations
Our contractual cash obligations as of December 31, 2001, consist of the
following:
Less than 1 to 3 4 to 5 After 5
Total 1 year years Years years
------------ ----------- ----------- ----------- -----------
Long-term debt (1) $225,498,000 $15,009,000 $60,003,000 $90,000,000 $60,486,000
Operating leases 22,578,000 2,334,000 4,258,000 3,392,000 12,594,000
Other operating contracts (2) 9,545,000 2,898,000 4,844,000 1,803,000 --
------------ ----------- ----------- ----------- -----------
Total contractual cash obligations $257,621,000 $20,241,000 $69,105,000 $95,195,000 $73,080,000
============ =========== =========== =========== ===========
(1) The maturity on our credit facility could be accelerated if we do not
maintain certain covenants.
(2) Other operating contracts include contracts for sports programming rights,
on-air personalities, and rating services.
Other Commercial Commitments
As of December 31, 2001, we had four interest rate collar agreements
outstanding which currently require us to make interest payments based on the
floor rate of interest and notional amount as stated in the collar agreements.
As of December 31, 2001, the notional amount upon maturity of these collar
agreements was $115.0 million. Due to the decline in interest rates during
2001, the estimated fair value of these collar agreements decreased and we
recorded a $4.6 million liability for derivative financial instruments as of
December 31, 2001. The estimated fair value of each interest rate collar
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.
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
29
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.
We have recorded an allowance for doubtful accounts for estimated losses
resulting from customers' inability to make payments. If the financial
condition of our customers were to deteriorate, resulting in an inpairment of
their ability to make payments, then additional allowances may be required.
We have recorded certain deferred tax assets, which we consider fully
realizable due to the existence of certain deferred tax liabilities that are
anticipated to reverse during similar future periods. Accordingly, we have not
recorded a valuation allowance to reduce our deferred tax assets. If we were to
determine that we would be unable to fully realize some or all of our 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 have significant amounts of property and equipment and intangibles,
including FCC broadcasting licenses and goodwill, recorded in our financial
statements. We assess the recoverability of our property and equipment and
intangibles 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 and intangibles in the future.
Recent Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 141, "Business
Combinations", and SFAS 142, "Goodwill and Other Intangible Assets." SFAS 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 as well as all purchase method
business combinations completed after June 30, 2001. SFAS 141 also specifies
criteria that intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill. SFAS
142 will require 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.
We adopted the provisions of SFAS 141 upon issuance and the provisions of
SFAS 142 effective January 1, 2002.
SFAS 141 requires that we evaluate our existing intangible assets and
goodwill that were acquired in a prior purchase business combination, and to
make any necessary reclassifications in order to conform with the new criteria
in SFAS 141 for recognition apart from goodwill and to reassess the useful
lives and residual values of all intangible assets acquired. In addition, to
the extent an intangible asset is identified as having an indefinite useful
life, we will be required to test the intangible asset for impairment in
accordance with the provisions of SFAS 142. Any impairment loss will be
measured as of the date of adoption and recognized as the cumulative effect of
a change in accounting principle in the first interim period.
As of the date of adoption, we had unamortized goodwill in the amount of
approximately $12.1 million, and unamortized FCC broadcasting licenses, which
we expect to qualify as identifiable intangible assets with indefinite useful
lives, in the amount of approximately $240.3 million, all of which were subject
to the transition provisions of SFAS 141 and SFAS 142. Amortization expense
related to goodwill was $1.1 million and $1.3 million for the years ended
December 31, 2000 and 2001, respectively. Amortization expense related to FCC
broadcasting licenses was $12.1 million and $20.6 million for the years ended
December 31, 2000 and 2001, respectively. Because of the extensive effort
needed to comply with adopting SFAS 141 and SFAS 142, it is not
30
practicable to reasonably estimate the impact of adopting these statements on
our consolidated financial statements at the date of this report, including
whether it will be required to recognize any transitional impairment losses as
the cumulative effect of a change in accounting principle.
In June 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement
Obligations." SFAS 143 addresses financial accounting and reporting for the
impairment or disposal of long-live assets. SFAS 143 supersedes SFAS 121 and
the accounting and reporting provisions of APB Opinion No. 30. SFAS 143 also
amends portions of ARB No. 51. SFAS 143 is effective for financial statements
issued for fiscal years beginning after June 15, 2002. We have not completed
our evaluation of SFAS 143; however, we do not anticipate that the adoption of
SFAS 143 will have a material impact on our earnings or financial position upon
adoption.
In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS 144 addresses financial accounting and
reporting for obligations associated with the retirement tangible long-lived
assets and the associated asset retirement costs. SFAS 144 amends SFAS 19 and
is effective for financial statements issued for fiscal years beginning after
December 15, 2001 and interim periods within those fiscal years. We have not
completed our evaluation of SFAS 144; however, we do not anticipate that the
adoption of SFAS 144 will have a material impact on our earnings or financial
position upon adoption.
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 rate 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, 2001, $225.5 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 agreement, we have
entered into several interest rate collar agreements.
An interest rate collar is the combined purchase and sale of an interest
rate cap and an interest rate floor so as to keep interest rate exposure within
a defined range. We have purchased four interest rate collars. Under these
agreements, our base LIBOR cannot exceed the cap interest rate and our base
LIBOR cannot fall below our floor interest rate.
Notional amounts are used to calculate the contractual payments to be
exchanged under the contract. As of December 31, 2001, the notional amount upon
maturity of these collar agreements is $115.0 million.
As of December 31, 2001, our collar agreements are summarized in the
following chart:
Estimated
Notional Expiration Fair
Agreement Amount Floor Cap Date Value
--------- ----------- ----- ---- ------------- -----------
Interest rate collar $20,000,000 6.69% 8% May 2002 $ (394,000)
Interest rate collar $20,000,000 5.45% 7.5% November 2002 (634,000)
Interest rate collar $20,000,000 5.75% 7.35% November 2002 (686,000)
Interest rate collar $55,000,000 4.95% 7% October 2003 (2,916,000)
-----------
$(4,630,000)
===========
31
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BEASLEY BROADCAST GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statement's
Independent Auditors' Report..................................................................... 34
Consolidated Balance Sheets as of December 31, 2000 and 2001..................................... 35
Statements of Operations for the Years Ended December 31, 1999, 2000 and 2001.................... 36
Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 1999, 2000 and 2001 37
Statements of Cash Flows for the Years Ended December 31, 1999, 2000 and 2001.................... 38
Notes to Financial Statements.................................................................... 39
Financial Statement Schedule--Valuation and Qualifying Accounts.................................. 55
33
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Beasley Broadcast Group, Inc.:
We have audited the accompanying consolidated balance sheets of Beasley
Broadcast Group, Inc. as of December 31, 2000 and 2001, and the related
combined statements of operations, stockholders' deficit and cash flows for the
year ended December 31, 1999 and the related consolidated statements of
operations, stockholders' equity and cash flows for the years ended December
31, 2000 and 2001. In connection with our audits of the combined and
consolidated financial statements, we have also audited the accompanying
financial statement schedule as listed in the accompanying index. These
financial statements and the accompanying financial statement schedule are the
responsibility of the management of Beasley Broadcast Group, Inc. Our
responsibility is to express an opinion on these financial statements and the
accompanying 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 financial statements referred to above present fairly,
in all material respects, the financial position of Beasley Broadcast Group,
Inc. as of December 31, 2000 and 2001, and the results of its operations and
its cash flows for each of the years in the three-year period ended December
31, 2001, 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 financial statements taken
as a whole, presents fairly, in all material respects, the information set
forth therein.
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for derivative financial instruments in 2001.
/s/ KPMG LLP
Tampa, Florida
February 1, 20e0x2c,ept as to the last paragraph of footnote 2(e) and the last
three paragraphs of footnote 7 which are as of March 20, 2002
34
BEASLEY BROADCAST GROUP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
2000 2001
------------ ------------
A S S E T S
Current assets:
Cash and cash equivalents................................................ $ 5,742,628 $ 4,998,526
Accounts receivable, less allowance for doubtful accounts of $607,147 in
2000 and $621,853 in 2001.............................................. 18,712,862 20,086,094
Trade sales receivable................................................... 843,843 1,135,628
Other receivables........................................................ 980,504 3,079,552
Prepaid expenses and other............................................... 2,249,615 1,483,766
Deferred tax assets...................................................... 176,000 1,525,000
------------ ------------
Total current assets................................................. 28,705,452 32,308,566
Notes receivable from related parties....................................... 4,990,480 4,698,492
Property and equipment, net................................................. 15,619,688 20,259,684
Intangibles, net............................................................ 164,893,584 258,134,556
Other investments........................................................... 1,523,729 650,002
Other assets................................................................ 2,425,631 2,542,376
------------ ------------
Total assets......................................................... $218,158,564 $318,593,676
============ ============
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................................... $ 8,352 $ 15,009,045
Accounts payable......................................................... 2,355,006 3,189,388
Accrued expenses......................................................... 6,986,006 5,296,211
Trade sales payable...................................................... 798,198 1,206,720
Derivative financial instruments......................................... -- 1,714,000
------------ ------------
Total current liabilities............................................ 10,147,562 26,415,364
Long-term debt, less current installments................................... 103,478,405 210,489,420
Derivative financial instruments............................................ -- 2,916,000
Deferred tax liabilities.................................................... 25,575,000 21,572,000
------------ ------------
Total liabilities.................................................... 139,200,967 261,392,784
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 issued and outstanding............................... 7,252 7,252
Class B common stock, $.001 par value, 75,000,000 shares
authorized,17,021,373 issued and outstanding.............................. 17,021 17,021
Additional paid-in capital.................................................. 106,633,932 106,633,932
Accumulated deficit......................................................... (27,700,608) (49,457,313)
------------ ------------
Stockholders' equity................................................. 78,957,597 57,200,892
------------ ------------
Total liabilities and stockholders' equity........................... $218,158,564 $318,593,676
============ ============
See accompanying notes to financial statements
35
BEASLEY BROADCAST GROUP, INC.
STATEMENTS OF OPERATIONS
Combined Consolidated Consolidated
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1999 2000 2001
------------ ------------ ------------
Net revenues................................................. $ 93,621,404 $106,153,640 $115,204,615
------------ ------------ ------------
Costs and expenses:
Program and production.................................... 27,176,460 27,919,127 31,098,436
Sales and advertising..................................... 25,040,086 28,208,358 34,459,110
Station general and administrative........................ 14,443,785 15,597,101 17,337,085
Corporate general and administrative...................... 2,764,216 3,991,535 4,683,775
Equity appreciation rights................................ 606,407 1,173,759 --
Format change expenses.................................... -- 1,545,547 --
Employee and contract termination expenses................ -- -- 1,527,764
Depreciation and amortization............................. 16,410,321 17,409,162 27,554,534
Impairment loss on long-lived assets...................... -- -- 7,000,000
------------ ------------ ------------
Total costs and expenses.............................. 86,441,275 95,844,589 123,660,704
Operating income (loss)............................ 7,180,129 10,309,051 (8,456,089)
Other income (expense):
Interest expense.......................................... (14,008,312) (8,812,564) (16,652,363)
Loss on investments....................................... -- (2,400,000) (1,585,417)
Loss on decrease in fair value of derivative financial
instruments............................................. -- -- (4,696,000)
Other non-operating expenses.............................. (107,154) (310,754) (1,095,172)
Interest income........................................... 883,704 446,197 430,835
Other non-operating income................................ -- 168,383 3,032,501
------------ ------------ ------------
Loss before income taxes........................... (6,051,633) (599,687) (29,021,705)
Income tax expense (benefit)................................. -- 28,998,000 (7,224,000)
------------ ------------ ------------
Loss before cumulative effect of accounting
change........................................... (6,051,633) (29,597,687) (21,797,705)
Cumulative effect of accounting change
(net of income tax effect)................................. -- -- 41,000
------------ ------------ ------------
Net loss........................................... $ (6,051,633) $(29,597,687) $(21,756,705)
============ ============ ============
Basic and diluted net loss per share:
Loss before cumulative effect of accounting change........ $ -- $ (1.26) $ (0.90)
Cumulative effect of accounting change.................... -- -- --
------------ ------------ ------------
Net loss.................................................. $ -- $ (1.26) $ (0.90)
============ ============ ============
Pro forma income tax benefit (unaudited)..................... $ (2,204,000) N/A N/A
============ ============ ============
Pro forma net loss (unaudited)............................... $ (3,847,633) N/A N/A
============ ============ ============
Pro forma basic and diluted net loss per share (unaudited)... $ (0.22) N/A N/A
============ ============ ============
Basic common shares outstanding.............................. 17,423,441 23,506,091 24,273,441
============ ============ ============
Diluted common shares outstanding............................ 17,423,441 23,519,406 24,303,019
============ ============ ============
See accompanying notes to financial statements
36
BEASLEY BROADCAST GROUP, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Notes Net
Class A Class B Additional Receivable Stockholders'
Common Common Common Paid-In Accumulated Treasury From Equity
Stock Stock Stock Capital Deficit Stock Stockholders (Deficit)
------- ------- ----------- ------------ ------------ --------- ------------ -------------
Balances as of December 31, 1998.. $ -- $ -- $ 4,530,352 $ 32,010,375 $(21,827,398) $(548,600) $(8,123,695) $ 6,041,034
Net loss.......................... -- -- -- -- (6,051,633) -- -- (6,051,633)
Capital contributions............. -- -- -- 2,764,553 -- -- -- 2,764,553
Stockholders distributions........ -- -- -- -- (4,938,993) -- -- (4,938,993)
Loans to stockholders............. -- -- -- -- -- -- (734,282) (734,282)
------ ------- ----------- ------------ ------------ --------- ----------- ------------
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, 2000.. -- -- 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.......................... -- -- -- -- (27,700,608) -- -- (27,700,608)
------ ------- ----------- ------------ ------------ --------- ----------- ------------
Balances as of December 31, 2000.. 7,252 17,021 -- 106,633,932 (27,700,608) -- -- 78,957,597
Net loss.......................... -- -- -- -- (21,756,705) -- -- (21,756,705)
------ ------- ----------- ------------ ------------ --------- ----------- ------------
Balances as of December 31, 2001.. $7,252 $17,021 $ -- $106,633,932 $(49,457,313) $ -- $ -- $ 57,200,892
====== ======= =========== ============ ============ ========= =========== ============
See accompanying notes to financial statements
37
BEASLEY BROADCAST GROUP, INC.
STATEMENTS OF CASH FLOWS
Combined Consolidated
Year Ended Year Ended
December 31, December 31,
1999 2000
------------ -------------
Cash flows from operating activities:
Net loss.................................................................................. $(6,051,633) $ (29,597,687)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization.......................................................... 16,410,321 17,409,162
Impairment loss on long-lived assets................................................... -- --
Loss on investments.................................................................... -- 2,400,000
Loss on decrease in fair value of derivative financial instruments..................... -- --
Loss on disposal of property and equipment............................................. 107,154 --
Loss on note receivable from related party............................................. -- --
Change in assets and liabilities net of effects of acquisitions of radio stations:
Increase in receivables............................................................. (2,235,888) (1,728,793)
(Increase) decrease in prepaid expenses and other................................... (625,890) (331,392)
Increase in other assets............................................................ (475,304) (774,349)
Increase (decrease) in payables and accrued expenses................................ 66,425 (5,071,176)
Increase (decrease) in deferred tax liabilities..................................... -- 25,399,000
----------- -------------
Net cash provided by operating activities........................................ 7,195,185 7,704,765
----------- -------------
Cash flows from investing activities:
Expenditures for property and equipment................................................... (2,025,425) (3,641,877)
Payments for acquisitions of radio stations............................................... -- (34,780,000)
Payments for signal upgrade............................................................... -- --
Payment for purchase of equity investment................................................. -- (50,002)
Payments from related parties............................................................. -- 556,796
Loans to stockholders..................................................................... (734,282) (910,263)
Payments from stockholders................................................................ -- 9,768,240
----------- -------------
Net cash used in investing activities............................................ (2,759,707) (29,057,106)
----------- -------------
Cash flows from financing activities:
Proceeds from issuance of indebtedness.................................................... -- 138,300,523
Principal payments on indebtedness........................................................ (161,994) (161,890,721)
Proceeds from issuance of related party notes............................................. 144,027 --
Principal payments on related party notes................................................. -- (47,723,076)
Payments of loan fees..................................................................... -- (2,840,990)
Capital contributions..................................................................... 2,764,553 100,000
Stockholder distributions................................................................. (4,938,993) (2,250,000)
Issuance of common stock.................................................................. -- 99,009,900
Payment of initial public offering costs.................................................. -- (2,613,336)
----------- -------------
Net cash provided by (used in) financing activities.............................. (2,192,407) 20,092,300
----------- -------------
Net increase (decrease) in cash and cash equivalents......................................... 2,243,071 (1,260,041)
Cash and cash equivalents at beginning of period............................................. 4,759,598 7,002,669
----------- -------------
Cash and cash equivalents at end of period................................................... $ 7,002,669 $ 5,742,628
=========== =============
Cash paid for interest....................................................................... $12,853,000 $ 12,052,995
=========== =============
Cash paid for income taxes................................................................... $ 25,000 $ 1,878,825
=========== =============
Supplement disclosure of non-cash investing and financing activities:
Financed purchase of equity investment.................................................... $ -- $ 3,000,000
=========== =============
Equity investment acquired through placement of advertising air time...................... $ -- $ 873,727
=========== =============
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
=========== =============
Financed sale of property and equipment to a related party $ -- $ 5,115,500
=========== =============
Consolidated
Year Ended
December 31,
2001
-------------
Cash flows from operating activities:
Net loss.................................................................................. $ (21,756,705)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization.......................................................... 27,554,534
Impairment loss on long-lived assets................................................... 7,000,000
Loss on investments.................................................................... 1,585,417
Loss on decrease in fair value of derivative financial instruments..................... 4,630,000
Loss on disposal of property and equipment............................................. 651,423
Loss on note receivable from related party............................................. 162,616
Change in assets and liabilities net of effects of acquisitions of radio stations:
Increase in receivables............................................................. (3,468,120)
(Increase) decrease in prepaid expenses and other................................... 1,496,367
Increase in other assets............................................................ (2,531,920)
Increase (decrease) in payables and accrued expenses................................ (611,504)
Increase (decrease) in deferred tax liabilities..................................... (5,352,000)
-------------
Net cash provided by operating activities........................................ 9,360,108
-------------
Cash flows from investing activities:
Expenditures for property and equipment................................................... (2,688,125)
Payments for acquisitions of radio stations............................................... (128,305,753)
Payments for signal upgrade............................................................... (2,477,000)
Payment for purchase of equity investment................................................. --
Payments from related parties............................................................. 125,020
Loans to stockholders..................................................................... --
Payments from stockholders................................................................ --
-------------
Net cash used in investing activities............................................ (133,345,858)
-------------
Cash flows from financing activities:
Proceeds from issuance of indebtedness.................................................... 123,250,000
Principal payments on indebtedness........................................................ (8,352)
Proceeds from issuance of related party notes............................................. --
Principal payments on related party notes................................................. --
Payments of loan fees..................................................................... --
Capital contributions..................................................................... --
Stockholder distributions................................................................. --
Issuance of common stock.................................................................. --
Payment of initial public offering costs.................................................. --
-------------
Net cash provided by (used in) financing activities.............................. 123,241,648
-------------
Net increase (decrease) in cash and cash equivalents......................................... (744,102)
Cash and cash equivalents at beginning of period............................................. 5,742,628
-------------
Cash and cash equivalents at end of period................................................... $ 4,998,526
=============
Cash paid for interest....................................................................... $ 15,551,925
=============
Cash paid for income taxes................................................................... $ 3,188,360
=============
Supplement disclosure of non-cash investing and financing activities:
Financed purchase of equity investment.................................................... $ --
=============
Equity investment acquired through placement of advertising air time...................... $ 711,690
=============
Minority interests acquired through issuance of Class A common stock...................... $ --
=============
Principal payments on indebtedness through placement of advertising air time.............. $ 1,229,940
=============
Financed sale of property and equipment to a related party $ --
=============
See accompanying notes to financial statements
38
BEASLEY BROADCAST GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) Basis of Presentation and Corporate Reorganization
Beasley Broadcast Group, Inc. (the "Company") owns 44 radio stations with
its primary source of revenue generated from the sale of advertising time to
local and national spot advertisers and national network advertisers. All
significant inter-company balances and transactions have been eliminated in
presenting the Company's financial statements. The accompanying financial
statements for the year ended December 31, 1999 are presented on a combined
basis. The accompanying financial statements as of and for the years ended
December 31, 2000 and 2001 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 year ended
December 31, 1999 and for the period from January 1, 2000 to February 10, 2000.
The Company completed an initial public offering of common stock and the
corporate reorganization on February 11, 2000. Immediately prior 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.
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) Intangibles
Intangibles, which consist of FCC broadcasting licenses, goodwill, loan
fees, and other intangibles, are stated at cost less accumulated amortization.
Amortization is calculated using the straight-line method over their estimated
useful lives.
39
BEASLEY BROADCAST GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(e) Impairment
The Company assesses the recoverability of property and equipment and
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 depreciation and
amortization periods for property and equipment and intangibles to determine
whether events or circumstances warrant revised estimates of useful lives.
(f) 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.
(g) 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 and swap agreements to reduce the potential impact of
increases 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.
(h) Revenue Recognition
Revenue is recognized as advertising air time is broadcast and is net of
advertising agency commissions. Trade sales are recorded at the fair value of
the products or services received. For the years ended December 31, 1999, 2000
and 2001, trade sales were approximately $4.4 million, $8.1 million and $9.1
million, respectively and trade expenses were approximately $5.0 million, 4.8
million and $6.8 million, respectively.
(i) 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.
BFMA had elected to be treated as a subchapter S corporation under
provisions of the Internal Revenue Code. Under this corporate status, the
stockholders of BFMA were individually responsible for reporting their share of
taxable income or loss. Pro forma income tax benefit in the accompanying
statement of operations for the year ended December 31, 1999 includes pro forma
income tax benefit computed in accordance with Statement of Financial
Accounting Standards ("SFAS") 109, "Accounting for Income Taxes", as if BFMA
had been subject to Federal and state income taxes for that period.
(j) 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.
40
BEASLEY BROADCAST GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Earnings per share for the year ended December 31, 1999 and 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.
(k) Stock-Based Compensation
Stock-based compensation is measured and recognized in accordance with APB
Opinion 25, "Accounting for Stock Issued to Employees" and disclosed in
accordance with SFAS 123, "Accounting for Stock-Based Compensation."
(l) 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 $ 10,000 in 1999 and $10,500 in
2000 and 2001. There are no employer matching contributions.
(m) 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.
(n) Accounting Change
Effective January 1, 2001, the Company adopted SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments, including
derivative 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 derivatives 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 tax effect, decreased the net
loss $41,000 and did not change the net loss per share.
(o) Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
141, "Business Combinations", and SFAS 142, "Goodwill and Other Intangible
Assets." SFAS 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001 as well as all purchase
method business combinations completed after June 30, 2001. SFAS 141 also
specifies criteria that intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill. SFAS 142 will require 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.
The Company adopted the provisions of SFAS 141 upon issuance, and the
provisions of SFAS 142 effective January 1, 2002.
41
BEASLEY BROADCAST GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
SFAS 141 requires that the Company evaluate its existing intangible assets
and goodwill that were acquired in a prior purchase business combination, and
to make any necessary reclassifications in order to conform with the new
criteria in SFAS 141 for recognition apart from goodwill and to reassess the
useful lives and residual values of all intangible assets acquired. In
addition, to the extent an intangible asset is identified as having an
indefinite useful life, the Company will be required to test the intangible
asset for impairment in accordance with the provisions of SFAS 142. Any
impairment loss will be measured as of the date of adoption and recognized as
the cumulative effect of a change in accounting principle in the first interim
period.
As of the date of adoption, the Company had unamortized goodwill in the
amount of approximately $12.1 million, and unamortized FCC broadcasting
licenses, which the Company expects to qualify as identifiable intangible
assets with indefinite useful lives, in the amount of approximately $240.3
million, all of which were subject to the transition provisions of SFAS 141 and
SFAS 142. Amortization expense related to goodwill was $1.1 million and $1.3
million for the years ended December 31, 2000 and 2001, respectively.
Amortization expense related to FCC broadcasting licenses was $12.1 million and
$20.6 million for the years ended December 31, 2000 and 2001, respectively.
Because of the extensive effort needed to comply with adopting SFAS 141 and
SFAS 142, it is not practicable to reasonably estimate the impact of adopting
these statements on the Company's consolidated financial statements at the date
of this report, including whether it will be required to recognize any
transitional impairment losses as the cumulative effect of a change in
accounting principle.
In June 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement
Obligations." SFAS 143 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. SFAS 143 supersedes SFAS 121 and
the accounting and reporting provisions of APB Opinion No. 30. SFAS 143 also
amends portions of ARB No. 51. SFAS 143 is effective for financial statements
issued for fiscal years beginning after June 15, 2002. The Company has not
completed its evaluation of SFAS 143; however, management does not anticipate
that the adoption of SFAS 143 will have a material impact on the Company's
earnings or financial position upon adoption.
In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS 144 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SFAS 144 amends SFAS 19 and
is effective for financial statements issued for fiscal years beginning after
December 15, 2001 and interim periods within those fiscal years. The Company
has not completed its evaluation of SFAS 144; however, management does not
anticipate that the adoption of SFAS 144 will have a material impact on the
Company's earnings or financial position upon adoption.
(2) Acquisitions and Dispositions
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. A substantial portion of each purchase price was allocated to
intangible assets to reflect the FCC broadcasting licenses acquired. These FCC
broadcasting licenses were amortized over 15 years using the straight-line
basis through December 31, 2001. The excess of the purchase price over the fair
value of the net assets acquired has been recorded as goodwill and was
amortized over 15 years using the straight-line basis through December 31,
2001. In accordance with SFAS 142, adopted on January 1, 2002, FCC broadcasting
licenses and goodwill will no longer be amortized but will be evaluated for
impairment on an annual basis. Except for the acquisitions as of February 1,
2001, no liabilities were assumed by the Company as a result of these
acquisitions. Operations of acquired stations have been included in the results
of the Company since the acquisition date of each such station.
(a) 2001 Acquisitions and Dispositions
. As of February 1, 2001, the Company acquired all of the outstanding common
stock of Centennial Broadcasting Nevada, Inc. and all of the membership
interests in Centennial Broadcasting, LLC for an
42
BEASLEY BROADCAST GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
aggregate purchase price, subject to certain adjustments, of approximately
$116.3 million, which included a working capital adjustment of
approximately $2.8 million. Centennial Broadcasting Nevada, Inc. owns
approximately 18.5% of the membership interests in Centennial
Broadcasting, LLC. Centennial Broadcasting, LLC owns the radio stations
KJUL-FM, KSTJ-FM and KKLZ-FM in Las Vegas, Nevada and WRNO-FM, KMEZ-FM and
WBYU-AM in New Orleans, Louisiana. This acquisition was partially funded
by surplus working capital and partially financed through the Company's
credit facility. The acquisition was accounted for by the purchase method
of accounting.
. On April 2, 2001, the Company acquired the assets of WKXC-FM and WSLT-FM
in Augusta, Georgia for approximately $12.0 million. This acquisition was
partially funded by surplus working capital and partially financed through
the Company's credit facility. The acquisition was accounted for by the
purchase method of accounting.
. There were no dispositions during 2001.
(b) 2000 Acquisitions and Dispositions
. On January 6, 2000, the Company acquired the assets of WAEC-AM and WWWE-AM
in the Atlanta market for approximately $10.0 million. This acquisition
was financed through the Company's credit facility and accounted for by
the purchase method of accounting.
. On May 2, 2000, the Company acquired the assets of WRCA-AM in the Boston
market for approximately $6.0 million. This acquisition was financed
through the Company's credit facility and accounted for by the purchase
method of accounting.
. On May 3, 2000 the Company acquired the assets of WRFN-FM and WRDW-AM in
the Augusta, Georgia market for approximately $0.8 million. This
acquisition was funded by surplus working capital and accounted for by the
purchase method of accounting.
. On June 2, 2000 the Company acquired the assets of WHSR-AM and WWNN-AM in
the Miami-Ft. Lauderdale market and WSBR-AM in the West Palm Beach market
for approximately $18.0 million. This acquisition was financed through the
Company's credit facility and accounted for by the purchase method of
accounting.
. There were no dispositions during 2000.
(c) 1999 Acquisitions and Dispositions
. There were no acquisitions or dispositions during 1999.
Acquisitions for the years ended December 31, 2000 and 2001 are summarized
as follows:
Year ended December 31
------------------------
2000 2001
----------- ------------
Accounts receivable, net............... $ -- $ 2,233,223
Prepaid expenses and other............. -- 730,518
Property and equipment................. 4,088,173 5,526,234
FCC broadcasting licenses.............. 30,606,827 119,772,766
Goodwill............................... 85,000 201,000
Other assets........................... -- 6,625
Accounts payable....................... -- (32,000)
Accrued expenses....................... -- (132,613)
----------- ------------
Payments for purchase of radio stations $34,780,000 $128,305,753
=========== ============
43
BEASLEY BROADCAST GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(d) Unaudited Pro Forma Results of Operations
The following unaudited pro forma information presents the results of
operations for the years ended December 31, 2000 and 2001, with pro forma
adjustments as if the acquisitions of the stations had occurred on January 1,
2000.
Year ended December 31
--------------------------
2000 2001
------------ ------------
Net revenues........................ $127,230,000 $116,842,000
Operating income (loss)............. 7,324,000 (9,171,000)
Net loss............................ (38,589,000) (22,622,000)
Basic and diluted net loss per share (1.64) (0.93)
This unaudited pro forma information is not necessarily indicative of what
would have occurred had the acquisitions occurred on January 1, 2000 or of
results that may occur in the future.
(e) Subsequent Dispositions
. On October 31, 2001, the Company entered into a definitive agreement with
Wilks Broadcasting LLC to sell WRNO-FM and KMEZ-FM in the New Orleans
market for approximately $23.0 million, subject to certain adjustments. In
connection with the definitive agreement, the Company entered into a time
brokerage agreement, which allowed Wilks Broadcasting to operate WRNO-FM
and KMEZ-FM, beginning November 1, 2001 in exchange for a monthly fee and
reimbursement of certain expenses. On October 31, 2001, the carrying
amount of WRNO-FM and KMEZ-FM exceeded the sales price, therefore the
Company recorded an impairment loss on long-lived assets of $7.0 million.
In connection with the pending sale of WRNO-FM and KMEZ-FM, the Company
recorded employee and contract termination expenses of approximately $0.9
million.
On March 20, 2002, the Company terminated the time brokerage agreement and
completed the sale of WRNO-FM and KMEZ-FM to Wilks Broadcasting LLC. As
consideration for the sale of these two stations the Company received
$23.0 million, subject to certain adjustments, including $19.65 million in
cash and $3.35 million in the form of a note payable from Wilks
Broadcasting LLC. The note accrues interest at 9% per annum and the
principal amount and all accrued interest are due on June 20, 2004. The
Company used $19.5 million of the net cash proceeds to repay a portion of
the outstanding term loan under its credit facility.
(3) Property and Equipment
Property and equipment, at cost, is comprised of the following:
December 31, Estimated
-------------------------- useful lives
2000 2001 (years)
------------ ------------ ------------
Land, buildings and improvements $ 5,466,559 $ 7,085,888 15-30
Broadcast equipment............. 19,267,530 21,727,209 5-15
Transportation equipment........ 1,241,467 959,431 5
Office equipment and other...... 4,997,782 4,567,361 5-10
Construction in progress........ 1,323,081 765,627 --
------------ ------------ -----
32,296,419 35,105,516
Less accumulated depreciation... (16,676,731) (14,845,832)
------------ ------------
$ 15,619,688 $ 20,259,684
============ ============
44
BEASLEY BROADCAST GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(4) Intangibles
Intangibles, at cost, is comprised of the following:
December 31, Estimated
-------------------------- useful lives
2000 2001 (years)
------------ ------------ ------------
FCC broadcasting licenses.... $188,307,206 $300,312,887 15
Goodwill..................... 25,219,054 15,502,272 15
Advertising base............. 4,139,251 -- 5
Loan fees.................... 5,816,671 5,302,268 6-7
Noncompete agreements........ 1,120,000 -- 5
Other intangibles............ 6,011,469 1,688,227 5
------------ ------------ ---
230,613,651 322,805,654
Less accumulated amortization (65,720,067) (64,671,098)
------------ ------------
$164,893,584 $258,134,556
============ ============
On February 11, 2000, the Company computed the fair value of minority
stockholder interests based on the number of shares issued to the stockholders
and the estimated net book values of the radio stations at the close of
business on February 10, 2000. The computed amount of $8,370,064 was recorded
using the purchase method of accounting and is included in goodwill and
additional paid-in capital.
(5) Other Investments
In December 1999, the Company entered into an agreement to purchase 750,000
shares of preferred stock of eTour, Inc. in exchange for $3.0 million of
advertising airtime. The Company earned these shares as advertisements were
placed over the term of the agreement. For the years ended December 31, 2000
and 2001, eTour, Inc. placed advertising air time totaling approximately
$874,000 and $712,000, respectively. For the years ended December 31, 2000 and
2001, the Company earned approximately 218,000 and 178,000 shares,
respectively. The shares contain restrictions that generally limit the
Company's ability to sell or otherwise dispose of them. The investment was
initially recorded using the cost method of accounting.
On May 7, 2001, the Company received a letter from the management of eTour,
Inc. stating that eTour, Inc. is 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 approximately $1.6
million, the recorded cost of the 396,354 shares earned as of May 7, 2001.
On January 14, 2000, 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 approximately $2.4 million.
On April 4, 2000, the Company purchased 5,394 shares 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.
45
BEASLEY BROADCAST GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(6) Accrued Expenses
Accrued expenses is comprised of the following:
December 31,
---------------------
2000 2001
---------- ----------
Accrued payroll......... $2,580,503 $2,139,987
Deferred program rights. 3,195,369 30,171
Accrued interest expense 78,958 1,179,396
Other accrued expenses.. 1,131,176 1,946,657
---------- ----------
$6,986,006 $5,296,211
========== ==========
(7) Long-Term Debt
Long-term debt consists of the following:
December 31,
--------------------------
2000 2001
------------ ------------
Credit facility............................ $102,236,261 $225,486,261
Note payable to FindWhat.com............... 1,229,940 --
Other notes payable........................ 20,556 12,204
------------ ------------
103,486,757 225,498,465
Less current installments of long-term debt (8,352) (15,009,045)
------------ ------------
Long-term debt, less current installments.. $103,478,405 $210,489,420
============ ============
As of December 31, 2001, the maximum commitment under the credit facility
was $300.0 million and the outstanding balance is $225.5 million. The credit
facility consists of $150.0 million revolving credit loan and a $150.0 million
term loan. The revolving credit loan includes a $50.0 million sub-limit for
letters of credit. The credit facility bears interest at either the base rate
or LIBOR plus a margin that is determined by the Company's debt to cash flow
ratio. The base rate is equal to the higher of the prime rate or the overnight
federal funds effective rate plus 0.5%. As of December 31, 2000 and 2001, the
credit facility carried interest at an average rate of 7.9375% and 5.0625%,
respectively. Interest is generally payable monthly through maturity on June
30, 2008. The scheduled reductions in the amount available under the credit
facility may require principal repayments if the outstanding balance at that
time exceeds the new maximum available amount under the credit facility. The
Company must pay a quarterly unused commitment fee, which is based upon its
total leverage to 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 years ended
December 31, 2000 and 2001, the unused commitment fee was approximately
$284,000 and $329,000, respectively. The Company has entered into interest rate
hedge agreements as discussed in note 8. The credit agreement requires us to
maintain certain financial ratios and includes restrictive covenants. The
restrictive covenants prohibit the payment of dividends. The loans are secured
by substantially all assets of the Company.
46
BEASLEY BROADCAST GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
As of December 31, 2001, the scheduled reductions of the maximum commitment
of the credit facility for the next five years and thereafter were as follows:
Revolving Total
Credit Term Credit
Loan Loan Facility
------------ ------------ ------------
2002............. $ -- $ 15,000,000 $ 15,000,000
2003............. -- 22,500,000 22,500,000
2004............. 15,000,000 22,500,000 37,500,000
2005............. 22,500,000 22,500,000 45,000,000
2006............. 22,500,000 22,500,000 45,000,000
Thereafter....... 90,000,000 45,000,000 135,000,000
------------ ------------ ------------
Total..... $150,000,000 $150,000,000 $300,000,000
============ ============ ============
On January 14, 2000, the Company executed a $3.0 million promissory note in
favor of FindWhat.com as consideration for the purchase of 600,000 shares of
common stock. The note bears interest at 5.73% per annum and matured on January
14, 2002. All outstanding principal and accrued interest was due at maturity,
however the Company repaid the note in full with an equivalent amount of
advertising air time as specified in the loan agreement and a related
advertising agreement with FindWhat.com. The note was guaranteed by BFMA.
On March 20, 2002, the Company entered into an amendment to its credit
agreement that revised certain financial covenants.
In addition, the maximum commitment under the revolving credit loan was
reduced by $30.5 million and the outstanding balance and maximum commitment of
the term loan were reduced by $19.5 million as a result of the application of
the net cash proceeds from the sale of WRNO-FM and KMEZ-FM in the New Orleans
market on March 20, 2002.
As of March 20, 2002, the scheduled reductions of the revised maximum
commitment of the credit facility for fiscal 2002, the next four years and
thereafter are as follows:
Revolving Total
Credit Term Credit
Loan Loan Facility
------------ ------------ ------------
2002...... $ -- $ 13,050,000 $ 13,050,000
2003...... -- 19,575,000 19,575,000
2004...... 11,950,000 19,575,000 31,525,000
2005...... 17,925,000 19,575,000 37,500,000
2006...... 17,925,000 19,575,000 37,500,000
Thereafter 71,700,000 39,150,000 110,850,000
------------ ------------ ------------
Total.. $119,500,000 $130,500,000 $250,000,000
============ ============ ============
(8) Derivative Financial Instruments
The Company uses interest rate collar and swap agreements to hedge against
the potential impact of increases in interest rates on the credit facility. For
the years ended December 31, 1999 and 2001, the Company paid additional
interest of approximately $87,000 and $1.3 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 collar and swap agreements and
the variable interest rate of the credit facility.
47
BEASLEY BROADCAST GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
As of December 31, 2001, the Company's collar agreements are summarized in
the following chart:
Notional Estimated
Agreement Amount Floor Cap Expiration Date Fair Value
--------- ----------- ----- ---- --------------- -----------
Interest rate collar $20,000,000 6.69% 8% May 2002 $ (394,000)
Interest rate collar $20,000,000 5.4% 7.5% November 2002 (634,000)
Interest rate collar $20,000,000 5.75% 7.35% November 2002 (686,000)
Interest rate collar $55,000,000 4.95% 7% October 2003 (2,916,000)
-----------
$(4,630,000)
===========
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 agreement is based on the amounts the Company would expect to pay
to terminate the agreement.
(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.
(10) Income Taxes
Pro forma income tax benefit from continuing operations for the year ended
December 31, 1999 and income tax expense (benefit) for the years ended December
31, 2000 and 2001 from continuing operations is as follows:
Year ended December 31,
------------------------------------
1999 2000 2001
----------- ----------- -----------
(Unaudited)
Federal:
Current.. $ 567,000 $ 2,489,000 $(2,092,000)
Deferred. (2,371,000) 20,796,000 (4,009,000)
----------- ----------- -----------
(1,804,000) 23,285,000 (6,101,000)
State:
Current.. 125,000 1,109,000 245,000
Deferred. (525,000) 4,604,000 (1,343,000)
----------- ----------- -----------
(400,000) 5,713,000 (1,098,000)
----------- ----------- -----------
$(2,204,000) $28,998,000 $(7,199,000)
=========== =========== ===========
48
BEASLEY BROADCAST GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Pro forma income tax benefit for the year ended December 31, 1999 and income
tax expense (benefit) for the years ended December 31, 2000 and 2001 differ
from the amounts that would result from applying the federal statutory rate of
34% to the Company's loss before taxes as follows:
Year ended December 31,
-------------------------------------
1999 2000 2001
----------- ----------- -----------
(Unaudited)
Expected tax benefit..................................... $(2,058,000) $ (204,000) $(9,845,000)
State income taxes, net of federal benefit............... (280,000) 532,000 (641,000)
Establishment of deferred tax assets and liabilities upon
conversion from a subchapter S corporation to a
subchapter C corporation on February 11, 2000.......... -- 28,297,000 --
Non-deductible impairment loss on long-lived assets...... -- -- 2,380,000
Non-deductible depreciation and amortization of
Centennial Broadcasting acquisition.................... -- -- 491,000
Non-deductible amortization of minority interest
acquisitions........................................... -- 194,000 190,000
Other.................................................... 134,000 179,000 226,000
----------- ----------- -----------
$(2,204,000) $28,998,000 $(7,199,000)
=========== =========== ===========
Temporary differences that give rise to the components of deferred tax
assets and liabilities are as follows:
December 31,
--------------------------
2000 2001
------------ ------------
Allowance for doubtful accounts........... $ 176,000 $ 240,000
Derivative financial instruments.......... -- 1,788,000
Net operating losses...................... -- 623,000
Unrealized loss on investment............. 927,000 927,000
------------ ------------
Gross deferred tax assets.......... 1,103,000 3,578,000
Property and equipment.................... (869,000) (1,224,000)
Intangibles............................... (25,633,000) (22,401,000)
------------ ------------
Gross deferred tax liabilities..... (26,502,000) (23,625,000)
------------ ------------
Net deferred tax liabilities.............. $(25,399,000) $(20,047,000)
============ ============
The Company expects future operations to generate sufficient taxable income
to utilize its deferred tax assets. As of December 31, 2001, the Company has
federal and state net operating loss carryforwards of approximately $1.6
million, which expire in various years through 2021.
(11) Segment Information
The Company operates three reportable segments comprised of 44 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 revenues, consisting primarily of national and local
advertising, are 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 revenues and broadcast
cash flow as measures of
49
BEASLEY BROADCAST GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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.
Segment information, in thousands of dollars, for the years ended December 31,
1999, 2000 and 2001 is as follows:
December 31,
--------------------------
1999 2000 2001
-------- -------- --------
Total assets:
Radio Group One... $ 97,802 $117,790 $107,357
Radio Group Two... 88,059 100,369 105,055
Radio Group Three. -- -- 106,182
-------- -------- --------
Total............. $185,861 $218,159 $318,594
======== ======== ========
Year ended December 31,
----------------------------
1999 2000 2001
-------- -------- --------
Net revenues:
Radio Group One............................... $ 59,798 $ 68,984 $ 66,293
Radio Group Two............................... 33,823 37,170 35,935
Radio Group Three............................. -- -- 12,977
-------- -------- --------
Total......................................... 93,621 106,154 115,205
-------- -------- --------
Broadcast cash flow:
Radio Group One............................... $ 18,116 $ 21,382 $ 18,272
Radio Group Two............................... 8,845 13,047 10,381
Radio Group Three............................. -- -- 3,657
-------- -------- --------
Total......................................... 26,961 34,429 32,310
-------- -------- --------
Reconciliation to loss before income taxes:
Corporate general and administrative expenses. $ (2,764) $ (3,992) $ (4,684)
Equity appreciation rights.................... (606) (1,174) --
Format change expenses........................ -- (1,545) --
Employee and contract termination expenses.... -- -- (1,528)
Depreciation and amortization................. (16,410) (17,409) (27,554)
Impairment loss on long-lived assets.......... -- -- (7,000)
Interest expense.............................. (14,008) (8,813) (16,652)
Other non-operating income (expense).......... 775 (2,096) (3,914)
-------- -------- --------
Loss before income taxes.................. $ (6,052) $ (600) $(29,022)
======== ======== ========
Radio Group One includes radio stations located in Miami-Ft. Lauderdale, FL,
Ft. Myers-Naples, FL, West Palm Beach-Boca Raton, FL and Greenville-New
Bern-Jacksonville, NC. Radio Group Two includes radio stations located in
Atlanta, GA, Philadelphia, PA, Boston, MA, Fayetteville, NC and Augusta, GA.
Radio Group Three includes radio stations located in Las Vegas, NV and New
Orleans, LA.
Broadcast cash flow consists of operating income (loss) before corporate
general and administrative expenses, equity appreciation rights, format change
expenses, employee and contract termination expenses, depreciation and
amortization and impairment loss on long-lived assets.
50
BEASLEY BROADCAST GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(12) Selected Quarterly Data (Unaudited)
The following unaudited information shows selected items for each quarter of
the Company's two most recent fiscal years.
First Second Third Fourth
Year ended December 31, 2001 Quarter Quarter Quarter Quarter
- ---------------------------- ----------- ----------- ------------ -----------
Net revenues....................................... $25,842,721 $30,214,234 $ 28,702,673 $30,444,987
Operating income (loss)............................ (719,056) (70,678) (7,838,681) 172,326
Loss before cumulative effect of accounting change. (2,623,420) (4,100,631) (11,543,623) (3,530,031)
Basic and diluted net loss before cumulative effect
of accounting change per share................... (0.11) (0.17) (0.48) (0.14)
Net loss........................................... (2,582,420) (4,100,631) (11,543,623) (3,530,031)
Basic and diluted net loss per share............... (0.11) (0.17) (0.48) (0.14)
First Second Third Fourth
Year ended December 31, 2000 Quarter Quarter Quarter Quarter
- ---------------------------- ------------ ----------- ----------- -----------
Net revenues........................ $ 22,786,805 $27,080,918 $28,032,797 $28,253,120
Operating income.................... 762,641 3,591,205 3,608,726 2,346,479
Net income (loss)................... (29,405,604) 986,757 780,077 (1,958,917)
Basic and diluted net loss per share (1.39) 0.04 0.03 (0.08)
(13) Related Party Transactions
Notes receivable totaling $4.8 million are due from 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 year ended December 31, 2001, interest
income on the notes receivable from BFT was approximately $342,000.
In December 2001, Beasley Family Towers, Inc. 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. For each of the
years ended December 31, 1999, 2000 and 2001, rental expense paid to Mr.
Beasley was approximately $96,000, $96,000 and $102,000, 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. For the years ended December 31, 1999, 2000 and 2001, rental expense
paid to WCI was approximately $21,000, $21,000 and $23,000, respectively.
The Company leases office and studio broadcasting space in Boca Raton,
Florida from BFT. For the years ended December 31, 2000 and 2001, rental
expense paid to BFT was approximately $42,000 and $74,000, 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, 1999, 2000 and 2001, rental expense paid to BBMC was
approximately $89,000 for each year.
The Company leases certain radio towers from BFT. The lease agreements
expire on December 28, 2020. For the year ended December 31, 2001, rental
expense paid to BFT was approximately $515,000.
51
BEASLEY BROADCAST GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
As of December 31, 2001, future minimum lease payments to related parties
for the next five years and thereafter are summarized as follows:
2002............. $ 672,000
2003............. 682,000
2004............. 692,000
2005............. 582,000
2006............. 587,000
Thereafter....... 6,878,000
-----------
Total..... $10,093,000
===========
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 approximately $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. For the year ended
December 31, 1999, management fee expense under the agreement was approximately
$2.8 million. 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.
For the year ended December 31, 1999, interest expense on notes payable to
related parties was approximately $642,000. 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.
For the year ended December 31, 1999, interest income on notes receivable from
related parties was approximately $707,000. 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 during the year ended
December 31, 1999 were approximately $4.9 million. From January 1, 2000 to
February 10, 2000, distributions to stockholders of BFMA were approximately
$2.3 million.
(14) Fair Value of Financial Instruments
The Company's significant financial instruments and the methods used to
estimate their fair values are as follows:
. Notes receivable from related parties--It is not practicable to estimate
the fair value of notes receivable from related parties due to their
related party nature.
. Other investments--The fair value is estimated using quoted market prices
where available and using management's best estimate where quoted market
prices are unavailable.
. Credit facility--The fair value approximates carrying value due to the
interest rate being based on current market rates.
. Hedge agreements--The Company has entered into various agreements to hedge
against the potential impact of increases in interest rates on the credit
facility. The estimated fair value of these agreements is summarized in
note 8.
52
BEASLEY BROADCAST GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(15) Commitments and Contingencies
The Company leases property and equipment from third parties under one- to
forty-year operating leases. For the years ended December 31, 1999, 2000 and
2001, lease expense was approximately $1.8 million, $2.1 million and $2.3
million, respectively. As of December 31, 2001, future minimum lease payments
to third parties for the next five years and thereafter are summarized as
follows:
2002............. $ 1,662,000
2003............. 1,613,000
2004............. 1,271,000
2005............. 1,107,000
2006............. 1,116,000
Thereafter....... 5,716,000
-----------
Total..... $12,485,000
===========
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
approximately $1.2 million to the station managers as a result of the initial
public offering.
In 1997, the Company entered into contracts for the radio broadcast rights
relating to the Miami Dolphins, Florida Marlins and Florida Panthers sports
franchises. These contracts grant WQAM-AM the exclusive, English language
rights for live radio broadcasts of the sporting events of these franchises for
a five year term which began in 1997. The contracts require the Company to pay
fees and to provide commercial advertising and other considerations. As of
December 31, 2001, remaining payments of fees are as follows: $359,000 in 2002.
For the years ended December 31, 1999, 2000 and 2001, the contract expense
calculated on a straight-line basis and other direct expenses exceeded related
revenues by approximately $3.5 million, $4.0 million and $3.7 million,
respectively.
On December 29, 1998, the Company filed a lawsuit in the Circuit Court of
the Eleventh Judicial Circuit, Miami-Dade County, against the Florida Marlins
Inc., Florida Marlins Baseball Team, Ltd., 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
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.
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.
(16) 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. 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.
53
BEASLEY BROADCAST GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
As of December 31, 2001, there were 329,000 additional shares available for
grant under the Plan. The per share weighted-average fair value of stock
options outstanding as of December 31, 2001 was $8.84 on the date of grant
using the Black Scholes option-pricing model with the following
weighted-average assumptions: expected life of 7 years, expected volatility of
50%, risk-free interest rate of 3.54% to 5.33%, and no expected dividend yield.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
Company's net loss would have been increased to the pro forma amounts indicated
below:
Year ended December 31,
--------------------------
2000 2001
------------ ------------
Net loss:
As reported................. $(29,597,687) $(21,756,705)
Pro forma................... (33,071,326) (26,393,645)
Net loss per share:
Basic and diluted........... (1.26) (0.90)
Pro forma basic and diluted. (1.41) (1.09)
Stock option activity during the periods indicated is as follows:
Weighted-
Average
Number of Exercise
Shares 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................... (16,000) 15.02
Expired..................... -- --
--------- ------
Balance as of December 31, 2001 2,671,000 $15.24
========= ======
As of December 31, 2001, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $7.94-$15.50 and 8.2
years, respectively.
As of December 31, 2001, the number of options exercisable was 787,565 and
the weighted-average exercise price of those options was $15.39.
54
BEASLEY BROADCAST GROUP, INC.
FINANCIAL STATEMENT SCHEDULE
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1999, 2000 and 2001
Column B Column C Column E
Balance at Provision Column D Balance
Beginning for Bad Charge at End
Column A Description of Period Debts Offs of Period
-------------------- ---------- --------- --------- ---------
Year ended December 31, 1999:
Allowance for doubtful accounts. 589,352 803,074 832,144 560,282
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 1,265,669 1,250,963 621,853
55
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
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 2002 proxy statement for the 2002
Annual Meeting of Stockholders to be held April 23, 2002, 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 2002 proxy statement. The sections entitled "Compensation
Committee Report on Executive Compensation" and "Performance Graph" in the 2002
proxy statement are not incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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" in the 2002 proxy statement.
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 2002 proxy statement.
56
PART IV
ITEM 14. 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 reports on Form 8-K were filed during the three
month period ended December 31, 2001.
(c) Exhibits.
Exhibit
Number Description
- ------ -----------
2.1 Equity interest purchase agreement of Centennial Broadcasting Nevada, Inc. and Centennial
Broadcasting, LLC, dated June 2, 2000.(1)
2.2 First amendment to equity interest purchase agreement of Centennial Broadcasting Nevada, Inc. and
Centennial Broadcasting, LLC, dated December 13, 2000.(2)
2.3 Second amendment to equity interest purchase agreement of Centennial Broadcasting Nevada, Inc. and
Centennial Broadcasting, LLC, dated December 13, 2000.(3)
2.4 Asset purchase agreement of radio stations WKXC-FM and WSLT-FM in Augusta, Georgia, dated
November 13, 2000.(4)
2.5 Agreement of purchase and sale of assets by and among Beasley FM Acquisition Corp., Beasley
Broadcasting of Nevada, LLC, KJUL License, LLC, Wilks Broadcasting, LLC and Wilks License Co.,
LLC, dated as of October 31, 2001.(5)
3.1 Third amended and restated bylaws of the Registrant.(6)
10.1 George G. Beasley executive employment agreement with Beasley Mezzanine Holdings, LLC, dated
January 31, 2000.(7)
10.2 Bruce G. Beasley executive employment agreement with Beasley Mezzanine Holdings, LLC, dated
January 31, 2000.(7)
10.3 B. Caroline Beasley executive employment agreement with Beasley Mezzanine Holdings, LLC, dated
January 31, 2000.(7)
10.4 Brian E. Beasley executive employment agreement with Beasley Mezzanine Holdings, LLC, dated
January 31, 2000.(7)
10.5 The 2000 Equity Plan of Beasley Broadcast Group, Inc.(7)
10.6 Credit agreement between Beasley Mezzanine Holdings, LLC and Fleet National Bank, as syndication
agent, Bank of America, as documentation agent, the Bank of New York, as co-documentation agent
and managing agent, and the Bank of Montreal, Chicago Branch, as administrative agent, dated August
31, 2000.(8)
10.7 Allen B. Shaw executive employment agreement with Beasley Mezzanine Holdings, LLC, dated
February 1, 2001.(4)
10.8 First amendment to credit agreement between Beasley Mezzanine Holdings, LLC and Fleet National
Bank, as syndication agent, Bank of America, as documentation agent, the Bank of New York, as co-
documentation agent and managing agent, and the Bank of Montreal, Chicago Branch, as
administrative agent, dated August 14, 2001.(9)
10.9 Time brokerage agreement by and among Beasley Broadcasting of Nevada, LLC, KJUL License, LLC
and Wilks Broadcasting, LLC, dated as of October 31, 2001.(10)
57
Exhibit
Number Description
- ------ -----------
10.10 Second amendment to credit agreement between Beasley Mezzanine Holdings, LLC and Fleet National
Bank, as syndication agent, Bank of America, as documentation agent, the Bank of New York, as co-
documentation agent and managing agent, and the Bank of Montreal, Chicago Branch, as
administrative agent, dated March 20, 2002.
21.1 Subsidiaries of the Company. (11)
23.1 Consent of KPMG LLP.
- --------
(1) Incorporated by reference to Exhibit 2.1 to Beasley Broadcast Group's
Current Report on Form 8-K dated June 2, 2000.
(2) Incorporated by reference to Exhibit 2.2 to Beasley Broadcast Group's
Current Report on Form 8-K dated December 13, 2000.
(3) Incorporated by reference to Exhibit 2.3 to Beasley Broadcast Group's
Current Report on Form 8-K dated January 31, 2001.
(4) Incorporated by reference to Exhibit 2.6 to Beasley Broadcast Group's
Annual Report on Form 8-K dated February 13, 2001.
(5) Incorporated by reference to Exhibit 2.1 to Beasley Broadcast Group's
Quarterly Report on Form 10-K dated November 9, 2001.
(6) Incorporated by reference to Exhibit 3.1 to Beasley Broadcast Group's
Annual Report on Form 10-K dated February 13, 2001.
(7) Incorporated by reference to Beasley Broadcast Group's Registration
Statement on Form S-1 (333-91683).
(8) Incorporated by reference to Exhibit 10.8 to Beasley Broadcast Group's
Quarterly Report on Form 10-Q dated November 7, 2000.
(9) Incorporated by reference to Exhibit 10.1 to Beasley Broadcast Group's
Quarterly Report on Form 10-Q dated November 9, 2001.
(10) Incorporated by reference to Exhibit 10.2 to Beasley Broadcast Group's
Quarterly Report on Form 10-Q dated November 9, 2001.
(11) Incorporated by reference to Exhibit 21.1 to Beasley Broadcast Group's
Quarterly Report on Form 10-Q dated August 14, 2001.
58
SIGNATURES
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 Chairman of the Board and March 27, 2002
- ------------------------------ Chief Executive Officer
George G. Beasley
/s/ BRUCE G. BEASLEY President, Co-Chief Operating March 27, 2002
- ------------------------------ Officer and Director
Bruce G. Beasley
/s/ Allen B. Shaw Vice-Chairman of the Board
and Co-Chief Operating March 27, 2002
- ------------------------------ Officer
Allen B. Shaw
/s/ CAROLINE BEASLEY Vice President, Chief
Financial Officer,
Secretary, Treasurer and March 27, 2002
- ------------------------------ Director
Caroline Beasley
/s/ BRIAN E. BEASLEY Vice President of Operations March 27, 2002
- ------------------------------ and Director
Brian E. Beasley
/s/ JOE B. COX Director March 27, 2002
- ------------------------------
Joe B. Cox
/s/ MARK S. FOWLER Director March 27, 2002
- ------------------------------
Mark S. Fowler
/s/ HERBERT W. MCCORD Director March 27, 2002
- ------------------------------
Herbert W. McCord
59