| BEASLEY BROADCAST GROUP INC ITEM 1A RISK FACTORS CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Our Form 10-K disclosure and analysis concerning our operations, cash flows and financial position, including, in particular, the likelihood of our success in developing and expanding our business, include forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act |
| Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates” and similar expressions are forward-looking statements |
| Although these statements are based upon assumptions we consider reasonable, they are subject to risks and uncertainties that are described more fully below |
| Accordingly, we can give no assurance that we will achieve the results anticipated or implied by our forward-looking statements |
| The radio broadcasting industry faces many unpredictable business risks that could have a material adverse affect on our advertising revenues |
| Our future operations are subject to many business risks, including those risks that specifically influence the radio broadcasting industry, which could have a material adverse affect on our business |
| These risks include, but are not limited to: • shifts in population, demographics or audience preferences; • increased competition for advertising revenues with other radio stations, television stations and other entertainment and communications media; and • changes in government regulations and policies and actions of federal regulatory bodies, including the Federal Communications Commission, Internal Revenue Service, United States Department of Justice, and the Federal Trade Commission |
| In addition, we believe that for most businesses advertising is a discretionary business expense, meaning that spending on advertising tends to decline disproportionately during economic recession or downturn as compared to other types of business spending |
| Consequently, a recession or downturn in the United States economy or the economy of an individual geographic market in which we own radio stations would likely adversely affect our advertising revenues and our results of operations |
| 15 ______________________________________________________________________ [37]Table of Contents Our radio stations may not be able to compete effectively in their respective markets for advertising revenues, which could adversely affect our revenue and cash flow |
| We operate in a highly competitive business |
| A decline in our audience share or advertising rates in a particular market may cause a decline in the revenue and cash flow of our stations located in that market |
| Our radio stations compete for audiences and advertising revenues within their respective markets directly with other radio stations, as well as with other media |
| These other media include newspapers, magazines, network, satellite and cable television, outdoor advertising, direct mail, and satellite radio |
| Our radio stations could suffer a reduction in ratings or advertising revenue and could incur increased promotional and other expenses if: • another radio station in a market was to convert its programming to a format similar to, and thereby compete more directly with, one of our radio stations; or • a new radio station was to adopt a comparable format or if an existing competitor were to improve its audience share |
| These companies may be larger and have more financial resources than we have |
| Our radio stations may not be able to maintain or increase their current audience ratings and advertising revenues |
| We are dependent on federally-issued licenses to operate our radio stations and are subject to extensive federal regulation |
| The radio broadcasting industry is subject to extensive regulation by the FCC under the Communications Act |
| We are required to obtain licenses from the FCC to operate our radio stations |
| Licenses are normally granted for renewable terms of eight years |
| Although the vast majority of FCC radio station licenses are routinely renewed, we cannot assure you that the FCC will approve our future renewal applications or that the renewals will be for full eight-year terms or will not include conditions or qualifications |
| The non-renewal, or renewal with substantial conditions or modifications, of one or more of our licenses could have a material adverse effect on us |
| KCYE-FM’s license has not yet been renewed |
| We timely-filed a renewal application in June 2005 |
| Because we filed a timely renewal application, we continue to operate the radio station under this license in the ordinary course |
| WQAM-AM’s license renewal is currently subject to objections and indecency-related proceedings at the FCC, described below, and that renewal has not yet been granted |
| We timely-filed a renewal application in October 2003 |
| Because we filed a timely renewal application, we continue to operate the radio station under this license in the ordinary course |
| We must comply with extensive FCC regulations and policies in the ownership and operation of our radio stations |
| FCC regulations limit the number of radio stations that a licensee can own in a market, which could restrict our ability to consummate any future transactions and in certain circumstances could require us to divest one or more radio stations |
| The FCC also requires radio stations to comply with certain technical requirements to limit interference between two or more radio stations |
| If the FCC relaxes these technical requirements, it could impair the signals transmitted by our radio stations and could have a material adverse effect on us |
| Moreover, these FCC regulations and others may change over time and we cannot assure you that those changes would not have a material adverse effect on us |
| The FCC continues vigorous enforcement of its indecency rules, which could have a material adverse effect on our business |
| The FCC’s rules prohibit the broadcast of obscene material at any time and indecent material between the hours of 6 am and 10 pm |
| Broadcasters risk violating the prohibition on the broadcast of indecent material 16 ______________________________________________________________________ [38]Table of Contents because of the vagueness of the FCC’s definition of indecent material, coupled with the spontaneity of live programming |
| During the last few years, the FCC has stepped up its enforcement activities as they apply to indecency, and has threatened to initiate license revocation or license renewal proceedings against broadcast licensees for a category of undefined “serious” indecency violations |
| The FCC has also expanded the breadth of indecency regulation to include material that could be considered “blasphemy,” “personally reviling epithets,” “profanity” and vulgar or coarse words amounting to a nuisance |
| As a result, in the event that we broadcast material falling within the expanded breadth of the FCC’s regulation, we could be subject to license revocation, renewal or qualifications proceedings, which would put the licenses that we depend on for our operations in jeopardy |
| Legislation has also been introduced in Congress that would significantly increase the penalties for broadcasting indecent programming |
| In February 2004, the FCC initiated an enforcement inquiry in response to allegations that WQAM-AM had broadcast indecent material on one day in September 2003 |
| In November 2004, the FCC issued to us a notice of apparent liability for a monetary forfeiture of dlra55cmam000 for alleged indecency violations relating to broadcasts on two additional days in September 2003 at WQAM-AM In December 2004, the FCC initiated an enforcement inquiry in response to allegations that WQAM-AM had broadcast indecent material on eight different dates in 2004 on the Howard Stern Show; that inquiry also relates to WRXK-FM, which also carried the Howard Stern Show at that time |
| In August 2005, the FCC initiated an enforcement inquiry in response to allegations that WQAM-AM had broadcast indecent material on four different occasions’ that inquiry also relates to WRXK WQAM’s license has not yet been renewed |
| We timely-filed a renewal application in October 2003 |
| Because we filed a timely renewal application, we continue to operate the radio station under this license in the ordinary course |
| We may in the future become subject to additional inquiries or proceedings related to our radio stations’ broadcast of indecent or obscene material |
| To the extent that these pending inquiries or other proceedings result in the imposition of fines, revocation of any of our radio station licenses or denials of license renewal applications, our results of operation and business could be materially adversely affected |
| We may not remain competitive if we do not respond to changes in technology, standards and services that affect our industry |
| The radio broadcasting industry is subject to technological change, evolving industry standards and the emergence of other media technologies and services |
| We may not have the resources to acquire and deploy other technologies or to introduce new services that could compete with these other technologies |
| Competition arising from other technologies or regulatory change may have an adverse effect on the radio broadcasting industry or on our company |
| Various other audio technologies and services that have been developed and introduced, include: • satellite delivered digital audio radio services that offer numerous programming channels and the sound quality of compact discs; • audio programming by cable systems, direct broadcast satellite systems, internet content providers, personal communications services and other digital audio broadcast formats; • AM radio stations in the expanded AM band; • 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 has resulted in non-commercial FM radio broadcast outlets that serve small, localized areas |
| We cannot predict the effect, if any, that competition arising from other technologies or regulatory change may have on the radio broadcasting industry or on our financial condition and results of operations |
| 17 ______________________________________________________________________ [39]Table of Contents We may not be successful in identifying, financing, consummating and integrating future acquisitions, an element of our business strategy, which could significantly impair our future growth |
| We believe that in order to continue to compete effectively in our industry, we need to identify radio stations that meet certain criteria and consummate acquisitions of such stations on terms that are both economically and commercially acceptable to us |
| During the past three fiscal years, however, we were unable to identify any material radio station acquisitions that satisfied these requirements |
| While we intend to continue to pursue our acquisition strategy, we cannot assure you that we will be able to identify radio stations that meet our acquisition requirements and consummate future acquisitions |
| Additionally, even if we are successful in identifying acceptable targets, our ability to consummate acquisitions is subject to a number of risks, including the risks that: • our competitors may be able to outbid us for acquisitions because they have greater financial resources; • required regulatory approvals may result in unanticipated delays in, or prohibitions of, completing acquisitions; and • we may be unable to raise any additional financing necessary to consummate such acquisitions and additional financing may not be available to us on terms that are acceptable to us or permitted under our credit facility |
| Even if we are able to consummate acquisitions, we cannot assure you that we will be successful in integrating the operations of the acquired radio station or radio stations into our existing operations or that we will realize the benefits that we expect to realize in connection with such acquisitions |
| Moreover, consummating these acquisitions could also result in the incurrence of additional debt and related interest expense as well as unforeseen contingent liabilities, all of which could have a material adverse effect of our business, financial condition and results of operations |
| We have substantial debt that could have important consequences to you |
| We have debt that is substantial in relation to our stockholders’ equity |
| As of December 31, 2005, we had long-term debt of dlra144dtta4 million and stockholders’ equity of dlra88dtta0 million |
| Our long-term debt is substantial in amount and could have an impact on you |
| For example, it could: • require us to dedicate a substantial portion of our cash flow from operations to debt service, thereby reducing the availability of cash flow for other purposes, including ongoing capital expenditures and future acquisitions; • impair our ability to obtain additional financing for working capital, capital expenditures, acquisitions and general corporate or other purposes; • limit our ability to compete, expand and make capital improvements; • increase our vulnerability to economic downturns, limit our ability to withstand competitive pressures and reduce our flexibility in responding to changing business and economic conditions; and • limit or prohibit our ability to pay dividends and make other distributions |
| As of February 28, 2006, we had dlra75dtta0 million in remaining commitments available under our credit facility; however, as of February 28, 2006 our maximum total leverage covenant would have limited additional borrowings to dlra48dtta8 million |
| Our ability to reduce our total leverage ratio by increasing operating cash flow and/or decreasing long-term debt will determine how much, if any, of the remaining commitments under our credit facility will be available to us in the future |
| Poor financial results or unanticipated expenses could result in our failure to maintain or lower our total leverage ratio and we may not be permitted to make any additional 18 ______________________________________________________________________ [40]Table of Contents borrowings under our credit facility |
| Moreover, we may need to modify or enter into a new credit facility to close on any future acquisitions that we may make |
| We also may seek to obtain other funding or additional financing in connection with any such acquisition of radio stations, the full or partial repayment of our outstanding debt and/or the payment of a dividend on our common stock |
| We cannot assure you that we will be able to obtain other funding, additional financing or the approvals, if necessary, for any of these transactions |
| Any additional borrowings would further increase the amount of our debt and the associated risks |
| In addition, there can be no assurances that additional financing will be available or on terms that will be acceptable to us |
| We are subject to restrictive debt covenants, which may restrict our operational flexibility |
| Our credit facility contains various financial and operating covenants, including, among other things, restrictions on our ability to incur additional indebtedness, subject our assets to additional liens, enter into certain investments, consolidate, merge or effect asset sales, enter into sale and lease-back transactions, sell or discount accounts receivable, enter into transactions with our affiliates or stockholders, change the nature of our business, pay dividends on and redeem or repurchase capital stock, or make other restricted payments |
| These restrictions could limit our ability to take actions that require funds in excess of those available to us |
| Our credit facility also requires us to maintain specified financial ratios and to satisfy financial condition tests |
| Our ability to meet those financial ratios and tests may be affected by events beyond our control and we cannot assure you that we will meet those ratios and tests |
| Our breach of any of these covenants, ratios, tests or restrictions could result in an event of default under our credit facility |
| If an event of default exists under our credit facility, the lenders could elect to declare all amounts outstanding thereunder to be immediately due and payable |
| If the lenders accelerate the payment of the indebtedness, we cannot assure you that our assets would be sufficient to repay in full that indebtedness which could force us to seek protection under federal bankruptcy laws and could significantly or entirely reduce the value of our equity |
| We may also incur future debt obligations in addition to, or in lieu of, our credit facility |
| Such future debt obligations might subject us to additional and different restrictive covenants that could further limit our operational flexibility or subject us to other events of default |
| A downturn in the performance of our radio stations in Miami-Ft |
| Lauderdale or Philadelphia could adversely affect our net revenue |
| A ratings decline or other operating difficulty in the performance of our radio stations in Miami- Ft |
| Lauderdale or Philadelphia could have a disproportionately adverse affect on our net revenue |
| These radio stations contributed 51dtta4prca of our net revenue during 2005 |
| Because of the large portion of our net revenue from Miami- Ft |
| Lauderdale and Philadelphia we have greater exposure to adverse events or conditions affecting the economy in those markets than would be the case if we were more geographically diverse |
| Our corporate offices and several of our radio stations are located in Florida and other areas that could be affected by hurricanes |
| Florida is susceptible to hurricanes and we have our corporate offices and eleven radio stations located in Florida |
| These radio stations contributed 46dtta7prca of our net revenue during 2005 |
| Recently, operations at our corporate offices in Naples, Florida and at several of our radio stations in Florida were disrupted by Hurricane Wilma |
| Although neither our corporate offices nor any of our radio stations in Florida suffered material structural damage as a result of the hurricane, their communications and utility services were disrupted |
| Additionally, many of the businesses in the affected areas of Florida upon whom we depend for a portion of our revenues were also affected by Hurricane Wilma |
| Although we do not anticipate any long-term impact on our business from Hurricane Wilma, our corporate offices and our radio stations located in Florida and along the Atlantic coast of North Carolina could be materially affected by hurricanes in the future, which could have an adverse impact on our business, financial condition and results of operations |
| We carry property damage insurance on all of our 19 ______________________________________________________________________ [41]Table of Contents properties and business interruption insurance on some of our properties, but there can be no assurance that such insurance would be adequate to cover all of our hurricane-related losses |
| Our business depends on the efforts of key personnel and the loss of any one of them could have a material adverse affect on our business |
| Our business depends upon the continued efforts, abilities and expertise of our executive officers and other key employees, including George G Beasley, our Chairman of the Board and Chief Executive Officer |
| We believe the unique combination of skills and experience possessed by Mr |
| Beasley would be difficult to replace and that the loss of Mr |
| Beasley’s or other key executives’ expertise could impair our ability to execute our operating and acquisition strategies |
| and members of his immediate family own a substantial equity interest in Beasley Broadcast Group, Inc |
| Their interests may conflict with yours |
| George G Beasley is generally able to control the vote on all matters submitted to a vote of stockholders |
| Beasley, we will be unable to consummate transactions involving an actual or potential change in control, including transactions in which you might otherwise receive a premium for your shares over then current market prices |
| Shares of Class B common stock that Mr |
| Beasley beneficially owns represent 78dtta4prca of the total voting power of all classes of our common stock |
| Beasley also has currently exercisable stock options to purchase 487cmam500 shares of Class A common stock |
| Members of his immediate family also own significant amounts of Class B common stock and Class A common stock |
| Beasley will be able to direct our management and policies, except with respect to those matters requiring a class vote under the provisions of our amended certificate of incorporation, third amended and restated bylaws or applicable law |
| Historically, we have entered into certain transactions with George G Beasley, members of his immediate family and affiliated entities that may conflict with the interests of our stockholders now or in the future |
| See “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Related Party Transactions” and note 14 to the accompanying consolidated financial statements |
| Future sales by George G Beasley or members of his family of our Class A common stock could adversely affect its market price |
| George G Beasley and members of his family beneficially own the majority of all outstanding shares of Class B common stock, which is convertible to Class A common stock on a one-for-one basis |
| The market for our Class A common stock could fall substantially if George G Beasley and members of his family convert their shares of Class B common stock to shares of Class A common stock and then sell large amounts of shares of Class A common stock in the public market |
| These sales, or the possibility that these sales may occur, could make it more difficult for us to raise capital by selling equity or equity-related securities in the future |
| The difficulties associated with any attempt to gain control of our Company may adversely affect the price of our Class A common stock |
| Due to his large holdings of our common stock, George G Beasley controls the decision whether any change of control of the Company will occur |
| Moreover, some provisions of our certificate of incorporation, by-laws and Delaware law could make it more difficult for a third party to acquire control of us, even if a change of control could be beneficial to you |
| In addition, the Communications Act and FCC rules and policies limit the number of stations that one individual or entity can own, directly or by attribution, in a market |
| FCC approval for transfers of control of FCC licensees and assignments of FCC licenses are also required |
| Because of the limitations and restrictions imposed on us by these provisions and regulations, the trading price of our Class A common stock may be adversely affected |
| 20 ______________________________________________________________________ [42]Table of Contents There may not be an active market for our Class A common stock, making it difficult for you to sell your stock |
| Our stock may not be actively traded in the future |
| An illiquid market for our stock may result in price volatility and poor execution of buy and sell orders for investors |
| Our stock price and trading volume have fluctuated widely for a number of reasons, including some reasons that may be unrelated to our business or results of operations |
| This market volatility could depress the price of our Class A common stock without regard to our operating performance |
| In addition, our operating results may be below expectations of public market analysts and investors |
| If this were to occur, the market price of our Class A common stock could decrease, perhaps significantly |