-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PZoRrLGEo7nXwxROx3ZflOj39+2Yj6c4/Tm6F3TE3NRajFUmLZgHsiVfY4G29E8u mohetyeXhaNoPB+9QTbrYA== 0000950134-99-000914.txt : 19990215 0000950134-99-000914.hdr.sgml : 19990215 ACCESSION NUMBER: 0000950134-99-000914 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19990212 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHANCELLOR MEDIA CORP/ CENTRAL INDEX KEY: 0000894972 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 752247099 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-21570 FILM NUMBER: 99533034 BUSINESS ADDRESS: STREET 1: 300 CRESCENT COURT STREET 2: STE 600 CITY: DALLAS STATE: TX ZIP: 75201 BUSINESS PHONE: 9728699020 MAIL ADDRESS: STREET 1: 300 CRESCENT COURT STREET 2: STE 600 CITY: DALLAS STATE: TX ZIP: 75201 FORMER COMPANY: FORMER CONFORMED NAME: CHANCELLOR MEDIA CORP DATE OF NAME CHANGE: 19970905 FORMER COMPANY: FORMER CONFORMED NAME: EVERGREEN MEDIA CORP DATE OF NAME CHANGE: 19930326 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHANCELLOR MEDIA CORP OF LOS ANGELES CENTRAL INDEX KEY: 0001043102 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 752451687 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 333-32259 FILM NUMBER: 99533035 BUSINESS ADDRESS: STREET 1: 300 CRESCENT COURT STREET 2: STE 600 CITY: DALLAS STATE: TX ZIP: 75201 BUSINESS PHONE: 9728699020 MAIL ADDRESS: STREET 1: 300 CRESCENT COURT STREET 2: STE 600 CITY: DALLAS STATE: TX ZIP: 75201 FORMER COMPANY: FORMER CONFORMED NAME: EVERGREEN MEDIA CORP OF LOS ANGELES DATE OF NAME CHANGE: 19970728 10-Q/A 1 AMENDMENT NO.1 TO FORM 10-Q -QUARTER END 9/30/98 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 1998 COMMISSION FILE NO. 0-21570 COMMISSION FILE NO. 333-32259 CHANCELLOR MEDIA CORPORATION CHANCELLOR MEDIA CORPORATION OF LOS ANGELES (Exact Name of Registrant (Exact Name of Registrant as Specified in its Charter) as Specified in its Charter) DELAWARE DELAWARE (State or other jurisdiction of (State or other jurisdiction of incorporation or organization) incorporation or organization) 75-2247099 75-2451687 (I.R.S. Employer Identification Number) (I.R.S. Employer Identification Number)
300 CRESCENT COURT, SUITE 600, DALLAS, TEXAS 75201 (Address of principal executive offices, including zip code) (214) 922-8700 (Registrants' telephone number, including area code) Indicate by check mark whether Chancellor Media Corporation and Chancellor Media Corporation of Los Angeles (1) have 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 registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Chancellor Media Corporation Yes [X] No [ ] Chancellor Media Corporation of Los Angeles Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of October 31, 1998, 142,614,039 shares of Common Stock of Chancellor Media Corporation were outstanding and 1,040 shares of Common Stock of Chancellor Media Corporation of Los Angeles were outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 The Registrant hereby amends the following sections of its Form 10-Q for the quarterly period ended September 30, 1998. INDEX
PAGE NO. ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements........................................ 3 CHANCELLOR MEDIA CORPORATION Consolidated Balance Sheets (unaudited)..................... 3 Consolidated Statements of Operations (unaudited)........... 4 Consolidated Statements of Cash Flows (unaudited)........... 5 Notes to Consolidated Financial Statements (unaudited)...... 6 CHANCELLOR MEDIA CORPORATION OF LOS ANGELES Consolidated Balance Sheets (unaudited)..................... 18 Consolidated Statements of Operations (unaudited)........... 19 Consolidated Statements of Cash Flows (unaudited)........... 20 Notes to Consolidated Financial Statements (unaudited)...... 21 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 33 PART II. OTHER INFORMATION Item 1. Legal Proceedings........................................... 39 Item 6. Exhibits and Reports on Form 8-K............................ 40
2 3 PART I ITEM 1. FINANCIAL STATEMENTS CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA) ASSETS
DECEMBER 31, SEPTEMBER 30, 1997 1998 ------------ ------------- (UNAUDITED) (RESTATED) Current assets: Cash and cash equivalents................................. $ 16,584 $ 13,063 Accounts receivable, less allowance for doubtful accounts of $12,651 in 1997 and $13,002 in 1998................. 239,869 321,391 Other current assets...................................... 27,208 42,343 ---------- ---------- Total current assets.............................. 283,661 376,797 Note receivable from affiliate.............................. -- 150,000 Property and equipment, net................................. 159,797 299,906 Intangible assets, net...................................... 4,404,443 5,036,250 Other assets, net........................................... 113,576 162,142 ---------- ---------- $4,961,477 $6,025,095 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses..................... $ 171,017 $ 177,472 Long-term debt.............................................. 2,573,000 3,018,000 Deferred tax liabilities.................................... 361,640 360,618 Other liabilities........................................... 44,405 60,403 ---------- ---------- Total liabilities................................. 3,150,062 3,616,493 ---------- ---------- Redeemable preferred stock: Redeemable senior cumulative exchangeable preferred stock of subsidiary, par value $.01 per share; 1,000,000 shares authorized, issued and outstanding; liquidation preference of $121,274 in 1997......................... 119,445 -- Redeemable cumulative exchangeable preferred stock of subsidiary, par value $.01 per share; 3,600,000 shares authorized and 2,117,629 shares issued and outstanding; liquidation preference of $223,519 in 1997............. 211,763 -- Stockholders' equity: Preferred stock, $.01 par value. 2,200,000 shares of 7% convertible preferred stock authorized, issued and outstanding............................................ 110,000 110,000 Preferred stock, $.01 par value. 6,000,000 shares authorized; 5,990,000 shares of $3.00 convertible exchangeable preferred stock issued and outstanding.... 299,500 299,500 Common stock, $.01 par value. Authorized 200,000,000 shares; issued and outstanding 119,921,814 shares in 1997 and 142,392,516 in 1998........................... 1,199 1,424 Paid-in capital............................................. 1,226,930 2,243,350 Accumulated deficit......................................... (157,422) (245,672) ---------- ---------- Total stockholders' equity........................ 1,480,207 2,408,602 ---------- ---------- $4,961,477 $6,025,095 ========== ==========
See accompanying notes to consolidated financial statements 3 4 CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED ----------------------------- ----------------------------- SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1997 1998 1997 1998 ------------- ------------- ------------- ------------- (RESTATED) (RESTATED) Gross revenues................................ $166,817 $389,551 $382,994 $1,015,562 Less agency commissions..................... (21,795) (45,722) (49,711) (116,466) -------- -------- -------- ---------- Net revenues........................ 145,022 343,829 333,283 899,096 Operating expenses: Operating expenses, excluding depreciation and amortization......................... 73,551 175,062 184,713 491,924 Depreciation and amortization............... 50,474 120,648 104,386 315,772 Corporate general and administrative........ 5,995 10,109 11,646 25,188 Executive severance charge.................. -- -- -- 59,475 -------- -------- -------- ---------- Operating expenses.................. 130,020 305,819 300,745 892,359 -------- -------- -------- ---------- Operating income.................... 15,002 38,010 32,538 6,737 -------- -------- -------- ---------- Other (income) expense: Interest expense, net....................... 22,295 48,624 45,036 135,709 Gain on disposition of representation contracts................................ -- (18,497) -- (29,767) Other income................................ (5,057) -- (18,380) (127,404) -------- -------- -------- ---------- Other (income) expense.............. 17,238 30,127 26,656 (21,462) -------- -------- -------- ---------- Income (loss) before income taxes and extraordinary item............ (2,236) 7,883 5,882 28,199 Income tax expense............................ 985 722 5,244 32,507 Dividends on preferred stock of subsidiary.... 2,779 899 2,779 17,601 -------- -------- -------- ---------- Income (loss) before extraordinary item.............................. (6,000) 6,262 (2,141) (21,909) Extraordinary loss, net of income tax benefit..................................... -- 15,224 4,350 47,089 -------- -------- -------- ---------- Net loss............................ (6,000) (8,962) (6,491) (68,998) Preferred stock dividends..................... 5,049 6,417 5,748 19,252 -------- -------- -------- ---------- Net loss attributable to common stockholders...................... $(11,049) $(15,379) $(12,239) $ (88,250) ======== ======== ======== ========== Basic and diluted loss per common share: Before extraordinary item................... $ (0.12) $ -- $ (0.09) $ (0.31) Extraordinary item.......................... -- (0.11) (0.05) (0.34) -------- -------- -------- ---------- Net loss............................ $ (0.12) $ (0.11) $ (0.14) $ (0.65) ======== ======== ======== ========== Weighted average common shares outstanding.... 94,166 142,345 87,690 136,427 ======== ======== ======== ==========
See accompanying notes to consolidated financial statements. 4 5 CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS)
NINE MONTHS ENDED ----------------------------- SEPTEMBER 30, SEPTEMBER 30, 1997 1998 ------------- ------------- (RESTATED) Cash flows from operating activities: Net loss.................................................. $ (6,491) $ (68,998) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation........................................... 9,091 18,632 Amortization of goodwill, intangible assets and other assets................................................ 95,295 297,140 Executive severance charge -- stock option compensation.......................................... -- 16,000 Provisions for doubtful accounts....................... 3,409 4,573 Deferred income tax expense............................ 5,244 32,507 Gain on disposition of representation contracts........ -- (29,767) Dividends on preferred stock of subsidiary............. 2,779 17,601 Gain on disposition of assets.......................... (18,380) (123,845) Loss on extinguishment of debt......................... 4,350 47,089 Other.................................................. -- (1,893) Changes in certain assets and liabilities, net of effects of acquisitions: Accounts receivable.................................. (15,171) (73,528) Other current assets................................. 4,481 (10,283) Accounts payable and accrued expenses................ 8,445 12,737 Other assets......................................... 54 (4,114) Other liabilities.................................... 197 12,608 ----------- ----------- Net cash provided by operating activities......... 93,303 146,459 ----------- ----------- Cash flows from investing activities: Acquisitions, net of cash acquired........................ (2,083,701) (905,264) Escrow deposits on pending acquisitions................... (10,005) -- Payments made on purchases of representation contracts.... -- (25,724) Proceeds from sale of representation contracts............ -- 20,283 Proceeds from sale of assets.............................. 269,250 -- Issuance of note receivable from affiliate................ -- (150,000) Capital expenditures...................................... (6,436) (21,684) Other..................................................... (20,914) (39,750) ----------- ----------- Net cash used by investing activities............. (1,851,806) (1,122,139) ----------- ----------- Cash flows from financing activities: Proceeds from issuance of long-term debt.................. 2,105,000 1,973,000 Principal payments on long-term debt...................... (606,000) (1,528,000) Proceeds from issuance of common stock and preferred stock.................................................. 288,898 1,000,645 Repurchase of 12% and 12 1/4% Exchange Debentures......... -- (403,213) Dividends on preferred stock.............................. (5,748) (50,436) Payments for debt issuance costs.......................... (10,567) (19,837) Other..................................................... (158) -- ----------- ----------- Net cash provided by financing activities......... 1,771,425 972,159 ----------- ----------- Increase (decrease) in cash and cash equivalents............ 12,922 (3,521) Cash and cash equivalents at beginning of period............ 3,060 16,584 ----------- ----------- Cash and cash equivalents at end of period.................. $ 15,982 $ 13,063 =========== ===========
See accompanying notes to consolidated financial statements. 5 6 CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA) 1. BASIS OF PRESENTATION In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position, results of operations and cash flows of Chancellor Media Corporation and its subsidiaries (collectively, "the Company" or "Chancellor Media") for the periods presented. Interim periods are not necessarily indicative of results to be expected for the year. It is suggested that these financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All significant intercompany balances and transactions have been eliminated in consolidation. On December 18, 1997, the Company declared a two-for-one stock split effected in the form of a stock dividend payable on January 12, 1998 to shareholders of record at the close of business on December 29, 1997. All share and per share data (other than authorized share data) contained in the accompanying financial statements have been retroactively adjusted to give effect to the stock dividend. Loss per common share is based on the weighted average number of common shares outstanding during the periods after giving retroactive effect to the stock split. Stock options, the $3.00 Convertible Exchangeable Preferred Stock (the "$3.00 Convertible Preferred Stock") and the 7% Convertible Preferred Stock (the "7% Convertible Preferred Stock") are not included in the calculation as their effect would be antidilutive. The Company adopted SFAS No. 130, Reporting Comprehensive Income, effective January 1, 1998. This statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company has no items of comprehensive income for any period presented and therefore is not required to report comprehensive income. Certain Consolidated Balance Sheet, Consolidated Statement of Operations and Consolidated Statement of Cash Flows items have been restated (see Note 2). 2. ACQUISITIONS AND DISPOSITIONS 1997 Completed Transactions On January 31, 1997, the Company acquired WWWW-FM and WDFN-AM in Detroit from affiliates of Chancellor Broadcasting Company ("Chancellor") for $30,000 in cash plus various other direct acquisition costs. The Company had previously provided certain sales and promotional functions to WWWW-FM and WDFN-AM under a joint sales agreement since February 14, 1996 and subsequently operated the stations under a time brokerage agreement since April 1, 1996. On January 31, 1997, the Company acquired KKSF-FM and KDFC-FM/AM in San Francisco from affiliates of the Brown Organization for $115,000 in cash plus various other direct acquisition costs. The Company had previously been operating KKSF-FM and KDFC-FM/AM under a time brokerage agreement since November 1, 1996. On July 21, 1997, the Company sold KDFC-FM to Bonneville International Corporation ("Bonneville") for $50,000 in cash. The assets of KDFC-FM were classified as assets held for sale in connection with the purchase price allocation of the acquisition of KKSF-FM and KDFC-FM/AM and no gain or loss was recognized by the Company upon consummation of the sale. 6 7 CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On April 1, 1997, the Company acquired WJLB-FM and WMXD-FM in Detroit from Secret Communications Limited Partnership ("Secret") for $168,000 in cash plus various other direct acquisition costs. The Company had previously been operating WJLB-FM and WMXD-FM under time brokerage agreements since September 1, 1996. On April 3, 1997, the Company exchanged WQRS-FM in Detroit (which the Company acquired on April 3, 1997 from Secret for $32,000 in cash plus various other direct acquisition costs), to affiliates of Greater Media Radio, Inc. ("Greater Media") in return for WWRC-AM in Washington, D.C. (now known as WTEM-AM) and $9,500 in cash. The exchange was accounted for as a like-kind exchange and no gain or loss was recognized upon consummation of the transaction. The net purchase price to the Company of WWRC-AM was therefore $22,500. The Company had previously been operating WWRC-AM under a time brokerage agreement since June 17, 1996. On May 1, 1997, the Company acquired WDAS-FM/AM in Philadelphia from affiliates of Beasley FM Acquisition Corporation for $103,000 in cash plus various other direct acquisition costs. On May 15, 1997, the Company exchanged five of its six stations in Charlotte, North Carolina (WPEG-FM, WBAV-FM/AM, WRFX-FM and WFNZ-AM) for two FM stations in Philadelphia (WIOQ-FM and WUSL-FM) owned by EZ Communications, Inc. ("EZ") in Philadelphia (the "Charlotte Exchange"), and also sold the Company's sixth radio station in Charlotte, WNKS-FM, to EZ for $10,000 in cash and recognized a gain of $3,536. The Charlotte Exchange was accounted for as a like-kind exchange and no gain or loss was recognized upon consummation of the transaction. On May 30, 1997, the Company acquired WPNT-FM in Chicago from affiliates of Century Broadcasting Company for $75,740 in cash (including $1,990 for the purchase of the station's accounts receivable) plus various other direct acquisition costs. On June 19, 1997, the Company sold WPNT-FM in Chicago to Bonneville for $75,000 in cash and recognized a gain of $529. On June 3, 1997, the Company sold WEJM-FM in Chicago to affiliates of Crawford Broadcasting for $14,750 in cash and recognized a gain of $9,258. On July 2, 1997, the Company acquired WLTW-FM and WAXQ-FM in New York and WMZQ-FM, WJZW-FM, WZHF-AM and WBZS-AM in Washington, D.C. from Viacom International, Inc. ("Viacom") for approximately $612,388 in cash including various other direct acquisition costs (the "Viacom Acquisition"). The Viacom Acquisition was financed with (i) bank borrowings under the Senior Credit Facility (as defined) of $552,559; (ii) $53,750 in escrow funds paid by the Company on February 19, 1997 and (iii) $6,079 financed through working capital. In June 1997, the Company issued 5,990,000 shares of $3.00 Convertible Preferred Stock for net proceeds of $287,808 which were used to repay borrowings under the Senior Credit Facility and subsequently were reborrowed on July 2, 1997 as part of the financing of the Viacom Acquisition. On July 7, 1997, the Company sold WJZW-FM in Washington, D.C. to affiliates of Capital Cities/ABC Radio for $68,000 in cash. The assets of WJZW-FM, as well as the assets of WZHF-AM and WBZS-AM, which were also sold on August 13, 1997, were accounted for as assets held for sale in connection with the purchase price allocation of the Viacom Acquisition and no gain or loss was recognized by the Company upon consummation of the sales. On July 7, 1997, the Company sold the Federal Communications Commission ("FCC") authorizations and certain transmission equipment previously used in the operation of KYLD-FM in San Francisco to Susquehanna Radio Corporation ("Susquehanna") for $44,000 in cash and recognized a gain of $1,726. Simultaneously therewith, Chancellor sold the call letters "KSAN-FM" (which Chancellor previously used in San Francisco) to Susquehanna. On July 7, 1997, the Company and Chancellor entered into a time brokerage agreement to enable the Company to operate KYLD-FM on the frequency previously assigned to KSAN-FM, and on July 7, 1997, Chancellor changed the call letters of KSAN-FM to KYLD-FM. Upon the 7 8 CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) consummation of the Chancellor Merger (as defined herein), the Company changed the format of the new KYLD-FM to the format previously operated on the old KYLD-FM. On July 14, 1997, the Company completed the disposition of WLUP-FM in Chicago to Bonneville for net proceeds of $80,000 which were held by a qualified intermediary pending the completion of the deferred exchange of WLUP-FM for KZPS-FM and KDGE-FM in Dallas. On October 7, 1997, the Company applied the net proceeds from the disposition of WLUP-FM of $80,000 in cash, plus an additional $3,500 and various other direct acquisition costs, in a deferred exchange of WLUP-FM for KZPS-FM and KDGE-FM in Dallas. The exchange was accounted for as a like-kind exchange and no gain or loss was recognized upon consummation of the transaction. The Company had previously operated KZPS-FM and KDGE-FM under time brokerage agreements effective August 1, 1997. On July 21, 1997, the Company entered into a time brokerage agreement with Chancellor whereby the Company began managing certain limited functions of Chancellor's stations KBGG-FM, KNEW-AM and KABL-FM in San Francisco pending the consummation of the Chancellor Merger (as defined herein), which occurred on September 5, 1997. On August 13, 1997, the Company sold WBZS-AM and WZHF-AM in Washington, D.C. (acquired as part of the Viacom Acquisition) and KDFC-AM in San Francisco to affiliates of Douglas Broadcasting ("Douglas") for $18,000 in the form of a promissory note. The promissory note, as amended on May 1, 1998, bears interest at 7 3/4% from the closing date through February 28, 1998 and at 10.0% from March 1, 1998 through the remainder of the term of the note, with a balloon principal payment due four years after closing. At closing, Douglas posted a $1,000 letter of credit for the benefit of the Company that will remain outstanding until all amounts due under the promissory note are paid. On August 27, 1997, the Company sold WEJM-AM in Chicago to Douglas for $7,500 in cash and recognized a gain of $3,331. On September 5, 1997, pursuant to an Amended and Restated Agreement and Plan of Merger, dated as of February 19, 1997 and amended and restated on July 31, 1997 (the "Chancellor Merger Agreement"), among Chancellor, Chancellor Radio Broadcasting Company ("CRBC"), Evergreen Media Corporation ("Evergreen"), Evergreen Mezzanine Holdings Corporation ("EMHC") and Evergreen Media Corporation of Los Angeles ("EMCLA"), (i) Chancellor was merged with and into EMHC, a direct, wholly-owned subsidiary of Evergreen, with EMHC remaining as the surviving corporation and (ii) CRBC was merged with and into EMCLA, a direct, wholly-owned subsidiary of EMHC, with EMCLA remaining as the surviving corporation (collectively, the "Chancellor Merger"). Upon consummation of the Chancellor Merger, the Company was renamed Chancellor Media Corporation, EMHC was renamed Chancellor Mezzanine Holdings Corporation ("CMHC") and EMCLA was renamed Chancellor Media Corporation of Los Angeles ("CMCLA"). Consummation of the Chancellor Merger added 52 radio stations (36 FM and 16 AM) to the Company's portfolio of stations, including 13 stations in markets in which the Company previously operated. The total purchase price allocated to net assets acquired was approximately $1,998,383 which included (i) the conversion of each outstanding share of Chancellor Common Stock into 0.9091 shares of the Company's Common Stock, resulting in the issuance of 34,617,460 shares of the Company's Common Stock at $15.50 per share, (ii) the assumption of long-term debt of CRBC of $949,000 which included $549,000 of borrowings outstanding under the CRBC senior credit facility, $200,000 of CRBC's 9 3/8% Senior Subordinated Notes due 2004 and $200,000 of CRBC's 8 3/4% Senior Subordinated Notes due 2007, (iii) the issuance of 2,117,629 shares of CMCLA's 12% Exchangeable Preferred Stock in exchange for CRBC's substantially identical securities with a fair value of $215,570 including accrued and unpaid dividends of $3,807, (iv) the issuance of 1,000,000 shares of CMCLA's 12 1/4% Series A Senior Cumulative Exchangeable Preferred Stock in exchange for CRBC's substantially identical securities with a fair value of $120,217 including accrued and unpaid dividends of $772, (v) the issuance of 2,200,000 shares of the Company's 7% Convertible Preferred Stock in exchange for Chancellor's substantially identical securities with a fair value of $111,048 including accrued and 8 9 CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) unpaid dividends of $1,048, (vi) the assumption of stock options issued to Chancellor stock option holders with a fair value of $34,977 and (vii) estimated acquisition costs of $31,000. On October 28, 1997, the Company acquired Katz Media Group, Inc. ("KMG"), a full-service media representation firm, in a tender offer transaction for a total purchase price of approximately $379,101 (the "Katz Acquisition") which included (i) the conversion of each outstanding share of KMG Common Stock into the right to receive $11.00 in cash, resulting in total cash payments of $149,601, (ii) the assumption of long-term debt of KMG and its subsidiaries of $222,000 which included $122,000 of borrowings outstanding under the KMG senior credit facility and $100,000 of 10 1/2% Senior Subordinated Notes due 2007 of Katz Media Corporation (a subsidiary of KMG) and (iii) estimated acquisition costs of $7,500. On December 29, 1997, the Company acquired five radio stations from Pacific and Southern Company, Inc., a subsidiary of Gannett Co., Inc., consisting of WGCI-FM/AM in Chicago for $140,000, KKBQ-FM/AM in Houston for $110,000 and KHKS-FM in Dallas for $90,000, for an aggregate purchase price of $340,000 in cash plus various other direct acquisition costs. 1998 Completed Transactions On January 30, 1998, the Company acquired KXPK-FM in Denver from Ever Green Wireless LLC (which is unrelated to the Company) for $26,000 in cash plus various other direct acquisition costs, of which $1,650 was previously paid by Chancellor as escrow funds and are classified as other assets at December 31, 1997. The Company had previously operated KXPK-FM under a time brokerage agreement since September 1, 1997. On April 3, 1998, the Company exchanged WTOP-AM in Washington, KZLA-FM in Los Angeles and WGMS-FM in Washington plus $63,000 in cash (including $3,000 paid by the Company in escrow and classified as other assets at December 31, 1997) to Bonneville for WBIX-FM in New York, KLDE-FM in Houston and KBIG-FM in Los Angeles (the "Bonneville Exchange"). The Company had previously operated KLDE-FM and KBIG-FM under time brokerage agreements since October 1, 1997 and WBIX-FM since October 10, 1997, and had sold substantially all of the broadcast time of WTOP-AM, KZLA-FM and WGMS-FM to Bonneville since October 1, 1997. Based on discussions with the Securities and Exchange Commission, the Company has restated its previously reported results for the nine months ended September 30, 1998 to recognize a pre-tax gain of $123,845 related to the Bonneville Exchange. This transaction was previously accounted for as a like-kind exchange and is now recorded as a business combination in accordance with Accounting Principles Board Opinion No. 16, "Business Combinations." A summary of the impact on the results of operations follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 1998 SEPTEMBER 30, 1998 --------------------------- --------------------------- (AS PREVIOUSLY (AS PREVIOUSLY REPORTED) (RESTATED) REPORTED) (RESTATED) -------------- ---------- -------------- ---------- Income (loss) before extraordinary item....... $ 7,500 $ 6,262 $ (93,739) $(21,909) Net loss attributable to common stockholders................................ (14,141) (15,379) (160,080) (88,250) Basic and diluted income (loss) per common share Before extraordinary item................... $ 0.01 $ -- $ (0.83) $ (0.31) Net loss.................................... (0.10) (0.11) (1.17) (0.65)
On April 13, 1998, the Company and Secret entered into a settlement agreement regarding WFLN-FM in Philadelphia. Previously in August 1996, the Company and Secret had entered into an agreement under which the Company would acquire WFLN-FM from Secret for $37,750 in cash. In April 1997, the Company entered into an agreement to sell WFLN-FM to Greater Media for $41,800 in cash. On July 16, 1997, Secret 9 10 CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) purported to terminate the sale of WFLN-FM to the Company. The Company subsequently brought suit against Secret to enforce its rights to acquire WFLN-FM. Pursuant to a court settlement entered in August 1997 and the settlement agreement between the Company and Secret entered on April 13, 1998, (i) Secret sold WFLN-FM directly to Greater Media for $37,750, (ii) Greater Media deposited $4,050 (the difference between the Company's proposed acquisition price for WFLN-FM from Secret and the Company's proposed sale price for WFLN-FM to Greater Media) with the court and (iii) the Company received $3,500 of such amount deposited by Greater Media with the court, plus interest earned during the period which the court held such amounts (the "WFLN Settlement"), and Secret received the balance of such amounts. On May 29, 1998, as part of the Capstar/SFX Transaction (defined below), the Company exchanged WAPE-FM and WFYV-FM in Jacksonville (valued for purposes of the Capstar/SFX Transaction at $53,000) plus $90,250 in cash to Capstar Broadcasting Corporation (together with its subsidiaries, "Capstar") in return for KODA-FM in Houston (the "Houston Exchange"). Furthermore, on May 29, 1998, Capstar sold KKPN-FM in Houston (acquired by Capstar as part of Capstar's acquisition (the "SFX Acquisition") of SFX Broadcasting, Inc. ("SFX")) due to the attributable ownership of Hicks, Muse, Tate & Furst, Incorporated ("Hicks Muse") in both Capstar and the Company in order to comply with the FCC's multiple ownership limits. In connection with Capstar's sale of KKPN-FM, the Company received a commission from Capstar of $1,730. On May 29, 1998, the Company also provided a loan to Capstar in the principal amount of $150,000 as part of the Capstar/SFX Transaction (the "Capstar Loan"). The Capstar Loan bears interest at the rate of 12% per annum (subject to increase in certain circumstances), and is secured by a senior pledge of common stock of Capstar's direct subsidiary. A portion of the Capstar Loan will be prepaid by Capstar in connection with the Company's acquisition of, and the proceeds of such prepayment would be used by the Company as a portion of the purchase price for, each Capstar/SFX Station. Hicks Muse, which is a substantial shareholder of the Company, controls Capstar, and certain officers and directors of the Company are directors and/or executive officers of Capstar and/or Hicks Muse. On June 1, 1998, the Company acquired WWDC-FM/AM in Washington, D.C. from Capitol Broadcasting Company and its affiliates for $74,062 in cash (including $2,062 for the purchase of the stations' accounts receivable) plus various other direct acquisition costs, of which $4,000 was previously paid by the Company as escrow funds and are classified as other assets at December 31, 1997 (the "Capitol Broadcasting Acquisition"). On May 1, 1998, the Company formed a new marketing group division, in an effort to enhance the revenues the Company derives from its sales promotion activities. On June 1, 1998, the Company acquired Global Sales Development, Inc., a consulting firm based in Richmond, Virginia, for $675 in cash plus various other direct acquisition costs to lead its marketing efforts for this new division. On June 15, 1998, the Company's national radio network, The AMFM Radio Networks, acquired the syndicated programming shows of Global Satellite Network for $14,000 in cash plus various other direct acquisition costs. The syndicated programming shows acquired include "Rockline", "Modern Rock Live", "Reelin' in the Years" and the concert series "Live from the Pit". On July 31, 1998, the Company acquired Martin Media, L.P. and certain affiliated companies ("Martin Media"), an outdoor advertising company with over 14,500 billboards and outdoor displays in 12 states serving 23 markets, for $591,674 in cash plus working capital of $19,443 subject to certain adjustments and various other direct acquisition costs of approximately $10,000. On August 28, 1998, the Company acquired various syndicated programming shows of Casey Kasem and the related programming libraries for $7,150 in cash and $7,000 in the form of a note due August 2000. In September 1998, the Company acquired approximately 325 billboards and outdoor displays in various markets for approximately $10,166 in cash. 10 11 CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On October 9, 1998, the Company acquired approximately a 22.4% non-voting equity interest in Z-Spanish Media Corporation ("Z-Spanish Media") for approximately $25,000 in cash (the "Z-Spanish Acquisition"). Z-Spanish Media, which is headquartered in Sacramento, California, is the owner and operator of 22 Hispanic format radio stations in California, Texas, Arizona and Illinois. On October 23, 1998, the Company acquired Primedia Broadcast Group, Inc. and certain of its affiliates, which own and operate eight FM stations in Puerto Rico, for approximately $76,050 in cash less working capital deficit of $1,280 plus various other direct acquisition costs (the "Primedia Acquisition"). In November 1998, the Company acquired approximately 290 billboards and outdoor displays in various markets for approximately $12,978 in cash. Pending Transactions On July 31, 1997, Martin Media paid $6,025 to Kunz & Company for an option to purchase approximately 1,000 display faces of its Kunz Outdoor Advertising division for $33,289 in cash plus various other direct acquisition costs (the "Kunz Option"). Although there can be no assurance, the Company expects that the exercise of the Kunz Option will be consummated in the fourth quarter of 1998. On February 20, 1998, the Company entered into an agreement to acquire from Capstar KTXQ-FM and KBFB-FM in Dallas/Ft. Worth, KODA-FM, KKRW-FM and KQUE-AM in Houston, KPLN-FM and KYXY-FM in San Diego and WDRV-FM, WJJJ-FM, WXDX-FM and WDVE-FM in Pittsburgh (collectively, the "Capstar/SFX Stations") for an aggregate purchase price of approximately $637,500 in a series of purchases and exchanges over a period of three years (the "Capstar/SFX Transaction"). The Capstar/SFX stations were acquired by Capstar as part of Capstar's acquisition of SFX on May 29, 1998. On May 29, 1998, the Company completed the Houston Exchange (defined above) and began operating the remaining ten Capstar/SFX Stations under time brokerage agreements. The Company is currently assessing whether the terms of the Capstar/SFX Transaction will be modified upon the consummation of the Capstar Merger. On April 8, 1998, the Company entered into an agreement to acquire Petry Media Corporation, a leading independent television representation firm (the "Petry Acquisition"). The agreement currently provides for a purchase price of $129.5 million in cash. On June 3, 1998, the Antitrust Division of the United States Department of Justice (the "DOJ") issued a second request for additional information under the HSR Act in connection with the Petry Acquisition to which the Company has responded. The Company and Petry are still negotiating with the DOJ regarding this transaction and have agreed to extend the waiting period under the HSR Act pending completion of these discussions. Accordingly at this time, the Company cannot be sure of the terms on which this transaction will be completed, if at all. On July 7, 1998, the Company entered into an agreement whereby the ultimate parent of LIN Television Corporation ("LIN") will merge into the Company (the "LIN Merger"). Pursuant to this agreement, the Company will issue .0300 shares of Chancellor Media Common Stock for each share of LIN's Common Stock resulting in the issuance of approximately 17,700,000 shares (comprised of approximately 16,200,000 newly issued shares, the assumption of LIN phantom stock units representing approximately 425,000 shares and the assumption of LIN options representing the right to purchase approximately 1,075,000 shares). Upon consummation of the LIN Merger, it is expected that LIN will own or operate 12 television stations in eight markets in the United States. Although there can be no assurance, the Company expects that the LIN Merger will be consummated in the first quarter of 1999. On August 11, 1998, the Company entered into agreements to acquire four FM and two AM radio stations in Cleveland for an aggregate purchase price of approximately $275,000 in cash plus various other direct acquisition costs (the "Cleveland Acquisitions"). The Cleveland Acquisitions consist of the purchase by the Company of (i) WDOK-FM and WRMR-AM from Independent Group Limited Partnership, (ii) WZAK-FM from Zapis Communications, (iii) Zebra Broadcasting Corporation which owns WZJM-FM 11 12 CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and WJMO-AM and (v) Wincom Broadcasting Corporation which owns WQAL-FM (the "Wincom Acquisition"). The consummation of each of the Cleveland Acquisitions (other than the Wincom Acquisition) is contingent upon the consummation of each of the other Cleveland Acquisitions (other than the Wincom Acquisition). The Company began operating WQAL-FM under a time brokerage agreement effective October 1, 1998. Although there can be no assurance, the Company expects that the Cleveland Acquisitions will be consummated in the first quarter of 1999. On August 20, 1998, the Company entered into an agreement to sell WMVP-AM in Chicago to ABC, Inc. for $21,000 in cash (the "Chicago Disposition"). The Company entered into a time brokerage agreement to sell substantially all of the broadcast time of WMVP-AM effective September 10, 1998. Although there can be no assurance, the Company expects that the Chicago Disposition will be consummated in the fourth quarter of 1998. On August 26, 1998, the Company and Capstar entered into an agreement to merge in a stock-for-stock transaction that will create the nation's largest radio broadcasting entity. Pursuant to this agreement, the Company will acquire Capstar in a reverse merger in which Capstar will be renamed Chancellor Media Corporation. Each share of Chancellor Media Common Stock will represent one share in the combined entity. Each share of Capstar Common Stock will represent 0.480 shares of Common Stock in the combined entity, subject to an upward adjustment not to exceed 0.025 shares to the extent that Capstar's 1998 cash flow from specified assets exceeds certain specified targets. Capstar owns and operates more than 355 radio stations serving 83 mid-sized markets nationwide. Although there can be no assurance, the Company expects that the Capstar Merger will be consummated in the second quarter of 1999. On August 31, 1998, the Company entered into an agreement to acquire the assets of the Outdoor Advertising Division of Whiteco Industries, Inc., an outdoor advertising company with over 21,800 billboards and outdoor displays in 34 states, for $930,000 in cash plus working capital and various other direct acquisition costs (the "Whiteco Acquisition"). The DOJ has requested that the Company and Whiteco submit certain additional information on a voluntary basis in connection with the DOJ's review of the Whiteco Acquisition. The Company and Whiteco have responded to this request and are currently in discussions with the DOJ regarding the terms on which this transaction may be completed. Although there can be no assurance, the Company expects that the Whiteco Acquisition will be consummated in the fourth quarter of 1998. On September 3, 1998, the Company entered into an agreement to acquire Pegasus, a television broadcasting company which owns a television station in Puerto Rico, for approximately $69,600 in cash (the "Pegasus Acquisition"). Although there can be no assurance, the Company expects that the Pegasus Acquisition will be consummated in the first quarter of 1999. In connection with the LIN Merger, the Company may assign its rights under its agreement with Pegasus to LIN. On September 15, 1998, the Company entered into an agreement to acquire KKFR-FM and KFYI-AM in Phoenix from The Broadcast Group, Inc. for $90,000 in cash (the "Phoenix Acquisition"). The Company began operating KKFR-FM and KFYI-AM under a time brokerage agreement effective November 5, 1998. Although there can be no assurance, the Company expects that the Phoenix Acquisition will be consummated in the second quarter of 1999. The foregoing are collectively referred to herein as the "Pending Transactions." Consummation of each of the Pending Transactions discussed above is subject to various conditions, including, in certain cases, approval from the FCC and the expiration or early termination of any waiting period required under the HSR Act. Except as described above, the Company believes that such conditions will be satisfied in the ordinary course, but there can be no assurance that this will be the case. Escrow funds of $6,025 related to the Kunz Option are classified as other assets in the accompanying balance sheet at September 30, 1998. Escrow funds of $4,650 paid by the Company in connection with the 12 13 CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Bonneville Exchange and the Capitol Broadcasting Acquisition were classified as other assets in the accompanying balance sheet at December 31, 1997. Other Transactions On July 10, 1998, the Company entered into an agreement to acquire a 50% economic interest in Grupo Radio Centro, S.A. de C.V. ("GRC"), an owner and operator of radio stations in Mexico, for approximately $120.5 million in cash and $116.5 million in Chancellor Media Common Stock. On October 15, 1998, the Company announced that it had provided notice to GRC that it was terminating the acquisition agreement in accordance with its terms. Summary of Net Assets Acquired The completed acquisitions discussed above were accounted for as purchases. Accordingly, the accompanying consolidated financial statements include the results of operations of the acquired entities from the dates of acquisition. A summary of the net assets acquired follows:
YEAR NINE MONTHS ENDED ENDED DECEMBER 31, SEPTEMBER 30, 1997 1998 ------------ ------------- (RESTATED) Working capital, including cash of $9,724 in 1997 and $6,505 in 1998................................ $ 66,805 $ 19,223 Property and equipment.............................. 118,371 137,060 Assets held for sale................................ 131,000 -- Intangible assets................................... 3,823,746 875,653 Other assets........................................ 26,742 6,025 Deferred tax liability.............................. (279,371) -- Other liabilities................................... (39,681) (697) ---------- ---------- $3,847,612 $1,037,264 ========== ==========
The pro forma consolidated condensed results of operations data for the nine months ended September 30, 1997 and 1998, as if the 1997 Completed Transactions and the 1998 Completed Transactions discussed above, the 8 1/8% Notes Offering, the amendment and restatement of the Senior Credit Facility and the 1998 Financing Transactions (as defined herein) occurred at January 1, 1997, follow:
NINE MONTHS ENDED ------------------------------ SEPTEMBER 30, SEPTEMBER 30, 1997 1998 -------------- ------------- (RESTATED) Net revenues...................................... $ 826,026 $963,063 Net loss.......................................... (143,303) (47,368) Basic and diluted loss per common share........... $ (1.01) $ (0.33)
The pro forma results are not necessarily indicative of what would have occurred if the acquisitions had been in effect for the entire periods presented. 13 14 CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. FINANCING TRANSACTIONS 1998 Completed Financing Transactions On March 13, 1998, the Company completed an offering of 21,850,000 shares of its Common Stock (the "1998 Equity Offering"). The net proceeds from the 1998 Equity Offering of approximately $994,642 were used to reduce bank borrowings under the revolving credit portion of the Senior Credit Facility (as defined) and the excess proceeds were initially invested in short-term investment grade securities. The Company subsequently used the excess proceeds for general corporate purposes, including the financing of the Bonneville Exchange, the Capstar Loan and a portion of the Houston Exchange. On May 8, 1998, CMCLA completed a consent solicitation (the "12% Preferred Stock Consent Solicitation") to modify certain timing restrictions on its ability to exchange all shares of its 12% Exchangeable Preferred Stock (the "12% Preferred Stock") for its 12% Subordinated Exchange Debentures due 2009 (the "12% Debentures"). Consenting holders of 12% Preferred Stock received payments of $0.05 per share of 12% Preferred Stock. On May 13, 1998, CMCLA exchanged the shares of 12% Preferred Stock for 12% Debentures (the "12% Exchange"). In connection with the 12% Preferred Stock Consent Solicitation and 12% Exchange, CMCLA incurred approximately $270 in transaction costs which were recorded as deferred debt issuance costs. On June 10, 1998, CMCLA completed a cash tender offer (the "12% Debentures Tender Offer") for all of its 12% Debentures for an aggregate repurchase cost of $262,495 which included (i) the principal amount of the 12% Debentures of $211,763, (ii) premiums on the repurchase of the 12% Debentures of $47,798, (iii) accrued and unpaid interest on the 12% Debentures from May 14, 1998 through June 10, 1998 of $1,976 and (iv) estimated transaction costs of $958. In connection with the 12% Debentures Tender Offer, the Company recorded an extraordinary charge of $31,865 (net of a tax benefit of $17,158) consisting of the premiums, estimated transaction costs and the write-off of the unamortized balance of deferred debt issuance costs. On July 20, 1998, CMCLA completed a consent solicitation (the "12 1/4% Preferred Stock Consent Solicitation") to modify certain timing restrictions on its ability to exchange all shares of its 12 1/4% Series A Senior Cumulative Exchangeable Preferred Stock (the "12 1/4% Preferred Stock") for its 12 1/4% Subordinated Exchange Debentures due 2008 (the "12 1/4% Debentures"). Consenting holders of 12 1/4% Preferred Stock received payments of $0.05 per share of 12 1/4% Preferred Stock. On July 23, 1998, CMCLA exchanged the shares of 12 1/4% Preferred Stock for 12 1/4% Debentures (the "12 1/4% Exchange"). In connection with the 12 1/4% Preferred Stock Consent Solicitation and 12 1/4% Exchange, CMCLA incurred approximately $170 in transaction costs which were recorded as deferred debt issuance costs. On August 19, 1998, CMCLA completed a cash tender offer (the "12 1/4% Debentures Tender Offer") for all of its 12 1/4% Debentures for an aggregate repurchase cost of $144,527 which included (i) the principal amount of the 12 1/4% Debentures of $119,445, (ii) premiums on the repurchase of the 12 1/4% Debentures of $22,683, (iii) accrued and unpaid interest on the 12 1/4% Debentures from August 16, 1998 through August 19, 1998 of $1,829 and (iv) estimated transaction costs of $570. In connection with the 12 1/4% Debentures Tender Offer, CMCLA recorded an extraordinary charge of $15,224 (net of a tax benefit of $8,199) consisting of the premiums, estimated transaction costs and the write-off of the unamortized balance of deferred debt issuance costs. On September 30, 1998, CMCLA issued $750,000 aggregate principal amount of 9% Senior Subordinated Notes due 2008 (the "9% Notes") for net proceeds of approximately $730,000 (the "9% Notes Offering"). The net proceeds from the 9% Notes Offering will be used to finance a portion of the Company's Pending Transactions. Prior to consummation of the Pending Transactions, the Company used the net proceeds to temporarily reduce borrowings outstanding under the revolving credit portion of the Senior Credit Facility. 14 15 CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 1998 Pending Financing Transactions On November 12, 1998, CMCLA signed a definitive purchase agreement that provides for the issuance of $750,000 of 8% Senior Notes due 2008 (the "8% Senior Notes Offering"). The net proceeds from the 8% Senior Notes Offering will be used to reduce bank borrowings under the revolving credit portion of the Senior Credit Facility and any excess proceeds will be invested in short-term investment grade securities, pending use for general corporate purposes. Although there can be no assurance CMCLA expects that the 8% Senior Notes Offering will be consummated on November 17, 1998. 4. LONG-TERM DEBT Long-term debt consists of the following at December 31, 1997 and September 30, 1998:
DECEMBER 31, SEPTEMBER 30, 1997 1998 ------------ ------------- Senior Credit Facility(a)........................... $1,573,000 $ 1,268,000 9 3/8% Notes(b)..................................... 200,000 200,000 8 3/4% Notes(b)..................................... 200,000 200,000 10 1/2% Notes(b).................................... 100,000 100,000 8 1/8% Notes(b)..................................... 500,000 500,000 9% Notes(b)......................................... -- 750,000 ---------- ------------- Total long-term debt...................... $2,573,000 $ 3,018,000 ========== =============
(a) Senior Credit Facility On April 25, 1997, the Company entered into a loan agreement which amended and restated its prior senior credit facility. Under the amended and restated agreement, as amended on June 26, 1997, August 7, 1997, October 28, 1997, February 10, 1998, May 1, 1998, July 31, 1998 and November 9, 1998 (as amended, the "Senior Credit Facility"), the Company established a $1,250,000 revolving facility (the "Revolving Loan Facility") and a $500,000 term loan facility (the "Term Loan Facility"). Upon consummation of the Chancellor Merger, the aggregate commitments under the Revolving Loan Facility and the Term Loan Facility were increased to $1,600,000 and $900,000, respectively. In connection with the amendment and restatement of the Senior Credit Facility, the Company wrote off the unamortized balance of deferred debt issuance costs of $4,350 (net of a tax benefit of $2,343) as an extraordinary charge. Borrowings under the Senior Credit Facility bear interest at a rate based, at the option of the Company, on the participating banks' prime rate or Eurodollar rate, plus an incremental rate. Without giving effect to the interest rate swap and cap agreements described below, the interest rate on the $900,000 outstanding under the Term Loan Facility at September 30, 1998 was 6.25% on a blended basis, based on Eurodollar rates, and the interest rate on advances of $355,000 and $13,000 outstanding under the Revolving Loan Facility were 6.25% and 8.50%, respectively, at September 30, 1998, based on the Eurodollar and prime rates, respectively. The Company pays fees ranging from 0.25% to 0.375% per annum on the aggregate unused portion of the loan commitment based upon the leverage ratio for the most recent quarter end, in addition to an annual agent's fee. Pursuant to the Senior Credit Facility, the Company is required to enter into interest hedging agreements that result in the fixing or placing a cap on the Company's floating rate debt so that not less than 50% of the principal amount of total debt outstanding has a fixed or capped rate. The Term Loan Facility is payable in quarterly installments commencing on September 30, 2000 and ending June 20, 2005. The Revolving Loan Facility requires scheduled annual reductions of the commitment amount, payable in quarterly installments commencing on September 30, 2000 and ending on June 30, 2005. At October 31, 1998, the Company had drawn $900,000 of the Term Loan Facility and $433,000 of the Revolving Loan Facility. The capital stock of the Company's subsidiaries is pledged to secure the performance 15 16 CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) of the Company's obligations under the Senior Credit Facility, and each of the Company's domestic subsidiaries have guaranteed those obligations. (b) Senior Subordinated Notes Upon consummation of the Chancellor Merger, on September 5, 1997, the Company assumed all of the obligations under CRBC's $200,000 aggregate principal amount 9 3/8% Senior Subordinated Notes due 2004 (the "9 3/8% Notes") and the indenture governing such securities, and assumed all of the obligations under CRBC's $200,000 aggregate principal amount 8 3/4% Senior Subordinated Notes due 2007 (the "8 3/4% Notes") and the indenture governing such securities. Upon consummation of the Katz Acquisition, on October 28, 1997, the Company assumed all of the obligations under Katz Media Corporation's $100,000 aggregate principal amount of 10 1/2% Senior Subordinated Notes due 2007 (the "10 1/2% Notes") and the amended and restated indenture governing such securities. On December 22, 1997, CMCLA issued $500,000 aggregate principal amount of 8 1/8 Senior Subordinated Notes due 2007 (the "8 1/8% Notes") for net proceeds of approximately $485,000. On September 30, 1998, CMCLA issued $750,000 aggregate principal amount of 9% Notes for net proceeds of approximately $730,000. (c) Other The 9 3/8% Notes, the 8 3/4% Notes, the 10 1/2% Notes, the 8 1/8% Notes and the 9% Notes (collectively, the "Notes") are unsecured obligations of the Company, subordinated in right of payment to all existing and any future senior indebtedness of the Company. The Notes are fully and unconditionally guaranteed, on a joint and several basis, by all of the Company's direct and indirect subsidiaries other than certain inconsequential subsidiaries (the "Subsidiary Guarantors"). The Subsidiary Guarantors are wholly-owned subsidiaries of the Company. The Senior Credit Facility and the indentures governing the Notes contain customary restrictive covenants, which, among other things and with certain exceptions, limit the ability of the Company and its subsidiaries to incur additional indebtedness and liens in connection therewith, enter into certain transactions with affiliates, pay dividends, consolidate, merge or effect certain asset sales, issue additional stock, effect an asset swap and make acquisitions. The Company is required under the Senior Credit Facility to maintain specified financial ratios, including leverage, cash flow and debt service coverage ratios (as defined). 5. OTHER INCOME Other income consists of the following for the nine months ended September 30, 1997 and 1998:
NINE MONTHS ENDED ----------------------------- SEPTEMBER 30, SEPTEMBER 30, 1997 1998 ------------- ------------- (RESTATED) Gain on disposition of assets(a)................... $18,380 $123,845 WFLN Settlement(b)................................. -- 3,559 ------- -------- $18,380 $127,404 ======= ========
- --------------- (a) For the nine months ended September 30, 1997, the Company recorded a gain on disposition of assets of $18,380 related to the dispositions of WNKS-FM in Charlotte on May 15, 1997 ($3,536), WPNT-FM in Chicago on May 30, 1997 ($529), WEJM-FM in Chicago on June 3, 1997 ($9,258), the FCC authorizations and certain transmission equipment previously used in the operation of KYLD-FM in San Francisco on July 2, 1997 ($1,726) and WEJM-AM in Chicago on August 27, 1997 ($3,331). For the nine months ended September 30, 1998, the Company recorded a gain on disposition of assets of $123,845 related to the April 3, 1998 exchange of WTOP-AM and WGMS-FM in Washington and 16 17 CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) KZLA-FM in Los Angeles plus $63,000 in cash for WBIX-FM in New York, KLDE-FM in Houston and KBIG-FM in Los Angeles (see Note 2). (b) For the nine months ended September 30, 1998, the Company recorded a gain from the WFLN Settlement (defined above) of $3,559. 6. CONTINGENCIES The Company is involved in several lawsuits that are incidental to its business. A discussion of certain of these lawsuits is contained in Part II, Item 1, "Legal Proceedings", of this Form 10-Q/A. The Company believes that the ultimate resolution of the lawsuits will not have a material effect on its financial position or results of operations. 17 18 PART I ITEM 1. FINANCIAL STATEMENTS CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA) ASSETS
DECEMBER 31, SEPTEMBER 30, 1997 1998 ------------ ------------- (UNAUDITED) (RESTATED) Current assets: Cash and cash equivalents................................. $ 16,584 $ 13,063 Accounts receivable, less allowance for doubtful accounts of $12,651 in 1997 and $13,002 in 1998................. 239,869 321,391 Other current assets...................................... 27,208 42,343 ---------- ---------- Total current assets.............................. 283,661 376,797 Note receivable from affiliate.............................. -- 150,000 Property and equipment, net................................. 159,797 299,906 Intangible assets, net...................................... 4,404,443 5,036,250 Other assets, net........................................... 113,576 162,142 ---------- ---------- $4,961,477 $6,025,095 ========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable and accrued expenses..................... $ 171,017 $ 177,472 Long-term debt.............................................. 2,573,000 3,018,000 Deferred tax liabilities.................................... 361,640 360,618 Other liabilities........................................... 44,405 60,403 ---------- ---------- Total liabilities................................. 3,150,062 3,616,493 ---------- ---------- Redeemable preferred stock: Redeemable senior cumulative exchangeable preferred stock of subsidiary, par value $.01 per share; 1,000,000 shares authorized, issued and outstanding; liquidation preference of $121,274 in 1997......................... 119,445 -- Redeemable cumulative exchangeable preferred stock of subsidiary, par value $.01 per share; 3,600,000 shares authorized and 2,117,629 shares issued and outstanding; liquidation preference of $223,519 in 1997............. 211,763 -- Stockholder's equity: Common stock, $.01 par value, 1,040 shares authorized, issued and outstanding................................. 1 1 Paid-in capital............................................. 1,637,628 2,654,273 Accumulated deficit......................................... (157,422) (245,672) ---------- ---------- Total stockholder's equity........................ 1,480,207 2,408,602 ---------- ---------- $4,961,477 $6,025,095 ========== ==========
See accompanying notes to consolidated financial statements 18 19 CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED ----------------------------- ----------------------------- SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1997 1998 1997 1998 ------------- ------------- ------------- ------------- (RESTATED) (RESTATED) Gross revenues.................................... $166,817 $389,551 $382,994 $1,015,562 Less agency commissions......................... (21,795) (45,722) (49,711) (116,466) -------- -------- -------- ---------- Net revenues............................ 145,022 343,829 333,283 899,096 Operating expenses: Operating expenses, excluding depreciation and amortization................................. 73,551 175,062 184,713 491,924 Depreciation and amortization................... 50,474 120,648 104,386 315,772 Corporate general and administrative............ 5,995 10,109 11,646 25,188 Executive severance charge...................... -- -- -- 59,475 -------- -------- -------- ---------- Operating expenses...................... 130,020 305,819 300,745 892,359 -------- -------- -------- ---------- Operating income........................ 15,002 38,010 32,538 6,737 -------- -------- -------- ---------- Other (income) expense: Interest expense, net........................... 22,295 48,624 45,036 135,709 Gain on disposition of representation contracts.................................... -- (18,497) -- (29,767) Other income.................................... (5,057) -- (18,380) (127,404) -------- -------- -------- ---------- Other (income) expense.................. 17,238 30,127 26,656 (21,462) -------- -------- -------- ---------- Income (loss) before income taxes and extraordinary item.................... (2,236) 7,883 5,882 28,199 Income tax expense................................ 985 722 5,244 32,507 -------- -------- -------- ---------- Income (loss) before extraordinary item.................................. (3,221) 7,161 638 (4,308) Extraordinary loss, net of income tax benefit..... -- 15,224 4,350 47,089 -------- -------- -------- ---------- Net loss................................ (3,221) (8,063) (3,712) (51,397) Preferred stock dividends......................... 2,779 899 2,779 17,601 -------- -------- -------- ---------- Net loss attributable to common stock... $ (6,000) $ (8,962) $ (6,491) $ (68,998) ======== ======== ======== ==========
See accompanying notes to consolidated financial statements. 19 20 CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS)
NINE MONTHS ENDED ----------------------------- SEPTEMBER 30, SEPTEMBER 30, 1997 1998 ------------- ------------- (RESTATED) Cash flows from operating activities: Net loss.................................................. $ (3,712) $ (51,397) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation........................................... 9,091 18,632 Amortization of goodwill, intangible assets and other assets................................................ 95,295 297,140 Executive severance charge -- stock option compensation.......................................... -- 16,000 Provisions for doubtful accounts....................... 3,409 4,573 Deferred income tax expense............................ 5,244 32,507 Gain on disposition of representation contracts........ -- (29,767) Gain on disposition of assets.......................... (18,380) (123,845) Loss on extinguishment of debt......................... 4,350 47,089 Other.................................................. -- (1,893) Changes in certain assets and liabilities, net of effects of acquisitions: Accounts receivable.................................. (15,171) (73,528) Other current assets................................. 4,481 (10,283) Accounts payable and accrued expenses................ 8,445 12,737 Other assets......................................... 54 (4,114) Other liabilities.................................... 197 12,608 ----------- ----------- Net cash provided by operating activities......... 93,303 146,459 ----------- ----------- Cash flows from investing activities: Acquisitions, net of cash acquired........................ (2,083,701) (905,264) Escrow deposits on pending acquisitions................... (10,005) -- Payments made on purchases of representation contracts.... -- (25,724) Proceeds from sale of representation contracts............ -- 20,283 Proceeds from sale of assets.............................. 269,250 -- Issuance of note receivable from affiliate................ -- (150,000) Capital expenditures...................................... (6,436) (21,684) Other..................................................... (20,914) (39,750) ----------- ----------- Net cash used by investing activities............. (1,851,806) (1,122,139) ----------- ----------- Cash flows from financing activities: Proceeds from issuance of long-term debt.................. 2,105,000 1,973,000 Principal payments on long-term debt...................... (606,000) (1,528,000) Cash contributed by parent................................ 288,898 1,000,645 Repurchase of 12% and 12 1/4% Exchange Debentures......... -- (403,213) Dividends on preferred stock.............................. -- (31,183) Dividend to parent........................................ (5,748) (19,253) Payments for debt issuance costs.......................... (10,567) (19,837) Other..................................................... (158) -- ----------- ----------- Net cash provided by financing activities......... 1,771,425 972,159 ----------- ----------- Increase (decrease) in cash and cash equivalents............ 12,922 (3,521) Cash and cash equivalents at beginning of period............ 3,060 16,584 ----------- ----------- Cash and cash equivalents at end of period.................. $ 15,982 $ 13,063 =========== ===========
See accompanying notes to consolidated financial statements. 20 21 CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA) 1. BASIS OF PRESENTATION In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position, results of operations and cash flows of Chancellor Media Corporation of Los Angeles and its subsidiaries (collectively, "CMCLA") for the periods presented. Chancellor Media Corporation of Los Angeles is an indirect, wholly owned subsidiary of Chancellor Media Corporation ("Chancellor Media"). Interim periods are not necessarily indicative of results to be expected for the year. It is suggested that these financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in CMCLA's Annual Report on Form 10-K for the year ended December 31, 1997. The consolidated financial statements include the accounts of CMCLA and its subsidiaries, all of which are wholly-owned. All significant intercompany balances and transactions have been eliminated in consolidation. CMCLA adopted SFAS No. 130, Reporting Comprehensive Income, effective January 1, 1998. This statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. CMCLA has no items of comprehensive income for any period presented and therefore is not required to report comprehensive income. Certain Consolidated Balance Sheet, Consolidated Statement of Operations, and Consolidated Statement of Cash Flows items have been restated (see Note 2). 2. ACQUISITIONS AND DISPOSITIONS 1997 Completed Transactions On January 31, 1997, CMCLA acquired WWWW-FM and WDFN-AM in Detroit from affiliates of Chancellor Radio Broadcasting Company ("CRBC") for $30,000 in cash plus various other direct acquisition costs. The Company had previously provided certain sales and promotional functions to WWWW-FM and WDFN-AM under a joint sales agreement since February 14, 1996 and subsequently operated the stations under a time brokerage agreement since April 1, 1996. On January 31, 1997, CMCLA acquired KKSF-FM and KDFC-FM/AM in San Francisco from affiliates of the Brown Organization for $115,000 in cash plus various other direct acquisition costs. CMCLA had previously been operating KKSF-FM and KDFC-FM/AM under a time brokerage agreement since November 1, 1996. On July 21, 1997, CMCLA sold KDFC-FM to Bonneville International Corporation ("Bonneville") for $50,000 in cash. The assets of KDFC-FM were classified as assets held for sale in connection with the purchase price allocation of the acquisition of KKSF-FM and KDFC-FM/AM and no gain or loss was recognized by CMCLA upon consummation of the sale. On April 1, 1997, CMCLA acquired WJLB-FM and WMXD-FM in Detroit from Secret Communications Limited Partnership ("Secret") for $168,000 in cash plus various other direct acquisition costs. CMCLA had previously been operating WJLB-FM and WMXD-FM under time brokerage agreements since September 1, 1996. On April 3, 1997, CMCLA exchanged WQRS-FM in Detroit (which CMCLA acquired on April 3, 1997 from Secret for $32,000 in cash plus various other direct acquisition costs), to affiliates of Greater Media Radio, Inc. ("Greater Media") in return for WWRC-AM in Washington, D.C. (now known as WTEM-AM) and $9,500 in cash. The exchange was accounted for as a like-kind exchange and no gain or loss was 21 22 CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) recognized upon consummation of the transaction. The net purchase price to CMCLA of WWRC-AM was therefore $22,500. CMCLA had previously been operating WWRC-AM under a time brokerage agreement since June 17, 1996. On May 1, 1997, CMCLA acquired WDAS-FM/AM in Philadelphia from affiliates of Beasley FM Acquisition Corporation for $103,000 in cash plus various other direct acquisition costs. On May 15, 1997, CMCLA exchanged five of its six stations in Charlotte, North Carolina (WPEG-FM, WBAV-FM/AM, WRFX-FM and WFNZ-AM) for two FM stations in Philadelphia (WIOQ-FM and WUSL-FM) owned by EZ Communications, Inc. ("EZ") in Philadelphia (the "Charlotte Exchange"), and also sold CMCLA's sixth radio station in Charlotte, WNKS-FM, to EZ for $10,000 in cash and recognized a gain of $3,536. The Charlotte Exchange was accounted for as a like-kind exchange and no gain or loss was recognized upon consummation of the transaction. On May 30, 1997, CMCLA acquired WPNT-FM in Chicago from affiliates of Century Broadcasting Company for $75,740 in cash (including $1,990 for the purchase of the station's accounts receivable) plus various other direct acquisition costs. On June 19, 1997, CMCLA sold WPNT-FM in Chicago to Bonneville for $75,000 in cash and recognized a gain of $529. On June 3, 1997, CMCLA sold WEJM-FM in Chicago to affiliates of Crawford Broadcasting for $14,750 in cash and recognized a gain of $9,258. On July 2, 1997, CMCLA acquired WLTW-FM and WAXQ-FM in New York and WMZQ-FM, WJZW-FM, WZHF-AM and WBZS-AM in Washington, D.C. from Viacom International, Inc. ("Viacom") for approximately $612,388 in cash including various other direct acquisition costs (the "Viacom Acquisition"). The Viacom Acquisition was financed with (i) bank borrowings under the Senior Credit Facility (as defined) of $552,559; (ii) $53,750 in escrow funds paid by CMCLA on February 19, 1997 and (iii) $6,079 financed through working capital. In June 1997, Chancellor Media issued 5,990,000 shares of $3.00 Convertible Preferred Stock for net proceeds of $287,808 which were contributed to CMCLA and used to repay borrowings under the Senior Credit Facility and subsequently were reborrowed on July 2, 1997 as part of the financing of the Viacom Acquisition. On July 7, 1997, CMCLA sold WJZW-FM in Washington, D.C. to affiliates of Capital Cities/ABC Radio for $68,000 in cash. The assets of WJZW-FM, as well as the assets of WZHF-AM and WBZS-AM, which were also sold on August 13, 1997, were accounted for as assets held for sale in connection with the purchase price allocation of the Viacom Acquisition and no gain or loss was recognized by CMCLA upon consummation of the sales. On July 7, 1997, CMCLA sold the Federal Communications Commission ("FCC") authorizations and certain transmission equipment previously used in the operation of KYLD-FM in San Francisco to Susquehanna Radio Corporation ("Susquehanna") for $44,000 in cash and recognized a gain of $1,726. Simultaneously therewith, CRBC sold the call letters "KSAN-FM" (which CRBC previously used in San Francisco) to Susquehanna. On July 7, 1997, CMCLA and CRBC entered into a time brokerage agreement to enable CMCLA to operate KYLD-FM on the frequency previously assigned to KSAN-FM, and on July 7, 1997, CRBC changed the call letters of KSAN-FM to KYLD-FM. Upon the consummation of the Chancellor Merger (as defined herein), CMCLA changed the format of the new KYLD-FM to the format previously operated on the old KYLD-FM. On July 14, 1997, CMCLA completed the disposition of WLUP-FM in Chicago to Bonneville for net proceeds of $80,000 which were held by a qualified intermediary pending the completion of the deferred exchange of WLUP-FM for KZPS-FM and KDGE-FM in Dallas. On October 7, 1997, CMCLA applied the net proceeds from the disposition of WLUP-FM of $80,000 in cash, plus an additional $3,500 and various other direct acquisition costs, in a deferred exchange of WLUP-FM for KZPS-FM and KDGE-FM in Dallas. The exchange was accounted for as a like-kind exchange and no gain or loss was recognized upon 22 23 CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) consummation of the transaction. CMCLA had previously operated KZPS-FM and KDGE-FM under time brokerage agreements effective August 1, 1997. On July 21, 1997, CMCLA entered into a time brokerage agreement with CRBC whereby CMCLA began managing certain limited functions of CRBC's stations KBGG-FM, KNEW-AM and KABL-FM in San Francisco pending the consummation of the Chancellor Merger (as defined herein), which occurred on September 5, 1997. On August 13, 1997, CMCLA sold WBZS-AM and WZHF-AM in Washington, D.C. (acquired as part of the Viacom Acquisition) and KDFC-AM in San Francisco to affiliates of Douglas Broadcasting ("Douglas") for $18,000 in the form of a promissory note. The promissory note, as amended on May 1, 1998, bears interest at 7 3/4% from the closing date through February 28, 1998 and at 10.0% from March 1, 1998 through the remainder of the term of the note, with a balloon principal payment due four years after closing. At closing, Douglas posted a $1,000 letter of credit for the benefit of CMCLA that will remain outstanding until all amounts due under the promissory note are paid. On August 27, 1997, CMCLA sold WEJM-AM in Chicago to Douglas for $7,500 in cash and recognized a gain of $3,331. On September 5, 1997, pursuant to an Amended and Restated Agreement and Plan of Merger, dated as of February 19, 1997 and amended and restated on July 31, 1997 (the "Chancellor Merger Agreement"), among Chancellor Broadcasting Company ("Chancellor"), CRBC, Evergreen Media Corporation ("Evergreen"), Evergreen Mezzanine Holdings Corporation ("EMHC") and Evergreen Media Corporation of Los Angeles ("EMCLA"), (i) Chancellor was merged with and into EMHC, a direct, wholly-owned subsidiary of Evergreen, with EMHC remaining as the surviving corporation and (ii) CRBC was merged with and into EMCLA, a direct, wholly-owned subsidiary of EMHC, with EMCLA remaining as the surviving corporation (collectively, the "Chancellor Merger"). Upon consummation of the Chancellor Merger, Evergreen was renamed Chancellor Media Corporation, EMHC was renamed Chancellor Mezzanine Holdings Corporation ("CMHC") and EMCLA was renamed Chancellor Media Corporation of Los Angeles ("CMCLA"). Consummation of the Chancellor Merger added 52 radio stations (36 FM and 16 AM) to CMCLA's portfolio of stations, including 13 stations in markets in which CMCLA previously operated. The total purchase price allocated to net assets acquired was approximately $1,998,383 which included (i) the conversion of each outstanding share of Chancellor Common Stock into 0.9091 shares of Chancellor Media's Common Stock, resulting in the issuance of 34,617,460 shares of Chancellor Media's Common Stock at $15.50 per share, (ii) the assumption of long-term debt of CRBC of $949,000 which included $549,000 of borrowings outstanding under the CRBC senior credit facility, $200,000 of CRBC's 9 3/8% Senior Subordinated Notes due 2004 and $200,000 of CRBC's 8 3/4% Senior Subordinated Notes due 2007, (iii) the issuance of 2,117,629 shares of CMCLA's 12% Exchangeable Preferred Stock in exchange for CRBC's substantially identical securities with a fair value of $215,570 including accrued and unpaid dividends of $3,807, (iv) the issuance of 1,000,000 shares of CMCLA's 12 1/4% Series A Senior Cumulative Exchangeable Preferred Stock in exchange for CRBC's substantially identical securities with a fair value of $120,217 including accrued and unpaid dividends of $772, (v) the issuance of 2,200,000 shares of Chancellor Media's 7% Convertible Preferred Stock in exchange for Chancellor's substantially identical securities with a fair value of $111,048 including accrued and unpaid dividends of $1,048, (vi) the assumption of stock options issued to Chancellor stock option holders with a fair value of $34,977 and (vii) estimated acquisition costs of $31,000. On October 28, 1997, Chancellor Media and CMCLA acquired Katz Media Group, Inc. ("KMG"), a full-service media representation firm, in a tender offer transaction for a total purchase price of approximately $379,101 (the "Katz Acquisition") which included (i) the conversion of each outstanding share of KMG Common Stock into the right to receive $11.00 in cash, resulting in total cash payments of $149,601, (ii) the assumption of long-term debt of KMG and its subsidiaries of $222,000 which included $122,000 of borrowings 23 24 CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) outstanding under the KMG senior credit facility and $100,000 of 10 1/2% Senior Subordinated Notes due 2007 of Katz Media Corporation (a subsidiary of KMG) and (iii) estimated acquisition costs of $7,500. On December 29, 1997, CMCLA acquired five radio stations from Pacific and Southern Company, Inc., a subsidiary of Gannett Co., Inc., consisting of WGCI-FM/AM in Chicago for $140,000, KKBQ-FM/AM in Houston for $110,000 and KHKS-FM in Dallas for $90,000, for an aggregate purchase price of $340,000 in cash plus various other direct acquisition costs. 1998 Completed Transactions On January 30, 1998, CMCLA acquired KXPK-FM in Denver from Ever Green Wireless LLC (which is unrelated to the Company) for $26,000 in cash plus various other direct acquisition costs, of which $1,650 was previously paid by CRBC as escrow funds and are classified as other assets at December 31, 1997. CMCLA had previously operated KXPK-FM under a time brokerage agreement since September 1, 1997. On April 3, 1998, CMCLA exchanged WTOP-AM in Washington, KZLA-FM in Los Angeles and WGMS-FM in Washington plus $63,000 in cash (including $3,000 paid by CMCLA in escrow and classified as other assets at December 31, 1997) to Bonneville for WBIX-FM in New York, KLDE-FM in Houston and KBIG-FM in Los Angeles (the "Bonneville Exchange"). CMCLA had previously operated KLDE-FM and KBIG-FM under time brokerage agreements since October 1, 1997 and WBIX-FM since October 10, 1997, and had sold substantially all of the broadcast time of WTOP-AM, KZLA-FM and WGMS-FM to Bonneville since October 1, 1997. Based on discussions with the Securities and Exchange Commission, CMCLA has restated its previously reported results for the nine months ended September 30, 1998 to recognize a pre-tax gain of $123,845 related to the Bonneville Exchange. This transaction was previously accounted for as a like-kind exchange and is now recorded as a business combination in accordance with Accounting Principles Board Opinion No. 16, "Business Combinations." A summary of the impact on the results of operations follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 1998 SEPTEMBER 30, 1998 --------------------------- --------------------------- AS PREVIOUSLY (AS PREVIOUSLY REPORTED) (RESTATED) REPORTED) (RESTATED) Income (loss) before extraordinary item....... $ 8,399 $ 7,161 $ (76,138) $ (4,308) Net loss attributable to common (7,724) (8,962) (140,828) (68,998) stockholders................................
On April 13, 1998, CMCLA and Secret entered into a settlement agreement regarding WFLN-FM in Philadelphia. Previously in August 1996, CMCLA and Secret had entered into an agreement under which CMCLA would acquire WFLN-FM from Secret for $37,750 in cash. In April 1997, CMCLA entered into an agreement to sell WFLN-FM to Greater Media for $41,800 in cash. On July 16, 1997, Secret purported to terminate the sale of WFLN-FM to CMCLA. CMCLA subsequently brought suit against Secret to enforce its rights to acquire WFLN-FM. Pursuant to a court settlement entered in August 1997 and the settlement agreement between CMCLA and Secret entered on April 13, 1998, (i) Secret sold WFLN-FM directly to Greater Media for $37,750, (ii) Greater Media deposited $4,050 (the difference between CMCLA's proposed acquisition price for WFLN-FM from Secret and CMCLA's proposed sale price for WFLN-FM to Greater Media) with the court and (iii) CMCLA received $3,500 of such amount deposited by Greater Media with the court, plus interest earned during the period which the court held such amounts (the "WFLN Settlement"), and Secret received the balance of such amounts. On May 29, 1998, as part of the Capstar/SFX Transaction (defined below), CMCLA exchanged WAPE-FM and WFYV-FM in Jacksonville (valued for purposes of the Capstar/SFX Transaction at 24 25 CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) $53,000) plus $90,250 in cash to Capstar Broadcasting Corporation (together with its subsidiaries, "Capstar") in return for KODA-FM in Houston (the "Houston Exchange"). Furthermore, on May 29, 1998, Capstar sold KKPN-FM in Houston (acquired by Capstar as part of Capstar's acquisition (the "SFX Acquisition") of SFX Broadcasting, Inc. ("SFX")) due to the attributable ownership of Hicks, Muse, Tate & Furst, Incorporated ("Hicks Muse") in both Capstar and CMCLA in order to comply with the FCC's multiple ownership limits. In connection with Capstar's sale of KKPN-FM, CMCLA received a commission from Capstar of $1,730. On May 29, 1998, CMCLA also provided a loan to Capstar in the principal amount of $150,000 as part of the Capstar/SFX Transaction (the "Capstar Loan"). The Capstar Loan bears interest at the rate of 12% per annum (subject to increase in certain circumstances), and is secured by a senior pledge of common stock of Capstar's direct subsidiary. A portion of the Capstar Loan will be prepaid by Capstar in connection with CMCLA's acquisition of, and the proceeds of such prepayment would be used by CMCLA as a portion of the purchase price for, each Capstar/SFX Station. Hicks Muse, which is a substantial shareholder of Chancellor Media, controls Capstar, and certain officers and directors of Chancellor Media and CMCLA are directors and/or executive officers of Capstar and/or Hicks Muse. On June 1, 1998, CMCLA acquired WWDC-FM/AM in Washington, D.C. from Capitol Broadcasting Company and its affiliates for $74,062 in cash (including $2,062 for the purchase of the stations' accounts receivable) plus various other direct acquisition costs, of which $4,000 was previously paid by CMCLA as escrow funds and are classified as other assets at December 31, 1997 (the "Capitol Broadcasting Acquisition"). On May 1, 1998, CMCLA formed a new marketing group division, in an effort to enhance the revenues the Company derives from its sales promotion activities. On June 1, 1998, CMCLA acquired Global Sales Development, Inc., a consulting firm based in Richmond, Virginia, for $675 in cash plus various other direct acquisition costs to lead its marketing efforts for this new division. On June 15, 1998, CMCLA's national radio network, The AMFM Radio Networks, acquired the syndicated programming shows of Global Satellite Network for $14,000 in cash plus various other direct acquisition costs. The syndicated programming shows acquired include "Rockline", "Modern Rock Live", "Reelin' in the Years" and the concert series "Live from the Pit". On July 31, 1998, CMCLA acquired Martin Media, L.P. and certain affiliated companies ("Martin Media"), an outdoor advertising company with over 14,500 billboards and outdoor displays in 12 states serving 23 markets, for $591,674 in cash plus working capital of $19,443 subject to certain adjustments and various other direct acquisition costs of approximately $10,000. On August 28, 1998, CMCLA acquired various syndicated programming shows of Casey Kasem and the related programming libraries for $7,150 in cash and $7,000 in the form of a note due August 2000. In September 1998, CMCLA acquired approximately 325 billboards and outdoor displays in various markets for approximately $10,166 in cash. On October 9, 1998, CMCLA acquired approximately a 22.4% non-voting equity interest in Z-Spanish Media Corporation ("Z-Spanish Media") for approximately $25,000 in cash (the "Z-Spanish Acquisition"). Z-Spanish Media, which is headquartered in Sacramento, California, is the owner and operator of 22 Hispanic format radio stations in California, Texas, Arizona and Illinois. On October 23, 1998, CMCLA acquired Primedia Broadcast Group, Inc. and certain of its affiliates, which own and operate eight FM stations in Puerto Rico, for approximately $76,050 in cash less working capital deficit of $1,280 plus various other direct acquisition costs (the "Primedia Acquisition"). In November 1998, CMCLA acquired approximately 290 billboards and outdoor displays in various markets for approximately $12,978 in cash. 25 26 CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Pending Transactions On July 31, 1997, Martin Media paid $6,025 to Kunz & Company for an option to purchase approximately 1,000 display faces of its Kunz Outdoor Advertising division for $33,289 in cash plus various other direct acquisition costs (the "Kunz Option"). Although there can be no assurance, CMCLA expects that the exercise of the Kunz Option will be consummated in the fourth quarter of 1998. On February 20, 1998, CMCLA entered into an agreement to acquire from Capstar KTXQ-FM and KBFB-FM in Dallas/Ft. Worth, KODA-FM, KKRW-FM and KQUE-AM in Houston, KPLN-FM and KYXY-FM in San Diego and WDRV-FM, WJJJ-FM, WXDX-FM and WDVE-FM in Pittsburgh (collectively, the "Capstar/SFX Stations") for an aggregate purchase price of approximately $637,500 in a series of purchases and exchanges over a period of three years (the "Capstar/SFX Transaction"). The Capstar/SFX stations were acquired by Capstar as part of Capstar's acquisition of SFX on May 29, 1998. On May 29, 1998, CMCLA completed the Houston Exchange (defined above) and began operating the remaining ten Capstar/ SFX Stations under time brokerage agreements. CMCLA is currently assessing whether the terms of the Capstar/SFX Transaction will be modified upon the consummation of the Capstar Merger. On April 8, 1998, CMCLA entered into an agreement to acquire Petry Media Corporation, a leading independent television representation firm (the "Petry Acquisition"). The agreement currently provides for a purchase price of $129.5 million in cash. On June 3, 1998, the Antitrust Division of the United States Department of Justice (the "DOJ") issued a second request for additional information under the HSR Act in connection with the Petry Acquisition to which CMCLA has responded. CMCLA and Petry are still negotiating with the DOJ regarding this transaction and have agreed to extend the waiting period under the HSR Act pending completion of these discussions. Accordingly at this time, CMCLA cannot be sure of the terms on which this transaction will be completed, if at all. On July 7, 1998, Chancellor Media entered into an agreement whereby the ultimate parent of LIN Television Corporation ("LIN") will merge into Chancellor Media (the "LIN Merger"). Pursuant to this agreement, Chancellor Media will issue .0300 shares of Chancellor Media Common Stock for each share of LIN's Common Stock resulting in the issuance of approximately 17,700,000 shares (comprised of approximately 16,200,000 newly issued shares, the assumption of LIN phantom stock units representing approximately 425,000 shares and the assumption of LIN options representing the right to purchase approximately 1,075,000 shares). Upon consummation of the LIN Merger, it is expected that LIN will own or operate 12 television stations in eight markets in the United States. Although there can be no assurance, Chancellor Media expects that the LIN Merger will be consummated in the first quarter of 1999. On August 11, 1998, CMCLA entered into agreements to acquire four FM and two AM radio stations in Cleveland for an aggregate purchase price of approximately $275,000 in cash plus various other direct acquisition costs (the "Cleveland Acquisitions"). The Cleveland Acquisitions consist of the purchase by the Company of (i) WDOK-FM and WRMR-AM from Independent Group Limited Partnership, (ii) WZAK-FM from Zapis Communications, (iii) Zebra Broadcasting Corporation which owns WZJM-FM and WJMO-AM and (v) Wincom Broadcasting Corporation which owns WQAL-FM (the "Wincom Acquisition"). The consummation of each of the Cleveland Acquisitions (other than the Wincom Acquisition) is contingent upon the consummation of each of the other Cleveland Acquisitions (other than the Wincom Acquisition). CMCLA began operating WQAL-FM under a time brokerage agreement effective October 1, 1998. Although there can be no assurance, CMCLA expects that the Cleveland Acquisitions will be consummated in the first quarter of 1999. On August 20, 1998, CMCLA entered into an agreement to sell WMVP-AM in Chicago to ABC, Inc. for $21,000 in cash (the "Chicago Disposition"). CMCLA entered into a time brokerage agreement to sell substantially all of the broadcast time of WMVP-AM effective September 10, 1998. Although there can be no assurance, CMCLA expects that the Chicago Disposition will be consummated in the fourth quarter of 1998. 26 27 CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On August 26, 1998, Chancellor Media and Capstar entered into an agreement to merge in a stock-for-stock transaction that will create the nation's largest radio broadcasting entity. Pursuant to this agreement, Chancellor Media will acquire Capstar in a reverse merger in which Capstar will be renamed Chancellor Media Corporation. Each share of Chancellor Media Common Stock will represent one share in the combined entity. Each share of Capstar Common Stock will represent 0.480 shares of Common Stock in the combined entity, subject to an upward adjustment not to exceed 0.025 shares to the extent that Capstar's 1998 cash flow from specified assets exceeds certain specified targets. Capstar owns and operates more than 355 radio stations serving 83 mid-sized markets nationwide. Although there can be no assurance, Chancellor Media expects that the Capstar Merger will be consummated in the second quarter of 1999. On August 31, 1998, CMCLA entered into an agreement to acquire the assets of the Outdoor Advertising Division of Whiteco Industries, Inc., an outdoor advertising company with over 21,800 billboards and outdoor displays in 34 states, for $930,000 in cash plus working capital and various other direct acquisition costs (the "Whiteco Acquisition"). The DOJ has requested that CMCLA and Whiteco submit certain additional information on a voluntary basis in connection with the DOJ's review of the Whiteco Acquisition. CMCLA and Whiteco have responded to this request and are currently in discussions with the DOJ regarding the terms on which this transaction may be completed. Although there can be no assurance, CMCLA expects that the Whiteco Acquisition will be consummated in the fourth quarter of 1998. On September 3, 1998, CMCLA entered into an agreement to acquire Pegasus, a television broadcasting company which owns a television station in Puerto Rico, for approximately $69,600 in cash (the "Pegasus Acquisition"). Although there can be no assurance, CMCLA expects that the Pegasus Acquisition will be consummated in the first quarter of 1999. In connection with the LIN Merger, CMCLA may assign its rights under its agreement with Pegasus to LIN. On September 15, 1998, CMCLA entered into an agreement to acquire KKFR-FM and KFYI-AM in Phoenix from The Broadcast Group, Inc. for $90,000 in cash (the "Phoenix Acquisition"). CMCLA began operating KKFR-FM and KFYI-AM under a time brokerage agreement effective November 5, 1998. Although there can be no assurance, CMCLA expects that the Phoenix Acquisition will be consummated in the second quarter of 1999. The foregoing are collectively referred to herein as the "Pending Transactions." Consummation of each of the Pending Transactions discussed above is subject to various conditions, including, in certain cases, approval from the FCC and the expiration or early termination of any waiting period required under the HSR Act. Except as described above, CMCLA believes that such conditions will be satisfied in the ordinary course, but there can be no assurance that this will be the case. Escrow funds of $6,025 related to the Kunz Option are classified as other assets in the accompanying balance sheet at September 30, 1998. Escrow funds of $4,650 paid by CMCLA in connection with the Bonneville Exchange and the Capitol Broadcasting Acquisition were classified as other assets in the accompanying balance sheet at December 31, 1997. Other Transactions On July 10, 1998, Chancellor Media entered into an agreement to acquire a 50% economic interest in Grupo Radio Centro, S.A. de C.V. ("GRC"), an owner and operator of radio stations in Mexico, for approximately $120.5 million in cash and $116.5 million in Chancellor Media Common Stock. On October 15, 1998, Chancellor Media announced that it had provided notice to GRC that it was terminating the acquisition agreement in accordance with its terms. 27 28 CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Summary of Net Assets Acquired The completed acquisitions discussed above were accounted for as purchases. Accordingly, the accompanying consolidated financial statements include the results of operations of the acquired entities from the dates of acquisition. A summary of the net assets acquired follows:
YEAR NINE MONTHS ENDED ENDED DECEMBER 31, SEPTEMBER 30, 1997 1998 ------------ ------------- (RESTATED) Working capital, including cash of $9,724 in 1997 and $6,505 in 1998................................ $ 66,805 $ 19,223 Property and equipment.............................. 118,371 137,060 Assets held for sale................................ 131,000 -- Intangible assets................................... 3,823,746 875,653 Other assets........................................ 26,742 6,025 Deferred tax liability.............................. (279,371) -- Other liabilities................................... (39,681) (697) ---------- ---------- $3,847,612 $1,037,264 ========== ==========
The pro forma consolidated condensed results of operations data for the nine months ended September 30, 1997 and 1998, as if the 1997 Completed Transactions and the 1998 Completed Transactions discussed above, the 8 1/8% Notes Offering, the amendment and restatement of the Senior Credit Facility and the 1998 Financing Transactions (as defined herein) occurred at January 1, 1997, follow:
NINE MONTHS ENDED ------------------------------ SEPTEMBER 30, SEPTEMBER 30, 1997 1998 -------------- ------------- (RESTATED) Net revenues...................................... $ 826,026 $ 963,063 Net loss.......................................... (143,303) (47,368)
The pro forma results are not necessarily indicative of what would have occurred if the acquisitions had been in effect for the entire periods presented. 3. FINANCING TRANSACTIONS 1998 Completed Financing Transactions On March 13, 1998, Chancellor Media completed an offering of 21,850,000 shares of its Common Stock (the "1998 Equity Offering"). The net proceeds from the 1998 Equity Offering of approximately $994,642 were contributed to CMCLA and were used to reduce bank borrowings under the revolving credit portion of the Senior Credit Facility (as defined) and the excess proceeds were initially invested in short-term investment grade securities. The Company subsequently used the excess proceeds for general corporate purposes, including the financing of the Bonneville Exchange, the Capstar Loan and a portion of the Houston Exchange. On May 8, 1998, CMCLA completed a consent solicitation (the "12% Preferred Stock Consent Solicitation") to modify certain timing restrictions on its ability to exchange all shares of its 12% Exchangeable Preferred Stock (the "12% Preferred Stock") for its 12% Subordinated Exchange Debentures due 2009 (the "12% Debentures"). Consenting holders of 12% Preferred Stock received payments of $0.05 28 29 CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) per share of 12% Preferred Stock. On May 13, 1998, CMCLA exchanged the shares of 12% Preferred Stock for 12% Debentures (the "12% Exchange"). In connection with the 12% Preferred Stock Consent Solicitation and 12% Exchange, CMCLA incurred approximately $270 in transaction costs which were recorded as deferred debt issuance costs. On June 10, 1998, CMCLA completed a cash tender offer (the "12% Debentures Tender Offer") for all of its 12% Debentures for an aggregate repurchase cost of $262,495 which included (i) the principal amount of the 12% Debentures of $211,763, (ii) premiums on the repurchase of the 12% Debentures of $47,798, (iii) accrued and unpaid interest on the 12% Debentures from May 14, 1998 through June 10, 1998 of $1,976 and (iv) estimated transaction costs of $958. In connection with the 12% Debentures Tender Offer, CMCLA recorded an extraordinary charge of $31,865 (net of a tax benefit of $17,158) consisting of the premiums, estimated transaction costs and the write-off of the unamortized balance of deferred debt issuance costs. On July 20, 1998, CMCLA completed a consent solicitation (the "12 1/4% Preferred Stock Consent Solicitation") to modify certain timing restrictions on its ability to exchange all shares of its 12 1/4% Series A Senior Cumulative Exchangeable Preferred Stock (the "12 1/4% Preferred Stock") for its 12 1/4% Subordinated Exchange Debentures due 2008 (the "12 1/4% Debentures"). Consenting holders of 12 1/4% Preferred Stock received payments of $0.05 per share of 12 1/4% Preferred Stock. On July 23, 1998, CMCLA exchanged the shares of 12 1/4% Preferred Stock for 12 1/4% Debentures (the "12 1/4% Exchange"). In connection with the 12 1/4% Preferred Stock Consent Solicitation and 12 1/4% Exchange, CMCLA incurred approximately $170 in transaction costs which were recorded as deferred debt issuance costs. On August 19, 1998, CMCLA completed a cash tender offer (the "12 1/4% Debentures Tender Offer") for all of its 12 1/4% Debentures for an aggregate repurchase cost of $144,527 which included (i) the principal amount of the 12 1/4% Debentures of $119,445, (ii) premiums on the repurchase of the 12 1/4% Debentures of $22,683, (iii) accrued and unpaid interest on the 12 1/4% Debentures from August 16, 1998 through August 19, 1998 of $1,829 and (iv) estimated transaction costs of $570. In connection with the 12 1/4% Debentures Tender Offer, CMCLA recorded an extraordinary charge of $15,224 (net of a tax benefit of $8,199) consisting of the premiums, estimated transaction costs and the write-off of the unamortized balance of deferred debt issuance costs. On September 30, 1998, CMCLA issued $750,000 aggregate principal amount of 9% Senior Subordinated Notes due 2008 (the "9% Notes") for net proceeds of approximately $730,000 (the "9% Notes Offering"). The net proceeds from the 9% Notes Offering will be used to finance a portion of CMCLA's Pending Transactions. Prior to consummation of the Pending Transactions, CMCLA used the net proceeds to temporarily reduce borrowings outstanding under the revolving credit portion of the Senior Credit Facility. 1998 Pending Financing Transactions On November 12, 1998, CMCLA signed a definitive purchase agreement that provides for the issuance of $750,000 of 8% Senior Notes due 2008 (the "8% Senior Notes Offering"). The net proceeds from the 8% Senior Notes Offering will be used to reduce bank borrowings under the revolving credit portion of the Senior Credit Facility and any excess proceeds will be invested in short-term investment grade securities pending use for general corporate purposes. Although there can be no assurance, CMCLA expects that the 8% Senior Notes Offering will be consummated on November 17, 1998. 29 30 CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. LONG-TERM DEBT Long-term debt consists of the following at December 31, 1997 and September 30, 1998:
DECEMBER 31, SEPTEMBER 30, 1997 1998 ------------ ------------- Senior Credit Facility(a)........................... $1,573,000 $ 1,268,000 9 3/8% Notes(b)..................................... 200,000 200,000 8 3/4% Notes(b)..................................... 200,000 200,000 10 1/2% Notes(b).................................... 100,000 100,000 8 1/8% Notes(b)..................................... 500,000 500,000 9% Notes(b)......................................... -- 750,000 ---------- ------------- Total long-term debt...................... $2,573,000 $ 3,018,000 ========== =============
(a) Senior Credit Facility On April 25, 1997, CMCLA entered into a loan agreement which amended and restated its prior senior credit facility. Under the amended and restated agreement, as amended on June 26, 1997, August 7, 1997, October 28, 1997, February 10, 1998, May 1, 1998, July 31, 1998 and November 9, 1998 (as amended, the "Senior Credit Facility"), CMCLA established a $1,250,000 revolving facility (the "Revolving Loan Facility") and a $500,000 term loan facility (the "Term Loan Facility"). Upon consummation of the Chancellor Merger, the aggregate commitments under the Revolving Loan Facility and the Term Loan Facility were increased to $1,600,000 and $900,000, respectively. In connection with the amendment and restatement of the Senior Credit Facility, CMCLA wrote off the unamortized balance of deferred debt issuance costs of $4,350 (net of a tax benefit of $2,343) as an extraordinary charge. Borrowings under the Senior Credit Facility bear interest at a rate based, at the option of CMCLA, on the participating banks' prime rate or Eurodollar rate, plus an incremental rate. Without giving effect to the interest rate swap and cap agreements described below, the interest rate on the $900,000 outstanding under the Term Loan Facility at September 30, 1998 was 6.25% on a blended basis, based on Eurodollar rates, and the interest rate on advances of $355,000 and $13,000 outstanding under the Revolving Loan Facility were 6.25% and 8.50%, respectively, at September 30, 1998, based on the Eurodollar and prime rates, respectively. CMCLA pays fees ranging from 0.25% to 0.375% per annum on the aggregate unused portion of the loan commitment based upon the leverage ratio for the most recent quarter end, in addition to an annual agent's fee. Pursuant to the Senior Credit Facility, CMCLA is required to enter into interest hedging agreements that result in the fixing or placing a cap on CMCLA's floating rate debt so that not less than 50% of the principal amount of total debt outstanding has a fixed or capped rate. The Term Loan Facility is payable in quarterly installments commencing on September 30, 2000 and ending June 20, 2005. The Revolving Loan Facility requires scheduled annual reductions of the commitment amount, payable in quarterly installments commencing on September 30, 2000 and ending on June 30, 2005. At October 31, 1998, CMCLA had drawn $900,000 of the Term Loan Facility and $433,000 of the Revolving Loan Facility. The capital stock of CMCLA's subsidiaries is pledged to secure the performance of CMCLA's obligations under the Senior Credit Facility, and each of CMCLA's domestic subsidiaries have guaranteed those obligations. (b) Senior Subordinated Notes Upon consummation of the Chancellor Merger, on September 5, 1997, CMCLA assumed all of the obligations under CRBC's $200,000 aggregate principal amount 9 3/8% Senior Subordinated Notes due 2004 (the "9 3/8% Notes") and the indenture governing such securities, and assumed all of the obligations under CRBC's $200,000 aggregate principal amount 8 3/4% Senior Subordinated Notes due 2007 (the "8 3/4% Notes") 30 31 CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and the indenture governing such securities. Upon consummation of the Katz Acquisition, on October 28, 1997, CMCLA assumed all of the obligations under Katz Media Corporation's $100,000 aggregate principal amount of 10 1/2% Senior Subordinated Notes due 2007 (the "10 1/2% Notes") and the amended and restated indenture governing such securities. On December 22, 1997, CMCLA issued $500,000 aggregate principal amount of 8 1/8 Senior Subordinated Notes due 2007 (the "8 1/8% Notes") for net proceeds of approximately $485,000. On September 30, 1998, CMCLA issued $750,000 aggregate principal amount of 9% Notes for net proceeds of approximately $730,000. (c) Summarized Financial Information of Subsidiary Guarantors The 9 3/8% Notes, the 8 3/4% Notes, the 10 1/2% Notes, the 8 1/8% Notes and the 9% Notes (collectively, the "Notes") are unsecured obligations of CMCLA, subordinated in right of payment to all existing and any future senior indebtedness of CMCLA. The Notes are fully and unconditionally guaranteed, on a joint and several basis, by all of CMCLA's direct and indirect subsidiaries other than certain inconsequential subsidiaries (the "Subsidiary Guarantors"). The Subsidiary Guarantors are wholly-owned subsidiaries of CMCLA. Summarized financial information of the Subsidiary Guarantors as of December 31, 1997 and September 30, 1998 and for the nine months ended September 30, 1998 is presented below. Separate financial statements and other disclosures concerning the subsidiary Guarantors are not presented because management has determined that they are not material to investors. There are no significant restrictions on distributions from each of the Subsidiary Guarantors to CMCLA.
DECEMBER 31, SEPTEMBER 30, 1997 1998 ------------ ------------- (RESTATED) Current assets.............................................. $ 223,913 $ 300,154 Noncurrent assets........................................... 987,028 994,305 Current liabilities......................................... 89,362 90,250 Noncurrent liabilities...................................... 1,130,105 1,177,347
NINE MONTHS ENDED ------------- SEPTEMBER 30, 1998 ------------- (RESTATED) Net revenues................................................ $724,806 Operating income............................................ 70,715 Net income.................................................. 57,230
(d) Other The Senior Credit Facility and the indentures governing the Notes contain customary restrictive covenants, which, among other things and with certain exceptions, limit the ability of CMCLA and its subsidiaries to incur additional indebtedness and liens in connection therewith, enter into certain transactions with affiliates, pay dividends, consolidate, merge or effect certain asset sales, issue additional stock, effect an asset swap and make acquisitions. CMCLA is required under the Senior Credit Facility to maintain specified financial ratios, including leverage, cash flow and debt service coverage ratios (as defined). 31 32 CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. OTHER INCOME Other income consists of the following for the nine months ended September 30, 1997 and 1998:
NINE MONTHS ENDED ----------------------------- SEPTEMBER 30, SEPTEMBER 30, 1997 1998 ------------- ------------- (RESTATED) Gain on disposition of assets(a)................... $18,380 $123,845 WFLN Settlement(b)................................. -- 3,559 ------- -------- $18,380 $127,404 ======= ========
- --------------- (a) For the nine months ended September 30, 1997, CMCLA recorded a gain on disposition of assets of $18,380 related to the dispositions of WNKS-FM in Charlotte on May 15, 1997 ($3,536), WPNT-FM in Chicago on May 30, 1997 ($529), WEJM-FM in Chicago on June 3, 1997 ($9,258), the FCC authorizations and certain transmission equipment previously used in the operation of KYLD-FM in San Francisco on July 2, 1997 ($1,726) and WEJM-AM in Chicago on August 27, 1997 ($3,331). For the nine months ended September 30, 1998, CMCLA recorded a gain on disposition of assets of $123,845 related to the April 3, 1998 exchange of WTOP-AM and WGMS-FM in Washington and KZLA-FM in Los Angeles plus $63,000 in cash for WBIX-FM in New York, KLDE-FM in Houston and KBIG-FM in Los Angeles (see Note 2). (b) For the nine months ended September 30, 1998, CMCLA recorded a gain from the WFLN Settlement (defined above) of $3,559. 6. CONTINGENCIES CMCLA is involved in several lawsuits that are incidental to its business. A discussion of certain of these lawsuits is contained in Part II, Item 1, "Legal Proceedings", of this Form 10-Q/A. CMCLA believes that the ultimate resolution of the lawsuits will not have a material effect on its financial position or results of operations. 32 33 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company's results of operations from period to period have not historically been comparable because of the impact of the various acquisitions and dispositions that the Company has completed. For a description of the transactions completed by the Company during 1997 and to date in 1998, see the Notes to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q/A. In the following analysis, management discusses the Company's broadcast cash flow. The performance of a radio station group is customarily measured by its ability to generate broadcast cash flow. The two components of broadcast cash flow are gross revenues (net of agency commissions) and operating expenses (excluding depreciation and amortization, corporate general and administrative expense and non-cash and non-recurring charges). The primary source of revenues is the sale of broadcasting time for advertising. The Company's most significant operating expenses for purposes of the computation of broadcast cash flow are employee salaries and commissions, programming expenses, and advertising and promotion expenses. The Company strives to control these expenses by working closely with local station management. The Company's revenues vary throughout the year. As is typical in the radio broadcasting industry, the Company's first calendar quarter generally produces the lowest revenues, and the fourth quarter generally produces the highest revenues. Although broadcast cash flow is not calculated in accordance with generally accepted accounting principles, the Company believes that it is widely used as a measure of operating performance. Nevertheless, this measure should not be considered in isolation or as a substitute for operating income, cash flows from operating activities or any other measure for determining the Company's operating performance or liquidity that is calculated in accordance with generally accepted accounting principles. Broadcast cash flow does not take into account the Company's debt service requirements and other commitments and, accordingly, broadcast cash flow is not necessarily indicative of amounts that may be available for dividends, reinvestment in the Company's business or other discretionary uses. Not all companies calculate broadcast cash flow in the same fashion and therefore the information presented may not be comparable to other similarly filed information of other companies. Three Months Ended September 30, 1998 Compared To Three Months Ended September 30, 1997 The Company's results of operations for the three months ended September 30, 1998 are not comparable to the results of operations for the three months ended September 30, 1997 due to the impact of the Chancellor Merger, the Viacom Acquisition, the Katz Acquisition, the Martin Acquisition and various other acquisitions and dispositions discussed in the Notes to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q/A. Net revenues for the three months ended September 30, 1998 increased 137.1% to $343.8 million compared to $145.0 million for the third quarter of 1997. Operating expenses excluding depreciation and amortization for the three months ended September 30, 1998 increased 138.0% to $175.1 million compared to $73.6 million for the three months ended September 30, 1997. Operating income excluding depreciation and amortization, corporate general and administrative expense and other non-cash and non-recurring charges (broadcast cash flow) for the three months ended September 30, 1998 increased 136.1% to $168.8 million compared to $71.5 million for the third quarter of 1997. The increase in net revenues, operating expenses, and broadcast cash flow for the three months ended September 30, 1998 was primarily attributable to the net impact of the Chancellor Merger, the Viacom Acquisition, the Katz Acquisition, the Martin Acquisition and the various acquisitions and dispositions discussed elsewhere herein, in addition to the overall net operational improvements realized by the Company. Depreciation and amortization for the three months ended September 30, 1998 increased 139.0% to $120.6 million compared to $50.5 million for the third quarter of 1997. The increase is primarily due to the impact of the Chancellor Merger, the Viacom Acquisition, the Katz Acquisition and the Martin Acquisition, as well as other acquisitions completed during 1997 and to date in 1998. 33 34 Corporate general and administrative expenses for the three months ended September 30, 1998 increased 68.6% to $10.1 million compared to $6.0 million for the third quarter of 1997. The increase is due to the growth of the Company, and the related increase in properties and staff, primarily due to recent acquisitions. As a result of the above factors, the Company realized operating income of $38.0 million for the three months ended September 30, 1998 compared to $15.0 million of operating income for the third quarter of 1997. Interest expense, net for the three months ended September 30, 1998 increased 118.1% to $48.6 million compared to $22.3 million for the same period in 1997. The net increase in interest expense was primarily due to (i) additional bank borrowings under the Senior Credit Facility required to finance the various acquisitions discussed elsewhere herein offset by repayment of borrowings from the net proceeds of the Company's various radio station dispositions and the 1998 Equity Offering, (ii) the assumption of CRBC's 9 3/8% Notes and 8 3/4% Notes upon consummation of the Chancellor Merger on September 5, 1997, (iii) the assumption of Katz' 10 1/2% Notes upon consummation of the Katz Acquisition on October 28, 1997 and (iv) the issuance of the 8 1/8% Notes by the Company on December 22, 1997. For the three months ended September 30, 1998, the Company recorded a gain on disposition of representation contracts of $18.5 million related to its media representation operations. The Company entered into the media representation business with the acquisition of Katz on October 28, 1997. For the three months ended September 30, 1997, other income of $5.1 million represents a gain on the disposition of assets related to the dispositions of the FCC authorizations and certain transmission equipment previously used in the operation of KYLD-FM in San Francisco on July 2, 1997 ($1.7 million) and WEJM-AM in Chicago on August 27, 1997 ($3.4 million). The income tax expense for the three months ended September 30, 1998 is comprised of current federal and state tax expense. Dividends on preferred stock of CMCLA were $0.9 million for the three months ended September 30, 1998, which represent dividends on CMCLA's 12 1/4% Series A Senior Cumulative Exchangeable Preferred Stock (the "12 1/4% Preferred Stock") for the period from July 1, 1998 through July 23, 1998, issued in September 1997 as part of the Chancellor Merger. On July 23, 1998, CMCLA exchanged all shares of the 12 1/4% Preferred Stock for its 12 1/4% Subordinated Exchange Debentures due 2008 (the "12 1/4% Debentures"). The 12 1/4% Debentures were subsequently repurchased by CMCLA. For the three months ended September 30, 1998, the Company recorded an extraordinary charge of $15.2 million (net of a tax benefit of $8.2 million) consisting of the premiums, estimated transaction costs and the write-off of the unamortized balance of deferred debt issuance costs in connection with the 12 1/4% Debentures Tender Offer. Dividends on Chancellor Media's preferred stock were $6.4 million for the three months ended September 30, 1998 compared to $5.0 million for the same period in 1997. The increase is due to dividends on Chancellor Media's 7% Convertible Preferred Stock (the "7% Convertible Preferred Stock") issued in September 1997 as part of the Chancellor Merger. As a result of the above factors, the Company incurred a $15.4 million net loss attributable to common stockholders for the three months ended September 30, 1998 compared to a net loss attributable to common stockholders of $11.0 million for the third quarter of 1997. The basic and diluted loss per common share for the three months ended September 30, 1998 was $0.11 compared to $0.12 for the third quarter of 1997. Nine Months Ended September 30, 1998 Compared To Nine Months Ended September 30, 1997 The Company's results of operations for the nine months ended September 30, 1998 are not comparable to the results of operations for the nine months ended September 30, 1997 due to the impact of the Chancellor Merger, the Viacom Acquisition, the Katz Acquisition, the Martin Acquisition and various other acquisitions 34 35 and dispositions discussed in the Notes to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q/A. Net revenues for the nine months ended September 30, 1998 increased 169.8% to $899.1 million compared to $333.3 million for the nine months ended September 30, 1997. Operating expenses excluding depreciation and amortization for the nine months ended September 30, 1998 increased 166.3% to $491.9 million compared to $184.7 million for the nine months ended September 30, 1997. Operating income excluding depreciation and amortization, corporate general and administrative expense and other non-cash and non-recurring charges (broadcast cash flow) for the nine months ended September 30, 1998 increased 174.1% to $407.2 million compared to $148.6 million for the nine months ended September 30, 1997. The increase in net revenues, operating expenses, and broadcast cash flow for the nine months ended September 30, 1998 was primarily attributable to the net impact of the Chancellor Merger, the Viacom Acquisition, the Katz Acquisition, the Martin Acquisition and the various acquisitions and dispositions discussed elsewhere herein, in addition to the overall net operational improvements realized by the Company. Depreciation and amortization for the nine months ended September 30, 1998 increased 202.5% to $315.8 million compared to $104.4 million for the nine months ended September 30, 1997. The increase is primarily due to the impact of the Chancellor Merger, the Viacom Acquisition, the Katz Acquisition and the Martin Acquisition, as well as other acquisitions completed during 1997 and to date in 1998. Corporate general and administrative expenses for the nine months ended September 30, 1998 increased 116.3% to $25.2 million compared to $11.6 million for the nine months ended September 30, 1997. The increase is due to the growth of the Company, and the related increase in properties and staff, primarily due to recent acquisitions. The executive severance charge of $59.5 million for the nine months ended September 30, 1998 represents a one-time charge incurred in connection with the resignation of Scott K. Ginsburg as President and Chief Executive Officer of the Company. As a result of the above factors, the Company realized operating income of $6.7 million for the nine months ended September 30, 1998 compared to $32.5 million of operating income for the nine months ended September 30, 1997. For the nine months ended September 30, 1998, the Company recorded a gain on disposition of representation contracts of $29.8 million related to its media representation operations. The Company entered into the media representation business with the acquisition of Katz on October 28, 1997. Interest expense, net for the nine months ended September 30, 1998 increased 201.3% to $135.7 million compared to $45.0 million for the same period in 1997. The net increase in interest expense was primarily due to (i) additional bank borrowings under the Senior Credit Facility required to finance the various acquisitions discussed elsewhere herein offset by repayment of borrowings from the net proceeds of the Company's various radio station dispositions and the 1998 Equity Offering, (ii) the assumption of CRBC's 9 3/8% Notes and 8 3/4% Notes upon consummation of the Chancellor Merger on September 5, 1997, (iii) the assumption of Katz' 10 1/2% Notes upon consummation of the Katz Acquisition on October 28, 1997 and (iv) the issuance of the 8 1/8% Notes by the Company on December 22, 1997. For the nine months ended September 30, 1997, other income of $18.4 million represents a gain on the disposition of assets related to the dispositions of WNKS-FM in Charlotte ($3.5 million), WPNT-FM in Chicago ($0.5 million), WEJM-FM in Chicago ($9.3 million), the FCC authorizations and certain transmission equipment previously used in the operation of KYLD-FM in San Francisco ($1.7 million) and WEJM-AM in Chicago ($3.4 million). For the nine months ended September 30, 1998, other income represents a gain from the WFLN Settlement of $3.6 million and a gain on disposition of assets of $123.8 million related to the exchange of WTOP-AM and WGMS-FM in Washington and KZLA-FM in Los Angeles plus $63,000 in cash for WBIX-FM in New York, KLDE-FM in Houston and KBIG-FM in Los Angeles. 35 36 The income tax expense for the nine months ended September 30, 1998 is comprised of current federal and state tax expense. Dividends on preferred stock of CMCLA were $17.6 million for the nine months ended September 30, 1998, which represent dividends on CMCLA's 12% Exchangeable Preferred Stock (the "12% Preferred Stock") for the period from January 1, 1998 through May 13, 1998 and on CMCLA's 12 1/4% Series A Senior Cumulative Exchangeable Preferred Stock (the "12 1/4% Preferred Stock") for the period from January 1, 1998 to July 23, 1998, each issued in September 1997 as part of the Chancellor Merger. On May 13, 1998, CMCLA exchanged all shares of the 12% Preferred Stock for its 12% Debentures and on July 23, 1998, CMCLA exchanged all shares of the 12 1/4% Preferred Stock for its 12 1/4% Debentures. The 12% Debentures and 12 1/4 Debentures were subsequently repurchased by CMCLA. For the nine months ended September 30, 1997, the Company recorded an extraordinary charge of $4.4 million (net of a tax benefit of $2.3 million) consisting of the write-off of the unamortized balance of deferred debt issuance costs related to the amendment and restatement of the Company's Senior Credit Facility on April 25, 1997. For the nine months ended September 30, 1998, the Company recorded an extraordinary charge of $47.1 million (net of a tax benefit of 25.4 million) consisting of the premiums, estimated transaction costs and the write-off of the unamortized balance of deferred debt issuance costs in connection with the 12% Debentures Tender Offer and 12 1/4% Debentures Tender Offer. Dividends on Chancellor Media's preferred stock were $19.3 million for the nine months ended September 30, 1998 compared to $5.7 million for the same period in 1997. The increase is due to dividends on the $3.00 Convertible Preferred Stock issued in June 1997 and dividends on the 7% Convertible Preferred Stock issued in September 1997 as part of the Chancellor Merger. As a result of the above factors, the Company incurred a $88.3 million net loss attributable to common stockholders for the nine months ended September 30, 1998 compared to a net loss attributable to common stockholders of $12.2 million for the nine months ended September 30, 1997. The basic and diluted loss per common share for the nine months ended September 30, 1998 was $0.65 compared to $0.14 for the nine months ended September 30, 1997. LIQUIDITY AND CAPITAL RESOURCES Overview. The Company historically has generated sufficient cash flow from operations to finance its existing operational requirements and debt service requirements, and the Company anticipates that this will continue to be the case. The Company historically has used the proceeds of bank debt and private and public debt and equity offerings, supplemented by cash flow from operations not required to fund operational requirements and debt service, to fund implementation of the Company's acquisition strategy. The total cash financing required to consummate the Pending Transactions is expected to be $1.64 billon. The Company expects to receive $21.0 million in cash from the completion of the Chicago Disposition. Accordingly, the Company will require at least $1.62 billion in additional financing to consummate the Pending Transactions. Although there can be no assurance, the Company expects that $995.6 million of such amount will be required to be borrowed during the fourth quarter of 1998 (for the Kunz Option and the Whiteco Acquisition), $374.6 million will be required to be borrowed during the first quarter of 1999 (for the LIN Merger, the Cleveland Acquisitions and the Pegasus Acquisition) and $140.0 million will be required to be borrowed during the second quarter of 1999 (for the Capstar Merger and the Phoenix Acquisition). In addition, the financing of $129.5 million will be required if the Petry Acquisition is consummated. Depending on the timing of the consummation of the Pending Transactions, the Company may need to obtain additional financing. The Company believes that amounts available under the Senior Credit Facility and an additional $250.0 million potentially available under the Senior Credit Facility will be used to finance the remaining Pending Transactions as well as future acquisitions. The Senior Credit Facility currently provides for a total commitment of $2.50 billion, consisting of $1.60 billion reducing revolving credit facility and a $900.0 million term loan facility. Other potential sources of financing for the Pending Transactions and future acquisitions 36 37 include cash flow from operations, additional debt or equity financings, the sale of non-core assets or a combination of those sources. In addition to debt service requirements under the Senior Credit Facility, the Company is required to pay interest on the Notes. Interest payment requirements of the Company on the Notes are $154.9 million per year. Cash dividend requirements of Chancellor Media on its $3.00 Convertible Preferred Stock and its 7% Convertible Preferred Stock are $25.7 million per year. Because Chancellor Media is a holding company with no significant assets other than the common stock of CMHC, Chancellor Media will rely solely on dividends from CMHC, which in turn is expected to distribute dividends paid to it by CMCLA and KMG to Chancellor Media, to permit Chancellor Media to pay cash dividends on the $3.00 Convertible Preferred Stock and the 7% Convertible Preferred Stock. The Senior Credit Facility and the indentures governing the Notes limit, but do not prohibit, CMCLA from paying such dividends to CMHC. FORWARD LOOKING STATEMENTS When used in the preceding and following discussion, the words "believes," "expects," "anticipates," "intends" and similar expressions are intended to identify forward looking statements. Such statements are subject to a number of known and unknown risks and uncertainties. Actual results in the future could differ materially from those described in the forward looking statements. Such risks and uncertainties include, but are not limited to, industry-wide market factors and regulatory developments affecting the Company's operations and the acquisitions and dispositions described elsewhere herein. RECENTLY ISSUED ACCOUNTING PRINCIPLES In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. This Statement establishes standards for reporting information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial reports issued to stockholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS No. 131 is effective for fiscal years beginning after December 15, 1997. Management does not anticipate that this Statement will have a significant effect on the Company's consolidated financial statements. In February 1998, the Financial Accounting Standards Board issued SFAS No. 132, Employers' Disclosure about Pensions and Other Postretirement Benefits. This Statement revises employers' disclosures about pensions and other postretirement benefit plans. It does not change the measurement or recognition of those plans. SFAS No. 132 is effective for fiscal years beginning after December 15, 1997. Management does not anticipate that this Statement will have a significant effect on the Company's consolidated financial statements. In April 1998, Accounting Standards Executive Committee ("ACSEC") issued Statement of Position ("SOP") No. 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5") effective for fiscal years beginning after December 15, 1998. This SOP provides guidance on the financial reporting of start-up costs and organization costs. It requires costs of start-up activities and organization costs to be expensed as incurred. Initial application of SOP 98-5 should be reported as the cumulative effect of a change in accounting principle, as described in Accounting Principles Board (APB) Opinion No. 20, "Accounting Changes." When adopting this SOP, entities are not required to report the pro forma effects of retroactive application. Management does not believe the implementation of SOP 98-5 will have a material impact on the Company's consolidated financial statements. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. SFAS No. 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999. Management does not anticipate that this Statement will have a material impact on the Company's consolidated financial statements. 37 38 YEAR 2000 ISSUE The "Year 2000 Issue" is whether the Company's computer systems will properly recognize date sensitive information when the year changes to 2000, or "00." Systems that do not properly recognize such information could generate erroneous data or cause a system to fail. The Company has conducted a comprehensive review of its computer systems to identify the systems that could be affected by the Year 2000 Issue and has developed an implementation plan. The Company uses purchased software programs for a variety of functions, including general ledger, accounts payable and accounts receivable accounting packages. The companies providing these software programs are Year 2000 compliant, and the Company has received Year 2000 compliance certificates from these software vendors. The Company's Year 2000 implementation plan also includes ensuring that all individual work stations are Year 2000 compliant. Costs associated with ensuring that the Company's existing systems are Year 2000 compliant are currently expected to be less than $1.0 million. The Company believes that the Year 2000 Issue will not pose significant operational problems for the Company's computer systems and, therefore, will not have an impact on the operations of the Company. In addition, the Company reviews the computer systems of companies it intends to acquire in order to assess whether such systems are Year 2000 compliant. To the extent such systems are not Year 2000 compliant, the Company will develop an implementation plan to ensure such systems are Year 2000 compliant or will convert such systems to the Company's computer systems which are Year 2000 compliant. The Company has begun a comprehensive review of the computer systems related to the pending acquisitions of Whiteco, expected to close in the fourth quarter of 1998 and of LIN, expected to close in the first quarter of 1999. The Company is in the process of reviewing various modification and replacement plans related to the pending acquisitions of Whiteco and LIN. The costs associated with such efforts are not currently estimable; however, such costs may be material. There is no guarantee that the systems of companies to be acquired by the Company in the future will be timely converted and would not have an adverse effect on the operations of the Company. The ability of third parties with whom the Company transacts business to adequately address their Year 2000 issues is outside of the Company's control. Therefore, there can be no assurance that the failure of such third parties to adequately address their Year 2000 issues will not have a material adverse effect on the Company's business, financial condition, cash flows and results of operations. 38 39 PART II ITEM 1. LEGAL PROCEEDINGS In July 1998, a stockholder derivative action was commenced in the Delaware Court of Chancery by a stockholder purporting to act on behalf of the Company (the "Chancellor/LIN Stockholder Lawsuit"). The defendants in the case include Hicks, Muse, Tate & Furst, Inc. ("Hicks Muse"), LIN Television Corporation and certain of the Company's directors. The plaintiff alleges that, among other things, (1) Hicks Muse allegedly caused the Company to pay too high of a price for LIN because Hicks Muse had allegedly paid too high of a price for LIN when affiliates of Hicks Muse acquired it in March 1998, and (2) the transaction therefore constitutes a breach of fiduciary duty and a waste of corporate assets by Hicks Muse (which is alleged to control the Company) and the directors of the Company named as defendants. The plaintiff seeks to enjoin consummation or rescission of the transaction, compensatory damages, an order requiring that the directors named as defendants "carry out their fiduciary duties," and attorneys' fees and other costs. Although not final, plaintiff, defendants and Chancellor Media have tentatively agreed to settle the Chancellor/LIN Stockholder Lawsuit. Such settlement is subject to a number of conditions, including, but not limited to, preparing and finalizing definitive documentation and approval by the court. Pursuant to this settlement, (1) Hicks Muse and its affiliates agreed to vote all shares of Chancellor Media common stock that they control in favor of and opposed to the approval and adoption of the merger agreement in the same percentage as the other stockholders of Chancellor Media vote at the special meeting of stockholders called for that purpose, and (2) legal fees and documented expenses will be paid to plaintiff's counsel. In connection with settlement discussions, Chancellor Media and LIN provided counsel for the plaintiff an opportunity to review and comment on the disclosure in the joint proxy statement/prospectus relating to the LIN Merger. There can be no assurance that a settlement of the Chancellor/LIN Stockholder Lawsuit can be reached on these terms or any other terms. In September 1998, a stockholder class action complaint was filed in the Delaware Court of Chancery by a stockholder purporting to act individually and on behalf of all other persons (other than defendants) who own securities of the Company and are similarly situated. The defendants in the case are named as the Company, Hicks Muse, Thomas O. Hicks, Jeffrey A. Marcus, James E. de Castro, Eric C. Neuman, Lawrence D. Stuart, Jr., Steven Dinetz, Thomas J. Hodson, Perry Lewis, John H. Massey and Vernon E. Jordan, Jr. The plaintiff alleges breach of fiduciary duties, gross mismanagement, gross negligence or recklessness, and other matters relating to the defendants' actions in connection with the proposed Capstar Merger. The plaintiff seeks to certify the complaint as a class action, enjoin consummation of the Capstar Merger, order defendants to account to plaintiff and other alleged class members for damages, and award attorneys' fees and other costs. The Company believes that the lawsuit is without merit and intends to vigorously defend the action. The Company is also involved in various other claims and lawsuits which are generally incidental to its business. The Company is vigorously contesting all such matters and believes that their ultimate resolution will not have a material adverse effect on its consolidated financial position or results of operations. 39 40 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
EXHIBIT NO. DESCRIPTION OF EXHIBIT ------- ---------------------- 27.1+ -- Financial Data Schedule of Chancellor Media Corporation. 27.2+ -- Financial Data Schedule of Chancellor Media Corporation of Los Angeles.
- --------------- + Filed herewith. 40 41 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Chancellor Media Corporation Chancellor Media Corporation of Los Angeles By: /s/ THOMAS P. MCMILLIN By: /s/ THOMAS P. MCMILLIN ------------------------------------------------- ------------------------------------------------- Thomas P. McMillin Thomas P. McMillin Senior Vice-President and Senior Vice-President and Chief Financial Officer Chief Financial Officer
Date: February 11, 1999 41 42 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT ------- ---------------------- 27.1+ -- Financial Data Schedule of Chancellor Media Corporation. 27.2+ -- Financial Data Schedule of Chancellor Media Corporation of Los Angeles.
- --------------- + Filed herewith. EX-27.1 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 9/30/98 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000894972 CHANCELLOR MEDIA CORPORATION 9-MOS DEC-31-1997 JAN-01-1998 SEP-30-1998 13,063 0 334,393 13,002 0 376,797 367,583 67,677 6,025,095 177,472 3,018,000 0 409,500 1,424 0 6,025,095 899,096 899,096 116,466 892,359 0 0 135,709 28,199 32,507 (21,909) 0 47,089 0 (88,250) (0.65) (0.65)
EX-27.2 3 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 9/30/98 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0001043102 CHANCELLOR MEDIA CORPORATION OF LOS ANGELES 9-MOS DEC-31-1997 JAN-01-1998 SEP-30-1998 13,063 0 334,393 13,002 0 376,797 367,583 67,677 6,205,095 177,472 3,018,000 0 0 1 0 6,025,095 899,096 899,096 116,466 892,359 0 0 135,709 28,199 32,507 (4,308) 0 47,089 0 (68,998) 0 0
-----END PRIVACY-ENHANCED MESSAGE-----