-----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, KRcyQuDzVIFgbsXXpoaJ0DKOorTSUXochZxU9trlCfHQwguban60cWY2sI6Ivmo9 Qa+7AA9t04e0PrNvj9p7fw== 0001035704-03-000295.txt : 20030513 0001035704-03-000295.hdr.sgml : 20030513 20030513154740 ACCESSION NUMBER: 0001035704-03-000295 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMFM OPERATING INC CENTRAL INDEX KEY: 0000908612 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 133649750 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22486 FILM NUMBER: 03695564 BUSINESS ADDRESS: STREET 1: 600 CONGRESS AVENUE STREET 2: SUITE 1400 CITY: AUSTIN STATE: TX ZIP: 78701 BUSINESS PHONE: 5123407800 MAIL ADDRESS: STREET 1: 1845 WOODALL RODGERS FREEWAY STREET 2: SUITE 1300 CITY: DALLAS STATE: TX ZIP: 75201 FORMER COMPANY: FORMER CONFORMED NAME: CAPSTAR COMMUNICATIONS INC DATE OF NAME CHANGE: 19980603 FORMER COMPANY: FORMER CONFORMED NAME: SFX BROADCASTING INC DATE OF NAME CHANGE: 19930702 10-Q 1 d05863e10vq.txt FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended March 31, 2003 Commission file number 000-22486 AMFM OPERATING INC. (AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF CLEAR CHANNEL COMMUNICATIONS, INC.) (Exact name of registrant as specified in its charter) DELAWARE 13-3649750 (State of Incorporation) (I.R.S. Employer Identification No.) 200 EAST BASSE ROAD SAN ANTONIO, TEXAS 78209 (210) 822-2828 (Address and telephone number of principal executive offices) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No[ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [ ] No [X] Indicate the number of shares outstanding of each class of the issuer's classes of common stock, as of the latest practicable date: As of May 13, 2003, 1,040 shares of common stock of the Registrant's common stock were outstanding. The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this report with the reduced disclosure format. TABLE OF CONTENTS
Page No. -------- Part I -- Financial Information Item 1. Unaudited Financial Statements Consolidated Balance Sheets at March 31, 2003 and December 31, 2002 3 Consolidated Statements of Operations for three months ended March 31, 2003 and 2002 5 Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and 2002 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 4. Controls and Procedures 13 Part II -- Other Information Item 6. Exhibits and Reports on Form 8-K 14 (a) Exhibits (b) Reports on Form 8-K Signatures 14 Certifications 15 Index to Exhibits 17
PART I ITEM 1. UNAUDITED FINANCIAL STATEMENTS AMFM OPERATING INC. AND SUBSIDIARIES (an indirect, wholly-owned subsidiary of Clear Channel Communications, Inc.) CONSOLIDATED BALANCE SHEETS ASSETS (In thousands)
March 31, December 31, 2003 2002 (Unaudited) (Audited) ------------ ------------ Current Assets Accounts receivable, less allowance of $15,654 at March 31, 2003 and $14,911 at December 31, 2002 $ 366,906 $ 432,473 Other current assets 27,763 34,316 ------------ ------------ Total Current Assets 394,669 466,789 Property, Plant and Equipment Land, buildings and improvements 182,163 180,685 Transmitter and studio equipment 264,640 260,314 Furniture and other equipment 107,965 106,561 Construction in progress 31,677 33,058 ------------ ------------ 586,445 580,618 Less accumulated depreciation (115,815) (104,590) ------------ ------------ 470,630 476,028 Intangible Assets Definite-lived intangibles, net 157,314 160,038 Indefinite-lived intangibles - licenses 7,332,132 7,332,132 Goodwill 2,794,642 2,794,642 Other Assets Other assets 49,619 49,576 Other investments 5,084 5,084 ------------ ------------ Total Assets $ 11,204,090 $ 11,284,289 ------------ ------------
See Notes to Consolidated Financial Statements -3- AMFM OPERATING INC. AND SUBSIDIARIES (an indirect, wholly-owned subsidiary of Clear Channel Communications, Inc.) CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDER'S EQUITY (In thousands)
March 31, December 31, 2003 2002 (Unaudited) (Audited) ------------ ------------ Current Liabilities Accounts payable $ 27,460 $ 26,884 Accrued interest 22,228 10,714 Accrued expenses 82,903 107,059 ------------ ------------ Total Current Liabilities 132,591 144,657 Long-term debt 690,170 1,265,535 Clear Channel promissory note 690,997 300,000 Deferred income taxes 1,810,518 1,769,824 Other long-term liabilities 169,071 170,676 Shareholder's Equity Common stock 1 1 Additional paid-in capital 17,346,238 17,346,238 Retained deficit (9,635,496) (9,712,642) ------------ ------------ Total Shareholder's Equity 7,710,743 7,633,597 ------------ ------------ Total Liabilities and Shareholder's Equity $ 11,204,090 $ 11,284,289 ------------ ------------
See Notes to Consolidated Financial Statements -4- AMFM OPERATING INC. AND SUBSIDIARIES (an indirect, wholly-owned subsidiary of Clear Channel Communications, Inc.) CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In thousands)
Three Months Ended March 31, ------------------------------ 2003 2002 ------------ ------------ Revenue $ 438,458 $ 429,182 Operating Expenses: Divisional operating expenses (excludes non-cash compensation expense of $516 and $1,460, respectively) 253,346 247,219 Non-cash compensation expense 516 1,460 Depreciation and amortization 17,236 16,610 Corporate expenses 14,236 17,864 ------------ ------------ Operating income 153,124 146,029 Interest expense 25,985 32,111 Gain (loss) on marketable securities -- 3,991 Other income (expense) - net 2,518 6,387 ------------ ------------ Income before income taxes and cumulative effect of a change in accounting principle 129,657 124,296 Income tax benefit (expense) (52,511) (50,340) ------------ ------------ Income before cumulative effect of a change in accounting principle 77,146 73,956 Cumulative effect of a change in accounting principle, net of tax of $3,366,192 -- (9,379,265) ------------ ------------ Net income (loss) 77,146 (9,305,309) Other comprehensive income (loss), net of tax: Unrealized gain (loss) on securities: Unrealized holding gain (loss) arising during period -- 1,470 Reclassification adjustment for (gains) losses included in net income (loss) -- (2,475) ------------ ------------ Comprehensive income (loss) $ 77,146 $ (9,306,314) ------------ ------------
See Notes to Consolidated Financial Statements -5- AMFM OPERATING INC. AND SUBSIDIARIES (an indirect, wholly-owned subsidiary of Clear Channel Communications, Inc.) CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)
Three Months Ended March 31, ------------------------------ 2003 2002 ------------ ------------ NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 191,776 $ 181,199 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of marketable securities -- 11,827 Purchases of property, plant and equipment (7,127) (5,090) Proceeds from disposal of assets 179 -- Acquisitions of operating assets (3,291) (5,042) Other -- (135) ------------ ------------ Net cash provided by (used in) investing activities (10,239) 1,560 CASH FLOWS FROM FINANCING ACTIVITIES: (Payments on) proceeds from Clear Channel promissory note, net 390,997 (35,222) (Payments on) long-term debt (572,534) (151,258) ------------ ------------ Net cash provided by (used in) financing activities (181,537) (186,480) Increase (decrease) in cash and cash equivalents -- (3,721) Cash and cash equivalents at beginning of period -- 11,352 ------------ ------------ Cash and cash equivalents at end of period $ -- $ 7,631 ------------ ------------
See Notes to Consolidated Financial Statements -6- AMFM OPERATING INC. AND SUBSIDIARIES (an indirect, wholly-owned subsidiary of Clear Channel Communications, Inc.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Preparation of Interim Financial Statements AMFM Operating Inc. (the "Company"), together with its subsidiaries, is an indirect, wholly-owned subsidiary of Clear Channel Communications, Inc. ("Clear Channel"), a diversified media company with operations in radio broadcasting, outdoor advertising and live entertainment. The consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and, in the opinion of management, include all adjustments (consisting of normal recurring accruals and adjustments necessary for adoption of new accounting standards) necessary to present fairly the results of the interim periods shown. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such SEC rules and regulations. Management believes that the disclosures made are adequate to make the information presented not misleading. Due to seasonality and other factors, the results for the interim periods are not necessarily indicative of results for the full year. The financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 2002 Annual Report on Form 10-K. The consolidated financial statements include the accounts of the Company and its subsidiaries, the majority of which are wholly-owned. All significant intercompany transactions are eliminated in the consolidation process. Certain reclassifications have been made to the 2002 consolidated financial statements to conform to the 2003 presentation. Stock-Based Compensation The Company accounts for its stock-based award plans in accordance with Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, under which compensation expense is recorded to the extent that the market price on the grant date of the underlying stock exceeds the exercise price. The required pro forma net income as if the stock-based awards had been accounted for using the provisions of SFAS 123, Accounting for Stock-Based Compensation are as follows:
(In thousands) The three months ended March 31, -------------------------------- 2003 2002 ------------ ------------ Net income before cumulative effect of a change in accounting principle Reported $ 77,146 $ 73,956 Pro forma stock compensation expense, net of tax 836 578 ------------ ------------ Pro Forma $ 76,310 $ 73,378 ------------ ------------
The fair value for these options was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions for 2003 and 2002:
2003 2002 ---- ---- Risk-free interest rate 2.91% - 3.76% 2.85% - 5.33% Dividend yield 0% 0% Volatility factors 43% - 47% 36% - 49% Expected life in years 5.0 - 7.5 3.5 - 7.5
-7- Recent Accounting Pronouncements On January 1, 2003, the Company adopted Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations ("Statement 143"). Statement 143 applies to legal obligations associated with the retirement of long-lived assets that result from acquisition, construction, development and/or the normal operation of a long-lived asset. Adoption of this statement did not materially impact the Company's financial position or results of operations. On January 1, 2003, the Company adopted Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities ("Statement 146"). Statement 146 addresses the accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Terminations Benefits and Other Costs to Exit an Activity." It also substantially nullifies EITF Issue No. 88-10, "Costs Associated with Lease Modification or Termination." Adoption of this statement did not materially impact the Company's financial position or results of operations. On January 1, 2003, the Company adopted Financial Accounting Standards Board Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others ("the Interpretation"). The Interpretation applies to contracts or indemnification agreements that contingently require the guarantor to make payments to the guaranteed party based on changes in an underlying that is related to an asset, liability, or an equity security of the guaranteed party. The Interpretation's disclosure requirements were effective for financial statements of interim or annual periods ending after December 15, 2002. The Interpretation's initial recognition and initial measurement provisions were applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year-end. The Company adopted the disclosure requirements of this Interpretation for its 2002 annual report. Adoption of the initial recognition and initial measurement requirements of the Interpretation did not materially impact the Company's financial position or results of operations. Note 2: INTANGIBLE ASSETS AND GOODWILL Definite-lived Intangibles The Company's definite-lived intangibles consist of representation contracts for non-affiliated television and radio stations. These agreements are amortized over their respective lives. Total amortization expense from representation contracts for the three months ended March 31, 2003 and for the year ended December 31, 2002 was $5.7 million and $19.9 million, respectively. The gross carrying value of the contracts at March 31, 2003 was $201.5 million and accumulated amortization was $44.2 million. The gross carrying value of the contracts at December 31, 2002 was $198.5 million and accumulated amortization was $38.5 million. The following table presents the Company's estimate of amortization expense for each of the five succeeding fiscal years for definite-lived intangible assets:
(In thousands) 2004 $ 22,451 2005 21,301 2006 17,045 2007 12,934 2008 12,934
Indefinite-lived Intangibles Under the guidance in Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets ("Statement 142"), the Company's FCC licenses are considered indefinite-lived intangibles. These assets are not subject to amortization, but will be tested for impairment at least annually. In accordance with Statement 142, the Company tested these indefinite-lived intangible assets for impairment as of January 1, 2002 by comparing their fair value to their carrying value at that date. The Company recognized impairment on FCC licenses of approximately $5.5 billion, net of tax of $3.4 billion, recorded as a component of the cumulative effect of a change in accounting principle during the three months ended March 31, 2002. The Company -8- used the income approach to value FCC licenses, which involved estimating expected future cash flows from the licenses, discounted to their present value using a risk-adjusted discount rate. Terminal values were also estimated and discounted to their present value. In estimating future cash flows at January 1, 2002, the Company took into account the economic slowdown in the radio industry at the end of 2001, coupled with the economic impact of the events of September 11th. Goodwill Statement 142 requires the Company to test goodwill for impairment using a two-step process. The first step is a screen for potential impairment, while the second step measures the amount of impairment. The Company completed the two-step impairment test during the first quarter of 2002. As a result of this test, the Company recognized an impairment of approximately $3.9 billion as a component of the cumulative effect of a change in accounting principle during the three months ended March 31, 2002. Consistent with the Company's approach to fair value FCC licenses, the income approach was used to determine the fair value of the Company's reporting unit. Throughout 2001, unfavorable economic conditions persisted in the industries that the Company serves, which caused its customers to reduce the number of advertising dollars spent on the Company's media inventory as compared to prior periods. These conditions adversely impacted the cash flow projections used to determine the fair value of the Company's reporting unit, resulting in a write-off of a portion of goodwill. There was no change in the Company's goodwill balance from December 31, 2002 to March 31, 2003. Note 3: RESTRUCTURING The Company has recorded a liability in purchase accounting from its merger with Clear Channel in 2000 ("AMFM Merger"), that relates to severance for terminated employees and lease terminations as follows:
(In thousands) March 31, December 31, 2003 2002 ------------ ------------ Severance and lease termination costs: Accrual at January 1 $ 29,450 $ 36,310 Payments charged against restructuring accrual (939) (6,860) ------------ ------------ Remaining severance and lease termination accrual $ 28,511 $ 29,450 ------------ ------------
The remaining severance and lease accrual is comprised of $21.0 million of severance and $7.5 million of lease termination. The severance accrual will be paid over the next several years. The lease termination accrual will be paid over the next four years. During the first quarter of 2003, $.6 million was paid and charged to the restructuring accrual related to severance. As the Company made adjustments to finalize the purchase price allocation related to the AMFM Merger during 2001, any potential excess reserves will be recorded as an adjustment to the purchase price. Note 4: CLEAR CHANNEL PROMISSORY NOTE AND LONG-TERM DEBT Long-term debt consists of the following:
(In millions) March 31, December 31, 2003 2002 ------------ ------------ Clear Channel Promissory Note $ 691.0 $ 300.0 ------------ ------------ Long-Term Debt: 8% Senior Notes 690.2 690.8 8.125% Notes -- 380.2 8.75% Notes -- 194.5 ------------ ------------ 690.2 1,265.5 Less: Current portion -- -- ------------ ------------ Total long-term debt (a) $ 690.2 $ 1,265.5 ------------ ------------
-9- (a) Includes $18.9 million and $44.6 million as of March 31, 2003 and December 31, 2002, respectively, in unamortized fair value purchase accounting adjustments related to the merger with Clear Channel. The fair value of the Company's long-term debt was $758.6 million and $1.2 billion at March 31, 2003 and December 31, 2002, respectively. Clear Channel Promissory Note The promissory note bears interest at 7% per annum. Accrued interest plus the note balance is payable on August 30, 2010 or upon demand. The Company is entitled to borrow additional funds and to repay outstanding borrowings, subject to the terms of the promissory note. Clear Channel currently has no intention of demanding payment on this note prior to its maturity. On February 10, 2003, Clear Channel called all of the Company's outstanding 8.125% senior subordinated notes due 2007 for $379.2 million plus accrued interest. On February 18, 2003, Clear Channel called all of the Company's outstanding 8.75% senior subordinated notes due 2007 for $193.4 million plus accrued interest. The Company financed the redemption of the notes through borrowings on the Clear Channel promissory note. As a result of the redemption, a gain on the early extinguishment of debt of $1.6 million was recorded during the three months ended March 31, 2003 in Other income (expense) - net. 8% Senior Notes On November 17, 1998, the Company issued $750.0 million aggregate principal amount of 8% senior notes due 2008 (the "8% senior notes"). Interest on the 8% senior notes is payable semiannually, commencing on May 1, 1999. The 8% senior notes mature on November 1, 2008 and are redeemable, in whole or in part, at the option of the Company at a redemption price equal to 100% plus the applicable premium (as defined in the indenture governing the 8% senior notes) plus accrued and unpaid interest. Upon the occurrence of a change in control (as defined in the indenture governing the 8.0% senior notes), the holders of the notes have the right to require the Company to repurchase all or any part of the notes at a purchase price equal to 101% plus accrued and unpaid interest. Other The 8% senior notes are senior unsecured obligations of the Company and rank equal in right of payment to the obligations of the Company and all other indebtedness of the Company not expressly subordinated to the 8% senior notes. The 8% senior notes are fully and unconditionally guaranteed, on a joint and several basis, by all of the Company's direct and indirect subsidiaries. The Company's 8% senior notes contain customary restrictive covenants, which, among other things and with certain exceptions, limit the ability of the Company 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. Under the 8% senior notes, the Company had approximately $7.2 billion available for restricted payments at March 31, 2003. The redemptions of the 8.125% notes and 8.75% notes in February 2003 were restricted payments under the 8% senior notes. At March 31, 2003, the Company was in compliance with all debt covenants. The Company expects to be in compliance throughout 2003. The Company has no scheduled maturities of long-term debt until 2008. Note 5: COMMITMENTS, CONTINGENCIES AND GUARANTEES The Company has guaranteed a portion of Clear Channel's bank credit facilities including a reducing revolving line of credit facility, a $1.5 billion five-year multi-currency revolving credit facility and a $1.5 billion three-year term loan with outstanding balances at March 31, 2003, of $-0- million, $1.6 million, and $1.5 billion, respectively. At March 31, 2003, the contingent liability under these guarantees was $1.0 billion. -10- From time to time, claims are made and lawsuits are filed against the Company, arising out of the ordinary business of the Company. In the opinion of the Company's management, liabilities, if any, arising from these actions are either covered by insurance or accrued reserves, or would not have a material adverse effect on the financial condition of the Company. Note 6: SEGMENT DATA The Company has one reportable operating segment - radio broadcasting. The Company's media representation firm is reported in "other". Revenue and expenses earned and charged between segments are recorded at fair value and eliminated in consolidation.
(In thousands) Radio Broadcasting Other Corporate Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ Quarter ended March 31, 2003 Revenue $ 401,458 $ 42,891 $ -- $ (5,891) $ 438,458 Divisional operating expenses 220,952 38,285 -- (5,891) 253,346 Non-cash compensation 516 -- -- -- 516 Depreciation and amortization 9,395 7,164 677 -- 17,236 Corporate expenses -- -- 14,236 -- 14,236 ------------ ------------ ------------ ------------ ------------ Operating income $ 170,595 $ (2,558) $ (14,913) $ -- $ 153,124 ------------ ------------ ------------ ------------ ------------ Identifiable assets $ 10,891,897 $ 232,862 $ 79,331 $ -- $ 11,204,090 Quarter ended March 31, 2002 Revenue $ 394,953 $ 40,452 $ -- $ (6,223) $ 429,182 Divisional operating expenses 214,076 39,366 -- (6,223) 247,219 Non-cash compensation 1,460 -- -- -- 1,460 Depreciation and amortization 10,111 5,691 808 -- 16,610 Corporate expenses -- -- 17,864 -- 17,864 ------------ ------------ ------------ ------------ ------------ Operating income $ 169,306 $ (4,605) $ (18,672) $ -- $ 146,029 ------------ ------------ ------------ ------------ ------------ Identifiable assets $ 10,840,973 $ 292,562 $ 82,206 $ -- $ 11,215,741
-11- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Abbreviated pursuant to General Instruction H(2)(a) of Form 10-Q) RESULTS OF OPERATIONS Comparison of Three Months Ended March 31, 2003 to Three Months Ended March 31, 2002 is as follows: CONSOLIDATED
(In thousands) Three Months Ended March 31, ----------------------------- % Change 2003 2002 2003 v. 2002 ------------ ------------ ------------ Revenue $ 438,458 $ 429,182 2% Divisional Operating Expenses 253,346 247,219 2%
Revenue increased $9.3 million for the three months ended March 31, 2003 compared to the same period of 2002. Our top 25 markets grew revenue 2% during the current quarter as compared to the same quarter of the prior year. During the three months ended March 31, 2003, our national revenue grew faster than our local revenue as compared to 2002. Strong national revenue categories in the first quarter of 2003 were retail, telecom/utility, entertainment, auto and finance. We also saw stronger revenues in our national syndication business. Divisional operating expenses increased $6.1 million for the three months ended March 31, 2003 compared to the same period of 2002. The increase was driven by variable expense increases associated with the increase in revenue. Other Income and Expense Information Non-cash compensation expense relates to unvested stock options granted to our employees that have been assumed by Clear Channel and that are now convertible into Clear Channel stock. To the extent that these employees' options continue to vest post-merger, we recognize non-cash compensation expense over the remaining vesting period. Vesting dates vary through April 2005. If no employees forfeit their unvested options by leaving the company, we expect to recognize non-cash compensation expense of approximately $2.3 million during the remaining vesting period. Interest expense decreased $6.1 million during the first quarter of 2003 compared to the same period of 2002 due to the decrease in our total debt outstanding. In February 2003, we redeemed all of the 8.125% notes and all of the 8.75% notes. During the three months ended March 31, 2002, a $4.0 million gain on sale of assets related to mergers was recorded relating to the sale of 791,000 shares of Entravision Corporation that we acquired in the AMFM merger. Other income (expense) - net was income of $2.5 million and $6.4 million for the three months ended March 31, 2003 and 2002, respectively. The income recognized during 2003 relates to a $1.6 million gain on the early extinguishment of debt and a $.9 million gain on the sale of representation contracts. The income recognized in 2002 primarily related to a $6.2 million gain on the early extinguishment of debt. The loss recorded as a cumulative effect of a change in accounting principle during the first three months of 2002 relates to our adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets ("Statement 142") on January 1, 2002. Statement 142 requires us to test goodwill and indefinite-lived intangibles for impairment using a fair value approach. As a result of the goodwill test, we recorded a non-cash impairment charge of approximately $3.9 billion. Also, as a result of the indefinite-lived intangible test, we recorded a non-cash, net of tax impairment charge on our FCC licenses of approximately $5.5 billion. The non-cash impairments of our goodwill and FCC licenses were primarily caused by unfavorable economic conditions, which persisted in the industries we serve throughout 2001. This weakness contributed to our -12- customers reducing the number of advertising dollars spent on our media inventory. These conditions adversely impacted the cash flow projections used to determine the fair value of our licenses and reporting unit. These factors resulted in the non-cash impairment charge of a portion of our licenses and goodwill. Caution Concerning Forward Looking Statements The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by us or on our behalf. Except for the historical information, this report contains various forward-looking statements which represent our expectations or beliefs concerning future events, including the future levels of cash flow from operations. Management believes that all statements that express expectations and projections with respect to future matters, including the strategic fit of radio assets, expansion of market share, and the availability of capital resources are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. We caution that these forward-looking statements involve a number of risks and uncertainties and are subject to many variables which could impact our financial performance. These statements are made on the basis of management's views and assumptions, as of the time the statements are made, regarding future events and business performance. There can be no assurance, however, that management's expectations will necessarily come to pass. A wide range of factors could materially affect future developments and performance, including: o the impact of general economic conditions in the U.S. and in other countries in which we currently do business; o the impact of the geopolitical environment; o our ability to integrate the operations of recently acquired companies; o shifts in population and other demographics; o industry conditions, including competition; o fluctuations in operating costs; o technological changes and innovations; o changes in labor conditions; o capital expenditure requirements; o litigation settlements; o legislative or regulatory requirements; o interest rates; o the effect of leverage on our financial position and earnings; o taxes; o access to capital markets; and o certain other factors set forth in our filings with the Securities and Exchange Commission ("SEC"). This list of factors that may affect future performance and the accuracy of forward-looking statements is illustrative, but by no means exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Omitted pursuant to General Instruction H(2)(c) of Form 10-Q. ITEM 4. CONTROLS AND PROCEDURES Our principal executive and financial officers have concluded, based on their evaluation as of a date within 90 days before the filing of this Form 10-Q, that our disclosure controls and procedures under Rule 13a-14 of the Securities Exchange Act of 1934 are effective to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and include controls and procedures designed to ensure that information we are required to disclose in such reports is accumulated and communicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure. Subsequent to our evaluation, there were no significant changes in internal controls or other factors that could significantly affect these internal controls. -13- PART II -- OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. See Exhibit Index on Page 17 (b) Reports on Form 8-K NONE SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMFM OPERATING INC. May 13, 2003 /s/ RANDALL T. MAYS ------------------------------ Randall T. Mays Executive Vice President and Chief Financial Officer May 13, 2003 /s/ HERBERT W. HILL, JR. ------------------------------ Herbert W. Hill, Jr. Senior Vice President and Chief Accounting Officer -14- CERTIFICATION I, L. Lowry Mays, Chairman and Chief Executive Officer of AMFM Operating Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of AMFM Operating Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 /s/ L. LOWRY MAYS - --------------------------------------- L. Lowry Mays Chairman and Chief Executive Officer -15- CERTIFICATION I, Randall T. Mays, Executive Vice President and Chief Financial Officer of AMFM Operating Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of AMFM Operating Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 /s/ RANDALL T. MAYS - --------------------------------------- Randall T. Mays Executive Vice President and Chief Financial Officer -16- INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT - ------- ---------------------- 3.1(1) -- Amended and Restated Certificate of Incorporation of AMFM Operating Inc. 3.2(2) -- Bylaws of AMFM Operating Inc. 4.1(3) -- Certificate of Designation for 12 5/8% Series E Cumulative Exchangeable Preferred Stock of AMFM Operating Inc. 4.2(4) -- Certificate of Amendment to Certificate of Designation for 12 5/8% Series E Cumulative Exchangeable Preferred Stock of AMFM Operating Inc. 4.4(5) -- Indenture, dated as of June 24, 1997, governing the 8 3/4% Senior Subordinated Notes due 2007 of AMFM Operating Inc. (the "8 3/4% Notes Indenture"). 4.5(6) -- First Supplemental Indenture, dated as of September 5, 1997, to the 8 3/4% Notes Indenture. 4.6(7) -- Second Supplemental Indenture, dated as of October 28, 1997, to the 8 3/4% Notes Indenture. 4.7(7) -- Third Supplemental Indenture, dated as of August 23, 1999, to the 8 3/4% Notes Indenture. 4.8(7) -- Fourth Supplemental Indenture, dated as of November 19, 1999, to the 8 3/4% Notes Indenture. 4.9(7) -- Fifth Supplemental Indenture, dated as of January 18, 2000, to the 8 3/4% Notes Indenture. 4.10(8) -- Indenture, dated as of December 22, 1997, governing the 8 1/8% Senior Subordinated Notes due 2007 of AMFM Operating Inc. (the "8 1/8% Notes Indenture"). 4.11(7) -- First Supplemental Indenture, dated as of August 23, 1999, to the 8 1/8% Notes Indenture. 4.12(7) -- Second Supplemental Indenture, dated as of November 19, 1999, to the 8 1/8% Notes Indenture. 4.13(7) -- Third Supplemental Indenture, dated as of January 18, 2000, to the 8 1/8% Notes Indenture. 4.14(9) -- Indenture, dated as of November 17, 1998, governing the 8% Senior Notes due 2008 of AMFM Operating Inc. (the "8% Notes Indenture"). 4.15(7) -- First Supplemental Indenture, dated as of August 23, 1999, to the 8% Notes Indenture. 4.16(7) -- Second Supplemental Indenture, dated as of November 19, 1999, to the 8% Notes Indenture. 4.17(7) -- Third Supplemental Indenture, dated as of January 18, 2000, to the 8% Notes Indenture. 4.18(10) -- Intercompany Promissory Note between AMFM Operating Inc. and Clear Channel Communications, Inc. dated August 30, 2000. 10.1(11) -- Stock Option Grant Agreement, dated July 13, 1999, by and between AMFM Inc. and HMCo for 335,099 shares. 10.2(11) -- Stock Option Grant Agreement, dated July 13, 1999, by and between AMFM Inc. and HMCo for 634,517 shares.
-17- 99.1 -- Certification of Chief Executive Officer 99.2 -- Certification of Chief Financial Officer
- ---------- (1) Incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q of Capstar Communications, Inc. for the quarterly period ending June 30, 1999. (2) Incorporated by reference to Exhibits to SFX Broadcasting, Inc.'s Registration Statement on Form S-3, initially filed November 4, 1996, as amended (Registration Number 333-15469). (3) Incorporated by reference to Exhibits to the Current Report on Form 8-K of SFX Broadcasting, Inc., filed on January 27, 1997. (4) Incorporated by reference to Exhibits to SFX Broadcasting, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1997. (5) Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of Chancellor Broadcasting Company and Chancellor Radio Broadcasting Company filed on July 17, 1997. (6) Incorporated by reference to Exhibits to Chancellor Media Corporation of Los Angeles's Registration Statement on Form S-4, initially filed on September 26, 1997, as amended (Registration Number 333-36451). (7) Incorporated by reference to Exhibits to the Annual Report on Form 10-K of AMFM Inc. for the year ended December 31, 1999. (8) Incorporated by reference to Exhibits to Chancellor Media Corporation of Los Angeles's Registration Statement on Form S-4, initially filed on April 22, 1998, as amended (Registration Number 333-50739). (9) Incorporated by reference to Exhibits to Chancellor Media Corporation of Los Angeles's Registration Statement on Form S-4, initially filed on November 9, 1998, as amended (Registration Number 333-66971). (10) The Company has not filed long-term debt instruments where the total amount under such instruments is less than ten percent of the total assets of the Company and its subsidiaries on a consolidated basis. However, the Company will furnish a copy of such instruments to the Commission upon request. (11) Incorporated by reference to Exhibits to Amendment No. 6 to Schedule 13D of Thomas O. Hicks, et. al., filed on October 14, 1999. -18- EX-99.1 3 d05863exv99w1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 99.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and accompanies the quarterly report on Form 10-Q (the "Form 10-Q") for the quarter ended March 31, 2003 of AMFM Operating Inc. (the "Issuer"). The undersigned hereby certifies that the Form 10-Q fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78(o)(d)) and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Dated: May 13, 2003 By: /s/ L. LOWRY MAYS ---------------------- Name: L. Lowry Mays Title: Chairman and Chief Executive Officer EX-99.2 4 d05863exv99w2.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 99.2 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and accompanies the quarterly report on Form 10-Q (the "Form 10-Q") for the quarter ended March 31, 2003 of AMFM Operating Inc. (the "Issuer"). The undersigned hereby certifies that the Form 10-Q fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78(o)(d)) and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Dated: May 13, 2003 By: /s/ RANDALL T MAYS ---------------------- Name: Randall T. Mays Title: Executive Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----