-----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, PWsxrM6GutDBUW1usVJ9WVa215Hugpj/gJBur2DBxUJ/5JVaVTU4CgCbvjQInGYM JoPZf7bI/yZ7qHcTLtTaFw== 0000950134-97-004064.txt : 19970520 0000950134-97-004064.hdr.sgml : 19970520 ACCESSION NUMBER: 0000950134-97-004064 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHANCELLOR BROADCASTING CO /DE/ CENTRAL INDEX KEY: 0001002909 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 752538487 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27726 FILM NUMBER: 97609433 BUSINESS ADDRESS: STREET 1: 12655 N CENTRAL EXPRESSWAY STREET 2: SUITE 405 CITY: DALLAS STATE: TX ZIP: 75243 BUSINESS PHONE: 9722396220 MAIL ADDRESS: STREET 1: 12655 N CENTRAL EXPRESSWAY STE 405 CITY: DALLAS STATE: TX ZIP: 75243 FORMER COMPANY: FORMER CONFORMED NAME: CHANCELLOR CORP/DE DATE OF NAME CHANGE: 19951031 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHANCELLOR RADIO BROADCASTING CO CENTRAL INDEX KEY: 0000925744 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 752544623 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-80534 FILM NUMBER: 97609434 BUSINESS ADDRESS: STREET 1: 12655 N CENTRAL EXPRESSWY STREET 2: STE 405 CITY: DALLAS STATE: TX ZIP: 75243 BUSINESS PHONE: 2142396220 MAIL ADDRESS: STREET 2: 12655 N CENTRAL EXPWY SUITE 405 CITY: DALLAS STATE: TX ZIP: 75243 FORMER COMPANY: FORMER CONFORMED NAME: CHANCELLOR BROADCASTING CO DATE OF NAME CHANGE: 19940621 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHANCELLOR BROADCASTING LICENSEE CO CENTRAL INDEX KEY: 0000925752 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 752544625 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-80534-01 FILM NUMBER: 97609435 BUSINESS ADDRESS: STREET 1: 12655 N CENTRAL EXPWY STREET 2: SUITE 405 CITY: DALLAS STATE: TX ZIP: 75243 BUSINESS PHONE: 2142396220 MAIL ADDRESS: STREET 1: 12655 N CENTRAL EXPRESSWAY STREET 2: SUITE 405 CITY: DALLAS STATE: TX ZIP: 75243 10-Q 1 FORM 10-Q FOR QUARTER ENDED MARCH 31, 1997 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997 Commission File No. 0-27726 Commission File No. 33-80534 Commission File No. 33-80534 CHANCELLOR BROADCASTING CHANCELLOR RADIO CHANCELLOR BROADCASTING COMPANY BROADCASTING COMPANY LICENSEE COMPANY (Exact Name of Registrant (Exact Name of Registrant (Exact Name of Registrant as Specified in Its Charter) as Specified in Its Charter) as Specified in Its Charter) DELAWARE DELAWARE DELAWARE (State or other jurisdiction of (State or other jurisdiction of (State or other jurisdiction of incorporation or organization) incorporation or organization) incorporation or organization) 75-2538487 75-2544623 75-2544625 (I.R.S. Employer Identification (I.R.S. Employer Identification (I.R.S. Employer Identification Number) Number) Number)
12655 N. CENTRAL EXPRESSWAY, SUITE 405, DALLAS, TEXAS 75243 (Address of Principal Executive Offices, Including Zip Code) AREA CODE (972) 239-6220 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company and Chancellor Broadcasting Licensee Company (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 registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of May 15, 1997, 10,437,212 shares of the Class A Common Stock, par value $.01 per share and 8,547,910 shares of the Class B Common Stock, par value $.01 per share of Chancellor Broadcasting Company were outstanding. As of May 15, 1997, 1,000 shares of common stock, par value $.01 per share, of Chancellor Radio Broadcasting Company and 1,000 shares of common stock, par value $.01 per share, of Chancellor Broadcasting Licensee Company were outstanding. ================================================================================ 2 TABLE OF CONTENTS
PAGE PART I FINANCIAL INFORMATION ---- ITEM 1. FINANCIAL STATEMENTS CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES Consolidated Balance Sheets as of December 31, 1996 and March 31, 1997 ................................................................... 1 Consolidated Statements of Operations for the three months ended March 31, 1996 and 1997 .......................................................... 2 Consolidated Statements of Changes in Stockholders' Equity for the three months ended March 31, 1997 ........................................ 3 Consolidated Statements of Cash Flows for the three months ended March 31, 1996 and 1997 .................................................... 4 Notes to Consolidated Financial Statements ....................................... 5 CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES Consolidated Balance Sheets as of December 31, 1996 and March 31, 1997 ................................................................... 9 Consolidated Statements of Operations for the three months ended March 31, 1996 and 1997 .......................................................... 10 Consolidated Statements of Changes in Stockholder's Equity for the three months ended March 31, 1997 ............................................ 11 Consolidated Statements of Cash Flows for the three months ended March 31, 1996 and 1997 .................................................... 12 Notes to Consolidated Financial Statements ....................................... 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS .................................................. 17 PART II OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES ................................................................ 20 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ..................................................... 20
3 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
DECEMBER 31, MARCH 31, ASSETS 1996 1997 ----------- ----------- Current assets: Cash ...................................................................... $ 3,789 $ 4,982 Accounts receivable, net of allowance for doubtful accounts of $1,024 and $1,308, respectively ...................................... 46,585 53,037 Prepaid expenses and other ................................................ 2,754 3,260 ----------- ----------- Total current assets ................................................. 53,128 61,279 Restricted cash ............................................................ 20,363 53,750 Property and equipment, net ................................................. 49,123 68,180 Intangibles and other, net .................................................. 551,406 978,094 Deferred financing costs, net ............................................... 16,723 14,420 ----------- ----------- Total assets ......................................................... $ 690,743 $ 1,175,723 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable .......................................................... $ 4,409 $ 5,280 Accrued liabilities ....................................................... 12,530 16,402 Accrued interest .......................................................... 6,869 2,011 Current portion of long-term debt ......................................... 400 12,500 ----------- ----------- Total current liabilities ............................................ 24,208 36,193 Long-term debt .............................................................. 354,914 524,121 Deferred income taxes........................................................ 2,606 373 Other ....................................................................... 802 786 ----------- ----------- Total liabilities .................................................... 382,530 561,473 ----------- ----------- Redeemable senior cumulative exchangeable preferred stock of subsidiary, par value $.01 per share; 1,000,000 shares authorized, issued and outstanding; preference in liquidation of $112,451,803......... 107,222 110,695 Redeemable cumulative exchangeable preferred stock of subsidiary, par value $.01 per share; none and 3,600,000 shares authorized, respectively, none and 2,000,000 shares issued and outstanding, respectively; preference in liquidation of $200,000,000................... -- 196,479 Convertible cumulative preferred stock, par value $.01 per share; none and 2,200,000 shares authorized, issued and outstanding, respectively; preference in liquidation of $110,000,000.................................... -- 107,001 Common stockholders' equity: Class A common stock, par value $.01 per share, 40,000,000 shares authorized, 9,937,320 and 10,492,876 shares issued, respectively, and 9,881,656 and 10,437,212 shares outstanding, respectively ........... 99 104 Class B common stock, par value $.01 per share, 10,000,000 shares authorized and 8,547,910 shares issued and outstanding .................. 85 85 Additional paid-in capital ................................................ 231,931 246,442 Accumulated deficit ....................................................... (30,086) (45,518) Treasury stock ............................................................ (1,038) (1,038) ----------- ----------- Total stockholders' equity ........................................... 200,991 200,075 ----------- ----------- Total liabilities and stockholders' equity ........................... $ 690,743 $ 1,175,723 =========== ===========
The accompanying notes are an integral part of the financial statements. 1 4 CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
THREE MONTHS ENDED MARCH 31, -------------------------------- 1996 1997 ------------- -------------- Gross broadcasting revenues ................................................. $ 29,089 $ 63,477 Less agency commissions ..................................................... 3,447 7,623 ------------- -------------- Net revenues ......................................................... 25,642 55,854 ------------- -------------- Operating expenses: Programming, technical and news ........................................... 5,145 13,871 Sales and promotion ....................................................... 6,943 15,963 General and administrative ................................................ 4,404 8,353 Depreciation and amortization ............................................. 4,525 8,109 Corporate expenses ........................................................ 1,008 1,712 Merger expense............................................................. -- 2,056 Stock option compensation ................................................. 950 950 ------------- -------------- 22,975 51,014 ------------- -------------- Income from operations ............................................... 2,667 4,840 Other (income) expense: Interest expense .......................................................... 7,647 11,420 Other, net ................................................................ 6 (1,632) ------------- -------------- Loss before provision for income taxes, minority interest and extraordinary loss ................................................. (4,986) (4,948) Provision for income taxes .................................................. 939 (400) Dividends and accretion on preferred stock of subsidiary .................... 1,660 8,135 ------------- -------------- Loss before extraordinary loss ....................................... (7,585) (12,683) Extraordinary loss on early extinguishment of debt, net of income tax benefit ...................................................... 4,646 2,749 ------------- -------------- Net loss ............................................................. (12,231) (15,432) Loss on repurchase of preferred stock........................................ 16,570 -- Dividends and accretion on preferred stock................................... -- 1,454 ------------- -------------- Net loss attributable to common stock ................................ $ (28,801) $ (16,886) ============= ============== Loss applicable to common stock: Loss before extraordinary loss ............................................ $ (1.83) $ (.75) Extraordinary loss ........................................................ $ (0.35) $ (.15) ------------- -------------- Net loss .................................................................. $ (2.18) $ (.90) ============= ============== Weighted average number of shares outstanding ............................... 13,191,626 18,719,690 ============= ==============
The accompanying notes are an integral part of the financial statements. 2 5 CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (DOLLARS IN THOUSANDS)
CLASS A CLASS B ADDITIONAL COMMON STOCK COMMON STOCK PAID-IN ACCUMULATED TREASURY SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT STOCK TOTAL ---------- ------ --------- ------ --------- -------- ------- --------- Balance, January 1, 1997 .. 9,881,656 $ 99 8,547,910 $85 $ 231,931 $(30,086) $(1,038) $ 200,991 Stock option compensation . -- -- -- -- 950 -- -- 950 Dividends and accretion on Preferred stock ........ -- -- -- -- (1,454) -- -- (1,454) Issuance of common stock on February 13, 1997 ...... 555,556 5 -- -- 15,015 -- -- 15,020 Net loss .................. -- -- -- -- -- (15,432) -- (15,432) ---------- ------ --------- --- --------- -------- ------- --------- Balance, March 31, 1996 ... 10,437,212 $ 104 8,547,910 $85 $ 246,442 $(45,518) $(1,038) $ 200,075 ========== ====== ========= === ========= ======== ======= =========
The accompanying notes are an integral part of the financial statements. 3 6 CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, -------------------------- 1996 1997 ----------- ----------- Cash flows from operating activities: Net loss ...................................................................... $ (12,231) $ (15,432) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............................................... 4,525 8,109 Amortization of deferred financing costs .................................... 502 610 Stock option compensation ................................................... 950 950 Deferred income taxes ....................................................... 939 (400) Dividends and accretion on preferred stock .................................. 1,660 8,135 Gain on disposition of stations ............................................ -- (1,513) Extraordinary loss .......................................................... 4,646 2,749 Changes in assets and liabilities, net of the effects of acquired businesses: Accounts receivable, net .................................................. 2,949 6,774 Prepaids and other ........................................................ 58 14 Accounts payable .......................................................... 761 (530) Accrued liabilities ....................................................... 458 1,437 Accrued interest .......................................................... 3,568 (4,858) ----------- ----------- Net cash provided by operating activities ............................... 8,785 6,045 ----------- ----------- Cash flows from investing activities: Purchases of broadcasting properties .......................................... (405,566) (582,327) Dispositions of broadcasting properties ....................................... -- 103,259 Purchases of other property and equipment ..................................... (820) (1,564) ----------- ----------- Net cash used in investing activities ................................... (406,386) (480,632) ----------- ----------- Cash flows from financing activities: Proceeds from issuance of long-term debt ...................................... 277,958 222,111 Proceeds from borrowings under revolving debt facility ........................ 28,609 170,433 Repayments of long-term debt .................................................. (89,785) (74,968) Repayments of borrowings under revolving debt facility ........................ (52,250) (139,157) Issuances of preferred stock .................................................. 175,390 297,361 Repurchase of preferred stock of subsidiary ................................... (95,462) -- Issuance of common stock ...................................................... 155,886 -- Repurchase of common stock .................................................... (1,038) -- Payment of preferred stock dividends .......................................... (506) -- ----------- ----------- Net cash provided by financing activities ............................... 398,802 475,780 ----------- ----------- Net increase in cash .................................................... 1,201 1,193 Cash, at beginning of period .................................................... 1,314 3,789 ----------- ----------- Cash, at end of period .......................................................... $ 2,515 $ 4,982 =========== ===========
The accompanying notes are an integral part of the financial statements. 4 7 CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Chancellor Broadcasting Company ("Chancellor") and its subsidiaries (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. Certain prior year amounts have been reclassified to conform with the current year's presentation, which had no effect on net income or stockholders' equity. 2. ACQUISITIONS AND DISPOSITIONS On January 23, 1997, the Company acquired substantially all the assets and certain liabilities of Colfax Communications, Inc. and its affiliates ("Colfax") for an aggregate price of $383.7 million. Liabilities assumed were limited to certain ongoing contractual rights and obligations. The acquisition was accounted for as a purchase. Pursuant to the acquisition agreement, at December 31, 1996 the Company had $20.4 million of cash in a restricted escrow account which was remitted to Colfax at closing. On January 29, 1997, the Company entered into an agreement to sell WMIL-FM and WOKY-AM, Milwaukee, Wisconsin stations acquired in this transaction, to Clear Channel Radio, Inc. for $41.3 million in cash. Accordingly, theses stations were recorded as assets held for sale with no results of operations or gain or loss recognized. Interest capitalized on this investment amounted to $580,000. The disposition of these stations was completed on March 31, 1997. The acquisition is summarized as follows (in thousands): Assets acquired and liabilities assumed: Accounts receivable, net................................ $ 13,234 Prepaid and other assets................................ 470 Property and equipment.................................. 14,624 Goodwill and other intangibles.......................... 317,894 Other noncurrent assets................................. 46 Assets held for sale.................................... 41,253 Accrued liabilities..................................... (3,821) ------------ $ 383,700 ============
On January 30, 1997, the Company completed the sale of WWWW-FM and WDFN-AM to Evergreen Media Corporation ("Evergreen") for $30.0 million in cash. The pre-tax gain of $1.5 million is included in other income. On February 13, 1997, the Company acquired substantially all the assets and certain liabilities of OmniAmerica Group ("Omni") for $166.0 million of cash and $15.0 million of Chancellor Class A Common Stock. Liabilities assumed were limited to certain ongoing contractual rights and obligations. The acquisition was accounted for as a purchase. The acquisition is summarized as follows (in thousands): Assets acquired and liabilities assumed: Property and equipment.................................. $ 9,209 Goodwill and other intangibles.......................... 171,837 ------------- $ 181,046 =============
On February 19, 1997, Chancellor and Chancellor Radio Broadcasting entered into an agreement to merge with Evergreen in a stock-for-stock transaction (the "Merger"), with Evergreen remaining as the surviving corporation. Pursuant to the agreement, shareholders of the Company's common stock will receive 0.9091 shares of Evergreen's common stock. Consummation of the merger is subject to shareholder approval and certain other 5 8 CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) closing conditions including regulatory approval. The Company has incurred $2.1 million of merger costs which have been expensed in the current period. On February 19, 1997, the Company and Evergreen entered into a joint purchase agreement whereby in the event that consummation of the stock purchase agreement between Evergreen and Viacom International, Inc. ("Viacom") occurs prior to the consummation of the Merger, the Company will be required to purchase the Viacom subsidiaries which own four of the ten Viacom stations for $480.0 million, plus net working capital, and Evergreen will be required to purchase the Viacom subsidiaries which own six of the ten Viacom stations for $595.0 million plus net working capital. In the event that consummation of the stock purchase agreement between Evergreen and Viacom occurs after the consummation of the Merger, the Surviving Company will acquire the stock of certain Viacom subsidiaries which own and operate ten radio stations in five major markets. Consummation of the transaction is dependent upon certain closing conditions, including regulatory approval. On March 24, 1997, the Company exchanged the West Palm Beach stations acquired from Omni for one AM station in Sacramento, California and approximately $33.0 million in cash from American Radio Systems Corporation (the "American Radio Exchange"). The following summarizes the unaudited consolidated pro forma data as though the acquisitions of Shamrock Broadcasting Company, KIMN-FM and KALC-FM, Colfax, Omni and KSTE-AM, the dispositions of KTBZ-FM, WWWW-FM and WDFN-AM and the related financing transactions had occurred as of the beginning of 1996 (in thousands, except per share amounts):
THREE MONTHS ENDED THREE MONTHS ENDED MARCH 31, 1996 MARCH 31, 1997 ----------------------- --------------------- HISTORICAL PRO FORMA HISTORICAL PRO FORMA ---------- --------- ---------- --------- Net revenue .......................................... $ 25,642 $ 46,014 $ 55,854 $ 57,826 Loss before extraordinary loss ....................... (7,585) (14,865) (12,683) (12,772) Net loss attributable to common stock ................ (28,801) (16,790) (16,886) (14,697) Loss before extraordinary loss per common share ...... (1.83) (0.88) (0.75) (0.77) Net loss per common share ............................ (2.18) (0.88) (0.90) (0.77)
3. LONG-TERM DEBT The Company's term and revolving credit facilities were refinanced on January 23, 1997, in conjunction with the acquisition of Colfax under a new bank credit agreement (the "New Credit Agreement") with Bankers Trust Company, as administrative agent, and other institutions party thereto. The New Credit Agreement includes a $225.0 million term loan facility (the "Term Loan Facility") and a $120.0 million revolving loan facility (the "Revolving Loan Facility" and, together with the Term Loan, the "New Bank Financing"). In connection with the refinancing of the term and revolving loan facilities in January 1997, the Company incurred an extraordinary charge to write-off deferred finance costs of approximately $4.5 million. The Company is negotiating a restated credit agreement (the "Restated Credit Agreement") in order to finance the Viacom acquisition. The Company anticipates that the Restated Credit Agreement will consist of a $400.0 million term loan facility and a $350.0 million revolving loan facility; however, the terms of the Restated Credit Agreement are subject to negotiation with its lenders. Also, Chancellor is negotiating a $170.0 million bridge loan facility, the proceeds from which will be contributed to Chancellor Radio Broadcasting in connection with the Viacom acquisition. The New Bank Financing is collateralized by (i) a first priority perfected pledge of all capital stock and notes owned by the Company and (ii) a first priority perfected security interest in all other assets (including receivables, contracts, contract rights, securities, patents, trademarks, other intellectual property, inventory, equipment and real estate) owned by the Company, excluding FCC licenses, leasehold interests in studio or office space and leasehold and partnership interests in tower or transmitter sites in which necessary consents to the granting of a security interest cannot be obtained without payments to any other party or on a timely basis. The New Bank Financing also is guaranteed by the subsidiaries of Chancellor and Chancellor Radio Broadcasting, whose guarantees are 6 9 CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) collateralized by a first priority perfected pledge of the capital stock of Chancellor Radio Broadcasting. The Term Loan Facility is due in increasing quarterly installments beginning in 1997 and matures in June 2004. All outstanding borrowings under the Revolving Facility mature in June 2004. The facilities bear interest at a rate equal to, at the Company's option, the prime rate of Bankers Trust Company, as announced from time to time, or the London Inter-Bank Offered Rate ("LIBOR") in effect from time to time, plus an applicable margin rate. The Company pays quarterly commitment fees in arrears equal to either .375% or .250% per annum on the unused portion of the Revolving Facility, depending upon whether the Company's leverage ratio is equal to or greater than 4.5:1 or less than 4.5:1, respectively. The bank financing facilities which existed on March 31, 1997 accrued interest at the prime rate plus 1.00% (8.25%) on $9.6 million and the LIBOR rate plus 2.00% (7.5%) on $267.0 million of borrowings. Scheduled debt maturities for the Company's outstanding long-term debt at March 31, 1997 for each of the next five calendar years and thereafter are as follows, in thousands: 1997 .................................................................... $ 9,375 1998 .................................................................... 21,875 1999 .................................................................... 34,375 2000 .................................................................... 43,125 2001 .................................................................... 48,750 Thereafter .............................................................. 379,121 ----------- $ 536,621 ===========
On May 2, 1997, the Company commenced a tender offer for all $60.0 million of its outstanding 12 1/2% Senior Subordinated Notes (the "Tender Offer"). The Company expects to pay a premium and intends to finance the Tender Offer with additional borrowings under its New Credit Agreement. The Tender Offer and the financing thereof are subject to the approval of the Company's existing lenders. Management expects to complete the Tender Offer prior to the consummation of the Viacom acquisition. 4. CAPITAL STRUCTURE During the first quarter of 1997, Chancellor completed a private placement of $110.0 million of newly authorized 7% Convertible Preferred Stock (the "Convertible Preferred Stock") and Chancellor Radio Broadcasting completed a private placement of $200.0 million of newly authorized 12% Exchangeable Preferred Stock (the "Exchangeable Preferred Stock"). Dividends on the Convertible Preferred Stock accrue from its date of issuance and are payable quarterly commencing April 15, 1997, at a rate per annum of 7% of the liquidation preference per share. The Convertible Preferred Stock is convertible at the option of the holder at any time after March 23, 1997, unless previously redeemed, into Class A Common Stock of Chancellor at a conversion price of $32.90 per share of Class A Common Stock, subject to adjustment in certain events. In addition, after January 19, 2000, the Company may, at its option, redeem the Convertible Preferred Stock, in whole or in part, at specified redemption prices plus accrued and unpaid dividends through the redemption date. Upon the occurrence of a change of control (as defined), Chancellor must, subject to certain conditions, offer to purchase all of the then outstanding shares of Convertible Preferred Stock at a price equal to 101% of the liquidation preference thereof, plus accrued and unpaid dividends to the date of purchase. Dividends on the Exchangeable Preferred Stock will accrue from the date of its issuance and will be payable semi-annually commencing July 15, 1997, at a rate per annum of 12% of the liquidation preference per share. Dividends may be paid, at the Company's option, on any dividend payment date occurring on or prior to January 15, 2002 either in cash or in additional shares of Exchangeable Preferred Stock. The Exchangeable Preferred Stock is redeemable at the Company's option, in whole or in part at any time on or after January 15, 2002, at the redemption prices set forth herein, plus accrued and unpaid dividends to the date of redemption. In addition, prior to January 15, 2000, the Company may, at its option, redeem the Exchangeable Preferred Stock with the net cash 7 10 CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) proceeds from one or more Public Equity Offerings (as defined), at various redemption prices plus accrued and unpaid dividends to the redemption date; provided, however, that after any such redemption there is outstanding at least $150.0 million aggregate liquidation preference of Exchangeable Preferred Stock. The Company is required, subject to certain conditions, to redeem all of the Exchangeable Preferred Stock outstanding on January 15, 2009, at a redemption price equal to 100% of the liquidation preference thereof, plus accrued and unpaid dividends to the date of redemption. Upon the occurrence of a Change of Control (as defined), the Company will, subject to certain conditions, offer to purchase all of the then outstanding shares of Exchangeable Preferred Stock at a price equal to 101% of the liquidation preference thereof, plus accrued and unpaid dividends to the repurchase date. In addition, prior to January 15, 1999, upon the occurrence of a Change of Control, the Company will have the option to redeem the Exchangeable Preferred Stock in whole but not in part at a redemption price equal to 112% of the liquidation preference thereof, plus accrued and unpaid dividends to the date of redemption. The Exchangeable Preferred Stock will, with respect to dividend rights and rights on liquidation, rank junior to the Senior Exchangeable Preferred Stock. Subject to certain conditions, the Exchangeable Preferred Stock is exchangeable in whole, but not in part, at the option of the Company, on any dividend payment date for the Company's 12% subordinated exchange debentures due 2009, including any such securities paid in lieu of cash interest. In addition to the accrued dividends discussed above, the recorded value of the Senior Exchangeable Preferred Stock and the Exchangeable Preferred Stock includes an amount for the accretion of the difference between the stock's fair value at date of issuance and its mandatory redemption amount, calculated using the effective interest method. 5. EMPLOYEE STOCK OPTION PLAN In January 1997, the Board of Directors granted options to purchase 125,750 shares of Class A Common Stock with an exercise price of $28.75 per share, the fair market value of the stock on the date of grant. 6. INCOME TAXES Income tax expense (benefit) differs from the amount computed by applying the federal statutory income tax rate of 34% to loss before income taxes and dividends and accretion on preferred stock of subsidiary for the following reasons, dollars in thousands:
THREE MONTHS ENDED MARCH 31, 1996 1997 ----------- ----------- U.S. federal income tax at statutory rate ........................... $ (3,275) $ (1,682) State income taxes, net of federal benefit .......................... (578) (297) Valuation allowance provided for loss carryforward generated during the current period .............................. 4,667 -- Permanent difference ................................................ -- 1,564 Other ............................................................... 125 15 ----------- ----------- $ 939 $ (400) =========== ===========
7. NEW ACCOUNTING PRONOUNCEMENT Statement of Financial Accounting Standard No. 128, "Earnings per Share" was issued in February 1997, which establishes standards for computing and presenting earnings per share (EPS) and applies to entities with publicly held common stock or potential common stock. The disclosure requirements of SFAS No. 128 will be effective for the Company's financial statements beginning with the annual report for 1997. Management does not believe that the implementation of SFAS 128 will have a material effect on its financial statements. 8 11 CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
DECEMBER 31, MARCH 31, 1996 1997 ----------- ----------- ASSETS Current assets: Cash ....................................................................... $ 3,789 $ 4,982 Accounts receivable, net of allowance for doubtful accounts of $1,024 and $1,308, respectively ....................................... 46,585 53,037 Prepaid expenses and other ................................................. 2,754 3,260 ----------- ----------- Total current assets .................................................. 53,128 61,279 Restricted cash .............................................................. 20,363 53,750 Property and equipment, net .................................................. 49,123 68,180 Intangibles and other, net ................................................... 551,406 978,094 Deferred financing costs, net ................................................ 16,723 14,420 ----------- ----------- Total assets .......................................................... $ 690,743 $ 1,175,723 =========== =========== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable ........................................................... $ 4,409 $ 5,280 Accrued liabilities ........................................................ 12,530 16,402 Accrued interest ........................................................... 6,869 2,011 Current portion of long-term debt .......................................... 400 12,500 ----------- ----------- Total current liabilities ............................................. 24,208 36,193 Long-term debt ............................................................... 354,914 524,121 Deferred income taxes ........................................................ 2,606 373 Other ........................................................................ 802 786 ----------- ----------- Total liabilities ..................................................... 382,530 561,473 ----------- ----------- Redeemable senior cumulative exchangeable preferred stock , par value $.01 per share; 1,000,000 shares authorized, issued and outstanding, preference in liquidation of $112,451,803 ............................................ 107,222 110,695 Redeemable cumulative exchangeable preferred stock, par value $.01 per share; none and 3,600,000 shares authorized, respectively, none and 2,000,000 shares issued and outstanding, respectively, preference in liquidation of $200,000,000 ................................. -- 196,479 Common stockholder's equity: Common stock, par value $.01 per share, 2,000 shares authorized, 1,000 shares issued and outstanding ............................................ 1 1 Additional paid-in capital ................................................. 219,519 332,901 Accumulated deficit ........................................................ (18,529) (25,826) ----------- ----------- Total common stockholder's equity ..................................... 200,991 307,076 ----------- ----------- Total liabilities and stockholder's equity ............................ $ 690,743 $ 1,175,723 =========== ===========
The accompanying notes are an integral part of the financial statements. 9 12 CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (DOLLARS IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, ----------- ----------- 1996 1997 ----------- ----------- Gross broadcasting revenues .......................................... $ 29,089 $ 63,477 Less agency commissions .............................................. 3,447 7,623 ----------- ----------- Net revenues .................................................. 25,642 55,854 ----------- ----------- Operating expenses: Programming, technical and news .................................... 5,145 13,871 Sales and promotion ................................................ 6,943 15,963 General and administrative ......................................... 4,404 8,353 Depreciation and amortization ...................................... 4,525 8,109 Corporate expenses ................................................. 1,008 1,712 Merger expense ..................................................... -- 2,056 Stock option compensation .......................................... 950 950 ----------- ----------- 22,975 51,014 ----------- ----------- Income from operations ........................................ 2,667 4,840 Other (income) expense: Interest expense ................................................... 7,647 11,420 Other, net ......................................................... 6 (1,632) ----------- ----------- Loss before provision for income taxes and extraordinary loss . (4,986) (4,948) Provision for income taxes ........................................... 939 (400) ----------- ----------- Loss before extraordinary loss ................................ (5,925) (4,548) Extraordinary loss on early extinguishment of debt, net of income tax benefit ........................................................ 4,646 2,749 ----------- ----------- Net loss ...................................................... (10,571) (7,297) Dividends and accretion on preferred stock ........................... 1,660 8,135 Loss on repurchase of preferred stock ................................ 16,570 -- ----------- ----------- Net loss attributable to common stock ......................... $ (28,801) $ (15,432) =========== ===========
The accompanying notes are an integral part of the financial statements. 10 13 CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (UNAUDITED) (DOLLARS IN THOUSANDS)
ADDITIONAL COMMON STOCK PAID-IN ACCUMULATED SHARES AMOUNT CAPITAL DEFICIT TOTAL --------- ------ ----------- ------------- -------------- Balance, January 1, 1997..................... 1,000 $ 1 $ 219,519 $ (18,529) $ 200,991 Dividends and accretion on preferred stock..................................... -- -- (8,135) -- (8,135) Capital contributions ....................... -- -- 121,517 -- 121,517 Net loss .................................... -- -- -- (7,297) (7,297) --------- ------ ----------- ------------- -------------- Balance, March 31, 1997 ..................... 1,000 $ 1 $ 332,901 $ (25,826) $ 307,076 ========= ====== =========== ============= ==============
The accompanying notes are an integral part of the financial statements. 11 14 CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, ---------------------------- 1996 1997 ----------- ----------- Cash flows from operating activities: Net loss ...................................................................... $ (10,571) $ (7,297) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............................................... 4,525 8,109 Amortization of deferred financing costs .................................... 502 610 Stock option compensation ................................................... 950 950 Deferred income taxes ....................................................... 939 (400) Gain on disposition of stations.............................................. -- (1,513) Extraordinary loss .......................................................... 4,646 2,749 Changes in assets and liabilities, net of the effects of acquired businesses: Accounts receivable ....................................................... 2,949 6,774 Prepaids and other ........................................................ 58 14 Accounts payable .......................................................... 761 (530) Accrued liabilities ....................................................... 458 1,437 Accrued interest .......................................................... 3,568 (4,858) ----------- ----------- Net cash provided by operating activities ............................... 8,785 6,045 ----------- ----------- Cash flows from investing activities: Purchases of broadcasting properties .......................................... (405,566) (582,327) Dispositions of broadcasting properties ....................................... -- 103,259 Purchases of other property and equipment ..................................... (820) (1,564) ----------- ----------- Net cash used in investing activities ................................... (406,386) (480,632) ----------- ----------- Cash flows from financing activities: Proceeds from issuance of long-term debt ...................................... 277,958 222,111 Proceeds from borrowings under revolving debt facility ........................ 28,609 170,433 Repayments of long-term debt .................................................. (89,785) (74,968) Repayments of borrowings under revolving debt facility ........................ (52,250) (139,157) Issuances of preferred stock .................................................. 175,390 191,817 Repurchase of preferred stock ................................................. (95,462) -- Additional capital contributions .............................................. 155,886 105,544 Distribution of additional paid in capital .................................... (1,038) -- Payment of preferred stock dividends .......................................... (506) -- ----------- ----------- Net cash provided by financing activities ............................... 398,802 475,780 ----------- ----------- Net increase in cash .................................................... 1,201 1,193 Cash, at beginning of period .................................................... 1,314 3,789 ----------- ----------- Cash, at end of period .......................................................... $ 2,515 $ 4,982 =========== ===========
The accompanying notes are an integral part of the financial statements. 12 15 CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Chancellor Radio Broadcasting Company ("Chancellor Radio Broadcasting") and its subsidiaries (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. Chancellor Radio Broadcasting is a direct subsidiary of Chancellor Broadcasting Company ("Chancellor"). Certain prior year amounts have been reclassified to conform with the current year's presentation, which had no effect on net income or stockholders' equity. 2. ACQUISITIONS AND DISPOSITIONS On January 23, 1997, the Company acquired substantially all the assets and certain liabilities of Colfax Communications, Inc. and its affiliates ("Colfax") for an aggregate price of $383.7 million. Liabilities assumed were limited to certain ongoing contractual rights and obligations. The acquisition was accounted for as a purchase. Pursuant to the acquisition agreement, at December 31, 1996 the Company had $20.4 million of cash in a restricted escrow account which was remitted to Colfax at closing. On January 29, 1997, the Company entered into an agreement to sell WMIL-FM and WOKY-AM, Milwaukee, Wisconsin stations acquired in this transaction, to Clear Channel Radio, Inc. for $41.3 million in cash. Accordingly, theses stations were recorded as assets held for sale with no results of operations or gain or loss recognized. Interest capitalized on this investment amounted to $580,000. The disposition of these stations was completed on March 31, 1997. The acquisition is summarized as follows (in thousands): Assets acquired and liabilities assumed: Accounts receivable, net................................ $ 13,234 Prepaid and other assets................................ 470 Property and equipment.................................. 14,624 Goodwill and other intangibles.......................... 317,894 Other noncurrent assets................................. 46 Assets held for sale.................................... 41,253 Accrued liabilities..................................... (3,821) ------------ $ 383,700 ============
On January 30, 1997, the Company completed the sale of WWWW-FM and WDFN-AM to Evergreen Media Corporation ("Evergreen") for $30.0 million in cash. The pre-tax gain of $1.5 million is included in other income. On February 13, 1997, the Company acquired substantially all the assets and certain liabilities of OmniAmerica Group ("Omni") for $166.0 million of cash and $15.0 million of Chancellor Class A Common Stock. Liabilities assumed were limited to certain ongoing contractual rights and obligations. The acquisition was accounted for as a purchase. The acquisition is summarized as follows (in thousands): Assets acquired and liabilities assumed: Property and equipment.................................. $ 9,209 Goodwill and other intangibles.......................... 171,837 ------------- $ 181,046 =============
On February 19, 1997, Chancellor and Chancellor Radio Broadcasting entered into an agreement to merge with Evergreen in a stock-for-stock transaction (the "Merger"), with Evergreen remaining as the surviving 13 16 CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) corporation. Pursuant to the agreement, shareholders of the Company's common stock will receive 0.9091 shares of Evergreen's common stock. Consummation of the merger is subject to shareholder approval and certain other closing conditions including regulatory approval. The Company has incurred $2.1 million of merger costs which have been expensed in the current period. On February 19, 1997, the Company and Evergreen entered into a joint purchase agreement whereby in the event that consummation of the stock purchase agreement between Evergreen and Viacom International, Inc. ("Viacom") occurs prior to the consummation of the Merger, the Company will be required to purchase the Viacom subsidiaries which own four of the ten Viacom stations for $480.0 million, plus net working capital, and Evergreen will be required to purchase the Viacom subsidiaries which own six of the ten Viacom stations for $595.0 million, plus net working capital. In the event that consummation of the stock purchase agreement between Evergreen and Viacom occurs after the consummation of the Merger, the Surviving Company will acquire the stock of certain Viacom subsidiaries which own and operate ten radio stations in five major markets. Consummation of the transaction is dependent upon certain closing conditions, including regulatory approval. On March 24, 1997, the Company exchanged the West Palm Beach stations acquired from Omni for one AM station in Sacramento, California and approximately $33.0 million in cash from American Radio Systems Corporation (the "American Radio Exchange"). The following summarizes the unaudited consolidated pro forma data as though the acquisitions of Shamrock Broadcasting Company, KIMN-FM and KALC-FM, Colfax, Omni and KSTE-AM, the dispositions of KTBZ-FM, WWWW-FM and WDFN-AM and the related financing transactions had occurred as of the beginning of 1996 (in thousands, except per share amounts):
THREE MONTHS ENDED THREE MONTHS ENDED MARCH 31, 1996 MARCH 31, 1997 ----------------------- ------------------------ HISTORICAL PRO FORMA HISTORICAL PRO FORMA ---------- --------- ---------- --------- Net revenue ................................... $ 25,642 $ 46,014 $ 55,854 $ 57,826 Loss before extraordinary loss ................ (5,925) (5,552) (4,548) (2,325) Net loss attributable to common stock.......... (28,801) (14,865) (15,432) (12,772)
3. LONG-TERM DEBT The Company's term and revolving credit facilities were refinanced on January 23, 1997, in conjunction with the acquisition of Colfax under a new bank credit agreement (the "New Credit Agreement") with Bankers Trust Company, as administrative agent, and other institutions party thereto. The New Credit Agreement includes a $225.0 million term loan facility (the "Term Loan Facility") and a $120.0 million revolving loan facility (the "Revolving Loan Facility" and, together with the Term Loan, the "New Bank Financing"). In connection with the refinancing of the term and revolving loan facilities in January 1997, the Company incurred an extraordinary charge to write-off deferred finance costs of approximately $4.5 million. The Company is negotiating a restated credit agreement (the "Restated Credit Agreement") in order to finance the Viacom purchase. The Company anticipates that the Restated Credit Agreement will consist of a $400.0 million term loan facility and a $350.0 million revolving loan facility; however, the terms of the Restated Credit Agreement are subject to negotiation with its lenders. Also, Chancellor is negotiating a $170.0 million bridge loan facility, the proceeds from which will be contributed to Chancellor Radio Broadcasting in connection with the Viacom acquisition. The New Bank Financing is collateralized by (i) a first priority perfected pledge of all capital stock and notes owned by the Company and (ii) a first priority perfected security interest in all other assets (including receivables, contracts, contract rights, securities, patents, trademarks, other intellectual property, inventory, equipment and real estate) owned by the Company, excluding FCC licenses, leasehold interests in studio or office space and leasehold and partnership interests in tower or transmitter sites in which necessary consents to the granting of a security interest cannot be obtained without payments to any other party or on a timely basis. The New Bank Financing also is guaranteed by the subsidiaries of Chancellor and Chancellor Radio Broadcasting, whose guarantees are collateralized by a first priority perfected pledge of the capital stock of Chancellor Radio Broadcasting. The Term 14 17 CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Loan Facility is due in increasing quarterly installments beginning in 1997 and matures in January 2003. All outstanding borrowings under the Revolving Facility mature in January 2003. The facilities bear interest at a rate equal to, at the Company's option, the prime rate of Bankers Trust Company, as announced from time to time, or the London Inter-Bank Offered Rate ("LIBOR") in effect from time to time, plus an applicable margin rate. The Company pays quarterly commitment fees in arrears equal to either .375% or .250% per annum on the unused portion of the Revolving Facility, depending upon whether the Company's leverage ratio is equal to or greater than 4.5:1 or less than 4.5:1, respectively. The bank financing facilities which existed on March 31, 1997 accrued interest at the prime rate plus 1.00% (8.25%) on $9.6 million and the LIBOR rate plus 2.00% (7.5%) on $267.0 million of borrowings. Scheduled debt maturities for the Company's outstanding long-term debt at March 31, 1997 for each of the next five calendar years and thereafter are as follows, in thousands: 1997 .................................................................... $ 9,375 1998 .................................................................... 21,875 1999 .................................................................... 34,375 2000 .................................................................... 43,125 2001 .................................................................... 48,750 Thereafter .............................................................. 379,121 ----------- $ 536,621 ===========
On May 2, 1997, the Company commenced a tender offer for all $60.0 million of its outstanding 12 1/2% Senior Subordinated Notes (the "Tender Offer"). The Company expects to pay a premium and intends to finance the Tender Offer with additional borrowings under its New Credit Agreement. The Tender Offer and the financing thereof are subject to the approval of the Company's existing lenders. Management expects to complete the Tender Offer prior to the consummation of the Viacom acquisition. 4. CAPITAL STRUCTURE During the first quarter of 1997, Chancellor completed a private placement of $110.0 million of newly authorized 7% Convertible Preferred Stock (the "Convertible Preferred Stock") and Chancellor Radio Broadcasting completed a private placement of $200.0 million of newly authorized 12% Exchangeable Preferred Stock (the "Exchangeable Preferred Stock"). Dividends on the Convertible Preferred Stock accrue from its date of issuance and are payable quarterly commencing April 15, 1997, at a rate per annum of 7% of the liquidation preference per share. Because Chancellor is a holding company with no assets other than the common stock of Chancellor Radio Broadcasting, Chancellor will rely on dividends from Chancellor Radio Broadcasting to permit Chancellor to pay cash dividends in full on the Convertible Preferred Stock. As of March 31, 1997, the accrued dividends for the Convertible Preferred Stock amounted to $1.5 million. The Convertible Preferred Stock amounted to $1.5 million. Stock is convertible at the option of the holder at any time after March 23, 1997, unless previously redeemed, into Class A Common Stock of Chancellor at a conversion price of $32.90 per share of Class A Common Stock, subject to adjustment in certain events. In addition, after January 19, 2000, the Company may, at its option, redeem the Convertible Preferred Stock, in whole or in part, at specified redemption prices plus accrued and unpaid dividends through the redemption date. Upon the occurrence of a change of control (as defined), Chancellor must, subject to certain conditions, offer to purchase all of the then outstanding shares of Convertible Preferred Stock at a price equal to 101% of the liquidation preference thereof, plus accrued and unpaid dividends to the date of purchase. Dividends on the Exchangeable Preferred Stock will accrue from the date of its issuance and will be payable semi-annually commencing July 15, 1997, at a rate per annum of 12% of the liquidation preference per share. Dividends may be paid, at the Company's option, on any dividend payment date occurring on or prior to January 15, 2002 either in cash or in additional shares of Exchangeable Preferred Stock. The Exchangeable Preferred Stock is redeemable at the Company's option, in whole or in part at any time on or after January 15, 2002, at the redemption prices set forth herein, plus accrued and unpaid dividends to the date of redemption. In addition, prior to January 15, 2000, the Company may, at its option, redeem the Exchangeable Preferred Stock with the net cash proceeds from one or more Public Equity Offerings (as defined), at various redemption prices plus accrued and unpaid dividends to the redemption date; provided, however, that after any such redemption there is outstanding at 15 18 CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) least $150.0 million aggregate liquidation preference of Exchangeable Preferred Stock. The Company is required, subject to certain conditions, to redeem all of the Exchangeable Preferred Stock outstanding on January 15, 2009, at a redemption price equal to 100% of the liquidation preference thereof, plus accrued and unpaid dividends to the date of redemption. Upon the occurrence of a Change of Control (as defined), the Company will, subject to certain conditions, offer to purchase all of the then outstanding shares of Exchangeable Preferred Stock at a price equal to 101% of the liquidation preference thereof, plus accrued and unpaid dividends to the repurchase date. In addition, prior to January 15, 1999, upon the occurrence of a Change of Control, the Company will have the option to redeem the Exchangeable Preferred Stock in whole but not in part at a redemption price equal to 112% of the liquidaton preference thereof, plus accrued and unpaid dividends to the date of redemption. The Exchangeable Preferred Stock will, with respect to dividend rights and rights on liquidation, rank junior to the Senior Exchangeable Preferred Stock. Subject to certain conditions, the Exchangeable Preferred Stock is exchangeable in whole, but not in part, at the option of the Company, on any dividend payment date for the Company's 12% subordinated exchange debentures due 2009, including any such securities paid in lieu of cash interest. In addition to the accrued dividends discussed above, the recorded value of the Senior Exchangeable Preferred Stock and the Exchangeable Preferred Stock includes an amount for the accretion of the difference between the stock's fair value at date of issuance and its mandatory redemption amount, calculated using the effective interest method. 5. EMPLOYEE STOCK OPTION PLAN In January 1997, the Board of Directors granted options to purchase 125,750 shares of Class A Common Stock with an exercise price of $28.75 per share, the fair market value of the stock on the date of grant. 7. INCOME TAXES Income tax expense (benefit) differs from the amount computed by applying the federal statutory income tax rate of 34% to loss before income taxes and dividends and accretion on preferred stock of subsidiary for the following reasons, dollars in thousands:
THREE MONTHS ENDED MARCH 31, 1996 1997 ----------- ----------- U.S. federal income tax at statutory rate ........................... $ (3,275) $ (1,682) State income taxes, net of federal benefit .......................... (578) (297) Valuation allowance provided for loss carryforward generated during the current period .............................. 4,667 -- Permanent difference ................................................ -- 1,564 Other ............................................................... 125 15 ----------- ----------- $ 939 $ (400) =========== ===========
7. NEW ACCOUNTING PRONOUNCEMENT Statement of Financial Accounting Standard No. 128, "Earnings per Share" was issued in February 1997, which establishes standards for computing and presenting earnings per share (EPS) and applies to entities with publicly held common stock or potential common stock. The disclosure requirements of SFAS No. 128 will be effective for the Company's financial statements beginning with the annual report for 1997. Management does not believe that the implementation of SFAS 128 will have a material effect on its financial statements. 16 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following discussion and analysis of results of operations and financial condition of the Company should be read in conjunction with the consolidated financial statements and related notes thereto of the Company included elsewhere in this document. Periodically, the Company may make statements about trends, future plans and the Company's prospects. Actual results may differ materially from those described in such forward looking statements based on the risks and uncertainties facing the Company, including but not limited to, the following: business conditions and growth in the radio broadcasting industry and general economy; competitive factors; changes in interest rates; the non-renewal of one or more of the Company's broadcasting licenses; and those risk factors listed from time to time in documents filed by the Company with the Securities and Exchange Commission (the "Commission"). The Company has grown largely through acquisitions, as well as through internally generated growth. Upon completion of the pending transactions, excluding the Merger, the Company will own and operate 54 radio stations serving the following markets: New York, New York; Nassau-Suffolk (Long Island), New York; Los Angeles, California; San Francisco, California; Washington, D.C.; Atlanta, Georgia; Riverside-San Bernardino, California; Minneapolis-St. Paul, Minnesota; Phoenix, Arizona; Pittsburgh, Pennsylvania; Denver, Colorado; Cincinnati, Ohio; Sacramento, California; Chicago, Illinois; and Orlando, Florida. The Company anticipates that it will be able to consummate all of its pending transactions; however, the closing of each of such transactions is subject to FCC approval, and other governmental approvals, which are beyond the Company's control, and there can be no assurance when those transactions will be competed or that they will be completed on the terms described herein, or at all. In the following analysis, management discusses the "broadcast cash flow" of its combined station group. Broadcast cash flow consists of operating income before depreciation and amortization, corporate expenses and non-cash stock option compensation expense. Although broadcast cash flow is not a measure of performance calculated in accordance with generally accepted accounting principles ("GAAP"), management believes that it is useful to an investor in evaluating the Company because it is a measure widely used in the broadcast industry to evaluate a radio company's operating performance. However, broadcast cash flow should not be considered in isolation or as a substitute for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with GAAP or as a measure of liquidity or profitability. The discussion of broadcast cash flow appears as the last paragraph in the discussion of the results of operations. A radio broadcast company's revenues come primarily from the sale of time to local and national advertisers. Those revenues are affected by the advertising rates that a radio station is able to charge and the number of advertisements that can be broadcast without jeopardizing listener levels (and the resulting ratings). Advertising rates tend to be based upon a station's demand for its inventory and its ability to attract audiences in targeted demographic groups, as measured principally by Arbitron. Radio stations attempt to maximize revenues by adjusting advertising rates based upon local market conditions, controlling inventory and creating demand and audience ratings. Seasonal revenue fluctuations are common in the radio broadcasting industry and are due primarily to fluctuations in advertising expenditures by local and national advertisers, with revenues typically being lowest in the first quarter and highest in the second and fourth quarters of each year. A radio station's operating results in any period also may be affected by the occurrence of advertising and promotional expenditures that do not produce commensurate revenues in the period in which the expenditures are made. Because Arbitron reports audience ratings on a quarterly basis, a radio station's ability to realize revenues as a result of increased advertising and promotional expenses and any resulting audience ratings improvements may be delayed for several months. Because the Company incurred substantial indebtedness for its acquisitions for which it has significant debt service requirements, and because the Company has significant charges for stock option compensation, dividends and accretion on preferred stock and depreciation and amortization expense related to the fixed assets and intangibles acquired in its acquisitions, the Company expects that it will report net losses attributable to common stock for the foreseeable future, which losses may be greater than those historically experienced by the Company. 17 20 RESULTS OF OPERATIONS The Company's acquisitions, including the Shamrock Acquisition in February 1996, the Denver Exchange in July 1996, the acquisition of WKYN-AM in November 1996, the acquisition of 12 stations from Colfax Communications in January 1997, the acquisition of 8 stations from OmniAmerica Radio Group (the "Omni Acquisition") in February 1997, and the American Radio Exchange in March 1997, have all been accounted for using the purchase method of accounting. In addition, pursuant to local marketing agreements the Company began managing stations WBAB-FM, WBLI-FM, WGBB-AM and WHFM-FM in Nassau-Suffolk, New York and stations WOMX-FM, WXXL-FM and WJHM-FM in Orlando, Florida effective July 1, 1996, and station KSTE-AM in Rancho Cordova, California effective August 1, 1996. As a result of the acquisition, disposition and exchange activity and the local marketing agreements, the Company's results of operations are not directly comparable from period to period. Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996 Net revenues increased 117.8% to $55.9 million for the three months ended March 31, 1997 from $25.6 million for the same period in 1996. Station operating expenses increased 131.5% to $38.2 million for the three months ended March 31, 1997 from $16.5 million for the same period in 1996. The majority of these increases were due to the acquisition of Shamrock Broadcasting, Colfax Communications, OmniAmerica Group, KIMN-FM and KALC-FM, and various operating agreements with Secret Communications, SFX Broadcasting and American Radio Systems. Depreciation and amortization increased 79.2% to $8.1 million for the first quarter of 1997 from $4.5 million for the same period in 1996. Corporate expenses increased to $1.7 million for the first quarter of 1997 from $1.0 million for the same period in 1996, as a result of additional personnel and overhead costs associated with the acquisition of Shamrock Broadcasting, Colfax Communications, OmniAmerica Group, KIMN-FM and KALC-FM, and various operating agreements with Secret Communications, SFX Broadcasting and American Radio Systems. Interest expense increased 49.3% to $11.4 million from $7.6 million for the same period in 1996. These increases were primarily attributable to the acquisitions mentioned above and the resulting change in the capital structure from their financing. During the second quarter of 1995, the Company developed an estimate of the fair value of its outstanding stock options in the amount of $19.0 million. Based upon this estimate and the applicable vesting periods, the Company recognized approximately $1.0 million of non-cash stock option compensation expense during the first quarter of both years. Dividends and accretion on preferred stock of its subsidiary increased substantially to $8.1 million for the first quarter of 1997 from $1.7 million for the same period in 1996. The majority of this increase is the result of the prior year preferred stock being outstanding for the entire quarter this year and the issuance of $200.0 million of new preferred stock of its subsidiary in January 1997. During the first quarter of 1996, the Company incurred a one-time loss of $16.6 million on the repurchase of preferred stock of its subsidiary. As a result of the foregoing, income from operations increased 81.5% to $4.8 million, including $2.1 million of merger expense, for the first quarter of 1997 from $2.7 million for the same period in 1996. The Company had a net loss of $15.4 million compared with a net loss of $12.2 million for the same period in 1996. Broadcast cash flow increased 33.7% to $19.5 million for the three months ended March 31, 1997 from $14.6 million for the same period in 1996. Broadcast cash flow as a percentage of net revenues increased to 34.3% for the 1997 period from 29.2% for the 1996 period. These changes were primarily the result of the acquisition and exchange activity discussed above. LIQUIDITY AND CAPITAL RESOURCES The pursuit by the Company of its acquisition strategy has required a significant portion of the Company's capital resources. Chancellor and Chancellor Radio Broadcasting have agreed to merge with Evergreen Media Corporation subject to regulatory and shareholder approval. The Company has also agreed to acquire, for approximately $480.0 million plus net working capital, radio properties from Viacom prior to the expected consummation of this merger. The merger with Evergreen will not require cash financing as it will be a stock-for-stock transaction. The Company has financed its past acquisitions through bank financing and subordinated notes, the sale of preferred stock and common equity and with proceeds from asset sales. The Company expects that any required financing for future acquisitions and exchanges will be provided through the incurrence of debt, the sale of 18 21 equity securities, internally generated funds or a combination of the foregoing. There can be no assurance, however that external financing will be available to the Company on terms considered favorable by management or that cash flow from operations will be sufficient to fund the Company's acquisition strategy. As a result of the financing of its acquisitions, the Company has a substantial amount of long-term indebtedness, and for the foreseeable future, principal and interest payments under the Company's credit agreement and interest payments under the Company's outstanding subordinated notes will be the Company's principal uses of cash. In addition to debt service requirements under the Company's credit agreement, the Company will require $26.3 million per annum to pay interest on the subordinated notes. The senior exchangeable preferred stock does not require the payment of cash dividends through May 14, 2001. Similarly, the exchangeable preferred stock does not require cash dividends through April 14, 2002, although Chancellor Radio Broadcasting will issue additional shares of exchangeable preferred stock in lieu of cash dividends. The convertible preferred stock will require cash dividends of $7.0 million per year. Because Chancellor is a holding company with no assets other than the common stock of Chancellor Radio Broadcasting, Chancellor will rely on dividends from Chancellor Radio Broadcasting, to permit Chancellor to pay cash dividends in full on the convertible preferred stock. The Company's credit agreement, the indentures, the senior preferred certificate of designation and the terms of the exchangeable preferred stock generally will limit but will not prohibit Chancellor Radio, from paying such dividends. In addition to debt service and dividends on Chancellor's convertible preferred stock, the Company's principal liquidity requirements will be for working capital and general corporate purposes, including capital expenditures, which are not expected to be material in amount. The Company used the $74.3 million in net cash proceeds from the disposition of the Milwaukee stations and the American Radio Exchange to retire a portion of the indebtedness incurred under the Company's credit agreement to fund the Colfax and Omni acquisition. The Company subsequently incurred new borrowings of $53.8 million to fund the deposit for the Viacom acquisition. Management believes that cash from operating activities and revolving loans under the Company's credit agreement should be sufficient to permit the Company to meet its financial obligations and fund its operations. Changes in interest rates affect the Company to the extent that it has borrowings under its term and revolving credit facilities or it makes additional borrowings under new agreements. Net cash provided by operating activities was $6.0 million and $8.8 million for the three months ended March 31, 1997 and 1996, respectively. Changes in the Company's net cash provided by operation activities are primarily the result of the Company's acquisitions completed and station operating agreements entered into during the periods. Net cash used in investing activities was $480.6 million and $406.4 million for the three months ended March 31, 1997 and 1996, respectively. Net cash provided by financing activities was $475.8 million and $398.8 million for the three months ended March 31, 1997 and 1996, respectively. These cash flows primarily reflect the borrowings, capital contributions and expenditures for station acquisitions, dispositions and swaps. The Company is negotiating a restated credit agreement (the "Restated Credit Agreement") in order to finance the Viacom purchase. The Company anticipates that the Restated Credit Agreement will consist of a $400.0 million term loan facility and a $350.0 million revolving loan facility; however, the terms of the Restated Credit Agreement are subject to negotiation with its lenders. Chancellor is also negotiating a $170.0 million bridge loan facility, the proceeds from which will be contributed to Chancellor Radio Broadcasting in connection with the Viacom acquisition. On May 2, 1997, the Company commenced a tender offer for all $60.0 million of its outstanding 12 1/2% Senior Subordinated Notes (the "Tender Offer"). The Company expects to pay a premium and intends to finance the Tender Offer with additional borrowings under its New Credit Agreement. The Tender Offer and the financing thereof are subject to the approval of the Company's existing lenders. Management expects to complete the Tender Offer prior to the consummation of the Viacom acquisition. 19 22 PART II OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES On January 23, 1997, Chancellor Broadcasting Company sold an aggregate of 2,000,000 shares of its $50 liquidation preference 7% Convertible Preferred Stock, $0.01 par value (the "Convertible Preferred Stock"), in a private placement in reliance on Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), at a price equal to 100% of the liquidation preference thereof. The Convertible Preferred Stock was immediately resold by the initial purchasers thereof in reliance on Rule 144A under the Securities Act. The initial purchasers of the Convertible Preferred Stock were Smith Barney Inc., Alex. Brown & Sons Incorporated, BT Securities Corporation, Credit Suisse First Boston Corporation and Goldman, Sachs & Co. (the "Convertible Preferred Initial Purchasers"). The Convertible Preferred Initial Purchasers received a discount of $1.75 per share of Convertible Preferred Stock purchased. On February 14, 1997, Chancellor Broadcasting Company sold an additional 200,000 shares of Convertible Preferred Stock to the Convertible Preferred Initial Purchasers upon the same terms pursuant to an over-allotment option granted to such Convertible Preferred Initial Purchasers. The Convertible Preferred Stock is convertible at the option of the holder at any time after March 23, 1997, unless previously redeemed, into the Class A Common Stock of Chancellor Broadcasting Company at a conversion price of $32.90 per share of Class A Common Stock, subject to adjustment in certain events. On January 23, 1997, Chancellor Radio Broadcasting Company sold an aggregate of 2,000,000 shares of its $100 liquidation preference 12% Exchangeable Preferred Stock, $0.01 par value (the "Exchangeable Preferred Stock"), in a private placement in reliance on Section 4(2) of the Securities Act, at a price equal to 100% of the liquidation preference thereof. The Exchangeable Preferred Stock was immediately resold by the initial purchasers thereof in reliance on Rule 144A under the Securities Act. The initial purchasers of the Exchangeable Preferred Stock were BT Securities Corporation, Credit Suisse First Boston, Goldman, Sachs & Co., NationsBanc Capital Markets, Inc. and Smith Barney Inc. (the "Exchangeable Preferred Initial Purchasers"). The Exchangeable Preferred Initial Purchasers received a discount of $3.50 per share of Exchangeable Preferred Stock purchased. On February 14, 1997, Chancellor Broadcasting Company issued 555,556 shares of its Class A Common Stock to certain affiliates of the OmniAmerica Group in partial consideration for the purchase price paid by Chancellor Radio Broadcasting Company for certain assets of the OmniAmerica Group in a private placement in reliance on Section 4(2) of the Securities Act. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS
EXHIBIT NO. DESCRIPTION OF DOCUMENT -------- ----------------------- 2.1 Agreement and Plan of Merger, dated as of February 19, 1997, among Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company and Evergreen Media Corporation (1) 2.2 Joint Purchase Agreement, dated as of February 19, 1997, among Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company, Evergreen Media Corporation and Evergreen Media Corporation of Los Angeles (2) 2.3 Stock Purchase Agreement, dated as of February 16, 1997, between Viacom International, Inc. and Evergreen Media Corporation of Los Angeles (2) 3.1 Second Restated Certificate of Incorporation of Chancellor Broadcasting Company, as amended (3) 3.2 Certificate of Incorporation of Chancellor Radio Broadcasting Company, as amended (4) 3.3 Certificate of Incorporation of Chancellor Broadcasting Licensee Company (5) 3.4 Second Restated Bylaws of Chancellor Broadcasting Company (3) 3.5 Bylaws of Chancellor Radio Broadcasting Company, as amended (5) 3.6 Bylaws of Chancellor Broadcasting Licensee Company (5) 3.7 Certificate of Designation for the 12 1/4% Series A Senior Cumulative Exchangeable Preferred Stock of Chancellor Radio Broadcasting Company (6) 3.8 Certificate of Designation for the 12% Exchangeable Preferred Stock of Chancellor Radio Broadcasting Company (7) 3.9 Certificate of Designation for the 7% Convertible Preferred Stock of Chancellor Broadcasting Company (8) 4.1 Indenture, dated October 1, 1994, governing the outstanding 12 1/2% Senior Subordinated Notes due 2004 (5) 4.2 First Supplemental Indenture, dated as of February 14, 1996, to the Indenture dated October 1, 1994, governing the 12 1/2% Senior Subordinated Notes due 2004 (3)
20 23
EXHIBIT NO. DESCRIPTION OF DOCUMENT -------- ----------------------- 4.3 Second Supplemental Indenture, dated as of February 14, 1996, to the Indenture dated October 1, 1994, governing the 12 1/2% Senior Subordinated Notes due 2004 (3) 4.4 Indenture, dated as of February 14, 1996, governing the outstanding 9 3/8% Senior Subordinated Notes due 2004 (9) 4.5 First Supplemental Indenture, dated as of February 14, 1996, to the Indenture dated February 14, 1996, governing the 9 3/8% Senior Subordinated Notes due 2004 (3) 4.6 Indenture, dated as of February 26, 1996, governing the 12 1/4% Subordinated Exchange Debentures due 2008 (3) 4.7 Indenture, dated as of January 23, 1997, governing the 12% Subordinated Exchange Debentures due 2009 (7) 4.8 Second Supplemental Indenture, dated as of April 15, 1997, to the Indenture dated February 14, 1996, governing the 9 3/8% Senior Subordinated Notes due 2004* 10.1 Registration Rights Agreement, dated as of January 23, 1997, among Chancellor Radio Broadcasting Company, BT Securities Corporation, Credit Suisse First Boston, Goldman, Sachs & Co., NationsBanc Capital Markets, Inc. and Smith Barney Inc. (7) 10.2 Amended and Restated Credit Agreement, dated as of February 14, 1996 and amended and restated as of January 23, 1997, among Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company, various banks, Goldman Sachs Credit Partners L.P., as documentation agent, NationsBank of Texas, N.A., as syndication agent, and Bankers Trust, as managing agent and arranger (4) 11.1 Statement RE Computation of Per Share Earnings for Chancellor Broadcasting Company* 27.1 Financial Data Schedule for Chancellor Broadcasting Company* 27.2 Financial Data Schedule for Chancellor Radio Broadcasting Company* 27.3 Financial Data Schedule for Chancellor Broadcasting Licensee Company*
- --------------- * Filed herewith. (1) Incorporated by reference to Exhibit 99(a) of the Schedule 13D filed by Chancellor Broadcasting Company, Thomas O. Hicks and Lawrence D. Stuart, Jr. on March 3, 1997 with respect to the Class A Common Stock of Evergreen Media Corporation. (2) Incorporated by reference to the Form 8-K filed by Chancellor Broadcasting Company (File No. 0-27726) on March 11, 1997. (3) Incorporated by reference to the Annual Report on Form 10-K of Chancellor Broadcasting Company (File No. 0-27726), Chancellor Radio Broadcasting Company and Chancellor Broadcasting Licensee Company for the fiscal year ended December 31, 1995. (4) Incorporated by reference to the Annual Report on Form 10-K of Chancellor Broadcasting Company (File No. 0-27726), Chancellor Radio Broadcasting Company and Chancellor Broadcasting Licensee Company for the fiscal year ended December 31, 1996. (5) Incorporated by reference to the Registration Statement on Form S-1 (File No. 33-80534) of Chancellor Broadcasting Company as filed with the Securities and Exchange Commission. (6) Incorporated by reference to the Quarterly Report on Form 10-Q of Chancellor Broadcasting Company (File No. 0-27726) for the fiscal quarter ended September 30, 1996. 21 24 (7) Incorporated by reference to the Form 8-K filed by Chancellor Radio Broadcasting Company (File No. 33-98334) on February 6, 1997. (8) Incorporated by reference to the Form 8-K filed by Chancellor Broadcasting Company (File No. 0-27726) on February 6, 1997. (9) Incorporated by reference from the Form 8-K of Chancellor Broadcasting Company (File No. 0-27726) and Chancellor Radio Broadcasting Company (File No. 33-98334) as filed with the Securities and Exchange Commission on February 29, 1996. (b) REPORTS ON FORM 8-K. A Current Report on Form 8-K was filed with the Securities and Exchange Commission on January 7, 1997 on behalf of Chancellor Broadcasting Company and Chancellor Radio Broadcasting Company reporting certain pro forma financial statements included in the preliminary offering memorandums for Chancellor Broadcasting Company's 7% Convertible Preferred Stock and Chancellor Radio Broadcasting's 12% Exchangeable Preferred Stock. The offering memorandums contained certain pro forma financial statements of operations for the year ended December 31, 1995 and for the nine months ended September 30, 1995 and 1996, and a pro forma balance sheet as of September 30, 1996. A Current Report on Form 8-K was filed with the Securities and Exchange Commission on February 6, 1997 on behalf of Chancellor Broadcasting Company and Chancellor Radio Broadcasting Company relating to the acquisition (the "Colfax Acquisition") by Chancellor Radio Broadcasting Company of twelve radio stations from Colfax Communications, Inc. and its affiliates ("Colfax") pursuant to an asset purchase agreement. The audited financial statements of Colfax as of December 31, 1993, 1994 and 1995, and for each of the three years ended December 31, 1995 were filed with such reports, together with an unaudited pro forma condensed statement of operations for the year ended December 31, 1995 and for the nine months ended September 30, 1995 and 1996, and an unaudited pro forma balance sheet as of September 30, 1996 giving effect to the consummation of the Colfax Acquisition and the related financing thereof. In addition, the reports contained certain other pro forma financial statements included in the final offering memorandums for Chancellor Broadcasting Company and Chancellor Radio Broadcasting Company for its 7% Convertible Preferred Stock and its 12% Exchangeable Preferred Stock, respectively. These final offering memorandums contained certain pro forma financial statements of operations for the year ended December 31, 1995 and for the nine months ended September 30, 1995 and 1996, and a pro forma balance sheet as of September 30, 1996. Such Form 8-K was amended on april 29, 1997 to include the financial statements of Colfax as of September 30, 1996 and for the nine-month periods ended September 30, 1995 and 1996. A Current Report on Form 8-K was filed with the Securities and Exchange Commission on March 11, 1997 on behalf of Chancellor Broadcasting Company and Chancellor Radio Broadcasting Company reporting the acquisition by Chancellor Radio Broadcasting Company of eight radio stations from OmniAmerica Group, a definitive merger agreement between Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company and Evergreen Media Corporation, and a joint purchase agreement between Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company and Evergreen Media Corporation relating to the acquisition of certain subsidiaries of Viacom International, Inc., that own ten radio stations. A Current Report on Form 8-K was filed with the Securities and Exchange Commission on May 13, 1997, by Chancellor Radio Broadcasting Company reporting the commencement of a tender offer for its outstanding 12 1/2% Senior Subordinated Notes due 2004 ("12 1/2% Notes") and reporting certain pro forma financial information contained in the tender offer materials that were mailed to the holders of the 12 1/2% Notes. 22 25 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant and each co-registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CHANCELLOR BROADCASTING COMPANY AND EACH CO-REGISTRANT Date: May 15, 1997 By / s / Jacques D. Kerrest ------------------------------ Jacques D. Kerrest Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer of Registrant and each co-registrant) 23 26 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF DOCUMENT -------- ----------------------- 2.1 Agreement and Plan of Merger, dated as of February 19, 1997, among Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company and Evergreen Media Corporation (1) 2.2 Joint Purchase Agreement, dated as of February 19, 1997, among Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company, Evergreen Media Corporation and Evergreen Media Corporation of Los Angeles (2) 2.3 Stock Purchase Agreement, dated as of February 16, 1997, between Viacom International, Inc. and Evergreen Media Corporation of Los Angeles (2) 3.1 Second Restated Certificate of Incorporation of Chancellor Broadcasting Company, as amended (3) 3.2 Certificate of Incorporation of Chancellor Radio Broadcasting Company, as amended (4) 3.3 Certificate of Incorporation of Chancellor Broadcasting Licensee Company (5) 3.4 Second Restated Bylaws of Chancellor Broadcasting Company (3) 3.5 Bylaws of Chancellor Radio Broadcasting Company, as amended (5) 3.6 Bylaws of Chancellor Broadcasting Licensee Company (5) 3.7 Certificate of Designation for the 12 1/4% Series A Senior Cumulative Exchangeable Preferred Stock of Chancellor Radio Broadcasting Company (6) 3.8 Certificate of Designation for the 12% Exchangeable Preferred Stock of Chancellor Radio Broadcasting Company (7) 3.9 Certificate of Designation for the 7% Convertible Preferred Stock of Chancellor Broadcasting Company (8) 4.1 Indenture, dated October 1, 1994, governing the outstanding 12 1/2% Senior Subordinated Notes due 2004 (5) 4.2 First Supplemental Indenture, dated as of February 14, 1996, to the Indenture dated October 1, 1994, governing the 12 1/2% Senior Subordinated Notes due 2004 (3)
27
EXHIBIT NO. DESCRIPTION OF DOCUMENT -------- ----------------------- 4.3 Second Supplemental Indenture, dated as of February 14, 1996, to the Indenture dated October 1, 1994, governing the 12 1/2% Senior Subordinated Notes due 2004 (3) 4.4 Indenture, dated as of February 14, 1996, governing the outstanding 9 3/8% Senior Subordinated Notes due 2004 (9) 4.5 First Supplemental Indenture, dated as of February 14, 1996, to the Indenture dated February 14, 1996, governing the 9 3/8% Senior Subordinated Notes due 2004 (3) 4.6 Indenture, dated as of February 26, 1996, governing the 12 1/4% Subordinated Exchange Debentures due 2008 (3) 4.7 Indenture, dated as of January 23, 1997, governing the 12% Subordinated Exchange Debentures due 2009 (7) 4.8 Second Supplemental Indenture, dated as of April 15, 1997, to the Indenture dated February 14, 1996, governing the 9 3/8% Senior Subordinated Notes due 2004* 10.1 Registration Rights Agreement, dated as of January 23, 1997, among Chancellor Radio Broadcasting Company, BT Securities Corporation, Credit Suisse First Boston, Goldman, Sachs & Co., NationsBanc Capital Markets, Inc. and Smith Barney Inc. (7) 10.2 Amended and Restated Credit Agreement, dated as of February 14, 1996 and amended and restated as of January 23, 1997, among Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company, various banks, Goldman Sachs Credit Partners L.P., as documentation agent, NationsBank of Texas, N.A., as syndication agent, and Bankers Trust, as managing agent and arranger (4) 11.1 Statement RE Computation of Per Share Earnings for Chancellor Broadcasting Company* 27.1 Financial Data Schedule for Chancellor Broadcasting Company* 27.2 Financial Data Schedule for Chancellor Radio Broadcasting Company* 27.3 Financial Data Schedule for Chancellor Broadcasting Licensee Company*
- --------------- * Filed herewith. (1) Incorporated by reference to Exhibit 99(a) of the Schedule 13D filed by Chancellor Broadcasting Company, Thomas O. Hicks and Lawrence D. Stuart, Jr. on March 3, 1997 with respect to the Class A Common Stock of Evergreen Media Corporation. (2) Incorporated by reference to the Form 8-K filed by Chancellor Broadcasting Company (File No. 0-27726) on March 11, 1997. (3) Incorporated by reference to the Annual Report on Form 10-K of Chancellor Broadcasting Company (File No. 0-27726), Chancellor Radio Broadcasting Company and Chancellor Broadcasting Licensee Company for the fiscal year ended December 31, 1995. (4) Incorporated by reference to the Annual Report on Form 10-K of Chancellor Broadcasting Company (File No. 0-27726), Chancellor Radio Broadcasting Company and Chancellor Broadcasting Licensee Company for the fiscal year ended December 31, 1996. (5) Incorporated by reference to the Registration Statement on Form S-1 (File No. 33-80534) of Chancellor Broadcasting Company as filed with the Securities and Exchange Commission. (6) Incorporated by reference to the Quarterly Report on Form 10-Q of Chancellor Broadcasting Company (File No. 0-27726) for the fiscal quarter ended September 30, 1996. 28 (7) Incorporated by reference to the Form 8-K filed by Chancellor Radio Broadcasting Company (File No. 33-98334) on February 6, 1997. (8) Incorporated by reference to the Form 8-K filed by Chancellor Broadcasting Company (File No. 0-27726) on February 6, 1997. (9) Incorporated by reference from the Form 8-K of Chancellor Broadcasting Company (File No. 0-27726) and Chancellor Radio Broadcasting Company (File No. 33-98334) as filed with the Securities and Exchange Commission on February 29, 1996. EX-4.8 2 2ND SUPPLEMENTAL INDENTURE 1 EXHIBIT 4.8 ================================================================================ CHANCELLOR RADIO BROADCASTING COMPANY, as Issuer CHANCELLOR BROADCASTING LICENSEE COMPANY, TREFOIL COMMUNICATIONS, INC., SHAMROCK BROADCASTING, INC., SHAMROCK RADIO LICENSES, INC., and SHAMROCK BROADCASTING OF TEXAS, INC., as Guarantors AND U.S. TRUST COMPANY OF TEXAS, N.A., as Trustee ------------------------- SECOND SUPPLEMENTAL INDENTURE Dated as of April 15, 1997 to Indenture Dated as of February 14, 1996 ------------------------- $200,000,000 9-3/8% Senior Subordinated Notes due 2004 ================================================================================ 2 SECOND SUPPLEMENTAL INDENTURE dated as of April 15, 1997, among CHANCELLOR RADIO BROADCASTING COMPANY, a Delaware corporation (the "Company"), TREFOIL COMMUNICATIONS, INC., a Delaware corporation, SHAMROCK BROADCASTING, INC., a Delaware corporation, SHAMROCK RADIO LICENSES, INC., a Delaware corporation, SHAMROCK BROADCASTING OF TEXAS, INC., a Texas corporation, and CHANCELLOR BROADCASTING LICENSEE COMPANY, a Delaware corporation (collectively, the "Guarantors"), and U.S. TRUST COMPANY OF TEXAS, N.A., a national banking association, as Trustee (the "Trustee"). WHEREAS, the Company and the Guarantors have heretofore executed and delivered to the Trustee an Indenture dated as of February 14, 1996, as amended by that certain First Supplemental Indenture dated as of February 14, 1996 (the "Indenture") providing for the issuance of $200,000,000 aggregate principal amount of the Company's 9-3/8% Senior Subordinated Notes due 2004 (the "Securities"); WHEREAS, the Company, the Guarantors and the Trustee desire by this Second Supplemental Indenture, pursuant to and as contemplated by Section 9.02 of the Indenture, to amend certain provisions therein; WHEREAS, the execution and delivery of this Second Supplemental Indenture has been authorized by resolutions of the Boards of Directors of the Company and the Guarantors; WHEREAS, the Company has requested that the holders of the Securities consent to and approve the amendment set forth herein; WHEREAS, the Company has received written consents to such amendment from holders of at least a majority in aggregate principal amount of the Securities outstanding; and WHEREAS, all conditions and requirements necessary to make this Second Supplemental Indenture a valid, binding and legal instrument in accordance with its terms have been performed and fulfilled by the parties hereto and the execution and delivery thereof have been in all respects duly authorized by the parties hereto. NOW, THEREFORE, in consideration of the above premises, each party agrees, for the benefit of the others and for the equal and ratable benefit of the holders of the Securities, as follows: 2 3 ARTICLE ONE AMENDMENTS Section 1.01. Limitation on Incurrence of Additional Indebtedness. Section 4.12 of the Indenture is hereby amended and restated in its entirety to read as follows: Section 4.12. Limitation on Incurrence of Additional Indebtedness. Neither the Company nor any of its Subsidiaries will, directly or indirectly, create, incur, assume, guarantee, acquire or become liable for, contingently or otherwise, (collectively "incur") any Indebtedness other than Permitted Indebtedness. Notwithstanding the foregoing limitations, the Company or any Subsidiary may incur Indebtedness if on the date of the incurrence of such Indebtedness, after giving effect to the incurrence of such Indebtedness and the receipt and application of proceeds thereof, the Company's Leverage Ratio is less than 7.0 to 1. ARTICLE TWO MISCELLANEOUS PROVISIONS Section 2.01. Terms Defined. For all purposes of this Second Supplemental Indenture, except as otherwise defined or unless the context otherwise requires, terms used in capitalized form in this Second Supplemental Indenture and defined in the Indenture have the meanings specified in the Indenture. Section 2.02. Indenture. Except as amended hereby, the Indenture and the Securities are in all respects ratified and confirmed and all the terms shall remain in full force and effect. Section 2.03. Governing Law. This Second Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York, as applied to contracts made and performed within the State of New York, without regard to principles of conflict of laws. Section 2.04. Successors. All agreements of the Company and the 3 4 Guarantor in this Second Supplemental Indenture and the Securities shall bind their successors. All agreements of the Trustee in this Second Supplemental Indenture shall bind its successors. Section 2.05. Duplicate Originals. All parties may sign any number of copies of this Second Supplemental Indenture. Each signed copy shall be an original, but all of them together shall represent the same agreement. Section 2.06. Severability. In case any one or more of the provisions in this Second Supplemental Indenture or in the Securities shall be held invalid, illegal or unenforceable, in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law. Section 2.07. Trustee Disclaimer. The Trustee accepts the amendment of the Indenture effected by this Second Supplemental Indenture and agrees to execute the trust created by the Indenture as hereby amended, but only upon the terms and conditions set forth in the Indenture, including the terms and provisions defining and limiting the liabilities and responsibilities of the Trustee, which terms and provisions shall in like manner define and limit its liabilities and responsibilities in the performance of the trust created by the Indenture as hereby amended, and without limiting the generality of the foregoing, the Trustee shall not be responsible in any manner whatsoever for or with respect to any of the recitals or statements contained herein, all of which recitals or statements are made solely by the Company and the Guarantors, or for or with respect to (i) the validity or sufficiency of this Second Supplemental Indenture or any of the terms or provisions hereof, (ii) the proper authorization hereof by the Company and the Guarantors by corporate action or otherwise, (iii) the due execution hereof by the Company and the Guarantors or (iv) the consequences (direct or indirect and whether deliberate or inadvertent) of any amendment herein provided for, and the Trustee makes no representation with respect to any such matters. 4 5 Section 2.08. Effectiveness. This Second Supplemental Indenture shall become effective once executed upon receipt by the Trustee of a certificate of an appropriate officer of the Company, substantially in the form of Exhibit A hereto, dated no earlier than the date hereof. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 5 6 IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be duly executed as of the day and year first written above. CHANCELLOR RADIO BROADCASTING COMPANY, as Issuer By: /s/ J D Kerrest ------------------------------------- Title: Senior VP and CFO CHANCELLOR BROADCASTING LICENSEE COMPANY, as Guarantor By: /s/ J D Kerrest ------------------------------------- Title:Senior VP and CFO TREFOIL COMMUNICATIONS, INC., as Guarantor By: /s/ J D Kerrest ------------------------------------- Title: Senior VP and CFO 7 SHAMROCK BROADCASTING, INC., as Guarantor By: /s/ J D Kerrest ------------------------------------- Title: Senior VP and CFO SHAMROCK RADIO LICENSES, INC., as Guarantor By: /s/ J D Kerrest ------------------------------------- Title: Senior VP and CFO SHAMROCK BROADCASTING OF TEXAS, INC., as Guarantor By: /s/ J D Kerrest ------------------------------------- Title: Senior VP and CFO U.S. TRUST COMPANY OF TEXAS, N.A., as Trustee By: /s/ John Stohlmann ------------------------------------- Title: Vice President 8 EXHIBIT A CHANCELLOR RADIO BROADCASTING COMPANY OFFICERS' CERTIFICATE The undersigned each hereby certifies that he is the duly elected, qualified, and serving President and Senior Vice President, respectively, of Chancellor Radio Broadcasting Company, a Delaware corporation (the "Company"), and, in each of their respective capacities as such officer only, hereby certify on behalf of the Company, and not individually, that: 1. The undersigned has read Section 9.02 of that certain Indenture, dated as of February 14, 1996, as amended (the "Indenture"), among the Company, and Chancellor Broadcasting Licensee Company, Trefoil Communications, Inc., Shamrock Broadcasting, Inc., Shamrock Radio Licenses, Inc., and Shamrock Broadcasting of Texas, Inc., as guarantors, and U.S. Trust Company of Texas, N.A., as trustee (the "Trustee"). 2. The undersigned has examined the report (a copy of which is attached hereto as Exhibit A) of Bankers Trust Company, the Company's agent (the "Agent") with respect to the Company's solicitation of consents of the holders of its 9-3/8% Senior Subordinated Notes due 2004 (the "Notes") to a proposed amendment (the "Proposed Amendment") to the Indenture, which report sets forth the aggregate principal amount of Notes for which valid consents to the Proposed Amendment have been delivered to the Agent, and not revoked as of date hereof. 3. In the undersigned's opinion, the examination and investigation reasonably necessary to be performed by the undersigned to enable such person to express an informed opinion as to the matters set forth in this certificate have been made. 4. In the undersigned's opinion, all of the conditions and requirements set forth in Section 9.02 of the Indenture with respect to the execution, delivery and validity of the Second Supplemental Indenture to the Indenture, which sets forth the Proposed Amendment have been performed and fulfilled. 9 IN WITNESS WHEREOF, the undersigned have executed this certificate on behalf of the Company this ___ day of April __, 1997. ------------------------- Steven Dinetz President ------------------------- Jacques D. Kerrest Senior Vice President EX-11.1 3 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11.1 CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
THREE MONTHS ENDED MARCH 31, ---------------------------- 1996 1997 ------------ ------------ Computation for statements of operations: Loss before extraordinary loss $ (7,585) $ (12,683) Dividends and accretion on preferred stock -- 1,454 Loss on repurchase of preferred stock of subsidiary (16,570) -- ------------ ------------ Loss before extraordinary loss applicable to common stock (24,155) (14,137) Extraordinary loss (4,646) (2,749) ------------ ------------ Net loss applicable to common stock $ (28,801) $ (16,886) ============ ============ Computation for weighted average common shares outstanding: Weighted average common shares outstanding 13,191,626 18,719,690 Incremental common shares applicable to common stock options based on the estimated fair value of the stock 410,432 545,007 Common stock options excluded based on anti-dilutive effect (410,432) (545,007) ------------ ------------ Weighted average common shares 13,191,626 18,719,690 ============ ============ Loss per common share: Primary and fully diluted Loss before extraordinary loss $ (1.83) $ (0.75) Extraordinary loss (0.35) (0.15) ------------ ------------ Net loss $ (2.18) $ (0.90) ============ ============
EX-27.1 4 FDS - CHANCELLOR BROADCASTING COMPANY
5 0001002909 CHANCELLOR BROADCASTING COMPANY 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 4,982 0 54,345 1,308 0 61,279 79,814 11,461 1,175,723 36,193 260,000 414,175 0 190 199,885 1,175,723 0 55,854 0 51,014 (2) 247 11,420 (4,948) (400) (12,683) 0 2,749 0 (15,432) (.90) (.90)
EX-27.2 5 FDS - CHANCELLOR RADIO BROADCASTING COMPANY
5 0000925744 CHANCELLOR RADIO BROADCASTING COMPANY 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 4,982 0 54,345 1,308 0 61,279 79,814 11,461 1,175,723 36,193 260,000 307,174 0 190 307,077 1,175,723 0 55,854 0 51,014 (2) 247 11,420 (4,948) (400) (4,548) 0 2,749 0 (7,297) 0 0
EX-27.3 6 FDS - CHANCELLOR BROADCASTING LICENSEE COMPANY
5 0000925752 CHANCELLOR BROADCAST LICENSEE COMPANY 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 4,982 0 54,345 1,308 0 61,279 79,814 11,461 1,175,723 36,193 260,000 307,174 0 1 307,076 1,175,723 0 55,854 0 51,014 (2) 247 11,420 (4,948) (400) (4,548) 0 2,749 0 (7,297) 0 0
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