<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
COMMISSION FILE NUMBER 333-33015
CAPSTAR BROADCASTING PARTNERS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
75-2672663
(I.R.S. Employer Identification Number)
1845 WOODALL RODGERS FREEWAY, SUITE 1300, DALLAS, TEXAS 75201
(Address of principal executive offices, including zip code)
(214) 922-8700
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: As of May 11, 2000, 1,000
shares of common stock of the Registrant's common stock were outstanding.
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<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.............................................................. 3
Condensed Consolidated Balance Sheets (unaudited)................................. 3
Condensed Consolidated Statements of Operations (unaudited)....................... 4
Condensed Consolidated Statements of Cash Flows (unaudited)....................... 5
Notes to Condensed Consolidated Financial Statements (unaudited).................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk........................ 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................................. 17
Item 6. Exhibits and Reports on Form 8-K.................................................. 18
Signature......................................................................... 20
</TABLE>
2
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, MARCH 31,
1999 2000
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents .......................................................... $ 14,634 $ 28,494
Accounts receivable, less allowance for doubtful accounts of $21,428 in
1999 and $27,385 in 2000 ......................................................... 531,818 455,380
Other current assets ............................................................... 95,358 62,174
------------ ------------
Total current assets ........................................................ 641,810 546,048
Property and equipment, net .......................................................... 471,051 459,221
Intangible assets, net ............................................................... 10,352,530 10,086,069
Investments in non-consolidated affiliates ........................................... 1,103,442 1,081,115
Other assets, net .................................................................... 251,036 248,894
------------ ------------
$ 12,819,869 $ 12,421,347
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses .............................................. $ 290,577 $ 310,476
Long-term debt ....................................................................... 5,890,217 5,783,388
Deferred tax liabilities ............................................................. 1,712,350 1,669,565
Other liabilities .................................................................... 60,154 52,023
------------ ------------
Total liabilities ........................................................... 7,953,298 7,815,452
------------ ------------
Commitments and contingencies
Redeemable senior exchangeable preferred stock of subsidiary, par value $.01 per
share; 10,000,000 shares authorized in 1999; 1,254,616 shares issued and outstanding
in 1999; liquidation preference of $132,989 ........................................ 151,982 --
Stockholder's equity:
Common stock, $.01 par value. 3,000 shares authorized; 1,000 shares issued
and outstanding ................................................................... 1 1
Paid-in capital .................................................................... 5,169,932 5,221,626
Accumulated deficit ................................................................ (455,344) (615,732)
------------ ------------
Total stockholder's equity .................................................. 4,714,589 4,605,895
------------ ------------
$ 12,819,869 $ 12,421,347
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
MARCH 31, MARCH 31,
1999 2000
---------- ----------
<S> <C> <C>
Gross revenues ...................................................... $ 394,123 $ 588,884
Less agency commissions ........................................... 43,858 67,614
---------- ----------
Net revenues ................................................... 350,265 521,270
Operating expenses ................................................. 208,510 308,088
Depreciation and amortization ...................................... 147,744 209,568
Corporate general and administrative ............................... 17,814 15,302
Non-cash compensation .............................................. -- 34,878
Merger and non-recurring costs ..................................... 16,344 11,115
---------- ----------
Operating loss ................................................. (40,147) (57,681)
Interest expense, net .............................................. 84,392 123,780
Loss (gain) on disposition of assets ............................... 82 (22,819)
Gain on disposition of representation contracts .................... (3,685) (16,217)
---------- ----------
Loss before income taxes ....................................... (120,936) (142,425)
Income tax benefit .................................................. 26,967 9,773
---------- ----------
Loss before equity in net loss of affiliates and extraordinary
item ........................................................... (93,969) (132,652)
Equity in net loss of affiliates .................................... -- 24,631
---------- ----------
Loss before extraordinary item .................................... (93,969) (157,283)
Extraordinary loss, net of income tax benefit ....................... -- 6,094
---------- ----------
Net loss .................................................. (93,969) (163,377)
Credit on exchange of preferred stock ............................... -- 3,310
---------- ----------
Net loss attributable to common stock ............................. $ (93,969) $ (160,067)
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
MARCH 31, MARCH 31,
1999 2000
----------- -----------
<S> <C> <C>
Net cash provided by operating activities ................... $ 91,236 $ 190,720
----------- -----------
Cash flows from investing activities:
Acquisitions, net of cash acquired ........................ (346,790) (5,255)
Proceeds from sale of assets .............................. -- 93,711
Purchases of property and equipment ....................... (9,771) (9,451)
Construction of advertising structures .................... (5,157) --
Payments made for purchases of representation contracts ... (8,676) (8,277)
Payments received from sales of representation contracts .. 6,187 5,624
Other ..................................................... (2,677) (1,235)
----------- -----------
Net cash provided by (used by) investing
activities ...................................... (366,884) 75,117
----------- -----------
Cash flows from financing activities:
Proceeds of long-term debt ................................ 329,000 212,500
Payments on long-term debt ................................ (47,000) (475,327)
Contributions from parent ................................. 3,336 20,303
Dividends to parent ....................................... (6,417) (1,604)
Dividends on preferred stock .............................. -- (7,849)
Distributions to parent ................................... (8,458) --
----------- -----------
Net cash provided by (used by) financing
activities ...................................... 270,461 (251,977)
----------- -----------
Increase (decrease) in cash and cash equivalents ............ (5,187) 13,860
Cash and cash equivalents at beginning of period ............ 12,256 14,634
----------- -----------
Cash and cash equivalents at end of period .................. $ 7,069 $ 28,494
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
1. BASIS OF PRESENTATION
The accompanying unaudited interim financial statements include the
accounts of Capstar Broadcasting Partners, Inc. and its subsidiaries
(collectively, the "Company" or "Capstar Partners"). Capstar Partners is an
indirect wholly-owned subsidiary of AMFM Inc. (together with its subsidiaries,
"AMFM"). All significant intercompany balances and transactions have been
eliminated in consolidation and, in the opinion of management, all adjustments
(consisting of normal recurring accruals) necessary to present fairly the
financial position, results of operations and cash flows have been recorded.
Investments in which the Company owns 20 percent to 50 percent of the voting
common stock or otherwise exercises significant influence over operating and
financial policies of the investee are accounted for using the equity method.
Interim period results are not necessarily indicative of results to be expected
for the year.
These financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999. The
year-end consolidated balance sheet data was derived from the audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles.
Certain reclassifications have been made to prior period condensed
consolidated financial statements to conform to the current period
presentation.
On November 19, 1999, AMFM completed the combination of the outstanding
bonds, bank indebtedness and preferred stock of its direct and indirect
subsidiaries into two entities, Capstar Partners and AMFM Operating Inc. ("AMFM
Operating"), through a series of related transactions, including contributions
of stock and mergers of its direct and indirect subsidiaries (the "Corporate
Reorganization"). As part of the combination, Capstar Broadcasting Corporation
("Capstar Broadcasting"), the former sole stockholder of Capstar Partners, was
merged into AMFM's direct subsidiary Chancellor Mezzanine Holdings Corporation.
In addition, Capstar Radio Broadcasting Partners, Inc. ("Capstar Radio") and
Chancellor Media Corporation of Los Angeles ("CMCLA") merged into Capstar
Communications, Inc., which assumed all of the outstanding bonds and bank
indebtedness of Capstar Radio and CMCLA. The combined entity was renamed AMFM
Operating Inc. and became a wholly-owned subsidiary of Capstar Partners. All of
the operating subsidiaries of AMFM, except for the subsidiaries engaged in
AMFM's Internet initiatives, became directly or indirectly owned by AMFM
Operating.
As CMCLA and Capstar Partners were under the common control of AMFM, the
Corporate Reorganization was accounted for by the Company in a manner similar
to a pooling of interests. The accounts of CMCLA and its subsidiaries are
included in the Company's financial statements as of and for all periods
presented herein. Subsequent to July 13, 1999, the date of AMFM's acquisition
of Capstar Broadcasting, which included Capstar Partners, the Company's
financial statements also include the accounts of Capstar Partners and its
subsidiaries.
2. CLEAR CHANNEL MERGER AGREEMENT
On October 2, 1999, AMFM and Clear Channel Communications, Inc. ("Clear
Channel") entered into a definitive merger agreement. Under the terms of the
merger agreement, AMFM stockholders will receive 0.94 shares of Clear Channel
common stock, on a fixed exchange basis, for each share of AMFM's common stock
held on the closing date of the transaction and AMFM will become a wholly-owned
subsidiary of Clear Channel. Pursuant to the Telecommunications Act of 1996,
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and other regulatory
guidelines, it is expected that, collectively, Clear Channel and the Company
will need to divest between 110 and 115 radio stations in the aggregate in
approximately 37 markets or geographical areas to obtain antitrust and Federal
Communications Commission (the "FCC") approval for the merger. At March 31,
2000, AMFM and Clear Channel have signed definitive agreements to sell 110 of
these stations for an aggregate cash sales price of approximately $4.3 billion.
Of these stations, 66 are owned and operated by the Company. Completion of
these sales is subject to the completion of the Clear Channel merger, obtaining
regulatory approvals and other closing conditions. In addition, the Company may
need to make further divestitures of radio stations or other assets or
interests in order to gain the approval of the federal and state antitrust
authorities
6
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CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
for the merger. On April 26, 2000 and April 27, 2000, stockholders of both
companies approved the merger. Although there can be no assurance, the Company
expects that the Clear Channel merger will be consummated by September 30, 2000.
3. ACQUISITIONS AND DISPOSITIONS
(a) Completed Transactions
On January 14, 2000, the Company sold the capital stock of its Puerto Rico
subsidiaries to Spanish Broadcasting System of Puerto Rico, Inc. for $90,860 in
cash and recognized a pre-tax gain of approximately $22,800. The Company owned
and operated eight radio stations in Puerto Rico.
On January 31, 2000, the Company sold radio stations KIOK-FM, KALE-AM and
KEGX-FM in Richland, Washington and KTCR-AM in Kennewick, Washington to New
Northwest Broadcasters II, Inc. for $3,781 in cash.
On January 31, 2000, the Company acquired radio station KQOD-FM in
Stockton, California from Carson Group, Inc. for a purchase price of $5,255 in
cash, including direct acquisition costs. The Company had previously been
operating KQOD-FM under a local marketing agreement effective September 20,
1999.
The foregoing acquisitions were accounted for as purchases. Accordingly,
the accompanying consolidated financial statements include the results of
operations of the acquired entities from their respective dates of acquisition.
A summary of the net assets acquired in the three-month period ended March
31, 2000 follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
2000
----------
<S> <C>
Property and equipment ................... $ 566
Intangible assets ........................ 4,689
----------
Total net assets acquired ...... $ 5,255
==========
</TABLE>
The unaudited pro forma condensed consolidated results of operations data
for the three months ended March 31, 1999 and 2000, as if the acquisitions and
dispositions through March 31, 2000 occurred at January 1, 1999, follow:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
MARCH 31, MARCH 31,
1999 2000
----------- -----------
<S> <C> <C>
Net revenues ...................... $ 427,293 $ 520,796
Loss before extraordinary item .... (162,368) (156,677)
Net loss .......................... (162,368) (162,771)
</TABLE>
The pro forma results are not necessarily indicative of the financial
results which would have occurred if the transactions had been in effect for
the entire periods presented.
(b) Pending Transactions
On August 30, 1999, the Company entered into an agreement with Cox Radio,
Inc. ("Cox") to acquire KOST-FM and KFI-AM in Los Angeles plus $3,000 in cash
payable by Cox in exchange for 13 of its radio stations including WEDR-FM in
Miami, WFOX-FM in Atlanta, WEFX-FM, WNLK-AM, WKHL-FM and WSTC-AM in
Stamford/Norwalk, WFYV-FM, WAPE-FM, WBWL-AM, WKQL-FM, WMXQ-FM and WOKV-AM in
Jacksonville and WPLR-FM and the local sales rights of a 14th station, WYBC-FM,
in New Haven. The Company began programming KOST-FM and KFI-AM in Los Angeles
and Cox began programming the 13 Company stations under time brokerage
agreements effective October 1, 1999. Although there can be no assurance, the
Company expects that the Cox exchange will be consummated in the second quarter
of 2000.
On January 19, 2000, the Company entered into an agreement to exchange
radio station KSKY-AM in Dallas for radio station KPRZ-FM in Colorado Springs
owned by Bison Media, Inc., plus $7,500 in cash payable by Bison Media.
Although there can be no
7
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CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
assurance, the Company expects to complete the asset exchange in the second
quarter of 2000.
4. PREFERRED STOCK CONVERSION AND REDEMPTION OF DEBT
Effective January 1, 2000, the Company exchanged all of the outstanding
shares of its 12% Senior Exchangeable Preferred Stock for $125,462 in aggregate
principal amount of its 12% Subordinated Exchange Debentures due 2009. The 12%
Subordinated Exchange Debentures due 2009 were revalued at fair market value
upon the exchange, and the excess of the carrying value of the preferred stock
over the fair value of the subordinated debentures of $3,310 has been reflected
in the financial statements as a credit on exchange of preferred stock.
On February 1, 2000, the Company completed the redemption of all of its
outstanding 9 3/8% Senior Subordinated Notes due 2004 for an aggregate
repurchase cost of $216,355, which included the principal amount of the notes
of $200,000, premiums on the repurchase of the notes of $9,376 and accrued and
unpaid interest on the notes from October 1, 1999 through February 14, 2000 of
$6,979. An extraordinary charge of $6,094 (net of a tax benefit of $3,282) was
recorded in connection with the redemption.
5. CONTINGENCIES
On July 24, 1998, in connection with Capstar Broadcasting's then pending
acquisition of Triathlon Broadcasting Company, Capstar Broadcasting was
notified of an action filed on behalf of all holders of depository shares of
Triathlon against Triathlon, Triathlon's directors, and Capstar Broadcasting.
The action was filed in the Court of Chancery of the State of Delaware (Civil
Action No. 16560) in and for New Castle County, Delaware by Herbert Behrens.
The complaint alleges that Triathlon and its directors breached their fiduciary
duties to the class of depository stockholders by agreeing to a transaction
with Capstar Broadcasting that allegedly favored the class A common
stockholders at the expense of the depository stockholders. Capstar
Broadcasting is accused of knowingly aiding and abetting the breaches of
fiduciary duties allegedly committed by the other defendants. The complaint
sought to have the action certified as a class action and sought to enjoin the
Triathlon acquisition, or in the alternative, sought monetary damages in an
unspecified amount. On February 12, 1999, the parties signed a memorandum of
understanding that provided for the settlement of the lawsuit. The amount of
the settlement will equal $0.11 in additional consideration for each depositary
share owned by any class member at the effective time of the Triathlon
acquisition. At the time of the acquisition, there were approximately 5.8
million depositary shares outstanding. Capstar Broadcasting also agreed not to
oppose plaintiff's counsel's application for attorney fees and expenses in the
aggregate amount of $150. The proposed settlement is contingent upon
confirmatory discovery by the plaintiff, execution of a definitive settlement
agreement, and court approval. On November 19, 1999, Capstar Broadcasting
merged into Chancellor Mezzanine Holdings Corporation and the surviving
corporation was renamed AMFM Holdings Inc.
In September 1998, a stockholder class action complaint was filed in the
Delaware Court of Chancery by a stockholder purporting to act individually and
on behalf of all other persons, other than defendants, who own securities of
AMFM and are similarly situated. The defendants named in the case are AMFM,
Hicks Muse, Thomas O. Hicks, Jeffrey A. Marcus, James E. de Castro, Eric C.
Neuman, Lawrence D. Stuart, Jr., Steven Dinetz, Thomas J. Hodson, Perry Lewis,
John H. Massey and Vernon E. Jordan, Jr. The plaintiff alleges breach of
fiduciary duties, gross mismanagement, gross negligence or recklessness, and
other matters relating to the defendants' actions in connection with the
Capstar merger. The plaintiff sought to certify the complaint as a class
action, enjoin consummation of the Capstar merger, order defendants to account
to plaintiff and other alleged class members for damages, and award attorneys'
fees and other costs. The Company believes that the lawsuit is without merit
and intends to vigorously defend the action.
On April 11, 2000 an action was commenced in New York Supreme Court, New
York County, by Interep National Radio Sales, Inc. seeking $47,118 in damages
from Clear Channel Communications, Inc. Also named as a defendant is Katz
Communications, Inc., an indirect wholly-owned subsidiary of the Company. The
complaint alleges, among other things, that Clear Channel wrongfully terminated
a February 3, 1996 agreement between Clear Channel and Interep under which
Interep agreed to act as Clear Channel's exclusive advertising representative
by procuring advertising time on Clear Channel's radio stations and also under
which Interep, Clear Channel and Katz executed certain "triparty agreements" in
which Interep agreed to buy out the existing representation agreement of Clear
Channel's then current representative, Katz, for $23,000. The complaint also
alleges that Interep's representation agreement, by its terms, could not be
terminated by Clear Channel until February 1, 2005 and that Clear Channel's
November 30, 1999 termination of Interep constituted a breach of the
representation agreement. The complaint alleges further that Clear Channel and
Katz continue to demand that Interep make all buy out payments to Katz as set
forth in the various triparty agreements. $5,188 of the requested damages
correspond to buyouts in excess of the pro rata amount attributable to the time
Interep had the right to represent
8
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CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
the bought out stations and $280 of the requested damages correspond to a
refund of a portion of a "signing bonus" paid by Interep to Clear Channel upon
the execution of Interep's representation agreement. The complaint does not
specify the basis for the remaining damages sought by Interep.
The Company is also involved in various other claims and lawsuits which are
generally incidental to its business. The Company is also vigorously contesting
all of these matters and believes that the ultimate resolution of these matters
and those mentioned above will not have a material adverse effect on its
consolidated financial position, results of operations or cash flows.
6. NON-CASH COMPENSATION
The Company recorded non-cash compensation of $34,878 during the three
months ended March 31, 2000 primarily related to amendments made to the stock
option agreements of certain operating personnel terminated upon implementation
of the Company's market strategy.
7. MERGER AND NON-RECURRING COSTS
Merger and non-recurring costs consist of the following for the three
months ended March 31, 1999 and 2000:
<TABLE>
<CAPTION>
1999 2000
-------- --------
<S> <C> <C>
Severance(a)................................................................ $ 12,196 $ 8,399
Merger and other(b)......................................................... 4,148 2,716
-------- --------
$ 16,344 $ 11,115
======== ========
</TABLE>
- ------------
(a) 1999
----
On March 15, 1999, the Company announced an executive realignment
and recorded a charge of $12,196 for executive severance and other
costs.
2000
----
On February 16, 2000, the Company announced the retirement of James
E. de Castro as Vice-Chairman of AMFM Inc., President and Chief
Executive Officer of AMFM Radio Group and Chairman and Chief
Executive Officer of AMFM Interactive, Inc., effective February 18,
2000. In connection with Mr. de Castro's retirement, the Company
recorded a charge of $5,340 for severance costs.
In 1999, the Company announced its market strategy, whereby each
cluster of stations in a market will be managed as a single business
unit. In connection with this strategy, certain personnel,
consisting primarily of operating personnel, have been terminated
and other personnel-related costs have been incurred to align
formats within a market to target certain demographics. During the
three months ended March 31, 2000, the Company incurred costs of
$3,059, of which $2,637 related to personnel costs. At March 31,
2000, $8,978 of the total costs incurred to date were accrued and
are expected to be paid during the remainder of 2000.
(b) 1999
----
The Company assigned its contract to acquire Petry Media Corporation
("Petry") to LIN Television Corporation and recorded a charge of
$4,148 to write off transaction costs incurred in connection with
the Petry transaction.
2000
----
The Company incurred costs of $1,663 for the three months ended
March 31, 2000 related to the Clear Channel merger and developmental
costs of $1,053 related to the Galaxy(TM) system, the Company's
proprietary traffic system.
8. SEGMENT DATA
During the three months ended March 31, 1999, the Company conducted
business in three distinct operating segments consisting of radio broadcasting,
new media and outdoor advertising. Following the sale of the Company's outdoor
advertising business to Lamar Advertising Company on September 15, 1999, the
Company operates in only the radio broadcasting and new media segments.
9
<PAGE> 10
CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Separate financial data for each of the Company's operating segments is
provided below. The Company evaluates the performance of its segments based on
the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
MARCH 31, MARCH 31,
1999 2000
---- ----
<S> <C> <C>
AMFM Radio Group -- radio broadcasting:
Net revenues..................................................................... $ 261,779 $ 480,706
Operating expenses............................................................... 154,121 279,662
Depreciation and amortization.................................................... 104,682 192,327
Merger and non-recurring costs................................................... -- 8,387
Operating loss................................................................... (298) (2,742)
AMFM New Media Group -- media representation:
Net revenues..................................................................... 39,695 49,784
Operating expenses............................................................... 30,748 37,646
Depreciation and amortization.................................................... 7,783 11,071
Merger and non-recurring costs................................................... -- 1,053
Operating loss................................................................... (344) (2,814)
Chancellor Outdoor Group -- outdoor advertising:
Net revenues..................................................................... 53,601 --
Operating expenses............................................................... 28,451 --
Depreciation and amortization.................................................... 31,396 --
Merger and non-recurring costs................................................... -- --
Operating loss................................................................... (9,071) --
</TABLE>
The segment financial data includes intersegment revenues and expenses
which must be excluded to reconcile to the Company's consolidated financial
statements. In addition, certain depreciation and amortization expenses,
corporate general and administrative expenses, non-cash compensation and merger
and non-recurring costs were not allocated to operating segments and must be
included to reconcile to the Company's consolidated financial statements.
Reconciling financial data is provided below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
MARCH 31, MARCH 31,
1999 2000
---- ----
<S> <C> <C>
Intersegment net revenues........................................................ $ 4,810 $ 9,220
Intersegment operating expenses.................................................. 4,810 9,220
Unallocated depreciation and amortization........................................ 3,883 6,170
Unallocated corporate general and administrative expenses........................ 10,207 9,402
Unallocated non-cash compensation................................................ -- 34,878
Unallocated merger and non-recurring costs....................................... 16,344 1,675
</TABLE>
9. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This statement
establishes accounting and reporting standards for derivative instruments and
hedging activities. SFAS No. 133, as amended by SFAS No. 137, is effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000.
Management does not anticipate that this statement will have a material impact
on the Company's consolidated financial statements.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB No. 25, Accounting for Stock Issued to
Employees. The provisions of this Interpretation will be effective July 1, 2000.
If the Clear Channel merger is completed prior to July 1, 2000, the effective
date of the Interpretation, the Company would be required to record a
significant non-cash charge related to certain amendments to AMFM's stock option
plans that are expected to be implemented prior to the consummation of the
merger. Due to the terms of certain options previously granted, the Company will
record a non-cash charge upon consummation of the merger regardless of the new
Interpretation. The size of such charge is not presently determinable since it
will be based on, among other things, the fair value of AMFM's common stock on
the day of the merger.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Capstar Broadcasting Partners, Inc. together with its subsidiaries
("Capstar Partners" or the "Company") is an indirect wholly-owned subsidiary of
AMFM Inc. (together with its subsidiaries, "AMFM"), a large national pure-play
radio broadcasting and related media company with operations in radio
broadcasting and media representation and growing Internet operations, which
focus on developing AMFM's Internet web sites, streaming online broadcasts of
the Company's on-air programming and other media, and promoting emerging
Internet and new media concerns. In addition, the Company owns an approximate
30% equity (11% voting) interest in Lamar Advertising Company ("Lamar"), one of
the largest owners and operators of outdoor advertising structures in the
United States. As of March 31, 2000, the Company owned and operated, programmed
or sold air time for 442 radio stations (318 FM and 124 AM) in 100 markets in
the United States, including nine radio stations programmed under time
brokerage or joint sales agreements. The Company also operates a national radio
network, The AMFM Radio Networks, which broadcasts advertising and syndicated
programming shows to a national audience of approximately 68 million listeners
in the United States (including approximately 59 million listeners from the
Company's portfolio of stations) and the Chancellor Marketing Group, a
full-service sales promotion firm developing integrated marketing programs for
Fortune 1000 companies. The media representation business consists of Katz
Media Group, Inc. ("Katz"), a full-service media representation firm that sells
national spot advertising time for its clients in the radio and television
industries throughout the United States and for the Company's portfolio of
stations.
See Note 8 to the Condensed Consolidated Financial Statements included
elsewhere in the Form 10-Q for additional information on the Company's
operating segments as of March 31, 2000.
On July 13, 1999, AMFM acquired Capstar Broadcasting Corporation ("Capstar
Broadcasting") and its subsidiaries, which included Capstar Partners, through a
merger of a wholly-owned subsidiary of AMFM into Capstar Broadcasting, with
Capstar Broadcasting surviving as a wholly-owned direct subsidiary of AMFM. As
a result of the Capstar merger, all of the then outstanding shares of Capstar
Broadcasting common stock were converted into 0.4955 of a share of AMFM common
stock, or approximately 53.6 million shares of AMFM common stock in the
aggregate. Immediately prior to the Capstar merger, the portfolio of Chancellor
Media Corporation of Los Angeles ("CMCLA"), an indirect subsidiary of AMFM,
included 124 radio stations (92 FM and 32 AM). As a result of the Capstar
merger, CMCLA added 338 radio stations (239 FM and 99 AM) to its portfolio and
assumed the outstanding options, warrants and other equity rights in Capstar
Broadcasting representing up to an additional 3.2 million shares of AMFM common
stock.
On November 19, 1999, AMFM completed the combination of the outstanding
bonds, bank indebtedness and preferred stock of its direct and indirect
subsidiaries into two entities, Capstar Partners and AMFM Operating Inc. ("AMFM
Operating"), through a series of related transactions, including contributions
of stock and mergers of its direct and indirect subsidiaries (the "Corporate
Reorganization"). As part of the combination, Capstar Broadcasting was merged
into AMFM's direct subsidiary Chancellor Mezzanine Holdings Corporation. In
addition, Capstar Radio Broadcasting Partners, Inc. ("Capstar Radio") and CMCLA
merged into Capstar Communications, Inc., which assumed all of the outstanding
bonds and bank indebtedness of Capstar Radio and CMCLA. The combined entity was
renamed AMFM Operating Inc. and became a wholly-owned subsidiary of Capstar
Partners. All of the operating subsidiaries of AMFM, except for the
subsidiaries engaged in AMFM's Internet initiatives, became directly or
indirectly owned by AMFM Operating.
As CMCLA and Capstar Partners were under the common control of AMFM, the
Corporate Reorganization was accounted for by the Company in a manner similar
to a pooling of interests. The accounts of CMCLA and its subsidiaries are
included in the Company's financial statements for all periods and dates
presented herein. Subsequent to July 13, 1999, the date of AMFM's acquisition
of Capstar Broadcasting, which included Capstar Partners, the Company's
financial statements also include the accounts of Capstar Partners and its
subsidiaries.
The Company's results of operations for the three months ended March 31,
2000 are not comparable to the results of operations for the three months ended
March 31, 1999 due to the impact of the Corporate Reorganization and the
Company's various acquisitions and dispositions. In addition to the Capstar
merger and the Corporate Reorganization, the Company completed the following
transactions from April 1, 1999 through March 31, 2000:
o the sale of the Company's entire outdoor advertising business to Lamar on
September 15, 1999;
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<PAGE> 12
o the acquisition of eight radio stations (seven FM and one AM) for
approximately $115.5 million in cash; and
o the disposition of 14 radio stations (ten FM and four AM) for
approximately $116.1 million in cash.
Seasonal revenue fluctuations are common in the radio broadcasting and
outdoor advertising industries and are due primarily to fluctuations in
advertising expenditures by local and national advertisers. Advertising
expenditures are typically lower in the first and third calendar quarters and
higher in the second and fourth calendar quarters of each year. The Company's
operating results in any period may be affected by the occurrence of
advertising and promotion expenses that do not produce commensurate revenues in
the period in which the expenditures are made.
CLEAR CHANNEL MERGER
On October 2, 1999, AMFM and Clear Channel agreed to a merger that will
create one of the largest out-of-home media companies reaching local, national
and international consumers through a complementary portfolio of radio
stations, radio broadcast networks, outdoor advertising displays and television
stations and a growing presence in the Internet and media representation
business. If the merger is completed, AMFM stockholders will receive 0.94
shares of Clear Channel common stock, on a fixed exchange basis, for each share
of AMFM common stock held on the record date of the transaction and AMFM will
become a wholly-owned subsidiary of Clear Channel. On April 26, 2000 and April
27, 2000, stockholders of AMFM and Clear Channel approved the merger.
Completion of the Clear Channel merger is subject to the satisfaction or
waiver of numerous conditions including regulatory approval by the Federal
Communications Commission and the U.S. Department of Justice. Pursuant to the
Telecommunications Act of 1996, the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 and other regulatory guidelines, it is expected that, collectively,
Clear Channel and the Company will need to divest between 110 and 115 radio
stations in the aggregate in approximately 37 markets or geographical areas to
obtain antitrust and Federal Communications Commission (the "FCC") approval for
the merger. At March 31, 2000, AMFM and Clear Channel have signed definitive
agreements to sell 110 of these stations for an aggregate cash sales price of
approximately $4.3 billion. Of these stations, 66 are owned and operated by the
Company. Completion of these sales is subject to the completion of the Clear
Channel merger, obtaining regulatory approvals and other closing conditions. In
addition, the Company may need to make further divestitures of radio stations or
other assets or interests in order to gain the approval of the federal and state
antitrust authorities for the merger. The Company expects that the Clear Channel
merger will be completed by September 30, 2000 if all conditions to the merger
are satisfied. The Company cannot give any assurance that the merger will be
completed on the terms agreed to on October 2, 1999 or at all because there are
many conditions to the merger that are not within the Company's control.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 Compared To Three Months Ended March 31, 1999
AMFM Radio Group net revenues for the three months ended March 31, 2000
increased 83.6% to $480.7 million compared to $261.8 million for the three
months ended March 31, 1999. AMFM Radio Group operating expenses for the three
months ended March 31, 2000 increased 81.5% to $279.7 million compared to
$154.1 million for the first quarter of 1999. The increase in net revenues and
operating expenses was primarily attributable to the net impact of the various
acquisitions and dispositions discussed elsewhere herein and overall net
operational improvements, as evidenced by the increase in AMFM Radio Group's
direct operating margin from 41.1% for the three months ended March 31, 1999 to
41.8% for the first quarter of 2000. Additional factors contributing to the
increase included higher revenues from dot-com clients, the positive effects of
the market strategy implemented in many major markets at the end of the third
quarter of 1999 and improved results for stations which were re-programmed with
Jammin' Oldies. On a pro forma basis for all stations owned and operated as of
March 31, 2000, net revenues increased 23.0% during the three months ended
March 31, 2000 compared to the three months ended March 31, 1999 and pro forma
net operating expenses increased 13.6%.
AMFM New Media Group net revenues for the three months ended March 31, 2000
increased 25.4% to $49.8 million compared to $39.7 million for the three months
ended March 31, 1999. AMFM New Media Group operating expenses for the three
months ended March 31, 2000 increased 22.4% to $37.6 million compared to $30.7
million for the first quarter of 1999. This increase in primarily attributable
to Katz, which experienced an increase in net revenues for the three months
ended March 31, 2000 of 17.7% to $46.7 million compared to $39.7 million for
the first quarter of 1999 due to a growth in new business and an overall growth
in both radio and television advertising spending. Additionally, Prophet
Systems, which was acquired in 1999 in conjunction with the Capstar merger and
provides the hardware necessary for the utilization of StarSystem(TM),
generated $3.1 million in revenues during the first quarter of 2000 from the
sale of hardware to third parties.
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<PAGE> 13
The Company's outdoor advertising business was formed on July 31, 1998 with
the acquisition of Martin Media and Martin & MacFarlane, Inc. and also included
the assets of the outdoor advertising division of Whiteco Industries, Inc.,
which was acquired on December 1, 1998. On September 15, 1999, the Company
completed the sale of its outdoor advertising business to Lamar. The Company's
outdoor advertising business had net revenues of $53.6 million and operating
expenses of $28.5 million for the three months ended March 31, 1999.
Depreciation and amortization for the three months ended March 31, 2000
increased 41.8% to $209.6 million compared to $147.7 million for the first
quarter of 1999. The increase is due to the impact of the acquisitions
completed during 1999 and through March 31, 2000.
Corporate general and administrative expenses for the three months ended
March 31, 2000 decreased 14.1% to $15.3 million compared to $17.8 million for
the first quarter of 1999 primarily due to a reduction in personnel.
The non-cash compensation expense of $34.9 million for the three months
ended March 31, 2000 primarily related to amendments made to the stock option
agreements of certain operating personnel terminated upon implementation of the
Company's market strategy.
During the three months ended March 31, 2000, the Company recorded merger
and non-recurring costs of $5.3 million related to severance costs in connection
with the retirement of James E. de Castro, $3.1 million related to the costs to
terminate employees and close certain facilities in connection with the
implementation of the Company's market strategy, $1.7 million related to the
Clear Channel merger, and other costs of $1.1 million including developmental
costs associated with the Galaxy(TM) system, the Company's proprietary traffic
system. The merger and non-recurring costs of $16.3 million for the first
quarter of 1999 million related to the write-off of Petry Media Corporation
transaction costs and executive severance and other costs related to the
executive management realignment.
As a result of the above factors, the Company incurred an operating loss of
$57.7 million for the three months ended March 31, 2000 compared to an
operating loss of $40.1 million for the first quarter of 1999.
Net interest expense for the three months ended March 31, 2000 increased
46.7% to $123.8 million compared to $84.4 million for the same period in 1999.
The net increase was primarily due to (i) additional bank borrowings under the
senior credit facility required to finance the various acquisitions discussed
elsewhere herein offset by cash proceeds of approximately $720.0 million
received upon the sale of the Company's outdoor advertising business to Lamar
on September 15, 1999 and cash proceeds from other various dispositions
discussed elsewhere herein; (ii) additional debt recorded in connection with
the Capstar merger on July 13, 1999; (iii) the exchange of the 12 5/8% Series E
cumulative exchangeable preferred stock of AMFM Operating for 12 5/8% Senior
Subordinated Exchange Debentures due 2006 on November 23, 1999; and (iv) the
exchange of the 12% Senior Exchangeable Preferred Stock of Capstar Partners for
12% Subordinated Exchange Debentures due 2009 effective on January 1, 2000.
The gain on disposition of assets of $22.8 million for the three months
ended March 31, 2000 primarily related to the January 14, 2000 sale of the
capital stock of the Company's Puerto Rico subsidiaries to Spanish Broadcasting
System of Puerto Rico, Inc.
The Company recorded a gain on disposition of representation contracts of
$16.2 million for the three months ended March 31, 2000 and $3.7 million for
the first quarter of 1999 related to its media representation operations. The
gain represents the sales proceeds received from successor representation firms
for the buyout of existing media representation contracts, net of any remaining
deferred costs associated with obtaining the original representation contract.
While the consolidation of the radio broadcasting industry has resulted in an
increase in buyout activity, the impact on future periods cannot be predicted.
The Company recorded an income tax benefit of $9.8 million for the three
months ended March 31, 2000 compared with an income tax benefit of $27.0
million for the three months ended March 31, 1999 primarily due to an increase
in non-deductible amortization for the first quarter of 2000.
During the first quarter of 2000, the Company recorded equity in net loss
of affiliates of $24.6 million related to the Company's investments accounted
for using the equity method.
During the first quarter of 2000, the Company recorded an extraordinary
charge of $6.1 million, net of a tax benefit of $3.3 million, consisting of the
premiums paid in connection with the redemption of AMFM Operating's 9 3/8%
Subordinated Exchange Debentures due 2004.
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<PAGE> 14
The Company recorded a credit on exchange of preferred stock of $3.3
million during the three months ended March 31, 2000 related to the January 1,
2000 exchange of all of the outstanding shares of the Company's 12% Senior
Exchangeable Preferred Stock for 12% Subordinated Exchange Debentures due 2009.
The 12% Subordinated Exchange Debentures due 2009 were revalued at fair market
value upon the exchange, and the $3.3 million is the excess of the carrying
value of the preferred stock over the fair value of the subordinated
debentures.
As a result of the above factors, the Company incurred a net loss
attributable to common stock of $160.1 million for the three months ended March
31, 2000 compared to a $94.0 million net loss attributable to common stock for
the first quarter of 1999.
LIQUIDITY AND CAPITAL RESOURCES
Overview
The Company historically has generated sufficient cash flow from operations
to finance its existing operational requirements and debt service requirements,
and the Company anticipates that this will continue to be the case. Operating
activities provided net cash of $190.7 million and $91.2 million for the three
months ended March 31, 2000 and 1999, respectively. The Company historically
has used the proceeds of bank debt and private and public debt and AMFM equity
offerings, supplemented by cash flow from operations not required to fund
operational requirements and debt service, to fund implementation of the
Company's acquisition strategy.
Capstar Partners is a holding company with no significant assets other than
the capital stock of its direct and indirect subsidiaries. Consequently, its
sole source of cash from which to service indebtedness is through dividends
distributed or other payments made to it by AMFM Operating, Capstar Partners'
principal operating subsidiary. The instruments governing the Company's
indebtedness contain certain covenants that restrict or, in some cases,
prohibit the ability of subsidiaries to pay dividends and make other
distributions. These restrictions are not anticipated to have an impact on the
Company's ability to meet its cash obligations.
Financing Transactions
Effective January 1, 2000, the Company exchanged all of the outstanding
shares of its 12% Senior Exchangeable Preferred Stock for $125.5 million in
aggregate principal amount of its 12% Subordinated Exchange Debentures due
2009.
On January 11, 2000, the Company completed a change of control offer to
purchase all of its outstanding 12 5/8% Senior Subordinated Exchange Debentures
due 2006 at an offer price in cash equal to 101% of the aggregate principal
amount, plus accrued and unpaid interest. The Company repurchased $1.2 million,
or 0.9%, of the aggregate outstanding principal amount of the debentures for an
aggregate repurchase cost of $1.3 million.
On February 1, 2000, the Company repurchased $5.0 million, or 1.8%, of the
aggregate outstanding principal amount of its 12 3/4% Senior Discount Notes due
2009.
On February 15, 2000, the Company completed the redemption of all of its
outstanding 9 3/8% Senior Subordinated Notes due 2004 for an aggregate
repurchase cost of $216.4 million, which included:
o the principal amount of the notes of $200.0 million;
o premiums on the repurchase of the notes of $9.4 million; and
o accrued and unpaid interest on the notes from October 1, 1999 through
February 14, 2000 of $7.0 million.
On April 28, 2000, the Company commenced a tender offer to purchase all of
its outstanding 10 1/2% Senior Subordinated Notes due 2007 at a purchase price
equal to $1,096.50 per $1,000 principal amount tendered, plus accrued and
unpaid interest. The principal balance as of April 30, 2000 was $100.0 million.
Prior to the initiation of the offer, the Company received the irrevocable
consent of the holder of the majority in aggregate principal amount of the
notes to certain amendments which will eliminate most of the restrictive
covenants and certain other provisions of the indenture pursuant to which the
notes were issued.
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<PAGE> 15
Outstanding Debt
Senior Credit Facility. AMFM Operating's senior credit facility includes
commitments for a revolving loan facility of $600.0 million and a term loan
facility of $2.6 billion. The proceeds of such facilities were used to repay
the Company's previously existing senior credit facilities, to repay,
repurchase or redeem other debt and equity securities of the Company and its
subsidiaries and for other general corporate purposes. Both the revolving loan
facility and the term loan facility of AMFM Operating will mature on November
19, 2001. No scheduled amortization of principal is required prior to maturity.
Both the revolving loan facility and the term loan facility of AMFM Operating
bear interest at fluctuating rates based upon the prime rate and the eurodollar
rate. The margin above the applicable prime rate or the eurodollar rate is
determined by reference to AMFM Operating's ratio of consolidated debt to
consolidated earnings before interest, taxes, depreciation and amortization,
provided that such margins are fixed at .50% and 1.50%, respectively, until
delivery of AMFM Operating's financial statements for the fiscal quarter ending
March 31, 2000, and capped at .50% and 1.50%, respectively, thereafter so long
as the Clear Channel merger agreement has not been terminated. The merger of
AMFM and Clear Channel would constitute an event of default under AMFM
Operating's senior credit facility and will require refinancing at the
effective time of the merger. As of April 30, 2000, the total outstanding
principal balance on the senior credit facility was $2.8 billion, including
$0.2 billion under the revolving loan facility and $2.6 billion under the term
loan facility.
AMFM Operating 8% Senior Notes. AMFM Operating's 8% Senior Notes due 2008
are senior unsecured obligations of AMFM Operating and rank equal in right of
payment to the obligations of AMFM Operating under AMFM Operating's senior
credit facility and existing and all other indebtedness of AMFM Operating not
expressly subordinated to the 8% Senior Notes due 2008. However, because the 8%
Senior Notes due 2008 are unsecured, the 8% Senior Notes due 2008 are
effectively subordinated in right of payment to AMFM Operating's senior credit
facility. The 8% Senior Notes due 2008 are fully and unconditionally
guaranteed, on a joint and several basis, by all of AMFM Operating's direct and
indirect wholly owned subsidiaries other than certain inconsequential
subsidiaries (the "Subsidiary Guarantors"). As of April 30, 2000, the
outstanding principal balance was $750.0 million. Interest payment requirements
on the 8% Senior Notes due 2008 are approximately $60.0 million per year.
AMFM Operating Senior Subordinated Notes. AMFM Operating's 8 3/4% Senior
Subordinated Notes due 2007, 10 1/2% Senior Subordinated Notes due 2007, 8 1/8%
Senior Subordinated Notes due 2007, 9 1/4% Senior Subordinated Notes due 2007,
9% Senior Subordinated Notes due 2008 and 12 5/8% Senior Subordinated Exchange
Debentures due 2006 (collectively, the "Subordinated Notes") are unsecured
obligations of AMFM Operating. The Subordinated Notes are subordinated in right
of payment to all existing and any future senior indebtedness of AMFM
Operating. Except for the 9 1/4% Senior Subordinated Notes due 2007, the
Subordinated Notes are fully and unconditionally guaranteed, on a joint and
several basis, by the Subsidiary Guarantors. As of April 30, 2000, the total
outstanding principal balance on the Subordinated Notes was approximately $1.8
billion. Interest payment requirements on the Subordinated Notes are
approximately $165.7 million per year, payable in semi-annual payments.
Capstar Partners 12 3/4% Senior Discount Notes. Capstar Partners' 12 3/4%
Senior Discount Notes due 2009 are senior unsecured obligations of Capstar
Partners and rank equal to all other indebtedness of Capstar Partners not
expressly subordinated to the 12 3/4% Senior Discount Notes due 2009. The
12 3/4% Senior Discount Notes due 2009 are carried at a discount from their
aggregate principal amount at maturity of $273.4 million. The carrying value of
the 12 3/4% Capstar Partners Senior Discount Notes due 2009 will increase
through accretion until February 1, 2002. As of April 30, 2000, the carrying
value was approximately $249.7 million. Beginning on August 1, 2002, Capstar
Partners will pay interest of approximately $17.1 million semi-annually on
February 1 and August 1 of each year until maturity.
Capstar Partners 12% Subordinated Exchange Debentures. Capstar Partners'
12% Senior Subordinated Exchange Debentures due 2009 are unsecured obligations
of Capstar Partners and subordinate in right of payment to Capstar Partners'
12 3/4% Senior Discount Notes due 2009 and any future senior indebtedness of
Capstar Partners. As of April 30, 2000, the aggregate outstanding principal
balance was approximately $125.5 million. Capstar Partners pays interest of
approximately $7.5 million on the debentures semi-annually on January 1 and
July 1 of each year.
AMFM Operating's senior credit facility and the indentures governing AMFM
Operating's 8% Senior Notes due 2008, the Subordinated Notes and Capstar
Partners' 12 3/4% Senior Discount Notes due 2009 and 12% Subordinated Exchange
Debentures due 2009 contain customary restrictive covenants, which, among other
things and with certain exceptions, limit the ability of Capstar Partners and
its subsidiaries, including AMFM Operating, to incur additional indebtedness
and liens in connection therewith, enter into certain transactions with
affiliates, pay dividends, consolidate, merge or effect certain asset sales,
issue additional stock, effect an asset swap and make acquisitions. AMFM
Operating is required under its senior credit facility to maintain specified
financial ratios, including leverage, cash flow and debt service coverage
ratios. As of April 30, 2000, the Company remains in compliance with these
covenants.
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<PAGE> 16
Pending Transactions
On August 30, 1999, the Company entered into an agreement with Cox Radio,
Inc. to acquire KOST-FM and KFI-AM in Los Angeles plus $3.0 million in cash
payable by Cox Radio, Inc. in exchange for 13 of its radio stations, including
WEDR-FM in Miami, WFOX-FM in Atlanta, WEFX-FM, WNLK-AM, WKHL-FM and WSTC-AM in
Stamford/Norwalk, WFYV-FM, WAPE-FM, WBWL-AM, WKQL-FM, WMXQ-FM and WOKV-AM in
Jacksonville and WPLR-FM and the local sales rights of a 14th station, WYBC-FM,
in New Haven. The Company began programming KOST-FM and KFI-AM in Los Angeles
and Cox Radio, Inc. began programming the 13 Company stations under time
brokerage agreements effective October 1, 1999. Although there can be no
assurance, the Company expects that the exchange will be consummated in the
second quarter of 2000.
On January 19, 2000, the Company entered into an agreement to exchange
radio station KSKY-AM in Dallas for radio station KPRZ-FM in Colorado Springs
owned by Bison Media, Inc., plus $7.5 million in cash payable by Bison Media.
Although there can be no assurance, the Company expects to complete the asset
exchange in the second quarter of 2000.
Consummation of each of the transactions discussed above is subject to
various conditions, including approval from the Federal Communications
Commission, in the case of radio broadcast station transactions, and the
expiration or early termination of any waiting period required under the HSR
Act or any approval required by the DOJ pursuant to a consent decree. The
Company believes that such conditions will be satisfied in the ordinary course,
but there can be no assurance that this will be the case.
Principal Liquidity Requirements
The principal liquidity requirements of the Company (in addition to debt
service and tax liabilities) will be for working capital, general corporate
purposes, capital expenditures and pending acquisitions, and as opportunities
arise and subject to the terms of the Clear Channel merger agreement, to
acquire additional radio stations or complementary broadcast-related
businesses. The Company believes that disposition of certain assets and cash
from operating activities, together with available revolving credit borrowings
under its senior credit facility, should be sufficient to permit the Company to
meet its obligations. As of April 30, 2000, the Company had $397.4 million
available under its senior credit facility, subject to financial covenants
contained in the senior credit facility and the indentures that govern the
indebtedness of the Company.
In the future, the Company may require additional financing, either in the
form of additional debt or equity securities. The Company evaluates potential
acquisition opportunities on an ongoing basis and has had, and continues to
have, preliminary discussions concerning the purchase of additional stations
and other assets. The Company expects that in connection with the financing of
future acquisitions, it may consider disposing of stations in its current
markets.
FORWARD-LOOKING STATEMENTS
Certain statements used in the preceding and following discussion and
elsewhere in this Quarterly Report on Form 10-Q are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. These
forward- looking statements about the financial condition, prospects,
operations and business of the Company are generally accompanied by words such
as "believes," "expects," "plans," "anticipates," "intends," "likely,"
"estimates," or similar expressions. These forward-looking statements are
subject to numerous risks, uncertainties and other factors, some of which are
beyond the control of the Company, that could cause actual results to differ
materially from those forecasted or anticipated in such forward-looking
statements.
These risks, uncertainties and other factors include, but are not limited
to: the restrictions imposed on the Company by Clear Channel pending completion
of the Clear Channel merger; the potential negative consequences of the
substantial indebtedness of the Company; the restrictions imposed on the
Company by the agreements governing its debt instruments; the competitive
nature of the radio broadcasting and new media businesses; the potential
adverse effects of the recent volatility of internet related stocks; the
potential adverse effects on station licenses and ownership of regulation of
the radio broadcasting industry; the difficulty of integrating substantial
acquisitions and entering new lines of business; and the control of the Company
by affiliates of Hicks, Muse, Tate & Furst Incorporated and potential conflicts
of interest relating thereto.
Because such forward-looking statements are subject to risks and
uncertainties, readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's view only as of the date
of this Quarterly Report on Form 10-Q. The Company undertakes no obligation to
update such statements or publicly release the result of any revisions to these
forward-looking
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<PAGE> 17
statements which it may make to reflect events or circumstances after the date
of this report or to reflect the occurrence of unanticipated or unforeseen
events.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. This statement establishes accounting and reporting
standards for derivative instruments and hedging activities. SFAS No. 133, as
amended by SFAS No. 137, is effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. Management does not anticipate that this
statement will have a material impact on the Company's consolidated financial
statements.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB No. 25, Accounting for Stock Issued to
Employees. The provisions of this Interpretation will be effective July 1, 2000.
If the Clear Channel merger is completed prior to July 1, 2000, the effective
date of the Interpretation, the Company would be required to record a
significant non-cash charge related to certain amendments to AMFM's stock option
plans that are expected to be implemented prior to the consummation of the
merger. Due to the terms of certain options previously granted, the Company will
record a non-cash charge upon consummation of the merger regardless of the new
Interpretation. The size of such charge is not presently determinable since it
will be based on, among other things, the fair value of AMFM's common stock on
the day of the merger.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK MANAGEMENT
The Company's exposure to market risk associated with changes in interest
rates relates primarily to its debt obligations. The Company manages its
interest rate risk through a combination of fixed and floating rate debt and
swap agreements.
The following table presents descriptions of the financial instruments and
derivative instruments that were held by the Company at March 31, 2000 which
are sensitive to interest rate fluctuation. For the outstanding debt, the table
presents required principal cash flows by maturity date and the related average
interest rate. For the interest rate swaps, the table presents the notional
amounts and expected interest rates that exist by contractual dates, and the
notional amount is used to calculate the contractual payments to be exchanged
under the contract. The variable rates are estimated based on implied forward
rates in the yield curve at the reporting date.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 2001 2002 2003 2004
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Fixed rate debt
(U.S. $) .................. $ -- $ -- $ -- $ -- $ --
Average interest rate ..... -- -- -- -- --
Variable rate debt
(U.S. $) .................. $ -- $2,802,500 $ -- $ -- $ --
Average interest rate ..... -- 8.48% -- -- --
Interest rate swaps (variable
to fixed):
Notional amount ........... $ 300,000 $ 400,000 $ -- $ -- $ --
Unrecorded gain -- -- -- -- -- --
fair value ...............
Average pay rate .......... 5.89% 5.17% -- -- --
Average receive rate ...... 6.30% 6.99% -- -- --
<CAPTION>
THEREAFTER TOTAL FAIR VALUE
------------ ------------ -----------
<S> <C> <C> <C>
Fixed rate debt
(U.S. $) .................. $ 2,980,888 $ 2,980,888 $ 2,967,785
Average interest rate ..... 8.82% 8.82%
Variable rate debt
(U.S. $) .................. $ -- $ 2,802,500 $ 2,802,500
Average interest rate ..... -- 8.48%
Interest rate swaps (variable
to fixed):
Notional amount ........... $ -- $ 700,000
Unrecorded gain -- -- --
fair value ............... $ 9,734
Average pay rate .......... -- 5.48%
Average receive rate ...... -- 6.70%
</TABLE>
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 24, 1998, in connection with Capstar Broadcasting's then pending
acquisition of Triathlon Broadcasting Company, Capstar Broadcasting was
notified of an action filed on behalf of all holders of depository shares of
Triathlon against Triathlon, Triathlon's directors, and Capstar Broadcasting.
The action was filed in the Court of Chancery of the State of Delaware (Civil
Action
17
<PAGE> 18
No. 16560) in and for New Castle County, Delaware by Herbert Behrens. The
complaint alleges that Triathlon and its directors breached their fiduciary
duties to the class of depository stockholders by agreeing to a transaction
with Capstar Broadcasting that allegedly favored the class A common
stockholders at the expense of the depository stockholders. Capstar
Broadcasting is accused of knowingly aiding and abetting the breaches of
fiduciary duties allegedly committed by the other defendants. The complaint
sought to have the action certified as a class action and sought to enjoin the
Triathlon acquisition, or in the alternative, sought monetary damages in an
unspecified amount. On February 12, 1999, the parties signed a memorandum of
understanding that provided for the settlement of the lawsuit. The amount of
the settlement will equal $0.11 in additional consideration for each depositary
share owned by any class member at the effective time of the Triathlon
acquisition. At the time of the acquisition, there were approximately 5.8
million depositary shares outstanding. Capstar Broadcasting also agreed not to
oppose plaintiff's counsel's application for attorney fees and expenses in the
aggregate amount of approximately $0.2 million. The proposed settlement is
contingent upon confirmatory discovery by the plaintiff, execution of a
definitive settlement agreement, and court approval. On November 19, 1999,
Capstar Broadcasting merged into Chancellor Mezzanine Holdings Corporation and
the surviving corporation was renamed AMFM Holdings Inc.
In September 1998, a stockholder class action complaint was filed in the
Delaware Court of Chancery by a stockholder purporting to act individually and
on behalf of all other persons, other than defendants, who own securities of
AMFM and are similarly situated. The defendants named in the case are AMFM,
Hicks Muse, Thomas O. Hicks, Jeffrey A. Marcus, James E. de Castro, Eric C.
Neuman, Lawrence D. Stuart, Jr., Steven Dinetz, Thomas J. Hodson, Perry Lewis,
John H. Massey and Vernon E. Jordan, Jr. The plaintiff alleges breach of
fiduciary duties, gross mismanagement, gross negligence or recklessness, and
other matters relating to the defendants' actions in connection with the
Capstar merger. The plaintiff sought to certify the complaint as a class
action, enjoin consummation of the Capstar merger, order defendants to account
to plaintiff and other alleged class members for damages, and award attorneys'
fees and other costs. The Company believes that the lawsuit is without merit
and intends to vigorously defend the action.
On April 11, 2000 an action was commenced in New York Supreme Court, New
York County, by Interep National Radio Sales, Inc. seeking $47.1 million in
damages from Clear Channel Communications, Inc. Also named as a defendant is
Katz Communications, Inc., an indirect wholly-owned subsidiary of the Company.
The complaint alleges, among other things, that Clear Channel wrongfully
terminated a February 3, 1996 agreement between Clear Channel and Interep under
which Interep agreed to act as Clear Channel's exclusive advertising
representative by procuring advertising time on Clear Channel's radio stations
and also under which Interep, Clear Channel and Katz executed certain "triparty
agreements" in which Interep agreed to buy out the existing representation
agreement of Clear Channel's then current representative, Katz, for $23.0
million. The complaint also alleges that Interep's representation agreement, by
its terms, could not be terminated by Clear Channel until February 1, 2005 and
that Clear Channel's November 30, 1999 termination of Interep constituted a
breach of the representation agreement. The complaint alleges further that
Clear Channel and Katz continue to demand that Interep make all buy out
payments to Katz as set forth in the various triparty agreements. $5.2 million
of the requested damages correspond to buyouts in excess of the pro rata amount
attributable to the time Interep had the right to represent the bought out
stations and $0.3 million of the requested damages correspond to a refund of a
portion of a "signing bonus" paid by Interep to Clear Channel upon the
execution of Interep's representation agreement. The complaint does not specify
the basis for the remaining damages sought by Interep.
The Company is also involved in various other claims and lawsuits which are
generally incidental to its business. The Company is also vigorously contesting
all of these matters and believes that the ultimate resolution of these matters
and those mentioned above will not have a material adverse effect on its
consolidated financial position, results of operations or cash flows.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
4.7.8(1) -- Seventh Supplemental Indenture, dated as of
January 18, 2000, to the Indenture, dated as of
February 14, 1996, governing the 9 3/8% Senior
Subordinated Notes due 2004 of AMFM Operating
Inc.
4.8.6(1) -- Fifth Supplemental Indenture, dated as of January
18, 2000, to the Indenture, dated as of June 24,
1997, governing the 8 3/4% Senior Subordinated
Notes due 2007 of AMFM Operating Inc.
18
<PAGE> 19
4.9.5(1) -- Fifth Supplemental Indenture, dated as of January
18, 2000, to the Indenture, dated as of October
28, 1997, governing the 10 1/2% Senior
Subordinated Notes due 2007 of AMFM Operating
Inc.
4.10.4(1) -- Third Supplemental Indenture, dated as of January
18, 2000, to the Indenture, dated as of December
22, 1997, governing the 8 1/8% Senior
Subordinated Notes due 2007 of AMFM Operating
Inc.
4.11.4(1) -- Third Supplemental Indenture, dated as of January
18, 2000, to the Indenture, dated as of September
30, 1998, governing the 9% Senior Subordinated
Notes due 2008 of AMFM Operating Inc.
4.12.4(1) -- Third Supplemental Indenture, dated as of January
18, 2000, to the Indenture, dated as of November
17, 1998, governing the 8% Senior Subordinated
Notes due 2008 of AMFM Operating Inc.
10.4.2(2) -- First Amendment to Chancellor Holdings Corp. 1994
Director Stock Option Plan.
10.5.2(2) -- First Amendment to 1995 Stock Option Plan for
executive officers and key employees of Evergreen
Media Corporation.
10.6.2(2) -- First Amendment to Chancellor Broadcasting
Company 1996 Stock Award Plan.
10.7.2(2) -- First Amendment to Amended and Restated
Chancellor Media Corporation Stock Option Plan
for Non-Employee Directors.
10.7.3(2) -- Second Amendment to Amended and Restated
Chancellor Media Corporation Stock Option Plan
for Non-Employee Directors.
10.8.3(2) -- Second Amendment to Capstar Broadcasting
Corporation 1998 Stock Option Plan.
10.9.2(2) -- First Amendment to Chancellor Media Corporation
1998 Stock Option Plan.
10.9.3(2) -- Second Amendment to Chancellor Media Corporation
1998 Stock Option Plan.
10.10.3(2) -- Second Amendment to AMFM Inc. 1999 Stock Option
Plan.
10.12.3(1) -- Separation Agreement, dated as of February 16,
2000, among AMFM Inc., AMFM Operating Inc. and
James E. de Castro.
27.1* -- Financial Data Schedule of Capstar Broadcasting
Partners, Inc.
- ------------
* Filed herewith.
(1) Incorporated by reference to Exhibits to AMFM Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1999.
(2) Incorporated by reference to Exhibits to AMFM Inc.'s Quarterly Report
on Form 10-Q for the quarter ended March 31, 2000.
(b) Reports on Form 8-K
1. Current Report on Form 8-K (Items 5 and 7), dated January 1, 2000 and
filed January 4, 2000, announcing the exchange of the 12% Senior Exchangeable
Preferred Stock for 12% Subordinated Exchange Debentures due 2009.
19
<PAGE> 20
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CAPSTAR BROADCASTING PARTNERS, INC.
By: /s/ W. SCHUYLER HANSEN
-----------------------------------
W. Schuyler Hansen
Senior Vice President and
Chief Accounting Officer
Date: May 11, 2000
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
--- ----------------------
<S> <C> <C>
4.7.8(1) -- Seventh Supplemental Indenture, dated as of January 18,
2000, to the Indenture, dated as of February 14, 1996,
governing the 9 3/8% Senior Subordinated Notes due 2004
of AMFM Operating Inc.
4.8.6(1) -- Fifth Supplemental Indenture, dated as of January 18,
2000, to the Indenture, dated as of June 24, 1997,
governing the 8 3/4% Senior Subordinated Notes due 2007
of AMFM Operating Inc.
4.9.5(1) -- Fifth Supplemental Indenture, dated as of January 18,
2000, to the Indenture, dated as of October 28, 1997,
governing the 10 1/2% Senior Subordinated Notes due 2007
of AMFM Operating Inc.
4.10.4(1) -- Third Supplemental Indenture, dated as of January 18,
2000, to the Indenture, dated as of December 22, 1997,
governing the 8 1/8% Senior Subordinated Notes due 2007
of AMFM Operating Inc.
4.11.4(1) -- Third Supplemental Indenture, dated as of January 18,
2000, to the Indenture, dated as of September 30, 1998,
governing the 9% Senior Subordinated Notes due 2008 of
AMFM Operating Inc.
4.12.4(1) -- Third Supplemental Indenture, dated as of January 18,
2000, to the Indenture, dated as of November 17, 1998,
governing the 8% Senior Subordinated Notes due 2008 of
AMFM Operating Inc.
10.4.2(2) -- First Amendment to Chancellor Holdings Corp. 1994
Director Stock Option Plan.
10.5.2(2) -- First Amendment to 1995 Stock Option Plan for executive
officers and key employees of Evergreen Media
Corporation.
10.6.2(2) -- First Amendment to Chancellor Broadcasting Company 1996
Stock Award Plan.
10.7.2(2) -- First Amendment to Amended and Restated Chancellor
Media Corporation Stock Option Plan for Non-Employee
Directors.
10.7.3(2) -- Second Amendment to Amended and Restated Chancellor
Media Corporation Stock Option Plan for Non-Employee
Directors.
10.8.3(2) -- Second Amendment to Capstar Broadcasting Corporation
1998 Stock Option Plan.
10.9.2(2) -- First Amendment to Chancellor Media Corporation 1998
Stock Option Plan.
10.9.3(2) -- Second Amendment to Chancellor Media Corporation 1998
Stock Option Plan.
10.10.3(2) -- Second Amendment to AMFM Inc. 1999 Stock Option Plan.
10.12.3(1) -- Separation Agreement, dated as of February 16, 2000,
among AMFM Inc., AMFM Operating Inc. and James E. de
Castro.
27.1* -- Financial Data Schedule of Capstar Broadcasting
Partners, Inc.
</TABLE>
- ------------
* Filed herewith.
(1) Incorporated by reference to Exhibits to AMFM Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1999.
(2) Incorporated by reference to Exhibits to AMFM Inc.'s Quarterly Report
on Form 10-Q for the quarter ended March 31, 2000.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 3/31/00
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001026516
<NAME> CAPSTAR BROADCASTING PARTNERS, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 28,494
<SECURITIES> 0
<RECEIVABLES> 482,765
<ALLOWANCES> 27,385
<INVENTORY> 0
<CURRENT-ASSETS> 546,048
<PP&E> 562,372
<DEPRECIATION> 103,151
<TOTAL-ASSETS> 12,421,347
<CURRENT-LIABILITIES> 310,476
<BONDS> 5,783,388
0
0
<COMMON> 1
<OTHER-SE> 4,605,894
<TOTAL-LIABILITY-AND-EQUITY> 12,421,347
<SALES> 521,270
<TOTAL-REVENUES> 521,270
<CGS> 0
<TOTAL-COSTS> 308,088
<OTHER-EXPENSES> 270,863
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 123,780
<INCOME-PRETAX> (142,425)
<INCOME-TAX> (9,773)
<INCOME-CONTINUING> (157,283)
<DISCONTINUED> 0
<EXTRAORDINARY> 6,094
<CHANGES> 0
<NET-INCOME> (160,067)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
